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2017 | MATW | MATW
#Thank you, Tony.
Good morning.
I'm Steve <UNK>, Chief Financial Officer of Matthews.
Also on the call this morning is Joe <UNK>, our company's President and CEO.
Today's conference call has been scheduled for 1 hour and will be available for replay later this morning.
To access the replay, dial 1 (320) 365-3844 and enter the access code 421642.
The replay will be available until 11:59:00 p.
m.
, May 12, 2017.
We have posted on our website, which is www.matw.com, the second quarter earnings release and financial information we will discuss this morning.
The earnings release can be found on our homepage.
For the quarterly financial data, on the top of our homepage, under the Investor tab, click on Investor News, then click on Financial Reports to access the information under the section Matthews International Quarterly Reports.
Before beginning the discussion, at the advice of legal counsel, I have been advised to read the following disclaimer as it pertains to forward-looking statements.
Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks and uncertainties that may cause the company's actual results in future periods to be materially different from management's expectations.
Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct.
Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-K and other periodic filings with the SE<UNK>
To begin the conference, I'll review the financial results for the quarter.
Joe will then provide general comments on our operations.
Following that, we will open the discussion for questions.
For the quarter ended March 31, 2017, the company reported earnings of $0.46 per share compared to $0.43 per share a year ago.
On a non-GAAP adjusted basis, earnings per share for the fiscal 2017 second quarter were $0.84 compared to $0.75 a year ago, representing an increase of 12%.
The significant factors in the year-over-year improvement in earnings per share included the impact of higher sales of Memorialization products, including cemetery memorial, caskets and cremation equipment.
Sales growth in our U.K. and Asia Pacific brand markets, continued synergy realization from the SGK and Aurora acquisitions, and the benefits of ongoing productivity initiatives.
For the 6 months ended March 31, 2017, the company reported earnings of $0.74 per share compared to $0.57 per share a year ago.
On a non-GAAP adjusted basis, year-to-date earnings per share at March 31, 2017, were $1.45 per share compared to $1.35 per share a year ago.
The significant factors in the year-to-date improvement in earnings per share included an increase in sales of cemetery memorials and cremation equipment, higher sales in our U.K. and Asia Pacific brand markets, continued synergy realization from the SGK and Aurora acquisitions, the benefits of ongoing productivity initiatives and, with respect to GAAP earnings per share, a reduction in acquisition integration costs.
Year-to-date earnings also reflected a significant increase in stock compensation expense.
As we noted last quarter, as several members of our management reached retirement eligible status, the accounting rules require accelerated expense recognition of awards versus an amortization over the stipulated vesting period.
This change had an unfavorable impact of $0.07 on the fiscal 2017 first quarter compared to a year ago.
Excluding this impact, our year-to-date non-GAAP earnings per share increased 12.6%.
Consolidated adjusted EBITDA for the quarter ended March 31, 2017, was $58.3 million compared to $56.1 million a year ago, representing an increase of $2.2 million.
Consolidated adjusted EBITDA for the 6 months ended March 31, 2017, was $109 million compared to $103.1 million a year ago, representing an increase of $5.9 million.
A reconciliation of non-GAAP earnings per share and adjusted EBITDA were provided in our press release yesterday, which has been posted to our website.
A significant portion of the non-GAAP adjustments continues to include costs and other charges in connection with the integrations of the acquisitions of SGK and Aurora, including our ERP integration and implementation.
In addition, acquisition-related costs included charges incurred related to our recent acquisitions, including assets step-up expense.
Acquisitions completed during the fiscal 2017 second quarter, included A+ E Ungricht GmbH, Equator and BCG Group in our SGK Brand Solutions segment and RAF Technology in our Industrial Technologies segment.
Consolidated sales for the quarter ended March 31, 2017, were $380.9 million compared to $367.2 million a year ago, representing an increase of $13.7 million.
The improvement reflected an increase in sales of Memorialization products, including cemetery memorials, caskets and cremation equipment; higher sales of marking products for the Industrial Technologies segment and the benefit of recent acquisitions.
In addition, SGK Brand Solutions sales in the U.K. and Asia Pacific markets were higher for the recent quarter.
Changes in foreign currency exchange rates had an unfavorable impact of $5.6 million on the company's current quarter consolidated sales compared to a year ago.
The company's consolidated sales for the 6 months ended March 31, 2017, were $729.9 million compared to $721.4 million a year ago.
The growth in year-to-date consolidated sales resulted primarily from an increase in sales of cemetery memorial products, higher sales in the U.K. and Asia Pacific brand markets, an increase in merchandising sales and the benefit of recent acquisitions.
Changes in foreign currency exchange rates had an unfavorable impact of $10.8 million on the company's current year-to-date consolidated sales compared to a year ago.
Sales for the SGK Brand Solutions segment were $190.1 million for the current quarter compared to $184.4 million for the same quarter a year ago, representing an increase of $5.7 million.
The segment reported sales growth in U.K. and Asia Pacific markets and an increase in merchandising sales in the U.S. These increases were partially offset by lower brand sales in North America and Europe due to continued slow market conditions.
Currency exchange rate changes had an unfavorable impact of $5.1 million on the segment's sales for the quarter compared to a year ago.
Sales for the SGK Brand Solutions segment for the first 6 months of fiscal 2017 were $365.9 million compared to $362.7 million a year ago, representing an increase of $3.2 million.
Currency exchange rate changes had an unfavorable impact of $9.9 million on the segment sales for the current 6-month period compared to a year ago.
The SGK Brand Solutions segment reported operating profit of $4.4 million for the current quarter compared to $5.5 million for the same quarter a year ago.
Charges related primarily to the acquisitions and acquisition integrating activity were $6.9 million for the current quarter compared to $7.6 million last year.
Unfavorable changes in product mix and currency rates were the primary factors in the year-over-year reduction in operating profit for the quarter.
These changes were partially offset by the realization of acquisition synergies and other cost reductions.
For the 6 months ended March 31, 2017, the SGK Brand Solutions segment reported operating profit of $8.6 million compared to $8.3 million a year ago.
Charges related primarily to the acquisitions, including asset step-up expense and acquisition integration activity were $13.1 million for the current year compared to $14.9 million last year.
Memorialization segment sales for the fiscal 2017 second quarter were $162.1 million compared to $157.4 million for the same quarter a year ago.
The segment reported higher sales volumes of cemetery memorial products, caskets and cremation equipment in the current quarter.
For the 6 months ended March 31, 2017, Memorialization segment sales were $307.7 million compared to $305 million a year ago.
The segment reported higher sales of cemetery memorial products and cremation equipment, which were partially offset by lower casket sales, reflecting an estimated decline in U.S. casketed deaths during the 6-month period.
Operating profit for the Memorialization segment for the fiscal 2017 second quarter was $22.9 million compared to $19.5 million for the same quarter a year ago.
The increase reflected the impact of higher sales and the benefits of acquisition synergies and ongoing productivity initiatives.
In addition, charges primarily in connection with the Aurora acquisition integration and ERP integration and implementation were $2.6 million for the current quarter compared to $685,000 last year.
Operating profit for the Memorialization segment for the 6 months ended March 31, 2017, was $37.3 million compared to $27.2 million a year ago.
Charges primarily in connection with the Aurora acquisition integration and ERP integration and implementation were $4.7 million for the current year compared to $7.9 million last year.
The prior year also included the impact of inventory step-up expense.
The Industrial Technologies segment reported sales of $28.7 million for the quarter ended March 31, 2017, compared to $25.4 million for the same quarter last year.
The current quarter reflected higher sales of marketing products and the benefit of recent acquisitions, offset partially by lower sales of fulfillment systems.
For the 6 months ended March 31, 2017, the Industrial Technologies segment reported sales of $56.3 million compared to $53.7 million last year.
The Industrial Technologies segment reported an operating loss of $471,000 for the current quarter compared to operating profit of $1.5 million for the same quarter last year.
For the first 6 months of the current fiscal year, the segment reported operating profit of $35,000 compared to $3.1 million last year.
The benefit of higher sales for the current year were offset by the impact of an unfavorable change in product mix and higher product development cost.
Product mix was impacted by the delay of a significant fulfillment project originally scheduled for the fiscal 2017 second quarter.
In addition, the segment incurred acquisition-related charges of $142,000 and $444,000, respectively, for the current quarter and 6-month periods.
Consolidated adjusted EBITDA as a percent of sales was $15.3 million for the fiscal 2017 and fiscal 2016 second quarters.
Consolidated adjusted EBITDA as a percent of sales was 14.9% for the first 6 months of fiscal 2017 compared to 14.3% last year.
The year-to-date adjusted EBITDA margin improvement primarily reflected the impact of acquisition synergies and other cost reduction initiatives.
A summary of operating results by segment, including non-GAAP adjustments for the quarter and 6-month periods are posted on our website for your reference.
Gross margin for the quarter ended March 31, 2017, was 36.3% of sales compared to 37.5% a year ago, primarily reflecting the impact of acquisition asset step-up expense for the current quarter.
Gross margin for the 6 months ended March 31, 2017, was relatively consistent at 36.4% of sales compared to 36.6% a year ago.
Selling and administrative expense for the current quarter was 29.3% of sales compared to 30.3% for the same quarter last year.
Year-to-date, selling and administrative expense for fiscal 2017 was 30.1% of sales compared to 31.3% last year.
The decline primarily resulted from synergy realization and a reduction in acquisition integration costs.
Investment income for fiscal 2017 second quarter was $780,000 compared to $235,000 a year ago.
Investment income for the first 6 months of fiscal 2017 was $1.1 million compared to $936,000 a year ago.
The year-over-year change represents investment performance on assets held in trust for certain of the company's benefit plans.
Interest expense for the current quarter was $6.6 million compared to $6 million for the same quarter last year.
Interest expense for the 6 months ended March 31, 2017, was $12.8 million compared to $11.9 million last year.
The increase resulted primarily from higher average interest rates this year and additional borrowings, as a result of the recent acquisitions.
Other deductions net for the fiscal 2017 second quarter were $153,000 compared to $192,000 a year ago.
For the 6 months ended March 31, 2017, other deductions net were $708,000 compared to $1.1 million a year ago.
Other income and deductions generally include, among other items, banking-related fees and the impact of currency gains or losses on certain intercompany debt.
The company's effective income tax rate for the 6 months ended March 31, 2017, was 28.9% of pretax income.
This rate reflects certain favorable tax benefits and utilization of certain tax attributes specific to the current year.
The effective tax rate was 30.5% for the fiscal year ended September 30, 2016.
At March 31, 2017, the company's consolidated cash was $43.6 million compared to $55.7 million at September 30, 2016.
The decrease primarily resulted from cash used for the company's recent acquisitions.
Accounts receivable at the end of the current quarter approximated $303 million compared to $295 million at September 30, 2016.
Consolidated inventories at March 31, 2017, were $175 million compared to $162 million at September 30, 2016.
Long-term debt at the end of the current quarter, including the current portion, approximated $947 million compared to $873 million at September 30, 2016.
The increase primarily resulted from additional borrowings for the company's recent acquisitions.
Outstanding borrowings on the company's domestic credit facility at March 31, 2017, were approximately $885 million.
Total borrowing capacity on this facility was increased to $1.15 billion in fiscal 2016, $250 million of which was in the form of an amortizing term loan.
The facility has a maturity date in April 2021.
Additionally, as we previously disclosed, we received a claim in September 2014 seeking to draw upon a letter of credit issued by company of GBP 8.6 million with respect to a performance guarantee on a project for a customer in Saudi Arabia.
We assessed the customer's claim to be without merit and accordingly initiated an action with the court.
Pursuant to this action, a court order was issued in January 2015 requiring that, upon receipt by the customer, these funds were to be remitted by the customer to the court pending resolution of the dispute between the parties.
As a result, the company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer.
The customer did not remit the funds to the court as ordered.
On June 14, 2006, (sic) [2016] the court ruled completely in favor of Matthews following a trial on the merits.
However, as the customer has not yet honored this court order and remitted the funds, it is possible the resolution of this matter could have an unfavorable impact on our results of operations.
The company had approximately 32.2 million shares outstanding at March 31, 2017.
Year-to-date, the company has purchased a 135,147 shares under its share repurchase program at a cost of $9.2 million.
At March 31, 2017, approximately 1.9 million shares remained under the current share repurchase authorization.
Depreciation and amortization expense for the current quarter was $17.1 million compared to $16.4 million a year ago.
Year-to-date, depreciation and amortization expense was $32.3 million for the current year compared to $32.2 million a year ago.
Capital expenditures for the quarter ended March 31, 2017, were $8.2 million compared to $9.8 million a year ago.
For the 6 months ended March 31, 2017, capital expenditures were $13.3 million compared to $23.9 million a year ago.
Finally, the board, last week, declared a dividend of $0.17 per share on the company's common stock.
The dividend is payable May 15, 2017, to stockholders of record May 1, 2017.
This concludes the financial review, and Joe will now comment on our operations.
Thank you, Steve.
Good morning.
Our second quarter was another good quarter for our businesses.
Strong performance from our Memorialization segment, where each of our businesses delivered revenue and operating profit improvement, good synergy capture in funeral home products and continued revenue improvement from SGK in the U.K. and Asia and our merchandising division, helped offset slowness in other parts of our business.
During the quarter, we continued to deliver strong synergy capture and improved our cost structure in many of our businesses, further positioning us to meet our expectations.
Our automations business struggled to deliver expectations, largely due to the delivery ---+ deferral of a large project that we had anticipated would add to the quarter and the segment.
But the other portion of the businesses contributed nicely to offset that challenge.
Regarding our 2 acquisitions, we are approaching the end of our initiatives on SGK, and we expect integration expense to be substantially complete in the next quarter or 2.
Aurora, on the other hand, is expected to continue to incur integration cost through early 2018.
Both integrations continue to go well, on track, both in terms of integration costs and synergies.
And we expect the remaining synergies to be in the range of $15 million to $20 million.
With regard to our brand business, we're in the process of implementing our final phase of the ERP solution, which continues to go well and is expected to deliver the remaining piece of our synergy estimates.
Our North American business is finally starting to see some ordering of new labeling requirement projects but packaging innovation has been light, and marketing dollars remain constrained by zero-based budgeting focus in our clients, which has dampened our North American revenues.
We expect this trend to challenge our traditional packaging business in the near term, as our clients look for ways to meet changing consumer demand, but should be mitigated by the labeling requirement going forward.
Moreover, we continue to expand our product and service offerings by adding marketing communications, design adaptation and Internet marketing solutions to the SGK portfolio, where you already have seen growth in some of our markets.
Also during the quarter, we acquired several small businesses, each of which should have a positive upside to our business.
Although, each is small relative to our overall business, we expect these acquisitions to be very positive to our overall strategies in the longer term.
As we look at our businesses, we continue to see strong cash flow performance, with depreciation and amortization exceeding our capital expenditures by almost $20 million on a year-to-date basis.
Similarly, our EBITDA margins in each of our segments on a pre-corporate allocation basis continue to be in the mid- to high-teens or better, showing the strength of our operating performance throughout the businesses.
We believe we see a path to continually improve those margins and advance our businesses, as our ERP implementation is completed.
As mentioned above, our Industrial Technologies business had a difficult quarter but saw strong equipment and ink sales reflecting the innovation and product developments with the pass of this business.
The overall performance of the group, as discussed above was challenged by $7.5 million project in our automation division, which is deferred and $1.6 million of R&D spending for a new product, which we continue to have great promise.
The new development remains on track both in terms of timing and total investment, which we expect to be around $7 million this year.
We expect to have the new product in the market by 2018 and should see ---+ begin to see the benefits of that in early '18 and '19.
Looking at the balance of 2017, we remain confident in our ability to achieve our goals and deliver our non-GAAP EPS in line with our expectations.
We remain cautious, however, given the uncertainty around death rates, which have been choppy of late and continued sluggishness in North America and European brand markets.
Nonetheless, we remain pleased with the direction of all of our businesses as the investments ---+ and the investments that we have made.
With that, let's open it up to questions.
Sure.
We also have the environmental businesses, which are cremation equipment principally, and that had a very strong quarter as well.
So we are seeing better backlog ordering in that business and continue to see strength in both North America and elsewhere in the world.
When it comes to the Memorialization business on the Cemetery Products side, we had good revenue on that business, largely driven by some COP, which are Certified Ownership Programs on pre-need basis on some of our larger accounts, as well on the funeral home side, we saw ---+ as you heard we mentioned some choppiness in the death rates, we saw a very, very strong month of March and slower months in January and February.
So there's still some choppiness in there.
I would tell you that the relative growth in the 2 businesses is about the same.
Some price and some organic, but at the end of the day, we were ---+ we are real pleased with the direction on that business.
For this quarter, just because of the ---+ our purchasing patterns and the fact that we've ---+ we were bought out to some degree really didn't have a significant impact this quarter.
Joe, when you're looking at expense ---+ synergy expense realization on the SGK side of the business, I know you have an objective for 2017.
Looking at the first half of the year, how much has been realized.
Are we looking at something that's more backend loaded.
For the year alone, we probably realized on a year-over-year basis somewhere around $5 million left in the first half of the year relative to the prior year, another $5 million or so coming out of the balance of the year on a year-over-year basis.
We don't have a lot left in that tank, as it relates to synergies to be driven from SGK.
We are pretty much in line with what we had expected coming out, I would say, by the end of '18 we will realize everything, <UNK>.
Okay, great.
And just quickly staying with SGK.
The ---+ there have been articles discussing the CPGs revenues are down about 3.5% in the first quarter.
How much different ---+ I mean, obviously, when you're managing the business, you got the fair labeling marketing act coming to help partially offset that.
But do you have to manage business any different than you first anticipated.
Absolutely.
We have ---+ there was a recent article in the paper that talked about the impact of certain CPGs.
I mean, for better or worse, we do work with all of those, those are our clients.
And we're seeing revenues challenge in each one of them, nothing that we have done, just less marketing dollars and innovation being spent.
As a result of that, what has traditionally been a more reprographic service function.
You saw us pull a couple of small acquisitions, one of which we are very, very positive about, that would take us further into the adaptive art.
Meaning, going upstream not to the initial creation to the package as much, but further into the adaptive creation.
And more importantly, going into the private label sector specially, as it relates to retailers specifically.
So we're managing to move the business in other directions, all in the digital content management side.
But at the end of the day, we're going to have to expand our product and services to continue ---+ services to continue to grow that business.
I mean, I can give you a perspective.
One of our recent acquisitions, a little company by the name of Equator, which has been a great add, is a business that principally work through private label for retailers around the world.
Names that you'd be recognizing as you walk down the streets very clearly, here and in Europe.
All the services that they performed for those retailers will require FDA labeling in North America.
So as it relates to that business, sometime over the next 18 months, we expect that business to do substantially better than it already has prior to the acquisition.
I would tell you, FDA labeling requirements, right now, are expected to be implemented by end of July of 2018, unless we see some deferrals on that, there is lot of work yet to come.
We probably do about 15% to 20% of our business at least in the food business in North America.
So we would expect to see volumes start to grow, as we go forward in the next 18 months or so.
Couple that though, we're seeing less new packaging innovation in general, as those retailers ---+ excuse me, as those CPGs start looking for ways to address changing consumer demand and reformulating product, repackaging product will be something that I think will come back to this business over time.
But as we go through this turbulent time of addressing consumer demand, we're going to see little bit of challenges on the marketing side.
We're real comfortable with the space in which we operate.
I mean, the automation side, the fulfillment side of the business where we had the challenge from a revenue standpoint, really focuses on e-commerce, which all of us would agree, is where we need to be focusing on, as we move into that side of the business.
Unfortunately, those projects are bigger.
And in this case, $7.5 million project on a business that might do $30 million to $40 million worth of revenue on an annual basis will impact it in any given quarter.
Our backlog today would tell us that, that particular project is not going to hit until latter part of the fourth, maybe into the first quarter of '18, they pushed it out.
But nevertheless, we continue to sell.
We're ---+ I would tell you relative to prior year, we are tight, but we expect that team ---+ and will continue to move forward, a couple of nice little additions to the business will continue to grow its offerings.
So we're comfortable that we're in the right space and that we'll meet our year pretty close to it next year in that business.
<UNK>, are you there.
So we are feeling the impact particularly on the steel side.
As ---+ I mean, as you might expect, as we've grown our Funeral Home Products business, we sell a lot more steel than we do bronze.
And steel has grown significantly and it's flowing through our P&Ls at this point in time.
So the results you are seeing are being impacted by that.
We've been successful in both reducing our costs and trying to pass through those costs to our customers and got a little extra volume as well.
So that's a positive.
On the Memorialization side, we've mentioned in the past that we were going after and recovering some of the past customers we had lost in our cemetery products side.
And we're seeing the benefit of that.
We're seeing a more aggressive stance from some of our larger accounts, as they focus more on pre-need sales.
Those pre-need sales ultimately end up in early order of markers for us.
And frankly, our stone business, as we told you in the past, albeit small at this point in time, it has significantly improved year-over-year on the year-to-date basis, and we think that continues to be an opportunity for us to grow.
We don't call that out separately out of cemetery products, but we're seeing good, good performance in all of those segments, and environment as well.
What we're seeing, <UNK>, a decade ago, when I took over as the CEO, copper was about $0.75 to $0.80 a pound.
Today, almost $3.80 ---+ $3 ---+ $2.80 to $3.
What you saw in the early part of that decade was rapid increases in copper price.
We're not seeing that kind of rapid increase.
Secondly, and therefore, we are not having to pass that kind of pricing through to try to recover.
Secondly, I would tell you that business has done a great job becoming far more efficient in the delivery of product and services.
We're having to respond in different way than we did in the past.
And it's a different business today than it was in the past.
Regarding growth, it's a different world than 10 years ago.
Cremation rates are substantially higher than they were back then.
I would tell you that we continue to hold firm on our customer base, and we'll see whether or not our response, which is to add the stone part of the business is able to offset any kind of fluctuation either way.
So far that business has been a nice add for us, despite some early challenges.
We generally raise our prices, unlike in the past where we've learned our lesson by alienating few customers earlier on.
We go out with price increases once a year, generally around the beginning of either the fiscal or the calendar year.
So what you're seeing right now is the impact of both the commodity increases and the benefit of this ---+ of the price increases that we made in the early part of the year.
We're pretty much all on the same platform at this point in time.
I mean, the markets have got a little tighter in terms of suppliers.
There's plenty of capacity in the marketplace.
But price competition is always going to be a factor, but I would tell you it's not as aggressive as it might have been 10 years ago.
All right.
Tony, thank you.
We would like to thank everyone for participating in our call this morning.
And we look forward to our third quarter earnings release and conference call in July.
Thank you, and have a great day.
| 2017_MATW |
2016 | MMS | MMS
#Greetings and welcome to the MAXIMUS fiscal 2016 second quarter conference call.
(Operator Instructions).
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, <UNK> <UNK>, Senior Vice President of Investor Relations for MAXIMUS.
Thank you, Ms.
<UNK>.
You may begin.
Good morning and thank you for joining us.
With me today is <UNK> <UNK>, CEO; <UNK> <UNK>, President; and <UNK> <UNK>, CFO.
I would like to remind everyone that a number of statements being made today will be forward-looking in nature.
Please remember that such things are only predictions and actual events and results may differ materially as a result of risks we face, including those discussed in Exhibit 99.1 of our SEC filings.
We encourage you to review the summary of these risks in our most recent 10-K filed with the SEC.
The Company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances.
Today's presentation may contain non-GAAP financial information.
Management uses this information in its internal analysis of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results, and providing meaningful period-to-period comparisons.
For a reconciliation of the non-GAAP measures presented in this document, please see the Company's most recent quarterly earnings press release.
With that, I will hand the call over to <UNK>.
Thanks, <UNK>.
This morning MAXIMUS reported financial results for the second quarter of fiscal year 2016.
Results in the quarter reflected study progress on our programs and startup, as well as solid organic growth.
For the second quarter of fiscal year 2016, total Company revenue grew 26% to $606.5 million compared to the same period last year.
This was comprised of organic revenue growth of 13%, which was driven by the health services segment; acquired revenue growth of 15%; and total Company revenue was unfavorably impacted by approximately $10.6 million, or 2%, from the effects of foreign currency translation as compared to the second quarter of fiscal year 2015.
Operating margin for the second quarter was 12.8% compared to 12.9% in the prior year.
Operating margin in the second quarter of fiscal year 2016 benefited from out-of-period revenue and pretax income of approximately $6.6 million from modifications to the UK health assessment advisory service contract, or HAAS.
For the second quarter of fiscal year 2016, net income attributable to MAXIMUS was $48.8 million and diluted earnings share totaled $0.74.
This includes approximately $0.08 of diluted earnings per share from the aforementioned modifications on the HAAS contract.
Now, I will speak to segment results, starting with health services.
Health services segment revenue increased 22%.
Nearly all growth in the segment was organic.
Revenue growth was driven principally by the UK HAAS contract, and to a lesser extent, new work and expansion on existing contracts in the US.
This was offset by unfavorable foreign currency translation of 2%.
So that on a constant currency basis, revenue growth would have been 24%.
We completed the Ascend acquisition in the second quarter, which accounts for less than 1% of revenue growth.
Let me focus my health segment commentary today on our HAAS contract, where we have completed several contract modifications.
Some of the HAAS modifications were normal course cleanup items that can be required at the end of a contract year, and in this case, contract year one, which ended on February 29.
These modifications included changes to certain performance benchmarks specified in the contract.
The contract was modified to put a greater emphasis on carrying out face-to-face assessments at a reduced level.
This will achieve DWP's services goals, while at the same time achieving greater value for money overall.
The financial impact from the HAAS contract modifications had an immediate pickup of $6.6 million of out of period revenue in income that was recognizing in the second quarter of fiscal year 2016.
These modifications are expected to lower our future revenue run rates in contract years two and three.
As you may recall, the contract years straddle our fiscal year, and as a result, we now expect revenue from the HAAS contract to contribute approximately $225 million in fiscal 2016.
This compares to our original November guidance of revenue from the HAAS contract in the range of $230 million to $280 million for fiscal year 2016.
While our revenue expectations are lower, we have made tremendous operational progress and we believe that we have achieved a stabilized level of operations.
We are confident that this program will be profitable for fiscal year 2016, with an estimated margin in a mid-single digits for the full fiscal year.
We believe that this contract will yield operating income margins in our typical range of 10% to 15% in future years.
<UNK> will provide a brief update on the ongoing operations of this contract.
Let me speak now to the US federal services segment.
Second-quarter revenue for the federal segment increased 51% compared to the prior year.
Acquired revenue growth from Acentia was offset by expected organic declines in the legacy MAXIMUS business.
As we mentioned last quarter, this included the expected closure of a customer contact center in Boise, Idaho, where we provided support for the federal marketplace.
Second-quarter operating margin for the federal segment was 10%.
Let me finish the operations discussions with the financial results for the human services segment.
For the second quarter, revenue increased 13% compared to last year, driven principally by the Remploy acquisition.
The segment was unfavorably impacted by a 5% decline from foreign currency translation.
As expected, operating margin in the second quarter was lower compared to the prior year and was 7.8%.
The expected reduction in margin was a result of an ongoing start up of the new jobactive contract in Australia.
We still expect that the new contract will achieve an operating margin in our target range of 10% to 15% sometime in the second half of fiscal year 2016.
However, overall volumes in the new contract have been lower than both the client and vendors anticipated.
This means that while our startup is progressing well, and this is a desirable, contributing contract, the revenue and operating income will not be at the level initially anticipated.
Let me move on to discuss cash flow and balance sheet items.
Days sales outstanding were lower on a sequential basis and were 70 days at March 31.
This is in line with our targeted range of 65 to 80 days.
Subsequent to quarter close, we collected some significant past-due receivables from one state, which was responsible for DSOs of three days at March 31.
During the quarter we completed the acquisition of Ascend, using cash of approximately $39 million.
For the second quarter, cash provided by operating activities totaled $20.5 million with free cash flow of $11.3 million.
For the remainder of the year, we would expect solid net income, improved cash collections, and benefits from the timing of tax and other disbursements to drive an increase in cash from operating activities.
At March 31, we had cash and cash equivalents totaling $60.8 million, with most of our cash held outside of the United States.
We did not repurchase any shares during the second quarter.
At March 31, we had an estimated $139.4 million remaining under our Board authorized program.
We maintained adequate liquidity with our available line of credit, and we continue to have a range of flexibility in our capital deployment plans.
The management team remains focused on the most prudent and sensible uses of cash in support of our longer-term strategic growth plans.
Lastly, guidance.
MAXIMUS operates a portfolio of contracts, which includes a number of programs in startup.
Coming into this fiscal year, we had four sizable programs in the startup phase.
This includes the Department of Education contract, the jobactive contract in Australia, as well as the HAAS and Fit for Work contracts in the UK.
Today, three of the four startups are making steady forward progress.
Fit for Work is the single contract that is underperforming.
The nature of the business is that we will always have puts and takes in the overall model, and some programs will over deliver compared to initial plan, and others may under deliver.
Each quarter, we complete a bottoms-up review.
We consider the effects of currency, startups, rebids and contract mix, risks and opportunities.
This analysis is the basis for our forecasting model and guidance each quarter.
As a result of the overall solid progress on our programs in startup, most notably HAAS, we have modified our fiscal year 2016 guidance.
We are maintaining our revenue guidance, and still expect to be in the range of $2.4 billion to $2.5 billion.
On the bottom line, we are tightening the range for fiscal year 2016.
We are bringing up the lower end from $2.40 to $2.50, so that we are now expecting diluted earnings per share to range between $2.50 and $2.70 for fiscal year 2016.
As a reminder, income and earnings in the second half of fiscal year 2016 are expected to be driven by the steady operational and financial progress of certain programs in startup as they move towards maturity, as well as the contributions from new work.
We still expect the total Company operating margins for fiscal year 2016 will be in the lower end of the 10% to 15% range.
We still expect our tax rate to run between 37% and 39%, but more towards the lower end of that range.
Our cash flow guidance remains unchanged.
We expect strong cash flow generation in the back half of fiscal year 2016 and stable CapEx spending.
We still expect cash provided by operating activities to be in the range of $200 million to $230 million for fiscal year 2016.
We expect free cash flow to range between $130 million and $160 million.
Thanks for your continued interest and now I will turn the call over to <UNK>.
Thank you, <UNK>, and good morning all.
I am pleased with our quarterly results and our ability to narrow our earnings guidance range for fiscal 2016.
We've made meaningful advancements in the first half of fiscal 2016 to shore up and mitigate the risk of certain projects in startup mode.
As always, we remain focused on delivering on our promises and contractual obligations to our government clients.
Our number one goal is solid service delivery in the programs we operate, to ensure that citizens are able to seamlessly access critical government programs and services.
Let's start off with an update on our UK health assessment advisory service contract, also known as HAAS.
As <UNK> mentioned, certain features of the HAAS contract have been modified to better align with the client's programmatic objectives.
At the same time, our current trends confirm that we are on track to hit full productivity by the end of the summer.
This positive contractual change, coupled with the progress we have made in the past several months, provides us with an increased level of confidence that we are on a path to achieve our long-term operational and financial goals.
We've also continued to receive many questions related to specific performance indicators under the HAAS contract.
Unlike last quarter, when we were able to provide a full update due to the timing of the Public Accounts Committee hearing the day prior, we are unable to provide specific statistical updates on a regular basis.
The release of this information is managed through a very formal process by our client, the Department for Work and Pensions.
Qualitatively, what I can say is that we are making meaningful progress on the contract on all key factors.
Our productivity continues to improve as more of our healthcare professionals mature in their roles and others continue to receive accreditation.
This means that we can complete an increasing number of assessments.
Equally as important, we are continuing to see steady improvements in the quality of our assessment reports.
There has also been speculation within the investment community that the HAAS contract was under review for cancellation or significant changes.
I want to dispel that myth today.
We maintain a collaborative working relationship with our client.
To this end, we've had personal assurances from DWP that the Secretary of State has not expressed concern over the continuity of the HAAS contract.
Further, there is no current plan on making substantial changes or terminating the HAAS contract.
Some of the modifications that were made to our contract were done in parallel with a government spending review.
These changes were done to better align contract year two and three volumes to the client's needs and circumstances.
This is commonplace.
As a result, we have lowered our revenue expectations on the contract, and at the same time reduced cost for the client.
Above all, we remain fully committed to the contract and our focus continues to be delivery of high-quality assessment services.
Even with these changes, this contract is a positive contributor today, and when fully mature, will fall within our targeted portfolio range.
Separately, DWP has confirmed with us that the Secretary of State is focused on potential changes to the Fit for Work contract.
This is consistent with information provided in our 8-K filing on April 7.
It is important to put this in context.
The Fit for Work program is not achieving its intended goals, as the volumes simply have not materialized.
As a reminder, this is a voluntary program that is free to businesses and their employees.
The program provides access to occupational health services for those employees who are out sick for more than four weeks, so that a return to work plan can be developed.
The program is not mandated by law and also requires a referral from a general practitioner.
As we disclosed in our last quarterly filing in February, the Fit for Work project is losing money and we are moving forward with changes.
We've been actively working with DWP on a number of fronts as it relates to the Fit for Work project.
At this point in time, it is fair to say that all options are on the table.
Our discussions with the client are ongoing and we are optimistic that we will achieve a solution that is beneficial to both parties.
Moving on to the US health business, just last week the Centers for Medicare and Medicaid Services finalized managed-care regulations and federal standards for the Medicaid and Children's Health Insurance programs.
This is the first update since 2002, and much has changed.
Not only has the Medicaid program grown substantially, but now more than 80% of enrollees are in managed-care plans.
While our teams are still dissecting the 1,400 page release, CMS has clearly outlined its long-term goals.
Our read of the rules is that there will be a continued effort on enhancing support for consumers, including improving healthcare delivery and quality of care, providing greater access to healthcare, and ensuring a modern set of rules that better align with the marketplace and Medicare Advantage plans.
The new rules reinforce the ongoing efforts to modernize and streamline the enrollment process and the continued value of independent choice counseling, both of which are core competencies of MAXIMUS.
Other services that MAXIMUS currently deploys to our customers, such as document processing, data collection and analysis, and customer support centers, can help states meet the administrative and managed-care oversight responsibilities which are also included in the new rules.
As Medicaid programs continue to modernize, states are taking greater leadership in managing provider networks, including quality and access to providers.
They are also evaluating new approaches to delivering long-term care services to the most vulnerable of Medicaid populations.
We have a good success in creating an expanding list of qualifications in both of these growing areas.
Let me start with the provider services.
Here in the US, Medicaid providers must undergo a rigorous credentialing on a state-by-state basis.
Many states are choosing to manage this important process, and MAXIMUS has played an integral role for supporting these efforts.
Our work in provider credentialing started more than a decade ago.
Our portfolio has since grown to include six contracts, along with a healthy pipeline of additional opportunities.
While each of these individual contracts is small, together, they comprise a nice portfolio of strategic contracts built off our core business, demonstrating our land and expand strategy.
The same can be said for our entrance into the long-term services and supports market, also known as LTSS.
Many governments are looking for innovative solutions to best deliver public benefits and services to diverse populations and address demographic challenges.
One of these challenges is supporting the increasingly complex disabled and elderly populations, which includes a rise in the number of elderly people who face functional and cognitive limitations.
The general trend in LTSS has been to ensure that individuals are in the right setting and receiving the right level of support and care.
Most individuals would rather receive care at home or in a community-based setting rather than institutional facilities.
Therefore, providing LTSS has been recently directed to community-based settings.
In response, MAXIMUS provides governments with solutions for their LTSS programs that combine technology, enhanced customer service, and workforce strategies.
We offer states conflict-free, independent assessment and review services to help states connect the right set of services to the right beneficiaries.
The new Medicaid regulations further strengthen the importance of independence in these programs.
We recently broadened our LTSS capabilities through the acquisition of Ascend.
Based in Tennessee, Ascend is one of the largest health assessment providers on behalf of US government agencies and offers conflict-free assessment services to assist them in determining the most appropriate placement in healthcare services for program beneficiaries.
Ascend provides a broad array of services, including preadmission screening and resident review, supports intensity scale, inventory for client and agency planning, utilization reviews, and other specialty and standardized assessments.
While the US LTSS market is largely still in its infancy, we continue to see a growing interest around the world for independent assessments and appeals.
In December 2015, MAXIMUS established another foothold in this emerging market with the acquisition of Assessments Australia.
Assessments Australia delivers assessments as a means to identify what support services may be required in order to make individuals successful in a community environment.
Their client base includes government, nongovernment, and private organizations who are trying to make informed decisions about patients' needs.
This acquisition has been integrated into our human services segment.
I am pleased to share that the acquisition of Assessments Australia has already generated a small but strategic win in the disability services market.
MAXIMUS will be providing information gathering services for the majority of the trial regions across Australia through phone and face-to-face interviews of individuals with disabilities.
By taking a core capability and applying it to different government programs and new populations, MAXIMUS continues to build a strong portfolio and expand the business.
Moving onto our new awards in the pipeline, we had solid awards in the second quarter with year-to-date signed contracts at March 31 of $1.1 billion.
We also had an additional $143 million in new awarded, unsigned contracts.
Our sales pipeline at March 31 was $3.2 billion compared to a pipeline of $2.6 billion for the same period last year.
On a sequential basis, the pipeline is up from $2.8 billion reported in the first quarter of fiscal 2016.
As part of our long-term growth strategy, we monitor a much broader pipeline that lays out our opportunities over the next 3 to 5 years, and that will drive fiscal 2018 and beyond.
In closing, our longer-term outlook remains very positive.
We continue to see favorable trends, as demonstrated by the strength of our pipeline, which contains new opportunities across the segments and in all of our existing geographies.
We will continue to deploy capital in a prudent fashion, and look for strategic acquisitions, like Ascend, which further strengthen our foothold in the emerging global assessments and appeals markets.
Above all, the management team is working hard every day to deliver long-term shareholder value.
So, while it is too soon to speak specifically to fiscal 2017, we remain confident of our continued growth prospects given the favorable macro and demand trends that we see in the market.
With that, let's open it up for questions.
Operator.
I wanted to start out on HAAS and just get a little bit more insight about, first of all, the $0.08.
Was any of that assumed in guidance.
In other words, was that pulled forward from quarters that you are expecting that to benefit, or was that just simply a catch-up from year one.
And then as we think about years two and three, I know talked about a lower revenue trajectory.
Can you be a little bit more specific, perhaps, about what you were thinking.
I guess the revenue came down 10% versus your expectation.
But what was the expected ramp of revenue for next year.
Or is there not really going to be a ramp in revenue now that there are new modifications on the contract.
Okay.
Good morning, <UNK>, and I think you put forth two questions.
One is to give you a little bit of insight in terms of the $0.08 in the quarter relative to HAAS.
And then with the reduced anticipated revenue, what does it mean to fiscal 2017.
I'm going to ask <UNK> <UNK>, our CFO, to field both those questions.
Yes, thank you.
Our revenue projection is approximately $225 million, and our operating income is expected to be in the mid-single digits for fiscal year 2016.
As I mentioned in the prepared comments, we expect this contract to perform in our normal targeted operating range of 10% to 15% in future years.
And the revenue for our fiscal year 2017, we would expect it to be similar to what FY16 is: around $225 million.
I think as <UNK> said, that new target for contract year two creates a straightforward path for us to achieving the targeted volumes in the targeted operating margins.
So, in other words, the new targets reduce the risk that we have and increase the likelihood of us achieving the contract volume targets.
And as we mentioned in the prepared remarks, this provides us with an increased level of confidence that we are on target to make our financial goals on this program.
Congratulations on a good second quarter here.
My question surround Fit for Work, and I have two or three combined into one here.
Can you just give us what the original revenue guidance was for fiscal 2016 on Fit for Work.
And now what are you expecting Fit for Work in your updated guidance.
And then you say all options are on the table.
What do you really mean by that.
Could you agree to terminate this contract.
Just more clarification there.
And then finally on Fit for Work, what is the profit drag so far through the first half of the year.
Okay.
Well, let me take the all options on the table piece first, and then <UNK> <UNK> can pick up in terms of revenue expectations for fiscal 2016 versus ---+ or current versus original, and then the profit drag.
On the all options on the table, I think that the appropriate backdrop is to appreciate that, when we work with our clients, we really strive to develop a partnership.
So, we are very sensitive to their needs, their desired outcomes, social outcomes, and the real drivers behind even the creation of the program.
Oftentimes, that will flow down in terms of the number of expected cases, the volumes, etc.
It is not uncommon to, as these programs ---+ especially those that are more novel in nature, as Fit for Work is ---+ to get to the point where they require some sort of adjustment.
And I will say that, by the way, we do this very, very often with our clients and have adjustments.
Usually it's to the upside.
But in this particular case, given the novel nature of this program, these volumes just have not materialized.
And accordingly, it's appropriate to adjust the program in consultation, in partnership with our client, to the right level.
And we are having active discussions.
From my perspective, I say all options are on the table.
It could be right-sizing.
So we take down the variable cost to be appropriate level to serve the current level.
And it could be a wind down of the program, and it could be a termination of the program.
<UNK>, on the financial aspects.
Sure.
As a result of all of that, we are only forecasting around $5 million of revenue from this contract for fiscal year 2016, which is well below our initial expectations.
At this point, built into our full guidance for fiscal year 2016, we are presently forecasting that we will lose approximately $3 million more than what we had projected when we did our original guidance.
<UNK> <UNK>, CJS Securities.
All right, <UNK>.
I will field the first question and <UNK> <UNK>, our President, is here with us today and <UNK>, as you would imagine, has been immersed in these new Medicaid rules.
<UNK> is going to give us a highlight in terms of what it means ---+ what they are, and what it means to MAXIMUS specifically.
On the HAAS contract, I think I just mentioned the driver behind it, that we work with our client to adjust these programs accordingly.
In the HAAS situation, this really emanated from a client's routine annual evaluation of programs and their budget and their programmatic needs.
I do think there has been, behind the situation, a need for UK to do a spending review on all of its budget.
And they came back and simply said, given ---+ and I think part of it is a reduction in backlog, but we think the volumes won't be quite as high in demand for the program in years two and three.
So, in partnership and negotiation with our client, the volumes were adjusted.
At the end of the day, again, as we work with our clients, I think we ended up with a better risk profile.
The prior volumes were very, very ---+ were very challenging in some regards.
So, with the reduced volumes, I view it as a better risk profile.
We really do have a more stable footing for both the client and MAXIMUS with these revisions.
<UNK>.
Great, thanks, and I might just add one other comment to the HAAS answer.
And that is that we, as part of those discussions and negotiations with the client, if I might, were able to adjust some of the performance benchmarks.
And you think about that program, you asked <UNK>, what are the things that are different now, what are the things that have been improving.
And we've made some adjustments to things like customer call waiting times that are required and call center waiting times.
Those are metrics that, while they are still challenging, we feel they are very much achievable.
So, we are pleased with the improvements that we've seen in productivity as more of our employees have graduated and become accredited.
And we talked probably in prior discussions with you about how, even when you're trading employees, you are pulling other employees off the line to help train and mentor them.
So, consequently, you get the benefit of those folks returning to the line.
So across the board productivity capability improves, quality improves, as <UNK> mentioned.
So, to summarize, as <UNK> said, we feel quite good about the footing that we're on.
Turning now to your question about the Medicaid rules, (laughter) <UNK> is right.
Many of us have been immersed, I think is the right word, in the 1,425 pages that dropped from CMS.
It's still early days and a lot of folks are still really trying to dissect them and understand what the potential impacts are going to be.
And quite honestly, it could be some time before the states themselves digest them and figure out how they're going to operationalize the rules.
We did hold a webinar two days ago, and I was really proud we are kind of first to market in that regard with a very comprehensive webinar held in conjunction with some consultants that we work with from Health Management Associates.
And you are welcome to our website and review the transcript from that and the materials from that webinar.
Our early read is that there are many things in the new rules where MAXIMUS can provide additional support for our state clients.
<UNK> mentioned several in his prepared remarks.
I would lump them largely into four categories.
One is the area of beneficiary support services, and the fact that the rule really does emphasize the importance of choice counseling for beneficiaries, assistance for enrollees, and understanding managed care, and all that be done in a conflict-free and independent fashion.
The second category would be really new standards and requirements for Medicaid long-term services and supports.
And <UNK> spoke to a number of those.
We are encouraged that the concept of beneficiary support services really extends now to the Medicaid long-term services and supports community.
So there's much more of a requirement to ensure that there is a single point of entry, for example, for choice counseling; that there is independence and freedom ---+ or freedom from conflict in that choice counseling process.
Similarly, the very ---+ the process that we've discussed in terms of getting beneficiaries into the appropriate level of care and the work that we now do with our new colleagues from Ascend will become more important in that domain.
The third area is provider credentialing and enrollment.
A greater burden has really fallen on the states to address that, and MAXIMUS is well-positioned to continue to grow on the six states where we do that presently.
And a fourth area probably worth considering is quality measures.
As you are well familiar, quality measures are now going to be an important aspect of plan selection enrollment through that rule.
I would also maybe make one final comment on the rule and that is that it creates a new requirement for the medical loss ratio to be at 85% for Medicaid plans across the states.
And from our point of view, states are already overburdened with a lot of administrative tasks, and they are going to look at ways that they can continue to offload some of that work so their staff can focus on higher level work.
There's an opportunity, as plans look at their MLRs to say, hey, look it, there may be some administrative tasks that are quite common across all plans, like the creation of member handbooks and notices and so forth, that could be shifted back on the state side, centralized, and provided as a shared service.
So I hope that gives you a little bit of color.
We think overall the rule creates a lot of good opportunity for MAXIMUS well into the future.
<UNK> <UNK>, Wells Fargo.
Maybe for <UNK>, I was wondering if you could walk us through some of the assumptions underpinning the new EPS guidance range.
Maybe the volumes and margins for different contracts, whether it is HAAS and jobactive, that would support the low and the high-end of the range.
We don't really call out specific contracts.
We did that one time with respect to HAAS because of the size of the contract, but let me try as follows.
I think it's really important that we focus on the fact that we do have a portfolio of contracts, and that these contracts are really in different stages of maturity and different types of cost structures and contract structures that you have.
There really are many things that drive our guidance and that we put into there when we consider that.
We are making good strides on a lot of the key elements of the portfolio, particularly the startups.
But they are all kinds of different headwinds and tailwinds inside that.
The startups are an important component of our organic growth this year.
I think that as you go forward and you look into future years, I think you would see a better operating income margin than you see this year, because of those startups.
And so, I think when people think about startups, they are really an important component of our organic growth.
They are really advantageous to us, and they are critical in our development of long-term shareholder value.
That is really what allows us to drive, in some years, double-digit organic growth ---+ those startups.
But then what you have in that circumstance, you have revenue that lags the earnings, which is really a normal course kind of event.
So, you tend to see this year being the year that you have revenue ---+ (multiple speakers).
Earnings lag revenue.
I'm sorry, earnings lag revenue.
Did I say that backwards.
Sorry.
Earnings lag revenue; and I think you will see that normalize itself on the back half of the year and as you go into FY17.
Now, obviously the big storyline this year, I mean this quarter, is HAAS.
And that does create a situation where we feel like we've stabilized that contract and we have a better feeling of confidence with respect to FY16 guidance.
And that is why we were able to really manage it ---+ manage the bottom end of our guidance up, and effectively raise the midpoint.
Does that answer your question.
Thank you.
<UNK>, do you have another follow-up.
No, I will hop back in the queue for now.
<UNK> <UNK>, First Analysis.
I was just hoping to get a little bit more color on the issues in Australia in terms of the volumes.
This is <UNK> <UNK>.
Let me give you a little bit more color on that.
One of the things we always look at in situations like this is what the employment rate looks like in Australia.
And I want to begin by saying that our understanding is that most, if not all, vendors that are involved in this contract are experiencing similar volume related challenges.
It's not unusual in a contract like this to see fluctuations from the estimates that were first provided as part of the tender process.
And it is worth noting that the Australian unemployment rate is fairly low.
It is at 5.7% reported this past March, and it has not been that low since 2013.
So, while there are many factors that can ultimately factor into or play into the number of referrals that you get and the volumes that you are seeing ---+ some can be related to public policy, others to obviously broader market trends ---+ it could quite be here that it is simply tied to the rates that were previously assumed at the tender time versus what we are seeing today in terms of the employment environment.
But I do want to note that, as we said, this program is profitable.
It is going to continue to improve in the back half of fiscal 2016 as this contract continues to mature, and we are really focused now on really managing the margins of the contract.
Because they obviously did not turn out to be as robust as we might have initially expected.
But we've got a great team working on it and we expect it to continue to improve this year.
<UNK>, do you have a follow-up.
I do not, <UNK>, thanks.
<UNK> <UNK>, Maxim Group.
I missed the prepared remarks, but I just want to be clear that the HAAS contract was profitable before the unexpected $6.6 million in true-ups.
And based on the questions I heard from some of the analysts, and I just want to be clear.
The $6.6 million of benefits is completely separate from the $0.08 change request that we all had expected, right.
Yes, with respect to the second question first, that $0.08 that we had talked about in the quarter one related to a domestic program that we had.
And it was a change order that we had in our hands, but it was not signed yet.
So it was one that had been negotiated but had not been fully executed with the customer.
The accounting rule's not allowing us to record that revenue until we actually have the signed agreement.
With respect to HAAS, yes, without that $6.6 million, we still had a profit this quarter two in fiscal year 2016.
Did that answer your question.
Yes, thank you.
And then (technical difficulty) question I've got is, if I understand it correctly, the new change order, which places some focus on face-to-face meetings, is going to make it easier for MAXIMUS to achieve your productivity goals and essentially your target profitability for that contract.
Is that right.
Yes, and I don't think it's a fact that it is a shift to face ---+ more emphasis on face-to-face, <UNK>, but really the reduced volumes.
<UNK> <UNK>, Sidoti and Company.
Question one is, what was your previous revenue expectation for the HAAS contract for fiscal 2017.
And then secondly, a bigger picture question, since you mentioned that one of the factors for why the contract is reduced on volumes is the budget.
Just in general, thinking about operating in the UK, do you think that, given some of the budget issues there, that ---+ how that could impact you in some other programs.
<UNK>, why don't you take the first one.
I think the question was what's our previous expectation for revenue on the HAAS contract.
Was it ---+ <UNK>, was that 2017 or 2016.
You said 2017, <UNK>, I will answer 2016.
It was $230 million to $280 million, was what our expectation was for revenue for HAAS for fiscal year 2016.
So, hence, the revised expectation is really at the lower end, being at $225 million.
And we have not provided specific guidance relative to the HAAS contract in fiscal 2017.
The second part of <UNK>'s question I think was, given the decreased volume, really the amendments on this contract and UK situations in general, what is our expectation.
My view is I don't differentiate between the UK and other governments that we serve.
They are, and we've said this to folks, it's really the intersection of these two drivers that sparks our growth, our long-term growth.
And governments are dealing with the fact that they have to serve more people, and more people are looking to their governments for some form of welfare.
And at the same time, they have budgetary pressures that they need to deal with.
In the UK, and I think it's a responsible thing, does go through and analyze each program and toggles or adjusts each program accordingly.
So, in some cases, we see downward adjustments.
In other situations, we see upward adjustments.
I will say from a macro market perspective, we are seeing, in general ---+ and this is in general ---+ but better employment rates, lower employment rates in many of the markets where we serve.
Which, as you can appreciate, that means there is fewer people looking for jobs, and that has an impact on our programs.
On the other hand, what we are seeing is governments shift their emphasis from the classic just long-term unemployed to those with disabilities and other challenging situations.
So, we are seeing the market shift in terms of what they are looking for.
In aggregate, I think it's still a growth situation.
I don't think it's a net reduction in the demand for what we do in that area.
(Operator Instructions).
<UNK> <UNK>, Avondale Partners.
With the new federal regulations mandating competitive bidding for one-stop operators of workforce development centers in the US, are you seeing more RFP activity as a result of that.
And have there been any changes to the competitive landscape.
<UNK>, why don't you field that.
I would say we are beginning to see some changes in the competitive field there, and some additional RFPs coming to market that we haven't historically seen from clients that maybe haven't even historically outsourced this function.
And you would expect the competitive landscape to include a broad composition of not just for-profit vendors, but historically you've seen a lot of the smaller nonprofits and community-based type organizations locally providing services to workforce investment boards, or WIBs, that have been active in those types of programs.
So yes, I would say it is a bit of a shift in the market.
I would not call it a seismic shift at this point.
Okay, that's helpful.
And then (multiple speakers) related to the new work and health program RFP that is out, other than a change in funding, are there any other contract-specific changes that are worth calling out.
I might just provide a context, if that's okay, <UNK>, on work and health.
First of all, as we've been talking about here, the UK's experiencing really historically low unemployment.
So as a result, as <UNK> mentioned, governments are shifting their focus to reducing the employment gap for people with disabilities.
And also focusing on improving productivity and in-work salary progression.
So the work program historically was focused on long-term unemployed individuals.
But that group, interestingly, has decreased by almost 75% since 2011.
So, while there was significantly more money allocated to the work program, none of the participants or vendors in the work program really ever achieved the funding levels that had been previously envisioned due to those decreased caseloads.
So, the government has now shifted and they've created a new, smaller program called Work and Health.
That is expected to absorb both the Work Programme and Work Choice.
And that new program is going to be focused on people with health conditions and disabilities.
And as you probably well know and others, serving individuals with disabilities is a core competency of Remploy, the organization with whom we combined last year.
So we feel like we are very well-positioned for that change.
To give you just a sense of the economics, because I know that would be top of mind for you, combined, the work performed by MAXIMUS and Remploy presently for both programs, Work Programme and Work Choice program, runs at about $80 million to $85 million a year.
But our profitability expectations for both of those programs are pretty low.
In fact, comprising less than $0.05 per share in fiscal 2016.
So any proposed reduction under this new Work and Health contract that we might see in overall funding would likely be a bigger hit to the top line and relatively immaterial to the bottom line.
<UNK>ard, we don't generally give that.
We don't call out specific programs.
I will tell you that $5 million is substantially less than what we had projected for this coming year.
And at a $3 million loss is reasonably worse than what we had expected.
<UNK>ard, glad to do that.
I think this, again ---+ this is ---+ the nature of our business is multiyear.
We are dealing with governments and programs that take several years to go from concept to legislation to program to rule to operation ---+ and to start up, and then to real mature operations.
And I do think the nature of these programs is such that, in some form, regardless of the party that is in play, these programs will continue.
So, when we think about this, we think we have long-term growth drivers.
I've said several times that I think those growth drivers translate into 10% top-line and bottom-line growth potential year in, year out.
There will be, within years, we will see situations where we may dip below a 10% benchmark.
But I think that really will be attributable to the various programs in the various stages.
So, there will be situations, like we are this year, where we have an inordinate amount of startups.
And as <UNK> said earlier, what startups tend to do is the revenue leads and the earnings lag.
And in the following years, you'll see the flip side of the equation.
So, that was really the intent.
We remain very excited about the long-term drivers to the business.
The pipeline remains, I think, handsome.
So we remain optimistic about our future growth prospects.
Next question, please.
I would be glad to do that, and I know <UNK> would be very proud to tag team on the latter part of your question.
As it relates to the pipeline, <UNK>, when I think about the pipeline, I think it's ---+ it has been of late, several quarters running, higher.
And I think we continue that trend with the quarterly statistics.
And, we do [pull] so much of it as in the form of new work versus the form of rebid.
And I think as I might have mentioned on my call notes, a good portion of it happens to be new work.
It is interestingly spread across all of our businesses.
It's not predominantly in any one area or any one segment.
As it relates to the rebid situation, I think this.
I think it's important for folks to remember that 2016 is a light year versus other years from a rebid perspective.
In terms of statistics, where we are today coming into this year, we had, I think as you are aware, 10 contracts with $170 million as it relates to contract value in rebids.
Thus far we have won or extended, I believe, two of those.
And so, basically, we have a significant amount to go.
But again, we feel comfortable with the rebid situation.
And on the options, they continue to come in at ---+ I think effectively in baseball terms, we are batting 1,000% as it relates to options.
So, on the pipeline, I think it's strong and most importantly, a lot of it is new work.
So I think that's good.
On the business development side, you are right that we have historically focused on our pipeline metrics on what we call tier 1 and tier 2.
Those are situations where we think the RFP is going to be on the street within six months.
We had a strategic direction to open our aperture and look beyond that into what we call tier 3.
We have made investments in business development resources and we have honed and will continue to hone our methodology really to look for new, emerging opportunities so we can be out there ahead of the pack with solutions and/or frankly focusing our M&A programs strategically on what we think will be new growth areas for MAXIMUS, either one or two adjacencies away.
<UNK>, anything to add on that one.
I think you've said it perfectly.
The only thing I might say is ---+ and we do this on a global basis.
We have a great integrated business development community that gets together quite frequently, shares an awful lot in terms of capabilities.
And I think that really furthers our broad strategy of ensuring that we can take the full capabilities of MAXIMUS to our clients on a global basis, but deliver those at a local level.
So, that emphasis on tier 3 is really something that cuts across all geographies and all business lines.
And I think that may be behind part of the growth in the pipeline.
Yes.
Well, thank you very much for joining us today.
There are no additional questions in the queue.
We look forward to future conference calls.
Have a good day.
| 2016_MMS |
2016 | PRI | PRI
#Sure.
One of the things I think we do best at Primerica is we have a huge audience and we communicate with them well and have a number of communication channels.
A lot of our cutting edge technology is decked against that.
We've certainly used it to regularly communicate with our sales force overall, but also specifically with senior leadership and groups of top producers.
So, we've got a very robust communication plan that's ongoing, both at the broadcast level, as well as a more targeted level.
We've not only communicated to our representatives, we've asked them for their feedback, their reaction to certain ideas and certain directions, so it's been a very interactive process, which I think has been very effective in making sure that we don't create a distraction.
There is a potential for any change not only to disrupt as you adapt to it, but cause a distraction that bleeds over into other areas of our business.
I think, as you can tell from our production and our results we just talked about, we limited distractions significantly, and we're very focused on growing our business.
Even the headwinds that we see in our ISP business, I believe as we stated, our market viability in Canadian exchange rate and limited effect of the DOL rule at this point.
I think that's because of our exceptional efforts to community clearly and regularly and we have had good response from our sales force in both the communications itself, as well as involving them in the process and in talking to them about the potential changes that could be out on the horizon.
So, I feel that if we're going to do something that's not perfect, we're going to over-communicate rather than under-communicate, and that's the approach that we've taken and it's been well received.
Very good.
That's an annualized rate, correct.
We said 17% to 18%, yeah.
No, because that's actually incorporate in other.
It really is just a function of just the profitability that's emerging on this business.
The level of production, obviously we do have fixed costs, so the more we can produce with our same fixed costs, the better margin and overall performance of the book of business.
Mm-hmm.
Yeah.
Obviously, the whole liability issue under BICE was and continues to be one of the majors concerns.
So, as the rule became final, one of the things we were looking for was to see how that might have changed.
In the final rule you do see things that impact legal liability both directly and indirectly.
I mentioned some, like lessening the disclosure requirements makes it easier to meet the disclosure requirements, therefore lowers the liability.
Some of the warranties were caveated regarding materiality in the final rule.
The final rule allows firms to disclaim punitive damages.
It removed the representative from being a signatory, which is very practical in that representatives change on accounts over the life of accounts, so it's hard to sign a new contract as the reps change, but also that, as a process, I think is moving rep to rep could also increase liability.
So, there are a number of specifics in the rule that we are currently evaluating to try to determine how much change was created in that legal liability.
But, we do believe, overall, it moved in a positive direction.
| 2016_PRI |
2016 | AEO | AEO
#And we'll have time for one more question, please.
I think, in terms of the ticket pricing and AUR increases that we're seeing in Q1, I don't think we're seeing any resistance at this point.
It's really ---+ it's all driven primarily by either innovation, like the Flex shorts in men's, continued roll out of Flex in denim, and far expanded assortment of Denim X in women's shorts.
Other categories like dresses, we have better fabric, better fashion.
The customer is recognizing all of this as a good value for her or for him, and I don't think we're seeing ---+ I don't think it's a headwind, or a challenging the reception to the product.
In terms of promotional cadence, as I said earlier, it is our goal to be less promotional in Q1, than a year previously.
And that's how our plans sit today, and that's how the momentum we're seeing in the business is consistent with that so far.
So I think that we'll be able to do that.
It does seem like from, the mall environment, it does seem like some others are starting to be, or attempting to be a little less promotional as well, which I think it can only be a win for us.
So I feel optimistic, that with the product that we have, with the reception we're seeing so far, and with the already less promotional stance we've taken, that it looks good.
That concludes our call today.
Thanks for your participation and continued ---+ (technical difficulties).
| 2016_AEO |
2016 | SCHL | SCHL
#Thank you so much, Karen, and good morning, everyone.
Before we begin, I would like to point out that the slides for this presentation are available on our investor relations website at investor.
scholastic.com.
I'd also like to note that this presentation contains certain forward-looking statements which are subject to various risks and uncertainties, including the conditions of the children's' book and educational materials markets, and acceptance of the Company's products in those markets, and other risks and factors identified from time to time in the Company's filings with the SEC.
Actual results can differ materially from those currently anticipated.
Our comments today include references to certain non-GAAP financial measures as defined in Regulation G.
The reconciliation of these non-GAAP financial measures with the relevant GAAP financial information, and other information required by Regulation G, is provided in the Company's earnings release, which is also posted on the investor relations website at investor.
Now I'd like to introduce <UNK> <UNK>, the Chairman, CEO, and President of Scholastic, to begin today's presentation.
Good morning, and welcome to our FY16 year-end call.
Last year at this time, just after we had sold our Educational Technology Business to HMH, we shared our plans to focus on our significant growth opportunities in children's book publishing and distribution and the education segment, where our magazines and our comprehension literacy solutions business was growing dynamically.
Our fiscal year results demonstrate the success of the strategy, with revenue growth at 2% to $1.67 billion, or 5% when excluding foreign exchange; double-digit operating income growth and earnings from continued operations of $1.26 per share, or $1.70, after one-time items, which exceeded our guidance of approximately $1.35 per share.
With our focus on just three segments ---+ children's' book publishing and distribution; education; and, we are a nimbler company with teams who are deeply connected by the mission of providing high-quality book and educational materials in support of children's reading and learning, and our opportunities continue to expand.
In children's book publishing, we saw 14% growth in trade revenues from the renewed strength of Harry Potter, as well a solid performance from our core front list and backlist titles.
We expect another year of double-digit growth in 2017, largely driven by the upcoming Harry Potter releases, as well as new multi-platform series such as Horizon, with the story arc and first book written by Scott Westerfeld; Dav Pilkey's new series Dog Man; and Raina Telgemeier's Ghost.
We are expanding our list in strong niches, such as early childhood, global licenses, and continued series publishing, and we've entered into a multi-year agreement with American Girl, giving us the rights to publish books based on their characters starting in January 2017.
In book clubs and book fairs, we expect to maintain our current levels of revenue while focusing on more profitable execution.
We are intensifying a strategy to more precisely match our promotion and operational resources to each school's, size, interest, and ability to conduct book clubs and book fairs.
Through more targeted marketing and carefully managing the number and type of fairs held, we can ensure that we are optimizing our resources by providing the right reading experience to each school.
In the education segment, annual revenue growth of 8% was a standout in an educational materials market that was down 4% in the last 12 months.
This growth was driven by our comprehensive literacy solutions program in grades pre-K to 8.
Schools are telling us they are interested in customized solutions matched to their own student learning needs, and prefer to use outstanding literature as a core instructional resource, as an alternative to basal reader textbooks.
We are gaining market share by providing customized curriculum, including guided reading and leveled book rooms, and associated consulting services and professional learning and family community engagement.
In addition, our classroom magazines continue to deliver strong growth, and there are now over 15 million subscribers to our 32 print and digital magazines.
In the international segment, we're continuing our strategy to grow local currency consumer book sales in Asia while building trading education revenues around the world through shared global product development and marketing strategies.
Although the strength of the US dollar reduced FY16 international revenues and profits in dollar terms, we saw trade growth in most countries, along with across-the-board strength in clubs, fairs, trade and education in India.
We expect increased trade sales in Australia, Canada, Asia, and the UK this year, while we're expanding our education product sales, especially in Asia.
We are also continuing to explore opportunities to provide meaningful returns to shareholders over time, balanced with our long-term operating needs and our other strategic investments.
In FY16, we paid $20.5 million in dividends and repurchased $14.4 million of our shares in the open market since resuming our buyback program at the end of the third quarter.
We will continue to review opportunities to return capital to shareholders.
Looking ahead to FY17, we expect our strategy to streamline our businesses and focus on core growth opportunities to deliver another year of strong results, with total revenue of $1.7 billion to $1.8 billion, and earnings per share in the range of $1.60 to $1.70, excluding one-time items.
As we begin the new fiscal year, we're implementing a wage improvement program for our employees in our US distribution centers, both to attract, retain, motivate, and support our employees and to strengthen our operations and drive higher levels of productivity.
This program will increase wages by approximately $10 million to $15 million on an annualized basis.
We're also continuing to develop our technology systems and operations functions to help provide our business units with better information systems and processes to serve our US and international customers even more efficiently and at lower cost.
With the expected long-term benefits from these investments and our people and our platforms; the continued synergies from the close alignment of our businesses and intensified strategies for improving clubs and fairs; the continued development of our education segment; and our new Harry Potter publishing, make us excited about our prospects for continuing growth as we deliver on our mission to support literacy and learning in school and at home.
With that, I will ask Maureen O'Connell, CFO and CAO, to review our year-end results and FY17 outlook in more detail.
Thank you, <UNK>, and good morning everyone.
I will refer to fiscal year results from continuing operations, excluding one-time items, in my remarks unless otherwise indicated.
Total fiscal year revenues were $1.67 billion, an increase of 2% from 2015, due to higher children's book publishing and distribution and education sales, but partially offset by the impact of foreign currency in our international segment.
The adverse FX impact on revenues was $43.2 million for the year.
Operating income was $93.4 million, a 17% increase over last year, and earnings per diluted share increased over last year by 32%, to $1.70.
Turning now to segment results, in Children's Book Publishing and Distribution, annual revenue was $1 billion, an increase of 5%, and operating income increased by 20% to $115.8 million.
Performance was driven in part by double-digit increase in trade sales.
In our book club channels, we improved margins and revenue per sponsor, with a particularly good spring performance.
In education, annual revenue was $298.1 million, an increase of 8% over FY15, and operating income increased by 16% to $56 million.
We're seeing continued strength in classroom books and classroom magazines, and we increased investment in our sales force to capitalize on favorable trends and our strong positioning to continue to grow market share.
And international revenues was $372.2 million compared to $401.2 million in 2015.
And operating income fell $14 million, primarily due to high US dollar product costs; the labor action in Ontario schools earlier in the year; higher bad debt in Asia; and an insurance recovery for a warehouse fire in India in the prior year, as well as the impact of foreign exchange.
Fiscal year corporate overhead was $90.7 million, approximately even with $91.3 million in the prior year.
Incremental facility costs and our multi-year strategic technology investments were offset by our cost savings initiative.
We recently completed a comprehensive Company-wide review of our overhead and operating cost.
The cost actions we are taking will offset the loss of fees associated with the TSA with HMH.
The expected savings for FY17 are included in our outlook.
We are scheduled to terminate our transitional service agreement with HMH on August 1, 2016.
Our strategic technology investments remain on track and will continue through 2018.
These investments in e-commerce, CRM, content management, and consolidating platforms are expected to bring widespread benefits, including better customer information and improving product inventory and content management.
We expect to be able to better target our markets, improve processes, and lower cost.
Turning now to our real estate strategy.
Our plans to upgrade the office component of our Soho location are on track.
We have begun construction to create premium retail space on the first two floors of 555 and 557 Broadway building in Soho, and upgrade the office space in the rest of the building.
This will enable us to maximize rental income and minimize our use of outside office space by having almost all our New York employees in one building.
As we vacate floors to remodel, we expect to have a non-cash impairment charge of $20 million over a three-year period for legacy leasehold and other building improvements, approximately $7.5 million in FY16 and another $12 million in FY18.
These non-cash charges are not included in guidance.
We're currently in discussion with several premium retailers in order to take full advantage of our opportunities for our retail space.
Our expectations for cumulative incremental retail rents over a 10-year period remain unchanged, but we now expect these increases to be more heavily weighted towards the latter part of the period.
In FY16, we had free cash use of $139.7 million, compared to free cash flow of $73.7 million in FY15.
Our 2016 results include approximately $200 million in tax and other payments related to Ed Tech sale in 2015.
Excluding the tax payment, free cash flow in FY16 was $46.3 million, exceeding our outlook because certain planned investments to support our frontlist were deferred until FY17.
At year-end, cash and cash equivalents exceeded total debt by $393.4 million, compared to $500.8 million a year ago.
Again, the lower net cash position is primarily due to the taxes paid on the sale of Ed Tech business.
Note that our reported net cash position does not include $9.9 million of cash proceeds remaining in escrow pursuant to the terms of the Ed Tech sale.
Now turning to outlook.
We expect total revenues in FY17 of $1.7 billion to $1.8 billion.
In Children's Book Publishing and Distribution, we anticipate substantial growth in trade as a result of the summer's release of Harry Potter and the Cursed Child Parts One and Two, and from our new licensed publishing program for the Fantastic Beasts and Where to Find Them movie and its sequel, including movie handbooks; coloring and creative books; cinematic guides; papercraft, poster, and sticker books, as well as other highly anticipated new release.
We expect to maintain our current level of revenue in our school-based clubs and fairs, while focusing on more profitable execution.
In the Education segment, we expect revenue growth to be led by classroom books and classroom magazines, which will benefit from new product introductions, such as Storyworks Junior and the sale of our 2016 Presidential Elections Skills workbooks.
In the International segment, we re planning for growth in Trade Publishing and Education, and we expect significant local currency gains across Asia.
In Australia, we see a strong market in trade, and the UK's book fair division is expected to benefit from last year's acquisition of a complementary fair business.
We also expect that Canada, which was adversely impacted by an Ontario labor action in schools in early FY16, should benefit from a stronger start to the school year in its book clubs and book fair businesses, as well as sales of the new Harry Potter publishing in the fiscal year.
We are implementing new global shared services and procurement programs that we expect to generate profit and process enhancements across the International group in future years.
There are a number of initiatives underway to reduce exposure and create greater operating efficiencies in Asia.
A recent opportunity to introduce direct debit as a payment option to our direct sales customers in Malaysia has resulted in improvements in customer qualification and lower bad debt, as well as lowering our cost of operations and shortening our cash collections cycle over the life of each transaction.
Taking these factors into account, earnings per diluted share is expected to be in the range of $1.60 to $1.70, excluding one-time items.
We expect increased operating profits from trade to be offset by three factors.
First is the $10 million to $15 million annualized impact of an employee wage improvement program in our US distribution centers, as <UNK> already discussed.
Second, we are projecting increases in medical cost.
Finally, we expect an increase in income tax, as we return to our typical tax rate of 42%, following the tax settlement last year, which had a $0.15 positive impact on EPS in FY16.
FY17 free cash flow is expected be between $40 million and $50 million.
This includes capital expenditures of $70 million to $80 million, and pre-publication and production spending of $30 million to $40 million.
As anticipated, the increase in capital spending is primarily related to our headquarters construction plan, as well as higher strategic technology spend, as part of our three-year initiative to upgrade our enterprise-wide platforms for content and customer management, and to migrate to SAS and cloud-based technology solutions.
In summary, as <UNK> said, we expect another strong year, driven by new publishing in the Harry Potter franchise; our book clubs and book fairs; channels where we are focused on improving profitability; and our customized education solutions, including classroom book collections and classroom magazines.
I will now turn the call over to <UNK> to moderate a question-and-answer session.
Karen, we are now ready to open the line for questions.
As you see, our capital expenditure is expected be between $70 million and $80 million this year.
We believe that will be for a two-year period as we remodel and construct our office building and retail space.
You should expect that level for FY17 and FY18.
And then go back to normalized levels after that.
Yes, pre-pub is in line with our ongoing rate of the spend.
Let me start off with that, <UNK>, this is <UNK>.
The margin has not changed.
In terms of print runs and so forth, I'm going to ask <UNK> <UNK>, President of Trade, to answer those questions.
Hi.
Our initial lay down for Cursed Child, North America, is going to be roughly $4.5 million.
We are working very closely with our accounts.
We had a very short production schedule, so we're very excited to be delivering those books to them right now.
And our rights are North American at this point, <UNK>.
Before they were just US, now we have US and Canada for the new publishing.
Well, it is generally about 10% of the US market.
Thank you.
We still expect the same cumulative rental increase that we talked about on previous calls.
However, as we are talking to these premium retailers, it depends on what type of configuration they want, and how expensive their capital changes are going to be.
That's why we said it we feel it will be more back-end loaded.
We had initially thought we would start to see that incremental rent in FY17 or FY18, and now we think it will be a little bit later than that, but we won't know for sure until we sign those leases, and we narrow down to the premium retailer that we will rent to.
No.
There are multiple versions of configurations.
It depends on whether you have one very large retailer that wants a lot of space, or some smaller retailers, and we are talking to both types.
Once we've signed a lease, we can be more specific, the exact amount of rent increase and when it will occur.
But we are very confident that the numbers that we said, an incremental $10 million a year over 10 years is still going to be realized on a cumulative basis.
That's going to depend on who we sign a lease with, and what construction they want, and what they're going to do to the space.
It could be smaller retailers who have multiple spaces, or it could be one large retailer.
We're talking to both types of tenants.
We're very excited about 2017; it's off to a good start.
We're delighted for your support.
And we'll hope to have good news for you in September.
All best.
Thank you.
| 2016_SCHL |
2016 | R | R
#Thank you.
Sure.
It's about $1.50 now.
And I'm thinking about the high end of the range is about $1.50.
It's a little bit more weighted now towards used-vehicle sales.
So, as you know, used-vehicle sales in the forecast I mentioned got worse than from our previous forecast.
And we also took a little bit extra gas in terms of less volume in Q3.
Yes, I think that's really a positive part of the story.
The good work that <UNK> and his team did in the first half of the year, and really rapidly rightsizing that fleet to get utilization levels really back up to the levels that we like to see, and back up over 76%.
So I think as you look at the margin impact of a dropping demand, we probably saw the worst of it in Q2 where really we still had too many units in the fleet during the middle of that quarter and we had lost the revenue.
Now, we have rightsized the fleet so basically the pull through ---+ the negative pull through has been minimized.
It's going to be at that least rental margin percentage somewhere in the 30% plus level where you're going to get negative pull through in the lost revenue.
That should catch the tail sometime in the middle of next year.
We start to see then some year-over-year improvements.
All right.
Thank you, <UNK>.
Good morning, <UNK>.
Yes, I'll give you an example.
Bonus would actually fall into the bucket that we call compensation, so compensation is going to be less of a headwind than what we had originally expected, because we're paying out less bonus.
Well, no, our guidance had been around $200 million, so really ---+
Original.
We started the year at $100 million, we upped it last quarter to $200 million, and we're sticking with that.
So we are in that range of cash CapEx of around $1.9 billion for the full year is what's embedded in that guidance.
And the other thing is, remember, we spent $90 million this year on rental and that's done at the beginning of the year.
So you get that headwind in the first half of the year in terms of free cash flow and now you're in the second half is when you generate more.
Some of that is just normal seasonality I would say.
Okay.
Thanks, <UNK>.
Yes.
I can't pin down an exact number until we have the range and the earnings guidance.
We'll probably end up still above the target range, above the 8,000.
It's just a matter of we don't want to get too far above it.
So we ended up ---+ if you really looked at comparable numbers, we ended the quarter ---+ the third quarter, at 9,000 units.
That was down 100 units from the second quarter.
So what we're going to do is probably be in that range, maybe a little bit lower.
It all ---+ depending on how much we are able to or decide to wholesale.
So what we're trying to do is make sure we don't get too far above where we're at right now.
We want to stay within striking distance of that 8,000, and that's really the game plan as we go into Q4.
Again, unless the market changes and we have an opportunity to do more.
Yes, we expect that higher level of units being prepared for sale to continue for several quarters because, we're really not in a hurry to go out and get these units out to the UTC.
We've got plenty of units to sell.
So I don't see that as necessarily the fourth quarter, they will probably bleed in over the next several quarters.
But, to your earlier point on the opportunity to bring the inventory down, we're in agreement with that, the issue just becomes what's the trade-off of price versus volume.
And there's times when no matter how much lower, you're not going to get the volume.
So what we've been doing is just trying to keep that balance.
And if we see an opportunity and we see that the market is there, you going to see us try to move more units and get into that range.
It's just we're trying to be prudent about what that opportunity might be at this point.
Yes, we're at 37 months, which is versus last year was three months ---+
Last year one month down.
<UNK>, this is <UNK>.
Versus last year that's one month improvement, and sequentially it's flat.
Correct.
Thanks, <UNK>.
It's generally going to be around what you saw in the third quarter, so it's low 35% range, in that same area.
That's typical for us for the second half of the year.
Hey, <UNK>, it's <UNK>.
There's really no change.
It's just reflective of what's happening with used trucks.
FX is impacting us, it's been impacting us the whole year.
About 1% of revenue this quarter and 1% of earnings.
So we expect that to continue here over the balance of the year.
Okay, thanks, everyone.
Thanks for taking the time to be on the call and thanks for your interest in Ryder.
I'm sure we'll be seeing you over the next several months as we get out to some conferences and road shows.
Thanks, everyone, have a great day.
| 2016_R |
2015 | HST | HST
#I'm sorry, I didn't hear ---+ what type of portfolio.
Oh, select service.
I would say that we ---+ to your first point we certainly recognize that on larger transactions, because of our scale and because of our access to capital, that we have an ability to buy those and maybe in an environment where it is a little less competition than what we might see in other properties.
That doesn't mean that we are just going to focus on those opportunities, but it is something we certainly recognize as we look at different acquisitions.
In terms of adding a select service portfolio, I think I would say we would be comfortable in adding select service assets.
There is no reason why you couldn't do or purchase a portfolio of those assets, but that would really be driven far more by where those assets were located and what the growth prospects were for those assets as opposed to making a strategic move into adding select service per se.
Yes, I think the simple way to do this really is that if you look in terms of the midpoint where we talked about a $17.5 million decline, look, just a hair over $5 million of that is attributable to the delta between the EBITDA generated by The Phoenician and the EBITDA that is lost by the asset sales that we consummated already this year.
As you look at the other three sources that we identified for the reasons why the EBITDA declined, it is pretty much an even allocation across those three items.
Yes, I would say that you are right in your assessment that the property is probably at best breaks even during the course of the summer.
And it probably generates about two-thirds ---+ actually probably generates about 75% of its profit during the first five months of the year and about 25% of its profit over the remaining seven months of the year.
We don't have a lot of hotels in those secondary markets necessarily.
So it would be ---+ it would probably be a little bit ---+ we probably don't have a great way to quantify that.
But I think one of the reasons why you have seen the secondary markets in some of the lower price points begin to perform better is because they have ---+ they run at lower occupancies and then they have had ---+ so they have more room to take on groups and things like that.
So I think that is why when you look at what ---+ as broadly across the industry the secondary markets have for about the last 12 months had bigger occupancy gains.
And I think it is in part because of what you identified.
It's certainly helping out Atlanta, for instance, that's right.
I would say that of the markets across the country, New York is one of those ones where you have the least pricing power right now.
I think that is, frankly, part of the problem that we have all been grappling with.
Now, you have got to remember when you look at New York is that the first quarter, you had a very difficult comp that related back to the Super Bowl.
And the first quarter of New York always tends to be the quarter where New York runs at lower occupancy levels compared to its overall stabilized level of occupancy for the year.
So in an environment where you have some increase in new supply, slightly less demand than what we had experienced in the prior year, leaving out the Super Bowl equation, you ended up with a fairly competitive environment even despite the fact that the market runs at a very high overall occupancy level.
We do think that as you work your way into the fourth quarter, that scenario starts to look a little bit more attractive because the market runs at even higher occupancy levels in the fourth quarter than it does the rest of the year.
Having said that, I think we are still finding that it is not easy to push rates, especially for transient business.
Yes.
Robyn, at this point it looks like our group bookings for 2016 are trending up close to 6% from a revenue perspective.
Remember, <UNK>, that number refers to the disruption that we were expecting to see in our non-comparable hotels as opposed to the comparable ones.
So that number is capturing the delta that we are experiencing year over year in say the Ritz Carlson in Phoenix or the Four Seasons in Philadelphia, the Axiom in San Francisco.
Those hotels where they are being closed for part of the year, or in the case of the San Diego Marquis where we eliminated a major chunk of our meeting space in order to build the new ballroom.
I would say that number has trended up just ---+ and that is really part of what we were referring to in our comment about (inaudible) some increased loss in effect because of the severance and weaker operations at the Ritz Carlton and the Four Seasons in the spring.
But the bottom line is Host Hotels was simply that as the hotels were focusing ---+ essentially as the management teams and the employees were focusing more on the closing and what they were going to do next, we overestimated the profits that we thought we would generated during that period.
We have been conservative but it just turned out to be weaker.
The good news is that problem has no impact on what happens at the hotel next year.
Correct.
Obviously increased severance cost this year obviously will not impact next year (inaudible).
<UNK>, I don't have those handy.
The bottom line though is the same trend that we had otherwise been seeing was that we were ---+ our situation in 2016 and in 2017 improved during the course of the second quarter.
<UNK>, I think that is a hard question to answer in the abstract.
And I wouldn't want to leave people with the sense that we think we need to sell a large number of our assets.
We think we have a very strong portfolio at this point and we are very happy with how the bulk of it is performing.
So I think it really comes down to we are going to continue ---+ as you describe, we are going to continue to sell the weaker assets within the portfolio.
And as we continue to do this over the course of really the last number of years, that the quality of what we are selling continues to improve.
But I wouldn't want to start to speculate on what a larger transaction might look like, because I wouldn't want to raise the expectations that something like that was likely.
I think ---+ I mean we ---+ the airline data that we are seeing nationwide is suggesting that travel from Europe is off a bit.
Specific data that we have gotten for our individual hotels in the market has suggested that we have seen weaker travel from Europe over the course of the first half of this year.
Now as you then look at ---+ I would point out that on Europe, a lot of the analysis on Europe says that EU currency countries are down in terms of travel.
The UK where the currency has been stronger and travel from Switzerland, which I think is a much smaller piece of it, has actually been up a bit.
But we have also seen ---+ I think in some of our assets we have seen that the travel from Asia has offset this decline in the EU and in other hotels we have not seen that.
I think that in a lot of cases this has to do with foreign travel bookings that the individual hotels have gone after, it has to do with their group patterns.
So it is tricky to draw broad conclusions.
We have done the best we could to interpret sort of a variety of different data points to give you a sense.
[But] when we look at it overall we feel as if international travel has been off slightly to New York this year.
Yes.
I mean (multiple speakers).
When we look at the first few weeks of July I would say we are roughly in line with what we saw in June.
I wouldn't say we have seen an acceleration but I think we are still comfortably positive.
So hopefully that will continue for this week and through the rest of the summer.
I imagine that the cap rates will stay low, <UNK>, just because there is an inherent attraction to the market.
But I would say that I would ---+ that is one of the things that I think we are going to find out over the course of the fall.
Our intention to move forward in marketing and asset is to get a sense of exactly how strong the market would be.
A lot of the activity that you have seen so far as to more attractive prices has been international buyers.
I think they are going to continue to be attracted to the market because they have perhaps a longer perspective in terms of what is going ---+ about the attractiveness of the New York market and they may have different motivations in terms of the returns that they are trying to achieve with their capital.
So, overall I would expect that ---+ at least when looked at in the context of cap rates ---+ that New York will continue to be one of the more attractively priced markets.
Part of the issue will be what the NOI is that that cap rate is going to be applied to.
I think we are ---+ I would say that we are ---+ we are not looking at one of our two largest assets in terms of a [marking], we are looking at one of our more midsized assets that we think has a more unique story that could be successful ---+ successfully executed in today's market there.
Yes, I wouldn't say that it is a high cap rate on the non-core sales just to make a general point there.
We have been selling ---+ the assets that we've sold when you take into account the asset and any (inaudible) that might be associated with it, which is only I think only significant in the case of one of the sales.
We have been getting very attractive cap rates in the sixes for those deals.
It is what you first surmised which is the bottom line if it is in the desert you make your money in the first part of the year and you don't make as much in the last seven months of the year.
The assets that we sold, if you start to ---+ you think about Boston and some of those other markets, even Chicago tend to be stronger in the summer than the fall, tend to be relatively weak in the winter and in the very early spring.
So we just ended up in a scenario when you look at it for 2015 we ended up buying an asset that's strongest performance is in the period of time before we acquired it.
And in the assets that we are selling, not to the same degree, but to some degree have a stronger second half of the year that the first half, which is why the net delta is negative this year, but on a pro forma basis would be positive.
And certainly we would be expecting when we look out in the context of 2016 we are confident we have added to EBITDA in 2016 by virtue of our actions.
I think it is a little bit of both, <UNK>.
And as I mentioned, we also had some other issues in the quarter whether it was disruption or the flooding that I talked about.
I think when we look out into the second half of the year, certainly Houston looks better than the RevPAR decline that we announced this morning for the second quarter.
But having said that, I think when we look at our second half forecast today for Houston, it is slightly lower than what we were predicting a quarter ago for Houston.
We try to take into account all those factors, the negative factors that you just mentioned.
The group booking pace actually in the third quarter is actually quite weak.
The flipside is that the group booking pace in the fourth quarter in Houston is extremely strong.
And so, we are trying to take into account all of those things including the fact that some of our disruption will behind us in (technical difficulty).
I think the other important thing to keep in mind, <UNK>, is that Houston is really about 2.5% to 3% of our (technical difficulty).
so it is pretty ---+ obviously a pretty light market for us.
I think we are ---+ I would say that we have a disproportionate number of international hotels on the market right now.
And some of that ---+ I would say that part of that's strategic and part of that is also tactical from a standpoint that as we look across the portfolio it applies to different metrics than we use in terms of deciding what assets to sell.
These were assets that sort of moved up on the list as prime candidates for sale.
I would say that in terms of what is happening in Rio and what is happening in Calgary and the fact that they drove the international RevPAR down significantly.
Calgary has just been a challenging room renovation, but long-term it has been a good market for us, short-term it is suffering both from the renovation and some of the same issues that exist in Houston because that is also ---+ that is probably Canada's equivalent of the Houston market.
But certainly as a general asset I wouldn't view that as a distraction.
In the case of the Rio asset, we continue to understand what is happening in that market from capital flows and things like that.
We know we have got a strong year coming next year with the Olympics.
I think if we saw the right opportunity to execute a sale we would be open to that.
But we also want to be thoughtful about capturing good prices there too.
I would say we expect to be a net seller in Europe this year.
We are still ---+ that is a market that we are still interested in acquiring.
So that is we are certainly looking aggressively there.
But I would say looking at our overall level of activity and handicapping that, I would say that we have already sold one asset there, we got very good pricing on that.
And I think we are more likely to be ---+ we will be a net seller in Europe this year more likely than a net buyer.
<UNK>, as it relates ---+ as we talk about those non-comp hotels which is where the bulk of the problem exists this year, the ones that have been closed.
I certainly would be ---+ were certainly based on the initial results we are seeing.
We feel good about how those properties will perform next year.
But having said that would also say that we are in the midst of construction, our management company has been just taken over.
All of those hotels tend to be a little bit more transient than group dominated, I am thinking more specifically of the one in San Francisco as well as both the Phoenix and the Philly assets.
So I don't know that we have a lot of good indicators right now other than our overall underwriting of how those assets should perform in those markets.
We should have better insight into that as we get into the third-quarter call and certainly as we get into next year's first call only from the standpoint that at that point the operators will have been in place, the products will start to be more visible in the market and we will have a better sense of the bookings.
But we are expecting across the board in those hotels to not only recapture the lost EBITDA from this year, but also to be adding meaningfully to EBITDA over the course of 2016 and 2017.
So I am certainly confident that we will recapture most of the ---+ all of the lost EBITDA next year and then the question is how much of that expected growth can we catch in 2016 versus 2017.
Great, well, thank you all for joining us on the call today.
We appreciate the opportunity to discuss our second-quarter results and outlook with you.
We look forward to providing you with more insight in the remainder of 2015 on our third-quarter call in the fall.
Have a great day.
Enjoy the rest of the summer.
Thanks.
| 2015_HST |
2015 | GHL | GHL
#Thanks a lot, Jeff.
Hey, <UNK>.
Yes, because obviously the debt arrives the day after the quarter ended.
Anything would be absolutely trivial, so, no, I wouldn't think about anything.
It's hard, obviously, as activity starts to pick up.
Europe has been fairly quiet for some years now.
Look, there's lots of dialogue going and there's lots of activity we hope will turn into transaction announcements, but you've got to kind of wait and see how it plays out.
We're hopeful but we're not predicting, let's put it that way.
Sure, yes, it's a good question.
I think all firms like ours have to sort of spin their story slightly differently about what kind of deals they tend to work on.
Regardless of what we all say, we all work on very small deals, we all work on very big deals.
What we have noticed and have shown in data in some of the presentations that we've done that posted on our website over time is if you just look at all the announcements that we and others have made over, say, the last couple years, you do find that we are more heavily weighted toward $1 billion or greater transactions, or I think the other threshold I had was $2.5 billion or greater transactions, and that's where we want to be.
It doesn't mean we don't do small deals for important clients that we want to do even more things for, or we don't do small deals that can help build us credentials in a particular sector or region around the world, we love doing those deals.
But, we do want to be weighted toward the bigger deals, call it $1 billion or greater.
I do think those deals are obviously more profitable because it takes roughly the same kind of team to do $1 billion deal as $250 million deal.
And, they obviously add more to the brand because they get more attention, they're better known companies, et cetera, so we do a bit of everything.
But, I'm very pleased that among the sort of boutique firms out there, certainly the public ones, we have a little bit bigger weighting toward $1 billion or greater transactions.
Sure.
We only give that once a year at the end of the year.
I think the tax rate doesn't vary all that much, but we don't want to break it down by every region every single quarter.
It's not that meaningful.
The business is too lumpy for that to be meaningful.
I'm not even sure there's seasonality in M&A to be honest.
No, I don't think there is.
Their deals tend often, for obvious accounting reasons, to sort of close on the last day of a quarter, when the private equity fund can change the ledger that went from owner X to owner Y.
I think it generally happens all year round.
We don't want to quantify that either, but it's a lot.
As I said, they do lots of small things as well as some larger things.
So, it is a more granular kind of business than M&A, where often for any firm, I think a few of the big transactions can really drive the outcome.
That's actually a good question.
We have done a lot of earn-outs.
Obviously we did one in Australia.
I've advised companies many times over the years on earn-outs.
My theory on earn-outs is you want to set it high enough that the people you're bringing in try very hard to achieve it, but you don't want to have it so high that if there's say a downturn in overall activity, they get demoralized because suddenly they realize a year into it that they're never going to get the earn-out.
To me that's just a disaster for the acquiring company.
So we set it at a solid respectable level of basically a $40 million a year run rate of revenue.
It's a bit below where they were last year.
It doesn't mean we expect that to be outcome by any stretch, and they have got, as I said, every incentive through owning Greenhill stock and restricted stock and getting annual compensation to drive it as highly as possible.
Our goal is to make it meaningful, that we kind of get our money's worth if they miss by a lot.
We want to pay effectively a lower purchase price, but on the other hand, we want it to be not so high that it becomes kind of de-motivating for the team when they realize that maybe they might not reach it.
Thank you.
Good afternoon.
We're always ---+ as I often say, we're always looking to grow the firm constantly in three different ways.
We want to be more broad in term of geographic scope, we want to have more industry sector expertise, and we want to have more types of advice.
And it just so happened that this quarter was one where a lot of those things came together.
Obviously Cogent means a whole new different type of advice.
The people we hired in Japan and Australia, very senior people, add a lot to our geographic capabilities.
And then we hired industry sector specialists in Houston and Silicon Valley, so obviously we increased the industry sector.
So, we're going to keep looking for similar opportunities, and hopefully we'll have some more even over the course of this year.
No.
All we were referring to there was really just in comparison to last year.
Last year we had a few people early in the year ---+ I can't even remember all the details, but we had some RSU forfeitures last year that had an impact on sort of the timing of compensation accruals.
There's nothing unusual this year, and certainly I'm not expecting anything in that regard.
The whole remark really refers to things that happened a year ago, not to things happening right now.
Thanks.
Hey, <UNK>, how are you.
Again, it really is exactly along the theme that I just spoke to a minute ago about my theory of how you best structure earn-outs.
Think about this earn-out versus, for example, Australia, which worked out fine I think and played out as we intended the earn-out to work.
That was a longer one.
That was a three year plus a two year earn-out, two totally separate earn-outs (inaudible) them both.
This time around we went for effectively one pool of money, one earn-out, but they get essentially two bites of the apple.
And that really was just learning from seeing other earn-outs over time and realizing that if you have say a two-year earn-out, or even worse, a shorter-term one, and you get a year into it and the team says, wow, the whole market turned down.
It has nothing to do with us, but the market turned down, activity turned down, that gave us a tough year and there is no way we're going to make that up in the second year.
You could have people, only a year into a deal, say, I don't want to say it didn't work out.
I thought we were going the earn-out, somehow it didn't work out.
By doing this, you keep people fully motivated for the first two years, and even if they get part way through, which again, you heard the numbers, I don't think is going to be the case, but even if they got part way through and thought we're not going to make that earn-out, they have every incentive to stay for years three and four to try to do it again.
So, I think it's hugely in our favor in terms of retention and just stability and people just focusing on the longer term, rather than kind of delivering a lot of revenue in a short term and not worrying about long term.
Yes.
The way I would view it is just kind of folding them into us.
In other words, I wouldn't change any sort of compensation or ratio assumption as a result of that transaction.
I would ---+ whatever you're assuming is going to be our compensation ratio without Cogent, I would assume the exact same thing with Cogent being part of us.
We have contractual arrangements with them about ---+ with some of those individuals about various things we wouldn't want to go into that kind of detail, but I think a good modeling assumption is really no change to the comp ratio as a result of them joining.
It's a never-ending list.
It's not like you ever ---+ you're not at Colgate and say, geez, I think we're selling enough toothpaste now.
You're always looking for more ways to grow the business and so we're looking for more ways.
These things, as I've always said, they come in streaks, effectively, and I know, in fact on this call, I got some questions a quarter ago people wondering about recruiting or are we going to have people.
I thought we were on the brink of a whole bunch of them but wasn't in a position to disclose that yet.
I think this obviously already it's been a big year, but it doesn't mean we stopped looking.
We have got some people we're talking to in quite advanced stages and in a number of different locations and sort of industry sectors and so on.
So, our outlook and our goal in terms of recruiting is completely unchanged by the fact that we already did 12.
If we find five more wonderful people, we would love to welcome them all into the firm.
If we don't find any more but we find more in 2016 and beyond, we'll be happy to take them then.
We're always fishing for the good fish.
Sure.
Thank you.
I think that's our last question, so thanks all for joining and thanks for your patience with some of the details on Cogent.
Bye, now.
| 2015_GHL |
2018 | SWX | SWX
#Thank you, Victor.
Welcome to Southwest Gas Holdings, Inc.
's 2018 First Quarter Earnings Conference Call.
As Victor stated, my name is Ken <UNK>, and I am the Vice President of Finance, Treasurer.
Our conference call is being broadcast live over the Internet.
For those of you who would like to access the webcast, please visit our website at www.swgasholdings.com and click on the Conference Call link.
We have slides on the Internet, which can be accessed to follow our presentation.
Today, we have Mr.
<UNK> <UNK>
<UNK>, President and Chief Executive Officer; Mr.
<UNK> <UNK>
<UNK>, Senior Vice President, Chief Financial Officer; and Mr.
<UNK> <UNK>
<UNK>, Senior Vice President, General Counsel of Southwest Gas Corporation; and other members of senior management to provide a brief overview of the company's operations and earnings ended March 31, 2018, and a full year outlook for 2018.
Our general practice is not to provide earnings projections, therefore, no attempt will be made to project earnings for 2018, rather, the company will address those factors that may impact this coming year's earnings.
Further, our lawyers have asked me to remind you that some of the information that will be discussed contains forward-looking statements.
These statements are based on management's assumptions, which may or may not come true, and you should refer to the language on Slide 3 in the press release and also our SEC filings for a description of the factors that may cause actual results to differ from our forward-looking statements.
All forward-looking statements are made as of today, and we assume no obligation to update any such statement.
With that said, I would like to turn the time over to <UNK>.
Thanks, Ken.
Turning to Slide #4.
First, I'd like to touch on some highlights for the past year, ended March 31.
From a consolidated results perspective, we had record earnings per share of $4.23 and increased our dividend for the 12th straight year in a row to $2.08 a share.
For the natural gas segment, we added 32,000 new customers.
Net income increased by $51.5 million.
We invested $591 million in capital to serve growth and improve safety and reliability of our gas distribution systems.
And we issued $300 million in senior notes to facilitate ongoing capital investment.
For the construction services segment, revenues increased by over $67 million.
Net income grew to $34.7 million.
The acquisition of New England Utility Constructors late last year is performing better than expected.
And we continue to be enthusiastic about the construction business' performance prospects for this calendar year.
Moving to Slide #5.
The outline for our call today will include a financial report for the consolidated entity with segment detail provided by Greg <UNK>; a report on our various regulatory efforts by <UNK> <UNK>, recently promoted to Senior Vice President and General Counsel; and a wrap-up by me covering customer growth and regional economic conditions, our capital expenditure plans and our expectations for 2018.
With that, I'll turn the call over to Greg.
Thank you, <UNK>, and thank you all for joining us on today's call.
Let's start with total company operating results on Slide 6.
For the first quarter of 2018, consolidated net income was $79.1 million, or $1.63 per share, an increase of nearly $10 million, or $0.17 a share, compared to the first quarter of 2017.
For the 12 months ended March 2018, net income was about $204 million, or $4.23 per share, including a onetime tax reform benefit of $20 million, or $0.42 a share.
This was a significant increase from net income of $146 million, or $3.07 per basic share, recorded in the prior year 12 months period.
Let's move to Slide 7 and look at each segment's impact to the consolidated change in quarterly results.
Natural gas operations provided a $13.4 million increase to quarterly earnings, while construction services results were down $3.7 million between the quarters.
I'll provide some details surrounding the changes in each segment in the following slides.
Slide 8 depicts the change in earnings between 12-month periods.
Contribution from the natural gas segment increased $51.4 million, and contribution from construction services increased $7.3 million.
Next, we'll take a deeper dive into each segment, starting with the quarterly comparison of natural gas operations on Slide 9.
Customer growth amounts from California attrition and the remaining incremental margin from Arizona rate relief that was effective April 2017 had a positive effect on natural gas operating margin in 2018.
However, operating margin was reduced by $14 million reserve for corresponding estimated tax reform benefits that are not yet reflected in customer rates.
Despite higher pension costs and general cost increases, O&M expenses declined $1.6 million between quarters as the 2017 period included incremental transitional incentive plan grants.
The $10.8 million reduction in depreciation, amortization and general taxes reflects the remaining quarter of incremental benefit from lower depreciation rates in Arizona, which more than offset expected increases in depreciation and general taxes associated with a 7% increase in average gas plant in service.
The decline in other income reflects market volatility on company-owned life insurance or COLI policies.
Lastly, the $2 million uptick in interest expense reflects higher outstanding debt, including $300 million of senior notes issued in 2018 ---+ in March of 2018 to facilitate Southwest's ongoing capital expenditures program.
Slide 10 depicts changes between 12-month periods for natural gas operations.
The $11.6 million improvement in operating margin reflects a full 12 months of Arizona rate relief and solid customer growth, but is net of the $14 million of estimated tax reform benefits expected to be returned to customers.
The $38 million reduction in depreciation and property taxes includes a full 12 months of lower depreciation rates of about $45 million associated with the Arizona rate case settlements in April 2017, partially offset by depreciation associated with a $359 million or 6% increase in average gas plant in service.
The $3.8 million increase in interest expense is due to higher outstanding debt balances.
And despite a $45.8 million increase in pretax income, income taxes declined $5.6 million between periods, primarily due to a onetime tax benefit of $8 million associated with tax reform recorded in December 2017.
Slide 11 details the components of other income and deductions for the natural gas operations segment for the 12-month periods.
While total other income and deductions did not change significantly between periods, there were a few components that I would like to highlight.
Income associated with cash surrender values of COLI policies was down $2.5 million between periods, although both periods were higher than our longer-term expected range of $3 million to $5 million.
Interest income and equity AFUDC totaled $5.7 million in the current 12-month period, an increase of $1.4 million compared to the prior year period.
And finally, as noted in our first quarter 10-Q, effective January 2018, Southwest adopted, as required, a change in the presentation of pension and other retirement benefit costs.
Nonservice components of these costs are now included in other deductions instead of in O&M expenses.
As required, prior periods have been reclassified to be comparable to the new presentation.
The reclassification for the 12 months ended March 2017 increased other deductions and reduced O&M expenses by $19.7 million but had no impact on net income.
Turning to Slide 12, we'll now review Centuri first quarter results.
Revenues for the first quarter of 2018 increased nearly $68 million compared to the prior year quarter, including $14 million from the acquisition of New England Utility Constructors or Neuco in November 2017.
Pipe replacement activities continued to increase for most of Centuri's utility customers.
However, construction expenses increased $67 million as unfavorable winter weather working conditions hampered productivity.
The $1.2 million increase in depreciation and amortization was due to incremental amortization associated with the Neuco acquisition and a depreciation on additional equipment purchases.
Income tax benefits declined $2.1 million between quarters due to the impacts of lower rates associated with the tax reform.
However, the lower rates will have a positive impact on full year 2018 results.
Slide 13 shows the components of the $7.3 million increase in construction services net income between the 12-month periods.
Construction revenues increased $189 million due primarily to additional pipe replacement work across the U.S. and Canada.
Construction expenses were $193 million higher than the prior year period and include greater operating expenses to support increased growth as well as higher construction costs and an unfavorable mix of work related to a water pipe replacement program.
Depreciation and amortization decreased $2.1 million due to a $5.5 million reduction in depreciation associated with the extension of estimated useful lives of certain depreciable equipment, partially offset by depreciation on incremental equipment purchases and amortization of intangible assets associated with the Neuco acquisition.
Other includes a $3 million increase in interest expense due to higher debt outstanding, including amounts associated with the Neuco acquisition in November 2017.
The income tax benefit is due to the onetime remeasurement of deferred income tax liabilities associated with the tax reform.
I'll now turn the call over to <UNK> <UNK> for a regulatory update.
Thanks, Greg.
As highlighted on Slide 14, I'll be providing an update on several key regulatory initiatives, including rate case activities and planning, tax reform proceedings, infrastructure tracker programs and several expansion projects.
Starting with rate cases on Slide 15.
As Greg mentioned earlier, with the conclusion of the first quarter of 2018, we've now experienced the full 12 months of rate relief from our last Arizona rate case.
The impact from this case has been a positive contributing factor to our earned return on common equity for the natural gas operations segment over the past 12 months.
This is also illustrated in the appendix on Slide 43.
We anticipate that this decision, which included $61 million in rate relief and the approval of several important regulatory tools, namely continuation of our fully decoupled rate design, capital tracker programs for both customer-owned yard lines and Vintage Steel Pipe replacement programs as well as approval of a property tax tracker will all continue to have a positive impact on our ability to minimize the difference between our earned and authorized rates return compared to past rate case cycles.
Turning to Nevada.
We are currently in the final stages of preparing our next Nevada rate case, including finalizing the deficiency that we anticipate filing.
We plan to make a filing later this month, with new rates expected to become effective by January of 2019.
We intend to utilize a January 2018 test year, and we also intend to certify expenses and revenues through July of 2018, which will help ensure that when rates become effective at year-end, they will more closely resemble the current cost of providing safe, reliable and affordable service to our customers.
With respect to California, we've been on a 5-year rate case cycle historically, which means we were scheduled to file a rate case this past year since our last rate case was filed in 2012.
However, the Commission granted a 2-year extension, so we are now targeting a September 2019 filing date.
In the meantime, we'll continue to make annual adjustments to margins through 2020 as part of our annual 2.75% attrition filing, and in fact, for 2018, we were authorized to increase revenue by $2.7 million beginning in January of this year.
As part of this rate case decision, the Commission also directed us to use regulatory accounting treatment in the form of a memorandum account to track impacts associated with future changes in tax law, procedure or policy, which leads us to the next slide and the topic of tax reform.
Turning to Slide 16.
We are currently working with our regulators in each of our jurisdictions to ensure a fair and balanced approach to passing tax reform savings back to our customers in a timely manner.
With respect to Arizona, the Commission issued an order in February authorizing regulatory accounting treatment to track all impacts resulting from tax reform.
The Commission also directed utilities to make a filing requesting approval of one of 3 things: either a tax expense adjustor mechanism; the filing of a rate case within 90 days; or some other application to address ratemaking implications of tax reform.
We chose the third option and made a filing April 2 proposing to refund $12 million to customers based upon the results of a previously approved earnings test where we ---+ that we used ---+ that we utilized for our various tracker programs.
Alternatively, if the Commission prefers a more traditional approach, we've committed to file a rate case within 120 days of their decision on our pending application.
Either approach guarantees that customers will receive the benefit of tax reform through changes in rates.
We are currently working with various stakeholders in Arizona.
At this point in time, we do not anticipate a decision on our proposal prior to July.
In Nevada, the Commission opened an investigatory docket and requested utilities to file written comments outlining their respective plans to pass on savings to customers associated with tax reform.
The Commission held a workshop April 26, and we're hopeful to see a decision from the Commission within the next 30 days.
Our position in Nevada was that given the timing of our upcoming Nevada rate case, that we anticipate making changes reflecting the impact of tax reform as part of our Nevada rate case filing.
With respect to California, as I mentioned previously, we have a decision from the Commission directing us to use a tax memorandum account to track ratemaking impacts for attrition years 2019 through 2020 that was approved as part of our proposal to extend our rate case cycle.
As a result, we do not anticipate any additional regulatory filings prior to our currently planned rate case in September 2019.
And lastly, with respect to FERC ---+ our FERC regulated pipeline, Paiute.
FERC issued a draft notice of proposed rule-making, directing pipelines to file a Form 501-G to calculate the impact of tax reform on its current cost of service.
And then FERC identified several options for pipelines to adjust their rates, including filing a statement explaining why no change is necessary.
Given the expected time line for this proposed rule-making to become final later this year and the timing of Paiute's next general rate case, we do not anticipate any challenges satisfying the first directive on this particular issue.
Turning to Slide 17.
We continue to focus on maintaining infrastructure recovery mechanisms in each of our jurisdictions to timely recover capital expenditures associated with Commission-approved projects that enhance safety, service and reliability for our customers.
We have 2 such programs in Arizona.
First, our COYL replacement program.
We filed our most recent annual report with the Arizona Corporation Commission in February requesting to increase our surcharge revenue from $1.8 million to $4.2 million based upon cumulative capital expenditures of $30.9 million, $18.8 million of which was invested during 2017.
Turning to Slide 18.
In addition to our COYL program, we were also granted approval on our last rate case to start a Vintage Steel Pipe replacement program so we can start chipping away and replacing the approximately 6,000 miles of Vintage Steel Pipe in Arizona.
Similar to COYL, we made our first VSP annual report filing in February requesting to establish an initial surcharge in the amount of $3.1 million to recover the $27 million of costs associated with the 40 miles of replacement activity that were undertaken in 2017.
We also met with the Commission staff last fall to review projects eligible for replacement in 2018, and we are currently targeting approximately $100 million of replacement work for completion as we start to ramp this program up.
Turning to Nevada on Slide 19.
Last year, the Commission approved $66 million worth of projects targeted for replacement in 2018.
We also recently received approval on our 2017 GIR rate filing authorizing the increase in surcharge revenue from $4.5 million to $8.7 million, which is an increase of incremental margin of $4.2 million for 2018.
And lastly, turning to Slide 20.
In addition to our 2018 Paiute expansion project and our Southern Arizona LNG facility, the bulk of which continue to make progress in line with our expectations, we recently completed hearings on our first-ever SB 151 filing with the Public Utilities Commission of Nevada, where we requested to extend our facilities to Mesquite, which is approximately 80 miles north of Las Vegas.
Our proposal includes an approach main a distribution system consisting of approximately 44 miles of pipe and will require an initial capital investment of $30 million.
Included in the filing is a proposal to help Mesquite residents access this new system by distributing cost recovery for these localized costs among all the Mesquite customers to help make access more affordable.
We expect the final decision later this month or perhaps by early June as the regulations require a Commission decision within 210 days of filing the application.
We are looking forward to continuing to work with all stakeholders on this initiative to ensure successful outcome.
And with that, I'll turn it back to <UNK>.
Thanks, <UNK>.
Turning to Slide 21.
Customer growth continues to be robust across our service territory as we added 32,000 new customers in the past year.
We expect this continued growth trend to remain over the balance of this year and on into 2019 and 2020.
Moving to Slide 22.
We present some quantitative detail illustrating growth prospects across our service territory.
We expect population growth in Arizona, California and Nevada over the coming several years to exceed the national average.
And from a job's perspective, we saw continued low unemployment rates, along with positive employment growth.
On Slide 23, we provide our expectations regarding capital expenditures and financings.
In 2017, we invested $560 million to serve growth and update our gas distribution systems and look to ramp up these investments over the next few years, spending upwards of $2 billion for the 3-year period ended 2020.
The capital expenditures will be funded through a combination of internal cash flows, newly issued debt and equity issuances under our equity shelf program.
Turning to Slide 24.
We show the growth in our rate base that we expect as a result of our capital expenditure program.
Over the 3-year period ended December 2020, we anticipate rate base growing from $3.2 billion to $4.5 billion of compounded annualized growth rate of 12%.
Moving to Slide 25.
We provide a number of factors that we believe will influence our year-end results for 2018.
First, in the gas operations segment, as detailed on a prior slide, we expect continued robust customer growth of approximately 1.6%.
Also, as previously mentioned, our growing capital expenditures will require incremental financing activity as detailed on Slide 23.
As of the conclusion of the first quarter, we have not fully realized the full year rate relief from our last Arizona rate case decision.
We expect our pension expense to increase this year by $8 million due to the relatively low interest rate benchmark that was established at the end of 2017.
Deferred infrastructure costs and expansion projects will cause interest income and equity AFUDC to rise.
And lastly, for the utility, we expect to file a new general rate case application in Nevada later this quarter, with new rates expected to be effective in January of next year.
Then for the construction services segment, our Neuco acquisition will be an important contributor to revenue growth this year.
And finally, while lower tax rates from tax reform are generally good for the construction business, they do increase the magnitude of our seasonal first quarter loss.
Turning to Slide 26.
We provide 2018 line item guidance for our natural gas operations segment.
As shown on this slide, we expect operating margin to increase by approximately 2%.
Operations and maintenance expense should increase by 2% to 3%, not including the previously referenced pension cost increase.
Depreciation and general taxes are expected to be flat.
Operating income should be flat to modestly up, less the impacts of tax reform.
Net interest deductions should increase by $9 million to $11 million.
We anticipate company-owned life insurance returns of $3 million to $5 million, along with interest income and AFUDC equity income of $5 million to $6 million.
Income taxes are expected to estimate at 23% to 24%.
And as previously mentioned, capital expenditures should total about $670 million this year.
On Slide 27, we show our line item expectations for the construction services business.
Revenues are expected to grow by 6% to 8%.
Operating income should equate 5.25% to 5.75% of revenues.
Net interest deductions are expected to be $11 million to $12 million.
Remember that foreign exchange rates can impact results marginally due to our Canadian operations.
And we estimate income taxes for this segment in the 27% to 28% range.
Finally, moving to Slide 28.
We believe that Southwest Gas Holdings continues to offer a compelling value proposition for our shareholders.
For our gas utility segment, we expect continued strong customer growth.
We have an aggressive capital campaign to serve that growth as well as enhance the safety and reliability of our systems.
We anticipate annualized rate base growth of 12% as a result of our capital expenditures.
And we continue to see enhanced recovery of our cost as a result of the collaborative relationships we have with our regulators.
Similar value drivers on our construction business include its presence as one of the largest underground pipeline contractors in North America, serving 25 different markets across the U.S. and Canada, with long-tenured customer relationships and a positive underlying business prospect for continued replacement of aging infrastructure.
I will now return the call to Ken.
Thanks, <UNK>.
That concludes our prepared presentation.
For those who have accessed our slides, we have also provided an appendix with slides that includes other pertinent information about Southwest Gas Holdings and its 2 business segments.
These slides can be reviewed at your convenience.
Our operator, Victor, will now explain the process for asking questions.
In California, what's happening to the tax reform in 2018.
Yes, <UNK>, this is <UNK>.
The Commission has not opened any proceeding dealing with that particular year.
As part of our decision last year, our rate case cycle went out through 2018 as part of the old rate case, and so the extension only addressed tax years 2019 and 2020.
So we've been currently having informal discussions with the Commission in that regard, but they have yet to open any formal proceeding regarding '18.
Are you occurring anything in California.
Yes, we are.
Okay.
And then for financing, you talk about a $150 million equity shelf.
You anticipate that will get you through 2020, if I'm reading this properly.
Yes, we certainly have the ability under the equity shelf.
We still have $99 million remaining, which we will use to finance any needs.
Certainly, the construction guidance, again, as we've gotten through the first quarter, and this is the time when we start to enter into contracts with our customers and they start to distribute the work out to us, and so based on that and other factors, we've kind of increased that guidance.
As you remember, we increased both the revenue guidance from 5% to 7% to 6% to 8% now as well as the operating income percentage from 5% to 5.5%, and now it's 5.25% to 5.75%.
So it includes all of our expectations based on the information we have now for calendar year 2018.
Yes, again, this is <UNK>.
Essentially, what we did as part of our various tracker programs that we have, we're required to make an earnings test filing each year demonstrating our earned return versus what they've authorized.
And so what we did with the tax reform, as we essentially use that same earnings test approach and essentially used 2017 as a proxy year, estimated the impact of tax reform, and then whatever margin exceeded what our authorized return was, that's how we came to the $12 million proposed refund amount.
Thank you, Victor.
This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Holdings Inc.
Please have a great day.
Thanks.
| 2018_SWX |
2016 | ALOG | ALOG
#Thanks, <UNK>.
Good afternoon, everybody.
Let's go ahead and move to slide 4 of the presentation, please.
You can see that our strong product mix drove a profitable quarter in spite of significant short-term challenges in the security and the OEM legacy probes business.
Our revenue came in at $128 million.
That's down 4% from last year.
Gross margin was 43%.
That's up 1 point from prior year.
Non-GAAP operating margin was a strong 12%, up 1.5 points from last year.
Non-GAAP EPS was $0.80.
After backing out last years tax benefit and this quarter's currency effect on certain balance sheet items, we see improvement of $0.09, or 11%.
GAAP EPS was $0.40.
That's down $0.32 from last year, and after adjusting for the items I just mentioned we see an improvement of $0.13, or 27%.
Let's go ahead and move to slide 5.
We'll look at the segment highlights.
Medical Imaging was up 1%.
MR was strong, up on growth from China customers.
CT was flat for the quarter, and we shipped our 100th rugged ICT unit to China.
Mammography was down compared to a strong prior year and timing.
Ultrasound all-in was down 3%, heavily impacted by legacy probe declines.
Direct ultrasound was up 12% on strong growth in Europe and China.
OEM legacy probe revenue stabilized at this lower level, which we expect to annualize at around $12 million to $14 million yearly.
We had some production start-up delays for the BK 3500 for point of care and for the systems going to our technology partner Carestream for worldwide general imaging.
These issues are now behind us, and now we're seeing Q4 ramping up nicely.
We saw initial shipments of the Sonic Window for use in dialysis treatment.
Security and Detection was down 24% on delays in international high speed shipments.
We expect to remain stable at this lower yearly run rate.
Medium speed TSA shipments continued at this lower rate.
And international high speed shipments continue with lower revenue, although at improved margin mix.
And we saw a return to Limited Rapid DNA shipments during the quarter.
Now I'll turn it over to <UNK>, our CFO.
<UNK>.
Thanks, <UNK>.
Good afternoon and evening everyone.
I'll start on slide 6 with our quarterly performance.
The quarter came in close to our financial expectations, with Ultrasound Direct up double digits, Medical Imaging slightly up, offset as expected by declines in security and ultrasound OEM probes, leading to revenue down 4% versus Q3 2015.
Gross margin continued to improve, increasing 110 basis points primarily from mix and cost reductions, particularly within the Medical Imaging segment.
Non-GAAP operating margin returns improved 150 basis points, reflecting stronger gross margin and lower expenses.
So we turn to slide 7 and our Q3 financial results.
The main highlight was non-GAAP operating income improved 10% versus prior year for the second quarter in a row, despite lower revenue.
The result was driven by stronger gross margins and lower expenses, mainly because of reduced incentive compensation.
An anomaly this quarter in our earnings was the large difference between operating margin and net income performance.
The major reason for the lower earnings versus prior year was the benefit we generated last year of $0.24 for the reversal of tax reserves.
This applied to both GAAP and non-GAAP results.
The other element is we incurred a $0.12 non-cash FX charge for balance sheet items reflecting third-quarter appreciation of the euro, which lead to a translation charge.
We have undertaken a process to create a US dollar account entity in Europe to hold our US dollars to prevent unintended translation charges in the future.
Now, our non-GAAP tax rate did bump up a bit in the quarter because of a higher mix of US dollar pre-tax income.
But for FY16 on a non-GAAP basis we continue to expect our effective rate to be in the mid-20%s.
Now move to slide 8 and year-to-date results.
Performance points are similar to my quarterly commentary for non-GAAP gross margin and operating margin results.
An additional comment pertaining to GAAP expenses was we previously incurred the cost of the BK Distributer inquiry and restructuring, which totaled $17.5 million.
Backing out these costs, GAAP expense would be close to the same non-GAAP operating expense decline.
On the other income expense line we incurred an FX charge of $1.8 million, principally from the quarter three, as well as accrued in the second quarter the cost of the $3.2 million interest charge associated with the BK Distributer matter.
So I'll turn to our operating performance by segment on slide 9.
Another quarter of strong earnings results in Medical Imaging with revenues up 1% because of increased MRI sales in China partially offset by timing of mammography detector shipments.
Non-GAAP operating margin returns as compared to quarter three 2015 improved by approximately 3 points driven primarily by reduced costs, both COGS and operating expense, as well as better yield at our mammography plant.
In Ultrasound revenue increased 12% for our direct systems business, but overall Ultrasound was down 3% because of the expected decline in legacy OEM probes.
Key drivers for the direct component were double-digit increases in China and Europe, as well as benefit from our technology partner relationship in Oncura sales.
Non-GAAP operating margin returns remain roughly flat with prior year after backing out the dilution impact of the Oncura acquisition.
The acquisition impact is expected to be about 1 point for the full year for the Ultrasound segment operating margin.
Security and Detection revenues, as expected, declined 24% in the quarter reflecting lower volume in medium speed for the US market and the mix of high speed shipments outside of the US.
Non-GAAP operating margins returns rebounded from the prior quarter and were up 10 points versus prior quarter and 1 point versus the prior year.
The key element of improved performance was reduction in operating expense as a result of cost control efforts.
So I'll now move to slide 10, working capital and cash flow.
We generated $16 million in operating cash flow with $11 million of free cash flow.
Cash flow increase was driven by lower working capital, principally from higher payables and stronger operating income.
Inventory did increase because of a safety stock build and transferring portions of our MRI gradient and motion production to China in connection with our previously announced restructuring.
Total cash and investments increased $8 million because of the stronger operating cash flow generation.
We returned $6 million of cash to shareholders through dividends and stock repurchases.
In addition, we announced in our release that our Board of Directors authorized an additional $15 million share repurchase program to continue our balanced strategy for capital allocation.
I'll now turn the call back over to <UNK> for the 2016 outlook.
Thanks, <UNK>.
Move to slide 11 and look at our FY16 outlook.
For the FY16 we expect strong Direct Ultrasound to drive the mix and Security and Detection and legacy OEM probes stabilizing at lower annual run rates.
Medical Imaging business should remain consistent.
We expect full year revenue flat to slightly down.
CT mix continue shifting to higher level content private label systems in China, with MRI down slightly.
Mammography should continue to strengthen on new Chinese customers.
Ultrasound total revenue should be up modestly in spite of the drag from legacy OEM probes.
Our direct sales are expected to be up double digits.
OEM legacy probes is expected to stabilize at $12 million to $14 million a year.
This means one more difficult quarter, quarterly year-on-year comparison as this bottoms out in Q4.
North America and Asia direct sales continue growing at double digits.
Sonic Window sales is increasing and under evaluation for adoption by major dialysis providers.
The BK 3500 point of care system sales and sales to our technology partner Carestream for general imaging will continue to accelerate growth.
Security and Detection stabilized at lower annual run rate, down approximately 30% for the year.
Q4 revenue bottoms out, and our FY17 growth outlook is strengthening from international high speed tenders starting to flow.
We expect a stable revenue run rate for the US TSA medium speed threat detection systems.
Rapid DNA is slowly restarting and in test for a new international standard that covers both US and outside the US.
Long lines at the checkpoint is driving a lot more interest in our CT checkpoint technology, and we're evaluating distribution options.
As I mentioned earlier, Q4 is expected to be a difficult comparison to prior year.
However when adjusted for the currency drags ---+ or the current drag in security detection and OEM legacy probes, the fundamental underlying business is growing, and expected to accelerate with new incremental growth and exciting new high margin products.
Given the short-term headwinds in security and OEM legacy probes, for the full year we expect total revenue down approximately 6% on a reported basis, with favorable mix and cost focus driving continued non-GAAP operating margin expansion of approximately 1 point.
Thank you.
And now we'll return to the operator for questions.
Afternoon.
Yes, I think that that's right, <UNK>.
We had some production delay issues in the quarter for both.
The systems are very similar and use pretty much the same base platform.
We had some issues that slowed up our initial production ramp in both the 3500 and the units going to Carestream.
So that caused a bit of a delay in the ramp-up.
The good news is we're through those issues and we feel good that we'll see the ramp continuing as we're here in Q4 and continuing forward.
The feedback is very strong.
If you look at what Carestream is doing, this is our opportunity for our technology to really be well represented all around the world.
They're getting ---+ my feedback I get is they have very strong pipeline.
And they're, at this point they are really only offering starting in the US and then starting in Europe.
They already had a production line that we will start to see taking over for all of our ultrasound starting to ship into the China operation here soon, too.
So as they are able to start shipping to China, they will be hitting on all four cyllinders.
And we expect this to be a very nice growth driver for the business going forward.
Siemens is doing well.
It hasn't been that long that they've been able to offer the product here in the US.
So certainly the US is becoming a nice piece of that business.
But then adding the China operation, like you say, the China customers, that's a nice incremental bump for us also.
So we're pretty happy with the way the business is going.
It's not a great big growth business, but it's a very profitable business.
We continue to improve the yields and the margins, and it really helps deliver on ---+ for the business overall.
Yes, great question.
Certainly this year we saw the run rate come down on the height beat systems, and we're taking a much more conservative view of that where the base business is very solid for the US, for the service components and for the US medium speed.
So that's the basis of the business.
If you look at the tenders that are developing overseas, we do see them starting to flow now.
So we think as we get through this year, next year we see a nice positive uptick on the security side, which is really great news.
However, we do still see Q4 being a pretty tough comparable.
Q4 last year in security was very strong.
And we are at a lower run rate as we complete this year.
I will say also we have a strong ---+ we're going into next year with a strong backlog in security.
So we feel like we're out of the woods as far as the big headwinds that security hit us with this year.
On a checkpoint, there's no question that around the world airport authorities and the TSA are now actively looking at helical CT as one of the very few options that can do what they need to do to raise the threat detection capability and at the same time dramatically improve the throughput of the checkpoint.
The reason we went public with this is that we do have a great technology.
We have been and we continue to speak with the TSA.
There's a lot more interest there now.
They've been talking about this concept of the innovation lane.
And using technology like ours could be key to helping the innovation lane really be much more efficient, getting people through the checkpoint much faster.
And it turns out if you can improve your throughput at the checkpoint by a factor of 2, you actually can dramatically reduce the size of these wait lines.
And that's the message.
As we do the math behind it, we see significant improvements.
And we're up and running today in the line of commerce in London's Luton airport, and proving the kind of throughput improvement.
So we have a good demonstration to show to the TSA and other airport authorities that this technology is ready now.
So for us it comes down to how do we want to distribute this.
And that's what we're testing, is how do we want to take this, the current technology with Cobra and the systems that are coming out now later in the year, and what's the right way to distribute that.
Is that something we work with some partners on, or go through distribution.
And that's what we're evaluating now.
Yes.
What we're testing right now, we finished the latest trials with liquids and laptops in the bag.
At Schiphol and Amsterdam.
And we're up and running at the airport in Luton, they asked to keep it running as it is.
They are offering as a premium line to be able to quickly get their premium passengers in.
A lot of the airports ---+ and we're all looking at the new specifications are coming out for this next-generation checkpoint that ---+ and it turns out they're using a lot of our technology, including the Cobra, to prove what can be done if you have CT.
So, we feel like we're in a real good position to have the right product and the right technology as the new checkpoint specs come out that need to be able to detect everything with liquids and laptops in.
It's starting up slowly.
Starting up is better than not, but there has been ---+ what they're doing is the initial testing that was done to be supportive of what's needed in the US, we've completed that testing.
The FBI approved it.
But the FBI is now also wanting to have a consistent spec with what the Europeans are using.
The Europeans have a requirement to be able to do more than just DNA fingerprint, also be able to look at family relationships.
And you might see why that makes sense, especially in Europe with all of the migration.
They want to be able to tell not only who somebody is but who their relatives are.
And so that ---+ the new specifications that we're testing to.
And that's why these last units went out, they are going to be used in testing to validate that we can hit the new overall worldwide standard.
So that's where this is.
It's always been kind of a slow mover.
We think as it comes together it's going to be a nice opportunity.
And we're working with our customers on this, and helping to get this up to speed.
I don't know that anybody is meeting the spec other than us at this point for something like this that very rapidly gets the answers.
And now that they've extended it to needing to have, it's what they call six-color type of views, the type of lasers that are used.
So it's a very high level of precision.
It's actually raising the standard.
And in some ways we're happy about that because we're confident that we won't have a problem with it.
The big hurdles are just the adoption time, having the FBI finish this final set of testing and then waiting for the legislature to approve the ability for states to buy the systems and operate them on their own.
In the meantime these systems could be start to be purchased into some of the big labs.
But I thought the big opportunity comes when law enforcement is able to use it in a more general use.
<UNK>, as far as we're aware we're the only ones that have been validated by the FBI for our equipment.
No one else has yet been validated.
Yes.
I think rather than going to the specific quarter number, if you look at that annual run rate we said around $12 million to $14 million.
It's actually fairly steady.
So I think it's fair to say if you divide it by four that gives you a rough order on where it is.
Last year would have been significantly higher.
Last year, it's come down.
Last year it was about 18% of our revenue and now we're down towards 11%, 12% of revenue, of the Ultrasound revenue.
Of Ultrasound revenue.
Yes, it was actually less than a full quarter delay.
It's up and running now.
So, and the same thing goes for the products that go to Carestream for their worldwide distribution.
We had a stop-ship delay until we solved some issues that needed to get done for full production ramp.
We think we're through those now.
We're up and running, and we're seeing that start to develop stronger now.
Well, I think it's true that probably the overall medical imaging market in China is slowing, but it's not just slowing.
It's actually shifting somewhat.
We're seeing the Chinese government putting a lot more emphasis on being able to buy from local players.
And as you know, we tend to work with most of the companies that can deliver these kind of technologies.
So we're seeing a bit of a shift where maybe in China equipment that would have gone through a big medical OEM, that might be slowing down.
But we're seeing an uptick in the local suppliers.
And there's not a whole lot of them, but there's a number of very big, well established, well-capitalized companies that we think are going to do really well as local suppliers into China.
So for us, we don't see a negative in China.
But certainly we see where some of the big OEMs are probably having a bit of a slowdown.
Thanks, <UNK>.
Okay.
Well thank you very much.
Again, let me take a second just to thank you for your interest in Analogic and invite you to call back in in September when we will review our fourth-quarter FY16 results.
Thank you very much.
Have a good evening.
| 2016_ALOG |
2017 | LYV | LYV
#Good afternoon.
Welcome to our first quarter conference call.
Live Nation has continued growing its business in 2017 with first quarter revenue up 17% and <UNK>OI up 25%, with strong operating performance across all our concert, advertising and ticketing segments.
This year we have booked more shows, sold more tickets and have more sponsorship commitments than ever before at this point of the year.
With the strength of these leading indicators, I\
Thanks <UNK>, and good afternoon, everyone.
<UNK>s I mentioned last time, we are now reporting 3 business segments starting this quarter: concerts, sponsorship & advertising and ticketing.
We have combined our previously reported <UNK>rtist Nation segment into concerts based on our view that the strategy behind artist management is to provide a full range of services related to concert promotion and to expand our concert businesses.
We have also slightly changed our definition of free cash flow this quarter, now titled free cash flow - adjusted, in order to reduce confusion with other similar measures and to recognize it as a liquidity measure tied back to cash flow from operating activity.
Our key financial highlights for the first quarter of 2017 are: revenue was up 19% to $1.43 billion, and <UNK>OI increased 25% to $92 million, both at constant currency.
Free cash flow - adjusted was $27 million.
Free cash flow would have been $29 million under our prior calculation, so the difference is not significant.
<UNK>s of March 31, our total deferred revenue related to future shows was $1.6 billion, up 34% compared to $1.2 billion last year.
Growth in concerts and ticketing drove the revenue increase for the quarter.
Concerts revenue was up 16% from higher show count at stadiums and arenas, and ticketing revenue was up 23% from the increased primary ticket volumes and GTV driven by concert events, as <UNK> outlined, all at constant currency.
<UNK>OI for the quarter was up 25% driven by strong growth at Ticketmaster, with ticketing <UNK>OI also up 25% for the quarter, and sponsorship & advertising <UNK>OI was up 10% from the increased online advertising, all at constant currency.
Operating loss in the first quarter was $21 million, an improvement of 36% from the same period last year, and net loss was $33 million compared to a loss of $45 million in the first quarter of 2016 driven by the higher <UNK>OI.
Moving to our key balance sheet items.
<UNK>s of March 31, we had total cash of $2.2 billion, including $671 million in ticketing client cash and $1.2 billion in net concert event-related cash with a free cash balance of $374 million.
Cash flow from operations was $761 million compared to $517 million in the first quarter of 2016 with the increase driven by higher event-related deferred revenue.
Free cash flow - adjusted was $27 million in the first quarter of 2017 compared to $25 million last year on the same basis.
Our total capital expenditures for the quarter were $57 million with maintenance CapEx of $25 million and revenue-generating CapEx of $33 million compared to a total of $25 million in the first quarter of 2016, with the increase driven by technology and venue enhancements.
We currently expect total capital expenditures of approximately $220 million for the full year 2017 with approximately 50% of that to be used for revenue-generating CapEx.
For the full year, we estimate we will record approximately $60 million of accretion related to redeemable noncontrolling interests.
<UNK>nd lastly, as of March 31, our total net debt was $2.3 billion, and our weighted average cost of debt was 3.8%.
Thank you for joining us today, and we will now open up the call for questions, operator.
<UNK>, on ticketing ---+ on ticketing, <UNK>, I mean, I think our numbers speak for it, we are continuing to grow our secondary business.
That's pretty much a two-way race in ticketing.
<UNK>nd as we've quoted before, Ticketmaster historically was late to this party, and we've been making ---+ the pie has been getting bigger and we've been increasing our market share continually year-over-year.
<UNK>nd we're going to continue to do that for one reason: We have incredible primary scale in our store.
So we have lots of customers that are going to come on sale, looking for a ticket in primary that for 38 years we had a closed store and now we have, most of the times, we have a secondary ticket option for that customer.
So the more inventory we keep activating at our store called tm.com is how we're going to keep growing our GTV.
More and more sports teams, venues and artists are adopting the idea of having a secondary option available in the primary purchase flow.
So we think we have more inventory to activate.
<UNK>nd the double-digit growth we've been experiencing year-over-year, we would expect secondary growth to be a strong growth driver for years to come.
Second point is we're only getting started in the European global side of the business where we're seeing great growth, where we weren't last to get to the market.
<UNK>nd in most of those cities, London ---+ U.K.'s and Germany's, we are first or it's a still very new market that we're entering.
So we think we have a lot of runway on a global basis to grow secondary business.
Of our 40 countries we promote in, we would be in about 29.
But let's call it 15 to 16 our strong ticketing markets right now for us.
So you could see that there's a great opportunity to keep driving ticketing growth through our content business in those 40 markets.
Well, in the U.K., where it has always been an allocation market.
We will be feeding them some tickets.
I think maybe 3%, 4% tickets.
Most in the U.K. allocates out to a host of retailers, so we would be doing that and allocating across multiple platforms.
Ticketmaster's still selling the large majority of the tickets, but then we allocate out to lots of retailers in the U.K. So that would be the only market where <UNK>mazon would be selling a few tickets.
In the rest of the world, we continue to look at our <UNK>PI partner strategy from Groupon to Spotify to other partners, and we'll continue to look at the right incremental partners.
<UNK>lways fun, <UNK>.
I haven't looked at their latest data.
They're very ---+ they're obviously #1 in Germany.
That would be the only place that they would be #1 in.
We would be #1 across Europe on concerts and, I would assume, total ticket sales.
But regardless, we're in 40 countries with scale, and they're a very strong German company with some market expansion through Europe.
But we're competitors.
We compete on the concert and the ticketing side.
<UNK>nd good news is the pie is growing for everybody.
