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2016 | CLDT | CLDT
#Thanks.
Thank you.
Hey, <UNK>.
Good morning.
The Cherry Creek Hotel ---+ which really, since we bought it, the Hyatt Place in Cherry Creek is really benefiting from just a very good location in a market that has seen tremendous demand growth really from the transient customer.
From a corporate perspective, the Hotel does sit adjacent to a pretty large office tower, but it's really not the primary driver of business in that market.
And we've continued to see just nice outperformance out of that hotel.
The Hilton Garden Inn at the Tech Center as well as upper-single digit RevPAR growth in the quarter, and that one is more obviously corporate-driven.
But again, just that entire Denver area ---+ and we see it in our Innkeepers assets as well that are in Denver ---+ just a ---+ it's just a very strong market.
You know, I don't really know enough about full service hotels to be able to give you a very good comparison, but you know what the trends are, and you know where select service companies have positioned themselves for RevPAR for this year.
So, I kind of think that the numbers are out there for everybody to see.
Yes, I mean, certainly, <UNK>, as well from a new supply perspective, even though the historical new supply growth is still less than 2% projected for 2016 in the ---+ within kind of the upscale segment, it's closer to 5%.
So, there are certainly, across the country, from a new supply perspective, that will have somewhat of an impact in 2016 and 2017.
Yes.
I mean, listen, I think at this point, we are ---+ it's a nice mechanism for us to have.
We don't have any plans to announce any type of share repurchase programs at this point.
It allows us to repurchase, I think, $75 million of stock, which is a little less than 10% of our float.
I think for our shares, it would be difficult to really acquire much ---+ many shares anyways.
But listen, from a use of proceeds perspective of our credit facility, right now with the Silicon Valley expansions projected to generate kind of a low-teen returns, that's the best use of our capital at this point.
Thanks, <UNK>.
Yes, basically, with the ---+ I think you are referring to the San Mateo location.
Yes, so the ---+ the area in the hotel ---+ well, the area where the hotel sits is something called Mariners Island.
And just going through the process of getting the approvals there, we've uncovered some old provisions within the plan of that Mariners Island area.
And essentially, what we are looking at, at the moment, is the 43 rooms that we thought we were going to be able to add in that location, at least as currently where we stand is going to be less than 30.
So from a ---+ just a pure returns perspective, we are ---+ if we get held to that number of rooms, then from a pure returns perspective, it doesn't appear as though that is going to make a whole lot of sense to invest the dollars in adding the rooms.
So, we still are looking at that situation.
Just to be clear, the reason why ---+ if it was pure incremental rooms, any room you add, in our view, in Silicon Valley is going to make you money, and it's going to increase the NAV of the Company.
But you've got to take down rooms, okay, meaning existing buildings ---+ and you remember these are eight-plex kind of individual buildings ---+ in order to build the new rooms.
So, the math starts looking pretty dicey when you are taking down a number of rooms.
And in that case, I think we were originally going to take down ---+ what were we taking down, 24 there or something.
---+ in order to ---+ or a little bit less in order to create the new room count.
But now, if the new room count can only be 30, then it's just a wash.
Well, certainly, costs ---+
Yes, I mean, certainly, costs are rising if you when ---+ and we've spent a bunch of time out there in the last six months just understanding what's going on and as we planned these expansions.
But construction is just rampant in the area, whether it's multifamily, whether it's corporate.
So certainly our expansion costs have risen about 25% since ---+ you know, from a year and a half ago.
So it's not surprising given what's going on.
The good news is that the hotels have continued to grow from a RevPAR and earnings perspective, so the returns are still pretty strong, but there's obviously a lot of construction activity in Silicon Valley.
It still makes sense with an un-levered 12% to 14% return, which is what we project, based on not even inflating RevPAR.
Okay.
Just quick and dirty using existing RevPAR numbers.
So, we are still real excited about having those rooms onboard.
And also, those buildings in each hotel also gets us a brand-new lobby.
We call it a Gatehouse in a Residence Inn, but it's the area that you serve your breakfast, your evening cocktail and reception area.
So all of that together will enhance, I think, our overall RevPAR as well.
And the timing on those is, as <UNK> indicated, is more of a Q4 start rather than mid-Q3.
So we haven't slipped much, but when you drive around in Silicon Valley, you do see a lot of apartment construction, and you see Google, you see Apple's new headquarters under construction.
And frankly, the contractors are having trouble finding labor.
You know, we are watching this really closely here, because obviously trends are pretty volatile right now in the industry.
And you know we are keeping our hands on pretty much a weekly basis what's going on.
And we are told and we don't see any substantial trends there.
There have been a couple of newspaper articles in the San Jose Business Journal in the last month, oops, XYZ is going to lay off some people.
And there is some obviously negative things being written, since the IPO market has fallen apart, about VC travel and that kind of stuff.
But frankly, they don't stay in our Residence Inns; the engineers stay in our Residence Inns.
So I think maybe the upper-end hotels might be feeling a little bit of that impact.
So, we still feel good, but we are, I would say, more cautious and careful about not waiting until the last minute to book business, trying to put some heads in beds perhaps a little earlier, because we definitely see, wherever you look, less of a transient business customer in the hotels.
Right.
Well, let's see how we can do this nicely.
(laughter) We ---+ and as you know, we love Residence Inns.
And it's not because we love Residence Inns; you know, we really like the returns we get on our investment in these hotels.
So, our preference, as you know, is to be in the upscale extended-stay business.
We've got some Hyatt houses that fit that bill.
They were formally Summerfield Suites.
And then Hyatt bought that chain, so ---+ and converted them.
But what we see, as particularly compared to Marriott and Hilton, is just less contribution through the reservation system.
And even though that Hyatt Place in Cherry Creek has really done well, when you look at the contribution numbers, and you look at the source of business and the market segmentation of the hotel, what you find is a lot of it is OTA business.
And it's not sort of Hyatt.com.
And that, I think, is probably a fair cross-section of the few Hyatt Places that we own and the Hyatt Houses that we own.
Well, to me, it's all positive.
<UNK> mentioned the impact in Q4 to our FFO and to our earnings.
I think primarily, other than some real estate tax increases that are one-time, the expansion of our TA costs as a line item, and particularly all in the OTA line is just enormous on a year-over-year percentage basis.
So, anything that the brands can do to combat this and get us a little more in line with the airline fees that are paid, et cetera, as an industry, we are just getting gouged.
And the cost to deliver that room just keeps going up.
We are not facing labor cost pressures and wage pressures, and certainly not sort of food cost pressures or otherwise utilities seem to be in line.
I mean, you know, frankly, that is the pressure.
It's the OTA line.
All right.
Well, we appreciate everybody being on the call today.
And again, we are looking forward to 2016.
We're looking forward to continuing to put up what we see as some outperformance numbers.
And hopefully, over time, our share price and our multiple, as compared to others, will reflect the quality of the assets we have.
And most importantly, if we are exceeding on metrics, then I think that our multiples should exceed the norm as well.
So that's our goal.
And we're going to keep working towards that.
Thank you, all.
| 2016_CLDT |
2016 | CRUS | CRUS
#Thank you and good afternoon.
Joining me on today's call is <UNK> <UNK>, Cirrus Logic's President and Chief Executive Officer, and <UNK> <UNK>, our Director of Investor Relations.
Today, we announced our financial results for the third quarter of FY16 at approximately 4:00 PM Eastern.
The shareholder letter discussing our financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information, along with the webcast of this Q&A session are all available at the Company's Investor Relations website at investor.
cirrus.com.
This call will be feature questions from the analysts covering our Company as well as questions submitted to us via email at investor.
Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections.
By providing this information, the Company undertakes no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise.
Please refer to the press release issued today which is available on the Cirrus Logic website and the latest Form 10-K and 10-Q, as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.
Now, I'd like to turn the call over to <UNK>.
Thank you, <UNK>.
Before we begin taking questions, I'd like to make a few comments.
For a detailed account of our financial results, please read the shareholder letter posted on our Investor Relations website.
While short-term weakness for certain portable audio products drove our fiscal Q3 results and our Q4 outlook lower than anticipated, we are on track to deliver 27% year-over-year growth for the full-year FY16, based on the midpoint of Q4 guidance, and we remain confident in our ability to deliver strong growth in FY17.
Overall, FY16 remains an outstanding year as we've expanded share and content with existing customers, ramped 55 nanometer products, and increased our SAM considerably with the introduction of digital headset products.
More importantly, we've executed on numerous strategic initiatives including several new products that we expect to drive strong growth in FY17, particularly in the second half of the year.
Interest in our high-performance, ultra-low power audio and voice products has accelerated across a wide range of customers and form factors.
This is being driven in part by features such as always-on voice control and louder sound output, along with a consistent development environment and user experience across a range of price and performance points.
We are confident that our strategy of focusing on innovative market leading customers in the fastest-growing audio and voice segments will fuel future growth.
Specifically, this growth is expected to be driven by increasing content with a number of our existing customers, broadening our market share in handset OEMs 3 through 10 and driving key flagship features into mid-tier mobile devices.
Longer-term, the Company will leverage the technology developed from mobile into adjacent markets including wearables and the connected home.
Overall, we are extremely optimistic about our prospects for sustained revenue growth in the future and our ability to deliver shareholder value.
Before we begin the Q&A, I would also like to note that while we understand there is intense interest related to our largest customer, in accordance with our policy, we do not discuss specifics about our business relationship.
Operator, we are now ready to take questions.
Yes.
Again, the amount that we can talk about that outside of other folks who are M5 partners is relatively limited, but yes, there's things that are up and running via the M5 program that people can take and design with today.
Well, I don't want to imply anything we're doing on the other side of the house, but we do see good opportunities within the current year for USBC enabled devices.
That's a great connector finally for the Android platform.
It's good and durable, small, it's got the nice property that you can figure out, well, you don't have to figure out which direction to plug it in.
And it enables people to develop products where you can get low-power data and also power across the connector to the accessory that you are plugging in.
So that enables people to develop things like headsets without the need for a battery which drastically reduces cost and size, et cetera.
So, we see really good opportunities within the current year for USBC.
Sometimes, it's difficult to predict as new form factors and whatnot so there's always ---+ anytime a customer is making a foray into new product demands, there's a lot of new people to give votes and timing can be uncertain.
We're certainly engaged on a number of different fronts in the Android space with accessories connected to the USBC ports.
So we're really excited about the opportunities that opens up for us.
Well, we certainly didn't state or mean to imply that across the board we're increasing content in every [socket] at every customer.
So, overall, we think our average content with our customers will go up.
But again, that is not intended to imply it goes up across the board in every case.
As far as the percentage split, I've seen all the same speculation.
I don't think anybody knows exactly.
It's typically done more by carrier, so you really never know exactly what the number is until you figure out who orders what.
But, a reasonably typical split historically, would be something more in the 60/40 range and in a positive direction for us.
Well, that would involve us having a more precise crystal ball than we've actually got.
But just taking all things into account, the expected content expansion we've got in the areas that we expect.
If you look at our model in general, we think one of the things ---+ one of the characteristics of a successful company, one of the things we pay our people on, in a lot of cases, is tied to 15% revenue growth.
So if were excited about revenue growth and we expect it to be strong, then you can certainly imagine that our expectations are higher than that.
But again, there's all sorts of moving parts that we don't get to control.
Nonetheless, the things that are under our control, we're really excited about.
We've done a great job of moving onto the 55 nanometer platform, so we really don't have any major retrenching to do in terms of the technology that we're providing.
We're in a pretty rich period of new product introductions from the Company, which is certainly good from a revenue as well as margin perspective.
And then, there's just a lot of exciting things going on in audio and voice.
So we think the net of all that positions us extremely well for FY17.
Let's see.
Yes.
We don't break it out that way, so it's probably not best for me to break it out relative to the current quarter.
But taking everything into account, and that included, is what feeds into the guidance that we've issued.
So, yes, that's about the most complete answer I can give you for that.
You bet.
Thanks.
Well, let's see.
There's a range of things that I guess I want to try to feed into that question.
Number one, as we have tried to highlight in the shareholder letter, we do have a range of products that are applicable for headsets, both for USB or otherwise.
So that's one thing to bear in mind.
I'm excited and I think everybody we've shown the noise canceling headset solution to is excited about the possibilities.
There are definitely people considering putting that in box, but as I said in response to one of the earlier questions, anytime you're considering a new form factor, there's lots and lots of people that get involved that pretty much any customer and things move around a fair amount.
And then two, coupling that, with anytime somebody talks about adding content inside a box, inside the box it ships with the phone, you end up, you can imagine the agonizing that goes into any additional micro-penny that gets added to the box.
Lots of discussions about that Nonetheless, I do feel confident in the Android space that we will get customers shipping meaningful volumes of noise canceling headsets some time in the not-too-distant future.
And then of course, I don't really have any comment on ---+ outside of the Android space.
Yes.
Thanks for that.
We're really excited about where we're headed with microphones.
We've got a great team.
Having put the team in Austin as well as the UK team formally of Wolfson together.
They are making great progress getting yields ironed out and really figuring out with our customers what we need to do to be a real primetime player in the microphone space.
We're shipping into flagship phones today.
Not necessarily the highest volume models, but certainly designs that we won based on the size and performance of the microphones we provide.
We're earning our stripes in that business, adding capacity as you refer to.
And really more even than the capacity, which is a relatively tractable thing to do, the bigger piece of it is just, pretty much any microphone supplier that I've heard tales of from our customer has dealt them a surprise at one time or another, pretty much across the board.
Anybody making handsets, microphones are tricky and they're difficult things to manufacture really reliably in production.
So, we've got a great reputation for execution, for reliability, and quality.
We want to maintain that and not compromise it by biting off more than we can chew in the microphone space.
That's certainly a work in progress.
I think the team is making excellent progress to date and is expected to continue to do that this year.
There's a lot of opportunities for microphones, both in handsets going forward as manufacturers are talking about four and five microphones per handset.
But also in noise canceling headsets, as you I think alluded to.
It's an additional very large potential opportunity, in particular for a very small form factor microphones, which happens to be one of the things were good at.
So the net of it all is, I don't have a real detailed update of exactly when and what and how much other than we're making very good progress.
We've got good relationships.
We're getting a look at different opportunities at various different customers and trying to put ourselves in a position to be able to commit to that, capitalize on it and at the same time, uphold our stellar reputation for quality and reliability.
Which I think will be something that causes us to stand out in the microphone space.
So, we do think, we have got a couple of mics in particular that are really well-suited to headsets just due to the size.
In particular, if a customer was going to try to do what we refer to in the shareholder letter as a non-sealed earbud, which is what I think is the most compelling form factor.
That really put some size constraints on the microphones.
We have mics that are well-suited to that application.
I think we probably could support a few folks with the volume that we have got in place today and that's something we would entertain.
But certainly, you could use a wide range of microphones in that socket and achieve a perfectly functional system.
Obviously, we think there's some advantages to using our mics or we wouldn't be pursuing that space.
And then in the longer-term, we do think we have got a couple of tricks up our sleeve, that we've talked about in the past, in terms of designing the microphones and the Smart Codec and in this case in particular, the ANC Smart Codec.
Designing those two components together as a system in the long run, we think we can deliver value for our customers in terms of performance and power, size, et cetera, that would be difficult for somebody to match just designing the microphones on their own.
But the game plan for this year is really from an interface and from a function that the microphone itself is providing.
That could be fulfilled by a variety of different mics.
We don't see that as a limitation this year.
Well, certainly, our first and foremost, our goal is really more around on an annual basis delivering something in the 20% range for operating profit.
Obviously, that's a goal that isn't a one quarter goal.
It's more of an annual goal because our business is fairly cyclical.
Within that context, we expect to grow pretty meaningfully.
Like I said, we already are on track to grow 27% in FY16.
We expect to grow further in FY17.
So, we are investing for the future.
We want to make sure that we appropriately scale R&D to be able to keep up with that growth and deliver growth off a new hire base.
And at the same time, we're trying to keep a close eye on SG&A because we should have some leverage there.
And you can see that reflected in our outlook for expense in the current quarter.
It's a little more flat frankly, relative to the December quarter than it might normally be.
Typically in the January quarter, you have got a number of factors popping online in various withholding and whatnot that can drive expense up in the quarter as well.
We've got, I would say, a somewhat higher than normal number of REV A tape-outs in the current quarter.
So taking all that into account, the fact that the expense guidance for the current quarter is not up much is an indication that we're certainly keeping an eye on things.
But over the course of the year, we would expect to meaningfully add to the R&D number.
I think we addressed that a little bit earlier but our model and what we pay people on is based around a 15% growth.
So if we were talking about 10%, we wouldn't be calling out strong or be very excited about it.
So, like I said earlier, our crystal ball is not so good that I want to put a specific number on the out quarters of the year.
Obviously too, one of the pluses ---+ sometimes a plus and sometimes a minus, mostly a plus, in our business is that we don't do second source products.
We've either won or lost designs a year before they actually show up as revenue.
So we feel good about the design wins and the customers we're engaged in today.
But ultimately it depends on the customers shipping their product successfully in the long run.
And if I had the ability to call that a year in advance, I could probably find more lucrative things to do than this.
So, we will decline to put a number on it, but overall, we feel really good about what we're lining up for the year.
We see growth coming in a number of different avenues, as outlined in the release and the letter, through expanding our business with a number of our existing customers, continuing to make good progress, broadening our business out into 3 through 10.
And then driving some of these features down from the flagship into mid-tier, which is something we've made good progress on.
And then as well, of course, the whole wide variety headset initiatives that we are engaged in.
A number of things adding up to cause us to be pretty bullish going into the new year.
Well, in that particular case it depends on how you look at it.
I suppose since we had a VP on stage during the introduction, I can say we did start shipping into the Lenovo side of the business at that third or fourth customer depending on how you want to count.
We do see good opportunities outside of them in China as well, so we feel like we're making pretty good progress on that front.
You bet.
Thank you.
We would expect the March quarter to be down this year but when we hit the June quarter, you will see us start to build inventories as we head into the ramps and the busier seasons.
Yes.
When we talked about the expected effective tax rate of being 28% to 30% next year, it does include those tax credits.
So, our general approach to buybacks is we will tee them up and then not make a whole lot of noise about them.
We report our progress on the buybacks each quarter when we release our shareholder letter.
I refer you to the shareholder letter for details of the amount of authorization remaining and what we've done to date.
But as far as what we may be able to take off in the coming quarter, we will update you on that on the next earnings call.
Generally speaking though, I'll note that we tee up buybacks with the expectation that we execute on them over the long run.
We try not to make a whole lot of noise about that generally speaking.
It's in everybody's interest or at least our long-term shareholders interest for us to get as many shares off as possible.
So that's kind of why we view it a little more opportunistically and we tend not to make a whole lot of noise about it.
We've got a pretty good track record of having reduced the share count by a pretty significant amount over the years.
So anyway, anything further than that I will defer and update you on the next earnings call.
Thank you.
In summary, we remain highly focused on delivering a broad platform of innovative audio and voice components that target the rapidly growing mobile phone, smart accessory, and digital headset markets.
With a compelling portfolio of sophisticated products including hardware, software, and algorithms, and a solid customer base comprised of many industry leaders.
We are extremely optimistic about our outlook for FY17 and beyond.
I would also note that we will be presenting at the Morgan Stanley conference in San Francisco on March 3, and the Northland conference in New York on March 9.
The live webcast of these events will be available at investor.
cirrus.com.
If you have any questions that were not addressed today, you can submit them to us via the ask the CEO section of our investor website.
I'd like to thank everyone for participating today.
Goodbye.
| 2016_CRUS |
2015 | LRCX | LRCX
#Yes is the answer to that.
But I think that's a headline on the intensity of etch from a conversion point of view.
It's a very favorable transition for us.
It's a commentary on the patterning transition in etch and deposition, both.
We believe that the total wafer fabrication equipment investment in DRAM is slightly higher than we thought.
We believe it's more efficient to my earlier point, and we believe it should favor the segments of deposition and etch.
I'm not sure I understood the first part of your question.
The first part of the question was, is 3D shipments are they happening now.
Or are they happening on a continuing basis.
There's always someone somewhere buying something for a 3D NAND application.
So sometimes that's an addition to an HVM capability, sometimes that's a first phase pilot, sometimes it's second phase.
These four guys have different timing, and different commitments to investment, but I think everybody's there as an industry.
We have two more guys we're going to try to get to here, so can we go to the next question, please.