So I assume they are doing well, and we think we can pick up a lot more share in Germany and the rest of the world regardless of what their activity is.
Yes, we never officially talked whether we renewed Jay or not.
There's just lots of good ---+ that's just good speculation post that was running.
But for the record, yes, we are not in the 360 business.
We haven't been for years.
We're in the long-term securing touring business, and Jay's been an incredible partner of Live Nation.
<UNK>nd we hope to be in the Jay-Z and I assume to be in the Jay-Z touring business for a long time where we both can do what we do best.
Doug, we can't really break it out since it's something we're not really providing.
<UNK>nd just remember, as we've talked about, it's really just there to drive the overall concert business and you'll see that overall impact in the full year.
But it would be ---+ wouldn't be marginally up or down to make a difference to the core numbers you're reading, Doug.
Thank you.
| 2017_LYV |
2017 | PNW | PNW
#Thank you, Don
And thank you again everyone for joining us on a call
Today I'll discuss the details of our third quarter financial results provide an update on Arizona economy and review our financial outlook, including introducing 2018 guidance
This morning, we've reported our financial results for the third quarter of 2017, which will in line with expectation
As summarized on Slide 3 of the materials, for the third quarter of 2017, we earned $2.46 per share, compared to $2.35 per share in the third quarter of 2016. Slide 4, outlines the vacancies that drove - the variances that drove the changes in our quarterly ongoing earnings per share
I'll highlight a few of the key drivers
Gross margin was up $0.22 per share in the third quarter of this year, compared to last year reported by several factors
The rate increase approved by the commission in ADS' rate case proceeding, which became effective August 19, improved gross margin in $0.13 per share
Higher sales in the third quarter of 2017, compared to the third quarter of 2016 increased earnings by $0.02 per share, driven by customer growth, partly offset by the effects of energy efficiency and the disputed generation, the net effect of weather variations $0.02 per share
Cooling degree-days were higher in the third quarter of this year, compared to last year, although whether in both 2016 and 2017 third quarters with less favorable the material averages
Higher operations and maintenance expenses decreased earnings by $0.02 per share in the third quarter of 2017, primarily due to an increase in employee benefit costs
We also have had higher plant outage cost related to the beginning stages of the SCR installation at Four Corners unit 5. Depreciation and amortization expenses were higher in the third quarter of 2017, compared to the third quarter of 2016, impacting earnings by $0.07 per share
The increase was primarily driven related to time additions and the $61 million annual increase in D&A rates approved in the rate case
Looking next to Arizona's economy, which continues to be an integral part of our investment thesis, I'll cover some of the trends we are seeing on the local economy and in particular, the Metro Phoenix area
Metro Phoenix areas continue to show job growth of about the national average
Through August, employment in Metro Phoenix increased 2% compared 1.5% for the entire U.S
The above average job growth is broad based and driven largely by tourism, health care, manufacturing, finance and construction
The Metro Phoenix unemployment rate of 4.3% also reflects a strength of the job market
Job growth continued to have a positive effect on the Metro Phoenix area commercial and residential real estate markets
As seen on the upper of Slide 5, vacancy rates in commercial markets continue to fall or at the levels last seen in 2008 or earlier
Additionally, about 3 million square feet of new office and retail space was under construction at the end of the quarter
We expect the 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 the residential real estate market
As you can see in the lower panel of Slide 5, housing construction is expected to continue the upward post-recession, trend
In 2017, housing permits are expected to increase by about 2,000 compared to 2016, driven by single-family permits
In fact, permits for new single-family homes in the third quarter with a highest level seen since 2006. 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 and low mortgage rates 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
Reflecting the steady improvement in economic conditions, APS's retail customer base grew 1.9% in the third 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 supporting future population, job growth and economic development in Arizona appear to be in place
Finally, I will review our financing activity, earnings guidance and financial outlook
On September 11, APS issued $300 million of 10-year 2.95% senior unsecured notes
The proceeds will be used to refinance commercial paper borrowings and replenish cash temporarily used to fund capital expenditures
Overall, our balance sheet and liquidity remain very strong
At the end of the quarter, Pinnacle West and APS had approximately $100 million and $32 million of short-term debt outstanding, respectively
As Don discussed, in October, the Board of Directors increased indicative annual dividend by $0.16 per share, or approximately 6% to $2.78 per share effective with the December payments
Turning to guidance
We continue to expect Pinnacle West's consolidated ongoing earnings for 2017 will be in the range of $4.15 to $4.30 per share
Key drivers to the remainder of the year include the impact from our rate case, and higher O&Ms as we complete the plant outage at Four Corners
The extended planned outage at Four Corners is why earnings in the fourth quarter of this year are expected to be lower than the fourth quarter of 2016. We are also introducing 2018 ongoing guidance of $4.25 to $4.45 per share, which includes an increase in our weather-normalized sales forecast to 0.5% to 1.5%
The rate increase, our adjustment mechanisms and sales growth will be important gross margin drivers, we expect will be partially offset higher fossil plant outage cost and higher other operating expenses relating to more plant service, including higher G&A and property tax
We've also increased our 2018 capital expenditures forecast by approximately $40 million, mainly from reliability-related projects
We have higher cost of planned outages cost in 2018 including the 95 day SCR installation of Four Corners Unit 4. We also have planned outages that our gas plant including Redhawk, maintenance that our gas plants is based on one hours and starts
Our participation in the energy and balance market increasing levels of solar generation and low gas prices combined with the result and more starts in many of our plants
We'll continue to plant to operate our business for long-term success, but we continuously strive to manage costs in sustainable manner
In 2018, there are larger than normal number of planned outages will provides necessary maintenance to continue operating or diversified fleet with a high level of reliability our customers expect
We also believe that thoughtful and well-executed preventive maintenance can limit more costly emerged work in the future
We will find a complete list of factors and assumptions underlining our 2017 and 2018 guidance in the appendix to today's slides
Our rate base growth outlook remains at 67% through 2019, and this growth expect annualized consolidated return on average common equity at more than 9.5% over the same time raising
With the combination of modest customer growth supported by robust economic development activities, extensive capital investment opportunities and renewable resources, technology and grid modernization together with a constructive and forward thinking regulatory commission
We believe we are well-positioned to continue our track record of success
This concludes our prepared remarks
I will now turn the call back over to the operator for questions
Question-and-Answer Session
Well, I would just state it this way since we don't give earnings growth is, our rate base growth is 6% to 7%, the board and the management team is very comfortable of what we'd see through the next rate cycle
So you can imply anything you want on that
I would say that, year-to-date, of 0.1%
We saw a somewhat of the slowdown usages that came probably in October
Probably some impact in there, higher than the rate case
We had a weak fourth quarter of 2016, so I think sales are right in line with what we've forecasted throughout the year
Hi, Greg
So the exact number will be in our EEI slide deck, which will be filed later today and we're just finalizing the number, but you did see a fall off on what we expected with the pull forward in 2018 to the grandfathering, but that number will be in slide that we'll follow later today
And Greg we will have a updated - we'll file all updated CapEx including 2020 in our 10-K in February, so that will give you all so outlook in the future
Yes, we don't really need anything at the moment
But we'll evaluate ongoing whether we need something that or not so
Well, I think we'll continue to play more battery storage as we move forward
I think we're taking a measured pace to make sure we're not in front of the cost curve
As Don said, we're putting in a couple of batteries in the rural area to in lieu of upgrading the circuit
And I think there will continue to be opportunities where we can sort of capital near-term few battery storage
But we're just getting started at battery storage at this point
Obviously, we don't think 3% is normal or the board would normal rate the dividend of 6%
2018, as it sits today as a test year
There's a lot of capital if that recovered in there you have the training of the - you have a deferral, but you are not earning on it
So now I think it's just on unusual year if you look back historically we've grown from 10% to 1.5% EPS and I wish desktop was leaner it makes it a lot easier but unfortunately it's not leaner
We're always have cycles through the rate cycle
So the way it sits today, remember we have the step increase in the Four Corners which will be 1/1/2019. We currently have 2018 as a test year which would be - Ocotillo will be done in May of 2019 and then it will be the rest of the capital and with 2018 test year as it sits today
It's not one issue for the rate case; it would be four rate case
So we cannot file the before moving on to 2019, so if you think about the last cycle we filed June 1, rate will to effect July 1, 2020 and that's as it's currently contemplated
Well, that moving one piece of it Greg
I haven't calculated it, but certainly your $0.11 in 2018 over 2017 is part of that up and down that happens on a year-to-year basis
I'll say overall O&M and obviously this goes up and down, cents per kWh, O&M expense as a - cent per kWh whether normalized retail sales have been flat since 2010 at $0.275 of kWh
So we'll work hard that to keep O&M certainly over the timeframe based on kWh growth
| 2017_PNW |
2015 | UNFI | UNFI
#We made a very conscious decision to be very proprietary about how we release that information, because, as you might expect, there is a competitive part of that question that we'd just rather not talk about which DCs and when.
But you guys know the DCs that we fill with refrigerated capacity, and those are going to be the markets that have the greatest speed to market with this group of products.
Yes, <UNK>, and I would tell you that while we did see some deflation challenges with Albert's, given their portion to the overall business, it did not have a meaningful impact on our overall inflation number.
And what we've seen in the fourth quarter, some of the increases that we saw from an inflationary standpoint in the third quarter were in place for a good part of the quarter.
So these aren't recent price increases.
They sort of started in the March time frame.
So I would tell you that what we're ---+ barring some major changes when we get to run the data when we close the month ---+ I would tell you that most of what we're seeing now is volume and not price in the first four or five weeks of this quarter.
Yes, I mean, I would say that it certainly appeared that way.
We didn't see anything that was noticeable.
There may have been instances with an individual customer.
But when you look across the broad swath of customers in each channel, it certainly appeared that it was across all the channels.
I don't think so.
The reality is we sell most of them, to one degree or another.
I think when you look at our capabilities on internet fulfillment, which is pretty stunning, we expect some pretty spectacular growth in that channel over the next couple years.
And again, my opinion, as I look out over the next year, year and-a-half, there's been this massive migration.
And it's just not mass and drug.
It's convenience store.
It's so many points of retail.
We were looking at an organic item here in the room that came from a hard goods retailer.
Home goods.
And so I believe that we're going to get to a point where a lot of these retailers, non conventional, in other words, non conventional organic and natural retailers, who have run to add SKUs are going to wake up one day and say, wait a second, these items, they don't move as fast as we'd like.
And so I think that a lot of those SKUs are ultimately going to find their way back to UNFI.
I think people are reacting to what they think is customer demand, and they're placing the SKUs into stores and retail points that, if you were to ask us five years ago whether 7-Eleven would have an organic protein bar, we would have said it's probably not going to happen.
But will there be enough demand to keep the products in those types of retail points.
I think that the answer is probably not.
And we will get an influx of the items back to within our distribution network.
When it happens, I'm not sure, but I believe that that is what will take place.
Yes.
Adjusting for where Easter shifted, yes.
So we had to adjust our numbers to reflect having Easter be earlier and having a strong week and a good week there and a little bit of softness into April.
But you take those weeks into the mix and adjust accordingly and it tended to be the end of March, beginning of April.
Well, I mean, I think that, Andy, there's an element of it where certainly some of our DCs were still getting up to speed.
We had some ---+ we'll have some of the benefit in the fourth quarter associated with the new Twin Cities location versus where we were, and we're moving business that was handled from other locations into that facility.
So we'll get some benefit there.
But yes, we've certainly ---+ we certainly, as we've had turnover within the DCs, if we're not growing at the same rate, we're not replacing all of those heads.
<UNK> mentioned before that when we saw things ---+ certainly it was a much greater degree in 2008, 2009, but when we saw sales growth slow, we started managing the expenses based on that run rate.
So we've taken that approach going into the fourth quarter, and we started addressing it during the third quarter.
But again, it happened much more quickly than we anticipated, so you weren't able to completely keep pace in the third quarter.
We're not going to help you there, Andy.
It's other distributors.
It would be hard for me to comment on the profitability of any one customer.
I'm not sure that would be fair to talk about that.
I think that the tipping point is to continue to slowly but surely win new pieces of business in the geographies in which we've built the capacity.
And the second side is to make the right acquisitions that we can fold in to the buildings that we built the capacity for.
So I think those are the two areas that I would kind of refer to as the tipping points.
Our Albert's business, we've converted to run up underneath our Tony's fresh platform.
That's now completed.
And so now we have a produce, a protein, a cheese, an added value fresh product offering in a large swath of the United States.
And I would look forward to additional customer wins, and I would look forward to some pretty interesting M&A within the space.
Okay.
Thank you, everybody, for joining us today for our third quarter 2015.
We look forward to speaking with you again for the conclusion of our FY15 and our guidance on FY16.
Thanks and have a great day.
| 2015_UNFI |
2016 | STI | STI
#Hey, <UNK>.
Sure thing, <UNK>, and I think you've already called several of them.
If I think about overall consumer banking and private wealth, there's pluses and minuses in there.
With the effect of the posting order, that will be a little bit of a negative.
But as we continue to bring in more clients into our private wealth business, and move them into an asset management model, they're very good long-term fees that I think are going to be generated, as we help that set of clients.
Mortgage overall, as you know, seasonally Q2 and Q3 are the best seasons for mortgage.
Q4 and Q1 are typically slower.
So as we move into Q4, mortgage fees probably come off.
But looking out over the course of the next year or two, we've built a terrific mortgage business, and we're gaining market share.
And as we do that, I feel good about where our mortgage business is going overall.
Within the wholesale banking business, we've already talked a fair bit about the growth in capital markets, about our business model that brings big bank capabilities and expertise to our core commercial client base.
And as we continue to work more with that client base, I think you're going to see fees and wholesale banking grow, as we gain market share there.
So if I try to put all of those things together over time, <UNK>, the net fees for us even excluding Pillar, I think are going to be going up over time.
Adding Pillar to that is only a positive.
And as I said earlier about Pillar specifically, I think in 2017, we'll see about $90 million of fee revenue from Pillar.
Well, you're right, first quarter for us is always going to be higher.
That's just the way it works in our industry.
And so, I do expect that for that quarter, in and of itself we'll have ---+ if you look at one line item being expenses, it will be higher than you would see otherwise.
But we don't really think about one quarter in and of itself, in the context of running the overall business.
Our commitment has been, we're going to continue to make this business more efficient over time.
We've done that now for five years in a row.
And right now, looking out into 2017, I fully expect that our 2017 efficiency ratio is going to look the same or better than 2016 does.
And on a full year basis, across the entire income statement, that's what we try to do.
Thank you.
<UNK>, that is indeed right about the right delta, and there's not one big thing in there.
We're talking about several small items, none of which in and of themselves, were worth calling out.
<UNK>, again, you've got it exactly right.
There's lots of things going on in there, some positive, some negative.
And while if I look at NIM, I can see NIM declining a couple basis points in Q4.
When I look at NII for all of those reasons, including the growth in securities, I do think that NII, we can continue to increase from the levels you saw in Q3 this year.
<UNK>, your previous training is causing you to look into this with a lot of detail, and again, you're exactly right.
If you think about how FTP works over time, the effect of FTP changes can be exaggerated at turns in rates.
So when rates are moving up, and they turn and go down, you kind of have an exaggerated FTP effect for a year.
When rates have been going down, and they kind of turn, and start to go up, you see that same effect.
And in our case for 2016, you're seeing exactly some of that in FTP for 2016.
I would expect some of that to dissipate, as we start to get a trend in rates, with rates going up over time.
| 2016_STI |
2017 | KFY | KFY
#<UNK>, this is <UNK>.
The RPO is growing a little bit faster than the search.
One of the things we saw in the quarter was the projects component of search dropped a little bit than what we have been experiencing.
But the RPO is growing upwards of probably 15%, 20%, single search is probably in 10% to 15% range.
I think regardless of whether the economy, we would be investing.
We absolutely have to create an organization that looks to scale, that looks to have impact in the world, that looks to be $1 billion, $2 billion bigger.
We have to have an organization that can grow from within, where we are developing people along the way.
In the meantime, we are also ---+ we're not only laying the plans and the groundwork for that kind of core mobility in talent development, we have to go to the outside.
And so we have been very aggressive in bringing in talent across the entire business, that can help us broaden the conversation, that can help us elevate the conversation with clients.
That is something we would be doing, really regardless of the economic climate right now, given where we are with our business.
Look, we've been stepping on the accelerator.
You can see that we're paying as you go.
We're not going to bring the plane down to 18,000 feet.
So, I don't really ---+ I don't see that.
Obviously, we're doing this within a band of reason, right, and we'll continue to run that game plan.
I think, <UNK>, if you look at our guidance for the fourth quarter, in order to get to those numbers, you won't see any significant deterioration in the margins.
Animal spirits ---+ (laughter) are more evident.
That's a great line.
Well, look, you've got certainly, with an equity market that's at an all-time high, you have CEO confidence that probably goes hand-in-hand with that.
But, I think there has been more intent, but less action.
So I can't say that the CEO confidence has really translated into something we can put our fingers on.
With multinational companies, it continues to be ---+ what we've seen for example, in China, is there's a big desire on the part of that economy to go to privately owned and locally-based companies.
I think multinationals are struggling with that.
I think that people are wondering about the vote in France and what that means.
And we still haven't seen, really, anything with regard to Brexit.
And so those are the three or four things that are on CEOs' minds.
And Toby, this is <UNK>.
I would say if you look at the new business activity in North America search, in the quarter, November was down year-over-year, December was down year-over-year, and January came on back for us, to the point where we ended the quarter flat year-over-year.
So we saw a really strong January, and February is strong for us for as well.
No, look, when you really look at our Hay Group business, it's essentially flat.
So that's the reality.
But the other reality is we're only 14 months into this and we had to go through and we've combined 100 offices, we've combined systems and I could go on and on.
We ask a lot of talented people to leave the Company.
So there's a phase of this that's really tough stuff.
But when I speak to 2 times, that's certainly not next quarter, but that kind of opportunity is certainly there.
And that's how we're trying to orient this firm and develop talent and bring in talent and go to market and all that.
So, no, we're not at all on that kind of pace, but that's where we have to be headed.
Yes, we are.
We are bringing in consultants in a pretty broad fashion across the three business lines.
We certainly have a greater interest in financial services and technology on the search side, given our footprint.
As you know, our industrial is spectacular, it's 30% of the firm.
In the Hay Group business, we are bringing people in in essentially three to five big areas.
One would be people that can do org design and strategy execution.
That would be number one.
Number two would be people who can do leadership development.
Number three would be people that can do rewards and benefits.
So, those three areas in our Hay Group consulting business are certainly areas of focus for us.
And again, we have to over time, shift the orientation of this Company so that we're not in the emergency room business, but we're in the business outcome business.
So we have to move the focus from geographies and lines of business to solutions in business outcomes, and so we have to bring in people that have that solution capability.
We have to bring in people that have account management kinds of skills.
We have to bring in people that have solution architect.
We have to bring in people that can compete in the boardroom and not just compete in the sense of Futurestep or search, but in the sense of enterprise-wide solutions.
Sure.
Let me take the first question on the cash flow.
It will normalize, Toby, as we exit this year.
We've got all of the integration, structuring type activities will essentially be behind us.
We have three more offices to deal with in terms of the co-location.
Those will happen ---+ two will happen in Q1 next year, one will happen in Q2.
And so that will be it.
But the one will be more of a non-cash charge.
So we would expect our conversion ratio to be somewhere in the 70% to 75% of EBITDA.
The tax rate, right now we're looking at an effective rate for this year of about 28%.
We're starting to see ---+ as we talked when we first did the Hay Group transaction, bringing so much more of our operations outside of the US where the rates are lower that we would see some downward pressure on our rate, and I think you're seeing that in the rate that we have in place today.
I'm sorry, <UNK> remind me of CapEx.
CapEx, I would think that that would normalize down to a number that's in the $21 million to $23 million range.
Yes, I would think about the investment exactly as we have operated the business, <UNK>, over the last several years.
There is nothing that is, oh wow, these guys are committing to things.
That is not ---+ we are staying within the operating principles and the commitments that we've made to shareholders.
So we're not going outside the operating boundaries.
I think we're being pretty smart.
Those businesses have more leverage than, say, a search business does.
Which is one of the interesting things about getting into these other markets.
So, there are two kinds of people ---+ let me just step back, <UNK>.
One thing that is interesting, since you when I first met many years ago, today about 55% of the Company is millennials, which wasn't the case when we met.
So that's changed dramatically and it looks like the workforce looks like the demographic of say a big four, consulting firm look.
So you've got, in terms of the profile of the people it will be two camps.
There will be those that are younger in their career, that you would classically think of, whether it was investment banking or consulting, that are more professionals, that are early stage in their career.
We're bringing those types of people on and as importantly, we are bringing on what would be more senior partner types of profiles that have probably been in business for 20 years.
They probably are coming out of some global consulting firm generally, they probably have advanced degrees.
That would be the profile.
Well, I would certainly think that ---+ look, we only guide out a quarter.
So the fourth quarter should definitely be better than the third quarter.
There's no question about that, and that growth rate should look pretty good.
What's happening here is that for some of these, they're big, big massive projects, sometimes companies delay, they don't get their act together in terms of how fast they want to implement things.
The growth rate in that business, excluding say the last quarter or two, that was an 18% to 20% number for like 12 quarters.
I don't think that's reasonable, <UNK>, to think about, I just think that was pretty special.
But I would think that what you'll see sequentially in the fourth quarter should be much better than what you saw sequentially between the second quarter and third quarter, which actually went down.
No, no, no.
I would say it's still primarily new logos and companies that have not done RPO before, <UNK>.
There's some where they're taking it out to bid, but I think those are the exception.
Yes, that expires in December of 2018.
Okay David, was that it.
Okay.
Well listen, I want to thank everybody for joining us.
I am confident that we are establishing a new category for people and organizational advisory and redefining Korn Ferry as the preeminent global leader in that white space.
So, thanks for your time and we will talk to you next time.
Bye-bye.
| 2017_KFY |
2017 | SHAK | SHAK
#The cost of the free burgers will be in cost of goods sold.
And we haven't given any guidance as to what the impact of that will be, perhaps 20, 30 Bps to cost of goods sold.
But yes, the revenue associated with the free burgers is comped out on the revenue line, so that's a net of zero, but then the cost of the free burger ends up in cost of goods sold.
Yes, I think there's a lot of feedback, believe me.
The good news is it's working real well.
I think the greatest challenge for them is when you're at peak time and you've got a line out the door and you've got a line in the cloud coming in through apps, it's busy.
It's real busy.
I've been in many Shacks during those peak times watching it myself, and with Zach, our COO, spending most of his time with his operators, just saying, okay, this is great news, a lot of people want to use Shake Shack in a lot of various ways, now how are we going to take care of all of them.
So I think the teams are really excited about it.
They understand and know what a great new transition for our business this will be.
But it's not without its challenges and it's going to take time.
It's going to take time to figure that out.
That's a step we're working on to make it a great experience for our team, too.
The good news is, a lot of people seem to want to order on the app.
Wage inflation for the fourth quarter, we hadn't really quoted the number in the past, but mid-to-high single digits for us.
I just want to thank everyone for being on the call again.
And again, want to end by thanking <UNK> <UNK> for nearly four years of incredible service to Shake Shack and wish him the best in the next phase of his life.
So thanks to all and we'll look forward to seeing you out there.
Take care.
| 2017_SHAK |
2017 | TDG | TDG
#Let's see.
Let me answer that in a couple of ways.
I could say in total, that's not to say it couldn't be account by account, but when you roll the thing up in total, the pricing dynamics and the pricing numbers have not changed substantively for a number of years.
It's still roughly we get the same answer.
Maybe one unit this year is a little better than another one, but they all tend to put and take and weight up to about the same number which is one we tracked very closely.
The other question was distributor versus direct.
In the military, we sell to distributors and brokers where they get the same price.
There is no difference there.
In the commercial, I don't ---+ I'm not sure of the answer to that.
I think it's pretty close.
I don't think there's a material difference.
I think we ---+ as you know, we sort of preemptively adjusted the headcount about a year ago.
I think we may have moved it down a little bit this quarter but not by ---+ <UNK>, is that right.
Down a little, but not on across the board, just units adjusted as it looked to them like they were a little softer or not a little softer.
I think right now this is mostly around the commercial transport cycle and when it might start to soften up.
I think right now we think we've made about what adjustments we think are appropriate, but we will keep watching it.
Our concern is how long does the commercial transport OEM cycle hold up, when does it start to soften and when it does, how is does that reflect back into this year.
So far we see no indication and we think, frankly, the numbers we use, which we think are still conservative.
Welcome.
That means essentially it's not consistent across deals.
I mean, it's essentially we get the margin improvement essentially three ways, some price adjustment, some cost adjustment and hopefully we have, if we bought into something that's growing, we get a little bit of an operating leverage by the business growing.
If not, the other way we can get it is by looking at the product lines and seeing if we want the profitable ones and the unprofitable ones.
But the vast majority of it typically comes from natural market growth, price adjustment and cost adjustment.
We will decide that.
The capital allocation is something we will decide based on how things look when it comes time to make that decision.
I'd say the bye through the quarter, frankly we would have bought more, but we were stuck with a 10b5 plan that it essentially you have to put it on automatic pilot and it was on automatic pilot when we made the buys and what amount we could buy.
If we had it to reset, we frankly would have put more ---+ we would have set more in it.
Ramp up and readiness spending is good.
I don't ---+ at this point, I'd be very cautious about predicting any significant change in this year.
They got to get the budget, they got to place the orders then it takes a while to ship it.
It is always hard to guess when the military starts to buy but I'd be reticent.
In the near term, which I define as this year, I'd be cautious about assuming any significant change, just because of the inertia and time lag.
I would think so.
Readiness is a ---+ typically, readiness means buy more repairs parts, buy more services, buy more repairs, all that sort of thing, which is generally good for us.
I can't ---+ obviously, I can't ---+ I don't know what somebody might do in the fullness of time.
I can say it's a long effort if it was to happen and we haven't seen it.
At least typically with the OEMs, our contracting basis still looks similar to what it has in the past, generally.
I just don't know what someone might do.
We have not seen it.
I don't think the math works.
I think it's unlikely, but I can't be certain of that.
I will say again, I don't see it and I have not seen any significant sign of it.
That is ---+ I can't answer that generically.
That is very fact and circumstance specific.
I think if you, and particularly as we get bigger this gets ---+ when you roll everything up, our overall prices are pretty consistently above inflation.
Not miles above, but above.
I think that is quite difficult.
We are decentralized.
We have 33 business units.
Where they get their sourced from is difficult to estimate at this point in time.
We haven't gotten that level of detail.
We're just taking this at a very high level.
We don't want to spend a ton of time analyzing something that certainly is going to be debated for a long period of time as they put the new law, if they ever change the tax law plays.
We haven't gotten to that level of the inputs but the exports are pretty significant to us.
I think, <UNK>, it is safe to say that when you did the calculation, you assumed a reasonable deduct for that.
Yes
If you take the $1.1 billion, what's the interest.
Is about $580 million.
Interest is about $580 million.
Last year it was under $500 million but this year ---+
Say it's $580 million.
If you take the $1.1 billion, I would also say, depending how they treat distributors, that could be higher.
You can deduct a fair amount from that and still be above $580 million.
That is correct
It's a good platform.
Top 15.
I don't want to answer that because I don't ---+ I mean it's ---+ I just, I haven't done the math; I don't know the answer.
I would expect that someday it would start to show up on our top 15 or 20 platforms, but it don't know when and I don't have the math on it.
We don't disclose the price.
We just don't disclose ---+
As I told you, the prices, the weighted-up prices are higher than inflation.
We think of inflation as 3%.
But it's not miles higher.
We all think of us as we're ---+ when you look at our aftermarket and the commercial aftermarket, which I presume is what you are mostly talking about, you can pretty well think of us as market weighted.
Different people have different definitions of legacy aircraft and what the retirement rates are, but you can almost think of us as the market.
That's about how are weighted.
So if you think 727s are going to run off at a certain rate, that is how we will run off.
Remember, we are interjecting new airplanes into the mix every year, too, so as that runs off, something else moves into that old window, as long as the ship set keeps going.
That is the best way to calibrate it.
Figure we are about market weighted.
I'm not sure I'm not sure what it is.
I'm not sure of your question.
We're trying to get a very specific ---+ the very specific thing we are communicating is, the incoming orders, or bookings, are 12% higher than they were for the same quarter the previous year.
That's one.
Number two is, coincidentally, the bookings in Q1 are also somewhere around 12% higher than the shipments, or the revenues in Q1.
I got mixed up in what the pro forma you were talking about was.
| 2017_TDG |
2017 | UFPI | UFPI
#Thank you, <UNK>, and good morning, everyone.
I appreciate you taking the time to join us on this morning's call.
The first quarter of 2017 was a bit like a spring training baseball game.
We got the victory, and we're just getting warmed up for the season.
We're very pleased to report record net sales and record first quarter profits in spite of a few challenges.
We say it often, yet the experience and dedication of our employees helps us overcome these challenges to deliver solid results.
I would like to thank them again for their tremendous effort in the first quarter.
As we go through our key business drivers, let's start with sales.
Sales for the quarter were a record $856.8 million, up 23.5% from $693.9 million a year ago.
By market, retail was up 14.9%, industrial was up 37.5% and construction was up 21.2% versus 2016.
Moving to profitability.
Overall gross margin declined 80 basis points to 14.3% versus 15.1% a year ago.
The biggest factors impacting gross margin were the impact of the higher lumber market, which is up 21% versus 2016 as well as the absence of a comparable buy-in opportunity like we experienced a year ago.
We expect to be able to improve the margin once the lumber market settles out.
In addition to the margin challenge, we were able to absorb the normal start-up operating losses from our 7 new greenfield locations.
We expect these operations to alter into profitability within the next 12 months.
Weather-related closures in March also took a toll in the Northeast and the North Atlantic.
Yet in spite of these obstacles, net earnings increased to $21 million versus $19.2 million a year ago, and earnings per share were $1.03 versus $0.95.
EBITDA year-to-date was $46.9 million versus $42.7 million a year ago, while EBITDA margin was down in line with the gross margin decline.
Again, we expect the EBITDA margin to improve with the gross margin improvement.
Inventories for Q1 stood at $472 million versus $327 million a year ago.
This is due in part to the sales increases and, coupled with the higher level of the lumber market, comprises the remaining difference.
It's important to discuss the impact of the North American softwood lumber dispute on the market.
Over the past several weeks, the lumber market has jumped in anticipation of a U.S. binding that a duty should be imposed on Canadian imports.
We don't know yet what the outcome will be, but we expect some preliminary announcement of findings next week.
We continue to try to protect our customers by trying to limit the impact of a duty as well as protecting the access of U.S.-based re-manufacturers to affordable lumber suppliers.
Finally, accounts receivable were $365.6 million versus $287.4 million a year ago, which is in line with the expected impacts of higher sales and the higher lumber market.
As we look to the future, we recognize that facing challenges is nothing new, and we know if we can produce record performance in the face of those challenges, we have ample opportunities to improve in the balance of the year.
We expect our acquisitions in greenfield operations to improve on their first quarter performance.
We look for continued growth in new product sales, including our UFP-Edge products, charred wood and barn wood.
Charred wood is a unique shiplap product, which the name accurately describes.
It's beautiful, popular and is generating great excitement in the marketplace.
This is the kind of trendsetting new product development that will keep us at the forefront of our markets.
In addition, new Deckorators offerings, including the Deckorators Heritage and bulk products continue to gain traction, contributing to total first quarter new product sales of $74.6 million.
We are on track to hit our goal of $365 million in new product sales for 2017.
Our new LX Center for research, testing and product development is in full swing, and we count on this facility to not only help generate new products but to speed up the go-to-market process.
It also serves to facilitate rapid iterative testing to help us provide customers with a product that meets their needs at a great value.
UFP Global LLC, our international affiliate, has organized these operations and expanded our sourcing and selling worldwide.
The worldwide sourcing piece is very valuable with the current North American softwood lumber dispute.
The selling piece has already expanded the international market for products we manufacture and creates additional sales opportunities for our new products, including our new hardwood initiatives.
And our e-commerce reorganization to help our customers sell more of their products is already bearing fruit as our e-commerce sales are exceeding our projections.
We expect this improvement to continue.
And of course, we continue to invest in our people, expanding training programs, growing our UFP Business School and providing great opportunities for our employees to grow their careers with us is critical to our continued success.
Whether it's entry-level or sales and management, we are constantly looking for hard-working individuals who are motivated to be the best.
And if that sounds like an invitation to apply for a job, it certainly is.
We continue to refine our benefits programs to match our employees' needs and are pleased with the support for our HSA medical plan.
In spite of this plan, we still saw an increase of $1 million in medical expense for the first quarter versus 2016.
Hopefully, we can get some common sense reforms approved by our legislators and regulators.
I'm fairly certain no one will grant us sanctuary company designation to free us from these and other expensive regulations.
But even without such relief, we will continue to execute our plan and reach our goals.
Now I'd like to turn it over to Mike <UNK> for more details on our financial information.
Thanks, Matt.
Before reviewing the financials, I should briefly address the impact of the lumber market this quarter.
Overall year-over-year lumber prices were up 21%, and Southern Yellow Pine prices, which represent our highest volume of purchases, were up 16%.
As we've mentioned before, we attempt to pass changes in commodity lumber costs on in our selling prices so that we earn a targeted profit per unit.
In periods of high lumber prices like this, gross profit and SG&A costs as a percentage of sales will look comparatively low.
And we found that a better way to evaluate our profitability is to compare a change in unit shift with our changes in costs and profits.
Also, our investment in working capital is comparatively higher due to the lumber market, so a better way to assess our working capital management is to evaluate those investments relative to sales and cost of goods sold.
Moving on to the financials.
I'll start with the highlights from our income statement.
Our overall sales for the quarter increased 23%, resulting from a 17% increase in unit sales and a 6% increase in selling prices due to the lumber market.
Our 17% unit sales increase was comprised of 12% growth from recently completed acquisitions and 5% organic growth.
Breaking down by market.
Sales to the retail market increased 15%, resulting from a unit increase of 9% and an increase in selling prices of 6%.
Our unit growth this quarter was primarily driven by our acquisition of Robbins Manufacturing, which contributed 7% to our unit growth.
Within this market, our sales to big box customers grew 19% with a small contribution from acquired operations, while our sales to other significant ---+ while our sales to other independent retailers grew 9%, with a significant lift from acquisitions.
Our sales to the industrial market increased 37%, driven by a 33% increase in unit sales.
Our unit sales growth was comprised of 29% growth from recent acquisitions and a 4% organic growth rate.
Organic growth resulted from a combination of improved demand from existing customers and continuing to gain a greater share of our existing customers' business.
Our overall sales for the construction market increased 21% due to a 13% increase in units sold and an 8% increase in prices.
Within this category, our unit sales increased by 16% to residential construction and 14% to manufactured housing customers, representing primarily organic growth.
Moving down the income statement.
Our first quarter gross profit increased by 17.5%, which was slightly above our 17% increase in unit sales as the favorable impact of acquired operations was offset by inventory cost advantages we realized in the first quarter of 2016 that were not available in the first quarter of 2017 as well as temporary factors such as weather in certain regions and results of certain start-up operations.
SG&A expenses increased year-over-year for the quarter by $16 million or 23% as acquired businesses since March of last year contributed $13 million to this increase.
Our accrued bonus expense for the quarter was about $8 million and was comparable with the prior year quarter.
Our SG&A, excluding bonus expense, was almost $79 million, a $2.5 million or 3% sequential increase compared to Q4.
In the income tax line, you'll note that our effective tax rate was 33.2% this quarter compared to 34.7% last year.
This was due to a favorable new permanent tax difference related to our ability to deduct the value of certain stock grants at fair market value this quarter.
Finally, our net earnings from controlling interests were $21.1 million compared to earnings of $19.2 million last year, a 10% increase but below our unit sales growth rate of 17%.
Focusing on the big picture, this is due to unit growth associated with acquisitions without a commensurate profit contribution due to seasonality.
Consequently, we don't anticipate this trend to continue in future quarters.
Moving on to our cash flow statement for the year.
Our cash flow used for operating activities was $71 million this quarter and was comprised of net earnings of almost $22 million, noncash expenses of approximately $13 million and an increase in working capital since year-end of $106 million, driven in part by higher lumber prices.
As I mentioned earlier, our working capital is up in part due to the lumber market and acquisitions.
So a good indicator of our working capital management is our cash cycle.
Our cash cycle for the quarter, excluding acquisitions, was 53 days compared to 54 days last year.
Including acquisitions, our cash cycle increased to 59 days.
Investing activities primarily consisted of $55 million to acquire quality hardwoods, Robbins Manufacturing and a small joint venture in Mexico.
And capital expenditures are almost $17 million so far for this year, which includes expansionary CapEx of over $5 million.
Finally, with respect to our balance sheet, our net debt balance is about $246 million, which includes seasonal working capital of over $100 million.
Our balance sheet remains strong, and we believe we could add $250 million to $300 million in debt to continue to grow our business and still feel comfortable with our leverage and capital structure.
That's all I have in financials, Matt.
Thank you, Mike.
Now I'd like to open it up for any questions you may have.
So first of all, could you elaborate a bit on the 7 greenfield operations that you started.
What exactly are they doing.
And where are they located.
They're located all over the country.
They're just the ---+ they are expansionary opportunities and they're in each of the different markets, not material in any ---+ by any stretch, but it's one of those things that, we either grow via greenfield or we grow via acquisition.
We choose to do both.
And so we don't pay any goodwill for the greenfield operations, but we expect to encounter normal start-up losses.
So they're in line with our expectations.
They're just a drag on earnings.
And are they producing the gamut of products that can be dedicated to residential, industrial, et cetera.
Yes, yes, they serve ---+ not all of them serve every market, but they serve either multiple markets or 1 or 2 markets.
Okay.
And then I wanted to talk a wee bit about idX.
I think that's contributing to the elevated SG&A right now.
And maybe you can tell us just how much and what the proper run rate SG&A should be.
Yes.
I think overall ---+ I'll let Mike talk about future kind of run rate of SG&A, but you're correct in your assessment, the SG&A increase is due in part to acquisitions, and they're the largest of the SG&A pieces of the acquired companies.
So that does have an impact.
It's important to keep in mind that idX in the overall scheme of things is still less than 10% of our company.
It's kind of the size of one of our regions.
So we don't get too excited about the impact one way or another.
But Mike, maybe you want to touch on the future run rate for SG&A.
Yes.
So I guess you had asked what the amount of the increase of SG&A was associated with acquisitions, the total is $13 million.
And you're right, the lion's share of that is idX.
With regard to run rate, I think last quarter, we called out our core SG&A of being right around $77 million and said that, going forward into this year that, plus a small inflationary-type increase, would be in line with expectations for the year.
And that's pretty much where we landed in Q1.
So the core SG&A number was about $79 million, a $2.5 million increase or about 3% in Q4.
So that looks like a pretty reasonable number going forward within a small range.
Got it.
And then finally, you said you that remain committed to having the supply to provide your customers with top service, et cetera.
And the supply of affordable lumber is being jeopardized presumably by the U.S. imposing tariffs or duties or quotas of some sort.
We're already pricing it in advance of the event.
But are you in favor of limiting Canadian access to the U.S. market.
Or would you rather ---+ if the Canadians are silly enough to sell lumber below fair market value, wouldn't you just be happy to take it.
Yes.
I think for us, we take a position that the overall level of the lumber market is really not a big issue to us as long as it's not rapidly rising or falling.
And as we look at the situation with Canada, we're not necessarily in favor of a duty.
We just want to make sure that affordable housing and all those things continue.
So we want to make sure that the overall level of the lumber market remains reasonable.
And as you pointed out, yes, if someone's willing to sell material cheaper, we're more than happy to purchase it.
Yes.
Okay, I lied.
One more question.
Labor is getting fairly tight in certain jurisdictions, certainly in Oregon.
Are you finding that your ability to produce components in a factory environment is beneficial.
And is that something you're trying to really leverage, selling factory manufactured components to residential builders.
Yes, absolutely, Steve.
I think that that's one of the key selling points of being able to produce it in the factory.
There's less labor on-site, less waste on-site and it helps speed up the construction process.
So we certainly try to promote that viewpoint and definitely believe that, that helps us.
Once again, I'd like to thank you for taking the time to join us on today's call.
I'm confident that each of the UFP employees is motivated to grow ROI, which is return on investment, both because they like to win and they are rewarded for their achievement of this goal.
That also helps them and you as shareholders.
We will keep running hard to make sure we finish well, just like our very own Matt McSween, who qualified with the elite runners and finished the Boston Marathon this week in the top 400 men in spite of a bum Achilles tendon.
We couldn't ask for a better example of the can-do spirit at UFP.
Thank you again for your support and interest in the company and have a great day.
| 2017_UFPI |
2018 | CLI | CLI
#Okay.
So I referenced 2 factors, right.
So I referenced organic growth within the marketplace that we are seeing within our own portfolio and active negotiations, and that was 100,000 square feet of these negotiations we're currently in.
It's approximately 100,000 square feet of net absorption from in-place tenants.
Okay, so that was the first figure, and then towards ---+ at the end of my statement, I spoke about overall negotiations we're in, right.
So this inclusive of the 100,000 I spoke about earlier, but this is taking into account new tenants as well.
So total footprint or total square footage would be about 700,000 square feet, and the resulting net absorption would be about 540,000 square feet.
Now, again, these are in negotiation.
This is not signed, but the idea of talking about this was to kind of juxtapose last year to this year.
<UNK>, it's Mike <UNK>.
We had a tour with, actually, AllianceBernstein, an extensive one.
We showed them some space.
They were interested.
They came back, and we've had conversations with them because they're actually a shareholder, so we see them at all the conferences.
It's really about moving their entire back-office processing out of 1345 Avenue of the Americas, which is a relatively expensive space, into Nashville.
We don't get a lot of processing here in Jersey City anymore.
That's the old school.
We get computer operations or tech.
So if you look at all the buildings and you look at the wires in the street, which has the best network, I've been told, in the country ---+ you have Goldman Sach's back office, but their trading operations in Jersey City.
Deutsche, Sumitomo, Bank of America.
In Newport, you would have (inaudible), JPMorgan, DTC, a couple of the other ---+ UBS. That's what you're finding.
So the number of tech workers, when you run the map, that are concentrated in the Jersey City market is off the hook.
I mean, it's a huge number.
I actually sit on a board with the woman who runs the wealth management division of JPMorgan, and she says they just expanded extensively in Jersey City for the third time in the last 4 years, and it's because of that tech worker, which they can recruit, attract and then retain.
Bank of America did the same thing to us about 3 years ago when they did the expansion at 101 Hudson.
So the back office label needs to be dropped.
It's really the tech part of it that we get.
The tech isn't the tech that you know of as Amazon, but it's the tech in the sense of the data networks that run all these financial institutions, which are crucial to them, and they want to be on the wires, and the best wire network in the world is in New York City, and it really runs through New Jersey because that's where it comes in from the ocean.
It comes in at Wall Township and runs its way up the turnpike.
We've grown Roseland from virtually nothing.
It'll be 3 years and a month from now that we had a dinner that <UNK> <UNK> hosted in front of a bunch of investors, which one of the opening questions is what was Roseland worth, and it went from a negative value of $2 to a positive value of maybe $3 or $4.
I argued $6 at the time, and now we're looking at getting close to $16.
So we've done a good job of creating NAV there, and we think there are still some things to go.
We have now filled out the portfolio.
The next move to go on the table is to trim Roseland, which we're starting to do, which is sell some of the older asset, as <UNK> laid out, repurpose the capital, and then we have a spectacular development pipeline, which, honestly, is probably too large for a company of that size, so we're going to have to think about how we capitalize it or whether it's actually within Mack-Cali.
And there's another question on the table, which I've always asked at each board meeting, is should Mack-Cali exist given the fact that investors look at New Jersey, and we've proven out that rents can rise, but is that a long-term prognosis that we can attract capital at.
I've always made it a very clear function that my job was to increase NAV to basically get this platform cleaned up, and then harvest that NAV either through having the market accept the pricing or basically find a way to basically get the shareholders their money.
That hasn't changed, and I think I'm on a path to achieve that with very good clarity.
I think it\
So it came from a John Guinee comment 2 calls ago about putting money out, which we commented that it was something we had announced since the beginning that we needed to invest in assets, that my predecessor hadn't done that.
That process is being completed probably in the next 30 days.
I scream and yell at the construction meeting every Monday, if you want to come by, about that, because it just takes time to get the last few items done.
But we've done all of the Red Bank market, the entire Metropark market.
We've done substantially half of the Short Hills market.
The rest we're going to do on some more minor things.
We've done a decent ---+ maybe 40% or 50% of what we own in Parsippany, all right, and this has been from lobbies to gyms to cafes to conference centers, and we're seeing rents basically go up around, as Nick pointed out, 14%, 15% over what we used to achieve, which is a relatively good payment, and we're getting better velocity.
That's being done.
In the Harborside market, we've dropped about $40 million to date, which is already completed.
That involved a couple of new restaurants, new seating.
We have 2 new lobbies.
We did the MEP package on the first floor to modernize it, so we can do the next round of retail off of that segment.
You have to actually do it in one thing, which we have a number of restaurant tours that we're negotiating with to bring in into the marketplace.
Well, the $75 million we referenced was substantially for Harborside 1, right.
That's a 600,000-some-odd square-foot building.
We're basically going to reskin it, bring it up to modern standards.
It sits at the foot of the path.
It'll be probably the best building in the marketplace from an amenities point of view and as a package, so it'll have new elevators, new bathrooms, new MEP, and a new skin, which is basically everything but the concrete.
That building was built with relatively good clear heights and good column widths, so it actually works well for us.
That's a project where we've been emptying the building out, and we're moving tenants into other parts of our complex.
We're getting that back, and we'll be able to do that.
The remainder is really going to be now more curating the space.
So we've been buying liquor licenses up for the last couple of years.
I'm proud to say we own just around 5% of the market, and we now have a number of tenants.
We have a new restaurant going in the bottom of Urby, we have 3 deals that we're looking to put in the bottom of Harborside, and so on and so forth, and that's really where the money goes in, and those spends, to be honest, are about $2 million to $3 million per restaurant, sometimes as low as $1.5 million, but assuming $2 million to $3 million as an average, and we probably have 4 or 5 of these to do, and then some other retailing, but that's really about it.
I would say that's a very generous number.
It could be a little less than that too.
Maybe $20 million or less would be the right number.
That would be done, by the way ---+ and that would be done over an 18-month period, because as much as I'd like to get things done tomorrow, it just doesn't work that way.
As my partner <UNK> has taught me, everything we do in the construction business is built by hand.
I think we'll be 100% retained, by the way, no moveouts.
As it stands today, based on the conversations we've had, 100% stay.
It's not a big number, as you know, but that's only really 2 tenants who make up the bulk, and we've had really good conversations with both of them.
Well, the 'burbs ---+ I was doing the waterfront.
That's what we're focused on.
And in the suburbs, we'll probably have the same retention ratio we've been having, which is about 70%, and you can take it back out from there.
Flex is usually higher.
Flex has been probably in the 75% range.
So we have Regus in the space already.
They have 2 operations in Jersey City.
They're also in Hoboken, at a competitor's building.
We've seen WeWork has come out for tours.
I had a conversation with them, as other people have had, and they look at the world and think that most of the people that are going to their locations in Lower Manhattan ---+ a lot of them are coming from the New Jersey waterfront community.
So if you live in Hoboken or Jersey City or Weehawken or West New York and you want to go to WeWork, you're getting on the ferry or the path and you're going over to Chelsea or Canal Street or all the other locations they have.
The question is whether or not they want to cannibalize their own business or grow it accordingly.
That's a conversation.
We also see a lot of other startups in that space who come in, and the big question, as you've always known, in that space is the amount of capital you put out, the rent you receive, and the fact that the guarantor is usually nonexistent, so we look at that.
We think it's a good use.
We think that that's actually worked out well with Regus.
We like Regus as a tenant here on the waterfront.
They get a good pop.
And we would also envision that we might see other people over time.
It's a case-by-case basis, right.
The thing that you have to learn in that business is it helps us in the following scenario.
We're not a very big ---+ we're not a small-tenant market in Jersey City, right.
Buildings are big; tenants are big.
They do very well at attracting guys who want to be in 5,000 square feet, who go inside their envelope of 75 or 60.
The problem my colleagues in the business have is, if you put them in, then all of a sudden the 5,000 doesn't come to you, it goes to WeWork or it goes to Workshare or whatever, so you have to be careful about how you're putting them in and then how the formula works.
Sometimes they want to do a revenue share, which I'm not a big fan of.
But as a concept, I mean, the time I've spent in their places, I like the WeWork and Regus concept.
I think friends of mine have used them, and they make sense in the marketplace.
And I saw something recently in a piece that was out there that talked about how even corporations are utilizing them now for startups, like Apple might have tenancy in a WeWork or Regus because they needed to have 10,000 square feet.
It was efficient for them, and they get started, they do it quickly, and the world has become a quick place.
So the answer is we're very open to them, and you might see something from us, but it's a case-by-case basis.
Thanks, Mike.
So, yes, the 664 cap rate is a forward 12 cash cap rate.
That is very close or almost on top of the in-place cash NOI.
The GAAP cap rate for this batch of sales is 6.9%, just about 7%.
And here I'd also like to highlight to everyone, on our remaining sales, because it is heavily skewed towards land and nonoperating office, we have less than $1 million of NOI on an annual basis left in those properties, so holding onto those properties is really not going to help us much.
I'd rather have the proceeds to pay down debt earlier.
So I'd just note that for everybody.
Yes.
No, all free and clear.
Like I said before, we don't have any office mortgages due until 2026.
So, <UNK>, it's Mike <UNK>.
So with the $232 million ---+ which is about, say, 55% ---+ in the first quarter, the 2 biggest pieces of the remaining $170 million is 650 from road, which is the remaining piece that we have in the Bergen County portfolio, which we have a deal signed, and the guy is going through due diligence.
We've sold assets to this individual and his affiliations before, so we feel pretty comfortable about that, and that should probably close in the third quarter.
We can make no guarantees.
It might slip into early fourth.
The other piece, that's the largest one, is the infamous Pearson site in Upper Saddle River, which is like a $44 million, $44.5 million deal that my colleague <UNK> has under contract to Toll Brothers.
It's a hard contract, full due diligence.
It needs to get certain county and local approvals, which they're at the very, very end of it, and that deal should basically close ---+ it could close as early as next month, or it could close in 5 months, but it's going to close.
That's one pretty much that's baked, I would say, very fully.
Those make up the majority of that number.
The last $60 million or $70 million ---+ if it's not that number, then it's $80 million ---+ is in about another 10 deals that are relatively minor, and we're in various stages of negotiation with people, some hard, some deals are signed on for, and some deals still have due diligence to do.
We feel very comfortable, given how much we've accomplished over the last 2-plus years in this process, this is all going to get done.
It's also built into the numbers already.
This is no ---+ there's nothing new in this number.
Mike, I'd just point you to the roll-forward schedule.
We had between $0.17 and $0.11 of year-over-year dilution from the dispositions, and it'll be skewed more towards the $0.17 than the $0.11 because we're selling the income producing upfront.
In the rest of our guidance, the interest expense still falls in between.
As always, we thank everyone for joining us.
We know time is valuable.
We appreciate it.
Have a great day.
| 2018_CLI |
2018 | NJR | NJR
#Thanks, <UNK>, and good morning, everyone.
Thanks for being with us here this morning.
I think as you know from our news release, we had a strong second quarter.
So if you look at Slide 3, we reported net financial earnings, or NFE, for the quarter of $142.1 million or $1.62 per share and that compared with $1.21 per share for the second quarter of last year.
NJR Energy Services is having an excellent year.
It was the primary net financial earnings driver this quarter, making a significant contribution of $72.8 million, which compared with $15.7 million during the same quarter last year.
Strong demand and market volatility from the extremely cold weather we experienced in late December and early January drove those results.
New Jersey Natural Gas and our other subsidiaries performed in line with our expectations, and we reaffirmed our fiscal 2018 earnings guidance range of $2.55 a share to $2.65 per share.
Moving to Slide 4.
You can see our anticipated sources of net financial earnings for fiscal 2018.
Aside from the net financial earnings related to the revaluation of deferred taxes, which is shown in the red on the pie chart, the largest contribution will come from our regulated businesses.
We expect that New Jersey Natural Gas and NJR Midstream will contribute between 40% and 55% in annual net financial earnings, and we currently anticipate that Energy Services will contribute between 20% and 30% of net financial earnings in fiscal 2018.
Moving to Slide 5.
We continue to target a strong annual dividend growth rate between 6% and 8%, with a payout ratio goal of between 60% and 65%.
We believe that this performance will keep our balance sheet strong and provide a competitive current return to our shareowners.
We will reinvest earnings to support our expected growth in new natural gas and clean energy infrastructure investments and reduce our future external equity needs.
And with that, I'll turn the call over to our Chief Operating Officer, Steve <UNK>.
Steve.
Thanks, Larry, and good morning, everyone.
I'd like to begin today by updating you on progress at New Jersey Natural Gas.
Slide 6 provides details on the strong customer growth at our utility.
For the 6 months ended March 31, we recorded a 13% increase in customer additions over last year.
The majority of this customer growth was from new construction, particularly in Ocean County.
We now expect 65% of our new customer additions to come from new construction over our 3-year planning period running from fiscal 2018 through 2020.
Between now and 2020, we expect to add 26,000 to 28,000 new customers, representing an average annual growth rate of 1.7%.
Based on current rates, we estimate that this growth will add cumulative utility gross margin of approximately $16 million.
Turning to Slide 7.
We're also growing through our investment in 2 BPU-approved infrastructure programs, SAFE II and New Jersey RISE.
These programs help us to ensure the safety and reliability of our system and add annual recovery mechanisms, which provide current returns on our invested capital.
SAFE II began in fiscal 2017, and we have replaced about 91 miles of unprotected steel main to date, including 22 miles in fiscal 2018.
We expect to have over 72% of our unprotected steel main replaced by the end of the fiscal year.
Moving on to NJ RISE.
We completed a secondary Natural Gas distribution main between Brick and Mantoloking, and reinforced a regulator station on Long Beach Island.
We also continue to work on a secondary Natural Gas distribution main to the Seaside Barrier Island, which is expected to be completed in June of 2018.
In addition, we have installed more than 11,400 excess flow valves in storm-prone areas of our service territory, since the program's inception.
Our last 2 RISE projects are in the permitting phase, with expected completion dates in fiscal 2019.
And on March 29, 2018, we filed our annual petition with the BPU requesting a base rate change in the amount of $6.9 million for the recovery of capital costs through June of this year.
Recently, the BPU approved new regulations for future infrastructure programs, which will pave the way for standardized regulatory process going forward.
A more detailed summary of these changes can be found in our appendix on Slide 18.
I'd like to give a brief update on the Southern Reliability Link.
We continue to progress through the easement and permitting process, and we currently anticipate SRL will be in service some time in 2019.
Moving to Slide 8.
I'd like to update you on our wind assets.
In the beginning of March, we announced that we are selling our interest in the Two Dot Wind Farm for $18.5 million to Northwestern Energy.
We are waiting FERC approval and expect to record a pretax gain of about $1 million.
Over time, we found it increasingly difficult to find onshore wind projects that fit our risk-return criteria, and we have now committed to sell our remaining wind assets.
And we will update you as more information becomes available.
Our target is to complete this process in fiscal 2019.
We remain committed to clean energy, and Larry will speak later about how CEV is aligned with the state policy and Governor Murphy's clean energy agenda.
On Slide ---+ Slide 9 illustrates the results of our SREC hedging strategy.
You can see that all of our SREC sales from facilities currently in operation and under construction for energy year 2018 are nearly 100% hedged.
And more importantly, we have made significant increases in our hedging activities for energy years 2019 and 2020.
And we are now over 80% hedged to have an average price of a $190 per SREC\xa0for energy year 2019, and we're approaching 70% hedged for energy year 2020 at an average price of $186 per SREC.
New clean energy legislation is awaiting the Governor's signature, which supports new solar development in New Jersey.
As a result, New Jersey SREC\xa0pricing has remained strong.
I'd now like to turn the call over to Pat for some more details on the financials.
Thanks, Steve, and good morning, everyone.
I'd like to begin on Slide 10 with the NFE waterfalls.
The key drivers in net financial earnings for the 3 months ended March 31 are as follows: New Jersey Natural Gas' quarterly NFE were flat to the high utility gross margin, net of taxes, which was offset by increased O&M expenses as well as lower BGSS incentives.
Midstream was down modestly relative to the second quarter of 2017 due primarily to lower AFUDC.
We began recording AFUDC for the first time last year in the second quarter, which included a catch-up entry, and we also had a recorded true up to AFUDC this quarter, reflecting the FERC's modification of PennEast capital structure to 50-50.
The decrease at Clean Energy Ventures was due primarily to fewer tax credits recognized during the quarter as compared to last year, which is the result of our expected sale-leaseback financings for all of our commercial solar assets in 2018.
For Energy Services, the significant increase in NFE was driven by colder weather in early January, which resulted in increased demand for Natural Gas and higher volatility allowing Energy Services to capture additional margin from Natural Gas price spreads.
For the 6 months ended March 31, New Jersey Natural Gas saw an increase in gross margin net of taxes that was only partially offset by the higher O&M expenses, which is mainly over time, resulting from the colder weather.
Both our Midstream and CEV segments improved over the prior year as a result of the deferred tax revaluation associated with tax reform.
And the increase in Energy Services for the 6 months ended March 31 was also the result of the colder weather.
Turning to Slide 11.
I'll walk you through some of the factors that will have an impact on an NFE in 2018 and beyond.
The first item is on the shifts in our forecasted capital expenditures for our PennEast and Southern Reliability Link projects.
While the PennEast project continues to target an in-service date in 2019, the delay in receiving the FERC certificate has had the ripple effect of delaying land access, surveys and permit applications, all of which means that the commencement of construction may be delayed to 2019.
As such, we've adjusted our capital plan to reflect construction commencing in 2019.
Also, as Steve mentioned, SRL continues to progress on the easement, permitting process, and we expect the project to be in service in 2019.
In both these projects, NJR expects a decline in the amount of AFUDC in fiscal 2018 and fiscal 2019.
As we discussed last quarter, low corporate tax rates have and will continue to have a net positive effect on NFE in fiscal 2018, fiscal 2019 and beyond.
Additionally, as a result of the significant benefit from our deferred tax reevaluation and also NJRES' performance this year, we've taken certain actions to benefit the company and enhance returns.
To the extent we can, we will shift SREC deliveries from fiscal 2018 to fiscal 2019 to take advantage of the lower overall tax rate.
We're utilizing sale-leaseback financing for all of our commercial solar projects in 2018 and also accelerating certain O&M expenses into fiscal 2018.
As Larry mentioned, we reaffirmed guidance for fiscal 2018, and these items taken together continue to support a long-term NFE growth rate of 6% to 8%.
Moving to Slide 12, the changes to PennEast and SRL have an impact on our capital plan.
The updated capital plan on this slide reflects the latest timing assumptions for both projects, with no other substantive changes.
Moving to Slide 13.
I want to update you on our financing assumptions.
We originally forecasted about $83 million of new equity in fiscal 2018.
In the first quarter, we raised about $23 million of the equity through the waiver discount feature of our dividend reinvestment plan, or DRP.
We expect that our needs for the balance of the fiscal year will be about $15 million, which we plan on raising through the DRP.
The reduced need for equity financing is due to the outperformance of Energy Services and the benefits from tax reform.
While we're reflecting equity needs in 2019 and 2020, that will likely be impacted by the results of our potential wind asset sales.
In early March, NJR and NJNG priced a combined private placement debt offering, proceeds from the combined offerings will be used to offset upcoming maturities during 2018 and fund capital expenditures.
With both of these offerings, we've completed our external debt financing for remainder of the fiscal year.
I'll now turn the call back to Larry for some closing remarks.
Thanks, Pat.
You may recall on last quarter's call, I talked about our strategy to provide our customers with reliable, affordable and clean energy services.
To execute that strategy, we remain focused on natural gas, energy efficiency and clean energy investments.
Today, I wanted to spend just a few minutes updating you on where New Jersey is with its energy agenda and importantly, how that agenda aligns with our strategy.
In early April, the New Jersey legislature passed clean energy bills to advance solar energy, reduce greenhouse gases and expand energy efficiency in our state.
Those bills are currently awaiting Governor Murphy's signature.
The legislation sets important Clean Energy goals for New Jersey, that by 2025, 35% of the states' energy will come from renewable energy sources, and by 2030, 50% of the states' energy will come from renewables.
We believe that our cap is on the ---+ our state is on the path to achieve those goals.
And I think it's also important to note that New Jersey already has one of the largest solar markets in the nation, which is supported by public policy and driven by customer demand.
Governor Murphy has made clear his strategy to build a robust clean energy economy that will drive job growth and create new energy investment opportunities.
The strategy includes developing more solar and offshore wind, investing in energy efficiency, advancing energy storage, modernizing the grid and furthering the adoption of alternative fuel vehicles.
As you can see, a number of the Governor's priorities are directly aligned with the strategy that we have been pursuing for more than a decade.
So I want to make 3 points today about our states' clean energy strategy.
And the first one is the importance of energy efficiency.
New Jersey has long recognized the significant positive benefits that can come from energy efficiency, and our state's new legislative goal is more than triple the current pace of savings from energy efficiency, and we have a strong foundation to build on.
Since 2006, we have helped our customers reduce their energy usage by more than 10% and they have also saved more than $380 million.
Our SAVEGREEN Project, which has been in place since 2009 has been critical to generating these results.
In March, we advanced our energy efficiency strategy by filing a petition with the New Jersey Court of Public Utilities to invest $341 million over the next 6 years.
Through this proposal, we are looking forward to bringing the benefits of energy efficiency to more homeowners, business owners and public entities as well as small businesses, lower-to-moderate income customers and seniors.
Energy efficiency investments in our customers' and shareholders' best interests, and they also assist the state in achieving its energy policy goals.
The second point I want to focus on relates to the market potential for solar in New Jersey.
I'd remind you that the solar market began in earnest in New Jersey nearly a decade ago.
And today, solar investments have produced enough energy to power the equivalent of nearly 400,000 homes in New Jersey.
Since 2009, we've invested more than $600 million in solar, and we currently expect to invest another $500 million more over the next 4 years.
As one of New Jersey's largest providers, we believe that the solar industry represents a significant economic opportunity for our state.
In fact, according to the National Renewable Energy Laboratory, the investment for New Jersey solar market could reach $40 billion over coming decades.
And the third point that I want to focus on is the critical role that natural gas must play in the state's transition to a clean energy economy.
Today, in addition to being the fuel of choice to meet customer needs for heat and hot water, natural gas power is more than half of the electricity generated in New Jersey.
Natural gas represents the largest share of the state's generation mix and has nearly doubled the levels from the decade ago.
In the future, Natural gas will support affordable growth in renewables as we add more resources, including solar and wind to our state's generation mix.
Natural gas generation has the added benefit of adjusting quickly to the intermittent nature of renewables, which provides grid reliability as we add more solar and wind and new technologies.
I'd also like to share with you some facts about what natural gas has already done to accelerate New Jersey's transition to a cleaner energy future.
Since 2008, lower natural gas prices have saved New Jersey customers more than $5.5 billion.
And at the same time, solar and energy efficiency incentives have cost customers about $4 billion, which means that low natural gas prices have allowed us to affordably accelerate our clean energy investment strategy in the state and, at the same time, have saved New Jersey residents more than $1 billion.
Going forward, natural gas prices are expected to remain low, which should keep our energy shift affordable.
But when we consider all of these facts, I think it is very clear that natural gas will continue to be an important part of the state's transition to a cleaner energy economy.
So before we go to questions, I want to say thank you as always to our more than 1,000 employees for their outstanding work.
These dedicated women and men are the foundation of our company and the driving force behind our results.
And as always, I'm proud of everything that they do.
I ---+ in fact, tonight, I will have the pleasure of honoring 24 of our employees, who've worked with us for the past 25 years, at our Annual Lamplighters event.
I just can't say enough about our employees and the work that they do every day to serve our customers and grow our businesses.
I also want to invite you to visit our website and read our 2017 corporate sustainability report that highlights our commitment to environmental stewardship, economic growth and social responsibility.
So again, thank you all for joining us here today, and we would welcome your questions and comments.
Yes, <UNK>, this is Pat <UNK>.
As you know, we don't provide quarterly guidance, but in looking at how we typically perform in the second half of the fiscal year, you can expect that New Jersey Natural Gas will post a very modest loss.
In addition, NJR Energy Services' earnings tend to be extremely weighted towards the front half of the year, whereas the storage and transportation contracts that they have tend to be rated over the last 12 months.
So a good portion of that loss in the back half of the year is attributable to NJR Energy Services.
And then finally, in the first quarter, and again on this call, I referenced certain of the opportunistic tax planning activities that contribute about $0.20 to $0.30 of that offset.
So those things taken together get us back to the midpoint of the guidance range.
<UNK>, this is Steve.
So we're working through the process of obtaining the necessary permits and right of entry to the joint base, and we expect to achieve those this fiscal year with construction starting and then we'll put the pipe in the ground and have that in service in 2019.
So that's the current plan looking forward.
Shar, this is Larry.
I think you'd have to ask him that question, but there are ---+ there's a lot of elements to the legislation, as you know.
And I would just imagine that he and his staff are going through the Deliberative Process as they evaluate the bill.
I do think what ---+ at least, what we focus on is his clear commitment to cleaner energy and to really do that over an extended period of time.
We actually are ---+ we feel that New Jersey has been a leader in the area of clean energy, and it's important to focus, not only on the statistics that I gave on the solar market, but also clean ---+ but also energy efficiency.
And when you look at these areas, New Jersey was not only ---+ has not only been a leader, but was a first mover in those areas.
And given, I think, the ---+ just the overall characteristics in the state as they relate to solar, the state's done a really good job there and has been responsive to the changes in the market that have come from the growth in solar to take a longer-term view to facilitate, we think, a continued path of growth in that market.
Shar, this is Pat <UNK>.
The only thing I would add is that even though the legislation hasn't been signed, we have seen resulting strength in SREC\xa0prices in outer years.
And as Steve pointed out in his remarks, have been aggressively hedging our expected production in both energy year '19 and energy year '20 at these price levels.
Shar, it's Larry.
Just one other point, and I'm talking from the strategy point of view, when you look at the longer-term goals, they may seem aggressive, but we believe that there is a path here to achieve those goals.
It is clearly longer term, and it's going to really require improvement in technologies.
But when you look at how we're positioned and the things that have already been done, the state is off to a good start and it's ---+ although it's aspirational, I think it's also a realistic where the Governor is trying to drive us to.
So Shar, this is Steve <UNK>.
So as the energy legislation is drafted, it does require the BPU to have a closing period on projects that are built prior to the legislation going into action and essentially that is going to make a change in the market, so you'll grandfather existing projects and then they'll have to be a new market, probably similar to the one that we see now, going forward in establishing the solar builds in the future.
So there is going to be a change, and like Pat had referenced, I think that change is reflected somewhat in your forward SREC\xa0curve being supportive that this legislation is supportive of the market going forward.
I think it's too early to tell how that's going to evolve and how that will transpire.
You do have some big investments that need to be made, particularly in offshore wind.
So I think it's something we have to watch and develop over time.
I think that, that very similarly is way off in the future.
I think the technology has to evolve in order to create the situation in which the question you just asked becomes meaningful.
So I think that's something we're going to have to wait and watch that develop and see how that creates an opportunity for us.
<UNK>, I think it's a combination of a number of those events.
Certainly, scale is important when you're developing wind assets, and we've seen some big players moving through that market.
And as these markets become developed, other risks come into play, basis risks between the point in which your wind farm is operated and where you can hedge that towards becomes an important item as well.
So when you factor all these together, we weren't able to find the projects that continue to develop this business and really pushed us to explore these other opportunities for us.
And <UNK>, the only thing I'd add is that I think you've seen, at least more recently, a lot more investment, both on the regulator utility side or the rate basing these wind investments and also infrastructure and pension funds have come in with lower cost of capital than some of the strategics.
And so that's also putting some pressure on it as well.
Yes, we're ---+ so we're going through the process now, <UNK>.
And as information becomes available and it's appropriate to share, we will.
But we're expecting to close in 2019.
As I said, we're working through the process.
So that is yet to be determined.
I'll turn it over to <UNK>.
| 2018_NJR |
2015 | NX | NX
#Actually a good question and even broader than that, as we've said before, we've clearly done a tremendous amount of work in the Building Products arena, at uncovering potential acquisitions.
<UNK>though it is not our number-one priority right now to go add businesses to the current portfolio, we are not going to withdraw ourselves completely from the market.
So we will continue to look at any or all opportunities.
However now for the first time, in addition to the economic and strategic issues, we need to look at those potential opportunities with the backdrop of our current leverage profile.
And we have no desire or intention to significantly increase that profile.
But we do have the fire power to add some bolt-on deals if they are not that expensive.
So we will continue to look and evaluate accordingly, but the priority will be improve profitability, pay down debt, but if an opportunity arises, you can't afford not to look at it.
Yes, I mean, I think we talked about it at the time of the announcement that it is going to be like $0.11, so obviously the borrowing was ---+ we were out in a difficult time.
So I would say if you did it purely on the incremental, you're closer to mid single digits, so it's kind of in $0.04 to $0.05 range.
Yes, the way our facility works is, we have the opportunity, there's a hard call for 12 months with the 1% premium, but we can do it with the 1% premium whenever.
I think the reality to it would be, we will need to deliver a couple few quarters, and then if the markets are right there whether it's a repricing or an overall refinancing, could do so, call it, 9 to 12 months down the road.
Well I think clearly the vinyl business still has the opportunity to improve their margins, perhaps more than any other segment of the business, in terms of order of magnitude.
Having said that, they still face the toughest market conditions, in trying to get price increases, but there is still a lot to be done there on the cost side.
We believe that there is still a good opportunity for further improvement at Woodcraft, and we have our operating teams already in there working on initiatives for margin improvement, most of which won't show up until the second half of the year.
The components business and the spacer business, I don't think we'll see a great deal of margin expansion there, absent operating leverage.
And in HL, a similar story.
Margins are pretty decent there anyway, so I think that will be the way we would rank order them.
Yes, we haven't talked that much.
Our corporate cost came in for 2015 right in line with expectations, and in the past, we've talked about that being in the $35 million level.
So we may have slightly elevated corporate costs next year, only because we will bear a bit of an additional integration cost with Woodcraft, and so there's some things we'll do from a Sarbanes-Oxley implementation and things like that, that will ramp those up a little bit.
But nothing significant in the grand scheme of things.
I was just saying we haven't given really the guidance overall on the combined Company SG&A.
Yes, that is.
The thinking there is 2016 benefits from the NOLs, and then as we look out into future years, the growth and improved margin offset the lack of NOLs at that point.
It's pretty clear.
Most of that improvement came out of the vinyl profile business, which if you'll recall, was really anticipated after the investment in line upgrades.
We said the second half of the year, we should start reaping the benefits of that.
We expect that to continue into 2016, so we aren't going to give a great deal of granularity on that at this point, but that's where the bulk of it is coming from.
It's one of the reasons why I answered in an earlier question that the growth rate in our spacer business in fact lagged the other components.
A big factor there, so we never really talked about in the past, is we used to sell several million dollars of spacer product into Russia and the Ukraine, and in 2015, that number is zero.
It just disappeared completely.
And probably is not going to come back, and that's simply because of the geopolitical issues there, but that's where that comment came from.
It was several million dollars worth of business.
There, I mean I think, are you asking about the line we've talked in the past, about the line speeds and things like that for our customer.
Yes, the first prototype at a customer out in California has been extremely successful, and they are talking internally now about funding a further expansion to add more lines.
We have a second customer with a different manufacturer's line that just started up, and in fact, I'll be visiting with the customer's senior executive team.
That facility, actually next week, to see that line running.
But the early indications there are that's going to be a very successful opportunity.
That's a multi-year program in its early stages.
We'll start seeing some benefits with improved volumes later in 2016, but it should really take off in 2017 and beyond.
Yes, clearly, we expect continued margin improvement in the businesses, so a good portion of getting from call it 11.5% to 15% is actually going to come out of a better cost structure in a number of the businesses.
And as I said with the earlier question, the opportunities there are still in the vinyl business, and in the cabinet component business.
We will get operating leverage, particularly in spacers, as we see growth.
So the combination of those, as you go out over the next few years, that's what's going to get us to 15%.
Yes, I would not expect to see in 2016 any consolidation moves with our current business.
We're okay with the footprint as it is.
We have the capability with the current footprint to grow with the conservative numbers we put out there, but we could handle double that growth rate if it actually occurred, and it wouldn't be an issue for us.
But with the potential exception of labor in some jurisdictions, which continues to be tight.
No, the input costs are effectively now margin neutral.
So while the petroleum surcharge, which went negative on us, effectively reduced revenue numbers, it was margin neutral.
The same applies to aluminum, which has been a drop in through the year.
That's for the most part margin-neutral as well, and as we now know, resin is margin-neutral, so really, none of the benefit really came from reduced input costs.
It really was a question of efficiency and reduced labor costs inside the operations.
I mean the primary consideration at Woodcraft is the business model is identical to our fenestration components business.
It does diversify the customer base.
It will really impact the seasonality of our business, too.
As you know, cabinet installation is indoor work, so isn't as affected by the weather.
So it will be particularly helpful in our first quarter, although let me just footnote that by saying we will not see the benefits of that this first quarter because of purchase accounting and transaction costs.
But it will definitely dampen the seasonality of our business, and we do see opportunities there to take a very profitable business and improve the margin profile, as we start getting our arms around it.
Let me cover your last question first.
On the reporting segment, we will do some additional splitting out here in the 10-K that you'll see the next few days, as a result of making the acquisition of HL Plastics.
But then, we will again reassess that in our 2016 reporting, because that will be the first time we will be including Woodcraft.
So I don't want to commit with certainty, but we would expect there to be some line of sight of these acquisitions, as we go through that financial reporting process.
To your earlier question on the growth rate, I'd hazard to not jump into providing the overall guidance of what the growth is.
But I think if you attribute some of the additional cost at the corporate level, which is classified theoretically as legacy, to really the acquisition of Woodcraft and some of the integration, you could get into a little bit of a 50/50 a split, with some added growth at HL Plastics.
Just because of where they are in their cycle, and how the UK market is performing we would expect higher than legacy like growth at HL Plastics.
International is almost exclusively the UK, and what I would call core Western Europe.
Germany, France, Belgium.
The Russia Ukraine thing was a little bit of an aberration, and that product was actually delivered out of North America, not out of our European operations.
But the bulk of it is ---+ more than two-thirds of our international volume is going to be UK-based, so I think better stability there.
We don't envision another Russia Ukraine situation.
That really was a bit of an aberration.
No surprises, positively or negatively, in both cases as advertised, so a testimony to our due diligence process.
The next focus really is going to be on productivity improvements, particularly as it relates to labor.
We haven't had the severe shortages of labor that the home builders have, but in a number of our jurisdictions, it's getting increasingly difficult to find qualified labor as we grow.
So we are looking more and more towards automation, so we are going to be investing in some automation projects in our legacy businesses, that really are all part of that how do we get to 15% EBITDA margins, and how do we continue to grow in tight and expensive labor markets.
So that's really the focus in 2016.
Yes, and some of it we would hope to see as we start exiting 2016, but the real expansion should be in 2017, you're right.
Yes.
I think as we get into the second half, that comp does become much more difficult, and thereafter, it's going to be pretty much normalized.
No.
The immediate focus at HL is going to be to continue to grow in the UK market.
They still have some runway there to perform at above a normal growth rate, and that's the intent.
So there are no current plans to expand that into mainland Europe at this point.
That's still under investigation.
As we said when we did the acquisition, there were no benefits built into the transaction for any kind of cross-selling opportunities.
We recently put in place a new leader in the Edgetech business in the UK, and he is starting to work with Roger at HL on exploring what opportunities there might be.
So that's still a work in progress, and any benefits there will be upside to anything we have put on the table thus far.
That is already in process.
That's in work.
What I mean in terms of comps is by the time we get into 2017, when we start comparing 2017 to 2016, or the back half of 2016 to the back half of 2015, the opportunity for incremental improvement is going to start diminishing.
So by normalized, I mean you could expect maybe whatever we close at, at 2016, 2017's are going to be similar.
There isn't going to be the opportunity probably for 500 basis points improvements at that point.
I know.
You never give up, <UNK>.
Okay, thank you.
I want to thank everyone for joining us on today's call.
Stay tuned for more information about our Spring Investor Day, and we look forward to updating you next on our first-quarter results in early March.
Thanks, everybody.
| 2015_NX |
2017 | VECO | VECO
#Thanks.
It's hard to split because the customers can use the reactor in a variety of different ways.
So it's hard for us to have visibility of exactly where they're going to use it.
Clearly the lighting market is growing.
We said fine-pitch market is growing by 25%.
And then with the TV uptick, which a year ago, basically as the TV market fell off, then that was making reactors available to use for lighting.
But now it's actually requiring more.
So I can't really give you a breakdown of how it goes, but I think all three sections are needing more reactors.
So that's the good thing.
Nobody's freeing anything up.
Most of the orders that we've been getting have been for new capacity.
We did see some replacement orders over the last year.
There are about I think 2,300 reactors in the installed base.
A lot of those, probably two-thirds of those were shipped in the 2009, 2010 and 2011 really ramp-up.
They are getting old and they are less productive.
We're not seeing a large replacement market yet, but we believe that it will come in the coming years and it will be a significant opportunity for us.
Yes, 2018, 2019, hard to read exactly, but ---+ and different customers will probably approach it a little differently.
<UNK>, we may not be able to provide you a numerical figure like that.
But yes, I think we can say that the industry is consolidated, so the order pattern and the sales pattern would be concentrated among the top five, six customers, yes.
That we can say.
But it's hard to give you a figure around that.
It might be a little bigger than five.
I'd say five to eight or so.
But yes.
Go ahead.
I can't say.
They've had a history of recent years of making their own, but I think they've also had a history in recent years of buying their mid-power laser diodes from other sources.
So don't really know there.
Thanks, <UNK>.
They're actually not inspection systems.
They're Ion Beam Deposition systems to build the mass blanks which are then processed further.
We received an order for one of these.
These tend to be long lead times of nine months or more.
We're not counting on any more orders this year and it's really going to depend on the progress in the industry as far as EUV adoption.
But they're probably our longest lead-time product.
Yes.
So for the full year, we are committed to 40% or higher for gross margin at the Company level.
We did about 41% in 2016 and then feel very good about 40% plus in 2017.
In terms of temporary impact to gross margin, we have a little bit of duplicate expenses going on in Q4.
And also about 1% or so getting impacted in Q1.
So gross margin should begin to improve from Q2 once the consolidation initiative is behind us.
As you know, gross margins always can get impacted depending on product mix, regional mix or the shipment volume levels.
But at this point based on the visibility that we have, we feel pretty good about having 40% or higher for the entire year.
For a given quarter here or there it may rotate around that number, plus, minus 1% or so.
But overall for the full year we feel pretty good about starting it with a four [handle].
Thanks, <UNK>.
All right.
At this point we will conclude the call.
Thank you for joining us.
Thank you.
| 2017_VECO |
2016 | WGL | WGL
#Thank you, <UNK> and good morning everyone.
Our non-GAAP operating earnings for the second quarter is shown on slide 3 in our presentation were $89.5 million or $1.78 per share compared to $101 million or $2.02 per share in the second quarter of 2015.
On a non-GAAP basis, consolidated operating earnings for the first six months were $148.7 million or $2.96 per share.
This compares to $159 million in the prior year or $3.18 per share.
The decrease in operating earnings in the second quarter primarily driven by lower results on a retail energy marketing and midstream operating segments, partially offset by higher results at our regulated utility and commercial energy systems operating segments.
At the utility, earnings were higher year-over-year primarily due to strong customer growth and rate recovery related to our accelerated pipeline replacement program.
We added approximately 11,300 active average utility customer meters year-over-year, which represent an annual growth rate of approximately 1%.
We also remain on track to equal last year's record spend on accelerated replacement program of $113 million.
These investments immediately impact earnings and have been a driver of improved results in the utility since the start of these programs in 2011.
On the utility regulatory front, Washington Gas filed an application with the Public Service Commission of the District in Columbia in February to increase base rates.
Filing addresses rate relief necessary for the utility to recover its cost and earn its allowed rate of return.
We also continue to anticipate the filing of a rate case in Virginia in the near future.
<UNK> will talk more about these developments shortly.
On the non-utility side of business, as previously mentioned, our commercial energy systems business delivered improved results.
We continue to see earnings growth driven by the distributed generation assets that we own across the country.
We remain on track to invest record $200 million in this area in fiscal 2016.
We've also seen more activity locally in our energy efficiency contracting business.
Retail energy marketing segment delivered lower result compared to second quarter of 2015.
This was expected given the unusually high asset optimization results in 2015 and our expectation of more normal levels in 2016.
Midstream energy services also realized lower earnings in 2015, partially due to the effects of warmer weather on the current market prices.
Given our results in the first six months and our earnings outlook for the remainder of the year, we are affirming our consolidated non-GAAP earnings guidance in the range of $3.00 per share to $3.20 per share for fiscal-year 2016.
Now, I'm going to turn the call over to <UNK>, who will review our second quarter results by segments.
Thank you, <UNK>.
And turning first to our Utility segment.
Adjusted EBIT for the second quarter of fiscal-year 2016 was $153.9 million, an increase of $1.5 million compared to the same period of last year.
The drivers of this change are detailed on slide 5.
We continued to add new meters.
The addition of 11,300 average active customer meters improved adjusted EBIT by $2.3 million.
Higher revenues from our accelerated pipe replacement programs also added $3.1 million in adjusted EBIT.
Lower operations and maintenance expenses improved adjusted EBIT by $4.4 million.
Offsetting these items, lower margins associated with our asset optimization program reduced adjusted EBIT by $2.7 million.
The unfavorable effect of changes in natural gas consumption patterns in the District of Columbia reduced adjusted EBIT by $2.6 million.
Reduced revenues related to the recovery of gas inventory carrying cost due to lower gas prices decreasing the value of our storage gas balances, reduced adjusted EBIT by $600,000.
Other miscellaneous items reduced adjusted EBIT by $2.4 million.
Turning to the retail energy marketing segment, adjusted EBIT for the second quarter of fiscal-year 2016 was $8.4 million, a decrease of $18.7 million compared to the same period last year.
On slide 6, you will see the primary driver of the decrease was lower natural gas gross margins.
In the natural gas business, gross margins were $15.7 million lower, driven by a decrease in portfolio optimization activity that returned to more historical levels during the quarter.
The same quarter in the prior fiscal year showed outsized gains in this area that were not expected to recur in the current year.
Electric margins decreased $1.1 million, driven by higher capacity charges from the regional power grid operator, PJM that impacted the timing of margin recognition.
These costs will decline in the latter half of the year.
As stated previously, our retail energy marketing business has increased its focus on large commercial and government account relationships in both the electric and natural gas markets.
As a result, the overall number of electric and natural gas accounts both declined this quarter 10% and 7%, respectively compared to the prior year.
However, indicative of our revised focus, electric volumes increased 7% versus the prior year and natural gas volumes were slightly higher versus the prior year.
The increase in commercial load in both electric and natural gas continues to help offset the decline in mass-market customers on a volumetric basis.
Operating expenses increased by $1.9 million primarily due to higher commercial broker fees.
Next, I'll move to the commercial energy systems segment.
Adjusted EBIT for the second quarter of fiscal-year 2016 was $2.3 million, an increase of $700,000 compared to the same period last year.
The increase reflects growth in distributed generation assets in service, including higher income from state rebate programs and solar renewable energy credit sales as well as improved margins from the energy efficiency contracting business.
We also saw improved results in our investments in solar businesses related to changes in the recognition of earnings from our solar partnership.
These improvements were partially offset by higher operating and depreciation expenses due to additional in-service distributed generation assets and a $3 million impairment related to our investment in thermal solar project recorded during the three-month period.
During the second quarter, our commercial distributed generation assets generated over 43,500 megawatt hours of electricity, which is sold to customers through power purchase agreements.
This represents a 57% increase in megawatt hours compared to the second quarter of last year.
As of March 31, the commercial energy systems segment has invested $449 million in distributed generation assets.
Our alternate energy investments, which include ASP, Nextility, and SunEdison, represent an additional $128 million of capital investments since inception.
We now have approximately $577 million invested in total in this segment.
Next, I'll move to the midstream energy services segment.
Results for the second quarter of fiscal-year 2016 reflect an adjusted EBIT loss of $8.4 million compared to a loss of $3.1 million for the same quarter of the prior fiscal year.
The decrease is primarily related to the recognition of losses associated with current market pricing.
We anticipate these losses will reverse by fiscal year-end as we realize the value of economic hedging transactions to be executed during the first two quarters and as certain contractual procedures approach resolution.
Results for our other non-utility activities reflect an adjusted EBIT loss of $1.5 million compared to a loss of $800,000 for the same period for the prior fiscal year.
Interest expense, primarily driven by long-term debt was essentially unchanged at $13 million during the second quarter compared to $13.3 million in the prior period.
As <UNK> stated earlier, we are confirming our consolidated non-GAAP operating earnings guidance in the range of $3.00 per share to $3.20 per share.
This guidance does not include any potential impacts related to the decision in April by the New York Department of Environmental Conservation to deny the Section 401 certification for the Constitution Pipeline, except for the reduction in forecasted AFUDC related to the project.
Our expectations for the regulated utility are modestly lower driven by higher O&M costs for system integration work and project expenses related to a new customer service system.
On the non-utility side, we anticipate better than expected results in the midstream segment related to the impact of favorable spreads on storage earnings.
These will be somewhat offset by lower results in the energy marketing segment as customer growth is expected to be lower than planned for the year.
Please note that this earnings guidance includes dilution from the planned issuance of equity in fiscal-year 2016.
In November, WGL filed a registration statement and launched a program to sell common stock with aggregate proceeds of up to $150 million through an at the market or ATM program.
WGL first sold shares under this program in February.
During the second quarter, WGL issued approximately 466,000 shares of common stock under this ATM program for net proceeds of $31.5 million.
I'll turn the call over to <UNK> for his comments.
Thank you, <UNK> and good morning everyone.
I'm pleased to provide you with an update on our utility operations and regulatory initiatives.
In the District of Columbia, Washington Gas filed an application on February 26 with the Public Service Commission to increase its base rates for natural gas service, which would generate $17.4 million in additional annual revenue.
The revenue increase includes $4.5 million associated with accelerated pipeline replacements previously approved by the commission and currently paid by customers through monthly surcharges.
On April 27, the commission issued an order approving Washington Gas special contract with the US Architect of the Capitol.
This contract for natural gas service will generate annual firm revenues of $2.6 million and results in a reduction of the revenue deficiency in the pending rate case from $17.4 million to $14.8 million.
As part of this rate case filing, we requested approval of a revenue normalization adjustment or RNA.
The District of Columbia is currently the only jurisdiction where we do not have revenue decoupling in place.
In addition, the filing includes a new combined heat and power rate schedule, which sets forth a framework for the delivery of natural gas for CHP systems to provide flexibility for negotiated rates to better meet customer needs.
Finally, in line with our initiatives in other jurisdictions, the filing also proposes new multi-family development incentives to help bring the benefits of natural gas to more residents in the District of Columbia.
The application request authority to earn an 8.23% overall rate of return, including a return on equity of 10.25%.
A procedural schedule was issued on [April 27] by the PSC.
Hearings are currently scheduled for October 2016 with the projected issuance of the commission final order in March of 2017, which is consistent with their goal of issuing an order 90 days after the close of the evidentiary record.
As a reminder, the last rate increase in the District of Columbia was approved in May of 2013.
In Virginia, we planned to file a new rate case with the Virginia State Corporation Commission on or before July 31.
The filing seeks to allow us to rebalance our revenues, expenses and utility investment in the Commonwealth of Virginia and include in base rates the accelerated pipe replacement expenditures whose plant-related costs are currently being recovered in a surcharge.
The anticipated filing would transfer approximately $19 million in accelerated pipeline replacement revenues from our current surcharge into base rates.
Virginia has 150-day suspension period.
Therefore, placing new rates into effect for the winter of 2016-2017 subject to refund.
Our last rate increase in Virginia was affected in October 2011.
Also in Virginia, Virginia allows local distribution companies to recover a return of and return on investments in physical gas reserves that benefit customers by reducing cost, price volatility or supplier risk.
Washington Gas entered into an agreement with the producer in May of last year to acquire natural gas reserves in Pennsylvania.
However, the SCC of Virginia issued an order denying our gas reserve application.
We are continuing our pursuit of a long-term reserve investment opportunity that will benefit our customers and address the issues that were raised by the SCC of Virginia in our previous filing.
Once Washington Gas finalizes a new agreement with the producer, we will file a new application with the SCC of Virginia.
I'd like to now turn the call back to <UNK> for his closing comments.
Thanks, <UNK>.
I'd now like to highlight a few recent developments and provide an update on the status for our midstream and our distributed generation investments.
First an update on WGL's investment in the Constitution Pipeline project.
On April 22, the New York State Department of Environmental Conservation denied the necessary water quality certification for the New York portion of the Constitution Pipeline.
While we are disappointed, the partnership remains absolutely committed to the project and intends to challenge the legality and appropriateness of the New York decision.
In light of the denial of the water certification and the anticipated action to challenge the decision, target in-service date has been revised to the second half of 2018, which assumes that the legal challenge is satisfactorily and promptly included.
We are still evaluating any potential impacts to our financial forecast.
As of March 31, WGL Midstream had an equity investment of approximately $40 million in the Constitution Pipeline project.
Next, I'll turn to our investment in the Central Penn line.
Central Penn line is a greenfield pipeline segment of Transco's Atlantic Sunrise Project.
This project is on track and development activities are proceeding as expected.
Central Penn line has projected in-service date to the second half of calendar 2017.
WGL Midstream will invest approximately $411 million in the project and as of March 31, WGL Midstream has invested approximately $51 million.
Our third pipeline investment involves Mountain Valley pipeline project.
The Mountain Valley pipeline is over 300-mile transmission line through West Virginia and Virginia is designed to help meet the increasing demand for natural gas in the mid-Atlantic and Southeast markets.
Project is on track and development activities are proceeding as expected.
Projected in-service date is December 2018.
WGL Midstream plans to invest $228 million in the project and as of March 31, WGL Midstream has invested approximately $13 million.
In February of this year, WGL Midstream has exercised an option for an $89 million equity investment in the Stonewall Gas Gathering system, representing a 35% ownership stake.
WGL Midstream's ownership interest is expected to decrease to 30% during fiscal-year 2016, as certain other participants are expected to exercise the rights to invest in the project.
The Stonewall system connects with Columbia Gas Transmission, an extensive interstate transmission line that reaches markets across the Mid-Atlantic region.
M3 Midstream serves as the majority owner and operates the Stonewall Gas Gathering system.
The system initiated operations in November of 2015 and is currently gathering one billion cubic feet of natural gas daily from the Marcellus production region in West Virginia.
Turning to our commercial energy systems business.
Our portfolio of distributed generation assets continue to grow this quarter.
And As of March 31, we had over 134-megawatts of capacity in-service with an additional 63-megawatt contracted or under construction.
WGL Energy recently received approval to build and operate over 15-megawatts of community solar gardens in Minnesota as part of the utility program mandates in that space.
WGL Energy has secured subscribers for all of these community solar gardens under a ---+ they are under contract and the target operational date is later in the fall of this year.
This investment highlights WGL Energy's continued strategy of growing its distributed generation assets portfolio by taking advantage of favorable legislation in states like Minnesota.
Finally, we look forward to seeing many of you at the AGA Financial Forum in a couple weeks.
And that concludes our prepared remarks and we'll now be happy to answer your questions.
<UNK>, this is <UNK>.
As it relates to our long-term guidance, we ---+ at this point, wouldn't expect to change that because we think the project is good and it's worth going forward.
So that's the way we view it from a long-term perspective.
What we have done in the short-term is, we have suspended the accrual of AFUDC and that's just a prudent thing to do, as we're waiting to get this issue resolved.
This is <UNK>.
I think it's probably a little premature for us to know that.
I think all the partners are looking at that and saying, what are the options, how would we go forward on that and so I think we're probably just a little ---+ you're probably just a little ahead of the curve for us to know exactly what that looks like, yes.
<UNK>, this is <UNK>.
I think, as we had mentioned, last quarter where our target is still to get a filing out before the end of our third fiscal quarter.
So I think we're still working towards that as an end result.
And I think certainly the commission's focus was looking at probably the length of the term of the reserve agreement.
The 20-year term was a concern of theirs and just uncertainty about pricing in the future.
They were ---+ expressed some concern about the different perspectives on the reserves and the volumes in the reserves and what the depletion rates were.
So there was some differences of opinion in the hearings about that and I think we just need to be able to give them some greater certainty as to what deliverability would look like, because for a given fixed investment, lower volumes would mean a higher price per dekatherm.
So that was the primary concern that they had.
So, we're working to try to fill those issues, fill those gaps and give the commission comfort with some greater balance of risk associated with an investment.
I'll take a stab at that <UNK>, this is <UNK>.
We haven't ---+ traditionally, throughout the quarter, we haven't provided specific guidance for the operating segments by ---+ as we go from quarter-to-quarter, just [started] giving out, as you know consolidated guidance.
But the only issue that we're addressing here on the ---+ what we've discussed is a couple factors.
We continue to see some higher operating expenses in the field as it relates to just leak repairs and system integrity type work that we've been doing that was a little ahead of what we had planned for the current year.
We also have seen some higher project expenses.
We launched a new e-service portal this year and that's sort of in advance of going live with our new billing system next year and we had some difficulties when we first launched that and we've spent some dollars bring that system back to good working condition.
So, those are some of the issues that we see that we're pretty temporary just for this quarter and as it relates to the initial guidance and where we saw things last quarter.
So, those particular items shouldn't continue significantly for the rest of the balance of the year.
So it's pretty much a second quarter phenomena that then just caused us to re-think where we were going to be for the rest of the year.
So, those are the items on the utility side.
That's all I can think of <UNK> that is of significance.
If you have anything else you want to add, I think.
No, I think you covered it.
<UNK>, this is <UNK>.
I would say that the uptick that we saw in midstream is based on the market conditions that we saw in midstream this year that we were able to capitalize on.
Now as we mentioned before, our storage portfolio is a low cost portfolio.
So we expected to have good returns in the long term, but there is some upticks and downticks depending on the exact storage spreads in any given year.
I would only add <UNK>, that as we've said ---+ we saw in recent years, we certainly know we can make money on that storage portfolio when the weather is extremely cold and we have the opportunity to pull gas out of storage at real high margins.
But what we saw this year is confirming our expectation, which is when the weather is warmer than normal, there's also opportunities to see the seasonal spreads get very significant.
So we came out of this winter heating season with a significant amount of gas.
As an industry, it's still in storage and the production levels were still high.
So essentially, we saw the front end of the curve come down quite substantially and then the pricing for next winter stayed pretty firm.
So we saw some good spread opportunities, which is what we would expect when you have warmer than normal sort of winter.
So yes, I think as the supply balances out with our country storage, we do see that this is a ---+ the storage play continues to be a low-risk opportunity to create some margins from the value-added by storage.
<UNK>, this <UNK>.
We also hedge forward some level.
If we see that opportunity, we'll hedge forward.
It's kind of how big the opportunity, but a lot of it or some of it just lock in a fair amount of value and so when prices fell this last quarter and the forward value didn't fall, we locked in some of that value.
So that's why we are projecting that pick up during the second half.
| 2016_WGL |
2018 | UMBF | UMBF
#Good morning, and thank you for joining us.
On the call today are <UNK> <UNK>, President and CEO; <UNK> <UNK>, CFO; and Mike <UNK>, CEO of UMB Bank.
Before we begin, let me remind you that today's presentation contains forward-looking statements, all of which are subject to some assumptions, risks and uncertainties.
Actual results and other future events, circumstances or aspirations may differ from those set forth in any forward-looking statement.
Information about factors that may cause them to differ is contained in our SEC filings.
Forward-looking statements made speak only as of today, and we undertake no obligation to update them, except to the extent required by securities laws.
Our earnings release and supporting slides are available on our website at umbfinancial.com in the Investors section.
Reconciliations of non-GAAP financial measures have been included in the release and on Slides 32 and 33 of the supporting materials.
All earnings per share metrics discussed in this call are on a diluted share basis for continuing operations.
Please refer to the tables contained in the press release for details about basic and diluted earnings per share.
Now I'll turn the call over to <UNK> <UNK>.
Thank you, <UNK>.
Welcome, everyone, and thank you for joining us.
April marks the anniversary of our first charter in 1913, and we're wrapping up our 105th year.
2018 is off to a good start, with first quarter highlights that include a continued margin expansion, expense control and improved profitability metrics.
Beginning on Slide 4, we earned $57.5 million or $1.15 per share for the quarter.
On a non-GAAP basis, operating net income was $59.1 million or $1.18 per share.
Operating leverage continues to be a focus, and on a non-GAAP operating basis, first quarter leverage was a positive 6.5% year-over-year and a positive 5% linked quarter.
As we discussed last quarter, we are investing in 2018 toward building and solidifying our competitive position in the marketplace, and we highlighted plans in various growth businesses.
Even as we continue to ramp up these investments, we will maintain a diligent focus on efficiency and expense control.
Now I'd like to cover our lending and credit highlights.
Average loans balances of $11.3 billion for the first quarter represent a year-over-year increase of 6.9%.
Compared to the fourth quarter, average loans increased 1.8% or 7.3% on a linked-quarter annualized basis.
According to the Feds H.
8 data, total average loans increased 0.7% quarter-over-quarter.
Top line production for the quarter remained strong at $520 million, and we have an active pipeline.
Our outlook remains positive for loan production even as we continue to watch how excess customer liquidity may impact borrowing activity and pricing in the coming months.
Turning to Slide 7.
You'll see a chart that I share every quarter showing the history of our net charge-off ratio, which has averaged 23 basis points quarterly over the past 5 years.
You will note that the first quarter had net charge-offs of $10.3 million or 0.37% of average loans, driven largely by a single C&I credit relationship of $7 million.
This relationship was a contracting company dating back to 2013.
Even with our consistent track record of quality underwriting, credit trends will vary from quarter-to-quarter.
We don't see any systemic issues in our loan book, and as our general portfolio quality continues to be in line with historical performance, I remain extremely proud of our strong asset quality.
Provision expense increased to $10 million for the quarter consistent with our prescribed methodology, which considers loss history, the inherent risk in our loan book, growth rates and other factors, such as macroeconomic conditions.
Before I turn it over to <UNK>, I want to point out a few changes you'll see in our reporting beginning this quarter.
Following the sale of our Scout business, we reevaluated the way in which we present our operating segments.
What you see in the release and slide deck is a 4-segment view that more closely aligns with how we manage our company and with our ongoing emphasis on improving efficiency, aligning support functions with our growth strategies, and delivering products that meet our customers' needs.
The segments, structured around the customers they serve, are Commercial Banking, Institutional Banking, Personal Banking and Healthcare Services.
UMB Fund Services has been moved into the Institutional Banking segment in an effort to maximize synergies, as both entities serve the same institutional market and distribution channels.
We believe this change will give more transparency into the business and drive financial performance.
Now I'd like to turn the conversation over to <UNK>, who will talk about the drivers behind our results.
<UNK>.
Thanks, <UNK>, and good morning, everyone.
Looking first at the income statement, net interest income of $147.9 million represented a year-over-year increase of 10.1% and 1.1% above the linked quarter.
Rates were the largest driver of the increased net interest income during the first quarter, followed by mix-shift, as higher-yieldings commercial real estate, asset-based and factoring loans continued to grow as a percentage of our loan portfolio.
As you know, the tax equal and gross up under the lower corporate tax rate impacts earning asset yield and net interest margin calculations.
Under the reduced tax rate, fourth quarter NIM would have been an approximately 11 basis points lower.
Net interest margin for the first quarter was 3.19%, which, on an apples-to-apples basis with the statutory tax rate change, represents a linked-quarter increase of about 9 basis points and a year-over-year increase of about 20 basis points.
Slide 10 details the changes in noninterest income, which hit $105.5 million, remained relatively flat on a linked-quarter basis, as improved deposit service charges, Bankcard and brokerage revenue was offset by lower revenue from bond trading, driven by continuing negative dynamics in the municipal bond market and a decrease in company-owned life insurance income recorded in the other income line.
Slide 12 and the press release contain detailed drivers of the changes in noninterest expense, which, on a non-GAAP operating basis, decreased $8.4 million or 4.6% compared to the fourth quarter.
As I mentioned last quarter, higher expected costs, due to resetting of FICA and other benefits, were offset by lower incentive compensation accruals following strong performance in the fourth quarter.
Other drivers of lower linked-quarter operating expense include timing-related decreases in legal and consulting and business development expense and lower regulatory assessment fees.
If you followed us, you'll know that the first quarter expense is typically lighter due to compensation review cycles and other seasonal activities.
Over the past several years, our core operating expense for the second quarter has been higher than the first quarter, driven by annual base pay increases; anticipated increases in performance-related incentive comp; higher legal, consulting and business development expenses, tied to contractor and consulting work related to our technology and strategic growth investments.
Now moving to the balance sheet on Slide 13.
Loan yields increased 13 basis point linked quarter to 4.53%, as more than half of our loan portfolio repriced during the quarter.
Looking ahead, 68% of our loans reprice within the next 12 months.
Slide 14 shows the strong loan production that <UNK> mentioned, along with payoff and paydown details.
Top line production for the quarter was $520 million, and we saw increases in revolving balances of $115 million.
Total payouts and paydowns of $456 million for the quarter represented 4.0% of loans, which is in line with the average levels over the past 4 quarters.
We continue to see some business consolidations among our customers.
And while that drove some of ---+ some level of payoffs, we're also seeing opportunities for acquisition financing.
The composition of our loan book and our regional view are shown on Slides 15 and 16, and we're seeing positive trends in several of our markets and verticals.
Mike will provide additional color in the segment discussions.
Slide 17 shows the composition of our investment portfolio.
The average balance in our AFS portfolio increased $78 million on a linked-quarter basis, and the purchase yield of 2.86% compares favorably to the adjusted roll-off yield of 1.91%.
Turning to liabilities on Slide 19.
Total average deposits held steady at $16.8 billion, and private wealth deposits were largely offset by decreased institutional deposits.
As we mentioned last quarter, we saw a buildup of cash towards the end of the year related to our Corporate Trust and Distressed Debt workout businesses.
In the first quarter, total cost of deposits and cost of interest-bearing liabilities increased 4 basis points and 10 basis points, respectively, impacted by rising rates, higher borrowing levels and a mix of DDAs to performance deposits.
Our total funding base is now about 25% hard index to short-term rates.
As some of you have noted, it's important to focus not only on deposit betas but also on the asset betas and total funding cost.
Since the third quarter of 2015, just before the Fed began raising rates, our total earning asset yields has expanded about 82 basis points after adjusting for the lower corporate tax rate to 3.61% for a 64% beta.
During the same period, our total cost of funds, including DDA, has risen just 31 basis points from 0.13% to 0.44% for a 24% beta, resulting in a total net interest margin expansion of approximately 53 basis points.
Now I'll turn it over to Mike for a few segment results and drivers.
Then, we'll be happy to take your questions.
Mike.
Yes.
Sure, Chris.
So without giving specific guidance, I would say, first quarter expenses were about $3 million to $4 million lighter because of the timing issues that we presented in the press release and in the slide deck.
So these are typically bonuses and commissions related to bond trading, which, as you know, had some headwinds from the muni market.
So I would go back to my prepared comments, 2Q expenses will be a tad higher.
It's always been historically higher for us.
Our annual comps cycle gets in ---+ goes into effect in April, so that will drive the cost a little bit higher.
And then, the other factors are $3 million to $4 million of lighter expenses in the first quarter.
Chris, it's <UNK>.
I'd say that there's nothing really to note.
No energy there in any particular direction that's unusual.
The national business growth is really just those businesses kind of hitting stride, really, after our acquisition of Marquette.
They're just really just trying to coming into their own and hitting their stride.
So that's really where that growth is coming from.
And as far as the credit metrics go, we've mentioned in the prepared remarks that it's largely due to 1 credit, and we do have from one quarter to another a little ups and downs in the activity.
But long-term trends we feel pretty good about.
My comments in that regard will be similar to previous quarters, which is, we do have an active M&A group reaching out, doing analysis on targets, maintaining relationships, et cetera.
And so we continue to look for opportunities.
And we would like to put some of that capital to work in that ---+ in M&A.
And the share repurchase deal is something that we just ---+ have been renewing every year.
So that just gives us the opportunity more than anything.
I mean, we've gotten better and stronger and are capable of doing a larger deal but willing to do whatever makes sense.
Just going back to the loan growth discussion.
It looks like revolving balances were up nice in the quarter.
So I imagine line utilization is picking up a little bit.
Just curious, if that trend is persisting here into 2Q.
And just kind of any early thoughts on what you're seeing on the payoff front.
I think you alluded to the possibility that payoffs may continue to occur in elevated pace going through this year, but just any updated thoughts on those 2 fronts would be appreciated.
So our payoff paydown number is running as it has, so it's around 4% of ---+ and so that hasn't really changed much.
As far as the look into the second quarter, the pipeline remains strong looking into the second quarter.
Okay.
And then in terms of new loan pricing.
Just kind of any updated thoughts on kind of where you're seeing loan pricing come in relative to the portfolio yield around 4.30% or so ---+ around ---+ sorry, 4.5% or so at this point.
Well, I mean, there's a few variables I would note.
Obviously, rates are coming up.
The short-term rates have been coming up.
So we benefit from that as we bring on new credits and credit's repriced.
So we're seeing that benefit.
Outside of that, I would say that the market remains very competitive, and so we're kind of looking at that deal-by-deal.
It's a ---+ most of the rate expansion is really just coming from short-term rates coming up.
Got it.
Makes sense.
And then, <UNK>, if I could sneak one last one in on deposits.
I think you mentioned that index deposits were back up to 25%.
I think they were around 23% last quarter.
So just any updated thoughts on what you're seeing on the deposit pricing spread across your various verticals.
And then also, just any updated thoughts on the appetite to allow some index deposits relationships that went off of the course of this year.
I'll take the first one, Nate.
So yes, as we said, it's 25% of our funding is hard-indexed.
And it moves from one quarter to another quarter, especially fourth to first because of our Public Funds business.
So obviously, fourth quarter is a low point for Public Funds and first quarter tends to be a high point.
So that number vacillates a little bit between the 23%, 25%.
But largely, it's been the same.
Just on the betas, I think that if you want to focus on interest-bearing deposits, just ---+ since this cycle, it's been about 17% beta.
If you just look at the last year, it's 24%.
So there's some pressure on deposit cost.
And we're testing and learning and we're launching deposit campaigns.
There's also a mix-shift that's happening within our portfolio and with other banks as well.
So that will continue.
But everything said, our betas are better than our simulations, what we do for interest rate risk management.
And I might also point you back to the assets.
We ---+ more than 60% of our loans repriced within 12 months.
And so while we do monitor closely what's happening on the deposit-liability side, we have some flexibilities that some of our peers don't have on the asset side.
Well, first, I might say that you have to recognize that they as a percentage of their own base are up significantly.
But as a percentage of our total, they're still pretty small.
So they are having success within their own right.
But as a percent of total, really the loan volume is driven in the first quarter by commercial real estate.
It's a majority of that growth.
So that's the first place I'd pause there.
So we do expect continued success and growth out of those 2.
But as you look at the sheer volume of our growth, it still remain to be a pretty small part of the total.
So I'll put some dimensions around it just to follow up.
So the ABL loan balances were about $330 million.
That's up about $100 million on a year-over-year basis.
The yields on those are about 6.5%.
And the factoring business is about $225 million, and it's up from $150 million last year.
And the yields on those are about 11.5%.
Yes.
That's pretty much as simple as a pipeline push, is what I would call it.
It's some stuff moving from one quarter to the next, not closing.
As I said, with no assurances, but the pipeline looks pretty strong as we look into the next quarter.
So sometimes, the gross number will push around a little bit from quarter-to-quarter as projects are delayed.
I would ---+ I'm not going to ---+ so the geography, I think, is not important because it's not a trend.
So I'll just leave it at that related to the geography because it's irrelevant.
But what I'd say about the deal is that it's ---+ like I said, it's down the middle fairway credit for us.
It's been with us since 2013, nothing unusual about it.
And so I said, I think, in our prepared remarks, just from one quarter to the next, we'll have a periodic spike.
As you reflect on our numbers, the fourth quarter was a pretty light quarter, as an example.
So we're going to have a quarter now and then where we take a lump on a credit or 2.
So obviously, we look at both tangible capital but focus more on total ---+ the regulatory capital ratios from a constraint perspective.
The total risk-based capital is more constraining one.
So we're at 14%, close to 14% now.
It depends on the M&A opportunity and what <UNK> talked about, right.
If there's a good way for us to redeploy some of this capital, the excess capital that we have, we can certainly support the loan growth that we have or look after deals like we've been doing.
So there is ---+ we haven't communicated a minimum, what we're shooting for, but it will depend on the opportunity that we see to deploy this capital.
I would say more normalized run rate getting into the second quarter.
So this isn't it.
So accounts is 26.9% on HSA.
26.9% for HSA, which is the driver, year-on-year.
The business model would suggest that it will continue over time.
We have a business model that allows us to capitalize on that.
As it does grow, we have an open-architecture business model, with a strong investment vehicle.
And we are prepared to take advantage of that trend.
We believe that trend will accelerate.
Very excited about that.
And this whole business is about education.
So as you look forward, and the education levels increase and people understand the value of an HSA account, and the fact that it's triple tax advantaged and is actually better than the 401(k) as it relates to a savings vehicle.
As that education takes place and more and more people understand that, the investment side of this business model will pick up and we will benefit from that.
Not really.
I think it's still very manageable.
Obviously, we are watching it.
This is what happens in the bond market when rates go up.
We're comfortable with where the AOCI level is.
Obviously, to my earlier point, we focus a lot on the regulatory capital ratios.
And as you are aware, this doesn't impact our regulatory capital ratios.
And we're at 9.5% TCE today.
<UNK>, the tax rate going forward is 16% to 17%.
Still a good number or.
Yes.
I would use that.
16% to 17% is still good.
Okay.
And then just one follow-up, <UNK>.
Other noninterest income, $10.6 million for the quarter.
I know you talked about company-owned life insurance being down a little bit.
Anything else in there that was maybe unusual or the like.
Nothing unusual, I would say, in the other income line item.
Obviously, that was down on a quarter-over-quarter basis.
Last quarter, we talked about a bully payout that was about $1.5 million or so.
Obviously, we didn't have that this quarter.
So that's the reason for the quarter-over-quarter decline.
Thank you.
And thank you for joining us today.
As always, if you have follow-up questions, you can reach UMB Investor Relations at (816) 860-7106.
Thank you and have a great day.
| 2018_UMBF |
2017 | MKTX | MKTX
#Good morning, and thank you for joining us for the first quarter earnings call.
We are pleased with the start to the new year with many new records to report.
First quarter trading volumes reached record levels, with total trading volume up 27% to $394 billion.
Quarterly average daily volume records were set across all 4 core products.
We believe this is an extraordinary outcome in light of the challenging market environment that saw record new issuance and unusually low market volatility.
On the back of the growth in trading volumes, we delivered record revenues for the quarter of $104 million, up 17%.
This marks the first quarter we've surpassed $100 million in revenue.
Expenses were up 9%, and operating margins expanded to 54%.
Record pretax income of $56 million was up 25%, and record diluted EPS of $1.11 were up 44%.
All 4 core products continue to show year-over-year gains in market share and Open Trading volumes reached a new record.
Slide 4 provides an update on market conditions.
Record new issuance in the quarter led to record trades volumes in both high-yield and high-grade.
Seasonal factors and the anticipation of higher rates drove record U.S. high-grade new issuance, up 13% from the same period a year ago.
We believe that the record high-grade new issue activity led to the increase in trades volume and the increase in block trading during the quarter.
U.S. high-grade and high-yield corporate debt outstanding is now approximately $8.5 trillion.
Demand for new issuance was driven by heavy inflows to high-grade and high-yield bond funds.
We believe international investors continue to flock to U.S. credit markets in a global search for yield.
Market conditions in the first quarter were far from ideal for normal secondary trading flows.
Yet, despite record new issuance and low credit spread and interest rate volatility, we were able to grow trading volume 27% and revenues 17% this quarter.
Slide 5 provides an update on Open Trading.
Open Trading volumes reached another record high of $59 billion in the first quarter with average daily volume up 56% from the same period last year.
Approximately 145,000 Open Trading transactions were completed in the first quarter, up 76% from 82,000 in Q1 2016.
The number of unique liquidity providers or price makers on the platform continues to increase.
The first quarter saw 672 firms providing liquidity, up from 527 in Q1 of last year.
This expanding pool of participants helped drive a 103% year-over-year increase in Open Trading price responses.
In the first quarter, liquidity takers saved an estimated $25 million in transaction costs through Open Trading on the system.
Participants benefited from average transaction cost savings of approximately 2.6 basis points in yield when they completed a U.S. high-grade transaction through Open Trading protocols.
Dealer-initiated open trades reached a new high of 22% of total Open Trading volume in Q1.
Dealers are increasingly using Open Trading as an additive distribution channel to increase trading velocity and reduce balance sheet usage.
The percentage of trading on MarketAxess taking place through Open Trading protocols continues to increase across products.
Open Trading accounted for 34% of U.S. high-yield volume, 15% of U.S. high-grade volume and 11% of emerging-market volume in the first quarter.
Slide 6 provides an update on our international progress.
Our ongoing investment in international expansion is leading to significant gains in clients and market share in Europe, and showing promising signs in Asia and Latin America.
Our global emerging market bond trading business has become an important engine of revenue and earnings growth.
European client volumes were up 55% year-over-year, driven by a 24% increase in the number of active client firms.
Emerging market volumes in Europe experienced a tremendous quarter with volumes up over 100% year-on-year.
U.S. credit products were also a key driver this quarter with a 61% volume increase.
Emerging markets trading continued to accelerate with local markets trading volume up 79% year-on-year.
Trading in local currency bonds is now available in 25 local emerging markets.
The number of active emerging market client firms increased by 16% to 837.
We are seeing growing participation with firms located outside of North America.
In the first quarter, there were 509 active client firms driving an increase of 53% in electronic orders on the platform.
We are encouraged by the returns we are seeing from our increased investment outside the U.S., and we believe we are well positioned to capture a larger share of trading in growing global credit markets.
Now let me turn the call over to Tony for more detail on our financial results.
Thank you, Rick.
Please turn to Slide 7 for a summary of our trading volume across product categories.
U.S. high-grade volumes were a record $219 billion for the quarter, up 23% year-over-year, on a combination of higher estimated trades volume and higher market share.
Volumes in the other credit category were up 37% year-over-year.
Emerging markets was a standout this quarter, with trading volume up 69%.
We believe that our emerging markets high-yield and Eurobond estimated market share increased year-over-year as growth in our trading volume exceeded the growth in estimated market volume.
We had a nice pickup in client engagement and trading activity in municipal bonds in the first quarter and executed almost 6,300 municipal bond trades, up threefold on a sequential quarterly basis.
Trading is taking place across the globe, requests for quotes and Open Trading protocols, and over 300 firms have executed a trade since we launched the platform in 2016.
With 3 trading days remaining, April month-to-date estimated high-grade and high-yield market share are tracking well above the first quarter levels.
However, market volumes across all products are down from the first quarter levels, with U.S. high-grade and high-yield trades average daily volumes down close to 20%.
On Slide 8, we provide a summary of our quarterly earnings performance.
The 19% year-over-year improvement in quarterly commission revenue was the primary driver behind the 17% increase in overall revenue.
On a constant exchange rate basis, information and post-trade services revenue increased 11% on stronger data sales.
Pretax income increased by 25%, and the operating margin percentage reached a record 53.5% in the first quarter.
The effective tax rate was 23.6% in the first quarter and reflects excess tax deductions of approximately $5.8 million relating to the new standard for share-based compensation accounting, adopted effective January 1, 2017.
Based on our current share price, we are estimating an additional $10 million of excess tax deductions for equity awards expected to be exercised or vest over the balance of this year.
As a result, we are lowering our effective tax rate guidance for 2017 to a range of 26% to 28%.
We do caution that this new standard could have a significant impact and cause volatility in the company's net income effective tax rate and diluted earnings per share.
Our diluted EPS was $1.11 on a diluted share count of 38.1 million shares.
As we mentioned on the year-end earnings call, the adoption of the new accounting standard resulted in an increase in the diluted share count of roughly 400,000 shares.
On Slide 9, we have laid out our commission revenue trading volumes and fees per million.
The 23% growth in total variable transaction fees was due to the 27% increase in trading volume, offset by a mix shift causing a decline in overall fees per million.
Let me provide a few comments on our U.S. high-grade fee plan.
The plan on fee grade has been in place and unchanged since 2005.
Because our plan is tiered based on ticket size and because the fees we earn are dependent on bond duration, fee capture will vary from period-to-period.
In addition to our distribution fee plan, we offer dealers the choice of an all-variable fee plan.
As a result, the dealer mix also influences the fee capture outcome.
U.S. high-grade fee capture declined by $23 per million on a sequential basis.
A shift to bond with lower average years to maturity and larger trade size were responsible for the drop in fee capture.
We also had one dealer switch from the all-variable plan and the distribution fee plan at the beginning of the quarter.
An important factor this quarter was a significant increase in block trading, where we not only saw an increase in percentage of block trading in the broader market, but our share of such volume increased to record levels.
This is all additive revenue, albeit at a lower fee rate.
Our other credit category fee capture was little changed on a sequential basis, even though there was a mix shift between products.
Fee capture for high-yield, emerging market and Eurobonds were all consistent with the fourth quarter.
Slide 10 provides you with the expense detail.
Virtually all of the 9% sequential increase in expenses was due to higher compensation and benefit to cost.
The variable bonus accrual, which is tied directly to operating performance, was $2 million higher.
Employment taxes and benefits were up $2.2 million and reflect the typical first quarter seasonality, where items like employer taxes are front-end loaded.
Salaries were also $600,000 higher and reflect an increase in headcount and wage adjustments affected at the first of the year.
On a year-over-year basis, higher compensation and benefits cost accounted for the largest variance reflecting a rise in headcount and greater variable bonus accrual.
Average headcount was up by 37 people or roughly 11% versus the first quarter of 2016.
On Slide 11, we provide balance sheet information.
Cash and investments as of March 31 were $356 million compared to $363 million at year-end 2016.
During the first quarter, we paid out year-end employee bonuses and related taxes of roughly $32 million and a quarterly cash dividend of $12 million.
We also repurchased 65,000 shares at a cost of $12 million under our share buyback program.
As of March 31, approximately $39 million was available for future repurchases under the program.
Based on the first quarter results, our board has approved a $0.33 regular quarterly dividend.
Now let me turn the call back to Rick for some closing comments.
Thank you, Tony.
The first quarter represents a great start to the new year with volume and share gains driving attractive revenue and earnings growth.
We continue to ramp up our investment in Open Trading in order to provide meaningful trading solutions to our dealer and investor clients in this new regulatory environment.
Our business is becoming increasingly global and our institutional client footprint provides the foundation for future growth.
Now I would be happy to open the line for your questions.
It's a good question, Rich.
There're lots of items that influence our high-grade fee capture.
But it's not only that duration element, which is years to maturity and yield sensitive, but it is trade side sensitive and dealer mix sensitive and the number of factors that flow in there.
I'm going to give you a little bit of a rule of thumb.
It isn't perfect to exact science, but what we generally see is that every 1 year in maturity, so every change of 1 year in years to maturity, that equates to roughly $10 to $20 per million.
And then, every 1 percentage point change in yield would be another similar amount, $10 to $20 per million.
Now I give those as rule of thumb, they're not exact, but that would generally frame it out.
And one other thing that I did mention in my prepared remarks, we had that one dealer move from the all-variable plan to the fixed plan.
A move like that typically one dealer, that's $3 or $4 per million.
So there are a number of items that factor in, but using those as a benchmark or rule of thumb you can do some pluses and minuses off of where we are today.
Absolutely.
You know, I would say it's a mix of dealers across large and regional and smaller dealers.
So it's ---+ the participation level is across-the-board.
It's not every dealer, but the vast majority of dealers are now taking advantage of the liquidity pool that we have built through Open Trading.
And obviously, Rich, as you know, the comment I made earlier is just dealer-initiated trades at 22% of our volume.
Dealers are also responding to trade opportunities through Open Trading when they have not seen the order disclosed, and they represent roughly a third of the respondents and liquidity providers in Open Trading.
So we're really encouraged by what we see and the growing participation and usage from dealers in Open Trading, both in taking liquidity as well as in providing prices.
It's a couple of things, Rich.
It's not only where our share price will be when awards vest or awards are exercised, but it's also the timing of when options, for example, are exercised.
So we can predict with perfect knowledge when a restricted stock award will vest.
What we can't predict is the share price, but at least we know the exact timing.
Options, on the other side, we know, for example, we have a batch of options due to expire in January of 2018.
Every one of those options is in the money.
Every one of those options will be exercised.
The exact timing, we just don't know right now.
So we size it up, and we can tell you, based on today's share price, we do expect the tax benefit for the balance of this year to be around $10 million.
The exact timing is what we struggle with a little bit.
So I think, for lack of anything else right now, I honestly I just straight line the impact in the effective tax rate over the next 3 quarters, but it could swing up or down a little bit.
Right.
Right, so for the ---+ if you're looking sequential that fee per million drop was $23 per million.
The biggest ---+ and this is in order of magnitude, the biggest item ---+ and it was a little less than half was years to maturity dropping about half of a year and then yields were up a little bit.
So a little less than half of that $23 per million was on duration.
The second biggest piece was the larger trade size.
Order of magnitude, that was responsible for $7 or $8 per million.
And then you have the third piece, which was the smaller one, on the dealer mix.
So if you're trying to disaggregate and isolate the trade size impact, it's at $7 or $8 per million.
And <UNK>, when you look at ---+ if you're thinking about going forward, it's tough to predict where this is all going to come out.
I can tell you, I was looking at April, the block trade size is back consistent with where it's been in the past 8 or 10 quarters.
So what was a ---+ the first quarter anomaly, it looks higher than where it was in the prior 8 or 9 quarters.
April is back down to where it's been right now.
You know we've said in the past we're always interested in acquisitions that would add to our product capabilities or client segments and the retail space is of interest to us.
Having said that, we still do not see any meaningful overlap between retail fixed income trading and institutional trading.
So the level of synergies there may not be as high as some people think.
But it is a client segment that would be of interest to us.
Sure.
I think it's a very good question, <UNK>.
Thank you.
And ---+ first, within Europe, we have little doubt that the new regulations will cause an increase in electronic trading in European fixed income.
And I think it's partly related to the best execution requirement that you mentioned.
It's also related to the huge burden placed on market participants for trade reporting.
Some of the rules that require as many as 90 fields on every trade to be reported are so onerous that it's almost impossible to imagine doing those trades the old-fashioned way and manually.
So I think it's a combination of best execution and the trade reporting requirements that are likely to cause an increase in electronic trading within Europe.
We are seeing more and more global investors that are active in European fixed income, that are starting to apply those same standards beyond Europe because they're running global portfolios.
And as a result, we see an increase in the demand for best execution analytics across regions and not just in Europe.
And I think there are 2 common themes there is that, one is the regulatory focus on best execution, arguably, led by the changes in Europe with MiFID II, but not exclusive to Europe.
Regulators throughout the U.S. are also more focused on best execution than they have been in the past.
So that trend is there.
And the other is, that the asset owners themselves, we hear consistently, are regularly asking more questions of asset managers about how they think about best execution in their fixed income portfolios.
So there is a widening interest and focus on best execution.
And as we've mentioned in the calls in the past, one of the investments that we've made in our analytical capabilities is related to that and that is, we are now providing TCA analytics for all trades that are conducted on our platforms to serve that need from our clients.
We are, in terms of share of tickets during the quarter, we are, I believe, just a little bit over 10%, and in terms of volume a bit below 10%.
So it's edging higher along with our overall share, and the key theme in the first quarter, Patrick, is that the share of blocks in all the trades was up from prior quarters.
I'm just opening up the sheet and ---+ yes, over $5 million was pretty close, Patrick.
I do think it reflects the growing comfort that clients have in executing blocks on the platform, and what we noticed is that block orders, not surprisingly, garnered the most attention of any orders on the platform.
So the quality and breadth of price responses grows with trade size.
And as a result, good experiences, we think, will lead to repeat activity from those clients that have had great execution results executing blocks on the platform.
I think it's a couple of things.
First of all, the high-yield new issue calendar did not grow to the same extent that high-grade did.
So there was not that direct connection from growth in high-yield issuance that we think that drove the high-grade TRACE volume.
The other factor that's impacting both, but I would argue high-yield more, is the lack of volatility.
And this was a highly unusual quarter in terms of credit spread volatility, and we believe that that caused a reduction in turnover for active portfolio managers in high yield.
Sure.
There's room for multiple solutions.
We think that we have a logical place in TCA for global credit markets.
And it's really 2 things, Patrick.
First is, access to quality data.
So you need a comprehensive database of fixed-income transactions in order to do a credible job on TCA for clients.
And we have 3 main sources for data to compare execution quality.
The first is, obviously, that the trades data in the U.S. The second is the comprehensive data that we have in Europe for European fixed income through Trax, and the third is our own trading data.
And as a result, we've worked really hard to put together a database that is meaningful for our dealer and client ---+ investor clients, so that they can compare execution quality of their trades, irrespective of whether they're conducted on the platform or through traditional means, and that is why we think we've got a place ---+ a role to play in TCA within the global credit markets.
We are not really doing much on the rate size because we do not today believe that we have those same comparative advantages in rates for TCA that we have in credit.
Patrick, it's ---+ never take these items lightly.
But we've been ---+ you know how we've performed, which is ---+ we've been in a situation, we've had a rising share price for a long period of time.
And even when you look back the past 5 years, the EPS benefit ---+ had we been under the new rules the past 5 years, the EPS benefit would have been between $0.10 and $0.30 in EPS.
You look forward, so this is more forward-looking.
I could tell you, sitting here today, based on where our share price is trading and assuming that every restricted stock award vest and every option is exercised, I could tell you, we're sitting on somewhere between $60 million to $70 million of excess tax benefits to be recognized over the next 4 years.
So yes, there is a piece, and the sizable piece that we expect to be recognized in 2018, in 2019, in 2020.
But, again, it's all predicated on where the share prices is, and it's predicated on the timing of when options, for example, get exercised.
But a little early to start talking about guidance for next year, but I would bake in some element of tax benefit going.
Just wanted to ask on the number of active trader firms you've seen kind of growing outside of North America.
I'm not sure if you have any idea of what the addressable market is or large firms to kind of current ---+ or meaningful firms that aren't currently active on the platform, that could be.
Just kind of trying to get a sense of how much more runway you have to add active trader firms outside of North America.
Yes, I think the majority of the large global firms, I know they're already active on the platform.
But the asset management industry outside of the U.S. is more fragmented, and we think that there is still a much larger list of potential clients.
And we were encouraged by what we see in terms of the growth rates across our product capabilities from European clients, but also really encouraged as we ramped up our sales commitment to the region in Asia that client onboarding that is taking place in the region.
So if we are over 500 active firms outside the U.S. now, I would not be at all surprised to see that number double over the coming years.
That's helpful color.
And then, just wanted to ask on the higher revenue from data that you mentioned.
Can you just talk about what drove that.
Curious if it's more market participants interested in buying your data or is the value proposition of the data you're providing is improving.
Maybe that's increasing demand.
It is ---+ on the data side.
You just ---+ by way of history on that one.
We've been growing that data business around 10% a year in data revenues.
It does get masked a little bit, more recently because of the FX impact.
There is a chunk of our revenue that is generated out of the U.K., so it does get masked a little bit.
But we're providing volume reports and pricing reports and reference data, all content that resonates with clients.
It's a ---+ It is part of the growth story.
We think we can grow that data revenue going forward.
I do ---+ just in terms of cautioning.
Can we ---+ can data be 25% of our revenue going forward.
I think we still have tremendous room to grow market share and tremendous room to grow our commission revenue and volumes.
So I do believe we're going to grow the data revenue, but we're also in early stages on market share penetration.
So it's going to be an important element and part of the growth story going forward.
But I don't know when we get to that 25%.
Thanks.
And just ---+ maybe just circling back on that.
Any updated thoughts or potential opportunities to sell data that you're currently not providing to the market, just given there does seem to be kind of increased demand for your data set.
I think that ---+ a couple of factors there.
We are developing new data products in conjunction with our clients every quarter.
And as our trading activity grows in terms of share, but also in terms of the breadth of products that we cover, it does give rise to new data opportunities going forward.
And so the short answer is, yes, we do believe that we can increase the set of data products that we provide.
I would echo Tony's comments that, given the momentum that we have in our trading business, we still expect the main engine of revenue and earnings growth to come from the trading side.
But our data products are increasingly providing a necessary and important service back to our clients.
And the other thing that we've said many times is that the key part of data is also enhancing our trading platform.
So we are constantly thinking about how we can add more value to clients in both pretrade price discovery, and those tools have continued to advance over the last 3 or 4 quarters with a real-time composite price that's now available in addition to trades and Trax price to help all of our dealer and investor clients with pretrade price discovery.
And that's in a conscious effort to make the trading system more valuable and help in the goal to continue to increase trading market share.
So some of what we do in data is for standalone growth in our data business, and a key part of it is also in enhancing the trading experience on the platform.
Got it.
And I realize this is probably really difficult to try and strip out some of the variables.
But do you have a sense of your average client, who kind of provide ---+ or pays for your data service, their propensity to trade on your platform versus those you don't.
I know it's probably a tough question to answer, just because the larger firms are, obviously, buying the data and trading more.
But I'm just wondering if on an apples-to-apples basis if, kind of building on your comments, if there is a correlation between all those people, those who pay for the data and those who don't, in terms of trading activity.
You know its ---+ I don't know that we have that exact data that would give us the correlation.
I can tell you that there is no doubt in our mind that our data products and our post-trade TCA and the other things that we work on extensively to add value to our clients are a key part why they come to the trading perform and trade every day.
And oftentimes when they recognize the value of that data, then they want that data delivered into their ---+ directly into their own trading systems through APIs.
And so often that's where it gives rise to data revenue opportunities for us.
So they're directly connected, but I don't think we have any quantitative data that would answer the specific question that you've asked today.
Sure.
I think the pool of Open Trading price providers that I mentioned in the prepared remarks, with 670 firms or so, would tell you that it's not that concentrated, that the vast majority of our clients have set up electronic watch lists in the system for the bonds that they care about and match their portfolio needs.
And when they find matched opportunities, many of them are now clearly in the practice of being able to lead with a price.
So I think that's a really encouraging sign for future growth.
With respect to the sense of urgency, it varies by firm, and there is a lot of work involved in changing the trading process with the coordination with the order management systems and the coordination that's required between PMs and trading managers.
And when you look at the year-on-year and quarter-on-quarter growth, we're making progress every quarter, and we're really encouraged by what we see in terms of shifting the dealer and client behavioral pattern to participate more actively in Open Trading.
And I continue to believe that the market environment will have something to do with the sense of urgency.
Right now, things are pretty benign, we had a very low volatility quarter.
But I think these tools will be incredibly important to the global credit markets when we return to more normal levels of volatility.
I don't think there is anything to call out.
You know the ---+ our European business is much broader than Eurobonds, as I had mentioned in the prepared remarks and we have similar activity levels with European clients in EM and U.S. high-grade.
And the growth rates were better there this quarter than they were in Eurobonds.
But I don't think there is anything specific to call out.
And when we look inside the Eurobond market, we see many of the same dynamics that we reported on today in U.S. high-grade, with a pretty active quarter on a relative basis for Eurobond new issuance and extremely low volatility of credit spreads.
That's exactly right.
You're looking at the first quarter, that's where it would have been, right at 34%, excluding the FX tax benefit.
That's exactly, right.
We didn't give the Open Trading revenue, but I could tell you it was a record quarter, and it was right around $12 million.
Right, right.
So Rich, if you ask me today on expense guidance, I think we're going to come smack-dab in the middle of the guidance that we provided originally, which was $192 million to $208 million.
You're right, if you annualize the first quarter, it'll get to the low end.
But you know there are a couple of swing factors in there, headcount's part of it.
We do expect to add headcount over the balance of this year.
We were up 8 or 10 people in the first quarter.
We expect another 30 or 40 new hires over the balance of the year.
So that headcount does play into it.
You saw ---+ you may have seen that marketing expense, for example, was lower in the first quarter than it was in the fourth quarter.
It's a bit episodic.
But we do expect marketing expense year-over-year will be up around 10%.
That's going to influence Q2, Q3 and Q4 as well.
So those items, when we look out over the balance of the year, right now puts us smack-dab middle of that original guidance range.
Thanks very much for joining us this morning, and we look forward to updating you next quarter.
| 2017_MKTX |
2018 | CME | CME
#Thanks, <UNK>.
And as <UNK> said, we want to thank you all for joining us this morning.
We appreciate your interest in CME Group.
I hope you got a chance to read through the Q1 earnings commentary document we provided earlier this morning.
As you can see, the strength of the quarter was broad-based across products and geographies as a significant number of customers actually turned to CME's markets to manage their risk.
Many of the themes that we have spoken about in the past few years were clearly on display this quarter.
Those include our focus on driving trading volume 24 hours a day, delivering additional innovative futures and options products to meet client needs and drive additional revenue, and remaining efficient on the expense side.
The combination of those efforts led to over 50% adjusted net income and diluted earnings per share growth in Q1.
At the end of the first quarter, we were pleased to announce the transaction with the NEX Group.
We are working diligently on the time line we outlined on the analyst call.
The NEX shareholder vote has now been set for May 18.
We have begun the process of seeking regulatory approvals, and we continue to expect the transaction to close in the second half of this year.
With that short introduction, we'd like to open the call for your questions, and we'll start now.
<UNK>.
Thank you, Dan.
Good morning.
Market data came in at $95 million this quarter.
We had a $1 million reclass from market data to other revenue.
So including that reclass, we are running at similar levels as the first 3 quarters of last year.
In Q4, we saw some benefits of bringing the audit function in-house with approximately $6 million of settlements.
And as we mentioned previously, we expect there to be fluctuations up and down in this line quarter-to-quarter depending on the realization of those settlements.
We've been building a pipeline that is being worked so we do expect those fluctuations to continue.
Before I turn it over to <UNK> to talk a little bit about what he is seeing in the market data business, as you indicated, the big change coming is the real-time market data price increase, which is going from $85 to $105 per screen, which went into effect in April.
Real-time market data accounts for the majority of the market data revenue and since the announcement of the price increases, we've seen a stable level of subscribers.
So <UNK>.
I would just point out that with respect to the audits, the resolution in settlements can be quite protracted.
There is a number that are in the hopper right now that we look forward to and hope to resolve in the next quarter.
You saw what happened last quarter with the amount of settlements that took place.
What's even more imperative to us is the correction of behavior.
So what we are seeing is a stabilization in the context of what you may have seen in past decline of screen counts.
What we are seeing is an improvement in terms of the reporting of real-time screens.
That in combination with the $20 adjustment in terms of going from $85 to $105, which took effect April 1, is something that we'll be watching closely.
Also, with respect to the derived data, you need to keep in mind that some of those contractual arrangements can be quite chunky themselves and can take some time to be able to negotiate those agreements.
So I would just kind of temper that a little bit in the context of quarter-by-quarter and how those 2 areas hit.
Sure.
Thanks, Chris.
Yes, we've been very pleased with the performance of the S&P Dow Jones joint venture.
As you know, the S&P JV's revenue consists of assets under management, which is the majority of the revenue, but a significant portion is also based on derivatives trading, specifically here and in ---+ at CBOE.
So you've seen our performance in equities this quarter up 47%.
So that is ---+ that gets paid through a license fee from us to them and then we then get back 27% of it through the earnings in the JV.
CBOE also has had very good activity as well.
So again, it's a lot of the dynamics that are positively impacting our business is positively impacting their business, and it's just been a tremendous business model to have and one that we're very happy to participate in.
I think it's ---+ they're reporting their earnings right now so I don't have the most recent breakdown for you there.
But again, like I said, it's been a positive with regard to our equity activity really positive in terms of both the S&P, and also NASDAQ Futures has performed also very well.
Yes, Rich, I'll take part of that.
So there's really no new update to the time line other than what Terry mentioned, we do expect the shareholder vote on May 18 has been scheduled, we still plan on closing on the second half this year.
Also, as Terry mentioned, we're working through the regulatory approval process now.
So no real update on the time line.
In terms of leverage and paying down the debt, really nothing more to update you on than what we put in the 2.7 announcement.
And really what we did is we approached our structure to the transaction and our approach over the next couple of years to be balanced in terms of investing in the business, returning capital to shareholders and paying down the debt.
And as you saw, we ---+ in the 2.7 agreement ---+ or announcement, I should say, we expect to delever over the next couple of years down to levels that are similar to where we stand today.
So that's our objective.
<UNK>.
Well, we want to thank you all very much for joining us this morning, and we look forward to talking to you at the next quarter.
Thank you very much.
| 2018_CME |
2015 | FSS | FSS
#Good morning and welcome to Federal Signal's first-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 will 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 at federalsignal.com, clicking on the investor call icon and signing into the webcast.
We have also posted the slide presentation and the news release under the Investor 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.
I am going to start by addressing our financial results.
<UNK> will then provide his perspective on our performance and market conditions, and <UNK> will wrap up our prepared comments with a discussion of our growth, initiatives and outlook for the remainder of 2015.
As you have seen in our earnings release news release, our first-quarter results reflect strong sales growth and significant improvement in operating margins as we continue to execute against our strategies and 80/20 initiatives.
Consolidated net sales for the quarter were $222 million, up 11% compared to the prior year period, and operating income of $24.8 million was up 94% versus last year.
Consolidated operating margin rose to 11.2%, up significantly from 6.4% a year ago.
Income from continuing operations of $14.9 million for the first quarter was almost double the prior year income level.
That translates to EPS of $0.23 per share, which is up 92% from $0.12 per share last year.
There are no material adjustments to GAAP results in either period.
Despite these outstanding results, we did see a 20% decrease in the consolidated quarters during the first quarter.
<UNK> will go into more detail on some of the contributing market factors.
The Fire Rescue Group accounted for approximately 65% of this decrease.
As you can see from our group results, all three of our business groups reported increases in sales and operating income and much improved operating margin versus Q1 last year.
Sales at ESG were up 16% versus last year on significant increases in shipments of street sweepers and vacuum trucks, and operating income was up 57% as we continue to benefit from operating leverage, capacity enhancements and product mix.
ESG's operating margin rose to a record high of 17% compared to 12.6% a year ago.
Orders at ESG were down 7% year over year.
At SSG sales were up 2% compared with last year's quarter, primarily reflecting improved sales in the global public safety markets.
Our public safety businesses also delivered improvements in operating margin and operating income for the quarter, driving SSG's improvements.
Group operating income jumped 53% to $6.6 million, and operating margin was 11.7% compared to 7.8% in Q1 last year.
Orders at SSG were down 13%, mainly due to a comparison against some large orders received in the first quarter last year.
As we have noted previously, most of SSG's business normally operates with relatively low backlog.
In the Fire Rescue Group, net sales were up $0.6 million.
Excluding the effects of foreign currency translation, FRG's net sales increased by $4.5 million or 18%.
Operating income improved to $0.3 million versus an operating loss of $0.8 million last year.
FRG's first quarter orders of $22 million were down 57% compared to the first quarter of last year.
Corporate operating expenses at $6 million were in line with last year's levels.
Turning now to the consolidated income statement, our 11% increase in sales helped drive a 26% improvement in gross profit and a consolidated gross margin of 26.7% for the quarter.
This compares to 23.4% last year.
Selling, engineering, general and administrative expenses of $34.4 million were up slightly compared to the prior year quarter, which also included a nominal benefit from restructuring activity.
All of these factors roll into the Company's $24.8 million of first-quarter operating income.
Other items affecting the quarterly results include a $0.4 million reduction in interest expense resulting from our lower level of debt and an increase in other expense, which is primarily due to currency effects.
Tax expense for the quarter was up, paralleling income with an effective tax rate for the quarter of 36.1% compared to 35.6% in Q1 last year.
Our full-year effective tax rate for 2015 is currently estimated to be approximately 36%.
This is slightly higher than previously anticipated due to expiration of the R&D tax credit and changes in the mix of our earnings, with less income expected to be generated in lower tax rate jurisdictions.
From a cash perspective, we are projecting a cash tax rate in the low to mid teens.
The difference between our effective tax rate and our cash tax rate relates to 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 $0.23 per share from continuing operations in Q1 compared with $0.12 per share in Q1 last year.
Looking at the balance sheet and cash flow, the first quarter of each year is typically a period in which our businesses add primary working capital, and this year was no exception.
The effect this year was muted by FRG's strong fourth-quarter sales in 2014, which created higher primary working capital than usual at year end.
In addition, we generated more cash flow from higher earnings in the first quarter of 2015.
In total, operating cash flow improved by $10.4 million.
We generated $3.4 million of cash from continuing operations compared to use of cash during Q1 of last year of $7.0 million.
Total debt of $53 million was down from $58 million in the first quarter of last year, and net debt was low at $30 million.
Our leverage ratio of debt to adjusted EBITDA dropped 0.4 times.
That is lower than the ratio of 1 times a year ago as a result of steady improvement in both lower debt and higher earnings.
Our strong operating performance and our low level of debt obviously give us excellent flexibility to fund growth initiatives and return value to shareholders.
During the first quarter, we doubled our quarterly dividend to $0.06 per share, paying a total dividend of $3.8 million.
We also funded $3.6 million of share repurchases.
We have about $76 million remaining under our share repurchase authorization.
That concludes my comments, and I'd like to turn the call over to <UNK>.
Thanks, <UNK>.
I'm happy to be addressing such a strong first quarter, which gets our 2015 off to a solid start.
<UNK> has covered the numbers, and I would like to add some color on the results of our markets.
First, the Environmental Solutions Group had another outstanding quarter.
Its 17% operating margin reflects strong market demand for our products and three key areas of dedicated focus that we've had in the recent years.
And these areas of focus are satisfying our customers, 80/20 and lean manufacturing improvements, and the leverage of capacity and flexible manufacturing model that ESG has been utilizing.
At the Safety and Security Group, we had steady performance on integrated system side, complemented by improving performance of the public safety markets.
We've been executing a turnaround plan in our public safety business for the last several years, and it's rewarding to see it pay off.
We have honed our products, reduced SKU counts and introduced new products and service offerings such as our upfitting of police vehicles.
We have also leaned out our production and taken out cost.
From a markets perspective, we have gained some market share in North America during a period of stable market demand the last few years, and then southern Europe's police market, it is showing signs of improvement.
The Fire Rescue Group, which is our Bronto Skylift business, produced modest earnings after a very strong Q4 of 2014.
Q1 is also an improvement over a weak Q1 a year ago.
Last year we talked about factory disruptions due to the installation of major paint, welding and machining systems.
We have largely resolved most of these disruptions.
Our supplier issues also appear to be behind us.
With this, we are beginning to see the benefit of these investments.
We have also focused on more profitable sales opportunities, particularly in Europe, which had contributed to Bronto's poor results during 2014.
We will continue to focus on improving Bronto's performance in 2015.
So across our businesses, financial results for Q1 were very strong.
On the other hand, the level of FRG orders was particularly disappointing.
FRG has had a long history of lumpy orders and sales.
The prior year quarter included a number of large multiunit orders from Asia-Pacific and the US that did not repeat during this quarter.
There also has been a concerted effort to reduce the intake of low margin orders, and we lost a couple of large European bids during the quarter.
In addition, unfavorable currency translation reduced the dollar value of orders by $4.6 million.
Orders and SSG were down as well.
In general, SSG is more of a book and ship business, so backlog is not as large a factor.
We had a number of large orders in the first quarter of 2014.
In addition, we believe a lot of the softness comes from the direct and indirect effects of weak oil and gas markets and a strong dollar.
Slower orders at SSG ---+ I'm sorry, at ESG also reflected some effects from oil and gas and foreign currency.
A key initiative over the last year has been reducing our leadtimes and enhancing our capacity.
We expected to see a reduction in long-term stocking orders from many of our customers as a result of these improvements.
In the past, customers placed orders way ahead of the market demand to hold slots in our production schedule.
As our leadtimes have reduced, our dealers can satisfy market demand without placing advanced orders.
This reduction in dealer advanced orders does not indicate the deterioration of market demand.
On the municipal side, demand has been steady, and feedback from our dealer group has been encouraging.
Overall we remain optimistic about ESG's performance for 2015.
Now I'd like to turn the call to <UNK>.
I think, <UNK>, if you look at what we are looking at is, we were not insulated like everybody else from the effects of the first quarter as everything chilled, but we do have a substantial backlog still in place in all the businesses as we look at backlog.
Bronto is an exception.
It did drop since we shipped a lot of the backlog, but our ESG backlog is normal, down a little bit.
The SSG backlog ---+ so we had a pretty good visibility for the second quarter.
If the order rate stays cold or chilled like the first quarter, then it will obviously affect in the third-quarter and fourth-quarter margins.
But, as <UNK> said, our dealers are feeling pretty good in most cases on the municipal side.
We do have the headwinds from the oil and gas.
I think it's yet to be seen what the total impact on that is.
Yes.
I think as we look at the ESG group, we understand exactly what you just said.
So in this last year, we have spent a good amount of attention on both of our main factories and actually jetstream as well, so all three of the factories, to really make sure that these are well lubricated machines that can react up and down with the markets in a flexible way and be able to leverage our costs and our operating income opportunity.
But we've also spent a lot of time on building our sales forces and giving our dealers more tools on the municipal side.
And, on the direct side, we've added almost double our salesforce.
We've also done a lot on the server side.
We've added more solution centers.
We've enhanced our rental programs at jetstream.
Because it is so valuable, we've really been putting resources ---+ so you'll likely see some of that in the SG&A side.
We've enhanced our FS Solutions business in all those things.
Our acquisition strategy also centers around trying to expand our industrial business, as well as our municipal, but a lot of the items ---+ things that we are really trying to focus on center on the industrial side of the environmental systems group.
Every indication we have is if infrastructure continues to deteriorate, people are going to continue to have to spend money on that.
So we believe that we are well-positioned to go after it.
We believe the 80/20 still has room to go, for sure.
And I think what we've seen is we've learned how to flow materials to the assembly lines a lot better ---+ reduce costs, so I think the answer is yes.
It's a very capital-intensive business, <UNK>.
So it does have a ---+ it probably uses twice as much working capital on average as our other businesses for the same amount of sales.
So that's a factor when we look at that business.
Well, we are working on improvements constantly at Bronto, and it has been more or less cash flow neutral the last few years a little positive.
It should be contributing a lot more.
With all the investments we've put in there, <UNK>, it should be contributing more.
We've been at a very competitive market with the European markets being soft, so pricing has been stressed some there.
But yes, we think it can contribute better than it has.
And it will always be a lumpy business, so that's one of the things that makes it hard to look at.
I think when you mentioned looking at it on an annual basis, that's a fair way to look at it as opposed to quarter by quarter.
Right.
I think the order pipe ---+ or the quote pipeline for FRG has slowed some.
I think we've seen a little bit of a slow in Asia.
In Europe we lost some orders in the first part of ---+ in the first quarter.
So I think the proposal flow was there in the first quarter.
We just didn't get a number of orders that we felt were not profitable and really couldn't pursue them to the level on a pricing basis that we wanted.
So there's still a good amount of activity.
Again, we are just trying to balance production with profitable orders, and that had some impact on the first quarter.
We have for the last year been analyzing the different strategies we can employ such as reducing inventory ---+ I'm sorry, reducing overtime, insourcing more of the product.
There are things we can do to tighten it up, and you recall we didn't really get the new paint system, machining system, our automatic welding robots up in position until the third quarter of last year.
So we believe we should be getting some of the benefits of our productivity enhancement.
We've invested a great deal of money in that business since 2008.
You might recall back then we doubled the size of both plants so that we could insource the production, as well as launch a series of new product lines, and we are in the middle of working on those product lines.
We did stumble a little bit last year with one of them, which was some of the extra labor that was spent.
So I think we'll become more efficient in the general production, as well as get some of those new lines out, and we should see the benefit of all that.
And from a sales perspective, you need to remember Bronto is a very well-positioned product in the marketplace.
It's a niche market, so the orders can come unexpectedly, and you can see them coming for a long time, and other times you just don't know exactly when they will land.
So when you look at some of the markets, they've been a little, as <UNK> said, slower.
That doesn't necessarily mean that the demand isn't there, and Bronto is very competitive in most of those markets, and they have great products.
If you look at the global economy, it's slowed everywhere ---+ China, Europe, the US in the first quarter.
So I think part of what we are seeing, that is our only truly global business.
It ships every year to 40 different countries, and I think they are feeling a little bit of that, too.
We don't really break out every dollar of oil and gas on the ESG side because of the rental business and some other things are clouded, but we do know it's down.
We've seen pricing maintain, but a lot of the front-end oil and gas new expiration is certainly off.
But in terms of the maintenance of the fields that are there, our service centers are busy in those areas, and we are seeing activity.
On the SSG side, we are seeing some slowness in orders and also some hesitation as the global market tries to digest what's really going to happen with oil and gas.
So I think we have to have another quarter or so to really understand what the impact of that is.
But, certainly as we look at our business, it had some impact on it, but again, we were in so many other markets that we believe we will be able to overcome the negative on that.
In closing, I'd like to reiterate that we are excited about our progress and the opportunity in front of us.
We appreciate the continued support of our stockholders, our employees, our distributors, our dealers, and all of our customers, and we thank them and we thank you for joining us today.
With that, we will say goodbye.
| 2015_FSS |
2015 | TMO | TMO
#What I would say is that, clearly, the oil and gas end markets are soft, but they are very, very, very small for us.
There is some effect, but it does not hit any level of materiality to the Company.
That's what I think about that.
You can just lump it into the commodities material markets are soft and oil and gas is soft, but nothing much to spend dwelling there.
Generally, industrial and applied should be a reasonable market for us this year.
Thanks.
Japan was the primary driver, so we had been growing in the low single digits last year.
We declined in the low single digits.
The full delta between flat and the decline was driven by Japan.
Maybe the difference between flat and the rest was just a little bit of softness that we saw in Europe, so that would be the academic and government story.
It really is a Japan story.
This industry is mostly private companies, in terms of the number of companies.
There's a huge pipeline of those, and we continue to look at those closely.
Every once in a while you will see us be able to get one over the goal line.
Morning, <UNK>.
<UNK>, you on mute.
<UNK>, interestingly enough, if you think about what happens a year ago and what happened this year, you have similar patterns, a very strong finish to the year and then a softer Q1.
<UNK>, when he laid out the guidance, said if you want to be a little bit softer than the balance of the year.
What I would say that dynamic is, if you think about what happened in both of those years, nothing really bad happened in the world.
Everyone on this call has heard me say this.
Customers keep a certain level of money on the side to manage for a disaster.
Both in 2013 and 2014 the way the world ended, things were okay, so people were released funds very late in the year.
That dynamic does the following, which is, if you want to buy something exciting and expensive you buy it, but sometimes if you have a little extra money, you wind up buying something you absolutely know you're going to need.
I'm sure that some high-tech consumables, bioscience reagents, if people had a little bit of money, they bought a little bit knowing that they would use it in the first quarter.
Does that have a tiny bit of an affect.
Sure, but is it something we are calling out.
No, is the way I would think about it.
<UNK>, I guess a couple ways I would think about that.
One, is Japan, not a huge market for us, in aggregate.
Top-five, top-six market, but not a huge market.
Accounted for, for the whole academic and government, about a little more than 3% decline for the Company in the quarter.
It gives you a sense of how soft it was.
There were two factors, as I mentioned in my prepared remarks.
One which we clearly understood and embedded in our guidance, which was a very challenging comparison in Japan because of the consumption tax last year, which had customers pull things forward.
Not having the budget passed until after the quarter end, I don't think we'll see ---+ from everything I've read, from the team that we've worked with for many, many years was not something that they anticipated nor, as far as I could tell, was really expected, so that's the difference in the performance.
I don't know, maybe other people saw that happening and we missed it, but from my understanding, I think we planned it appropriately and that's the way it played out.
Yes.
Basically the segment played out pretty much as the same story as the Company, 2% growth in the quarter we said 3% or 4% for the segment for the full year.
We feel good about the 3% to 4% for the segment for the full year.
Also spend some time talking about that at the analyst meeting coming up, which I believe is May 20, so mark the dates.
Ken's happy, smiling that I'm doing a plug for that.
It's nothing has changed in terms of our outlook for life sciences solutions segment.
In terms of gross margin it's about 45 basis points year over year, negative.
I think you have the combination of drug approvals, biosimilars and vaccines.
That combination of those three are really driving substantial growth in that market.
I would say that it should be a strong end market for a number of years ahead.
Thanks, <UNK>.
In terms of the diagnostics in healthcare, I think the US was generally okay in terms of utilization.
You still have the pattern, which is incredibly exaggerated, meaning that it's now the lowest.
That set of activity is Q1 and it builds steadily as people meet their deductible limits during the course of the year.
But I think that pattern is roughly normalizing, so you have low level activity but your growth rates are somewhat similar throughout the quarters is basically what's going on, so nothing dramatic to note in Q1 in terms of utilization.
In terms of the three-year outlook we are still holding to the $300 million of cost synergies and $50 million of pull through on revenue synergies.
You're welcome.
We obviously, we put in some euro debt last year, which helps a little bit.
We actually seeing a little bit of below the line impact from that.
Part of the synergy actions that we're putting in place is trying to convert some of our suppliers to local currency to improve our natural hedging position.
We don't have a ton of that, but we are out of sync in a few geographies, so we're working on that.
In terms of just regular, overall hedging program, we don't intend to put anything in place with regard to that.
No, we have not changed our strategy on debt pay down.
We're shooting to get down to about between $12 billion and $12.5 billion by the end of the year.
That gets us in the just below 3 range, so back in our target leverage ratio range.
Melissa, we're going to take one more question.
<UNK>, thanks for the question.
In terms of ASI, we closed in February and had the great opportunity to meet with the team there, and the integration is going very smoothly.
Very complementary to our existing single-use technologies, brings some new product range as well, in terms of connectors, which is an important step in the workflow and gives our customers the choice now of a second film, which for certain biologics would be very useful for them, so it gives us a more complete offering, which we very much value.
There's a lot of competitors still out there, so for sure there's there quite a competitive landscape.
We have our niche as a strengthen, others have theirs.
It's an area with great market growth, and we have a great competitive position, but there's quite a few different companies out in the landscape.
Thanks.
So, let me wrap it up.
We feel good about our accomplishments in Q1.
We are in a great position to deliver another strong year.
Of course, we look forward to updating you on our progress next quarter and seeing you in New York City later in May.
Thanks, everyone.
| 2015_TMO |
2016 | HLX | HLX
#First of all, the term loan, we have historically and always seek to replace or rollover that facility a year plus prior to maturity.
That's still our plan.
We plan to go out in 2017 and try to accomplish that.
As you note from our convert repurchases, we want to do something with the converts.
I mean, that's still up, that's still something we're looking ---+ seeking to do.
That's what prompted my comment in the color section to say that I think we have given about all on rates that we can.
Okay.
Thanks for joining us today.
We very much appreciate your interest and participation and look forward to having you on our fourth-quarter 2016 call in February.
| 2016_HLX |
2015 | ORCL | ORCL
#Yes, <UNK>.
In fact, it will accelerate very strongly.
It can't help itself.
Our bookings are so strong.
We've had so many contracts already.
We will be recognizing those basically regardless of how bookings go.
Of course, as you can see our bookings are also accelerating.
Yes, we are going to have a phenomenal FY17 in the cloud business.
Yes, and you know, <UNK>, right from the star it's going to be strong, because you're going to wind up with a Q4 at the revenue rate that we just gave you some guidance on.
You add the bookings on top of it.
When you start Q1 and into Q2, you can already do the math on what the comparisons are going to look like.
It's going to be a strong year and particularly strong start.
Let's back up.
It is all ---+ the bulk of the SaaS and PaaS margin improvement is because we are now recognizing revenues for which ---+ and much larger revenues ---+ for which we have already paid for many of the costs.
We built up an infrastructure that can handle massive amount of usage, significantly more usage.
We have not been able to recognize the revenue because we are recognizing it ratably.
As we scale, this is absolutely an area where it is inevitable that we ---+ that this improves.
In addition, we also have efficiency gains at all times; but that is again because of our larger scale, and those are simply economies of scale.
But the bulk of it is we are starting to be able to recognize revenue for which we have already invested.
As to how many points, I actually ---+ the impact on operating income for us was quite significant from a currency point of view, but ---+ hold on, I'm doing the math.
I don't know, I've got to actually do it on our margin.
I will have to do it while you are talking ---+ while other people are talking, and then I'll give you the exact answer at that point, how much of it was ---+
<UNK>, we'll circle back to you later in the call.
Why don't we go to the next question, please.
Okay.
Let me tell you confident.
That would be my answer to your question.
Our pipeline ---+ I think I mentioned this at Financial Analyst Day, as I'm going to mention it again.
Our pipeline ---+ I can't come up with a better analytical statement then just huge.
Our pipeline now is multiple billions of dollars.
Let me give you more color.
If I looked at the next six months, our pipeline of things that are in the next six-month funnel, you have a multi-billion dollar funnel, and our conversion rate is increasing.
That would tell you ---+ and our business has become scaled enough, <UNK>, just to be clear, that it now is behaving like a large business begins to, in terms of the scale of the funnel, the pipeline, the discipline we have, the conversion rates we have, et cetera.
That would be my view on that.
On PaaS, we have had a change to your point of going away from metered to subscription bookings.
The bookings are now the bulk.
As I mentioned it's at 75% now subscription, as opposed to metered.
I would say the usage of our PaaS has increased not significantly, but sort of geometrically ---+ meaning that it's gone from when we originally started the usage to jumped up over the last four or six months, I would say, to where the usage is extremely high ---+ extremely high in terms of the increase of our usage.
It's very exciting both in the bookings, the type of bookings, and of usage that we're seeing of what's booked.
Well, I'd start ---+ again, I'm going to make ---+ this is going to be like the fifth time I've said this, but I'm going to try to again.
In SaaS overall, we are just better overall.
We have more people.
We are well trained.
Our products all have matured, and we have a lot of references.
Our position in ERP is just unique.
We don't have a competitor, per se.
I use these metrics against Workday just to describe to you how exponentially far ahead of our only person I can think of that's built a product.
Just to be clear in ERP SaaS, I don't ever ---+ I'm not trying ---+ <UNK> might have somebody she knows or <UNK> might know somebody ---+ I don't see SAP.
I'm out in the market a lot.
I don't see them.
I don't know what they're working on, but it's not ERP/SaaS.
In HCM, I think we are continue to just get better and better and better.
I mentioned, because I had a blizzard of names and I may have been myself a disservice by mentioning so many names.
But in a couple of these we actually replaced Workday.
Imagine, in a period of time Workday ---+ sorry, in HCM, we replaced Workday.
We continue to get better and better and better at HCM, and now we are beginning to see a lot of deals that are where you sell ERP, and HCM is attached to the ERP sale.
Because of ERP being in many ways a very strategic, very sticky sale, we now see our attach rates moving up and up and up where somebody buys ERP, and they buy HCM at the same time.
The scale of our fusion products ---+ and the reason I gave you that metric for the first time ---+ is it is now a very high ---+ it's now beginning to become a reasonable percent of our total portfolio, versus everything that we've got, including marketing, which is having a great run, as you know.
But I add to it the fact that now fusion products, which are extremely sticky, are almost 50% of our total bookings.
Phil, I could keep going down these metrics for you, but I think we're unique in ERP, and getting further ahead.
We're at the point now we're over 1,500 customers.
We'll give you a prognostication where we end the year, but it's going to be well over 2,000 ---+ I guess I just did.
It's going to be well over 2,000.
We're getting better and better at HCM.
We're in a leadership position in marketing.
I feel good about where we sit.
Well, we see our customers with a much higher up-take of 12-2, simply because they have two key features that are very important to our customers.
One is the in-memory aspect of the database, where we now have the fastest in-memory database.
The way you take advantage of that, you take any existing Oracle application, and you run it without change on 12-2, and it runs much ---+ it runs in memory without changing.
Other people say well, use my memory database.
We have to re-write the application.
In this case, you don't have to re-write the odd case, you press a button.
We run much faster.
By the way, we run faster than the competition.
We have a lot of our customers who wanted to take advantage of the in-memory acceleration.
That's one of the reasons they buy the new version of the database.
The other thing is multi-tenancy.
They like to do a lot of consolidation.
They have a lot of small databases.
They'd like to run on one machine.
You can do that much more efficiently by running the Oracle database with multiple tenants.
You consume less hardware resources.
It's easier to manage.
You can back up a whole suite of databases, a group of databases as one.
It's thoroughly automated.
That's the other major reason you would see a very rapid up-take.
Finally, we are seeing our customers, as our past big business begins to increase in adoption, that the customer wants to run the latest version of the database in the cloud, and they want to match that up with the latest version of the database in their data center.
They want to run basically the same technology both in our cloud and their data center.
That's one of the unique value propositions that we offer our cloud customers ---+ the same exact technology on-premise and in the cloud.
Those things will then coexist for years and years to come.
Then the customers are syncing up their versions.
We have the latest version in the Cloud, they want the latest version on-premise.
That's also accelerating the adoption of the database on-premise.
No.
No, you're also looking at the Americas.
For example, hardware revenues are particularly problematic for us in Latin America, things like that.
You look at the Americas, you're actually seeing Latin America, which has issues of course.
Brazil and, as you know, North America, Canada ---+ all together.
Yes, US was fine.
I think to your point, Asia was strong.
We've been doing ---+ our team has ---+ we talked about this before.
We've been doing a lot of rebuilding in Asia, and that has really show promise for us.
The results reflect that in the quarter.
Europe had a solid quarter overall.
We had excellent results in the cloud.
US was fine.
In the Americas, to <UNK>'s point, you have the inclusion of Latin America, which is great organization.
It's done a great job.
They're gaining share.
In fact, I look at every metric we have in Latin America.
We've gained share in virtually every category we compete in, in Latin America.
But within the context of the quarter, the situation in Brazil is tough, which is reflected in these overall Americas results you are describing.
My inclination, to answer your question, is yes; but let me try to describe what's happening.
We talked about this a little bit at Financial Analyst Day.
The good news about ERP, our ERP suite, is it's still not available.
It's just going into other geographies.
With the last release we had, we've now brought on manufacturing and supply chain.
We're now releasing the product for sale in some ---+ for example, in Brazil and some European countries.
We actually get some geographic expansion with the last release we had.
This is actually good news ---+ the strong, in this case, actually get stronger.
We actually now have material number of references.
I think I mentioned, but I'm going to try again, we have over now 450 customers wide.
This is a big metric.
Our market also expands in a couple ways with ERP, which makes it so important.
We get two increases on our total available market.
One is what you mentioned, the fact that we actually get to go down-market now.
Now we do have broad market expansion.
We get to compete for companies that otherwise would never have had an IT staff, couldn't have assembled an ERP system.
We now get to compete.
We also now ---+ remember, when we win an ERP system, we win the hardware, we win everything.
We win the whole stack.
Our TAM really goes up ---+ our total available market ---+ on two dimensions, the total stack, in addition to our ability to compete down market.
Now, that broad-based, that's why I specifically used the names I did.
Our success is not unique to mid-market or up-market.
It's really both.
I mentioned the name of the biggest ---+ I didn't mention the name, a very big telephone company in France, a very big industrial company.
These are huge companies at the same time as we have $50-million companies that are moving to our cloud ERP.
It is broad-based success across geographies.
But the good news I have for you, I think we are just really getting started.
Thank you.
Same to you.
Okay.
You know what, I just needed to answer ---+ I think <UNK>'s question, which I think it's about from here, 3.5 to 4 points, something like that.
Thank you, <UNK>.
The telephonic replay of this conference call will be available for 24 hours.
Dial-in information can be found in the press release issued earlier today.
Please call the Investor Relations department with any follow-up questions from this call, and we look forward to speaking to you.
With that, I'll turn the call back to the operator for closing.
| 2015_ORCL |
2016 | ARE | ARE
#Yes, that's a good question.
I'll ask <UNK> to reflect upon that.
Certainly one of the things we've done ---+ this is <UNK> again ---+ it's certainly one of the things we've tried to do in this part of the business cycle is really extend term and gain, try to gain longer rents ---+ higher rents for longer durations.
And also certainly reduce the TI allowances and really try to make sure we're spending as little of our own capital as possible in the spaces and get tenants to extend terms as much as possible.
Yes, on the lab side it is certainly our standard that we try to achieve, given where we are in macro economics.
I mean, if inflation ever came roaring back.
At one point in the Company's history we went to a min 3, max 6 on annual increases.
But we think that this represents a stable market and acceptable market annual rental escalation.
There are sometimes some changes to that, especially on the development side where you might get a 0.25 point lower or something like that, but by in large we try to maintain that across the portfolio in each of the markets.
Yes, so I'll ask <UNK> to comment on that.
Thanks, <UNK>.
Yes.
The going-in yields, <UNK>, are reflected in our disclosures in the supplemental.
Yes, you're right.
You're right.
It is from a purchase accounting perspective, <UNK>.
You're correct, we did allocate a portion of the investment to the development site ---+ 170,000 some odd square feet at roughly high $200s, approaching $300 a foot.
$300 a foot, which we believe is market.
We will generate a very nice return on that investment and so the initial stabilized yield is reflective of the operating asset today, with a small allocation of the purchase price over to the land site.
Well, I think it's fair to say that the, well, our cost of debt capital certainly has been very favorable in this environment.
And our cost of equity capital, with the stock doing pretty well, was certainly an important factor.
I don't think we'd want to go out and do a large offering, whether it be forward or not, with the stock price that would be in the 70s, which it was in February.
So that certainly weighed heavily on our mind, and our goal has always been, how do we balance a couple of things.
One is maintain our goal on earnings, continue to increase our net asset value, and at the same time achieve our lever score ratings increase.
So that's ---+ those are the three things we're clearly focused on as we looked at One Kendall.
But, as I said, we looked at this a couple of years ago and Mr.
<UNK>, sitting here to my right, vetoed my desire to buy that a couple of years ago for a variety of good reasons.
But I have always felt that, that asset was unique.
It ---+ the address alone speaks to it: One Kendall.
The ---+ it is rare to be able to find an urban campus in the best life science cluster in the universe ---+ or galaxy maybe.
And also, the factors that were attendant to that ---+ if brokerage estimates are right, and we can get $80 to $85 triple net in 2018 ---+ that gives us even more upside than our base-case projections would hold.
We think we can do well on the development, and we also think there's a huge opportunity to convert office to lab there.
So that was kind of the constellation of considerations broadly that we thought about.
Yes.
I don't think so.
We ---+ if you asked us at the beginning of the year, did we plan on buying One Kendall, I would tell you that we didn't even know it was coming to market.
There was another asset ---+ one lab and one building, that ---+ 245 First, I think ---+ that went out to bid.
They're assets that somewhat older but they're adjacent to our Alexandria Center at Kendall Square.
Would have loved to have probably owned those.
But for a variety of reasons coupled with the One Kendall Square acquisition, we didn't see the upside in the roles.
We didn't bid on that, but we clearly underwrote it and tried to follow all the assets.
So I would say that we're not, in general, aggressively pursuing things.
But where we see, I guess, the one opportunity ---+ or the one characteristic of an opportunity we'd look at is where we see a great asset in a great location that we'd like to own for the long term, and we see short-to-medium termability to add significant value.
We wouldn't buy just a fully stabilized asset for the next 10 or 12 years, just probably no interest in that.
So our main focus is on our development pipeline, though.
That's where our key focus is.
Hey, <UNK>, it's <UNK> here.
So, at some point, we'll re-file the program only because we think it's a great tool to have on balance sheet.
It's a very efficient tool as we all know.
As far as usage goes going forward, the only thing that is contemplated at the moment would be, to the extent we retire any amounts of our Series D convertible preferred, we'd like to time that and match fund it with some common equity.
And I think, again, we've been pretty clear on that strategy.
As far as your question on the ATM usage in the second quarter and pre-funding One Kendall, One Kendall was funded through the forward equity offering and we just saw opportunities to utilize the program in connection with the changes in the overall capital plan outside of One Kendall Square.
The mix of dispositions, as an example, the ability to get ahead on our leverage goals, as well, was interplaying into that thought process.
So hopefully that gives you a little color, <UNK>.
Yes, I guess I would say, to the extent we think about using it in the future ---+ in addition to what <UNK> said ---+ we'd always try to think about it in a leverage-neutral fashion in the sense that we want to try to maintain our earnings trajectory, obviously, grow our NAV, and, at the same time, use it in whatever way that we might, but in an accretive fashion.
So that's how we're trying to thinking about it.
We've tried to be, over the past quite a number of years, as disciplined as possible in the utilization of equity.
Well, thank you, everybody.
We're one hour into the conference, so right on time.
Thank you for your questions and we look forward to talking to you for third-quarter results.
Take care.
| 2016_ARE |
2017 | WOR | WOR
#Thank you, Sherry.
Good morning, and welcome to our fourth quarter and fiscal year-end earnings call.
Certain statements we make today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act.
These statements are subject to risks and uncertainties and could cause actual results to differ from those suggested.
Our earnings news release was issued late yesterday afternoon.
Please review it for more details on those factors that could cause actual results to differ materially.
We are recording this call and it will be made available later on our website.
Here today to discuss our 2017 fiscal year-end and fourth quarter, our Chairman and CEO, <UNK> <UNK>; President and COO, <UNK> <UNK>; and Executive Vice President and CFO, Andy <UNK>.
<UNK> will begin.
Well, thank you, <UNK>, and thanks to each of you on the phone for joining us today.
This quarter and the fiscal year speak for themselves.
I'm very proud of our employees for producing another record year and appreciate all of their hard work.
It's not easy to continually find ways to improve on what you do, either individually or collectively.
To all those who work here and to all those we work with, thank you.
I'm also very excited about the addition of Amtrol to the Worthington family and welcome their employees.
Amtrol's products fold nicely into our Cylinder operations and perfectly match our criteria for increasing our operating margins while decreasing our earnings volatility.
I'll turn the call over to Andy and <UNK> now for more details on the quarter and the year.
Thank you, <UNK>, and good morning, everyone.
The company finished the fiscal year strong with quarterly earnings adjusted for restructuring and nonrecurring gains of $0.87 per share, up $0.01 a share from the prior year quarter.
For the fiscal year, we achieved record earnings per share of $3.22 adjusted for restructuring and nonrecurring items, an increase of $0.74 or 30%.
Rising steel prices throughout the year added $25 million of inventory holding gains in Steel Processing as compared to $15 million of inventory holding losses in the prior year.
Pressure Cylinders was relatively flat for the year, but demand in oil and gas has picked up recently benefiting fourth quarter margins and earnings.
Engineered Cabs also saw significant opportunity ---+ significant improvement year-over-year.
Equity income from joint ventures was $5 million lower than the previous year, driven by higher steel costs in our WAVE joint venture, lower offload business at ArtiFlex and the consolidation of WS<UNK>
EBITDA for the year was $407 million, another record for the company.
Several unique items in Q4 were as follows: Inventory holding gains during the quarter were estimated at $10.5 million or $0.10 per share as compared to gains of $3 million or $0.03 per share in the prior year quarter.
Restructuring charges were negligible at $400,000 during the quarter.
Pressure Cylinders had almost $3 million of onetime SG&A expenses for severance and deal expenses from the Amtrol acquisition.
Our effective annual tax rate came in at 27.9% in the fourth quarter.
For fiscal 2018, we're assuming 31% for the year.
Cylinders operating income, excluding restructuring, was up $5.3 million or 39% to $18.9 million, driven primarily by improved sales in Oil & Gas Equipment, up 40%.
Operating margins for the quarter were once again below normal due to the impact of losses in Oil & Gas and the onetime expenses mentioned above, but the trend is encouraging.
We are seeing increased activity across our Oil & Gas platform and are scaling up quickly to meet rising customer demand.
Several leadership changes and the continued rollout of Transformation 2.0 are beginning to drive improvements in many areas of the business.
Steel Processing operating income was up $13.8 million or 34%, excluding restructuring, from the prior year quarter to $54.6 million.
Recent increases in flat steel pricing, improved spreads and strengthened agriculture drove the increase.
Revenue in Engineered Cabs was relatively flat year-over-year at $30 million and, excluding restructuring, operating losses were $600,000, a $600,000 improvement over the same quarter a year ago.
The Cabs team continues to do a nice job transitioning their business model and cost structure to one that will improve returns as their end markets improve.
A lot of hard work by the Cabs team in reducing operating cost drove the improvement.
Equity income from our joint ventures during the quarter was down $8.4 million.
WAVE, ClarkDietrich and Serviacero all experienced lower spreads, driven by higher steel costs in the current quarter.
We received dividends from JVs of $18 million during the quarter.
For the year, we received dividends of $102 million, a cash conversion rate of 93% on equity income.
Cash from operations was $81 million for the quarter.
We spent $16 million on capital projects, distributed $12.6 million in dividends and didn't repurchase any stock during the quarter.
Yesterday, the board declared a $0.21 per share dividend, an increase of $0.01 per share payable in September of 2017.
This is the seventh consecutive year with a dividend increase and the 49th consecutive year that the company has paid a dividend.
Interest expense was down $1.5 million to $6.6 million.
Post closing for the Amtrol acquisition, we have $32 million in cash, $616 million of total debt and $551 million available under our revolving credit facilities.
Our debt-to-EBITDA leverage ratio is now 1.4x.
Overall, we are very pleased with the quarter and the year.
The company generated record earnings per share and EBITD<UNK>
EBITDA for the year was up 17%, and free cash flow was $267 million.
Over the past 5 years, our average free cash flow has exceeded $200 million per year, which we are investing to grow our business and reward shareholders.
We distributed $51 million in dividends and spent $68 million in capital expenditures.
Although we completed no acquisitions during fiscal 2017, we did close the largest acquisition in our history with the purchase of Amtrol on June 2.
We were able to fund most of the purchase of Amtrol with available cash, and it will be accretive in fiscal 2018.
Amtrol fits well with our strategy to leverage our core businesses via M&A, and it strengthens our competitive position in the Industrial and Consumer Products segments of Pressure Cylinders.
With at least $6 million to $8 million of purchasing and Executive retirement synergies and Transformation 2.0 improvement opportunities, we are very excited about the addition of Amtrol to our family of businesses.
With the completion of the Amtrol acquisition, we will also be once again looking for opportunities to repurchase our stock as we continue our balanced approach to investing in our business, acquiring new businesses and returning capital to shareholders that has served us well.
Thank you to all of Worthington's employees for their hard work and dedication to serving our customers well and delivering a record year for our shareholders.
<UNK> will now discuss operations.
Thanks, Andy.
In Steel Processing, our direct customer shipments increased by 9% compared to the prior year quarter.
We finished the year strong and likely gain market share as comparable Metals Service Center Institute data shows only a 4% increase in direct industry shipments.
Our toll processing volume also showed slight growth and combined, the direct and toll volume increased by 5%, while the mix was 54% direct versus 46% toll.
Steel Processing shipments strength was across most of our major markets led by significant gains in agricultural volume, which was up 56% compared to a relatively weak quarter last year.
Automotive shipments to the Detroit Three increased 4%, and our other automotive shipments were up another 4%.
Our Construction volume was down 11%, but that appears to reflect the timing of large customer orders rather than any general construction market weakness.
Our Steel Processing joint ventures performed well, and we're starting to see the benefit of our recent capacity expansions at Tailor Welded Blanks and Serviacero.
TWB is nearing completion of their 10th North American facility, which is located in the same industrial campus and will share supply chain benefits with our Serviacero facilities in Monterrey, Mexico.
Serviacero had another strong quarter with direct shipments up 7% and toll shipments up 2%.
And our ZNW venture in China continues to ramp up as trial orders are being produced for customers there.
Turning now to Pressure Cylinders.
Within Pressure Cylinders, our Oil & Gas Equipment revenue was up 40% compared to last year, as volume and bookings in this business have increased now for the third straight quarter.
In our Industrial Products Group, which now includes our Cryogenics business, revenue was up 4%, mostly related to refrigerant volume.
In Alternative Fuels, revenue was up 6%, primarily due to European sales.
In Consumer Products, revenue was up slightly on higher shipments of helium cylinders and torches, with our helium sales volume driven by the continuation of our successful in-store Balloon Time promotions.
In Engineered Cabs, shipment volume was steady as the overall off-highway equipment market remains at historically low levels.
WAVE's earnings decreased slightly, primarily due to lower volume in the Americas and compression in metal spreads.
This lower volume appears to be related to order timing and does not look like it's driven by overall market conditions, which remain relatively strong.
Finally, we're pleased with the progress of the 2.0 version of our Transformation.
Our Transformation uses Lean principles, but it's much more ambitious in terms of scope and results than the Lean or continuous improvement programs you may be familiar with.
We're looking for significant improvement in not just operations but everything we do, including our supply chain, commercial and support functions.
And we're currently focused on the transition from launching the new 2.0 playbook to ensuring that we sustain and continue to spread the proven balance sheet and bottom line impact of our work, including a newly developed method we have of measuring the cultural maturity or second nature aspect of how we do things.
And as always, we'll keep you updated on our progress here in the future quarters.
<UNK>, back to you.
Well, thank you, both.
We'll, as always, be happy to take any questions you have.
I mean, I would just say you saw the decline in the joint venture income, it's sort of consistent.
It's a couple of million bucks across each of the businesses that I mentioned.
If you remember, <UNK>, a year ago, the steel prices in the first calendar quarter were very low, I think in the $400s a ton for hot-rolled, and then you started to see a significant rise.
And so all of those businesses benefited because they had low-cost inventory on their balance sheet, and we're able to sell it at higher prices.
And so this year, you didn't have that, that tailwind.
This is <UNK>.
The experience in the quarter that ended in May was we were up, we were up 4% year-on-year, both for Detroit Three as well as new domestic shipments.
So within the quarter ---+ for the quarter, we were up.
However, we see the same thing everybody else sees, which is activities slowing slightly at this point.
People are starting to adjust their schedules.
We expect that, that will begin to show in the quarter that we're in.
So it's a slight softening.
The strength we had there was in coated products, so that's our galvanizing lines in Michigan and Ohio.
And the big market there that was driving the increase is grain storage.
So we had one of the strongest springs for grain storage that we have seen in several years as people obviously anticipate larger crops of the base grains and legumes, soybeans, corn, et cetera.
Yes, the ---+ so I was trying to figure out how you saw that.
I saw it in your note, <UNK>, the reclass.
But basically, we have a small business here in Ohio actually that we acquired a few years back that makes brazing rod and it's essentially sold through the wholesale plumbing channel, but we reclassified that.
It's not a big business, probably $7 million or $8 million of revenue, but that's what's going on there.
There's actually probably more of that to come.
With the change in leadership in Cylinders a year ago, we have been realigning some of those businesses.
So ---+ and then with the acquisition of Amtrol, we've got ---+ there is sort of 2 major parts to that business, one is Industrial Gas-related, one is Consumer Products-related.
So you're going to have more noise there.
It's good noise, but it'll probably make it a little difficult to comp over the next year or so.
And as it relates to SG&A, I think I called out $3 million of cost in the quarter.
A lot of deal fees obviously flowing through.
We closed the acquisition on June 2, but obviously we spent a fair amount of money on what you would expect around diligence and executing legal docs, that kind of stuff.
And then there's some severance in there as well.
Yes.
Yes, I mean, it will normalize a little bit.
We had the big ---+ sort of the big run up there a quarter-or-so ago, and that flowed most ---+ flowed through mostly in this quarter.
So we're probably expecting a little bit of a reversal in the first quarter.
Yes, I would say, I mean, it's hard to tell right now because the quarter is not complete, but ---+ and we're still pretty early, but I would say not nearly as dramatic as to what we saw in the first or the fourth quarter.
Well our highest margin products, <UNK>, are the separation units that we make or gas processing units that we make.
And the driver for demand of that is the price of natural gas.
So the price of natural gas is relatively stronger than the price for oil, you are $3 plus an MMBTU for gas, where oil is still languishing in the mid-lower 40s.
At that level then you see the oil-driven plays in Texas and the Plains and the Dakotas, they don't have as much strength as the gas-driven plays, which here in the Northeast, the Marcellus and Utica are more gas-driven.
So the strength is concentrated in the Northeast, and it's driven by the price of natural gas rather than oil.
And it skews to our higher-margin products, the tanks and storage products that we manufacture, those are for storing the liquids, and the separation units are for separating the gas-driven play.
The other factor that's going on in the Northeast is the completion of gathering infrastructure there where a lot of wells that did not get drilled that would have been drilled but they could have been hooked up and the gathering pipelines have now caught up to the drilling activity, so that's no longer a constraint.
And that's why you're starting to see some more strength in terms of demand.
Our forward order book looks stronger than it has in the couple of years in that business.
I would say our strategy continues to be intact with respect to growing through M&<UNK>
We did kind of put our head in the sand a little bit, 1.5 year-or-so ago, 2 years ago, just because we had done so many deals in Cylinders and we really wanted to digest what we had done and get those businesses integrated and get them in good shape.
And so we're kind of through that.
Amtrol is a bigger acquisition but it's also a very sophisticated company.
The integration is proceeding very well.
We're actually learning a lot from their business and, obviously, we're going to share some of our practices with their business.
So I would say, if we can find good companies and get them at what we think are good prices, we'll continue to be active on the M&A front.
As you know, it's a hot market.
It continues to be a lot of capital out there, and so it's competitive.
But for the time being, I would say it's kind of steady as she goes.
If you think about capital allocation, it should reflect kind of what we've done historically.
The only difference being we just spent close to $300 million on the second day of our fiscal year.
So we're obviously off to a strong start on the M&A piece.
Yes, I would say probably in the $80 million to $85 million range.
We actually came in a little under, where I thought we would this year, but that's probably a good proxy for next year.
Seems like we're kind of running out of steam on the questions, so again, I want to thank you for joining us today.
Fiscal 2018 is going to be a fun year, full of challenges and opportunities.
I'm confident that our team will navigate the coming year better than anyone else sailing in similar waters.
Thanks again.
Talk to you next quarter.
| 2017_WOR |
2018 | GPI | GPI
#Thank you, Brian.
Good morning, everyone, and welcome to today's call.
The earnings release we issued this morning, and a related slide presentation that include reconciliations related to the adjusted earnings results we'll refer to on this call for comparison purposes have been posted in Group 1's website.
Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures.
Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995.
Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ material from forecasted results.
Those risks include but are not limited to risks associated with pricing, volume and the conditions of markets.
Those and other risks are described in company's filings with the Securities and Exchange Commission in the last 12 months.
Copies of these filings are available from both the SEC and the company.
In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call.
As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.
Participating with me today are <UNK> <UNK>, our President and Chief Executive Officer; <UNK> <UNK>, our Senior Vice President, Chief Financial Officer; <UNK> <UNK>, our President of U.S. Operations; and Lance Parker, our Vice President and Corporate Controller.
Please note that all comparisons in the prepared remarks are the same prior year period unless otherwise stated.
I'd now like to hand the call over to <UNK>.
Thank you, Pete, and good morning, everyone.
The year began with generally weak business conditions in all 3 of our markets in January and February.
This is somewhat typical in the U.K. and Brazil, but the impact of Brexit on the U.K. market is a more recent negative factor impacting vehicle sales, and the U.S. market was less than vibrant early in 2018.
However, our business improved dramatically in March with much stronger market conditions in the U.S. and Brazil and benefiting from a strong used vehicle sales performance by our U.K. team as well as growing contributions by some of our recent acquisitions.
Prior to commenting specifically on our first quarter results, I would like to briefly address some strategic actions that we announced in our March 19 press release.
These initiatives, while adding cost in the short term, are vital to strengthening the long-term growth prospects of our used vehicle and after sales business segments.
These businesses are much more stable and controllable than the new vehicle portion of our business, which is very cyclical and appears to have recently peaked in both the U.S. and U.K. To strengthen our used vehicle business, we announced the Val-U-Line, a proprietary brand for older model, higher mileage vehicles that historically, we have frequently sent directly to the wholesale market after being received as a trade-in.
We believe this market segment presents a major opportunity for Group 1.
This vehicle population historically accounted for roughly 4% of our total retail unit sales.
We plan to grow this penetration to at least 10% of our used business by the end of the year, and we are already well on the way to accomplishing this.
It is also important to note that we will be utilizing our existing brick-and-mortar footprint to generate this incremental volume, which will better leverage our existing assets.
<UNK> will update you in just a minute on the early progress in this area.
Related to after sales, which generated 45% of our total gross profit in the first quarter, we announced several initiatives aimed at training and retaining key dealership personnel as well as expanding our capacity.
Our employees will benefit from enhanced pay plans, defined career paths, more flexible work schedules and a state of the art Service Advisor University training facility, which is now complete and operational.
The modified work schedules will also allow us to expand customer service hours over time and thereby expand our capacity by approximately 20% without any need for additional brick-and-mortar investment.
Although it is early, we have been encouraged by the initial results.
We've installed our new work schedule in 65 of our U.S. dealerships, and we're already seeing an improvement in retention and hiring with a 17% increase in our service advisor headcount from the same period last year.
We are very excited about the opportunities these initiatives will provide us.
While they did add about $3 million of costs in the quarter, the incremental gross profit they will generate over time should provide a very strong return on our investments.
Turning to our first quarter results.
I'm pleased to report that Group 1 earned $35.8 million of net income for the quarter.
This equates to record first quarter earnings per share of $1.70 per diluted share, an increase of 11% over last year, driven by revenue and gross profit growth across all regions.
Total revenue increased 11% on a constant currency basis to a first quarter record of $2.9 billion.
Turning to our business segments.
During the quarter, we retailed over 41,000 new vehicles.
Total consolidated new vehicle revenues increased 10% on a constant currency basis as the average new vehicle selling price increase of 2% combined with 8% more unit sales.
Consolidated new vehicle gross profit was up 6% on a constant currency basis as gross profit for unit decreased slightly.
Our new unit sales geographic mix was 70% U.S., 25% U.K. and 5% Brazil.
Our new vehicle brand mix was led by Toyota Lexus, which accounted for 24% of our new units; VW and Audi represented 14%; BMW and MINI represented 13%; Ford 11%; and Honda and Acura represented 10% of our new unit sales.
During the quarter, we retailed over 36,000 used retail units.
Total consolidated used vehicle revenues grew 12% on a constant currency basis as we sold 12% more units and the average used vehicle selling price remained flat.
Used vehicle gross profit decreased 2% on a constant currency basis as the unit increase was more than offset by a gross profit per unit decline of 12%, which we will cover further in a moment.
Total consolidated parts and service revenue increased 8% on a constant currency basis driven by increases in wholesale parts of 13%, customer pay of 9% and warranty of 6% with collision revenues down slightly.
Finance and insurance gross profit has increased 14% on a consolidated constant currency basis.
This growth was driven by an increase in retail units of 11% and F&I per retail unit of 3%.
Regarding our geographic segment results.
I'd like to turn the call over to <UNK> <UNK>, President of U.S. Operations, to discuss our U.S. first quarter results before I cover the U.K. and Brazil.
<UNK>.
Thank you, <UNK>.
Our U.S. same store revenues grew 4% for the quarter while same store gross profit increased 3%.
Same store revenue growth was driven by new vehicle unit sales that were up 2%, which was consistent with the industry.
Our used vehicle retail unit sales were up 8%, parts and service revenue was up 3% and F&I up 10%.
New vehicle sales in Texas and Oklahoma continued their positive trend and were up a combined 4% in the quarter on a same store basis.
The Houston metro area, our largest in the U.S, increased 5% on a same store level as local economic data remains promising amid the uptick in drilling activity and continued recovery and reconstruction efforts post hurricane.
We continue to hold U.S. new vehicle inventory at a reasonable level.
Our inventory stood at 27,200 at quarter end, a decrease of 3,300 units on a same store basis compared to March 2017.
Our inventory supply of 72 days was down from 86 days at the end of the first quarter 2017.
U.S. same store use used vehicle retail sales grew 8%, as focus on growing our used car business is beginning to pay off.
Our Val-U-Line products were 9% of total retail units, already more than double our previous mix only 3 months after launch.
As announced in our March press release, we saw pressure in used vehicle gross profit per unit during the quarter, which declined $296 in the prior year to $1,226.
This decline was significantly more pronounced in our luxury brands and primarily in our CPO business, as we work with our OEM partners to absorb an increased supply of off-lease and loaner vehicles.
A portion of the decline relates to continuing shift in consumer demand from cars to trucks.
Our increased mix of Val-U-Line vehicles was not a significant factor in our reduced used vehicle margins.
Our total U.S. F&I per retail unit delivered set another quarterly year-over-year increase of $81 per unit to another all-time quarterly record of $1,718.
This increase was largely driven by increased product penetration, mainly extended warranties and maintenance contracts, which benefit our business by bringing customers back into our service shops.
U.S. same store parts and service revenues increased 3.4%, driven by increases in wholesale parts of 10.4% and customer pay of 3.1%.
These increases were partially offset by a 1% decline in our collision business.
Warranty revenues were mostly flat due to the presence of several major OEM recall campaigns, including General Motors ignition switches and Takata airbags in the year-ago comparative period.
Same store after sales gross profit increased 2% as the 3% increase was partially offset by a 70 basis point decline in gross margin to 53.1%.
This decline was largely due to the mix of our 10% increase in wholesale part sales.
We maintain our guidance of mid-single digit same store after sales revenue growth throughout 2018.
In closing, I'd like to thank the 9,748 Group 1 team members in our U.S. stores for the tremendous work they do every day.
To discuss our U.K. and Brazil business, I'll now turn the call back over to <UNK>.
Thanks, <UNK>.
Our U.K. operations performed well given a very difficult year-over-year comparison due to the substantial pull ahead that occurred in the first quarter of 2017 due to a vehicle tax change.
Our same store new vehicle unit sales decreased 10% in an overall market that declined over 12%.
An extremely strong same store used car performance with unit volume of 5% and revenues of 13% enabled us to keep total same-store revenue flat on a constant currency basis.
This was a very impressive performance by our U.K. team in a weak market.
Furthermore, efficient integration of our 2 most recent dealer group acquisitions supported a consolidated quarterly gross profit increase of 26% on a constant currency basis.
Although the first quarter of the year is always the weakest selling period in Brazil, we achieved significant growth in a market beginning to recover from a deep recession as quarterly same store gross profit increased 7% on a constant currency basis.
This growth was driven by an 11% increase in new vehicles, a 10% increase in after sales and a 9% increase in F&I Our same store new vehicle unit sales increase of 23% outperformed the overall industry increase of 15%.
We continue to be very proud of the work our local team has done and are well positioned to take full advantage of the recovering market.
I'll now turn the call over to our CFO, <UNK> <UNK>, to go over some of our first quarter financial results in more detail.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
For the first quarter 2018 our net income increased $3 million or 9.2% over our comparable adjusted 2017 results of $35.8 million.
On a fully diluted per share basis, earnings increased 11.1% to $1.70, yet another record first quarter result.
While there were no non-GAAP adjustments for the first quarter of 2018, the 2017 results excluded $1.1 million of nonrecurring net income recognized from an OEM legal settlement.
Also on January 1, 2018, the company adopted ASC 606 for revenue recognition, which impacted F&I and after sales revenue and gross profit.
The net impact of this adoption in the first quarter was a reduction in net income of approximately $450,000 and an EPS of about $0.02.
Starting with a summary of our quarterly consolidated results.
For the quarter, we generated $2.9 billion in total revenues, which was a 13.5% increase over the prior year.
Our gross profit increased $36.2 million or 9.4% from the first quarter a year ago to $419.8 million.
As a percent of gross profit, SG&A increased 130 basis points to 77.3%.
The increase is more than explained by the $3 million onetime bonus and $3 million of quarterly strategic initiative cost that was mentioned in the March press release.
Floorplan interest expense increased by $2.1 million or 18% from prior year to $14.1 million.
2/3 of this increase is attributed to a higher LIBOR interest rate versus the first quarter of last year.
Other interest expense increased $1.8 million or 10.7% to $18.8 million, primarily due to increased mortgage and other borrowings.
Our consolidated effective tax rate for the quarter was 22.4%, which should be lower than our full year rates due to the first quarter being more heavily weighted towards the U.K. We forecast our full year 2018 tax rates to be between 23% and 24%.
Turning to our consolidated liquidity and capital structure.
As of March 31, we had $33.1 million of cash on hand and another $98.4 million that was invested in our floorplan offset accounts, bringing immediately available funds to a total of $131.4 million.
During the quarter, we repurchased $135,605 shares at an average price of $67.82 for a total of $9.2 million.
As of today, we have approximately $20.3 million diluted common shares outstanding and $40.4 million remaining on our board-authorized share repurchase program.
Also during the first quarter, we used $5.5 million to pay dividends of $0.26 per share, an increase of 8% per share over the first quarter a year ago and an annualized yield of over 1.5%.
For additional detail regarding our financial condition, please refer to the schedules of additional information to catch the news release as well the investor presentation posted on our website.
I'll now turn the call back over to <UNK>.
Thanks, <UNK>.
Related to our corporate development efforts, the company was pleased to have previously announced the March addition of 5 Mercedes Benz franchises in the U.K. that will generate approximately $260 million in annual revenues.
These are our first Mercedes Benz franchises in the U.K. and expand our total Mercedes Benz exposure to 13 dealerships across the U.S., U.K. and Brazil.
We also previously announced the April purchase of a Toyota franchise in Brazil that will generate approximately $45 million in annual revenues and will also provide us with the opportunity to further expand our Toyota presence with additional open points to be announced at a future date.
These 6 dealerships bring our total 2018 year-to-date acquisition activity to 12 franchises, generating $405 million of annual revenues.
This concludes our prepared remarks.
I will now turn the call over to the operator to begin the question-and-answer session.
Operator.
We saw it improve in March.
And it's too early to call April, obviously, but we did see quite an improvement in March.
And we're pleased with the March result.
Yes, this is <UNK>.
I would add to that the $200 that we communicated for kind of January, February that was totally used gross profit per unit.
And if you notice, we ended up only down about $122.
So definitely we saw some bit of improvement in March.
Yes, absolutely.
If you take those 2 items out, we would have actually had about a 60% flow through.
So we were actually pretty happy with the overall base cost control.
This is <UNK>.
I would say the activity we've had this year is more circumstantial than related to any kind of market environment.
For example, the U.K. Mercedes franchises and entering the Mercedes network in the U.K., we've been working on that for 2 years to 3 years.
It just happened to come good in the first quarter of this year.
And the other acquisitions were also opportunistic.
We've been looking at those markets for some period of time.
And it just so happened we found some pieces that fit our return hurdles and our strategic desires.
At the moment, in terms of capital allocation and for the past couple months, I would say the math is most compelling in terms of capital allocation for us to repurchase shares.
It doesn't mean that we won't stop acquisitions.
We'll continue to look for things that are in geographies that are important to us and that we believe have long-term value to our shareholders.
Well, you're ---+ Rick, <UNK>.
We're 65 stores through our new work schedule out of 117.
We won't roll the new work schedule to all of the stores just because some of them are too small.
But we expect to have that fully rolled out by ---+ in certainly the third quarter and with that comes the capacity that we indicated.
Much of that capacity ends up in Saturday business.
And so I would expect by late this year, we'll be able to realize that capacity.
Yes, Rick, this is <UNK>.
I think certainly first quarter and into the second quarter, you're still on the cost phase.
As <UNK> indicated we're still rolling these things out.
It takes a little while to get the people in and get them trained.
But I think, certainly, as you get into the second half, we should be able to start to offset the costs.
And then probably late this year and into early next year, they probably start to become accretive.
Rick, one thing to add.
<UNK> mentioned a couple of things in his comments that we are seeing better retention with our service advisors.
As a result, we believe in our new work schedules and our increased training efforts.
And we're seeing ---+ we saw some decent same store sales growth in used car business this quarter.
So we believe we're starting to see indications that will ---+ we're pleased with.
Rick, it's <UNK>.
Yes, we had some serious hail damage in North Texas and also in Shreveport, Louisiana.
And it looks like the cost to our company of that damage will be about $3 million.
Yes, <UNK>, this is Pete <UNK>.
I'd like to thank all the F&I teams in all 3 countries for doing a terrific job this past quarter.
And at the end of the day, we keep working on the underperforming stores and it has paid dividends.
And we're doing a much better job of selling product.
And I think the mid-1,600 PDR is probably a good modeling number moving forward.
We've got rising interest rates.
And with our stated plan increase in the used car business and I think that's a good number for you to continue modeling tools.
And to clarify, this is <UNK> <UNK>, that is a U.S. number.
Obviously, we have improving results in the U.K. and Brazil, but they're not in a position ---+ the number Pete gave you is for U.S. only.
This is <UNK>.
We finally are starting to see a brighter picture in the energy related markets.
Of course, the core of that is Houston where so many of these energy companies are headquartered.
I would ---+ the sentiment and consumer confidence are definitely improving.
And our sales performance in our ---+ all related markets has definitely improved in Q1, I think up about 5% in Houston and a little bit more than that in a couple of the other oil-related markets.
I wouldn't say there's been a heavy amount of hiring that's occurred yet, but we believe that's just in the early stages.
That they'll start to be adding back some of these higher-paid energy jobs.
So things are really much brighter in the oil patch now and probably the brightest they've been in 3 years.
Probably in Texas.
Oklahoma, still a little bit under pressure.
Yes.
More so in Texas than Oklahoma, that's a good point to make.
Yes.
David, it's <UNK>.
Yes, we've considered both of those.
We've toyed around with it a little bit.
I wouldn't say we're ready to do the regional or market recon yet.
It's very time critical to get these cars frontline ready and photos taken and all of that within 24 hours, if you can.
So that is a potential area for improvement at some point, but we haven't pulled the trigger on that yet, but it's certainly valid food for thought.
And what was the second one.
One price on used, yes, and I think for 20 years now, I've watched one price work.
And clearly, the only place it seems to work well, CarMax has done a good job with it.
But we just haven't seen very many success stories with that because the market's so dynamic.
And one of the ways we manage our inventory quite well, and I don't even know that we've ever even had more than 35 or 36 days of supplies in used cars, is we price these cars maybe not daily but every couple of days because the market's dynamic and we need to keep the inventory clean.
So one price is still something that we think is difficult to implement effectively for us.
But clearly, others in the market do it, we'll keep an eye on it and you never say never.
David, did you ---+ this is <UNK>.
Did you say auction model.
We have an internal auction that we do weekly.
And I assume from your question you mean would we consider doing something external.
We look at all of those things on a regular basis.
And as <UNK> just mentioned, never say never.
But I wouldn't say that's something we'd be looking at in the next year or so, but we're trying to leverage the internal auction as best as we can ourselves.
And then on SAAR, I think we're brought even ---+ even with the relatively strong March, I think we're probably safe sticking with our original SAAR forecast for now.
Yes, David, we were on 16.8.
We'll watch as the year progress.
Obviously, the first quarter ran a bit better than that.
And we certainly saw a very strong March, but it's a bit choppy.
The first 2 months were pretty weak.
The unknown is how much of this tax piece is going to play into the rest of the year.
And also, David, the inventories, as we mentioned, are down considerably from a year ago.
And so the OEMs have adjusted production well in general.
And so there's not as much inventory pressures as there was a year ago to chase volume.
Okay.
Thanks, everyone, for joining us today.
We look forward to updating you on our second quarter earnings call in July.
Have a good day.
| 2018_GPI |
2017 | HPE | HPE
#Thanks, Andy, and thanks to everyone for joining us on the call today
As you have all seen, we have just announced that I will be stepping down as CEO of HPE at the end of Q1. Antonio Neri, HPE’s President will become President and CEO and join the HP Board on February 1, 2018. I will remain a Director on HPE’s Board
I said for many years that the next leader of HPE should come from within the company and Antonio Neri is exactly the type of leader I had in mind
Antonio is a 22-year veteran of our company who began his HP career as a customer service engineer in the EMEA call center
He is a computer engineer by training, has a deep technology background and is passionate about our customers, partners, employees and culture
The Board unanimously agreed that Antonio should be my successor
This transition is possible because of all the work we have done during the past 6 years to transform HP
Many of you will recall the challenges the company faced when I became CEO and will recognize how far we have come
During the first couple of years, we focused on strengthening the company across a number of metrics
We stabilized and strengthened the leadership team, improved productivity and reinvigorated the culture
We significantly improved customer satisfaction driving NPS scores from negative in some cases to an industry leading 80 for our services today
And we pivoted hard back towards partners, rebuilding our entire partner ecosystem and shifting resources to this critical go-to-market channel
We also rebuilt our balance sheet paying off the nearly $12 billion of operating company net debt that existed when I joined the company
I am proud that today HPE is exiting the year with nearly $6 billion in net cash
Most importantly, we reignited innovation and delivered groundbreaking new technology solutions
For example, we invested in the machine research project, which is focused on creating an entirely new computing architecture for the Big Data era putting memory at the core
We introduced the first prototype earlier this year and have also begun incorporating certain technologies from the project into solutions available today
From a much stronger position, we then looked at our portfolio and made a number of strategic decisions to further sharpen our focus and accelerate performance
The first critical step was the separation into two independent Fortune 100 companies, HPE and HP Inc
This was exactly the right decision, because it allowed both companies to optimize for strength and invest in core strategies
From there, we further separated the company by spinning off and merging our enterprise services business with CSC creating the world’s largest pure-play IT services company
Next we spun off and merged our application software business with Micro Focus creating the seventh largest pure-play software company in the world
The ES and software transactions delivered more than $20 billion in value for HPE and our shareholders
We also made a number of smaller divestitures, including Tipping Point and Mphasis and we divested 51% of our China business to Tsinghua Holdings creating New H3C Group, the leading Chinese provider of technology infrastructure
This unique approach has put us in a strong position to capitalize on the second largest IT market in the world
We also made a number of strategic additions to strengthen our portfolio in key growth areas
For example, in hybrid IT, we acquired SGI to strengthen our high-performance compute business, SimpliVity to bolster our hyper-converged offering and Nimble Storage to complete our storage offering from entry-level to the high-end and accelerate our transition to all flash
We acquired Aruba, the leader in wireless networking, which has become the heart of our intelligent edge strategy
Since then, we strengthened Aruba with Niara bringing machine learning and big data analytics to network security and Rasa Networks for network performance management and analytics
And we have also enhanced our services capabilities
We acquired cloud technology partners to extend our cloud consulting expertise and Cloud Cruiser to enhance our IT consumption models like our flexible capacity offering
All of these acquisitions are highly complementary to our core business
These companies are all in growth markets and we are accelerating their performance by leveraging our go-to-market channels
We also continue to invest organically and introduce exciting new products and services
For example, we launched the industry’s first composable offering called Synergy, and we now have more than 1,100 customers on the platform
In high-performance compute, we launched Apollo, which is helping to bring supercomputing capabilities to the enterprise
To address the explosion in industrial IoT, we launched our highly differentiated Edgeline Converged Systems
With security becoming a board level issue, we launched the industry’s most secure standard server
And beyond product innovation, we continue to introduce new service offerings like our flexible capacity, which provides flexible pay-per-use IT for customers
The industry recognizes the progress we have made
For the first time, HPE is a Gartner Magic Quadrant leader in all of its core business categories
As a whole, these moves have paid off and I am very proud of the shareholder value we have created along the way
HP and then HPE have returned nearly $18 billion to shareholders through share repurchases and dividends since 2012. And since the birth of HPE on November 2, 2015, we have delivered a total shareholder return of 89%, which is more than three times that of the S&P 500. I know Antonio will have the same focus on delivering value for our shareholders going forward
By fixing, improving and reposition the company I joined, HPE has worked its way into a strong competitive position ready to drive the next phase of shareholder value and you are starting to see the payoff in our results
In Q4 FY ‘17 we grew revenue 5% year-over-year capping a full year FY ‘17 where we grew the top line 1% when adjusted for currency and divestitures
We have stabilized our core rack and tower server business, which grew 6% and 7% year-over-year in Q3 and Q4 respectively
Services grew 3% in Q4 and our investments in key growth areas like the intelligent edge, high-performance compute and all-flash storage are clearly paying off
Aruba performance continues to accelerate and outpace the market growing 19% in Q4 and 22% for the year
Our high-performance compute portfolio is the best in the industry and we continue to win deals and extend our market leadership position
HPC was up 28% in Q4 and 37% for the year
From a profitability perspective, we are on the right track towards getting margins back to historic levels despite continued challenges in commodity pricing
In Q4, EG margins improved sequentially for the second quarter in a row to 10.6% as we executed our cost takeout plans and shifted resources to align with our market segmentation
We are confident in our ability to achieve our full year target of 11% to 12% in FY ‘18. At every turn, HPE is preparing itself for the future
In Q4, we moved into the execution phase of HPE Next, our program to redesign the company to be purpose built for today’s and tomorrow’s competitive environment
HPE Next is all about simplifying the way we work, driving execution and investing in innovations that will differentiate our solutions in the years ahead
While executing HPE Next, we made sure to minimize disruption to the business and particularly our sales force
I am very pleased that we saw no disruption in Q4. In fact, HPE Next has galvanized the entire company around our vision to drive tremendous value for customers, partners and ultimately shareholders and all of this is being driven by the strong leadership team we have in place
In addition to Antonio, I hope it was clear at our Analyst Day last month what a deep leadership bench we have with Alain Andreoli, running hybrid IT, Ana Pinczuk, running Pointnext Services and Keerti Melkote, running Aruba, Phil Davis, our new Chief Sales Officer has already brought tremendous energy to the new role, and Irv Rothman continues to do an excellent job running financial services
Together, this team has owned and refined our go forward strategy which is crystal clear and laser focused
First, the world is becoming hybrid and we make hybrid IT simple
We do that through offerings that help customers optimize their core IT environments with secure software-defined technologies that seamlessly integrate across traditional IT and multiple public and private clouds
Hybrid IT will give customers a new level of transparency and manageability for all their applications and data from the core to the cloud to the intelligent edge
But our vision doesn’t end there
Simplicity ultimately means IT that is invisible and autonomous and that is exactly what we plan to deliver
To that end just this morning, we announced that we have rolled out HPE InfoSight, our highly differentiated predictive AI technology across our entire 3PAR portfolio
This is going to be a game changer for our storage business
HPE InfoSight, which came with the Nimble acquisition, is the industry leading predictive analytics platform that brings software-defined intelligence to the data center with the ability to predict and prevent infrastructure problems before they happen
Leveraging advanced machine learning, HPE InfoSight is the next step in our vision for an autonomous data center
And next week at Discover Madrid, we will officially introduce Project New Stack
New Stack is all about what our customers want most, simplicity and control
It’s a hybrid IT management platform that lets you deploy, operate and optimize public cloud and on-prem private cloud environments through a simple and unified experience and it will accelerate app development and deployment with integrated DevOps capabilities
This is what our customers have been asking for and no one else in the market can match the platform we have created
Second, we power the intelligent edge
We have highly differentiated offerings in this area that are helping customers drive a revolution across their business from the factory floor to the retail store, whether it is with our wired and wireless connectivity offerings from Aruba that allow customers to securely connect edge environments and drive new experiences for their customers, employees and new revenue streams for their bottom line, our Edgeline Converged Systems that bring storage and compute directly to the source of the data that needs to be analyzed or our universal IoT software platform that seamlessly integrates data from disparate IoT systems at massive scale
These are all areas where we are well ahead of the market and the industry is taking notice
Earlier this fall, Aruba was named a leader in Gartner’s Magic Quadrant for wired and wireless networking and placed first provision
This is the first time that Cisco has ever been displaced from this position
Third, services are more critical than ever
More and more everything we do is driven by our services expertise across advisory, professional and operational services
We are also seeing growing interest in consumption services as our customers look to us for financial flexibility through pay-per-use models
Our offering in this area, Flexible Capacity is different than anything else on the market
Through our services led solutions, combining hardware, software and financing, we make operating IT simple and elastic and because we offer pay-per-use model based on metered usage, customers never overpay on technology they don’t use
Look out for more news in this area at Discover next week
Let me say in closing that it has been the privilege of a lifetime to lead the company Founded by Bill Hewlett and Dave Packard
I am proud of what we have accomplished during the past 6 years
We have laid out a strong foundation for a prosperous future and now is the right time for Antonio and a new generation of leaders to take the reins
I look forward to experiencing HPE’s progress as a board member and I am very confident that Antonio will enjoy tremendous success
And now, I will hand the call over to Tim who will provide details on the financial results
Yes, so – it’s Meg, the storage revenue was up 5% driven by the Nimble acquisition and as you said the all flash arrays grew 16% with Nimble was up over 80%
So a good performance overall, but as Tim mentioned 3PAR performance was soft due to I think a very tough competitive environment in the – in the mid-range and then some sales challenges in the United States
So we are taking action
We are combining the Nimble and 3PAR storage sales teams which is going to give us more critical mass there and that’s going to be led by Keegan Riley, who led sales at Nimble
And we are also going to aggressively add some more specialists to the field
So I think you hit it right on the head a little weakness in the U.S
and we are fixing it
Yes
No, I think you have got this exactly right
Servers had another strong quarter outside of Tier 1. Remember, we had quite a large Tier 1 service provider business that had a fair amount of revenue, but not much profit associated with it, but outside that, it grew 6% and I think that was execution, market improvement and some good traction in our higher value offerings
So in addition to stabilizing core rack and tower we are pivoting hard to our value and growth offerings like HPC, Synergy, SimpliVity, etcetera
But you will see some declines in the server business next year as that Tier 1 business continues to bleed off
So, why don’t you take ex-Tier 1 server growth and I will take the other question
Great
And then listen, our Gen10 server, which is on the new Intel chip called Skylake, is off to a good start
There is some concern in the industry that because there is not quite the features and functionality advancement that there normally is in their tick-tock that, that might be a slower ramp, but thus far we are not seeing that
So, we are cautiously optimistic about Gen10. What I will say about – based on Skylake, what I will say about Gen10 is we have a real point of difference in Gen10 which is we have produced the most secure server in the world
Security is built in as a root of trust into the silicon
No one else has anything like this and this is making a real difference, because security continues to be an enormous issue for everyone
So let’s stay tuned on Skylake
We are not seeing any diminution of that tick-tock, but we will have to see how it plays out
So, Tony, I would say there hasn’t been a change in sentiment
What I think is absolutely true is Antonio is ready to take the reins and go the distance
And if you think about it, we have a much smaller, much nimbler, much more focused company
And I think it is absolutely the right time for Antonio and a new generation of leaders to take the reins
We have got a very good leadership bench
We have got a strategy that is crystal clear and focused
And Antonio is a deep technologist
And I think I have added a lot of value here in terms of shareholder value creation, financial restructuring, nice ignition of the innovation engine, but the next CEO of this company needs to be a deeper technologist and that’s exactly what Antonio is
He has been with the company 22 years
He is a trained computer engineer and has worked in almost every business of this company
So, I just think it’s the right thing
And I also think Antonio is going to lead the next phase of value creation
We have created a lot of shareholder value here
I think over 220% shareholder value from right before the announcement of the turnaround in the fall of 2012, just HPE alone 89% increase since the separation, which is three times the S&P 500 and HPE Next and the simplification of our business and the execution of the strategy that Antonio and I put together between the two of us, he is going to lead that next generation of shareholder value creation
The other thing I’d add to that Toni is this strategy to pivot to the value in the growth segments of our portfolio is absolutely critical because, just a mix shift of a couple of percent actually increases the operating margin
And we anticipate that that will happen as we realign the sales force, as we focus marketing on the value and growth segment and we realize the potential of – of the portfolio
I would say the competitive pricing environment is maybe slightly mitigated, but it would be hard for me to gauge that, because it varies by country, it varies by product line and it shifts from month-to-month and quarter-to-quarter
So while I would say overall, there’s been some mitigation in that pricing environment I would not say it is universal and we’re not counting on that for the delivery of our operating margin in 2018. And then DRAM pricing appears to now be leveling out and you talk to people in the industry, it appears that supply is now beginning to match demand there is going to be more supply I think from the key vendors of memory and so we’ll see what happens
We are not counting by the way on to deliver our results on a drop in DRAM pricing, we’re also not counting on another 15%, 20% increase in DRAM pricing, but we feel pretty good about the way where we are and I got a lot of confidence that we are going to hit our $1.15 to $1.20 and the 11% to 12% operating margin
Yes, good question
So during Q4,we moved aggressively from the design phase of HPE Next to the execution phase of HPE Next and we are very focused on minimizing disruption particularly with the sales team, but other areas as well
And so we’re leveraging a lot of the best practices that enabled us to deliver our recent separations on time, on budget it was the divestiture management office approach or the separation management approach
And so in Q4, we’ve already begun implementing the sales changes, I mean those are done actually we started in November 1, with a lot of changes, but we did a lot of changes in Q4 as well
We dismantled actually the region overhead structure, we refocused our sales force, we put more specialists in the field and we saw no impact to frontline sales from those changes that we made in Q4. So that gives us confidence
And they went started November 1, all firing on all cylinders with the new organization and with a couple of months under their belt
So we feel pretty good about that
Outside the storage challenge in the U.S
was largely around not enough specialists in the field and frankly we need more scale in our storage sales here and combining Nimble and 3PAR under Keegan Riley, I think is going to really help here
And lastly <UNK>, I would say we didn’t talk about it much, but Hurricane Harvey disrupted our supply chain in a reasonably dramatic fashion
Tim mentioned, it was $93 million of cost to recover from Hurricane Harvey and that does not include Puerto Rico
And so we had to divert a lot of our Houston manufacturing to Europe and then airfreight those products back into the United States
So, we have announced that we are no longer going to be manufacturing in Houston, any U.S
required manufacturing will be done in Chippewa Falls, Wisconsin and then we are redistributing our manufacturing to locations around the world
So, that was another part of the weakness, some weakness in Q4. The good news is we go into Q1 with a nice backlog, because we just simply couldn’t turn the supply chain on a dime
So, we have got a really nice backlog going into Q1.
Yes, let me answer the strategy question
So, the strategy will remain entirely consistent
It was crafted by Antonio and I
he has been leading HPE Next
So, I don’t think he is going to lead another one in terms of reinventing that
And we are completely aligned on the strategy
As is the sales team, as is the entire organization and by the way it’s working, you can see it working in the field
So, you can expect entirely consistent strategy from Antonio
Yes, so what I would say is that HPE is a whole lot more relevant to customers and partners then it was
This was an enormous conglomerate and you would go in front of customers he’d be talking PCs Superdome Integrity X servers, Enterprise Services, Software and they weren’t sure what we stood for and it was just way too broad and we were not executing with the right R&D against any of those segments
So now HPE is more relevant they know what we stand for and the core value proposition is the software defined data center on-prem with public cloud like economics
This whole moved to flexible capacity and a pay-per-use model is actually encouraging people to say, do I need to move every workload to the public cloud
And then our new stack offering, our new stack announcement discovered next week, I think it’s going to be a milestone and a cap stone in some ways to the innovation and agenda that’s we’ve driven over the last 6 years
So I’d say that those are the main things, I would also say the speed at which we move this company was a slower company then I would have like to seen 6 years ago, and now we jump on opportunities on problems it’s far more nimble, far more agile and I think you frankly just a better run company than it was 6 years ago
And I think you mentioned that but just it’s important to note that the number of these acquisitions when we acquired them, were actually losing money and so we have now worked that of and I think virtually all of them will be accretive in 2018.
So, we can’t
I don’t think we will quantify that on this call
What I would say is I think the sales team is hitting the ground running on storage
Phil Davis who is our new Head of Sales comes from a storage background
So, I think you will naturally see him pivot harder to storage than perhaps some of our earlier sales leaders
And so I think you will see improvement in the U.S
And by way, we did very well in EMEA, very well in APJ
So, I think you will see an improvement in the U.S
So, first of all, I am going to work with Antonio through the transition at the end of January and then I will be a very active board member
And actually after a 35 year nonstop career, I have actually come to take a little downtime, but there is no chance, I am going to a competitor, no chance
Listen I have to say I become quite loyal to Hewlett-Packard and to Hewlett-Packard Enterprise, I love this company and I would never go to a competitor
Yes
So, listen I think the storage business is benefiting from the explosion of data and we are seeing that every single day
We are also benefiting by storage becoming embedded in server architecture
InfoSight I think is going to be a major game changer for our storage business is part of the reason that Nimble is growing at 80% is because it’s AI for the storage arrays in a way that does predictive analytics and predictive maintenance
With regard to acquisitions, you know what, when I came to this company I think we had a somewhat less than stellar reputation on acquisitions
And I think the acquisition profile that had been successful for us whether it’s Aruba or SimpliVity, etcetera is the following
Is there a complementary technology to one that we already own that can benefit by being – by leveraging our distribution channels, listen Aruba has accelerated its growth rate under HP, because we can introduce the Aruba product line to customers
They had no way to get into before and also customers tell me everyday that they buy Aruba, because it’s not a standalone small startup company, it’s backed by big HP from a service perspective, from a warranty perspective etcetera
So, those are the kind of acquisitions that we look at
So, if we found something that we thought was important in the storage business that benefited from our distribution channel and we saw a good business case and it was priced right, we might think about doing it
But I think you have seen Tim and I would be very disciplined about acquisitions, returns based by the company right and have a very clear business case, whether it’s cost take-out or acceleration
And I promise you that Antonio and Tim will continue that disciplined approach to acquisitions
And I will be on the board to make sure they do
Yes, so you are right
Aruba, both wired and wireless, has had a really great fiscal year ‘17. And the thesis when we bought Aruba was the wireless would actually drag along the wired and that has actually turned out to be the case, particularly in the United States, where the wired portfolio had a great ‘17 in a particularly strong Q4. Increasingly, we see demand for Aruba on a flexible capacity model
And just like any other product that we sell, we are happy to do a flexible capacity model pay-as-you-go, annuity-based revenue stream for people who want to buy that way for Aruba
We also I think are benefiting from the Gartner Magic Quadrant that I referred to or Tim referred to in the script where we are for the first time a leader in networking in the vision category and it’s been – this is the first time in three decades that Cisco has not owned that top spot and we can feel the momentum in the marketplace
So, listen a number of our competitors are talking about a clone of flex capacity, would we dig into it, it is actually not the same thing as we are offering, it’s not entwined with services and it’s not – it’s really just sort of glorified leasing model and that’s different from what we are offering
So, we think we have a competitive advantage
With regard to Arista, so that partnership continues to go along
We are opening up our channel in our direct sales group to the data center opportunity
And I think it’s going along nicely
I think we can do better
At the moment it’s going along quite nicely and I think we are both pleased with where we are, but there could be more there
| 2017_HPE |
2016 | INN | INN
#Thank you, Emily, and good morning.
I am joined today by Summit Hotel Properties President and Chief Executive Officer, <UNK> <UNK>, and Executive Vice President and Chief Financial Officer, <UNK> <UNK>.
Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws.
These statements are subject to risks and uncertainties, both known and unknown, as described in our 2015 Form 10-K and other SEC filings.
Forward-looking statements that we make today are effective only as of today, May 4, 2016, and we undertake no duty to update them later.
You can find copies of our SEC filings and earnings release which contain reconciliations to non-GAAP financial measures referenced on this call on our website at www.SHPREIT.com.
Please welcome Summit Hotel Properties President and Chief Executive Officer, <UNK> <UNK>.
Thanks, <UNK>, and thank you all for joining us today for our first-quarter 2016 earnings conference call.
We are extremely pleased with the results that our diverse portfolio of premium select-service hotels delivered in the first quarter of 2016.
For the quarter, we reported adjusted FFO of $28.3 million, which is a 21.7% increase over the first quarter 2015.
Our AFFO per share increased 21.2% from the first quarter 2015 to $0.32 per share.
On a pro forma basis, we posted RevPAR growth of 3.8% in the first quarter which was near the midpoint of our outlook and as a reminder, was on top of 11.9% growth in the first quarter of 2015.
Our RevPAR growth was driven by a 2.3% increase in occupancy to 77.6% and an average daily rate increase of 1.5% to $141, both of which were partially offset by a total of 39 basis points due to renovation displacement.
Our same-store RevPAR growth for the quarter was 4.5% compared to the first quarter 2015.
RevPAR was driven by a combination of increases in occupancy, which was up 3.3% and a 1.2% increase in average daily rate.
The strength and quality of our portfolio continues to be evident as we again surpass the Smith Travel Research overall US and Upscale RevPAR growth rates by large margins.
Our RevPAR growth was driven 60% by occupancy as compared to the Smith Travel Research Upscale average, which was flat.
The primary factors behind our occupancy growth were the Super Bowl in San Francisco and the continued ramp from hotels under renovation in the first quarter of 2015.
Looking ahead, we still expect a majority of our full-year 2016 RevPAR growth to be rate driven.
The strength in our first-quarter RevPAR growth was again very broad-based, which is what we would expect from the geographic diversification of a portfolio like ours.
Three of our top five performing markets in the first quarter were on the <UNK>t Coast, those being San Francisco, Portland and Ventura, California, which is in the Los Angeles MSA.
Our three hotels in the San Francisco market delivered 19.4% RevPAR growth, outpacing the MSA average by 370 basis points.
Even more impressive, these hotels were able to capture more than 500 basis points of additional market share in the quarter as compared to their competitive set which is a testament to our best-in-class revenue and asset management team.
Moving on, in the first quarter we closed out the second 1031 with the sale of Tranche 3 and purchased two hotels with a total of 386 rooms for an aggregate purchase price of $109 million, or approximately $282,000 per room.
The 226-room Courtyard by Marriott in Nashville hotel is located in the vibrant Midtown neighborhood near many of the area's finest restaurants and entertainment venues as well as Vanderbilt University, the Ryman Auditorium and Bridgestone Arena.
In addition, the hotel benefits from proximity to Music City Center, historic Second Avenue, Country Music Hall of Fame, Nissan Stadium, Nashville Convention Center and the Centennial Sportsplex, which are all located less than a mile away.
The 160-room Residence Inn by Marriott Atlanta is in the heart of the diverse Midtown neighborhood and conveniently located near the High Museum of Art, Alliance Theatre, Atlantic Station, Center Stage and the Fox Theater.
These institutional quality hotels with strong and diverse demand generators are excellent complements to our existing portfolio and, as a pair, generated RevPAR of $128 and hotel EBITDA margins of 45.1% in 2015.
The two acquisitions have a RevPAR premium of 36% and hotel EBITDA margin premium of more than 700 basis points as compared to the six hotels sold during the quarter.
Our capital recycling initiative continued in the first quarter of 2016 by completing the sale of those six hotels to affiliates of American Realty Capital Hospitality Trust on February 11 for a combined price of approximately $108.3 million.
In addition, we were able to resurrect the purchase and sale agreement on Tranche 2 which consists of 10 hotels.
Under this agreement, the remaining 10 hotels are scheduled to be sold by the end of 2016.
Simultaneous with this sale of the six hotels, we entered into a $27.5 million loan with ARC Hospitality, with $20 million being applied to the purchase of the six hotels and the remaining $7.5 million being applied to the new earnest money deposit on the remaining 10 assets scheduled to be sold in 2016.
Since the transaction to sell 26 hotels was announced in June of 2015, we have fully redeployed the disposition proceeds received so far into $307.8 million of acquisitions that have a RevPAR premium of more than 60% compared to the hotels we have sold and have under contract to sell.
Completing the first two phases of the transformation to higher RevPAR assets in markets with strong growth profiles is a milestone that demonstrates our team's thoughtful view on capital allocation and the subsequent value creation.
With that, I will turn the call over to our CFO, <UNK> <UNK>.
Thanks, <UNK>, and good morning, everyone.
We were very pleased with our first-quarter 2016 results.
On a pro forma basis, our hotel EBITDA in the first quarter 2016 increased to $43.8 million, which was an increase of 10.3% over the same period in 2015.
Pro forma hotel EBITDA margins expanded by 112 basis points to 37.5% in the quarter.
For the first quarter, our adjusted EBITDA grew to $40.9 million, an increase of $6.4 million or 18.6% over the same period in 2015.
Moving on to our balance sheet, our balance sheet is arguably in the strongest position it has ever been, and we have continued to strengthen it by reducing leverage, staggering our debt maturities and improving our cost of financing.
At March 31, 2016, we had total outstanding debt of $704.1 million with a weighted average interest rate of 3.76%.
We ended the first quarter with net debt to trailing 12-month adjusted EBITDA of 4.2 times.
Our reduction in leverage is primarily the result of continued EBITDA growth and the sale of 16 hotels to affiliates of ARC Hospitality.
In January 2016, we closed on a new $450 million unsecured credit facility which replaces our former $300 million facility.
As a result of the successful completion of this credit facility, our pricing grid was improved by approximately 30 basis points.
As of April 21, we had total net debt to trailing 12-month adjusted EBITDA of 4.1 times and had total outstanding debt of $693.3 million with a weighted average interest rate of 3.78%.
Subsequent to quarter end, we repaid one CMBS loan in the amount of $5 million and expect to repay another in the amount of $13.4 million this week using our unsecured revolving line of credit.
As a result, more than 60% of our portfolio EBITDA will be unencumbered with less than 5% of our total debt maturing through 2018.
With the continued outperformance of our portfolio and consistent cash flow stream provided by our premium select-service hotels, we are excited to have increased the common dividend for the first quarter of 2016.
On April 29, we declared a cash dividend of $0.1325 per common share which is an increase of 12.8% over the prior quarter.
Turning to our outlook, in our release you will see that we provided our second-quarter outlook and increased our guidance for the full-year 2016.
For the second quarter 2016, we are introducing pro forma and same-store RevPAR growth guidance of 5% to 7%.
Our second-quarter adjusted FFO guidance is $34 million to $35.8 million, or $0.39 to $0.41 per share.
For the full-year 2016, we are increasing our RevPAR growth outlook to a range of 4% to 5.5% for both our pro forma and same-store portfolios.
We are also increasing our adjusted FFO outlook to a range of $114.4 million to $119.6 million, or $1.31 to $1.37 per share, which is an increase of $0.9 million, or $0.01 per share, at the midpoint.
We have incorporated capital improvements of $40 million to $50 million which includes both renovation and recurring capital expenditures.
Our adjusted FFO guidance continues to assume a mid-year sale of 10 hotels totaling $89.1 million.
No additional acquisitions, dispositions or equity raises other than those mentioned are assumed in the second quarter or full-year 2016.
With that I will turn the call back over to <UNK>.
Thanks, <UNK>.
In summary, we are very pleased with the consistent results in our portfolio and remain encouraged about 2016 as the benefits of premium select-service hotels, limited supply growth in our submarkets, and broad geographic diversification continues to show the benefits of our differentiated investment strategy.
With that, we will open the call to your questions.
We haven't triangulated around a specific number market by market.
We watch them very close and as you know, it takes two and sometimes three years to build hotels even in markets outside of the gateway cities, so we are very aware of what is coming.
I would estimate it would be 2% or less as a portfolio.
Some of our markets have zero, some probably have a little bit more but very manageable in our markets.
<UNK>, it is a good question.
At this point, I don't see any direct correlation from the brand initiatives.
I think it is a positive for the industry.
We think it incrementally will help us at the owner level, but I think it is still too early to draw anything from that initiative to our direct performance.
Sure, <UNK>, thanks for the question.
We have had quite a bit of interest in the portfolio.
It is under contract so we don't have to sell it.
What we did decide to do is take seven of the hotels and bring them out to market to better manage the process and be efficient.
So there is quite a bit of demand for one-off and smaller portfolios, and we expect to have more to announce here in the coming quarters.
I don't know that we look at it as a premium.
We have at some level a built-in floor for pricing.
And remember these weren't hotels that we had to sell so in the absence of getting as great a value as we have with the current contract, we would be much less likely to sell.
<UNK>, I think the 3.5 times to 4.5 times is the range we feel comfortable in.
A year ago it was 4 to 5.
This year we think 3.5 times to 4.5 times is appropriate.
I think that range will be what will guide our activities.
So at this point, I don't know that we have a view on deployment other than making sure that whatever we do with our capital creates value for shareholders.
That is correct.
I think single assets have probably backed up maybe 50 to 75 basis points over the year.
A lot of that is offset by increased net operating income.
So I think values have been pretty constant.
There haven't been enough portfolio sales to really have a strong benchmark or basis in our view.
But I think it is fair to say that cap rates have backed up 50 to 75 basis points.
I think that is fair.
That has always been our goal is that kind of forward mid-8 either going in or very quickly after acquisition through operational improvement.
So I think that is still an area that we feel comfortable in.
<UNK>, that is a great question.
We are not seeing it at any level that would give us concern.
Certainly there is a hotel or a submarket that may be experiencing softening due to maybe one demand generator.
But broadly based, we still see the business and leisure transient guest as stable and not affecting our portfolio.
<UNK>, that is a really good question.
I think historically the trade down concept has been a concept that has been very, very well understood and followed but today with the quality of premium upscale select service, I think it is not as much of a trade down as it is really a value proposition.
I think guests are drawn to the quality, the location and the experience in many of the premium upscale hotels and that is driving it more so than a categorical mandate from the business that they cut costs.
Thanks, <UNK>.
I will answer those in reverse order.
I think our revenue management team is focused on creating opportunities in each market every day so I think it is fair to say that a heads in bed strategy or focusing on occupancy in certain markets at certain times is certainly warranted but it is not an across the board strategy that we are employing.
It is a market by market, hotel by hotel initiative.
And as far as the mix, we do believe that the first quarter was not indicative of the full-year and that a more balanced mix of rate and occupancy you will see over the next several quarters and we still expect a majority of our RevPAR to be rate driven for the full-year.
Yes, <UNK>, we said at the beginning of the year that we expected about 25 to 75 basis points of expansion for the year and for the quarter.
That is still very true.
What we did see was we had a $700,000 property tax refund in New Orleans that kind of attributed about 50 basis points to this quarter.
So we still hit 62 basis points of just kind of toward the higher end and we would expect as we go through the year to still see about 25 to 75 basis points of expansion in the operations.
Yes, that was not in the original guidance because we did not have final resolution yet to where we were going to be on that.
So we set our original guidance without it and the 25 to 75 for the rest of the year we still see for the full year without that $700,000 benefit.
<UNK>, this is <UNK>.
New Orleans is a tough market for sure.
Each quarter is either a difficult or an easy comp based on how the citywide events plan out.
It is going to be a tough market for the year and a challenge for us but with the property types that we have and the asset management and revenue management team that is focused day to day in there, it is going to be a challenge but we will find opportunities to create as much growth as we can.
That is a great question.
I think that buybacks are definitely on the list of options for us.
It is a little bit harder because of our size and liquidity to execute a stock buyback that would be meaningful but it is definitely an option that we have.
I think we have demonstrated a bias towards finding unique and creative ways to create value.
So ---+ but I wouldn't say that it is any way off the list.
I guess two questions.
The notion that the consolidation in the space would happen has been an ongoing topic that has never really gotten traction for a lot of reasons, some obvious, some maybe not as obvious.
I think there are definitely benefits to size and scale but I don't think there is any reason that size and scale can drive greater value just on pure size alone.
We have been able to create great value at our size.
Certainly being a little bit bigger would be a benefit but we decided early on that we were going to win on quality and execution and that getting big just to get big really wasn't in keeping with creating value.
I think, <UNK>, this is <UNK>.
I think the two that come to mind mostly for us are Houston.
Houston continues to struggle.
The storms didn't help.
I think the perception out there is that Houston is still completely under water and that has been a market that the most recent storms have kind of exacerbated a challenging market.
And then New Orleans, it is one of our larger markets and is a year that tends to be softer.
So I think those two markets as a whole are our greatest challenges for the year.
And as I referenced earlier, we've got a great asset management and revenue management team that are always looking at unique and creative ways to minimize the effect of some of those events.
Thank you all for joining us today.
Before I go, I did want to reiterate our guidance for the quarter.
For our pro forma and same-store portfolios is 5% to 7% growth for both.
And I do appreciate the trust that you have in us and we will continue to work hard for you by being thoughtful in our capital allocation and continuing to find opportunities to create value in the premium upscale hotel market which are the hotels that today's guests love.
Have a terrific day and we look forward to talking to you again next quarter.
| 2016_INN |
2016 | BCO | BCO
#Thank you, Aaronson and good morning everyone.
Joining me today are CEO, Doug <UNK>; CFO, Ron <UNK>; and former CFO, Joe <UNK>.
This morning we reported results on both a GAAP and non-GAAP basis.
The non-GAPP results exclude certain retirement expenses, reorganization and restructuring costs, acquisitions, dispositions and tax rate adjustments.
In addition to these items, our non-GAAP results exclude Venezuela due to a variety of factors including our inability to repatriate cash and continued currency devaluations and the difficulties we face operating in a highly inflationary economy.
We believe the non-GAAP results make it easier for investors to assess operating performance between periods.
Accordingly, our comments today, including those referring to our guidance, will focus primarily on non-GAAP results.
A summary reconciliation of non-GAAP to GAAP results is provided on Page 4 of the release and more detailed reconciliations are provided in the release in the Appendix of the slides we're using today in this morning's 8-K and on our website.
Page 8 of the press release provides a summary of several outlook items including guidance on revenue, operating profit, earnings per share and adjusted EBITDA.
One final note, in future quarters, we plan to hold our conference call at 8:00 AM Eastern Time, before the market opens.
The earnings release and slides will be distributed prior to the call and we will continue targeting the fourth Thursday after quarter's end as the date for the call.
It is now my pleasure to turn the call over to Doug <UNK>.
Thanks, Ed.
Good morning, everyone and thanks for joining me on my first call with Brink's.
I'm truly excited to be here and I see tremendous opportunity to improve the performance of the business and create value at Brink's.
I'm confident that my background has prepared me well for this opportunity.
I've held leadership positions at several public companies with global operations and have driven significant shareholder value in the past.
The last company I led, Recall Holdings, was very similar to Brink's in many ways.
Recall was a route-based logistics business with a network of over 300 branches in 26 countries.
And many of its customers overlap Brink's, including banks and other financial institutions.
I led the spinoff of Recall from its parent to a standalone public company and reenergized the company in management with strategies to accelerate growth, improve margins and differentiate customer offerings.
With a new strategy and upgraded management team, Recall accelerated organic and acquisition growth, achieved substantial gains in operational efficiencies and rolled out differentiated services to customers using technology.
In just over three years, we achieved well-above industry growth rates, materially improved margins, and most importantly more than doubled the value of the company.
I see similar opportunities to drive change and create value at Brink's.
And I have a strong sense of urgency to do so.
One of my first objectives is to restore credibility and confidence among our three key constituents, our investors, employees and our customers.
It begins by delivering on our commitments to customers and investors.
Starting with the US business, we need to demonstrate significant operational improvement throughout the company, improvements that are clearly seen by our customers in service levels and by our investors in margin improvements.
We need to improve our sales and marketing efforts to make it easier for our customers to choose Brink's by providing differentiated services and enhancing the overall customer experience through technology and other benefits.
And we need to deliver sustainable growth in revenue, earnings and cash flow for our investors.
If we do these things, and I'm confident that we will, we will close the significant valuation gap that currently exists between Brink's and our peer companies.
Our EBITDA multiple has been stuck in the range of around 5.5 to 6 times, while our peers, and other industrial service businesses have much higher multiples.
If we apply these higher multiples to our current EBITDA, assuming no improvement, that valuation gap would look much different than it does today.
Based on Brink's recent historical finance performance versus peers, it is understandable, however, why we have a lower multiple and lower overall valuation than we should.
However, with strong performance, I see no fundamental reason why Brink's should trade at such a discount.
And the good news is that we have the opportunity to grow both EBITDA and the multiple.
And that's why I'm here.
Our greatest near-term opportunity to create value is to accelerate profit growth in the US to close the gap on our operating margin versus market peers.
To strengthen the focus on this objective, we announced this morning that I will serve as President of the US business in addition to my CEO responsibilities.
I'm already spending most of my time in Dallas, the headquarters of our US operations learning as much as possible about the challenges we face in this, our largest market.
And developing plans to drive margin improvement.
We also announced today that Mike Beech, an Executive VP who has had responsibility for our top five markets, will narrow and sharpen his focus on improving operating performance in Mexico, which is our next largest opportunity for improvement and in Brazil.
Amit Zukerman's Executive VP role has been expanded to include responsibility for France.
Amit will continue to manage our strong performing global markets that include EMEA, Latin America, Asia and the Brink's Global Services business.
Chris Parks, President and General Manager of Brink's Canada, will continue in his role, but he'll now report directly to me.
When I arrived at Brink's two weeks ago, we announced changes at the CFO and CIO level.
Ron <UNK> is our new CFO and Rohan Pal is our new Chief Information and Chief Digital Officer.
I worked closely with both Ron and Rohan at Recall and each played major roles in the success we achieved there.
Both are on board and ready to drive similar success at Brink's.
Ron is replacing Joe, who served as CFO since 2009 and will remain at the company until September 30th.
Joe and the company reached a mutual agreement on his departure and he's been nothing short of spectacular in his efforts to help us manage a smooth transition.
Joe's a first rate executive and contributed much to Brink's over the last several years as CFO.
Joe will cover our results one last time today, but I wanted to take this opportunity to say thanks to Joe on behalf of the board and to all of our employees.
Thanks, Joe.
Ron comes to Brink's with a proven track record as CFO of several significant public companies including HD Supply, which he helped take public and where he grew shareholder value significantly.
I'm confident that Ron will provide the same strong financial and strategic leadership to Brink's and that Rohan will help drive differentiated customer-facing technology as well.
Now, let me turn to the quarterly results.
I'll start with a brief overview.
Our second-quarter results include 5% organic revenue growth and an operating margin of 5.3%, which is up 120 basis points over the year ago quarter.
On a constant currency basis, this margin rate was 6%.
Adjusted EBITDA over the last 12 months was $284 million.
EBITDA margin was 9.9%.
Again, up 80 basis points versus the prior 12 month period.
Earnings were up 27% at $0.38 per share.
Excluding currency, earnings were $0.48 per share.
Even with the continued currency headwinds, it was a good quarter compared to 2015.
Performance in the US continued to be unacceptable and the timing of improvements there has been delayed.
However, results in much of the rest of the world were strong offsetting the shortfall in the US and Mexico versus prior guidance.
We have great opportunities to deliver much better results, especially in the US and Mexico which account for about a third of our total revenue.
The upside is substantial and we will pursue it aggressively.
Looking ahead to full-year results, our revenue outlook of $2.9 billion assumes organic growth of approximately 5%, offset by negative currency and dispositions.
Given this year's lower than originally expected profits in the US and Mexico, we reduced our overall profit outlook, but still expect substantial improvement over 2015, supported by continued strong results, again, in the rest of the world.
Our margin rate outlook of 6.4% to 6.9% is well over 100 basis points higher than last year's 5.3%.
Adjusted EBITDA is expected to grow by approximately 10% to a range of $305 million to $330 million.
Full-year 2016 earnings are expected to come in between $1.95 to $2.10 per share.
Again, a significant improvement over last year's earnings of $1.69 per share.
Our 2016 guidance assumes that the strong currency headwinds will continue through the second half of the year and add a substantial impact on revenue and profits.
We're reducing revenue by about $180 million and operating profits by about $20 million.
Rebuilding our credibility begins by delivering on these targets for the year and I'm fully committing to doing so.
I'll now turn it over to Joe and Ron and I'll then close with some comments before we open it up for questions.
Joe, thanks.
Thanks, Doug.
Good morning, everyone.
Our 5% organic revenue growth was driven by Argentina, Brazil, Mexico and Chile where we capitalized on inflation and volume growth.
Our retail growth in Mexico and Brazil is offsetting a challenging environment with our financial institution customers.
The currency impact was mostly in Argentina, Mexico and Brazil.
Operating profit grew 50% on a constant currency basis, from $31 million to $47 million.
This improvement was driven by strong organic revenue growth in Argentina and Chile, combined with a strong quarter from France and lower global incentive compensation expense.
Even with the unfavorable currency impact, the margin rate was still 5.3% for the quarter, up 120 basis points from last year.
Earnings per share grew 53% on an organic basis, a strong quarter year-over-year.
The next few slides provide an overview of our five largest countries and global markets starting with the US and Mexico.
The US had an operating loss of $2 million for the quarter due mainly to higher fleet costs, including vehicle accidents, volume pressure and other operating inefficiencies.
We reduced our full-year [out] profit outlook in the US to a range between $5 million and $15 million.
Although the first half results do not reflect all the positive actions taken in the US this year, we are confident that we're getting traction on the critical processes that will enable us to improve profits in the second half.
We are working to reduce our fleet and labor costs through the purchase of more one-person vehicles that are smaller and more fuel efficient than the previous vehicle design.
We've increased capital expenditures this year to drive more savings in our US fleet.
We exceeded our mid-year target of 325 one-person vehicles by 35 and we exceeded our target for optimized routes as well.
We are confident we will achieve or exceed our year-end targets of 460 one-person vehicles and 60% of routes optimized.
We're making good progress improving our revenue capture by adding more resources to support our branch operating processes and we expect a positive second half impact from a significant commercial win that we cannot yet disclose.
We expect to use some of the labor savings we're generating, through the process efficiencies, to fund additional resources in our branches to drive further process improvements and savings.
We expect the third quarter to show significant profit improvement and the fourth quarter year-end exit rate to be close to 5% margin.
Mexico delivered strong organic revenue growth of 7% as double-digit retail growth was partially offset by lower financial institution volumes.
The revenue mix did not deliver the margin pull-through we expected, so we've got some work to do to lean out the cost to generate the incremental margin.
We're working on several significant initiatives in Mexico to increase margins.
Such as a handheld device roll out, similar to what we completed last year in the US, as well as variable compensation programs in certain areas to drive increased efficiencies.
France, Brazil and Canada round out our largest five markets.
Our team in France continues to perform well under challenging conditions, converting a 1% organic revenue decline into organic profit growth of nearly 50%, despite a slow growth macro-environment.
France continues to transform its business model to managing more of its customer's cash supply chain, while driving increased efficiencies in its operations.
Results in France were also aided by more working days in this year's second-quarter compared to last year and the positive settlement of the social tax matter from a previous quarter.
But it was still a strong quarter from an operational perspective.
For the year, we expect solid profit growth on flat revenue as we control costs and execute our service offering transformation in France.
Our team in Brazil continues to perform extremely well in a difficult environment, delivering 33% organic profit growth on 13% organic revenue growth.
The team continues to execute productivity actions and cost controls to counteract a very difficult competitive environment.
It is important to highlight that Brazil's profit in 2015 was heavily backend loaded with the fourth quarter accounting for 50% of the full-year profits.
So, the comparisons become much more difficult for Brazil.
Nonetheless, we expect Brazil to deliver about the same margin rate in 2016 as they did in 2015, despite an increasingly price competitive environment.
In Canada, organic profit declined slightly on modest organic revenue growth.
We expect significant improvement in second half profits from volume gains and productivity actions already taken.
Even with the negative impact of the strong dollar, along with the volume pressure in our global services unit, the steady performance of our global markets unit continued into the second quarter.
The combined operating margin rate of the 35 countries that comprise this unit was 17%, up 280 basis points over the same period last year.
The EMEA region delivered a strong margin rate of 10.3% breaking into double-digits.
Revenue declined versus last year as expected, due primarily to the closure and partial disposition of a money losing operation in Ireland.
We also saw slightly lower volumes in global services, including the UK.
The Latin America region achieved strong organic revenue growth and substantially higher margins.
Most of the organic revenue growth and more than half of the second quarter profits in Latin America were driven by Argentina.
Results in Chile also improved as we continue to realize the benefits of restructuring actions taken in the past few years and we had an easier comparison against last year's second-quarter that included an industry-wide labor strike.
Revenue and profits in Asia were up solidly for the quarter driven by Hong Kong and Singapore.
First half non-GAAP cash flow from operating activities decreased by $23 million versus last year, due primarily to the timing of working capital and tax payments that we expect to recover in the second half of the year.
Our first half cash flows, and the first quarter in particular, are the weakest of the year due to normal beginning of the year payments.
Capital expenditures and capital leases were up $14 million year-to-date versus last year when we had a low spend of only $41 million as we were redesigning our US vehicles and executing global tenders.
We increased our full year spending estimate by $10 million to a range of $130 million to $140 million to reflect additional new vehicle purchases in the US to drive lower operating costs.
Net debt decreased by $20 million versus the first half of last year as the strong cash flows in the second half of 2015 were partially offset by the lower cash flows in the first half of this year.
As I complete my last earnings call with Brink's, I want to take a moment to express my gratitude to the entire Brink's team around the world for the support I've received throughout the last seven years.
While we as a team have not accomplished everything we had hoped to, I believe we made significant progress in areas that will be an important part of the foundation for the future success of Brink's.
I believe the Brink's board made an exceptional choice in Doug as CEO and I believe he is uniquely qualified to lead Brink's through its next phase of transformation and growth.
I am proud to be part of the 157 year legacy of Brink's and will be cheering for the great success that I believe is to come.
Although I am leaving Brink's, I am not leaving the many friendships and relationships that I plan to maintain in the future.
Thanks again and next up is Ron.
Thanks, Joe.
Good day, everyone.
I'm excited to be at Brink's.
I want to echo Doug's comments and also thank Joe for his excellent leadership of the finance function and for making my transition as smooth as possible.
I did a lot of research before joining Brink's.
Now, two weeks into the job, I'm happy to say that everything that I've seen has confirmed the enormous potential that the company has to increase value.
Our intention is to drive cash flow and to increase the multiple that you, our investors, attribute to that cash flow.
As Doug mentioned, that starts with building credibility by consistently meeting expectations.
Our game plan focuses on growth, margins, leverage, and return on invested capital.
Let me break down each component of the plan.
For growth, we will execute to grow organically faster than our competitors.
And we will make accretive acquisitions.
For margins, we will strive to get paid for all the value we deliver and we will implement a lean cost structure.
For leverage, we will drive incremental profit growth greater than incremental sales growth.
And for ROIC, we will prioritize our spending to maximize the return on invested capital.
To reflect our increased focus on cash flow, starting immediately, we're initiating reporting on EBITDA.
You probably noticed EBITDA in our press release.
On Slide 11, you can see that the outlook for adjusted EBITDA in 2016 is between $305 million and $330 million.
That's approximately a 10% growth from 2015 and a double-digit margin as a percent of sales.
You can also see that Brink's EBITDA, as Doug mentioned, has a multiple in the range of 5.5 to 6 times.
On the right side of Slide 11 are the EBITDA multiples of our three closest competitors.
As we restore credibility and performance, and execute our strategy, we expect the investment community will attribute an EBITDA multiple to Brink's commensurate with our peers.
EBITDA growth and multiple expansion should drive considerable value creation for our shareholders.
That's my focus.
With that, I'll turn it back over to Doug.
Thanks, Ron and thanks to Joe as well.
In summary, despite reduced profit expectations in the US and Mexico and the persistence of currency headwinds, we remain on track to deliver another year of strong growth in operating profit, margin rate, EBITDA, and earnings per share.
In fact, delivering approximately 20% year-over-year growth in both operating income and EPS, coupled with 5% organic revenue growth, will be considered a strong performance at most companies.
However, we need to underpin this with sustainable margin improvements.
We expect continued organic profit growth in Argentina, Chile and in our payments business to supplement improvements in the US.
Similar to the first half, actual currency's impact that we've built in a negative profit impact of about $20 million, as we said earlier, for the year from currency.
But of course, the actual impact will be undoubtedly different.
On the revenue side, we maintained our guidance, as we said earlier, of $2.9 million, reflecting 5% organic revenue growth.
Compared to prior guidance, this outlook reflects a profit reduction of about $10 million in the US, and a similar decline in Mexico, again compared to prior guidance.
We expect these declines to be offset by improvements in the rest of the world as we saw in the first half.
This nets to an expected operating income of between $185 million to $210 million and an EPS range of $1.95 to $2.10 versus guidance of $2.00 to $2.20 per share.
Now before I open it up to questions, I want to answer in advance a question I've been getting since I joined Brink's a couple of weeks ago.
And the question usually goes something like this.
So, how do you see your first 100 days as CEO.
As I said earlier, we need to rebuild our credibility in the investment community and we need to do this with a sense of urgency driving the necessary changes to do so.
It's only been a couple of weeks and we've already made some major organizational decisions that will help drive everyone [to go] and instill the culture needed to get us there.
I've already spent a fair amount of time in Dallas learning about the US operations and with the team we started to lay the base for added improvements and hit the targets we need to hit.
Over the next three months, I'll be doing a lot of traveling to see operations, to get to know our people, and meet our customers.
This will support development of a vision, overall strategy, and specific action plans with targets.
At some point, probably early next year, we'll communicate a three year strategic plan to drive shareholder value, complete with a process to achieve our goals and appropriate metrics to measure the success.
One thing I already know is that this strategy will include an aggressive focus on cost reduction and operational excellence, with a target to close the gap, and even more, on operating margins.
It will also include accelerated topline growth, including organic growth and the potential for synergistic accretive acquisitions that add density to our markets and further leverage margins.
We'll support these objectives by exceeding customer expectations and offering differentiated services supported by technology.
I look forward to sharing our plans, executing, and creating added shareholder value.
Thanks very much for listening this morning and I look forward to meeting many of you in person over the next coming months.
This concludes the formal remarks this morning and Aaronson, let's open it up now for questions.
I appreciate the comments.
Let me answer a couple, the first two and then I'll pass it over for the third question.
I think that the first question, in terms of the things that have been put in place that we've talked about already on the US operational side are truly key things that make a lot of sense, that we should be doing, that will add to value as we start ramping those up further than where we are.
In other words, one man trucks, the handhelds which we're implementing throughout the organization, the billing revenue collection, etcetera.
Those are very good projects.
They need to be accelerated.
We probably need to aggressively push them forward even more.
But we'll be adding to that, I think, fairly significantly to drive value even faster and at a higher level.
So, we've seen the start of it.
I think we'll accelerate that and we'll see more of the benefits of what's already been done and then it'll be added to.
Handhelds are just the first part of technology by the way, as it should be fully in place as a base.
I'm sorry, what were you going to say.
When you're asking about the specific software, I don't have a good technical answer necessarily to that.
I think most importantly is that we should have handhelds throughout the whole system.
And that's a very important technology base to have.
Where we take it from there, in a more advanced system, is yet to be seen.
Do we use other types of technology such as RFID etcetera I think would be the next thing that we take a look at and how we do that.
As an example, at Recall, at least in our industry at Recall, we used RFID and we're industry pioneers in that in our industry, not across the board.
So, I think we'll take a look at other types of technology and that's what I will be charging Rohan to lead and his team in driving that.
The second question that you had was about employees.
And if you read the information, I think it's on the fourth slide, it says close the gap with competitors.
So, this is not related specifically to our employees.
I think we have a great team at Brink's.
I think it's a great base to be starting from.
It's probably a little bit of a misnomer in where it was located in there, but clearly what we were saying is not about our employees, we're saying that we need to close the gap in our operations, in our margins, in our performance, in our financials with competition.
So, I think that's just in the location that it was laid out in the slide.
Again, I think we have a great team.
I think with some augmentation, which we've already started, in leadership we'll be able to close the gap versus competition which is what we're really focused on doing.
Could you repeat the third part of your question again to make sure we address that properly.
I didn't follow ---+ <UNK>, correct me if I'm wrong, but the $31 million EBIT is that comparable to the prior quarter in terms of what's included, specifically related to corporate.
The corporate expenses.
That is not a, on a year-over-year basis, we expect corporate expenses to be favorable.
And there's our global incentive compensation, much of that lands in the corporate expenses.
And in the second quarter we were favorable on a year-over-year basis.
That will help drive favorability on a year-over-year basis.
Some of the restructuring actions we took at the end of 2015, beginning of 2016, will also lower corporate expenses on a year-over-year basis.
We have not provided a specific guidance for what the corporate expense level will be for 2016, but I expect that it will continue to reduce over time.
Thank you, <UNK>.
<UNK>, it's a great question and you can see from our revenue growth that we've turned the corner to having several quarters in a row now of solid organic revenue growth.
What we've found in the second quarter was where we added that revenue was not in the branches where we had excess capacity.
And so we had some incremental costs of getting that business on board.
The great news is we're getting the organic revenue growth.
It's coming with retailers.
And so it's a little more dispersed than some of our other business.
Now what we've got to do is focus on getting the cost out and optimizing the additional volume we've added to the system.
But with the incremental volume, we're confident we're going to be able to get the efficiencies over time to bring the margin pull-through.
But it's clear in the second quarter we didn't get the margin pull-through we had hoped to with the incremental volume.
But with that volume, we can figure that out.
Let me take a first stab at that on a higher level.
I think we're talking about two different types of technology and purposes for that.
The handheld is really the operational side of the business as well as making sure that we have custody and security around that.
So, that's a productivity, efficiency and security tool more than anything else, and somewhat reporting.
Whereas the CompuSafe is really how do we provide a solution to the customer that's a total solution that satisfies a lot of those same things.
So, they are really different technologies and driven differently in terms of what we're looking to end up with.
What we want to end up in terms of a technology that's customer facing is one that, obviously, solves their system's problems and is not just a breakdown of the types of individual services, but as a total system that provides better profitability for us and better efficiency and solutions for our customer.
And the technology interface is both, the handheld and the other things that go along with that that help operate the backend of the system, as I like to call it, as well as the frontend, which is the solutions that's the customer facing side, which CompuSafe would be one of those solutions, but integrated into a more technologically integrated system that in fact provides better information on a real-time basis, if possible, with our customers as well.
I agree with you.
Let's start with Amit Zukerman.
Certainly what we've done here is expanded his role versus where he has been, at least, in the recent period of time.
I really can't talk much about it subsequent to that.
But the performance in his areas, EMEA and Global Services and Latin America, have been very strong.
This adds a direct reporting with France which is a major market for us, but also fits on a geographical basis with some of his other businesses.
So, we expect great things, not only to continue out of France, but also in Amit's overall leadership in that.
And we continue to expect great things out of what Global Services has done under his leadership and the rest of his strong team.
So, this is a strengthening of that focus and we think that'll do well.
But there's also [things], and probably the most important piece is this reorganization sends a signal that the US is very critical to who we are and where we're going and our success both as an operation with our customers but also with the valuation with our investors.
And hence the focus directly on, with me, on that.
And second most important if you will in terms of our upside opportunity is Mexico.
And so, refocusing in a much sharper, hopefully, aggressive fashion with Mike on Mexico and continuing with Brazil, which is a very important market for us as well, we think will really send the message, both internally but externally as well, and will hopefully get us to where we want and need to go.
Thank you.
And again, thank you all for joining in this morning's call and especially for my first call.
We look forward to meeting, I look forward in particular to meeting many of you personally in the coming months and seeing you on future calls and most importantly as investors in the future.
Thanks very much.
And have a good day.
| 2016_BCO |
2017 | CABO | CABO
#Thank you, operator.
Good morning, everyone, and welcome to Cable ONE's First Quarter 2017 Earnings Call.
We're excited to have you with us this morning as we review our results.
Before we proceed, I would like to remind you that today's discussion may contain forward-looking statements relating to future events and expectations.
You can find factors that could cause Cable ONE's actual results to differ materially from these projections listed in today's press release and in our recent SEC filings.
Cable ONE is under no obligation and, in fact, expressly disclaims any obligation to update its forward-looking statements whether as a result of new information, future events or otherwise.
Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles.
Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release or on our website at ir.
cableone.
net.
Joining me on today's call is our President and CEO, Julie <UNK>.
And with that, let me turn the call over to Julie.
Thank you, <UNK>.
Good morning, and thanks, everyone, for joining our First Quarter 2017 Earnings Call.
I will highlight a few notable items, and then <UNK> will provide a full recap of our financial performance.
We saw in the first quarter that our continued focus on executing our strategy produced solid growth in both residential HSD and business services.
Residential HSD units grew more than 2% for the quarter and residential HSD revenues were up more than 8%.
Business customers grew 8.5% and business revenues increased more than 13% for the quarter.
Total revenues were up over 2%, 2.3%, to $207.4 million.
As we've said in the past, our focus is on long-term profitability and not short-term results, so we don't put too much weight on the results of any single quarter.
This is largely because a number of variables can cause unevenness in our quarter-over-quarter comparison.
For example, we have followed a non-reoccurring schedule of rate adjustments which we saw in the first quarter of 2017 as a result of our video rate adjustment taken during the quarter.
First quarter results were also impacted by an ---+ by the accounting changes related to the capitalization of certain labor costs that we discussed in our last earnings call.
For the first quarter, adjusted EBITDA was $97.9 million, an increase of 14.6% year-over-year, which included the positive impact of those capitalized labor costs.
If we exclude those costs, adjusted EBITDA growth would have been 7.7% year-over-year.
To reinforce our strategic focus on residential HSD, we continue to enhance our residential HSD products with new value-added services that make the lives of our customers easier and distinguish us from other providers in our market.
For example, we are launching WiFi ONE, Cable ONE's first advanced Wi-Fi solution that will provide our customers with enhanced Wi-Fi signal strength and extend and improve the Wi-Fi signal throughout their homes.
Wi-Fi-certified cable and technicians will utilize signal-mapping software to find the optimum location of the Wi-Fi gateway in the customer's home and determine the proper hardware configuration based on the customer's number of wireless devices and the design and structure of their home.
State-of-the-art technology solutions will be customized, based on the individual customer's needs.
WiFi ONE will give our customers the freedom to access our superfast Internet speeds from multiple devices anywhere in their home, helping to eliminate dead zones and buffering.
This advanced Wi-Fi service, combined with the fastest speeds in the majority of the markets we serve, will give our customers a superior Internet experience.
A rollout of GigaONE, our 1-gigabit service, to all of our markets is also progressing nicely.
At the end of the first quarter, more than 75% of our homes passed in our legacy footprint had access to GigaONE.
Our other major area of strategic focus is business services.
Our newest product in this area is called Piranha Fiber, which we market as ferociously fast Internet.
Piranha Fiber offers businesses up to 2-gigabit symmetrical service using an extremely reliable fiber-based architecture and shared bandwidth service.
We are currently the only company providing this type of product in the markets we serve.
We have launched Piranha Fiber in 2 markets already, and we will continue to introduce this differentiating mid-market business services product to other Cable ONE areas.
We announced on Monday that we have completed our acquisition of NewWave Communications, and we are very excited to welcome all of the NewWave associates to the Cable ONE family.
Cable ONE now has more than 2,400 associates serving over 800,000 customers, representing 1.2 million POCs in 21 states.
We believe this new division of Cable ONE will be a great fit because of our similar strategies, customer demographics and products.
NewWave's legacy markets are well-suited to our strategy and offer us cost synergies as well as opportunities for revenue and adjusted EBITDA margin expansion in the long run.
In the short run, we may see some erosion of our adjusted EBITDA margins until we realize these synergies.
That being said, I'm confident that our dedicated associates, including those who became part of Cable ONE from NewWave earlier this week, will continue their tremendous efforts during integration and beyond to help us achieve our goal.
Now I will turn it over to <UNK> for more details on our first quarter results.
Thanks, Julie.
As Julie already mentioned, we're very pleased with the results that we achieved in the first quarter.
Let me share a few highlights from the first quarter with you.
Adjusted EBITDA, as Julie mentioned, grew 14.6% with a margin of 47.2%.
This result was affected by a change in accounting estimate that we've mentioned previously related to capitalized labor cost.
Excluding the impact of this change, adjusted EBITDA would have increased 7.7% year-over-year.
Adjusted EBITDA less capital expenditures was approximately $62 million, an increase of almost 7%.
Residential HSD revenues increased by over 8%.
Business service revenues increased by 13%.
Residential HSD and business service revenues now comprise almost 57% of our total revenues.
And total revenues were over $207 million in the first quarter of 2017 as compared to $203 million in the first quarter of 2016.
So our top line revenue growth is continuing.
Now getting into the detailed results.
For the first quarter of 2017 compared to the first quarter of 2016, revenues increased $4.6 million or 2.3%, due primarily to increases in residential data and business service revenues of $6.8 million and $3.1 million, respectively.
For the first quarter of 2017, residential data revenues comprised 43.5% of our total revenues, and business service revenues comprised 13% of our total revenues.
So therefore, these 2 services now comprise 57% of our revenues.
Residential video and voice revenues decreased $2.4 million and $1.4 million year-over-year, with the impact of customer losses partially offset by a rate adjustment for video customers implemented during the first quarter of 2017.
Operating expenses decreased $7.3 million or 9.6% year-over-year and improved as a percentage of revenues to 33.3% compared to 37.7% for the first quarter of 2016.
The improvement in operating expenses was driven by a $4.7 million reduction in labor costs resulting from the change in accounting estimate associated with capitalized labor costs in the first quarter of 2017, lower programming costs of $1.2 million associated with the reduction in residential video customers, lower backbone and Internet connectivity fees of $0.8 million and lower repair and maintenance costs of $0.5 million.
Excluding the favorable impact in the change of an accounting estimate, operating expenses would have been $73.8 million in the first quarter of 2017, a decrease of $2.7 million or 3.5% year-over-year.
Selling, general and administrative expenses increased $1.8 million or 4.2% year-over-year and were 22% and 21.6% as a percentage of revenues in the first quarter of 2017 and 2016, respectively.
The higher selling, general and administrative expenses in the first quarter 2017 were primarily attributable to increases in acquisition-related costs of $1.4 million, compensation costs of $1.2 million, marketing expenses of $0.8 million and repair and maintenance costs of $0.4 million.
These were partially offset by a reduction in labor costs of $1.2 million resulting from the change in accounting estimate and lower group insurance costs of $0.9 million.
Once again, excluding the favorable impact of the change in accounting estimate, selling, general and administrative expenses would have increased $3.1 million or 7% year-over-year.
We also recognized a net gain on disposal of assets of $6.1 million in the first quarter of 2017 primarily associated with the sale of our former corporate office property which treat ---+ which was treated as a nonoperating asset during the period.
Net income increased $6.2 million or 22.8% to $33.2 million in the first quarter of 2017 compared to $27 million in the prior year period.
Excluding the impact in the change in accounting estimate related to capitalized labor, net income would have increased $2.5 million or 9.1% to $29.5 million in the first quarter of 2017 compared to the prior year.
As we mentioned already, adjusted EBITDA was $97.9 million and $85.4 million in the first quarter of 2017 and 2016, respectively.
The adjusted EBITDA growth of 14.6% in the first quarter of 2017 includes the positive impact of the aforementioned capitalized labor cost.
Keep in mind that this change, which we mentioned during our last call, simply makes our methodology consistent with industry practices.
Excluding the impact of these costs, adjusted EBITDA would have been $92 million, and adjusted EBITDA growth would have been 7.7% for the first quarter of 2017.
Capital expenditures totaled $35.9 million and $27.4 million for the first quarter of 2017 and 2016, respectively.
Including the capitalized labor costs, capital expenditures would have been $30 million.
Adjusted EBITDA less capital expenditures for the first quarter of 2017 were $61.9 million, an increase of $3.9 million or 6.6 ---+ 6.8% from the prior year period.
As for liquidity.
At March 31, 2017, we had almost $174 million of cash and cash equivalents on hand compared to $138 million at December 31, 2016.
Our debt balance was $544 million and $545.3 million at March 31, 2017, and December 31, 2016, respectively.
We also had approximately $200 million available for borrowing under our revolving credit facility as of March 31.
This facility is undrawn at the moment.
On May 1, as Julie already mentioned, we completed the acquisition of NewWave for $735 million, and concurrently modified our existing credit agreements to borrow $250 million of term loan A and $500 million of term loan B.
The proceeds of the term loan borrowings and a portion of our existing cash on hand were used to fund the acquisition, repay our existing term loan A of $93.8 million and pay the related fees and expenses.
Our financial capacity allowed us to make this acquisition and still maintain a very favorable leverage position.
Our net debt to adjusted EBITDA will increase from 1.1x to approximately 2.6x, and secured debt to adjusted EBITDA will only be 1.7x.
During the first quarter of 2017, we repurchased 700 shares of our stock under our repurchase program at an aggregate cost of about $400,000.
One more time, turning to our change in capitalized labor.
In the first quarter of 2017, we, as mentioned before, changed our accounting estimate related to capitalization of certain internal labor and related costs associated with construction and customer installation activities.
We previously indicated that we believe this change would result in an increase of capitalized labor costs in the range of $28 million to $33 million on an annual basis.
Based on our first quarter results, we now anticipate that this range will be $24 million to $28 million for 2017.
So in conclusion, our solid financial performance continued in the first quarter of 2017, and we are very excited about the acquisition of NewWave.
And with that, operator, we are now ready for questions.
Phil, let me take the first part of this.
This is <UNK>.
NewWave's revenues are currently running around $182 million and their fourth quarter adjusted EBITDA was $64 million.
That's where they are today.
We have mentioned that we believe there will be synergies in the range of $24 million.
Again, it will take several years to obtain all of the synergies.
They're coming from corporate overhead reduction, our management of the systems in a more efficient way, and also programming reduction.
So it's a three-pronged approach.
You're right, they will take a little bit of time.
Some of the changes will be more imminent, some will take 2 to 3 years to have that change take effect.
Yes.
And Phil, this is Julie.
On the system side, I believe that Cable ONE will bring a lot to bear on the HSD service side in terms of systems.
NewWave does have some enterprise business services products that we will be exploring.
And I think that's about the extent of that.
You bet.
Thanks, <UNK>.
As far as strategic issues, anything being the same or different, I've been a part of this team for almost 18 years now and I'm a wholehearted believer in the strategy that we're pursuing.
I see us at the tipping point of really being able to harness it and push it forward for the long term.
When I think about my own stamp, I think about my history in the business, which spans over 30 years, and one that has been spent with our people who provide services to our customers, so making sure that we stay intently focused on our customers, on their needs, on making their lives easier.
I believe that as we do that, the profitability will follow for the long term.
In terms of costs, things that are high on my list.
Well, we have an industrial engineering mindset and we continue to look at improve all aspects of our business.
So I think anything is fair game there, and it's something that we consider one of our strategic levers, quite honestly.
Sure.
So first, I guess to summarize, on the video side, when we have increases from broadcasters or satellite programmers, we pass those along to our customers.
When it comes to the data side, we haven't had a rate adjustment ---+ well actually, we've had 1 in 5, 5.5 years now.
Our standard service, which is 100 megs, is $55.
If you lease a modem from us ---+ and that's a choice of the customer's.
If you lease the modem from us, it's $8 more a month.
And now included in that, at no additional cost, is our beautiful WiFi ONE service.
At no additional cost.
So I think that our goal is to keep that price point steady for us for as long as we can.
We think it's a great value, and that's what we're trying to present to our markets.
Greg, this is <UNK>.
As we've said before, we continue to look at opportunities.
As with NewWave, we want to be diligent and prudent about the acquisitions and make sure, if we do something, it's accretive for all shareholders.
We truly feel that NewWave was definitely that.
We will continue to look at other opportunities.
We obviously, as you can see, have a lot of capability with our liquidity today.
We still have cash on hand.
Our debt to cash flow is only in the mid-2s.