As I said before, at least in the dialogues we have with the customer, we're not really distinguishing too much between 20-nanometer, 16-nanometer, and 14-nanometer.
There's a huge amount of overlap in terms of equipment.
The basic message today, we think, is the one that was communicated to you publicly in the last couple of weeks, that there's commitment to technology conversions.
And a little bit less today at the 14-nanometer, 16-nanometer node for the year, from an industry perspective, than was originally anticipated, but I think that the basic commitment to a FinFET conversion, first wave, and then the pilot investments in 10-nanometer are there.
So that would be my comments on foundry.
And we are assuming by the end of this year, that the capacity that has been shipped in at or less than 20-nanometer is in the range of 200,000 to 210,000 wafer starts per month.
Yes.
Which is a disclosure by the way we made at SEMICON West a year ago, so I was really just repeating that based on our assessment of critical and non-critical applications in that segment, we think the 90% headline that we communicated at SEMICON West is valid today.
And in fact, as I said, in my prepared comments, we had a nice reinforcement of that in a selection this quarter.
We don't actually make that disclosure.
No.
I would say it's a very constant competitive threat.
And I don't think it's anything new.
The reason, by the way I said we don't disclose it is because the value of the critical position is much less to do with the percentage of the business, and it's a reasonable percentage.
Otherwise I wouldn't bother telling you.
The value proposition of the critical wins is, you create a cycles of learning for your Company that your competition does not have.
And if you do that for long enough, then your ability to be successful, broadly in a marketplace, is greater than theirs.
So it's value is not the percentage.
The value is learning and the critical feature capability that we develop broadly in the marketplace.
| 2015_LRCX |
2015 | CFR | CFR
#<UNK>, as I mentioned, yes, you're right.
The higher investment yield on a linked quarter basis did have about ---+ was responsible for about half of that increase.
And then, we did see a decrease in our fed balances.
They were down about $260 million on a linked quarter basis.
That was probably the remainder of the increase.
Yes, <UNK>.
We're getting affected both by lower production but obviously the price is also affecting that lower.
For how long we don't know.
Just leasing activity has slowed down.
Remember, we're I think number four in the United States of our trust department managing oil and gas royalty properties a little over 8 million acres.
It's all over the United States, but obviously, most of it concentrated in Texas.
What I said to you about that discussion about how we're moving and how the industry is moving into the middle of the play and maximizing its usage, and because of lower oil prices we're not discovering new zones.
The Eagle Ford wouldn't have been discovered had it not been for $90, $100 price of oil.
We all know, also the drilling has been in the center of the play where the oil and the liquids off of the gas are so rich.
When you look at a map, you go way out beyond there.
There is tremendous natural gas reserves.
And as a result, those are ---+ people are not going to spend money out there.
And as those leases expire, and they are expiring, and our management of oil and gas leases will not change.
But as that comes back and as leases expire and where you have a company that can't afford to drill that well in the time limit what they are required to, and those vary all over the place, they may lose that lease and so, that's an opportunity to renegotiate.
But it is going to be slower because prices are down.
<UNK>, this is <UNK>.
One thing to keep in mind overall in the investment ---+ or on the trust fees, energy is down and, as <UNK> said, we, for the time being, as <UNK> talked about as well, we're in a slower.
Keep in mind that our total oil and gas fees for the second quarter were $1.6 million and our investment fees, which is the vast majority of what we do in that business, were just under $21 million And so, how are trust fees go overall is going really be depend upon what goes on in the investment side where we've been doing a great job.
And of course, markets are going to impact that, particularly what happens with stock, et cetera.
But we'll rise or fall really in the long-term in terms of how we do on the investment management side.
<UNK>, and one additional item there, just from a linked-quarter basis, that trust line item is also getting affected by the ---+ we got out of the securities lending business as you recall, at the end of the first quarter.
And so those revenues were down about I think, $800,000 quarter to quarter.
About volume of them declining.
We said at the end of the first quarter we thought they'd be flat coming into June.
They are up a little bit.
Flat by the end of the year would be great.
Quite frankly, I'm a little optimistic they could be up.
What we've done, you also heard me say that our lines have been reduced.
It's interesting to me that what happens ---+ we have learned that as your relationship of the borrowing base, the amount of reserves that you can loan, obviously has tightened up in that regard, and actually the margin increases.
Because of the way the pricing works on those as you use more of your line, the pricing goes up.
And so, while the volumes come down, the margins are a little bit better.
I think the real wild card is there's a lot of opportunity, and we hope we get our share and more of our share, of some really strong borrowers that we haven't had an opportunity to deal with in the past and we see an opportunity as we speak right now.
I think the papers are being signed with one of our customers that is a fabulous customer of an increase in his line.
And so those things are happening.
Now how much of that happens versus tightening up and I would tell you we got ---+ I told you we had a couple large credits that are in the energy field and we're working real hard and they are too, to pay that loan off.
So that's going to move out.
You've got a lot of things moving parts.
You want to get the weaker ones out.
You want to help finance the strong players.
<UNK> talked about the wealth creation prior to this downturn.
There are people sitting with a lot of money that would like to buy some of these properties at a more favorable price.
I think the other thing ---+ when we were sitting around $60, we all talked about how much money is sitting on the sideline to buy properties or companies or whatever.
And that's true today.
I think what the fall in the oil prices will create is more deal activity because the guy that's overleveraged and the prices come down on him, he's going to have to make a deal.
Whereas sitting at $60, maybe thinking it could go to $70, he was hoping for the best.
He's got to deal with the reality.
He's got too much debt.
Times running out on him and the good news is, there's a lot of money sitting there to buy these properties.
That's another moving part as we go along.
You ever heard me say that I'm an aggressive looker and conservative buyer.
That hasn't changed.
I think you're going to continue to see a lot of activity in the smaller, real small companies merging together, trying to get over the billion dollar threshold and all that kind of thing.
That's where most of the activity's going to take place.
We're very particular.
WNB was a very unusual, special opportunity.
We've talked about it.
They're great people.
They had a balance sheet that, as <UNK> <UNK> said to me when we looked at it, it looks like a little Frost.
Maybe there's some others like that.
But we'll keep looking and we're going to be real careful about what we do.
No.
You can't take that.
Thank you.
What I said was modest.
The good news is, I'm extremely pleased with the work our people are doing.
They're out there calling.
In fact, I was surprised, I never had looked at it, year to date, our commercial calling officers have made a total of 45,893 calls.
They're not sitting around.
We're out hustling hard.
We're generating things.
The killer is the runoff.
It's $500 million more than historical ---+ than we've experienced historically.
I would like to give you a little editorial comment there.
If the Fed had raised rates when they should have a year or so ago, this economy would be buzzing along.
We're so buried in data that we've gotten out of leadership in Washington and all aspects of it.
But it is ---+ we're out working at it.
I'd like for us to be growing more smaller credits.
Everybody knows that in this Company.
They're working hard to do it.
If we weren't calling, I'd be worried about it.
We're calling.
We're generating opportunities and prospects.
This runoff is a lot of what I see the bubble that has been ---+ one of the bubbles that has been created as a result of the extended zero interest rate environment.
We talked about it before, financial repression is taking it out of the height of the saver and given it to the government in these low interest rates.
And what the saver has done has put more money into funds and venture capital and those kinds of things.
And as a result, they're paying higher prices for companies than the company ever dreamed anybody would ever pay them for.
And that's part of the runoff and it's a significant part.
They're either selling some of their assets or the whole company and then that individual obviously is paying their loan off because they don't have the company anymore, don't need the money.
And now they're going to be faced, what are they going to do with this bucket of money.
It's the challenge we have in this country.
But I think we have to think about long-term what is that going to do.
There's some prices paid for companies that's too high.
I don't blame the guy for selling it.
You know when I look at what we call the booked rate of our customers and prospects, we're sitting in 2015 booking at 78.5% versus 73.7% last year.
Pricing, we're kind of in line.
In fact, we're more aggressive.
Last year, we were losing deals at 5.4% to pricing versus this year at 4.3%.
So we're more aggressive with our customers on pricing.
As far as structure, we lost 8.8% last year on structure to customers.
Today 10.3%.
There's some crazy things being done out there and we try real hard to not be stupid.
When you look at prospects, we're booking 29.1% versus 25.1% last year.
And as I talked to you, the big deal there is structure.
Last year, we lost 28.1% of the prospects to structure.
Today, 31.1%.
We've been in this business long enough to know that if you start doing stupid stuff, you'll blow the place up in time.
We have no intention of blowing this place up.
This is a great company.
We have a great future and we're going to continue to grow our business with good customers, stay close to them and support them.
Not really.
We are a Texas bank.
You've got to realize the Eagle Ford Shale is certainly a shale play.
You've got to understand the difference between that and the Permian Basin which is an old great basin.
And don't forget, I love what Jo Frost said, somebody asked him, Joe was the guy that took this bank through the Great Depression.
Somebody asked him, do you loan on cattle.
And he said, we loan to people in the cattle business.
We don't loan on oil and gas properties, we loan to people in the oil and gas business.
And so it's all about people.
No.
I would say we continue to be solidly asset sensitive and we want to maintain that.
We don't want to give that up.
So that's always in the back of our minds as we look at whatever investments we do or whatever structures we have on the fixed rate side.
We disclosed how much we have today and we disclosed where we were at the end of the year and the trend.
Did you say purchased this quarter.
Are you referring to shared national credits.
They're down.
Shared national credits in the first quarter for energy, for example, were $533 million.
They were $472 million in the second quarter.
So that would not be a factor in our growth.
I just have to comment on the term purchased.
Remember, we're not purchasing transactions.
It relates to those.
We're developing relationships with people and in many cases, they may be club deals or shared national credits but they're still relationships.
Yes.
We have commitments.
I think it will be flat.
You know it's interesting, we've increased our SNIC.
One was to a contractor, one was to a candy company and one was to an energy company.
Don't forget what I said.
If you weren't listening when I said we don't make investments and credits.
We don't buy transactions in the shared national credits.
We deal with customers we know and if they don't have a relationship, we're not involved.
I think the way you should look at it, if you see companies that have too much leverage, they're going to continue to have problems.
And it's really all about leverage.
Are they addressing their problems.
Are they cutting their costs.
What we've learned through our experience, the most successful customers are that have an expense structure and master it.
Have flexibility in their expenses.
They're not lock in.
Where you get into these energy companies that have high lifting cost, have problems with pipelines, all the delivery kind of things and are doing things that are very expensive, they're going to have problems.
And you combine that with the leverage ---+ it's not just about price.
It's about good managers doing what they're supposed to do.
That's who we try to choose.
That's the reason we choose people to do business and then we look at the understanding of the business they're in.
And if they like high leverage and if they like ---+ and their expenses are out of line, we're not going to bank them.
Thank you.
This concludes our second-quarter 2015 conference call.
We appreciate your interest and support of our Company.
We stand adjourned.
| 2015_CFR |
2015 | NWL | NWL
#So <UNK>, you're looking for the split of our A&P by new products versus core, is that what you are looking for.
Right.
What we have learned over the last couple years, is that our investment generates the most growth yield when it's connected to innovation.
So the vast majority of our investment is behind product news.
And there are a couple of exceptions to that.
We've done some work on Sharpie, on the core brand of Sharpie that have worked to expand consumption.
But most of the investment is focused on new news, and that is what you should expect gong forward.
That is certainly true on the advertising line.
On consumer promotion, it's a more balanced approach.
On trade promotion, more balanced approach because that's the part of A&P that is focused on activating our brands in key dry periods.
So it's a balance of core and new items.
So all the display material we use to get off shelf during key merchandising windows, are clearly both on the core and on the new news.
So advertising is skewed very dramatically towards new news.
And promotion's skewed ---+ or promotion more balanced across the whole portfolio.
That's the logic you should have in place.
I've seen plenty of ideas in businesses grow without major A& P investment.
You establish a new idea, and you get great distribution on it, and you continue to activate it with great display activity, and punctuate A&P investment or advertising investment, you can do a lot to deliver sustained growth ---+ there are many, many examples that I can point to in my career, where you seed an idea with significant investment upfront, and then you pull back over time, and get great ---+ and continue to innovate in it, and get great year two, year three momentum.
We are seeing that on InkJoy right now.
If you look back at the spending, a year ago, two years ago, the vast majority of our writing investment went ---+ a good chunk went against Paper Mate InkJoy.
Today our spending is focused on InkJoy new items, and not on the core proposition.
So we established InkJoy.
It continues to grow, and now we're punctuating spend on new items.
And so, that is one of the kind of the keys to sustained growth.
It's to be able to play the game the way you just described.
And there are many, many examples that I could point to across all the categories that I've worked in where that has held up.
Thanks very much, Lori.
Thank you to you all, to all of you on the call for your interest in our Company.
And most importantly, thanks to all the Newell people, who work tirelessly to make these results happen.
We'll talk to you soon.
Thanks.
| 2015_NWL |
2017 | TREE | TREE
#Got it.
So on the first one, some of the things we're looking at, and I don't want to get too specific here because some of them are acquisitions so I won't go ---+ I will give some anecdotes, But one that's actually launching today or tomorrow believe it or not is auto insurance.
We're doing it through a partnership, and we're actually probably going to be marketing that directly in addition to cross-selling on our site.
The commercial mortgage business is one that is very broker-based with high middle-man fees, low transparency and the developers need to flip those every five years.
So we like that.
We're looking at every category of small business loans, and if you would just say small business it breaks down in probably 10 different categories of lending.
And then we're looking at some of the nichier areas, for example, could even go as well as helping builders find individual investors where banks are not available.
That's so-called hard money market.
We think that's interesting, although early.
We think life insurance may be interesting, but that's a long time away.
By the way, we will start all these insurance things as partnership so we don't have to distract from where we are.
In each of these categories, by the way, there are a number of acquisitions that could potentially be available at decent prices.
So that's the good ---+ it's a little bit of a flavor of it all there.
And the second one.
And to the second question which I believe was My LendingTree and marketing of My LendingTree product.
In January, we started some paid marketing on My LendingTree direct to the website as well as some app marketing on our legacy app.
<UNK> says the new app is fantastic, I highly encourage everybody to download it.
We will be scaling up our app marketing on that product in the coming weeks, so we very much look forward to scaling up our marketing on My LendingTree.
It's absolutely both.
So the way we like to think about increases is first off, you have got the size of the market growing, and I don't have ---+ if you look at our investor [ridge], it's that little bubble at the bottom and that's definitely growing which means there's a secular trend of lenders getting more of their volume from online.
Which just makes total sense.
We've talked about it before.
This is really last big category to move online, so you have that happening.
And then you have the lender, which by the way, is showing that lenders are increasing their demand so they're increasing their demand with us from that.
We're also seeing that lenders are increasing their wallet share with LendingTree, and we are really going after that hard.
We are basically going to lenders and saying what's it going to take to get more and more of your wallet share, and we do that based on a really great analytics platform.
We actually go in and tell the lenders where they can succeed, where they can't and much money they can make in each of their filter segments, and really going in and help them do that.
So it's definitely stealing wallet share, and it's definitely moving online.
And then you have this purchase refi change which shows that the off-line market is going down, so now they're going to shift even more money into areas where they can get volume.
Sure.
So actually we are seeing modernization happen in the first couple months.
And then quite frankly, it will tail from there for a period of time except for your sub prime folks you're going to see increase in the credit score and then they're going to be able to lower pricing that way.
And then for other people who obviously take action in the first couple months, they're going to have more needs continuing throughout their life as they buy homes and do other things.
But they're actually transacting fairly quickly, which gives us a lot of confidence that we can put together marketing campaigns after that.
Yes.
So every time we ---+ so first off, the engagement is still there, but you're going to have fewer alerts.
So you don't need to come back all the time unless we send you an alert.
So the new features we add and the new alerts we add, we're seeing it bring people back.
They're coming back not because they want to come play a game on My LendingTree, they're coming back because we sent them an alert that's actionable for them and then they can take action.
And we are both seeing a lot more customers taking action, we're also getting better conversion rates from our alerts to them taking action just by a number of blocking and tackling and ongoing initiatives through conversion funnels like we do everywhere.
But the other thing I would add is, one of the great things about this alert-based product.
You get wonderful customer satisfaction out of something like that, because you're not calling them or you're not touching them unless there's actually a real savings.
And consumers love it and now we're going to go start telling them about it.
With this bigger monetization we're going to start marketing, which I know has been a long time coming but we feel better about it.
We will start small and scale into it.
Yes.
So absolutely, I think it's possible and there has been great collaboration between the teams across a variety of marketing channels.
The great thing is they are fantastic at things like paid search, we are fantastic in things like display and some partnerships and things like that.
So we are in social, so we are sharing that knowledge across the Company so that we can leverage what they are great at, they can leverage what we are great at.
And that helps the combined companies, and we can also really focus the marketing efforts where we're going to get the highest payouts as well.
Buybacks we are there typically every quarter, we haven't bought a lot recently as <UNK> said.
We tier it based on price, and the prices ran up and therefore we didn't get any buybacks this year.
From a capital allocation standpoint, increasingly we are focusing on that.
I can't predict which way it will go, basically we're going to deploy capital in the most efficient way possible.
We are going to keep looking at leverage to make sure that we can do that.
And if it's not lost on me that when I think about it, the companies that perform the best over time are the ones that make smart capital allocation decisions.
Which means you buy back your stock when it's valued right and you use it for acquisitions carefully in way that you can get things that are accretive and try to do that very efficiently over time.
And we're there.
So I can't tell you which one is it's going to be, I can tell you we are going to make more acquisitions.
And one of the things that's really thrilled me is somebody working for the Company and seeing our Company be able to actually execute an acquisition and have it come in, diligence it, get the right numbers.
By the way, we've said no to probably 10-plus things recently, and we said yes to one.
So I think it shows we can buy the right thing and we can execute it the right way and integrate it the right way.
No we didn't, obviously we were in the middle of an M&A process and the rest was capital allocation and we wanted to make sure we had the right firepower there.
The CompareCards acquisition is a great example and model of the type of thing we want to look for, which is growing, is profitable, it's highly strategic, it complements our needs and the company and it has a fantastic multiple.
So those are the types of things we are looking for, and those can be highly accretive acquisitions.
We want to make sure we have the right amount of capital available there, and we are very, very happy with that one.
So we're seeing a slight ---+ so let's just clarify it for everybody.
That injunction basically says that we cannot do native advertising, which is basically writing an article and putting it out on the Internet.
We cannot do native advertising only through three ad networks that place those.
So while that caused short-term dip like we've talked about before, now we are doing direct deals where those ads used to get placed and the injunction will have a little effect but it will ---+ but it's diminishing over time.
You should also know the percentage of our profits that came from that native stuff, I don't know if <UNK> will talk about it, but it was not very large.
So it really hasn't had that much of an effect.
Obviously, we prefer it wasn't there.
It had a short-term impact call it in Q3, Q4 for our core business.
The team basically took the challenge and they have really blown up other marketing avenues, and our core business had a record month in January, CompareCards had a great month in January, neither of which had anything to do with native advertising.
So we feel like we would like to have it not there, but we have done really well with it (inaudible).
So another way to think about it is, we're doing fine with the injunction and we're still growing and business is good.
If we didn't have the injunction, it would be better.
All very, very good questions.
On the second one, it's really a channel thing.
So each marketing channel operates independently of another.
So you don't necessarily ---+ in our business it's really the direct marketing business.
So you don't really move money from one channel to another or from one product to another unless your getting more demand and supply and you losing VMM.
So basically you're always looking for VMM.
If we're getting a profitable ---+ if we're getting profit on anything we're running, we're going to keep running it.
So we're going to run My LendingTree ads, and when we run them stuff will fall to the bottom line.
But we will look at the My LendingTree ads not against all of My LendingTree, but just based on the volume that comes in from there.
So the organic volume and the cross-sell volume that comes through our site naturally will all drop to the bottom line, and we will evaluate the marketing based on just the volume that we are driving in.
By the way, that marketing is also ---+ there's another layer that you have to go which is you have to target different demographic segments and have different monetization ability.
So there is another layer of complication there that quite frankly because we're so good at marketing gives us a competitive advantage.
My reaction from December to now is obviously things did get a little stronger.
But in addition to that, when we were at Investor Day, we were not focused on updating guidance that we had just given, we were really focused on the long term things and we were obviously incrementally more confident in Investor Day and things came in a little better.
Fantastic.
Thank you all again for being here, and thank you for your very thoughtful questions.