We've told the market before that we're comfortable going into the mid-3s for opportunities.
So we'll continue to look at those opportunities.
There are other things out there.
But again, we will be diligent and prudent about it.
We don't want to grow just for the sake of growing.
We want to make sure that whatever we do, that it's accretive for shareholders.
And as you can see with this acquisition, net of the tax benefits and the synergies we believe we can get, this thing was done at 6.6x cash flow.
And we believe that is accretive for shareholders.
Actually, this is Julie.
Thank you, operator.
<UNK> and I will be attending the 45th Annual JPMorgan Technology and Media and Telecom Conference in Boston in late May, and we look forward to seeing some of you there.
We appreciate you for joining us for today's call.
Thank you.
| 2017_CABO |
2016 | AMSF | AMSF
#Thank you, <UNK>nt, and good morning, everyone.
Thank you for joining the call today as we discuss our second-quarter results.
Before discussing AMERISAFE's operations let's talk about the operation as a whole.
Companies are fighting to retain renewal accounts.
In many cases, the underlying rates for those risks have declined resulting in a decline in premium.
To maintain or grow top line, companies are becoming increasingly competitive, a sign of a softening market.
What's preventing a soft market.
I believe we have not returned to the soft market of previous cycles because of low investment yields.
Underwriting profit is necessary for companies to meet ROE goals.
As I stated in orr earnings release, AMERISAFE remains unwavering both in our disciplined underwriting focus, on our market niche and in producing consistent and superior results.
This quarter we reported a combined ratio of 80.4% an ROE of 13.7% and earnings per share of $0.87.
How does that discipline work this quarter.
Gross premiums written declined 2.6%.
This decline was a result of audit and related premium adjustments.
More importantly for policies we wrote in the quarter, premium grew 1.1% and policy count grew 3.4%.
Our policy count retention for the quarter was 93.5% compared to 92.9% in the second quarter of 2015.
The effective LCM for the quarter was 1.73, down from 1.81 in the second quarter of 2015.
Our pricing concessions have been in response to the competitive market, but without losing sight of protecting the underwriting margin.
Also keep in mind, our pricing declines have been moderate and deliberate coming off from all-time high of 1.86 second quarter of 2014.
As for the audit premium and related adjustments, I mentioned, this was a drag to top line and it was expected.
Audit premium continued to remain positive but not at the same levels as the previous year.
This is driven by economic activity in the industries that we insure, and unless there's a significant change in the economy, I would expect this trend will continue in 2016.
Relative to losses, the current accident year selection is 67.9%, a 1.9 percentage point improvement from accident year 2015.
Coupled with favorable development from prior accident years, the quarter's loss ratio was 54.2%.
The favorable development was largely a result of case development experienced in the quarter, primarily in accident years 2014, 2013 and 2009 and prior.
Once again, I believe these favorable results are driven by our unique claims management process focused on maximum medical improvement, returned to work and expedient resolution.
Yet another example of our focus on discipline.
I would now turn the call over to <UNK> <UNK>, our CFO, to discuss the financials.
Thank you, <UNK>, and good morning, everyone.
For the second quarter of 2016, AMERISAFE reported net income of $16.6 million, or $0.87 per diluted share, compared with $14.3 million, or $0.75 per diluted share, in the same quarter of last year, an increase of 16.2%.
Operating net income in the quarter was $16.3 million, or $0.85 per share, a 1.7% increase from the second quarter of 2015.
Revenues in the quarter decreased by 2.4% to $97.6 million compared with the second quarter of last year.
Net premiums earned decreased 5.1% to $90.7 million when compared to the second quarter of 2015.
This decrease was largely due to $3 million in lower payroll audits that <UNK> mentioned previously, as well as an additional $0.9 million in lower assumed premium from mandatory state pooling arrangements.
Net investment income was $6.2 million in the second quarter of 2016, a decline of 10% when compared with last year's second quarter.
The decrease was largely due to the decline in value of a hedge fund investment, which is mark-to-market through net income each quarter.
Without the hedge fund, net investment income was down 2.6% compared to the second quarter of 2015.
The tax equivalent yield on our investment portfolio was 3.3% in the quarter compared with 3.6% in the same quarter of last year.
There were no impairments or significant realized gains or losses during the quarter.
The investment portfolio continues to be high quality, carrying an average AA minus rating with an average duration of 3.04 with 52% in municipal securities, 32% in corporate bonds and the remainder in cash and other investments.
53% of our investment portfolio is classified as held to maturity, which is a net unrealized gain position of $23.2 million at June 30, 2016.
These gains are not reflected in our book value per share as these bonds are carried at amortized cost.
With regard to operating expenses, our total underwriting and over expenses increased 2.2% in the quarter to $22.6 million compared to $22.1 million in the second quarter of 2015.
We saw an increase in bad debt expense largely as a result of a change in estimate, or reduction, we made last year in the second quarter and a slight increase in compensation costs.
By category, second-quarter 2016 expenses included $6.3 million of salaries and benefits, $6.5 million of commissions and $9.8 million of underwriting and other costs.
Our expense ratio for the second quarter was 24.9 compared with 23.1 in the second quarter of last year.
The majority of the change in expense ratio was due to the decline in net earned premium mentioned earlier and with the remainder due to the increase in expenses mentioned above.
Our tax rate increased to 32.4% in the quarter up from 28.8% in the second quarter of last year.
The increase reflects the larger amount of taxable income compared with tax exempt during the quarter as a result of the increased amount of favorable prior-year development.
Return on equity for the second quarter of 2016 was 13.7% compared to 12.3% for the second quarter of 2015.
Operating ROE for the second quarter was 13.6%.
On July 26, 2016, the Company's Board of Directors declared a regular, quarterly cash dividend of $0.18 per share payable on September 23, 2016 to shareholders of record as of September 9, 2016.
And just a couple of other items to discuss.
Book value per share increased 8.8% from year end to $25.83 at June 30, 2016.
Our statutory surplus rose to $409.4 million at June 30, 2016, up $38 million from year end.
Finally, AMERISAFE will file our Form 10-Q for the second quarter this afternoon after the market close.
That concludes my remarks, and we would now like to open the call up to analysts and investors for our question-and-answer session.
Operator.
We do.
We think audit premium will remain positive, but not nearly as robust as it was last year.
So it will be a drag to top-line for, I assume, the rest of 2016.
I will.
Sure, yes, this is <UNK>.
We have a hedge fund investment at the parent company and it has a large portion of it invested in life insurance stocks and so with the Brexit vote coming right at the end of the quarter, those stocks tanked pretty significantly and that drove down the value of the hedge fund investment which is mark-to-market.
Since that time, we believe that those stocks have risen somewhat and recovered some of their value, but we think that overall, it's still down from where it was at the year end.
So we continue to look at that investment and think about that, but that's what's causing that volatility in the net-investment income.
Yes, you are hearing that properly.
We made an adjustment to our allowance based upon our historical experience, last year, second quarter and we took bad debt down by about $1.1 million.
And so the significant increase you see here is just a year-over-year comparison and we don't expect to see that significant increase from a comparative standpoint in future quarters.
That is correct.
We would expect them to run at about the rate they've run so far this year, probably about 1% to 1.3%.
We have seen an increase in the amount of policyholder dividends as a result of activities that we have in certain states, certain states where we compete on the basis of policyholder dividends.
So we expect them to be around 1% to 1.3% going forward.
Yes, we think the run rate will be somewhere between 24% and 25%.
That's a good question.
You know, the tax rate is largely driven by the amount of favorable development that we see each quarter.
And so, I would look just to the historical record to try to estimate the tax rate.
Yes.
You know, it is going to fluctuate based upon the earnings of the Company and the amount of underwriting to profit.
That's largely what drives it.
Yes, that's a really good question and I guess the question everyone is looking at is where it is going to head in the next few quarters.
There's definitely an increasingly competitive market.
We are not seeing, and I think I said this on last quarter's call, we are not seeing the irrational behavior we've seen in prior soft markets, but we are starting to see some multi-line carriers that have typically, or in the last few years quarters, have pulled away from workers comp because it wasn't profitable, deciding that yes, we will quote some workers comp.
From an AMERISAFE standpoint, you mentioned our sales initiatives, we are starting to, I think, see traction there.
I've talked in past about our green, yellow red.
We are seeing more greens and so we are doing a better job of bringing in the things we want to see, but our submission count is down, so we would just like to see more of that.
You know what, we will protect the underwriting margin.
We are trying to be as responsive as we can to the market, but only at what we are willing to accept.
It really depends on what the competitive market is going to do.
I think we're doing a good job of holding steady.
I mentioned that we grew policy count and I talked about a couple quarters ago on the call that going into this softening market, or if we reach a soft market, policy count is where I was focused because if I can maintain those policies I know I want to keep in our renewal retention rate, which was up this quarter, I feel like we are positioning the Company correctly.
Yes.
At the end, when we reported first quarter at the time that we ended the quarter, we didn't have any large losses.
I think on the call, I alluded to, we had one come in subsequent to, reported for the quarter before the call.
So right now, when we say large losses, that's excess of $1 million.
We are at a count of 5 and, just to put that in some perspective, accident years 2014 and 2015 are at 12.
So that's not unusual amount for us.
There's nothing in those losses that would cause us to want to change our loss pick for the year.
Thank you, <UNK>.
I believe you know AMERISAFE and you know AMERISAFE well.
We are in a lumpy business, but we are conservative about what we do.
There's nothing in the underlying data six months in that would cause us to believe our loss ratio needs to change at this point.
The frequency is about where we thought it was; severity is about where we thought it was.
So your point about the favorable development, that's case-by-case.
That's just how it happens for us.
We've had good things happen, but bad things can happen as well.
Thanks, <UNK>.
Sure, accident-year 2014 was $3.8 million; 2013 was $4.2 million; 2012 was $1.7 million; 2011 was $0.1 million; and 2011 and prior was $2.6 million.
I'm going to write that one down, a mini hard market, I like it.
Right, we have been pretty vocal about the fact that the favorable development that we received of particularly those years that you're talking about, 2012 and 2013, have come from case development.
And I've said all along, I think that those years, from case-reserving standpoint probably, were a shift in the paradigm if you will because that was coming off of accident-year 2010 where we got it wrong; the industry got wrong.
I think we all took a look and said, are we being realistic about how we are setting these case reserves, in particular return to work.
Coming out of the great recession, return to work is a large part of what we do and there weren't jobs (technical difficulties).
So we factored that into our case reserving and now I think, the Company is reaping the benefits of that.
So that would have been a change from 2012 and forward, which would include 2014, 2015 and 2016.
Thank you.
Thank you.
I began my comments calling this an increasingly competitive time in the market.
There are numerous macro factors which influence the direction the market goes from here.
Regardless, AMERISAFE is well-positioned for the upcoming twists and turns.
Our focus on underwriting discipline, claims management and expense frugality will continue to support our commitment to our stakeholders.
| 2016_AMSF |
2016 | HIG | HIG
#So the guidance that we provided at year end ---+ I think everyone understood the assumptions based in that, particularly as it relates to prior-year development, our investment partnerships, our combined ratio picks for Commercial and in Personal Lines.
So we are out of the business of updating quarterly, but I think you determine the sensitivities, particularly as it relates to Personal Lines, particularly as it relates to our net investment income and partnerships.
So I think you should be able to understand where that is coming out right now.
So as we sit here, one quarter into it, there's still three quarters to go.
There's items that could break our way or things that we will need to continue to manage.
So we're not giving up on the year and still feel that the guidance we gave was appropriate.
Yes; I think the prior comments and your question here go hand-in-hand.
They are both obviously interrelated.
To the extent that the numerator in the equation gets a little softer, that's going to affect the overall ROE.
So I would agree with you that there are some pressures we face.
But we are only one quarter in, so we are going to continue to work very, very hard, <UNK>, as you know.
Sure, <UNK>.
Let me take a crack at it.
We certainly felt an increase in collision frequency, physical damage frequency, second half of 2015.
That appears to have settled down and our numbers in the first quarter are reasonably quiet, flattish.
But as we shared with you last year, that's off a tough compare.
So feel pretty good about collision accidents in the first quarter.
Keep in mind weather was relatively tame, so have to understand that as well.
On the liability frequency, we are seeing more features, more BI components to the collisions that are being reported.
And we are addressing them.
So in 2015 the uptick in frequency was both more features, more coverages attached to those collisions.
And that is rolling into 2016, relative to our expectations.
So we have reset baseline, if you will, for 2016.
We have built in our pricing programs what we think are new norms for severity and frequency.
And we are working our way through dealing with meeting an improved financial outlook and profile for this business.
We will get there.
Yes, it's not more features on the policy, for sure.
What we think some of the condition is due to is that we are clearly seeing higher speeds on highways and more highway accidents.
So with higher speeds, those are more difficult accidents with more people hurt and more damage caused by those accidents.
So I think it's the complexity and the speed of some of these accidents and we are feeling pressure inside our liability, bodily injury component of getting these cases closed.
So a couple of parts to that answer.
First thing is I think that that range of 40% to 50% of open bodily injury claims on an accident year that's 18 months out is completely within the norm.
So I would start there.
Secondly, although I've talked about many of our underwriting and book management initiatives, there are equally as many claim initiatives that we are embarking on, both ourselves ---+ we are looking at system dynamics.
We are looking at how we can cut data more effectively.
And so there are a number of diagnostics that we are dropping on the desktops of our claim examiners so we can do absolutely the best job possible adjudicating claims.
Sure, I'll answer that.
So yes, our budget for second quarter is $151 million.
And we look at that evenly across the three months, a third, a third, a third.
So if you think about a budget for April, about $50 million, we are running a little bit above that at this point.
There obviously has been a lot of activity.
So the month of April has come in strong as it relates to cat activity.
And we will obviously continue to monitor it through the rest of the quarter.
Let me just make an observation.
As <UNK> said I said in my prepared remarks, we are obviously not happy and disappointed just where we are at particularly in Personal Lines.
But you should know that we are doubling our efforts down to fully understand these trends, take the litany of actions.
And it's not only rate, as <UNK> said in his remarks.
There's a number of other actions that we are aggressively getting after.
And just know that there is a tremendous amount of energy on the Personal Lines team to get our arms around these issues and get back caught up to trend.
So I'm confident we can get our arms around this.
We know what needs to be done.
It's going to take a little bit of time.
But just know the energy and commitment that we are devoting to this.
Maybe one final comment, and this really is a comment across several of the questions today.
I think we've commented over the years that our AARP business has been more profitable and continues to be.
So as you looked into both my comments about our rating actions, which have a little more intensity around what we are doing in the agency space and also the fact that, if you look at the premium indications, I gave you some growth numbers and you have a sense that we are down overall in agency, and you saw based on my comments that we are up in AARP agency.
I think that gives you a signal that our agency business is down significantly in the quarter.
We feel good about that mix.
We are mixing toward the strength of this franchise, which is a mature driver.
We are being thoughtful about our class programs.
We are adjusting as we go.
But I'm very confident that, based on all the actions we are taking, we are going to see progress over the course of 2016.
So for 2016, for the remainder of 2016, as we've said, we are anticipating taking out another $250 million in the second half.
And for 2016 that is all we are intending to do at this point.
As we roll into 2017, we will obviously continue to look at overall capital generated in Talcott as well as just the runoff activity to determine if there's additional dividends beyond just that normal $200 million to $300 million.
But that we would look to update more towards the end of this year.
Yes, and again, over time there obviously is additional capital that we will be able to extract.
I believe I said in our last call that when I think about dividends for 2017, I think about them not being higher than what we are experiencing in 2016.
So again, in 2016 we are doing $750 million.
As I said, I would anticipate there would be some additional excess beyond what we are generating.
But I wouldn't want you to think that there would be something above the level that we are seeing this year.
Yes.
I feel very comfortable with the $250 million, even with the interest-rate activity that we've seen, that as we think about sizing the dividends we take a lot of that into consideration from our stress scenarios and so forth.
So I feel very good about our ability to do that.
Thank you, <UNK>.
And thank you all for joining us today and your interest in The Hartford.
If you have any additional questions throughout the day, please don't hesitate to follow up with the IR team.
We wish you all a good weekend and good luck with the rest of earnings season.
Thank you.
| 2016_HIG |
2017 | DISH | DISH
#Hi, <UNK>
I guess first-off, we generally don't provide guidance looking forward
However, what I would say is, I think we're encouraged with churn and non-pay is running at a multiple-year low
I think we've talked about in the call before, there's probably three things I'd point to: one is definitely have a lot more discipline in place, from an acquisition perspective to look at acquiring customers that will be profitable and obviously, will be with us on a long-term basis
And in addition, I think our sales strategies have been more effective than they have in the past
Some of that has to do with the work that we're not solely focused just on providing a credit for our customer or rightsizing them into a package that meets their needs, whether that's with Flex Pack that we've talked about before on the call, or whether that's through other tactics, whether it's renewal or upgrade, et cetera
So just trying to meet the customers' needs and finding a package and equipment that's right for them
Then in addition, I'd say, obviously, there has been some operational improvements, we're executing better at a front-line level, both over the phone and face-to-face when one of our technicians is at the door
So, I think the combination of those three is encouraging for us from a churn perspective looking forward
I'll let <UNK> comment on Sling growth, if there's a question there
| 2017_DISH |
2016 | SAM | SAM
#Thank you, <UNK>.
Good afternoon, everyone.
As we state in our earnings release, some of the information we discuss in the release and that may come up on this call reflect the Company's or management's expectations or predictions of the future.
Such predictions and the like are forward-looking statements.
It is important to note the Company's actual results could differ materially from those projected in such forward-looking statements.
Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the Company's most recent 10-K.
You should also be advised that the Company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.
Our third-quarter depletion volume continued to be below our expectations, primarily due to decreases in our Samuel Adams, Angry Orchard, Coney Island, and Traveler brands that were only partially offset by increases in our Twisted Tea and Truly Spiked & Sparkling brands.
The comparative decline in the third quarter of 2016 for shipments and depletions was significantly impacted by the third-quarter 2015 national launch of Coney Island Hard Root Beer and the loss of share due to new entrants in hard soda since the launch.
We are happy with our Truly Spiked & Sparkling category leadership position and are investing to grow this emerging category.
However, we were disappointed during the quarter by cider category trends and believe we have opportunities to increase visibility and disruption at retail for our cider packages.
We have adjusted our expectations for 2016 full-year depletions growth and our earnings guidance to reflect our trends for the first nine months and our current view of the remainder of the year.
We remain prepared to forsake short-term earnings as we invest to return to long-term profitable growth commensurate with the opportunities and the increased competition that we see.
We have provided our preliminary view of 2017 growth rates, but these rates are difficult to predict and are subject to reassessment, as current industry trends suggest slowing of category growth rates and the impact of increased competition, new introductions, and retailer programming are all unclear.
Long term, we remain optimistic for future craft and cider category growth.
I'm pleased that during the quarter Jonathan Potter joined our leadership team as CMO, bringing many years of relevant alcohol experience to Boston Beer.
He has already moved to add leadership and experience to our digital efforts as part of our desire to build a world-class brand team.
He joins <UNK> <UNK>, our CFO, and Quincy Troupe, our Senior Vice President of Supply Chain, both hired earlier this year, as we form a restructured leadership team to address the current challenges and deliver against our three strategic priorities.
Our number one priority remains returning Sam Adams and Angry Orchard to growth through our packaging, innovation, promotion, and brand communication initiatives.
We are conducting a comprehensive review of our brand strategies and activation plans to ensure that our investments are effective and efficient in building long-term brand equities.
Our second priority is a stepped-up focus on cost-savings and efficiency projects, with a view to investing these savings into growing our brands.
We have identified and are executing on cost-savings projects throughout the organization, while preserving our quality and service levels, with the goal of increasing our gross margins by 1% a year over the next three years, ignoring mix or volume impacts.
Our third priority is long-term innovation, where our current focus is ensuring that Truly Spiked & Sparkling maintains its leadership position and reaches its full potential.
I am very excited by the capabilities of our leadership team and the energy of our organization as we address these priorities.
Based on information in hand, year-to-date depletions through the 41-week period ending October 8, 2016, are estimated to have decreased approximately 6% from the comparable period in 2015.
Now <UNK> will provide the financial details.
Thank you, <UNK> and <UNK>.
Good afternoon, everyone.
For the third quarter, we reported net income of $31.5 million, or $2.48 per diluted share, a decrease of $0.37 per diluted share from the third quarter of 2015.
This decrease was primarily due to decreases in net revenue and a decrease in gross margin, partially offset by decreased advertising, promotional, and selling expenses.
Shipment volume was approximately 1.1 million barrels, a 12% decrease compared to the third quarter of 2015.
We believe distributor inventory as of September 24, 2016, was at an appropriate level.
Inventory at distributors participating in the Freshest Beer Program as of September 24, 2016, decreased slightly in terms of days of inventory on hand when compared to September 26, 2015.
Approximately 77% of our volume is on the Freshest Beer Program.
Our third-quarter 2016 gross margin decreased to 52.7%, compared to 53.6% in the third quarter of last year, primarily due to product mix effects and unfavorable fixed-cost absorption, partially offset by cost-saving initiatives in our breweries and price increases.
Third-quarter advertising, promotional, and selling expenses decreased $14.4 million compared to the third quarter of 2015, primarily due to lower media spending and decreases in freight to distributors as a result of lower volume and lower freight rates.
General and administrative expenses increased by $1.8 million from the third quarter of 2015, primarily due to increases in stock compensation and increases in salary and benefit costs.
Based on information of which we are currently aware, full-year 2016 earnings per diluted share are now estimated at between $6.30 and $6.70, a decrease and narrowing in the range from the previously communicated estimate of between $6.40 and $7.00.
However, actual results could vary significantly from this target.
The 2016 fiscal year includes 53 weeks compared to the 2015 fiscal year, which included only 52 weeks.
We are currently forecasting a change in full-year 2016 shipments and depletions versus 2015 of between minus 6% and minus 2%, a decrease in the range from the previously communicated estimate of between minus 4% and zero.
We continue to project price increases per barrel of between 1% to 2%.
Full-year 2016 gross margins are expected to be between 50% and 52%.
Investments in advertising, promotional, and selling expenses are forecasted between a decrease of $10 million and flat, a decrease in the range from the previously communicated estimate of between a decrease of $5 million and an increase of $5 million.
This estimate does not include any increases or decreases in freight costs for the shipment of products to our distributors.
Our 2016 effective tax rate is projected at approximately 36%.
We are continuing to evaluate 2016 capital expenditures and currently estimate investments of between $55 million and $65 million, a $5 million decrease of the range from the previously communicated estimate of between $60 million and $70 million.
Looking forward to 2017, we are in the process of completing our 2017 plan, which represents a 52-week fiscal year, compared to the 53-week fiscal year in 2016.
And we will provide further detailed guidance when we present our full-year 2016 results.
Based on information of which we are currently aware, we are targeting depletions and shipments percentage change in the range of between minus low single digits and plus low single digits.
We plan increased investments in advertising, promotional, and selling expenses of between $10 million and $20 million for the full-year 2017, not including any increases in freight costs for the shipment of products to our distributors.
We estimate our full-year 2017 effective tax rate to be approximately 36%.
Excluding the impact of the new accounting standard, employee share-based payment accounting, also known as ASU 2016-09, which is effective on January 1, 2017.
We are currently not planning to provide forward guidance on the impact that ASU 2016-09 will have on our 2017 financial statement and our full-year effective tax rate, as this will mainly depend upon unpredictable future events, including the timing and value realized upon exercise of stock options versus the fair value when those options were granted.
We are currently evaluating 2017 capital expenditures and our initial estimates are between $40 million and $60 million.
The capital will be mostly spent in our breweries to support future growth and product innovation and to drive efficiencies and cost reductions.
We expect that our cash balance of $77.3 million as of September 24, 2016, along with future operating cash flow and our unused line of credit of $150 million, will be sufficient to fund future cash requirements.
During the 39-week period ended December 24, 2016, and the period from September 25, 2016, through October 14, 2016, we repurchased approximately 807,000 shares of our Class A common stock for an aggregate purchase price of approximately $138.4 million.
As of October 14, 2016, we had approximately $196.5 million remaining on the $781 million share buyback expenditure limit set by our Board of Directors.
We will now open up the call for questions.
Let me quickly take the impact.
So the extra week is giving you about a 2% benefit.
That's essentially what you get versus prior year ---+ on the full year, I should say.
Let me just talk about what we see going on.
I think from a projection perspective, there's lots of timing issues relative to shipments.
You see in Q3 that shipments were down versus ---+ obviously, depletion trend was down, but shipments were down more, and so the sort of wholesaler inventory issues sort of going on related to the root beer launch last year, where we shipped a lot of root beer in Q3 as the market was very receptive to root beer, and indeed some of the competitors were actually having out of stocks and so there were huge opportunities, and that sort of corrected itself in Q4 last year.
So the comparisons are really hard to sort of lay out.
And I think I'd rather just talk about what we see going on in the industry.
I think you are right to say that it looks like, based on the publicly available data, that craft is slowing in IRI Nielsen data, and it's happened ---+ that slowing down of the growth rate has been pretty quick.
I think, at the same time, there's some improvement on the Sam Adams trends in the last 10 weeks.
When we last spoke to you, in July, we actually had some positive trends going on which were encouraging to us, and those then went negative again and now we see the negative trends starting to slow down a little bit, which again is positive, but we just really don't know how to read it.
And so, there's a lot of uncertainty on the craft beer side.
I think as we talk to retailers and wholesalers, and drinkers, there seems to be some drinker confusion at retail.
There's some retailers who are choosing to focus on core items and basically carry inventory of their fast-moving items and reduce the long tail, and then there's also some suggestions of beer getting old at wholesaler or at retailer, and that's why everything sort of seems to be slowing.
I think we remain positive about the long-term future of craft, but we are certainly in a transitionary phase.
We have some belief that it will return to a brand-driven business, as opposed to maybe a variety-seeking business, but obviously that's an assumption and a belief based on what we see.
But it may not be true, and all that makes it very hard to sort of lay out the forecast.
As it relates to our other brands, Twisted Tea remains strong, truly is doing nicely in a very small category that maybe has a pretty big seasonal piece to it, and we are still trying to work that out.
Obviously, it's very early in that category development.
And then Angry Orchard, in the cider category, we expected to see some improved trends in the cider category in Q3 that did not occur as big as we thought they would, and I think we are concluding that we are being hurt a little bit by the retail environment and we need to focus on retail activation and displays and features to make sure that the cider is available and visible to drinkers.
So we think we have some opportunities there.
But again to your point, it's very hard to forecast the difference in shipping and depletions numbers.
Trends that you're pointing to is more a function of the quarter-to-quarter effects and wholesale inventory effects, and we are just doing the best we can to forecast what our full year looks like.
Sure.
I think when we do drinker work on Sam Adams, we get very consistent feedback as to how admired the brand is, that it is a respected part of drinkers' portfolios, and that the brand has very strong brand imagery associated with Samuel Adams, the patriot, with Boston Beer and <UNK> <UNK>, and with our sort of pioneering role in the development of the craft beer category, so all very positive.
And I think what you conclude is we are lacking on some retail disruption visibility at the point of purchase to remind the drinker of all of those things.
So the new packaging is brighter, cleaner, simpler.
It's bolder on shelf, and it clearly portrays Sam Adams in a sort of more modern creative way that we are very pleased with and we received very good drinker feedback on.
And the overall design is designed to attract the eye on the shelf and remind people what Sam Adams stands for as part of a purchase consideration set.
Yes.
I think the retailers are receptive to sort of brand offerings that are supported and invested in on a basis like we do with all of our offerings, and there is certainly a lot of support for the core craft domestic specialty brands that make up 40%, 50% of the volume.
And when retailers are thinking about the space, they are thinking about the beers that [are] basically pulling and churning their tail ---+ they've been churning the tail for a while and they're thinking about allocating some of that tail to stock out of core items.
I think we think that the hard soda category is going to ---+ is probably over-SKUed right now, and I'm sure there are other categories, too.
And those spaces being, I think, at least with a couple of the major retailers, has been pushed back out.
So when we are presenting new items, I think we are hearing from retailers support for the packaging design.
We're hearing support for the new innovations around some of our priorities.
We have announced we're going to five seasonals next year, and that seems to have good retail and wholesaler support based on our ability to execute seasonal programs, due to the freshest beer approach and our inventory management capabilities.
And so, we are actually feeling pretty good about what we are hearing, but obviously the proof is in what the retailers ultimately give us and we will have to wait until Q1 to actually see.
I think the hard root beer sort of launch phenomenon is pretty much a trial wave we saw August, September, October last year.
And so, our current comparables are very hard.
By the time you go through to Q1, when you saw the introduction of the competitive soda brand, that was actually Q1, late Q1 [into] Q2, the comparisons get much easier when you get there.
So we are just assuming on the root beer side that we are going to see a continuation of what our current sort of business looks like, although, again, I think we are expecting some rationalization of the players because the category has not turned out to be as large as perhaps people thought and potentially does not ---+ isn't large enough to support four, five, six brands and 20 SKUs, whatever the total number of SKUs the category is.
As we sort of look at next year and have laid out the plan, you're correct.
The range out there is for a 52-week comparing to 53 weeks.
So you're absolutely right that we are projecting that on an adjusted basis for the weeks that we can grow the Company, if only slightly.
And the things you have to believe to do that are you need to believe that Twisted Tea maintains its health and continues to grow distribution and penetration and share.
You have to believe that Truly continues on its trajectory, based on the sort of eight weeks of summer that we saw this last quarter, and that we can duplicate that next summer and obviously through the winter.
And you also need to believe that you can return Angry Orchard and Sam Adams to sort of very low declines or flat as sort of the range of what you have to believe.
And so, we think that's reasonable, we think that's doable, that's what we're going to plan around, and we have some innovation in the Sam Adams family and in the Angry Orchard family that will help that, but obviously, again, as I laid out to <UNK>, it's a highly fluid time.
And given that we don't get a full visibility to all the competitive activities that may come at us in Q1, nor to exactly how the retailers react to everything we are presenting to them now, we really don't have good data as to how that's going to impact our basis.
So this is our best guess and obviously we will have a better feel for it when we talk in February.
Let me address the packaging timing first and then come back to sort of the media support and promotional support.
On the packaging side, a new look and feel that is consistent with the look and feel of the lager package, at least from a design conceptual perspective, will start to appear with our winter lager and sort of limited-release holiday seasonal beers, which should be hitting retail shelves probably early November, plus or minus a week, based on our Oktoberfest commercial timing.
And they will then be followed in the planning process by our Rebel family of beers, including our new Rebel Juice that will have a new look and feel for our Rebel family that will, from a timing perspective, be targeting January 1.
And then the other beers in our lineup, what we would call our Brewmasters Collection, are sort of scheduled to be completed by late Q1 or early Q2 and will be feathered in based on [news ups] and design.
So we are obviously prioritizing our higher volume items, but the whole line will have been completely redesigned by the time we get to middle of Q2.
So that's the approach to packaging, and it's both mother packaging, like six packs and 12 packs; it's also cans and bottle labels.
So we are doing everything.
And that's in process and we feel pretty good about that timing.
And we also think the collective look is terrific when we put it on a shelf.
With regards to media, we are currently editing work that is designed to support the Sam Adams Boston Lager packaging with talks ---+ with communication around Sam Adams and his role in sort of American history and our role in craft beer history, and that is still being finalized.
But the latest I have for my brand team is early November, but knowing the creative process, obviously that could move a little bit.
Sure.
On the pricing, it's a mix issue related to the root beer shipment sales revenue of Q3 of last year.
So we don't think the underlying pricing on our total business has changed in the quarter.
Our approach to it hasn't changed.
It's just a mix issue driven by the root beer shipments as a proportion of our business in Q3 last year.
As it relates to the plan to recover, I think we think we have opportunities in our brand communication, in our packaging that obviously we are fixing as we speak, and in how we promote and how drinkers experience our brand.
We have asked Jon Potter, our new CMO, to start with a blank sheet of paper and totally question everything that we do, and we think we have opportunities to both improve the messaging, but also the efficiency with which we deliver that messaging, whether that be through media, promotions, or all point of sale.
And we think that gives us a good stead, given our investment levels, of being able to change the drinkers' perception of the brand or relevance of the brand and to move the brand forward, so that's what we are launching out ourselves onto now, now that Jon is on board.
Sure.
So we don't provide an EBIT outlook.
What I would say is if we believe that we can take that savings and invest it in brand activities that drive topline growth, then we will do that and the topline growth will drive the EBITDA.
So EBITDA for us, obviously, is a huge function of growth.
We would like to grow.
We would like to have the option of having brand investments that we think will generate growth, and if we have them, then that would be our prioritization for that money.
We are looking at everything, I think, as a result of the growth that sort of came to a stop sort of this time last year.
We had built out capabilities and infrastructure both operationally and SG&A wise.
So we are looking at everything.
We are looking at sales force alignment to make sure that in the current environment our sales force structure is sort of aligned against what drives the biggest value to our wholesalers and our retailers.
So we are making some moves there that actually might result in a slight increase in sales investment next year, but we are basically looking at it from a blank piece of paper and going, what would we do today based on where we are, and that's where we come out.
And I think that applies to all of the SG&A spend, both all the brand spend, as I said, starting ---+ taking a look at everything and identifying what is driving value, what isn't driving value, can we do better, particularly with the new sort of brand direction that will be coming out, what works and what doesn't work.
And on the G&A side, same sorts of things, both looking at trying to put in systems and processes to improve flow and decision-making and information and drive some savings there.
So, we are looking at everything.
We haven't sort of set or defined targets yet.
I think previously we've talked about $30 million to $50 million, and obviously we've put the 1% gross margin target out there a year for the next three years, which sort of rings true to that sort of target.
So it's that sort of level that we are comfortable talking about, but we are still in the process of actually identifying specifics and the timing that we wish to approach it.
So at this point in time, I'm not willing to comment further.
It is certainly possible.
What I would say is if we have something that we like that demonstrably moves the brand, then we would move to invest behind it because the big ---+ as we see it, the big long-term value driver for the business is topline growth.
Sure.
So just coming back to Q3 mix impact, I think my comment was around on the pricing, that root beer benefited pricing in Q3 of last year, and not actually a comment on the gross margin that we just reported.
If I was to think about Q3 gross margin just reported, I would say volume was down, so we had fixed-cost absorption issues, but those were somewhat offset by early signs of the savings projects that we kicked off when we last spoke to you.
As we look forward on the delivered gross margin, sort of 1% a year for three years that we talked about today, we are going to try and do that net of mix effect, so before mix effects.
Obviously in our business, we have opportunities to introduce new brands with better profitability, higher price points, or different economics against different opportunities.
But in our projection of what we would like our gross margin to be and how it would improve over the next three years, we have chosen to ignore sort of mix effects.
That projection is solely from cost initiatives on the supply-chain side.
And we believe those opportunities are there based on ---+ again, we built a supply chain to deal with the five years or six years of growth that we experienced 2009 through 2015.
It was incredibly hectic.
We expanded and we added capacity, and we really believe we have opportunities to operate it better.
We also believe that we sort of built up capacity a little higher than we needed to with the sort of trends over the last 12 months that came up ---+ were pretty unexpected when we were making those capacity decisions, including staffing decisions on shift patents, and we are going to work out of those in a manner consistent with our values.
But we believe that opportunity is there and we're going after it with a vengeance.
It's a number of factors.
One was clearly the pricing impact and the mix impact that came from hard root beer, which was $2.00 a case higher than the rest of the line.
So this is number one.
The second thing is if you look at our volume decline versus prior year, we have significant fixed-cost absorption impact and that's what you see as well.
And if you just take ---+ if you compare to prior quarters, if you just take the volume impact on the fixed cost on the margin, we should have seen a lower margin.
But it was already partly offset because we see the first signs of the initiatives that we've put in place in the breweries to drive the cost savings.
So, that's what you see.
And if you look at the margin decline versus prior year, it's actually better than what we have seen in the previous quarters.
So that's the dynamic there.
There's a little bit of margin mix from the product mix in there, then the negative impact of fixed-cost absorption, partly offset then by the cost-savings initiatives by the early signs that we're seeing from the initiatives that we've put into the breweries.
It sounds like it's pretty quiet out there, so we will draw the call to a close.
We thank you for listening and participating.
We look forward to talking to you again in February with our full year, and hopefully everyone can now go find a beer.
Cheers.
| 2016_SAM |
2018 | IVR | IVR
#Good morning, and thank you for joining Invesco Mortgage Capital's fourth quarter earnings call.
With me today are <UNK> <UNK>, our CIO; Lee Phegley, our CFO; Kevin Collins, our President; and Dave <UNK>, our COO.
<UNK> will follow me and go through the portfolio section, and Lee, Kevin and Dave will join me for Q&A.
I'll begin on Slide 3, where we show an overview of our fourth quarter results.
As you can see, we had a strong end to 2017 with core earnings coming in at $0.47 per share, up $0.03 or 6% from the prior quarter, and book value up $0.01 to $18.35 per share.
This generated an economic return of 2.3% for the quarter, which brought the economic return for the year to a very strong 14.3%.
We're also very pleased with the full year total returns for our common shareholders of 34.5% in 2017.
These full year economic and total return results ranked among the very highest amongst our peer group and reflected some milestone achievements, including the Series C Preferred offering, the 2 consecutive quarterly increases in our common stock dividend, the inclusion of Invesco Mortgage Capital in the S&P SmallCap 600 Index, and 4 consecutive quarters of beating consensus core EPS expectations while reducing book value volatility.
For the fourth quarter, the increase in core earnings was attributable primarily to the full quarter impact of the Series C Preferred offering and, to a lesser extent, to a slowdown in prepayment speeds.
Slide 4 breaks down the components of the change in book value during the quarter.
While Agency mortgages were a negative contributor to book value performance, the benefit of our hedges exactly offset this drag, while the net impact of our credit risk exposure only mildly reduced book value.
I'd like to especially point out the graph at the bottom right, which shows our annualized book value volatility in relation to our peer group.
You'll notice that we continue to compare favorably with our peers by this measure.
Of course, the recent bouts of increased volatility across our financial markets will likely cause book value volatility to increase across the space, but as I'll talk about in a little bit, perhaps this is not such a bad thing.
We include Slide 5 to highlight how we've continued to compare favorably to our peers across a few key metrics we believe are amongst the best measures of management effectiveness.
As highlighted on the slide, Invesco Mortgage Capital is consistently outperforming its peer group average and ranking among the best in earning its dividend.
Whether it's economic returns, book value performance or dividend growth, IVR has delivered for shareholders.
I'll wrap up by giving some high-level comments about the current environment and the outlook for IVR.
While the fourth quarter was characterized by interest rates grinding higher and risk assets continuing their positive trajectory, the first 6 weeks of 2018 has seen a return of volatility in both the rates and risk markets.
Whereas our book value was relatively unchanged during the fourth quarter, we have seen a combination of moves that has taken our book value roughly 5% lower quarter-to-date.
This has been caused almost equally by the sharp move higher in rates and the widening in spreads in the Agency sector.
Typically, we keep a long position in duration to help offset any adverse moves in credit assets as a macro hedge overlay since the 2 normally move in opposite directions.
However, there are occasions when all assets become correlated, and this is one of those times.
Active management is crucial during times like these, and we have been actively reducing our interest rate exposure over the last several months.
While we view this decline in book value as temporary, particularly given that the widening in credit spread did not correspond with deteriorating underlying fundamentals, we also believe that these moves will lead to much greater opportunities going forward.
Hence, the silver lining in the return of book value volatility that I alluded to earlier.
The steeper yield curve, combined with wider credit spreads, is moving the ROEs on more of our target assets closer to accretive levels, so we welcome these new opportunities as they develop and look forward to highlighting how we capitalized on them on future calls.
Finally, I want to make a couple of comments about core earnings and the sustainability of the dividend, as that remains a high priority.
Our core earnings have been trending higher the past few quarters as the accretive preferred equity offering, slower prepayment speeds and good reinvestment opportunities have all been tailwinds.
We anticipate that further improvements may moderate as we progress further into 2018 as rates markets are reflecting an expectation for higher funding costs as the Fed continues to remove accommodation, which may exert pressure on net interest margins.
However, the dividend was recently increased with the expectation that it could be sustained in the near term.
And again, we believe higher interest rates will present opportunities in addition to challenges.
So it's likely that we will ---+ would also see ROEs on new investments rise in such an environment, which could mitigate interest-rate risk to some degree.
Book value volatility has increased recently for the first time in more than 4 years, but importantly, we remain deeply convicted in the strength of our credit assets and believe supportive underlying fundamentals remain paramount in the performance we ultimately deliver to our shareholders.
With that, <UNK> will now discuss the portfolio.
Yes.
I mean, we mentioned that it was down about 5% as of ---+ actually as of last night, I guess, the latest estimate.
But ---+ and really that has been ---+ most of that has occurred since the end of January.
So it's been the last couple of weeks that we've really seen agencies start to widen.
So that's kind of where we are.
| 2018_IVR |
2016 | CTB | CTB
#<UNK>, we've got a model internally here that says we have to offset these costs as they start to increase, and I think we're still able to do that.
I think the one caveat I would add to that is, there's a timing issue in some of this with pricing changes out there, particularly the fact that, we're on a LIFO system and as raw materials change, as pricing changes, it takes a while to get it set up in the marketplace, but our intent is to be able to offset these increases through either cost or price.
Well as <UNK> indicated just a few minutes ago, that there's been some relatively disciplined approaches in the marketplace in terms of pricing.
We don't see that changing.
Actually that's been that way for the last few years, and I think that we're expecting it to continue.
Yes, I think in this case, <UNK>.
We've gone out and made commitment to our customers that regardless what happens here, we're going to supply them with product, and I think that was a bigger issue to them and I think we've kind of eased some of those concerns, and we're continuing to be committed to that.
So I don't think there was a whole lot of a pull-up in there, as <UNK> indicated.
Well, I think on the front end, <UNK>, we may have been a little more conservative just not knowing what's happening in the market.
We're building confidence and understanding what the rest of the year could potentially look like, and how we would address any issues that would come up.
Unfortunately we can't predict with this volatility, we can't predict what's going to happen in raw material costs, particularly and your question, there have been a lot of questions about pricing as well.
Those are hard to predict.
But I think our viewpoint we don't see any huge spikes that will take place that we can't manage within our business.
So we're building a little bit more confidence I guess, coming off a little bit more conservative view in the first quarter previously.
And we didn't give specific numbers on the percentage of that <UNK>, but if you go back and look at these numbers, as we're increasing on that premium higher value add segments, it is helping us reduce our exposure on the private label side as well.
I think we have, if you look at our overall manufacturing footprint, <UNK>, I think we're in a pretty good competitive position including our Serbia operation to combat what's going on in Europe with some of the imports.
So we feel pretty good about where we're positioned right now, whether there's competing against imports or competes again the traditional competitors
Some of that is built into our guidance on the margin side for the rest the year as well.
Okay.
I think that's fair.
We want to make the point that we're committed to the projects and the investments that we want to make, but what we've done is really adjusted what the more likely timing is.
So we think that $210 million to $240 million is a reasonable estimate for 2015, and then some of that will shift into 2017 and future years.
And that will also I can you can expect that the spend is going to be higher than historical averages, not just comparing it to this year alone, because we're continuing on with the investments back in the business, and we feel pretty good where we are, particularly when you look at the return on invested capital numbers that we're achieving at 18% or 19%.
But we could go as far as saying that the utilization rate for Fate has been pretty high for their facility there.
So they've been doing pretty well, and I think we're pretty excited about what they can do for us as well as an alternative source.
Yes, and <UNK>t what we said is that we expect it to be accretive beginning in 2018, so just confirming <UNK>'s point there.
I think the first thing we're going to do is take a look at the market, our sense is there could be price increases that take place here to offset some of that.
Secondly, we've said that we're going to be making sure our customers have product available out of the current sourcing that we have.
And thirdly, we're continuing to look through the region for alternative sourcing that still is something that we aspire to be able to have.
That's outside of China.
So we're continuing that evaluation and investigation.
No timing on it, <UNK>t because that does take time, but in the meantime we plan to continue to make product available for our customers.
All right.
Thanks, <UNK>t.
I just add to that, <UNK>.
Probably safe to say that we are tight on the high value add, but what we've been able to do is with the private label business being down, it's freed up some capacity that we could use for other products, so it's helped us in that situation.
And our Cooper brand overall, our Cooper brands or our house brands have been growing very well.
Hi, <UNK>.
Not only that, <UNK>, keep in mind, we were converts and transforming into these new presses last year to be able to produce more of the high value add, which gives us also flexibility producing other products on there, including private label.
So it's an easier transition now that we've gone through a bulk of the transformation within the factories.
It's a little bit easier for us now than it was before.
Thanks <UNK>.
I would like to thank everybody for being on the call today.
We feel we had a very strong first quarter here in 2016.
We have got confidence as we go into the rest of the year on what we can deliver.
I think this is just an outstanding execution by our people in the operation against our strategic plan.
And we do appreciate your interest in Cooper.
With that, Operator, I think we ought to close this out.
One last reminder.
For follow-up questions, please feel free to call <UNK> <UNK>, our Director of Investor Relations here, to get further detail and answers to some of your question, if you have them.
Okay.
Thanks.
| 2016_CTB |
2016 | CHCT | CHCT
#Thanks, Austin.
Good morning, everyone, and thank you for joining us today for our 2016 third-quarter conference call.
With me on the call today is <UNK> <UNK>, our Executive Vice President and Chief Financial Officer.
Once again, we have had a very busy quarter.
We acquired four properties during the quarter in four states with a total of approximately 57,983 square feet, for a total purchase price of approximately $12.1 million.
These properties were 100% leased by 11 tenants, with anticipated annual returns of 9.2% to 10%.
We have already acquired one property in the fourth quarter with a total of approximately 11,000 square feet for a purchase price of approximately $3.3 million.
Properties were 100% leased to one tenant through 2023, with an anticipated annual return of 9.34%.
In addition, we have seven properties under definitive purchase agreements, for an aggregate expected purchase price of approximately $50.2 million.
The expected return on these investments range from approximately 9% to 9.7%.
We anticipate substantially all of these will close during the fourth quarter.
As it relates to our pipeline, our properties under review continues to go up.
We currently have several properties under signed term sheets, and several more with term sheets being actively negotiated.
In addition to our acquisition activity in the third quarter, we were very active on a number of other fronts.
We declared our dividend for the third quarter, and raised it to $0.385 per common share.
This equates to an analyzed dividend of $1.54 per share.
And I continue to be proud to say, we have raised our dividend every quarter since our IPO.
We also amended our revolving credit facility, increasing the maximum borrowing capacity from $75 million to $150 million, and reducing the interest rate downward by 25 basis points.
Also, certain financial covenants were adjusted or replaced, and the maturity date was pushed out to August of 2019.
In addition, we filed a registration statement on Form S-3 that will allow us to offer up to $750 million of various securities from time to time.
The registration statement was declared effective as of September 26, 2016.
However, the Company has no intent to currently offer any securities under this registration statement.
As announced in the first quarter of 2016, I entered into a 10b5 plan to acquire shares of the Company's stock.
The trading plan was entered into on February 29, 2016, and became effective April 4, 2016.
During the third quarter, I acquired, pursuant to this plan, 58,181 shares of the Company's common stock.
To date in the fourth quarter, I have acquired an additional 33,670 shares of the Company's common stock.
Now I'm going off-script for just a few minutes because of some of the e-mail and text traffic that I have gotten today wondering about our thoughts on how Obamacare, how the election, what's likely to happen with Obamacare, will affect our strategy and how we look at things.
And as it relates to the election, you know, we view most of this as fitting into our game plan, not because of the election, but because of the way our game plan is set up.
From a fundamental standpoint, we have, from the beginning, been focused on medium to shorter term leases, which we anticipate seeing interest rates rise, and inflation ---+ more of a possibility of inflation over the next few years than would have been in other situations.
And we feel like that plays into our portfolio of properties that have 5.5, 6 year average life on the leases, as opposed to a peer that might have, you know, 10-, 12-, 15-year lease terms.
We feel like this gives us the opportunity to re-price those properties on a regular basis, as we have annual rolls of 10% to 20% on an annual basis out through the next few years.
The second thing as it relates to Obamacare, we have said from the beginning, what we focus on is a low-cost environment.
And we think the low-cost environment is what is important, regardless of how healthcare is financed.
Obamacare, in essence, was just a financing, how you financed healthcare.
And what you have seen over the last month or so, with the increases in insurance premiums, from anywhere from 25% to 100%, that focus on cost is going to come into play, because we cannot sustain increases like that.
And we feel like that will be seen as we go through the next few years.
So we feel like we are directly on point, and what's happening in the environment is directly on point with what our fundamental game plan was from the beginning.
And that is being a low-cost provider for the healthcare industry for the future.
And with that, I believe that takes care of all the items I wanted to cover, so I'll hand things off to <UNK> to cover the numbers.
Thanks, <UNK>.
I'm pleased to review the Company's financial performance for the third quarter ended September 30, 2016.
Total revenues for the third quarter of 2016 were $6.4 million.
Rental and mortgage interest revenues were $5.3 million.
The Company closed on four properties during the quarter that were 100% leased at acquisition.
The total real estate portfolio was 92.4% leased.
On a pro forma basis, if all of the 2016 third-quarter acquisitions had occurred on the first day of the third quarter, rental and mortgage interest revenues would have increased by an additional 257,000, to a pro forma total of approximately $5.5 million.
Total expenses for the third quarter of 2016 were approximately $5.2 million.
General and administrative expenses for the third quarter were $671,000 of this amount.
Transaction expenses totaled $137,000.
Depreciation and amortization expense was $3.5 million for the quarter.
On a pro forma basis, if all the 2016 third-quarter acquisitions occurred on the first day of the third quarter, depreciation and amortization expense would have increased by $146,000 to a pro forma total of just over $3.6 million.
The Company reported net income of $1.064 million for the third quarter.
Funds from operations for the third quarter of 2016 consisted of net income, plus $3.5 million in depreciation and amortization, for a total of approximately $4.6 million or $0.36 per diluted common share.
Normalized FFO, which adds back acquisition expenses, increases this total to $4.7 million or $0.37 per diluted common share.
Adding back deferred compensation and eliminating straight-line rent basically offsets each other for the quarter, and AFFO per diluted common share is also $0.37.
Again, on a pro forma basis, adjusting for debt outstanding for the quarter if all the 2016 third-quarter acquisitions occurred on the first day of the third quarter, normalized FFO would have increased by an additional $257,000 to a pro forma total of approximately $5 million, and increasing normalized FFO by $0.02 to $0.39 per share.
That's all I have from a numbers standpoint.
Operator, I believe we're ready for the question-and-answer session.
Good morning, <UNK>.
Glad to have you on the call.
And I'll let <UNK> get in the more granular aspects of it.
But basically, what we see happening in the portfolio is what you anticipate happening with a portfolio of tenants.
I mean, now, I think we've got over ---+ like 110, 120 tenants.
And you have some roll out, you have some roll over.
Most of them get renewed.
I think this year, our experience is that 90%-plus have been renewed.
I think you noted in your early note that occupancy was down like 60 basis points.
But over half of that was in one of the buildings in Florida, where we traded out tenants.
We had a local or regional lab tenant, and we've traded up in credit to a national lab tenant.
Just, one moved out, one moved in.
One moved out on June 30; the new one moved in on November 1, and we had no TI or anything because it was lab space, beginning to end.
So I mean, we see what's happening.
I think, you know, we've got 12%, 15% a year rolling over the next two or three years.
And in a portfolio like ours, we've just seen that as natural roll.
And we're on top of it, we're dealing with it on a moving-forward basis, and don't see anything that unusual.
And I'll let <UNK> address it.
(laughter) There isn't any more granular detail than that.
No, you know, <UNK>, I don't see anything that concerns me.
There's just the typical negotiation going on, on some of the outlying leases that we're, you know, in contact with.
But so far, there's nothing that comes to a level that I'm alarmed about.
And let me address a little bit more, because actually, as I said in my off-script comments, I mean, again, we have seen this roll as a strength of the portfolio from the beginning.
And we see it even more now with the way it appears things are going, and with the anticipation that interest rates and inflation are going to have an increased opportunity to rise.
We see this as just providing us with an additional hedge as those leases roll.
We're comfortable that we don't need another CEO in the next few months, or another CFO in the next few months.
We have been adding people, you know, over the last 18 months.
We started out, I think it was with 8, and I think as we sit today, we've got 12.
Those adds have been down in the accounting area, accounts payable, accountants.
So it's not the high-cost people, it's the lower-cost people.
And we feel like we've got ---+ you know, as we said from the beginning, we anticipate being able to acquire $25 million to $35 million a quarter.
We think we've got the people in place that can do that.
And then we just add the people in the accounting department to keep up with everything.
So we think that ---+ you know, at the top of the level, we're fine, and we're adding people as we need them at the bottom.
But that doesn't affect G&A all that much.
Well, that would translate another $50 million under the line, from the September quarter, would throw us up to $55 million.
So you know, we still have what's available.
The line is $150 million.
You know, we would have $80 million, $90 million under that line, at least.
And let me address that, too, because we have said this previously, and I want to be consistent and make sure everybody understands how we're looking at this.
What we intend to do is take the line up to $100 million, plus or minus ---+ which we see happening sometime first, second quarter of next year.
And then look at doing a $100 million bond offering, either with an insurance Company or the banks have expressed interest in doing that, something with a 5- to 10-year term on it, as being the first kind of permanent debt leverage that's put on the balance sheet.
Pay down the bank line, have $150 million available there.
And then draw it back up $50 million or so, and look at doing, in all likelihood, third quarter, fourth quarter next year, like a $50 million marketed equity base.
You know, a lot of people are talking to us about ATMs.
I think we probably should do one more touch of the market before we try to do something on the ATM side of it.
But that's kind of the thoughts on how we're going to go on the finance stuff on a going-forward basis.
Actually, we have found it to be, the interest rates to come into play mostly ---+ and it's affected by the 10-year, but not near as much as probably particular issues related to healthcare.
And what I mean by that is, what we have used in some cases is, okay, you know, these people are wanting cap rates that we think are unreasonable.
And we point out what the interest rates on secured and unsecured debt of the providers are, and pick one.
Because a lot of, you know ---+ I track the interest rates, you know, from the provider standpoint, and in several of them, you have seen some substantial increases as they have had weak performance and other things.
So what we have found is that we get a lot more leverage by saying: well, Community Healthcare Trust's unsecured bonds are trading at 10 1/2, as opposed to saying: well, the 10-year just moved from [1.50% to 2%].
But it is something that we take into consideration when we follow with basically all the providers and all of the healthcare side of it.
But so far, you know, I don't think what's happening with the 10-year has played into it ---+ although if the 10-year goes up another 100, 200 basis points, and I anticipate that it will.
Yes.
And again, 100 to 200 basis points, we've still got a great spread.
But we're going to be looking to increase our cap rates wherever we can.
But we've always done that, so that's not new.
It will be weighted toward December, as most of that will close in December.
It won't all be at the end of the year, we certainly hope.
I'd have a very bad Christmas if that's the case.
We have an emphasis on trying to get it done sooner rather than later, particularly this quarter.
I would think the first quarter will be more $25 million, $35 million period, just because of what we're seeing and that we currently have in signed term sheets and term sheets outstanding that we think will get signed relatively soon.
The stuff that happened in the third quarter was kind of a layover from a number of things that happened through the summer.
And we think that, you know, obviously with what we have got going now, that we're looking to close in the fourth quarter, we have seen that pick up.
And we think it will be, you know, again, relatively easy to do $25 million, $35 million in the first quarter.
Thank you.
Good morning.
And we were anticipating some questions on that, but as we take over the buildings from a year ago through this year, we have had various things that have affected both the timing and the amount of the operating expenses and the reimbursements.
And you know, I think previous quarters, we lost a penny or two because of it.
This year ---+ this quarter we picked up, you know, a couple of pennies because of it.
So from a modeling standpoint, I would say, take a trailing 12 months on kind of what those are on a margin basis, and apply that.
Don't look at what happened in the third quarter and say: oh, we've got a new paradigm shift that, you know, the margins have gone up substantially, or in any one quarter, have gone down substantially.
So just take a trailing 12 months and model that in from that standpoint.
On a normalized basis, you know, I would say, again, take the last few quarters, take out the acquisition costs so it's normalized for the acquisition costs, and, you know, apply an increase to it.
As I said earlier, we're adding a person or two, you know, every six months, probably at the lower end of the scale.
And we're having a build-up in our non-cash compensation as, you know, everybody takes their compensation in stock.
So that's building up.
But from a cash standpoint, just take, you know, what's happened over the last 12 months, back out the acquisition costs, back out the non-cash stock stuff, and add a little bit to the line, would be my guess.
<UNK>.
I think that's about right.
I think the answer to that is, yes.
I mean, the underlying asset there is an LTAC and the market doesn't particularly like LTACs right now.
So we did that as a way to get into it.
And we've got an option to buy the property that we are not likely to exercise anytime soon, until the market kind of sits whether they like the LTACs.
We feel like we've had a lot of good collateral, with guarantees and everything.
So the note, we think, is a great note and is a great return for us, and don't see any need to push the exercise or the option to put the property on, versus have the note on.
You know, we think we reserve cautiously, and I anticipate that maybe some of that will be recovered.
But we try to reserve as we go through, and make appropriately cautious reserves.
And so, I mean, you know, we have a lot of small tenants, and typically that's what it is, is that we have a small tenant that has some difficulty for one reason or another.
And I think in our portfolio, we're going to have some bad debt expense, although it's been pretty minor.
No.
Thanks, Austin.
And again, thanks, everybody, for being on the call.
We appreciate the interest that you have in Community Healthcare Trust.
And we feel like we had a great quarter, and we've got good stuff happening in the fourth quarter, and look forward to the fourth-quarter call at the end of the year.
Thanks so much.
| 2016_CHCT |
2017 | AMCX | AMCX
#On the subject of defined niche OTT services, we are, by our own hand and investors in a total of four.
We operate two ourselves, and we have invested in RLJ, which operates two.
So that's four.
So we think that ---+ I'm sorry, forgive me.
I left out BritBox, which hasn't yet launched.
Forgive me So that is five.
So we think that it is early days.
And by the way, those are all subscription.
None of them have ads, people buy them all.
And BritBox has not yet launched, but the pricing is generally between, on the lowest end, a little below $5 and on the highest end a little above $6.
So they all have somewhat similar pricing.
I would first say that it's early days still for niche SVOD.
It's certainly less early days for general entertainment SVOD.
We have Netflix, Amazon Prime, Hulu as dedicated, and they have established what their patterns are.
And then, of course, there are conversions of the ad-supported premium services that have been faring, I'm sure you know better than I, HBO, Showtime, Starz, et cetera.
I think it's early days for these very defined niche SVOD services.
What's curious about them is that they are very defined.
They have an immediate constituency, and they are available with ubiquity on day one.
We don't enter any of them randomly or casually.
We believe that each has a serious and fundamental premise and core audience and relationship to our own content.
So forgive the length of my answer, but it's going to join to your second question in a bit.
And they are each at different stages of maturity in what is the early days.
So, as we mentioned, one is called Sundance Now, probably its identity speaks for itself.
The other is in the horror area, the genre area that we think we have some proximity to, obviously, through Walking Dead and lots of other material that we produce.
And then the British streaming service, Acorn, is something that we're pretty familiar with through our relationship with BBC and the co-productions we have done with BBC and other UK entities.
And Urban Movie Channel, which is in the RLJ portfolio, we also have some editorial proximity to by virtue of the fact that We TV is a significant purveyor of African American or urban-oriented programming.
And then the to-be-launched BritBox, a partnership with our partner BBC and ITV is also in the British area.
So I just wanted to clarify that it is not random or casual, and we are not on the hunt wildly for editorial areas that we don't understand well.
We think we understand these very well.
We understand who the people are, we understand the material that they like, and I will segue to the last ---+ and so to your question, no, I don't think we're overextended.
I don't think we're wide or long.
I actually think we are appropriately and at the right level of risk and investment, each being different, involved.
And we actually feel that it's a progressive, interesting, highly appropriate, strategic network and that will yield and very good return over time.
So that is the answer to your first question.
To your second question, we do think that the Company is becoming and has become more of a studio, as much as ---+ or as opposed to only a channel operator.
And that already has put us in a position of making TV shows that play on our own channels, that go into a subsequent window in the US generally on Hulu or Netflix, that are on our own AMC Global channel, often in a worldwide simultaneous premiere which allows us efficiencies in marketing, and that we sell in subsequent windows overseas where we have channels.
And if we don't have channels, that we sell to SVOD services where we are not present.
That is essentially standard studio functionality.
To your question about whether we would produce where we don't have an initial home for ourselves, we have not yet to date.
And we would certainly ---+ if it was a good business, we would entertain it.
We want to be careful about our financial performance and ROI, and we want to be careful and disciplined about dealing with material that we think we have an understanding of, proximity, authority, and we can really understand.
So I wouldn't rule that out, but I would say that our ---+ for the immediate term, our point of view is to stay, if you can call it that, somewhat close to home, and to expand significantly while we are somewhat close to home because the economics are clearer and more determinable.
I actually think ---+ first of all, I think it's unknown.
I think consumer behavior in this arena, there's not enough data yet to ---+ or I haven't been exposed to enough data to say with authority, it will be that or that.
It may be actually a little bit of both.
Because price-sensitive consumers, I think, and perhaps younger demos, have a greater likelihood, price-sensitive and younger, to ultimately result in either something equal or mildly net down.
I think that consumers who have greater means and are not as young have a greater propensity and higher likelihood, frankly, to buy both.
And there are instances now we're seeing in reasonable numbers when we look at the data, where there are actually people purchasing both, or households purchasing both which is adding net incremental to the MVPD universe.
So a lot will be told, I think, as prices evolve and offerings evolve and the manner of marketing evolves.
Sorry to give you an answer that doesn't say it's one thing or the other.
I really do think it's going to be a bit of both.
In the end, I would be more encouraged than discouraged about the vitality that it provides for the overall ecosystem and the number of subscribers that will ultimately be paying people who do what we do for a living, because I think that the offerings will increasingly be guided by consumer considerations and will adapt to what people want.
And they will find points of interests in sympathy with ---+ at overcoming irritation.
When somebody's like, I've got too many channels and the price is too high, or that show pockets of great interest when they actually, perhaps even alter the nature, the manner in which they offer programming as they compete over time.
So I would be, in aggregate, very encouraged and say that there's going to be an evolution of what was one-size-fits-all-ish approach to greater variability in price, greater variability in content, and greater variability in offerings.
And that energized, I think I will have an energizing effect on the market.
We'll see a little bit of deletion, and we'll see some addition, and I think it's likely to be net ahead.
I don't have enough data to give you a really clear portrait of it.
A lot of the data that I have is admittedly anecdotal and it's preliminary.
But there is ---+ we've certainly seen some of that, just what you said, which is, second member of the household, sometimes younger, subscribing to, whether paid for by parents or not, a virtual MVPD offering, while the household maintains a hard-line carried MVPD offering, video offering.
And then, <UNK>, as it relates to affiliate fees, I think we've said it consistently, and I think you've seen it publicly, we have gone through a majority of our major distributors and renewals.
Again, a modest acceleration in 2017 versus 16.
I won't define it by more than that.
As you know, that's a rate of growth in terms of dollars, so that factors in all elements of consolidations, subcounts, et cetera.
I think we'll leave it at that.
<UNK>, thanks for the question.
Again, we don't disaggregate.
We disclose affiliate revenue.
We're giving you the rate of growth.
That includes not only our traditional distributors, but any of the new virtual MVPDs that are there.
It's all captured.
As <UNK> said, we're on Sony, we're on Sling, and we're on DirecTV Now.
I think it's well known in the marketplace in terms of the disposition of each of those players and their view on pricing and rate, but we have provided a blended number for all distribution on the affiliate side.
Operator, we'd like to take one last question, please.
Yes, <UNK>, it's <UNK>.
I will answer the first one, maybe <UNK> on the second.
In the fourth quarter, we had a mix, whether it's ---+ like I said, whether it's a domestic SVOD, whether it's international distribution or otherwise, we have a mix of shows across a number of the channels on AMC from the studio: Dirk Gently, Fear the Walking Dead, Hell on Wheels, Into the Badlands, The Walking Dead, Turn.
So we have other shows on IFC, et cetera.
So it's really a mix across the channels that really drove, and just the increased number of episodes and content across all the channels that really drove that non-affiliate revenue in the fourth quarter.
On the second part, I would say the overall trend we see, video consumption, demand for video, high-quality video is high.
Continues to be high in what we call ancillary, meaning after a show has been on our platform about a year, those rights are continued to be sought after on SVOD and international overseas, whether it's on our channels, whether it's on channels we don't control, or in markets where we're not distributed on SVOD, the major platforms.
The appetite for high-quality content remains very strong.
Thank you, everyone, for joining us on today's call and for your interest in AMC Networks.
Operator, you can now conclude the call.
| 2017_AMCX |
2017 | INVA | INVA
#Good afternoon, everyone, and thank you for joining us.
With me on the call today is Mike <UNK>, our Chief Executive Officer.
On today's call, Mike will review the highlights from the first quarter of 2017, and I will review our financial results.
Following our comments, we will open up the call for questions.
I also want to take a moment to say that due to the ongoing litigation with Sarissa Capital Domestic Fund LP and certain of its affiliates, related to the Innoviva 2017 Annual Meeting of stockholders, we are not able to comment further at this time on this topic and do not intend to address the matter on this call.
Earlier today, Innoviva issued a press release announcing recent corporate developments and financial results for the first quarter 2017.
A copy of the press release can be found on our website.
Before we get started, we would like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Innoviva.
Forward-looking statements include anticipated results and other statements regarding Innoviva's goals, plans, objectives, expectations, strategies and beliefs.
These statements are based upon information available to the company today, and Innoviva assumes no obligation to update these statements as circumstances change.
Future events and actual results could differ materially from those projected in the company's forward-looking statements.
Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release and the company's filing with the SEC.
Additionally, adjusted EBITDA and adjusted earnings per share to non-GAAP financial measures will be discussed in this conference call.
A reconciliation to the most directly comparable GAAP financial measures can also be found in our press release.
I would now like to turn the call over to our Chief Executive Officer, Mike <UNK>.
Thank you, Eric, and good afternoon, everybody.
2017 has been eventful here at Innoviva.
First and foremost, our board and I would like to thank our shareholders for the ongoing constructive dialogue and support we received for our team, strategy and reelected directors.
We take shareholder feedback seriously.
Based upon the shareholder feedback, we recently announced that the board has formed a special committee to take a comprehensive look at our cost structure.
We look forward to reporting the results of this review, and we'll continue our dialogue with shareholders as we go forward.
Turning to operations.
We believe Innoviva is well positioned to deliver value to our shareholders through continued profitability and steady capital returns to investors.
Our growth platform is anchored by a strong partnership with GSK that is focused on developing RELVAR/BREO ELLIPTA and ANORO ELLIPTA into leading global medicines for the treatment of patients suffering from asthma and COPD.
During the first quarter 2017, I am pleased to say we continue to make significant progress in the commercialization of both products.
In the U.S., BREO and ANORO both significantly outperformed the market for the first quarter of 2017 in prescription volume growth, resulting in new all-time high market share for both products.
According to the most recent data compiled by IMS, TRx market share for BREO is now 16.1%, an increase of 3.9 percentage points since Q4, and ANORO has reached 12.3%, a share increase of 2.7 percentage points since Q4.
As a result, BREO TRx volumes exceeded [1 million] prescriptions in the U.S. during the quarter, a 22% increase over Q4 2016.
Additionally, these data show that BREO new-to-brand market share increased to 23.6% overall, which is a quarterly increase of 5.2 percentage points and for pulmonologists, an increase of 40% for a quarterly growth of 4.4 percentage points.
BREO remains the class leader in new-to-brand share with pulmonology segment accounting for 1 out of every 2.5 LABA/ICS prescriptions written by pulmonologists in the U.S. ANORO momentum also increased in the first quarter of 2017 with market share gains in both TRx and NBRx.
In the week ending April 14, ANORO new-to-brand market share increased to 20.7% overall and 22.6% for pulmonologists.
We continue to believe that new-to-brand market share and specialist adoption rates are important leading indicators of the future performance potential for these brands.
As a result, we remain optimistic about the potential to build BREO and ANORO into leading global respiratory franchises.
As we've mentioned on prior calls, market share remains the primary metric of our analytic efforts as it is a useful method for measuring the underlying demand of our products versus our goals.
In contrast, reported net sales by GSK have historically experienced quarter-over-quarter volatility relative to underlying prescriptions.
This is due to a number of factors including normal, slower summer and stronger winter seasonality, changes in channel inventory levels, asthma/COPD customer mix, accounting reserve true-ups and couponing levels.
We saw this phenomenon again in the first quarter.
While in the fourth quarter 2016 reported net sales outpaced prescription growth, during the first quarter of 2017 prescription growth outpaced reported net sales in the U.S. for both products.
According to GSK, this was due to traditional Q1 decreases in distribution channel inventory and accounting reserve true-ups.
RELVAR/BREO recorded $137.2 million of net sales in the U.S., up 70% from the first quarter of 2016.
Outside the U.S., net sales were $120.7 million in the first quarter of 2017, an increase of 49% from the first quarter of last year.
For ANORO, Q1 net sales were $77.5 million, up 61% from the first quarter of last year.
Overall, in the U.S. market, BREO TRx in the first quarter of 2017 grew by approximately 103% compared to the first quarter of 2016, while ANORO TRx in the first quarter of 2017 grew by approximately 80% compared to the same period last year.
With strong underlying demand trends, favorable 2017 reimbursement status and an effective collaboration with GSK, we remain optimistic about the potential for both products.
On the clinical side, we have 2 Phase III programs reading out this year.
In the first half of the year, we plan to report the results of the Salford Lung Study in asthma and during the second half of 2017, we expect to report the result of the IMPACT study with the closed triple.
Now I'll turn the call back to Eric to review our first quarter 2017 financial results.
Eric.
Thanks, Mike.
Our royalties earned in the first quarter of 2017 were $43.7 million, a 60% increase over the first quarter of 2016, offset by $3.5 million of net noncash amortization expense.
Royalty revenues included 38.7% ---+ $38.7 million for BREO and $5 million for ANORO.
As Mike mentioned earlier, quarterly net sales for BREO and ANORO reported by GSK do not directly track prescription volume changes during the same time period due to a variety of nondemand factors, especially during the first quarter of the year, where traditional inventory destocking from the previous quarter can occur.
Therefore, when gauging revenue performance, we typically analyze it over a much longer time period.
Over the prior 11 quarters, on average, our royalties earned have grown at a quarterly compound rate of approximately 27%, which, combined with the strong NBRx market share of our products, reinforces our continued confidence in the company's prospects for 2017.
Total operating expenses in the first quarter of 2017 were $11.1 million including $4.2 million of proxy contest costs.
Excluding the nonrecurring proxy contest costs, our other operating expenses were $6.9 million in the first quarter of 2017, compared to $6.6 million in the first quarter of 2016.
For modeling purposes, excluding proxy contest and litigation costs, 2017 full year operating expenses, excluding noncash stock-based compensation accruals, are expected to remain at or below our previous guidance of a range of between $18 million and $20 million.
On a comparable basis to our guidance range, our first quarter 2017 operating expenses, excluding noncash stock-based compensation accrual and proxy contest and litigation costs, were $4.4 million.
We announced in our last earnings call that our 2017 $150 million capital return plan will primarily focus on the redemption of our 9% 2029 royalty notes.
Our objective is to gradually reduce our debt and better position the company to optimize its capital structure.
During the first quarter of 2017, we met a principal repayment from royalties received of $7.8 million on our 2029 royalty notes.
In addition, we recently announced that on May 15, 2017, the next interest payment date on our 2029 royalty notes, we will prepay $50 million in outstanding principal.
This is in addition to the scheduled principal repayment of $6.7 million and in total, this represents a substantial portion of our 2017 capital return plan.
This steady reduction in the balance of our 9% 2029 royalty notes, combined with our increasing level of adjusted EBITDA on a 12-month rolling basis, we've now generated approximately $146 million in adjusted EBITDA, we believe the company is in a strong position to look for refinancing options for our 2029 royalty notes, reduce our overall cost of funding and generate value for our investors.
In fact, at the end of the first quarter of 2017, our leverage ratio has now been reduced to approximately 3.8x net debt to adjusted EBITDA, which is a strong indication of the steady improvement of our financial profile.
We continue to generate strong cash flow from our operations in the first quarter of 2017.
Income from operation was $29.3 million compared to $17.5 million in the first quarter of 2016.
Adjusted EBITDA was $35.4 million in the first quarter of 2017 compared to $22.8 million in the first quarter of 2016.
In spite of incurring costs associated with the proxy contest, which costs represent a negative impact totaling $0.03 per share in the first quarter of 2017, our adjusted earnings per share was $0.19 still up significantly compared with adjusted earnings per share of $0.09 in the first quarter of 2016.
Cash, cash equivalents, short-term investments and marketable securities total $169.8 million as of March 31, 2017.
And we had $43.7 million in royalties receivables from GSK at the end of the first quarter, which we believe puts us in a strong liquidity position for 2017.
And now I'd like to turn the call over to Mike for some closing comments.
Thank you, Eric.
In summary, we remain optimistic about our future prospects based upon ongoing gains in prescription volumes, and market share for both products and a steadily improving financial profile of the business.
Our primary focus in 2017 remains the optimization of the commercial success and global role of BREO and ANORO as we believe that both products have significant future commercial potential.
And the continued optimization of our capital structure.
There are many positive things happening here at Innoviva, and we remain optimistic about the outlook of the company.
I'd now like to ask the conference call facilitator to open the call for questions.
Thanks for the question.
So we were certainly aware of the approval.
I think we probably kept our eyes a little more focused on AB generics as having a potential to impact the products, BREO and ANORO, rather than the RespiClick.
So we'll see how it rolls out.
Obviously, Teva is a quality company with presence today in the respiratory space, but since this is not a substitutable product, it will have to be an associated sales and marketing effort and promotion and other pieces on that.
So we're aware of it.
We don't think it's going to be a gigantic impediment to us and typically have been looking a little more closely at ABs and the potential for ABs.
So again, we're successfully through one of the initial GDUFA dates with Mylan and there's another one coming up for Hikma.
I think it's next week.
So we will probably pay a little more attention to those.
So, hopefully, I covered your question.
All right.
Thank you very much, operator, and thanks everyone for participating.
Have a great day.
| 2017_INVA |
2017 | LOW | LOW
#Thanks, Rick, and good morning, everyone
Sales for the second quarter increased 6.8% to $19.5 billion, supported by total customer transaction growth of 3.1% and average total ticket growth of 3.5% to $71.40. RONA sales were approximately $1 billion or 3% of sales growth
As a result of the calendar shift from the 53rd week in fiscal 2016, this year’s second quarter included one less week of spring and one more week of summer than last year
While this had no impact on comp sales, it did decrease second quarter total sales growth by approximately $285 million or 1.7%
Comp sales were 4.5% for the quarter, driven by an average ticket increase of 3.6%, and improved transaction growth of 0.9%
RONA was included in the comp calculation for the first time in the month of July
Looking at the monthly comp trends, comps grew 0.6% in May, 5.3% in June and 7.9% in July
As Robert and Rick indicated, we were pleased with our improved top line performance versus Q1 and the acceleration of our comp growth through the quarter as we built momentum with successful holiday events and enhanced messaging, driving traffic improvement in both June and July
During the quarter, we continued to capitalize on market opportunity, as we opened four new stores in the U.S
which drove 80 basis points of growth
Gross margin for the second quarter was 34.21% to sales, a decrease of 23 basis points from the second quarter of last year
The decline was primarily the result of promotional activity and excessive benefits from value improvement and 10 basis points of inflation
SG&A for the quarter was 20.16% of sales which leveraged 101 basis points
In last year’s second quarter, we recorded an $84 million loss on the settlement of a foreign currency hedge entered into in advance of the RONA acquisition
This provided 46 basis points of leverage this year
An additional 49 basis points of leverage is driven by $96 million gain from the sale of our interest in Australian joint venture
Also, we drove 20 basis points of favorable leverage, primarily as a result of our new store leadership model
Somewhat offsetting these items was 10 basis points of deleverage in advertising, as a result of our efforts to amplify the consumer messaging
Depreciation and amortization for the quarter was $357 million, which leveraged 20 basis points
Operating income increased 98 basis points to 12.2% of sales
The comparison to the prior year loss in the foreign currency hedge possibly impacted operating income by 46 basis points and the gain from the sale of our interest in Australian joint venture also positively impacted operating income by 49 basis points
Interest expense for the quarter was $159 million, which leveraged 10 basis points
Effective tax rate for the quarter was 36.2% compared to 38.1% in the second quarter of fiscal 2016. The year-over-year change in our effective tax rate is primarily the result of the gains in the sale of our interest in the Australian joint venture
The gain represents the proceeds in excess of book value but did not result in tax expense in the quarter due to a reduction of previously established deferred tax valuation allowances
Earnings per share on a GAAP basis was 1.68% for the quarter
The gain from the sale of our interest in Australian joint venture increased EPS by approximately $0.11 for the quarter
Adjusted earnings per share was a $1.57, a 14.6% increase over last year’s adjusted earnings per share of $1.37. Turning to the balance sheet
Cash and cash equivalents at the end of the quarter was $1.7 billion
Inventory at $11.4 billion decreased $803 million or 7.6% versus the second quarter of last year, was primarily driven by appliances to support sales growth as well as timing associated with seasonal builds
Inventory turnover was four times, an increase of 11 basis points from the second quarter of last year
Asset turnover decreased 8 basis points to 1.86. Accounts payable of $8.6 billion represented a $953 million increase or 12.4% over the second quarter of last year due to the timing of purchases and terms improvement
At the end of the second quarter, lease adjusted debt to EBITDAR was 2.21 times
Return on invested capital was 17%
The net impact of the gain from the sale of our interest in Australian joint venture and prior year charges negatively impacted ROIC by 153 basis points
Now looking at the statement of cash flows
We generated strong operating and free cash flow in the quarter of $5.1 billion and $4.6 billion, respectively
As we allocate capital, we are focused on investments that align with our strategic priorities to expand our home improvement reach, develop capabilities to anticipate and support customer needs, and generate profitable growth and substantial returns
Our recent acquisition of Maintenance Supply Headquarters demonstrates how we’ve made strategic investments to further grow our pro business by expanding our ability to serve the multifamily housing industry
The transaction is expected to be slightly accretive to earnings this year
After strategic investments, we look to return excess cash to shareholders
In the quarter, we paid $299 million in dividends and in May we entered into a $500 million accelerated share repurchase agreement, which settled in the quarter for approximately 6.4 million shares
We also repurchased approximately 9.4 million shares for $750 million through the open market
In total, we repurchased $1.2 billion of stock in the quarter; we have approximately $2.6 billion remaining under share repurchase authorization
Looking ahead, I’d like to address several of the items detailed in Lowe’s business outlook
First, as we’ve discussed, we were pleased with the acceleration of our comp growth in the quarter, the result of our amplified marketing messages, compelling offers and integrated omni-channel experience; the incremental investments we’ve made in these areas are paying off and we’ll continue those investments into the second half of 2017. Second, as Robert and Rick shared, we’ve also made the decision to reinvest in incremental customer-facing hours in the second half
We believe this will allow us to more fully capitalize on our strong traffic trends and ensure we’re delivering an excellent customer experience
Finally, we’re seeing incremental pressure from our private label credit card program due to increase in program costs driven by higher losses, as well as casualty claims due to increased workers’ compensation costs
We still expect the total sales increase of approximately 5%, driven by a number of factors
First, we’re forecasting comp sales increase of approximately 3.5%; second, the RONA acquisition drives about 2% growth; also, we plan to open 25 stores, which represent approximately 1% sales growth
Keep in mind, total sales growth will be reduced by roughly 1.5% related to the comparison of 52 weeks in 2017 versus 53 weeks in 2016. However, on a GAAP basis, we are anticipating an operating margin increase of 80 to 100 basis points as a result of the investments and incremental expense pressures that are just described
Remember, a full year of RONA results versus roughly seven months last year will pressure operating margin by an estimated 15 to 20 basis points for 2017. Effective tax rate is expected to be 36.9% this year
For the year, on a GAAP basis, we are now expecting earnings per share of $4.20 to $4.30. Please refer to Page 13 and our supplemental reference slide for summary of adjustments, as you compare 2017 to 2016. We are forecasting cash flows from operations to be approximately $5.9 billion, capital expenditures of approximately $1.4 billion
This results in estimated free cash flow of approximately $4.5 billion for 2017. Our guidance does assume approximately $3.5 billion in share repurchases for 2017. Regina, we’re now ready for questions
Question-and-Answer Session
<UNK>, this is Marshall
We are maintaining our targets that we previously communicated back in December
Obviously, this year, won’t hit those targets
But, productivity is still alive and well and is actually helping us offset the incremental investments we are making this year
We know we’ve got more runway to go as we move forward
So, the investments we are making from staffing, again we’re leaning into it to take advantage of the increased traffic, leaning into optimized promotions and knowing that we’ve got opportunities to utilize price optimization tools, continuing value improvement efforts and continuing to evaluate promotional effectiveness
That’s a longer term
We’ve got other productivity majors for optimizing labor, leveraging fixed costs, reducing indirect spend, lower depreciation and enhancing profitability in Canada
Yes
As we updated in our guidance, we’re expecting about 10 more basis points of incremental gross margin pressure, driven by some of the actions that we’re taking, leaning into the amplified marketing that we’re doing that’s helping drive the traffic
So, that’s putting pressure on gross margin line for the year
So, it actually improved about 20 basis points of drag to about 30 basis points, to get above that from the year standpoint
While we leveraged retail operating hours, we did have the incremental advertising spend and a couple of other items I alluded to, some of the pressure we’ve seen in the back half with casualty claims, workers’ claims and costs there
We saw little bit of that in the second quarter
And also, it’s been competitive in marketplace from client standpoint, put pressure on delivering fleet
But, the bigger drivers are back half or leaning into the marketing message, reinvest in that and to try to capture more of the sales that we’re seeing coming through to offset some of those back half pressures
So, we came in with a plan, I think roughly 35 stores
We since have gone through and scrubbed and evaluated certain locations, and some of them we decided not to open at this time or will defer until later point in time
Matt, this is Marshall
At this point in time, we’re comfortable with reconfirming the guidance, as we lean into the back half of some of these incremental investments
Again, we have better line of sight to not only productivity efforts that we are driving this year, but in 2018 and 2019 above and beyond that and also looking at what we’re leveraging from 2017 into 2018 and 2019 from the capability builds, how we are leveraging pro, continuing to take a look at our office staffing complement, trying to match labor to track traffic that we’re seeing and fixed costs, indirect spend as mentioned earlier
So, again, at this time, we’re comfortable with these longer term targets and productivity at this point in time
If we have better line of sight to revise, we’ll provide that in upcoming call
Basically for the year, we spoke to 15 to 20 basis points impact on operating margin advantage for Canada
It’s roughly about 20 basis points for the quarter
And then, share repurchase, again, we’ll target $3.5 billion this year, in 2017.
| 2017_LOW |
2017 | IVC | IVC
#Thank you, Dana.
Joining me on today's call from Invacare are <UNK> <UNK>, Chairman, President and Chief Executive Officer; and Rob <UNK>, Senior Vice President and Chief Financial Officer.
Today, we will be reviewing our first quarter 2017 financial results and providing investors with an update on our transformation.
To help investors follow along, we have created slides to accompany this webcast.
For those dialing in, you can find a link to our webcast on www.invacare.com/investorrelations.
On our Investor Relations page, you will also find a PDF of the webcast slide presentation that we will refer to during today's call.
Before Matt begins, I'd like to note that during today's call, we will make forward-looking statements about the company that, by their nature, address matters that are uncertain.
Actual future results may differ materially from those expressed in our statements today, due to various uncertainties and I refer you to the cautionary statement included on the second page of our webcast slides and in our first quarter earnings release and 10-Q.
For an explanation of the items considered to be non-GAAP financial information that will be discussed on today's call, such as free cash flow, constant currency net sales, adjusted earnings and loss, and EBITDA, please see the explanatory note in the Appendix of our webcast slides and in the related reconciliations in the earnings releases posted on our website.
Also, please note that the company completed the divestiture of Garden City Medical Inc.
in the third quarter of 2016.
GCM is included in the 2016 results that will be discussed on the call unless otherwise noted.
With that, I will now turn the call over to Matt <UNK>.
Thank you, <UNK>, and good morning.
As <UNK> mentioned, our company is undertaking a comprehensive transformation that is essential to reinvigorating our growth and profitability.
We're in the process of making substantive changes to our business that will affect results.
The highlights from the first quarter include reducing net sales of less accretive products and overall sales declines moderated from fourth quarter.
Our new core of North American mobility and seating products grew, Europe and Asia/Pacific had constant currency growth, consolidated gross margin as a percent of net sales increased as a result of our more clinical mix of products.
We launched several new clinical products and programs and through the first quarter, we made further progress in our quality systems, which resulted in completing important consent decree milestones in April.
Before we discuss the financial results for the quarter, I'd like to go through 2 slides quickly to align new investors and callers with what our company does and the reason for our transformation.
Looking at Slide 3 from our webcast presentation, you will see that our company makes products that help people move, breathe, rest and perform essential hygiene.
We focus on areas of congenital, acquired and degenerative conditions.
These are important parts of care for people with a range of challenges, from those who are active and heading to work or school each day and may need mobility or respiratory support, to those who are cared for in long-term care settings at home and in rehabilitation centers.
For decades, Invacare has been a leading global durable medical equipment company, serving customers worldwide by providing the broadest portfolio of products to our customers.
As a result of external challenges, like reimbursement reductions from payers to our U.S. customers, and internal challenges like the consent decree that affects some of our Elyria, Ohio campus, we concluded it was no longer feasible to follow this one-stop-shop strategy.
So starting in mid-2015, and continuing through 2016, we made substantial changes to our company strategy.
Since making this change, we have focused our resources on providing clinical solutions for complex rehabilitation, and post-acute care, and we have decreased the company's emphasis on products with less sustainable value.
This leverages the best of what Invacare has long done and eliminates the dilutive parts of the business bringing alignment of resources focused on patient-centric solutions to significant health care needs.
To get to that result, we divided our Transformation Program into 3 phases as you will see on Slide 4 beginning in 2015 and taking us through the next several years.
This is a basic crawl, walk, run kind of program.
In the second half of 2015, and throughout 2016, we did much of the heavy lifting of Phase 1 in North America.
We have retained and attracted new talent to our sales force.
We have a pipeline of great new products and programs, some of which I will discuss later.
And we recently achieved important milestones on our consent decree, which demonstrates our commitment to building a quality culture.
By the end of 2017, we expect to see results from our Phase 1 investments.
As we shift to Phase 2 in 2017 and 2018, our main focus is on continuing to build culture of quality excellence, growing sales and making cost improvements and efficiency gains.
Now for first quarter results.
On Slide 5, you'll see the results of the first quarter 2017 compared to the key financial indicators of Phase 1 and Phase 2 that we have referred to in our presentations.
As in much of the medical device industry, we're often rewarded for solving more clinically significant issues with better returns.
And it's difficult to have the same infrastructure to design and produce very simple products and very complex products at the same time.
So we have elected to reduce revenue in the short-term in order to reduce less strategic business and bring focus on growing the part of our business that provides more value in rehabilitation and post-acute care.
As a result in the first quarter, consolidated constant currency net sales decreased 4.4% excluding the Garden City Medical business that was sold in the third quarter last year.
Constant currency net sales increased for Europe and Asia/Pacific segments but were more than offset by declines in the North America/HME and the IPG segment where the transformation is most intensive.
As a result of the strategic shift to more clinically complex products, gross margin as a percent of net sales increased 180 basis points.
Gross margin is an important measure of what we're monitoring closely to ensure commercial and product effectiveness.
It was good to see this increase in the first quarter after the last 2 quarters of flattish gross margin with sales decline and increased warranty and R&D cost.
Gross profit decreased $2.7 million to $65.1 million with the Garden City Medical divestiture accounting for $2 million of that decline.
While it's still a decline, each segment's gross margin for the first quarter improved compared to prior year.
In North America/HME segment which has been significantly impacted by the transformation both gross profit dollars and gross margin as a percent of net sales, sequentially improved with fourth quarter '16 to first quarter '17.
Excluding foreign currency translation and the divested Garden City Medical business, SG&A increased $1.9 million or 2.7% in large part due to unfavorable foreign currency transaction.
During the first and second phases of transformation, we expect free cash flow to be negative as a result of investments we're making in the business.
In the first quarter, free cash flow was negative $33.4 million compared to negative $40.2 million in the first quarter last year.
The free cash flow drain was driven by the net loss and increased working capital which we typically see in the first half of the year.
Historically, the first half of the year has been seasonably our most cash consumptive period.
EBITDA in the first quarter was negative $7.1 million compared to negative $1.4 million in the first quarter 2016.
The decrease in EBITDA was impacted by lower net sales, increased restructuring cost related to previously announced actions in January and unfavorable foreign exchange.
While not noted on the slide, adjusted net loss per share was $0.47 compared to $0.26 for the first quarter of 2016.
The increase in adjusted net loss was driven by lower net sales, increased restructuring costs and unfavorable foreign exchange.
The company incurred net interest expense of $4.4 million in the first quarter 2017 compared to $2.3 million in the first quarter of 2016, primarily due to the company's 2016 convertible debt issuance.
We want to compare what we have done in the last year or so to what we said we would do.
So we continue to plot our recent quarter with the prior quarters since the transition started.
You will see this on Slide 6 of the presentation, this is our do-say ratio page.
On the page, you can see sequential and year-over-year trends.
Here we see the first quarter sales decreased as we discussed, but less than in the fourth quarter.
This is in line with our expectations of shallowing the decline in revenue.
For gross margin as a percent of net sales we're looking for improvement from mix shift, in the first quarter we once again see this metric improving.
This is good to see after a few weaker quarters related to choices we made to progress consent decree remediation to discontinue certain products.
Gross profit dollars as we've talked about over time are somewhat variable, that's the result of the titration and what we are decreasing and the new business we're building back.
With constant currency SG&A, you can see the reflection of the investments we've been making.
The free cash flow was negative, but improved compared to the first quarter last year.
As we've discussed, this is a significant renovation of our business and looking at these composite metrics over the past 6 quarters, we see how this transformation is not a straight line walk to the goal.
And not every quarter has mapped out perfectly to our expectations.
For example, gross margins shifts were delayed over the last 2 quarters of 2016 as we made investments in the remediation of new products.
We chose to do more portfolio trimming in the fourth quarter last year and the respiratory business hasn't come back after competitive bidding as much as we have expected.
But overall, we believe we are moving the business to the expected outcome of this multi-year transformation.
I will now turn the call over to <UNK> <UNK>, our CFO, to discuss the performance of the segments and additional financial results for the first quarter.
Thanks, Matt.
Turning to Slide 7.
All comparisons are with respect to same quarter last year unless otherwise noted.
For the first quarter 2017, Europe's constant currency net sales increased 3.2%.
The improvement in constant currency net sales was driven by mobility and seating products, partially offset by declines in respiratory and lifestyle products.
In the first quarter, operating income decreased by approximately $0.9 million, primarily related to unfavorable foreign exchange and increased SG&A expense, partially offset by increased sales, favorable sales mix and reduced warranty and freight costs.
Gross margin, as a percent of net sales increased slightly while gross profit dollars decreased by $0.2 million compared to the first quarter last year.
For the first quarter, North America/HME constant currency net sales excluding the divested Garden City Medical business decreased 14.7%.
The decrease in constant currency net sales was driven by lifestyle and respiratory products and to a lesser extent mobility and seating products.
As part of the company's focus on clinically complex products, we discontinued consumer power wheelchairs in the fourth quarter of 2016, excluding consumer power wheelchair net sales from the first quarter of 2016, constant currency net sales of mobility and seating products would have increased for the quarter compared to the same period last year.
Operating loss increased by $3.0 million, primarily related to net sales declines, partially offset by favorable sales mix and reduced warranty and freight expense.
The first 3 months in 2016 included $0.8 million of operating income for Garden City Medical.
Gross margin as a percent of net sales increased by 220 basis points and gross profit dollars decreased by $3.1 million compared to the first quarter last year.
Excluding Garden City Medical, gross profit dollars decreased by $1.0 million.
Constant currency net sales in the IPG segment decreased by 10.3%, across all major product categories.
Operating earnings increased $0.5 million, primarily related to reduced SG&A expense, and warranty and freight costs partially offset by net sales declines.
Gross margin as a percent of net sales increased by 270 basis points and gross profit dollars increased slightly compared to the same period last year.
For the first quarter 2017, Asia/Pacific constant currency net sales increased 15.9%.
The improvement in constant currency net sales was driven by the Australian and New Zealand distribution businesses as well as the company's subsidiary that produces microprocessor controllers.
For the first quarter, operating loss improved by $0.3 million, primarily related to increased sales, favorable sales mix, partially offset by increased R&D costs.
Gross margin as a percent of net sales increased by 60 basis points and gross profit dollars increased by $0.2 million compared to the same period last year.
Turning to Slide 8.
Total debt outstanding as of March 31, 2017 was $182.6 million.
The company's total debt outstanding consisted of a $150 million in convertible debt and $32.6 million in other debt, principally lease liabilities.
The company had 0 drawn on its revolving credit facilities with the availability of $42.0 million as of March 31, 2017.
The company's cash balances were $76.8 million as of March 31, 2017, compared to $124.2 million as of December 31, 2016.
The company's cash balances declined primarily due to free cash flow usage and the required repayment of the remaining $13.4 million in aggregate principal amount of convertible debt issued in 2007.
As of the end of the first quarter, day sales in receivables were 44 days up from 41 days at December 31, 2016, and down from 47 days as of March 31, 2016.
At the end of the first quarter, days of inventory were 71 days as compared to 65 days as of December 31, 2016, and March 31, 2016, respectively.
I will now turn the call back over to Matt for additional strategic comments, we then can address questions.
Thank you, Rob.
As we've noted previously, by the end of 2017, we expect a sustainable turn in both sales and operating income as a result of our transformation investments and activity.
In the first half of the year, we expect continued lower net sales offset by favorable sales mix and increased gross margin as a percent of net sales.
As you can see on Slide 9, we're already making progress on Phase 2 objectives, launching new clinical product platforms is an important component of our transformation and we have a full pipeline scheduled to launch in 2017 and beyond.
I would like to highlight a few of the new products that we've launched in the first quarter to demonstrate this.
In February, the North America/HME business launched the Swiss line of Kuschall active manual wheelchairs in the United States, which brings a whole new line of lightweight, high-performance wheelchair products to the U.S. active manual segment.
Kuschall has long has been an innovator mixing great performance, lightweight material and attractive designs.
This is an important launch re-energizing our custom manual wheelchair portfolio in U.S. market.
In March, our Alber electromotive subsidiary continued to launch market leading power add-on innovations with the recent Cruise Mode upgrade to Alber Twion devices.
This upgrade can be activated over the user's smartphone.
Now with one push, wheels will activate and maintain constant speed based on the user's input.
Cruise Mode is a great feature for active users who want to travel longer distances, get up hills or reduce the physical stress of moving.
And the Twion gives the ability to intuitively change direction and stop on command.
In March, we showcased these new rehabilitation products and many more at the International Seating Symposium in Nashville.
ISS is the largest complex rehabilitation trade show in North America.
We received great feedback from our clinical customers about our strong presence at the show for both new products and the integration of all of our rehabilitation businesses into one portfolio.
In addition to the momentum building within our rehabilitation team, we're making progress renovating our post-acute care commercial organization.
The post-acute team recently launched Outcomes By Design, which is a program created to help long-term care facilities improve clinical, financial and patient satisfaction outcomes.
This is another demonstration of our new growth go-to-market strategy.
we've integrated our solutions for safe patient handling, facility design and pressure management through this complicated selling program that will connect Invacare's newly trained post-acute sales force with the key leaders in our customers' organizations responsible for healthcare outcomes.
Beyond new products, we also recently achieved important milestones related to the consent decree at the corporate and Taylor Street facilities in Elyria, Ohio.
First, FDA has reinstated our ability to design new products at corporate and Taylor Street facilities.
This is called Certification-2 and we've been working to achieve this important milestone and move forward to a broader restoration of the business.
Passing Certification-2 was particularly important as it positions us to launch our latest power wheelchair platform, the TDX SP2 in North America from the Taylor Street facility later this year.
The TDX SP2, which has been available in Europe, will launch in North America with our new LiNX wirelessly programmable power wheelchair control system.
This product will be a great step forward for our power wheelchair portfolio.
Having acceptance of this report also allows us to move forward in the third certification of the consent decree process.
FDA accepted the third-party experts Certification-3 report, which was submitted in February 2016, as well as our own report, which was submitted last month.
The combination of both of these reports being submitted puts us in position for the necessary FDA inspection to begin later in May.
I cannot underscore how much time, energy and focus it has taken to get us to this critical point for the company.
It's been a long time coming, but since I arrived and with the help of our new leadership team and the hard work of many associates, we've made establishing a quality culture our #1 priority.
It's now a sustainable part of what we do.
While we're very pleased with our progress, it's important for listeners to know that we cannot predict the length or outcome of the inspection or any remaining work that may be needed to meet FDA's requirements for resuming full operations at the impacted facilities.
We are glad to be at this point and we look forward to demonstrating our progress to FDA.
As we move forward, we're continuing to focus on opportunities to reshape the business for cost and efficiency around our new sales level.
We also remain focused on the execution of our new commercial organization.
This is an area we evaluate daily.
We see progress as evidenced by first quarter growth in net sales of the new core of North America/HME mobility and seating products and by the behind of scenes activity in terms of customer engagement.
In the first half of 2017, we expect lower net sales, favorable sales mix and increased gross margin as a percent of net sales.
As we progress through the next phase of transformation, we will expand the scope of what we're doing to include a heavier emphasis on growing sales, reducing cost and improving efficiency.
Our priorities remain emphasizing a culture of quality excellence and achieving our long-term earnings potential.
Because of the scope and magnitude of the changes we're making, as well as the realized and potential changes affecting the business, we caution investors to expect some variation in the timing of these results.
However, we remain confident in the earnings potential of the business and our ability to get there.
We appreciate the continued support of our shareholders and associates through this process.
we're confident in our strategy to rebuild this business to be a sustainable leader in our markets.
I want to thank you for taking the time on the call this morning.
I think we have time for questions.
First off, congratulations on all the progress you have made with ---+ towards the consent decree over the last several months.
I know with FDA acceptance of Phase 3, you're not stopping your quality efforts.
But does it allow you to start shifting resources elsewhere at this point.
The decisions that we've made to focus on quality excellence and the path we've taken to get there, Matt, have really allowed us to do one big important thing for sure and that's be more effective in everything we do in the product portfolio.
We have chosen to move forward with fewer products and products that have more sustainable value, but because we are underpinning it with new processes and procedures that are not only fully compliant but efficient, we get to have a better more vibrant portfolio that's sustainable for roughly same percent of sales into R&D.
It's probably the biggest outcome.
It's like good record-keeping anywhere and good procedures you may have, the better that you do everything, the [lean] procedures and 5S that we're deploying through the factory just makes everything work better.
Matt, I will just add one thing.
The quality costs for North America have been coming down, so it won't be a whole lot of massive improvement on saving a lot more money there, but to build on Matt's point, I think the benefit is we have a lot of engineering talent focused on DHF remediation that's going to continue to focus on that.
It's very important that we have those things in the right position.
Well I think they are going to work a lot more on new products and helping us with the future.
Okay, that's great.
And can you give us some context around the increases in mobility and seating excluding the consumer power wheelchairs.
Are you seeing the benefit that you expected from the investments you've made in the sales force.
I think, yes, in the sales force and also, yes, in the integrating what the sales forces worldwide sell from our subsidiaries.
And that previously wasn't as well organized as it is today.
But today not only do we have a well-qualified sales force, but folks can walk into a clinical setting and look at a broad range of needs of an end user and work with our providers, to bring more novel important values and care not only in power wheelchairs but passive manual wheelchairs.
It all starts with seating and positioning to make sure that there is good posture management and trunk control and things like that in the end user and lots of interesting additions with Alber's power add-ons that help highly active people be even more active with novel products and lightweight design to attendant controls for a caretaker to be able to easily care for let's say large size passive patients.
Yes, both the combination of a good sales force that's coming up to speed and better integrated products across all our subsidiaries has really helped.
We're pleased with that.
And then we've got a portfolio to launch in 2017 that's bigger and bigger than the company has ever had in a year.
Maybe without quantifying what it's up, is it up a little bit mid-single-digit ---+ if you can give any kind of context on really what it's up excluding the discontinued chairs.
Yes, sure.
We don't break out the quantitative, so I appreciate you giving me a little wiggle room to answer that without being too specific.
It's up, and it's up at the beginning of what we think is going to be a long-term growth in that segment.
So I'd say it's kind of on the small end of being up, but it's clearly up in the places we want to focus.
And Matt, I'd just add one other thing.
When we're going through all that discontinuation, all those efforts, it takes a little bit of time to reset the customers, and reset everybody on the fact that there is a little bit different portfolio.
So I agree with Matt's qualitative indication of range and the answer is ultimately there were some other things the sales force had to focus on during that time period.
Okay, perfect.
Last question before I jump back in the queue.
Just some early takeaways from customer trials of the new portable oxygen concentrator if possible.
Sure.
Still really excited about that product, great output, great quality, great form factor, noise, weight, battery life, output, all those things, very robust design.
Looking back, I think we probably got it out a little later than we should have to take full advantage of the winter season.
But still great response from customers as we talked about before, but for everybody's benefit.
The process of getting it into big fleets takes a while because you get a small trial, it might last a quarter or more.
There is evaluation of feedback and then ultimately it feeds its way into future purchases.
So we look forward to continued growth of that product, it's really exciting.
It's a nice innovation of a platform or a portfolio, that's really broad, we bring value to respiratory customers for stationary needs and nondelivery forms and this is the first step of updating that portfolio that we'll continue to do.
Sure.
So IPG is the segment that really focuses on institutional products and much of that business is lumpy and long-term big projects either new constructions or renovations.
We of course support short-term needs, short-term like 24-hour arrival of a new patient resident who needs certain products that a facility doesn't have so we can easily rush those things out.
But the preponderance of the business is longer term in nature.
So the good news is, while we probably didn't have our eye on the ball on that business the way we should have before second quarter 2016, that inertia carried us that far.
But since second quarter 2016, we've really rebuilt that organization sales team, corporate account managers and as we announced last month, new services like Outcomes By Design that really align our products with the clinical needs that residential operators need to make sure that outcomes are great.
So the good news is that we got some vibrancy there, while we've had a legacy benefit of the inertia of that business, we also have the inertia of building it back.
We think it will take a couple more quarters, but we look at the backlog of business and customer engagement and who we're getting to meet with, it's really very positive.
But it's a capital cycle.
So you got to get in there and get funding and get taken forward.
Pleased with it, maybe to specifically answer your question, it's maybe fifth inning, little after half.
A couple of things, Chris.
So first, we didn't address it in the prepared remarks, so we're glad to answer it now.
As we said, in the prepared remarks, we are 71 days, compared to about 65 at year-end, 65 to a similar time March last year.
That increase from our vantage point was driven in large part by the fact that we have some organic sales decline.
So again, we had inventory for a little bit stronger buy in but then I'd also say from my vantage point, we have sort of a mix between products.
Though as Matt related to us a minute ago we saw mobility and seating, putting aside the consumer power show increase in North America, we had some weakness in lifestyles and respiratory.
So little weakness there.
I think the answer is what ---+ we'll work through this.
But we had to be somewhat cautious in sort of the first quarter and we've got to get some other activities in place to get to the point that we start to see those days come back down.
So we got work to do there.
We've discussed before even on the Q4 call.
The movement in inventory in 2016, which was pretty dramatic in terms of use of cash was not where we wanted to be.
In 2017, without specifically talking about quarters, our goal is clearly get in a better spot with inventory, that might be more in back half than front half.
But Chris, we're not trying to be in a position, 71 days is not where we're being cautious, that's just there's more activities to take, the North American team and Europe team are very focused on this going through the rest of the year.
We're all focused on [---+ these are] good point Rob (inaudible).
In Europe, we have lots of opportunities that we're focused on to increase the velocity of inventory that's important, it's around operational efficiency.
In North America, as we've continued to decline the lifestyles business, we've typically had trailing inventory balances because we want to have inventory to match what customers want.
Once we see how things settle out at new price points then we move through that inventory in subsequent periods so it's typically trailing, but we're definitely focused on working capital this year.
Bob, thank you.
Yes, we're looking to see this revenue line continue to flatten out through the year.
We talked about first half continuing to see sales declines.
There's still some areas in the lifestyles business that we need to prune.
It's not major compared to what we have done historically but that will continue to happen and then we want really to end 2017 with traction from this new commercial team that's set up well between their own skills and customer call points and the portfolio of new and existing products.
So this is really the turn year.
Yes, it depends by product as you would imagine.
So on the respiratory side, something like the new POC, it's one product in a big portfolio.
So it will take time to grow to a material size, where we can talk about it externally, or wave the flag, I think short lead on that product is great feature, great form factor, we're meeting the marketplace commercially where we need to.
So now it's a matter of just getting into people's fleets.
As I mentioned in my remarks earlier, I guess if everything had been perfect, we probably would have preferred to have this out a little earlier to get full advantage of the winter season.
So now we're going to see this, we expect to build through the summer season and then further uptick next winter as well.
So that's kind of a little bit longer cycle.
Then on the power wheelchair side and the wheelchair side, like with Kuschall which we've launched or the TDX SP2 with LiNX that we're going to launch.
As soon as those products are launched, they are in the hands of our sales team immediately that day or that point in time.
And then you're paced by extent that we're in clinical settings with new patients in need of assistive technology.
The quote cycle on those is 30 to 90 days depending on how big the request is and what the payer review process is and what the pre-approval cycle looks like, kind of pre-audit the CMS is working through.
So you kind of have 30 to 90 days on quote, we can typically move up from a quote to an order shipped and billed in less than 2 weeks, often less than one week.
And then you have that 60-ish day of receivables beyond that.
So we're really just paced by how quickly we can get into clinical settings to show those.
Outside ---+ that's kind of a North American answer.
Outside of North America, it's often based on tenders.
Or I should say outside the United States it's based on tenders.
So you may have a great product on a day, but if you just missed a 4-year tender, you might have to wait a while if you just get into a long-term tender then that's an immediate opportunity, which typically has some load-in sales so it's kind of a mix.
And those differences are blended into our sales along the way.
Yes, good question.
So the market is probably a little bit bigger based on population growth with the same incidence rate so we use that simplifying assumption.
And pricing is relatively the same, although competitors are really good in that marketplace and they've obviously taken the share that Invacare once had.
So it is a matter of going against very competitive customers ---+ I'm sorry, competitors, in these clinical settings and seeing patients.
Now, we have great features coming out in the TDX SP2.
I can't talk effusively enough about the benefits of this wireless programmability, which are great for end-users because they're going to end up with a better program to control, it's going to be easier in the clinical setting to get to that situation.
It's easier for the clinician, the whole experience is better.
And then for our providers, they have remote diagnostics and more predictive service calls, which lead to customer satisfaction and better productivity of their service teams.
It's better, better, better.
It fits into the same reimbursement scheme that's out there today.
So we're really looking forward to that.
So then the question is, once we get into the clinical settings when that product is launched in the third quarter, how quickly is the uptake based on that quote, order, ship, bill cycle.
And the good news too, Bob, is that we've been rebuilding our rehab sales force as part of this transformation over the past several years.
So we have specialists in the facilities, they are talking to our customers, we have a lot of other great products that we sell, in addition to the TDX product with a VMN.
So the relationships are being built and we're in a very good position compared to where we were a few years ago to be ready for getting out of the injunctive phase.
And strong provider interest.
Great partners for us worldwide.
So we've been showing features of the product since the ISS show in March and we continue to have good engagement with our providers on bringing that to market.
We're looking forward to it.
In 2015, the FDA was in the facility evaluating records for approximately 5 months.
So I don't know if that's exactly a benchmark for the next audit, it's a bigger scope, but the FDA is familiar with the scope through a third-party report, so it could be longer, could be shorter.
So it's difficult to predict.
Yes.
We typically talked about the quarterly cost of quality and this quarter they were $2.9 million.
So substantially down for around a $12 million run rate, which is down from ---+ I think last year it was in the 16-ish area.
And the consultants are essentially gone.
So those costs are specialized costs that are onetime in nature based on what costs were accounted for at the beginning of consent decree.
And as Rob mentioned in a prior comment, a lot of the work lately has been from our internal payroll folks, engineers for example, working on design history files so we'll get some productivity back from that team in terms of developing new product as we go forward.
But I think we've continued to demonstrate that specialized cost is coming down.
It won't go to 0 as we've talked about in the past, because obviously we didn't have the right base line to start this process or we wouldn't have a consent decree probably, so I'm not sure how much lower it will go.
But the benefits of even that sustained cost in the income statement should be reflected in other benefits like lower warranty costs, cost to serve, customer satisfaction, share growth, those kind of things.
And Jim the only thing I will add to that is when I think about that $2.9 million we spent in the quarter, the reason why that's come down so dramatically over time is I think the company has done a very good job of getting off of the external support from consultants, which to be blunt, they don't quite have the same ownership as you have internally and I think we've built up the team internally, that it's going to support complaints, capital, whatever key focus that we need to have.
So again, to Matt's point, there might be some room there.
But a lot of that now is headcount and associates who own it and live it as opposed to spending money externally.
Well, first of all, we need to give the dealers something that makes sense for them economically [and] driving share in their local markets to help patients.
And I think the good news is the portfolio we have has continued to be strong.
The products that we've eliminated have less clinical value for those providers and this new LiNX system is really unbelievable.
It's kind of like going from a flip phone to a smartphone, in terms of incremental features and benefits and the ability to grow that platform in the future, which helps both the end-users, so a provider can go into a clinical setting and show that they are a top-notch, high tech, avant\xe2\x80\x93garde provider that's really going to help the end-user and then themselves they've got better cost to serve through remote diagnostics and remote service views on those products.
So our strategy is to make sure that our providers know what the features are, they get familiar with those as the products come out, we've got to be market competitive on price that's important and we've got to have the right commercial coverage globally, which I think we do with the sales placements we have.
And along the way as we've talked about, we've got demos going out into the field, so everybody can see these products and try them out in a clinical setting.
And Jim, the only thing I will add and I think we said it all earlier, but I just reinforce it.
We've got a good strong sales force out there calling on them today.
They are out there selling the ROVI, they are out there selling the TDX SP today.
[It wouldn't be eminently,] but it's not as if we don't have other products including Alber products.
That we're out there pushing.
So I just want to make sure we don't leave the impression that we're somehow going to show up and figure out where the provider is located or try to explain to them who Invacare is or that we're just showing up again, the answer is we're dealing with them every day today.
I'm not saying it's going to be easy.
We're going to have to get in their system on quotes and orders, it's going to take time.
No one is going to hand us the market share.
But it's not like we've got a bunch on the sales people figuring out where the key providers are located.
Maybe ---+ I don't have that number exactly but maybe half.
Okay.
Thank you Dana, and thanks to everybody for your time and attention during today's call.
We continue to drive progress on this side [for renovation].
We are confident in potential of our segments, our pipeline of new products.
And we're continuing to make progress in the quality milestones.
While timing can vary somewhat along the way, we believe the company's earnings will potentially remain strong and we look forward to delivering on that.
Rob, <UNK> and I are available for any follow-up questions.
Have a good day.
Thank you.
| 2017_IVC |
2018 | UAA | UAA
#Thank you, and good morning, everyone.
Thanks for joining us on today's call to discuss Under Armour's first quarter 2018 results.
Participants on this call will make forward-looking statements.
These statements are based on current expectations and are subject to certain uncertainties that could cause actual results to differ materially.
These uncertainties are detailed in this morning's press release and documents filed regularly with the SEC, all of which can be found in our website at uabiz.com.
During our call, we may reference certain non-GAAP financial information, including adjusted and currency-neutral terms, which are defined in this morning's release.
We use non-GAAP amounts as the lead in some of our discussions because we feel they more accurately represent the true operational performance and underlying results of our business.
You may also hear us refer to amounts in accordance with U.S. GAAP.
Reconciliations of GAAP to non-U.S. GAAP measures can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors.
Joining us on today's call will be Under Armour Chairman and CEO, <UNK> <UNK>; President and COO, <UNK> <UNK>; and our Chief Operating Officer (sic) [Chief Financial Officer], Dave <UNK>.
Following our prepared remarks, we'll open the call for questions.
And with that, I'll turn it over to <UNK>.
Thanks, <UNK>, and good morning, everyone.
I\
Thanks, <UNK>.
Since I joined Under Armour last July, we've gone through a significant amount of change.
Change in business is constant, inevitable and necessary, especially when you grow and scale as quickly as we have.
How a company and its culture choose to embrace change determines its ability to succeed.
In this respect, our entrepreneurial roots and athletic DNA continue to serve us well in executing against our aspirational and operational goals.
We know who we are, where we are and what it will take to emerge as an even stronger brand and company.
This resolve, along with strengthening competencies and the agility necessary to better advantage the scale we've built, puts us in increasingly better position to win.
Fundamentally, this transformation starts and ends with athletes and our ability to solve their needs through the innovative performance product we create.
With insights and analytics from our global consumer segmentation study, we continue to prioritize our resources and investments to support our largest global growth opportunities while also driving toward higher long-term rates of return across the entire portfolio.
Understanding our consumer's journey, the way they work out, eat and sleep and how they engage the Under Armour brand digitally, socially and as a purchase consideration further validates our strategy and gives us permission to capitalize on our strength in athletic performance.
Accordingly, we have identified whitespace locations in the existing market landscape as well as opportunities to increase marketplace capacity, or more directly, fight for incremental parts of the pie while driving growth in the overall pie.
It's important to note that we consider this approach to be fairly channel- and region-agnostic, especially given the size of our most direct competition under existing distribution, direct-to-consumer and international footprints, let alone an incredible distortion toward footwear.
No matter how the data is cut, there is substantial difference in size, scope and scale.
And regardless, being smaller affords agility as a company and more directly, authenticity and community as a brand.
So to support all of this, we're also driving meaningful improvements in our supply chain and our overall speed to market with several initiatives geared at improving elements on both the income statement and the balance sheet.
From vendor base consolidation, flow optimization and tighter inventory buys, this translates to considerably fewer SKUs, improved capacity utilization and a reduction in lead times.
For our customers, this means less complexity to merchandise our product, better service and a healthier business model.
For our consumers, it means increased product flow with performance solutions they didn't know they needed and can't imagine living without.
Switching gears, I would like to add some color into how we performed across our business globally in the quarter.
First, revenue in North America was essentially flat at $868 million or 73% of global revenue, with a slight wholesale decline being offset by growth in our direct-to-consumer business.
This result was better than we had expected, primarily due to inventory management actions and higher service levels.
And this does not impact our full year expectation for this region.
As we continue to work through inventories coming out of the second half of 2017, we are confident in our ability to become a healthier business in North America, but it will take time and a disciplined execution against our plan, which is exactly what we're doing.
In EMEA, revenue was up 23% to $127 million, or 11% of global revenue, with balanced growth across wholesale and direct-to-consumer, including particularly strong growth in the U.K. and solid results in Spain and Italy.
As we continue to build our presence in this important market, we're proud to officially welcome Massimo Baratto on his first day as Under Armour's Vice President and Managing Director of the region.
Based in Amsterdam, we look forward to Massimo grabbing the reins and helping to drive more profitable growth, brand awareness and strategic partnerships across the region.
Revenue in Asia Pacific was up 35% to $116 million, representing 10% of global revenue in the quarter.
This region also saw a strong balanced growth in both the wholesale and direct-to-consumer sides of the business and continued significant momentum in China.
Building off <UNK>'s earlier comments on the global campaign for UA HOVR, I'd be remiss not to point out that China got the largest allocation of product at launch time.
This is a testament to knowing our consumer and their demand profile, investing in areas with the highest rates of return and overall utilizing our global scale to significantly amplify our brand.
With the combination of adding more than 200 doors this year and the highest distortion of e-commerce as a percent of revenue of any of our businesses around the world, we remain bullish on China.
And finally, revenue for Latin America was up 21% to $47 million or about 4% of total revenue.
In this region, we're focused on optimizing our mix of the right partners and businesses with certain countries to better control the brand and drive high return.
The continued momentum in Mexico and Chile, along with expansion in Argentina and Colombia, give us a wide berth to tackle these dynamic markets while protecting the brand.
So to close.
A little less than a year into my role here at Under Armour, knowing what I know today, what I see ahead and how this company, this team and this brand are building best-of-class professionalism into everything we execute against, I'm thrilled with the progress we're making and the opportunity to help lead this brand.
Dave.
Thanks, <UNK>.
Given today's results and the reiteration of our full year outlook, we feel confident in the progress we are making against our short-term strategies to become more operationally efficient, and thus, the foundation we are setting to become a more sustainable and profitable business in the long run.
Before we dive into the first quarter, I'd like to provide some context around the 2018 restructuring plan and the onetime items that impacted us.
As announced on February 13, we are estimating pretax restructuring and related charges of approximately $110 million to $130 million in 2018.
In the first quarter, we recognized $45 million of these charges, comprised of $32 million in cash and $13 million in noncash-related charges.
Revenue in the first quarter was up 6% to $1.2 billion, or up 4% if you exclude the impacts of foreign currency.
Clicking down, let's start with revenue by channel.
Our wholesale business was up 1% to $779 million, driven by strong results in our international business.
This was tempered by a slight decline in North America, which was a better-than-expected result due primarily to the factors <UNK> noted.
Direct-to-consumer revenue grew 17% to $352 million, driven by continued strong results in our international and global e-commerce businesses.
DTC was 30% of total global revenue in the quarter.
Licensing was up 9% to $26 million, primarily driven by growth in our youth and Japanese businesses.
By region, revenue in North America was essentially flat at $868 million, which was better than our expectations for the quarter based on factors we mentioned earlier.
On a currency-neutral basis, North America revenue was down 1%.
Our international business continued its strong and balanced growth, posting a 27% increase in revenue to reach $289 million or 24% of total revenue in the first quarter.
On a currency-neutral basis, international revenue was up 20%.
And finally, our Connected Fitness business was up 34%, driven by increases in subscription and advertising revenue.
Turning to gross margin.
On a GAAP basis, we saw a 120 basis point decline to 44.2% in the first quarter.
Excluding the restructuring, which contained about 60 basis points of inventory impacts, adjusted gross margin was 44.8%.
To walk through the components of the decline, adjusted gross margin was negatively impacted by approximately 130 basis points of channel mix due to a higher composition of off-price sales related to inventory management initiatives.
This was partially offset by about 70 basis points of tailwinds from changes in foreign currency.
SG&A expense increased 3% to $515 million, driven by continued investments in our DTC, footwear and international businesses.
Additionally, a meaningful amount of marketing expenses associated with our new Training campaign shifted into the second quarter.
First quarter operating loss was $29 million.
Excluding the restructuring, adjusted operating income was $16 million.
Interest and other expense was $5 million, which was better than expected due primarily to beneficial changes in foreign currency.
Turning to taxes.
Our effective tax rate for the first quarter was approximately 12%.
Excluding restructuring charges, the adjusted tax rate was approximately 93%.
As a reminder, the weight of discrete international items recorded in certain foreign markets are particularly impactful to our effective tax rate in periods like the first quarter, which had smaller consolidated pretax income or loss levels.
Taking this to the bottom line, net loss was $30 million or a $0.07 loss in diluted earnings per share for the first quarter.
Excluding restructuring impacts, adjusted net income was approximately $1 million.
And adjusted diluted EPS broke even.
On our balance sheet, cash and cash equivalents were up 65% to $284 million.
Total debt was up 1% to $921 million.
Capital expenditures were down 46% to $35 million.
And inventory was up 27% to $1.1 billion.
Relative to accounts receivable, which was up 28%, it is important to note that during the quarter we adopted ASC 606, a new revenue recognition standard.
Due to this change, a large portion of reserves that were previously recorded to offset the gross accounts receivable are now being classified within other areas of the balance sheet.
Without the accounting principles change in 2018, our accounts receivable for the first quarter would have declined 16% on a comparable basis.
With respect to full year 2018, we are reiterating the outlook provided on February 13.
Before we turn it over to Q&A, I want to provide some color on the balance of the year.
Based on factors previously discussed, we now expect second quarter revenue growth to be similar to the first quarter as we continue to execute against our inventory management initiatives.
We expect all of our gross margin improvement to come in the back half of the year due to anticipated shifts in back half channel mix driven by a lower plan composition of off-price sales and higher DTC mix, coupled with continued product costing improvements.
We expect SG&A to be up at a low double-digit rate in the second quarter driven by the marketing shift I mentioned earlier, the efforts to support our global UA HOVR and Training campaigns and store expenses associated with the expansion of our international DTC.
In total, when taken in the context of the first half of 2018, SG&A should grow at a rate slightly higher than the rate of revenue growth.
Second quarter adjusted operating loss is expected to be approximately $30 million, and adjusted diluted EPS is expected to be a loss of $0.09 to $0.10.
With respect to inventory.
On our last call, we indicated that we thought our first half ending inventory would be consistent with our prior year-end inventory growth of 26%.
Given our accelerated actions, we're now expecting inventory growth at the end of our second quarter to be up less than 20%, so better than our previous expectation, and then should move more in line with revenue growth by the end of the year.
And as a reminder, we anticipate the majority of our restructuring charges to be recorded in the first half of 2018.
That concludes our prepared remarks.
So with that, I'll turn it back to the operator for your questions.
Operator.
I think it's probably ---+ it's a 2-part answer, which is probably art and science, and so let me actually let <UNK> kick it off and start with some of the science in what we're doing and then how we put all that together.
Yes.
I think one of the big changes that I've talked about as I opened my script today has been around the structure in terms of how we think about category management, streamlining and really optimizing our entire organization to ensure that we're more agile, flexible and actually faster as well.
The process that we've put in place as it relates to go-to-market has been dramatic for the company.
You've seen some of that starting to come through in the HOVR campaign and our current Training campaign, which we're very, very satisfied with; how we're driving our S&OP to support our go-to-market; and also now through our innovation funnel that's tying into the go-to-market funnel, so driving more upstream in terms of future innovations that we're very, very excited about; and then, of course, being consumer-led.
We've done a lot of work around the consumer, understanding the consumer from a global perspective, both the space that we're competing in, but also the consumer through our massive global consumer segmentation study of over 22,000 people around the world.
And then editing and really amplifying, prioritizing, reallocating resources to the categories that we want to drive the most.
And then just making sure that we're segmenting our product much better as well as we do that.
And driving stronger financial discipline in everything that we do, thinking more around ROIC, making sure we're prioritizing investments, as I said, and becoming more EPS-driven as we go forward.
All these things together, really driving a more holistic approach through the entire organization is what we believe is going to make us really great.
I don't know if you want to add something to that, <UNK>.
Yes.
I think as I closed my script, I used the words that we're playing a long game.
And what's really important, I think, is for everyone to understand what it means, it's 23 years in business, 13 as a public company, and sort of the moment where we are today, there's a reason why in our industry there's only a couple or a few companies that have made it through this $5 billion level.
It's because the force of nature, force of will that sort of gets you to this moment means that process and structure and systems are what must become a part of the way that we operate and how we do business.
And that's why I wanted <UNK> to kick that answer off.
But I want you to know is that the DNA that got this brand to where it is today is something that's still very much a part of what and who we are.
So when we say Under Armour is a great brand and a good company, it means that we just have so much runway of opportunity to be a much better company, and that's what we are focused on now.
That's what 2017 was about and that's what's 2018 is about as well.
We mentioned what we've brought to bear with the changes made in 2017 of standing up our category management structure that we have, which is a huge undertaking, implementing our new systems with SAP and then also what we've done with the addition of <UNK> coming and help us to really work out and work through our go-to-market process.
And so we're putting those pieces in place.
As far as it relates to what the company is doing, where I'm focused as the CEO of the brand is something that ---+ the 4 pillars that really founded this company: product, story, service and team.
They highlight and they lay out and architect, really, the structure that we're going to use to go forward for our strategy as a brand and as a company.
We need to make better product.
We just need to make the best product.
That's what put Under Armour on the map and that's what we do today.
But we need to make sure that it comes through at every touch point and places where we can be better like footwear.
We see a massive opportunity there.
And the good news is that we put the pieces in place, and the best news is that we have the team to execute on it.
Our story is great, simple stories that come across explaining our product.
Service is something that it was a push for us in 2017 because we'd reached a breaking point with our systems that we had to implement a new ERP system, and those are the kind of things which are Herculean in nature to take on, but once you have them in, you start seeing the progress and you see yourself getting better, which is why I say returning to making service a center of excellence for this company.
And then, of course, as I just mentioned, the idea of team.
These 4 things really define the strategy, literally define the strategy that we've laid out for our total company.
And when I look and think how am I going to spend my time, and this is a long answer for what you asked, Matt, but I think it unlocks a bit of what we want to say is, number one, raising the product bar, making the best product in the world.
That's what Under Armour is and that unique positioning of that every product does something is what gave us permission to be to begin with.
Second is amplifying the brand, as we talked about, being a loud brand and a quiet company.
We want to amplify the story of this brand to make sure people that heard us, and we don't think we were very loud in 2017.
And so you will hear us tell our stories.
And then, finally, my focus is on, A, the team, the team, the team.
And best thing that I can do to build that team is ensure that we have the right culture here.
So what you're seeing is this entire rebuild in this company of taking the best aspects that we have that allowed us to get to where we are today and amplifying those in the company that we intend to be.
And I'm really proud of the team, what they've done, and I think this quarter's a great sentiment of us being ---+ putting our heads down, chopping wood and going to work.
And you'll continue to see and feel that from us.
Yes, Randy.
This is Dave.
Relative to inventory, we're not actually going to give the composition, but we talked a lot about the overhang that we have from late 2017 and we're clearly actively moving against that, especially in the first half of this year, and we're making a lot of progress there.
We've got great partners that we work with on the off-price channel.
And it's not just in North America, we're doing some things around the world, too, to make sure we spread it out in a brand-right way and really get after it and move forward to get cleaner towards the back half of the year.
So you will see our inventory growth rates get more in check.
We're doing more relative to how we're going to land Q2 on inventory growth, and again, I think as we get towards the back half and towards the end of the year, much more in line with revenue growth.
So we would not expect to carry a lot of inventory or challenged inventory into '19 at all, and that's really one of our goals in '18.
Relative to SKU count, I will let <UNK> touch on that a little bit more.
But obviously, every time there's less SKUs, that's more ---+ less locations in our DH, it's less product we have to order, so there's a lot of different puts and takes there.
But generally, that's going to be a big benefit as well.
Yes.
Randy, this is <UNK>.
So I think the SKU count is, of course, really important to us.
We talked a lot about SKU count, but the reality is, of course, we're not just managing our SKU count down, we're also doing the same thing as it relates to materials, trims and all the other things that come with it.
What it's actually enabling us to do is also be more specific about our segmentation.
So it's actually helping our segmentation because we're now, and through our go-to-market, building into the line versus creating product and then trying assort it through the line.
So we're being much more specific about the intent of every product that we have.
We're also being much more specific about the amount of product that we're making.
So your callout on HOVR being sold out, it's not necessarily a bad problem to have, right, and it's maybe not one that we've had so much of lately.
But I think ---+ as we think about the future and future releases, the way that we dealt with the HOVR campaign ---+ first of all, it was our first totally digital campaign from a 360-degree perspective.
It was global.
And what's so encouraging for us is that the sell-throughs were similar across the world.
In other words, it was a success wherever we launched the product.
We're now building off that methodology and also that platform, to some extent, as it relates to HOVR, but we've also got other things coming down the pipeline.
And that's now a new methodology for us also in terms of how we think about segmentation, segmenting the right product in the right channel and actually making the right amount of product for each product.
So of course, the intent is not to always be sold out, but it's certainly part of the game here and the game plan.
The long game is to really make sure that we're managing our franchises going forward as it relates not just apparel, which we have traditionally done fairly well, but also in footwear, and that's kind of new muscle for us.
But we're learning fast and we're getting faster ---+ better much faster than we thought we would.
And like <UNK> usually says, we're the best at getting better and when ---+ we're going to be proving that out in terms of our footwear and apparel as it relates to the SKU maximization and efficiencies that we're building.
Yes.
We think HOVR is definitely a really important platform for us.
We also have Charged and Micro G, 2 other platforms.
And we now have 3 strong platforms, we believe, in our tool bag, in our tool kit.
We believe we can continue to build on HOVR.
You've just seen the first iterations of HOVR.
We have some really exciting stuff coming down the pipeline.
But we're being very, very careful and deliberate in terms of how we think about that going forward.
So yes, we believe it's a strong platform, it's resonating with the consumer.
Functionally, performance-wise, it's outstanding.
We'll continue to build on it, and we believe it has lots of runway and lots of legs in terms of what we can do with it.
So it's certainly one of the platforms.
I also talked about the innovation pipeline.
We have very exciting things coming down the line also to complement HOVR going forward, so we're very excited.
But that, I guess, is one way to look at it, it's one of the new strong platforms in footwear for Under Armour going forward.
Yes.
Thanks, <UNK>, and good to catch up.
And I really enjoy this opportunity to just explain to people sort of where we are.
When you look at the continuum of the journey of this company, we're really fortunate about our moment in time because every company has to evolve saying you're a small company, you're a midsized company becoming a large business.
And we spent a long time as a small company that can compete and use that as an advantage.
And then we became a big company that, net-net with others in our industry, are a smaller big company.
So we have to create the centers of excellence that give us the ability to compete in a different way, and that means everything from our global scale to our product engine, to creating go-to-market process to, frankly, the partners that we do business with.
And where you find us right now when you talk about the evolution from performance of what it means to be where the market is today, where it is much more broader and open as to the sports style aptitude the consumer is looking for, we can answer that.
Sports style isn't a place or lifestyle isn't a place, it's just everything that you do.
And so the evolution for our company isn't one thing that you ---+ anyone would want us to point at, it's just everything of who we are and how we create product.
When I think of where we're going now, we've heard a lot of conversation around our product pipeline and our innovation pipeline.
I just want to be clear that innovation is like the core of this company.
When I talked about the 2 components of what gives Under Armour the reason to be, I said number one is that every product that we make does something.
That's a unique positioning that's very different than other brands.
It means when you pick it up, if it's Under Armour, it better be special.
What makes it Under Armour is not just the logo on it, it's the fact that the consumer will ask the question of, if it's Under Armour, what's it do.
The second thing is that ---+ when you look in our categories is that our competitors have done a really good job and they have captured hearts and minds of consumers globally.
And there's not just a lot of brands that are positioned to do that.
And so take the first point of everything doing something and take the second point with the fact that we can do it from a credible basis of the fact that we are authentic.
Our brand was born on field.
We understand the athlete, and what you're hearing from us say today is our focus with what we're doing with the demand-centric growth and really dialing ourselves into, living at the hearts and souls and minds of every consumer that we want to do business with.
That was our switch to category management of now having 9 distinct leaders that are focused on these categories.
That will make a difference with staying as close to consumers as possible.
So building ourselves with that, and then building product that is relevant and makes sense for them is something that we are highly, highly motivated to doing.
And then watching it come out and watching the go-to-market calendar come together and watching all these touch points to be able to express themselves is an incredibly powerful, powerful place for this brand to be.
So we're fortunate to have the size and scale of a $5 billion business that, as you can see, is stabilized.
And what we're doing now is now we're getting really good.
We're going to build muscle, we're going to get strong and you're going to watch us grow.
And the way that we're going to define growth in the short term is going to be growth in the bottom line.
And how we're focused on becoming a really good business is that we are not concerned with how do we grow the top line today, we're focused on how do we become an incredibly profitable company that is delivering the best products for our consumer, delivering them great value at the same time.
So we are hyper-focused on that.
And as we get strong, you'll continue to watch us march forward.
And the good news, we're doing this in a way that's pretty balanced.
Yes, I think something that should give you some confidence, I guess, <UNK>, is if you think about the HOVR campaign that we just launched a few months ago, that was launched without any specific asset or athlete per se, or persona, right.
It was launched in digital, it was launched endemic, it was launched as a performance product targeted at a specific end consumer.
And with a tone of voice at every touch point, with a great buildup, and when we did release it, it sold through.
So yes, of course, we have been too quiet.
We believe we're now ramping up and becoming a louder brand and a more quiet company.
And in doing so, when we do have the right product, the right style and when we communicate it with the right story, the consumer is there for us.
I see it also with the Project Rock that we have just launched recently, that's basically sold out across the world.
In that case, we're also able to do it with the right asset.
Or with Curry, that's really working well for us, both the Curry 4, the Curry 5 that we're releasing as well as looking forward into this year ---+ later in this year with Curry 6.
So we're able to do both.
So we built this new muscle now in the company that we're starting to really be able to drive harder.
And like <UNK> says, the performance aspect of this brand, which might be looked upon as a bit of a weakness for us at this point in time in the marketplace, we believe is going to be our longest-term strength, if you like.
Yes, I think being a loud brand, it's not about a big campaign, it's not about a signing.
It's about great products.
Everything that we do, when we make great products, we win.
When we get behind something, we win.
So what you saw, and I don't want to run it ad nauseam, but you've heard us talk about HOVR and the success that we've seen there.
That's a first step.
But that first step began with it's a terrific product that, at first glance, it is something the consumer wants to buy and wants to wear and put on their foot.
The good news is that it also engages.
It's got a terrific fit to it as well as it's got incredible performance from the step-in cushion comfort and feel that you feel in the shoe and also the fact that it's connected in a part of our 230-million person ecosystem that we have with Connected Fitness.