As many of you know, I'm in the interesting position at this Company where I get to think of both as a CEO and as an investor.
As a CEO, I can tell you this is a fantastic Company with fantastic processes, hiring wonderful people who really get our core principals and I've never been more thrilled with that.
As an investor, I like to look at this and see what is the value of the Company and how do I believe as an investor.
And when I look back at what this Company has gone through over the last eight years, I feel very confident they can do anything.
First, we went through the financial crisis and people worried that we were going to get through that.
Second, we had a money-losing bleeding from owning a mortgage originator at the worst time, and we got rid of that; we made a lot of money.
Then people were worried about loan losses, we got out of that and we dealt with that.
Then people are worried about diversification, I think we proved that one.
Then along comes the fintech bubble and all these crazy valuations.
When that bubble starts to pop people thought we were going to pop, and obviously went right through that.
Then follow it up with personal loan crisis which had people worried, then the shifts from refinance to purchase.
And then lastly, whether we are going to be able to actually buy and integrate an acquisition.
We've come through, we've weathered every challenge.
I don't know what the next worry is going to be, but I feel very confident we are going to figure that one out to.
This is a Company that can weather the storm.
In addition to that, the industry is setting up exactly like we've said over the last 20 years.
It just took a lot longer, and we are perfectly well positioned in the industry.
And then last is our competitive position, where we continue to gain share against competitors, you can see that in public company revenue growth of us versus them, and you can see how we are continuing [bets with you].
So as a CEO, I love being part of this Company, and as an investor I have tremendous confidence.
And I hope many of you continue to come along with the ride for us which we think is going to be very exciting.
So thank you very much.
| 2017_TREE |
2016 | CHS | CHS
#Thank you.
Thank you, Andrew.
That concludes our call for this morning.
Thank you all for joining us this morning and we appreciate your continuing interest in Chico's FAS.
| 2016_CHS |
2015 | PZZA | PZZA
#Yes, <UNK>, it's Steve.
I'll start.
So I think the important thing is always to look at the business long term.
You think about our business: over the last 16 quarters, we've had 9 of those quarters that have been above a 4% comp; 7 of those that have been below a 4% comp.
But you look at the last five years of our business, we have not had a year in the corporate side of the business that's been below a 4%, and we've produced a 3.6%, a 3.8%, a 4.2%, and 6.8% last year; and as you saw, we're at a 5% comp year to date.
Our initial guidance was a 3% to 5% comp.
Coming off a 3% quarter, I can tell you that obviously we're not expecting to produce over a 5% comp or we would have considered increasing our guidance.
However, we feel very confident on the momentum that we have in the business.
I think the important thing, as I stated in my opening comments is, we did see more aggressive pricing activity in the summer.
I don't want to get into the cadence of the overall comps within the quarter.
However, we did see some unpredicted, very aggressive pricing activity happening from some of the national regionals, and even some of the independents within the category that gave us a slightly lower than anticipated comp for the quarter.
Still pleased with the 3% comp, but it's slightly lower than anticipated.
As the official partner of the NFL, clearly getting back into the fourth quarter in the NFL season, we feel very confident in coming in within that guidance, and certainly are hoping to come closer to the higher end of that guidance in North America.
<UNK>, this is John.
The P10 promotion mixed very healthy.
Robert, you want to comment on that at all.
Sure.
<UNK>, it's Robert.
So coming out of the gate, starting our fourth quarter, we were very pleased with the promotion.
It gave us great momentum and consistency as we roll into the other promotionals for period 11 and period 12.
So we feel very confident where we're going to land for the quarter.
<UNK>, I'll jump in on that one here.
It's Lance.
First of all, for 2016, we'll give our guidance in February.
But with that said, we expect 2015 and 2016 overall to look pretty consistent as far as the dollars going through the P&L.
Hopefully it will look a little more even than you have seen this year, because the way we build our reserves ---+ without going into tremendous detail ---+ the way we build our reserves is looking at what the history has been this year, and then we attempt to build that in, in a fairly even way throughout the year.
So you should see 2016 look pretty similar to 2015; probably be a little bit more evened out.
That is all, of course, based on what we know today.
<UNK>, this is John.
We also in 2014 ran the actuaries twice a year.
This year we ran it three times to make sure that something like this, we would catch it if it happened; we would find it out quickly, and we did.
It doesn't make it any less painful, but the point there is, we are all over this.
<UNK>, the last part of your question, I believe you asked about the remainder of this year.
It is, in fact, incorporated into our guidance for the remainder of 2015.
It will either be more times or more detailed when we do it ---+ one or the other.
Yes, Chris.
Steve.
I think some of the better examples are probably of the, some of the larger players.
The largest player, in fact, has gone to more significant discounting.
Clearly, they've continued to struggle from a sales growth standpoint, but they have seen some pickup.
Some of that pickup has been driven through extreme value.
I think the good thing for the Papa John's brand, we're much less reliant upon extreme value seekers in the deep discounting part of the segment.
However, we do have a small percentage of our consumer base that is looking for that value and variety.
But interestingly, we did see a lot more regionals and independents that were going towards the deeper discount inside of ---+ you think about a $5 and $6 pizzas on larges across the industry.
You know, Little Caesar's sells $5 pizzas; Domino's sells $5.99 medium pizzas; and Pizza Hut has been selling $6.99 medium pizzas.
And you're starting to see a lot of independents and regionals trying to follow suit to stay competitive.
The good thing is, we didn't make any change to our strategy in the quarter and still produced 3% comps.
I think it's one of the factors, Chris.
I wouldn't say that it was the factor in total; but certainly with their media buys and good visibility to that offer, I suspect it's driving some additional traffic into their brand and that's taken away from, again, some of those folks that are on the value side.
Good question, Chris.
At the end of the day, quality always wins.
It won last quarter, despite our competition doing some pretty aggressive promotions.
The wonderful thing about high commodities is it forces our competition to used cheaper ingredients or put less on.
The situation right now, where commodities are fairly reasonable ---+ they are still having to discount their product to a point where they're going to have to continue to cheapen and put less on.
And we are definitely seeing a decline in the product quality attributes of some of our big competitors.
Clean label ---+ we started this initiative four or five years ago.
It was more defensive.
We felt like from an integrity point of view, and really building a big, wide, deep moat around better ingredients, better pizza, the clean label was the way to go.
We had no idea that four years later, it would actually be an offensive play where folks really like clean label.
They like ---+ the millennials like ---+ the fact that we put more natural ingredients on our ingredients and less chemicals.
We have not promoted that as much as we probably will in the future; but more on that later.
This is Robert.
There's always the potential, as we evaluate the right timing to get that communication out to those consumers who want that better ingredients, better pizza messaging.
So we'll continue to evaluate and see where that plays out.
40% of your flavor, <UNK>, comes from your fresh-packed sauce.
So that's one area that you don't want to cut corners on.
We've been using the same recipe in our fresh-packed sauce now for 31 years.
The factory's probably a $100 million factory, of which we packed sauce.
It sits idle for 10 months.
And then when the tomatoes' ripe and has the right characteristics, the right [fosilic], the right acid/sugar ratio, we pack it for 60 days.
And so that 60 day period, I'm in contact with our tomato folks out at, our fresh-pack folks out at Stanislaus, to make sure that we get that sauce packed.
So once we're 60%, 70% in the can, I know that we've got enough sauce to get through the next year.
So that's why it's a big deal, because you only, the tomatoes' only ripe once a year so you can only pack it once a year so we want to get that packed in the can and get it ready for the next year.
We have two plants out in California that make it, and we're looking to do some things in Portugal and also in the southern hemisphere.
We don't like a lot of different suppliers, Charlie, because I can't keep my eye on them.
We have basically one supplier that has two plants that does, for example, 95% of our cheese.
There's a problem with the cheese, I pick up and I called Jimmy Leprino and say, what's up with this.
The two plants that make our sauce ---+ we have an issue with the sauce, I pick up and call the Cortopassi family and say, what's up with the sauce.
So I don't, I can't watch 100 different suppliers around the world, so we keep it very consistent with a few.
<UNK>, this is John.
I think it's fair to say the Asian Pacific region is pretty tough on all fast food right now, all restaurants.
Fortunately for us, we don't have very many eggs in that basket.
Have we figured out China yet.
I'd say it's fair to say, no.
But remember, five years ago, we didn't have Russia figured out; we didn't have Latin America figured out ---+ which we do now ---+ we didn't have the UK figured out, which we do now.
So we'll keep chipping away at it.
We'll keep learning, we'll keep trial and erroring and eventually we'll figure that part of the world out and hopefully when we figure it out, it will have more of a recovery to it.
Steve.
Yes, thank you, John.
<UNK>, it's Steve.
So to reiterate: 236 stores in all of China, which is less than 5% of our global portfolio.
Doesn't make it unimportant.
Because of the growing middle class of 300 million and growing to potentially up to 600 million in the middle class, in the consuming class, over the next five to six years is an important market for the Papa John's brand.
With that being said, ever since the OSI incident in July of last year, there's been significant headwinds throughout the entire industry on the Western brand side of things.
Clearly, you don't have to look too far from Yum to understand some of those headwinds and pressures.
Our franchise business has experienced some of the same challenges that we've experienced on the corporate side of the business.
The differences and similarities: differences is, we have a different model, and about half of our restaurants have spoken to this in the past.
We have a DelCO business, delivering and carry-out, in a number of our restaurants, where our franchise business in East and South China is predominantly a casual dining model.
So you'll see very similar performance in the casual dining side of our franchise versus our corporate.
But our DelCO business has actually been performing pretty well this year in terms of overall traffic and sales growth.
So I think there's going to be a lot of synergies that we can apply.
We have been in the process of working on our marketing, our menu, our model and our customer journey and experience.
We will continue that work.
We have completed a significant amount of research as it relates to the design and the menu, so now it becomes around implementation of that work as we work parallel to source and find a very high-qualified franchisee to run these 46 restaurants in Beijing and Tianjin.
Thank you, <UNK>.
Thank you.
It's Lance, <UNK>.
That portion that is allocated to the commissary is actually the portion related to incidents involving commissary vehicles.
And it is something that will be spread across the entire system, which is what the commissary serves.
Lance to summarize.
I think we had a very good quarter, $0.45 ---+ that's a headwind of $0.06 of insurance and $0.02 of foreign currency, so hopefully we'll get a little break in the future on insurance and currency.
It would have been a $0.53 quarter.
Thank you.
Thank you all for being on the call.
| 2015_PZZA |
2018 | LAD | LAD
#Good morning, and thank you for joining us today.
On the call with me are Chris <UNK>, our Executive Vice President; and <UNK> <UNK>, Senior Vice President, and CFO.
Earlier today, we reported first quarter earnings of $2.07 per share, which marks our 30th consecutive quarter of record performance.
We increased quarterly revenue 19%, and earnings 16% over our adjusted 2017 results, primarily driven by our proven greenfield growth strategy of acquiring strong franchises that are underperforming to their potential and then improving them.
Vehicle sales improved sequentially each month of the quarter.
January and February were softer than expected, and we experienced more severe weather than typical in the <UNK>east throughout the quarter.
Despite the slower start, we finished strong with a record March, which generated over 70% of our earnings in the quarter.
We expect this momentum to continue throughout 2018 and beyond.
From an operational perspective on a same-store basis, total sales were flat.
New vehicle sales decreased 2%, offset by solid results in all other business lines, with retail used vehicles up 5%, F&I increasing 5% and service and parts growing 3%.
Fixed operations remained strong as we continue to focus on customer retention through the creation of personalized service experiences with each customer.
Sales shortfalls in January and February created an urgent call to action for our leaders to more aggressively pursue the over $200 million in unrealized earnings potential available to us.
Aside from cost savings opportunities and personnel, advertising and interest expense, much of this earnings improvement will come from expanding sales and margin, which Chris will be elaborating on further in a moment.
Our stores continue a variety of online buying and home delivery models tailored to their markets, the hallmark of our entrepreneurial spirit.
Our service and delivery network reaches 81% of the U.<UNK> population, as measured by vehicle sales registrations.
Online initiatives are pacing 24% ahead of last year, resulting in 80% of our total first quarter vehicle sales, originating online, or approximately 64,000 new and used vehicles sold.
Our goal of selling 85 vehicles per location each month continues its progression, as we sold 67 used vehicles in the first quarter, up from 66 units in the comparable period last year.
We also posted an all-time record result in F&I at $1,380 per vehicle.
We are operating in an exciting time, where change and disruption can create considerable opportunities.
The teams at our 186 locations are passionate about understanding our local customers and innovating to find creative and efficient solutions for them.
The speed of adaptation of automation, electrification, car sharing and other changing ownership solutions are primarily being driven by consumer affordability and convenience.
Understanding our customers' individual needs are key to future market share and retention dominance.
Combining world-class performance management systems, a deep talent pool, a strong balance sheet and a proven growth strategy, we are poised to capture these opportunities, while balancing profitability along the way.
During the first quarter, we added Honda and Acura in Buffalo, New York, expanding our national reach to another 1.2 million people.
We also added the Day Group, complementing our barrel locations in Pittsburgh, and the marquis assets from the Prestige Family of Fine Cars in Bergen County, New Jersey, adding to our existing base of stores as well there.
Earlier this month, we added Broadway Ford in Idaho Falls, Idaho and Buhler Ford in Eatontown, New Jersey, our first domestic franchise in the area.
Lastly, we divested 3 smaller franchises in Fresno, California.
We estimate these moves will add $1.4 billion in net annualized revenues, propelling us beyond $12 billion in 2018.
With 2/3 of the year remaining, we have nearly eclipsed the amount of revenues added in 2017.
We see significant opportunities in the markets that are more attractively priced than in the recent past.
We intend to continue to expand and optimize our network of local customer service and delivery centers, consistent with our strategies to effectively respond to changes in personal mobility.
Our industry is still highly fragmented, and we believe we can emerge as the dominant provider of full-service mobility and personal transportation solution.
Expanding our service and delivery sites builds the scale and national footprint that can accelerate our success in the evolving ecosystem of personal transportation.
Future expansion into the Southeast and pockets in the Midwest remain an objective in the coming years.
A larger organization with coast-to-coast coverage provides scale in inventory, cost management, financing and technology.
The web rewards size, while owning and controlling the inventory is paramount.
We have one of the largest new and used vehicle inventories online, with over 75,000 units available for sale.
We partner with industry leaders and startups on software development that is shared among our stores.
Additionally, our network of inventory and people can provide traditional sales and service experiences plus the crucial infrastructure for the operation of car sharing fractional ownership and electric fleets.
As the top-of-food-chain provider with not only used vehicles, but also new vehicles, certified vehicles, financing service and parts revenue streams, we create a more controllable, stable and diversified model than most, if not all, new market entrants.
In summary, we remain focused on delivering the annual double-digit growth that we have accomplished for the last 9 years, accounting for the momentum we expect for the remainder of the year, the significant earnings power and the current operational base and the current acquisition environment, we remain optimistic on our 2018 outlook.
These factors, coupled with the most liquidity in our history and sector-leading low leverage, gives us confidence that we can continue to drive significant top and bottom line improvement.
With that, I'll turn the call over to Chris.
Thank you, <UNK>.
Our mission of growth powered by people means cultivating a high-performing culture where all of our team member deliver top line performance, while leveraging our cost structure.
Attracting, attaining and growing the best team possible is the key to capturing the dry powder we have identified at each location.
To build an organization that continues to anticipate and respond to the needs of our customers, we inspire and empower our over 15,000 team members to innovate, grow and advance their careers.
We are enhancing our internal personal development efforts, as we have shown that our internally promoted leaders are twice as likely to succeed and become high performing.
Our efforts are delivering results, as last year we internally promoted 80% more managers than in 2016.
Our entrepreneurial culture rewards innovation in technology and is helping us to attract seasoned leaders from across our industry.
Millennials now make up over 50% of our workforce, boosting our familiarity with technology that enhances online buying, financing and servicing experiences for our customers.
By allowing our teams to utilize a variety of technology and tool sets as they see fit, we can evaluate and experiment with the best technology solutions.
Similar to an app environment, Lithia relies on competition between our internal developers and technology vendors to remain nimble and to avoid mandating a single solution across the entire organization.
We are a rapidly growing organization, as we have acquired nearly $7 billion in annual revenues in the last 5 years.
In addition, our same-store results currently contain 70 locations that are not fully seasoned and will continue to improve performance to generate an annuity stream of earnings in the future.
Our job is to accelerate this improvement as quickly as possible.
We see opportunity needs business line and on average new acquisitions have approximately 2.5x more earnings potential than our seasoned stores.
I'd like to provide more detail on the results in the quarter.
As <UNK> mentioned, approximately 1/3 of our locations were affected by weather in the first quarter, notably in Alaska, Montana and the <UNK>east, which impacted same-store comparison.
In the quarter, on a same-store basis, new vehicle revenue decreased 2%.
Our average selling price increased 3% and unit sales decreased 4%, below national sales increases of 2%.
Gross profit for new vehicle retail was $2,010 compared to $1,951 in the first quarter of 2017, an increase of $59.
As referenced in our investor presentation, new vehicle sales at our acquisitions averaged 30% below the market share expected by our manufacturers and 50% below the share achieved at our seasoned stores.
We continue to inspire and motivate our teams to capture this opportunity.
Same-store retail used vehicle revenues increased 5%, of which 4% was due to greater unit sales and 1% to an increase in selling prices.
Our used-to-new ratio was 0.93:1, gross profit per unit was $2,080 compared to $2,245 last year, a decrease of $165.
Core units increased 11%, certified units decreased 3% and value auto decreased 3%.
While our unseasoned stores saw an 11% increase in unit sales in the quarter, used vehicles continued to be our biggest focused area.
This is typically the lowest performing business line of acquired stores, as they typically sell half as many used vehicles as seasoned stores.
Achieving the 85 units per location per month objective will result in a 25% increase in used unit sales.
Same-store F&I per vehicle was a record $1,380 compared to $1,309 last year.
Of the vehicles we sold in the quarter, we arranged financing on 72%, sold the service contract on 47%, and sold a lifetime oil product on 26%.
In the quarter, our seasoned stores averaged over $1,500 per unit in F&I or more than $300 higher per vehicle than unseasoned stores, and almost double the PVR of newly acquired locations.
Our same-store service body and parts revenue increased 3%, customer pay work increased 4%, warranty increased 3%, wholesale parts increased 1% and our body shops increased 1%.
We will have over 4 million unique customer transactions in our maintenance centers in 2018.
Our factory-certified technicians, superior service facilities and state-of-the-art diagnostic equipment will continue to ensure that we are the preferred location to service consumer vehicles and assist in attracting top technician talent.
Opportunity remains as company-wide service retention, a measure of consumer loyalty and repeat business is still 20% below our seasoned store levels.
Same-store gross margin was 15.5%, an increase of 30 basis points from the same period last year, primarily due to mix shift.
The inclement weather and related softer vehicle sales in service business in the first 2 months of the quarter elevated our SG&A expenses as a percentage of gross profit, as we bumped up against semi-fixed personnel and advertising costs.
As vehicle sales recovered in March, we saw significant improvement in SG&A leverage as productivity increased and we better leveraged our advertising expense.
In March, our SG&A as a percentage of gross profit was in the mid-60% range.
Our SG&A is variable, but not on an instantaneous basis.
If we were to experience a sustained lower sales environment, our leaders would reduce SG&A spending levels to achieve appropriate cost leverage.
Given our robust area and best-in-class operational reporting, we anticipate this could be achieved over a 1 to 2 quarter period.
Unseasoned stores performed 1,500 basis points worse in SG&A than seasoned stores.
As we drive revenue growth in all lines of business, the typical new store SG&A of 90% or higher will move to company average, allowing us to further drive down our consolidated results over time.
In summary, we have significant opportunities to capture the more than 200 million in dry powder available.
The key to our success is the growth and development of entrepreneurial-driven leaders across the organization.
This spirit allows us to remain humble, stay nimble and leverage technology to adapt to market needs while maximizing the scale of our platform to innovate and deliver the best-in-class experience at our sales and delivery centers coast-to-coast.
And now a few comments from <UNK>.
Thanks, Chris.
At March 31, 2018, we had approximately $134 million in cash and available credit as well as unfinanced real estate that can provide another $250 million in 60 to 90 days for an estimated total liquidity position of $394 million.
At the end of the first quarter, we were in compliance with all of our debt covenants.
Our leveraged EBITDA, defined as adjusted EBITDA last used for opine interest and capital expenditures was $60 million for the first quarter of 2018.