So it's really the trifecta of style, performance and fit that come together that allow us to become a louder brand when that happens.
At the same time, we want to continue to press on that pipeline of innovation.
We want to make sure that our customers are winning with unique and segmented product.
And if there's anything I want you take off of this call, it's our focus on segmenting our line to ensure that each and every distribution partner or channel that we're in is something that's unique and positioned with the right product, the right price, the right time for the consumer.
So we feel like we've made great strides in making that happen beyond just being ---+ launching product into the market in the spring and in the fall, but truly becoming a company that is channel-specific and more importantly, customer-specific with differentiated product.
Now again, we've heard a lot of ---+ I just want to be clear, and this is an opportunity for us to get to speak a little bit about what we see out there, so from our product pipeline, we are incredibly intrigued and enthused about the products we have coming down like the expansion you'll see and feel with HOVR.
We also are very excited about the partners we're doing business with today.
Our goal is never to trade distribution or to trade partners.
We want everybody to grow.
And that means creating platforms, as <UNK> said, like HOVR, like Charged, like Micro G that we have, of differentiating our partners by the end use as well as what the correct and proper price point is.
And so we're very proud of the partnerships we have in place.
We have the right amount of distribution.
And we intend and expect to amplify each and every one of those customers to make them great.
DICK'S Sporting Goods is going to be great with Under Armour in their stores and we'll be stronger with it.
And we've got a number of other partners in the same thing that we look to do in the mall channel, the same thing in every channel we're doing business.
So we're not adding any new channels at this time, we just look to make everywhere we're doing business now, we want to amplify it, we want to amplify the story, and the way we're going to do that is with terrific product at a fair and reasonable price for the consumer that gives them something that they never ---+ thought they never knew they needed, and then once they have it, wonder how they ever lived without it.
And <UNK>, this is Dave.
On the second part of your question relative to the customer refund liability, you are correct, that's just an accounting standard change that we had to implement in Q1 of '18, that's ASC 606.
So not really any business change of any kind there, it's just a reclassification in 2018 and going forward.
So we adopted that prospectively.
So that used to be an amount relative to returns reserve, et cetera, that used to net down gross accounts receivable.
And so you wouldn't actually see that individual amount, it would be in the net AR in 2017.
And then prospectively with the new accounting rule change, we're showing that separately in 2018 and going forward.
Jim, this is Dave.
It's a good callout, and I think you'll see just as you play out our gross margin outlook for this year, obviously, in Q1, it was more pressured as we're moving forward on dealing with some of that overhanging inventory, and we're going to be doing some of that again in Q2.
And then in the back half of the year is where you see our gross margin improvements because you're not going to see as much of a large year-over-year composition of the off-price channel as we get healthier there.
And then, obviously, the plan would be that as we move into 2019 and beyond, we're going to be healthier from an inventory perspective and from an excess creation perspective relative to all of the go-to-market and supply chain initiatives that we're working on that <UNK> mentioned and the supply chain team is working on as well.
So we are excited about '19 and beyond, we're not going to get into that level of detail right now.
But between supply chain changes and how we're getting tighter on the buys, coupled with continued costing improvements that the supply chain is driving through with our vendor base, we're definitely excited about '19 and beyond and we'll look forward to speaking more to that more at Investor Day towards the end of the year.
Yes, great question and definitely one that we are much more focused on now and going forward.
This year, 2018, is still going to be a little bit of a fight as we're dealing through the restructuring charges and the fact that probably about 80% of those restructuring charges are cash related.
But as we get into '19 and beyond, when you do think about tighter inventory management and you think about not having the cash impact of restructuring charges, in addition to heightened focus across the company on working capital management and CapEx prioritization, you should see meaningful improvements there.
And we're driving that through from a longer-term free cash flow improvement, but also longer-term and even more focus on ROIC improvement.
Yes, I mean, on gross margin, we didn't give specific guidance to Q2.
There'll still be some pressures in Q2 as we continue to deal with the inventory management initiatives to get us cleaner going into the back half of the year, so you'll still see some of that pressure in Q2.
And then when you think about the back half of the year, we're definitely going to have the lower year-over-year North America off-price sales in back half, which is going to help year-over-year margins in the back half.
Also the improved costing is really going to be kicking in.
So we talked about that a little bit on the last call and also a little bit towards the end of last year, but a lot of those initiatives that the supply chain is driving through and working with our vendors, consolidating vendors, increasing volume, working on better costing transparency with our vendors, a lot of those initiatives you're going to start to see those come to light in the actual inventory being received in those purchase orders for the back half of this year.
So that's going to help a little bit as a tailwind in back half of this year.
And then you'll see some smaller benefits relative to regional mix with North America and Asia Pac, and then also DTC mix will be a little bit higher back half of this year versus '17 as well.
So a couple different things going in our favor in the back half that are going to help out with that gross margin.
Yes, <UNK>, that's fair.
You probably won't see as much pressure on gross margin in Q2 as you did see in Q1.
So that's fair.
Yes, I mean, I think we're going to be looking at it more as a longer-term play from a CAGR perspective.
We are going to be looking to continue to find ways to leverage SG&A and take advantage of a lot of the restructuring benefits from the '17 and '18 plans that we'll see in '19 and beyond.
So we're not ready to really discuss the details on that or time line on that, but we are excited to be able to talk about that in Investor Day later in the year.
But again, when you think about the combined impact of what <UNK>'s driving from a GTM perspective and therefore an effectiveness perspective, and you couple that with the benefits of the restructuring activities and digging deep and trying to reset the cost structure, we're going to be pretty excited about what we can share towards the end of the year.
Yes, thank you, operator.
We spent a long time defining ourselves as a growth company, and I want to be clear that, that definition is no different today.
I explained that we want growth in the bottom line so we can show you and demonstrate how great of a company that we can be.
But it doesn't take anything away from the opportunity and the runway we see in front of ourselves as we do play the long game with what's in front of us.
I just want to take a minute and I want to thank our team that has demonstrated such incredible strength and resilience going back now nearly 18 months.
So we've been in this thing and we've been in the fight and I'm incredibly proud of the hard work and the effort that they put through.
And I think you're seeing it come out in days like today where we get to have a very proud explanation of where our company is, and more importantly, where we're going.
So we're in this fight, we look forward to it and we appreciate your support.
Thanks very much.
| 2018_UAA |
2016 | DRE | DRE
#<UNK>, I think we'll both chime in on this.
We look at every major portfolio that's out there, and most of the smaller ones and one-off deals ---+ if nothing else, just to be apprised of what's going in the market, what investor activity is, and what pricing expectations are.
So we are abreast of everything that's going on, and we have yet to see an opportunity that we think is available at a price that we could demonstrate value creation and really fits in our targeted growth portfolio.
For us, that's the West Coast and predominantly the Northeast, maybe South Florida.
We've got really dominant portfolios in most of the other cities.
So if we were going to stretch today, it would be in probably one of those three geographic areas.
And we haven't seen the right opportunity.
<UNK>, I'll let you add a little additional color.
I think everything <UNK> said is right on.
I think we still first, <UNK>, look at the quality of the property, and where the property is located, and is it a property we want to own ---+ regardless of what our capital cost is.
Just because we are trading as a nicer stock price today than we were six months ago doesn't make us want to go out and overpay for property.
So I think the quality of the property and where it is is still number one.
And you know, if we are trading at a nice size premium, it may help us justify stretching a little, but it's still got to be property we want.
No, I don't think we see anything out there right now that we like well enough to do that ---+ you know, as far as the large portfolios.
I'm not saying there won't be a one-off transaction here or there, but no large portfolios out there right now that we see.
Yes, sure, <UNK>.
It's always about timing.
And try as I may, I can't always get my clients to sign leases by quarter-end.
They just don't feel the same sense of urgency that <UNK> and I do.
But yes, we took a very close look.
And we assumed several of you would ask this very same question, because if you look at where we are midpoint, it would tell you we were pretty much in line with what we'd originally projected.
But we do have a very, very strong pipeline for the second half of the year.
It's very consistent with the business that we've been doing.
A lot of our existing clients in the areas of e-commerce and consumer products, some directly with them, some with 3PL providers ---+ and we've got a good mix all across the country.
So given that, we felt very comfortable raising the guidance on the development side.
So I think you can look forward to bigger numbers in the third quarter.
I will tell you, looking out beyond kind of the six-month horizon, we are still very optimistic.
Our clients are not showing any skittishness, any pullback.
Everything that's on track to get signed, I would say, in the foreseeable future, the next three or four months, is going full speed ahead.
And our clients are probably more engaged with us today about their future needs, whether it's in the forms of build-to-suits or taking speculative space, because the markets have gotten so tight.
So if you're an 800,000 foot user or a 1 million square foot user in a major market, you don't have nearly the number of options.
So we've gotten engaged with much more of our clients.
They've been much more forthcoming with what their needs and expectations are over the next 24 months.
And that has left us fairly optimistic as well.
Well, I think it's a couple of those things.
You know, if we all reflect back on where we were about seven months ago going into 2016, we were all talking about markets reaching equilibrium sometime in 2017.
We were anticipating that absorption was probably going to be in that closer to 180 million to 200 million square feet.
And I think all of us, our peers and you guys ---+ anybody that follows this sector ---+ has been very pleasantly surprised.
We are on track to be at or above absorption for the last ---+ the average for the last couple of years, if you just look at where we are for the first couple of quarters.
And then you pair with that how successful we've been leasing virtually all of these major spec projects that we've put.
We've leased a bunch of them right before they've even come in-service.
We've leased another few right as they have come in-service.
The one we have under contract to sell to a user here in Indianapolis ---+ that was probably in-service for about six or seven months, was probably the longest one we had on the shelf.
So I think, you know, given the confidence in our operating teams, our record high occupancy, and the state of the overall demand in the marketplace, we feel more comfortable accelerating a number of those spec projects.
Yes, and I would just reiterate what <UNK> said earlier too, ---+ that this quarter being almost entirely spec was just more timing than anything.
We have got some pretty good data points looking forward, with some good build-to-suits in the pipeline prospects.
So I think as you see us go forward, it will be still in that above 50% to 60% preleased range in total.
I'll try that, <UNK> <UNK>.
I think it's ---+ for the next 6 to 9 months, I think it's pretty sustainable.
I think I mentioned earlier about a fourth of our leases rolling in the next 18 months were what we consider to be those trough leases, and we're going to push rents really, really hard there.
They'll be in the ---+ some of those will be in the 25%, 30% range.
But I think overall we reported 19% this quarter; I think we were more like 14%, 15% the previous quarter.
I still think you'll see us in that mid- to upper teens on average for the next 3 to 6 months.
And I would add to that: if you just ---+ you know, if we all stood back we look at the macro numbers, today most of the brokerage and research firms are tracking somewhere between 165 million and maybe 180 million square feet of supply that's projected to come in-service over the course of the next year.
And we are on track to have another year of 240 million to 250 million-plus square feet of absorption.
So I think in the short-term, there's a higher probability that that overall vacancy goes down before it goes up again.
And I think if you see that macro trend, you're going to see us continue to have the leverage to continue to push rents.
Yes, <UNK> <UNK>, we don't like to get right up the day the lease rolls.
So when a lease renews, it's typically going to be 2 to 6 months before it comes up.
So you could be looking at pulling forward, call it, maybe six months of the next year's leases.
So that takes you from 10% to closer to 15%.
Okay, I'm not sure I followed that one, <UNK> <UNK>.
So are you quoting a number that we reported, or are you looking ---+.
Same-store NOI growth.
Well, I don't think we're assuming occupancies are flat.
We're assuming we're still going to drive occupancy.
Occupancy growth will slow, but we are not assuming flat occupancy.
So we believe that we will still grow occupancy in that pool of property for the next six months.
You couple that with the rent bumps, which ---+ we have about 2.25% rent bump.
You then add the, call it, 15% that you talked about rolling; then we can push rents up close to 20%.
And then the final factor is burn-off of free or reduced rent.
And all that together is what gets you up to that number.
Thanks.
Really at about the same run rate that we've had first half of the year.
Even though we are quoting a start number, we capitalize our interest based on the actual spend.
So a lot of the starts that we are quoting, the development spend won't happen until late this year, early next year.
So we're really looking at continuing at about the same run rate that we have for the first half of the year.
And then couple that, I would say also, with the fact that our overall average borrowing costs are going down.
So that actually lowers the amount of interest we capitalize a little bit as well.
Yes, I would tell you that ---+ you know, <UNK>, we've always ---+ are you talking about the new second-generation leases that backfilled, what that would have done ---+.
If you just isolated those deals, it would have improved it quite a bit.
In total I would tell you that the total new second-generation leasing this quarter, because it was easy, it was like an apples-to-apples comparison of the old tenant to the new tenant ---+ you know, in the past we've never quoted that number, because sometimes they don't take the same space and all that.
This quarter it happened to be pretty easy.
I would tell you, if we would have quoted that number, it would have actually been little bit better than our renewal.
Not a lot, but a little bit.
Yes, and I may have misled you, then, <UNK>.
It's not just development; it's leasing in general.
An example of that would be those four big backfill deals.
You know, they are in our occupancy number, because the leases are signed, but we're not collecting rent yet.
But we will start to collect rent on that in the third and fourth quarter.
So it's not just development that is causing that.
It's all the leasing we are doing, not just development.
But maybe to specifically answer your development question, the way we do same-property is we put properties in our same-property pool after they've been in-service for 24 full months.
So as you sit here today, the only development projects we have in our same-property pool would have to have been in-service on April 1 of 2014 so that you had two full years in there.
But I don't know if that answers your question or not.
I think that's right.
It's more timing than anything.
And then as I tried to mention in my opening remarks, in the second quarter, there were three or four individually small expensed true-up type items that hurt us this quarter.
And actually, if you went back previous year's quarter, we had a couple adjustments that were revenue related that helped that quarter.
So when you look at the two together, it distorts this quarter's NOI growth a little bit.
And FYI ---+ I think you've heard me say this a million times ---+ I don't like to look too much at just the quarterly number.
I like the 12-month number better, because it doesn't take one little item, and multiply it by four, and skew your result.
Well, Jamie, I think if you just look at our existing portfolio and the fact that we've been able to raise occupancy, net-net, there's a great deal of net absorption out there.
If you want to talk specifically about those build-to-suits, some are absolutely new deals where the client has not given up any space, some of which are consolidations of multiple spaces, where they are looking to gain some additional efficiencies.
They are generally adding additional space in there, because most of those clients are growing.
But as we did this quarter, we've been able to backfill space at very good rental rates.
So net-net there is probably a little bit of both.
But there's a lot of demand out there.
When you've got overall nationwide vacancy of 5.2% and you've got a lot of big users out there seeking new space, it's a good time for us in the industrial business.
Well, I'll take the last question first.
Yes, there's no shortage of people doing spec development.
I think what we are all very happy or pleased with is that demand continues to outpace supply by a pretty healthy margin.
To your first question, when we've got, I think, 18 of our 21 markets above 90%, and 12 above 95%, and a couple at 100%, we are in a position to start spec in virtually all of our markets.
We'll probably be a little bit more measured than that, particularly some of the markets like New Jersey, Pennsylvania, Southern California ---+ the high barrier markets, where it takes a little longer to entitle land and improve projects.
You probably can't reload quite as fast as you'd like.
And that's a burden we bear for being a little bit more cautious than perhaps some of the local developers, but it's worked for us very well so far.
So you'll continue to see us take a measured approach, do some speculative development in a number of these different markets.
We mix that in with our build-to-suit, and I think the pipeline will look very, very good in the second half of the year.
<UNK>, it was moved in the second quarter.
So it has moved out of our population, if you will, down in the held-for-sale.
So that did help occupancy in the second quarter.
And when you sell it in the third quarter, it will have no impact on occupancy, since it has already been taken out.
Yes.
<UNK>, it's not tough; it's expensive.
Most of our markets that we are active in, land prices have exceeded previous peaks of 2007/2008.
I think that's another reason why our strategy to be very, very prudent on our land inventory is paying off for us.
So I was asked ---+ oh, it was probably at NAREIT ---+ if, given where we were, were we going to go out and bulk up on land.
And we have continually advised our business guys: now is not the time to bulk up on land.
We'll buy what we need, put it in-service as quickly and efficiently as possible, and keep that land inventory at a very efficient level.
And we'll look to make some key buys somewhere down the road, when land prices return to a somewhat more normalized level.
No, there were two buildings, <UNK>.
We bought two buildings this quarter.
I think we quoted $51 million for the value of the industrial building that we effectively bought, using air quotes here, from Gramercy; and then about $16 million for a medical office building that we had actually had under contract for well over a year.
So there were two buildings in that $67 million in the supplemental.
Correct.
All right, thanks.
I'd like to thank everyone for joining the call today, and we look forward to reconvening during our third-quarter call, set for October 27.
Thanks again.
| 2016_DRE |
2017 | CMG | CMG
#<UNK>, it's going to be hard and I really don't want to peg specific quarters.
At ICR we talked about there's risk levels of everything we need to do to get to that kind of a 20% run rate.
Some of the things like avocados have already come down, so that's going to happen.
You're already going to see food costs improve during the first quarter.
Other items, strategically doing a better job of managing our food costs during the year, that will happen over time.
And so to say exactly when we will achieve the full savings that we potential get at the restaurant level, I don't want to commit to that.
We could move really quick on that ---+ quickly on that and what's likely to happen is that our restaurants are going to move too quickly and portion size might be reduced.
Holding times might increase so that the quality experience might be reduced.
Instead what we want to do is make sure that we are ordering correctly, we are scheduling the right prep, that we're rescheduling people during the right times, and we want to make sure that we are doing that in the right way every time.
So I'd rather talk about it as we expect to get to a run rate during the year, <UNK>, and rather than commit to it in terms of specifically which quarter.
And of course the biggest variable here is the sales building.
And so, that has been the biggest variable in the last year, the hardest to predict.
And so, our ability to recover our margins is highly contingent upon how we proceed in terms of the comps from here on out.
I'm not sure; you might get a different answer for each of us.
I think it's going to be based on the way we execute in the restaurants, delivering a great customer experience because that includes making sure the restaurant's clean, the line ---+ the serving line is clean, that throughput is fast, that our crew is just providing an overall excellent experience.
And when we execute well in the restaurant everything else is going to work well also.
We have a better shot at executing digital.
And so I think the single biggest thing we can do and this thing that we have been focused on really intently is to simplify our operation, make sure that our teams know clearly what it takes to deliver an excellent customer experience, which they do.
That's the thing they do the best.
If anything we have maybe complicated it in the past.
We've really demystified that.
We have uncomplicated it.
We are tying incentives to delivering an excellent experience and I think that's the single biggest thing that will drive our sales during the year.
<UNK>, we would look at our strongest markets, the markets that have recovered the best, the markets that weren't impacted in the first place, and we'll look at markets where our operations are strong.
And then we will look at what competitors are doing.
We don't have any plans right now, specific plans.
But at some point we will dip our toe in the water and we will take market where there is a very low risk.
And when the trends continue to build ---+ and again, we are confident about our teams, we are confident about our pricing power, we are confident about we've got room to do this compared to our competitors.
We'll at some point decide to dip our toe in the water and see how well that goes in that market.
If that goes well we will consider what we do from there.
But no specific plans right now to do doing anything with price.
I'll take the question on the comp, <UNK>, and then I'll turn it over to <UNK> on the new stores.
The way I would say it is I feel good about the comp trend.
I feel like we're at least holding our own and perhaps starting to see an inflection point.
But most importantly we are doing this with very little promo.
So we've weaned ourselves off of promo.
Most of the improvement from December into January was we are going up against a softer comp, but I feel really good about that.
And January is not a great month to get a perfect read on the trends.
When you look at it day-by-day and week-by-week you do see some volatility because of weather this year, weather last year.
But when we look at it day-by-day, week-by-week we feel good about what we are seeing.
We feel good about holding onto or perhaps building sales from the previous trend.
We are also seeing geographically that the Northeast has made a nice move in January.
And so they've come back to the pack.
And so we talked about the coast being the weakest, but during January we saw the Northeast really come back to the pack quite a bit.
And so, the West Coast has still remained to be an outlier, so that was a nice move.
And so, we will, <UNK>, continue to watch what happens during February, and then as the weather clears, but we feel pretty good about the trend so far.
And then, <UNK>, do you want to ---+.
Greg, if you look back to those periods, depending on what to you look at, you are going to see a much different food cost.
We in the fourth quarter had a 35.3% food cost.
When you look back into those periods you're going to see a food cost somewhere in the 30%, 31% range.
There's 400 basis points right there.
The other piece of labor inflation.
Since 2012 we've had labor inflation totaling about 20%.
We've only taken about 5% of menu price increase in that time.
And so, we have beaten a couple hundred basis points worth of labor inflation at least, maybe even more.
So the food cost is higher because of things like we've had inflation in steak.
We've invested in Food With Integrity, things like that.
And because we are a little bit behind right now in menu pricing, I would say our food is at an elevated level.
We have been eating some of the higher food costs over time, same thing with the labor.
And so we need a combination frankly of getting our volume back, getting back into the $2.5 million range, delivering on some of the efficiencies that we've talked about, and passing on some of these higher costs to our customers.
And if we do all that I think we can get back into the high [20%s].
If we only stayed at this current volume, $2 million or so, I think it would be a stretch to consider getting some ---+ margin in the mid-20% range or higher, unless we wanted to just jam a very high menu price increase.
But that's never been part of our strategy because they want to be accessible to the mass and we want to remain affordable.
Well, it's within our guidance range.
We talked about a guidance range for the year of in the high-single-digits.
And so, if we can achieve that kind of a comp, then achieve some of the negotiated savings that we've talked about, achieve the operational savings principally in food and labor, we think we can get up to that ---+ in the range of that 20% run rate.
I'm not sure I understand the question, <UNK>.
So unit by unit when we see ---+ are you trying to link our cost savings initiatives with sales building initiatives to see if there's a correlation.
Yes, the answer is yes and the volatility, it's not unit-by-unit, it's more market-by-market based on geography.
But yes, it's a lot easier to manage food and labor, labor especially when you have predictability.
And so when you have volatile weather where you have a snowstorm one day, your tendency is to probably have too many people on the staff and certainly even send people home.
But generally are going to have deleverage and you're going to have excess labor.
Maybe excess food, although we don't usually ---+ we have multiple deliveries a week, and so we don't usually have a problem unless we're closed because of a snow storm for multiple days.
But there's no question about it, when we have predictability of the sales we can do a better job of managing things like labor.
I will start with it and then Curt may want to add on.
<UNK>, the second make line is a huge part of it.
It's a critical part of it.
We have the second make line in most of our stores, some 90%-something, I don't have the exact number.
It is underutilized in a lot of our stores.
In the 1,200 stores that we have already rolled out smarter pickup times, all of those stores already have a second make line specialist, a take-out specialist.
We have rolled out specifically to those stores first because we knew that they were staffed.
We already knew that they had a skill and already the habits of using that second make line and executing well on that second make line.
The stores that are going to roll out next week are the lower volume stores.
They don't necessarily have a trained take-out specialist.
The $2 million investment that I described, that is an investment in labor for those teams to open up that line.
It is going to be in excess ---+ kind of an advanced investment, because if the sales ---+ or as the sales come, labor matrix will fully fund and fully allow those hours and we'll have normal margins.
But we don't want to wait for the sales, execute poorly, and then say we better start adding some labor.
So we're going to front load that a little bit, invest some extra labor in those stores, and then we will be able to adjust ---+ if stores stay low volume we will be able to adjust and make sure that we have the appropriate amount of labor.
But we are optimistic that we are going to see additional digital second make line sales in all of our stores and that will justify the labor investment that we are making in February and it will be fully part of the labor matrix.
Yes, <UNK>, when we have promotions, none of that would be in the sales because it would be free.
You would see the entire cost of that, so we would take the food cost related to the food that we are giving away.
All of that would be other and that would be in promo.
And so, for example, when we talk about 4.7% of sales in the fourth quarter being marketing and promo, the promo part of that is buy one/get one's or free chips and guac and things like that.
So that's how you would see the pieces.
Yes, we would record our transaction.
So when you saw us report last year if we did a ---+say a ---+ where transactions outperformed sales, that would be because if you came in and you got a free burrito, we would count you as a transaction, yet there would be no sale.
I don't know yet, <UNK>, whether I can attribute it to that.
I am very confident in the team out there and I'm very confident that they will drive not only operational savings and customer experience improvements and that will lead to better sales.
And so we may be seeing some of those early dividends.
It may also be just a little volatility with the winter weather.
But it looks pretty good to me.
It looks like they closed the gap in a pretty meaningful way.
So I would like to say that yes, the folks out there, even though they've only been out there a couple months, that they are already making a difference.
But I know they've still got their work ahead of them.
But I'm optimistic that this is the right team.
They are some of our top proven leaders that have gone in other markets and done a really fantastic job of hiring great people, training them and delivering a great experience.
So it probably is some early dividends on that, <UNK>, but it's really hard to tease out how much is that versus how much is just other factors.
Well, it's fair to ask, but we're not going to give it.
We're thinking about building this building this business over more than just a quarter at a time.
We're focused on running great restaurants, we are focused on the customer, focused on digital, focused on brand marketing and focused on restoring our economic model.
So the break out predictions quarter-by-quarter and then being defined based on those quarter-by-quarter predictions just isn't really helpful for us right now.
So sorry, <UNK>, we're not going to do that.
But we will continue to give you updates each quarter and we'll give you as much insight as we can about what we are doing, how we are doing, and I think that's a better way to discuss how the trends are going.
Sure, there's no question that we saw accelerating turnover rates post crisis for a number of reasons that we've talked about the past.
Laying on a lot of complexity to the teams, not ---+ a lot of new food safety initiatives, things like this.
So it's complicated for our teams and that was one of the reasons that there was turnover.
I will say though that since we have made it very, very clear how we find success in our restaurants now and how we get our restaurants to A and then on to restaurateur, the clarity and the understanding of how to do that has been really helped morale.
It's palpable.
We can feel it in the restaurants.
I think our folks appreciate that we have simplified it.
I think that in our past the tools that we had were sometimes more complicated than actually running a good restaurant.
So we've really allowed now our folks ---+ with great training, with a clear path to restaurateur ---+ we've really allowed them to thrive.
And we are starting to see great morale and I think this is going to contribute to lower turnover throughout the year.
| 2017_CMG |
2015 | EGHT | EGHT
#We have not seen them yet.
We obviously keep it healthy how our stuff is integrated with the link on premise, and we try make sure we do all of the various integrations.
But for these larger ones, we have not seen Microsoft in there.
We obviously always stay vigilant.
And I think your note referenced ---+ I think what you talked to all the CIOs at Gartner, and they were not looking at them.
I think for us, this complexity of a global, single communications platform is non-trivial, and I think we are uniquely positioned to provide it.
We are continuing to model them with the same high service gross margins that we have today.
We have close to 2,000 mid market and enterprise customers, and that is what we are seeing from them.
So we expect that trend will continue even with these larger deals.
Great question.
And you know what.
That is the part that I love about our strategy, if I may say so myself.
They are thinking about communications platform as the foundation on which they build.
So deploy this, and then they again are looking for one vendor, and seamlessness between all of these various applications.
So if you think about it, in our system as you'll start to see over the next few months, you will be literally able to go from video, voice, chat, collaboration, sharing, whether it's your iPad, your iPhone, your android phone, your desk phone, your laptop.
With literally one, two, three clicks.
And I think that they view as huge.
In a lot of instances, they have paying very high legacy costs for some of the vendors that you describe.
In most instances, they have already started conversations about how to replace that.
So we view that as very, very powerful, and we think that's a huge differentiator for us.
Yes, I think we consistently have increased greater than $6 to $7.
So I think that's probably the right number to look at.
Thank you.
So we do have volume pricing.
We do price based on the value of the MRR.
Certainly, we're going to price at a lower level to someone who has much higher MRR than a single or two-line customer.
Absolutely, there's going to be a little bit of a discount on a high level on the big deals.
But at the end of the day, it's one customer with 7,000 lines as opposed to many, many customers to try to get the 7,000 lines.
I will be very, very happy when it happens.
So I don't want to speculate.
But let's just say within the next 12 to 18 months if things go well, it could end up being by far our largest customer.
They are great guys.
We are very impressed with the team.
They are very organized, very thoughtful, they have a plan.
As I said, we are starting already on I think four locations or so.
The intent is to do 140 locations as a first rollout.
They want to move pretty fast.
Some good things can happen, but I don't want to give you a sense yet of how big it is going to be.
Let's just say I am pretty happy with that account, and it could be transformational.
Again, everybody, thank you all for listening on today's call.
We look forward to providing continued updates on our progress at our upcoming investor conferences and meetings.
Again, thank you very much.
| 2015_EGHT |
2015 | KSS | KSS
#It was down a little bit.
I don't have the exact number unfortunately in front of me but I think it was down about, I want to say it was down about 150 basis points.
But I will give you call after, I'm sorry about that.
No, if you're alluding to things like Prime Day by Amazon or that no.
I think what happens on those kinds of things is all retailers are sensitive and aware about promotions in the space.
And you inevitably, therefore, strategize and target your own elements to offset to ensure that you don't get hurt.
And so I think actually the facts, Wes would probably be able to give specifics, but I think actually the facts are we saw much larger lifts during that short period of both Prime Day implementation by Amazon and related ---+
Yes, we beat our plan that day, for sure.
So I think it's just the way it works.
There's a lot of activity.
Get more people to the web.
They might buy it on Amazon, they might buy it on Wal-Mart, looks like more of them than we thought bought it on ours.
I do have the credit numbers.
Sorry about that, a little too much paper here today.
Charge sales for Q2 were 57.6, down 171 basis points and then year to date is 57.8, down about 130 basis point.
So it kind of makes sense given the fact that we're doing better from a non-Kohl's charge because we've put more emphasis from a marketing perspective.
So the Kohl's charge was sort of negative for the quarter, down low single digits while the non-Kohl's charge was up mid single digits.
So we're continuing to figure out a way to better balance those.
The goal obviously would get them to be both positive.
But we need new customers and that's what's coming with the non-Kohl's charge comp.
They spend a little less obviously because they are newer and the Kohl's charge folks spend a little bit more.
But we will continue to work on better balancing them and hopefully by the time we get to the end of the year they will both be running positive.
Through the test period, the test period essentially was an operational test period.
It was to ensure that on the technology side everything worked the way we wanted it to work, that the customer service was delivered in the right way and that we were able to achieve the speed we needed to.
On the store side of course it was a start to better understand what stores have to do in order to quickly present the product to the customer and do it in an efficient way.
So that's the process we went through in the second quarter.
I think we did 2.5% or 3% of demand as we experimented with out on the operational side, so it's a meaningless number.
We're planning a much larger percent of digital sales to come as Buy Online, Pick Up In Store.
That's what's baked into our planning.
We're not planning that it necessarily lifts the total digital sales but we do believe based on the attachment rates we're seeing right now it's got the potential to add sales in-store and add some visits.
Which as you know our two biggest challenges are win new customers, Wes kind of just touched on that one, and secondly get more visits into our store.
And that's why we're super optimistic about Buy Online, Pick Up In Store.
Well I didn't mean to alarm people on that.
It's probably going to be somewhere between 2% to 2.5% for the fall.
So it will be lower in the third quarter and higher in the fourth quarter.
Kevin mentioned Buy Online, Pick Up In Store, that's going to drive a little bit more store expense.
We're going to put a lot of the investments in we saved a lot of money in marketing this year and we're going to put a lot of investments in the fourth quarter on that.
We have a tendency to get outshouted especially on broadcast by some of the larger retailers that are bigger than we are, so that will give us a good opportunity to be more competitive from that perspective.
Obviously 80% of our cost roughly are fixed.
You can argue that advertising is variable but if you're not making your sales you're probably not going to cut your advertising.
So the easiest one of we don't make it would be related to incentive comp would come down.
Anything that's unit related we could save money in the stores from a processing perspective as well as the EFC's corporate expenses.
You can manage your hiring a little differently, leave positions open, but that's only about 20% of the expenses really what I would culturally variable.
Sure.
Off-aisle was originally conceived as a way for us to improve the valuation on our returns.
And as you know like any retailer we get a significant percentage of returns in our stores and a much more significant percentage of returns to our stores that originated with an online order.
So returns as a percent of sales for us had been rising consistently over time and it's just the math as more people bought online there is a higher return rate, those returns go to the stores so our total return rate keeps going up modestly.
When we looked at that the potential profit pool for managing what we get for those returns was pretty significant.
That coincided obviously with us trying to be more aggressive and experimenting more with new innovative concepts.
And so we created this off-aisle concept first and foremost to target an improved return on our returns from customers but secondly also to learn more about the off-price business in general.
So I would expect there are going to be more off-aisle stores coming.
Again not to queue too much into what we'll be talking about later in the third quarter as evolutions to the moves in the Greatness Agenda but definitely new formats including more off-aisle stores will be coming.
The results have been really good, they've been better than we expected.
Well, Wes can probably, but the real estate answer is honestly pretty simple.
Real estate is one of the assets that we have; like all the other assets we have, we're always reviewing what the options are that would maximize shareholder value.
And that's under constant review.
It's not necessarily focused on today's events or the last three month's events.
It's just a regular course of good governance and we'll continue to do that.
On the traffic side I think we're actually pretty optimistic I would say about traffic.
Yes there's a little bit of variability by region but not a ton.
And in terms of the number of stores we have a list of stores that we always look at incremental, negative incremental cash flow stores.
We run it once a year.
There is a list of probably 10 or 15 stores on that list.
We've tried to look at market by market versus individual stores because obviously if you make a decision to close a store in one market you might pick up some sales in a couple of other stores that might make a negative one turn positive.
Most of the stores that are negative cash flow we're talking in the couple hundred thousand dollars range per store.
So we think it's prudent to be a little patient.
We believe in the Greatness Agenda.
We believe we're going to continue to make progress and hopefully the slightly negative cash flow stores will turn positive.
But we closed a couple of stores this year, we're going to close a couple stores next year but we're really looking at handfuls versus major closures.
And just so we're totally transparent about this, traffic variability in short-term windows a month, a quarter are highly volatile.
They can change a lot.
So in a particular market, in a particular region, in an individual territory the traffic trends year over year can be really pretty volatile and that's because weather is a big factor in our demand.
The economic conditions in a particular market can be very different depending upon the job environment.
And it can uniquely be affected as well by competition as new competition opens up in a trade area or in a market in a big way.
We kind of look at traffic when we're evaluating real estate more on let's say a three- to five-year trend.
We're looking at is there a consistent pattern of decelerating traffic.
And that would cause us to do the evaluation Wes is talking about which is to say hey, what's the future of this store.
There will be no powder left dry this year.
We're going to spend $1 billion.
That's going to be lower than last year but we've been taking what I would call non-production savings out and it's not by cutting the number of events or anything like that, it is just repositioning.
So for the fall season for the first time we're going to be spending more money in digital than we are in print.
That's where our customer is doing their research, whether or not they purchase online from whatever device they are using they're definitely using the research to make their purchasing decisions.
So that's important.
In the fall season from a marketing, or excuse me in the spring season from a marketing perspective we reduced the amount of credit marketing we have which we actually charged to the credit profitability and actually increased the amount of non-credit which is what has driven the non-credit card comps being positive.
So we continue to do that and shifted into more productive marketing.
But the fourth quarter will be up significantly to last year in terms of marketing spend.
At the end of the day, <UNK>, we spent less money on marketing in the first half than we originally had planned and then last year.
And we intend to spend more money in the second half.
We're going to spend $1 billion.
We're certainly not going to spend $999 million.
That's the hope.
I think the way you've got to look at the loyalty users which is the way we have to look at, we have to look at them as unique loyalty users because you can't look at them as a pool.
Because we have twice as many loyalty members as we did last year, so it's kind of a meaningless, I think Wes, it's sort of a meaningless statistic.
Because naturally they transacted a lot more because there's two times as many of them.
So we try to look more at unique loyalty members, how our members who are in the program behaving.
And we are really focused on a different metric anyway which is the metric we're focused on essentially is to say that we've had a long period, five years or more, where the penetration of our credit business to our total credit business has risen consistently.
The problem is our total business hasn't risen.
So on a customer basis it's more customers transacting on credit but not more customers in total.
Loyalty's objective is to create and win new customers so that even if credit as a percent of total transactions is flat we win because total sales and total traffic is up.
So we look at it a little bit different.
And the answer to your question directly wouldn't get you to where you want to be because we'd tell you loyalty transactions are way up compared to last year.
We do need to do a better job of using loyalty to feed the credit program.
We've been focused more on getting people onboarded into loyalty.
I think the next lever to pull after we've done that for a year is to show that now that they've all experienced the value of that loyalty, the value of being a credit card customer is much greater.
We also have to do a better job of soliciting applications in the stores for credit.
We've taken a step back as we focused a little too much on soliciting loyalty applications.
So we need to do a better balance of that and I've been working along with the marketing guys and the store team to do that.
We've seen some dramatic improvement in July on that.
We've made some changes from an incentive perspective for both the applicant and the associate who is soliciting credit.
So I suspect that will do much better on soliciting credit in the fall season.
For two quarters in a row we've beat our guidance on SG&A so the year hasn't changed.
So it just got pushed further.
If we save money in marketing we're not going to spend less than $1 billion.
We're $20 million let's say below our plan for the spring, we're just going to reinvest that in the fall.
Yes, I would say the SG&A spend I think you guys assume it's somewhere between 2% in 2.5% for the fall season.
It's up, well, not high double digits because that would be like 99% but it's up mid to high teens.
Glad to see you are back on your course on the marketing questions, <UNK>.
I don't even know how to answer you.
I will try to answer them seriously for you, though, <UNK>.
Missy is probably I would say our most improved business trend and that's after a long period of not being able to say that.
Again as part of our evolution of the Greatness Agenda we expect to share with you later Missy apparel, women's apparel in total is going to be a real focal point of some changes we're making.
I think many of them are taking place internally now and we're getting a little bit of the benefit of that.
I think denim is definitely improved.
Yes, Levi's had a really good quarter in the second quarter.
So that's a really positive thing because as we talked about back-to-school definitely started later.
And that's typically not good for denim sales but denim sales have declined significantly over the course of the last probably 12 to 24 months and there's been a big change in trend in there for sure.
I think that actually is a really positive one as we look at August, September.
I think the pockets where we're still working through some of the junior stuff probably have a little too much inventory in kids and jewelry.
Those are the areas that have been soft versus their plan obviously.
When you miss the sales plan you've got to work through the inventory and that's what we'll do.
The other factor and Wes talked about it I think in our earlier scripted comments is we did make a decision that we were a long time ago, six months or more, that we were going to accelerate our overseas imports flow because we were concerned about ensuring that we had them in plenty of time for back-to-school.
As you know as it turned out the port strike was settled, flow dramatically improved and so overseas import items I would say generally private brand kind of merchandise ---+
Came in early.
Came in early and it wasn't really category related, it was across categories because it's all the same.
The biggest investment we have in inventory remains our national brands.
They are up, units are up double digits.
So that's where the investment I alluded to active, obviously that's a lot of national brand merchandise as well.
Outerwear we're really conservative.
We all get the same forecast that you guys seem to get, so it doesn't seem like it's going to be an extremely strong outerwear season from a weather perspective.
So we plan that down accordingly.
I will get back to you on that, <UNK>.
Thank you very much.
Thanks very much.
Take care, bye.
| 2015_KSS |
2017 | AEE | AEE
#Thanks, <UNK>
Good morning, everyone and thank you for joining us
Today, we announced 2016 earnings of $2.68 per share compared to core earnings of $2.56 per share for 2015. Once again, we delivered another year of solid earnings growth driven by the successful execution of our strategy
<UNK> will discuss the drivers of our 2016 earnings results in a few minutes
But first, I want to highlight some of the key actions we took to successfully execute our strategy in 2016 for the benefit of our customers and shareholders
Starting with our strategy to prudently invest in and operate our utilities in a manner consistent with existing regulatory frameworks
We continue to allocate significant amounts of capital to those businesses that are supported by modern constructive regulatory frameworks for the benefit of our customers
In fact, we invested $2.1 billion in utility infrastructure last year with two-thirds, over $1.3 billion, going to projects in the FERC regulated electric transmission and Illinois regulated electric and natural gas distribution businesses
A significant portion of the $1.3 billion was invested in the Illinois Rivers project, a new high-voltage transmission line, which will span 385 miles across the state of Illinois
This project remains on schedule for completion in 2019 with 4 of its 9 line segments energized, including 2 river crossings and 8 of 10 substations now in service
This strategic allocation of capital and effective project execution, combined with disciplined cost management, meaningfully contributed to the solid financial results I just discussed
Turning to Missouri, in order to earn a fair return on our electric business, we filed a rate review request in July with the Missouri Public Service Commission
We are seeking to recover costs related to infrastructure investments made for the benefit of customers and to remove the negative earnings effect of lower sales to the New Madrid smelter
There was a recent development in this rate review and I will provide an important update in a few minutes
Moving down the page last year, we also continued to work to enhance our regulatory frameworks and advocate for responsible energy and economic policies
I am pleased to report that we have made very good progress on this strategic focus area as well
Notably, Ameren Illinois successfully advocated for the recently enacted Future Energy Jobs Act, which improved the already constructive regulatory framework for our electric distribution business in Illinois
This will extend its constructive formula ratemaking through 2022 enabling the continuation of our strong infrastructure investment plan to benefit our customers and the state of Illinois and also meaningfully improved the regulatory framework for energy efficiency programs
The law allows us to capitalize and earn a fair return on our future energy efficiency expenditures, which will enable Ameren Illinois to expand its energy efficiency programs for the benefit of our customers
Further, it provides revenue decoupling, eliminating potential sales margin erosion due to, among other things, energy efficiency
Finally, this law will help maintain and create new jobs in our service territory and it contains strong consumer protections
Simply put, it was a win-win for all stakeholders in Illinois
And in Missouri, we continued our extensive efforts to enhance the state’s regulatory framework for electric service in order to support the investment in a smarter energy grid and create jobs
A great deal of time and effort was spent working with key stakeholders after the 2016 legislative session to discuss this important matter for the state of Missouri
I will update you on our ongoing efforts in this area a bit later
The final element of our strategy calls for creating and capitalizing on opportunities for investment for the benefit of our customers and shareholders
As I just mentioned, the Illinois energy legislation enacted in late 2016 enables expansion of energy efficiency programs and allows Ameren Illinois to capitalize and earn a fair return on those investments
Also, the Missouri Public Service Commission approved two solar pilot programs that will provide clean energy choices for our customers and increased investment opportunities for Ameren Missouri, should these pilots proved successful and the programs be expanded
Finally, in September of last year, Ameren Missouri filed a plan with the Missouri PSC for potential incremental infrastructure investments of $1 billion over a 5-year period ending in 2022 that would benefit customers should these investments be enabled by an enhanced electric regulatory framework
Ameren Missouri also identified additional potential incremental infrastructure investments over a 10-year period that would modernize its energy grid and facilitate the transition to a cleaner, more diverse generation portfolio for the long-term benefit of its customers and the state of Missouri
Turning now to Page 5 and earnings guidance
First, I am pleased to inform you that we expect our 2017 earnings per share to be in the range of $2.65 to $2.85 per share
The midpoint of this guidance reflects strong earnings per share growth of approximately 6.5% compared to weather normalized 2016 results
<UNK> will provide you more details on this a bit later
Second, we remained on track to deliver strong long-term earnings growth and continue to expect earnings per share to grow at a 5% to 8% compound annual rate from 2016 to 2020 based on the adjusted 2016 earnings per share guidance midpoint of $2.63 we provided a year ago
We plan to deliver these earnings results in the future through the continued execution of our strategy in 2017 and beyond
Turning now to Page 6, a key element of our strategy is to continue to advance our plan for investing in our utilities in a manner consistent with existing regulatory frameworks
The strong earnings growth outlook I just discussed is driven by our rate base growth outlook
Today, we are rolling forward our 5-year investment plan and I am pleased to say that we expect to grow our rate base at a strong 6% compound annual rate over the 2016 through 2021 period
As you can see on the right side of this page, we continue to allocate greater levels of capital to those jurisdictions with constructive regulatory frameworks that support investment
Our transmission projects are projected to increase FERC-regulated rate base by 13% compounded annually over the 2016 through 2021 period
In addition, our investments in Illinois Electric Distribution and Illinois Natural Gas are expected to result in 9% compound annual rate base growth for each of these businesses for the same period
I would note that energy efficiency investments made under the Illinois Future Energy Jobs Act are incorporated into this outlook
And finally, our Missouri rate base is expected to grow at a slower 2% compound annual rate
Of course, the expected Missouri rate base growth rate would increase from this level if legislation is enacted that sufficiently enhances the state’s regulatory framework to support investment
Moving now to Page 7, another key element of our strategy is to achieve a fair and balanced resolution to our pending Missouri electric rate review
I am pleased to report that as a result of extensive collaboration, all the major parties participating in this rate review, the Ameren Missouri, the staff at the Missouri Public Service Commission, the Office of Public Counsel, industrial consumer groups and others, recently reached an agreement in principle on all the issues in this case
As a result, we expect the stipulation and agreement signed by these parties and possibly others to be filed with the Missouri Public Service Commission very soon, with the request of the agreement be approved by the commission
At this point, the agreement in principle is considered confidential
However, I would note that the earnings guidance we have provided today is consistent with these terms
Turning to Page 8 of the presentation, enhancing Missouri’s electric regulatory framework remains a key strategic focus, because we strongly believe it would bring significant long-term benefits to our customers and the entire State of Missouri
Consistent with the benefits we have seen in Illinois and around the country, modernized policies to support energy infrastructure investments will lead to a more reliable and smarter energy grid, facilitate the transition to a cleaner and more diverse generation portfolio, provide greater tools for customers to manage their future energy usage, position us to meet our customers’ rising energy needs and expectations and create significant quality jobs for Missouri
With these benefits in mind, in December 2016, Senate Bill 190, the Missouri Economic Development and Infrastructure Investment Act was filed
This slide slight outlines the key provisions of the bill
In summary, Senate Bill 190 would implement important regulatory reforms which would drive significant infrastructure investments and results in the benefits I just described
In addition, this legislation contains robust consumer protections including strong oversight by the Missouri Public Service Commission
And finally, Senate Bill 190 includes forward-thinking economic development provisions for our larger energy consumers, which in turn would help create good quality jobs
I would note that enactment of this legislation in its current form will support Ameren Missouri’s ability to execute on $1 billion of incremental infrastructure investment over 5 years
Consistent with this filing with the Missouri Public Service Commission last fall, we along with all of the other Missouri investor owned electric utilities, have continued to actively engage in discussions with customers, legislators, state officials and other stakeholders to build support for this important legislation
I am pleased to report that Senate Bill 190 was approved by the Senate Commerce Committee last week by a bipartisan 8 to 1 vote, is now headed to the full Senate consideration
While good progress is made on Senate Bill 190 to-date, we are still very early in the legislative process
Keep in mind that the legislative session ends on May 12. As we move to the session, we will continue our extensive outreach and collaboration with key stakeholders to move Missouri forward on this important energy and economic policy initiative for the long-term benefit of our customers and the entire state of Missouri
Turning now to Page 9 of our presentation and a discussion of potential federal corporate income tax reform, I will begin by saying that Ameren supports thoughtful, comprehensive tax reform as we believe that lower corporate tax rates drive economic growth and job creation, benefiting our customers, the communities we serve and other key stakeholders
Recognizing that we are still in the relatively early stages of a tax reform debate, we are focusing our advocacy efforts with some key principles in mind
We want to ensure that tax reform does not negatively impact our key stakeholders, notably our customers as well as appropriately supports our industry’s efforts to invest in our nation’s critical energy infrastructure in an affordable manner
With these principles in mind, this slide highlights key areas of focus for Ameren and our industry
As I noted, it is still early in this debate and there are many moving parts, but we also recognize that many of you are interested in what impact tax reform could have on Ameren
Based on our current assessment of preliminary tax reform proposals, aside from the expected one-time non-cash charge to write-down certain of our deferred tax assets, we do not believe this plan would impact our strong earnings growth guidance through 2020. <UNK> will address some of the underlying assumptions associated with our assessment in a few moments
Of course, I expect there will be several changes to the tax reform proposals between now and the end of the debate
That is why Ameren and many of my colleagues in the industry will remain actively engaged with policymakers and key stakeholders on this important economic policy matter in the months ahead
Turning now to Page 10, here you can see that our strategic and disciplined allocation of capital is also being driven by our view that the energy grid will be increasingly more important and valuable to our customers, the communities we serve and our shareholders
We plan to continue to invest to modernize our electric and gas transmission and distribution operations to make them safer, smarter and more resilient
As well as invest in smart meters and new technologies in order to meet our customers’ future energy needs and expectations
Right side of this page shows that our allocation of capital is expected to grow these energy delivery businesses to nearly three quarters of our rate base by the end of 2021. As a result, our investment in coal and gas fired generation is expected to decline to a combined 15% of rate base by year end 2021. We are also advancing our efforts on innovative technologies to increase operating efficiencies, strengthen the energy grid and create innovative energy solutions for our customers
Further, we remain focused on transitioning our generation to a cleaner and more diverse portfolio in a responsible fashion
And this transition will continue beyond 2021 with the schedule retirement of Meramec’s coal fired energy center in 2022. In addition, Ameren Missouri is developing its next 20-year Integrated Resource Plan, which is scheduled to be filed with the Missouri PSC in October 2017. In this plan, we will continue to appropriately balance our responsibilities to our customers and communities, the environment and of course, our shareholders
Moving to Page 11, we anticipate that the execution of our strategy in 2017 and beyond will not only bring superior value to our customers, but also to our shareholders
To reiterate, we continue to expect earnings per share to grow at a 5% to 8% compound annual rate from 2016 to 2020, based on the adjusted 2016 guidance midpoint we provided a year ago
Further, as I also discussed, we project rate base growth of 6% compounded annually from 2016 to 2021. We expect these growth rates to compare favorably with our regulated utility peers
Further, Ameren shares offer investors an attractive dividend
The annualized equivalent rate of $1.76 per share incorporates the October 2016 decision by the Board of Directors to increase the dividend for the third consecutive year, reflecting their continued confidence in the outlook for our businesses and our long-term strategy
And we continue to expect our dividend payout ratio to range between 55% and 70% of annual earnings
Of course, future dividend increases will be based on consideration of, among other things, earnings growth, cash flows and economic and other business conditions
To summarize, we believe our strong rate base and earnings growth profile, combined with our solid dividend, currently providing a yield of approximately 3.3% results in an attractive total return opportunity for our shareholders compared to our regulated utility peers
We remain focused on executing our strategy and I remain firmly convinced that doing so will deliver superior value to our shareholders, customers and the communities we serve
Again, thank you all for joining us today
And I will now turn the call over to <UNK>
Good morning <UNK>
<UNK>, I think as we think about that extra $1 billion, obviously we are pursuing changes in the Missouri framework that would allow us to actually move forward with those to the extent that we have the opportunity to make those investments for the benefit of customers
What we will do <UNK>, at that point is step back and look at our overall capital plan, assess and reassess what we have got in that plan and also step back and reassess our financing
So I think it’s premature that we would need to issue any additional equity or that we would issue additional equity
We will take a step back and look at our overall capital expenditure and financing plans
Of course, we do have a very strong balance sheet today
And we have very strong credit metrics relative to our ratings
So we will assess all of those things as we move forward to the extent we have that opportunity
Hi <UNK>, this is <UNK>
Couple of comments, yes, in December, three bills were filed
Senate Bill 190, which we spent most of our time on, but then there are two other bills Senate Bill 214 and Senate Bill 215. Senate Bill 214 really is very similar to the performance based rate-making bill that was filed last year and then Senate Bill 215 is similar to what I would say enabling language
Our focus right now and those in the industry is on Senate Bill 190. We believe when you take all the stakeholder input that we have had since last session and even in this session, it reflects many of the inputs that we have received from stakeholders and so that’s our focal point now
Those other two bills are still out there, but we are focused on Senate Bill 190.
And so look, I am going to turn it over to <UNK> <UNK> who overseas our Missouri operations
<UNK>, you can comment a little bit about the process the commission has gone through in the past and then sort of where we are at
Thanks, <UNK>
| 2017_AEE |
2015 | COG | COG
#It's a hard number to come up with, specifically, on what we have.
I'm looking around the table and (laughter) nobody's raised their hand yet on that, <UNK>.
But let me say it this way that, as we put together our program for 2016, we felt and certainly feel very comfortable about what we're able to deliver in volumes for 2016.
Highlighting that point is, the amount of capital necessary to just keep us flat is ---+ it's not inconsequential but it's not a very, very high number at all.
But looking at 2016 was not really the target of what we tried to accomplish with our program.
We approach it in a conservative manner, trying to stay within cash flow using a conservative commodity price.
Frankly, in our range that we used, again, risking our number, though our expectation is Constitution will be a 2016 event.
We have actually not included any volumes in our 2% to 10% range on the production range that we provided in our guidance.
So in looking at what we're able to have rolling out of 2016 with our current capital program and looking at our ability to ramp up in a fairly short fashion, if we wanted to add some incremental capital, we have no question rolling into the end of 2016 and the beginning of 2017, that we're going to be able to fill not only Constitution but also Atlantic Sunrise, which gets us to the 1.35 additional incremental ---+ 1.35 Bcf a day that we expect to be moving in 2017.
Yes.
We're going to need ---+ to grow ---+ the total volume to be incremental, we would have to move the rig count up a little bit.
We would complete additional stages than we have forecast for probably the latter part of 2016.
But I still feel like and if Phil was sitting here, that if we see that everything is staying online in the latter part of 2016, that everything for Atlantic Sunrise is in queue moving towards the September commissioning, that we would be able to meet those volumes, 850 million a day, as incremental volumes with our anticipated 2017 program.
Certainly, we haven't made the guidance on, in release of what our capital program and activity level would be in 2017, but we would be able to meet the September commissioning of Atlantic Sunrise with incremental volumes to where we stand today.
That's right.
Yes.
Okay.
The cost ---+ the 15% drilling completion costs, total well cost reduction is from our average of 2015 cost.
I'm sorry, <UNK>, I didn't get the second part of your question.
We had a slide in our most recent investor presentation.
On the completion side, the majority of the cost is from cost reductions.
On the drilling side, the majority of the cost is from efficiencies.
We have a slightly higher cost on the total well cost in drilling complete.
Completion costs represent a little bit higher percentage of total well cost than the drilling side.
Thank you.
Downside in the sense that we would reduce our capital program.
Yes.
We would manage that, yes.
We would manage that allocation of capital.
We certainly do not want to have capital sitting out in the field that we can't monetize.
So we would probably reduce our exposure, reduce our capital until the appropriate time that we could plan for the commissioning of the pipeline, if we were to see a significant delay in the commissioning.
I wouldn't have expected the approval to occur on Constitution prior to this time.
However, I'm not disillusioned to the extent that we don't expect it to come in a timely manner for our 2016's admissioning.
Well, Atlantic Sunrise is making ---+ I'll let <UNK> weigh in a second, this might be kind of an editorial comment.
But on Constitution, we have been years in discussions, preparation and have fulfilled all of the requests, all the mitigating factors, all of the hurdles that have been brought by the interested parties including the New York DEC.
We have added certainly some of the mitigating factors, added incremental cost to the project.
We had a major reroute of the ---+ that was fine with Constitution to mitigate any watershed issues.
In fact, by that reroute, we improved what we think was any impact.
We have, again, on stream crossings have an extensive plan in place that mitigates any of the concerns about stream crossings.
That has been well-documented by the DEC and now has been prepared into a final document.
So I think everybody is pleased with that effort.
Atlantic Sunrise is in that same process now and having discussions for the mitigation factors and looking at the right of ways to be able to mitigate any concerns that any stakeholders might have at that stage.
I feel comfortable that the outline and the timing of commissioning that we've laid out is going to be met.
<UNK>, you can weigh in.
Yes, <UNK>, probably the biggest difference on the two projects besides just the learning curve aspects of the second project is, the route on the greenfield portion of Atlantic Sunrise is totally in the state of Pennsylvania.
We have a long history of working with the DEP and with the FERC, so I think from a just a simpler project aspect, it's gone smoother so far.
The community outreach portion of the project's been very successful.
The survey permission's and right-of-way acquisitions has been very successful to date.
The project is on schedule.
We're ---+ at this point in time, we look very good in terms of hitting the in-service date.
Thanks, <UNK>.
I appreciate the interest in Cabot.
I know there's some frustration by all of us on our ability to be able to get the infrastructure in place and commissioned and to be able to move the natural gas in support of all those that are looking forward to having it.
I do hope that the takeaway this morning is that Cabot does remain focused in all the right areas.
That is a disciplined focus on the efficiencies and returns while managing our business for the long-term success of the organization.
Additionally, we remain committed to effectively managing those controllable variables that we have in our program and also mitigate the uncontrollables the best as we possibly can.
So again, thank you.
Certainly, I think Cabot has some brighter days out in front of it.
Thank you, Carrie.
| 2015_COG |
2017 | CAH | CAH
#Yes, I probably can't share that level of detail, because it's obviously hard to know, and manufacturers move slightly between month to month quarter to quarter.
So again, I'll just emphasize, January's bigger, the biggest month.
But other than that, <UNK>.
<UNK>, I'd just add to this.
Typically, January's bigger, as <UNK> said.
The other thing that we need to note is it's been an unusual stretch for some time.
And so again, predicting exact ramp behavior is always a little bit tricky.
As you know, years ago it was very, very systematic and today it's a little bit more one-offs.
But I think, as <UNK> said, January typically is a bigger month.
But I think we have to recognize that things are a little bit different and maybe not as predictable, in terms of exactly when things occur, as they might have been five years ago.
Yes, and to answer your other question around generics and being able to execute on that, I think that just depends very differently on how you go to market, the size of that customer, whether it even deserves a repricing, and then how you go about that, how your relationships are with the manufacturers.
So I think that can vary drastically and dramatically between different players in the marketplace.
I know we feel really good about when we combined how quickly we executed.
But I'm not sure I can say that anybody else would go faster or slower than us.
So there are two parts to this.
So let me answer the second part first.
I'm not sure there's a company more focused on the community pharmacy and pharmacy industry in general.
We believe that they're going to be a key player as healthcare continues to evolve.
We have shortages of primary care physicians.
We think pharmacists will and should play a more active role.
We're doing an incredible amount of work through John Jochman's organization to make sure that we are close to them and providing all the solutions and tools that can help them compete in the market, and actually help them provide cognitive care, which we think is very important.
Going back to your first point, I want to make an important note about this, because we've gotten a few questions.
We are a player in oncology and as such, we've been a member of the Community Oncology Alliance.
And as a member of that, we have funded research.
But you specifically referred to a particular project.
We did not direct the research or set the subject.
So it's just important for me to comment on that.
We've had questions about that paper.
We didn't specifically fund a paper on this.
We are basically part of an alliance and that group does research.
But the summary of what I'm describing is our work around community pharmacy and around pharmacy in general is very much a part of what we do, whether it's through generic programs, abilities to help them tie to a hospital system or to a post acute facility or to set up a diabetes center.
We've done a huge amount of work in providing tools to help community pharmacy compete in what is for all of us an interesting and challenging environment.
You're welcome.
Sure.
Thank you, <UNK>, and thanks to all of you for your questions today.
Our organization, just in summary, remains focused on execution, on driving our strategic priorities, on making sure that we are creating, what I would say is again, sustainable value creation for our partners and for patients and for you all.
And we look forward to seeing you all in the near future, and thanks for joining us on the call today.
Thanks, everyone.
| 2017_CAH |
2017 | AAPL | AAPL
#Thanks, <UNK>.
Good afternoon, and thank you for joining us.
Today, we are reporting strong March quarter results with accelerating revenue growth and earnings per share up 10% over last year.
We feel great about this performance.
Revenue was $52.9 billion, near the high end of our guidance range.
Global revenue was up 5% year-on-year with growth accelerating from our December quarter performance.
That's despite a $1 billion year-over-year revenue headwind from foreign exchange in the March quarter and a larger iPhone channel inventory reduction this year versus last year.
iPhone sales were in line with our expectations, and we're thrilled to see the continued strong demand for iPhone 7 Plus with its beautiful large display and dual camera systems.
Our active installed base of iPhones grew by double digits year-over-year, and based on the latest data from IDC, we gained market share in nearly every country we track.
Late in the quarter, we released the stunning (PRODUCT)RED Special Edition versions of iPhone 7 and 7 Plus in recognition of 10 years of our partnership with (RED).
This relationship has given our customers an unprecedented way to contribute to the Global Fund and bring the world a step closer to an AIDS-free generation.
We've seen wonderful customer response to these eye-popping new iPhones.
For the second quarter in a row, our Services revenue topped $7 billion, and it's well on the way to being the size of a Fortune 100 company.
We're very happy to see the deep level of customer engagement with the Apple ecosystem across all of our services.
App Store momentum is terrific with revenue growing 40% year-over-year to an all-time quarterly record.
The number of developers offering apps for sale on our store was up 26% over last year, and we're thrilled to see their success.
We also saw double-digit revenue growth from Apple Music subscriptions and iCloud storage and overall, very strong growth in the total number of paid subscriptions for our own services and the third-party content we offer on our stores.
Paid subscriptions now exceed 165 million.
Apple Pay is experiencing phenomenal traction.
With the launch of Taiwan and Ireland in the March quarter, Apple Pay is now live in 15 markets with more than 20 million contactless-ready locations, including more than 4.5 million locations accepting Apple Pay in the U.S. alone.
We're seeing strong growing usage as points of acceptance expand with transaction volume up 450% over the last 12 months.
In the U.K., for example, points of acceptance have grown by 44% in the last year, while monthly Apple Pay transactions have grown by nearly 300%.
In Japan, where Apple Pay launched last October, more than 0.5 million transit users are completing 20 million Apple Pay transactions per month.
And we're always excited to see our partners bring their customers new ways to use Apple Pay.
You can now even send a Starbucks gift card via iMessage with just a touch.
We're seeing great momentum from our powerful advances in Messages.
In fact, at one point during the Super Bowl in February, customers were sending 380,000 messages per second, more than double the previous year.
A few weeks ago, we introduced Clips, a new app that's another great example of how we're continually making our products even more engaging, and it's off to a great start.
With Clips, it's fun and easy to combine video, photos and music on an iPhone or an iPad into great-looking expressive videos with great visual effects and titles just using your voice, then share your Clips with friends through the Messages app or on social media.
We had great Mac results during the quarter.
Revenue grew 14% to a new March quarter record and gained market share, thanks to strong demand for our new MacBook Pros.
Our Mac business has generated over $25 billion of revenue over the past 4 quarters.
We're investing aggressively in its future, and we are very excited about the innovation we can bring to the platform.
We also updated our most popular-sized iPad with a brighter Retina display and best-in-class performance at its most affordable price ever, and customer response to date has been very strong.
iPad results were ahead of our expectation, and we believe we gained share during the March quarter in a number of major markets, including the U.S., Japan and Australia.
iPad remains the world's most popular tablet, and it's the primary computing device for millions of customers across the globe.
Building on the momentum from the holiday quarter, Apple Watch sales nearly doubled year-over-year.
Apple Watch is the best-selling and most loved smartwatch in the world, and we hear wonderful stories from our customers about its impact on their fitness and health.
We're also seeing great response to AirPods with a 98% customer satisfaction rating based on a recent Creative Strategies survey.
Demand for AirPods significantly exceed supply, and growth in Beats products has also been very strong.
In fact, when we combine Apple Watch, AirPods and Beats headphones, our revenue from wearable products in the last 4 quarters was the size of a Fortune 500 company.
In Greater China, we were very pleased to see strong double-digit revenue growth from both Mac and Services during the March quarter.
We also had great results from our retail stores in Mainland China, with total store revenue up 27% over last year and comp store revenue up 7%.
These results contributed to our improving performance in Greater China.
Through the first 2 quarters of fiscal 2017, our year-over-year comparisons improved significantly over the last 2 quarters of fiscal 2016.
First half revenue was down 13% year-over-year, about 1/3 of which was attributable to FX.
That's in contrast to a 32% revenue decline in the second half of last year.
Our March quarter results were in line with our expectations and similar to the year-over-year performance we experienced in the December quarter.
We continue to be very enthusiastic about our opportunity in China.
We set a new March quarter record for India, where revenue grew by strong double digits.
We continue to strengthen our local presence across the entire ecosystem, and we're very optimistic about our future in this remarkable country, with its very large, young and tech-savvy population, fast-growing economy and improving 4G network infrastructure.
Apple Retail is entering an exciting chapter with new experiences for customers and breathtaking new store designs.
With the opening of our newest store in Dubai this past weekend, we now have 495 retail locations worldwide.
The new Apple Dubai Mall is a truly international store with employees who collectively speak 45 languages and are already welcoming customers from around the world.
As <UNK> will discuss in a moment, today, we're also providing an update to our capital return program.
Given our strong confidence in our future, we're increasing the program size by $50 billion, bringing the total to $300 billion, and we're extending the time frame through March of 2019.
We're adding to our share repurchase authorization and increasing our dividend for the fifth time in less than 5 years.
We're very excited about our upcoming Worldwide Developers Conference taking place in San Jose next month.
The conference is significantly oversubscribed, and we'll be welcoming thousands of attendees.
We look forward to helping them learn about breakthrough technologies across all 4 of our software platforms: iOS, macOS, watchOS and tvOS, that enable developers to create incredible experiences for every aspect of customers' lives and improve the way they manage their homes, cars, health and more.
I'm very proud to mention that we recently released our 10th annual Environmental Responsibility Report reflecting our amazing progress.
In 2016, 96% of the electricity used at Apple's global facilities came from renewable sources of energy, reducing our carbon emissions by nearly 585,000 metric tons.
We're now 100% renewable in 24 countries, including all of Apple's data centers.
There's much more work to be done, but we're committed to leaving the world better than we found it.
Closer to home, we're excited about moving into our new corporate headquarters, Apple Park, our new center for innovation.
The main building on Apple Park is designed to house 13,000 employees under one roof in an environment that fosters even greater collaboration among our incredibly talented teams.
We have many more ongoing investments in the United States economy since Apple is a company that could only have been created in America.
Through our innovative products and the success of our business, we're incredibly proud to support more than 2 million jobs in all 50 states, and we expect to create even more.
Last fiscal year, we spent more than $50 billion in the United States with American suppliers, developers and partners, and we continue to invest confidently in our future.
Now for more details on the March quarter results, I'd like to turn the call over to <UNK>.
Thank you, Tim.
Good afternoon, everyone.
Revenue for the March quarter was $52.9 billion, and we achieved double-digit growth in the U.S., Canada, Australia, Germany, The Netherlands, Turkey, Russia and Mexico.
Our growth rates were even higher, over 20%, in many other markets, including Brazil, Scandinavia, the Middle East, Central and Eastern Europe, India, Korea and Thailand.
Gross margin was 38.9%, at the high end of our guidance range.
That's a sequential increase from 38.5% in the December quarter, which is particularly impressive given the seasonal loss of leverage, sequential foreign exchange headwinds of 100 basis points and cost pressures on certain commodities.
Operating margin was 26.7% of revenue, and net income was $11 billion.
Diluted earnings per share were $2.10, an increase of 10% over last year, and cash flow from operations was strong at $12.5 billion.
For details by product, I'll start with iPhone.
We sold 50.8 million iPhones, and we reduced iPhone channel inventory by 1.2 million units in the quarter compared to a reduction of about 450,000 a year ago.
So our iPhone performance was slightly better than last year on a sell-through basis.
We had very solid iPhone growth in 4 of our 5 operating segments and experienced especially strong results in Western Europe, the Middle East and our Rest of Asia Pacific segment, all areas of the world where iPhone sales were up double digits.
iPhone ASP was $655, up from $642 a year ago, thanks to a strong mix of iPhone 7 Plus and in spite of unfavorable foreign exchange rates.
We exited the March quarter within our 5- to 7-week target channel inventory range.
Customer interest and satisfaction with iPhone are very strong not only with consumers, but also with business users.
In the U.S., the latest data from 451 Research on consumers indicates a 96% customer satisfaction rating among iPhone 7 owners and 98% for iPhone 7 Plus.
Among corporate smartphone buyers, iPhone customer satisfaction was 95%, and of those planning to purchase smartphones in the June quarter, 79% plan to purchase iPhone.
Turning to Services.
We generated $7 billion in revenue, an increase of 18% year-over-year and our best results ever for a 13-week quarter.
We're very happy with this strong level of growth, especially given the tough compare to last year as the busy week between Christmas and New Year's fell within the March fiscal quarter a year ago but was included in the December fiscal quarter this year.
As we said last quarter, our goal is to double the size of our Services business by 2020.
The App Store established a new all-time revenue record and grew 40% year-over-year.
We continue to see growth in average revenue per paying account as well as the number of paying accounts across our content stores during the quarter.
In fact, the quarterly increase in the number of paying accounts was the largest that we've ever experienced.
And according to App Annie's latest report, the App Store continues to be the preferred destination for customer purchases, generating twice the revenue of Google Play during the March quarter.
Next, I'd like to talk about the Mac.
Revenue was up 14% year-over-year and set a new March quarter record.
We sold 4.2 million Macs, up 4% over last year compared to 0 growth in the PC market according to IDC's latest forecast.
Demand for MacBook Pro was very strong, helping to drive overall portables growth of 10%, twice the growth of the portables market.
We ended the quarter at the low end of our 4- to 5-week target range for Mac channel inventory.
Turning to iPad, we sold 8.9 million units, which was ahead of our expectations despite supply constraints throughout the quarter.
We are very pleased to see iPad growth in the U.S. during the March quarter and revenue growth worldwide for our 9.7-inch and larger iPads over the last 4 quarters.
iPad channel inventory was essentially flat from the beginning to the end of the quarter, and we exited just below our 5- to 7-week target range.
iPad remains very successful in the segment of the tablet market where we compete.
Recent data from NPD indicates that iPad had 81% share of the U.S. market for tablets priced above $200.
And in February, 451 Research measured consumer satisfaction rates for iPad that ranged from 95% for the 9.7-inch iPad Pro to 100% for the 12.9-inch version.
Among U.S. consumers planning to purchase a tablet within the next 6 months, purchase intention for iPad was 69%.
Corporate buyers reported a 96% satisfaction rate and a purchase intent of 68% for the June quarter.
All our products continue to be extremely popular and drive mobile transformation in the enterprise market.
We set a new enterprise revenue record for the March quarter, and we expect this momentum to continue for the remainder of the year.
Recently, Volkswagen selected iPhone as their corporate standard smartphone.
So 620,000 employees around the world had the opportunity to enjoy the best-in-class mobile experience that iPhone offers.
And Capital One has reimagined the customer banking experience by empowering their associates with Mac and Apple Watch and over 40 native iOS applications now running on nearly 30,000 iPhones and iPads.
We're also seeing strong momentum with our enterprise partners who are helping us deliver long-lasting innovation and differentiation for iOS versus competing platforms.
The Deloitte partnership is off to a great start with more than 115 customer opportunities in the pipeline across 15 different industries.
SAP released the SAP cloud platform, SDK for iOS, at the end of March, and over 3 million SAP developers now have an even better means to develop powerful iOS-native apps for the enterprise.
The partnership with Cisco enables optimized performance of iOS devices over their networks and is generating a large and growing pipeline of sales opportunities across multiple verticals, including health care and financial services.
And our partnership with IBM continues to drive greater productivity and innovation with IBM MobileFirst for iOS apps now in more than 3,300 client engagements.
And with its Mobile at Scale offering, IBM recently closed an agreement to deploy 11,000 iOS devices at Santander Bank to drive digital transformation.
Our retail and online stores produced great results with strong revenue growth in all our geographic segments and 18% growth overall.
Visitors to our retail and online stores were up 16% over last year, and we added 4 new stores during the March quarter.
And with the opening of our store in Dubai last week, we're now at 495 stores in 18 countries.
Let me now turn to our cash position.
We ended the quarter with $256.8 billion in cash plus marketable securities, a sequential increase of $10.8 billion.
$239.6 billion of this cash or 93% of the total was outside the United States.
We issued $11 billion in debt during the quarter, bringing us to $88.5 billion in term debt and $10 billion in commercial paper outstanding.
We returned over $10 billion to investors during the quarter.
We paid $3 billion in dividends and equivalents, and we spent $4 billion on repurchases of 31.1 million Apple shares through open market transactions.
We also launched a new $3 billion ASR, resulting in initial delivery and retirement of 17.5 million shares.
And we retired 6.3 million shares upon the completion of our ninth accelerated share repurchase program in February.
All these activities contributed to a net diluted share count reduction of 66.3 million shares in the quarter.
We have now completed $211.2 billion of our $250 billion capital return program, including $151 billion in share repurchases.
As Tim mentioned, today, we're announcing an update to our program, which we're extending by 4 quarters through March of 2019 and increasing in size to a total of $300 billion.
Once again, given our strong confidence in Apple's future and the value we see in our stock, we're allocating the majority of the program expansion to share repurchases.
Our board has increased the share repurchase authorization by $35 billion, raising it from the current $175 billion level to $210 billion.
We will also continue to net share settle vesting employees' restricted stock units.
In addition, we're raising our dividend for the fifth time in less than 5 years.
As we know, this is very important to many of our investors who value income.
The quarterly dividend will grow from $0.57 to $0.63 per share, an increase of 10.5%.
This is effective with our next dividend, which the board has declared today, payable on May 18, 2017, to shareholders of record as of May 15, 2017.
With over $12 billion in annual dividend payments, we're proud to be one of the largest dividend payers in the world, and we continue to plan for annual dividend increases going forward.
In total, with this updated program, during the next 8 quarters, we expect to return $89 billion to our investors, which represents about 12% of our market cap at the current stock price.
We expect to continue to fund our capital return program with current U.S. cash, future U.S. cash generation and borrowing from both domestic and international debt markets.
We will continue to review capital allocation regularly, taking into account the needs of our business, investment opportunities and our financial outlook.
We will also continue to solicit input on our program from a broad base of shareholders.
This approach will allow us to be flexible and thoughtful about the size, the mix and the pace of our program.
As we move ahead into the June quarter, I'd like to review our outlook, which includes the types of forward-looking information that <UNK> referred to at the beginning of the call.
We expect revenue to be between $43.5 billion and $45.5 billion.
We expect gross margin to be between 37.5% and 38.5%.
We expect OpEx to be between $6.6 billion and $6.7 billion.
We expect OI&E to be about $450 million, and we expect the tax rate to be about 25.5%.
With that, I'd like to open the call to questions.
Thank you, Katy, a lot of questions.
Let me take one by one.
Let me start with our performance for the March quarter, which we were very happy with.
As you said, we were up 40 basis points sequentially, and this is in spite of the fact, as you know, that we lose leverage as we go from the December quarter to the March quarter.
The foreign exchange headwind on a sequential basis was 100 basis points.
Obviously, that was also a negative.
And as you said, we started to experience some level of cost pressure on the memory side, particularly on NAND and DRAM.
To offset that and actually do better than that, we had very good cost performance on other commodities.
And the fact that our Services mix increases as we go through the year, that is, of course, also helping given the profile of our gross margin for Services.
So that answers the question around Q2.
As we move into the June quarter, as you know, we tend to have some level of gross margin compression as we go from the March quarter to the June quarter.
Again, the majority of that comes from the sequential loss of leverage.
We also have a different mix of products as we move into the June quarter.
And the cost pressures on memory will remain.
We expect to offset partially these impacts with other cost efficiencies and again, with a mix shift towards Services.
Yet, the impact on NAND and DRAM will continue to be there, and we expect it to be there.
You know we don't guide past the June quarter, but we expect it to be there for the time being.
On Qualcomm, I just want to make it very, very clear that we are accruing.
We do not expect to be paying more than what we are accruing right now.
So we didn't get any benefit in our P&L, in our margins during the March quarter, and we're not getting any benefit during the June quarter either.
Yes.
Katy, one of the things that we did not get right was the mix between the iPhone 7 and the iPhone 7 Plus.
There was ---+ wound up the demand was much stronger to the 7 Plus than we had predicted.
And so it took us a little while to adjust all the way back through the supply chain and to bring iPhone 7 Plus into balance, which occurred in this early ---+ this past quarter.
What did we learn from it.
Every time we go through a launch, we learn something.
And you can bet that we're brushing up our models, and we'll apply everything we learned to the next time.
Yes.
Thanks for the question, <UNK>.
We saw in Q2 the ---+ a performance that, combined with Q1 and that formed the first half of the year, was much better than what we experienced in the second half of last year.
And if you look at what was driving that, iPhone 7 Plus, we sold the highest number of Plus models in the first half than ever before compared to 6s Plus or compared to the 6 Plus.
We ---+ also the Mac business did extremely well.
The Mac revenue growth was up 20% in China, and we had extremely strong Services growth during the quarter in China.
As I've mentioned in the ---+ in my comments, our retail and online stores did well overall, and in China they grew by 21%, which is an acceleration from what we had seen in the previous quarter.
And traffic, which, for us, is incredibly important in the retail stores because we do a lot more than sell, traffic was up 27% year-on-year.
And now 7 of our top 10 highest traffic stores in the world are in Greater China.
And so that's the set of things that sort of went in our direction, so to speak.
On the flip side, currency devalued by 5%, and so that's not an insignificant headwind.
And our performance continued to be weak in Hong Kong, which has been hit a bit harder as the tourism market continues to slump.
Also where the iPhone 7 Plus did well, we didn't perform as well on some of the previous generation iPhones.
And so that's sort of the set of things on the plus and minus side.
We did perform about where I thought we would.
In fact, I thought it would be similar to the previous quarter and it was.
What I now believe is that we'll improve a bit more during this current quarter, not back to growth but improve ---+ but make more progress.
And we continue to believe that there's an enormous opportunity there.
And in the scheme of things, our business is pretty large there.
Well, <UNK>, you know how we run our capital return program.
We've been pretty consistent during the last 5 years.
Essentially for the last 5 years, the way we've run the company is essentially to return our free cash flow to our investors.
That's what we've done with the program until now, and the expansion of the program that we've announced today goes in the same direction, right.
We know how much we need to invest in the business.
We will never under-invest in the business.
We're in a very fortunate position that we generate cash beyond the needs that we have.
And given the current capital structure that we have, we decided that until now we return about 100% of the free cash flow to investors.
It's difficult for us to speculate about what might or might not happen.
The program that we're announcing today reflects the current tax legislation in this country.
And there's a lot that still needs to happen there, and we'll see.
Obviously, we will reassess our situation if things change.
I wanted to start off just going back to the 165 million subscriptions and ask Tim or <UNK> if you could comment on the unique number of users there.
And I think you had made a comment, Tim, in your prepared remarks that the average revenue per user is up, or maybe that was you, <UNK>.
But if you guys could just talk about any more color around that average revenue per user, it would be interesting to us.
And then I have one follow-up to that.
Yes.
I'll take it, Rod.
We don't disclose into this number of subscriptions.
Of course, we're just giving you the total count of subscriptions that are out there.
Of course, there are several customers that subscribe to more than one of our services.
There is some level of overlap, but the total number of subscribers is very, very large, obviously less than 165 million.
But it's very good for us to see the breadth of subscriptions that we offer and that customers are interested in.
It's a large number.
And if you remember, we quoted the same number a quarter ago, and we talked about 150 million.
So when you think about a sequential increase of 15 million subscriptions from the December quarter to the March quarter, it really gives you a sense for the momentum that we have on our content stores, right.
It's quite impressive to add 15 million subscriptions in 90 days.
On ---+ as we look at the dynamics that are happening on our content stores and particularly on the App Store, which is the largest, we see fairly consistently 2 things.
We see that the number of paying accounts is growing a lot.
And I mentioned the increase in number of paying accounts that we've had during these last 90 days is the largest that we've ever had.
So there's a very large number of people coming into the ecosystem, experiencing the ecosystem, which is obviously improving all the time in quality and quantity, and then start paying and transacting on the ---+ on our stores.
And that number is growing very, very strongly, strong double digits.
What we're also seeing, as we look at the people that start paying on our stores, we see a pretty common trend over time, and we keep track of that across cohorts of customers, that as people come into the ecosystem and start paying on the ecosystem, we see a spending profile that is very similar around the world.
People start at a certain level, and then they tend to spend more over time.
And so obviously, the combination of people spending more over time and adding more people that are now actually spending on the stores contributes to this 40% growth that Tim mentioned for the App Store on a year-over-year basis.
And then I had a follow-up for Tim.
Tim, I wanted to just ask ---+ the Services revenue keeps growing, and of course, the profit contribution from that is growing.
And we've also, at the same time, I think, seen you maybe a little more aggressive than Apple has been historically in pricing certain key technologies, let's call them, that maybe you want to penetrate the market with.
And I just wonder if you could just comment a little bit on your strategy there in terms of the usage of that extra profit contribution from that Services business, how you intend to apply it to the rest of the business.
Rod, the way that we think about pricing is we come up with a price that we think is a good value for the product that we're delivering, and we do that on the hardware side as well as on the Services side.
And so that's how we think about it.
We're really not thinking about taking profits from one to subsidize the other or vice versa.
Thanks for the question.
We have seen the Watch as a really key product category for us since before we launched it.
And we took our time to get it right, and we've made it even better with the Series 2 offering.
And we're really proud of the growth of the business.
The Watch units more than doubled in 6 of our top 10 markets, which is phenomenal growth, particularly in a non-holiday quarter.
And so we couldn't be more satisfied with it.
When ---+ as some people are doing, when you begin to combine that ---+ combine the Watch revenues with the revenues for AirPods, this was the first ---+ as you know, this is the first full quarter of shipments for AirPods, but it's still very much in the ramping mode.
And we're not coming close to satisfying the demand.
And then add the Beats products that our ---+ a group of our customers really enjoy as well and look on the trailing 12 months.
So this is not a forecast.
That business was well into the Fortune 500.
And so as I look at that, that's pretty fast to come that far.
The Watch hasn't been out very long, and AirPods have been out there for 3, 4 months.
And so we feel really great about it.
Where does it go.
I wouldn't want to comment on that, but we do have a really great pipeline here.
And I think in terms of competition falling out and so forth, it's ---+ the watch area is really hard.
It, in essence, from an engineering point of view, is similar to a phone in terms of the intricacies and so forth.
And so it's not ---+ I'm not very surprised that some people are falling out of it.
But we're very committed to it and believe that ---+ it's already a big business and believe over time it will be even larger.
I only glanced at it, and so I haven't had time to study it.
But in general, what we are seeing, we're seeing what we believe to be a pause in purchases on iPhone, which we believe are due to the earlier and much more frequent reports about future iPhones.
And so that part is clearly going on, and it could be what's behind the data.
I don't know, but we are seeing that in full transparency.
The ---+ anyone that has a standards-essential patent has a responsibility to offer it to everyone that would like it under what is ---+ are called FRAND terms.
FRAND stands for fair, reasonable and nondiscriminatory terms.
That's both the price and the business terms.
Qualcomm has not made such an offer to Apple, and so I don't believe that a ---+ I don't believe anyone's going to decide to enjoin the iPhone based on that.
I think that there's plenty of case law around that subject.
But we shall see.
In terms of why we're withholding royalties, you can't pay something when there's a dispute about the amount.
You don't know how much to pay.
And so they think we owe some amount.
We think we owe a different amount.
And there hasn't been a meeting of the minds there, and so at this point, we need the courts to decide that unless we are able to, over time, settle between us on some amount.
But right now we're depending upon the courts to do that, and so that is the thinking.
The reason that we're pursuing this is that Qualcomm's trying to charge Apple a percentage of the total iPhone value, and they do some really great work around standards-essential patents, but it's one small part of what an iPhone is.
It's not ---+ it has nothing to do with the display or the Touch ID or a gazillion other innovations that Apple has done.
And so we don't think that's right.
And so we're taking a principled stand on it, and we strongly believe we're in the right.
And I'm sure they believe that they are, and that's what courts are for.
And we'll let it go with that.
A lot of questions there.
Let me give you some color as I see it.
In this quarter, we reduced channel inventory by 1.2 million units.
And so if you look on a year-over-year basis, which is primarily what we look at from a unit point of view because it would have the seasonality embedded in that, we grew sell-through on a year-over-year basis.
Last quarter, I'm sure other folks remember, was a 14-week quarter, and so you sort of have to adjust the rates last quarter to get at what the underlying sell-through growth was.
And so I think that when you do that, you're going to find that, actually, the year-over-year performance is similar between the quarters.
In terms of upgraders, we saw the largest absolute number of upgraders ever in any 6-month period in the first half of this year, first half of this fiscal year to be precise.
And we saw the largest absolute number of switchers outside of Greater China in the same period that we've ever seen.
And so in 4 of the 5 operating segments, as I think <UNK> mentioned in his comments, we had very good growth, and it was really propelled by the demand for iPhone 7 Plus, which is growing incredibly fast around the world.
And so that's kind of the color I would add there, and hopefully, some of that are ---+ is useful for you.
As you know, <UNK>, we do not provide guidance around units and around channel inventory reduction, but our goal is always to have the right amount of weeks of inventory in the channel.
And if you look at our history over the last several years, we have fairly consistently reduced channel inventory in the June quarter, so I think it's a fair expectation to have.
We make it a point not to forecast by geo.
We just provide a current quarter forecast.
But as hopefully you've seen, as we began to give you more information about India, we've been investing quite a bit.
We have a ton of energy going into the country on a number of fronts.
And it is the third-largest smartphone market in the world today behind the ---+ China and the United States.
And so we believe, particularly now that a ---+ the 4G infrastructure is going in the country and it's continuing to be expanded, there is a huge opportunity for Apple there.
And so that's ---+ that and the demographics of the country is why we're putting so much energy there.
Well, we think it's a great opportunity too, and so we're bringing all the things that we've brought to bear in other markets that we've eventually done well in.
And that's from channel to stores to our ecosystem and so forth.
Phil was just over there opening a developer center last quarter.
And so there's a ---+ there are a ton of things going on there.
And we agree that we are underpenetrated there.
Our growth rates are good, really good in ---+ by most people's expectations.
Maybe not mine as much.
And so we're putting a lot of energy in it, just like we have in other geos that eventually wound up producing more and more.
And so I'm very excited about it.
The 4G network investment really began rolling in, in a significant way toward the last quarter of last year, as you know, and ---+ but they are moving fast.
They're moving at a speed that I have not seen in any other country in the world once they were started.
And it is truly impressive.
| 2017_AAPL |
2016 | KO | KO
#We certainly did well in a number of the categories, particularly some of the premium categories.
What was a little weaker in this quarter was some of the juice businesses and some of the tea businesses, which are not as high value to us.
So that is what netted out on the 2%.
What you think ---+ what I think you see is over the year, you see very strong growth in Vitamin Water, in sports drinks, and some of the other categories, as well, so I think it is a broadening of the portfolio, a focus on innovation, but yet there's some head winds on juice, linked somewhat to commodities.
Sure, good morning, <UNK>, <UNK> here.
Look, North America, I think is a combination of many, many things.
I mean it has I think been the result of a number of years working on multiple fronts.
Working on innovation across the portfolio, getting into categories, refining the propositions, learning, refining the propositions.
It is about, in the sparkling business, the better marketing, the more media spend.
It is about the focus on the pricing and packaging architecture, with more smaller packages, and it is about getting the execution right.
It is the refranchising, bringing new excited bottlers in.
In the end this is a result that has been built by a great team of people, who have been very focused over a number of years about regenerating growth in the North American business.
As <UNK> said, they have had six very solid quarters of volume and revenue growth.
And I think there are a lot of learnings.
There is no silver bullet, but there are a lot of learnings.
Having said that, Japan has also been on a good run, the past three quarters are very good volume growth, you know, doing well on offsetting deflationary pressure.
Again a similar story.
The team is very focused on a multiple category approach, innovation in the products, increasing the quality and quantity of the marketing.
But always in parallel and in alignment with the bottler where you got to get better execution.
Good marketing on its own is not going to get you the answers.
There's got to be more and better marketing along with more and better execution.
I think that's you see.
And to some extent, Western Europe, that kind of came, new Coca-Cola European partners came well out of the stables on the first quarter.
I think the formula is going to be the same.
More and better marketing.
More and better execution.
And a multilane focus on categories and cranking out the learning, the [trying stuff], the innovation, and pushing ahead.
And I think that is something we are going to continue to press across the developed markets.
Now, turning to China, I think China, again, I don't think, if I gave the impression it was all weather, that would be unfair to the team on the ground in China, and the system there.
They have done a lot of work to address the big change in how the consumer responded to the economic circumstances in China.
I think part of it is, you know, it is a part of the world that has had such consistent growth rates over the last decade, but a little bit of a slowdown maybe towards some exaggerated pull-back on spending, so I think there is a little bit of stabilization coming through in the macros.
We saw that.
We have definitely taken action in the things that we can control.
Not just in the commercial policies, to strengthen the wholesaler and distributor network and working through the inventory problem, but also on the pricing and packaging.
To give you one example, a very small example, but it is symptomatic of how fast China can change.
If you go to the cafe channel in China, all of the noodle shops up and down the street, people go there at lunchtime.
Last year they were packed with people.
This year, you go, they are a third empty.
You go okay, maybe the economy slowed down.
No, that's not what is happening.
The explosion of online to offline ordering and the availability of lots of people on bikes and motorbikes to deliver stuff and the apps the aggregate wraps to buy food, it has been an explosion of ordering online and delivery food.
Such that there's just as many people buying from these cafes, but sometimes in some parts of China, a third of it is being delivered to people, whether it is work or to students, so we have to adapt that packaging.
Having a returnable glass bottle in that cafe doesn't help you with offline delivery.
So we have had to revamp the packaging offer so we are there with the right package to go where the consumer is going.
That is a micro example of the sorts of thing we have had to do in China to adapt to how the market is changing and is contributing to the stabilization.
But it is as I said, a country undergoing change in its economic model and that will throw up new and different consumer behaviors to which we will have to adapt.
Hi, <UNK>, it is <UNK>.
Look, we have had a much better run in the Philippines in the last few quarters, actually, strong numbers the first three quarters.
This year actually, last year, was three very strong quarters as well; so I think since FEMSA has been in, there they have built on the work that [BIG] did, they have gone about fixing the fundamentals.
There were some fundamental structural stuff that still needed to be improved and I think they grasped that in the early days an we are starting to see the benefits of that coming through in the last six quarters.
Again, it is not silver bullet stuff.
It is not too complicated in the sense of, you know, it has been about adapting the price package architecture, it is about some of the emphasis on of some of the sparkling brands in the Philippines, some of the local brands that we de-emphasized and re-emphasized some of the more global brands and the stronger local brands, rebuilding and continuing to construct a more solid distributor network.
Obviously Philippines is complicated given all of the islands and the issue of moving product around.
I think they have kind of worked the system in terms of getting the thing nicely oiled in terms of the cogs so the product could get everywhere, backed up with a little more marking and a little sharper focus on certain categories and I think that's played through.
I think the team on the ground has done a good job of taking the performance to a higher level.
Good morning.
Hi, <UNK>, this is <UNK>.
First, let me just say that over the last four or five years, we have been actually working really, really hard to reconfigure the Japanese bottling system.
We had 13 bottlers what, back five years or six years ago, and now we are working towards having 85% of the total business in Japan, which as you know is a very large business for us, under one roof.
And I think that [itself] first, and without looking outside, without looking anywhere, it is a huge re-architecture that is yielding substantial savings, and we can redeploy that into being, into route to market, into ways we actually get our products the most effective efficient way to the customer, and through the customer to the consumer in Japan.
Regardless of any encouragement from the outside, we are on track to end up in a very efficient, very 21st century bottling system and consumer goods delivery system in Japan that is working well Now, are there other communities, as that is just not related to cost savings.
And yes, there has been early, very early discussions in Japan.
I can't say any more than that and we will continue to look at opportunities to see if we can even make our Japanese system even stronger.
But that is very early days, again, in terms of the level of discussions that have taken place.
Good morning, <UNK>.
Sure, let me say a couple of thoughts, and then <UNK> will give you some comments on the margin.
Look, the stills, if I can say one thing, which is the stills is not a category.
It is a combination of many different categories and even those categories re-segment between premium, mainstream, and more affordable.
And so what we are focused on doing, as we invest in the stills business, is yes growing in aggregate, in top line numbers, but we are being selective on focusing on those places where we think we can generate a better return in the long term.
It is not a growth of bulk water.
It is a focus on where is the consumer demand, what is on trend, and if you just pick out a couple of things that are on trend, things like coconut waters, or premium juices or premium ready to drink coffees, these are all very high revenue products.
<UNK>, do you want to talk about the margins.
Sure.
Hi, <UNK>.
You are going to see some impact on margins, but mostly initially, because as we are going into these businesses, whether we are developing them internally or whether they are through bolt-on acquisitions, they do have a margin impact.
But then as we get scale, as we continue to work on the supply chain, et cetera, we do start to improve the margins.
So I would say the initial issue for margins and then over time, we are able to do things that will improve the margin impact.
But initially, yes, as a category itself, a lot of these stills have higher cost of goods ---+ they have higher revenue but higher cost of goods, so that does impact margins.
Sure.
<UNK> here.
Look, I think it is important to say that the premium opportunity in China is big, but it is not as big as the mainstream opportunity.
We are absolutely focused on investing in that premium opportunity.
It is very much about the big cities, the white collar.
It is going to be also about some of the premium parts of the still categories.
We are going to go after that.
But in the end, the biggest mass of consumers, the biggest mass of disposable income will be in the mainstream.
So it will have to be a combination, of yes, addressing the premiums, but also going after the mainstream with the greater affordability, expanding the distribution reach, upgrading the execution into the third tier cities and in the rural areas, that is also going to be a big driver of our revenue.
In terms of the categories, I think what has been going really well, by example, is we have taken an approach of premiumizing our water business in China.
One of our most recent billion dollar brands, Ice Dew, comes out of China.
Effectively, we are driving the business from ---+ in the end ---+ a one RMB price point to a two RMB price point.
That is one of the biggest drivers of growth, is the water at the two RMB.
The places where we have taken ---+ had a little tougher time is perhaps in the juice category, with sparkling in the middle.
Again, when you look at what is growing in terms of the categories, what you do see is it maps quite closely to the consumer segments in terms of who is suffering and who is not suffering in terms of disposable income.
The juices, the kind of ambient, more going to the rural areas, have been hit a little harder.
The premium waters which are perhaps more in the cities have been doing well.
And on the second question about the structural impact, so we will obviously give more information on 2017 later, as we get closer to the beginning of the year.
But I will say that in the ---+ particularly in the North America refranchising, the impact will be significant in 2017, because as we are moving to get all of the refranchising completed in 2017, that is, we will be moving more than we have moved in all of 2015 and 2016 combined.
So it will be a large impact in 2017, and we will work to give you all more color on that later in the year, or early 2017.
And as far as 2018 is concerned, the refranchising will be done, but it will be ---+ the impact will be basically the cycling of it, obviously the timing of these transitions will be significant, not only to 2017 but also the impact it will have on 2018.
And then we have some costs that we have to get out in 2018 that we will be working to get out in early 2018, that will be basically a function of the refranchising as well.
So we will give you more color as time passes.
Thank you, <UNK>, <UNK> and <UNK>.
We are working aggressively to evolve our sparkling strategy and expand our brand portfolio in order to address changing consumer preferences.
And we are on track with transforming our company to a higher margin, higher return business, focused on building strong brands, enhancing customer value, and leading a strong dedicated global franchise system.
Looking forward, we remain confident that the long-term dynamics of our industry are promising, and we absolutely believe that the Coca-Cola Company is well positioned to deliver long-term value to our shareholders.
As always, we thank you for your interest, your investment in our company, and for joining us this morning.
| 2016_KO |
2017 | UTX | UTX
#Thanks, <UNK>
I'm on slide 4. I'll be speaking to the segments at constant currency as we usually do
And as a reminder, there's an appendix on slide 12 with additional segment data you can use as a reference
Otis sales were $3.2 billion in the quarter, and that was up 2% organically
Operating profit was down 7% at constant currency
Contribution from higher volume and productivity was more than offset by continued pricing and mix pressure, predominantly in China as well as strategic investments in service and E&D
Foreign exchange translation was a 1 point tailwind to sales and earnings
New equipment sales were up 2%
Low-double digit growth in Europe and high-single digit growth in North America were largely offset by a 10% decline in China, where the market and environment remains challenging
Service sales were up 5%, including the benefit of acquisitions
Otis saw solid growth in modernization and repair, while maintenance sales were up low-single digits
New equipment orders were down 4% in the quarter
25% growth in Europe was more than offset by a decline of 24% in North America, which had a tough compare, as well as declines in Asia excluding China
In China, orders were flat in dollar terms, with unit orders up 8%
Full-year expectations for Otis remain unchanged
We continue to expect operating profit to be down $125 million to $175 million at actual FX
Climate, Controls & Security grew sales 6% in the quarter
Operating profit grew 5%
FX translation was a 2 point tailwind to sales and a 1 point tailwind to earnings
CCS grew 4% organically in Q3, with growth in every major product segment
Commercial refrigeration was up 11% and transport refrigeration grew 8%
Residential HVAC was up mid-single digits, despite lower cooling degree days in the quarter
Global commercial HVAC was up 4%, with strength in the Americas and Europe more than offsetting weakness in Asia and the Middle East
Total equipment orders at CCS were up 2% in the quarter, primarily driven by 7% growth in global commercial HVAC
This is the first quarter of orders growth in the Middle East since Q3 of 2015. Commercial refrigeration orders grew high-single digits, offsetting a 10% decline in transport refrigeration
Residential HVAC orders were down 3% after seeing double-digit growth in the first half of the year
Global fire and security orders were up 2%
Organic volume contribution in the quarter was mostly offset by price and mix headwind
Productivity gains from restructuring and product cost reduction delivered 4% profit growth at constant currency
For the full year, we remain confident that CCS will deliver low to mid-single digit organic sales growth and that operating profit growth will be at the low end of the $100 million to $150 million range at actual FX
Turning to Aerospace on slide 6. Pratt & Whitney sales were strong, up 15% organically in the quarter
Total commercial OEM sales were up 31% and that was primarily due to higher Geared Turbofan deliveries and favorable mix on legacy programs
Pratt & Whitney Canada OEM shipments were down
Commercial aftermarket sales were up 11% on continuing V2500 strength
Sales at the military engines business were up 14%, benefiting from higher F135 and tanker deliveries, aftermarket strength and development revenues
Pratt & Whitney operating profit of $423 million was up 2%
Drop-through from the commercial aftermarket and higher military sales, as well as favorable FX and pension, was mostly offset by higher negative engine margin and ramp-related costs as well as the impact of lower Pratt & Whitney Canada shipments and a customer insolvency reserve
As <UNK> mentioned, Pratt has increased the allocation of GTF production to the spare engine pool, which reduces total negative engine margin
This, along with the higher commercial aftermarket volume, leads us to expect full-year operating profit to be down $125 million to $175 million, but likely closer to the $125 million end of the range
And that's an improvement over prior expectations
So, before I move onto Aerospace Systems, just a note; the shift toward spare engines will also negatively impact corporate eliminations as UTAS inter-company profit on GTF completions is eliminated at the corporate level
Turning to slide 7. Aerospace Systems delivered 4% profit growth on flat organic sales
Commercial OEM sales were down 6%, driven by declines in legacy program volume that more than offset growth on new programs in the quarter
Of note, the end of the Boeing 777 landing gear production at Aerospace Systems impacted commercial OEM sales in the quarter by approximately 4 points
Commercial aftermarket was up 11% and was driven by nearly 30% growth in provisioning
Parts were up 2% while repair was up 8%
Military sales were down slightly in the quarter
Operating profit growth was driven by drop-through on higher commercial aftermarket sales, continued cost reduction and pension tailwind
These benefits were partially offset by unfavorable OEM volume and mix
A favorable customer settlement in the quarter offset the absence of a prior year gain from the sale of a non-core asset
With solid year-to-date results at Aerospace Systems, we continue to expect operating profit to be up $50 million to $100 million for the full year and likely toward the high end of the range on low single digit organic sales growth
And with that, I will hand it back to Greg
<UNK>, it's a product of both higher volumes and shop visits on the V2500, really good content there as well
The 4s and the 2s, the legacy models, they continue to be in attrition mode and the shop visits were down as we expected, but we saw a bit higher content on our legacy models than we had expected
Some higher life-limited part replacement by some operators that's driving that strength
And as we talked about earlier in the call, some of those going to pull through
| 2017_UTX |
2015 | CRS | CRS
#Yes, I think it is more the latter.
We think aerospace ---+ we know aerospace is going to the consistent for us.
We are like everyone else trying to understand where the bottom is on energy on our two different businesses.
We're looking at ways to offset that as we move into other markets.
We see the medical market doing better for us.
That is relatively small.
But still obviously, a very good margin business for us.
So I think it's quite frankly, <UNK>, more the better as we take away quarter by quarter through this year.
Well I will tell you it this way.
I would normally never call that out, because any type of inventory valuation changes, that's part of your numbers whether they're positive or negative, and if it was negative it shouldn't be excluded.
The only reason I mentioned it is because you saw our PEP business be relatively flat quarter over quarter from an operating income.
I would tell you this, if you would exclude that, you would have seen the type of decline in PEP that we had guided to last quarter, which was around 25%.
And that way you can do the math and get the feel for that edge, it's is in that $2 million to $2.5 million range.
Yes.
Let's just call that $2.5 million.
We know that is not going to repeat and then we have the normal ---+ the other items that we gave you on the slide.
For us we are ---+ some of the news that you're seeing out there, remember we play in the top end of this market and especially steel market.
We do not participate in those lower commodity areas, so therefore that's not an impact for us.
Well, I have to say on our backlog if you look at ---+ let's say from a revenue basis right now whether it's year-over-year or sequential.
It is down slightly, but almost all of that is driven by energy market, right.
Our aerospace backlog is going to be up, a little down, but it's pretty consistent at least it has been over the last several quarters.
But the main driver for our backlog now is energy and some on the industrial side as well, as we move, selectively move out of that market, and move more into the higher-end automotive side.
So our backlog is going to move around from quarter to quarter; as I said right now the main driver is energy.
Yes I think it's going to be ---+ there is a wide range of what folks say out there, we look at as it going to be in that 2% to 3% or that type of range, that's what we've planned for.
And if it's a little bit more than that, that'll be great, but from our planning standpoint that's what we are looking at.
Certainly we have seen some of that on the energy side.
Right.
And we are being very selective on what those trade-offs are.
But we've not seen a significant evidence of that in our ---+ that that has been bleed over into our other markets.
No, that's contemplated in our outlook right now.
We don't perceive it.
Well, I will just say that our immediate customers saw that, so I will the that to them; we supply to a broad range of folks.
Well, I think it was probably, to be quite frank, probably more specific to Boeing.
Thanks <UNK>.
Thanks for the question, <UNK>.
Joe Haniford is not here with us today we wouldn't allow him to be here, he's out in the plant, so he was in Athens earlier this week, and he's on his way to Latrobe today.
So that's where his expertise will help.
Joe has had a 30-plus year career in this industry and operations in commercial.
He brings a wealth of knowledge to us, and ideas, he's been very well received.
I think he's in his third week right now so we're looking forward to that.
On the commercial side, Brian starts on Monday and again, we have got a very workforce and we are trying to supplement that with some key external hires that bring sometimes a different view and some different experiences that we can leverage and take this company to the next level.
And from a strategic standpoint you're not going to see any drastic changes from me.
We've got our marching orders on where we think we add value with our customers.
We believe we have capabilities and products that others don't.
And we are going to make sure that we leverage those to the best of our ability.
That's the key for us.
And we know there are areas where we need to improve on to make sure that we maintain that position.
Thanks <UNK>.
That's very exciting, it's right across the street from our Athens facility.
We are in startup mode right now with that facility.
And are very excited about the potential there to supply super alloy powder into the engine market.
As you know, we have an agreement with <UNK> & Whitney.
We are very excited about that.
And we have other possibilities there as well.
So that is an area where the market is moving and we are at the very beginning of that and we think going forward we will remain a leader in that area.
Thank you.
Thank you again for participating on today's call.
We look forward to speaking with you again next quarter.
Thank you and goodbye.
| 2015_CRS |
2018 | CHE | CHE
#Thank you, <UNK>.
Good morning.
Welcome to Chemed Corporation's First Quarter 2018 Conference Call.
I will begin with highlights for the quarter, and <UNK> and Nick will follow up with additional operating detail.
I will then open the call up for questions.
What a great start to the year.
Our first quarter of 2018 had excellent operational performance, margin improvement and overall financial results in both of our operating segments.
In the quarter, Chemed generated $439 million of revenue, an increase of 8.2%.
Our consolidated net income in the quarter, excluding certain discrete items, generated adjusted per diluted share of $2.72, an increase of 49.5%.
Both VITAS and Roto-Rooter performed well, exceeding the high end of our key operational and financial estimates.
VITAS admissions, excluding the Alabama site closure in 2017, increased 4.7% in the quarter.
And an Average Daily Census expanded to 6.6%.
And our adjusted EBITDA, excluding the benefit from Medicare Cap, increased 11.6%.
Roto-Rooter continues to show excellent results in our core plumbing and drain cleaning service segments as well as strong growth in water restoration.
This resulted in Roto-Rooter having record first quarter 2018 revenue and profitability.
With that, I'd like to turn this teleconference over to <UNK> <UNK>, our Chief Financial Officer.
Thanks, <UNK>.
First, I need to take care of some housekeeping matters.
As most of you are aware, effective January 1, 2018, the Financial Accounting Standards Board, or FASB, mandated certain changes in revenue recognition under Generally Accepted Accounting Principles, otherwise referred to as GAA<UNK>
For Chemed, this accounting standard mandates the reclassification of certain costs within the 2018 income statement when compared to prior-year formats.
These reclassifications have zero impact on EBITDA, adjusted EBITDA, pretax income or net income.
These reclassified expenses do impact comparative analysis between years on certain metrics, such as gross margin, since these accounting standard ---+ this accounting standard was adopted on a modified retrospective basis.
Our 2017 operating results were not restated and are reported using historical revenue recognition accounting standards.
This resulted in the reclassification of net room and board expenses, associated with certain Medicaid patients residing in nursing homes to be reclassified from cost of services to revenue, effectively reducing VITAS revenue and cost of sales by approximately $2.6 million in 2018.
In addition, uncollectible accounts receivable, commonly referred to as bad debt expense, has historically been included in selling, general and administrative expenses for both VITAS and Roto-Rooter, and these are now netted in service revenue and sales or a contra revenue account.
This reduced revenue and selling, general and administrative expenses by approximately $4.6 million in the quarter.
The discussion and analysis of operating results on this conference call as well as in our first quarter 2018 earnings release narrative does reclassify net 2017 room and board and estimated uncollectible receivables to facilitate analysis of operating results in a format consistent with the 2018 revenue recognition accounting standard.
With that said, let's talk about the quarter.
In the first quarter of 2018, VITAS net revenue was $292 million, which is an increase of 5.5%, when compared to the prior year period.
This revenue increase is comprised primarily of geographically weighted average Medicare reimbursement rate increase of approximately 0.7%, a 6.1% increase in Average Daily Census and a reduction in Medicare Cap that increased revenue 0.6%.
This growth is partially offset by acuity mix shift that negatively impacted revenue growth by 1.8 percentage points, when compared to the prior year period.
In the first quarter of 2018, VITAS reversed $1.8 million in Medicare Cap billing limitations recorded in the fourth quarter of 2017, all of which relates to the 2018 Medicare Cap billing period.
At March 31, 2018, VITAS had 30 Medicare provider numbers, 2 of which have a current estimated 2018 Medicare Cap billing limitation of approximately $616,000.
Of VITAS's 30 unique Medicare provider numbers, 27 of these provider numbers have a Medicare Cap cushion of 10% or greater, 1 provider number has a cap cushion between 5% and 10% of revenue and 2 provider numbers have a Medicare Cap billing limitations for the 2018 Medicare Cap period.
VITAS's average revenue per patient per day in the quarter was $189.76, which is 1.2% below the prior year period.
Our routine home care reimbursement and high acuity care averaged $163.53 and $706.24, respectively.
During the quarter, high acuity days of care were 4.8% of total days of care, and this is a 60 basis point reduction, when you look at the prior year quarter.
The first quarter of 2018 gross margin, excluding Medicare Cap, was 21.7%, which is a 97 basis point improvement, when compared to the first quarter of 2017.
And our routine home care direct patient care gross margin was 52.1% in the quarter, which is an increase of 80 basis points when compared to the first quarter of 2017.
Direct inpatient margin in the quarter was 7.5% and compares to a margin of 5.9% in the prior year.
Occupancy of our 28 dedicated inpatient units averaged 72.2% in the quarter and compares to 71.4% occupancy in the first quarter of 2017.
Continuous care had a direct gross margin of 17.7%, an increase of 210 basis points when compared to the prior year.
Average hours billed for a day of continuous care was 17.2 in the quarter, which is a slight decrease compared to the 17.7 average hours billed for a day of continuous care in the first quarter of 2017.
Now let's take a look at the Roto-Rooter segment.
Roto-Rooter's plumbing and drain cleaning business generated sales of $147 million for the first quarter of 2018, an increase of $24.7 million, or 20.2%, over the prior year.
Revenue from water restoration totaled $27.7 million, which is an increase of $9.6 million, or 53.3%, compared to the prior year.
Commercial drain cleaning revenue increased 7.7%, commercial plumbing and excavation revenue increased 15.3%, and commercial water restoration grew 40.7%.
And overall, our commercial revenue increased 13.4%.
Residential drain cleaning increased 13.6%, plumbing and excavation increased 22.7%, and residential water restoration expanded 55.5%.
Overall, aggregate residential sales increased 26.3%.
Our first quarter 2018 operating results did outperform our internal projections.
However, we are reiterating our earnings guidance issued in February 2018, and we'll provide an updated guidance when we report our second quarter 2018 operating results.
I'll now turn this call over to Nick <UNK>, Chief Executive Officer of VITAS.
Thanks, <UNK>.
VITAS continued our solid performance in the first quarter, both financially and operationally.
Our Average Daily Census in the first quarter of 2018 was 17,209 patients, an increase of 6.6%, excluding Alabama, over the prior year.
Total admissions in the quarter, excluding Alabama, were 18,279, an increase of 4.7%, when compared to the first quarter of 2017.
During the quarter, admissions generated from hospitals, which typically represent roughly 50% of our admissions, increased 0.7%.
Home-based admissions increased 11.3%.
Nursing home admissions increased 2.9% and assisted living facility admissions increased 3.6% in the quarter.
Our per patient per day ancillary costs, which include durable medical equipment, supplies and pharmaceutical costs, averaged $14.47, and are 4.4% favorable when compared to the $15.14 that we had for the cost of these items in the prior year quarter.
At the end of the first quarter, our inpatient care consists of 26 active units as well as contract beds.
We evaluate inpatient capacity on a market-by-market basis to ensure these facilities are appropriately positioned to meet the needs of our patients in every community we serve.
We currently have a few new units in development as well as few a new contract bed arrangements, where we plan on servicing patients in 2018.
As Dave mentioned, we were able to continue our general inpatient margin performance in the quarter with a 160 basis point improvement over the prior year.
Within continuous care, we continue to focus on labor management, specifically related to appropriate nursing to aide staffing assignments and the appropriate utilization of outside nursing agencies based upon the patient's location and individual needs.
These efforts improved our continuous care margins 210 basis points when compared to the first quarter of 2017.
VITAS's average length of stay in the quarter was 87.9 days and compares to 88.7 days in the first quarter of 2017.
Medium length of stay was 15 days in the quarter and is equal to the prior year quarter.
Medium length of stay is a key indicator of our penetration into the high acuity sector of the market.
With that, I'd like to turn this call back over to <UNK>.
Thank you, Nick.
I will now open this teleconference to questions.
<UNK>, this is Dave <UNK>.
It exceeded our expectations.
I think the Street was a little light overall.
I mean, we ---+ when we gave our guidance for 2018 in February, I think everyone ---+ most of the analysts moved up their numbers, but probably not enough.
And then from our standpoint, we really hit it out of the park operationally in terms of the metrics, in terms of our call volume, our Roto-Rooter, job count increase across commercial, residential plumbing and drain cleaning.
So yes, that was strong across the board, and VITAS just did a phenomenal job of both growing census more than we thought they could, admissions more than we thought they could and a great cost-control quarter.
It would ---+ I would say equally spread, but for us, the (inaudible) there were no misses in the quarter.
Everything showed strong sustainable growth on the areas that we care about that exceeded our high end of the expectations.
<UNK>, it's going to have a few thoughts on this.
But what I would say is water restoration continues to show strength as we continue to hire feet on the Street to respond almost on a triage basis when there is a water problem at a customer's home and that's giving us continued outside ---+ outsized growth as we convert plumbing and drain cleaning jobs into additional water-restoration work.
At some point, there has to be a precipitous drop in that growth rate, but right now, we don't see it.
And <UNK>, what I would say, one way of what Dave is saying is because of the fast growth rate through the last year at water restoration, almost by definition, our budget was a little front-loaded, particularly on Roto-Rooter, just for ---+ if you just do the math on a company that grew as fast as water restoration did last year.
But the answer to your point, it's hard to say.
At the end of the second quarter, what we use is trend analysis.
And if the ---+ so if the current trends are the same, it will be certainly a number north of 11, let's put it that way.
And $11 a share that is.
But until we get there, we like to be accurate.
We got ---+ we over the last 3 years in a row, I think, we ---+ 4 years in a row, we revised guidance at the end of the second quarter.
And that's allowed us to come within much narrower parameters.
So that's what ---+ that's the answer I would suggest.
Yes, no problem.
<UNK>, this is Nick.
I'll take that one.
I would say there isn't anything we're necessarily seeing out in the market itself.
I think some of our methodical approaches towards improving not only our admission processes, but also some of our sales and marketing processes and really, the education and messaging we're starting to see and reap some of the results associated with that.
We've talked about it a few quarters occasionally.
Admissions is a barometer related to the business, but sometimes it receives, to a certain extent, an unnecessary amount of attention.
One of the things we want to continue to look on ---+ look at is continued senses growth corresponding with some of those admissions, because, as you are aware, many of those patients that come on could have a very large range of discrepancy regarding total length of stay for those types of patients.
So we feel comfortable with the continued performance.
It's a result of a methodical approach for continued improvement.
And would expect a degree of consistency inside of this range consistent with our guidance.
Thank you all for your attention.
And we're excited here after a good quarter like that.
And we'll expect another similar call 3 months from now.
Thank you.
| 2018_CHE |
2015 | MSFT | MSFT
#First of all, I don't think of the comparison between Azure and AWS is the true north for me.
I think about the Microsoft cloud, because even the way we do capital, the way we measure utilization, is all with the complete unit, which is, of course, all of Office 365 runs on Azure.
Azure AD powers all of our cloud, so it's really its entirety that we think of as our unique value.
That means we have SaaS, which is a huge component between 365 and dynamics, PaaS which is a huge component of Azure itself.
We see many customers who use our PaaS services and even AWS.
For example, you can in fact do a single sign-on using EMS and Azure AD in Azure and use your resources on AWS.
Then, of course, we have our IaaS business.
That's how we think about it.
Then it is reflected even in our margins.
We look at the cloud margins, they will have revenue quality which is very different that is a combination of PaaS, IaaS, and SaaS, and that's how we want to make sure we make progress, because that is where both product value which is unique to us, and also the quality of revenue that is unique to us.
But one other thing ---+ my worldview is not that all compute storage networks just go to one place.
That's why I think about servers as the edge of the cloud and as I said there's a huge software asset in there, which is becoming increasingly competitive.
Of course, we don't count that in our run rate, when we talk about the $6 billion-plus run rate, that's pure public cloud number and that's fantastic to see and we want to measure it that way.
But, quite frankly if you looked at what is broadly happening in the cloud transition, we are participating in both the private hybrid cloud as well as the public cloud.
We will continue to talk generally about it.
I don't expect to get a specific guidance on FY16 next week.
I'll start.
I think as far as the low-cost devices, it's pretty broad, I think.
We think of the US itself being, in fact, a big driver of some of the growth on the consumer side.
We're also obviously stimulated there so we can be much more effective even in the educational markets worldwide.
And <UNK> can add to that, if we have any more detail on it.
When it comes to our commercial licensing and servers, it's the same trend, <UNK>, which is the big shift that's happening is our enterprise and data center products being Windows Servers, System Center, SQL Server are more competitive.
It's the same thing I would say at least in the last couple of years clearly have played out.
There's clearly ---+ in fact, as our products are becoming competitive there has been a mix shift.
People have bought from us previously just standard editions, are able to now look at our enterprise editions, and that is what is playing out.
There's definitely some pricing action we were able to take, mostly because we were able to deliver the incremental value.
Even with all the pricing action we took, we from a total cost of ownership or just raw pricing perspective, are very competitive versus what is available in the market.
So, that's what we see.
So these cycles, some of the pricing actions were anniversary out, but the overall thing that I'm focused on is how can we continue to run our software asset ourselves in public cloud and translate that into our servers and really paint this vision and make it a reality of hybrid computing and drive the secular growth of that.
Thanks, <UNK>.
In fact, one of the big changes that has happened I would say in the last couple of years, and I will have <UNK> even detail out, is the way that we are going about everything from the very long lead things like actual data center locations and buildouts to the procurement of individual machines and essentially the work in progress inventory of that.
We have driven significant process improvement to essentially make it as efficient as one can make it and that is a continuous process for us.
So, when I think about even the capital allocation per quarter, we carefully look at what is our current utilization forecast and what our demand forecast is.
And we now have the ability to be much more dynamic.
Surely, there are some things which are long lead, like data center locations but you don't need to build out data centers much before they are really being utilized.
So we have a very good process and that is a place where quite frankly a lot of the proprietary advantage of someone who is an at scale public cloud provider, not just with one application, and this is where the huge distinction is.
After all, we did run large scale consumer services ourselves, between Xbox LIVE and Bing, but the business of supporting a highly geo-distributed enterprise cloud business is very different than just running in one mass scale public cloud service and we've learned a lot with what is our workload diversity as well as our geodiversity, and our supply chain management is optimized for it.
I would add, <UNK>, this is a place as <UNK> just said, we have made a lot of progress in being data driven and this is down to a monthly review, by workload, by property, by geo.
This is a place where I feel that we are in a terrific position, frankly, to respond to data sovereignty demands, changes politically, and our ability to execute that to provide what our customers demand, in terms of security and manageability and location.
This is something that we care a lot about.
Thank you.
| 2015_MSFT |
2015 | MDCO | MDCO
#Thanks very much for your question.
This is <UNK>.
Regarding ABP-700's market opportunity, there are 180 people who in the Europe and US alone who will undergo anesthesia sedation.
About 120 million of those we believe are conscious sedation patients.
Let's take the 60 million patients undergoing anesthesia.
A good number of those are high-risk.
That means to say that they have core mobilities or undergoing particularly difficult surgery where some form of cardiovascular or other complication could occur.
A second way of stratifying that risk is patients who have difficulty with intubation.
When we look at those anything from 10% to 40% of patients undergoing anesthesia can be classified in some way as high risk.
And a product that has relatively less ventilatory cardiovascular or other impact, a product that's very fast on and very fast off would be potentially suited for those high-risk groups where the advantages would be most evident versus propofol and/or etomidate.
So that's one way to think about that looking at 40% or so of those 60 million people and imagining a penetration into that market.
As far as pricing's concerned, it's a little early to tell.
We don't have all of the attributes of the drug yet mapped out with clinical data.
But it's not unreasonable in those high-risk patients to imagine a premium price relative to propofol.
On the conscious sedation side, I think the market is even more astonishing with 120 million people undergoing conscious sedation.
We know that the trend in the marketplace is forever more invasive conscious sedation procedures requiring ever deeper conscious sedation which with propofol and even with midazolam that really can't get you there, that runs the risk of driving respiratory depression.
So going deep in sedation without ventilatory suppression would be a very exciting prospect for anesthesiologists who supervise those procedures but also of course, for the non-anesthesiologists who are doing many of those procedures both in Europe and the US and who run the risk of having to get control of an airway without the necessary skills.
So that I think is a big opportunity for the product as well.
And again, we believe the safety advantages that may come from this product should be very valuable indeed.
I think that's the way to think of the market.
It's a large market, it's a premium priced opportunity we believe based on the attributes we've seen so far and it's worth remembering that propofol when it was not generic, at its peak was well north of $1 billion in sales.
The AHA data next week will be very important to us because it will determine whether we do or do not have a six-month durability of effect.
I won't try to pre-say the data today.
I think we'll wait for the results to be presented but obviously, a six-monthly dosing of a PCSK9 inhibitor, assuming that LDL knockdown stays at approximately the level it was at 140 days, would be quite affirmative of a differentiated profile versus the antibodies.
I think that's an important piece of information that should be revealed.
In addition, we will be showing the data on the full-blown lipid profile.
I think it is important to look at results in terms of total cholesterol, ACL and so on, and assuming those results are also favorable relative to PCSK9 antibodies, it will help us drive forward the phase 2 program quickly.
So those are two things to look out for, durability of effect and effect on other lipid profile.
<UNK>, it's <UNK>.
I think as <UNK> said, there's analysis that needs to be done.
So there's a number of factors that go into that.
How do you dispose of those assets.
Do you do it as one or a combination package.
That, obviously, will bring cash in.
Clearly, a programs that may be associated, resources that may be associated, that's what I think <UNK> is targeting in on, those are the things that will change.
All assets have ongoing commitments once their commercialized.
So things like: commercial spend, regulatory spend, post-approval research and development, and all those factors go into that basket.
And again, I just come back to what <UNK> had said, putting a number there today is maybe a little bit premature but these are the analysis that we are doing.
And the objective, I think, is most important that <UNK> outlined, is that we want to improve the liquidity of the Company and reduce the burn rate and reduce capital requirements.
<UNK>, I think we have accomplished a lot of that already.
If you look at SG&A specifically for the year on a cash basis, it's relatively flat.
In fact, Q2 to Q3 showed a downturn in the actual cash SG&A.
Now we're not going to save our way to success here because we haven launch products as well, but we're highly focused on that.
So specific areas like the redeployment of <UNK>iomax folks to support Kengreal is a good example of that.
So we're looking at that all the time and I think <UNK> and I in previous calls, have said the efficiencies that we can gain through optimizing the organization as we launch these products will continue to look.
I think what the numbers tell the story that we are very focused on trying to keep the cash burn in line, recognizing that we have both development programs as well as five launch products.
Hi, <UNK>.
So first of all, let me deal with the homozygous study.
That would be a comparative study against one or two of the antibodies, probably one of them.
Yes, it would be demonstrating non-inferiority for LDL lowering and obviously, would have a very different dosing profile and ease-of-use potential.
No, that would not be the only phase 2 study.
The major phase 2 study which we're kicking off right now is an LDL lowering study in the normal, should we say, broader population of patients who require LDL lowering, to another goal, who are not tolerant or maybe have heterozygous familial hypercholesterolemia.
So the homozygote population would be in addition to the main phase 2 study.
Can you repeat the first part of your question as well.
I'm sorry, <UNK>.
Yes, we would.
In fact, we think it's going to be about 450 patients and we're going to start enrolling those before the end of this year.
Yes, that might be a bit more than we'd care to share on a call.
I think we have great relationships with a lot of different companies and I think feel pretty confident that in this stage, the best way forward to maximize shareholder value is to outline and pursue the strategies that Dr.
<UNK> outlined.
I think our priority is to global deals if we can and therefore, we have not pushed the button on distributorships in Europe at this stage.
There are many available to us and there's some great companies in Europe that could help us in the very short-term.
But I think we have to get through the major choices first and then we'll see whether it makes sense to take local partners for specific products.
Certainly, the homozygous comparator agent is likely to be one that's already approved or approved at the time the trial is done.
So thank you for pointing that out.
On the other phase 2 program, we'll give the full details of the study next week.
But you may recall, that we were quite impressed with the 300 milligram dose in the phase 1 study.
That would likely be the centerpiece of dose expiration of phase 2 study, 300 milligrams.
And that in the current formulations, about 1.5 milliliters of injection volume but we anticipate that coming down in volume over time as we improve the formulation.
So we're talking about a 1 mil injection of the 300 milligrams, most likely.
Well, I think we still had a similar question a moment ago.
I don't know <UNK>, if you want to reiterate the response or elaborate on it further.
Just to add to that, I think clearly, on the back of an envelope, you can do evaluation for PCSK9 inhibitor which comes to values which could be very substantial.
I think most people have already done that and recognize that and even some people have published models on that.
So that's clearly a very high-value asset.
Carbavance, ApoA-1 Milano, ABP-700, as far as R&D assets are concerned, also I think relatively straight forward to model very high-value.
So certainly those four R&D projects would come out, I think, close to the top of anybody's modeling.
Yes, I think we have to be cautious there.
This is a new one for us, a generic market by calculation is a royalty off of gross profit.
The market for <UNK>iomax bivalirudin is evolving because it's a generic market.
So, don't want to come to any conclusions now.
We're very happy with our partner.
We think we have the strongest partner out there.
So if anybody's going to perform well, we will and they will.
But to put predictions on right now on a market that is changing, where price is changing, where the number of players are changing constantly; it's hard to put any certainty into a run rate
Yes, thanks <UNK>.
<UNK> here.
So first of all, IONSYS we've just got started with it.
We have got 78 formulary dates set up.
We're satisfied with that.
That's already 10% of the initial hospitals that we're shooting at.
So we're quite happy with that.
As for the training and education, you're absolutely right.
That's an arduous process.
We have to go through the education training of, particularly nurses as well as pharmacists, in all of the intensive care post-op care units in those hospitals.
So that's going to take some time.
But we have put together a team of nurse educators to help us with that and believe that that can be accomplished quite efficiently in the coming 6 to 24 months.
But as you know, these are not anticipated to be rocket launches.
They're rather slow steady builds over time.
We do think there's a great deal of interest in the product.
It's a very empowering product particularly for the nursing staff.
For Orbactiv, relative to single-dose Dalvance, I highlighted the excellent data that were presented at ICAAC and [ID] week, showing the relative bacteria's vital early kill qualities of Orbactiv which compare very favorably against all of the other gram-positive drugs that are out there.
I think the microbiology just gets better and better the more we study it.
The fact that Dalvance, we've expected for a long time that they would come with a single dose.
We believe that's the right way to dose these drugs and were glad that they agree with us.
The dosing convenience of, is it an hour, is it two hours, is it three hours infusion, I think that's a moving feast because we also are doing work to improve the duration of dosing.
So at the end of the day, I think people are going to choose the drug that is the most effective, the drug that actually has the best microbiological profile and of course, the drug that provides the greatest value.
So it will no doubt be an important choices people face and a competitive scenario that we anticipated.
Next question, please.
Well first of all, it's a shame for the Tetraphase program and the patients and their investors.
It's never great to see slip-ups of that nature.
I don't think there's any read through though at all.
As for TANGO 1 and 2, they're recruiting well.
We remain comfortable that we can get these two trials finished or get the NDA ready by early 2017 and get these trials pulled together by the second half of 2016.
And for the time being, we're going to stand with that estimate.
If it improves or looks earlier then we'll, obviously, let people know.
Thanks very much everybody.
With four potential blockbuster programs ongoing in R&D and five hospital launches, it's certainly a busy place.
Dr.
<UNK>'s arrival to help us with strategy I think has made a huge difference already and we're looking forward to executing on those plans in the coming weeks and months.
And of course, beyond that too.
So thanks very much for your attention.
We'll keep you updated on developments as they occur.
Bye for now.
| 2015_MDCO |
2016 | BANR | BANR
#You bet.
Have a great day.
Sure.
<UNK>, this is <UNK>.
Good morning.
The registration of the shares probably contributed $300,000 to $400,000 to the expense line, and principally that related to sales that occurred by some of those shareholders.
So it is interesting to note that a number of those restricted shares have changed hands over the ---+ principally since April 1 when it became 144 eligible and since we recorded the S-3 at that point in time, registering those shares as well.
So there were some delayed cost associated with that, and you know, there were other things.
The seasonal aspect we do get into year-end Sarbanes-Oxley testing, year-end audit expenses, some of those things.
So professional fees tend to be a little lumpy, but I would caution here that as we've noted, we're going to incur additional fees going forward as a result of the $10 billion particularly preparing for it to become a DFAS compliant bank as well as some additional compensation expense related to that.
Having noted all of that, the efficiency ratio, particularly the adjusted efficiency ratio or the ratio of expenses to average assets both continue to show improving trends, which is what we've indicated all along is that we will grow into this expense base over the next number of quarters.
So, again, I think that's the trend.
<UNK> asked the question about budget.
I think the thing you can anticipate with Banner is that there's a lot of stuff that is just exactly on trend, and the plan is unchanged, which is to continue to grow the <UNK> and grow into that expense base and grow revenue at a faster pace.
Well, it's both.
We've indicated it is underway, but we've also made it very clear that there are ---+ there's going to be expense growth associated with that specific issue of becoming a $10 billion bank and our expectations there have not changed for some period of time.
We have started.
I think the important point there is that there is much effort underway at the <UNK> today to prepare and ensure that we will be able to comply with all of those regulatory requirements.
Now, let's put that back in perspective that we've laid out before.
We'll stay under $10 billion through the end of this year, likely cross it sometime next year, which means that the Durbin Amendment will become effective for us in the second half of 2018.
There's a revenue impact of that that we have previously estimated to be about $11 million annual revenue, so that's $5 million to $6 million in the second half of 2018.
And our first DFASed required submission will likely be in 2019, but we're moving forward with building out the skillset and the capacity to be DFAS compliant by the end of next year.
<UNK>, this is <UNK>.
Just in reference to the questions to expenses that you and <UNK> both had, the <UNK> remains extremely focused on generating positive operating leverage.
So, there's two sides to that equation.
Obviously, we have to do ---+ we have to continue to grow revenue and what you've seen over the last couple of quarters is that we have had positive operating leverage and we anticipate that going forward.
So ---+ this is <UNK> again, <UNK>.
As I noted that buyback, we triggered that.
We've had that authorization for a while.
We triggered it with a 10(b)(5) filing in the third week of September as part of our deleveraging strategy.
We announced a plan to repurchase about 1.3 million shares there, and we're probably at least halfway through that plan to date.
What may surprise some people just a little bit is that the effect on average shares outstanding in the quarter was fairly modest for the third quarter.
Should be significantly more impact on the fourth quarter this year.
Sure.
The ---+ it's fairly straightforward.
The movement in LIBOR, which trended up by about 20 basis points to 25 basis points as I recall, during the quarter had a direct impact on that mark to market.
So, as you've noted before, without any change in rates or spreads, we would anticipate about $300,000 to $350,000 a quarter of mark on the trust preferreds ---+ net mark on the trust preferred securities, just because of the passage of time, and that's the principal thing that is going through that fair value account.
The movement in LIBOR accounts for most of the difference this quarter.
Yes.
Thanks, Tim, and Good morning.
I don't have anything particular different to add than I have in the previous quarters.
I think there are certainly conversations that are occurring about the difficult operating environment that a lot of institutions are faced with with low interest rates and now with concentration limits becoming an issue in some institutions with commercial real estate, so it's becoming a challenging environment for a number of banks to continue to operate at a high performing level.
So the conversations continue, but I don't have anything further to add than what I have in the previous quarters.
I think all of our markets as we've alluded to in many of our investor presentations are very, very attractive markets.
We are certainly seeing California be, as you already know, the sixth highest rated economy in the world.
It's ---+ all of our markets are doing extremely well, and we need additional density, so we're looking to build out in every one of those markets.
I'm not going to go to Nevada though.
We're not there yet.
Does that help, Tim.
Sure, Tim.
This is <UNK>.
Obviously, there's always been seasonality in the mortgage market, but I think if you look at our balance [sheet] you're going to see that we still have a very strong position in loans held for sale.
Interest rates continue to be, mortgage rates in particular, continue to be very attractive and make housing affordable.
As I noted, there's still refinance activity going on, but 65% of what we did was purchase activity, which is indicative of what <UNK> and <UNK> have both said about the strength of markets that we operate in.
So I'm optimistic around mortgage as far into the future as I can see, which obviously things can change, but the next few quarters look pretty good again.
There will be a natural seasonal slowdown.
Most likely you'll see that in the first quarter would be my expectation.
First of all, I ---+ that is kind of the range that we've said that the core operation can operate at and continue to have positive operating leverage, so thank you for reaffirming that range, and on an adjusted basis, we're at 64%.
We are not ---+ we set our business plans based on a status quo business climate, so we're not reliant on rising rates.
If we continue to take market share like we have and leverage the acquisition of American West, we will continue to drive down that efficiency ratio as we've done in the last couple of quarters.
Thank you, Kate, and thank you, everyone, for your questions, as well.
As I stated, we're pleased with our solid third quarter 2016 performance, and we see it as evidence that we're making substantial and sustainable progress on our disciplined strategic plan to build shareholder value by executing on our super community bank model by growing market share, strengthening our deposit franchise, improving our core operating performance, maintaining a moderate risk profile, and prudently deploying excess capital.
I'd like to thank all of my colleagues who are driving the solid performance for our <UNK>.
Thank you for your interest in Banner and for joining the call today, and we look forward to reporting our results to you again next quarter.
Have a great day, everyone.
| 2016_BANR |
2018 | VVC | VVC
#Thanks, <UNK>, and thanks for joining us on the call today.
We look forward to providing highlights from our very successful year-end 2017 as well as a review of expectations for 2018 and an update on our generation transition plan.
Turning to Slide 5 and 6.
I am pleased to share that 2017 marked our 58th consecutive year of dividend increases, a record we are very proud of, and that was extended in November when we raised the dividend 7.1% in line with our long-term target.
2017 was also another year of earnings growth for Vectren, building on our goal of delivering consistent earnings growth to shareholders and marking our seventh straight year growing earnings and at a compound growth rate of just under 7%.
2017 earnings per share were right on track with our expectations of $2.60, the midpoint of the guidance range we offered a year ago.
When taking into account the headwinds to growth that we faced in 2017, including unfavorable weather, the expected loss margin in cogeneration at one of our largest customers and the expiration of 179D tax deductions in 2016, I'm very pleased with our $0.05 improvement in EPS over 2016 results.
At Utility, we're also able to extend our streak to 6 years of earning our overall allowed ROE.
These accomplishments can only have been achieved by a continued focus by all of our employees on executing our key strategies.
Highlighting a few other achievements in 2017, I'll start with the significant progress made by the Utility Group on several ongoing regulatory initiatives, including a successful start to our 7-year electric grid modernization plan.
In addition, VISCO and VESCO each had record years for revenue in 2017.
Strong demand continues across the country for distribution and transmission pipe work as well as for projects relating to energy efficiency, energy security and sustainable infrastructure.
We believe these trends are very long-term as the nation continues to focus on a safer and more efficient use of energy.
Finally, as 2017 came to a close, we witnessed the passage of the first major tax bill in the United States in 30 years.
<UNK> will discuss it further, but I'll comment briefly on 2 fronts.
First, we appreciate the opportunity this tax reform provides in order to help our utility customers by lowering customer bills to reflect the reduced tax expense.
Second, the required revaluation of our [grade] nonregulated deferred taxes at December 31, 2017, to the lowered 21% corporate tax rate resulted in a $0.55 per share increase in results for Vectren.
As we have had in the past, we took advantage of the one-time benefit to make a sizable contribution to Vectren's charitable foundation.
Coupled the with existing funding, this charge taken in 2017 should allow us to avoid earnings impacts for the next decade or so related to funding the foundation, which we typically do on an annual basis.
The details of these transactions are provided in the Appendix on Slide 36.
As it relates to the lower corporate tax rate for our utilities, we will pass on those savings to our customers.
Regulators in both Indiana and Ohio have initiated proceedings to accomplish this.
<UNK> will provide more details later in the call.
Slide 7 highlights the significant accomplishments by our utility team on our key regulatory initiatives.
As you can see, we completed almost all key initiatives, including the Certificate of Need filing made yesterday with the Indiana Commission, a major milestone in our generation transition process.
These accomplishments were achieved through outstanding efforts from our utility team and in collaboration with several of our key stakeholders.
They also demonstrate once again the very constructive regulatory and legislative environment in which we operate for both of our utilities in Indiana and our gas utility in Ohio.
Up next is our request to the Indiana Commission to add another 50 megawatts of universal solar which we will file in the next few months.
We expect the commission to issue orders in the first half of 2019 for both our CPCN and solar filings.
Turning to Slide 8 where we are initiating our 2018 guidance in the range of $2.80 to $2.90 per share.
The midpoint of this guidance range of $2.85 per share is roughly 10% higher than 2017 earnings and includes an $0.11 per share expected benefit at our Nonutility Group from the Tax Cuts and Jobs Act reflecting the lower corporate tax rate.
We're also affirming our long-term consolidated EPS and dividend growth targets of 6% to 8% and utility growth target of 5% to 7%.
We view tax reform as a potential upside to our long-term growth potential but have opted to hold our long-term growth targets in check while we monitor our Nonutility operations and their ability to retain this uplift to earnings.
Later on the call, <UNK> will provide more details as it relates to tax reform and its impact on our Utility and Nonutility operations.
Utility EPS guidance is in the range of $2.20 to $2.25 per share and Nonutility ranges $0.60 to $0.65 per share.
The waterfall chart at the bottom of this slide highlights drivers of the expected EPS improvement from 2017.
In 2018, infrastructure investment programs will continue to be the key EPS growth driver and now include our electric grid modernization program approved by the Indiana Commission in 2017.
Slightly tempering Utility growth will be higher scheduled outage, related O&M at our power plants and completion of other 2017 maintenance activities that could be safely moved to 2018 as part of our successful effort to offset the negative EPS impact of mild weather in 2017.
On the Nonutility side, our operations are positioned to achieve strong revenues in 2018 of both VISCO and VESCO as they continue to see great opportunities in their respective markets.
For VISCO, our confidence is supported by our backlog going into 2018.
Equal to our backlog at the same time last year, when you recall, included a large pipeline project in Ohio.
Miller Pipeline, one of the largest gas distribution construction groups in the country, continues to successfully compete for gas utility infrastructure work.
Additionally, as more large-scale pipeline construction projects are approved across the nation, VISCO's transmission group expects to win additional projects as they continue to focus their efforts primarily on recurring pipeline maintenance and repair work.
I want to note that we have tempered VISCO's 2018 EPS growth expectations by $0.05 due to extremes in both cold and wet weather conditions experienced year-to-date in most of the markets served by our construction operations.
One last point, as part of the recent 2-year budget deal signed earlier this month, Congress retroactively extended 179D deductions for 1 year, 2017.
Because of the extension, we currently expect to record an estimated $0.05 to $0.07 earnings in 2018 related to the 2017 179D deductions.
As you'll recall, 179D benefits had expired at the end of 2016 and, therefore, [2000] (sic) [2018] EPS did not include an EPS benefit related to 2017 179D deductions.
While we continue to pursue a long-term extension of 179D benefits, in the meantime, we have excluded these earnings in our 2018 guidance and long-term growth goals.
With that, I'll turn the call over to Rick to discuss a few details around our generation transition plan and our regulatory activity.
As <UNK> mentioned, Rick, of course, is our Chief Operating Officer, having been with Vectren and predecessor companies for nearly 25 years.
Rick.
Thanks, <UNK>.
I'm happy to be on the call today to provide a few more details around our generation plan as we continue to transform our utility for a smart energy future for our stakeholders.
Let's turn to Slide 10 for a high-level review of the utility investment story.
I won't spend much time today discussing our gas infrastructure and grid modernization programs since they have been covered extensively in the past.
I'd simply say these programs continue to operate very well.
Also, I do want to highlight that our investment in AMI across our electric footprint is expected to be complete by the end of 2018.
We expect the investment will greatly enhance our customers' experience.
Turning to Slide 11 and 12.
As <UNK> mentioned earlier, we filed yesterday with the Indiana Commission our plan to transition our generation fleet.
As you can see on Slide 11, the graph at the bottom, we expect to significantly diversify our generation portfolio over the next 7 years as we replace our aging coal-fired fleet with efficient, cleaner and diverse energy sources.
To accomplish this, in the next 10 years, we plan to invest about $1 billion to add 800- and 900-megawatt generation from the combined-cycle natural gas plant and a total of 54 megawatt of universal solar generation.
At the same time, we will continue to provide robust energy efficiency programs to our customers, such as the ones recently approved through 2020, and retire over 800 megawatts of mostly coal-fired generation.
As a result, we are pleased to have a generation plan that, once approved and executed, will achieve a reduction in carbon emissions of 60% by 2024 from 2005 levels.
The 60% carbon emission reduction will represent another significant step-up from the over 30% carbon emissions reduction through 2017 from 2005 levels achieved through energy efficiency programs, exiting purchase power agreements with neighboring municipal utilities, retirement of a small coal-fired unit and improved efficiency of our generation turbines.
On Slide 12, we provide additional details related to the 2 key elements of the generation transmission plan as well as the time line of key regulatory steps.
After evaluating multiple options to serve our electric customers' long-term energy needs, including an RFP conducted by an independent third-party, we have filed to self-build, an 800- to 900-megawatt combined-cycle national gas plant that we will own and operate.
We expect that plant and the infrastructure upgrade to serve the plant, including new natural gas pipeline, will cost approximately $900 million.
Once approved, construction is expected to begin in late 2019 with an in-service date sometime in the summer of 2023.
The preferred location of the new generation plant is at our A.
B.
Brown power plant site located just west of Evansville.
Second, in the next few months, we will announce our intent to file a separate rate case requesting to add another 50 megawatt of universal solar generation to be constructed by a third-party and owned by Vectren.
The projected cost is approximately $75 million, and will be located in our service territory in Southwest Indiana.
Once approved, construction is expected to begin in the first half of 2019 with an expected in-service date in the midyear of 2020.
This project will add to the 4 megawatts of universal solar that we are currently building.
As we highlighted at the bottom of Slide 12, yesterday, we began the CPCN filing process with the Indiana Commission to obtain the necessary approvals to continue our generation transition plan.
Final orders are expected by midyear of 2019.
Slide 13 highlights that today, we made a rate case prefiling notification with the Ohio Commission to recover rate base investments made in the past decade.
The full rate case will be filed in the next several weeks.
The rate case filing will include, among other things, a reduced cost associated with the lower corporate tax rate and an extension of the distribution replacement rider.
The request to increase base rates for its Ohio gas delivery charges is the first Vectren has filed in more than a decade.
We continue to expect to grow our utility rate base at 6% over the next decade, providing 5% to 7% EPS growth to Vectren's shareholders.
Slide 14 highlights our significant utility capital expenditure program we continue to execute that will drive future earnings growth.
Over the next 10 years, we anticipate investing $6.5 billion on gas infrastructure improvement, electric grid modernization project and the generation transition plan.
Our capital plan primarily includes investment in our energy delivery systems to ensure that we continue to provide energy service safely and reliably.
And if approved, our generation transition plan will diversify our generation portfolio by replacing aging plants with efficient, clean energy sources.
And with that, let me turn it over to <UNK>.
Thanks, Rick.
Moving on to Slide #15 in our 10-year CapEx plan.
I won't spend a lot of time here as Rick just covered the strategy for you, but this slide should look familiar, and it hasn't changed much from what we shared throughout 2017.
The most notable change is the addition of 2022 in the next 5-year forecast and the previously planned step-up in generation-related CapEx in 2022.
We expect '22 and '23 to be the peak years of generation spending.
Our CapEx plan still includes continued gas infrastructure investments totaling just under $4 billion and roughly $1 billion to modernize the electric grid.
With our goal to diversify our generation portfolio, electric CapEx also includes additional investments in what will be our 1 remaining coal-fired unit to enable compliance with existing environmental regulations.
Slide 16 provides an overview of how we expect to finance this significant capital investment program at the utility.
To set that stage, our financing plan reflects a sound regulatory approach and contemplates any needed long-term debt and equity at the utilities.
Over the next 5 years, we'll need to fund about $3.4 billion in capital investments and the utility share of Vectren dividends of approximately $700 million.
First, we would expect cash from utility operations to fund a majority of the capital program of roughly $2 billion.
Also, we expect to issue between $1 billion and $1.2 billion of incremental debt.
Additionally, we anticipate transferring funds from available nonutility cash flow of between $100 million and $300 million over that 5-year period.
Equity infusion at the utility will finance the remaining investment needs.
We continue to evaluate the best approach to issuing equity publicly, including the use of equity forwards.
That strategy will allow us to deploy equity at the right time for regulatory purposes.
And again, I underscore that any new public equity contemplated in our plan has been reflected in our EPS growth targets.
As many of you know, Vectren has a long history of high investment-grade credit ratings, and we will strive to continue that.
To that end, we expect to issue a balanced mix of debt and equity as needed in an effort to maintain our strong ratings where currently, we have an S&P rating of A- at the corporate level and a Moody's rating of A2 at the utility level, both with stable outlooks.
Turning to Slide 17, the tax reform.
As <UNK> mentioned earlier, we expect the Nonutility Group to benefit by approximately $0.11 per share in 2018 due to the decrease in the federal tax rate from 35% to 21%.
Given the competitive nature of these businesses, it is difficult to predict how much of this benefit is able to be fully retained and over what period of time.
And as such, for now, we're not changing our long-term growth targets, and that might prove to be conservative depending on how the competitive environment impacts the ability of our nonutility companies to retain this tax benefit in the long term.
We will continue to monitor the situation and periodically update investors on this topic as we see how the competitive markets respond.
For the utility, as we've said in prior calls, and as we are now witnessing at the state level of Indiana and Ohio, we expect utility rates to reset in the near term to address the tax changes, a positive for our customers.
We issued a press release separately on Friday, the 16th of February, detailing a bit more of the process to be followed to effect these customer bill reductions in Indiana.
And in Ohio, this should be resolved as part of our Ohio gas rate case.
We think this is a very good outcome for our customers.
Near the end of the appendix to this presentation, we have included a table to illustrate the 2017 impacts on our financial statements from the deferred tax revaluation triggered by the Tax Cuts and Jobs Act and the contribution to Vectren Foundation, all of which <UNK> mentioned earlier.
The revaluation of deferred taxes resulted in a gain of $45.3 million that was recorded in the fourth quarter of '17.
This is the initial step in quantifying the impact of tax reform on results.
And from this point forward, any impact on earnings compared to our original expectations will be largely a result of the lower tax rate on earnings from our nonutility businesses.
Moving on to the nonutility results on Slide 19.
These results reflect a $0.05 per share improvement compared to '16, primarily reflecting strong VISCO performance.
VISCO EPS was up $0.09 per share compared to 2016 on a pickup in large transmission project activity and continued demand from gas utilities for distribution pipework, which produced record annual revenues as illustrated in the VISCO graph at the bottom of that slide.
At VESCO, 2017 EPS was up about $0.05 per share compared to 2016 when excluding 2016 179D deductions, driven by record revenues and overall strong performance.
The year-end sales funnel of $430 million is $85 million higher than at year-end 2016, positioning the business well for new contract signings in 2018.
Turning to Slide 20.
We continue to expect strong growth at VISCO, driven by continued utility distribution activity and recovery in the transmission sector.
Utilities continue to embrace the opportunity to invest in gas pipeline replacement projects.
On the transmission side of the business, we expect federal regulators to approve several large pipeline projects across the nation.
While we may compete for work on some of these projects, we expect our competitors to compete ---+ complete most of this work and thus lay more opportunity for us to perform our preferred repair and maintenance work.
As activity picks up in the transmission market, we expect to see some recovery of our gross margin percentage over time.
As <UNK> mentioned earlier, 2017 year-end backlog is equal to the prior year-end despite the roll-off of the large Ohio project.
We are still very bullish on this business and believe 2018 will be another strong year.
Moving on to VESCO's outlook on Slide 21.
We see strong interest in improving energy efficiency by both public and federal sectors.
Our performance contracting business model continues to provide one of the most effective ways to achieve long-term energy savings while, at the same time, providing cost-effective opportunities to enable infrastructure renewals, such as new HVAC systems, windows and lighting.
As for 2018, we expect solid demand again this year across most of our markets and geographies.
We expect this despite several projects being delayed at the end of last year, which caused year-end backlog to come in lower than expected.
Coupled with a strong funnel, VESCO expects another strong year in 2018, however, slightly down from 2017, reflecting the project delays I previously mentioned as well as tempered expectations on gross margin percentage for the year due to project mix.
As I wrap up, let's turn to Slide 23, which is one of our favorite slides, where we proudly show 58 consecutive years of dividend increases <UNK> previously mentioned.
We're also pleased to be growing the dividend at a higher rate in recent years and fully expect to grow it at the long-term earnings growth rate.
Turning to Slide 24.
The key to our consistent growth over many years has been our disciplined approach to growing the utility, which has been founded in regulatory and legislative strategy execution, effective capital deployment and continuous operational improvement.
Our utility team has demonstrated we can execute on these key themes in order to grow the operations and successfully serve our customers.
Some of our key achievements include managing CapEx spend that now totals nearly $600 million per year, reflecting both gas and electric infrastructure investments.
In Indiana and Ohio, we have worked with legislators and regulators to construct solutions that help our customers manage their bills through modest annual increases that result from current CapEx recovery mechanism.
Execution of this strategy has enabled us to earn our allowed ROEs for now 6 straight years and limit the number of base rate cases.
A lot of time and energy has gone into developing our strategic 10-year infrastructure investment plan, and one key element of this planning process is the continuous evaluation of the impact of these plans on our customers' bills.
One important way we are limiting bill impact is focusing on continuous O&M improvement.
Our culture of performance management and strategic sourcing is embedded in how we operate every day and is at the core of what has allowed us to maintain a controllable O&M growth rate of less than 1% since roughly 2012, of course, excluding the impacts of weather or variability in power plant maintenance work.
On Slide 25, we have a recap of our long-term growth targets as well as a few charts demonstrating the value we've delivered to shareholders over the past 5 years.
Achieving these results can only be accomplished by a team that is intently focused on executing its strategies.
And I'm proud to say that in November of 2017, EEI recognized the entire Vectren team as the top-rated small cap utility for total return over the past 5 years, a great accomplishment by a truly engaged team throughout the company.
To further put that in perspective, we had the second-highest return of all EEI companies in that period.
Finally, on Slide 26, I'd like to close our prepared remarks with the key drivers that help us achieve this strong growth going forward.
You will note that other than the additional positive effects of tax reform, these drivers have been in place for a number of years and have been the keys to the performance I previously covered.
Bottom line, we believe Vectren has a very strong compelling long-term story.
And with that, we'd now be happy to take questions.
<UNK>, could you ---+ I kind of missed your commentary, just margin expectations at VISCO and VESCO absent the benefit of tax reform.
We ---+ I don't believe ---+ if you go back to the metrics, <UNK>, in the back of the slide deck, we have margin expectations there.
We have not given it without the tax implications.
I think we mentioned in the prepared remarks that in '18, we would expect $0.11 coming from the combined businesses.
And any contracts that you signed since tax reform.
Have you seen any pressure at all on the tax issue.
We keep monitoring that very closely, and I would say the answer is no at this point.
And the other thing for 2018, as you think of just ---+ of course, we've got a very large backlog as it relates to what our revenue expectations are.
So an awful lot of the contracts for 2018 are already in place.
And could you give a little background on the 179D, where that is and what the prospects are for that to become more permanent.
Yes, actually, it is permanent for what we will record in 2018.
What was actually done was they extended it for 2017.
And as we understand it, we would book that in 2018 because you have to use the date that Congress actually passed it, which was in '18.
So we'll be booking the tax deductions for '17 and '18.
And then for years beyond that, it's really just the same process where we're starting to sit down with Congress at this point and discuss what the possibilities are.
And there certainly is dialogue that's occurring.
We really can't make a prediction.
And for that reason, since we can't call it recurring right now, we simply showed it as a separate item.
When we look at guidance, didn't put it in our guidance, even though clearly it will be booked.
In '18, we didn't put it in the guidance, and we have not put it in our growth rate.
And, obviously, we'll keep you informed should that change either for, say, 1 more year or if we were able to extend for a longer period of time.
And I apologize ahead of time, but can you comment on M&A.
No.
Our corporate practice, I think really like all public companies, is that we don't comment on market rumors.
Well, I think you've mentioned some very fine companies, that's the first thing I would tell you, companies we know quite well and know they're very fine companies.
We do consider ourselves a premium.
We have talked about this a number of times as we talked to investors.
First of all, we have a 58-year record of increasing our dividend.
We've got a growth rate of 6% to 8%.
And as we like to always say is we have a plan that backs up that 6% to 8%.
So we think with our growth rate, the way we've grown our dividend, our ability to grow our dividend at that same rate and, of course, we probably would put alongside that the progress that we've made in our filings and our approvals with our various ---+ our 2 jurisdictions, Indiana and Ohio, the fact that we're in Indiana and Ohio and we do not have electric in Ohio, we think we're a premium company for sure.
So rather than compared maybe so specifically to any company, I would just give you those basic facts and say we think we have a company that's set up to continue to grow.
And I might add just one more thing, in 2010, we basically said we wanted to provide consistent earnings growth.
We felt that's what would drive consistent dividend growth.
And as we've shared on the call here today and many other times, that's exactly what we've done, grown our allowed returns in our utility 6 years in a row, we've grown our overall business at a compounded growth rate of 7% since 2010, and so we think we've done what we said we would do.
| 2018_VVC |
2015 | SSD | SSD
#Thank you, <UNK>.
In late September, we announced our three-year capital allocation plan, which includes share repurchases and potential dividend increases based on our cash position.
And as always, subject to future approvals by the Company's Board of Directors.
This plan is not change the Company's overall strategy to grow and diversify our business and product offerings to reduce our dependency on North American residential construction.
We want to grow organically and through acquisitions which lever our engineering, testing, manufacturing, and distribution strengths.
We are currently engaged with a number of M&A firms in North America and Europe working to find good acquisition targets.
The BCMC show, which is the Building Components Manufacturings Conference ---+ that show is held this week in Milwaukee, Wisconsin, where we demonstrated our latest software release.
The comments were very positive on our progress in designing software to meet our customer needs.
With this software release, the sales team that we have in place and our manufacturing capacity, as well as our technical support team, we believe we are positioned to pursue about one-third of this estimated $500 million market opportunity.
A general release of the software is scheduled for later this year.
Also in the third quarter, our manufacturing facilities for our carbon fiber, or FRP materials, passed their quality control inspection and we will have our final ICC code report sometime next week.
Part of our strategy as always is to use new technology to advance our business in all areas.
And when we choose to discontinue a project with no further cash flow benefits, we write those off.
With that, I'd now like to turn it over to <UNK>.
Thanks, <UNK>.
As <UNK> mentioned, exchange rates had a significant negative effect on Q3 comparable sales, which we estimate to be about $6.4 million as the dollar strengthened primarily against the European and Canadian currencies.
We estimate the negative effect of foreign exchange on operating income was approximately $800,000 for the quarter.
The margin differential of wood-to-concrete products is about 15 percentage points this quarter compared to 12% Q3 of last year.
With lower margins on flat concrete product sales and increased wood product margin on increased wood sales, the Q3 2015 gross margin was 46.4%, up from Q3 last year.
In that number, though, is a one-time pension settlement, which added about 0.5% to the current gross margin ---+ about $1 million.
As noted in the press release, we still believe the estimated gross margin will be in the 44% to 46% range for the entire year 2015, with the usual caveat that it depends on the rest of the year.
Total operating expenses as a percent of sales were down slightly in the quarter compared to last year, although we took that charge in writing off a project that <UNK> had noted that had been capitalized over the last year.
That was in the R&D and engineering line.
Regarding taxes, the tax rate of 38.4% is up compared to last year Q3, due primarily to about $1 million in additional losses subject to tax valuation allowances compared to last year, most of those losses occurring in Asia as we wind down sales offices there.
We believe the annual effective tax rate will be between 37% and 39%, in line with our prior estimate last quarter.
Q3 2015 CapEx was about $5.6 million, primarily for manufacturing equipment in the US.
We estimate total 2015 CapEx to be in the $35 million to $40 million range, excluding software.
And the added real estate project in west Chicago that we announced on the Q2 call is included in that dollar range.
That facility is expected to close escrow before the end of the year and we are planning to complete the move of the two existing chemical facilities in late 2016.
For 2015, depreciation and amortization expense is expected to be $29 million to $30 million for the year, of which $22 million to $23 million is depreciation, down slightly from our prior-quarter estimate.
Before we turn it over to questions, I'd like to remind you that if you'd like further information, please contact <UNK> at the phone number listed on the press release.
And also look for our quarterly report on Form 10-Q to be filed in early November.
We'd like to now open it up to your questions.
Hi, <UNK>.
We have not seen a dramatic increase in our customers from a restocking standpoint.
Obviously I think everyone saw the housing starts came up, so we are seeing really the flow-through of our material based on that demand.
And certainly I think another large point is repair and remodeling is also up.
And we have several products that go through our channels of distribution that support that market space also.
No, I think the competitive landscape hasn't changed much.
It's very similar to how it has been in the last few years.
And so I think that's what you are seeing there is just a little bit of a continuation of that.
So let me take that in a couple steps.
From the pipeline standpoint, I think I've mentioned that we are very interested in looking at acquisitions that can help us expand and grow our fastener market line.
And we're also very interested in looking at products that can help us grow in this concrete repair.
I think I've mentioned that that's a very, very large $3 billion market opportunity and we want to be able to organically grow, but more rapidly grow in that space from an acquisition.
So those are really two highly focused areas, but we have a couple people here who are looking predominantly in those areas, but also as other things become available.
When we think about Europe, our focus in Europe is really on connector manufacturing.
Our market share there is significantly lower than it is here in the US market.
They build much more with concrete and not as much wood, so it's not as large a overall market, but we want to be able to get a larger part of that market share.
So our focus in Europe is really more on connector manufacturing companies.
The difficulty in Europe as I've seen in doing acquisitions is typically these are long-term family-owned companies ---+ sometimes 150 years of tradition.
And it just takes a much longer time to court those potential targets; have them get to know you.
And sometimes when I said longer ---+ these are multiple year projects.
So it just is a I find a much longer time to try and get an acquisition across the board when we look at Europe than the US.
But we also have particular M&A firms and our director there of European operations ---+ that is their major objective, to look for acquisitions in that space.
<UNK>, this is <UNK>.
So we use software and technology in all of our aspects ---+ all of our business lines.
So it happened to be one that fit obviously within our business elements.
But again, we have it in both ICI and fasteners, in our truss business, even in our general connector business.
So unfortunately, it was a project that didn't work out for us.
But as you know, technology changes and it's certainly something going on every single day and this was something that we looked into that just didn't work out.
But the technology again is used in all aspects of our business.
We do ---+ we use ---+ we have both in-house software development and we also outsource.
So we try and use the best avenue possible for us to be able to come to technology with the market in a rapid time and also make sure it's something that's meeting our competitor needs.
Again, unfortunately, this was a project that just did not come to fruition.
I think a little bit of a difference on our M&A approach as we look at it in this cycle is that we are looking for sort of larger acquisition targets.
We're really looking for fairly well-established company that can give us maybe either a customer base, production expertise.
So we are really looking for larger companies than we may have been looking for in the past.
From my perspective, <UNK>, I think it's any time we ---+ there's always going to be risk when we look from an acquisition standpoint.
And the risk could be associated with a cultural fit, which we talk a lot about here at Simpson.
And we spend a lot of time when we look at an acquisition to be sure culturally it is going to fit with us.
But again, there's always risk because it's not our known market and certainly a market that we have developed.
So I think there is risk in both a small-sized acquisition and a little bit larger-sized acquisition.
Some of the things that help us at least reduce the risk from looking at maybe a little bit more established acquisition target is usually if they've got a reasonable revenue.
They've already get in place good quality control, good engineering, certainly good customer base and that sort of thing.
So ---+ but I would say there's always risk whenever we do an M&A or whenever we do an acquisition.
I would say we are looking at ---+ we're looking at targets anywhere probably from $50 million to $150 million.
Hi, <UNK>; it's <UNK>.
So for M&A obviously, I think you guys are all aware: multiples today are running between maybe 10 times to 12 times the EBITDA.
We start off first of all looking for a company that's going to help us grow in our strategy.
So again, I've mentioned the strategy of really trying to diversify from this North American housing market, but really look into these areas where Simpson can be additive.
So we're really looking for companies that are in the building space.
Do they have a product that can be differentiated.
I mentioned to you, we always want to give our salespeople a tool when they go into get our product specified and we don't want that tool to be price.
So it has to be something that can be engineered; can be specified to meet within those parameters where we can differentiate it.
So we really start to see are we looking at something that fits within our strategy.
Then we kind of funnel that down.
Is it a customer base.
Is there some IP there.
Is it a unique manufacturing process.
And then we'll start reviewing all the numbers from that standpoint.
So our first metric is to find the right company, the right people, and the right product that work for it.
From a metric standpoint, I think we get pretty well almost in what the market is doing as far as the things from a multiple.
And that's typically how we see potential targets are also looking.
So from a valuation standpoint, that's typically what's happening these days.
So I have a very, very large focus on SG&A and everyone here in the Company.
We are looking ---+ and as I mentioned to you, we kind of had spike in SG&A when we did some acquisitions.
And really the reason is that the way Simpson goes to market is I need all the feature set behind the product.
So that's why I have code reports and testing and marketing literature, salespeople ---+ I need all those things in place.
What we're seeing is we've got that foundation in place for our ICI business and our truss business and we're starting to gain some revenue from those.
So there's no need to have additional SG&A in that space.
But we look at it very, very carefully and I would like to see that number continue to drop and we will still be working on that.
So I would not anticipate seeing SG&A increase.
And we will still be, again, as I mentioned, very closely looking at all aspects as to what we can do to continue that number on a down trend.
Hi, <UNK>; this is <UNK>.
So the ---+ other than the items that you noted that there, we're always looking at how we can make our operations more efficient, whether it's in the office or on the factory floor, to be able to meet additional customer needs and demands without having any significant cost to that.
So it's probably more of the smaller incremental improvements.
I don't know that we would anticipate anything moving that line with any significance at this point.
So going into next year, we'd probably be looking around that similar range where we're at today.
If not, just a little bit better based on some of the things that you mentioned there.
No, Dan.
As I mentioned before, again, we have technology in all of those areas.
Yes.
So that was on our carbon fiber materials ---+ the FRP business.
We had completed ---+ obviously we had completed all the testing.
One of the requirements as a manufacturer when you get a code report is that the code agency has to do a QT inspection on your production facilities.
So our carbon fiber material is produced in our Portugal location and it's also produced in one of our US facilities.
That QT inspection has been completed successfully and we will get the actual hardcopy report should be coming out next week.
So that will allow us to be able to enter very aggressively the carbon fiber material ---+ excuse me, carbon fiber market with a code report, which, for that particular product, is really needed here in the North America market.
We've got marketing ready; we've got our salespeople trained.
So they will now be able to have a much more aggressive conversations with the specifying community to be able to use those particular products for concrete repair.
In Europe, the UK is definitely doing quite well and we've seen that really over probably the past year.
So they seem to be kind of out of their economic conditions there, so we anticipate that the UK will continue to grow.
We have a couple small product lines that we've introduced there that we are trying to really expand into some different space.
From France and Germany, still very, very tough.
Still having some major economic conditions in those countries.
And as we look at France and Germany, that actually impacts our Denmark location because Denmark actually produces most of the product that is shipped into Germany.
So from the connector standpoint in Europe, difficult, difficult time still for our major locations.
Our concrete repair products, on the other hand, are doing better.
Those are road repair ---+ again, using our carbon fiber material as a concrete repair and strengthening.
We're in a few different countries there.
Those projects and products are doing a little bit better, and those are really a function of our S&P acquisition.
So those are hanging in there and actually, we are getting a little bit of growth in some of those market spaces.
Dan, it is <UNK>.
It is wood dominant.
I think 90%/10% is a bit much, but it's still predominately wood product in Europe.
Dan, obviously we look at both.
I'm really looking at the percent of revenue, yes.
Correct.
The end of the quarter amount was ---+ bear with me ---+.
I got it.
It's about 48.3 million.
Hi, <UNK>; <UNK>.
As you know, again, from a software standpoint, that's a never-ending project ---+ always needing to put new enhancements into the software.
So I would not anticipate that dropping because we still need to really enhance that product and keep it out in front of our customers and certainly meet their needs.
It would have a slight difference from the ICI, but this is just our first step on ICI.
So we will continue to take that product line and find different applications, do code reports, full-scale testing, and that will be how we continue to grow that product line.
So when we think about the FRP product line, that was really the S&P acquisition that we did in Europe.
And those margins are still very high, north of 55% margin that we're making on that particular product line.
The code reports that we've been working on have been for the US market.
So for the European market, they already had code reports.
And let me just make sure I'm clear that the margin was a gross margin when I gave you that number.
So when I look at Europe, I look at those as two different areas.
So Europe is much more advanced in the use of that product as far as engineers being familiar with it.
So we have code reports there in there in Europe for FRP.
In the US, the code report we will be getting is for US acceptance for those particular products.
But the additional thing that's not happening in Europe is some of our cementatious materials that we bought from our Fox acquisition can be used in Europe.
So now the code issuance starts for Europe for that product.
So getting a code report, doing full-scale testing, putting engineering support, as you know, is what differentiates Simpson and how we feel we can deserve some higher margins on some of our product lines and providing that support.
So that is really a never-ending type of projects that we work on.
Just a little bit different from Europe versus the stage in the US.
I would anticipate that we should see some ---+ with the code report, we should see a little bit of revenue increase there on this particular product line.
And because the carbon fiber is a very highly engineered product, it does give us some better gross margins.
So I would anticipate some positive movement in that space.
I think it ought to be fairly comparable in that particular product category.
Great.
Thanks, everybody.
| 2015_SSD |
2016 | WRK | WRK
#(Caller Instructions)
Thanks, <UNK>.
Sure.
We start with looking at acquisitions as we want to do those that improve our business.
We do see opportunities in our North American Corrugated and Consumer Packaging businesses.
Cenveo was a relatively small transaction.
SP Fiber would fit into that.
I know you're very familiar with Gondi, <UNK>.
Latin America fits very well with our Company.
We have a great business in Brazil.
We would like to invest more in that.
We export 60% of our container board to Latin America, so I would say very natural place for us to grow, so that would remain, outside the US, the primary focus.
We do have strong operations in Europe and Asia, and those we would look at, as well, but the opportunity has to fit our business and has to make our business better.
I am going to let <UNK> respond to that, <UNK>.
Good morning, <UNK>.
As you know, our portfolio of paper board grades is very focused on the premium end of the marketplace, where we're serving the most demanding market segments in tobacco and commercial print, liquid packaging, and specialty poly-coated applications.
In North America, we compete very well, and that's the reason has <UNK> remarked that we have seen negligible penetration into our markets competing against our premium grades.
In the international markets, we use those products in exactly the same way.
We have excellent customers in literally all the regions of the world that value our premium substrates, and we've seen very consistent demand for those products, and we'll see so going forward.
<UNK>, I would add, when I have gone to Europe and Asia and talked to our sales force, they are incredibly talented at taking the needs of the customer and translating it into the specific quality of paper that they need.
It is remarkable to me to see what they do.
If you look at the overall volumes that we export, it ends up being a more of a ---+ it's a differentiated business, but it's more of a niche business because we're taking our technology and talent and just serving the precise needs of our customers.
So is on point to our strategy.
We are getting the benefits we expected.
Newberg was not a significant contributor to the overall economics of the transaction.
Dublin is the assets that fits very well into our system.
We did come up with a ---+ for Dublin, if you look at the ---+ say, the productivity improvements that we expected over the first three years, our goal at the time we announced the transaction was $41 million.
We are now, after less than one year, we are at $40 million.
So we are not quite at what we achieved, but we are effectively there and then we have line of sight to $46 million and more.
We took our Board there last week, and the mill looked great.
The people looked better.
The production is on track.
It is a good fit in our system.
We're selling a new product for us in recycled craft bag them and that has worked very well.
Our productivity programs are in place and the mill continues to fit very well in our system.
So this is ---+ right now, it has worked out better than we anticipated at the time we announced the transaction.
Good morning, <UNK>.
Brazil is, first of all, an incredible asset for us.
The forest land, the Tres Barras Mill is state-of-the-art and our integrated packaging portfolio is a great business for us and is performing extremely well.
We're all well aware of the political and economic challenges in Brazil, and I don't know that I could necessarily predict the trend line going forward on that whole thing, but I would say it will improve over time.
I'm just not sure the pace of that.
Relative to our ability to compete, we have superior assets and the quality and capability of both our container board and the products coming out of our converting system are winning in the marketplace.
So, as the economy improves, we're going to win.
The beauty is, we also have a very low cost mill that is able to toggle between domestic consumption and export, so you've seen our export shipments increase over time.
Net/net, I love our position in Brazil.
I don't know that I can speak to our competitors falling out.
I just know I love our position.
We have a premium virgin product coming out of the state-of-the-art mill that's vertically integrated with a great packaging system and a forest resource that makes us very low cost.
So I like our position.
Good morning, <UNK>.
We worked into the call comments, that over the past year, this fiscal year, our volumes are up slightly.
We do not focus on, call it, quarter-to-quarter or month-to-month changes in our volumes.
I know the investment community does, so we, in turn, have to focus on it, but we're focusing on building a Company that is very profitable and generates long-term cash flows.
So we're very focused in container, but we have just a very structured way to go to market.
If you come to work at WestRock, you go through a certain training, and we go to market and a very consistent way.
Then we're in the process of, I'd say, rolling that out broader, more fully across WestRock and we're in a position to do that.
I just came across something that Gallup, they have an email that they send out periodically that covers us all sorts of different topics.
They sent one out yesterday and their conclusion was they find most companies can double their revenue by simply selling more to the existing customer base.
I just repeat that because that's really on point to what we are doing.
Most of our customers will buy folding cartons, they will buy boxes, and we are taking our sales force and we're going to market to identify those customers we can go through and add value to.
That's a long-winded answer to your question, but I am very pleased with what we are doing.
We're building that capability over the long-term.
Our volumes will go up or down from quarter-to-quarter, but if you look at the overall portfolio of business we are generating, it's a very attractive portfolio of business.
I am going to go on because we're supplementing that with capital.
So in Container, we've been very clear about the investment we are doing with respect to the EVOLs.
As part of our capital budget process we talked about earlier, we go back and look at all of our capital as to whether it does what we thought it was going to do.
At least in Container, as part of this process, we reviewed $80 million in capital projects in our Box business and a lot of them were EVOLs but there were other projects, as well.
The actual cost was within 1% of what we thought it was going to be.
The actual returns, we estimated at 15% after tax; the actuals were 20%.
So they were well in excess of what we thought when we made the investment.
So we have, I'll just say, [full-court press] across our business to go to market in a way which is very for [perfect] us and then back that up with the investment in capital and talent to make the business ---+ we will create a lot of value over the long-term by doing that.
That's a contributing factor.
The answer is yes.
It's not the only factor, but it is a contributing factor.
Thank you.
<UNK>, I will start with the second one, first.
We had capital investments from our specialty chemicals business of approximately $45 million during the period of time that they were part of WestRock prior to the spin, so that is your reference point on the second point.
If I go back and I look at the free cash flow guidance that we gave earlier in the year, a lot of things have changed.
We've had pricing changes in the marketplace; we have had inflationary pressures.
If I were to give you the reference points of why we're going to generate the higher cash flow or come out on the higher end of the range, earnings are better, our working capital source that we talked about at that point in time is actually lower.
The other cash items, such as cash taxes, they are very consistent with the assumption that we laid out back earlier in the year.
Then CapEx is clearly on the lower end of the range that we had identified at the beginning of the year.
We will even come in just below the $825 million that we had described.
So again, it's earnings, working capital is not as big of a use as we described back then, the remaining balance sheet items are fairly consistent, and then lower CapEx.
We spelled out the two items that add up to $21 million, and you can look at our natural gas usage in our recycled fiber and look at the changes in the strips and then the change in OCC.
It is pretty straightforward how you calculate that.
We do have some residual price mix flow-through from the PPW reductions that took place earlier in the year that does occur in Q4, but we are not giving specific EPS guidance for the fourth quarter.
Nicole, that's all that we have time for today.
Thank you, Nicole.
Thank you to our audience for joining us this morning.
We're proud of our progress and appreciate your interest in WestRock.
If you have questions following the call, investor relations is happy to help you.
We can be reached at ir.
westrock.com.
We look forward to speaking with you in the coming weeks.
Have a great day, everyone.
| 2016_WRK |
2016 | KWR | KWR
#Thanks, Mike, and good morning, all.
Before I start, please note that Quaker provides certain non-GAAP information, including non-GAAP earnings per diluted share and adjusted EBITDA, in an effort to provide shareholders with visibility into Quaker's performance excluding certain items, which we believe do not reflect our core operations, including earnings related to Primex, our investment in a captive insurance company.
Reconciliations are provided in charts 10, 11, and 12 of these investor slides and they're also in yesterday's earnings release and our Form 10-Q, also filed yesterday In addition, please do not place undue reliance on any forward-looking statements.
Quaker delivered another strong quarter, despite the continuing headwinds from foreign exchange, an anemic economic environment, and a higher effective tax rate, Q3 of 2016 versus Q3 of 2015.
We continue to benefit from market-share gains in our legacy products and from cross-selling our more recently acquired products and technologies, while maintaining strong margins.
As a result, Quaker continues to deliver good adjusted earnings and adjusted EBITDA growth and strong cash flow.
Please refer to charts 4 and 5 as I walk through some detail.
Reported earnings per share of $1.21 for Q3 of 2016 is up 12% versus the $1.08 in Q3 of 2015, with a non-GAAP earnings per share of $1.25 up 5% over Q3 of 2015.
Note that foreign exchange had a negative impact this quarter of about $0.04 per share, and the higher effective tax rate, a negative impact of approximately $0.06 a share.
Adjusted EBITDA also showed good growth, up 6%, to a trailing 12 months of $106.3 million, with an adjusted EBITDA margin of nearly 15%.
So now let me circle back to the top of the P&L and share some detail there.
Net sales were up about 1% quarter over quarter, as 4% volume growth was partially offset by a negative FX impact of 2% and price/mix adjustments of about 1%.
Foreign-exchange headwinds have been a recurring challenge for us this year, and this quarter we were negatively impacted again by depreciation, primarily of the Chinese RMB and the Mexican peso.
As we indicated in our last call, we are beginning to see our gross margin contract a bit with the realignment of our prices and raw material costs.
Our gross margin declined to 37.2% versus 37.7% Q3 of last year and 38.1% last quarter.
However, also as expected and as we discussed in our last call, our SG&A decreased to more than offset this decline in gross margin, as we saw benefits from our global restructuring program and continued cost discipline and lower costs associated with transaction-related expenses, resulting in increased operating income, up about 14%, and improved operating margin of 11.2%.
Below operating income, the significant delta quarter over quarter is the effective tax rate, which I mentioned earlier.
Our Q3 effective tax rate of 28.3% versus 24.4% last year is a bit better than the guidance we gave you last quarter, as certain tax adjustments to previous filings and reserves moved in our favor.
For Q4 and full year, we continue to expect recertification of a concessionary tax rate in a non-US subsidiary, which will reduce our full-year effective tax rate to 28% to 30%.
Despite the inflated tax rate, our strong operating performance carried through to the bottom line, with both reported and non-GAAP earnings showing good growth.
The balance sheet and cash flow continue to be strong, and we have improved our net cash position to about $23 million.
We accomplished this while increasing our current-year dividend to 8%, with the last four quarter dividend payments approximately ---+ approximating $17.3 million; repurchasing approximately 171,000 shares for about $13.2 million, and that's since the Board approved our share repurchase plan last May, May of last year; and using about $26 million to acquire Verkol in the prior year.
We continue to believe that this balanced approach to capital allocation helps to create long-term, sustainable value for our shareholders.
And now if you will turn your attention to charts 6 through 9, I have already talked in some detail about each of these metrics, the metrics in these charts, so let me just focus on the trends.
As you can see in chart 6, volumes show a nice positive trend.
On chart 7, our gross margins demonstrate consistency, as well as some modest softening, in line with expectations.
Our adjusted EBITDA on chart 8 continues to show good, positive growth in both dollars and margin percent, and the balance sheet and cash metrics on chart 9 reflect our consistent ability to fund current growth and position ourselves for future growth.
An overarching theme I hope you take away from these metrics is that Quaker has a strong track record of delivering steady, consistent growth over time and through a variety of economic conditions.
Last quarter, I shared some expectations, including slow end-market growth and foreign-exchange headwinds of 3% to 6% for the full year, which we expected to offset with market-share gains, leveraging of past acquisitions, and cost savings of about $3 million in the second half of the year.
Q3 performance was largely in line with these expectations.
For Q4, we expect much of the same, with the additional bit of color that Mike shared that we expect our Q4 gross margin to be similar to Q3.
Most importantly, we continue to expect growth in our top and bottom lines and continued growth in adjusted EBITDA.
My thanks to all of you for your interest in Quaker, and I will now turn it back over to Mike.
Thanks, <UNK>.
At this stage, we would like to address any questions from any participants on the conference call.
It is hard to look past more than one quarter in our business relative to this, and that's why we wanted to give guidance that we think the third quarter and the fourth quarter will be at similar type levels.
And it really will depend upon what's happening in the fourth quarter with pricing.
We have a number of contracts that will ---+ with customers that will go up and down with pricing, anyway, and adjust.
So, it's really hard to say.
So, I don't think we're too far out of line right now, but certainly if there is a big step change from here either up or down, certainly that could impact us, especially going forward when you look into the first quarter of next year.
It could be positive or negative.
Sure.
We don't give ---+ we think we have achieved pretty much the level we are going to be at at this point, and that's why we said the third and the fourth quarter will be the same.
We're getting close to those ultimate levels at this point.
We mentioned that we had about a $1 million hit in ---+ or I said that we ---+ another way of looking at it is we said we were about $3 million of savings in this year.
We achieved a little bit in the second quarter, but really it kicked in in the second half of the year.
So you could see it is probably in that 1 to 1.5 range at this point, per quarter.
Overall, yes, it was relatively flat, and it was really being driven by two things.
So we actually had good volume growth, so our volume growth was up 7%, but we had foreign-exchange impacts, so you can see what's happening with the RMB.
And then, there is also product pricing issues, has been some declines over there.
So they offset the volume growth, so it was relatively flat overall.
Those were expenses related to acquisitions that we had spent on the quarter, and we non-GAAP these because we felt they were atypical in nature, and they should have been non-GAAP to provide our shareholders with a better understanding of what is happening in our business.
So, it was really due to the nature of those type of expenses.
Sure.
Certainly from a steel perspective, we are seeing rebounding in crude steel production on a global basis, but when you really break it down, we saw in the third quarter declines in North America, Europe, and South America, so the only place that really grew was Asia-Pacific and that was really being driven by both China and India.
So, that's there.
And in car production, overall car production is generally doing pretty well.
We are starting to see weakness in the North America market.
China continues to do very well.
Europe is also at this point doing pretty well.
Up over 3%, yes.
Yes.
And hopefully, we are hitting bottom in South America and we will start to see some rebounds there, but certainly that has been a continued negative for the auto market.
Sure.
Normally, as we said in the past, we really don't comment on acquisitions until they are finalized, and during most of these conference calls, we will get a similar question, and we just feel that's the best way of handling this, because at any point in time, we have ---+ we are working on a number of potential acquisitions that could be in various stages.
So it's really hard to predict when and if any will be acquired, so that's the reason we don't comment on acquisitions until everything is finalized.
They're mainly in North America, and normally this is not a major issue for us.
Just to give you some flavor of it, it was really actually ---+ some of it was [somewhat] in our smaller businesses, which we don't really talk about quite a bit, like Epmar and Summit, and there we have ---+ we had unusual patterns of shipments in this quarter versus the third quarter of last year.
And actually, a lot of it was due to the third quarter of last year, so the comparison masked what was happening.
And it was impacting ---+ in those two instances alone, for example, it was impacting our sales in North America by about 3%.
So, that's why we thought we should mention something around it.
I think we will continue to take share.
I have a lot of respect for our competitors, but I think it is ---+ like I have mentioned, it is due to our business model.
I think it's due to our emphasis that we are putting on different initiatives and certainly our new technologies that we are trying to grow globally around the world.
No, you're talking about the timing of shipments.
No, as I was trying to explain, a lot of it had been in the third quarter of last year, so when you're looking at the comparison between third quarter of this year and that, it was some unusual activity last year.
I think this is the first time we have actually seen some light at the end of the tunnel type of thing, and we think it will be a slow recovery, so we don't think it will be any fast rebound in South America.
We have been very fortunate.
We have been taking share down there, so that's part of what we have seen in growth.
But we do see, and things we have read through steel producers, that as we start to get into 2017, they would expect to see some slow recovery in their economy.
So, I think it will continue to get better, but I don't think it is going to be a dramatic improvement, and certainly better from the continuing downward progression that we experienced over the past several years.
It could be due to two things, product mix and what's happening in our products, as well as some adjustments in pricing as we go, timing, lag adjustment type of things.
But nothing ---+ I would say there is nothing unusual happening there in Asia.
Our trials are still progressing and doing well, and we hope to continue to be successful there and become reference accounts for other pieces of business in the future.
No, I would just like to say thanks, everybody, for calling in today and your interest.
We are pleased with the results for the third quarter and we continue to be confident in the future of Quaker Chemical.
Our next conference call for the fourth quarter and year-end 2016 results will be in late February or early March 2017, and if you have any questions in the meantime, as always please feel free to contact <UNK> or myself.
Thanks again for your interest in Quaker Chemical.
| 2016_KWR |
2015 | WWW | WWW
#Yes, I mean, I will say that we don't comment on our order book anymore, as you know, for a variety of good reasons.
It's still early to comment on 2016.
We'll have plenty of details regarding our operating plan for 2016 when we report our Q4 results.
I would say right now, though, that some of the overall trends we're seeing, attitude by retailers, primarily here in the US, we're seeing that also reflected into 2016.
They are just playing it pretty conservative at the right time.
Maybe we'll get some weather.
Maybe a couple of other things will break for their business another way, but right now, they're taking a pretty conservative approach on any number of levels.
Yes, <UNK>, frankly it's a little hard at this time since we're just getting into the holiday, just approaching the holiday selling season.
I would say all of the factors you listed at the present time we believe are going to continue with respect to our domestic business.
Our international business, which is about half of our pairs, we are also anticipating that the dollar is going to remain very strong.
So in response, our brands are working on their product engines to bring in product, a lot of product to price points that have been vacated for our international partners.
So we all read about the geopolitical risks and challenges that are going on every day around the world.
We really don't see any calming impact having there.
We think it's going to be more of status quo.
We do think, though, at least domestically, retailers are buying closer to need and they are going to be reliant on brands that they trust and companies that can afford to be there with product when they need it.
And really, I'm not trying to dodge your question.
I'll have a lot more insight when we get into December, but that's kind of the status at the present time.
Sure.
Hi, <UNK>.
I'll answer it first and then I'm sure <UNK> will want to offer some of his thoughts, but this is not a new tactic for us as a Company.
It was a pretty dramatic strengthening of the dollar that, as we entered into 2015 and probably had a bigger impact on our business this year than it would in a typical year.
But the approach that we took is very consistent and I don't think it's one that we regret at all.
Our brands obviously continue to evaluate what the impact really is out there.
Is it the fact that we raised prices.
Is it other consumer sentiment issues in those markets that are having a bigger impact on some of the demand issues.
And we obviously believe not only that we did the right thing, we have other competitors that didn't follow suit and are experiencing the same challenges in the market that we are, so the good news is that we got there early.
We've been able to price that in.
We'll be able to anniversary that into next year, so the opportunity to bring in products at those different price points to sort of complement the assortment is something I think is an advantage for us because we acted really from a pricing standpoint.
We are taking a long-term view that the dollar is going to remain strong for a while and so there's really not an option for us to pull back on pricing at this point.
That's not something we want to do, but we're going to be very clear about every style and every opportunity, every brand in each market.
Every one is different and we'll be reevaluating that based on the benefit of a full season's worth of sell-through and everything else with our own foreign businesses and our partners as well.
And so the model going forward here is to stay the course, but also to look for other opportunities to enhance margin as we go into 2016.
I would say, <UNK>, as well, the sourcing environment that we're seeing right now is probably the best I've seen in the last five years, so certainly labor and overhead continues to go up when it comes to product cost, but leather is down significantly from last year.
Lower commodity prices are also contributing to lower quotes from our factories, so this will be the first year in many years where on carryover product we're probably going to see a pricing decrease.
Yes, I'd think ---+ just to take a step back from Merrell.
Obviously the continued focus on product creation and innovation, not just in the performance category but especially adding some talent on the lifestyle side.
For our international businesses in particular, backfilling with good product, maybe good product internationally that is now priced like better product.
And then again to refocus on athletic casuals and ath leisure.
So there's a number of levers the team is pulling on the product creation side.
We do intend to invest behind the brand platform, but a revised more athletic Company-like, go-to-market strategy for key offerings in the Merrell line.
It can be an expanded Moab collection with one key strategic retail partner.
I'm talking domestically now.
It can be an expanded Capra program for another key strategic.
It can be an expanded all-out program for another one and then some more moderately priced search and enjoy product for another key retailer.
That's going to be a change for the brand and one that <UNK> gave and the team are implementing this year.
In my view, still a big opportunity for Merrell.
A lot of people don't know about Merrell.
We think everybody does because it has such a dominant position in the outdoor category, but a lot of people don't know about Merrell, and yet the brand is ---+ consistently sits there with the number two intent to repurchase of all brands in this market.
So there's a lot of different levers to pull.
A lot of them are on the product side and some new introductions and we're going to invest behind.
Yes, I haven't had a recent update but we think certainly Keds is coming out with a new brand platform and campaign.
The Keds brand is ---+ frankly, can't believe I'm saying this, but it's bigger than Taylor Swift, and she's about as big as you can get, but we're going to put more emphasis on the Keds brand this year.
But we will still ---+ it appears right now we will still have Taylor Swift on the Keds team into 2016.
Thank you, <UNK>.
Did we lose you, <UNK>.
No, not really.
Not this year.
Sometimes that happens in the fourth quarter, but we had some easier comps based on some adjustments that were made last year's fourth quarter, some allowance and promotional stuff that we had to deal with related to some of our brands getting out of some distribution that we were not happy with, and so we took some of that pain in the fourth quarter last year which kind of increased our markdown exposure and some of those things we're not going to anniversary.
That's part of it.
And we talked about that last quarter, but really it's the price increases and it's the better quality of our business.
We talked about the cleanliness, I guess, or the high quality of our inventory, but it's really been true all year long.
We're selling less closeouts.
Our first quality sales are better.
We've spent the last year really focused on cleaning up and focusing the inventory and it's had a real positive impact on gross margin.
We talked about the price increases for Sperry as well as for our international markets and that's helped us to really combat or mitigate the currency costs.
And we've had some other things go in our favor, including the beginnings of some of the product cost benefits that <UNK> alluded to that will be more meaningful next year but still had a small benefit in the third quarter.
From the unit standpoint, it's about 10%.
Pretty much, yes.
We don't have a licensed business for Sperry.
I'd say over the last three years, the Sperry international, 2013 was kind of a get-started year for many of our brands, Boston-based brands, Keds, Saucony and Sperry.
And we've had real growth in 2014 and real growth in 2015 that's accelerating, but the Sperry international businesses has increased at over a 20% clip over that period of time, as has Saucony.
And frankly, the Keds international business is even higher than that, so we always knew it was going to take a little time, but once we get some traction, it continues to grow.
Yes, we expect all three of those brands to continue at that rate.
I mean, I would say Sperry doesn't have as large as international business as the Hush Puppies or Merrell or even Saucony, but we expect it to certainly continue at that rate into the future.
Very early on the growth curve there.
Thanks, <UNK>.
I'm sorry.
Give me the last part, <UNK>.
I missed that.
I can give you that.
So on Q4 on a net basis, it's about $8 million this year versus about $15 million, almost $16 million last year, I guess.
So $8 million improvement.
No, that's combined.
So the interest expense is $11 million versus $14 million last year.
The other items are about $4 million benefit versus about a $1 million expense last year.
We don't generally give that out in the call, <UNK>, so ---+ and I don't have it by segment right here in front of me anyway.
But we typically don't share that.
I think the Q is just about to go out, but we'll consider that in the future for sure.
No, not at all, <UNK>.
These are just what I talked about before including the improving prices are really tied to leather, commodities, and how all of that impacts the sourcing sheet by pair.
None of what I talked to earlier really goes to any kind of despecing the shoes or taking any actions in that regard.
And, frankly, that's not something we would do as a Company.
All of our bigger brands certainly have a better ---+ a good, better, best brand offering, but we don't anticipate any significant changes there whatsoever.
Most of the growth for next year we anticipate from taking more shelf space at exiting distribution.
So we do not right now anticipate any ---+ for example, any significant family channel increase over what we had in 2015, <UNK>.
As an example for Merrell, <UNK>, all of the partnership alliances that Merrell has right now are all with premium retailers pretty much.
So the growth and the new go-to-market strategy is really to play up the premium product as much as possible, and gain share in that same distribution with the same retailers, not just the channel.
Yes, I absolutely agree with you, <UNK>.
I mean the macro environment impacts everybody.
We all know it begins with product, product, product.
We know that in our industry, there's quite a bit of need as well as want.
And if you're out there with great product, you've got a chance to win in any environment.
And when you look at Merrell and Sperry, for Sperry it's fundamentally how fast can they move beyond boat.
They're going to remain dominant in the boat shoe category, an extremely important category here domestically, and in some international markets.
But obviously, a total acceptance by the Sperry consumer in retailers to move beyond boat for Sperry and they're focused on that.
And on Merrell, it's really a fundamental question of regaining some traction in the lifestyle area for the brand.
And again, the product creation and innovation team there is busy on that.
The new team is probably going to need a little more time to get where we want it to be, but that's the fundamental issue.
The macro environment is going to test some smaller brands and smaller businesses.
We've been through this before.
We've seen this movie and it's going to be a bit of a challenging environment for some good, but maybe smaller brands and smaller businesses.
Thanks, <UNK>.
Yes, are you talking about our Boston-based brands.
Yes.
I think we've got new agreements or re-upped agreements for over 100 countries today for those brands.
Since the beginning of 2013, we've added well over 400 points of dedicated distribution for those brands.
Saucony, Kids and Sperry are all growing at over a 20% rate each year, and that includes the start year which is really 2013, so we continue to see strong double-digit growth there.
Those brands are still all underpenetrated internally when you compare them to, for instance, a Caterpillar, or Merrell or Hush Puppies.
So, again, still early there.
We still continue to make progress.
Yes, I would say that's a good question.
I would say that, as you know, we have a very disciplined approach when it comes to acquisitions.
We have a bit of an unusual macroeconomic environment in front of us right now.
We're focusing a lot of our time, energy in growing what we have and in getting more earnings out of our current portfolio.
That being said, if the right strategic opportunity came around, the right dovetail fit, we are certainly in a financial position now to act on it.
It could be a Lifestyle or Performance brand, we normally like brands with some authenticity in heritage.
It could have some Lifestyle potential beyond footwear.
Certainly geographic expansion opportunities are always high on our criteria list.
So, you know, as I've said before, some of the best acquisitions we've done are ---+ over the years are the ones we've had the discipline not to do and we're pretty ---+ we have a pretty disciplined approach and a pretty successful track record over the last 20 years.
Yes, I mean, it's hard for me to parcel it out, whether it's leather or other commodity pricings, but, you know, we could anticipate overall ---+ this is for carry-over product kind of as an example, but we could see overall price ---+ decreases in the 1% or 2% range here over 2016.
When you're sourcing 100 million pairs a year, like we are, that is not insignificant.
And it's something, frankly, we haven't seen in a long time.
On behalf of Wolverine World Wide, I would like to thank you for joining us today.
As a reminder, our conference call replay is available on our website at wolverineworldwide.com.
The replay will be available until November 20, 2015.
Thank you and good day.
| 2015_WWW |
2016 | RHI | RHI
#Well why is our fourth quarter guidance so much weaker.
We are simply looking at current trends all the way through last week.
And based on those trends, based on the discussions we have had with our field management teams, those are the calls we have made.
I would say as to missing the midpoint of revenue guidance, we have clearly done much better than you referenced at the bottom line.
And I would also say that most of those misses, as you call them, have been 1% or 2% misses.
So I think for context, we need to talk about the extent of the misses.
But further I would say we call it like it is.
And we are not sand baggers.
We're not back slappers and so we try to call it like it is.
And we are close.
We are usually within 1% or 2% of the revenues and we are usually at or above the EPS.
But where I grew up, coming within 98% or 99% of a $1 billion or more revenue estimate for the quarter is not bad.
Particularly when there is not exactly a big backlog to take a look at.
I think that is fair.
I would say Management Resources is more project-driven than Accountemps.
To some degree, Robert Half Technology is more project-driven than Accountemps.
Protiviti is certainly more project driven than traditionally Accountemps to the extent we have added these additional non-Accountemps services.
To some degree, there is a little more volatility because they are more project-driven.
But Accountemps itself ---+ I do not think it has gotten any more variable or volatile.
And the classic split between how accounting operations performs within Accountemps versus how the more staff accounting or financial positions perform within Accountemps ---+ they are all pretty consistent.
And I might add that in the third quarter just ended, we reported pretty decent growth in our finance and accounting divisions.
It was the non-finance and accounting divisions that lowered those rates somewhat.
Well given how anemic GDP growth has been, it does not surprise us the way perm has performed.
Perm is always more economically sensitive than is temp.
We are seeing that as we speak.
It was more impacted in the third quarter, albeit it was on tougher comps than temp.
But I do not believe that we have lost any meaningful share of placements to whether you want to call it technology platforms, other new competitors.
If GDP had grown at the same extent that it had in prior cycles and we did not perform similarly, I think there would be a credible case to be made that there is a missing delta that we need to talk about.
But the fact that GDP has not performed and we are essentially back to prior peaks in perm, I think is totally understandable.
So bill rates were up 3.5% year-over-year.
That was down a little bit from the 4.8% that we saw last quarter.
That was pretty much down versus last quarter in all of our verticals.
It is consistent with all of the commentary we have given already about overall business conditions.
Does that get at your question or was there some other question.
My outlook.
If conditions continue along the current glide path, you would expect to see slightly less bill/rate growth.
If instead GDP growth picks back up to where it had been, I would not expect the glide path to be downward but instead to turn back upward.
With client cautiousness, with client's less sense of urgency, the order flow rate does slow somewhat.
We saw it happen during the quarter.
We saw that continue into the fourth quarter.
We've extrapolated that trend and considered it in the guidance we have given for the fourth quarter.
In the short term, we expect very little short-term benefit from those investments.
They are more long-term, infrastructure building, platform, foundational type of investments that we expect long-term, but not short-term benefit from.
Well they are cloud-based.
We do not have the hosted infrastructure to have to maintain.
They are intensely mobile-accessible, which means our staff can sit down with our clients in their offices and have full access to all of our databases.
As we offer more and more of our services digitally to our clients and to our candidates, this enables that to happen in a way that it could not happen with our 15 year-old proprietary legacy systems.
So exactly how you put a dollar value on that, I would argue, quite frankly, to remain competitive in the staffing business you not only have to offer the traditional services you have always offered, you also have to have digital offerings that are complementary to the traditional offerings you have always had.
Clearly, our start in perm was better than Q3 and the trends.
But as we have said many times, it is only three weeks.
If you recall, last quarter we hobbled out of the starting gate.
I think we were down 17% or something and we certainly did not finish the quarter anything like that.
So, quite frankly, perm is volatile.
It is more volatile than temp.
The start over a three-week period of time does not mean much.
That said, I would rather start better than the prior quarter than worse, which we did.
However, our guidance does assume that there would be slight negative year-over-year growth in perm.
Temp-to-hire traditionally follows perm.
So just as perm was a little softer than temp this quarter, so was temp-to-hire as compared to temp hours billed.
It is all about ultimately full-time hiring, the environment for full-time hiring, one follows the other.
Clearly temp-to-hire in this cycle has been somewhat anemic as has perm, generally.
But that was also the case in the Q3 just ended.
I would say we had a very good quarter on the temporary side in the UK.
The perm side was not as strong.
The uncertainty there seems to impact perm more than temp.
While we're talking about international, let's not forget we had a very good quarter internationally, both Protiviti and staffing.
Germany continued to do well.
Belgium did well.
Australia did well.
In Protiviti, Australia did extremely well.
We're seeing improvement in Japan for the first time in years, which we are very encouraged by.
Generally speaking, international was a bright spot not only for staffing but for Protiviti.
UK temp very good.
UK perm not as much.
The trends would have to turn more negative.
We are talking about revenues being down 1% in our guidance.
And you don't take drastic headcount actions based on a 1% swing, frankly, in either direction.
So for us to get much more aggressive on the cost side, we would have to see much more negative trends than we are seeing.
And here again, if the world believes we are going to get 2% plus GDP in 2017, we would see that as an improvement not a decline.
I would say, yes, we do see more investment needed.
They should not be to the extent that we have had the last two years where we have essentially done new front-office and project management systems in both staffing and Protiviti virtually all at the same time.
In addition to that, we do have what we call business transformation, which are our innovation initiatives.
That will continue but it is not the lion's share of what our CapEx budgets have been the last couple of years.
But, yes, we do need to continue to spend on technology.
We do need to broaden our digital capabilities.
I think we are well down that path.
We are using artificial intelligence.
We are using machine learning.
We have client-facing and candidate-facing functionality we have never had before.
I think that will only get better as we go forward in time.
It will take some investment but it won't be as much an outsized investment as we have had the last couple of years.
We think rev rec ultimately will be a single, not a double or a triple.
We right now have a lot of diagnostic projects, which are smaller projects in Protiviti where you figure out what the gap is ---+ no pun intended.
Frankly, we are probably more excited but maybe a double, maybe between a single and a double on lease accounting.
Lease accounting is a year further out.
Lease accounting is 2019, rev rec is 2018.
They are both helpful.
We do not think either of them are going to be major movers of the needle, but we will take all that we can get.
I would say as to the overtime regs, we are dealing with that by changing the salary levels to the extent needed to, which is not a huge impact.
We're also restructuring some of our comp plans otherwise to more or less pay for that.
I would say in 2017, there is a change in the tax accounting as it relates to equity compensation that will put pressure on our tax rate.
We will have to figure out precisely what that will be.
We will talk to you about that next quarter.
But I think there is going to be a lot more volatility in our tax rate and companies generally because effectively the impact of your stock price at the day equity vests versus the stock price at the day equity was issued ---+ the tax effect of that differential you're going to run through P&L for the first time.
Okay.
That was our last question.
We would like to thank everyone again for joining us on today's call.
| 2016_RHI |
2017 | CVX | CVX
#Okay, good morning and thank you, Jonathan
Welcome to Chevron's first quarter earnings conference call and webcast
On the call with me today is Steve <UNK>, President, Chevron Asia-Pacific Exploration & Production company
Also joining us on the call is Frank Mount, General Manager of Investor Relations
We will refer to the slides that are available on Chevron's website
Before we get started, please be reminded that this presentation contains estimates, projections, and other forward-looking statements
We ask that you review the cautionary statement on slide 2. I'll begin with a discussion of first quarter 2017 results
Steve will provide an update on upstream activities, with an emphasis on the portfolio he leads in the Asia-Pacific region
Then I'll conclude with a recap of key messages from our March 2017 security analyst meeting
Turning to slide 3, an overview of our financial performance, the company's first quarter earnings were $2.7 billion or $1.41 per diluted share
Excluding foreign exchange and special items, as detailed in an appendix slide, earnings for the quarter totaled $2.3 billion or $1.23 per share
Cash from operations for the quarter was $3.9 billion and included about $1 billion in working capital consumption
Excluding working capital, cash flow from operations was $4.8 billion
At quarter end, debt balances stood at $45 billion, approximately $900 million lower than where we ended 2016. On a headline basis, this means a debt ratio of approximately 24%
On a net debt basis, our debt net of cash totaled $38 billion
Our debt ratio stood at approximately 20%
During the first quarter, we paid $2 billion in dividends
Earlier in the week, we announced a dividend of $1.08 per share payable to stockholders of record as of May 19. We currently yield 4%
Turning to slide 4, we intend to be cash balanced in 2017 at $50 Brent prices, and this slide demonstrates that we are nicely on our way to delivering that
First quarter 2017 net cash generation of $900 million incorporates the impacts of growing operating cash flow, reduced capital spend, and proceeds from asset sales
Operating cash flow reflects improved realizations and high-margin volume growth
Deferred tax effects were approximately $600 million, and affiliate earnings exceeded affiliate dividends by approximately $700 million
TCO did not pay a dividend during the first quarter
That is more likely a second half event
Additionally, working capital requirements consumed approximately $1 billion in the quarter
If you look back over several years, you will generally see a pattern of working capital consumption in the first quarter and often the second quarter resulting from the timing of tax and variable compensation payments as well as inventory build
The historical pattern also shows reversal in the second half of the year, and we expect that reversal pattern to hold again this year
Cash capital spend for the quarter was $3.3 billion, approximately $2.3 billion or 40% less than the first quarter of 2016. Reductions come mainly from finishing our major capital projects under construction, pacing and high-grading future investments, and realizing efficiency gains along with higher cost reductions
First quarter asset sale proceeds were $2.1 billion, primarily from the sale of our geothermal assets in Indonesia
Turning now to slide 5, here you see current quarter earnings compared against the same period last year
First quarter 2017 results were $3.4 billion higher than first quarter 2016 results
Special items, primarily a gain from the sale of our Indonesian geothermal assets, increased earnings by $795 million between periods
Upstream earnings excluding special items and foreign exchange increased $2.3 billion between periods
This reflected improved realizations, lower operating expenses, and increased volumes
Downstream earnings excluding special items and foreign exchange increased by approximately $80 million, mostly due to the swing in timing effects and lower operating expenses
The variance in the other segment was primarily from lower employee expenses and favorable corporate tax items
As we've indicated previously, our guidance for the other segment is $1.6 billion in annual net charges, so quarterly results are likely to be non-ratable
Turning to slide 6, I'll now compare results for the first quarter of 2017 with the fourth quarter of 2016. First quarter results were approximately $2.3 billion higher than the fourth quarter
Special items, mainly from a gain on the sale of geothermal assets in Indonesia, increased earnings between periods by $600 million, while foreign exchange impacts decreased earnings by $267 million between periods
Upstream results excluding special items and foreign exchange increased by $267 million between quarters, primarily reflecting higher realizations
Downstream earnings excluding special items and foreign exchange were higher by $668 million, reflecting the absence of the impacts of the fourth quarter Richmond refinery turnaround and a swing in timing effects
The variance in the other segment largely reflects lower corporate charges and a swing in corporate tax items between quarters
Turning to slide 7, this chart shows first quarter production growth of 82,000 barrels of oil equivalent per day or more than 3% from full-year 2016 levels
Startups and ramp-ups, primarily from Gorgon, Angola LNG, and Alder as well as growth in our Permian assets support accelerated production through the quarter
Base declines, the impact of production sharing and variable royalty contracts, along with the 2017 impact of asset sales consummated in 2016, reduced production
Looking forward to the remainder of 2017, we expect to see additional growth from Gorgon Train 3, the first train at Wheatstone, and Sonam
Additionally, we expect to see continued ramp-ups from other MCPs such as Mafumeira Sul and Moho Nord as well as growth in our Permian assets
Ultimate production growth for 2017 will be impacted by uncertainties, such as the timing and speed of MCP startups and ramp-ups, external events such as the Partition Zone restart, and base decline rates
Price and spend levels will also impact the amount of cost recovery barrels we receive
All said, we expect to comfortably be within the 4% to 9% growth range we provided earlier in the year, again before asset sales
Our current estimate for the impact of 2017 asset sales on production continues to be a reduction of 50,000 to 100,000 barrels of oil equivalent per day
Earlier this week, we announced an agreement to sell our assets in Bangladesh, which produced approximately 114,000 barrels of oil equivalent per day in 2016. The annualized impact of this and other asset sales will be dependent upon the timing of this close and of other individual transactions
And now Steve will walk us through some upstream updates
Okay, thanks, Steve
Now turning to slide 12, we continue to lower our cost structure and reduce our spend
The chart shows a steep reduction in quarterly average C&E since 2014. Year-to-date capital expenditures of $4.4 billion are down 22% compared to the average 2016 quarter and down 56% compared to the average 2014 quarter
We are trending below annual guidance
We previously communicated that our capital guidance range is $17 billion to $22 billion per year through 2020. If oil prices remain near the $50 per barrel mark, you can expect to see our future spend near the bottom of this range
Year-to-date operating expense is down almost 11% when compared to the average 2016 quarter and down 26% when compared to the average 2014 quarter
We have made substantial progress on lowering our cost structure, and we are striving to have the remaining quarters of 2017 broadly continue this pattern
Now on slide 13, we received approximately $2.1 billion in asset sale proceeds in the quarter, the vast majority of which related to the sale of our geothermal assets in Indonesia
Since the beginning of 2016, we've sold approximately $5 billion in assets, and thus have already achieved the lower band of our targeted two-year range
Also during the quarter, we signed sales and purchase agreements to sell our marketing and refining assets in British Columbia and Alberta as well as our downstream business in South Africa and Botswana
These in-progress transactions are subject to regulatory reviews prior to closing, hopefully later this year
Additionally, we announced an agreement to sell our upstream assets in Bangladesh, a business where gas production is sold into the domestic market at a fixed price
Turning now to slide 14, I'd like to close by reiterating our messages from our recent security analyst meeting
Our financial priorities are clear and consistent
Our number one priority is to maintain and grow the dividend as earnings and cash flow permit
To do that, we're focused on three areas
First, we are taking actions that should enable us to be cash balanced in 2017. We intend to continue to grow free cash flow thereafter
The first quarter was a good start
Second, we are focused on improving returns
This will happen as projects are completed and revenue is realized from growing production volume
It will happen as we shift our capital program
75% of our spend is expected to generate cash within two years, and it will be aided by ongoing reductions in operating expenses and improvements in how we manage our major capital projects
Third, we're focused on unlocking value from our entire portfolio
Our portfolio is anchored by legacy positions and advantaged by assets that are early in life
This gives us the opportunity to realize efficiency, reliability, and debottlenecking gains with short-cycle high-return capital investments
So that concludes our prepared remarks, and we're now ready to take your questions
Please keep in mind that we do have a full queue, so please try to limit yourself to one question and one follow-up if necessary
We'll certainly do our best to get all of your questions answered
Jonathan, please go ahead and open up the lines for questions
Question-and-Answer Session
So, <UNK>, I'm going to go ahead and take that one, and I guess I want to start with expressing our huge disappointment in the ruling
I want to make it clear to everybody though that the courts affirmed that the financing arrangements that we had in place are legal
And so the issue that is being litigated here is the appropriate interest rate for a loan between our corporate group and our Chevron Australia subsidiary
I would say that the court ruling deviates substantially from recognized international transfer pricing guidelines
And in those guidelines, the courts are to treat related parties to a transaction as if they were standalone separate legal entities
And the Australian appellate court really failed to do this, so in other words they were making no distinction between the creditworthiness of the Chevron Corporation as an entity versus Chevron Australia as an entity, and therefore no distinction on the relative borrowing costs between those entities
I'd say that there's an awful lot at stake with this ruling, not just for Chevron but for any intercompany lending in Australia and more broadly around the globe, because it fundamentally changes established transfer pricing guidelines and principles
So if the ruling stands, it certainly going to affect any future investment in Australia
And I would say going forward and thinking about it specific to the Chevron case, we're obviously evaluating the decision
Now the decision just came out a week ago
It's a fairly lengthy decision, and we're reviewing our options
Those options include going forward with an appeal to the High Court of Australia as well as continuing on with discussions with the ATO on possible settlements and any other reasonable resolution to the dispute
Actually, <UNK>, what happened was that in 2016, we and Exxon made co-loans into the joint venture
There was also a third-party borrowing
And a summation of that, when you looked at the amount of funds that came into the enterprise relative to the amount of investment that was going to be required on the capital project, there were sufficient funds projected out for 2017 where there would not be another co-lending requirement needed for 2017. As you look forward in 2018 and if you assume a $50-ish scenario, there will more likely than not be co-loans going on in 2018 – 2019. Somewhere in the $2 billion to $3 billion-ish range is our requirement for total affiliate spending over this period of time
So what we were saying is that because there was an advance funding of capital requirements in 2016, we didn't see that we would need to co-lend again in 2017. We do anticipate that there will be a dividend receipt in the second half of this year for us
That's exactly right, that's exactly right
And going forward, there will be obviously a lot of planning around what is the pace of spending on the project, what's happening to oil prices, what's the internal cash generation at TCO, et cetera
I think what we were trying to do in addition to PZ, PZ is a significant component there, but we're also trying to say that even – what people capture in their mind is the 4% to 9%, and they forget the pricing premise that was used for it
And so yes, there are price sensitivities built into that range that influence cost recovery barrels and the like
Also, the investment levels going forward influence the cost recovery barrels as well
So we were just trying to be as descriptive as we possibly could be in naming the things that could either work to the upside or work to the downside
If we continue on with first quarter results into second quarter and third quarter results, I would agree with you
Good morning
I think that we are trending lower than a ratable amount would give you relative to our $19.8 billion target for this year
The affiliate spending was a little bit lower than ratable
And I think as you go through the year, there will be spending by TCO in particular that should pick up as the remaining three quarters get underway
Other than that, I would just speak to capital efficiency
I think we are getting much more output – much greater activity for a given dollar spend than we were anticipating
So coming in at the lower end of – coming in below the $19.8 billion could very well be where we end up for the year
Yes, it's my favorite topic
Actually, all I would say is that the corporate sector can be really quite volatile
It does include certain corporate expenses, for example, related to employees
I mentioned last quarter, if you'll recall, about pension settlement costs
That's a factor that goes on in here
But more impactful typically would be corporate consolidated tax entries, and those are just very hard for us to predict
They're not necessarily ratable, and that's really what you see going on here in this particular quarter
I would just again ask you to go back and think about the full year and use the $1.6 billion net charge for that sector for us in your predictions
That's the best information that I have, and it will be not ratable
Right
So I don't think it's an either/or circumstance
We do want to come in between the $5 billion to $10 billion, but we also are very focused on improving the portfolio and high-grading the portfolio
So we put this target out a year and a half ago or so now, and we're in the second half of the time period in executing it
I think it's still a good target for us this year, but we will continue to look at the portfolio and continue to see if there are assets that again, either aren't strategic or not closely strategic, whether there's value that others see in it that's greater than ours or that won't attract capital in our capital allocation process
Canada, it's a good asset for us
It's a cash generator for us
We're obviously aware of – you're talking about oil sands
I'm talking about oil sands at least
We're aware of the transactions that have occurred in this space over the last few weeks
All I would say is that if we were to transact, we'd want to make sure we got good value for it
Really I hate to – <UNK>, I hate to go off of guidance we gave just four weeks ago or so
It clearly is in our quiver here
We are obviously very much evaluating it
We're seeing great efficiency in terms of what we get per dollar spent
All of the production and operating cost improvements that we noted before continue to happen
So we very well may be able to capture much greater activity and therefore much greater volume per dollar spent
So we'll continue to look at this
We understand the – we have the same desire that our shareholders have, which is monetizing that asset as best we can, and this is certainly one avenue for doing that
I would say from a Gorgon standpoint, a reasonable number to have in your mind is a couple billion dollars
And of course, Wheatstone is just going to be ramping up, so I wouldn't expect a significant contribution there
I don't think I want to give a number there necessarily
There are still capital expenditures that are being incurred
And so if you look at it including capital expenditures, the answer on that would obviously be yes
It's probably a net drain on us
For 2016 (36:35)
I would just say within upstream, I think there is fine-tuning as the year progresses about where capital opportunities are being generated – additional spending opportunities are being generated
Obviously, the Permian is going to be one of the first places to draw additional capital, but there are other short-cycle investments, for example, in Thailand and also in San Joaquin that would also be attractive as well
So that is a routine optimization that goes on within the upstream leadership team – I won't say on a monthly basis, but obviously they continue to monitor that as the year progresses
I did phrase it for lowering it
I'm sorry
I meant
Okay
Let me just – I'll take PZ first
I can say that negotiations and discussions are underway still
They're still occurring between the parties of the government
I really can't go out on a limb and predict when the resolution might occur
We're going on two years now where this has been an issue
I will say that the longer this goes on, the more challenging it is to get the equipment back up and running
We do continue to reduce operating expenses in PZ and continue to let people leave the payroll because we need to limit the losses that are occurring here
So I don't have any fresh news about when we might expect that restart, unfortunately
In Venezuela, I would just say it's a very tough circumstance for all of the people of Venezuela
We haven't had any or significant – it's really been minimal impact to our operations and our facilities
Priority number one for us is keeping our people safe, and so we're operating with that intention in mind
And Nigeria just continues to be a challenging location as well
There has been some disruption to production facilities in the first quarter of the year
We continue to monitor for safety there as well
So I would say just general in terms of inflationary pressures, the only place around the globe really that we are seeing inflationary pressures of any size would be in the Permian, and that's obviously being driven by activity levels in the Permian
And within the Permian, obviously we're working very hard to restrict that through our contracting strategy in terms of fixed-price contracts, indexed contracts, staggered contract terms, performance contracts, et cetera
Overall, we think that will be manageable for us, relatively small impact in 2017. And then outside the Permian, we really just haven't seen inflationary pressures
So I think in general, that's why I said that we intend – we're certainly striving to have a continued downward trend on operating expense in the remaining three quarters of the year, acknowledging that we will be bringing on additional production, and that will be an element going in the other direction
Okay, yes
So, <UNK>, I would say on the NOJV [Non-Operated Joint Venture] issue, I don't really have any significant information that would suggest the NOJV plan is any different than we had outlined
Currently, we've got 13 gross NOJV rigs, so that's five net
And I see that – I think in our plan as we look forward, there was ramping up some, but I don't have any new information relative to that
And with regard to the realizations, there's nothing unusual there in terms of one-offs on realizations
It really is just as a function of WTI prices, San Joaquin Valley prices, Mars prices, et cetera, and how those move relative to one another
So I would say in general, I think that's a good premise for you
If you look back over time, our first quarter tends to be typically our lowest cash generation quarter, and part of it is driven by the working capital
I did indicate that we saw a portion of that working capital most likely reversing between the end of this quarter and the end of the year, so I don't think you will get the same kind of penalty there per quarter
I'd also say – I mentioned the dividends, a potential coming in from TCO in the second half of the year, so that would be a positive in the remaining quarters of the year
If you go back to what I said back in March, one of the questions I had was about all of the summation of all of these "headwinds", and I had given an indication then of them being about $4 billion, a little bit over $4 billion for the year
And I still think that is a good element to think about when you consider the deferred tax impact, the working capital impact, and the difference between affiliate dividend and dividend earnings during the period
So all said, when you put that all together, I know there was a lot of numbers there
I do think the second part of the year we'll have stronger cash generation, not only from these reasons that I'm talking about, but production increases and the fact that these are high cash margin barrels that we're bringing on
It would, it would
It's a good question
I think the best place that I would go because where we're seeing it in action is in TCO because this is the most significant capital project that we have underway at this point in time of a longer duration
And so we've talked about the fact that we were increasing the overall engineering that was done before we began to essentially cut steel
We've now started fabrication in Korea and the Kazakhstani yards
We're monitoring – we've done more in terms of design assurance there on that project, optimizing contracting strategy, taking advantage of the lower-cost environment
So I really think the benchmark in terms of how this will turn out in terms of all of these elements that Jay [Pryor] and John have talked about before in terms of major capital project execution, the benchmark on how we're doing will be with regard to TCO and how well it is coming forward
And right now, the overall progress, we're on track with elements of fabrication and construction of the port and we're underway with constructing the village, the housing village, et cetera, and the drilling is going very well
So all of those efforts are really being focused in real time on the TCO project
That's a no comment at this point, so thank you very much for giving me that third option
Yeah, so I'm just going to go back and reiterate what our priorities have long been
The first priority is going to be given to growing the dividend when we feel cash flow and earnings can support it for the long term, and by that I mean in perpetuity
Secondly, we look at future additional investment opportunities that we've got because we do need to continue to grow future revenue streams
And then we look at the balance sheet
It is important for us to continue to have a strong balance sheet
And what you saw in this quarter is really a flex in our commercial paper program, and that's part of why we have a commercial paper program is to take flex like this
So all of those are important to us
We do balance that
We're at a 24% debt ratio, which is an okay place to be, I would say
But over time, I'd like to see us move a little bit lower in the debt profile when cash flow permits us to do that
Maintaining a AA is important to us
We did just meet with the rating agencies
We did just get affirmed by Moody's as a AA stable
We haven't heard from S&P yet, but it's an important element for us
Okay, I think we've got time for one more question
Yes, so I'll take PZ first
I don't want to get into describing what our ongoing operating costs are here when we've got an asset that is not operating
I will just say that when it does come back online, these cumulative losses will be taken into account in terms of the eventual recovery, tax recovery that's available to us
In terms of cash tax, this is a hard area for us to forecast at this particular time because of just issues that I've explained before about tax loss carryforwards and the fact that we've got different jurisdictions with different circumstances as their current tax position standpoint
I would say in general, we do still have some jurisdictions at current prices that are generating tax losses
And so that means that these tax losses will be carried forward into future periods
And when oil prices rise from $50 to $60 to $70, if you assume that hypothesis, we do need higher prices here to recover some of those previously deferred or those tax losses that have been carried forward that cannot then be carried back and will become a cash benefit, a relative cash benefit in future periods
That's really the best guidance that I can give you at this point in time
At low prices, there is not a lot of – we do have cash taxes in some locations, but it is not in all locations
I don't have it handy here
It's something I can consider for future disclosures
Okay, I think that concludes our call for this morning
I want to thank everybody for your time today, and we certainly appreciate your interest in Chevron and your participation on the call
| 2017_CVX |
2016 | MDR | MDR
#<UNK> this is <UNK>.
Really the change in guidance is purely driven by the better-than-forecast performance for our second quarter related to the productivity improvements and some closeout and also some change orders on existing contracts.
And then rescheduling of marine campaigns in conjunction with our customers for the second half of the year.
Yes <UNK>, in terms of the second half with the resequencing it is essentially a wash from what we were previously have expecting for the second half.
That is absolutely correct, <UNK>.
We did highlight in the earnings discussion there that on Atkatun-A2 for example, out of $454 million of a contract we only expect about $26 million to be recognized in the second half of this year.
<UNK>, this is <UNK>.
Let me take that question.
So I think obviously the awards with Saudi Aramco, all that is under our existing LTA2.
And as you know, we've been there for a long time so we certainly know and understand our cost basis there.
So I would say nothing has materially changed on how we price our award there.
We are well positioned.
We often talk about being graphically integrated, and it's something which puts us in a strong position in the Middle East and then particularly with Aramco.
In terms of the award with Pemex, this was very strategic for us.
And as you know we came through a very painful lesson learned on the PB-Litoral, which after we had taken the initial rides on project was delivered in an excellent way and was able to recover some of that as the project progressed.
That has now created the new benchmark in terms of internal costing and in terms of execution, so moving into this Abkatun is that obviously we have a lot of confidence in terms of having both our cost basis correct and out execution method, which has been obviously validated by the work that we did on the PB-Litoral.
Thank you.
Marty, this has been something that we have been in discussion with Keppel for some time.
So Encom was created a couple of years ago as a new facility built in Qatar primarily on the shipbuilding side, but also to participate in the offshore EPCI space.
And as you know we have a very good relationship with Keppel.
We are obviously involved with them with other things, flow tech historically.
Obviously we've worked with them with that DLV 2000, et cetera.
And that led to a conversation, we said that if you look strategically at our business in the Middle East, and where potential workloads has been coming from, Aramco is, we need to increase our fabrication production capability for the area, but also to have some presence in Qatar.
And as we look at Qatar, although we are not seeing any immediate awards, there is a lot of long-term potential in what I would call three large fields, and where those projects are, customers are getting ready to move into more the feed stage for those.
So as we look at it longer term, we see this as a means of positioning us more strategically so that we can really participate in what could be some significant bids coming out over this next couple of years.
So obviously a lot of discussion in the market was happening really, was being created with Technip and FNC to create this large merger.
I would say that where we are positioned today is that we do have obviously a very good relationship with GE.
We obviously have the formal relationship through our I/O business, which both companies are very happy with at this stage.
But also ought to mind that we're also working with GE in other opportunities.
Ophir, a project in Equator New Guinea, but also working with GE, looking at other areas across the globe where we feel that with their technology, their equipment and supply and ends with our services, we'd make a good combination on some of the bids.
So we have a good working relationship with GE and we look forward to that to continue.
I think, Andy, we give the color on our revenue pipeline, and I think when you see the drop-off that's obviously reflective of the current macro-environment that we're living in.
We ---+ this is not just a high level generic number.
We take a long time in building the up, and we are ---+ as I said earlier in the call ---+ we continue to be as close as we can with our customers, looking at specific projects which we believe we can truly participate.
So I think when you see the drop-off, I think that is a reflection of just the overall macro-environment, and I think if you look at the supplemental deck, what you'll again is that the smaller part of it is still really from the majors and obviously the independents, but the majority is still if the bid's will be coming through the national oil companies.
And in this current climate, we see more awards coming from national oil companies than the majors and independents at this stage, and so if you look at our awards more recently, particularly in this last quarter coming from both Aramco and Pemex, and us preparing for some large potential bids will come out from India, which are in the public domain.
While there is a drop-off, we feel that there are some good opportunities out there.
And to go back to the second question is, I think if you look at it with $2.4 billion of revenue in the backlog for 2017, it's obviously we have a lot of focus in terms of what we do for 2018.
And a lot of the bids that we will be bidding in this next ---+ even the bids that are outstanding today, and the bids we are anticipating over this next six months ---+ most of that revenue will obviously be executed in 2018 and onward.
So yes, it is probably more of an 2018 issue than it is a 2017 issue today.
I think, Andy, what I would say is that too early for us to talking about guidance for 2017.
Obviously we are on ---+ we have had good success in terms of building the backlog for 2017.
But as we've said several times, timing of customer awards is uncertain and that is one the biggest challenges the we have today.
So a bit early for guidance, and may be something that we talk about in the next quarter.
Andy, in general I think McDermott has done ---+ and I talk about the general Management team, an outstanding job in right-sizing our cost structure.
So we have become a far more efficient Organization.
We're currently structured with a cost base to execute our current backlog and an expected backlog going into 2017.
Should we see a drop-off in expectation of what we would hope for 2017, there are still cost levers that we can pull within the Company, more I would say on the available cost side than on the fixed cost side.
Good evening.
<UNK>, this is <UNK>.
I think as we gave our original guidance for 2016 at the end of 2015, we did highlight that given the portfolio that we expecting to build, and some of the concentrations that we were having, we were going to have almost double the under-absorption in 2016 versus 2015.
And as we've worked through the first half, and as we've built into our guidance for the second half, that structure still remains for us.
So we're still looking at a pretty heavy under---+absorption for the second half of this year.
As we highlighted in our prepared remarks, fabrication in Altamira and Batam was a drag and the main contributor to our under-absorption in the second quarter.
As you move to the back half, the under-absorption in Altamira will ultimately be taken care of late in the second half with Abkatun.
We're still looking for prospects in Batam, but we are also going to see I think some gaps appear in some of the subsea vessel schedules for the second half.
So it's kind of a same but different mix on under-absorption for the second half.
I think what we have done over the last kind of two years, <UNK>, is focus the Company on execution.
So after we win a project, we are focused on how can we can execute as a minimum to the as-bid, but hopefully how can we execute on a more productive or better cost position.
So I think we're starting to see some of those cultural aspects come through in the execution.
But I think as we've always said over the last kind of year, the competitive environment in which we now operate is more competitive, given the overall supply and demand dynamics, and as such it gets harder and harder to be competitive and then beat your as-bid estimates.
So we're always very cautious, I would say, on being able to predict that we over-perform our as-bid margins.
Steve, this is <UNK>.
Yes, we just looked at the various impacts on working capital in the second half.
We have a very structured bottom-up approach, and we just had some kind of slight timing differences on milestones and when we would expect those to be received.
That resulted in the very marginal downgrade to our cash flow from operations forecast.
With Pemex, we work with them on essentially two fronts.
The first front is what is all of the documentation and approvals required to allow us to invoice, and that is what we're working through on that $20 million from 2015.
And then once we invoice, we are finding them pretty regular on meeting their kind of payment deadlines.
So we work with Pemex on both fronts.
We're still very confident of the ability for Pemex to meet the receivables, and we're still very confident of them as a customer for us going forward.
This is <UNK>.
So as we said in the opening remark, the project is progressing extremely well.
We still see completion some time in the first half of 2017, which is been consistent for some time.
Most of the equipment is being delivered.
We're working with our customer.
Obviously there's two floating units to be delivered into the field, which we eventually will connect up the final pipelines.
Are there some future change of opportunities.
I would say yes, but that would be subject just to logistics and timing and changes in sequence and things like that.
But overall, we are very happy with the project, and the customer is very happy with McDermott.
<UNK>.
Yes, Steve, on the backlog question, so at June 30, 2016 we had approximately $370 million of backlog for INPEX Ichthys.
And we would expect approximately $220 million to roll off in the second half of this year, with the balance rolling off in the first half of 2017.
Steve, there is always opportunity that we may say, what we call some vick and burn activity.
And then obviously that is something very difficult for us to forecast, so there are some ---+ we ---+ potentially there are some opportunities, but as I said, don't have the visibility on it, and as was said, those vick and burn items, typically you get the call the day before and we're normalizing the day after.
So difficult for us to forecast that.
<UNK>, this is <UNK>.
As we look at the capital allocation or liquidity management, we still remain very, very conservative.
The macro-environment still has a lot of uncertainty out there.
We talk a lot about the prospects in our revenue pipeline, so until there is a very clear path out and recovery from this cycle, we will remain very conservative on our liquidity.
Because of that, we remain focused on cost, focused on working capital, and we also take a very conservative view on our capital spending.
We've been spending the minimum on maintenance related items to make sure assets are in full working order, and then the additional CapEx is mainly related around to project-specific items.
And I think that will be our stance until we see a firm recovery from this cycle.
In the short term, <UNK>, our focus is on to build the cash.
Okay, fair.
Sure, we continue to advance a lot of our supply chain initiatives in our general operations.
So those are outside of the McDermott profitability initiative.
So we are still moving and setting up all of the structure to go from a project procurement model to a global procurement model.
So we're working around master service agreements, commodities management, we are actually investing in some new IT systems to allow us to interface and manage and collaborate with our supply chain on a more real-time and efficient basis.
So we are progressing on our plan there.
We haven't given specific detailed numbers on our targets for savings, but we are finding ---+ I would say we are finding far more efficient ways to work with our supply chain, and within our project cost estimates we're still getting a benefit to the new relationships.
No, there hasn't been from a customer side, there hasn't been any, what I would say, any significant change.
I haven't seen any more of resting pushed into the contractors.
I think that the main thing that has happened is obviously we live in a very competitive environment, and whilst we will remain disciplined in our building up our cost and our pricing, is that we could anticipate that maybe some players may not be as disciplined as people become, obviously very hungry for backlog.
So that is one of the things that is potentially out there, but certainly from the customer side, I haven't really seen any material change.
Hello, <UNK>, this is <UNK>.
Actual structure for the contract in terms of the milestones and the documentation and the requirements for billing remain the same as our current contracts with Pemex.
As we know, Pemex moved it's standard payment terms from what were typically 30 or 60 days to180 days last year.
So the whole industry is adjusting to that fact.
We just continue to work with Pemex to ensure that there are no hurdles to receiving approval for billings and that we meet all of the documentation requirement under the contract.
Yes, going into Pemex opportunities at the moment, we look at all of the risks and rewards associated with the potential opportunity.
And we price accordingly, yes.
Sure, the bulk of the $150 million as a run rate is now in operation, so there's little incremental run rate going into 2017.
And I think as we've said consistently, we try and benefit McDermott with some of those savings, but given the macro-environment we are passing a lot of those benefits onto the customers in the form of reduced pricing in this very competitive environment.
Thank you, operator.
We appreciate you taking the time today to participate in McDermott's second quarter 2016 earnings call.
As a reminder this call will be available for replay for seven days on our website.
And with that, operator, this concludes our call.
| 2016_MDR |
2015 | VSI | VSI
#Sure.
I'll take that question.
As we look at the newer stores in the waterfall we are seeing consistent patterns, whereby in the second year of a store opening we tend to see growth of close to 30%, in the high 20%s to 30%.
And then that goes down to the teens in the second year.
And then third year, fourth year is generally in the mid- to high-single digits.
After four to five years a store typically reaches maturity and trends at the lower rate.
As we look at our mature stores for the quarter, overall they did comp negatively.
I would say as I ---+ as we back out the impact of cannibalization they are actually slightly positive.
Given the cannibalization impact on the newer stores, we are seeing an overall slightly negative comp.
April, as I referenced earlier, had similar trends to March, so that would lead to the conclusion that it was less than we expected.
As we look at the causes of that, it's really some of the same issues that we had in March.
The combination of the continued decline in weight management.
We also continued to have some service level issues with Nutri-Force; and keep in mind the BOGO event is all about our own brands.
So that would have more impact when running a BOGO, and similar trends we saw on the e-commerce side, as well.
<UNK>, first of all I'm glad you picked up that it was a long list because that's the way I'm thinking about it too.
There's a lot of opportunities.
It's a little premature honestly to try to force rank these.
It was a long conversation to make the decision to try to be as specific as I was in this script, because I wanted to make sure that I was able to help you see how many levers there actually are for growth I think within the Company.
I think now the harder work that we need to do is we need to prioritize, we need to sequence.
We need to also spend some time looking at our analytics and looking at the customer and making sure that we're clear about those steps that will get rewarded first and foremost towards our journey back to very significant growth in the future.
There's a lot of companies that have done this very, very successfully.
I've gotten the chance to be in a couple of them.
I'm pretty confident that given a few more months worth of time towards the back half of this year we'll be in a better position to lay out a very clearly articulated plan that will have a road map for growth in the future.
And I'm excited to work with this team to make sure that we can lock those in.
100% and also, <UNK>, trying to bring in some new external resources to combine with an excellent internal team so that we can take a fresh look at some of the areas of the Vitamin Shoppe that we think have been either underleveraged or perhaps undermarketed.
It's a very, very strong platform to start from.
We want to make sure that as we make the bets, we make the strongest bets possible to drive growth for the future.
In terms of seasonality of the Nutri-Force business, it's a little bit different than the seasonality of the Vitamin Shoppe, whereby the Nutri-Force business tends to have a heavy fourth quarter where it's really producing and shipping to support the stronger first quarter for the resellers.
However, for the Vitamin Shoppe there was ---+ you would expect some higher sales in the first quarter given the support of the BOGO.
Having said that, we talked about the service results; it was a bit lower than where we would have liked to see.
Going into the rest of the year, we do expect that the inter-company sales will dip down a little bit, but then ramp back up as we start to get the transition up and accelerated again.
One other thing I'd like to ---+ just one other note for everybody as a reminder of how of the accounting works for the inter-company sales, we do not recognize the gross profit associated with the $8 million in sales I referenced until we actually sell it through to the customer, which is generally a quarter later.
So, the $8 million of sales you see in the first quarter, the profit associated with those sales will be recognized in Q2.
So there's always that one quarter lag of when we actually see the benefit fall to the bottom line.
Absolutely.
As I mentioned, we are actually as we take a step back, yes we have some service level issues.
But as we really take a step back, we are ahead of plan of where we thought we would be.
So I'm still confident that we'll get to that end goal.
So a couple things.
I would say that Management and the Board continue to have discussions around many alternatives including ASRs, including taking on debt.
One thing I would like to point out with respect to debt is just to remind folks that on an adjusted debt to EBITDAR level, we actually ---+ our lever is somewhere in the 3 1/2 times range.
So there is leverage when you think about it that way.
Having said that there's still opportunity for more leverage.
However, before we make any major decisions around capital allocation, it's important that we finalize the strategic plan that <UNK> discussed.
So over the upcoming months we'll be looking at what investments might be needed to support our strategic plan and also evaluate whether there's additional opportunities for additional share buybacks, knowing that there is more room on the balance sheet.
Absolutely.
So I would say starting in the second quarter we will see improving margins.
We won't see year-over-year improvement, but we will not see the decline we had in the first quarter.
And a big reason for that I would start is with the promotional activity, which I mentioned cost us probably in the range of 70 basis points.
So we will not be repeating that.
As we go beyond the second quarter and ---+ I see opportunities to improve margins in a couple of areas.
One, I do expect to see improving sales.
As I mentioned some of the sales impact that we're experiencing currently are short term in nature.
And as we look beyond the second quarter we see the trends should improve.
And then couple that with the Nutri-Force business, we expect that Nutri-Force will be a contributor to margins in the third and fourth quarter.
Some of this is difficult to quantify because as you know in any business there are multiple variables.
But as we look at this we would estimate that the impact of the Google search issue is somewhere in that 3% to 4% range.
Correct.
Thank you.
I think as we look at the March business there were ---+ we start with the industry overall being sluggish.
At the same time the weather in March was worse than we expected.
As much as we hate to blame the weather, it's a reality.
And we put these promotions out there and we just did not get the lift that we expected between the weather, the overall environment, and quite frankly our execution probably wasn't the best that we've experienced.
I think it's important to point out the fact that we had put the website up in the month of February.
We saw good early results from that.
It was stabilizing.
We rushed this promotion.
We put it quickly in.
We were trying to salvage a little bit of our growth for first quarter.
It turned out to be a very, very inefficient spend.
And I think that's why you're hearing <UNK> be as emphatic as she is about the fact that it won't be repeated.
I think we learned our lesson from the execution weakness that we showed.
It's a different ---+ I'm sorry to cut you off, <UNK>.
It's a different dynamic.
The first quarter was a kind of a flash sale attempt.
It was a really quickly conceived of and executed promotion that did not play well because frankly normally on these type of promotions we're much more planful and we make sure that we've got it backed up with all of the right elements to get maximum bang for the buck.
What <UNK> commented about on the BOGO has a lot more to do with the in-stock issues that we've been facing with Nutri-Force.
And we feel comfortable that we're seeing decent execution at the store level behind this.
I just think one of the issues is we're just getting a bit of a drag as we go more vertically integrated.
Now we're executing across the board.
Given my previous employer and current I have a lot of experience in the diet category.
So I'd say there's unquestionable that we're sitting in a very negative media environment and there's a lot of ---+ there's just a lot of noise, most of it negative in the market.
I would also say trends are radically shifting in that category.
You look at areas like fitness trackers and other areas.
It's a ---+ the category that is starting to be satisfied by a very strong shift away from dieting into a much more focus on fitness in general.
And this is one of the things as we do a much more focused attack on customer insights within this company, which frankly we haven't had a big history of doing in the past.
Those types of trends are the trends we've got to stay in front of in order to take advantage of them from a merchandising standpoint.
Sure.
So with respect to buyback, we'll continue to evaluate buybacks on a regular basis.
I would say that our liquidity position is very strong.
We have currently $90 million of availability on our revolver and we do have the ability, solely based on our own control, to increase that to $140 million.
We have assets supporting that.
The only reason why we wouldn't do that today is there's no need to pay for the unused facility fees if we don't need it.
But the way I look at it is our full availability is really closer to the $140 million.
And then the second part of your question on inventory, with the Nutri-Force transition we want to make sure that we stay focused on in-stock position.
And as we transfer manufacturing from outside contract manufacturers to Nutri-Force, we are making sure we have sufficient inventory available so that we don't get out of stock.
And keep in mind also for the increase going into the first quarter at the end of the first quarter, we had to ---+ we typically do increase our levels of inventory to support the BOGO.
So couple things going on there.
This year certainly higher than what you typically would see because of the Nutri-Force transition, as well as I mentioned the third party logistics provider on the west coast.
As we wound down that operations, we did move some inventory out to the stores, so some of the stores held more inventory than they typically would as well.
So a few things going on.
As I look forward I still expect that we'll be, I would say, conservative with respect to our inventory levels for Nutri-Force.
And as we go through that transition I would then expect inventory levels to come back down a bit.
I want to thank everyone again for joining us this morning.
And I also want to personally mention that I'm looking forward to getting out to speak with some of our top shareholders and our covering analysts over the next couple of weeks.
Thanks again for joining us.
| 2015_VSI |
2015 | AZZ | AZZ
#Thank you, <UNK>.
Good morning to all of you on today's call and we thank you for your continued interest in AZZ.
It's good to have my first full year as AZZ CEO under my belt and to be able to report higher earnings and sales on a year-over-year comparison.
FY16 is a year of great potential for us.
But, we are also watching the energy markets carefully and evaluating the impact of low oil prices on our businesses, particularly those located along the Gulf coast.
Overall, I am pleased with our results for the fourth quarter.
The integration of the nuclear and industrial operations at WSI is complete and already generating benefits in customer service, improved efficiency, and effectiveness.
Our legacy galvanizing and electrical businesses continue to perform well in spite of some bad weather and lower rig activity.
We are making progress with NLI and key operational metrics are improving which bodes well for FY16.
We are gaining traction on several important M&A activities including a few international joint ventures.
We remain committed to maintaining a disciplined M&A process and never getting deal fever.
WSI is benefiting from improved operational performance and a more normal nuclear outage cycle.
The high refinery utilization rates and strikes in the fourth quarter did generate headwinds for WSI, but we are optimistic as we head into the new fiscal year.
We look for WSI to benefit from their continued international focus and rebuilt North American sales team and are seeing a high level of activity already in the first quarter of FY16.
Our galvanizing business is solid and has accelerated several new products and service growth initiatives.
The price of oil has a limited impact on this segment, but generally, we feel good about the upside in this business both for organic and inorganic growth.
We remain active on the M&A front in this segment.
For galvanizing services, we will continue to focus on operational excellence, pricing on our value, and continued growth through acquisitions and also new metal finishing services.
We have a fairly high concentration of galvanizing capacity in the US Gulf coast area, so are monitoring the economic impact of low oil prices carefully.
So far, the impact has been small, but we are seeing a few fabrication project delays.
For our legacy electrical business, the results overall are meeting our expectations with some businesses doing well and others being a little more challenged.
This platform's overall performance is reasonably good given their mixed market conditions.
The electric utility market in the US remains sluggish, but we have benefited from strong international opportunities and a good backlog.
We are optimistic about their opportunities as we enter FY16.
They are focused on establishing international joint ventures to provide quick market access and on improving their operational efficiencies in customer service.
The legacy electrical platform, as with galvanizing, has a stable leadership team and solid operating performance.
Also, some good niche technology.
The exposure to oil price impacts is relatively small for this platform and focused on the API [to being] hazardous duty lighting businesses.
These represent approximately 5% of AZZ's overall revenues.
We also focused on key fundamentals during FY15 and improved our tax position and emphasis on cash efficiency.
Additionally, we have aligned our incentive programs more closely with the investor community.
We have converted our profit-sharing program to a performance-based bonus program.
This program designed predominantly around operating income, cash flow, return on assets, and productivity.
To help drive results, every employee is now a participant in the incentive program.
We have also extended equity-based compensation deeper into our management ranks.
I'm happy to be here at AZZ and believe we have the leadership team, products, capabilities, and balance sheet to generate above-market results for a long time.
We have taken a lot of the actions during FY15 that have positioned us for a stronger performance in FY16.
Based on our confidence, we are confirming our previously announced guidance range for FY16 at $2.75 to $3.25 EPS and $875 million to $925 million in revenue.
Now, I would like to turn it over to <UNK> <UNK> to cover the financial highlights.
For FY15, we reported record net sales of $816.7 million, an increase of $65 million or 8.6% over the prior year.
EPS also grew 8.6% to $2.52, and our backlog finished at $332.6 million, up 2.3% versus last year and up 10.8% sequentially from the end of the third quarter of FY15.
We were also successful in two areas of focus for the year, taxes and cash.
Our effective tax rate fell from 36.5% in FY14 to 27.9% for FY15, and we posted 10.1% growth in cash flow from operations year-over-year.
That's up $10.9 million to $118.2 million.
As for our full-year segment results, FY15 revenues in our energy segment were up 10.1% to $458.3 million compared to the prior year while operating incomes fell 13.1% to $38.7 million compared to the prior year reflecting the effect of costs related to our previously announced realignment program and Project cost overruns at NLI and WSI recognized in the second quarter of FY15.
In our galvanizing services segment, full-year revenues grew 6.8% to $358.3 million, compared to FY14 while operating income rose just under 1% to $88.6 million compared to the prior year that was negatively impacted by severe weather conditions and higher zinc costs we paid during the year.
Looking at fourth-quarter performance.
For the fourth quarter of 2015, we reported revenues of $182.3 million, and EPS of $0.63 as compared to $181 million in revenue and EPS of $0.40 in the same quarter last year.
A fourth-quarter book-to-bill ratio of 1.18 drove backlog up to $332.6 million.
We expect to ship 24% of that backlog outside of the US.
The effective tax rate for the quarter fell from 39% in the fourth quarter last year to 14.5% in the fourth quarter of FY15.
As for our segments in the fourth quarter, revenues for the energy segment from the fourth quarter of FY15 fell to $97.2 million as compared to $103.5 million in the same quarter last year.
A drop of 6.1%, partially driven by the effects of strike at certain refineries.
We expect to be able to recover these delayed refinery projects during FY16.
Operating income for energy increased 6% to $9.8 million compared to $9.2 million in the same period last year.
Operating margins for the fourth quarter were 10.1% for the quarter as compared to 8.9% in the prior-year period.
Revenues for the galvanizing service segment for the fourth quarter were $85.1 million compared to the $77.5 million in the same quarter last ---+ same period last year, an increase of 9.8% from a combination of the acquisitions of Zalk, our Joliet plant being fully online, and organic growth.
Operating income was $20.3 million as compared to $18.7 million in the prior period, an increase of 8.8%.
Operating margins for the fourth quarter were 23.9% compared to 24.1% in the same period last year.
We believe that our ability to generate cash and our strong balance sheet are two of our core strengths and when coupled with the access to borrowings under our existing banking agreements, we can support growing our operating platform.
During FY15, we paid down about $68 million in debt, driving the year-end balance of $337.8 million while further improving our leverage ratios.
We also used our cash to purchase the Zalk galvanizing business and to increase our dividends to our shareholders.
I'm very pleased with the progress we have made this year on key fundamentals like cash flow generation, working capital, management, SG&A cost control, tax efficiency, and creating a much greater focus on returns on capital deployed.
For FY16, we expect to continue on driving returns on capital, cost control, and cash generation.
And, we expect to achieve an effective tax rate closer to 33% for the year, although there may be variances between quarters.
With that, I'll turn it back to <UNK> for concluding remarks.
<UNK>.
Thanks, <UNK>.
The key takeaways I'd like to leave you with are these.
I believe AZZ remains a compelling investment due to our 28th year of profitable operations, our strong balance sheet and cash flows, rate portfolio of products and services, significant international growth opportunities, and a talented and seasoned leadership team.
We will continue to focus on growing our galvanizing business both organically and through acquisitions.
We will continue to expand the presence of our electrical businesses internationally, both directly and through joint ventures.
We are accelerating our emphasis on operational excellence and customer service at both WSI and NLI.
While we have made significant progress over the past year, we have tremendous upside going forward as our leadership team continues to gain traction on our key initiatives and our customers experience the improvement in our service performance.
We are looking forward to continued improvement in our businesses and greater impact from our new growth strategies as we enter FY16.
Thank you for your participation on the call today.
Now, we'll open it up for questions.
The weather impacted our volume a little bit in the quarter.
Particularly, along the Gulf coast, there ---+ as I mentioned last time, we did have some new competition come into the market, so there are some pricing pressures.
And, quite frankly, the growth in the Gulf coast market didn't really materialize as people have been expecting with a large petrochemical buildout for obvious reasons.
Also, we've taken some large projects at lower prices.
The cost of acid has gone up fairly significantly.
Those are all the things that have happened in the last couple of quarters to our galvanizing business.
I think, going forward, we are seeing more stabilized cost on acid.
We've got a lot of initiatives to reduce our usage of acid and the fact that we are driving project activity and the new products, I think, are going to have a positive impact going forward on our margins.
New services taking on ---+ providing more all-inclusive service capabilities to the customer base in the form of more sandblasting, more pickup and delivery transportation services.
Trying to be more of a ---+ I hate to call it a one-stop shop.
But, because of our size and our presence in so many parts of the country, we are well positioned to take on additional services.
And then we do have some new technologies that we are not quite ready to talk about that we think will have impact more toward the end of the year or even in outer years.
I think the good news, for us, and what we are looking at, is our quoting activity into the nuclear segment is up, and we are seeing not just more opportunities, but larger opportunities in both our WSI and NLI operations.
So, when we say it's normalized, it's because we are seeing more activity in the US marketplace.
We do have some international initiatives.
For the most part, it's ---+ our coverage is US.
So, our sales organizations are feeling better about what they're seeing.
They are seeing more activity, and whether it's more outages ---+ I haven't looked at the numbers in the last month or two.
But, at least there's more activity on the outages that we are participating in.
Very comfortable with the structure now.
I've got three good general managers over the three different business segments.
The Vice President over legacy electrical has been here, I think, 27 years.
Long-standing executive.
Once we integrated WSI, and really integrated the leadership team, integrated the operational structure between nuclear and industrial, we still have separate sales forces in that organization.
The Vice President and general manager over WSI and SMS, real solid performance.
It doesn't really show up in our numbers that much yet, but they've made a lot of headway.
And, we are seeing it in how we are quoting, we're seeing it in the ability to take market share because the sales force is back in place.
And, just the better level of service and management that we are bringing to bear there.
Then, on NLI, the general manager there was brought in, I believe, May of last year.
So, coming up on one year under his belt.
Once again, the results aren't reflecting it yet in the financials.
But, our on-time deliveries are up.
Our cost of quality is down.
The plant is a different plant than it was a year ago.
Feeling good about that organizational structure.
You pretty well nailed it, Sean.
<UNK> will probably comment here in a second.
NLI will not have those really ugly ---+ what they did ship was ugly, as we've talked about.
They took some pretty large losses on jobs.
Those are gone.
The projects that remain in their backlog that are delayed are much better margin.
And, mostly around our performance on those jobs is far better.
In the legacy electrical, that's pretty much normal stuff.
We will anticipate a little bit of improvement there from operating improvement activities.
A little bit of some of the international stuff, and then we are anticipating much better performance out of WSI.
That is just where mid-single-digit margins was kind of ugly, and it is indicative of all of the changes that one, needed to be made.
But, two, in my view, we were late making them by about a full year before we really integrated the management, put the businesses back together, started to leverage the operating platform, and leveraged the resources.
So, all of that is behind us.
So, yes, we are looking for 100, 200 basis points, is well within my expectations.
<UNK> may want to give you a few more specifics there.
That's exactly it.
I actually won't give you specifics on where we are going to put those segments.
I think <UNK> nailed it.
We've been talking about it for the last year that really the value here is getting NLI and WSI turned around, if you will.
We've been talking about this for a while that we see WSI is definitely answering the helm.
We see improvements going on there.
They ran into a little bit of headwind in the fourth quarter based on the strikes.
Otherwise, the operating margins were actually up on the energy side of the fourth quarter, year-over-year.
We are expecting NLI to do the same thing.
We are starting to see the green shoots of spring come forward there, and those are going to be the two areas of improvement for the year.
That's our expectation.
There is actually ---+ it's hard to put an exact number on it.
We think that it's probably, revenue-wise, around $6 million to $10 million-ish.
I will also say, <UNK>, that from what we've seen those strikes are over.
They're still negotiating in a couple places, but that's done.
<UNK>, this is <UNK> <UNK>.
What we're seeing on the transmission distribution side is some nice upticks.
It remains stable.
We are seeing a much more solid year ahead of us than we did last year.
On the solar market, we are still seeing nice, steady growth in that area.
It's much smaller projects as we discussed in previous calls, but it's still good, solid business for us.
We've seen some nice ---+ in fourth quarter especially, we saw some nice projects rolling forward.
It looks to be solid for us throughout the year with some impact of the oil prices still remains a little sketchy going beyond FY16.
Right now, what we consider the industrial market is so well diversified we are looking at it to remain stable for us throughout the year.
We are seeing a little bit of weakness on specific projects, but overall, the OEM outlook remains very solid for us and is overshadowing the little bit of weakness we are seeing in the industrial market.
Sure.
That's a couple of good points, there.
We don't have a large international presence.
WSI is located in ---+ has a facility in Poland and headquartered out of the Netherlands.
We've got some new operations, relatively new operations, in Brazil, and then we've got several of our businesses are up in Canada.
As we look at a lot of the growth opportunities for our high-voltage bus and our medium-voltage bus products are in the Middle East and in China.
We need to have more of a local presence, and we really just don't want to go by ourselves in this case.
So, a big factor there being speed to market and familiarity with the rules and customs in the regions.
That's where we have a lot of opportunities, and those opportunities are going to continue for several years.
That's where we are looking at joint ventures.
The new Vice President of business development that we brought on a few months ago has very good contacts in those areas and is very seasoned in those international markets.
As well as, most of the people we've either promoted or brought on into the ranks on the team have a lot of international experience.
We feel very comfortable at this point.
We are in some negotiations.
Obviously, I don't want to get into any specifics.
Over the next quarter or two, you'll see some of those announced.
I think that ensures that the opportunities we are bidding today we will be able to close and bring in and that's on the electrical side, primarily.
Although, we have made some additions to the sales team primarily on WSI and NLI to focus on the international side.
Then, we are looking at some new reps, and we've tightened up our rep agreements.
But, at the same time, we want to change over some of the reps that have been around a long time and haven't generated much for us.
So, as we go into ---+ and that would include Latin America.
Because, we've been doing some things on the technology front for some of our products so that they comply with international electrical standards, and we can move them into Latin America relatively easily.
We've kicked off an initiative there that's been underway for a relatively short time.
On the pure acquisition and divestiture side, we talked about the divestitures were on the electrical platform related to more of the oil and gas side, and we put it on hold.
The pricing in that market, right now wouldn't be conducive to divesting assets that are reasonably good for us.
We just think that there's probably other people that can do more strategically with them than we can.
But, we're not willing to give them away.
On the acquisition side, I think mostly it is around galvanizing.
I don't think ---+ it is mostly around galvanizing.
We've got some good activities ongoing.
Obviously, we've got NDAs in place on both sides of those so we can't talk about them.
But, we've been ---+ they've been underway for a few months.
These are not brand-new things.
These are ones we've been negotiating.
So, you can anticipate.
Hopefully, we'll have some positive news here over the next few months.
No.
The organic growth rate.
The difference would be Zalk, and ---+ I will put you in the ballpark on Zalk.
It's FY15 versus 2014, your revenue is up about $4 million.
Back from zero.
Well, tell you what.
Actually, I'm not going to call it mix.
(laughter)
Yes.
I think we are seeing some operational improvement on the energy side.
It's still early days, so that should improve as the quarters play out in FY16.
I hate to call it mix, too.
I think, when we look at ---+ we are trying to drive margin up in all of our businesses on the energy front and, like I said, you will see the benefit of improved margins at NLI.
They were up in the fourth quarter.
But, it's still pretty marginal.
(laughter) Basically, everything was up except for what we saw going on with the headwinds at WSI.
You are getting a nice positive tailwind from all of them.
It's kind of across the boards.
We're seeing some upgrade projects.
We're seeing some safety-related projects.
We're seeing just the delayed components for maintenance are now being ---+ are now active.
So, it's like they've got to spend some money now to keep their facilities running.
They've stabilized around what the regulations are.
Even though, as we read pretty regularly, they are not real profitable.
These are just activities they have to go forward with and some of it is compliance.
Most of it is just the delayed maintenance that needs to take place.
Nothing.
On the nuclear side, there is noise out there, but nothing that I'd consider even firm enough to be budgetary quotations, at this point.
(multiple speakers)
I think that it falls into the fourth quarter and then quoting activity for the fall season turnaround cycle is also pretty high.
Those are things that I ---+ how quickly they actually spend that because there are some offsets.
There are some companies that are delaying maintenance activities due ---+ the integrated oil companies.
So, it's a little bit of a mixed bag, but we're very active right now in the first quarter.
And, we are very active on quotations for the fall outage season.
So, whether it's falling into this quarter or it's going to file later in the year, they are going to happen because this is maintenance that needs to occur.
I think there's a couple of things.
One, the sales organization on the WSI side, the rebuilt sales organization, is already allowing us to either regain old market share or take new market share, whichever way you want to look at it.
Also, as they are doing that, they are back out there selling our value and the real high-quality solution capability that WSI brings to coker vessels, to containment shells.
The things like that, that there's not a whole lot of companies out there to do.
We lost those relationships.
So, I think part of this is, as we are able to demonstrate that value again to old customers that may be coming back to us.
You are looking at a couple hundred basis points down the road for them in the longer-term.
We will see maybe a little bit of it this year, but I think most of it actually comes post-FY16.
Over and above what we already have in our guidance for this year.
NLI, we've got to normalize that business and decide what it really needs to be going forward.
There's some decisions we need to make.
It's going to have a big shipment year this year because of the delayed big projects in its backlog.
So, this year would actually be somewhat of an anonymously just like FY15 for NLI was an anomaly on the low side.
But there, we are going after new services.
We have invested some capital in new equipment for seismic testing, for instance, and I think on a normalized basis, once again, I'll stick with that 200, 300 basis points of margin improvement beyond this fiscal year is where we are trying to take them.
In the NLI case, we may decide to maintain them at a somewhat smaller revenue level than we have this year.
Those are the things that we'll talk about as this year wears on before we get into next year.
Yes, correct.
I think WSI, they've got their marching orders.
The team is in place.
They've been taking the actions.
The sales force is rebuilt and engaged.
Internationally, they are in good shape.
Poland is a great operation for us.
Brazil has come up nicely, in spite of lower activity levels at Petrobras.
NLI, the team is in place.
They've taken a lot of the actions.
We've got to clear this backlog that we've been talking about, and then see where we are at.
It's <UNK>.
I'll stay consistent with what we have said in the past, which is we are a lot more comfortable between one and two times leverage than over two.
Obviously, we are paid down to ---+ do the math yourself, but probably about 2.25 turns of EBITDA right now.
We've done the other things.
We made small acquisitions ---+ or made small acquisition in the last year, and <UNK> has already talked about we are active in M&A.
We will continue to drive for that low leverage and utilize the cash flow to add on to the operations of the business.
We are not calling that out right now.
I would say there's a normalized level that will stay about the same.
But, if we look at some buy versus build for the year, maybe we'll be talking about that more later.
We are taking a look at a couple of things.
Very good.
Thank you for participating in today's call, and we look forward to talking with all of you again at the conclusion of this current quarter.
Again, thank you and have a great day.
| 2015_AZZ |
2016 | SAIC | SAIC
#I think, given the breadth of the task orders and volume, most go through a fairly logical transition phase.
Recompetes obviously are just are sustained, so there's very little variance to the revenue stream, and then the puts and takes on the awards I think move forward.
So I think you'll see very consistent revenue run rates.
We've still got the modest variability on supply chain.
But I think overall, we're still confident in those long-term targets, given the recent awards and expectations on conversion of probably that $16 billion on a recurring basis.
So we'll keep track of that, but expect it would be a very similar, with some modest upside.
Thanks, Mike.
Thank you.
Hi, John.
Sure.
On the recompete side, with POLCHEM, it's a defense logistics agency contract, it's a recompete.
We expect that to be awarded perhaps in Q4 time frame and fairly soon.
We don't expect it to have a material impact in FY17 results, as that plays out.
But are confident we submitted a very competitive proposal, and we'll see how that goes.
So we'll report on that based on its outcome, but no impact until really 2017.
And with the NASA EAST award, in the past we've really retired a lot of the recompete challenges this year.
And in reference to AMCOM, as we've talked about, the Army is pursuing a broader acquisition strategy, and converting some of the AMCOM task orders in part to the OASIS, just a OASIS vehicle.
We've been successful in tracking two of those transitions from AMCOM to OASIS, and we're working with the customer, and attending (inaudible) and the like, to follow their subsequent acquisition process and conversion.
That will still play out probably over the next year, as they work to divide up the task order volume.
There's a wide number of task orders under the AMCOM BPA.
We can sustain a lot of our revenue through that, so not all of it is in the migration mode.
But some of the larger ones that we've talked about, are being realigned and with some a movement to OASIS.
So fairly steady, revenue streams on AMCOM very solid, and we're just working through the acquisition process to further secure that work under the different vehicle.
And that will take probably a year to sort through.
Let me address the POLCHEM, and probably I'll restate that second part.
POLCHEM, it runs in that $125 million range.
It's in that ballpark, just north of $100 million.
The volume obviously fluctuates, but on an annual basis it tends to deliver that much material volume, just to give you a ballpark.
I'm sorry, what was the second part of the question, <UNK>.
Yes, very similar process as the government, both on the mission side as well as acquisition offices, redefine the scope.
So it's a fairly consistent process in AMCOM, and it's actually very consistent with our other customers, as they look to recompete certain work.
Sometimes the statements of work are very similar.
In this case, they're electing to realign if you will, repackage, mission areas slightly differently, and then put those out as individual task orders under OASIS, as opposed to operating under sub components with the large task order that we've been operating under.
So a very consistent process, it's one that we've seen before, that they've utilized.
It's really just a different set of scope that we're very familiar with.
| 2016_SAIC |
2015 | MU | MU
#As we think about our business, we think about the end markets, where they're going, and where the products will be ---+ generate the highest return, and as we achieve our strategic objectives in NAND.
And on a competitive basis, okay, we believe we will be closing the gap between our competitors in the second half of our fiscal year, and throughout 2015 calendar.
We believe that will happen.
TLC, today, is less than 10%.
It's not a large number today.
And as we ramp our fabs, it won't be materially much larger.
We will see some growth in the back half of the year, but it won't be materially much larger.
Because we've got other parts of our business, whether it be mobile, or I talked about the success of our MLC 16 nanometer product, a Tier 1 OEMs.
And so we will seek TLC growth at Micron, but we're not going to do it just to do it.
We need to make sure that we're getting the right value for it, and that's important to us to run our business.
Yes, I think, for us, this question around FX is really more a question around what is worldwide GDP growth going to be.
We are a global company.
We've got global customers.
Some will do better in some FX situations, and some will do slightly worse.
But unless something dramatic happens to worldwide GDP growth, we think we're pretty well positioned with manufacturing all around the world, and with customers all around the world, some of which will do better under certain circumstances, and some of which won't.
So we are not overly worried about it.
Obviously, we have manufacturing in Japan, and there's a certain cost reduction associated with the weakening yen.
Obviously, we've got some manufacturing in Singapore, and certain costs associated with the strengthening sing.
But net-net for Micron, these aren't huge effects.
Absolutely.
We plan a lot of equipment reuse as we transition planar NAND to 3D NAND.
I assume that was the question, is 3D NAND transition.
So there is incremental equipment required, there is incremental floor space.
There is some amount of tooling, all of which can be reused in other parts of our ---+ or the vast majority of which can be reused in other parts of our business.
Generally speaking, we will trade out planar NAND wafers for incremental ---+ for 3D NAND wafers.
And we think that is the most capital-efficient way to run the business.
Yes, sure.
It's almost always a short-term drag on GM when you make the transition like this.
You've got new tools coming in, takes a while to qualify them, get them loaded, et cetera.
And there are inefficiencies associated with yield ramps, et cetera.
So we are pretty comfortable, by the time we get to late in the year, late in this calendar year, we'll be looking pretty good.
We would be willing to do that, if we thought the market situation were such that that would make sense to us.
I can't actually foresee that, sitting here today.
Clearly, as we think about our plans for 2016, and things a little bit further out, we will take into account where the market goes over the next number of months and quarters.
But as we sit here today, we just told you, we think things are looking pretty good.
So we're not anticipating making any major changes, as we sit at the table today.
I think directionally, where you were going initially was right.
We think, over time, that it will decline as a percentage of the mix, and a lot of it does depend on the business.
But I think directionally, that ---+ we think you are spot on.
Yes, I think absolutely.
In full transparency, we are coming off of a somewhat lower base.
But I think we've stated, in prior calls, I will state today, that we think eMCPs for the mobile business, coming out of our fiscal year, will be somewhere around 25%, a little bit lower than 25%.
But somewhere up from zero in the last 12 months.
So we ---+ as you identified, it's a strategic play for us, leveraging our portfolio.
And quite honestly, given our makeup in the mobile business, we think we've got an advantage over just about anybody in the space.
We are not going to talk about intellectual property strategy, <UNK>.
But I can tell you that we do the ---+ we fund the development together.
We do it jointly, and we both own different pieces of the intellectual property.
But beyond that, there's not a whole lot I want to talk about.
I think we ---+ I will go back and give you some of the comments I gave earlier.
We think that PC DRAM in the quarter will be down from mid 30%s in Q2 to low to 30% range, and we think that that will signal increases in other areas, such as mobile in the mid 20%, server in the low 20% of our business.
And so we see a blend.
It's not just one category picking up for the PC business.
Mobile will get some more capacity.
We will allocate some server, some PC business to ---+ bits to server, and we will look at networking [out of those], as well.
So that's the full suite of things we evaluate.
<UNK>, I think in the business, we said basically flat on shipments, and we normally don't say a whole lot more, in terms of future guidance.
But I think you can suggest, that ---+ from our other comments around, we're going to do what's right for the business, and drive the right return in margins, and there's not going to be a fire sale, by any stretch.
Go ahead.
<UNK>e, <UNK>.
Let me take that.
So the data I spoke to in my opening comments was that in Q2, components shipments was ---+ includes cards and components.
And that is somewhere around the area of 50% of our overall shipments in the quarter, Q2.
In Q3 alone, that number will be cut by 30%, as we start to the transition of what you just highlighted, away from component and card sales, to mobile and SSDs.
Part of that dynamic, by the way, and discussing how this plays out, is we now will be shipping, in the quarter, 16 nanometer MLC qualified drives that were in process, and didn't have that volume in Q2.
So the move from components and cards to mobile and client SSD, based on 16 nanometer, certainly is a positive move for us.
As you say, we move up the stack.
And we continue to drive things like enterprise ---+ drive both in PCIe and SaaS, as we explained earlier.
That's how you should think about our target.
And I mentioned also, I think we gave guidance that NAND bit growth will be flat to down in the Q3 timeframe, as we think about the evolution for 3D manufacturing set up, as well as a switch to some of our (inaudible) towards 16 nanometer TLC.
We think that all resonates to a better optimized mix of products for our NAND portfolio.
I think that, <UNK>, it's safe to say that we feel pretty good about our position there, both existing 25 nanometer LP DDR4, as well as our 20 nanometer LP DDR4 offering.
This is less about Micron readiness, and more about customer demand lining up for the back half of the year and beyond.
And it looks like we have time for about one more caller.
Yes, <UNK>, this is <UNK>.
So we talked, this quarter, about how we were doing exactly what you just mentioned, which was in fiscal Q2, we made some adjustments in our manufacturing line to start positioning equipment for the 20 nanometer ramp.
These things are always about balance, and certainly the market today is not the market of last year, or the year before.
We have pretty broad diversification of end segments and customers and products, where we feel pretty good about our ability to move some stuff, over time, if the market demand is not there this quarter.
Now, we don't know exactly what the market demand looks like this quarter.
Maybe we end up not holding anything at all.
We've left ourselves some room to maneuver there.
But we're trying to strike a balance between what you're suggesting, as well as just building product, and then seeing what the market looks like.
Yes.
So just on the R&D piece, there are a lot of different dynamics in play here.
Obviously, we've got a lot of new 20 nanometer products that we are going to want to qualify and ramp.
And so we're always wanting to make sure that we don't let the R&D dollar spend get in the way of qualifying products on a timely basis, and getting to the market, as you just suggested we should be doing.
So there's that dynamic.
There's also ---+ I think there is an overlying dynamic of ---+ as we start thinking about some of these storage class memories that we talked about making investments in, and as we start ---+ continue to add resources to position the Company to lever system-level products, that there are ---+ there is a different nature to the R&D spend than there has been historically, as well.
Over time, we may spend less on some of the other things we spent R&D dollars on.
But what we're talking about right now, in terms of the next number of quarters being up a little bit, I think it's more related to some of the short-term dynamic around technology ramps and new product introductions.
And with that, we would like to thank everyone for participating on the call today.
If you will please bear with me, I need to repeat the Safe Harbor protection language.
During the course of this call, we may have made forward-looking statements regarding the Company and the industry.
These particular forward-looking statements, and all other statements that may have been made on the call that are not historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially.
For information on the important factors that may cause actual results to differ materially, please refer to our filings with the SEC, including the Company's most recent 10-Q and 10-Ks.
Thank you.
| 2015_MU |
2016 | CC | CC
#It's a good question.
If you look at fourth quarter of last year, they were down.
They seem to have rebounded a bit, as you said, in the first quarter.
As we look at that, it looks like that's happening in Asia, Europe, and it's always been in Latin America for the most part.
I think it's just filling some voids of volume.
We're haven't been able to do a pure market share look yet, but I think it's primary filling in as volume.
We have seen volume or demand increase in Europe.
We have seen a demand increase in Asia, a little bit stronger than we thought, so I think it's more aligned with demand poll than it is about market share gains.
That's at least our assessment at this point.
I think it's a pretty normal trend in terms of when you look at the cycle throughout the year.
I would say that's within the realm of normality of this business.
Obviously, <UNK>, we don't give specifics on price from that standpoint, but what I will say is we've been invoicing our customers in the first quarter around the world at the new prices as our contracts allowed us to do that.
As April has come through and North America 90-day roll-off occurred, we're invoicing at the new prices with all our customers as we ship them today, so the new prices are basically in effect basically all around the world right now from the first increase that we put in.
Obviously, we announced the second increase and that will play out over the next several months, but the first increase is now fully implemented across the world.
We got a good yield from price.
Again, we don't go specific in terms of our pricing to customers but we feel very confident on the yield that we were able to get.
We don't break that out, <UNK>.
And let me just make it clear to everybody, PTFE is an integral part of our fluoro business.
It's a precursor for so much that we have.
So I'm really not sure how reports happen.
Rumors are rumors and we don't comment on rumors, but the PTFE business is an important business to us.
It's connected into the chain.
The beauty of our fluoro business is we go from fluoro chemicals all the way through to fluoropolymers and that's what gives us a competitive advantage across the board.
So it isn't something that we would naturally look at hiding off.
<UNK>, obviously, as prices increase, that headwind decreases.
As we have said, and I said in my opening comments, we are very determined to improve the profitability of this business, both on the pricing side as well as on our cost side.
The only way to do this properly is you have to work hand in hand with your customers and that's what we're doing as we're implementing the two sets of price increases, we're working hand in hand with our customers to make sure they're getting the volumes that they need.
We're getting them so that they can handle the pricing through their channel in the right way.
So I would say that headwind will decrease as we're more and more successful with the price increases.
Bear in mind that we're starting the year with price increase ---+ the price delta year-over-year, more than $400 a ton.
So $200 is an average for the full year.
Yes.
Latin America continued to be a weak area.
If we go around the world, we see very strong volumes in North America, with a good solid coating season.
We're very encouraged in Europe, strong volumes.
Asia, surprisingly a little bit stronger than we had even planned for, but Latin America continues to be difficult across the board.
Yes.
We got you.
How are you.
Yes, <UNK>, actually, we're going to do both.
We're going to operate Altamira full-out.