Our free cash flow, as outlined in the investor presentation, was $35 million for the first quarter of 2018.
We forecast free cash flow of $125 million for the full year.
Our net debt-to-EBITDA is 2.9x, which increased from year-end levels due to the significant acquisition activity in March, while our denominator only benefited from 1 month of EBITDA from operations.
As we continue through 2018 in the additional points contributing more EBITDA, we expect the ratio to return to our targeted range of 2x to 2.5x.
We still maintain one of the lowest leverage ratios in our industry.
Earlier this morning, we announced a 7% increase in our dividend to $0.29 per share related to our first quarter of financial results.
We are pleased that the continued growth on earnings allowed us to raise the dividend for the eighth consecutive year.
We have taken advantage of the volatility in our share price to opportunistically repurchase stock.
Year-to-date, we have repurchased 90,000 shares at a weighted average price of $98.02.
Under our existing 250 million share repurchase authorization, approximately 154 million remains available.
Our tax rate came in at just over 25% in the quarter as we benefited from the annual vesting of our incentives-based stock awards.
Any step up in basis to our employees is recognized with the discrete item in the quarter.
For the full year, we still estimate an effective tax rate around 27%.
As <UNK> mentioned earlier, we continue to target revenue of $12 billion to $12.5 billion, and $10.60 in earnings per share, and an estimate of SAAR in the range of $16.5 million to $17 million units.
We continue to generate significant free cash flow and of our leverage remains at comfortable levels.
We will deploy capital towards accretive investments and opportunistically return to shareholders as efficiently as possible.
We also continuously evaluate ways to expand our business into areas where we can capture more of the automotive value stream.
This concludes our prepared remarks.
We'd now like to open up the call and take some questions.
Operator.
Sure, <UNK>.
This is <UNK>.
I think if you look at the quarter, the <UNK>east had weather throughout.
Believe it or not, though, we're still pretty bad in March.
We actually had 3 of the storms hit in March and they held up fairly well.
If we look at Alaska and Montana, there was some weather.
We also had a little bit of weather in Oregon for 3 days that we lost, which impacted things.
But I think ultimately, I really believe, and I'm not ---+ there is no way to really define specifically as to what it was in January and February and where the weaknesses were.
We know it was weather-related, but we also noticed that the consumers may have been a little bit tentative in many of the high-state-tax areas.
And then it seemed like they may be started to do their taxes and figure out that maybe it's not so bad, and with the impact of state tax not being deductible over a certain amount, and they began to buy again in March.
So if we looked at some specific states, I mean, we can look at like New Jersey, was down 3% in the quarter, but it was a strong March.
New York was down 5% in the quarter and again a strong March.
Oregon was down 2% in the quarter and a strong March.
Vermont, same thing.
Hawaii, same thing.
Iowa, same thing, which are all ---+ that's 6 out of the top 10 highest state taxes in the country.
So we're kind of pleased that the consumers have maybe grounded a little bit there, and we think that they're trending back to their typical buying patterns.
Specifically, about DCH, I think this is something that we find a lot of times when stores have improvements that it's very easy to be comfortable with the accomplishments that you've achieved and forget that they're still more opportunity, but it's neat to see that our leadership teams at DCH are reinspired.
I think January and February helped create a realization for all of us that our DCH quarterly results at 2% operating margin in, albeit, a seasonally ---+ a little bit tougher quarter, is it where they want to be and they came back through in March, and we're seeing some pretty good similar trends to what we saw in March leading into April.
We were up about 3% service parts and body.
We're not seeing shortages in labor like we used to.
It is nice to see that oil prices in Texas are strong again, which is where we did see some labor shortages 5 to 7 years ago, when oil was close to $90, $100.
But so far it's pretty stable, we're able to grow our teams internally and we're able to maintain pretty good staffs in our service departments.
Yes.
This is Chris.
So you've got to start with January and February, which are already some of the lowest production months that we have in the years ---+ in the year, and then when you compound that with the severe weather that was really impacting a lot of our northern states, you have some pretty significant impacts on the overall leverage we can get.
And a lot of that is due to our comp structure, where we carry the same teams that we had in December, which is one of our strongest months of the year into January and February, getting ready for March.
And these individuals are on really a minimum wage or guarantee that means when they don't hit production levels, we are not getting the leverage and costs on our personnel expense that we typically see in our better months.
So yes, the combined weather with low production months of January and February definitely had an impact on our SG&A.
And as we said, the leverage returned again in March when we saw our SG&A as a percentage of gross profit down in the low to mid-60s.
I think the ---+ this is Chris again, I think the easiest way to answer that is just looking at the buckets that we refer to, where you have your unseasoned stores and your seasoned stores.
And on the recent acquisitions, we are seeing SG&A as a percentage of growth or almost 15 percentage points or 1,500 basis points higher than our seasoned stores.
So as they integrate over time, and we can look at it in a succession of a 5-year period, it continues to fall as they continue to focus on increasing top line growth and maintaining a cost structure that brings more leverage and more profit to the bottom line.
Steve, this is Chris.
I guess it really is the predominately on the same-store basis when you look at what the weather impact was.
I mean, we can talk about new acquisitions and the impact they have, but for the quarter, what we saw was a $5 million increase in gross profit year-over-year on that same-store base.
But our SG&A was actually up $8 million.
So we actually had decreasing incremental leverage on a same-store basis in the quarter on a same-store basis.
In predominantly all of our stores in January and February, we saw that trend.
And it's really a function of ---+ again the way that our comp structure works and even our advertising plans, they don't leverage down significantly in those months.
And so then when you had 3, 4 days of weather issues in our northern states, really across from Alaska, Oregon, Washington, <UNK> Dakota, Montana, all the way out east to New York and New Jersey, we just didn't get the scale.
And as <UNK> said, 70% of our profit came from March because of that.
So trends are looking good in April, and we anticipate that that's behind it.
Steve, this is a <UNK>.
You're correct.
We ended Q1 at 57 days' supply, which was 5 to 7 days higher than it was at the end of Q1 last year.
We started the quarter, however, almost 17 days higher than where we were in the previous year.
And I think in January and February, a lot of that margin degradation occurred.
I mean, we did end up pulling out March, it was a $175 a unit better growth per unit than it was in January and February and we're seeing those similar trends in April.
Jamie, this is <UNK>.
I love the ---+ when it's sunny out, but that's a good catch.
Anyway, I think if we're comparing and contrasting our exclusive market strategy versus our metro market strategy, specifically looking at what we're learning in metro markets, the upside is huge.
I mean, I think from a technology standpoint, you have to be much more savvy in metropolitan areas, which is helping bring a lot of value into our exclusive markets as well.
I think if you look at the competition or even the consumers, they are less tolerant, which means you have to be even better at what you do, which leads to the third item, which is are you able to keep the people.
When we first combined with DCH, we weren't sure that people were going to be as stable and would be more transient.
We're really pleased to find out that there are similarities between stability of people and metros versus exclusive markets.
Our turnover rates are very similar to our exclusive markets.
And if you run a good business and provide opportunity and ownership for those people to be able to make their own decisions, we're finding that the stability of people is very similar, which means you're able to continue to grow and season the stores.
If we look at where we're at in terms of margin today, over margins in the metropolitan areas are slightly worse than our exclusive areas.
However, we have multiple stores that are showing us that the margins in metropolitan areas have the potential to be even higher than what exclusive markets are.
And I think some early examples of that are maybe a Paramus Honda in Bergen County or the new Toyota store in Downtown L.
A.
that are starting to reach volume levels, where you're levering your fixed costs at such a high amount that everything is dropping to the bottom line.
And I think we're very pleased with our entry into metropolitan areas because of that.
Jamie, I think that's a ---+ it's a really good insight, because I think the realization that growth is powered by people, as Chris mentioned, is how we grow.
And I think we're always a balancing that idea of are we going faster than our people can handle.
And I think at today's rate, I don't believe that's why there was a little bit of difficulty in January and February.
I do believe that some of the new acquisitions, like the new ones in Bergen County, the stores lost money last year.
I mean, we just bought them in March, and it's going to take some time to turn those stores.
So the idea of accretion, like a typical acquisition can be difficult.
But we also know that those is a 5 key assets from that group, 3 years ago made considerable profit, upward of 3% of operating margins.
So we believe that it's a quick turnaround.
I do think that the idea of slowing growth to be able to catch up may be relevant at some time.
I don't believe that, that's where we are at today.
And ultimately, if acquisitions are accretive on day 1, you would continue to deploy capital, because we believe it's a better use than share buyback or even dividends or other uses of capital.
So I think it's a great insight, and it may take us a little further discussion on the phone if you'd like.
I think when we look at who we are today, much of our business has transitioned away from traditional, what we would call, old retail automotive business, where a customer drives by the dealership and they see a car and they decide to stop and come in.
Or we advertise in the newspaper or on TV, and they decide to come in, and their car breaks and they decide to bring it in to their closest service facility.
Today, most of our interactions with our consumers begin on a web-based interaction.
So my comments, we mentioned the fact that over 81% of our business is done and initiated online, which means the interaction was found online on the vehicle, unlike driving by that vehicle.
It typically starts with chat or it starts with e-mail discussions or possibly a phone call, where we're looking at how do we meet our customers' needs, and then how do we fulfill that engagement with that customer, whether it's delivering at his home or whether it's them coming to one of the dealerships to be able to take delivery of that car.
The same happenings are happening in service and parts, whereas many of our stores today, it's a different experience.
People aren't hanging around the dealership as much as they used to.
They may come in and drop their cars off, or we may go pick it up in their living rooms and bring it back to our store, then redeliver it back to their homes.
If they're bringing their cars in, many times the customers will just get an Uber and go home or we'll shuttle them, or we have loaner vehicle that are there.
But the interactions are mostly more in passing rather than long interactions, which is making technology a lot easier to interact with our customers.
And I think I could get into a lot of different examples of how technology helps those interactions by online appointment making, by online payments and so on and so on to be able to talk about those.
But the business that we're in today is about fulfillment and fulfilling those needs of the consumers the way they choose within the comfort of their own homes, rather than trying to draw them into the dealerships, where they are sitting around and hopefully they'll have a reciprocal effect and buy a car or do something else to be able to spend their time and money.
We don\
Yes.
Rick, this is <UNK>.
I think we always try to be optimistic with our share repurchases.
We apply a similar hurdle rate and, as you know, we typically target paying 3 to 5x on EBITDA basis for acquisitions once they reach maturity.
So I would say, when you start to see our stock fall at the upper end of that range, we want to be more constructive.
And if the market is not going to reward us with the multiple and valuation that makes sense, we're happy to buy back stock.
We still believe the best use of capital is through acquisitions to develop the national footprint that <UNK> spoke to, which allows us to reach more of the U.<UNK> population, which we think is the best longer-term strategy.
But we won't drive by the opportunity to be constructive on repurchases that if the markets is there for it.
<UNK>, this is <UNK>.
I think, again, similar to most of the organization, January and February was weak, and DCH was just as strong as the rest of the group when it came to March.
I think if we look at their new acquisition opportunities, it's taking them a little bit longer to be able to improve stores, but I also know that they are a little more strategic in terms of how they approach problem solving.
We're working with them on their measurement base, whereas they're utilizing a lot of the details at that first level rather than more macro-level reporting and allow the people to be able to grow and prosper on their own, which we're helping with that type of strategy to be able to help grow the business.
But I mean, like we said, their SG&A for the quarter was at 82% which is not much better than it was when we combined 3 years ago.
So I think there's a lot of opportunity to continue to expand at both DCH and many of our other new acquisitions.
On a positive note, the Baierl organization has taken off really well.
If you recall, there were upwards of mid-80s as well in SG&A as a percentage of growth, when they joined us, and they finished the quarter at a little bit below 70%, which is a big move pretty quickly.
So we'll have to be reinspiring them that when they plateau, they have to find new solutions to be able to hit that next level.
Good question, <UNK>.
I think ---+ let me go back to the fundamentals of Lithia's greenfield growth strategy.
It's to buy strong assets, which we ---+ I think we all know that the Bergen County is one of the highest-income markets within our country, let alone in New Jersey it's #1.
So those franchises, those 5 franchise are probably the strongest high-line franchises in the <UNK>east, okay.
If we go back to how we look at developing those strong assets, we have an 86% track record of hitting our ROE targets.
Now those assets had deteriorated over the last 3 years.
Not so much in volume, but more so in operational profits.
So we believe that it's fundamentally our ability to regain margins ---+ top line margins, to grow our used vehicles, to expand our service and parts gross profit, to bring our customers back into those stores and then control the cost as we do that.
So on that acquisition, we had targeted that it's probably going to take us 3 years to be able to get them back to the 2.5% to 3% range.
Fundamentally, the leadership in the store, there's fairly good leadership.
We did replace general management in one of the stores, and we're starting to see early signs of success in that store.
We hope the other stores make the moves that they need to be make to be able to trend towards that 2.5%, 3% margin within that 3-year time horizon that we initially forecast.
Great, <UNK>.
Thanks for the question.
This is <UNK> again.
We're definitely not letting off on our acquisition cadence.
Our current strategy remains intact.
We will do acquisitions as they meet our 3 to 5x EBITDA or between 10% and 20% of revenue on our purchased price.
We look for a 15% to 20% after-tax return on a stabilized basis, which is the same strategies, and if we see those opportunities we'll strike.
The focus on parts of the Midwest or the Southeast are not that crucial at the time being, we still cover 81% of the country fairly easily.
So we weren't going to stretch to be able to get there.
We are looking for a management team in the Southeast, because we believe that in that market it would be nice to have a base of people to be able to leverage and grow from.
But I think, in closing, more importantly, we're still growing.
We don't believe that there is any hiccup in terms of our operating model, in terms of this greenfielding, value-based acquisition strategy or we don't believe that there is a shortage of people.
In fact, on the larger acquisitions like Baierl and Day and DCH, as well as Carbone, there is great people that were there that we typically don't get when we buy our traditional 1- and 2-dealership acquisitions and we're getting them in those and we believe if anything, we may have a glut of people in some of those areas.
So for us, it's same strategy, same focus and we believe that we'll be able to expand into the Southeast through our normal acquisition targeting over the coming 3 to 5 years.
<UNK>, this is Chris, just to add onto that real quick is ---+ the reason that we mentioned that there's 70 stores that are unseasoned, that are in our same-store results is because we know that they're not going to come in, in one year, get to the level of performance that our seasoned stores are.
And so the cadence over time and the pressure that we're seeing on our SG&A is anticipated.
And I think the key on that is continue to see steady progression in each of the cohorts of acquisitions that we have and continue to focus one store at a time on the individual opportunities and so our plan is if we just stop buying stores, you would see our numbers improve as far as percentages, but we're not going to continue to see the top line growth and get the national footprint that <UNK> is talking to.
<UNK>, this is <UNK>.
We closed our books on March 31, like we do every year in the first quarter.
So the OEMs have those extra days from time to time, depending on how the weekends fall, but that doesn't apply to us.
<UNK>, this is <UNK>.
We do plan on an amendment in 2018.
I think we're in the process of doing that.
I would expect you're going to see us upsize the revolver, primarily to generate more new vehicle floor plan capacity.
So what's happened is we've shifted more of the balance because we can reallocate it among those lines to give us more availability for new and used cars.
And we're going to go out to our lender group, and I expect that they'll likely be supportive of upsizing.
<UNK>, this is <UNK>.
I think you have to look at each individual market and the behaviors within that market, because I think if you look at many of our rural agriculture- and energy-based markets, even during the higher gas prices that we saw in the late 2000s, we didn't see major changes in the buying behaviors because trucks and SUVs are how they live.
Now, when we talk about crossovers there will be some transitioning into that type of model, but I think it's an individual region-by-region decision as to how people are impacted by fuel prices.
Thank you, everyone, for joining us today and we look forward to updating you again on our results in July.
Bye-Bye.
| 2018_LAD |
2016 | MDU | MDU
#Thank you, <UNK>.
Hello, <UNK>.
It is <UNK>.
We have a Line Section 25 expansion project that we are going to filing with FERC here and so we are starting off on that and that is what is driving it.
That's going to be compression at basically three locations, Charbonneau, Williston and Tioga and so that is what is driving the capital increase.
Well, certainly the exit of the E&P and refining, there is a lot less exposure directly with commodity prices.
I mentioned to folks, I look at WTI maybe three times a week and not three times a day as I used to.
When we think about, we will still have exposure to the general economies that surround the E&P business.
Again, North Dakota the Bakken is in our backyard.
We enjoyed some very nice customer growth, investment opportunity at the utility.
We moved organically Knife River into that market and enjoyed some strong workloads there.
So while we have some exposure there, I'll point out, as <UNK> mentioned, Knife's in 17 different states; so there is some exposure there, but at the same time it isn't all eggs in one basket.
I think it is more economic risk.
It's not direct price commodity risk.
And then actually, there are some things up in <UNK>'s business.
He goes through a lot of diesel every year running those big heavy equipment around.
We actually see some benefit with lower commodity prices and actually asphalt oil business can be favorable in certain markets like that too.
There's certainly some exposure, as probably all companies have, from an economic perspective, but it is a lot less direct affected from an income statement with commodities.
Okay, thanks <UNK>.
Good morning, <UNK>.
Yes.
Thank you for the question, <UNK>.
I would say this last quarter was pretty important strategically that we have done some of those things you just talked about.
The exit of the E&P and the refining were very conscious decisions on our part.
And we think strategically that makes us a much less volatile Company and less exposed to commodity.
And we really are centered on a two-platform business, that being regulated energy delivery, that is through <UNK> and <UNK>'s business along with construction materials and service, <UNK> and <UNK>'s business.
So we think those are two great platforms; they can complement each other and we think they are very core at MDU Resources.
Thank you, <UNK>.
I appreciate everyone again for participating on our call here this morning.
As noted earlier, our continuing operations delivered strong results for the second quarter of 2016.
We are committed to continue building on this momentum by focusing on those factors that we can most directly influence, those being controlling costs, expanding margins along with growing earnings.
We appreciate you being on the call here today and we thank you for your continued interest in MDU Resources.
Thank you and we will turn it back to the operator, <UNK>.
| 2016_MDU |
2017 | KAMN | KAMN
#Sure, <UNK>, in fact that got a lot of attention since the Wall Street Journal article from last week.
We have a relatively low amount of content about $35,000 to $50,000 on the narrow body aircraft.
We certainly like it when they go to 40 aircraft a month but it certainly much less than we would have on for example and A350 which helped drive some of the increase in our self lube bearing revenues from 2015 to 2016.
Relatively small just because it is a smaller aircraft and still important to us based on the volumes that they are going to be shipping those aircraft or delivery those aircraft at in the coming years.
<UNK>, for the K-MAX there are a number of milestone payments.
Upon contract signing we receive a certain amount then as we hit key production milestones and certainly, delivery is one of those.
Certainly a very large percentage of the overall cash flow relating does come upon delivery as we would expect.
But we do receive meaningful in process payments or advance payments from our customers on the program.
Sure.
We currently anticipate roughly on the range of somewhere between three and four orders on K-MAX.
That is a key top line metric for us and certainly we would also have a cash flow benefit to that out what's really important is that to make sure our production costs stay in line.
And that we are able to get the aircraft off the line because we have six firm orders and one under deposit so we are in pretty good as it relates to 2017, <UNK>.
There is a little bit of ---+ (multiple speakers) execute those contracts but we feel very confident in our ability to get there.
<UNK>, actually nothing went wrong, things went a little bit better than anticipated and as you can see from our underlying performance in distribution they really made significant progress during the year.
The impact from the overall performance in particular in the fourth quarter was that they reached levels that resulted in higher costs.
It had disproportionate impact on the fourth quarter as we trued up for the full-year, but those costs we believe our now behind us ---+ the vast majority of those costs are behind us.
It's really been an investment to build a much stronger business which I think is indicative from the underlying gross margin improvement that we demonstrated year-to-year.
Thank you, <UNK>.
<UNK>ert, this is <UNK>.
We certainly in conjunction with this productivity initiative program have invested in infrastructure to support this program going forward because this is really important for us.
We anticipate that, as we mentioned the vast majority of expenses or incurred and 2016, there will be some ongoing cost that are reflective in built into the outlook that we have for 2017 or distribution.
I would say rougher magnitude about 75% to 80% of the cost are behind us as we move into 2017.
Sure.
It was actually very interesting.
For each of the months in the fourth quarter we were quite literally down about 4.8%, it was eerily similar performance month to month.
We certainly were anticipating a stronger result on what we've got missing the line of the range by just a bit.
In the first quarter we are also running about mid-single digits but I would point out that our expectations for the first quarter daily sales rate is below prior year and we expect that to improve as we move through to the balance of the year.
So we are actually tracking fairly close to our original expectations so far through the quarter.
<UNK>ert, it certainly an environment where higher defense spending is good for us.
Obviously for Lockheed, Martin and Sikorsky with the Black Hawk we benefit greatly from that.
As you know we are a key team mate with Bell on the AH-1Z for the Marine Corps so as they continue to increase requirements for the Marine Corps and also for foreign military sales that's certainly good for us.
We are seeing another 15% unit volume increase in JPF from 2016 to 2017 after 25% increase from 2015 to 2016.
That and if we keep the A-10 program going it is really going to be favorable for us, but as you said, we need to have the proposed budget turn into a real budget and then have it come through the appropriation process.
I think perhaps one of the most significant advantages for us would be that if we actually have a defense budget as opposed to operating under a continuing resolution that it would provide the opportunity for the US Marine Corps to initiate a new program of record for the unmanned K-MAX.
With a continuing resolution the only way that you are able to start a new program is under an urgent operational need which is how we were able to deliver two aircraft to the Marine Corps for use in Afghanistan that are now out in Yuma.
We see certainly advantages to higher defense spending and certainly other key advantages to action having a budget.
Sure.
<UNK>, we're certainly ---+ currently we're doing our alternatives.
Take a look at command in our spending in the capital markets.
We do have never of options available to us ranging from replacing it with another convertible note or perhaps even considering high-yield offering.
Even just replacing it with bank debt.
Those are our three broad options that we look at.
I don't think we're going to do anything exotic.
We are in a good place.
The capital market environment today is still remains very favorable and as you would anticipate looking at the general pricing levels even though Treasurys have sold off since the election overall corporate spreads have tightened in as much if not more.
We feel very encouraged by the conditions and we are working with our financial counterparties on addressing the upcoming maturity.
Certainly we will be keeping everyone informed as we move to that process and certainly as we announced what we are going to do with that upcoming maturity.
At this point I would say that's highly unlikely.
Certainly, we appreciate where the value of the currency but I think we would use that certainly more in line with a something more strategic than refinancing the existing debt on the balance sheet.
<UNK>, I will start with the second part of the question.
I cannot say that we have seen any change in the M&A environment due to the transition of administration or any of the proposed either tax or export import discussions that we have heard about and that we've all heard about.
But I would say that obviously we did two very important acquisitions late in 2015 including GRW, the largest acquisition we'd ever done.
We very consciously took a step back so that we could focus on the integration of those businesses and to assure that we had a focus on delivering to the acquisition plan we presented to our Board.
We just crossed over that year and we did meet those expectations so we are very interested and now very active again in the M&A area.
We have looked at a couple of Aerospace businesses that would fit very nicely with our engineered products focus.
They continue to be highly priced but we will continue to be active in pursue those that we think can make sense in where we can deliver value as we have with the last few.
That's really it.
Certainly tax law changes what impact those returned but until we know what it is really going to be we have not brought any of those new calculations into our existing analysis.
Thanks, <UNK>.
<UNK>, I don't think we can comment on that.
It will be ---+ when the contract is awarded there will be an ability for people to look at that and work backwards and understand what that pricing is, but at this point in time at this stage of negotiations we're really going to shy away in fact were not going to make any comment on pricing.
Thank you, <UNK>.
<UNK>, are you there.
We did have a bit of a change in the methodology.
We did have a bit of a catch up adjustment that we made on our backlog.
Certainly that's really been indicative of rough backlog levels that we've had.
We just ---+ in terms of how we recognize it we [didn't] make a change.
Those are firm, similar to how we view our Aerospace backlog, those are all firm POs.
<UNK>, we are ---+ I would call it towards the middle innings on that program but we do expect to see a year over year positive increase on the top line top line relating to Peru this year.
We do expect that to contribute positively to the top line.
2018 ---+ if I had to estimate of this is what is difficult to say based on how the program will completely unfold, <UNK>.
I would say it is probably on level with where we are going to see on a 2017, not materially different.
Sure, <UNK>.
Obviously what we would be looking at is two factors.
One, as we go past our current contractual commitments with Bell is that we will benefit hopefully from slightly higher pricing as well as being well down our learning curve so we will attack both sides of that, both price and the cost side.
We think we made some actually some good progress over the course of the last six to nine months.
Bell is very encouraged by the reception of the aircraft in the world market today in fact they was news this morning about Australia and competition in Australia including the AH-1Z.
We feel very good and we're doing everything that we can to support them and those efforts.
Thank you, <UNK>
Thank you for joining us for today's call.
We look forward to speaking with you again when we report our first-quarter results in May.
| 2017_KAMN |
2015 | FE | FE
#So, let's first talk a little bit about how a newspaper is run.
We went and met with the editorial board, and we had what I thought was a good conversation, over an hour and 50 minutes, but then it gets boiled down into an article.
Once that article is written, then there is a headline writer, who goes and writes a headline, to try to draw attention to that article.
The headline that was written for that article was completely inaccurate, as to anything we discussed during that interview.
In the interview, I was asked the specific question of, are we in any way working to get the legislature of the state to consider re-regulating.
And my answer was no.
In the context of the discussion about the PPAs, here is my view.
We are talking about trying to find ways to preserve major generating assets that have plenty of useful life left in them, and keep them from closing prematurely.
Exelon is looking at doing that in Illinois and New York.
Ohio utilities are looking at it doing that in Ohio.
You don't ever hear any conversation about needing to do that in states that are regulated.
Regulated states have plenty of generation.
They have integrated resource plans, and if they need more generation, they either buy or build it, so they are assured, they have adequate generation to serve the customers.
So these PPAs, I see as a bridge to keep these plants alive, long enough to allow whatever happens.
If our state wants to look at that issue over time, great.
But it's not going to happen fast enough for these two plants.
If we are ultimately able to make significant corrections in the market, to make sure they provide for the long-term security of base load generating facilities, great.
But I don't think we have time to wait on that either.
And yesterday, the Senate Energy Committee put forth a bill that talks about asking the markets to kind of come up with a process to make sure they ensure diversity of both fuel and types of capacity, generating capacity across the markets.
We don't have time to wait on that either.
These plants are at risk today, and we need to get a decision made, as to whether we're going to look at ways to protect them, so we let all of those debates and legislation in Washington, DC and everything else play out.
I'll let <UNK> answer it.
But my view is they are sustainable.
And I met with our fuel team yesterday about how we can get more.
So under that context, I'll turn it over to <UNK>.
I mean, the obvious context is, the competitive generating fleets, both nuclear and fossil are under duress, as a result of current market conditions.
The second industry that's under equal or maybe even more duress is the coal industry.
And I think what we are trying to do is work together, partner together for the survival of both.
There are some savings in there for nuclear fuel.
And essentially, what we did there is we were looking at procuring additional nuclear fuel to take advantage of the very low prices of uranium that are in the market today, way ahead of when we needed it.
We don't need it for number of years yet.
We decided not to do that, mainly on the basis that as we assess that uranium market, we think the pricing is going to stay where it's at for a long time.
And so, there was no urgency to try to need to capitalize that on this year.
Yes,
We are above the midpoint in all three segments through six months.
And that combined with the CFIP results that we talked about, that were are going to get in the second half of the year, are what caused us to say we can point you to the high end of the guidance.
So if you're follow-on question is, why don't you kind of change your guidance.
The answer is, we have got $1.15 in the bank through six months.
Our midpoint of our original guidance was $2.55.
That means we have got $1.40, that we have got to capture, the second half of the year, just to get to the midpoint, and the $1.55 we've got to capture to get to the high end of the range.
And we've got a lot of very volatile weather months in the third quarter, and a big third quarter.
So we just decided we're going to wait, and see what happens in July and August in particular.
And then at the end of the third quarter, when we do this call at the end of the third quarter, we'll tell you where we expect to be more definitively at that time.
Yes.
Well, I would say this.
We did a number of things to prepare our plants for the winter of 2014/2015.
And in order to ensure they operated reliably for this winter, even in an environment where there weren't any penalties; as far as how we look at that going forward, we're going to make that determination, in terms of how much you are willing to spend on reliability improvement, versus where the capacity performance market clears.
In terms of the specific numbers, I don't think we are in a position to talk about those at this time.
We need to see were both the base residual auction, and then where in particular the transition auctions clear, because those are the more imminent.
For the base residual, you've got three years to figure out how to get your units reliable for that one.
The transition auctions are little more pressing in terms of time.
So we'll make those determinations, once we see where the auction results come out.
You're talking about our guidance for the third quarter, <UNK>.
Okay, for the second quarter, yes, we looked at where we thought we would be based on our plan.
We did come out above the high end of our guidance.
We deferred some of our plant outages to later in the year, so we picked up a couple of cents there.
Distribution, they performed a little bit better, slightly lower O&M.
And then, we had slightly better results from our transmission business we've already talked about.
So that is what really what drove us above the top end of the guidance in the second quarter.
They will be substantially finished by the end of 2015.
We only have a minor amount carrying over to 2016.
My view, it would be I think it's a non-factor.
I think the governor's decision to run for president is a political decision, and it affects things that might have been politically.
I think he has made it clear all along, that he expects the Ohio Public Utilities Commission to look at this issue, and make an informed decision on this issue.
And so, I don't think that would change as a result of his decision.
Okay, I don't see any more questions in the queue, so we are actually going to end a few minutes early here.
I want to thank everybody for your support, and obviously, we feel good about where we are at for ---+ <UNK> just popped in there, so I'm going to stop, and let <UNK> ask his question.
Yes, that's correct, <UNK>.
No, I wouldn't say there is any offsets.
I talked a little bit earlier, I don't think you will see the growth in the revenues that you did see the first half, you saw $0.20 there in the first half.
We had guided you to $0.30 in the year I think we're going to be slightly above that.
Some of the offsets that you saw during the first half, were depreciation, general taxes, and interest.
They will probably be about in line the second half of the year, as they were the first half of the year.
So I think we will trend, as <UNK> said, to the upper end of the range on transmission.
But it's not going to be the same $0.11 that you saw in the first half.
Right now, <UNK>, we are tracking about $0.01 behind where we were last year, and we guided you to about $0.11 behind.
There are a few offsets.
We had some improvement in distribution, and we have been helped somewhat by weather in the earlier part of the year.
So I would not expect, based on normal weather going throughout the rest of the year, that we would drop-down to the $0.11 that we guided you to.
---+ be at the upper end also
We had a bet on when it was going to end, and you just cost me a lunch so ---+ (laughter).
Now thanks to everybody.
As I said, I think we are off to a great start this year.
We feel good about the results.
I will tell you, I am constantly impressed with our team here, and whatever we asked them to deliver, they find a way.
Under <UNK>ny's leadership, this cash flow improvement team exceeded my expectations.
I don't know what you're all expectations were when I told you we were going to get to the $200 million, but they exceeded my expectations.
And we are working hard, and will capture those savings over the next couple of years.
So thanks for your support, we look forward to talking to you on the third quarter call, and probably many of you in between.
Take care.
| 2015_FE |
2016 | CBU | CBU
#Thanks, <UNK>.
No further commentary.
It was a great quarter.
Thank you, Matt.
Thank you all for joining.
We will talk to you again next quarter.
Thank you.
| 2016_CBU |
2015 | AN | AN
#Good morning and welcome to AutoNation's first-quarter 2015 conference call and webcast.
Leading our call today will be <UNK> <UNK>, Chairman, CEO and President; <UNK> <UNK>, CFO; <UNK> <UNK>, COO; and <UNK> <UNK>, EVP responsible for M&A.
Following their remarks we will open up the call for questions.
Robert Quartaro and I will also be available by phone following the call to address any additional questions that you may have.
Before we begin let me read a brief statement regarding forward-looking comments.
Certain statements and information on this call may constitute forward-looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve risks which may cause the actual results or performance to differ materially from such forward-looking statements.
Additional discussions of factors that could cause actual results to differ materially are contained in our press release issued earlier today and our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K.
Certain non-GAAP financial measures, as defined under SEC rules, will be discussed on this call.
Reconciliations are provided in our press release and on our website located at investors.
AutoNation.com.
And now I will turn the call over to AutoNation's Chairman, CEO and President, <UNK> <UNK>.
Good morning and thank you for joining us.
Today we reported record first-quarter earnings per share from continuing operations of $0.97, a 29% increase as compared to adjusted EPS from continuing operations of $0.75 for the same period in the prior year.
This is our 18th consecutive quarter of double-digit year-over-year growth in EPS from continuing operations.
First-quarter 2015 revenue totaled $4.9 billion compared to $4.4 billion in the year ago period, an increase of 13% driven by stronger performance in all of our business sectors.
In the first quarter AutoNation's retail new vehicle unit sales increased 10%, or 9% on a same-store basis.
AutoNation continued reforms during this recovery with an optimal brand and market mix and a disciplined cost structure.
We continue to drive solid results across all our business sectors.
I now turn the call over to Chief Financial Officer, <UNK> <UNK>.
Thank you, <UNK>, and good morning, ladies and gentlemen.
For the first quarter we reported net income from continuing operations of $112 million or $0.97 per share versus adjusted net income of $91 million or $0.75 per share during the first quarter of 2014, a 29% improvement on a per share basis.
There were no adjustments to net income in the first quarter of 2015.
Adjustments to net income in prior periods are included in the reconciliations provided in our press release.
In the first quarter revenue increased $581 million or 13% compared to the prior year and gross profit improved $93 million or 13%.
SG&A as a percentage of gross profit was 69.7% for the quarter, which represents a 110 basis point decrease compared to the year ago period.
Net new vehicle floor plan was a benefit of $14.2 million, an increase of $2.9 million from the first quarter of 2014 primarily due to higher floor plan assistance which increased due to higher new vehicle sales.
Floor plan debt decreased sequentially approximately $95 million during the first quarter to $3 billion at quarter end primarily due to increased ---+ decreased borrowings on our used vehicle floor plan facilities.
Non-vehicle interest expense decreased slightly to $21.4 million compared to $21.6 million in the first quarter of 2014 primarily due to improved pricing from our credit facility refinancing that was completed in December of 2014.
At the end of March we had $1 billion of outstanding borrowings under the revolving credit facility and a total non-vehicle debt balance of $2.1 billion.
This was a decrease of $73 million compared to December 31, 2014.
The provision for income taxes the quarter was $69.8 million or 38.5%.
From January 1 through April 20, 2015, we repurchased 150,000 shares for $9 million at an average price of $60.46 per share.
AutoNation has approximately $272 million of remaining Board authorization for share repurchase.
As of April 20, there were approximately 114 million shares outstanding.
This does not include the dilutive impact of stock options.
Our leverage ratio decreased to 2.2 times at the end of Q1 as compared to 2.3 times at the end of Q4.
The leverage ratio was 2.0 times on a net debt basis and this includes used floor plan availability and our covenant limit is 3.75 times.
Capital expenditures were $63 million for the quarter.
Capital expenditures are on an accrual basis excluding operating lease buyouts and related asset sales.
Our quarter end cash balance was $74 million which, combined with our additional borrowing capacity, resulted in total liquidity of $900 million at the end of March.
The finance team remains committed to supporting our operational partners with a unified focus on driving long-term shareholder value.
Now let me turn you over to our Chief Operating Officer, <UNK> <UNK>.
Thank you, <UNK>, and good morning.
AutoNation posted stellar first-quarter results with double-digit growth in revenue and gross profit across all business sectors.
This marked our 18th consecutive quarter of double-digit EPS growth.
Going forward my comments will be on a same-store basis and compared to the period a year ago unless noted otherwise.
Total gross profit for variable operations was $459 million, up 12%.
Total [variable] gross was $3,406 on a per vehicle retail basis, an increase of $67 or 2%.
New and used same-store sale unit volume was up 10%.
New vehicle revenue for the quarter was $2.7 billion, an increase of $277 million or 11%.
We retailed 76,900 units, an increase of 9%.
New vehicle gross profit was $2,005 on a per vehicle retail basis, off slightly due to continued pressure in the Import segment as well as growth in the volume of entry-level Premium Luxury models.
For the quarter used vehicle retail revenue was $1.1 billion, an increase of $121 million or 13%.
Used vehicles retailed were 57,400, up 11%.
Used vehicle gross profit was $1,738 on a per vehicle retail basis, a decrease of $42 or 2%.
As you might remember in Q1 2014 we focused on maximizing margin due to our tight inventory supply.
We are well-positioned with our used inventory for the second quarter.
We increased our total store used units by 26% compared to last year and our current total store used vehicle inventory levels at 34 days.
Customer financial service's gross profit set an all-time record at $1,515 on a per vehicle retail basis, an increase of $114 or 8%.
Approximately two-thirds of our gross profit per vehicle retailed was related to customer financial service products and approximately one-third was related to finance.
Total gross profit for customer financial services of $203 million was up $32 million or 19% compared to the period a year ago.
We continue to see opportunity in customer financial services as we drive store level execution and offer products that build customer value and loyalty.
In the quarter customer care revenue was $723 million, an increase of $56 million or 8%.
We set an all-time record high in customer care gross profit of $310 million, an increase of $26 million or 9%.
Customer paid gross was $124 million, or 4%.
This was our 19th consecutive quarterly increase in customer paid gross.
Warrantee gross was $60 million up 19%; collision gross was $29 million up 11%.
Excluding the impact of elevated recalls we continue to expect mid-single-digit growth in customer care.
I would like to thank all 24,500 associates for a job well done this quarter.
As an organization we remain focused on driving sales, driving service and building the AutoNation brand.
I will now turn the call over to <UNK> <UNK>.
Thank you, <UNK>.
We are excited to announce that in April we completed two acquisitions that we signed in the first quarter, including Mercedes-Benz store located in San Jose, California.
This represents our 22nd Mercedes-Benz franchise and our 21st franchise in Northern California.
We also acquired a Chrysler, Dodge, Jeep, Ram store in Valencia, California, our 32nd franchise in Southern California.
The Chrysler store will be an excellent addition to our business in the Valencia Automall where we offer nine brands.
AutoNation has also signed an agreement to acquire a Jaguar, Land Rover and Volvo store in our Spokane, Washington market.
This will give us 25 franchises in the state of Washington.
As previously announced, during the quarter we completed the acquisition of a Mercedes-Benz store in Reno, Nevada, and a Volkswagen store in Atlanta.
The combined annual revenue for our five acquisitions since the beginning of 2015, including the Spokane acquisition which we expect to complete in early May, is approximately $320 million.
As of today our store portfolio numbers 290 franchises and 235 stores in 15 states representing 34 manufacturer brands.
Looking forward, we will continue to actively pursue acquisitions and new store opportunities with a focus on enhancing brand representation within our auto retail markets, as well as markets that can be supported by our existing management infrastructure.
As for M&A market conditions, there is a solid pipeline of potential opportunities in the marketplace.
While we have not seen a material increase in competition for deals, we have seen an uptick in sellers testing the market with unrealistic expectations.
We will continue to be selective and prudent with our capital with a focus on investing to produce strong returns and long-term shareholder value.
I will now turn it back to <UNK> <UNK>.
Thanks, <UNK>.
We believe the auto industry is healthy, we still expect industry new vehicle sales to be above 17 million units.
And with that we will take your questions.
This is <UNK> <UNK>.
I believe the reporting is accurate.
But I am more in your B that you've got to look at the totality of the relationship.
The fact of the matter is our Chrysler business is booming, we have high throughput through our stores.
It has been a phenomenal recovery led by [Sergio] and his entire team.
And the stores are very profitable with profitability growing.
So how they run their marketing scheme and the various things, it is a partnership with them.
And in principle, as long as it is a win-win relationship, and we certainly believe with Chrysler it is, the details are not so much of a concern.
Again, this is <UNK> <UNK>.
Our portfolio has been tested 18,000 times ---+ that is not an exaggeration, 18,000 times.
And a very miniscule nominal number of situations were called to be looked at and when you look at them in detail there is not much there.
So I could certainly speak for our portfolio that there is no sign of disparate impact let alone discrimination.
As far as the CFPB's position for flat, that's been their position from day one.
And so far the banking industry has said that is not where they want to go because the system in principle is working very effectively for all the constituents.