It takes a while to ramp up, so that full-out will be different volumes in the beginning versus 18 to 24 months later, but we are going to basically utilize that full facility because it is our lowest-cost facility.
But as we said, we're going to ramp down the other parts of the circuit so that we're not adding more capacity into the marketplace beyond what our customers need.
I know that sometimes confuses folks when we talk about that, but we just have this unique opportunity to do that with our ore blends, to be able to really scale down some of our facilities.
And if you look at our inventory levels in the first quarter, we're actively managing our working capital.
We brought inventories down, but it's also getting our inventories in the right place on these other facilities that will be ramped down as Altamira comes up.
So this is all the planned out very well.
We think Altamira is still on track for this quarter's start-up, but we'll operate that full and it will ramp up as we get more confidence in the facility.
We are looking at the whole sulfur business, evaluating what we want to do with that sulfur business and all aspects of the look are there in terms of selling, keeping and partnering with others.
So all that is in play right now, <UNK>.
Hi, there.
Yes.
Altamira specifically, you've got to remember that Altamira, as we mentioned, always has been ---+ we've always said that it's our lowest cost production facility, but on top of that, it gives us a lot of flexibility in terms of how we ship.
Because we have duty-free status so many places in the world.
It just gives us a lot of flexibility in how to utilize that facility in terms of whether we shipped it into NASA, whether we ship it into Europe, whether we shipped it into China or Latin America.
So a lot of flexibility from that standpoint, so we'll maximize that opportunity as we see fit and the asset just allows us that total flexibility.
As we look at the globe right now, I would say as sort of I mentioned in the previous comments to <UNK>, we're seeing very strong demand in Europe and in North America, and good demand over in Asia.
So I think we'll continue to work with our customers to ensure they have the product that they need wherever it is in the world and our assets really give us the flexibility to be able to deliver that when and where they need it.
On the finished product side we like to operate somewhere around 60 days, where we're probably slightly under that right now.
But on the ore side, that in the past has been dependent on the opportunity we have for ore buys.
So I would say we haven't been that stringent on what ore inventories we would have because we've always looked at where is the opportunity to buy because of the flexibility we have in different types.
We have just put a bit more discipline in the system over the past couple months of trying to get those a little bit tighter and that's why you have seen our ore inventories come down over the last quarter.
Yes.
So the $230 million overall is split between those three years.
The heavy part of that is going to be 2017 and 2018, versus 2016, 2017 probably being the heaviest.
So think of the majority of that spend being in the last two years.
But, again, as we've been talking, we've been working on how to ramp down our total CapEx throughout the next couple years.
And that fits all within our plan.
So as we look at the Opteon spend, it's in the total context of what we're trying to do with CapEx and taking it down from the very high levels it was last year as we slowly ramp that down to the levels that we think are sustainable in the future.
Yes, <UNK>.
I would say that's really where we're trying to get the Company.
It really has to do with where we're going with run and maintain CapEx, it has to do with where we are on our portfolio.
Chemsal assets were, in many cases, very CapEx heavy.
I would say our focus continues to be first on being free cash flow positive, which is part of our outlook for the year and to have CapEx ramp down over time.
So all of these growth initiatives on cyanide and in Opteon were contemplated in getting our CapEx down to 350 over time.
Sure.
<UNK>, I would say, just speaking specifically about fluoropolymers, we have a ---+ what we're seeing is a little bit of a mix shift.
We're selling more in the industrial side than we have been in the consumer electronic space.
The consumer electronic space, because of the slowdown there is really the reason that demand is a little bit down.
Higher margin opportunities then on the industrial space.
So that's the mix change we're seeing there.
The best way I could tell you to look at our fluoroproducts business as a whole is the upside in that business is really Opteon and our cost reductions from the transformation plan.
Think of the rest as sort of balancing each other out.
And that's how we manage the business.
We obviously try to improve that as going forward.
But that's the best way to think of it.
Think of the upside is Opteon growth and the transformation plan cost reductions.
What we said is $100 million of EBITDA over 2016/2017 period.
It's hard for us to call that any tighter for you right now just because it's so dependent on the ramp-up that occurs between now and the end of the year.
It's real clean for us to see that in January of next year, but hopefully as the quarters progress here, we'll be able to give you a little bit better picture of that as the ramp-up occurs.
<UNK>, it's <UNK>.
We had indicated on our last call that we thought there was probably a couple hundred million dollar working capital opportunity and obviously, we expect seasonality to still have an impact, which it did in the quarter.
But being free cash flow positive this year really ties to the improvements we plan to make in working capital that we'll see throughout the year on a secular basis.
Hopefully what you are seeing, <UNK>, and others are seeing is this is being managed.
So this working capital work that <UNK> and the team are leading is really driving working capital down on a consistent, sustainable basis and that's really what we're trying to do within the Company.
So if you look at the three businesses: C&D, Aniline, and sulfur, the bulk of the CapEx spend of those three is probably in our sulfur business, and just because it's a high-maintenance type of a capital business, so all in all, I'm not sure we have sized them out.
Let me ask <UNK>, <UNK>.
<UNK>, if you look at our entire chemsal business, including everything last year, it was about a little over $100 million, maybe about $117 million, if I remember the numbers correctly.
So that is really the starting point and, as <UNK> said, we take CapEx out as we move forward.
Obviously, sulfur is one of the larger businesses in the portfolio, and also a fairly CapEx-heavy business.
Yes, we're looking at both.
We're talking about strategics as well as sponsors around this.
It's an attractive business.
It's a very profitable business, and as I mentioned in the opening comments, it's something that we're happy to continue to run.
We're just looking for the maximum value for all of our shareholders and stakeholders here.
So from that standpoint, if we don't get the maximum value through a divestiture, we'll get the maximum value by operating these extremely well.
So I think there's interest in these because they are very high-quality assets.
And we'll see in the next few months exactly where we go here.
I would say that we are working with every one of our customers to implement the price increase and, as I mentioned, all invoicing going forward, or all of our pricing going forward is with the new prices.
So we're working with everyone through this, independent of the size.
The only thing I would add to that, <UNK>, is we're seeing net price improvement everywhere and that's how we're measuring this is our net pricing improvement.
So listening.
Thank you all very much for all your questions and always the interest you have in the Company.
In closing, I just want to say we continue to work really hard on transforming Chemours into what we're calling a higher-value chemistry company.
Our focus remains squarely on continuing our flawless execution of our transformation plan, which we have all shared with all of you and delivering $500 million of improved EBITDA in 2017 over 2015, while we significantly improve our free cash flow and reduce our net leverage.
So again, thank you all for the questions.
Thanks all, for your interest in Chemours.
| 2016_CC |
2016 | GDOT | GDOT
#Yes.
The answer is it has because we've lost, and this is what I mentioned in the prepared remarks.
It's a good question.
I'll give you some color on it.
We've lost the repeat one-and-done customers.
That was part of the design of the products.
A significant part of our customer base used the products as a free throw away product, which is not their fault, it's our fault.
That's how we essentially designed the product and they were taking advantage of it.
The card was cheaper than a gift card.
So you could buy a Green Dot card or a Walmart card, you buy it; it's a couple bucks to buy to cheaper than a gift card that maybe is $5 to buy.
You buy it, you register it with a fake name, like Rumpelstiltskin or something.
We decline you, right.
We are not going to approve you for the card.
But you can spend down the card in the package and they do it and they pay their Verizon bill or they pay their Sprint bill or whatever it is, or their DirecTV bill, it was a very common one.
And they throw it away.
And they just do that every month.
But every month we are doing a CIP and going out to Experian to get their data and to Lexus Nexus and we are sending out plastic in the mail and all this kind of thing.
So you are sitting here running a fulfillment cost and, of course, the retailer commission because the retailer gets paid whether that customer turns out to be long-term or short-term.
So you're sitting here with an acquisition cost that is maybe $6 or $7 all in and a customer who, by the time we went to collect the fee, was already long gone.
They had made their bill.
They used it up; they threw it away.
And that's the way it's been for years with the Company.
So it shouldn't be a surprise to us that it encouraged one-and-done behavior.
The other thing that we used to do is we sold cards for free on promotion.
And we may still do that.
It's a great way to get people into the card.
But for a long time, we were free at Walgreens, we were free at Rite Aid, I forget where else, we may have been free for a little bit at other retailers.
And you generate these massive amounts of unit sales.
The quality of those customers were horrific.
You'd see our revenue rise a little bit, then you'd see EBITDA get crunched as these customers just generated losses and repeat losses.
So what we've done is we peeled off by design that layer of repeat one and dones and the card is priced now where you're more likely to want to reload it.
You've already bought it, you've invested in it, it's now cheaper to reload than it is to buy a new card.
Before it was cheaper to buy a new card than it was to reload ---+ and we've changed those dynamics.
So we don't look into our market share as unit count because that's somewhat frankly irrelevant to the long term.
Obviously, it's important, intake fact, but I'd rather sell, let's pretend 10 card holders who are reloading and generating strong lifetime revenue, than 100 guys where we're losing $1 per card.
The answer is we are still far and away the share leader, but we have absolutely given up some unit sales on the rack and we are okay with that.
Now the question is ---+ in fact, it was part of the design ---+ now the question is how do we sell and introduce the cardholders to a different kind of customer segment that people are buying us now and say, Green Dot is for the serious prepaid card holder and generate more of those customers.
It's gone very well so far, as you can see, but we want to make sure that we get that out there.
The mantra in our sales effort is to cut expenses, sell more quality cards.
Cut expenses, sell more quality cards.
It's a very simple metric.
You'll see our promotional activity, or if you see what <UNK> Harvey talks about on his TV shows, or any of those, you'll see where the thrust of our promotional effort is.
So the answer is we don't really, we clearly have an expectation for new card sales, but we model based on active cards.
So the active cards we assume would be within a certain range.
I forget what it is, a few points up or down.
I think we are basically within our range of that.
Ultimately, it's a combination of active cards and the revenue per active.
That's how we run the model.
We don't particularly guide on unit sales and we have a forecast for each retailer.
The reason is because it's somewhat of a meaningless metric.
I can blow the door off of unit sales by saying, buy a Green Dot card for free and we'll put $10 in acquisition, right, but you could see the Company not do very well.
That's how we model it.
That's within line ---+ mean the active cards and the revenue.
The next question was about direct deposit.
I'm sorry.
Would you give me that last one again.
The cost of---+.
The answer is, it's an implied cost.
We are using our bank's balance sheet, right.
Every day you have settlements incoming.
Every day you have settlements posting and outgoing.
That would be a settlement in transit and that's what that is because you're getting the money every business day.
It's no different, by the way, in fact it's identical to what we do with our retailers and we have for 15 years.
When I reload a card at, pick your favorite retailer.
Dollar General.
When I reload a card at Dollar General, the customer is getting access to those funds the second they leave the store, right.
But Green Dot doesn't get paid the second they leave the store.
We're going to get paid the next business day or two days later or, if it's a long holiday weekend, four days later.
But the customer got to use the money right away.
So there's always a fairly large outstanding receivables balance at the bank or a settlement in transit.
So, when we underwrite and do a risk analysis on our balance sheet at the bank, we're underwriting that retailer or that organization for their ability to make sure they pay us back in the time agreed to and there would be an implied cost of money for that overnight or there would be an implied money for the two-day, but as you can imagine, it wouldn't be significant.
It's just part of the revenue and the EBITDA model for the product.
Been a long time.
Good to hear from you.
So the answer is we are going to do EMV, but it's not going to be until the later years.
When I say later, I'm talking the end of 2017 and then go out from there.
It'll be on those customers.
Boy, the softball analogy is going to do me well today.
Back to that inner core.
I was trying to think of like a mountain where you water brush, the clay falls off easy and makes a hard clay, but I settled on the softball.
So the question was the EMV.
We will serve the EMV chips up on the cards that go to those hard core customers.
It would be very, very wasteful to put an EMV chip on a card that hangs on the rack.
That would be preposterous.
Or to put an EMV chip on a one-and-done reloader.
But clearly, for our high-value customers, direct deposit customers, reloading customers, there's a number of ways we can segment our active base.
We've actually done the analysis and we do believe it will save us net some losses of person-to-person card transactions and we'll see those rolling out towards the end of 2017.
So that's one of the ways we're going to both control the cost of that and, at the same time, make sure it's a net positive by only putting the chip on those cards where the fraud risk is higher and where the loss of charge-offs is higher.
I don't know that we disclosed it.
You know what you can do, is you can look at the segment called processing settlement and you'll see a segment number and that's comprised of our cash transfer business, reload to retailers and TPG and there's probably some metrics in there.
I know there's metrics in there as it relates to the numbers of taxes, refunds they've processed in the quarter and that type of thing.
That's probably your best disclosure.
It is when you think of margins because TPG generates no revenue at all or a very tiny revenue in the second half of the year, but they still have the same staff.
If you will, you have your fixed expenses are evenly divided over the course of the year.
You have some higher variable expenses, the call center or whatnot in the first part.
But over the full year, they have their fixed expenses evenly divided, but all the revenue frontloaded primarily into Q1, straggler revenue into Q2 and then tiny revenue Q3 and Q4.
So it does affect your margins where you're going to have big fat margins in Q1, which is not sustainable, clearly, for the whole year.
And then you're going to see in the back half compressed margins as a result of having to pay for that company's existence even though you're only generating revenue from your prepaid card business lines.
Well, if you call the new cards and the cash-back cards and so forth an initiative, clearly, those are the drivers of our business; that's our core business right.
Those would be big.
If you look at some of what I'll call the ancillary initiatives or more of the side initiatives that could be high potential, the Green Dot Money on paper should do really well if we can get lenders to say yes.
I know that sounds trite, but if you think about the lending market, the biggest issue people have in the lending market is the cost of acquisition and the ability to get that in there because you have to pay, what is it.
You probably track it better than I do, but as much as $400 or $500 for a funded loan for a lender.
At Green Dot, we have so many millions of customers coming in that we are playing nothing for our applicants.
The problem is we've got to figure out a way to get better applicants and to give that appended data to the underwriter so that they can have more to work with.
That could be a good one if we can get that rolling.
Uber is going very well.
I'm stunned by the numbers of Instant Pay and how fast that's growing and I gave some statistics on that.
But that isn't as profitable or as big clearly selling a prepaid card account.
I think that does it, but if you had to say two, I would say Uber and Green Dot Money have exciting potential initiatives.
Not only for those companies like with Uber, but others like it; and then as we can have more product sale, work together exponentially.
Remember, on one of our slide decks, we had the wheel of synergy and we talk about the fact that as we can build a lending product or as we can build another kind of product, can you sell that through to the Uber driver or you can do this or that.
These are all the conversations that we're having about how we look at the long-range planning of the Company, how we can continue to grow with our existing customer base with new products and services.
That's all part of what we look at, but those are two good ones.
MoneyPak is doing well, which, is in effect for us, free for the price of asking.
It's already our brand and already our product and the technology was already built or at least the core technology to process it.
That's doing well.
So I think we have a lot of irons in the fire, as you point out, but our focus is always the core business because that's what pays the bills.
We always want to have the best prepaid products; we always want to have best and most compelling fee schedules and services and features.
We always want to have the most beautiful packages on the rack.
We always want to make sure we are the best retailer.
All of that blocking and tackling is something we focus on all the time.
Well, gosh, I don't know how to say that.
It's all part of our active cards.
I would think of it as me as thinking of it as being incremental and additive but not generating what a prepaid card would generate in total.
Although the Uber GoBank accounts if that driver is using it as their core checking account, clearly, not all of the 80,000 that we've registered so far are, just like with prepaid cards.
You have a lot of people that just want to get paid and they could care less, right, and they get their money off the card at their nearest ATM.
You have others who say, oh, this is a cool checking account; I'll use this and those guys will do very well.
But they are all part of that active card portfolio in the account services segment.
That may be a better question for the Board.
I can give you my perspective as a guy who has been here for a while.
I think it's going extremely well.
It's painful to see folks like Tim Greenleaf and <UNK> Moritz.
I'll say this, Sir <UNK>, for those of you who are blessed to have met him or know him, he's without question one of the coolest, most important guys.
Hang on one second, <UNK>.
Anyhow.
Great guy.
Tim, of course, did so much work on our audit committee so well.
But the new Board is fabulous.
Nino has done a great job.
George is contributing.
<UNK> Jacobs as your Chairman has been spectacular.
Rajeev [Date] has been so impressive, Chris Brewster has been amazing.
And you would think the Board has been together for years.
If this were a band, you would assume we would have been rehearsing the charts for years and it's a new band, if you will.
I feel very fortunate.
It's functioning.
They are learning Green Dot; we are learning them.
But I've enjoyed it.
It's gone a lot better than I would've thought.
If you would've asked me what it would be like before all this happened, I would've given you a different comment.
Now that it's happened, I feel very fortunate and very pleased and I think for the most part I'm sure they'd tell you the same thing.
You bet.
I think that's all she wrote from looking at the board.
My only closing remark is thank you for listening.
We appreciate you hearing our message today and we look forward to talking to you next or seeing you at a conference near you.
Have a great day.
| 2016_GDOT |
2016 | AMZN | AMZN
#Okay.
Thanks, <UNK>.
Yes, let me talk a little bit about guidance, and I'll incorporate the answer to the fulfillment question.
So, you'll notice on the top line guidance of $31 billion to $33.5 billion or 22% to 32% growth incorporates the Prime Day results and I can talk more about that later.
But Prime Day was very successful for us.
It was up 60% on a worldwide basis over the prior year, and it was also a record day for our Amazon devices, as well as sellers and customers alike.
In the bottom line, you'll need to remember that Q3 is a typically a lower operating income quarter as we prepare for Q4, the holiday peak.
It's a little bit more exaggerated this year in that we're opening 18 fulfillment centers this quarter.
To put that in perspective, we launched six in Q3 of last year.
This will bring us up to 21 net FCs for the year by the end of Q3, and that compares with 10 fulfillment centers for the first three quarters of last year on a net basis.
So, why are we expanding so much.
If you remember back to Q4 and the capacity constraints we had in Q4, primarily due to really strong FBA growth, we talked a lot in the Q4 call about the operational cost of that in Q4.
Customers are well taken care of, but we had additional fulfillment costs from being so tight on capacity.
This year, with that in mind and then knowing that our growth rate is actually accelerating on a unit basis, we are - Q2 was 28% unit growth for paid units, but fulfilled by - units fulfilled by Amazon is much higher than that due to the growth of Prime and FBA.
That compares with last year in Q2 when we saw 22% unit growth.
So we're 600 basis points faster growth in Q2 this year than last year and that 22% last year turned into 26% in Q4.
So it ramped up in the back end of the year.
So a lot of data points there, but the bottom line is that there's a large step up in the amount of fulfillment capacity in Q2 - excuse me, Q3 versus Q2.
There's a couple of other factors while I'm at it for guidance.
We are also nearly doubling our content spend in the second half of this year versus the second half of 2015.
We have a great slate of new Amazon Originals coming out later this year, both in the US and internationally, and we're nearly tripling our number of new Amazon Original shows - TV shows and movies compared with the second half of last year.
There are other investments, certainly, that are increasing sequentially.
I'd point to India and AWS, but primarily the two biggest issues in Q3 guidance I would say are the operational ramp and also the increase in digital content spend.
We're not disclosing that at this time.
Sure.
Let me circle back on Prime Day.
So again, it was the biggest global day ever for Amazon and was up 60% on a order product sales basis versus Prime Day 2015.
It was a record day for Amazon devices.
It was a great day for small businesses and sellers who saw great year-over improvement in their sales.
And more importantly, it was a great day for customers.
Globally they saved over double what they had saved in Prime Day 2015.
So we're very pleased with the results of Prime Day, and the impact of Prime Day is factored into this guidance.
As far as new customers and new Prime members, we're not disclosing that, but suffice to say that it was a great day for both existing Prime members and also new customers who were trying us out for the first time.
To your question on Prime Now, so I will point out Prime Now is now in more than 40 metro areas worldwide.
In the past quarter we expanded further internationally to Germany, Spain and France, so it's a global program, again, offering free two-hour delivery on tens of thousands of items.
We also have in the same vein of, I think what you called maybe automated consumption, the same day has expanded.
Now we've added 11 metro areas, bringing the total to 27 metro areas that are qualified for same day.
So, yes, we think this is an important part of our Prime offering.
We know customers love it.
We're very happy with their order patterns from Prime Now, and very happy with it.
Of course, we do always talk about - we always usually get asked about profitability, and it is a very hard service to deliver and make money on.
But we know customers love it and we're in a great position to do this because of our long-term approach, our drive of greater efficiencies and our proximity to the customer with our vast global FC network.
Sure.
We don't give - obviously we don't give segment-based guidance.
But to your question about AWS, we actually see nine availability zones in four regions coming out in the next - in the coming year.
The impact on short-term is pretty much indistinguishable from the growth that we're seeing in our expansion of our base customers in our existing regions, so we don't see a large step-up from the addition of new regions relative to the large and rapid growth in the business itself.
We do think that it does pay benefits both for ourselves and for our customers because of the expansion, and we're happy to have added the region in Mumbai this past quarter.
We think when we expand geographically, existing customers will run more of their workloads on AWS.
Sometimes they have local latency concerns or security issues that require them to run things in their country, so that helps.
And we also open up to new customers when we add these regions.
So not a large impact on Q3 guidance, but certainly an exciting investment for our customer base.
Sure.
On tech and content, that's going to be a combination of our people cost related to many areas of the website and also the infrastructure cost to run it, at both the Amazon Web Services and also the Amazon site.
We've been seeing some great efficiencies in our infrastructure, both internally as Amazon and also as part of AWS.
We have great people working on not only better efficiency, but also driving cost out of our acquisition prices.
So, there's a lot of great work going on there and I think that's what you're seeing reflected in the tech and content line.
Again, this can fluctuate quarter-to-quarter, but we're happy with the current trend and you see it in the AWS margins.
On Prime Now versus Fresh, they are separate - sorry.
The - we'll point out in Q2 that we added London and Boston as two new sites in London for AmazonFresh, and that was the first international location.
But we've been running AmazonFresh for seven years, or excuse me, since 2007 in Seattle.
And what you've seen as we've been testing the model, we've been expanding in North America and more so we've been expanding within the cities that we're in, adding zip codes, adding additional customers.
So, the move into Boston and also now into London give us some really good data points and as - it's a great customer feature for the Prime offering.
Prime Now is a little bit easier to build up from scratch, I would say.
The - it has a different purpose, although some of the products overlap.
Again, this is more about immediacy of one-hour and two-hour delivery of a curated list of important products that people need in a short period of time.
So, they have different roles.
Some of the products overlap, of course, but we're happy with both, and we think that customers like both of them.
Sure.
Well, in Echo, again, we continue to build out the list of devices, launching the Dot and Tap and Fire TV skills this past year.
And now we have 1,900 third-party skills for the Alexa, including new skills from Kayak, Lyft, NBC, Honeywell and more.
So there's a lot of uses that we're seeing for Echo.
A lot ties into our Prime Music offering.
It's just a great way to access Prime Music and more and more the Amazon site.
We don't have anything to disclose on physical orders from - through - excuse me, orders through Echo.
On Amazon Web Services margin, again, this is primarily due to efficiencies gained on our infrastructure, better utilization, better cost out.
There is a - certainly a mix of products and services.
I don't have a bridge for you on whether that's helpful or hurtful, but the - these margins in AWS will fluctuate from quarter to quarter, and that's what you're seeing.
But we're very happy with the year-over-year improvement.
Sure.
Yes, I have the same buzzwords for you, <UNK>.
It's really ---+ the flywheel of Prime is definitely working.
It's as simple as that.
The low prices, vast selection and convenience continue to resonate with customers.
Prime membership increases and selection through FBA makes Prime more valuable.
So it's a bit as simple as that in the consumer business in North America and international, we are seeing great acceptance of Prime and usage of Prime benefits.
We continue to expand the list of Prime benefits for customers to make it more valuable, and none is more valuable than FBA, which we've talked a lot about the value of Prime to FBA and vice-versa.
FBA is bringing more Prime-eligible selection to Prime and then the growth of Prime and the type of customers that utilize Prime and their buying behavior is a great traction for other FBA sellers.
So that is essentially what we're seeing, and we're certainly pleased with the customer response to those offers globally.
Sure.
Let me start with the second question first.
So on Prime Video, again, we're very happy with the customer adoption of Prime Video, and we know the customers love it.
We like the results that we see, particularly with the free trial conversion, the renewal rates for subscriptions.
So it's clearly working.
I mentioned earlier how we're doubling the investment rate in the second half of the year versus last year's second half, and we're tripling the Amazon Originals content.
That Originals content for TV and movies, that content can be used globally.
We've talked a bit about our Prime launch in India, and alluded to the fact that we'll be having video soon in India, but local content and also Amazon Originals.
So, stay tuned for that.
I don't have any more to announce on that today.
On the variance to guidance, what I'll say is, we came in the very high end of our revenue guidance.
I would say that our business model usually reacts well to high volume as we get a really good leverage on our fixed expenses.
So that's part of what we saw, very strong operating efficiencies as we hit essentially the highest end of our revenue guidance.
But we do have a lot of diverse profit streams here at Amazon and a lot of investments going on at any point in time.
I think I heard a question there about level of investment.
We continue to invest heavily.
In fact, I just called out a few things that are going to be stepping up in investment levels in Q3, mostly ops and digital content.
So we continue to invest on behalf of customers.
But we also work very hard at efficiencies and scaling the businesses that we have.
So we take both roles very seriously around here, investing on the right - in the right things, seeing results on behalf of customers, and also driving efficiencies.
And there can be timing, quarter-to-quarter, the operating margin and levels of investment can fluctuate, but certainly continue to expand.
Sure.
Well, first of all, we believe customers will choose AWS primarily for three factors, the functionality and pace of innovation that we bring to the table, our partner and customer ecosystem and our experience.
We've been in this business longer than anyone.
Having said that, there's plenty of room for multiple winners in this business.
What we focus on is innovating on behalf of customers and expanding the geographic footprint to make our services more widely available.
You can see us continue to invest in things like new application services, higher up the stack, additional technologies that will make integrating with AWS seamless for those companies that have a hybrid IT environment and then continuing to add functionality for data analytics, mobile, Internet of things, machine learning offerings, things like that, that will add greater and greater value for AWS customers.
And I would say the rapid pace of innovation continues to stretch our lead in that dimension.
We have had 422 new significant services and features added in the first half of this year.
That's a faster pace than last year when we added 722 services and features.
So we feel good about the business position we're in and our position with customers.
Yes, sure.
First, on EGM, I'll just say the growth is across a lot of different products, none to exactly call out here, and we think that a lot of it is, of course, driven by the growth of Prime itself.
EGM in North America grew 32%, which was higher than the revenue growth rate, and also grew 36% internationally.
So when people join Prime, they are certainly buying EGM in strong quantity.
So that continues to grow with the growth of the Prime program.
On transportation, I think your question was about whether that's impacting our short-term results.
No, the answer is no.
We are certainly expanding our service offerings in the transportation side and we have been for many years, things like sortation centers and delivery methods.
The plane deal that we were talking about is essentially planes that we're going to be leasing from other companies, and you'll hear more about that as we go forward, but that is to essentially take on the demand for internal flights as we move product around.
It certainly will be well utilized.
I will start with the second question.
So I would just say Prime Day had enormous impact on the device business and devices were well featured and also well adopted by customers.
So it was the largest device sales day that we've ever had and essentially pretty much across all of our device types, E-readers, tablets, Fire TV and Echo.
And I'm sorry, your first question was around - the cost of fulfillment centers.
Not disclosing that we do continue to change our fulfillment centers.
We've changed, again, the automation, the size, the scale many times and we continue to learn and grow there.
So no general trends I can point to on cost per fulfillment center to start up, but because they do vary in size and mission and some have fully outfitted in using Amazon Robotics, others - some don't for economic reasons.
<UNK>be the volume is not perfect for robot volume.
But, yes, so I can't give you any real distinct trends there.
And on Prime penetration, of course, we haven't released Prime subscription levels.
We have talked about growth certainly globally and in North America.
What I can tell you there is we still think there's a lot of room in Prime.
We've tailored programs to students, we've tailored video programs, we've rolled out monthly plans, we have plans with grocery delivery.
So there's a lot of different flavors of Prime and we are aggressively looking for a perfect Prime for everybody.
We know that, again, when customers try Prime, they like it.
So it's really just about getting them to try Prime and continuing to deliver great Prime benefits and great low prices and selection.
As far as AWS, essentially penetration question you asked.
We think still very early.
Again, we like our position, our industry leading position in the cloud space, and we're working on things that would incent more and more customers to accelerate their cloud conversion.
The lower prices and services that we offer, and as I said, we'll work on things that will make it easier and easier for customers to work with us with their hybrid data centers or transfer their volume to us.
Yes, and on the content spend, I think the only other data point I can give you is probably a dated one at this point, but we spent $1.3 billion in 2014, that's the last number that we disclosed and we continue to add content.
The best I can give you at this point is that it will be double, nearly double what we spent in the second half of 2015.
Sure.
So India, we're very encouraged by what we've seen so far in India, both with customers and also sellers; that's a third-party seller market.
You heard that we launched the Prime program this week, which will be a whole new experience for Indian customers.
In hundreds of cities we'll now have unlimited free one-day and two-day delivery, and we also mentioned that Prime Video is coming there, both Indian and global content.
We're also starting to see exclusive online sales partnerships.
Recently, we've had partnerships with Motorola, Samsung, Lenovo on select phones.
But more importantly, again, we really like the opportunity in India.
We like the initial results that we see from customers and also sellers.
We really like our team there.
We have a great team of Amazonians who've been very inventive in India.
Every time there's an obstacle or something that's different from the US or another major business, they'll invent around it, whether it's a shipping method or a payment method or whatever.
So, very creative and the customer response has been really strong.
So we are very excited about the Prime program.
We think it'll enter into a new chapter in India, and we've seen great success in every country in the world that we've launched Prime, and we feel India is going to be no different.
So we're looking forward to seeing what we can do on behalf of the Indian customer.
| 2016_AMZN |
2016 | CABO | CABO
#Thank you, Gary.
Good morning and welcome to Cable ONE's second quarter 2016 earnings call.
We're excited to have you with us this morning as we review our results.
Before we proceed, I would like to remind you that today's discussion may contain forward-looking statements relating to future events and expectations.
You can find factors that could cause Cable ONE's actual results to differ materially from these projections listed in today's press release and in our recent SEC filings.
Cable ONE is under no obligation, and in fact expressly disclaims any obligation to update its forward-looking statements whether as a result of new information, future events, or otherwise.
Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. Generally Accepted Accounting Principles.
Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release or on our website at ir.
cableone.
net.
Joining me today on today's call is our Chairman and CEO, <UNK> <UNK>.
And with that, let me turn the call over to <UNK>.
Thank you, <UNK>.
Welcome to those of you joining us this morning, we have plenty of good news to share on our first anniversary earnings call as an independent company.
And our first year adjusted EBITDA was up $36 million or 12%.
Last quarter our adjusted EBITDA margin was up over 500 basis points with healthy 43.5%.
All this even though video subscribers are down 15% in the last twelve months.
If I think about that for a minute, adjusted EBITDA of 12% while video subs are down 15%, well how can that be.
And now you know my answer.
There is very little cash flow and little or no free cash flow left in the linear video business model for most small operators.
Meanwhile, we have two products of good growth and good margins that deserve to get our focused attention.
They are residential internet service or HSD, and business services.
After articulating this theory for four years, it is gratifying, finally has strong periodical evidence, so we can move out of the theoretical phase.
Our primary task over the last four years has been to make this transition intelligently and profitably, and sooner rather than later.
When we started thinking about this five years ago, it seemed like a tall order because HSD and business service revenues were only 30% of total revenues.
The last quarter they were the majority of total revenue at 54%, and they contributed the vast majority of our total cash flow.
We expect these trajectories to continue into the future.
Most analysts believe that cable has a huge fixed cost business thought we operate as virtually all costs are variable.
While the product mix change away from video and phone and therefore the triple play has caused several hundred thousand PSUs, we have been able to reduce expenses embedded in flow rate to thoughtful and disciplined cost management and operation strategy, all the while maintaining excellent customer service.
As examples, bad debt has been reduced from around 1.4% to below 0.34% of total revenues our headcount is down by 154 versus last year, a 7.4% reduction; they are down over 400 from our peak employment several years ago.
As a result, we make meaningfully more money with fewer units and equally important, we are shaking our dependence on video.
With our focus of business services, we have grown that revenue steadily at about $11 million to $12 million per year, year-after-year.
We now have a hugely successful SMB business and enterprise of fiber business.
We have concentrated in 2015 and two 2016 of putting the enterprise products and team in place, so we can you sustain and try to exceed our historical business services revenue growth rate in years to come.
When I focus on HSD, we doubled our standard fee to 100 megawatts for companywide and we announced the 2016 rollout of a one Gig high-end service, almost companywide, and we are 50% deploying that.
At this point we're down one Gig service.
We also announced a 10% rate increase on HSD last October, our first in five years which equates to less than a 3% annum increase.
We will not take an HSD rate increase in 2016.
However, we did implement a $5 dollar broadcast TV surcharge on video customers in June to recover a portion of the rapidly escalating growth in retransmission fees.
Our last video rate increase was 17 months earlier.
I mentioned these rate increases remind you of their non-annual timing to help you estimate ---+ help when you are estimating our year-over-year quarterly growth rates that will vary.
We continue to repurchase our shares opportunistically.
In our first full year, we repurchased 2.5% of our outstanding shares at an average price of about $431.
That matures capital to just an addition to our $6 annual per share dividend which we pull as a payout ratio of about 1.1% than our current stock price.
With our strong free cash flow however, we still have a very low inclining debt ratio, even with this capital return.
As I've stated on ---+ in past earning calls, we will energetically but patiently to explore M&A opportunities and our organic growth opportunities that we believe would benefit our business and our stockholders.
Like past earning calls, we will not elaborate or speculate on that topic today.
Now I'm going to turn it back over to <UNK> for more details on our numbers.
<UNK>.
Thanks, <UNK>.
As <UNK> already mentioned, we are very pleased with the results we have achieved during our first year as a public company, including our strong performance in the second quarter of 2016.
Before I discuss the financial results, I wanted to point out some information regarding our operating statistics.
As we mentioned before, we converted to a new billing system last year.
This caused some distortions in both, our homes past and some business service PSUs.
More detail regarding the reasons for these fluctuations are included in both, our press release and in our 10-Q.
Now turning to our financial results.
First, let me share a few highlights from the quarter.
Adjusted EBITDA grew by 14.6% with a margin of 43.5%.
Free cash flow increased over 28%, residential data revenues increased 18.7%, business service revenues increased 12%, and now residential data and business service revenues now comprise 54.1% of our total revenues.
Now getting into the detailed results, starting with revenues.
Total revenues increased $1.9 million or almost 1% due primarily to increases in residential data and business service revenues of $13.6 million and $2.6 million respectively.
This was partially offset by decreases in residential video and voice revenues of $12.2 million $1.4 million respectively.
The declines in residential video and voice revenues were primarily attributable to residential video customer losses of 15.6% and residential voice customer losses of 13.9%.
Residential HSD and business services now comprise, as I mentioned, 54% of our revenues and gains in these growth products are more than offsetting the revenue losses of our video on phone products.
Residential data service revenues increased $13.6 million or 18.7%, due primarily to rate increase taken in the fourth quarter of 2015, an increase in residential data customers of 1.8%, a reduction in package discounting, and increased subscriptions to premium tiers by residential customers.
Residential data services now comprise over 42% of our total revenues compared to just under 36% in 2015.
Residential video service revenues declined $12.2 million or 14.2% due primarily to residential video customer losses, partially offset by the impact of a broadcast TV surcharge that <UNK> mentioned earlier.
Residential voice service revenues declined $1.4 million or 11.5% due primarily to a decline in residential voice customers of 13.9%.
Business service revenues increased $2.6 million or 12% due to primarily to the growth in our business data and voice services to both small and medium size businesses and enterprise customers.
Total business customer relationships increased 10.9% for the twelve months ended June 30, 2016.
Overall, business services now comprise 12% of our total revenues for the second quarter of 2016 compared to 10.8% of our total revenues for the second quarter of 2015.
Advertising sales revenues declined $0.7 million or 9.6%.
Turning now to our operating costs and expenses.
Our continued focus on efficiently managing our business is evidenced by our reduced operating cost.
Total operating costs and expenses declined $12.9 million or 7.7% due primarily to decreases in programming costs and certain selling general and administrative expenses.
In total our programming costs declined $3 million.
Non-programming operating expenses decreases $0.3 million.
Selling, general, and administrative expenses declined $8.9 million or 17%.
This was primarily due to a poor $0.3 million dollar decrease in processing costs for customer billing following the completion of our billing system conversion last year.
A reduction of salary, wages and benefit costs of two and a half million as we reduced our headcount by 7.4%, lower equity based compensation of $0.6 million and a reduction of property taxes and pull rental expense of $0.5 million.
For other expense, other expenses increased $6.4 million due primarily to interest expense of $7.5 million for the second quarter of 2016.
Adjusted EBITDA of $88.9 million increased by 14.6% due primarily to decreased operating costs and expenses and higher revenues from the gains in residential HSD and business services customers along with the HSD rate increase taken in the fourth quarter of 2015.
On free cash flow.
Free cash flow which we define as adjusted EBITDA less capital expenditures increased $11.3 million or 28.1%.
For the quarter our conversion rate defined as adjusted EBITDA less CapEx as a percentage of adjusted EBITDA was approximately 58%.
This was due to the 14.6% increase in adjusted EBITDA during the quarter.
Capital expenditures totaled $37.6 million in the second quarters of both 2016 and 2015.
This represents an 18.4% of revenue for the second quarter of 2016.
However, year-to-date capital expenditures were approximately 15.9% of revenues.
We continue to believe that capital expenditures as a percentage of revenue will be in the mid-teens through the full year 2016.
Turning to liquidity, during the first half of 2016 our cash and cash equivalents decreased by $16.5 million versus the year ended December 31, and at June 30, 2016, we had approximately $102.7 million of cash on hand compared to $119 million point at December 31, 2015.
The decrease in cash during the first half of 2016 was attributable primarily to cash payments for capital equipment, share repurchases, dividends and interest.
As <UNK> mentioned, we repurchased 25,933 shares during the quarter and an aggregate cost of $11.9 million and have repurchased a total of 145,903 shares through June 30.
So since then through the end of the second quarter, that is the total repurchase which represents 2.5% of our shares.
In conclusion, our solid financial performance has continued through our second quarter propelled by the continued growth of both residential data and business services.
And with that, operator, we are now ready for questions.
10% price increase on HSD last October ---+ if I remember correctly, and <UNK> might be able to confirm I think that it was effective for half of October.
And then put the full month after that for estimating purposes.
And you can see our R2 is growing meaningfully higher than that because we're having a number of people take premium tiers.
So on a simplistic basis, we should probably deduct that ten percent price increase when we hit the annualization date of that in the ARPU growth, it would be less ---+ would be presumably something like the remainder trend line.
I think we were 16.4%; that is what we reported in total for the past three months, so you might make that mathematical deduction for the HSD.
Well, go ahead <UNK>.
As <UNK> mentioned we're not planning on taking any rate increase through the end of this year.
Obviously we're very bullish on where customer growth will be for HSD.
We just launched 100MEG product in the fourth quarter of last year.
We are launching a GIG product in the large majority of our systems this year.
So we're bullish on where customer growth will go over the remainder of this year.
We obviously don't know yet, but we're not planning on taking a rate increase this year.
No we'd rather not, too much of this information.
We have not done it in past and we're not prepared to start doing that.
I mean not to send a negative message but this is something we've not done in the past and we're going to start at this point.
Thanks.
Yes.
I think that's true.
We are looking at all options.
We have played out during the spend process that involves the various things we can do with the debt capacity or being patient methodical or from M&A organic building dividends and buybacks and such so far other than a M&A it's been a blended approach and we'll continue to be.
We've been through today after the spin <UNK> & I turned a significant part of our time to M&A marketplace and we have been spending a lot of time in that space for a year now but would be very patient in this article if we're spending that much time there must be something to look at but I am not going to go beyond that.
Great question <UNK>.
I don't want to give a specific number but it's a concept for those of us not followed our ---+ picking for the last year or more is obviously when the product mix changes towards products that have higher margins, the overall company margins will move towards the margins of those who are profitable products and with 54% of our revenue now in HSD and business services, the margins are now starting to reflect those margins more than the video and phone margins.
But everybody has different models about what the real possibility is each of the products and therefore each person want to do their own math based on their assumptions about fixed costs and variable costs.
The letter make any predictions, you've got several years of quarterly data of our expenses and you know the video subscriber change and obviously there is a lot of expenses loaded in the video.
So you can do that math on your own to see what the trend line has been.
The only caution I would give us last year we had a lot of higher expenses and CapEx to a lot of projects like own digital going on and moving to 100 GIG and now the launching of one GIG.
But there was temporarily an extra expense in CapEx which we talked about in press quarters.
A lot of that is behind us for right now so but other than that you can look at the long-term trends and draw your own conclusions.
Thank you operator.
I think that during our first year as an independent public company it is the result of the efforts of our tireless and dedicated associates that I had the pleasure to work with for almost 24 years now so I'd like to thank each of you, every one of you for helping make Cable ONE what it is today.
We appreciate all of you on the phone for joining today's call and we look forwards to speaking with you again next quarter.
Thank you very much.
| 2016_CABO |
2017 | WRB | WRB
#Thanks, Rob.
Appreciate it.
We have reported net income of $109 million or $0.85 per share, which is unchanged from the prior year's quarter.
Our total return investment strategy continues to pay off with pretax realized investment gains of $40 million for the quarter and $93 million year to date.
Net investment income also increased 4.8% quarter-over-quarter while year-to-date investment income rose 9.6%.
In light of the increasingly competitive market conditions, as Rob was alluding to, we're pleased with our pretax underwriting results of $76 million for the second quarter.
This represents a small decline of $3 million from the prior year, largely due to a more active combined catastrophe and non-cat weather-related loss environment in the quarter.
Certain areas in the market are too competitive to meet our risk-adjusted returns.
And as a result, we've repositioned certain of our underwriting portfolio and managed our risk selection and exposures, giving rise to a decline in our net premiums written of 4.8% to $1.56 billion.
Much of this decline is attributed to the North American property and casualty treaty reinsurance business, as Rob referenced, where sources of capital are plentiful, putting significant downward pressure on rate.
Our reinsurance segment declined almost $53 million to $126 million in the quarter.
The insurance segment experienced a small decline in net premiums written of 1.7%, which was largely attributable to the exit of a few lines of business at certain operating units due to the inadequate opportunities to achieve targeted risk-adjusted returns.
The accident year loss ratio before cat was 60.7% compared with 60.2% a year ago.
About half of the difference relates to non-cat weather-related losses, which equated to 70 basis points in the current quarter.
Cat losses declined $7.5 million from a year ago to $33 million.
This translates into 2.1 loss points for 2017 compared with 2.6 loss points for 2016.
Loss reserves developed favorably by $21 million or 1.3 loss points compared with $16 million or 1 loss point for the same period last year.
Accordingly, our reported loss ratio improved from 61.8% a year ago to 61.5% for the current quarter.
The expense ratio increased 50 basis points in total from the year-ago quarter to 33.6%.
The increase was primarily attributable to the addition of new operations in the insurance segment, in particular Cyber Risk, <UNK> Transactional Insurance and our recently announced surety and specialty commercial insurance businesses in Mexico.
This brings our combined ratio to 95.1% for the current quarter compared with 94.9% for the second quarter of 2016.
We're pleased with the performance of our investment portfolio.
The core portfolio increased $14 million compared to a year ago, led by fixed income securities with an annualized yield of 3.4%.
Investment funds declined $9 million due to mark-to-market adjustments for energy funds.
We've pointed out the potential variability that may arise in the fund performance on a quarterly basis, as evidenced in the current quarter.
However, the year-to-date results show that the funds are slightly higher in 2017 than 2016 and future variability will remain on a quarterly basis.
Our non-insurance business earnings declined year-over-year due to the sale of Aero Precision Industries in August 2016.
The remaining investments are performing as expected and should generate favorable total returns for our shareholders.
Foreign currency movements, especially sterling, contributed to a foreign exchange loss in the quarter of $7 million.
That compares to a gain in the prior year of $13 million following the Brexit vote.
Our results quarter-over-quarter were most impacted by this $20 million shift in FX.
We manage our foreign currency exposure on a long-term economic basis, taking into consideration numerous risk factors.
Corporate expenses increased in the quarter, reflecting our investment in new business opportunities, including our high net worth business.
We expect the high net worth operation to begin underwriting business in the fourth quarter.
When we move the business to the insurance segment, these expenses will be reflected in the underwriting expense ratio.
At June 30, 2017, after-tax unrealized investment gains were $462 million, up about $35 million from the beginning of the year.
This amount does not include the preannounced $120 million pretax realized investment gains to be recognized in the third quarter from the sale of a real estate investment.
The after-tax gain should contribute an additional $0.64 to book value per share in the third quarter.
The average rating, as Rob referenced, was unchanged at AA-, and the average duration for the fixed income maturity securities, including cash and cash equivalents, remained at 3 years.
The effective tax rate was 31.9%, approximately 1 point higher than our historic run rate due to the disproportionate contribution of gains in the quarter at 35%.
Our return on equity for the quarter on an annualized basis was 8.6% on a net income basis and 12.7% on a pretax earnings basis.
Book value per share increased $0.86 to $43.59 in the quarter, representing an annualized increase of 8.1% after our special dividend of $0.50 per share declared in the second quarter.
Can you ---+ the $21 million of favorable development, can you break that out between insurance and reinsurance.
Okay.
And last call, you had mentioned potentially seeing signs of increasing loss inflation.
I just wanted to know if you could provide some updated thoughts around that, please.
My last question.
I know it's a smaller piece, but can you just provide a reminder of what runs through the arbitrage trading account.
So we have a merger arbitrage trading account effectively and we are only investing in announced transactions.
And those transactions generally are very short term in nature in terms of less than a 4-month period of time.
A couple ones here for you, Rob.
First of all, the worker's compensation insurance growth that you guys are seeing at 8%, is that new accounts.
Or is that wage inflation that you're seeing in comp given the competitive price environment.
Excellent.
And then, Rob, I wanted to talk a little bit more, flesh out a little bit more of your comment about the national accounts kind of getting into the ---+ standard carriers getting into more of the specialty.
Are you referring to basically them relaxing some of their underwriting standards here and taking a nonstandard risk and making it standard.
Or are they actually getting into specialty areas.
| 2017_WRB |
2015 | CMS | CMS
#Just think of that as a regular non-utility business.
So, the part that's capitalized is capitalized, and the part that's expensed is expensed in the project.
Just try not to think utility for a minute, and it will look very normal that way.
The bulk of it, candidly, is going to be expense that goes in for this year.
But as you can see we have plenty of room to put it in.
You could do that math that way but I'd caution you not to because, remember, we're taking the good news this year that's happening unrelated to it to fit it in.
So, your base didn't change.
And then next year, yes, we had planned to spend about $10 million, which we won't need to.
But if we've got some head room next year what do you think we'll do.
What.
s your second choice, <UNK>.
No, we will find a way, as you've grown accustomed to, to see us get in that growth of earnings of 5% to 7%, no matter what, if it's easy or hard.
And I may as well take the question on before it comes.
We've got so much work to do on the reliability side in the utility that I would just tell you there will be a time when we won't, and maybe the 5% to 7% will drift up a little bit.
Again, I wouldn't get excited about it because we've got plenty of work to do this year and we know we will have plenty of work to do next year.
So it's not in that timeframe that you would likely see us change from our guidance of 5% to 7%.
We'll be, for the 2017 to 2018 planning year, a little over 500 megawatts available and then a little bit better than that ---+ a little higher than that, in other words, as you go through time.
So, that's all upside opportunity.
Well, no, we're actually making two upgrades.
And the number you will get used to seeing will be 770 megawatts.
So we had already planned, and we were just being quiet about it, putting in some foggers and increasing the capacity at DIG this year.
This new increase, which is news because we've just authorized it inside of our own Company, will add that extra 38 megawatts on top of that.
Net-net we will go from ---+ you've seen 710 in the past ---+ will go to 770 megawatts.
What we're hearing, at least right now, is, I'll call, revenue certainty.
The decoupling seems to be optional for the utilities to choose, which is fine with us, if we choose to do it or don't.
The incentives ---+ they haven't really dug into the incentives yet.
But the argument, I think, is pretty strong that we make electricity, we deliver electricity, we sell electricity, we should be incented to help our customers understand why we're not trying to do that with energy optimization.
So, I have a feeling the incentives ---+ they have worked well for us ---+ and I expect those to continue, but that may be in a regulatory format rather than a legislative format.
I'll tell you what, I think we'll take this in two pieces.
Let me just describe a little bit about what we see in the bilateral market.
From a capacity standpoint, I would tell you this indication we gave you of $4.50 near term is reasonably indicative of where we are.
Obviously folks out there are watching very carefully what happens in the energy law.
The ability to put more capacity in place the accountability for doing that.
Those will all be positive things.
But while the policy is being worked out, people are nervous and trying to figure out are we going to fill that big void that begins next spring when we take a third of our coal plants out and have to somehow fill in behind that.
So, there's a lot of speculation in the markets about where we'll go.
The best indication I can give you on bilateral is around $4.50 for the spring 2016 to spring 2017 planning year.
Now, you asked a different question about the near-term capacity market in MISO.
Maybe <UNK> could add to that.
One of the things we found, <UNK>, pretty revealing, as we've talked about, we expect the capacity prices to rise in zone seven next year when we shut down, at least our Company, shuts down a third of its coal capacity.
This year I think the news out of the capacity auction was that capacity prices were low, as expected, except in zone four which was the one deregulated state, and that was Illinois.
And the capacity prices there are 50 times higher than in the generally regulated states of the rest of MISO.
So, that's an interesting time to see this happen when we haven't seen a lot of the capacity come out of the market.
And you can rest assured we're talking to a lot of people here in Michigan about the risks of the volatility of the deregulated market.
Let me take that one since you don't want to hear <UNK> anymore talk about how we're going to grow at 5% to 7%.
(laughter) One of the things that I think is very important to understand about our capital investment plan is that we invest capital for a couple reasons, and if we don't achieve those reasons we don't invest the capital.
One, we need to make sure that it provides value to our customers.
Two, it ensures that we reduce fuel costs.
Three, it reduces O&M costs.
And, fourth, if there's an environmental commitment that we've made to improve the environment, whether it's driven through EPA, state laws or our own initiatives, we do that, too.
So, the customers, by us investing capital, get a better environment, a better bill, and better reliability.
And that's really what we strive for.
In the five-year plan that we have today, with the capital investment we have, we can still keep customer rates below the rate of inflation ---+ the base rate increase below the rate of inflation.
That's on the electric side.
On the gas side that also holds true, but as I mentioned earlier, with the low gas prices customers are paying bills the same rate that they did in 2001.
So, we have a lot of headroom.
Fuel is in our favor in most cases here.
And where it isn't in our favor because we're making investments on the electric side, we're seeing the results in reliability, the results in customer satisfaction, and the results which I think are unique for us compared to others is the reduction in O&M cost.
And we see that happening.
<UNK> showed you the one chart.
We're down last eight years 10%.
In the next five years we expect to be down 7%.
And that's on an absolute basis.
That includes inflation, it includes the legacy costs that we have.
So, we feel very comfortable that we invest the right amount of capital to do the things that I just mentioned and keeping the bills affordable.
Yes, definitely.
When I was thinking about that, <UNK>, the cost, the base rates are rate of inflation ---+ keep it at the rate of inflation.
But on one of the slides I showed, you can see the increase in investment in the capital in the gas business because of the dramatic decline of the natural gas fuel cost.
We're down about 50% in the fuel cost which provided headroom for us, or does provide headroom for us, to be able to make additional capital investments while still having the customer's overall bill decline.
There's opportunity there.
I think I stated we've got another $1 billion on top of that if we choose to.
But right now that seems like the right level.
The one thing that we're a little pushed against is we hired about 625 people in the gas business over the past three years.
We're growing those people.
I think it's going to be a competitive advantage to us to have people that can install pipe, weld pipe, going forward in the future.
As those people develop we may be able to put a little more capital into it.
But one thing about the gas business is that it's not just plug-and-play, it takes a lot of employees to get that done.
And what you'll find in some areas contractors are getting a little short now because of the influx in capital.
We made a decision a few years ago to move ahead with our own workforce, worked with our union, and we added 625 people to do that, which will position us well in the future.
So, if there was going to increase, think of it incrementally.
Across the board is the best way to think about what's happening there.
And when we.
re thinking ---+ if your question is going to what's going to happen in the rest of the year, because you did see that we were only up 2% industrial and 1.9% in the first quarter.
What we will see in the rest of the year is food.
There's some folks who have a program with us that they're going to need more power, we will see some increases.
Building ---+ and that fits pretty well with the economics that we're seeing, so more cement and the like.
We're seeing a little more on the silicon side, so it's a little more high-tech that's coming in.
And the aluminum side of the industry.
All of these industries have told us they need more, and we'll be providing that.
And we're already beginning to see that tick up just a little bit.
So, our forecast is pushing us to say it's going to be higher than 3% industrial growth, but you know us, we don't want to say that until we see it actually come to do.
Great, thank you.
Thank you for joining us today.
We're off to a good start again this year.
And we look forward to working with you through the rest of the year.
And we will put this first quarter's good weather to good use for our customers and our investors.
Thanks for joining us, I appreciate it.
| 2015_CMS |
2016 | KMB | KMB
#We don't measure that on a quarterly basis.
We would have said last year the global growth rate was somewhere in the 3% to 4% range.
We haven't redone the math for this year, but I would say it is going to at the low end or even slightly lower than the low end if I would have to guess.
Just when you see places like Argentina where we were tracking mid-single negative category growth through the first half of the year and saw kind of double-digit category dips in the third quarter.
That and ---+ or Brazil would be the other big market that is kind of mid-single-digit negative category growth comps.
Those are the things that would be a bigger drag on that standpoint.
That and the pricing environment in China is probably the only one that is a big shift this year relative to what it would have been doing last year.
And so, we will take another look at it going into 2017.
But I would guess it is certainly lower than the 3% to 4% we had estimated last year.
Yes, again, you are right.
We will give you a more complete look in January.
And I would say for us it tends to start with our outlook on category growth and some of that is driven by what is going on economically.
So every economic forecast it seems like that we look at lately has a lower GDP growth number than the one before it.
So we are not expecting a snapback from category growth.
In terms of ---+ as we tend to look at the combination of input price, currency and commodity costs, that probably still net feels like a drag year on year going into 2017.
On the other hand, we have also seen lots of big swings between now and the end of the year.
And so, we have a number of other events happening between the presidential election and two more Fed meetings.
So we will see where we are at on that calculus a couple of months from now.
Yes, sure.
That is an important market.
So I would say if there was all of the above on your ---+ as an option for your answer I would probably ---+ it is probably a little bit of all of those things.
But let me go category by category.
So fem care for us doing really well, I think we are up 3 share points year to date.
Category leadership, have launched a bunch of innovation.
And I would say that business looks pretty solid overall.
Diapers has been more competitive, the category has been weaker.
There has been some trade down in the category as well and you have seen more Tier 2 growth.
It has been more competitive.
And so from a pricing standpoint, promotions standpoint, there has been more activity on that front as well.
And I think within that you have seen some ---+ either it is household inventory destocking or it is moms who were using four or five diapers a day now using three or four diapers a day.
And so, you take one diaper a day out of the equation and that is a double-digit category decline for that consumer.
And so, I think it takes a little while to get household panel data to really understand what is driving that.
But it has gone on for long enough now, it is probably more than just inventory destocking where you are actually seeing the middle class in some cases in Brazil are getting poorer and having to make tough tradeoffs.
You can certainly see the same kind of phenomena in Argentina as well as they are moving to more of a market-based economy.
In some areas that is putting big pressure on consumer wallet.
So while we are still well-positioned and bullish long-term on Brazil, it has been a tough economic environment.
You've had a recession for the second year in a row.
Their overall outlook is not that optimistic and the economy is running expectations.
And until people start to believe it is going to get better it is not going to snap back, probably.
In Brazil we have a very strong Tier 2 business.
So we actually are continuing to drive that and are benefiting in that area.
But now that the whole category is down it has been ---+ there hasn't been enough to stimulate the consumer to use more at this point, anyway.
No, I think year to date we are almost right on.
As a percent of sales it is 3.8% or 3.9%, something like that.
So very little movement.
And I think the thing that you don't see is that we are probably doing more digital couponing, which shows up as a reduction of net sales which can factor into our price column of our analysis of change in sales.
But there has been more competitive couponing activity as well.
Yes, I mean the volume growth for us was very strong, particularly in newborn, and we are expecting and seeing a stronger birthrate in China that was backend loaded this year.
And it is really across all classes of trade.
We tend to look at modern retail, baby superstores and then e-commerce as sites that we have data insight into.
And we are doing well and growing strong double-digits in all of those categories.
In terms of the pricing, I think again that is the place where it is one of the fastest growing markets in the world.
And you are seeing lots of competitors chasing it.
So the two Japanese competitors as well as P&G are all very aggressive and it is probably one of those things, <UNK>, where everyone thinks the other guy started the price war but we are all trying to drive our business in that market.
And our shares are pretty stable overall and we have got good innovation in the market and more coming.
And so we feel pretty good about our position in that market.
No, I mean it is a pretty similar product lineup.
You may have different pack counts or pack sizes by channel.
And for us, as we said, newborn has been a strong driver this year.
But our premium lineup is continuing to do well and China overall Tier 5 which we would call it, but our top of the line Huggies products are doing well in China.
I don't think it is going to get any easier anytime soon, because China is one of the best growth opportunities available in the world right now.
And I think it is going to be the biggest consumer market at some point in time in just about every category.
And everyone is trying to build a position there and we are certainly among them.
Yes, that is fair, <UNK>.
So if I were to give it to you regionally, I would say in Latin America it is probably more category decline than competitive activity.
Although when a category is declining you do still have more competitive activity as everyone is trying to hang onto their share of the business.
In China it is more competitive activity.
The categories are fine; the birth rate is fine in China.
You are seeing good underlying category growth on a unit volume standpoint.
In North America honestly on a year-to-date basis we are fine.
We had a tougher third quarter; we had tougher comps for sure in a lot of areas because of some of the launch activity last year.
But if I looked at Consumer Tissue in North America, which had a negative comp it had more to do with we had a little heavier promotional schedule in the second quarter, we had great volume growth than we did in the third quarter where we went backwards.
We are expecting to finish with a strong fourth quarter and that business is on track from a share perspective.
Europe, Eastern Europe, I would say Western Europe, the UK was pretty weak overall economically.
Some of their reaction to the Brexit vote ---+ you had a lot of people who didn't want to hold inventory for a while, we had fairly weak growth in both the consumer and the KCP side.
Eastern Europe is essentially fine.
It is competitive, about like normal, categories are performing reasonably well.
So, it is more of a region-by-region assessment.
You do have some of both factors in both places.
But I don't know if that helps you understand it better, but that is probably how I would break it down for you.
Well, we will find out I guess this week.
But that would be my assessment.
I mean, I think, <UNK>, I would just adds it's probably better to look at results through nine months.
As <UNK> said, there was a lot of noise in the third quarter.
And I think if you look at through nine months that is probably a better reflection of how we are doing.
I would agree with the statement that it is not going to get better quickly.
I don't expect a snap back here.
On the other hand, there are some green shoots in some places.
I am encouraged by the volume growth in China, the birth rate in China; we have got lots of good innovation coming in lots of places.
I look at our fem care business for example where we have seen share growth in the vast majority of the categories that we compete in around the world and the consumer is still responding to innovation.
We have still got good growth opportunities for adult care overall and it is a little bit more competitive in North America, but we have seen good growth outside North America.
And so, while there is ---+ maybe we are going to a tougher economic period of time, I do think in the long term there is still lots of room for category penetration here.
I mean it is one that ---+ again, we didn't give you guys quarterly guidance, but it was one that we expected to do a little bit better in the third quarter than we did.
Some of it was our primary competitor in North America probably did a better job of executing against the Olympics promotions.
And while we had activity, it didn't compare at the same level.
And so will have a little stronger program in the fourth quarter.
On the other hand we did have a very strong second quarter and last year our comps were tougher.
So it made it look worse then maybe it would.
If you looked at it on a year-to-date basis it looks fairly similar.
I mean overall it is up double-digits in the quarter across Russia, Ukraine, CIS, which should be what we would all bucket into those categories.
And I would say Russia and CIS are probably performing the best.
Ukraine is maybe less negative than it was in the past, but that is still an economy that is under quite a bit of stress with everything else that is going on in that market.
But overall I would say our Russian business is on track for the year with our expectations.
Yeah, I mean, it is one that ---+ I think to hit our revised full-year guidance we only need, <UNK>, what ---+ about a point of growth in the fourth quarter ---+
Yes.
---+ versus zero in the third quarter.
So it is not a huge uptick to be able to round to 2% growth for the year.
So it is one that ---+ again I think that is doable across a number of places.
But overall I would expect the ones that were off the most in the third quarter will have the biggest opportunity to close the gap.
We typically look at dollar share.
We look at both, but the one that we probably focus more on is dollar share.
So when you hear us talk about it externally it is typically dollar share.
Yes, I would expect that the sequential improvement will be mostly volume-based.
Particularly in North America I don't expect to see any big pricing improvements.
There is no major price increases that are happening in any of the categories.
Yes, we had commented on that a little earlier.
Typically our long-term outlook has had the categories growing 3% to 4%.
And we haven't re-measured that for what we think actually happened in 2016 or what we think might happen in 2017.
And we will give you another look at that when you give you guidance in January.
My guess is that it had slowed down just because of the category declines that we have seen in Latin America as well as the pricing activity that we have seen in China, those two together would probably ---+ those are all large markets and would definitely bring down the category growth rates a bit.
Sure.
We did have really strong cash flow in the quarter, as you saw, and we had really good performance in working capital, particularly in reducing inventories, and that came through to help our cash flow numbers.
In terms of CapEx, we do expect that we will be below our original guidance that we gave coming into the year.
But that is driven by a couple of things.
First, we have had really strong productivity this year and you see that showing up in our FORCE cost savings as one of the levers that we used to drive that.
And we also do have slower volume in sales growth than we expected coming into the year.
And so, we are very rigorous on what we spend capital on and making sure that we are matching up the timing of when we are putting assets in the ground with our expectations.
And with slower volume growth this year our capital is lower than we expected.
This is an area that we continue to drive.
You know that we set up a global supply chain organization last year.
And that organization partnering with the finance organization and the operating teams are continuing to drive added rigor into our capital process.
And so, we are not changing our long-term expectation there, but we are incredibly rigorous on that and we will flex the CapEx spend with the needs of the business.
I wouldn't take it as a signal for anything else other than just where we are as a Company this year.
Yes, those are good questions.
And so, I mean if we look at China today the birthrate is definitely helping.
And we expect more live births this year and it could be as much as 7% more live births in 2016 than there was in 2015.
You are still seeing GDP per capita go up in China, so more consumers have more money to spend in categories like ours which helps.
We are continuing to drive our city expansion, so we are in now 130 cities where we started the year at 115.
So we have got more geography to cover as well which is fueling our growth.
And we continue to launch innovation.
And so we have been driving some improved newborn products and that has really helped drive a lot of our near-term volume growth.
But we've also ---+ we are also driving diaper pants hard across a number of tiers, both mainline and premium tiers.
And so, I think there is ---+ a combination of those factors has really helped our volume growth this year.
China tends to skew a bit premium.
The golden baby phenomenon is alive and well in China.
And Chinese moms and dads invest a lot in their child ---+ and hopefully children as they go to more than a one child policy.
And we tend to see the best for baby is a strong pull for our business in China.
Yes, Brazil you are seeing a bit more trade down, more growth in the lower tier products there still as a segment of the consumer that has money to spend and will pay more for best for baby.
So you have got to balance your innovation across those tiers.
But you are seeing more emphasis on the value equation in markets like Brazil and Argentina.
Okay, on China pricing and ---+ broadly I would say the market got a little bit more competitive in Q3 than Q2.
And so again, you saw lots of innovation, lots of good global competitors trying to drive their business and the Chinese consumer is the beneficiary of that for sure.
I wouldn't say we have seen any significant destocking impacts in any of our businesses.
I mean we have a pretty big e-com presence in China and that business tends to be relative ---+ for us at least relatively efficient, low inventory and it flows pretty directly to the consumer.
So again, China a good growing competitive market, we are competing well and we feel pretty good about our position there.
On the tissue comps, I mean again it was a ---+ we had a weaker promotional calendar in the third quarter as it turned out than we needed and we expect to have a stronger quarter going into the fourth quarter.
Fourth-quarter is also typically a little bit better facial tissue quarter, so we will see how cold and flu shapes up.
And on the pulp question, at the levels of pulp change that we are seeing I wouldn't expect that to have much impact on pricing.
Okay, you have got a pretty eclectic list there, <UNK>.
Yes.
On the tissue growth, and some of it is timing of promotions and when they ship.
I think overall we had a pretty good promotional calendar.
On the other hand we probably underestimated the impact of front of ad circular Olympic stuff and how much lift that would provide to a primary competitor.
So in some cases we had the promotion we just didn't get as much out of it as we thought we were going to get.
And that obviously has lapped and we will expect a little stronger performance going into the fourth quarter.
And so we feel pretty good about the lineup we have got.
And again, year to date we feel like the tissue business in North America is at or ahead of its plan.
So we are comfortable with what we are doing on that front.
The fourth-quarter comps, I essentially would say that to get to the low end of our guidance we only need to deliver one.
And so to put that in perspective, I wouldn't say I was predicting that and we will see what it looks like when we post it in January.
As you guys know, I would rather give you guys annual guidance anyway.
And this is the one quarter of the year where I have to give you quarterly guidance, otherwise I would just rather talk about where we are going from an annual plan and not manage the business quarter to quarter.
SG&A growth, we are ---+ maybe, <UNK>, you want to comment on that.
Because we are really trying to make sure we are focused on controlling that element of our P&L that we can control.
Sure.
We also have some currency effects when you look on the face of the P&L and SG&A.
If you unpack that and look locally, we actually have SG&A increases in some places, particularly in Personal Care where we continue to invest in our capabilities and building that business out in developing and emerging markets.
We also operate in some high inflationary environments.
And so again, when you strip the currency, we have increasing SG&A in some places because of inflation.
But we balance it out, we continually look at our SG&A spend to make sure that we are directing as much of it toward growth oriented initiatives.
And then have extreme rigor on the more discretionary non-growth oriented core SG&A spend.
All right, well, we appreciate all the questions everyone and we will wrap up with a comment from <UNK>.
Well once again thank you all for spending some time with us this morning.
We hope to deliver a little stronger performance in the fourth quarter and thank you again for your support of Kimberly-Clark.
Thank you very much.
| 2016_KMB |
2017 | EBS | EBS
#Thank you, Vincent, and good afternoon, everybody.
My name is Bob <UNK>, Vice President of Investor Relations for Emergent, and thank you for joining us today, as we discuss our first quarter 2017 financial and operational results.
As is customary, today's call today is open to all participants, and in addition, the call is being recorded and is copyrighted by Emergent BioSolutions.
Participating on the call with prepared comments will be Dan Abdun-Bani, President and Chief Executive Officer; and Bob <UNK>, Executive Vice President and Chief Financial Officer.
A Q&A session will follow at the conclusion of our prepared comments, and other members of our senior management will be available to participate if need be.
Before we begin, I will remind everyone that during today's call, either in our prepared comments or the Q&A session, management may make projections and other forward-looking statements related to our business, future events, our prospects or future performance.
These forward-looking statements reflect Emergent's current perspective on existing trends and information.
Any such forward-looking statements are not guarantees of future performance and involve substantial risks and uncertainties.
Actual results may differ materially from those projected in any forward-looking statements.
Please review our filings with the SEC on Forms 10-K, 10-Q and 8-K for more information on the risks and uncertainties that could cause actual results to differ.
During our prepared comments as well as during the Q&A session, we may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Emergent's operating performance.
Please refer to the tables found in today's press release regarding our use of adjusted net income and EBITDA and the reconciliations between our GAAP financial measures and these non-GAAP financial measures.
For the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on May 4, 2017.
Since then, Emergent may have made announcements related to topics discussed during today's call.
So again, please reference to our most recent press releases and SEC filings.
Emergent BioSolutions assumes no obligation to update the information in today's press release or as presented on this call, except as may be required by applicable laws or regulations.
Today's press release may be found on the Investors Homepage of our website.
And with that introduction, I would now like to turn the call over to Dan <UNK>, Emergent BioSolution's President and CEO.
Dan.
Thank you, Bob.
Good afternoon, everyone.
Thank you for joining us.
During the call today, I will make a few introductory remarks, and then turn the call over to Bob <UNK> who will review our recent financial performance and guidance for 2017.
This was a quiet, business-as-usual quarter for us.
I'd like to begin with a summary of where we stand against our 2017 financial and operational goals.
As a reminder, those goals are to achieve total revenue of between $500 million and $530 million as well as other financial metrics that Bob will discuss later on the call.
Also to initiate 3 Phase I or Phase II clinical studies for emerging infectious disease therapeutics, advance the development of NuThrax, our next generation anthrax vaccine, to enable the initiation of a Phase III study in 2018, initiate 2 human factor studies for a nerve agent antidote autoinjector.
And finally, to complete an acquisition that generates revenue within 12 months of closing.
So starting with our revenue goal.
We remain on track to achieve forecasted total revenue of between $500 million and $530 million.
In doing so, we anticipate that we will more than double our international sales revenue over last year.
Our anticipated growth in international sales is expected to be driven by orders across our product portfolio from repeat, as well as new customers from a number of countries across the globe.
On the therapeutic side, we're expecting to increase sales of both of BAT, our Botulism Antitoxin and VRG, our vaccine immunotherapeutic for the smallpox vaccine.
On the vaccine side, the recent German approval for a large-scale manufacturing of BioThrax positions us to pursue licensure across targeted countries within the EU, providing a foundation for our efforts to expand international sales of BioThrax.
On the device side, RCL continues to be a contributor to our international revenue, and we have experienced market growth in the international demand for TROBIGARD, our nerve agent antidote autoinjector.
Orders for and interest in TROBIGARD has exceeded our initial 2017 supply capacity and working with Demara, a recognized world leader in the design, development and manufacturing of drug delivery devices, we plan to double our manufacturing capacity by the end of this year and triple that capacity in 2018.
The outlook for our international sales growth this year provides us with confidence in our ability to steadily drive towards our 2020 goal of having at least 10% of our revenue derives from ex-U.
S.
sales.
Moving onto our operational goals.
In the first quarter, we commenced, with the support of the NIH, a Phase Ib study evaluating the safety and tolerability of UV 4V, our novel anti-bio candidate being developed as a potential oral treatment for dengue viral infection.
2 additional product candidates are scheduled for clinical study initiation later this year, a seasonal flu therapeutic and a Zika therapeutic.
These candidates, as well as NuThrax and our autoinjector program, remain on track with their development timelines.
Now regarding our M&A goal, we continue to pursue a number of opportunities that will leverage our core competencies.
These targets include businesses and revenue generating products in the vaccines, therapeutics and device spaces, as well as pipeline candidates that can we acquired with grant and contract funding that will contribute to our revenues.
I remain confident that we are on track to execute at least one meaningful acquisition in 2017.
So in addition to our progress towards achieving our 2017 goals.
I'd like to highlight a couple of additional first quarter operational accomplishments.
Specifically, we executed 3 contract actions with BARDA.
First, in February, we received a task order valued at up to $30.5 million, to develop viral hemorrhagic fever therapeutics.
This work will be done at our Center for Innovation and Advanced Development and Manufacturing at our Bayview site in Baltimore.
This is the fourth task order that we have received from BARDA, targeting public health threats and emerging infectious disease markets.
Second, in March, we will order ---+ we were awarded $100 million contracts to deliver BioThrax to the SNS, over a period of 24 months from contract award.
This contract satisfies BARDA's notice of intent to procure BioThrax that was issued last December and is separate from and in addition to, our $911 million BioThrax procurement contract with the CDC.
And lastly, at the end of March, we signed a $53 million contract modification for the manufacture of BAT.
As a reminder, our 2017 goals are designed to advance us incrementally towards the achievement of our 2020 goals, which are to achieve $1 billion in total revenues, with at least 10% derived from ex-U.
sales, achieve a net income margin of at least 13% and achieve a portfolio that includes 6 products in clinic or advanced development, 3 of which are dual market opportunities.
I will now turn the call over to Bob <UNK> for details on our financial performance during the quarter.
Bob.
Thank you, Dan, and good afternoon to everyone and thanks for joining the call.
Today, I'll comment generally about our financial results for Q1 of 2017 compared to last year, walk you through the P&L as well as select elements of our balance sheet.
I will then discuss our 2017 guidance, both for the full year as well as for the second quarter.
As a reminder, following the successful spinoff last year of our Biosciences Business into a separate publicly traded company, Aptevo Therapeutics, we now present our 2016 financial comparisons on the basis of continuing operations, which exclude the Aptevo operations.
Now to our results.
Overall, we started the year with a solid first quarter.
Total revenues were $117 million, 13% above the first quarter of 2016.
Breaking that down, product sales were $82 million, 29% above first quarter of last year.
Included in the product sales were BioThrax sales of approximately $44 million down $15 million from last year as well as other product sales of approximately $38 million, which were $33 million higher than last year.
The lower BioThrax revenues are strictly timing-related, as determined by the delivery schedule of our contracts.
While the higher, other product revenue, was driven by BAT shipments originally scheduled for Q4 of last year, which were moved to Q1 of this year, as we communicated back in November of 2016.
Moving to CMO services.
Our contract manufacturing revenues were nearly $18 million for the quarter.
That's $10 million higher than 2016.
This performance was driven by a couple of factors, including the timing of fill-finish services; secondly, work we're performing for Aptevo on an ongoing basis as part of the CMO agreement; and third, growth from existing CMO customers and importantly, new customers.
The higher CMO revenue versus last year reflects our commitment to look aggressively for opportunities to more fully utilize our available manufacturing capacity.
Concluding the revenue discussion, contracts and grant revenue were just over $17 million for the quarter, significantly lower than 2016.
But that was expected.
This is a reflection of the timing of ongoing development activities, as well as activities under contract in 2016, which have since begun to wind down, or in some cases, is complete.
We anticipate that this year-over-year trend will continue throughout 2017.
First quarter gross margin came in at 53%, below our expected range of between 60% and 70%.
The lower gross margin reflects the impact of revenue mix during the period.
Most notably, a combination of the lower BioThrax sales, which accounted for 37% of our total revenues in Q1 of '17, versus accounting for 57% of those revenues in 2016, as well as the substantial larger revenue contributions from lower margin, other product sales in CMO services.
Looking ahead, and based on the revenue mix projected for the remainder of the year, we anticipate the performance for the full year to be in the historical range of 60% to 70%.
Turning to expenses.
Quarter one gross R&D spend was $20.5 million, or $5.6 million lower than last year.
On a net basis, our R&D expense, after adjusting for grant and contract revenue for the first quarter, was slightly over $3 million.
As we've stated in the past, we regard investment in the development of new medical countermeasures, both funded and unfunded, as an important component of our strategy to grow and diversify the business.
Next, SG&A expenses for quarter 1 in '17 were $35.2 million, slightly higher the 2016 and includes the impact of nonrecurring restructuring costs associated with the administrative cost assessments performed earlier this year.
As a percent of total revenue, first quarter SG&A costs were 30% versus 31% in the prior-year.
We continue to work aggressively towards achieving a level of SG&A costs at or below 25% of total revenue.
The business generated over $25 million of EBITDA, or 22% of total revenue during the quarter.
While lower than the prior-year period, the continued positive EBITDA performance reflects the strength of the core business.
And finally, our GAAP net income for the quarter was $10.5 million, slightly below Q1 of 2016, largely reflecting the impact of the revenue mix in the quarter.
As a percent of total revenue, net income margin of 9% for the first quarter was in line with our expectations.
On the balance sheet, at quarter end, our cash balance was approximately $270 million, which, when combined with our accounts receivable balance of $128 million, continues to reflect a very strong liquidity position to support our operations and strategic M&A initiatives.
Finally, looking at cash flow, we generated over $42 million in net operating cash during the quarter.
In addition, our cash flows reflect the $20 million paid to Aptevo during the first quarter, which completed all payments pursuant to the August 1, 2016, spinoff last year.
We anticipate continued strong operating cash flow from the business, which we will use to support our capital needs, namely working capital, capital expenditures, M&A investments and the potential return of capital to shareholders through a buyback program.
Before I turn to discussing our forecast for 2017, I'd like to remind everyone that last year, in anticipation of the spinoff of our Biosciences business, we undertook an assessment of our operational and administrative cost structure for the purpose of ensuring that we have the right structure with the right resources and skill sets to execute on our 2020 financial and operating goals.
We are in the process of implementing our new matrix structure, with the expectation of achieving annual expense savings compared to 2016 of approximately $20 million per year beginning in 2018.
As for the full year 2017 forecast, we are reaffirming our guidance.
Specifically, total revenues of between $500 million and $530 million, including BioThrax sales of between $265 million and $285 million under our contractual arrangements with both CDC and with BARDA.
Second, GAAP net income of between $60 million and $70 million, adjusted net income of between $70 million and $80 million, and finally, EBITDA of between $135 million and $145 million.
Please keep in mind that we do not include any M&A activity in our annual guidance, except for the provision for specific diligence related expenses required to support our ongoing M&A efforts.
Additionally, for Q2 of 2017, we estimate total revenues of between $100 million and $115 million.
That concludes my prepared remarks.
And I'll now turn the call over to the operator to begin the question-and-answer session.
Operator.
Yes, <UNK>.
This is Bob.
Thanks for the question and for joining the call.
I think if you looked historically at our revenue over the quarters in comparison to the total year, 2017 should be much like 2016 and 2015.
On average, we generally have about 40% of our total revenues occur in the first 6 months of the year, with what we performed in Q1 and the midpoint of the range for Q2 that provided, we're going to be right around that 40% of revenue number for the total.
So we're right in line with what we've done historically.
And again, we've provided the BioThrax component of that, of between $265 million and $280 million, and we're right on the mark with our contractual delivery schedules to meet that.
As we've talked over the last year or so, <UNK>, our priority for use of capital is, first of all, to support the ongoing working capital needs of the business.
Second, to support our capital investments in our infrastructure and facilities, then to go to M&A.
And then finally look, when appropriate, for opportunities to return capital to shareholders, either through a buyback or even a dividend program.
We're not quite ready to go there yet.
But as we announced last year, we have a $50 million buyback program that was authorized by the Board.
To date, we have not pulled the trigger on that.
But we continue to assess our calls on capital, relative to the M&A opportunities that we see, and we haven't executed any buyback activity yet.
We'll report that as part of the quarterly process going forward.
Sure, Katie, this is Bob.
I'll answer the second question first.
And then maybe turn to <UNK>, who is better positioned to respond to the Emergard capacity expansion initiative, and what that will cost and when.
So on the SG&A.
We've been pretty clear that our goal is to achieve that less than 25% of revenue for SG&A expense.
Now that's part of our 2020 financial goal objective.
For 2017, as we'd indicated last call, we're taking certain administrative assessments and implementing those measures throughout 2017 such that beginning in 2018, we expect to be able to reduce the overall annual OpEx by $20 million, out of our SG&A structure and should be in a position to get pretty close to that 25% level by the end of 2018.
Maybe on Emergard, <UNK>.
On the autoinjector side, we partnered with a great organization in Nemara, and really our capital requirements there are fairly modest and would be in line with anything we've done in total as an organization in years past.
So, you won't see any large spikes in capital allocation relative to the autoinjector program and ---+ in the short-term.
Yes, excellent question.
So I think in the short term, doubling it gets us in line with where current demand as.
We're going to continue to expand that capacity because we believe there is ---+ obviously, a pretty good market there, and we will need more capacity as we move forward into '18 and '19.
So this is the first step in '17.
We'll take another step in 2018.
Yes, so maybe, Jess, I'll take your second question, first.
Similar to what we experienced in Q4 of 2016, we had higher than usual BAT revenue in Q4 as well as in Q1.
We talked last year about the fact that we had roughly $30 million worth of BAT revenue that we anticipated was going to be shifted from Q4 of last year to Q1.
So when you look at that $38 million of other product revenue in Q1, the majority of that is BAT, and it's just ---+ it's timing.
And those contracts are a little bit different from the delivery schedule associated with BioThrax, so that's ---+ hence, the lumpiness of that other product revenue number.
The first part of your question was around percentage of total revenue represented by international.
Yes.
In 2017.
Yes, so I think a good way to think of that, looking at last year's total international, as it related to total revenue, it was a couple of percents or so.
And as you know, we are targeting to build that to the 10% level.
So we're going to see significant progress this year towards that.
But it's going to be ---+ until we get to that 10%, it's going to require a few years.
So if you could think about it in that context, I think it would be good guidance for you.
Thanks, <UNK> for joining the call and for the question.
I'll kick it off and then perhaps <UNK> can discuss it in more detail.
We really don't disclose how much of the growth is going to come from existing customers or new customers.
As we've talked about on prior calls, we see the CMO business unit as a growth opportunity for us, as we look to expand our customer base, but also look for opportunities to utilize, more efficiently, the capacity that we've invested in over the years.
So whether that's fill/finish, or whether it's in bulk drug substance, we are looking aggressively for all opportunities to serve customers in new ways.
<UNK>, anything you want to add.
I don't think there is too much to add.
I think we're ---+ as far as how we do that, we've got a sales team that's responsible for opening the bids and we're active at shows and other places, explaining our capabilities to folks.
So it comes through active sales activities on that side of the business.
And we continue to see strong demand for our specialized capabilities.
Yes, thanks so much for the call.
Let me take the second part first and then ask <UNK> to talk about the key milestones or steps towards moving NuThrax into ---+ to Phase III.
So NuThrax, as you know, is the next generation ---+ it's really designed to enable protection in the post-exposure setting in fewer doses than BioThrax.
BioThrax does have the PEP indication as well as a general use prophylaxis or GUP indication.
So we do anticipate there will be continued demand for BioThrax with the GUP introduction, for example, military personnel active immunization program.
Right now, that would be a BioThrax customer as opposed to a PEP indication for NuThrax.
So we do see the opportunity for both products to remain in the marketplace as the development program migrates.
<UNK>, do you have any thoughts on the development side.
Sure, so the gating items kind of fall into 2 kinds of big buckets.
One is, just preparation activity to start a clinical study, finalizing the protocols, getting the IRBs in place, getting the sites in place, getting the contract research organization that is going to help us perform that Phase III study.
But that's more, I'd say operational than logistical.
Really the gating items, from a product perspective, are we need to some validation of our assay, and in particular, a potency assay.
And we need to do the process validation.
So we run the ---+ basically the validation process prior to Phase III, and release those batches.
Similar to what we had to do for Building 55 of BioThrax, we'll make some consistency ops and release those ---+ submit that data to the FDA, and then move into the Phase III study.
So, it's really the critical path items are that potency assay validation and that process validation before we start Phase III.
Thanks, for the question and for participating today.
We have not broken that down.
But what we have said very consistently is M&A is going to be a key component to enabling the achievement of that goal.
We will see organic growth to be sure.
But do we ---+ as we look at the plan going forward, we are targeting M&As to be a meaningful contributor to hitting that $1 billion number.
Yes, so you're absolutely right.
We're looking at the CBRN space, we're looking at the explosive space, emergent infectious diseases, vaccines, therapeutics, devices and in the device world, opportunities for doing market, such as burn or wound care.
And so all of those are squarely within the bull's eye for us.
And ---+ so I think that is consistent with what we've said in the past and it remains what we're really focused on.
I think it's a slow build.
We're seeing real interest across the portfolio from existing and new customers.
So, I think, given what we're seeing now with the entire portfolio, and particularly as we expand that portfolio, potentially through M&A and otherwise, we do see incremental progress slowly growing to that 10% target.
But this year, I think we're going to see a meaningful jump from last year in terms of the contribution international sales is making to that target.
Thank you, Vince.
And with that, ladies and gentlemen, we'll now conclude the call.
Thank you, for your participation.
Please note an archived version of the webcast of today's call will be available later today and accessible through the company website.
Thank you, again.
And we look forward to speaking with all of you in the future.
Goodbye.
| 2017_EBS |
2016 | XYL | XYL
#Thank you.
Great, thank you.
We appreciate the continued interest by everybody.
Thanks for joining the call today.
Safe travels between now and the next time we see you all.
We look forward to updating you on the next earnings call.
Thank you all.
| 2016_XYL |
2016 | FN | FN
#Thank you, <UNK>.
I think, <UNK>, your date of December is really in line with what we plan and what we anticipate.
Yes, so we don't break out that but in the past we've said most of the startup cost is in operating expense.
So in the past quarter of Q3, we still look at about $2 million to $2.5 million baked into the operating expense.
Now, bear in mind that $2.5 million has about $0.5 million sales and marketing, which rightfully belongs below the line.
So I am hopeful that when you get to the breakeven level that $2 million will be fully absorbed into the cost of goods sold.
This is <UNK>.
As we look at it, we don't see any one-off.
Most ---+ every one of our Japanese customers today, which we are certainly proud of, is a continued customer with the Company.
I think ---+ that's absolutely correct.
We are experiencing increased experience in the Japanese outsourcing.
Our sales efforts and engineering effort in Japan are quite successful.
<UNK>, this is <UNK>.
I think during the timeframe of OFC we had this scare of ZTE.
I believe it's completely behind us right now.
Most everybody is resuming shipping to ZTE.
So far from our vantage point, I don't see any impact after the big scare.
But in terms of Verizon strike, so far again we have not seen any impact.
In the future, I don't know.
If there's an impact, I don't think it's going to slow down the metro upgrade, maybe it's just a message of delay a little bit in terms of timing.
But so far, Fabrinet has not seen any impact on that.
Thank you, <UNK>.
For this quarter, there is really very little, in fact, almost none.
There is a mark-to-market gain ---+ we excluded it from the non-GAAP reporting.
There's something about interest expense, how we offset interest income expense.
We have a flood income.
We, again, excluded this from the non-GAAP.
So from a non-GAAP standpoint, other income expense, I would say, is insignificant.
A little bit, not a lot.
Again, we will continue to see that ---+ I won't call it SG&A, I said operating expense, will be continuing to decline.
A lot depends on how fast Fabrinet West performs.
But if that gets to breakeven then, yes, that $10 million will be significantly lower.
On the 10% customer, no, we haven't said anything yet because we normally report once a year.
So next quarter, I will have a report who will be the new 10% customer for this year.
We are ramping a few customers.
Honestly, until the last finishing line, I really cannot tell who will be the winner.
We always had the end of September, as the opening of that facility.
That in fact is going to happen.
As <UNK> said, we fully expect that we will be shipping product out of there in the third quarter.
Thank you.
<UNK>, this is <UNK>.
Typically, new business as we've discussed before, will come in a little bit higher than gross margin because we have room to improve the yield and so on and with the improvement we share with the customer.
So I think for competitors, like existing product, existing customers, new business generates a little bit higher than the gross margin.
Contract you mean.
A little bit of background on that.
Our customer base is not based on a contract, it's based on a volume supply agreement.
A volume supply agreement really is what the customer and ourselves agree on is how we're going to run the business between the two of us.
It's really not project ---+ in fact it is not project defined, it includes a relationship.
Beyond that, it's all a relationship.
Yes.
So in terms of volume ---+ as you know, the gross margin pretty much depends on the volume .
it's volume driven.
The higher the volume, obviously we get better absorption.
Again, in terms of volume, we only have 13-week visibility.
So beyond 13-weeks, it's pretty cloudy.
Until I know the volume, I really cannot project gross margin.
But we do know that we have pressures on labor costs, obviously you understand that.
We continue to find offsets and the offsets to ---+ productivity and to material pricing and so on.
Cost reduction is an ongoing thing in a factory.
So I feel the 12% to 12.5% we guided to all along is achievable.
We're comfortable with that level.
Beyond that, it all depends on the volume.
Thank you, <UNK>.
Thanks, <UNK>.
I don't know that they enjoy it, but we are ramping QSFP28 also as I mentioned in the prepared remarks.
So 100-gig is the main driver, obviously silicon photonics is also ramping nicely, all the advanced components to support 100-gig.
So those are the products we see as pretty strong.
A lot of these are in the telecom in the past quarter or so.
We see strong demand there.
Again, for the specifics probably if you ask our customer, you might get better insight.
But yes, you are right, we see pretty strong demand there.
No.
I don't know, <UNK>, did you see any impact there.
No.
We can really tell you that we have seen absolutely no effect with that strike.
No, I think across the board, I think we were able to rise to the occasion and ship as requested throughout the whole quarter.
<UNK>, we don't go into that much detail.
The only thing I can tell you is that in silicon photonics today, I think I have mentioned this before, it's increasing as a percent of revenue.
Today it's already surpassed 15%.
That's all I can tell you.
Okay.
You are going to see tomorrow when we file the Q, essentially, we shipped more to North America in the past quarter than any other region.
So that's in the Q.
Thank you, <UNK>.
Okay.
All right.
Let me try my best to answer that.
I think if you look at both segments, telecom and datacom, both are growing ---+ continuing to grow.
Obviously, telecom is accelerating, the growth is accelerating like we expected.
So again, in the case of telecom ---+ a lot of that comes from existing customer, the legacy product, because they support the telecom growth.
So some of what you mentioned, the ROADM, amplifiers and so on.
Those are supporting, the TC ---+ telecom upgrade and you can see it, we're in the cycle right now.
We are in the upgrade cycle right now.
Now, we see pretty good momentum too, even though datacom has been growing tremendously in the last couple of quarters, we see the momentum continuing.
So, like I said, telecom comes to the party and continues to accelerate.
That's all I can tell you.
And the new business, some of which are supporting both segments, too.
So we achieved multiple growth from all segments.
Is that helpful.
Okay.
So for the ops com versus non-ops com, I would expect that the ratio will probably continue.
We saw a nice growth 77% this past quarter on optical communications, and non-optical at 33%.
I believe the same pattern will probably be maintained in the next quarter.
All right.
Within ops com, I would expect telecom will inch up a little bit compared to datacom.
So next quarter, I believe that telecom ---+ I would expect telecom to be a little bit higher than, in terms of percentage, higher than the past quarter.
Thank you, <UNK>.
<UNK>, the one thing that we've never experienced in the industry is the price movement because of a shortage of capacity.
But in this case, pricing has never been a factor.
What we are experiencing is the capacity constraints that exist are primarily capacity constraints on equipment that's furnished or owned by the customer.
So their capital layout only carries to a certain capacity.
The capacity constraints are not the constraints of the facilities, bricks and mortar, or headcount or those types of issues.
Considering, as you well know, we believe we're in the early part of this ramping cycle.
A ramping cycle does have capacity constraints as it moves forward.
Well, we have the floor space of about 500,000 square feet.
We certainly have made some commitments to that square footage, but I really can't go through and define ---+ divulge who it has been made to.
Back to your other question on ---+ I think the industry, as we go through this ramping period, which obviously is very good for everybody, is arising to the occasion to meet the demand.
There are isolated cases of capacity problems, which obviously are resolved in a short period of time.
What our experience is, and we have experienced it over about the last 15, 16 years, is that it takes us for a new facility ---+ and that's the largest facility we put in ---+ the balance of the others were about 300,000 square feet ---+ it takes us about three years to complete the assignment of all the space.
And obviously about halfway through that, we start another building.
But it is certainly, we certainly have a lot of space to be allocated in the 500,000 square feet.
Yes.
We want to say thanks for joining the call.
Have a good evening.
| 2016_FN |
2015 | CNSL | CNSL
#Thank you, Chelsea, and good morning everyone.
We appreciate you joining us today for our third quarter earnings call.
At the end of the prepared remarks, we will open the call up for questions.
Joining me on the call today are <UNK> <UNK>, President and Chief Executive Officer, and <UNK> <UNK>, Chief Financial Officer.
Please review the Safe Harbor provisions in our press release and in our SEC filings for information about forward-looking statements and related risk factors.
This call may contain forward-looking statements within the meaning of the federal securities laws.
Such forward-looking statements reflect, among other things, management's current expectations, plans and strategies and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause the actual results to differ materially from those expressed or implied by these forward-looking statements.
In addition, today's discussion will include certain non-GAAP financial measures.
Our earnings release for this quarter's results which has been posted to the Investor Relations section of our website contains reconciliations of these measures to their nearest GAAP equivalent.
I will now turn the call over to <UNK> to provide an overview of our third quarter results.
<UNK> will then provide a more detailed review of the financials.
<UNK>.
Thanks <UNK> and good morning everyone.
I appreciate you joining us today for our third quarter earnings call.
We had a strong third quarter of financial and operating results, continuing to demonstrate the execution on our strategy.
Overall, revenue was $194 million, adjusted EBITDA was $89.4 million and the dividend payout ratio was 54%.
Now let me highlight a few of the key drivers behind this successful quarter.
First, our commercial and carrier revenues increased by 3% year-over-year.
Last quarter, we talked about a few of the large wins we had in the healthcare and education sectors and we started to benefit from these projects in the current results.
Our hosted VoIP and Internet solutions continue to be in high demand.
During the quarter, metro Ethernet circuits increased 25% over last year and we continue to expand our fiber network and on-net buildings.
On the carrier side, we completed the installation of 130 new fiber-to-the-tower sites that were primarily driven by the record sales in the first quarter where we added 200 new sites under contract.
In the third quarter, we had another strong performance with 57 new sites sold for future installation.
Second, we continue to execute on our strategy on the consumer side with a focus on higher broadband speeds, higher average revenue per user, and continuing to pass-through content price increases to our video subscribers.
Our robust network can now serve 89% of marketable homes with a 20-Meg or greater Internet product, 41% can receive a 100-Meg and 8% can receive our 1-Gig offerings.
We now have 27,000 consumer customers taking a 50-Meg product or higher and we have increased our 1-Gig customer count to over 1,000.
Overall, we grew our data in broadband connections by 3,300.
With respect to voice connections, we maintain our run rate which is one of the best in the industry.
A third highlight for the quarter was related to our partnerships with Verizon Wireless.
We received a record $20 million of cash distributions in the quarter.
This was driven by two key items.
First, the device financing plan that began in early 2014 is starting to see the cash collections catch up to the strong demand and penetration of the program.
The second item is tied to the deal Verizon completed with American Tower at the end of March.
Certain of the Towers in this agreement were owned by the partnerships in which we participate.
The upfront cash payments for the deal were distributed to each of the partners at the prorated amount of ownership and we estimate this represented $9.5 million to $10 million of the total distribution.
Now with respect to Enventis, the integration continues to go well.
We closed on the transaction just over one year ago on October 16.
The transaction included significant fiber network spanning over five states and we have been very pleased with the growth in the commercial and carrier sales from the expansion opportunities of the network made possible by this greater scale.
In addition, we have achieved 65% of our two-year synergy target of $17 million which was increased from $14 million last quarter.
Also, Enventis had a billing platform used both internally and licensed to others.
In October, we completed the sale of this business which had approximately $4 million in annualized revenue and was neutral to earnings.
Finally, before I turn the call over to <UNK>, I wanted to discuss the Connect America Fund or CAF.
In August, we announced the acceptance of approximately $14 million in CAF to funding, which represented 100% acceptance for all of our eligible markets.
The transition of CAF I to CAF II began in the third quarter.
Consistent with our strategy, this program will help deliver broadband to rural areas, improving the economies and livelihoods of these communities.
With that, I'll turn the call over to <UNK> for the financial review.
<UNK>.
Thanks <UNK>.
Good morning to everyone.
This morning, I will review our financial results for the quarter and compare them to the pro forma results for the same quarter last year.
I'll follow that with a review and confirmation of our 2015 guidance.
Starting with revenues, operating revenues for the third quarter was $194 million as compared to $203.4 million last year.
The primary driver of the year-over-year decline is attributable to $7.5 million decline in our equipment sales and services revenue.
Excluding the revenues from equipment sales, which carry lower margins, total revenues were $179.2 million compared to $181.2 million for the third quarter last year.
Growth in our strategic sales were offset by declines in legacy voice services, subsidies and network access.
Total operating expenses excludes this depreciation and amortization were $134.3 million compared to $131.1 million for the same quarter last year.
The increase is primarily driven by $9.6 million of immigration and severance charges related to the ongoing synergy achievement in the Enventis acquisition and an early retirement for certain employees.
These charges were partially offset by lower cost through the Enventis synergy achievement as well as the decline in equipment sales.
Net interest expense for the quarter was $19.2 million, which was a $2.6 million improvement to the third quarter of last year.
The significant expense reduction was due to calling our 10 7/8% senior notes with proceeds from an add-on to our 6.5% senior notes.
We completed the bond redemption in June.
Other income net was $10.5 million compared to $8.6 million for the same period last year.
Cash distributions from our Verizon Wireless partnerships in the quarter were $20 million, which compares to $7.6 million for the third quarter of 2014.
Weighing all these factors and adjusting for certain items as outlined in the table on our press release, adjusted net income was $8.8 million and adjusted net income per share was $0.18.
This compares to $8.6 million and $0.17 per share for the same period last year.
Adjusted EBITDA was $89.4 million in the quarter compared to $79.8 million for the third quarter last year.
Capital expenditures for the quarter were $34.6 million.
From a liquidity standpoint, we ended the quarter with approximately $23.9 million in cash and $49 million available to us under the revolver.
For the quarter, our total net leverage ratio as calculated in our earnings release was 4.2 times.
Cash available to pay dividends was $36.2 million resulting in a dividend payout ratio of 54%.
Now, let me reiterate our 2015 guidance.
Capital expenditures are expected to be in the range of $128 million to $132 million.
Cash interest costs are expected to be in the range of $76.5 million to $77.5 million and cash income taxes are expected to be in the range of $2 million to $3 million.
With respect to our dividend, our Board of Directors has declared the next quarterly dividend of approximately $0.39 per common share payable on February 1, 2016 to shareholders of record on January 15, 2016.
This will represent our 42nd consecutive quarterly dividend.
With that, I'll now turn it over to <UNK> for closing remarks.
So in summary, we had another strong quarter and continue to execute on our strategy.
Throughout the first three quarters of 2015 we have returned $59 million to our shareholders through the dividend and invested capital of well over $100 million into the business creating long-term sustainable growth.
We are well positioned for the future.
With that I'd like to open it up for question, operator.
<UNK>, this is <UNK>.
Our revenue recognition in which we work through with our auditors is we're going continue to recognize it as revenue just as we did under USF on CAF I.
For us, we accepted the funding on August 27 or kind of at the timeline because we were working through some things with the FCC.
But we accepted CAF funding, which was $14 million.
Under CAF II, it will be a step down compared to what we get on CAF I.
So we accepted on August 27, the implementation period actually was August 1 and again, based on the quality of our network, the fact that we have broadband deployed at much higher speeds than what the FCC mandates for CAF II, we knew we were going to take a little bit of a step backwards.
So we'll be transitioning over the next several years to that.
The way it worked in August is it was relatively neutral because we had one property that we received a refund going back to January 1 and then we had to step down the rest of our properties.
So it essentially netted out for the third quarter, but you will see a slight reduction going forward in Q4 and in 2016.
Yes, <UNK>, this is <UNK>.
With regards to over-the-top, like the rest of the industry, we continue to emphasize over-the-top options with our unified log on strategy through our portal.
And really back to the video part of your question, we're de-emphasizing the broadcast video product, and the programming costs continue to make that a very low margin alternative.
So stand-alone video is not a priority for us to maintain and so the emphasis on product promotions has been in the broadband speeds and the penetration of homes with our broadband product.
If you look across our portfolio and then the rest of the industry, you're seeing an incremental transition as I'm sure you see to over-the-top and our strategy is to capitalize on that movement and continue to make our broadband product, which is more profitable, the priority with our customers.
Well, I can't speak to their strategies specifically.
But what I can say about ours is, our network is robust and it's had us in great shape to continue speed upgrades and very competitive speed upgrades, roughly 89% of the marketable homes we have can receive 20-Meg or greater, and 41% of our footprint can receive a 100-Meg or more.
That's near if not best-in-class for our industry.
We rolled out the 100-Meg and 1-Gig offerings late last year and the launch drove take rates for even our 2015 in 100-Meg offerings.
So we now have over 14,000 100-Meg customers and 1000 1-Gig customers.
If you think about some of the other industry players that maybe have more investment to make in the rural areas, even in our rural areas which is still mostly copper, VDSL technology is changing the game and the equation to a certain extent.
Being able to deliver a 100-Meg over copper is now really becoming more common and expands the capability of what we can deliver relative to market demand.
Yes, I do.
In the commercial area or business to business, we've been pushing our fiber area nodes, which we call fans, deeper into our footprint, shortening loop lengths.
That brings benefit on the consumer side and then certainly brings benefit on the commercial side.
And so, with metro Ethernet over copper reaching the same types of speed, it enables the layering of hosted VoIP and managed service offerings in our less densely populated areas that we initially only rolled on fiber.
Those types of products, we initially rolled on fiber.
So, the business opportunity continues to increase as we move those products down market.
Yes, I would think about capital as consistent with our strategy in the past, with two-thirds of our CapEx being success based, typically a sizable portion of it is demand driven and that gives us a lot of flexibility to slow if we wanted to, but we haven't seen a need to do that and it also gives us room, back to the earlier question around CAF.
We don't expect with the netting of some of the integration capital this year probably offset by some CAF investments next year.
We would expect capital to be roughly in the same range, if not slightly less.
Probably both.
I'm going to take the first and the third part of that and then <UNK> will take the comment on the wireless distributions or that question and I appreciate the questions, <UNK>.
If you look at the broadband ARPU, we took a slight decline on the consumer broadband ARPU and it's primarily due to the pruning of the non-profitable video-only customers.
When you look at some of the promotional activity, we expect that to return to growth and especially as in the less competitive areas we move up market on speeds and we're in a unique position to compete with the cable company speeds because of the robustness of our network and our fiber footprint and so if you break down the bandwidth groups from an ARPU perspective, we see higher speeds in the 50-Meg approaching a $100 plus, when you have even just the double play.
So we feel real good about our trend there and see this as a transition period.
Moving to the CAF point, these step downs and nobody likes to face step downs in revenue but we've been experiencing this with access line decline for years and they'll be partially offset by the penetration of homes with broadband as a result of the additional investments we're making.
We would expect to achieve a penetration that's above the average rate in some of these very rural areas because of the lack of competition and available internet service and you can do the math, but if you make some basic assumptions around the 25,000 additional homes that we will build to, things like the 40% penetration and a $40 price point shouldn't be unreasonable to accomplish.
This transition of course is similar to the step down in funding we experienced, as I mentioned, in the past and if you look at an overall cash flow basis, we've just reduced our interest cost by $6 million per year.
We're improving our cost structure, continually exceeding our integration and synergy benefits and wireless distribution are continuing to increase over time.
So we feel like overall, on top of a very flexible CapEx budget, we're well positioned from a cash flow management perspective.
<UNK> you want to talk about the wireless.
Yes, so nice segue to <UNK>'s second question there.
<UNK>, so on the wireless, you're absolutely right.
The $20 million we received, half of that or maybe a little bit more than half was for the one-time wireless, but the recurring distributions do appear to be normalizing.
We talked about the EIP or the device financing plan, the pull on working capital that that's had and we did see that start and again as we expected, we start to see that normalize in third quarter and would expect that to be a good proxy for fourth quarter.
But I will remind you and going into 2016, but I will remind you that distributions traditionally are a little bit less in the first half of the year and always larger in the second half.
But again we're really pleased to see from what the insight we have in the financials to those partnerships that ---+ cash flow are starting to catch up and get back to normal levels.
So we remain very excited about those cash distributions going forward.
Hey <UNK>, this is <UNK>.
Thanks for your question.
I'll take the first part and <UNK> will follow-up on the M&A.
But with respect to Verizon, yes, there are generally two to five other independent partners along with Verizon and again, just to remind everybody, we and the ones that we're involved in, we own anywhere from 2% to 23% depending on the size of the partnership.
But if a partner in the partnership were to sell their or want to sell their interest, we would have the first right of refusal to maintain our pro rata ownership share with that or buy their percentage out for ---+ that will be taken over by Verizon or anybody, an outside interest and we did that in 2013, I believe at the end of the year RSA #17.
And regarding M&A, <UNK>, it's a constantly evolving landscape and yet I think we'll stick to our screening process of high-quality assets.
Fiber assets have, as we stated before, been of interest and we typically look at $100 million in revenue is kind of the threshold necessary in scale to reach outside of ---+ something contiguous to our current markets and footprint.
And yet you know a new product component, if at the right value and fit would always be something we consider from an acquisition perspective, because of the great relationships we have with our customers and the continued evolution that we have been building additional services on top of our broadband connection.
So nothing is off limits.
But it's got to be a smart and good asset add to our portfolio that advances our organic strategy.
<UNK>, thanks for the question.
We continue to benefit from the portfolio.
While I won't get into specific metrics by market I can say this, the north is performing quite well and the east markets are performing better this year than last year, and where California and Kansas were off the charts in exceeding forecasts in the past, they're about on forecast and not as robust in growth percentage year-over-year this year and so it's very beneficial that we've got the scale that we have to leverage our product portfolio, our market launches.
Most recently, we launched [for service] Cloud offering in Dallas and in our Sacramento California market and that's late in the year building the funnel nicely.
So we have enough tools in our bag to continue to influence growth.
We have a very disciplined capital expansion procedure or policy and framework and so we're building organic extensions of our network in every market, every quarter and continue to have that capital investment strategy going forward into 2016 and beyond, and we think that benefits us well because of the good margins that come with Ethernet based extensions, the businesses on fiber.
So hopefully that answers your question in terms of market diversity.
It's a portfolio, we continue to manage and some are up and some are down and it works well for us.
Yes that's a constant effort.
Our churn on sales resources is much lower than the industry average for probably a number of reasons.
We like to think we're a quality place for employment.
We've got ---+ I'm looking at the number here, 86 commercial reps on quota.
They're certainly at a higher level of productivity this year than last year because of the more additions that we made over the end of last year and early this year.
We've added some sales engineer resources to assist us in moving up market, a few management resources to assist on training and productivity.
And so I have to say I'm very happy with that group.
Is it at a 100% productivity.
I've never seen a sales force that was, but you build breakage into that plan and as I look across the markets, we've got roughly 10 in ramp up at any one time and that should be going into 2016 in a more steady state than the growth we've experienced in over the last three, four quarters.
When you say product, are you talking about the equipment revenue business.
Yes, I think as we've talked about in the past that is ---+ I don't know what the right word is lumpy kind of up and down in terms of revenue.
I will remind you that margins on that line of business are probably high single-digit.
So I would think that fourth quarter is probably going to be based on timing at Cisco, we're past their year-end number in the third quarter.
I would expect fourth quarter to be a little lighter than what we have for the third quarter.
We're under (inaudible).
<UNK>, it's <UNK>.
Thanks for the questions, on the OPEB and pension, basically we're expecting pension contributions of about $12 million for this year based on making the elections for funding.
We actually advanced a 2016 contribution to this year.
So we'll expect we'll have very low payments for 2016 and start stepping up in 2017.
So we're managing that as well as we can.
And then obviously the cash OPEB number, I don't know have that right in front of me, but that's on a pay as you go type basis which is significantly less than what our pension contributions would be.
And then relative to the cash taxes, our current guidance for this year is $2 million to $3 million and we've benefited from the bond redemption that we had in June of this year, the [May call] on that was tax deductible.
We're still going through some NOLs, we sure was and the timing on integration and the severance we talked about on our early retirement.
So we think going into ---+ so 2015 is very low, we'll start seeing a step up on fixed in 2016 and then we might be approaching full cash taxes in 2017, but again that's without the bonus depreciation that's extended, other synergy achievement efforts that we have will generate more severance costs, and without consideration of an acquisition in the future and that type of thing.
Thank you.
And thank you again all of you for joining us today and for your continued interest and in support of Consolidated Communications.
We hope you will join us again next quarter.
Have a great day.
| 2015_CNSL |
2015 | CNSL | CNSL
#<UNK>, this is Steve.
I think our view remains the same.
We are at 4.2 times, ticked up modestly in the quarter.
I think, as we think about capital structure, we don't think we have to get into the necessarily, the low 3s or whatever, but getting below 4 times, I think would be kind of what the target is.
And the only thing I'd add there is we're going to be opportunistic with the markets being good to continue to look at our capital structure and optimize interest expense and reduce it when possible.
So that's something we're always evaluating for the benefit of our shareholders and long-term cash flow.
Yeah, <UNK>, thanks for the question.
That's really where our integration focus has been over the last two quarters and of course, we always start with ERP system and get a view of the financial landscape and we started out the year converted on the common platform.
But we also started out the year with a common sales organization.
And that strategy has been getting great traction.
We've got roughly 120 right now sales resources, average productivity target is in the 3,000 plus range.
But of course, you've got some people ramping at different stages.
We've had an expansion in Dallas last year, which we talked about.
We've added a team in a couple different markets.
And so I think, over the last quarter, we probably have six new sales people on in total.
But to address your question with regards to the with recalling the Enventis, the North region, it's fully productive already.
We're very happy with our traction in the first quarter, feeling quite optimistic about how the Metro Ethernet product and the sales strategy are disciplined around how we divide up the accounts is quite structured.
It goes from a very focused silver, gold, platinum framework that has a very disciplined account management for existing customers, renewal process and then a high-touch consultative sales approach for prospects in our [hunter] group.
So we're feeling really good about both the Metro Ethernet growth as the platform and the new product activity that's in the pipeline to add value and stickiness to that Metro Ethernet relationship with our customers.
Hi <UNK>, this is Steve, I'll try and Bob can jump in if he wants to redirect.
I think your initial thoughts on commercial and carrier kind of growth rate we saw for this quarter is what we expect.
And again, we have lots of several build opportunities, some nice expansion opportunities and we're looking for nice growth on the commercial carrier side.
Consumer, based on what Bob described in terms of the strategy change, we would expect video to be flat to declining.
We still expect to see growth in broadband, video on that side.
The equipment sales and services, again it is going, if you look at the revenue chart that we have in the earnings release, on page 10 or my section says page 10 of the earnings release that equipment sales and services line is going to be, I don't know what they're called, lumpy or volatile or whatever.
But the number is going to bounce around a little bit and just for perspective, when the EIS business for Enventis last year had a high of $22 million in the quarter and a low of $11 million, we're a little bit below that for first quarter of 2015.
And the way to think about that business is kind of based on a relationship with Cisco, when they're running promotions and the activity is really going to happen in the second and third quarter of the year.
So the last year on a stand-alone basis, EIS would have been about $60 million business, we still expect that to be a $60 million business this year, although it was slow for Q1 of this year.
The subsidy numbers, I think you're probably directionally correct.
Obviously, we've been seeing a little bit of step down with our Texas subsidies, I won't go through that, but you can look at the 10-Q for kind of the direction on that and again numbers will adjust based on kind of the CAF 2 funding over time.
Network Access, we would expect to kind of continue to see the decline that we saw in the first quarter.
You had the step down, every July 1, you are having a step down to match access rate.
So, just kind of getting close to the [some 0.005] or whatever the bottom that range is plus just the deterioration and minutes of use of network access is special and switched access is probably going to continue to modestly decline for us.
So I hope that addressed your questions.
Yeah, I'd step up to that.
And you know I think I'd to that <UNK> is that you got to remember that's a low margin business.
And so while the revenue is a bit inconsistent, we like the talent pool and we like the conversation that it allows us to have with customers and while it's low margin and isn't a high EBITDA contributor, it certainly fits our strategy of the consultative sales approach to hunting and prospecting with new customers.
Yeah, from our point of view that can't happen fast enough.
I mean, just maybe to review for those I think and <UNK> you're probably really familiar with this, but 2013, 2014 total distributions were about $35 million from Verizon Wireless.
We still think that's an extremely important source of diversification for our cash flow.
We think 2015 despite sort of the elongated collections time on the Edge side, we'll still be around the $35 million range.
And so again, we're ---+ the plus side is that we're seeing a lot of success from subscriber units with the Edge program.
Obviously, it's putting a little pressure on their working capital with the extended payment cycle.
We're optimistic that they might consider factoring some of those receivables maybe accelerate the payment.
So again, I can't give you a specific timeline on when that's going to normalize, but we're hopeful that happens sometime later this year.
Great.
We'll take those three questions in order or at least we'll attempt to.
Steve, you want to start on distribution follow-up.
Sure.
On the distribution follow-up <UNK>, your question about if they would factor or normalize whatever with that would mean in the distribution.
I think we're still thinking about the $35 million number being sort of on an as is basis assuming no improvement in the collections or speed collections, the adoption of factories or whatever.
We would actually see some potential upside for 2015 if they did do that.
So again we think $35 million is still a pretty decent number for 2015.
And the only thing I'd add on the distribution side is that, they don't dividend to themselves separately from us.
So they want to realize the cash distribution so do we and so motivations are same.
With regards to the video question, the opportunity to partner at our size with Netflix and Hulu's isn't quite the same as Verizon and we know that.
But however, those discussions are starting to pick up momentum through our MCTC relationships, which is the source for roughly 75%, 80% of our broadcast content today.
It's also been a resource to help leverage the HBO on-the-go and Showtime things that are part of our TV Anywhere, Everywhere product at this stage.
So I expect that what you're hearing from Spotify and others is going to cause that momentum to increase.
And we hope later this year it gives us more product flexibility for our consumer bundle and enhances the value of the portal which has a unified login capability that has allowed us to differentiate our consumer product from some of our competitors in the marketplace.
The last point with respect to the take rates on 1-Gigabit or the benefit that it's brought us, it's really early, we're really about a quarter and a half, maybe four months into that and it's getting traction nicely.
And let me tell you what is really the benefit.
It's caused another conversation with our customer.
And so while the Gig is of interest, few people really need that kind of speed and we're seeing an uptick in our 100-Meg, our 50-Meg, our 20-Meg products.
And so the conversation with the customer has really been the initial best benefit from the launch, but I'm sure that we'll see take rates on Gig pick up too in the short-term future.
Yes, it's roughly 5% now because it's so early.
And at this stage, I would have to get back to you on your end.
I think with the momentum we're building in video capacity ads, that should more than triple by the end of the year, but more to come on that as we have new market launches.
<UNK>, this is Steve.
Yes, in terms of the overall impact CAF 1 funding is about $34 million.
And so we've been planning on the step down roughly $5 million a year through our modeling year for since this plan got introduced and again I'd remind you that prior, when the high cost of four was frozen, we typically saw roughly $5 million, $6 million reduction and always managed our way through that.
In terms of the, which properties that we would expect, based on our initial analysis, we would expect to accept it in most states, although there are, there's at least one that will cause us, think about it as we evaluate the build cost going forward.
So, again I think, it's probably safe to say most states we will accept and there's one, maybe two that we will strongly evaluate going to auction on.
Well, in summary, thank you again for joining us today and for your continued interest in and support of Consolidated Communications.
We're very excited about the future, confident in our strategy and hope you will join us again next quarter.
Thanks and have a great day.
| 2015_CNSL |
2016 | JCP | JCP
#Great.
Well, I think the state of consumer really hasn't changed from last quarter.
I know we spent quite a bit of time talking about it.
We're very pleased.
We look back at the month of July, we really feel good about the trajectory of the business: every division positive comp; we had positive traffic in our stores; we had positive comps for the entire quarter in-store and online.
So for us we feel really good about the state of the consumer.
We think the onus relies on the retailer to give the customers a reason to shop.
We had our Power Penney Day event a couple weeks back, and it was significantly successful for us.
So we know when we have the right message and the right product, customers show up.
We're really pleased and excited about the initiatives for the second half.
<UNK> spoke about them; I spoke about them.
We're especially pleased with appliances.
We're in approximately 200 stores.
The pilot was very successful.
We increased sales productivity by 10 times in our pilot stores; we increased profit dollars by 8 times; and we had over a third of customers who came in to buy appliances were new to JCPenney, and 70% of the transactions were done on a JCPenney credit card.
So when we look at the home initiatives, specifically appliances, we are pleased with our early results, we're pleased with the online performance, and we think that's going to help us to drive traffic and to achieve our sales guidance for the balance of the year.
Okay, thank you.
Here is what I would say.
I think it's a very fair question.
As a reminder, last year we closed roughly 40 stores.
We're closing roughly seven stores this year.
We have a very disciplined process that we will not maintain any store or any strategic entity within our Company that doesn't provide value to the customers and really tie to our strategic future.
But as I said in my prepared comments, over 50% of our dot-com transactions somehow touch the store; and that is before BOPIS, buy-online-pick-up-in-store same day, has been fully received by our customers.
We're still early days in that initiative, but the early results are significant.
So when we look at having a true omnichannel strategy, what we understand and what I understand from my past experience ---+ and I'm very fortunate that my head of stores has lived through this whole omnichannel initiative, my head of supply chain, my head of IT, my head of e-commerce: all bring different and unique perspectives on leveraging the assets of your company to serve customers.
Any brick-and-mortar retailer that thinks that they can go head-to-head with a pure-play e-commerce company by simply doing it online I think is in for a rude awakening.
We understand that leveraging our stores allows us to have a lower delivery cost, to reduce the delivery time for customers, and also drives foot traffic in our stores.
So, we're going to continue to scrutinize the number of stores, but if we believe a store can be a strategic initiative to help us to get products to customers faster, it will stay within our portfolio.
If we believe that store is insignificant or doesn't add any value to our strategic vision of getting products to our customers fast and at a great value, then those stores are no longer going to be around.
I think that's the most effective way for me to answer that question.
Well, I think the most important thing, if you go back to the comments that both <UNK> and I made, every single division positive comped in the month of July and we had positive customer traffic.
So that basically reflects that we had strength across the board: we had strength in home, we had strength in Sephora, we had strength in our custom deck business category ---+ which we don't talk a lot about ---+ and we had strength in apparel.
We were not shy in the first quarter discussing the struggles that we faced in women's apparel and jewelry in the first quarter.
And not only did those businesses improve dramatically in the second quarter, women's apparel positive comped in the month of July.
So we're pleased across the board and we think that the trajectory coming out of July is going to be positive for us and hopefully maintain us for the rest of the quarter.
Exactly.
Back-to-school area is included in all of those categories of positive comp in the month of July.
<UNK>, just let me add that July normally is a clearance month for us, but clearance is actually down for us.
Our regular-price selling was up mid-single digits in July, so we feel really good moving into third quarter.
Yes, the statement still holds.
I would tell you, obviously, that's not the expectations for the back half.
They're significantly higher than that.
The good news is a lot of the initiatives roll out.
But a lot of the initiatives like appliances, for example, as we roll that out, is really a no to very low inventory model.
We own the floor sets but not any of the other inventory until we sell it, so we've got the ability to flex up and down ---+ within a relatively moderate range.
So we feel good about the back half and our ability to adjust if we need to.
Well, we mentioned that we're going to be bringing Clinique into our Sephora assortment.
That's a huge accomplishment for the Sephora team, and we're very proud of that.
But we're also proud of some of the partnerships we have ---+ with <UNK> Strahan on the MSX and other future categories; with Ashley Nell Tipton, who was the winner of Project Runway, we have our boutique collection of plus-size women's clothing.
John is going to speak specifically about that next week and how we see that as a huge point of differentiation.
She's going to be launching two new capsules for us in September.
She has millions of followers on social media and has been doing a great job of bringing visibility and consciousness to what we're doing here.
But what I will tell you is that we are always looking for new brands that resonate with our customers, but we're also equally as focused on managing our current business and making sure that everything that we're doing and everything within our assortment matters to our customer and resonates.
So the short answer is we're always looking and always open for new opportunities, but we really feel good about our current assortment and how our customers are responding.
I'll take the first part of your question.
As you know very well, we have a history of sometimes moving too fast and making broad decisions without having good data.
So the first step is we're going to roll out appliances to over 500 stores, and we're going to expand our window treatment presentation in the same number of stores.
So you're going to see basically 100% of the appliance stores also have the expanded window presentation.
As it relates to Ashley's, we're very pleased with the performance of Ashley.
Just a quick data point: in the stores where we replaced our old furniture assortment and we brought in Ashley's, we've improved by 1,500 basis points of comp.
So the customers are clearly responding well, and we're working to get roughly 500 units of Ashley's online ---+ and that's going to be nationwide.
So you could say nationwide Ashley's will be available for everyone, because we're going to have roughly 5,000 units online.
John Tighe and I are working together with his team, and they are taking a hard look at where we have the physical space and where it makes sense to have the full allotment of our all-new home initiatives in one area.
As I mentioned, we have a couple of stores with the entire assortment.
That's not by accident.
We're testing the results.
We're understanding the overall lift to the total store.
And it's early days, but we feel really good about the progress.
But as we study the results, we'll make additional changes throughout the fall and the spring to deliver what we think will make sense for our customers.
So it's early, but we have really good plans.
And the good news on appliances, we talk about how sales were doing really well; we're also pleased that our gross margin performance is also exceeding expectations, and that's very positive.
Our associates are doing a fabulous job of selling the extended warranties which plays a huge role in that.
So I'll let <UNK> take the second part of your question.
Yes, good morning.
As far as the liquidation of our old, it's predominantly our private brands.
Bassett was just in a few stores.
That is all behind us.
Probably 75% to 80% of the liquidation is complete.
We feel good about where we are moving forward, and we don't expect any margin impact in Q3 from the remaining liquidation.
Sure, <UNK>; this is <UNK>.
I'll take most of these and <UNK> can jump in.
Q2 margin, the nice thing is some of our initiatives are starting to kick in.
We're starting to see benefits from our size optimization.
Clearance margins in the spring season: last year we got it to profitable, but spring season last year was still a loss of 4% to 5%.
And we almost eliminated all of that.
We're still at a slight loss for spring season in clearance margin, but making significant progress over the prior year.
In our logistics optimization, most of the heavy work is still ahead of us and most of the opportunity is still ahead of us, but we are starting to see paybacks.
And we saw some already in spring.
So those are the things that are driving it Dot-com continues to grow and we're seeing some headwinds in dot-com margin and the mix effect.
And then the biggest issue in spring margins was really coming out of fall season last year, really heavy in cold weather because we didn't sell it last fall, and then hoping to sell it this spring, and then the weather not cooperating with us.
So obviously we had a lot of clearance liquidation in Q1 and a little bit of that falling into Q2.
But as we head into Q3 clearance levels are down versus last year.
We feel really good given our inventories are down 1%.
Clearance levels are down more than 1% heading into the fall season, so we feel really good about that.
Regarding fall margin, we maintained our guidance of 10 to 30 basis points.
We ran flat for spring, so we do expect margins to be up in the fall season to get us into that range.
In my prepared remarks I talked about some of the opportunities we have.
But the ones that we're seeing benefit in spring ---+ around size optimization, clearance margins, logistics ---+ we expect to continue into fall season.
Private brands and private brand margin we expect to improve dramatically in fall, particularly given the inventory levels where we see it.
And we saw ---+ we made great progress in Q2 around private brands, so we feel good about where we were tracking there.
In addition, we haven't talked a lot about our loyalty program, but we've made changes to our loyalty programs.
The customer is reacting well to it.
We think we still have some opportunities there to drive it even more.
But the nice thing is it's significantly cheaper than our previously loyalty program.
So we expect to see a significant savings in the fall season related to that.
So we have a lot of initiatives that we're tracking to for the full season.
We feel good about fall season margins.
From an inventory standpoint we feel really good, whether it's apparel or nonapparel areas in the fall season.
Again, we have inventories right where we want them.
We think we have an opportunity to continue to run lean as we move forward, and we think that's going to be a big benefit to the margins as well, just not having that clearance hangover that we carried into this year ---+ and frankly, fought through most of fall season last year.
So we think we have some opportunities as we go up against that compare.
Well, I think if you go back the last couple of years in apparel retail, we've always ---+ appear to assume that the year that we're in is an anomaly, and I think we're realizing it may be a new normal from a trend standpoint.
So we're going to plan accordingly as it relates to heavy fall and winter goods to make sure that we don't put ourselves in a tough position exiting out of the fourth quarter.
But there are a couple of initiatives that we believe are absolutely weatherproof that are performing well for us.
Specifically, Sephora inside JCPenney: we talked a lot about how pleased we are with the performance.
I think again the biggest learning for us is that as we ventured out into some of these rural locations, we've seen our best and most spectacular openings.
And that gives us great optimism that we can open many more locations than we had previously anticipated.
So we think that's a weatherproofing category.
We talked a lot about appliances.
We know for a fact that that is a category that's going to work well for us as home formation grows, as the housing market continues to improve.
Data tells us that there's a ---+ call it an over 30% growth in the appliance area over the next couple years, and we know that there will be market share up for grabs with some of the disruption happening with some of the leading appliance retailers in the marketplace.
So we believe appliances is key.
Window treatments is another weatherproofing category.
Just as recent as 2006, JCPenney covered a third of the windows in America.
We destroyed that business by the resets that were done in that area.
And as I mentioned in 500 stores we're going to go back and expand the space and update it, and we're going to get almost back to the presentation we had when we were the most dominant retailer in America in windows.
So those are at least a handful of initiatives that we think are absolutely positively weatherproof.
Not to mention, we'll have 5,000 units of Ashley's furniture online.
So we're going to continue to focus on apparel; we'll always be an apparel retailer.
We've spent a lot of time, John Tighe and his team and the sourcing and our international team on great supplier relationships and reestablishing private brands.
But we think we're going to have more differentiation headed into the fall than the traditional mid-tier department stores that will enable us to react more effectively irrespective to what the weather is.
Yes.
On the growth, obviously, appliances will be net new in 500 stores.
We'll have a Sephora in roughly 60 stores; we think that's a plus.
We have the center core, which we didn't spend a ton of time on, in over a third of our stores.
And a simple data point: in the stores where we reset the center core area, they are outperforming the Company by 700-plus basis points of comp.
And that's going to be full benefit in the second half.
We have Boutique, which is our plus size women's shop, in roughly 200 stores, which will be fully net new.
We have buy-online-pick-up-in-store same day which will be available in the fall, 100% net new.
And we mentioned the partnership with <UNK> Strahan with MSX is going to be in 500-plus stores.
So a lot going on.
We talk a lot about the challenges with apparel this year, but the one category that is growing is active.
And we spent a lot of time talking about our partnership with Nike and the significant performance of our private brand Xersion.
All of those are basically net new categories that we believe will resonate well with our customers, and there are a few more.
One of the reasons why we've maintained our sales guidance for the year, because our pilot results have given us confidence that we'll see strong results from these new initiatives; and we'll continue to execute all other initiatives as well.
Regarding service levels, we really feel good about the service levels in our stores.
Joe McFarland, our head of stores, is going to update at the Analyst and Investor Meeting next week, but we've trained all 100,000 of our associates on our new customer service expectations.
We're in the process of having mobile devices to help us with checkout.
Those devices will be ready for use within the next couple weeks.
So on back-to-school heading into holiday that will be a benefit.
And we're just working diligently to just create a better checkout experience.
We're replacing virtually a third of our point-of-sale units, with a plan to continue that process on into 2017.
So it's an ongoing effort, but when we look at our internal service results, in every category we're up versus the first quarter and up versus last year.
So to me, that's the data point that matters most that what we're doing is working.
No, it's a really good question.
In our pilots we chose three distinct markets that gave us the ability to test different marketing and promotional and advertising strategies.
We tested TV, preprint, digital, in-store signing, in-mall signing; you name it, we had some variation of it.
So from that we walked away with a really good understanding of what will resonate.
The challenge we face is until we fully roll out it's difficult to market on a national basis.
So we've been quiet in the marketplace from a marketing; we've been focused more on local and digital.
But when we have our full 500-plus store set you're going to see JCPenney with a loud voice in the marketplace to let the world know that we're in the appliance business.
We've consciously not done that yet, but our test provides us with a good understanding of what type of marketing channel will resonate.
So stay tuned and you should see us in the fall getting our voice out there.
<UNK>, it's a fair question.
Let me give you at a high level what's going to drive the comp and why we have confidence that we can achieve the comp side of it.
And I'll let <UNK> take the second half of the question.
As I said before, we underperformed in the first quarter and we acknowledge that.
I think that was pretty broad-based in apparel retail.
We feel really good about our performance in the second quarter, specifically the month of July.
But as we look at the balance of the year ---+ and remember on our Q1 call we basically outlined very a simple math that if Q1 was the baseline for the year, we believed that the incremental comp sales lift from the initiatives that we've laid out would get us to the lower end of our guidance.
Since we outperformed the first quarter in the second quarter, Q1 is not a baseline; the baseline has been raised.
So if you take our current performance for the first half of the year and you combine our expectation on our key initiatives in appliances, center core, Sephora, Boutique, buy-online-pick-up-in-store, and some of the other initiatives like active, we believe that those initiatives will be incremental enough to get us to our sales guidance for the year.
And that's just based on very simple math and based on very rigorous testing that we've done in our stores to understand the benefits of these initiatives.
So from a sales standpoint that's really how we view it.
I'll let <UNK> take the second half and talk to you about how we think the margin also plays into that.
Sure.
As <UNK> said, appliances will drive a relatively significant piece of our growth as we head into the fall season.
And it does run at a lower margin, so it is going to put margin pressure on.
I think ballpark we're looking at 30 to 40 basis points of margin pressure as we head into fall due to appliances.
So that is going to put some pressure on there, but it's calculated into our guidance and into our thinking, and we think we've got initiatives that are going to offset that.
As I talked about earlier, we are already seeing benefit in spring around size optimization, clearance, and logistics, and we think that ramps up as we get into fall.
We feel really good about our inventory position as we head into fall, and we think that's going to have margin benefits as we move forward.
And we know we've got other initiatives.
We've got a pricing team that we just brought up and we'll talk more about next week, and we'll get some benefits this fall.
Most of them will be in the future, but we do think we'll get some.
I mentioned loyalty really kicks in, in the fall.
And again we're in an easier compare against fourth quarter last year because we had some one-times that we don't think will repeat.
So, it is going to put pressure on there, but we think we've got that combated and we feel good about our opportunity around driving margin in the second half.
Well, I think, <UNK>, Wednesday is really going to be about outlining really the strategic future of J.
C.
Penney.
If I'm an analyst or an investor I want to understand the strategic relevance of a 114-year-old retailer in this very dynamic marketplace.
So what I hope to do next week is to introduce what I think is one of the best management teams in retail to our analysts and investors, but also to lay out in a high degree of detail how we think we can win, not only in 2016, but over the next two to three years, and why we believe that we have some key strategic initiatives that will allow us to be a much better retailer and to be able to take market share and drive profitability in this very dynamic retail environment.
So it's really about the strategic relevance of our Company and the steps we're going to take to not only exist but to flourish in this retail environment.
Mike, this is <UNK>; I'll take that.
Obviously, we think longer term appliances are going to have a significant benefit to our credit.
We are, as <UNK> said ---+ I think we're penetrating 70%, give or take, of appliance sales on our credit card; opening a ton of new accounts in that area.
We think as we continue to roll that out and partnering that with window and Ashley and our pilot of Empire and some of the other things we're doing in home, we think there's a real opportunity.
I don't think we'll see that in fall.
I think will continue to ---+ credit income was positive in Q2, but we do expect some pressure as we get into the fall season around credit income.
But we think longer term as we get into 2017 that will be a real benefit for us as we drive both penetration and credit income from that penetration.
Yes, we're starting to see bad debt in shop.
It's not terribly bad, but it will put some pressure on fall versus last year.
Sure.
The first is obviously we run a lower margin in dot-com.
The actual margin on the product is roughly equal to our brick-and-mortar, but when you put in shipping it has a negative impact.
And as we continue to drive dot-com business significantly faster than our brick-and-mortar business, we're seeing a mix impact there.
We don't think it's significant moving forward, but it is there, and I think all retailers continue to experience that.
From an EBITDA margin standpoint, fortunately, our dot-com business is profitable, so we feel really good about that.
So as we continue to grow that, we don't expect it to be terribly dilutive to our EBITDA margins as they continue to improve as well.
So we are profitable there and we think we can continue to drive our EBITDA goal as well driving dot-com sales.
I'll just ---+ at a high level, I can give you the most recent data.
Obviously, we spend a lot of time with mall operators understanding their strategy to redesign the mall if there is an anchor store closing.
But also we look at the data.
So at a high level, when a Sears closes in a mall that we're in, it's a net positive for JCPenney.
Our sales increase.
In some of the most recent Macy's closures in malls in which we occupy, it's been a net positive for JCPenney.
So for us, are we concerned.
Of course.
But our data tell us that because the closings are well telegraphed there are specific things we can do to take market share.
One of the reasons we're in the appliance business in the first place is because we observed a potential opportunity as Sears continues to redesign their business model.
We believe that there will be appliance market share up for grabs.
And because we share over 400 malls with them, we felt that we were in the best position to pick up some of that share.
So the data tells us that it's a net positive when these anchors close.
Now, the caveat to that is that there will be some situations that we are pretty sure about that the mall will be severely impacted.
In that case, we'll make a decision to do something different.
We have no expectation or no desire to operate unprofitable stores, nor do we have any expectation or desire to keep stores in our fleet that bring no strategic benefit to our omnichannel strategy.
So we're going to look at it very clear-eyed and do what is in the best interest of the Company and the shareholders.
<UNK>, I can refer specifically to the test results.
Over a third of the customers in our test markets were new customers to JCPenney.
And roughly a third of those customers were new credit customers as well.
They were predominantly a female at almost a rate of 70% and, obviously, predominantly homeowners.
So the ability to attract a new customer, as <UNK>, mentioned, the ability to grow our credit portfolio ---+ and, by the way, when those customers came in they purchased more than appliances, so there is a halo effect, so to speak, that will be the resulting impact of having appliances in the store.