It is working for the consumer, it is working for all the protected classes, it is working for the banks and it is working for the retailers.
So it is a very efficient effective system.
So what is finally going to happen.
I don't know.
But I don't sense anything impending is going to turn the world upside down.
<UNK>, could you repeat the question.
This is <UNK> <UNK>.
What we are seeing is strong and steady growth in California and Florida and we've seen virtually no impact in Texas with the decrease in oil prices.
Overall all of our markets are performing very strong.
So, this is <UNK> <UNK> and, yes, we are definitely getting revenue growth out of Premium Luxury, that is just because of the average price per point.
The gross is definitely being generated out of the Domestic segment and that is primarily driven by increased light-duty truck sales, trucks and SUVs.
So what we are seeing out there ---+ this is <UNK> again, what we are seeing on our PVRs is our ---+ we (inaudible) pleased with our performance in our overall total variable opt PVR, which is up 3.2%.
What we are seeing is once again steady growth in our Domestic or downward pressures on our Import and our Premium Luxuries are holding.
But the average sell price on our Premium Luxuries because of entry-level models that have been recently introduced is bringing down our margins and reducing our gross slightly.
But all in all, like I said, we continue to be pleased with our performance and our total variable opt PVR has increased 3.2%.
<UNK>.
AutoNation has always been a leader in CFS with our technology and our training and we will continue to be that way.
We see steady growth opportunities in our CFS performance especially in our lower performing quartile stores.
And as we increase our focus on our product sales we will continue to grow our CFS PVRs.
Well, on a gross basis recalls only represented 5.2% of our total customer care gross profit.
So I would have to get the exact numbers as it relates to (multiple speakers).
I think as far as our increase it is around 25% of the gross profit increase.
So of our gross profit customer care increase in the first quarter 25% of it was recall related.
So at the peak of this surge of recall, that is all it ---+ that is what it meant to us ---+ to put it in perspective.
But <UNK>'s number is the best, 5% of our total customer care business is recall related.
We haven't had a substantive change in our compensation plans in the last year.
No, there have been no changes ---+ this is <UNK>, there have been no changes on the hold back structure or any of the performance bonus metrics.
Yes, (inaudible) Express, our journey to improve our AutoNation digital performance really began with the launching of the brand AutoNation just over two years ago.
And I recall at the time I said that was the inflection point.
And so our investment in the brand in digital is progressing extremely well.
And if I look at our business here in the first quarter fully 19% of it was generated by the AutoNation sites.
And we had about 13% of our total business come from third-party sites.
So we have significantly outgrown and had a crossover as far as our dependence upon third-party sites.
As far as this transactional capability under the flag AutoNation Express, it is now active in 84 of our stores.
It has been very well accepted by our customers and by the stores.
We will roll it out across the rest of the enterprise through the course of the year.
And I expect in the next several years this strength of the AutoNation digital sites versus third-party will widen with our sites breaking over 20 and third-party sites going down into high-single-digits over the next couple years.
So our used vehicle volume, as you said, was up significantly.
We are looking at our total overall used car gross profit was up 7.9%.
The nice thing about the used car business is with the availability of inventory increasing and the way the market ebbs and flows as the market drops, we are able to buy our cars for lower money.
And because of market dynamics being able to drive and sustain PVR.
So we really don't see any negative impact going forward.
Yes, this is <UNK> <UNK>.
As I have often stated, our first responsibility to our existing organic business that it is state-of-the-art.
In the first quarter we had a number of major [expanses] and renovations that were of a level that substantiated a re-grand opening.
So we did events in those markets, I hosted events in those markets with our associates and customers and we did a lot of local market press so therefore the press release.
Yes, I think you are going to see that continue through the course of the year.
That our confidence and optimism about our existing footprint remains.
We are committed to our OEM partners to have first-class facilities.
And when they arrive to a certain level of investment we will be doing events in those markets.
And then you will see a press release.
And, Jamie, we are sticking with and have called out $235 million of CapEx forecast for this year.
Yes, this is <UNK> <UNK>.
Going forward on capital allocation we've never given that much clarity other than to say we're always looking at the balance between the opportunity on the acquisition side and the opportunity that is available on the share repurchase side.
I think it is fair to say that we have a lot of discussions underway.
But you would never really know whether that leads to transactions or not.
So it is very dangerous to say, oh, we are going to do X in this quarter and that quarter because then you feel this pressure to conclude deals to meet the commitments that you made.
But I think it is fair to say that there is a lot of activity and a lot of discussion underway from willing sellers and we will see if that leads to transactions.
So, this is <UNK>, the two biggest recalls we have out there right now is the GM ignition switch.
We have performed approximately 23,000 recalls there, it's about 60% of what we feel is available to our current customer base and on the Takata airbag we have done 48,000 which is approximately 20%.
The availability on the parts for the Takata airbag are starting to open up.
So we had a small increase in that, but overall that is where we are at on the two biggest.
Yes, I think it will be ---+ it probably will be higher, but whether it is this high I am not convinced at all.
These are two extraordinary recalls that or so broad and so old that to say we are going to have these type of recalls open-ended I am not necessarily there.
But I think the feeling within the industry is if in doubt recall, recall sooner the better.
And certainly the whole process somehow someway needs to be improved.
It is really broken the way it is today, almost dysfunctional.
We get it all done at the end of the day, but it is certainly not ideal and it is certainly the customers deserve something better than what is going on today.
But to say we are going to be open ended at this level, I would not necessarily agree with that.
We'd have to get back to you to get the breakdown on what is truck versus SUV versus car on the used cars.
Inherently as the volumes increase on the new car side the corresponding years on the late-model two to four year old cars, inherently the prices go up.
So most of it is being driven by the mix of inventory that is available in the marketplace.
This is <UNK> <UNK>.
So first I would be surprised if the industry moved to a flat fee.
And if they did move to a flat fee I would be surprised if that is what the flat fee is, the number that you mentioned.
It doesn't mean I can't be surprised, I am just saying that is not where I think this is going.
But let's see.
I think <UNK> stated the case well.
We have ---+ we see exceptional potential in the product side of the portfolio.
And speaking of flatness our finance side of the equation has been relatively flat for years.
All of the growth has been on the product side.
And we intend to take a big step launching a pilot in the third quarter where, again with the brand AutoNation, we will now offer our service and maintain contracts under the AutoNation brand name.
And we feel this will be another growth opportunity that has the potential to be very beneficial in 2016 after we get through the pilot phase.
First, we are quite the opposite, we are advocating whatever is most convenient for the customer.
And have long argued that cars be designed and equipped in a way that these software updates can be done on a regular basis without any inconvenience to the customers.
And I think that's pretty much the direction the industry is going in.
I think some manufacturers on certain models are already there.
And I expect that would ---+ to be continued in the future.
It is not a big part of our business today.
This is <UNK>.
The thing I would add to that is on the flip side of this I think technology is also going to be able to drive the customer to be able to diagnose a car and drive the customer back into the dealer to perform whether it is a maintenance requirement or a possible warranty or recall.
And it could notify the dealer and the customer as well as come back into us.
So we see it as a positive.
Yes, that is the other thing we are pushing for with the manufacturers is that the car communicate with us what its maintenance needs are so that when the customer comes in we already know it needs this, this and this and the parts have been ordered and are there and we are ready to make the repairs.
So I think this connected car where it is the car talking to the manufacturer and talking to the customer care experts, namely us, the retailer, I think has tremendous potential for the business and for the convenience of the customer.
And we are all for it.
I think we are all set for the day.
Thank you very much for joining us.
Very much appreciate it.
Thank you for the questions.
| 2015_AN |
2016 | ALB | ALB
#We expect it to decline in the second half of the year.
It was stronger for us than what we had previously indicated.
That was really because of the regional mix; much stronger for us in the Middle East than in the Gulf of Mexico.
As you know, we have a strategic advantage with our site in Jordan on the Dead Sea and that enabled us to capture some additional volume in the Middle East.
All the indications we get from our customer base, as well as what we read into from forecasted E&P spending, is that it will be down in the second half of the year.
So the GreenCrest piece is a strategic product for us that we have announced recently that we have discontinued HBCD, and we are focusing on GreenCrest for those applications.
That is still a relatively small part of our portfolio, but growing at a fairly fast clip in 2016.
Yes, the other thing I'd add on that is we make less profit on this product than we did on HBCD just because of the volume and because of the cost position of that product, royalties that have to be paid to the owner and such things like that.
So it's not ---+ from what HBCD was, it is a negative as opposed to a positive.
On your first question, the cadence of the volume for this year is probably determined by the fact that there is, on the one hand, a strong gasoline market, which determines good utilization of the majority of units all over the world.
On the other hand, compared to last year, there were no additions this year or commissioning of any new units.
So in essence, there is a stable number of assets there that's all being run at a good pace, and this is driven by the fact that there is a good gasoline demand all over the world.
On the FCC pricing, you know we have announced an increase earlier in the year and have been clear on the specific reasons for doing so.
That has not changed.
We are working on implementation.
You know that it's going to take some time before we are going to see the result of it.
Probably too premature to express on where things are heading, but we have had some minor successes so far, and we are confident that over a period of two or three years that that price increase will come through.
Hold on one second, <UNK>, he asked about HPC too, so (inaudible) as well.
Okay, on the HPC, you know that the metals are playing a big part in the price setting for those products, so price to a certain extent is determined by the volatility of the metals prices, and for the rest, there is no downward pressure whatsoever on the pricing.
So if I could add to that, that metals is generally a pass-through, so it may impact your margins somewhat, but it won't impact your actual profit that you would make off that when you see these pass through.
On the FCC and HPC catalysts, again, as we've said, as long as we can deliver the technology that helps the refinery make more money, to have more throughput, to be more efficient in their operations, we can get a pass-through.
We can increase prices because we are helping them make more money and that's our goal.
That's the industry's goal.
We want to help refineries make more money, and then we want to get a piece of it.
And that's what we are working hard to do to push through these price increases, and we feel good about where we are with that.
So, <UNK>, sorry to interrupt, but the capital structure and deleverage.
Yes, so I'm happy with our capital structure and its readiness, if you will, for deleveraging.
We were able to borrow for the transaction of Rockwood, as well as refinance the debt that we took over from Rockwood at very favorable rates.
We have in place a term loan now, the remaining term loan that's about $900 million that's fully pre-payable.
It's due in 2019, so we fully expect that that will be the target that we use to go down.
And frankly, we just need to execute on converting these great EBITDA margins into cash and we will be well-placed.
So I think we are in great shape and you will continue to see us delever.
Yes, so if you look at it ---+ I appreciate the question.
First of all, you shouldn't read anything into it.
But if you look at the lithium business, the lithium business has significant growth opportunities before it.
It will be ---+ it will require capital in order for us to achieve the type of growth that the entire industry is going to have, and maintain our leadership position in that.
Bromine is a much more mature business and it requires it to be run differently.
So we are going to run bromine not for growth, but we are going to maximize the cash that we get out of that business to fund lithium.
And I think it takes two different focuses to run those businesses.
One is all about growth and delivering these great opportunities we have.
The other one is ensuring our cost structure is where it needs to be, maintaining what we have, ensuring that we are a solid supplier, achieve growth where possible, but run it for cash.
It requires two different focuses and to us it made the most sense to do that.
In addition, whenever we were speaking with investors after the transaction we were going around, there was a clarity from our major investors that they wanted to see transparency on how Bromine was doing, but mainly how Lithium was performing versus what we said and what we thought it was going to do.
So we thought that, given the two different focuses of the leadership team, as well as the request for the clear transparency from the investors, this made the most sense to operate in that regard, <UNK>.
Yes, as a general rule, <UNK>, that's exactly right.
Okay.
I'm going to let <UNK> take the first one.
So on your question on end-market demand for bromine, the largest market for us is brominated flame retardants, and the largest piece of that is going into electronics.
So far, we are seeing a relatively flattish outlook for BFRs into electronics.
There are some things going up and some things going down.
As you mentioned, server demand is up.
We are expecting, at least from what we've seen in published reports, that to be up 8% in total server demand year-over-year, but offsetting some of that is a low single digit decline in PCs and TVs year-over-year.
So on the balance, it's relatively flat.
When we do look at some of the other indicators, so for example, Bishop & Associates puts out a Global Connector Confidence Index.
That's at about 76 right now and anything north of 50 tends to be a positive sign for electronics.
So we are cautiously optimistic, but so far the indications we get from our customers looks relatively flat to slightly positive.
On your second question, a criteria for us to do another large acquisition.
You know, <UNK>, we need to follow through on this one first.
We've still got to finish the integration.
We've got to capture those synergies that we talked about.
We've got a lot of focus on getting more efficient as a company and we will do that.
We need to pay down our debt.
We made a commitment that we were going to deleverage and we need to do that.
That'll take us probably through the end of 2017, early 2018, that kind of range to pay off the deleverage.
And we need to follow through on the capital plans for Lithium and the growth.
So I don't see another large acquisition in our future, in our near future, in the next 12 to 18 months.
[I wouldn't assume it].
We've got our plate full executing on what we are doing.
And then if you fast-forward out then, we are going to look at the kind of acquisition, if we do one at that time, where we would build on the growth that we've got, build on the great technology positions that we would have.
But it's really premature to talk about that now because the focus is all about finishing this integration, executing against the strategy we have, both with our businesses and the Corporation and deleveraging and cleaning up our balance sheet.
So it's really premature to talk about any potential acquisition.
Yes, <UNK>, that's the end.
When you talk about the $82 million, I'm assuming you are talking about the appraisal shares to ---+ in the [Varitant] settlement.
That was a leftover of the acquisition and the transfer of shares.
Is that correct.
That's the settlement amount, and that normally does not get captured in a free cash flow calculation, so that's actually in the financing section of the cash section.
So that's the settlement.
So that does affect our cash overall, so it does not affect free cash flow, but it does it affect our cash overall.
And obviously included in our ability ---+ slowdown our ability to pay down debt in Q1 gives us some momentum going into Q2 and the rest of the year.
It does not, no.
No, free cash flow and actual free cash flow is really cash from operations.
We do add back pensions and OPEB contributions and subtract CapEx.
So those are the components.
Other financing activities, pluses and minuses that come through that, would not be included.
So first off, we are not going to disclose the details of the agreement until it's actually signed, but we anticipate that the EBITDA margins for the lithium business will still be in the range of that 40% over the life of that agreement.
Again, if the MOU is signed and the way it is, we would start paying royalties in 2017, as we've said.
So we hadn't said what amount that is because the agreement is not finalized, but we would see that, so you would be a little bit of a dip in the margins because you are paying some for royalties, but we still expect to have growth.
And you've got pricing that will continue and we would expect to be able to maintain healthy margins in that 40% range.
In essence, I would just hold onto what we communicated earlier.
The market is still somewhat nervous in terms of the oil price and how they spend their budgets for change-outs or delaying catalyst change-out.
So nothing has changed fundamentally there.
However, we see some higher number of change-outs year-over-year within the context of the lower oil price, and we have been doing good in securing those volumes, and at the same time, the catalysts that we will be using had a better mix versus what we had last year.
Yes, I'm not sure I understand the question.
So today, we have margins in Lithium, if you just look at Lithium alone, that are in plus 40%.
And that's a global average that we have for all of our businesses ---+ battery, non-battery grade ---+ everything is north of 40%.
What will happen ---+ you said 2020, but if the MOU ---+ once the MOU gets signed, then we will pay royalties in 2017.
That will impact the royalties from the carbonate and hydroxide produced out of Chile, not the rest of the world.
It won't have any impact on spodumene.
So we will see some downward pressure on margins because of royalty that should be able to be offset because of the additional volume we'll be running through, as well as price increases.
So to model something now into 2020 and try to extrapolate what the margins are out of Chile versus the margins out of spodumene versus the model out of specialties, you are quite frankly just slicing it too thin.
We will maintain margins in the general area in lithium where we are for the foreseeable future.
Yes, and I am assuming you've just asked about catalyst and lithium, so that's a question.
I think if you look at the most aggressive assumptions in the marketplace, it would be 3% type of penetration of electric vehicles in the annual sales fleet.
There's still going to be the need for hydrocarbons for the gasoline and for the diesel, so we don't see the success of one hurting the other.
We haven't seen that with low oil prices or high oil prices.
It's been a consistent growth for lithium, and last year, FCC had a record year.
So you'd have to see a titanic shift to electric vehicles to 50% plus kind of range to really see a huge negative impact on our catalyst business.
Now particularly as we see the slate around the world, the crude slate, getting heavier and getting more sour, so that will require more catalysts even to process the same amount of crude if it's heavier, if it's more sour.
So we love both of the businesses.
We think for the foreseeable future that both of them can flourish in the environment and one not hurt the other.
As mentioned, bromine prices have stayed higher longer than I think we would have expected coming out of last year and into this year.
On the supply side, there's a few things that have affected pricing on elemental bromine.
Most recently, in February, there were storm tides in the northern coastal regions that damaged pipelines and other infrastructure, and that slowed startup of several units, several operations in China.
So that's led to somewhat of a supply shortage.
What we saw last year and into the beginning of this year was really lower imports.
Imports have resumed back up to 2014 levels, and now we think it's local production.
And in Q1, our estimate has been that roughly 30% of the capacity within China was utilized for elemental bromine, but we see a run rate of increased production, which would perhaps double that later in Q2.
So we think that, on the supply side, it will certainly loosen up.
On the demand side, there were lower inventories of tetrabrom that led to increased demand for bromine.
So on the balance, it looked favorable.
For us personally, the bromine business in China, the elemental bromine business, is not a significant piece of our business, but where we can, we are taking advantage of the increased pricing in China to capture additional margin for Albemarle.
I think if you listen to any of the ---+ <UNK> and I went to a couple of conferences in the first quarter and one of the things that we said there was we have seen a slower pickup than anticipated out of production out of China.
What I'm anxious to do is get through the summer, get through the second quarter, see where we are in June and July and what has happened with the production out of China bromine field, I think we will know by then, and it will give us a much better feel of whether we've got some opportunities going forward in bromine, or whether it's still this steady state that we are looking at today.
So optimistic.
Feel good about what we've done.
But I think as it relates to China specifically, we need a few more months just to make sure that what we are seeing is not a blip as opposed to a trend.
Yes, right now, we are holding the pricing that we had from last year, and as <UNK> said, we will continue to evaluate as we get a few months down the road to see does the pricing hold out in China and are there opportunities for us to capture more, or at a minimum hold what we have.
We see supply/demand imbalance through the midterm, say through the next five years or so, and so given that the market is imbalanced, we think that we should not see a lot of volatility in pricing.
Thank you for your time and your interest in Albemarle.
Again, we feel very good about what we accomplished in the first quarter and look forward to continuing the momentum on through the rest of the year.
| 2016_ALB |
2016 | MD | MD
#Yes, that is also true.
We do provide them when they first come on with a base salary.
It's not a lot of money, but it is some money to tide them over.
So yes, that is ---+ but the big thing is again in order to get our existing 375 radiologists to work extra shifts and longer hours and all that kind of stuff, they're getting paid bonuses and they're getting paid additional per read for ---+ to entice them.
Again, we have to have turnaround times per contract that are ---+ it's something that we obviously live up to.
So all of that is causing the additional expenses.
Yes, that's a question I've been asking myself for 30 years.
Really, there are a couple of things that are relatively significant.
Number one, bringing more transports, and we do have outreach programs.
So if there's a local hospital that doesn't have a NICU, we know that they're still going to get a number of sick babies, and so we try to establish relationships with hospitals to have them call us to transport the babies to our facility when they do get a small or sick or premature baby.
But again, that's not ---+ that doesn't have any ---+ that doesn't have ---+ make any real impact.
The other thing that we do is mothers still go where they ---+ to have their babies where their obstetrician suggests that they go.
And so recruiting obstetricians is another way to bring more babies into your facility.
And we help our hospitals to try and go out, and the obstetricians and the community talk to them about coming to our hospitals, but that's hard to do because the switching costs are very hard ---+ are very high.
And so it's ---+ I mean, really, the number of admissions to the neonatal intensive care unit are a function of the number of births.
I can tell you that if you have X number of births depending upon the population that the hospital takes care of, you're going to have X percentage of those babies admitted to the NICU.
And so other than getting back to the historical ---+ right now, births still are fluctuating around 4 million babies per year, and the high number, back in 2007, 2008 was almost 4.4 million babies.
So other than getting back to those levels of birth, we are not predicting that we are going to see any significant increase to the babies admitted to our NICUs.
Okay.
So basically in Q1, we had positive NICU volume.
So I don't know.
Is that what you're trying to get to, <UNK>.
And in the prior year, you had ---+
So ---+
Yes, Q1 was about 50 bps, and then Q2 was about negative 2 or less.
No, I don't have that right here.
I could get that for you, but yes, I don't have that ---+
Yes, sure.
No, I mean, what I always tell you guys is that there is some lumpiness to how we execute on managed care contracting because it's just the timing of the deal.
So to your point, you're right on the money when you said, obviously, the whole pricing impact is favorable because you have the 50 basis points in P mix, and then some of the managed care pricing came in to play.
And so it's all those factors.
So it worked out well in the quarter.
[Yes, no].
First of all, we do think that there are opportunities for us within our existing specialties.
We're happy with what we're doing.
We've got a plan.
We're going to build the largest group of radiologists, and we're going to build a national group of radiologists, and we've got vRad to use as the backbone for that.
So we're going to get focused on that.
But no, we're not thinking about going into ER or any other large specialty at this point.
No.
No, that's way overstated.
So it is 3% to 4%, but it's not that math.
It's a lot less than that on a quarterly basis.
No.
3% to 4% is the impact on the overall EBITDA that we're expecting.
But most of it is coming from vRad, yes.
But the math that you're working on is not correct.
We can work that ---+ we can work through that with you.
But yes, it's not.
Yes.
Thanks, <UNK>.
Okay.
Well, if there aren't any further questions, then I'll thank everyone for participating today, and I look forward to our next conversation next quarter.
Thank you, operator.
| 2016_MD |
2017 | IRBT | IRBT
#Sure.
What we saw heading in to the fourth quarter was a lot of retailers talking about the potential of two competitors entering the marketplace, which led to some of our conservative estimates earlier in 2016.
And while there was some new product launches in the back half of 2016, they did not meet expectations and failed to get any momentum.
So we are definitely very optimistic coming out of 2016 as to the competitive set in North America.
There is some activity down at the lower price points that we're tracking carefully, some growth in sort of the below $300 robot range, below $200 robot range, and I would say that would be the only area that we definitely are paying attention to.
Thank you so much.
Good morning.
Yes.
Let me answer the first half, I didn't fully understand the second half.
I think that the promise of robot vacuum cleaning is buy the robot, bring it home, plug it in and never have to worry about vacuuming again.
And iRobot has focused very, very strongly on delivering that experience so that both our cleaning efficacy but also the intelligence and reliability with which our robot begins, traverses the home thoroughly and gets back to recharge again is one of the hallmarks that sets iRobot apart, and the reason why at the end of the day our customer reviews are so high and our competitors are often challenged.
So it's quite simple.
It's not making your robot talk, it's making your robot do the job.
And things that we can do to give the customer more control over what gets cleaned, give the customer more confidence that what they thought got cleaned actually got cleaned, we think are strategically important features to add.
We do see a pattern where people come in, have an experience with some of our entry level robots and then when it comes time to step up, they go and step up to the more expensive models.
So there's definitely a strong and observable pattern that demonstrates that effect.
And we definitely also see repurchase as something that is happening very strongly.
We estimate based on data about two-thirds of our purchases come from new customers, one-third purchases come from repeat customers and we think that's a very good and strong and healthy ratio.
Yes, more or less its designed for that.
Yes.
At the end of the day, if they've had a bad experience they might not come back.
But our statistics are showing very, very strong repurchase intent and so that if someone didn't do it, it might be because their robot, maybe it had an issue with it that wasn't handled properly or you do have to actually pick the pizza boxes off the floor in order for the Roomba to work, and so people have expectations that the robot is going to change them from messy behavior to non-messy behavior and that doesn't always happen.
But those are outliers.
The vast, vast majority ---+ and we're very pleased with our customer reviews and the feedback we get back from our customers ---+ are saying that we are meeting and exceeding expectations and people are excited to trade up for these new features.
You bet.
Thank you.
Give me one second.
Can you ask your next question and then we'll circle back.
We haven't given specifics beyond 2017 at this point, but there probably would be at least 1 point to maybe a 1.5 point expansion in gross margin due to the acquisition of our Japanese distributor.
This was a particularly compelling opportunity for us due to a lot of different circumstances.
We will address the evolution of our distributors on a case-by-case basis and if it makes sense to forward integrating with another one based on the economics, the market expectations et cetera, we would do that.
But there were a lot of unique circumstances that had us move to a more hybrid model in China this year as well as go all the way forward to integrate with our Japan distributor this year.
And then just one last one from me.
In the prepared remarks, you highlighted just a super competitive environment ---+ was that primarily just to United States or did you also see that globally in other regions.
We did see it globally, and I think that the United States was emblematic of the success that we had.
I think that in Europe and in Japan and China we have more active competitors who are on-shelf.
We have very strong market share in Europe, up over 60% in Europe, 70% in Japan, and in China it's less because we're newer in the marketplace.
And this is in the robotic floor cleaning segment or vacuuming to be clear.
But we're certainly in Europe and Japan very strongly leading and we feel confident that in China we're on a good path.
<UNK> just to circle back on your initial question on Japan and China in the fourth quarter, so without getting too specific, Japan was [down 17%] (corrected by company after the call) in the fourth quarter year-on-year [because we wanted to make sure the channels were clear ahead of our acquisition and China was down 50% from Q4 last year as expected.
As you may recall we received an $11M order in Q3 2016 from China that we were expecting in Q4 so China was up 140% in Q3 and then down year-over-year in Q4] (corrected by company after the call).
But again we encourage everybody to really focus on the full year growth rates for all of those regions versus Q4 specifically.
You're welcome.
So <UNK> as we look at 2017, the growth before the acquisition was in line with our long term targets for the year which called for mid-teen growth.
So I'm not really sure about your comment about corporate average, but in our view it was in line with our expectations we had for 2017 and those that we had committed to the Street with our long term targets.
Well we definitely look at the mix every year of the spend.
There are certain areas which are emphasized in one year and maybe deemphasized in the next year.
We are constantly doing a refresh to look at exactly what we're trying to drive and achieve as well as to assess the performance of different programs that were successful in one year and either look to augment them in another year or bring them to another region.
So it really is a fresh look that determines what our priorities are and there's certainly a little bit of a shift in the priorities we would have in 2017 versus those we had in 2016.
And of course with a 17% to 19% growth rate, holding our percentage invest in sales and marketing flat is giving us significant additional dollars to put to work.
So as far as minutes on television globally that will go up significantly and you're definitely going to see increased dollars spent internationally in 2017 versus 2016.
EMEA and APAC were actually fairly close.
EMEA is still the larger of the regions between APAC and EMEA for 2016.
Not by far, but they're still a little bit ahead.
We gave a ---+ okay.
First off, in the United States as a percentage of investment, we are having substantial success with our social and online marketing investments, so that you will see us continuing to shift on a percentage basis dollars towards social and online medium.
So it's quite effective for us.
We're very, very quantitatively oriented, and the amount of high quality social investments that we have in front of us, that will actually have good return is limited.
So we can't just do a 180 degree instantaneously and put money in bears.
But given the discipline of finding high quality social opportunities ---+ as a category that's working well for us, so that it wanted to add a little color.
It is definitely not just put more money into television in North America, it's far more rich and trending towards online.
The marketing strategy in China is tremendously oriented towards online channels.
The vast majority of products sold in China are online.
And while it's important to support retail and we do have good sell-through in our retail channels, we are moving towards a reality in China where retailers to some extent are showrooms for online sales channels.
And so that's a very different reality in that market than anywhere else in the world.
And our marketing strategy understands and is adapting to that.
Part of the reason why we wanted to invest in having boots on the ground having an iRobot China office located in China was to be closer to that market and be able to respond more quickly to trends that we saw in the marketplace.
You asked for a little more color on Q4 in China.
As I described that we did see a shift in demand away from the 600 towards the 800 to our premium SKUs and we believe that will continue.
And it does mean that iRobot ---+ how we represent the brand and ensuring that iRobot is viewed as the premium in how we structure our online demand generation activities, needs to make sure that it's consistent with our premium positioning.
So I think we validated that premium was important and that represented a bit of a change in local strategy which to-date had been focused on driving the lower price point unit.
So you will see a different mix of channel and spend driven to drive that premium positioning in China.
It's too early to give you a number as to what we are targeting, but we definitely believe that wet floor care can be a substantial and very material addition to our Roomba sales, particularly in Asia where the de facto cleaning is mopping and particularly in China where mopping is a daily and very time consuming activity.
We think that Braava and Braava Jet will be a very important augmentation to Roomba.
I'd mentioned in the script that in China today it was ---+ 50% of the revenue in China came from our wet floor care robots, and I don't know whether that's steady state, whether that will go down a little bit as we recommit ourselves to premium strategy around Roomba, but it's going to be very, very important.
15% in Japan where the Roomba is much more well established, I could imagine that will grow up from 15% to what I'm not quite sure.
And I think that in the rest of the world including North America where the percentages are lower than that, we think that there's an opportunity for wet floor care to grow quite nicely.
We're going to learn a lot in 2017.
We've got results from marketing programs that we trialed in 2016 that have come back favorably and so we'll be doing some scaling there.
And we think that there's a lot of runway in front of wet.
That said, Roomba is not slowing down.
It's accelerating and so that wet is going to have to work really hard to gain share against Roomba.
Okay.
They are not materially different from the first, the main differentiation is their need to see the product recommended by someone they knew, as opposed to being willing to lean forward and independently make that purchase decision.
The inflection point we referred to is the effect that happens when word of mouth becomes material on a daily basis, where they just hear from someone they respect that, "Why don\
We are committed strongly to performance in the high end of the premium strategy.
We think that the value proposition that an iRobot Roomba can deliver to a customer is something that we want to protect and so that we are not interested in lower performing inexpensive products interest the market place.
If we found an opportunity to go deliver something with our level of performance at lower prices, that could be interesting.
But we are very committed to our brand, very committed to the confidence that it gives our consumers.
And so I would aggressively avoid being seen as having a cheap discounted product in the market.
It was absolutely a significant revenue driver.
It was materially quite successful.
It was successful in 2016, it was quite successful in 2015.
We think that there are opportunities especially as the wet floor care category gets more credibility and there is more demand for it.
I think that it worked best earliest in Asia because there's a natural affinity for mopping and for the rest of the world as the Braava product become more recognized, I'm sure that we will give it some attention.
Absolutely, their lawns are simpler.
They are small and well-ordered and they don't have islands and so a more simplistic navigation system can be quite successful.
And when those same products go to the United States, they have done very poorly.
So that's why we are working very hard to ensure that our strategy is going to be a successful and differentiated strategy.
And there also in Europe a very different channel to market which supports buying a lawnmower from a channel partner that can also install it for you and bury the wire, which is not typically the case in the United States.
So a number of very understandable reasons and we remain as I said very optimistic and excited about this.
But at this moment in time, we believe that investing in 2017 in wet and driving Roomba makes the most sense.
I wouldn't assume that now.
As we said, the Board and the management are considering various options as to either investments for the cash or potentially returning it to shareholders.
But I wouldn't make any particular assumptions at this point.
We had said at a minimum, those are the type of programs we'd like to have.
Again, as we've said, we haven't announced that type of a program yet for 2017.
There's still time within the year where we could take that action if we decide to do so.
No problem.
Okay.
That concludes our fourth quarter and full year 2016 earnings call.
We appreciate your support and look forward to talking with you again in April to discuss our Q1 results.
| 2017_IRBT |
2018 | FTK | FTK
#<UNK>, we were worried about you there.
Okay.
Sure.
I'll talk first just briefly on your question about CICT.
So 2018 is going to be what we would call a positioning and also a high-performance year for CICT, which seldom you get to do that at the same time, but the capital you mentioned is positioned for the future, and Josh will speak directly to that, then we'll come back to the international for a second.
Does that answer your question, <UNK>.
So regarding on your second part of the 2-parter there, <UNK>.
Regarding international, it's still the ---+ the 2 or 3 main areas globally that have our most interest outside of Canada and that's always important to us, that area is really going through a tough time activity-wise in '18, I think some of the other earlier earnings calls probably spoke to that.
But if you look outside of North America, it's Argentina, it's the Middle East and understanding how to penetrate what, arguably, is the third-largest fracturing market in the world, which is China, which at the same time, is one of the lowest cost structures in the world.
But those are the 3 areas that we really look at.
We're pleased again with the performance where we've run our technology in those areas, and we think '18 will continue to build on that.
And yes, so I think that's where we are there.
Okay.
Thank you, operator, and thanks for everyone's interest.
As we mentioned, we'll be transparent as the quarter moves on and look forward to chatting with you again, further on in the year.
Thanks for everyone's interest.
Bye for now.
| 2018_FTK |
2015 | SJI | SJI
#Thank you, <UNK>, and good morning to everyone on the call and thanks for joining us.
Today we will discuss results framed in the context of our two major business segments, utility results from South Jersey Gas and nonutility results from South Jersey Energy Solutions.
Additionally, within our nonutility, we'll discuss the performance of our two primary businesses, South Jersey Energy Services and South Jersey Energy Group.
The measure we use to assess SJI's performance across all business lines is economic earnings.
Our full-year 2014 results reflect 7% growth in economic earnings at $104 million compared with $97.1 million in 2013.
Economic earnings per share for 2014 totaled $3.13 a share as compared with $3.03 for the prior year.
For the fourth quarter, economic earnings totaled $31.2 million compared with $39.9 million for the prior-year period.
Economic EPS for the fourth quarter of 2014 was $0.93 compared with a $1.23 for the same period in 2013.
This variance resulted in large part from reduced levels of ITC associated with solar project investments and from the impacts of the Revel Casino bankruptcy on our joint venture energy projects that provide energy to the facility.
We will review these items and the drivers of current and future growth in greater detail as we discuss the performance of our individual business lines.
Looking at the utility, South Jersey Gas' earnings for the full-year 2014 were up approximately 7% to $66.5 million, as compared with $62.2 million in 2013.
For the quarter, utility net income was $24 million, as compared with $22 million for the fourth quarter of 2013.
As in prior periods, infrastructure investment and customer growth remain the key drivers of utility earnings to date with additional benefit coming from the settlement of the base rate case at the end of the third quarter.
We closed out the year with accelerated infrastructure investments that totaled $54.8 million between our two tracker programs, the AIRP, which replaces aging [Bierst] steel and cast-iron main throughout our system and the Sharp, which replaces low-pressure mains specifically along the barrier islands with high-pressure main to better protect our system from water and sand intrusion during extreme weather.
These investments added $3.2 million in net income in 2014.
Also during 2014 we grew our year-over-year net customer count by 1.3% to nearly 367,000 customers.
The cornerstone for that growth was the record level of customers we obtained via conversions from other fuels.
We obtained almost 5,800 new customers in 2014 and as we look at that, that 5,800 is ---+ not only is it a record but it's 10% above the record we set last year for conversions.
So we continue to make good progress in that area.
With the margin increase from new rates that took effect in October, each residential heat customer is now worth $293 of annual net margin to SJG.
Combined with enhanced marketing efforts currently underway and natural gas' price advantage of 40% to 70% over other heating fuels.
We remain well-positioned to continue seeing significant benefits from strong customer growth over the next several years.
We value the customer growth that we produced this year at approximately $1.6 million on an annual basis.
Now I'm going to move over to the nonutility side of our business.
For the full year, our nonutility businesses added economic earnings of $37.6 million as compared with $34.7 million in 2013.
For the quarter, the nonutility businesses combined to generate economic earnings of $7.2 million as compared with $18 million in the fourth quarter of 2013.
The two business segments producing our nonutility results are South Jersey Energy Services, which largely reflects our energy production assets within Marina Energy and our energy project joint venture Energenic.
South Jersey Energy Group reflects our activities related to the supply, storage and transportation of natural gas in and around the Marcellus and our retail marketing of electric and natural gas in the mid-Atlantic and Northeastern portions of the US.
South Jersey Energy Services contributed $24.6 million in 2014 as compared with $40.6 million in 2013.
For the quarter, South Jersey Energy Services added $3 million as compared with $19.1 million for the fourth quarter of 2013.
As I noted earlier, reflected within these results is a $5.2 million bottom line impact that the Revel bankruptcy had on our energy facilities located at that property in 2014.
That total was comprised of a one-time hit of $4.6 million for receivables and legal fees and $600,000 of lost income contribution from the operation of the facilities.
Based upon ongoing negotiations among a number of interested parties, we remain optimistic that a buyer will soon complete the acquisition and reopen the casino and hotel facility.
Excluding this impact, our energy production portfolio performed well in 2014 with value added buyer CHP in solar business lines.
On a full-year basis, our CHP Thermal business contributed $1.8 million to economic earnings as compared with $8.6 million in the prior year.
For the quarter, our CHP Thermal business line produce a loss of $0.5 million as compared to income of $2.9 million for the same period last year reflecting the impacts of the Revel situation.
The comparison of full-year results was also impacted by ITC and a state tax adjustment totaling $2.5 million of economic earnings that benefited 2013, but was not repeated in 2014.
Our solar business contributed $25.5 million for the full-year of 2014, as compared with $33.9 million in 2013.
The main driver for that change is that we have begun to scale back solar development consistent with our target of reducing reliance on investment tax credits by 2017.
ITC contributions for 2014 totaled $30.3 million as compared with $36.9 million in 2013.
I do want to note that we have one solar project that we expected to include in 2014 that was not completed until after year end.
That delay reduced 2014 ITC by $1.1 million reflecting a $0.03 per share impact on economic EPS.
When we combined that with the impact of the Revel impacts on our performance, the total of that would add up to $0.19 per share for the year.
For the full-year in the quarter, our landfills produced losses totaling $3.3 million and $700,000 respectively in 2014 and losses of $2.3 million and $400,000 respectively in 2013.
We continue working to improve the functionality of these projects.
Additionally, we remain active on legislation in New Jersey that would improve the profitability and encourage the development of these types of projects by establishing a Level 1 renewable energy credits associated with the output from landfill electric generation.
The legislation is currently awaiting a vote by both houses of the Legislature.
Turning over to the commodity segment of our Business, 2014 was highly profitable for both the wholesale and retail arms of South Jersey Energy Group.
Economic earnings for the full-year totaled $13 million in 2014, as compared with a loss of $5.8 million in 2013.
For the quarter, South Jersey Energy Group produce $4.2 million in economic earnings in 2014 as compared with a loss of $1.1 million in 2013.
Performance was driven by the value that we realized from the pipeline transportation assets that we control particularly in the first and fourth quarters.
While Mike will discuss the future prospects for this business in some greater detail, we are very comfortable saying that we expect this segment to continue making significant earning contributions for 2015 and beyond.
Before I turn the call over to Mike, I'll provide a quick update on the balance sheet.
Our year end equity cap ratio was 43%.
We averaged 44% for most of the year, which is comparable to the 2013 levels.
As we noted in last quarter's call, higher debt levels resulted from increased working capital requirements driven by deferred costs for high priced natural gas last winter, as well as by infrastructure investments across the business.
SJG began collecting the $47 million under recovery associated with those deferred gas costs through rates on October 1 with book collection to occur between now and 2016.
We also raised just over $80 million in equity to our dividend reinvestment plan and up shell cash purchases in 2014 compared to $54 million in the prior year.
Now I'll turn the call over to Mike to discuss the opportunities we see for our business in the near-term.
Thank you.
Good morning.
As <UNK> just detailed in his remarks, 2014 was a profitable year for SJI: 7% growth in economic earnings and 3.3% growth in economic earnings per share but it was not a year without challenges.
And it is in evaluating those challenges that I am most encouraged by what the future holds for SJI.
Many times in speaking with all of you, we have highlighted the versatility and agility of our Business.
These characteristics have enabled us to build a business that not only maximizes its core utility investments but one that also drives shareholder value from opportunities in energy production, fuel supply management, midstream investments and retail commodity services.
We build a business that can withstand short-term challenges without compromising long-term growth and profitability.
The main driver of our long-term growth and earnings remains our regulated utility.
Looking out over the next three years, in addition to our typical capital spend, we've accelerated investments planned totaling over $200 million.
On top of the immediate return, these investments provide through trackers, they also expand our access to those on or near main enabling us to bring natural gas to more homes and businesses.
With natural gas savings of 40% to 70% versus other heating alternatives, we intend to continue the kind of aggressive conversion marketing that has helped us convert almost 5,800 customers in 2014.