So the reason why we are aggressively rolling out 500 stores, which as you know very well is not an easy undertaking, is because the results were so compelling.
And the good news is, as I mentioned, our sales are exceeding expectations thus far and our gross margin is exceeding expectations.
But we're going to learn, and we have some big events coming up in the fall that we will take really aggressive steps to see if we can attract even more new customers to JCPenney.
We want to thank everyone for your time and questions today, and we look forward to seeing many of you next Wednesday in Dallas for our Investor and Analyst Meeting.
Thanks again.
| 2016_JCP |
2018 | PX | PX
#Thanks, <UNK>, and good morning, everyone.
First quarter results were quite strong with 10% sales and 20% EPS growth compared to prior year.
Volume and price improvements were obtained across every segment and end market, which supported an operating margin expansion of 140 basis points.
A little under half of the volume growth came from the startup of backlog projects in North America and Asia.
In fact, 1/3 or $500 million started up in the first quarter this year, yet we held the backlog constant at $1.5 billion with new customer contract wins.
So while the backlog may be steady, it is from continual turnover of new project wins replacing those that are removed due to starting up which clearly helps grow our earnings and returns.
And while the global team focused on delivering these results, we continued to make good progress on the merger with Linde.
I'll speak to that more on an upcoming slide.
But first, I'd like to provide a brief update of global business trends, which you can find on Slide 4.
North America is our second fastest-growing region supported by the industrial recovery in the U.S. Over half of the 4% volume growth was driven by improvements in chemicals from new investments starting up in the U.S. Gulf Coast and manufacturing as the U.S. package business continues to grow high single digits.
And higher volumes in the metals, electronics and resilient end markets of food, beverage and health care more than offset a 1% decline related to customer turnarounds in the Gulf Coast.
There was modest recovery in the upstream energy business, especially in U.S. and Mexico, from increased well completion activity.
However, this growth was from a very low base as volumes are still significantly below peak levels.
Overall pricing in the region has been improving along with inflation, enabling margin expansion over both prior year and the fourth quarter.
Project bidding opportunity in the U.S. Gulf Coast remains healthy.
Despite the recent large startups, the current backlog has over $750 million of U.S. projects under construction, and we're still confident in winning new projects over the next several quarters.
South America continues to lag all of the regions and now comprises only 12% of global sales and 8% of global operating profit.
Volume growth was slightly better than prior year but 3% lower than the fourth quarter due to the seasonal effects of Carnival and Easter holiday.
The primary driver of growth relates to on-site metals customers as their volumes ramped up to meet slightly higher demand.
However, several of those customers are still below take-or-pay levels.
A combination of pricing and cost actions have enabled some margin expansion from prior year, but frankly, South America will remain a challenging place until there is more clarity around the direction of Brazilian politics.
Europe continues to be a steady, stable grower, with underlying growth rates improving 3%.
Volume growth occurred across every major end market, although metals and manufacturing comprised half of the improvement with a pickup in industrial activity.
Resilient markets also remain strong as we continue to identify new growth opportunities with the acquired CO2 business.
There are a few signs of inflation returning to the economy, primarily in the form of higher power costs, which are driving passthrough up 2% versus prior year.
These trends are enabling some pricing opportunities up 1%, but more efforts are underway to recover the cost inflation.
Asia is our fastest-growing region, with sales up 21% and operating profit up 39% from 2017 first quarter.
While foreign currency appreciation is driving about 7% of the growth, underlying conditions remain quite robust across China, India and Korea.
The 11% higher volumes are roughly split between project startups and organic growth, with project startups supporting energy and electronics end markets and the industrial recovery supporting increases in chemicals, manufacturing and metals.
The pricing improvement of 3% primarily relates to merchant gases in China as structural supply challenges have eased with the closing of several liquefiers attached to Tier 2 and Tier 3 steel mills.
And earlier this week, we announced Praxair's single largest project win, where we will build, own and operate high-purity nitrogen plants for Samsung's newly constructed fab in Pyeongtaek, South Korea.
In addition to this win, there are several other opportunities to support the growing demand for electronic devices.
And finally, in our PST business, aerospace continues to grow high single to low double digits, while oil and gas is making a modest recovery.
Our aviation business has been making significant investments towards capacity expansion to serve the growing demand for aircraft engine coatings, and we anticipate continued ramping of revenues for the next several quarters.
So in summary, the synchronized industrial recovery, coupled with timely startups of the project backlog, have led to 5% volume growth, spread across every end market and segment.
Furthermore, pockets of growing inflation have enabled higher pricing attainment in certain regions.
The combination of the volume and price contribution have expanded overall operating margins for the fourth consecutive quarter.
This backdrop, coupled with U.S. tax reform, appears to be supporting more customer capital investments and, thus, opportunity to increase our project backlog above the current $1.5 billion level.
Before <UNK> provides more details on the financial results, I'd like to offer a brief update on the merger with Linde, which you will find on Slide 5.
You may recall, at the start of this process, we defined 3 key phases required to complete the merger.
The first 2 phases, defining the structure and value creation with the execution of the BCA and obtaining all necessary shareholder approvals through the Praxair vote and Linde tender, have both been achieved.
As planned, we are now deep into the third phase, which includes obtaining appropriate regulatory approval and finalizing any relevant remedies associated with those approvals.
The slide shows a high-level time line of actions underway and milestones required to close the merger by the BaFin-mandated long stop date in October of this year.
The joint team continues to have constructive dialogue with all regulators and is actively engaged with potential buyers of asset divestitures.
Overall, we feel quite good about our progress and ability to complete remaining milestones within the required time line.
However, as you can imagine, this is a particularly important phase involving many outside parties, so I appreciate your understanding that we simply are not in a position at this time to answer any questions on merger progress or details of ongoing discussions with regulators or potential asset buyers.
I fully expect that formal updates will occur at appropriate times when decisions become binding.
But until then, the team is internally focused on the task at hand.
I'd now like to hand it off to <UNK> to review the first quarter results.
Please turn to Slide 7.
For the second quarter, EPS guidance range is $1.67 to $1.72, which represents 14% to 18% growth from last year.
Year-over-year currency tailwind is anticipated to be lower than the first quarter as we begin to lap easier prior year comps, especially in the euro, Canadian dollar and Mexican peso.
The tax rate is still expected in the range of 23% to 25% and likely closer to the middle of that range, consistent with the first quarter.
Excluding tax and currency, this guidance represents a double-digit growth rate, driven by an assumption of similar levels of demand continuing through June.
To sum things up, we had a very good start to the year and are anticipating a continuation into the second quarter.
The Praxair team has been able to capitalize on an industrial recovery through higher organic volume growth and securing new on-site contracts.
In addition, the recent reflation effect in certain economies has presented pricing opportunities that have not been present for several years.
A combination of these factors should enable continued growth with positive operating margin expansion.
I'd now like to turn the call over to Q&A.
Yes, <UNK>, I'm not going to get into a lot of details of the process.
That will come out in due time.
But I can say that it's a very structured process that under BaFin, it's something that we will follow per the regulatory requirements.
And the Linde team and the Linde group will announce each step as it's appropriate.
But at this point, there's nothing more I can add to that process.
I'd say it remains to be seen.
Clearly, we've been seeing it happen over the last several quarters.
I think when you look to China as far as capacity, last numbers I saw, I think it was about 1.2 billion, 1.2 billion tons a year of steel capacity if you add it all up.
Now not all of them are running.
So clearly, the ones that are not running and have not been running won't have much of an impact.
But I would say the combination of the industrial sort of growth with these coming out is creating a pretty good dynamic there.
And given the amount of steel capacity, I do think there's probably a few more innings for that to happen, but it just remains to be seen.
I would just say, I mean, again, we won't get to a lot of details, but still, I have confidence on the value creation, still have confidence in the ability to deliver on the stated synergies and cost efficiencies.
But clearly, our industry as a whole is doing quite well.
I think you're seeing good numbers across the board.
I think the Linde report yesterday was quite good.
So I think the combination of us seeing a lot of return to growth collectively creates opportunities for all of us.
And I think that's good.
And it would be great timing to come into a merger like this in a nice upswing in the economy.
So I think it's all pretty good from my perspective.
Yes, I think that's the million dollar question, Mike.
When you look at the numbers that we have in our segment, it's slight improvement year-over-year.
Obviously, sequential will be affected by the normal seasonal declines.
So when you look year-over-year, a little bit of improvement.
As I mentioned in the prepared remarks, we have seen steel volumes tick up, not a lot of benefit to us given most of those were under take-or-pay.
Usually, in my experience, when you see the infrastructure like metals and things start to ramp up, that tends to be a good sign of some form of an industrial recovery.
But that all being said, the uncertainty around the elections ---+ and it's not just obviously Brazil, you have a similar situation in Colombia.
You've got some situations going on politically in Peru.
But I think when you add it all together, Brazil as the biggest one, we just won't have a lot of good idea in terms of how the politics will be run, how businesses will be viewed until the election in October.
And right now, frankly, we're not even sure of the candidates.
So when clarity comes around that, I think it could hopefully ---+ it'll have an effect on confidence one way or the other.
But if it gives some confidence that there'll be a more, I'll say, business-friendly approach, I think you will start to see some investments.
But I think most people are waiting, and it's probably prudent, and we'll just see.
And so from that perspective, small improvements here and there.
The resilient markets still continue to do well, and that was an area we had a lot of focus.
But until then, we've been managing costs pretty tightly.
We are getting some price, and we just got to work through these next quarters until there's more clarity.
Yes, Jeff.
I'll just state that our BCA is public.
That was part of the S-4 filing we did last year, and you'll find that, that threshold is a set number.
It's based on a certain exchange ratio, but it's a set number.
So it's not a moving number other than we fixed the exchange ratio.
Yes.
So we're seeing pretty much across the board low to mid-single-digit pricing.
As you know, that 2% we show is only for, as you stated, the packaged and merchant.
It's divided by the entire revenues, so it doesn't include on-site.
So the real pricing we're getting is a little better than that.
And what we're seeing is pretty good pricing opportunity across the board, primarily in U.S., although we are seeing some inflation in Canada and we're getting some of that back in pricing.
And Mexico, as you know, has the higher inflation of both regions, so we're tracking to that as well.
So we're seeing pretty consistently low to mid-single-digit opportunities as costs are going up.
You're seeing power costs go up in certain regions.
We're seeing distribution costs going up in certain regions.
So as the team goes out to recover that and get [it in] pricing, and that's what we're able to see right now.
Well, as you can imagine, when we make decisions to add projects to the backlog, these are multi-decade views.
So we're not just looking at right now and what's going on right now because these are projects, if you do it right, then it will be with you for several decades.
So from that perspective, I'd say the return profiles are still fairly consistent with how we've always viewed it and what our criteria is.
And we will look at things like risk and reward, and we continue to do that.
And we want to make the appropriate decisions on what we invest in.
And from that perspective, I'd say there's not a lot of different things.
But we are seeing more opportunities.
And part of it, clearly, as we stated, is in the U.S. I think tax reform will help that a little bit.
And the rest of it primarily is in Asia.
And these are continued opportunities in our pre-backlog, and we feel pretty good about it right now.
Two quick ones.
I know there's not much you can say about the BaFin process on the takeouts of the stock.
But I guess one question that keeps coming up is the price setting mechanism, is that a court modulated mechanism.
Or is that a ---+ effectively similar to going into an equity market and trying to buy up the available shares at market prices with the volatility that goes with that.
Secondly, as your utilization rates are improving, are you finding any areas where your maintenance costs are slipping on the upside and you're seeing a little bit more costs than you had expected for your maintenance budget.
Okay, <UNK>.
I think I got the first question, but the second one I may have to clarify because it kind of cut in and out a bit.
But I will state this much on the squeeze out process.
As I mentioned, it is a structured process, and my best understanding of how it works is that there will be a 3-month volume-weighted average price based 3 months back from the time of the announcement.
And then there will be an independent, what's called an IDW S1, valuation.
You may recall, one was done on the consolidated merger at the time of the filing of the S-4 and the tender offer.
So both of those will be viewed as 2 different valuations, and the higher of those 2 will be determined.
It's quite structured, and that is underway with the announcement, then the valuation will be initiated to be done by an independent party.
So this is all per the German requirements, and there's really nothing as an organization that we would do different.
We would follow the regulations as required.
Your second question, I think, was something on utilizations, but I missed the back end of it.
Can you maybe repeat that, please.
Sure, sure.
So the other question was just as utilization rates pick up, are you seeing some of your assets or maybe some of your older units slip up and, therefore, your maintenance budget is moving higher than you would have expected a couple of years ago.
No.
I think we continue to maintain our plants as always regardless of the utilization rates.
You've got to do the maintenance appropriately.
Clearly, when plants run at higher utilization rates, there's a sweet spot, right, that you like to run them at.
When you're bringing them up and down, that's when it gets more difficult, frankly, when you've got to thaw plants and re-bring them to cryogenic.
But right now, I'd say nothing different than what we normally experience and clear that we continue to invest in our plants, as you can imagine, regardless of what the utilization rates are at.
Yes, <UNK>, as you may recall, packaged was one of our laggards probably a year ago, so we're having a pretty nice recovery.
And when I look across the end markets and our geographies in the U.S. of kind of Central, North, Southeast, West, it really is broad-based.
I mean, we're seeing it across every single packaged end market.
Most of them are double-digit.
Manufacturing is not quite double-digit, which is clearly our largest.
But we're seeing improvements in our cylinder gases, dry ice.
We're seeing a lot of improvements in Tier 2 auto.
Aerospace continues to be quite strong.
So I would say it's across the board.
And we are seeing some pickup in upstream oil a little bit as well.
That's something coming off a low base, but that's also an area where we're seeing some improved growth.
So there's no one market I could point to right now.
And when you look at the industrial production in the U.S., I think that's been boding well for a lot of these packaged end markets.
You're just seeing it across the board.
So we feel pretty good, especially the remainder of this year, in our packaged business.
I think the numbers continue to be strong, and it's been a nice run.
And as we said in the past, when that business recovers, it recovers with some fairly good leverage, and that's what we've been experiencing.
So we've been quite happy with that as well.
Yes, <UNK>.
So as you know, it's just translational for us.
So the best rule of thumb is if you take what we show on the sales and just drop that down.
So we had 3% in Q1, as we laid out in our sales walk, and that's a pretty good proxy to use on EPS.
When you get our Qs by the segment analysis, you'll be able to see the OP effect within each segment on FX.
But for the most part, it follows the top line.
Q2, and when we look at our FX, we lock in the forward rates at the beginning of the month.
Clearly, rates have moved here over the last couple of weeks, so it's pretty volatile.
But I would say, we expect definitely something less than 3% for Q2, partly because Q2 of last year, the rates were stronger, the foreign rates vis-\u0102\xa0-vis the dollar, than they were in Q1, so the comps get tougher.
But also, I'd say, rates, at least on a couple week basis here, have gotten a little weaker on the foreign.
So the combination of that 2 will put it something below 3%, could be 2%, could be 1%, based on where we're at now remains to be seen.
Yes.
At this point, there's really nothing I could say to that.
We're not in that business today as Praxair, so I don't know much about the dynamics and what's going on in that industry.
So it's really ---+ I think if you want to understand more about what's happening and the dynamics, you're probably best suited to ask Linde directly on that question.
Well, we continue to do M&A bolt-ons in our packaged business.
They're quite small, so you don't tend to see them at the consolidated level.
But we're continuing to roll up opportunities for mostly family-owned distribution businesses in the U.S. I'd say the opportunity set is lower now, partly with the recovery.
People have some different views of valuations.
So you're not seeing as many businesses be sold.
But that's something we continue to do.
And as you know, we sell gases and we sell hard goods.
Clearly, the gases are better margins because we have the full producer economics.
Hard goods, we play more of a distributor role.
But the combined margins are something you would expect of a distributor a little better, frankly, given the gas that we have.
But it's a good business, and it brings a lot of nice contribution for us.
So when we find opportunistic acquisitions and ones that we can justify on synergies, we absolutely will continue to do them.
But right now, it's in a nice part of the growth in that business, and we continue to invest in it.
Okay, <UNK>.
So I'll try to take them in order here.
The first question on the backlog.
The challenge, I think, of trying to project the split between, we'll call it, U.S. chemicals and refining North America versus Asian electronics is the project sizes are so lumpy, right.
So the timing of when the projects come in could skew that.
We still see a lot of quite large projects in the U.S. Gulf Coast as new opportunities, and they're both refining and petchem opportunities.
With Asia, clearly, to your point, we've added some large electronics.
There are others out there as well.
So it depends on timing.
I think we'll probably see a little more move back to U.S. and refining and energy in the coming quarters just based on where things are, but it just remains to be seen on the timing and when things are ultimately signed.
But we feel pretty good about the trend on both.
And frankly, I'm indifferent which one we get as long as these projects meet our criteria, which they do.
So ---+ on Freeport, yes, we clearly feel good about having those assets there.
Any time you have an opportunity to extend your network into a region and bring both atmospheric and process gases, we see as a very good thing.
And so we continue to find some incremental opportunities off that, which we're pursuing.
And we just continue to look for ways to extend the network.
So I think it's something that we always like to do, and this is what we've been doing since our inception.
And on upstream energy, to your point, yes, we are hearing things, people feeling a little bit better.
Oil prices are higher.
I think some of the regions like the Permian are getting crowded.
It's getting more difficult to get product out.
I think you're starting to see activity in other regions as pricing gets better.
I would say, too, we probably saw a lot of what's called re-fracking of wells, not a lot of new wells, not a lot of new completions when prices were lower.
Now that prices are higher and they've kind of exhausted, I think, a large backlog of existing wells, you've seeing people do a little more work, a little more drilling, probably new completions.
And to your point, they see enough value that they're willing to expend more resources.
So I think that it's a good sign, but we're still coming off a pretty low, low.
So we've been experiencing double-digit growth, but it's got a long way to go, and it remains to be seen if it can ever get back to the level it was.
But I'd say trends are good.
The customer sentiment seems to be pretty good, and we're seeing some nice roll-up opportunities.
And I'd say U.S. and Mexico is where we're seeing much more of the opportunity right now, as we said in the script.
Yes, Mike.
I'd say it's a combination of a couple of things.
Sequentially, we're improving on volumes that are below take-or-pay.
So to your point, you're getting top line but not really much margin on it.
And in addition, with the normal seasonal patterns with Carnival and Easter and ---+ what we tend to see is you see a lot less merchant and packaged gases just because of normal seasonal shutdowns, which tend to be more favorable margin products.
So the combination of those 2 effects, you've got a larger decline in sort of your packaged and merchant, which is hurting the margin, and then you've got some improvement in the on-site, which might be at a below take-or-pay level.
And that combination is creating, on a sequential basis, an unfavorable margin.
So looking at year-over-year sometimes helps get the seasonality piece out.
And year-over-year, we are a little better, as you see, but still got a long ways to go to get back to the levels that we've become accustomed to in prior years.
So we've got to work that out for us, but that sequential seasonal effect, plus these rising volumes in take-or-pay scenarios, aren't doing a lot to help margins right now.
I think it could be.
To your point, helium had a rough go for the last year, but supply has become constrained for a variety of different reasons.
And we're starting to see some difficulty in maintaining supply and delivering supply across various accounts in the world for the product, which will probably provide some pricing opportunity.
But helium has had, like I said, probably a rough year or so, and we do expect that it should do better here over the next year.
Well, <UNK>, I don't want to get into specifics on what a new coater costs, but I would say that it's a multiple-asset investment to meet the demand that we have for coating engine parts.
So it's not just a single coater.
This is capacity that we're expanding across a couple locations, and it's something that's material enough that we want to call it out.
Clearly, we're ramping up costs.
We're hiring people.
We're training people.
We have the facility costs.
We're installing the equipment.
So you front run the costs in a manufacturing environment like this, but the revenue will ramp over the next several quarters.
So we feel good about the progress.
The investments are going to plan, and the demand is there.
We know that the opportunity set is there.
So that's something that I expect will get better with each successive quarter, but we're in the middle of kind of ramping that capacity up right now.
Well, we've dealt with, as you can imagine, lots of challenges over our ---+ since our inception of availability of drivers and difficulty obtaining drivers.
We, like probably other folks in our industry, do a combination of internal employee drivers and using third-party contract carriers.
So that's something we flex up and down based on what our volumes look like, based on availability to get contract drivers that meet our safety standards and meet our requirements to be a contractor for Praxair.
So I would say, the current situation, we've seen things like this in the past, and we're probably doing a little more internal hiring of drivers than using third parties, just given some of the availability.
But this is something that we're used to managing and will continue to manage.
And as distribution costs rise and if they rise, that's something we need to go out and try to recover in the market, which is what we've been doing.
Well, Chris, I mean, that's ---+ our objective is to try and do that.
It remains to be seen.
I would say that prior to a lot of these increases, the pricing in China was some of the lowest we have in the world.
So there is an amount of room to catch up.
Demand is pretty good.
So we'll ---+ that's something that has to be seen.
But clearly, the team, I think, is motivated and properly has the right metrics and have a look at this.
But conditions are good right there and good right now, but it's still ---+ I think China has a ways to go before the pricing can be equivalent to what you see in other markets.
So I don't know at this stage, but we'll have to see.
Well, our goal is to try and raise our margins every year.
And if we can get 20 to 40 basis points, I think when you look at the average that we've experienced over a long range, that's something we've been able to deliver on fairly consistently.
Clearly, at a time with pricing opportunities and expansion of volumes, that gives us a better opportunity to raise margins.
We've done it now, as I mentioned, 4 consecutive quarters.
We've got some pretty good year-over-year margin leverage for this first quarter.
So this is something that we want to just make sure we capture.
And the key is that we don't lose it, right.
We don't allow cost inflation to offset it, and that's something that there's a lot of focus in the organization to ensure.
So I think there is more opportunity.
I think there's more improvement.
I mean, I look at something like South America.
When you look at it by region, South American margins are some of the lowest they've been.
So any kind of improvement there will clearly help the overall margins.
So it's just ---+ it's got to be kind of region by region and what we're able to do on organic volume and pricing, but I definitely think there's room for improvement.
Sure.
So starting in North America, what we're seeing is kind of low 80s.
Argon is much tighter.
You probably heard that from other calls.
But on the LIN/LOX side, still kind of high 70s, low 80s, but we're continuing to see some upticks there.
But for the most part, while it's different in the regions, pretty well loaded, but we still got a lot of room and capacity for further expansion.
South America, it depends.
LAR is quite low, low utilization, but excluding LAR, we're probably in the mid- to high 70s for most of our areas.
But that's something that's been pretty flat for a while now in utilizations over the last couple of years.
Not much movement there.
Europe, again, I'd say mid-70s.
LIN/LOX, so we definitely got some capacity and room there, although we have seen some incremental improvements.
And then Asia is clearly higher, probably mid-80s.
China and Korea are definitely in higher utilization rates.
India is a little lower, but we're starting to see better utilization as those economies have been growing pretty much faster than the other ones in the world.
So all in, we're probably in the high 70s globally.
But I would say, definitely room for further capacity expansion, and we can meet any incremental demand if required.
Not in the second quarter, no.
We had mentioned in the first quarter some fairly large primarily refining turnarounds in the U.S. Gulf Coast, and that was about 1% on the North American segment, so roughly half of that globally.
But no, there's nothing we've highlighted in the second quarter.
Well, Don, probably it's a little too early to tell.
But I can say looking over the last several quarters, we've definitely seen an improvement in volumes across our metals customers in North America, and I think you've probably seen that in our end market reporting by segment.
So it's been a continual improvement.
I think that margins are better for them given what's going on.
So I think the desire is there to run.
It's profitable for them to run.
So we see the right backdrop, and we've seen some good improvements.
And then, clearly, it will just be as units are ---+ come on and off with the various mills.
But that's an area, I think, that the economics for our customer base seems good, and it seems to be more of a level playing field for them.
So I think that outlook still remains fairly good.
Yes.
Sorry, Don, I can't get into any details at this point on that process.
But rest assured, when the timing is right and we have more information to disclose, we will disclose that.
Sure.
So on the PAG, 9% growth.
Hard goods are double-digit.
And again, that's coming off the lower base.
Hard goods tend to swing more, as you know, so they're up more double-digit.
Gases are mid-single-digit, some pushing to higher single-digit.
So I'd say, from that perspective, kind of bracketing around the 9%.
But we've seen now a couple of quarters in a row with these type trends, and I think they remain pretty solid throughout here even through the first month of the second quarter here.
Regarding logistics costs, it's exactly what you said.
It will be a combination.
Some will be surcharging contractually.
Some will just be pricing, depends on the contract, depends on the product.
For packaged, it tends to be more just pricing.
And so that's a reason why they need to go out there and make sure we're recovering any of the deflation that we're seeing.
And I'd say, so far to date, we've been keeping up with it.
So we feel on track with that.
Yes.
So clearly, to your point, projects are driving a portion of that in North America.
But even without the projects, we are still positively growing a little bit in Europe, fairly well in Asia still.
We're seeing good growth in chemicals on our Asian, primarily on-site, businesses; and in the U.S. Even excluding the project startups, we are growing in chemicals.
So I'd say that even despite the startups, that is a positive growing end market, consistent with what you've seen in some of the others on an organic basis.
| 2018_PX |
2016 | DSW | DSW
#Thank you.
Well, I think, as we look at stores, as I've mentioned before, there's some real competitive advantages to stores, and we don't believe we have built out our footprint as big as what we think it can be long-term.
I will tell you, I'm in the process of working with our team to figure out, what do we think that looks like.
What I will tell you on new store performance for 2015, we are actually very satisfied with the results we generated.
They achieved our ROI targets, as we look at the business.
Even the small market doors, we can see that's generating significant incremental volume to the business.
What I think we've got to sort of understand is, what's the right type of experience we want to create in smaller markets.
And is it right for that to be a representation of the DSW brand, if it's only 6,000 or 8,000 square feet.
And if we can solve that, or when we solve what that's going to look like, that creates all kinds of opportunities for us to expand through brick-and-mortar and digital combined.
So I think, giving you specifics, on how many doors we think we can get to in the future, we are not ready to answer that question today.
But that's work our team is working on right now.
Sure.
In terms of the actual merch margin changes for the quarter, our total merch margin was down by about 300 basis points, and about 250 basis points of that was related to kind of promotional markdowns that we took during the quarter.
The biggest other factor during the quarter was shipping.
We did see deleverage in the shipping rate of 50 basis points.
And then, we had some offsets, we had positive impact from our rewards reserve.
And that was offset by some unfavorability in IMU, that kind of netted out to nothing.
So the two big impacts were related to the markdown rate, and the related to promotions, marketing promotions and the shipping rate.
And in terms of accessories, comps, do you have that handy.
Accessories comp was down 4% for the quarter.
The merch margins for next year, I mentioned it a little bit, we're expecting to get some of the promotions back, the promotional markdowns in the fourth quarter back.
And that improvement is going to be offset a little bit by shipping.
We think there's about 10 basis points deleverage in shipping.
We think there's some deleverage in our rewards program of about 20 basis points.
I didn't mention it earlier, that we do think mix is going to have an impact, both from athletic, as well as from the kids program, the kids launch.
We think that mix impact on margin is unfavorable by about 20 to 25 basis points.
And then, we've got a number of other little things playing in there.
So broadly, we think that the margin is flattish, but there's some puts and takes.
Thanks, <UNK>.
I would say that as we look at our business, we believe in our merchant team, <UNK>.
I think that to me, is the thing that we're going to leverage.
And I mean, this is our belief, is that we've had a lot on their plate, and they've been distracted.
And when they have the ability, and the time to be able to sit down, and evaluate how things are performing and react to that, we've demonstrated in our history, that we can respond.
So for me, a big chunk of it is our merchants.
There are also new system capabilities that we have installed, that we need to leverage.
And so, I think <UNK> it's a combination of those two things.
I don't think it's one or the other.
It's a combination of both.
Yes, I think that it's fair to say that most of the recovery relative to the promotions we took, will be driven more in the back half of the year.
But we typically just ---+ we don't give quarterly guidance, in terms of how that's going to play out.
But it's fair to say, that more of that margin hit we took, happened in the fourth quarter that we'll be recovering.
Thanks everyone for joining us today.
I want to make certain, I reiterate my commitment to generate steady top line growth, increase profitability through the words I described, focus, tempo, and disruption.
There is a significant amount of work that we have ahead of us, but we're convinced that we've created a strong foundation that's going to allow us to get DSW back to the long-term, sustainable, profitable growth that all of you are looking for.
Thanks for your continued support of DSW, and I look forward to meeting, and updating you on our progress some time here in the near future.
Thank you.
| 2016_DSW |
2016 | AAPL | AAPL
#With the iPhone 7 Plus, we've put an incredible amount of innovation into the camera and the overall photo experience, and customers are obviously using that and have discovered that they love it.
So, we're getting an incredible amount of feedback there.
We also get incredible feedback on the iPhone 7.
But, the mix that we projected on an iPhone 7 Plus is short of what the reality is.
So, we are chasing supply there.
In terms of the ASP, the way we think about it is we want to charge a fair price.
And so, we don't want to charge more than that, and we think it's worth being fair.
And so, that's how we look at it.
If I can add, <UNK>, keep in mind that in a lot of countries around the world the reality is that our customers have seen some significant price increases because of the FX situation, right.
And, that's something that we need to keep in mind as well.
We clearly saw that this year.
There's a lot of competition for customers in the US which I think is the market that you're talking about.
Whether that will happen every two years, I don't know.
But, I suspect that any time there are large numbers of customers that have a phone that's in that two-year kind of range that it tends to be a sweet spot, and I think you probably will see a lot of people trying to recruit those customers.
Thanks for the question.
I'll let <UNK> talk about the OpEx piece of it.
On India, I think it's important to look not only at per-capita income, which may be what you're looking at, but sort of look at the number of people that are or will move into the middle class over the next decade.
And, the age of the population, if you look at India, almost 50% of the population is under 25.
So, you have a very, very young population.
The smartphone has not done as well in India in general.
However, one of the key reasons for that is the infrastructure hasn't been there.
But, this year, or this year and next year, there are enormous investments going in on 4G, and we couldn't be more excited about that because it really takes a great network working with iPhones to produce that great experience for people.
And so, I see a lot of the factors moving in the right direction there.
I also think the government is much more focused on the infrastructure and on creating jobs, which is fantastic, because you really need the infrastructure and the technology to do that.
Will it be as big as China.
I think it's clear that the population of India will exceed China sometime in the ---+ probably the next decade or so, maybe less than that.
I think it will take longer for the GDP to rival it.
But, that's not critical for us to have a great success there.
The truth is, there's going to be a lot of people there and a lot of people in the middle class that will really want a smartphone.
And, I think we can compete well for some percentage of those.
And, given our starting point, even though we've been growing a lot, there's a lot of headroom there in our mind.
And so, we're working very hard to realize that opportunity.
And, <UNK>, on OpEx, our approach to OpEx is quite clear and quite simple.
We want to continue to invest in the business in all the areas where we think it's critical for us to invest.
So, you see that we make significant investments in R&D.
You've seen the growth rates over the last couple of years.
We are making important investments in data centers because we want to support our services business.
We continue to open retail stores around the world.
We continue to invest in marketing and advertising.
At the same time, we want to continue to be efficient and lean.
It's something that we've done very well over the years.
We want to continue to do that.
So, what you've seen, for example, in FY16, you've seen investments in R&D growing at 25% and then our SG&A expenses to be about flat.
This is kind of the approach that we want to take and continue to take going forward.
If you step back for a second and you look at our implied guidance for the December quarter, we've got an expense-to-revenue ratio of 9%.
This is extremely competitive in our industry, and I would I say in general.
So, we want to continue to have this balance.
Make the right investments and remain efficient.
<UNK>, let me give you some details both on a sequential basis, and I'll give you also something on a year-over-year basis because maybe that's where the disconnect comes from looking at last year's gross margins in the December quarter.
On a sequential basis, we're essentially guiding to some improvement in gross margins.
We had 38% both in the June quarter and in the September quarter.
We're guiding slightly higher for the December quarter because on the positive we're going to have, of course, better leverage and the mix in the December quarter tends to be better.
But, we need to keep into account the fact that these positives are going to be partially offset by the cost structures of the new products that we are launching now, and we launched already a few during the September quarter and that will have an impact on our December-quarter results.
On a year-over-year basis, keep in mind that last year we did in Q1 we did 40%, around 40%, 41%.
But, there's a couple of things that I think need to be considered before doing a year-over-year compare.
And, it's a fact that last year we had this award for a patent infringement of $548 million that is at the gross margin level is 40 Bps.
And then, we've got the FX situation which I mentioned before which is worth another 60, 70 Bps.
And so, you're left with less than 100 basis points deterioration on a year-over-year basis where, again, we have the reality of new cost structures into our products.
It is very, very important, I think, for investors to understand that what's happened during the last two years.
During the last two years the US dollar has appreciated by 15% over the basket of currencies where we do business.
And, we are a Company that generates two-thirds of our revenues outside the United States.
15% appreciation of the US dollar.
So, on a year-over-year basis, just 2016 over 2015, was 340 Bps impact from foreign exchange.
This is something that we have offset almost entirely through a number of initiatives going from pricing actions to cost initiatives to our hedging program.
But, at some point, the strong dollar becomes the new normal, and we need to work with that.
And, I think over the years, we have made very good tradeoffs, and our gross margins have been quite stable over time.
We review the capital return annually, and we've established a cadence now to announce our thinking on that every April.
So, we have a robust discussion around the dividend and the buyback.
We very much believe that Apple is very undervalued, and so we're investing with confidence in the Company that we know really well.
And so, that thinking has I think proven out over time, and I think been very good for our shareholders.
And, in addition to that, we know that some shareholders really like a dividend and some ongoing income, and so we provided an amount that we think is a good amount and have a good track record of raising it annually.
And so, we'll be able to say more on that I'm sure in April of next year.
| 2016_AAPL |
2017 | LLY | LLY
#Thank you and good morning
Thanks for joining Eli Lilly & Company's fourth quarter 2016 earnings call
I'm <UNK> <UNK>, Lilly's President and CEO
Joining me on today's call are <UNK> <UNK>, our Chief Financial Officer; Dr
<UNK> <UNK>, President of Lilly Research Labs; <UNK> <UNK>, President of Lilly Diabetes and Lilly U.S
<UNK> Mahoney, President of Lilly Oncology; Chito Zulueta, President of International Business; <UNK> <UNK>, President of Elanco Animal Health; Dr
<UNK> <UNK>, who is the interim President of Lilly Bio-Medicines; and of course Kristina Wright, <UNK> Ogden, and <UNK> <UNK> of the Investor Relations team
During this call, we anticipate making projections and forward-looking statements based on our current expectations
Our actual results could differ materially due to a number of factors, including those listed on slide 3 and those outlined in our latest Forms 10-K and 10-Q filed with the SEC
The information we provide about our products and pipeline is for the benefit of the investment community
It's not intended to be promotional and it's not sufficient for prescribing decisions
Before discussing key events for the quarter, I'll start with a summary of our progress since the Q3 earnings call using our strategic objectives framework
Starting with Grow Revenue, in Q4 we generated worldwide revenue growth of 7%, which was driven by 9% volume growth in our pharmaceutical business, led by her new products
Prices declined 1% in Q4. On our strategic objective Expand Margins, total operating expenses as a percent of revenue declined over 400 basis points compared to Q4 of 2015, while our non-GAAP gross margin percent excluding the effect of FX on international inventory sold was essentially flat
Under the heading of Sustaining the Flow of Innovation, here in the U.S
in our collaboration with BI, the FDA approved and we began promotion of a new CV [Cardiovascular] indication for Jardiance, and we launched our long-acting insulin Basaglar
And in Europe, the European Commission approved Lartruvo for soft tissue sarcoma
Finally, on Deploy Capital to Create Value, we completed the acquisition of Boehringer Ingelheim's U.S
Animal Health Vaccine business
We announced an agreement to acquire CoLucid Pharmaceuticals, which will add a promising molecule for acute migraine for our late-stage pipeline
And we announced an increase of 2% in our quarterly dividend, and we repurchased $300 million of stock
We expect to make continued progress in 2017, and we remain on track to achieve our midterm goals for each of our strategic objectives
Now let's move on to slide 5 for a more detailed review of the key events that occurred since our last earnings call
New product launches continued
As I mentioned, in collaboration with Boehringer Ingelheim, we received FDA approval of the new CV indication for Jardiance in December and launched in <UNK>uary, right after the mid-December launch of Basaglar
Our initial sales were largely due to stocking, but we are pleased with initial feedback from customers
We also launched Lartruvo for advanced soft tissue sarcoma in both the U.S
and Europe, and the product is off to a strong start, while in Japan, we secured the price listing for Taltz in mid-November and launched the product for both psoriasis and psoriatic arthritis
We are in the process of opening accounts and completing hospital formulary reviews
While it's very early, initial feedback and IMS data are positive
In the Animal Health space, along with Aratana, we announced that Galliprant, a first-in-class product for dogs for the management of pain and inflammation associated with osteoarthritis, is now available to veterinarians here in the U.S
On the regulatory front, we made significant progress
We received conditional marketing authorization from the European Commission for Lartruvo to treat adults with advanced soft tissue sarcoma
Also in Europe, we received a positive opinion recommending approval of baricitinib for the treatment of moderate to severe active rheumatoid arthritis
In collaboration with Boehringer Ingelheim, we received multiple regulatory actions on the Jardiance family of products
A number of these actions were related to the EMPA-REG OUTCOME trial
The U.S
FDA approved of a new indication of Jardiance to reduce the risk of cardiovascular death in adults with Type 2 diabetes and established cardiovascular disease
We were also pleased that the ADA [American Diabetes Association] issued updated diabetes treatment guidelines shortly after the FDA approval
In Europe, the European Commission approved an update to the Jardiance label, including data on the reduction of the risk of CV death in patients with Type 2 diabetes and established CV disease
The U.S
FDA also approved updates to the labels of Synjardy, Synjardy XR, and Glyxambi to include data on the reduction of the risk of CV death in patients with Type 2 diabetes and established CV disease when treated with empagliflozin
Similarly, Europe's CHMP recommended an update to the Synjardy label to include data on the reduction of risk of CV death in patients with Type 2 diabetes and established CV disease when treated with empagliflozin
Separate from actions related to EMPA-REG OUTCOME, the FDA approved Synjardy XR, a tablet containing empagliflozin and metformin extended release for the treatment of adults with Type 2 diabetes
The European Commission approved Glyxambi, a single pill combining Jardiance and Trajenta, for the treatment of adults with Type 2 diabetes
Finally, here in the U.S
, the FDA extended the NDA review period for baricitinib, and we now expect regulatory action early in Q2. Moving to slide 6, there was one significant data readout in Q4. We were disappointed to announce that the EXPEDITION3 trial of solanezumab in patients with mild dementia due to Alzheimer's disease did not meet its primary endpoint
Since the solanezumab update we provided on our guidance call, we made the decision to terminate the EXPEDITION-PRO study of solanezumab in prodromal Alzheimer's disease
After careful review of the data from the EXPEDITION3 study and given the overlap in patient populations between EXPEDITION3 and EXPEDITION-PRO, we did not find sufficient scientific evidence to support the hypothesis that solanezumab would demonstrate a meaningful benefit to patients with prodromal Alzheimer's disease
In addition, the decision has been made to continue two ongoing public-private partnership studies in earlier stages of AD, the A4 study in pre-clinical AD and the DIAN2 study in dominantly inherited AD
In other news, the U.S
Court of Appeals for the Federal Circuit upheld the District Court's decision that the Alimta vitamin regimen patent is valid and would be infringed by the generic challenger's proposed products
If the patent is ultimately upheld through all remaining challenges, including intellectual property review proceedings, Alimta would maintain U.S
exclusivity until May 2022. We announced completion of the acquisition of BI Vetmedica, Inc's U.S
feline, canine, and rabies vaccine portfolio, which also brings a fully integrated manufacturing and R&D site and several pipeline assets
The acquisition diversifies Elanco's U.S
companion animal portfolio by adding vaccines for a range of common conditions
We also announced an agreement to acquire CoLucid Pharmaceuticals for $960 million
When closed, this will add lasmiditan, a potential first-in-class non-vasoconstrictive migraine treatment to our pain management pipeline
We believe this potential treatment for acute migraine complements our growing pain portfolio, specifically galcanezumab, which is in development for migraine prevention
Along with AstraZeneca, we announced a worldwide agreement to co-develop MEDI1814, an antibody selective for A-beta 42, which is currently in Phase 1 trials as a potential disease modifying treatment for Alzheimer's disease
In oncology, we announced an expansion of our existing immuno-oncology collaboration with Merck to add a new study for our Lartruvo with Merck's Keytruda patients with previously treated advanced or metastatic soft tissue sarcoma
We also announced a partnership with Express Scripts to allow people who use Lilly insulin, in particular those who have no insurance or those who are in the deductible phase of their high-deductible insurance plans, to purchase product at a 40% discount using mobile and web platforms hosted by Blink Health
Finally, in December we announced a 2% dividend increase, bringing our quarterly dividend to $0.52 per share
And during the fourth quarter, we distributed over $500 million to shareholders via the dividend, and we paid $300 million for share repurchases
Now I'll turn the call over to <UNK> for a discussion of our financial performance during the quarter
Sure, thank you, <UNK>
We had a good meeting with the President this morning
It was a broad-ranging discussion
We touched on several of the issues there
And your question in terms of innovation, the President was very interested in understanding how our business works and what the opportunities are to further grow the American innovative engine in the biopharmaceutical industry
Of course, we talked about taxes and how that could be a positive catalyst for more investment and growth in the U.S
We talked about regulation
I think he made some comments on camera about that
He's interested in finding ways to reduce and streamline regulation, both at the FDA side but also in healthcare markets that the government plays a role in
And then of course, we did speak about pricing
On that last point, I think we all understand the concern he's raising and of course others are that consumer out-of-pocket costs seem to be growing and growing faster than other payers in the system and how we can do a better job as an industry of getting discounts through to consumers, particularly those in high-deductible plans and government programs
We did not get into elaborate policy detail in terms of the U.S
pricing environment
But I think there will be time for that later, and I left the meeting with some confidence that the people who we'll be working with closely as legislation moves forward have a good grasp of those facts
Your second question was repeal of ACA and the taxes the industry pays
Of course, we haven't seen any specific legislation here
I think the industry said it was basically $100 billion over 10 years that would have been paid in to cover ACA
That's both in terms of the unspecified fee and other concessions in the original 2009 package
I'd be reluctant here to get into specifics on that because we haven't seen the specifics on the repeal or, for that matter, any pay-fors in the replace
But we're preparing for all those scenarios and working closely with policymakers as well as other parts of the industry on good policy that can promote consumer-driven choice and more broadly available medications in these uncovered populations or in the current ACA populations
The final question I think was on the reorganization
And of course, we did announce the reorganization, which removed actually several senior management jobs really to flatten the organization and make sure our executives are as close to the markets that matter and the launches that matter as we go ahead
And that was a primary goal was really to emphasize the importance of these new product uptakes and having our business presidents squarely focused on those and making sure that there's a clear line of sight to the customer for them
We also want to improve our proximity to China, as you mentioned, particularly for drug development, where we can do more I think to speed up our innovation into that market, which has an undeniable long-term opportunity for the sector
We also asked <UNK> take on a broader scope of responsibilities, including payer and so forth, hosting responsibilities for the major markets
So that's already announced and rolling out and I think aligns clearly with our stated priorities
I think the question related to biosimilar – I think <UNK> said Humira from Sanofi, but I'm not aware of a biosimilar Humira program at Sanofi, correct?
Humalog, yes, okay
So maybe <UNK> can handle that one
In terms of business development, I don't see a change in our general approach, which is what we've said for a while, which is we see value in deploying capital on business development where we can really complement our core therapeutic areas, where we're looking at acquisitions or licensing transactions that can bring products into the portfolio to drive growth for the future and to do that with a lot of discipline on value
And so that's what I think we've been saying for years
I do think as we enter this phase coming up, where in our therapeutic areas there appear to be attractive alternatives for investment outside the company as well as inside, we've got a key period to make decisions on advancing assets into Phase 3 over the 1.5 years or so, as <UNK> mentioned
We need to look at both sources of innovation and we'll do that
The CoLucid transaction, which is one we just announced, I think is a good example of that
So I think the rate may be different based on our circumstance as we're growing the company and have perhaps more opportunities to move assets into Phase 2 and Phase 3, but the criteria really isn't different from how we've thought about this in the past
On the Alzheimer's BACE inhibitors, I think we've talked about this for a while, but the Merck program has two distinct studies
The first one is a classic first-generation type design in the sense that they have a mixed, mild, and moderate population and no requirement to have amyloid present to be in the study
And we know from prior studies like this, whether it be Lilly or other sponsors, you can end up with 20% – 30% of the patients who actually don't have Alzheimer's disease
In addition, for the reasons <UNK> mentioned earlier, later probably not better in terms of effect size
So the Lilly program with AstraZeneca and the later Merck program have those features built in
We have two studies with AstraZeneca
So if Merck I think has a positive signal of any sort, I think we'd feel good about that in terms of BACE inhibitors as a target
If there's no signal, I think we'll have to do some thinking
That's how we're looking at that upcoming readout
Maybe <UNK> or <UNK> could add to that
Yes, that makes sense
<UNK>, thanks for the question
We have brought in two senior executives recently
We're excited by both their willingness and excitement to join the company, but also what they can add probably in the very short term
Levi is joining <UNK> <UNK>'s team, really taking the role that <UNK> Gaynor had
So he's got all the clinical-phase oncology portfolio and obviously brings a great skill set to do that
I think in terms of immuno-oncology, he's got expertise in that field among other fields of oncology
And it's probably difficult to say too much about what we hope he'll do, but I think clearly it's a competitive field and having a new look at what we're doing, how we combine products, how we could potentially accelerate our efforts in certain areas is something that we're hoping Levi can help us with
<UNK>ti is a commercial person
She started her career at Lilly, most recently ran Novartis's U.S
And she's coming into the job I was in, which is a go-to-market and drug development job at running Bio-Medicines
I think she's a strong diverse talent that I think is really an industry veteran who understands the U.S
market extremely well
And so when that opportunity came to pull her onto the team, we made that move, and I think it's going to be great to have her
She starts April 1, so you'll start to see her on the road there in Q2.
As I said earlier, we had a positive and broad ranging discussion
And I was impressed with the President's appreciation for what our industry is, which is really a crown jewel of America enterprise in the sense that we invent things, we can change lives in terms of healthcare outcomes, but also we're a great employer and source of economic growth, jobs, and exports
We touched on lots of things, tax, regulation, as well as the healthcare repeal/replace discussion
So there's a number of follow-ups that were cited that will be happening through staff and on the Hill with key members of Congress
The specifics on timing and so forth I'm not at liberty to share here, but I was encouraged overall by the sense a) that there will be changes made, likely rapidly
Most of those will involve the legislative branch
And that there will be follow-up with the White House to make sure we're making progress as we go along
But there's not too many specifics I can share in terms of exact timing
Just overall, I think it was productive to engage the President, educational for both sides, and I think we can go forward and really look at enacting policies that can both help the industry but also healthcare in the United States
Thanks, <UNK>, great question and one we're spending a lot of time on as well
Of course right now, we're working against the prior goal you cited, which is to get our SG&A and R&D total operating expenses as a percent of sales to 50% or less in 2018. So that's the near-term goal we're very focused on
We've reiterated that again in December, and that's obviously an improvement over where we are today and what we're reporting for 2016. I would highlight, although we're at the high end of the ranges in terms of our guidance for the quarter on expenses for R&D and SG&A, year over year good progress in Q4, and we did have some one-time items in Q4 which adversely affected that
That said, I think my overall perspective on this question is we have multiple ways to improve the operating margins of the company
And as we launch new brands and grow the top line, that's clearly one
I think if we can really repurpose investment behind those priorities and maintain a lower growth rate, in some cases much lower growth rate in the middle of the income statement, we can deliver tremendous leverage on the bottom line
You can see that in Q4, putting aside the Street estimates, what kind of leverage is available in the business
And we're aware of where we stand in the industry
I think we're not a single-product company or close to it, like some of the comparables even approaching our size
So that breadth I think does have inefficiency built into it
It has other advantages
We run a global operation
We want to be a global company, not just a multi-market company
That has an implication
But by and large, I think your question is can we improve beyond what we set out in 2018. And I'm personally focused on delivering on the 2018 commitment, and then we'll likely set a goal beyond that for improved operating margins toward the balance of the decade
Sure
Thanks, <UNK>
I think a lot was written about that question
To be honest, we have good relationships with all the major PBMs. Of course, it's a business transaction and we're on opposite sides of the table
They do their job very well
They negotiate hard for rebates and discounts for their customers, most of which are large commercial plans or Part D
And we do our job, which is to sell the value and try to maintain formulary position
There are always tugs and pulls in that and products are listed and delisted, but overall I'd say we have a good relationship with the PBMs. Of course there's only one major pure-play PBM at this point
But Express Scripts and Lilly have a good relationship, and we announced this Blink Health partnership as an example of that, innovating together to try to solve some of the payment problems
I think hypothetically, if we didn't have rebates, would I worry long term about our future? My answer is no
I think we're in the business of making innovative products that help patients
We need to do that in a way that creates value in the healthcare system
How we get paid for that value, there are probably lots of ways
As you know, in international markets many, many places where we have productive and profitable businesses, we don't have PBMs or anything like it and we don't have rebates, and we do just fine
So I think because of the breadth of our portfolio because of our new product mix, because of the company's focus on volume growth across several key markets, I think as <UNK> said in his comments, we have a durable strategy going forward should there be some big disruption, which I'm not sure I see right now
But I think on either side of that, our model would work well
<UNK> can add anything to that and then maybe the Alimta question to <UNK>
Hi, <UNK>
First of all, in terms of specialty markets and leveraging our U.S
managed care presence, we have a great team
We've got strong relationships, not just with PBMs but with other managed care entities
And I think as a broad-based pharmaceutical company, it's an advantage when we're entering new spaces because we already have that payer connection both for immunology and oral oncology that that base will serve us well
You can add abema [abemaciclib] should we have positive data and be able to submit, but I think it's a strength of the company
Maybe what you're really asking is will we leverage the portfolio to drive more exclusive formulary coverage? I would just say in general, that's not our aim
I think we want to compete with as much open access as possible in as many classes as we can because, as someone launching new products, that's a policy position that makes sense for us
Of course, we have incumbent products too
But all things equal, we would prefer patients have access to as many brands as possible, and we compete based on the differentiation of our products
That's more or less what we try to do across the whole of the portfolio
On BD, I'm not exactly sure what you're getting at there
As I said earlier, it will be an important part of what we need to do going ahead to build out the portfolio and keep upgrading value within the portfolio, whether it be through licensing or M&A
We have a number of very successful licensing arrangements ongoing and in the past
To name a few, of course, the Boehringer Ingelheim arrangement, Pfizer on tanezumab, AstraZeneca on BACE, even the partnering we've done with major oncology firms in terms of combination development with some of our assets I think are all examples of Lilly's open for business on partnerships
There are some specifics around ultra-rapid insulin which I won't go into to here, but I think all partnerships require a shared sense of what the future needs to look like as well as a compelling profile of a product
And when we have those things, we've done very well
If you have information to the contrary, I'd love to hear from you about it
But partnering will be a key part of what we do along with that smaller M&A space, as I discussed, and I think it's a strength of the company
In terms of PBM specifically, that wasn't a centerpiece of the discussion with the President
Of course, pharma has recently put out some work just to put some facts into the picture in terms of what the total drug spend is in the nation and how much of that is innovative, generic, or going into the channel, if you will
I think it's available on their website if you want to look at it
That was referenced in the meeting, and I think it always does surprise people that fully one-third of spending in the U.S
is not going to manufacturers but going to other entities
I think the President was interested in that
Mostly we discussed how to get value to consumers who particularly in the ACA plans or in high-deductible plans have limited formularies
They think they bought insurance and they have limited coverage or are paying a lot of out-of-pocket costs, and how to address that situation
And so PBMs themselves weren't mentioned specifically, and we did discuss channel partners broadly, but more as an educational point
In terms of CoLucid, I'll start there
Obviously, that fits in well with our existing interest in pain and migraine specifically
It is abortive treatment, so people take that when they're experiencing or about to experience a headache
I think it has the key benefits of potentially being labeled for use in patients who have cardiovascular risk factors, which is a major issue with triptans, the major class in that setting, and will fit hand-in-glove with our promotional, commercial, and medical efforts, even future clinical efforts with our potential antibody galcanezumab, for preventing migraine
I guess the question on effect size, I can defer to <UNK> on that in terms of what we hope to see vis-à-vis Amgen
We appreciate your participation in today's earnings call and your interest in Eli Lilly and Company
Driven by new product launches, Lilly is entering a new growth period
The combination of top line growth and margin expansion over the balance of the decade provides a compelling thesis for investors
I look forward to keeping you informed of our progress, and please follow up with our IR team if you have questions we've not been able to address on today's call
| 2017_LLY |
2017 | HSTM | HSTM
#Good day, ladies and gentlemen, and welcome to HealthStream's Second Quarter 2017 Earnings Conference Call.
(Operator Instructions) As a reminder, this conference is being recorded.
I would now like introduce your host for today's conference, <UNK> <UNK>, Vice President of Investor Relations and Communications.
Ma'am, you may begin.
Thank you, and good morning.
Thank you for joining us today to discuss our second quarter 2017 results.
Also in the conference call with me are <UNK> <UNK>
<UNK> Jr.
, CEO and Chairman of HealthStream; and Gerry <UNK>, Senior Vice President and CFO.
I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements.
Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K and 10-Q.
So with that opening, and I'll turn it over to Bobby <UNK>.
Thank you, Bobby, and good morning, everyone.
I'll provide some additional information about our financial results, including certain items that impacted the quarter.
For the second quarter, consolidated revenues were up 12% to $65.1 million.
$61.5 million.
I'm sorry, $61.5 million, excuse me.
Operating income of $2.9 million was up 23% versus operating income of $2.3 million in last year's second quarter.
Net income was $2.3 million.
Earnings per share was $0.07 versus net income of $1.4 million and $0.04 per share earnings in the second quarter of 2016.
Adjusted EBITDA was up 25%, as Bobby just mentioned, to $9.9 million or $7.9 million in last year's second quarter.
During the second quarter, the Morrisey Associates acquisition, which closed in August of 2016, contributed approximately $2.6 million of revenue and incurred an operating loss of $416,000, primarily due to the deferred revenue write-down accounting convention.
Now let's look at the 4 areas of the income statement: segment revenue, gross margin, operating expenses and operating income.
Revenue.
Revenues from our Workforce Solutions segment increased by $4.1 million, while overcoming the $2 million year-over-year decline in ICD-10 readiness revenues in the second quarter.
Now let's take a look quick look at the Workforce ARIS.
For the second quarter of 2017, HealthStream's Workforce ARIS was $38.16, which is up when compared to last year's second quarter of $35.70 and this year's first quarter of $37.68.
So we grew ARIS both quarter-over-quarter and sequentially.
ARIS, as we discussed in previous quarters, is also subject to movements that can seem counterintuitive.
For example, adding a highly desirable number of subscribers can actually drive the ARIS down if the amount sold to each subscriber does not equal the ---+ or exceeded the actual previous quarter's ARIS.
Similarly, losing subscribers who pay less than the previous quarter's ARIS can drive ARIS up.
It's also important to keep in mind that ARIS does not include a complete look at our business, as 2 of our 3 business segments, Patient Experience and Provider Solutions, are not included in ARIS at all.
We continue to evaluate new metrics that encompass all of our business.
Revenues from our Patient Experience Solutions segment in the second quarter of 2017 were $8.6 million compared to $9 million in the second quarter of 2016.
Revenue from Patient Insights surveys declined by $140,000 and continued the trend towards greater adoption of online patient surveys, which carry lower price points than phone surveys but produce higher margins for us.
For example, for the first 6 months of 2017, the volume of phone-based patient surveys declined 28%, while online patient surveys increased by 12% in the same period.
However, the Patient Experience gross margin has increased by 400 basis points over the first half of this year.
Revenues from other Patient Experience Solutions, including surveys conducted on annual or biannual cycles, decreased by $266,000 compared to the second quarter of last year.
This decrease is primarily due to the timing of engagements compared to the prior year.
In the second quarter of 2017, revenues from our Provider Solutions segment increased by approximately $3 million, with Morrisey Associates acquisition representing approximately $2.6 million of that increase.
Now let's look at gross margins.
Our gross margin was 57% this quarter versus 59% in last year's second quarter.
The impact of the Morrisey deferred revenue write-down and the final rule on office closure cost are the primary reasons for this lower gross margin.
This quarter does represent continued sequential improvement as the gross margin has increase from 55% in the fourth quarter of 2016 to its current 57%.
Let's turn our attention to operating expenses.
Operating expenses for the quarter were up 8% over the second quarter of 2016.
The combination of capitalized software investments and product development expenses grew by 8% year-over-year, even though the product development category on the income statement showed a year-over-year decline of $200,000.
Sales and marketing expenses increased mainly due to higher commissions costs.
Depreciation and amortization also increased 29% over last year's second quarter, reflecting increased levels of capitalized software development amortization and the amortization of acquired intangible assets from the Morrisey acquisition.
G&A expenses in the second quarter of 2017 were relatively flat but improved as a percentage of revenue to 13.9%, which compares to 15.6% in the second quarter of 2016.
It's important to note that the G&A expenses are subject to increase in the second half of this year as we incur implementation and compliance costs related to the new GAAP [rev] ---+ recognition accounting standard known as ASC 606.
We anticipate that this expense will be approximately $1.3 million over the next 6 months.
Operating income.
Operating income was $2.9 million in the second quarter of 2017 compared to $2.3 million operating income in the second quarter of 2016.
The increase in operating income reflects leverage on our product development and G&A expenses, while we overcome the $1 million margin loss from the decline in ICD-10 revenues, the Morrisey deferred revenue write-downs and the higher depreciation and amortization expenses I just mentioned.
Now our balance sheet.
Our cash position and the overall balance sheet remains strong.
Our cash balance at June 30 was approximately $116 million, a $30 million increase since December 31.
A significant contributor to this cash balance has been improved collections.
The sequential drop in DSO to 71 days at December 31, 2016, to its current 57 days resulted in a $7.5 million reduction in accounts receivable balances.
We have no outstanding debt, and our full $50 million line of credit capacity is available to us.
We believe our overall capital position is likely to support our organic and inorganic growth opportunities and support other capital structure optimizations and true [value] maximization strategies as may be appropriate.
Cash flow from operations on our cash flow statement has improved to $23 million in the first 6 months of 2017 versus $285,000 for the same period in 2016.
So before I assess guidance, I'll describe the fluctuation in our effective income tax rate.
Effective January 1, 2017, we've adopted a new GAAP accounting standard that applies to book income tax accounting.
Specifically, the new standard flows the tax benefits, the stock option exercises through the income statement as part of the income tax provision.
In past years, that transaction went directly to the balance sheet, bypassing the tax provision.
The most important thing to note is that there's no change to our federal income tax position for our cash flows.
We have already taken this adoption with the (inaudible) of federal income tax liabilities.
Yesterday's earnings release contains updated guidance for the 2017 full year.
We anticipate that consolidated revenues will grow between 8% and 10% as compared to 2016, and the growth in our 3 operating segments will be as follows: Workforce Solutions, 4% to 6%; Patient Experience Solutions 3% to 5%; Provider Solutions, 47% to 51%; (inaudible) ICD-10 revenue ---+ (inaudible) revenues will be approximately $1 million in 2017 versus $9 million in 2016, approximately an $8 million decline during this current, 2017.
We continue to anticipate that our full year operating income will increase 50% to 65% over 2016.
We anticipate that our capital expenditures will be between $15 million and $17 million and our effective income tax rate will be between 32% and 36% for this current year.
This guidance does not include the impact of any acquisitions that we may close during the remainder of this year.
Thank you for your time.
I'll turn the call back to Bobby.
Thank you, Gerry.
I think what I'd like to do is to dive in the segments in a little more detail.
I'll give some business updates on each of them.
So let's start with Workforce Solutions.
At the end of the second quarter, around June 26, we announced that our current agreements with Laerdal Medical for the HeartCode and RQI products will expire, and they will expire on December 31, 2018.
It's important to note that HealthStream retains the right to and expect to continue selling HeartCode and RQI for the next 1.5 years.
And importantly, we'll provide uninterrupted service to our customers for the duration of their contracts.
Those contracts could be extended through December 31, 2020.
As we stated, this news does not affect our financial guidance for 2017.
And so related to that, we are committed to broadening the scope and utilization of our simulation technologies as a method of validating a wide range of clinical competencies, including and beyond resuscitation skills.
Next-generation mannequins, virtual reality and augmented reality are among the innovative and disruptive technologies we plan to bring to market.
Those technologies will enable us to deliver choice, lower cost and more effective simulation-based training solutions in the future.
To this end, we are in active negotiations with a number of strategic partners.
In fact, just last week, we signed a long-term agreement with a new partner.
This agreement will feature unique integrations with HealthStream's platform, including HealthStream's emerging technologies such as our credentialing systems, the EchoCredentialing systems, and ePortfolio, a newly announced product.
In the coming months, we expect to introduce a number of new partners and technologies as part of our expanded approach to using simulation technology for a broad range of clinical areas, which will include multiple clinical specialties, nurse onboarding and beginning in January of 2019 resuscitation skills.
I'd like to turn our attention to the Patient Experience segment for just a moment.
We continue to anticipate improved margins from this segment, particularly in the second half of the year.
For example, during the quarter, we continued to see an uptake in new clients purchasing online surveys, as Gerry mentioned.
These have a higher margin than phone surveys, and existing clients are converting from phone to e-mail and SMS text surveys.
We've now converted about 1/3 of all surveys capable of being converted from phone to online surveys, and we expect this conversion trend to continue throughout the remainder of the year.
As you know, we closed our Laurel, Maryland, interview center in June and consolidated operations to our Nashville interview center, which is a newer center.
And the cost of those ---+ of that closure was borne in the first and second quarters, and so we expect to have those costs out of the system in the second half of the year.
Both of these developments, the shift to the higher-margin products and the closure of the Maryland office, should continue to have a positive impact on Patient Experience margins for the remainder of the year.
In our Provider Solutions segment, we are focused on switching to the software-as-a-service model and shortening implementation cycles.
In previous calls, we've talked about an implementation backlog, and so a brief update on that.
Over the last 3 quarters, we've made meaningful improvements in our Provider Solutions segment, which are resulting in moving customers forward in their implementation process.
In the second quarter, the backlog of unimplemented customers on our EchoCredentialing solution was significantly reduced to levels that we consider to be routine and sustainable.
The backlog accounts currently remain for our Morrisey acquisition solutions, but we expect to replicate the success we enjoyed with Echo across the Morrissey customer base, applying the same methodologies, protocol, procedures and now experienced staff and correcting these backlog issues.
So we expect improvement over time the next few quarters in the Morrissey-associated backlog.
Earlier this month, we announced several exciting changes to our senior leadership team.
And I want to highlight a few of those before we turn it over to questions.
Jeff Doster was previously in the role of our Chief Technology Officer.
He was named Chief Information Officer, a new position at HealthStream.
We also announced that <UNK> Fenstermacher was promoted to Vice President and Head of Sales, which will make him our top sales leader, overseeing sales in our Workforce and Patient Experience segments.
And finally, with the move of Jeff Doster to CIO, we added Jeff Cunningham.
Jeff Cunningham joins us as Chief Technology Officer, so having split this role to accommodate more rapid development and evolution of our platform security, reliability and scalability, now having both a CIO and a CTO.
We congratulate Jeff Doster and <UNK> Fenstermacher on their promotions.
And Jeff Cunningham, we like to welcome to our leadership team at HealthStream.
At this time, I'd like to turn it over for questions.
Yes, <UNK>.
Let me try to characterize some of that.
I mean, it's ---+ we came off a strong fourth quarter and then a strong first quarter, first quarter having exceeded our expectations in many categories, be it internal quotas and budgets that we set.
And so we moved into the second quarter with some optimism, but we did see a slowdown and particularly in the workforce product sets.
And no particular products, we just had high expectations across the set of products, even compliance, which is outperforming, was a little below expectation.
So our clinical products that we've talked about in the past were also below expectation.
Again, this is probably a function of having high expectations.
But we did miss our internal goals.
And I don't know if I can attribute it to macro conditions.
There are a few internal issues.
We are behind in our open sales divisions.
We have about 15 open positions, some of this is attributable to the fact that we have elected to do direct hiring instead of through the recruiters.
So it's slowed down our hiring a little bit.
So that was a contributor of it.
Also, on an individual production basis, we just didn't meet expectations and, again, predominantly across the Workforce Solutions segment.
I'm not willing to say that it was macro conditions.
We're 1 quarter in.
And so it was just sales productivity issue and maybe too high expectations, as we've recalibrated around now and, unfortunately, had to adjust our guidance, reflective of lower expectation and lower results in the second quarter.
So the combination of variables, I really can't pin it on any one thing.
The individual productivity was lower than expected across Workforce, I would say, broadly.
And we are down headcount, about 15 from our plan.
And we're trying to fill those but at a different rate.
We're not going to just out and use recruiters and have really high costs.
We're going to be more selective and try to bring in the right people.
And there was a little bit of deal push, but we'll see how we pick that up in the third quarter.
So I'm not going to give any specific attributions except to say we're disappointed in the results and we had to recalibrate our guidance.
About [$110,000] $200,000.
Yes, we're going to lay all that out over time.
I mean, the first thing to note is that we have 1.5 years to focus on the current relationships with both Laerdal and AHA and successfully take those products to market as we've done for many years.
And so I think the first thing to notice is to ---+ it is our hope and expectation that many of these relationships will last all the way to 2020.
And so we're talking about things in the future.
And so the nature of our strategy to combat the loss of Laerdal is comprehensive and evolving.
And we just announced, for example, one new partnership related to it.
In this segment and solution group in our business, we hope to expand the use of simulation technologies beyond what has historically been a single use around resuscitation.
So the first thing to note is just strategically we'll be announcing and working with more types of partners that enhance our simulation-based form of competency evaluation across a broader set of skills.
And so we won't be backflowing resuscitation with just resuscitation.
You did mention an AHA card.
It is true it is not required or a legal requirement that it's an AHA card.
It's really what's important I think in the market are the standards of the training.
The AHA card has become historically the leading credential in this space and certainly the most important way to recognize compliance standards or compliance with the standards.
The standards are set by international bodies.
One is called ILCOR, which AHA is a member of, and then ILCOR publishes standards in the U.S. So there are alternatives, but the market has become used to and accept ---+ most accepting of the AHA credential.
And so our strategy over the next couple of years maybe to embrace alternative credentials and it maybe to try to work to bring the standard credentials back in.
So again, it'll play out over many years.
And the only thing we're going to announce today is the strategic broadening of focus on competency-based validation through these new technologies, including mannequins, and then we have signed 1 definitive new partnership that takes us in that direction.
Sure, sure.
As we reported, they all have sales in the first of the year.
We also reported that they wouldn't have an impact on '17.
So they're all brand-new products.
We're excited because they do leverage our network and our platform, and we think that some of them are important to our new partnerships that are being formed where they'll leverage some of the technologies and capabilities.
Some of them that I'm excited about because they carry different price points and involve broader partnerships, for example, our Nurse Residency Pathway, which is a higher value add.
It helps hospitals onboard new nurses and organize their first year of development when they come out of nursing school.
And so we share the same optimism.
We continue to have sales on the products.
And we expect and hope for them to have material contribution in the future, probably beginning in '18, as we get our wheel down and get organized on all of these products.
So we remain just as excited.
We continue to have sales on them.
In fact, one that I didn't mention that is kind of equally exciting is the ---+ comes from the acquisition of PBDS.
We acquired a market ---+ a skills and knowledge assessment tool and also a reasoning and judgment assessment tool for nursing last year.
And we just had a major sale on that brand-new product after it's been resurfaced and reskinned to reflect the HealthStream look and feel, and that product is in a resurgence.
And so we're excited to see that new clinical reasoning product take off and have a big win in the first half of this year.
The product was historically called ---+ a PBDS product, and we're excited about that one.
I would add that to this list of 6.
Maybe that's the seventh one to watch.
I think we're getting the penetration because that's reflected in the ARIS, right.
So the ARIS has been moving up because we're continuing to do good cross-selling and upselling, and we're pleased with that.
The subscriber count growth rate has slowed down a bit.
There's a little bit more natural churn and scale on some of the base product, but we aren't adding as well.
And so the new business development teams are out adding and bringing new subscribers in.
It's more in keeping with what we used to articulate as our historical goal in norms of 20,000 to 50,000 per quarter net new subscribers.
And so we've been pushing right at that envelope.
We've just had so many exceptional periods.
We also have a little bit of drag on the number from the final roll-off of the ICD-10-only subscribers.
And so there's a little bit of roll-off still in the last couple of quarters, which is kind of adding effectively to the churn, but some of those ICD-10-only subscribers, again, there's a little bit of roll-off.
We're almost done with that though as we ---+ the second half of this year probably won't be much more of that.
Yes, sure.
We declared that vertical a few years back, and it's been a consistent part of our growth story.
The mix of adding new customers in the post-acute settings and pre-acute settings has been solid contributor to our growth story.
And so it continues to perform.
And we're learning more about which of our products can be best carried in that vertical, and we're seeing some good uptake of some of the core content products in those areas as well.
So overall, just a solid report of progress and nothing remarkable, but solid, steady incremental improvements.
Well, we do expect that.
The relationship with Laerdal was very successful, and it essentially was ---+ although our agreement was only with Laerdal involved third parties like AH<UNK>
And so the margins were some of the lowest margins in our entire portfolio.
And I think in these new agreements, we're taking the opportunity to try to restructure and make sure that the full value of what we bring to the equation is in place.
So we will expect and do expect and in fact the first agreement reflects an improvement in margins in these go-to-market products.
But again, this is a long play.
It's going to take several years.
And it's important to reinforce, again, both to our customers and to Laerdal and AHA, that we are partners until January 1, '19, and potentially beyond.
We plan to carry those products to market, service our customer, our joint customers with great excellence and make sure that they get the full benefit of these excellent products from AHA and Laerdal.
And so we continue to be a key player in the role for the next 1.5 years.
And we hope and expect that many of our customers will actually extend those agreements through 2020.
And so again, we're talking about, in that case, 3.5 years of supporting the existing portfolio of products and generating revenue for them.
And so that's all the color we can provide this time.
There are many sequential steps over the next 1.5 years to try to rebuild and strengthen the loss of this Laerdal relationship.
Yes, kind of like the resuscitation market, there would be new and enhanced ways of affecting change and measuring competency and skill.
So in some cases, they require increased investment but certainly have higher IRR and I think will be more relatable to better clinical outcomes or better business outcomes, like our residency program that we mentioned.
We believe that a curriculum like that could affect first year turnover rates and lower them down and have a great economic benefit in doing so.
And so I think that some will require a little bit of increased investment from the hospitals.
But I think these are going to be higher IRR solutions that really move the needle on competence and quality, and so I think they'll be very investable.
Sure.
So we're still looking off a lot of inherited issues.
The implementation backlog is the most predominant issue, but also the switch to selling SaaS software.
Remember, we had expected ---+ both companies that we acquired had installed software.
And we had models and expected some continuation of selling installed software, whereas our teams made a much faster shift to selling the SaaS or on the subscription models, which spread the revenue more over longer-term periods.
And so as you know, in models that have made switches from installed software to SaaS software, it depends on the rate of change in the customer base on the ability to deliver revenue growth.
Getting an installed software sale fully recognized in the first period you sell it versus spreading something over 36 months, it's a trade-off.
We think it's an important and valuable trade-off for the long run.
So what I would say is that the trade-off is occurring faster than we incurred, meaning that we are selling, I believe, almost no installed software now and selling things on the subscription and SaaS model approach.
And so without bringing any installed sales, the revenue growth looks a little lower than maybe we had initially thought we would deliver.
But in my view, over a 3 or 4-year period, that's all good news.
It's just a faster migration to a more consistent and recurring revenue stream.
So there are kind of 2 issues there.
The first was a true ops and execution issue.
We inherited some fairly immature implementation processes, and we're professionalizing them.
I really truly feel that those are at hand.
We ---+ the team understands them, has worked through a full set of them, has normalized them at least for one of the businesses, the Echo businesses, and is now applying those principles to Morrissey.
I feel like that, while we reported last couple of quarters, will not be an issue that persists much longer.
Another quarter or 2, and then we'll have really good operations.
Yes, yes.
So I mean, first, we feel really good about our new leader.
And he's a veteran of HealthStream, so he's familiar with our methodologies and ways.
So it's a little different from bringing in an outside person, so the amount of change will probably be a little less.
Secondly, there probably won't be significant change.
We tend to do changes to our structure and commission plans and how we approach the market on an annual basis, really towards the very end of the year and into the January-February time frame.
So I imagine and expect that, that will also be true of <UNK>, the new Head of Sales.
I mean, he makes ---+ he may make some adjustments here and there to how it's organized.
But in general, we make the larger changes and address incentive and readjust markets and opportunities usually once a year, around the January time frame when we have our national sales meeting.
So I think we have the right person in the spot.
Of important note that <UNK>'s background is in the clinical areas, and clinical for us is an important driver of our growth.
In some ways what we just talked through on the resuscitation products and expanding the scope of operations there also plays to <UNK>'s background.
So I think we have the right leader in place.
I do not expect a lot of disruption this year.
Regards to the current performance, clearly, we were disappointed.
We had higher expectations for growth.
I'll point out that we're ---+ these are ---+ they're all growing.
We've just ---+ we've missed our expectations and had to recalibrate.
So while we're disappointed in that, we're going to figure out which parts are working and tune those as we enter next year with our new leader.
Yes, sure.
So in each of our segments, we're making moves to improve margin and leverage what we call our ecosystem and our platform.
And some of those moves are more overt, like the ones we've talked through on our Patient Experience segment, where we actually had an office closing, centralizing services and double down some of the higher-margin products.
In other areas, it's a recalibration of what we're selling.
We're focusing on some of the more completely owned products that have ---+ that carry a higher margin and so success in some of our areas of compliance as it becomes one of our leading growth story.
It was really interesting to look back over the last year.
The lead products where the most sales momentum has shifted a few times across a couple of key clinical products.
For a while, it was the resuscitation product for about 3 quarters.
And lately, it's been our compliance products, so the ones that are ---+ and they happen to be higher margin as well.
And so within the businesses, there's a bit of shift in emphasis towards the higher-margin products.
We did adjust incentive a bit to improve the focus on what we call our higher-margin product sets as we entered into this year.
I think we'll see the benefit of that in some of the business units in the second half of the year.
So just ---+ I'll just say more a key focus on EBITDA generation and margin and leveraging assets that exist within the company is what's going to drive the enhanced EBITDA and operating leverage.
I really can't attribute things to that uncertainty, Vince.
I ---+ our buyers have compliance needs that they have to meet.
They have needs for retaining their staff.
Almost irrespective of the payment system, they have to compete with the hospital across the street.
And so they need to invest in these solutions to help them retain their staff and develop their staff and avoid risk.
And so (inaudible) they're in a tough spot.
They need to make capital investments to retain their staff and develop them, so they don't have the kind of risks that no one wants to pay for anymore.
And so I think there's a strong rationale for buying our compliance-oriented solutions and the ones that generate better clinical and business outcomes.
And ---+ but then ---+ but it also is fair to acknowledge that they're under growing increasing uncertainty and pressure from all of the activities of both our government and their competitive landscape.
So I don't like to attribute things to the macro condition.
I like to assume responsibility to figure out what we can do better.
We always have products that we can sell in any macroeconomic condition, and we're going to do our best to figure out those products and sell them.
I do think that technologies and the measured impact they can have on outcomes, the general acknowledgment of how they're utilizing other industries to have real outcomes and impacts, just continued growth and awareness of the favorable impact that they can have on learning and development and therefore on outcomes ---+ business and clinical outcomes.
And so I just think we're further than the curve.
Also, the technologies themselves are advancing.
And we've seen emerging technologies from new corners of the world and out at Silicon Valley and other places that I think are another wave of disruption coming from the traditional mannequin-based approach.
And you'll see us leaning into those technologies as well.
So I think they provide both more educational benefit and potentially easier adoption and more intuitive utilization and lower cost.
So I think it's just ---+ the steady advance technology, I think, we'll get to an inflection point in the next couple of years.
Revenue was $2.6 million and an operating loss of $468,000.
From what ---+ what was the question, Vince.
The contribution of Morrisey was your question.
Yes, sure.
So we always are actively looking but obviously been more active in prior periods than in the last, say, 2 or 3 quarters.
Some of that intentional where we've developed the pipeline for M&A but don't pursue deals as we work through.
We've got a lot to work through here with the closing of Laurel, the improvement of margins in PX, the implementation backlogs from prior acquisitions.
The difference is I'm feeling more comfortable that all those issues are at hand, and we're on the ---+ clearly on the backside of all those curves.
And we do have a strong capitalization of $116 million in cash and $50 million line of credit.
And always, acquisitions have been part of our strategy.
In fact, the last time we had this kind of challenge, we effectively ---+ I think management effectively swapped the ICD-10 50% gross margins business, which was nonrecurring, with 2 acquisitions to build a whole new different segment that has a higher recurring nature and a higher gross margin with the acquisition of Morrisey and HealthLine and putting them together.
And so I would say that it will be part of our strategy to increase our activity and search.
We were always active in M&<UNK>
It's always a part of our management team's core confidence.
We had a little bit of a breather here, a couple of quarters, to settle in on all these ---+ the prior acquisitions and tune them up.
As I mentioned, one of our smaller acquisitions, PBS, we had nearly a $1 million sale on those products recently.
And now that I feel really good about how all those are progressing, are operationally in hand, we do expect and plan to deploy capital into M&A in the coming months and years.
Yes, I'd say, as you did point out, we work on 3-year plans with our board.
We roll out 1-year plans to the market where we talk about our capital allocation strategy early in each year, around February.
And so just kind of ---+ to reiterate, for this year, we are very comfortable with our investment levels and CapEx levels to build and launch in support of new products that we're bringing to market.
And we're going to let those 6 or so new products we mentioned plus 1 that I mentioned earlier today, a count of 7, from the acquisition find their way into the market over the next several quarters and then announce a new capital allocation strategy and investment strategy next year.
But at least for the next couple of quarters, as we've mentioned through the reiteration of guidance, we expect continued operating leverage and are comfortable with our levels of capital investment and expense investment and product development.
Effectively, we had a really nice wave of new products coming out.
And we've slowed down the adding of teams in development, while we stabilize and support the products we've already taken to market.
And that's a cycle here for at least this year.
We'll evaluate it again as we enter next year.
Thank you very much for listening in on our quarter earnings conference call.
We look forward to reporting the next one.
And thank you to all employees who are keeping the ship steady and growing the business.
We look forward to reporting our third quarter call in near and upcoming months.
Thank you all.
Goodbye.
| 2017_HSTM |
2015 | AMD | AMD
#I think the obvious options, I think everything you just said in terms of managing the working capital, managing the cash, managing the inventory and making sure that it is in line with the revenue profile from an outlook standpoint, allows us to do that.
From a standpoint of cash, we've done a good job managing the cash over the last several quarters and several years.
I have confidence of doing that on a go-forward standpoint.
We'll monitor and see what is needed and as I said earlier, if the need arises, we will access the capital market.
I still have the ABL availability, as you just observed, and we will do what's needed to continue to fund the business.
Not going to get into the details on this call, <UNK>, but I'm sure we can access capital markets if the need arises.
The factors, I think if you look at it from a cash standpoint for the rest of the year, in Q3, with a cash guidance of $700 million, the way our debt maturity profile is, the cash interest payments have only two quarters, in Q1 and Q3, to the tune of about $70 million.
So there is a disproportionate impact to cash in Q1 and Q3 of our fiscal year, just the way the cash payments go out, even though the accounting is done on a pro rata even basis for the year.
Then, you are right.
We are managing the inventory and re-profiling some of the commitments that we have should help from a cash standpoint and we are very focused to go ahead and do that.
Like I said, after we get through the Q3 timeframe, in Q4, we don't have the cash interest payments.
With the revenue being up in the second half, as what we're expecting starting with Q3, we think that it will benefit the cash situation as we get to the end of the year.
Two parts to it.
For the Q3 growth, new products, as well as semi-custom business being higher in the second half compared to the first half.
That is specifically what is taking the inventory from about $800 million to the $850 million levels that we're guiding to.
<UNK>, certainly, we would like to drive both gross margins as well as operating margins.
The ASP declines are fairly well understood.
Those are pre-negotiated.
Relative to what we're doing to drive overall cost or COGS down, it's the usual things.
Is yields, it's test times, it's procurement savings and those kinds of things.
I would say it's been largely as expected.
These products are now several years into their life cycle.
To your follow-up question about die frames, I think if you look at the history of game consoles, you will normally see a die shrink, but that will happen out in time and we'll discuss that at that point.
The idea of marrying a processor with some type of accelerator, whether it's a GPU or and an FPGA, I think is definitely important in the data center.
We do have the ability to do both integrated with our APUs, as well as in different packages, the offering both CPU and GPU together.
I think the idea of using accelerators is definitely important data centers.
We agree with that.
Different people will do it different ways.
Certainly, our approach will be to get very high-performance CPUs and GPUs that can inter-operate.
Operator, we will take two more questions, please.
I think Seattle is a good offering for 64-bit ARM servers.
If you look at what we've said up until now, we have a number of companies, both in the ecosystem, as well as users developing software on Seattle and looking at how it operates in the environment.
I would say that the overall revenue of Seattle will be modest, as ARM ramps will take a bit of time.
But the importance of building the ecosystem is there, so that is our focus with Seattle in working with key customers.
I think we've said before, and my view on this is that the overall ARM server market, or let's call it ARM in data center markets, will take some time to develop.
Let's call it the three- to five-year timeframe.
In terms of today's market, we actually believe that the x86 will be the majority of the market.
When you say crossover, <UNK>, you mean volume crossover, or ---+
Yes.
We will be bringing different parts of the product line into FinFET, at different points in time, so I don't think I have an exact answer for that.
I think what we've said is, graphics will certainly utilize FinFETs, as well as our news and processors.
They will rollout over the quarters in 2016.
I can comment.
If you are looking specifically at Q1 to Q2, the operating margin declined as $33 million charge, that was the charge associated with the technology node transition from 20-nanometer FinFET.
That's in the segment operating margin results.
If you neutralize for that, I think you'll see a different operating margin profile from a quarter-to-quarter standpoint.
Operator, thank you, and that concludes our conference call this afternoon.
| 2015_AMD |
2016 | UTHR | UTHR
#We have been very opportunistic in the way that we look at expanding the Company.
Our core mantra is to identify corridors of indifference and run like (expletive) on them.
That's what we did in the first case with pulmonary hypertension, nobody was interested in the field, all the patients dying.
We ran like (expletive) down that corridor and are now generating $1.5 billion a year in revenue from that field, up from $750 million in revenues just five years ago.
And as we've mentioned that previous call, we expect these revenues to be able to double again in five years through the growth from Remodulin, Tyvaso and both in the implantable, disposable and combination versions as well as Orenitram reaching its blockbuster potential of $1 billion.
So that's the heart and soul of the Company's business development and core expansion.
Beyond that, when we saw another corridor of indifference, pediatric oncology, and specifically, neuroblastoma with no approved therapy for it, we ran like (expletive) down that corridor.
As a result, I think that we have brought a great gift to the patients, families and physicians caring for neuroblastoma patients with the first-ever FDA approval for drug to treat that indication.
And it looks like it will be a gift that keeps giving, as people begin to explore the potential of that platform for other oncology indications.
And that's pretty much our mantra, is just to keep to the ---+ find the corridor of indifference, where there are no or no effective therapy and then charge down that corridor to become first and dominant in that field.
Thanks.
Brian, next question.
Dr.
<UNK>.
Yes, sure.
Thanks <UNK>.
So I think we've stated previously that the rate of loss for every 100 patients we start, we lose approximately 15.
The reasons that we lose them are basically from intolerance.
Again, these are ---+ treprostinil is a very powerful agent.
It does a lot of good things; it also causes a lot of vasodilator-type side effects: headache, nausea, GI distress, and some other things, as does Uptravi.
If you look at their package insert, the profile and type of adverse events is similar and it's similar to epoprostenol as well.
So that's the main reason.
We haven't seen any competitive loss and again, it's very early in Uptravi's launch.
I don't think switching patients from Orenitram to selexipag would necessarily be a wise thing to do.
There's no idea about those comparability.
As I stated, the receptor diversity is quite different.
There's a unidimensional IP1 selective agent.
We find multiple receptors.
Our drug is titratable so patients that achieve higher dose may not actually be able to switch to selexipag.
So we don't see that happening and we don't expect that to happen.
The attrition, we've look carefully at the rate of loss and trying to minimize the attrition.
Again, it gets into that artful practice of making sure new physicians, in particular, change the dose appropriately; that they don't become too aggressive or go too easy because you want to make sure you get some therapeutic effect so that the side effects are not bothersome.
And then on the other hand, you don't want to go too hard so that you generate too many side effects and the patient wants to come off therapy.
So that's a lot of what we do, both with our sales team in terms of educating about how the drug was dosed in the clinical trials and then also with our support specialist, both from the specialty pharmacies and through our medical affairs department, educating new physicians, in particular, about the historical and artful practice of prostacyclin dosing.
Great.
Excellent answer.
Thanks, Dr.
<UNK>.
Brian, you've been wonderful.
We have time for just one more question.
Yes, very ---+ a little bit different question there.
So the way we are organized within the United Therapeutics, the function called strategic operations, which includes all of the direct relationships with the major payers, both in the US and abroad as well as Medicare, is managed by <UNK> <UNK>, the Chief Financial Officer.
And <UNK> is on the call.
<UNK>, can you provide some color on that.
Yes.
Thanks <UNK>.
Thank you for the question.
So in terms of going forward, in terms of reimbursement, we have not seen any significant changes in terms of reimbursement patterns with any of our therapies going forward.
And in terms of outcomes-based reimbursement discussions, there's again, we haven't been able to ---+ or haven't had those discussions on a going-forward basis as well.
And this operation has a very broad team underneath it in terms of Jay Watson, who are in constant contact in terms of the market and the reimbursement aspects of our therapies.
And we've been very successful at this point in getting the therapies reimbursed for our patients.
And if we're not able to, we actually provide those therapies free to the patients to make sure they're getting the proper treatment.
Excellent.
Well, everybody, thank you very much for joining the conference call and Brian, thank you for organizing it.
Please feel free to check back in with our Investor Relations.
We present at most of the more important healthcare conferences during the course of the year.
Operator, you can now conclude the call.
| 2016_UTHR |
2017 | COLB | COLB
#Thank you, Jeanine.
Good afternoon, everyone, and thank you for joining us today on our call for our second quarter 2017 results.
The release is available via our website, columbiabank.com.
First, I want to take this opportunity to say that I'm deeply honored to have the privilege of serving as the next President and CEO of Columbia.
During my time at Columbia and especially through the past 5 months, I've witnessed the dedication, drive and pride of our employees.
Their resilience in the face of great difficulties and persistence in creating positive outcomes is truly inspiring.
As we approach the 25th anniversary of our company, it's important to acknowledge that, as in the past, our future is about placing the customer at the center of what we do.
I also want to take this opportunity to provide assurance that we'll continue to execute our existing strategy.
We'll continue to grow the bank by concentrating on building durable relationships with our customers, making the necessary investments in technology to ensure we have contemporary products and services and selectively look for acquisition partners that have good economic and cultural fit.
We'll also continue our ongoing efforts to reduce expenses and increase operating leverage while consistently holding to our credit disciplines across business cycles to best preserve our capacity to generate long-term, sustainable revenue streams.
During the second quarter, we achieved record net income for the period of $27 million.
Our bankers were successful in generating loan production of $316 million, which, along with higher levels of line utilization, resulted in net loan growth of $195 million or about 3.1% for the quarter.
We now have received shareholder and state regulatory approvals for the merger of Pacific Continental into Columbia.
Federal regulatory approvals are still pending.
Upon approval by the Federal Reserve and FDIC, we'll move quickly to close and commence integration and conversion activities.
Our system conversion date is now set for mid-November.
On the call with me today are <UNK> <UNK>, our Chief Financial Officer and recently announced Chief Operating Officer, who will provide details about our earnings performance; and Andy <UNK>, our Chief Credit Officer, who will review our credit quality information.
I will conclude by providing an update covering our deposit loan activity.
Following our prepared comments, we'll be happy to answer any of your questions.
It's important that I remind you that we'll be making forward-looking statements today, which are subject to economic and other factors.
For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our securities filings and, in particular, our 2016 SEC Form 10-K.
At this point, I'd like to turn the call over to <UNK> to talk about our financial performance.
Good afternoon, everyone.
As <UNK> mentioned, earlier today, we reported record second quarter earnings of $27.1 million or $0.47 per diluted common share, which is $0.03 higher than the second quarter of last year.
Expenses related to the termination of loss-share agreements with the FDIC and the pending acquisition of Pacific Continental Corporation reduced our reported earnings $2.2 million and lowered EPS by $0.04.
We recorded a pretax charge of $2.4 million in the second quarter to write off the remaining loss-sharing assets and relieve the FDIC call-back liability.
Acquisition-related expenses of $1 million in the quarter were in the following income statement line items: occupancy, $351,000; advertising, $11,000; legal and professional, $119,000; data processing, $473,000; taxes, licenses and fees, $3,000; and other, $66,000.
Our reported net interest income of $86.2 million was a decrease of $514,000 from the prior quarter.
The linked-quarter decline was primarily driven by additional mortgage-backed security premium amortization of $1.9 million, which was mostly offset by increased loan interest income of $1.5 million.
On the liability side, deposits were relatively flat, so loan growth drove additional borrowings, resulting in increased interest expense of $366,000.
Additionally, a slight shift from demand deposits to our commercial money market sweep product accounted for the remaining $118,000 of increased interest expense over the prior quarter.
Noninterest income of $24.1 million in the current quarter was a decrease from the prior quarter of $724,000.
The prior quarter included a $1.5 million bank-owned life insurance benefit as well as a $573,000 benefit from the release of the remaining mortgage repurchase reserve that was established in conjunction with our 2013 acquisition of West Coast Bancorp.
After removing the favorable effect of these 2 items on the prior quarter, growth in deposit and treasury management fees, card revenue, financial services revenues and merchant processing revenues led to a comparative linked-quarter increase of roughly $1 million.
Subsequent to the end of the second quarter, we outsourced our Merchant Services program to a third-party platform for a sales premium $14 million.
After an initial drop in the contribution from this business line, we expect the partnership will ultimately drive higher levels of merchant penetration within our existing customers, more robust account acquisition and a significantly higher level of income than we could achieve on our own.
During the first year, the pretax contribution is expected to decline from about $3 million to $1.5 million as we ramp up the capacity of the new platform.
Prior to outsourcing, merchant activities generated about $23 million in noninterest income and $20 million in noninterest expense on an annual basis.
Reported noninterest expense was $68.9 million for the current quarter, a decrease of $119,000 from the prior quarter.
After removing the effect of OREO activity, FDIC loss-share termination expense and acquisition-related expense, our noninterest expense run rate for the second quarter was $65.4 million.
Using the same basis, this is a $2.1 million decrease from the prior quarter and results in a noninterest expense to average assets ratio of 2.73%.
This ratio continues to remain within the range that we have discussed on prior earnings calls.
As such, we still believe, for modeling purposes, an expense ratio in the mid-2.7% range is reasonable.
The operating net interest margin remains unchanged from the prior quarter at 4.09%.
Higher loan yields added 7 basis points to the margin while the increased premium amortization in the investment portfolio lowered the margin by 6 basis points, and the additional Federal Home Loan Bank borrowings reduced the margin by 1 basis point.
Our effective tax rate for the second quarter was 29.1% compared to 26.6% in the prior quarter and 30% for the full year 2016.
The primary reason for the lower rate in the prior quarter was adoption of ASU 2016-09.
Excluding that impact, the effective tax rate would have been 29.8%.
As such, we continue to believe a reasonable assumption for the full year effective tax rate is 30%.
Now I'll turn the call over to Andy to talk about our credit performance.
Thanks, <UNK>.
For the quarter ended June 30, the company made a provision for loan losses of $3.2 million.
This was primarily driven by the originated portfolio, which had a provision of $4.4 million.
The discounted portfolios collectively released $440,000 for the second quarter, and the purchase credit impaired portfolio enjoyed a release of $738,000.
Loan growth, negative migration and net charge-offs drove the provision in the originated portfolio, while a continued contraction and relatively stable credit metrics in the other portfolios allowed the releases.
It's important to note that within the originated loan portfolio, we enjoyed over $260 million of loan growth during the quarter.
So as of June 30, 2017, our allowances to total loans was 1.14%, even with the first quarter, and essentially the same when compared to 1.13% as of December 31, 2016.
As we have discussed before, the weakness in the portfolio has been most notable in the agricultural sector, which drove both the provision and the increase in nonaccrual loans for the quarter.
At quarter-end, we had approximately $466 million in agricultural-related commercial business loans and another $258 million in commercial real estate farmland loans.
On a combined basis, the largest sector is [HOPs] at $97 million.
We have not experienced any credit issues within our [HOP] Portfolio.
Beef and cattle ranching is next at $96 million.
The cattle business showed weakness throughout 2016 but rebounded in the first half of 2017.
However, we continue to be diligent in this area as we are seeing increases in the U.<UNK> cattle herd, which could have a negative effect on pricing in the second half of 2017.
The next largest sector is wheat at $65 million.
Our wheat portfolio has been very stable, with over 97% of the credits rated pass.
Most of our wheat farmers continue to operate at around breakeven or better.
Fishing is our fourth largest exposure at around $50 million.
Similar to cattle, we have seen positive migration in the fishing portfolio year-to-date.
After fishing, comes grass seed, which is approximately $40 million, and 99% of this portfolio is pass rated and has also been stable throughout the year.
So as you can see from the numbers, our agricultural portfolio is very diversified, much like the rest of our loan portfolio.
With that said, the potato and onion portfolio has continued to deteriorate throughout 2017, and this particular area is what drove the provision and the increase in nonaccrual loans for the quarter.
Today, we have approximately $23 million in these commodities, almost all of which is rated substandard, and approximately $10.2 million was placed on nonaccrual during the quarter.
While we are disappointed in the performance of this portfolio, the bucket is small and very manageable.
For the quarter, nonperforming assets increased and, as discussed previously, was centered in the commercial business agricultural portfolio, specifically in the potato and onion area.
The nonperforming assets to total asset ratio thus increased to 42 basis points, up from 32 basis points last quarter and 35 basis points at year-end 2016.
In summary, outside of the issues discussed within our potato and onion farmers, the rest of the portfolio showed signs of improvement.
Net charge-offs remained modest, our impaired asset capital ratio improved from 24.3% to 21.1% and past dues came in around 31 basis points.
So I continue to be pleased with how the portfolio is performing in total.
And I will now turn the call back to <UNK>.
Thanks, Andy.
Total deposits at June 30, 2017, were $8.1 billion, relatively unchanged from the prior quarter.
Core deposits were $7.7 billion and are holding steady at 96% of total deposits.
The average rate on total deposits remained low at 5 basis points.
Loans were $6.4 billion at June 30, 2017, a net increase of $195 million or 3.1% over March 31.
The second quarter increase was largely driven by loan production, as mentioned previously, of $316 million.
Line utilization also increased from 49% at March 31 to 51.7% at June 30.
Line activity in our C&I portfolio typically rises in the second quarter, which reflects seasonal borrowing patterns of a few industries in our portfolio, most notably agriculture.
Assuming historical patterns hold, we're likely to see line utilization continue to increase in the third quarter.
New production for the second quarter was mostly centered in C&I and commercial real estate and construction loans.
Term loans accounted for roughly $190 million of total new production, while new lines represented about $126 million.
The mix of new production remained granular in terms of size.
19% of new production was over $5 million, 28% was in the range of $1 million to $5 million and 53% was under $1 million.
In terms of geography, 57% of new production was generated in Washington, 33% in Oregon and 10% in Idaho and a few other states.
C&I loans ended the quarter at $2.7 billion, up about $145 million from the previous quarter or 5.7%.
Industry segments with the highest net loan growth in the quarter included agriculture, finance and insurance and manufacturing.
Commercial real estate and construction loans ended the quarter at $3 billion, up $27 million from the prior quarter.
The mix of asset types associated with new production was broadly diversified.
The largest net increases occurred in multifamily and healthcare construction loans.
The quarterly average tax adjusted coupon rate for new production of 4.58% exceeded the portfolio rate of 4.52%.
There was a modest uptick in coupon rates for new production this quarter, primarily due to repricing commercial loans following the December and March changes in the Fed funds rate.
The Feds funds move in June was too late in the quarter to have a material impact on our loan yields.
We continue to believe that the Northwest will grow faster than the national economy during the rest of 2017.
The growth rate is likely to be less than last year as labor supply tightens.
The tighter labor supply is developing in a number of industries, accompanied by upward pressure on wages.
Farmers and contractors, in particular, have found it progressively more difficult to find workers.
The region does benefit from population growth at a rate that exceeds the national average.
However, the availability and cost of housing may slow future growth rates.
Overall, business confidence continues to be optimistic, yet business owners are hesitant about committing resources or taking on additional debt to fund significant expansion plans.
Most can look ---+ continue to look for more certainty regarding Trump administration policy changes before committing to action.
The bank's pipeline at the end of the second quarter is below levels seen at the same time last year.
However, deal flows remain steady.
New loans, coupled with seasonal line utilization, should help create positive net loan growth in the third quarter.
In closing, our quarterly dividend of $0.22 per common share will be paid on August 23, 2017, to shareholders of record as of the close of business on August 9.
This dividend constitutes a payout ratio of 47% for the quarter and a dividend yield of 2.22% based on the closing price of our stock on July 26.
This concludes our prepared comments this afternoon.
As a reminder, <UNK> and Andy are here with me to answer your questions.
And now Jeanine, we'll open the call for questions.
Let's see, I guess, just start with maybe a question for <UNK>.
Given the kind of updated timeline on the PCBK close, could you sort of reengage the cost saving assumptions, assuming a kind of a mid- Q3 closing with conversion in mid-Q4.
If you could just broadly kind of roll through that again.
Sure.
I believe that we had originally stated ---+ we didn't really tie it to a specific quarter, if you will, because of the uncertainty around when we would close.
I think it's reasonable that we'll have 50% of the cost savings realized in the first year, 85% in the second year and then 100% thereafter.
And in terms of why I say 85% realized in the second year is that there's always a bit of a trail.
It could be month 10 after close that we have all the cost saves in place.
It could extend on just a few of them until month 13 or something like that.
But even if it's later in that first year, the realization rate goes down.
And so I would think that ---+ I mean, we've got pretty much everything tracking towards the model still.
Feel really good about that.
I don't think that sliding the conversion really changes the economics of what we put out in the slide deck in January because I think that our time from close to conversion is still going to be about what we've always anticipated it to be.
Okay.
So that ---+ just to confirm, you're saying 1 year from, call it, early August or early to mid, you get half the cost saves by August of '18 and then 85% by August of '19.
Yes.
And I think that's a fairly realistic but biased ---+ a little bit biased towards a conservative estimate.
Got it.
And then another question for Andy.
On the kind of potato and onion deterioration, I guess ---+ and I hadn't heard much on that front, if you could just itemize what in that industry is causing pressure.
Is it pricing.
And then, I guess, thoughts on any kind of recovery or resolution down the road.
Yes, so potatoes have been in a slump, pricewise, for, oh, gosh, almost 4 years now.
So it's been long in the cycle.
The surprising thing is the most current pricing on potatoes has ---+ actually has shown fairly strong improvement.
But most of the folks that are in potatoes are also in onions, so the onion market really just fell out, and prices now are half of what they were a year ago.
And that's obviously a significant impact relative to just ---+ you're looking at $14.
It drifted down, and now you're looking at $6, so a significant change in the economics for onions.
So it's really been driven by price.
And obviously, the price is a function of supply.
And I guess, as it triggers through your ---+ where that goes into nonaccrual it's just been a ---+ is it that onion piece that pulled the whole kind of group down to get to this stage.
Yes, I mean, what we do is we forecast out.
We're monitoring these credits on a budget on a monthly basis.
And there's always carryover from 2016 because the farmers never sell 100% of what they grow in any given year in the year they grow it.
And so we are now looking at farmers who will have a difficult time paying off their 2016 crop, so there will be a carryover from that.
And then when we look at what their costs are going into 2017, at the current pricing for both potatoes and onions, it's unlikely that they will make any money.
So given the period of time in which the potato industry has been down, those guys were kind of somewhat benefiting from a little bit better of an onion market.
That's gone away, so there's really no support for them.
And thus, we've placed them on nonaccrual.
Yes, we've seen the repricing in the loan portfolio has been really favorable for the margin.
If you take the investment portfolio and the premium amortization out, we would've seen a nice expansion in the operating margin for the quarter.
We're seeing new stuff come on at higher-than-portfolio rates.
We didn't really get any benefit of the last rate increase in the quarter, so we'll see that flow through in the third quarter.
I think that ---+ also, we typically ---+ we've had, just like we do in the loan book, we have some seasonality with our deposits.
And it's not uncommon for us to have stronger deposit growth in the second half of the year than the first year.
So I feel really good about the margin.
I'm as optimistic as I've ever been that it'll continue to expand from here.
On a side note, we just missed it ---+ for the quarter, we now round up to 5 basis points for our cost of funds.
We were rounding down, but I think if you carry it out a few decimal places, it's just a touch over 4.5 basis points for our funding cost.
And that's a product of the ---+ as I mentioned in my prepared remarks, we had some additional interest expense with the increase in overnight borrowings, but we also saw, during the quarter, just some funds ---+ it was about a little over $50 million increase that went into our commercial money market sweep product and the combination of ---+ that's really what drove that increase and the cost of deposits to go up ever so slightly.
On an annualized basis, the revenue is about $23 million.
The expense components are right at $20 million.
So it's ---+ there's variability from quarter to quarter, but as you're adjusting your model, if you use those amounts and break them into quarterly increments, you'll be pretty close.
We think that it's going to drop, as I said, to about $1.5 million the first year, net contribution.
From here on out, it'll all flow through noninterest income.
There won't be the noninterest expense component.
And we see that building back to the level that we're currently at with a net contribution, that $3 million level.
We see it building in the 24- to 36-month horizon.
And then from there, we really think that we're going to be able to leverage the expertise of this third party and the technology they bring to the table and increase it further from there than what we could do on our own.
Yes, so what we're doing to mitigate our loss content within that portfolio is we're working with the farmers, and we're either taking the farm ground as collateral to bolster our position from a collateral standpoint so that we're not reliant on the commodities that they're growing but rather the farm ground itself.
Or we're working with the farmers who are getting loans from primarily government-sponsored agencies in which they're then able to inject additional cash proceeds, essentially allowing us to pay our loans down and give us a better margin between where our loan value is versus what the current market value of the collateral would be.
So in both cases, real estate is the avenue of resolution.
We do have certain specific allocations within the allowance.
That's a little over $3 million.
I have not broken out the number specific to the other credits and what they're drawing, but I would say that, in aggregate, we're probably somewhere between $5 million to $5.5 million in allowance.
So it's fairly well covered.
That's a good point of clarification.
It is a transition that we're working through in the third quarter.
So we've ---+ we executed the agreement early in the quarter.
We've sold the portfolio, but we're servicing the existing portfolio and transitioning to that new platform, really, throughout the majority of this third quarter.
So I think that you're probably not going to see ---+ there's going to be some noise in terms of ---+ we'll still have some expense associated with that in our financials in the third quarter.
By the fourth quarter, we should be pretty clean with what the new go-forward run rate is going to look like in terms of not having the noninterest expense but then also having the lower noninterest income.
Not directly, but certainly, it's related.
We've looked at the merchant program that we had over the years and came to the conclusion that with this arrangement and the ability to essentially double a dedicated sales force, get an improved product set, remove some of the operating risk that we have and be able to redirect capital that we were going to deploy that into the other areas of the bank, on the whole, provided a better net contribution to the bank.
I'll have to follow up with you on ---+ off-line on exactly which line items.
I don't have that committed to memory, sorry.
Well, so I'll give kind of a backlog and then ask <UNK> to weigh in.
We routinely look at where our marketplace is.
And [keen in part of] the changes in our competitors, but we believe that we've been able to lag our deposit costs, at least historically, understanding, of course, it's been a long time, and there's new technologies out.
So we've been able to lag our deposit costs fairly substantially on a historical basis, as I indicated.
And so it's a process that we're going to follow.
We have a number of strategies on the shelf that we can pull off in the case that we see the market start to move.
And the idea behind those strategies is to contain the range of increases to where we think that we have the most competitive pressure with new product types.
<UNK>.
Yes, and I think that also gets into the ---+ some of the things that drove deposit growth or a slight decrease in deposits during the quarter is that we're really looking at ---+ in particular, with some of our public fund customers, where we have operating accounts, and we have their excess funds, and we've worked with a lot of them to send funds back to the local government pool, because it's just too expensive and, quite honestly, we could fund it in other ways.
And so just ---+ we really take, I guess, a holistic view of the deposit base.
We try to be rational and smart about pricing, and I do think rates are becoming ---+ starting to become meaningful.
And so that will create some upward pressure.
I think that's a little bit of what we saw with the money markets going into that reciprocal sweep product we have is that people are looking at it and thinking now it's worth their effort to look at other alternatives.
So I do think there will be some pressure, but I ---+ consistent with my earlier comment about the margin, I think that we're seeing in terms of pricing in the new production and repricing in the existing parts of the loan portfolio, I still think that it bodes well for the margin and net interest income.
Well, it's probably a number of things, and I'll kind of highlight a few that I think about.
First of all, comparing to last year, that was the peak of production during the second quarter.
And we are, collectively, year-to-date, a bit below where our production was last year, and our pipelines are moving in the same way.
The things that we're seeing out in the marketplace a bit are that the pricing and the structure is more competitive.
And it seems to be a bit more each quarter.
And as a consequence, we adhere to our disciplines, and that's disciplines both on pricing and credit structure and have made decisions that we can compete to a point but not to the point where we're going to compromise.
So that has an impact.
We're also managing exposure levels in our portfolio, and that changes from quarter to quarter.
And that also has an impact as compared to where we were last year.
Things to think about going into the third quarter are that the payoff and prepayment activity was pretty high going into the third quarter and in the third quarter last year.
We don't have that visibility that we did last year into that kind of activity, but our expectation is that we may see less of payoff or prepayment activity.
We also had some undrawn construction lines that have the ability to help us in the third quarter as well.
So although that pipeline may be less than it was last year for some of the competitive reasons, the activity that drives net loan growth may be adequate to keep us pointed the direction that would be consistent with prior year.
About a little over 25%.
Yes, we still have some leftovers from the Great Recession in the real estate area.
We got a couple of contractors.
The other stuff is pretty spread out across the portfolio.
Well, I think that part of is the seasonality.
Obviously, the growth in the loan portfolio, our ---+ we had a lot of great activity in our lending teams.
And we had, I think, a good quarter when it came to swap activity and swap fees.
Obviously those help.
But in general, I think it's just a product of first quarter is typically our toughest quarter, and then it builds through middle part of the year.
You know as well as we do that the Portland metro area was shut down for most of January with snow and ice.
And then just in terms of line utilization and some of those things, people were slower getting going in the spring in our ag book.
And so intuitively, we believe that there was some impact there.
If you ask us to put a number to it, I don't know that we can do that, but we just know that it did slow things down, and activity was slow, especially during the winter storm times.
I want to follow up on Aaron's question regarding the geography of the income and expense items for Merchant Services.
So I was a little bit off when I was speaking of expense.
In our financial statements, we actually net the processing expense associated with the merchant program out of that merchant processing revenue line item that you see in noninterest income.
If we look back over the last 4 or 5 quarters, that number is anywhere from $3.6 million to $4 million a quarter.
So on an annual basis, roughly about $15 million, $16 million of that $20 million of noninterest expense or expense impact, I guess, is going to come out of that noninterest income line item, that net merchant revenue services.
The remainder is primarily going to come out of comp and benefits for the most part.
Well, if there are no further questions, thank you for attending.
Bye-bye.
| 2017_COLB |
2016 | UNM | UNM
#It's a little like derisking a pension plan.
It's relatively neutral.
But you do get that benefit of being less sensitive to future changes and assumptions.
Yup, thanks, <UNK>.
Great, thanks <UNK>.
We're happy to take that as our last question.
I'll flip that over to <UNK> <UNK>.
<UNK>, thanks for the question.
We feel great about the results that we're delivering.
And your point about recruiting, we're seeing a very nice uptick in recruiting, and probably more importantly very strong growth in our sales management team.
So that new recruits who are coming on are getting a lot of attention and the success rate for those new recruits is improving.
We like the market environment a lot right now.
The market dynamics are very favorable.
Employers increasingly need the solutions that we offer, certainly working Americans need the solutions that we offer.
So we feel very good about our strategy.
Terrific execution of that strategy especially in field distribution growth, very disciplined activity levels, incredible capabilities including what we believe to be unparalleled enrollment capabilities.
We do a lot of core enrollments.
For every dollar of Colonial Life benefits that we enroll, we enroll $10 of other benefits which helps us with creating a very strong value prop for small employers especially.
A tremendous breadth and depth of our products, capabilities, and services, and finally just an outstanding leadership team and strong talent throughout the organization.
So we feel very good.
We had a very, very strong second half of the year in 2015, so we're up against some big numbers but we're optimistic.
Great.
Thank you, <UNK>, for that last question.
I'd like to thank all of you as well for taking time to join us this morning.
We look forward to seeing many of you at various investor conferences and meetings in the weeks ahead.
So Operator, this now completes our second-quarter 2016 earnings call.
| 2016_UNM |
2015 | ADP | ADP
#It's kind of the same really, there's no difference.
We call it now segment margins, but those obviously do not include ---+ and PEO don't include any interest charges from the long-term debt.
So they are really unchanged.
Thank you all joining us today.
As you could probably tell from our tone, we're really excited about the strong start that we had to the year.
And we're really happy with our momentum, especially in our new business bookings.
You also probably heard our tone that we definitely feel like we have some challenge in front of us in terms of implementing all this new business so that we really deliver on our commitments to our clients to help them comply with the new and complex healthcare regulations.
But I think I also want to take this time to really thank all of our associates from sales, implementation and service for all the hard work they've done.
It's been a very challenging six months, and particularly a challenging quarter in term of workloads.
We appreciate everything they're doing and they're going to continue to do to build upon ADP's past successes.
Thank you again for joining us and thank you for your interest in ADP.
| 2015_ADP |
2016 | BEL | BEL
#Thank you, Jodi.
Good morning, everyone, and thank you for joining us today for the first-quarter 2016 earnings conference call for Belmond Ltd.
We issued our earnings release last night.
The release is available on our investor relations website at investor.
belmond.com as well as on the SEC website.
On the call with me today are <UNK> <UNK>, President and Chief Executive Officer, and Martin O'Grady, Chief Financial Officer.
Before we get started today, I would like to read out our usual cautionary statement under the Private Securities Litigation Reform Act of 1995 in the United States.
In the course of remarks to you today by Belmond's management and in answering your questions, they may make forward-looking statements concerning Belmond such as earnings outlook, future investment plans and other matters that are not historic facts.
We caution that actual results of Belmond may differ materially from these forward-looking statements.
Information about factors that could cause actual results to differ is set out in yesterday's news release, the Company's latest annual report to shareholders and the filings of the Company with the Securities and Exchange Commission.
I will now hand the call over to <UNK>.
Thank you, <UNK>, and good morning everyone.
Before getting started, I first would like to mention that we will be hosting an investors and analysts meeting in New York City on June 1st, which we will also be live webcasting.
We all look forward to providing more details around the execution of our strategic plan along with metrics and financial roadmap for our growth.
I remain, from my side, fully committed to maintaining an ongoing and transparent dialogue with our investors and the analysts and I see our June event as a fantastic opportunity to engage with many of you again.
And we hope that you will join us on June 1st, either in person or, if not, via webcast.
Turning then to the agenda for today's call, I will provide you first with an update on the recent progress that we have made on our strategic growth priorities.
Martin will then give you an overview of our first-quarter results and take you through the second-quarter and the full-year RevPAR guidance, which we provided in our earnings release last night.
As you will have noted from our release, we have maintained our full-year 2016 RevPAR guidance at 3% to 7% growth.
With our investor meeting taking place in only a few weeks' time from now, I will keep my remarks today short and brief.
Our goal has been, and remains, to execute more aggressively on our strategic growth plan and, in order to do so, we continue to focus on three key areas.
First, driving top-line growth and bottom-line results at our existing properties; second, continuing to build brand awareness; and third, expanding our global footprint.
Let me start with our first growth area, driving top- and bottom-line results.
Our solid performance in the first quarter, with constant currency adjusted EBITDA more than double than what it was a year ago, is a testament to our focus on driving strong results from our existing portfolio.
As I mentioned on our last call, we modified our organizational structure earlier this year and we did that by changing the reporting lines for all the revenue management and sales related functions to report now into Philippe Cassis.
We made this change in order to break down the silos that previously existed in some of these areas, with the goal of creating one seamless, customer-centric sales organization that encourages the collaboration of all the revenue related efforts at the property, at the regional, as well as on the corporate levels.
Although we are only making this change just a few months ago, it has already shown the first steps of benefiting to our results, with the first-quarter, constant currency RevPAR showing a growth of 9%, which was exceeding the top end of our guidance range.
We expect that this resource realignment will continue to be an effective approach to drive maximum revenue and in turn obviously EBITDA from our existing portfolio.
We also continue to reinvest in our assets in order to best position our existing properties for continued growth and enhanced value.
During the first quarter, we invested $11 million in project CapEx, with a focus on EBITDA enhancing projects first of all.
Of that amount, we spent approximately $800,000 at the Belmond Villa Sant'Andrea in Sicily, primarily on a project that increases the number of keys at the hotel from 65 to 69.
This project for me is an excellent example of our team finding creative ways to generate revenue from areas where previously we weren't producing any income.
We converted a back of the house space into high-revenue-producing junior suites by relocating the staff changing areas from one part of the main building, which actually had prime sea views, to an adjacent empty building.
We launched these four new suites just earlier this week and we expect that they will prove to be as successful and in-demand as the six junior suites which we added to this property in May 2014.
The total project budget for the four junior suites is approximately $1.6 million, and we are projecting that these new rooms will yield ADRs in excess of EUR800, with an expected payback period of less than four years.
Also during the quarter, we invested at Belmond Charleston Place in South Carolina to convert retail space into a high-end sports pub.
This site is located at the corner of Meeting and Market Street, which is highly valuable real estate in Charleston due to the robust street traffic which you will find here.
We identified a lucrative opportunity to transform the space, which was previously generating minimal rental income, into a restaurant that we expect will provide enhanced financial returns by allowing us to actually capture the existing demand from both the hotel guests, as well as from the local market.
We expect this restaurant will open at the end of May, and the forecasted total budget for this project is approximately $1.4 million.
We are projecting that the new outlet will generate approximately $1 million of incremental revenue and nearly $300,000 of incremental EBITDA at stabilization, with a payback period of approximately five years.
This project is yet another example on how to repurpose existing underutilized space and drive enhanced asset value.
During the quarter, we continued to reap the benefits of the investments that were made in prior years as well, so notably at the Belmond Mount Nelson Hotel in Cape Town, where we have been renovating a large percentage of the hotel rooms over the past few years and where we refurbished the hotel's meeting and banqueting facilities in 2015.
Collectively, these changes have allowed us to be more effective in our group sales efforts during the shoulder and low seasons, both as a result of having more consistent room product as well as having fresher and more-up-to-date conference space.
Additionally, our significant enhanced room product here has also allowed us to drive rate from transient guests during the hotel's peak season, as it did for the first time in the first quarter of 2016.
We have, if we talk about it here, a leadership team that continues to focus aggressively to look at these type of projects, which give us high financial returns across all of our portfolio, and we do that by leveraging the deep operational experience along with the disciplined financial management that we expect to continue to enhance the quality and the value of all of our premium assets while at the same time driving improved top- and bottom-line results.
Additionally, we are highly focused on the opportunities to further capitalize on some of the key operational events that benefit our hotels.
And here we are talking in August, Rio de Janeiro that will host the 2016 Summer Olympics with many broadcasting and sporting activities going around, including things like beach volleyball, taking place very close to our hotel on the Copacabana Beach.
We view these games as an enormous opportunity to promote the Belmond brand due to the significant increased guest flow that we will have here, both from new guests staying at the hotel as well as from the elevated walk-in traffic that we are expecting here.
And all of this should drive enhanced awareness first of all for the legendary Belmond Copacabana Palace but obviously as well for the entire Belmond brand.
This provides me then with a nice transition to our second key focus area, which is building brand awareness.
We continue to make progress in expanding the brand reach through select strategic partnerships and by developing our employees' understanding at the same time in understanding and appreciation of the brand and where we are taking it.
We recently enhanced our sales distribution opportunities with the addition of two of our hotels into the Virtuoso network.
Virtuoso is a leading luxury travel network that offers by-invitation only memberships, and with the recent addition of the Belmond Le Manoir aux Quat'Saisons in Oxfordshire in England and soon-to-be-open Belmond Cadogan Hotel in London, nearly all of our hotels, safaris, trains and cruises participate in this exclusive program.
And, looking a little bit more specifically here at the addition of the Belmond Cadogan, it is in fact rare to have a hotel that is added to the Virtuoso network before the property has actually opened.
Typically Virtuoso will observe a hotel's first year of operations prior to deciding whether to include the property in their program.
And by having the Belmond Cadogan added nearly a year before its opening, we should be able to gain traction from this high-end leisure guest earlier in our sales processes, which is great news.
Virtuoso's decision to add Belmond Cadogan is for me a vote of confidence in our brand and it shows that they trust in the quality of the product even before seeing the renovated hotel.
It also is a validation that they believe in the experiences that we offer, and the level of services that we provide, to our guests.
Then in April, we hosted our first ever leadership conference, where we brought together our senior team members from across all areas of the organization - both corporate, regional and owned property, to introduce the teams to our strategic plan.
The goal here was to engage with the key members of the Belmond team, and dialogue about the Company, about our strategy and our goals, and I can truly say that the feedback has been that everyone is extremely excited about where the Company is going, and we believe that we are well-positioned for the execution of our growth plan.
At the conference, we also launched our Belmond core values, which we have since begun rolling out across the entire Company.
Our core values are the essence of who we are, it's defining our internal culture and it is framing of the relationships that we have with our guests and with our communities.
And, as I have said before, it is our employees who will truly bring our brand to life in the eyes of the guests and, consequently, it is essential that our employees live and breathe their Belmond brand, and that starts with our core values.
That brings me then to our third area of focus, which is expanding our footprint.
Essential to our aggressive footprint expansion plan is having the right resources in the right locations, to be fostering the relationship with - and promoting the Belmond management platform to - the key owners, the developers and the potential partners.
As I have mentioned on our last call, we have been concentrating on recruiting top talent to join our development team, and I am pleased to say that we have recently hired a new development director who joined our team in London here in April.
Our new director will be dedicated resource for the European market, with a strong focus on the southern part of the continent.
We will continue to work very hard on finding our next hire, but we are mindful of the fact that it is more important to get the right candidate than it is to get somebody right now.
So, as such, we are not rushing into any decisions but we are clear of our mandate to move quickly.
I must again emphasize that we do not expect that the incremental overhead expenses that we are talking about here associated with these new resources to be significant, and, as I just noted, building the right team of qualified people is crucial to getting our development engine going.
We also have continued to foster existing relationships and build new ones with the right players in the development world.
In March, James Simmonds, our Senior Vice President of Global Development, and I, we attended the International Hotel Investment Forum in Berlin, which is the paramount lodging industry and development conference in Europe.
And just last week we were at the Arabian Hotel Investment Conference in Dubai meeting with some of the Middle East's most important developers and decision-makers.
By having the right people on our team combined with the solid relationships with the key players in the development industry, I believe that we can start gaining ground on our aggressive plans to expand our global footprint.
We look forward to discussing this component, this important component of our growth plan, more fully with you when we meet in June.
Then in conclusion, I am pleased with our performance in the first quarter.
We exceeded our RevPAR guidance and we delivered strong year-over-year growth.
And, although the first quarter is seasonally our least financially significant quarter, I absolutely believe that it's essential to come out of the gate strong and we did just that.
We also generated solid business in the quarter that will help us see year-over-year growth for the full year.
And although we currently expect that the second quarter may provide a few challenges, we are seeing promising signs for the ---+ very promising signs for the third quarter, so our overall outlook for the year 2016 remains the same, with a projected RevPAR growth of between 3% and 7%.
At the same time, we are not losing sight of our long-term objectives and, during the quarter, we continued to make some good progress on our strategic plan.
As I have said since I assumed the role of CEO a little over six months ago, my goal here is to be completely transparent and open with the shareholders as possible.
And for me the June investor meeting will give us, me and the team, a great opportunity to work on that goal and I very much look forward to providing more specifics on our plan in a little bit under a month time from now.
With that, I would like to turn the call over to Martin to take you through our first-quarter results and our RevPAR guidance.
And after Martin speaks, we will be happy to answer your questions during a Q-and-A.
With that, Martin.
Thank you, <UNK>, and good morning, everyone.
And as <UNK> stated, I will now take you through some detail of our first-quarter results and then I will provide some color on how the rest of the year is shaping up.
And please note that, unless I state otherwise, all of the figures I will provide will be on a constant currency basis.
As <UNK> noted, we started off 2016 with a solid first-quarter.
Total revenue of $99.1 million was up 9% over the prior year quarter.
Same-store owned hotel RevPAR was also up 9%.
Adjusted EBITDA for the first quarter of 2016 was $7.9 million, a $5.2 million increase over the first quarter of 2015.
Adjusted EBITDA retention for the quarter was a healthy 65%, which led to a 500 basis point year-over-year increase in our adjusted EBITDA margin to 8% for the first quarter of 2016.
Looking at our European owned hotels, we grew first-quarter revenue by 21% and improved adjusted EBITDA by 17% over the prior year quarter.
Year-over-year growth in the quarter was largely driven by Belmond Reid's Palace, Madeira, which continued to benefit from increased demand for the destination due in part to increased airlift as well as disruption to North African tourism destinations.
Our performance for our European hotels was also helped by the timing of Easter, which took place in the first quarter of 2016 versus the second quarter of 2015 and provided a boost to Belmond Hotel Cipriani, in Venice, in particular.
North American revenue was down 3% and adjusted EBITDA was down 6%.
In the first quarter of 2015, Belmond El Encanto, in Santa Barbara, had a large buy-out that generated revenue of approximately $700,000, and this business did not re-occur in the current year quarter.
Belmond Maroma in Riviera Maya, Mexico was also down slightly and that is partially due to hotels in the Los Cabos region being open with renovated product in the first quarter of 2016 as compared to many hotels being closed in the first quarter of 2015.
In our rest of world region, revenue increased 18% and adjusted EBITDA increased 24% over the prior-year quarter.
Our strongest performing hotels were our two in Brazil and also Belmond Mount Nelson in Cape Town.
Both destinations continue to benefit from weaker currencies making the locations more attractive to overseas guests, and we deployed effective yield management techniques to maximize revenue.
Mount Nelson also benefited from the investments we made in previous years that <UNK> discussed.
Our owned trains and cruises segment experienced a 13% revenue decrease from the prior year quarter with adjusted EBITDA declining 35%.
Three of our seven products saw EBITDA growth this year in the trains and cruises segment, but the overall result was impacted by year-over-year decreases for our two boats in Myanmar where there are now seven luxury cruise boats operating in the market, as compared to three luxury cruise boats at the beginning of 2015.
On the other hand, we grew adjusted EBITDA for our part-owned and managed trains segment by $1.8 million over the prior year quarter and that was primarily due to the performance of PeruRail.
After year-over-year savings in central costs, our total adjusted EBITDA was up $5.2 million.
Now, turning to our balance sheet at March 31, 2016, we had total debt of $590 million.
Total cash, including restricted cash, was $128 million, resulting in total net debt of $462 million and net leverage of 3.8 times.
Note that the euro balance sheet rate at the end of the quarter was 5% stronger than at year-end, increasing the dollar value of our debt by $7.7 million.
Our $105 million corporate revolver, remains undrawn, so, including the revolver, but excluding restricted cash, our total cash availability was $226 million at the end of the first quarter.
Our fixed to floating interest split was 51% fixed to 49% floating.
Our weighted average interest rate was 4.3% and our weighted average debt maturity was 4.8 years.
Now, turning to our outlook for the second quarter of 2016.
Our constant currency guidance for the same-store ---+ for same-store worldwide RevPAR growth for the second quarter of 2016 is negative 1% to positive 3%, with growth coming mostly from occupancy.
Overall, the tone for the quarter is steady.
As you can see from our guidance, we do not currently expect to have RevPAR growth as strong as we saw in the first quarter.
Note that our expectations for the second quarter are consistent with what we had been expecting when we first provided 2016 guidance earlier this year.
We are expecting a stronger third quarter, which you will appreciate better when I turn to the full-year guidance.
In the second quarter, we expect to have increased RevPAR at eight out of 10 hotels in our European segment.
This growth is being partially offset by a non-Biennale year at Belmond Hotel Cipriani, in Venice.
At Belmond Grand Hotel Europe, in St.
Petersburg, we continue to market successfully to non-traditional markets, and we are currently expecting a healthy uplift in occupancy for the second quarter.
Despite the increased occupancy, we expect RevPAR to fall, as, in the prior year quarter, we had a foreign delegation during the annual economic forum that purchased a block of rooms at a high rate, and that particular group is not expected to return this year.
In North America, we expect that Belmond Charleston Place, for which the second quarter is its seasonally highest revenue quarter, will deliver a healthy result helped by enhanced room product following the recent completion of our phased rooms renovation.
We expect that Belmond El Encanto will return to its growth trajectory in the second quarter, as the hotel continues to mature.
We expect that the RevPAR increases at both of these hotels will be partially offset by a RevPAR decline at Belmond Maroma.
In our rest of world region, our resorts will be impacted primarily by Brazil, which is hosting the Olympics in the third quarter.
We are anticipating a bit of a lull in demand leading up to the games, so we expect that RevPAR for our two hotels in Brazil will be flattish for the second quarter.
We do expect to see some healthy RevPAR growth at Belmond Mount Nelson, in Cape Town, which we expect will continue to benefit from our recent investments in the hotel's rooms and meeting and banqueting facilities.
So when you look at all the regions combined, what we are expecting to see is same-store worldwide RevPAR growth in the second quarter of negative 1% to positive 3%.
Our same-store US dollar RevPAR guidance range for the second quarter is between negative 4% and 0%.
This divergence from our constant currency guidance is being driven primarily by forecasted weaker year-to-date average rateS for the Brazilian real and Russian rouble as compared to the same period in 2015.
So, turning to the full-year 2016, we are maintaining our constant currency guidance for same-store worldwide RevPAR growth at 3% to 7%.
In total, we expect growth to come from both rate and occupancy, but driven slightly more by rate.
We are expecting an overall moderate increase in RevPAR for our European segment, which is being driven by a firm third quarter, particularly in Italy.
While the euro has strengthened a bit this year, it remains at low levels compared to where it has historically traded, making European destinations still very attractive to visitors from North America, our largest customer base.
In Europe, we are forecasting that our strongest RevPAR increases will be at Belmond Villa Sant'Andrea in Sicily, which we expect will benefit from the four new junior suites we opened earlier this week; at Belmond La Residencia in Mallorca, where our percentage of US clients has been steadily increasing over the last few years following targeted marketing efforts; and Belmond Reid's Palace, which is having a strong year due to better air access and continued displacement from North African markets.
In our North America segment, the full-year picture is being driven by expected RevPAR growth at Belmond Charleston Place and Belmond El Encanto.
We have been very satisfied with the progress of Belmond Charleston Place as a result of our three-year rooms refurbishment, and, as <UNK> mentioned, we are continuing to invest to drive incremental EBITDA from this property.
We are currently expecting a similar rate of growth at Belmond El Encanto.
RevPAR growth for the region is expected to be partially offset by the factors affecting Maroma's performance that I touched on earlier.
We anticipate that our strongest RevPAR growth for the full year will come from our rest of world segment.
This is of course being driven by the Olympic Games taking place in Rio, which we currently anticipate will help deliver a net adjusted EBITDA benefit in the third quarter of approximately $4 million for Belmond Copacabana Palace.
That said, due to an expected lull in demand pre- and post-Olympics, we anticipate an overall uplift in the hotel's adjusted EBITDA for the full year of approximately $3 million.
So again, when we look at all the regions combined, we are anticipating full-year 2016 same-store worldwide RevPAR growth of 3% to 7%.
And our same-store US dollar RevPAR guidance range for the full year is between 0% and 4%.
And this divergence from our constant currency guidance is being driven primarily by a projected weaker Brazilian real and rouble and the South African rand when comparing our forecasted rates to the averages for the full-year of 2015.
But looking at the impact of currency and EBITDA for the full year of 2016, we are currently projecting that US dollar adjusted EBITDA growth will be negatively impacted by a total of approximately $1.5 million to $2.5 million as a result of all of the year-over-year currency movements.
And this compares favorably to 2015 when we experienced a negative currency impact of nearly $20 million, with the main driver last year of being the year-over-year depreciation of the euro.
It was down 16%.
And the year-over-year depreciation of the real, that was down 30%.
So for 2016, our forecast is currently showing that the euro would be relatively flat compared to the prior year and the real will also be down but less so than we experienced for 2015.
So, as you can see, we are currently expecting much lighter FX headwinds than we experienced last year.
So that concludes our prepared remarks and before I hand you back to the operator for Q&A, we would like to request that you limit your questions asked to two per person.
So thanks very much.
Operator.
Hi, <UNK>, this is <UNK>.
I think I can give you an indication of what we see in the third quarter.
We have seen booking pace pretty much ahead of last year from a pace point of view.
If we look at what the third quarter is driving, it is up nearly all of our hotels in Italy, which are up in material numbers from an occupancy point of view.
Both in rate and occupancy we see actually the upsides and if we take that then further, it would apply to both transient as well as groups.
So overall, the picture for both the third quarter and the entire year as Martin already said looks extremely good and solid.
I think what we'll be seeing there is probably half rate, half occupancy, so you are not going to have ---+ obviously if it was all rate, there would be much higher flow through but there will be picking up in occupancy as well.
I think if you look at the overall results for the full year, we are still very pleased with the growth that we are expecting to see from that hotel.
It just continues to outperform our expectations year over year over year, which is why we continue to invest in what is a very successful property.
I would have to get back to you what we were saying back then.
But right now what we are saying for the full-year, Joe, is the overall currency impacts I think we said was about $1.5 million to $2.5 million.
I would have to track back in my notes to see what it was back then.
I think that if we talk about the share repurchase when making decisions on how and when we would repurchase our shares, we would be looking at that in the form of how to best deliver long-term value to our shareholders.
I think at this point in time we do have a great vision of where we are taking the Company and we believe that the successful execution of our growth plan will actually deliver great and greater long-term shareholder value at this point in time.
And we would be more than happy to talk to you about that when we get together in June.
Well, for as far as putting the team together as I mentioned already, we have been putting a lot of effort on that and I was very pleased to be able to hire from one of our competitors one of their directors away who has started in April with us and actually hit the ground running.
Together with James, James Simmonds, our Senior Vice President of Development, we have been talking to a lot of decision-makers in the field.
We are building up our lead pipeline.
I think it would be not correct to talk about the pipeline of LOIs and the like but we start seeing some good build up here of things that potentially could be converted into contracts over time.
So it is early days but we are building up and we will continue to search for the other candidates as I had mentioned for those areas where we think that we have the biggest chance of success if we provide them with the resources to go after these deals.
And we will keep you posted as we go along.
Well, I am more than happy to pass that on to Martin for as far as the details of the other directors would be concerned.
But for as far as myself is concerned, I can tell you that at the moment that I had the opportunity after joining this Company, the opportunity when the window opens from our blackout period, I was in the position to buy shares and I can say that I bought 50,000 shares in the month of November.
And it was with private money, with after-tax money.
So just to reconfirm my vision of where we can take this Company and what kind of an investment I see in there.
Yes, and I am not going to comment on the specifics of individual director purchases but you will see the full list of directors and their individual ownership in the proxy that was recently filed.
Clearly you will see from the table that both the directors and management have a significant equity interest in the business.
Okay, thanks for that, <UNK>.
And the kind of relation that you would have with an organization like Virtuoso, they have a very large number of agents that are linked into Virtuoso and they pride themselves on being on the absolute top-end of the market.
These are the kind of customers that are used to paying the very high rates to stay with us both in the high season as well as in the mid- and lower-seasons.
So for us for nearly all of our properties, these would be important ---+ this would be an important customer relations.
And to be accepted in there, you have to prove to the Virtuoso organization that actually you can live up to the guest expectations that they are portraying out to their customers.
So it is truly a very important relation.
It is not an exclusive thing.
There is different players in the market but Virtuoso is I would say one of the key players in here and that is why we are thrilled to get them on board for both the Cadogan as well as for the Le Manoir aux Quat'Saisons.
And, yes, they do also help us a lot in the lower and the off-seasons so this is something that we could push hard on and making sure that with our sales organization we stay very close to our customers.
Yes, there is a cost involved in participating as a member of Virtuoso.
I would not be able to tell you what the exact amounts are.
But you can consider the commission cost as normal as would be in a normal agency situation, whereas the participation cost in the membership I would have to check that back.
But I would not see that as material in the overall relation of the business they would drive to us.
Thank you everyone for joining us today and we look forward to seeing you at our analyst meeting in a few weeks.
Have a great day.
Thanks everybody.
Thank you.
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