We also remain committed to meeting the energy needs of the communities we serve through the construction of a 22 mile pipeline to serve the B.
L.
England generating facility and reinforce our natural gas distribution system.
We continue to look for ways to provide these important services while properly addressing the concerns of all interested parties.
And we've seen steady progress towards the construction of a natural gas liquefier at our Mckee City facility, which will helps us minimize the volatility that short-term spikes in gas costs can have our customers and maximize the performance of our distribution system.
On the unregulated side of our business, our wholesale business benefited significantly from the transportation capacity we acquired throughout 2012 and 2013.
In addition to driving a very strong 2014, this capacity has again helping to position us for a very profitable 2015, as well.
We are very excited by the prospects of adding new multi-year income streams starting in 2015 with three new supply management contracts adding to net income.
The first of which began serving the LS Power facility in late 2014.
We also expect to see contribution from Panda Energy's Liberty and Patriot plants further boost 2015 results.
With additional contracts commencing service in 2016 and further announcements pending, this area of our Business is expected to contribute between $8 million and $10 million in net income per year by 2018.
Moving on to South Jersey Energy Services, we remain very pleased with the operating performance of our on site and distributed generation projects.
This technology remains a valuable application for a number of entities we serve, including the Borgata in Atlantic City, Montclair University and the downtown area of Hartford, Connecticut.
We continue to see great opportunity in CHP, particularly district energy facilities.
Others see the value in these facilities as well, as evidenced by the high multiples companies are paying to acquire proven systems.
The last area of our unregulated business I want to highlight is solar development.
As <UNK> noted, we continue to see strong performance from our solar generation fleet with more than 111,000 S racks produced in 2014.
While we intend to scale back the impact of investment tax credits in advance of the expected 2017 reduction in the amount of these credits, solar development remains a key part of our energy production portfolio.
With S racks hovering around $220 in New Jersey and project development costs at their lowest levels yet, we expect to continue selectively adding solar projects that will benefit both short and long-term profitability.
The last business segment I want to highlight is SJI midstream.
As we announced in our last call, this segment will house our 20% equity interest in an anticipated $1 billion interstate pipeline that will increase the level of regulated contributions to our earnings.
Planning activities around this project are underway, including early discussions around financing as well as outreach and communication to the communities along the pipeline's proposed past.
We believe our involvement in this project underscores our ability to continue the record of growth we have established over the last 10 years.
Before I turn the call over to <UNK>, I also want to take a minute to note that this will be his last earnings call with all of you before his April 30 retirement.
<UNK>'s nearly 35 year career including the last 11 as our CEO can best be characterized as exceptional.
Under his leadership SJI shareholder value has increased over 300%, our market cap nearly quadrupled, economic earnings per share has grown from $1.31 to $3.13 a share and our dividend from $0.78 to $1.92.
All of us here at SJI will greatly miss his leadership and his friendship.
With that said, I will turn the call over to <UNK>.
Thanks Mike, for those kind words.
And before we move to the question and answer portion of the call, I just want to highlight a few areas of our business that I think are positioning us well for the future.
First, when I look at our utility, the customer growth continues to double the national average and our infrastructure investment through our trackers will only add to the safety and reliability of our system and our profitability, the exciting discussion about SJI midstream, which is our significant investment in PennEast, which is fully subscribed, has potential for expansion and earns FERC level returns.
And then, moving to our non regs side, what great growth opportunities we continue to have with CHP and thermal, [grunobles], and, of course the newest area of growth, fuel management for large generators.
And finally, I really do want to speak to the management team.
I think it's an incredibly talented group and in the future led by Mike, will only capitalize on these and many other opportunities in the energy space.
And that confidence is further demonstrated as we split the stock two for one today, again, just showing the confidence in the future.
And lastly on a personal note, I want to thank all of you for the interest and the support that you've shown SJI over the years.
I can tell you I'm extremely confident that SJI's best years are ahead of us with this great management team.
So, thank you.
And now let me turn the call back over to the operator for the question and answer portion.
Thank you, <UNK>.
<UNK>, I'll address that one.
This is <UNK>.
I think last year coming off such a cold January, we really wanted to give the investors a quick update so that in one hand they recognize the great January we experienced but on the other hand to basically give them the right perspective on what the year would be.
With regard to this year, I think we're really ---+ it's our normal guidance period of telling you after the first quarter.
And I can tell you that there are a number of exciting things that can really boost our performance in the first quarter.
So with that said, I think we're back on the normal track of May guidance.
As we look at it ---+ as we look at the year and obviously there's a lot of things that could be happening during the course of the year that will either be sources of cash or require uses of cash and then presumably if we're using cash, it's some worthwhile investments.
But as we look at what we have in front of us, the expectation is yes, we will be raising equity.
I would expect that we'll be well below the number that we have out for 2014, well below the $80 million.
It's a little too early to get specific on that.
Most value you would expect to see more towards the second half of the year as we get a little bit more clarity on what some of the requirements are.
But I'd expect it to be below where we were for 2014.
I think the answer is we're spending a very small amount right now as a group as we do all the preliminary work at the various approvals done and the like.
I believe that the real dollars are not really expected to be spent in a significant amount until 2017.
I'm sorry, until 2016.
Sorry.
So it probably won't be a lot that goes out this year.
We're also currently looking as a group as to exactly how we go about the financing of this process.
And those conversations are very early stages at this point but obviously everybody will have the opportunity to weigh in as to what form of financing that takes.
That's correct.
<UNK>, you're absolutely right.
Most of that relates to the CHP operation that we have there and that really didn't get impacted by the events at Revel until probably about a week or so, 10 days or so, into the month of September.
So most of that that you're seeing there is in fact fourth quarter.
I'm not sure I understood your question.
No.
Mike's motioning to me that it's a flat load so I think we're in good shape there.
Straight line.
The actual CapEx.
I don't have the actual CapEx in front of me right now.
Do we.
Dave, do want to jump in.
[$133 million] was the actual CapEx spend for this year for solar.
Okay.
There you go.
I don't have it handy right now, <UNK>.
We can certainly get it for you.
Correct.
When you say cash potentially coming into the business.
There's a whole variety of things.
The big governors, they are exactly how much are we going to put into solar investments in a particular given year or any other project investments.
Obviously the more we use the more demand for capital.
The less we do the less demand for capital.
Our wholesale gas business obviously has the ability to be a significant cash cow depending upon performance during the course of the year.
From a gas company perspective, from a utility perspective, clearly we're looking to recapture a lot of those deferred gas costs that are now being billed out to customers.
And the pace of some of the construction projects that we do at that business and when they're proved and when they actually start putting shovels in the ground are going to drive the timing of the demand for capital.
So, there's a lot of factors that come into play there.
We do.
One second.
Are you talking total or just the utility.
Give me a second.
I have the number.
I just have to dig it out.
Any other questions while we're, while I'm rooting through my papers.
This is <UNK> <UNK>.
I can take that one.
We are looking to surpass that number in 2015 and do even better.
We continue to have a lot of interest in conversion.
Even with oil prices coming down, there's still a big price advantage in natural gas and we continue to offer 0% financing and there's no charge to get the line installed in someone's house.
So we still have a lot of interest and a lot of potential market out there.
We have probably in the range of about 50,000 customers, potential customers, that are on or near our main.
And as we continue to extend our main for those that are near it, we get closer and closer to other customers.
So we're not looking at major main extensions.
We are looking at those customers that are easily reachable.
Yes.
As I look at the number for industries, it could be as much as $378 million in 2015.
The gas company number I don't have at my fingertips, but I could certainly provide that to you.
I think it back.
It's $240 million.
(technical difficulties) at the other number.
Hi, <UNK>.
It's Mike.
I think we still see solar offering strong enough economics that we'll continue to invest in it.
With the S racks trading over $220 in New Jersey and even higher in Massachusetts and with prices continuing to come down, there's value that goes well beyond the ITC.
But we really do look at it on a case by case basis.
So a lot will be how much opportunity is out there and how many of those types of projects fit our [hubble] rates.
But I think you're probably safe to assume somewhere in the neighborhood, plus ---+ somewhere between 85% and 100% of what we did last year.
That's correct.
Yes, I think that's fair.
We really have not seen much of a slowdown.
We've had some issues in January with the weather actually getting customers services installed and that's caused somewhat of a decline.
But as far as customers actually applying to get gas service, we're pretty much on target.
So we're not seeing the slowdown at all due to oil prices.
I going to ask Greg who's been heading up our efforts to speak to where we stand.
I think that's fair.
Yes.
The 85% to 100% was really focused on 2015.
We'll look at 2016 independently depending upon what's happening in legislation with regard to the ITCs.
But the expectation is if nothing changes we continue to see decline or reduction in the amount of spend we do there.
Thank you, and again, if any other questions arise please feel free to either contact Marissa Travaline or <UNK> <UNK>.
They can both be reached at 609-561-9000.
Marissa's extension 4227 and <UNK> is 4143.
Likewise, also can reach Marissa by e-mail at [email protected] or [email protected].
And again, thank you for your continued interest in our company.
Have a nice day.
| 2015_SJI |
2016 | KS | KS
#Capacity is usually a problem that the industry has with mills and not converting plants.
Converting plants you build where the demand is, and where we can grow our demands, that's where we will do it and it will increase our conversion.
Capacity is an industry problem when it comes to the mills historically.
And with the cost of capital so cheap and there are still surcharges for expedited shipping and stuff like that, so economically it still makes sense to hold higher inventory levels.
The question is we are still running things that we are better off with than without.
The issue is as we grow our integration we will move out of those low margin grains, possibilities whether they be export or paper or board or pulp and to more profitable and to widen the margin.
So, the integration will widen our margin just because we replaced the bottom end of our mill sales.
Well, we don't forecast our EBITDA, but I would say that we are off to a great start when you look at this first quarter compared to year-over-year as far as generating cash and we plan to keep doing that.
So I think our leverage will be coming down rather quickly as we move through the year.
So, yes.
Without predicting we do plan to reduce debt.
Yes.
It is a high priority for us.
Well, once again it all depend on your earnings estimates.
If you look at consensus, if you want to use that, yes we would be moving down substantially.
One more question, please.
When we amended the credit agreement we did a couple of things, but the primary thing is we increased the maximum leverage allowed up to four and a half times and that goes through 2017.
We did that and we changed some of the definitions of EBITDA and cleaned up some other things.
But the primary thing was increasing that maximum leverage ratio and extending it.
So that's what we did.
I mean I don't think we are ever going to be there, but you know, it was relatively, they say the time to ask is when you don't need it, and that's why we asked.
And that's why we got it.
Well, there is a bank definition.
The 3.7 we give you, it is really 3.69, but it is according to the definition and the credit agreement.
There are certain add backs allowed and things not allowed.
So that's why ours might be a little different than yours.
Because of some of the specific allowed either add backs or things we have to take out.
Well, thank you very much.
We appreciate your interest and hopefully we will out perform our hopes.
| 2016_KS |
2015 | DSPG | DSPG
#Thanks <UNK>.
So, our visibility, and when I translate visibility, I typically translate it to the order book that we have.
So, our visibility hasn't really changed.
It's actually in the range of six to eight weeks ahead.
So that today, unfortunately, doesn't really cover much on the first half.
But our expectation, and based on the designs that we have in the bag, both in Voice-over-IP as well as in the first design win in mobile, which is in production, and also expectation for additional wins to start ramping next year, does position us well first of all for full-year revenue growth next year.
It's too early to provide any more color.
It is true that, in the first quarter, there is a tougher comp, but I would say that, right now, it would be premature to kind of discuss and give kind of further color on kind of the first-quarter revenues.
But you can sense that we are feeling upbeat about our ability to grow in a significant way next year as we will have two growth engines working and contributing in a more significant way.
And this ---+ we believe that the net growth in these businesses will be well in excess of any decline that will come in cordless.
And as we have indicated, there also is a chance that we will see the market, the DECT market, being stronger in the first half of the year, just as a replenishment cycle will take place.
And still it's very hard to say that this will happen, but we are expecting to see some kind of seasonal shift as a result of the environment, the soft environment, that we are seeing right now.
We do expect on a number of launches in Q1, Q2.
This is kind of the period of the home gateway launches.
So I would say like mostly Q2 but also starting in Q1.
So, I think it should be, from an operating perspective, it should be in line or even better than the third quarter.
So the third quarter was $1.8 million, so for the fourth quarter, we should expect something which is in line or better.
I don't have the number of the fourth quarter of 2014 in front of me, so give me a second.
No, I think it would be hard to reach that level, but we should be better than the third quarter of this year.
Although, overall, for the year, we should be with operating cash flow that is either in line or better than the EBITDA, better than ---+ something between operating income and EBITDA.
$0.4 million.
So, R&D is slightly higher in Q4 that it is in Q3, so R&D, if you take the midpoint, excluding the equity-based compensation, so the midpoint should be something around $8.5 million, $8.6 million, which is about $0.5 million higher, or $400,000 higher, than the third quarter.
SG&A should remain the same.
Yes, sure.
So you need to understand that, first of all, we are the beneficiaries, but we are the beneficiaries also because we have a very dedicated focus on this market, and we bring to this market a lot of IP from the telephony side.
And of course, the backwind that we've enjoyed because of the deemphasis increased our chances to be a winner and to become the new leader in this domain.
Now, when we think about the way this market works, we need to understand that this market is a much more conservative market in which new products come to design once in every three or sometimes even longer than that, so three years or longer.
And so in a way, the cycle is ---+ we're just at the beginning of the cycle.
So we still have a lot more product conversions to do and to grab more new designs that will convert from an existing incumbent silicon to ours.
So, there is still a lot of work ahead of us vis-a-vis the programs and products that today are still running on another vendor's silicon that we are hopeful will be converted and run on our DVF series.
Again, <UNK>, too early to provide any concrete guidance on mobile.
But it really depends on the way the seasonal pattern will work and the design wins that we will secure and that hopefully will be in production next year.
It's a possibility, but it's kind of too early to say whether a $5 million type of quarter is in the cards or not.
So I believe it is definitely possible, so I don't think it's remote, but we are just too early to tell exactly where and how revenues are going to shape up next year.
I would say both.
Again, we know that the volume, major high running volume is really on the phone side.
Wearables, smart watches are starting to grow and become a real market.
Probably next year, they will exceed 100 million units for the year.
But we expect both to happen, so both on the wearables side as well as on the smart phone side.
So, typically, when we are talking about Always-On Voice functionality in which the phone is always ---+ so the microphone is always in listening mode, so the phone is basically always kind of opening a microphone and a processor to process any type of sound that it gets on the environment, that of course entails the need for very low power consumption and to see no real impact on the user experience on the battery life.
And that usually will entail kind of the second part of your question so that it will be a discrete type of silicon rather than an application processor, which has significant leakage and it cannot really support with very low power given it is a high-performance type of a processor.
So it would typically be a discrete solution, and then we will be competing with companies that are sitting on that side of the market.
So kind of mixed-signal guys, dedicated Always-On and these type of vendors.
Thanks <UNK>.
Thank you all for participating and we look forward to reporting again in 90 days.
Thank you.
| 2015_DSPG |
2016 | GWW | GWW
#Hello.
This is <UNK> <UNK>, Senior Vice President of Communications and Investor Relations.
With me is <UNK> <UNK>, Senior Director of Investor Relations.
The purpose of this podcast is to provide you with additional information regarding Grainger's fourth-quarter 2015 results.
This podcast is supplemented by our 2015 fourth-quarter earnings release issued today, January 26, and other information available on our Investor Relations website.
This material contains forward-looking statements that are based on our current view of the competitive market and the overall environment.
Future risks and uncertainties could cause our actual results to differ materially.
Please see our SEC filings, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available on our Investor Relations website, for a discussion of factors that may affect our forward-looking statements.
Tables reconciling non-GAAP measures accompany the script of this podcast and today's earnings release and are both available on our Investor Relations website.
The macroeconomic conditions faced by our industry in 2015 are well documented and largely understood.
What is less understood is that we took action by reducing costs and continue to invest more in the business.
Our full-year revenue was in line with our previous guidance and adjusted earnings per share results were above the midpoint of our guidance.
As mentioned in the press release, we also reiterated our 2016 sales guidance of negative 1% to 7% and earnings per share guidance of $10.80 to $13.00, which was first issued on November 12, 2015.
At the end of this podcast we will provide more color around our assumptions.
Now let's take a look at our performance.
For the full year, Company sales of $10 billion were flat with 2014.
Net earnings decreased 4% to $769 million and earnings per share increased 1% to $11.58.
The year contained restructuring/non-operating items that lowered reported earnings by $0.36 per share.
The year 2014 contained charges that lowered reported earnings by $0.81 per share.
To better understand our performance, the majority of the analysis and commentary for the remainder of this podcast excludes the effect of these items in 2015 and 2014 unless specifically noted.
Details regarding the items can be found in the earnings release posted on the Investor Relations website and in the exhibits at the end of this podcast.
Excluding these items from 2015 and 2014, Company operating earnings decreased 5% for the year while net earnings declined 8%.
Adjusted earnings per share were $11.94 for the year, representing a 3% decline versus $12.26 in 2014.
Earnings per share performance benefited from fewer shares outstanding as a result of 6.1 million shares repurchased during the year.
Now let's turn to the 2015 fourth quarter.
Company sales in the fourth quarter declined 1%.
Reported operating earnings decreased 6% and reported net earnings decreased 2%.
Reported earnings per share were $2.30, a 7% increase versus the 2014 quarter.
Overall, our quarterly results were above our guidance issued at our analyst meeting on November 12.
As a reminder, our guidance does not include restructuring or non-operating items.
Excluding the items from 2015 and 2014, adjusted operating earnings decreased 11% while net earnings decreased 19%.
Adjusted earnings per share were $2.49 for the quarter representing a decline of 11% versus the 2014 fourth quarter.
Results in 2015 benefited from a net $0.16 per share of non-repeating operating items in the fourth quarter, primarily related to the shift in timing of the implementation of SAP in Canada into 2016 and a one-time reduction in healthcare liabilities in the United States.
Let's now walk down the operating section of the income statement.
Adjusted gross margins were 40.5% compared to 42.5% in the 2014 fourth quarter due to lower price, unfavorable customer mix and lower gross profit margins from the Cromwell acquisition.
On an adjusted basis Company operating earnings for the quarter decreased 11%.
The earnings decline was driven by the 1% sales decrease and lower gross profit margins.
Adjusted operating expenses declined 3%, including $32 million in incremental growth-related spending.
Adjusted Company operating margins decreased 130 basis points to 11.4% for the quarter from 12.7% a year ago.
Let's now focus on performance drivers during the quarter.
In doing so we will cover the following topics: first, sales by segment in the quarter, the month of December and January sales so far; second, operating performance by segment; third, cash generation and capital deployment; and finally, we will wrap up with a discussion of our 2016 guidance and other key items.
As mentioned earlier, Company sales for the quarter decreased 1%.
We had 64 selling days in the quarter, the same as the previous year.
The 1% sales decline for the quarter consisted of a 2 percentage point decline from unfavorable foreign exchange, a 1% point decline from price, a 1 percentage point decline from lower sales of seasonal products, and a 1 percentage point decline from sales of Ebola-related safety products in 2014 that did not repeat, partially offset by 4 percentage points from the Cromwell acquisition.
Let's move on to sales by segment.
We report two segments -.
the United States and Canada.
Our remaining operations, located primarily in Europe, Asia and Latin America, are reported under a group titled Other Businesses and also include results for the single channel online model businesses in Japan, the United States and Europe.
Sales in the United States, which accounted for 74% of total Company revenue in the quarter, decreased 3%.
The 3% sales decline for the quarter was driven by 2 percentage points decline from volume, a 1 percentage point decline from price, a 1 percentage point decline from lower sales of seasonal products, and a 1 percentage point decline from sales of Ebola-related safety products in 2014 that did not repeat, partially offset by 1 percentage point from higher intercompany sales to Zoro and a 1 percentage point benefit from the timing of the Christmas holiday.
Let's review sales performance by customer end market in the United States.
Retail was up in the mid-single-digits; government was up in the low-single-digits; light manufacturing was flat; contractor and commercial were down in the mid-single-digits; heavy manufacturing was down in the high-single-digits; reseller was down in the low-double-digits; and natural resources was down in the low 20s.
Weak oil prices continue to affect our sales to natural resources and heavy manufacturing customers.
Based on our analysis of relevant SIC codes, oil represented about a 150 basis point drag on US sales in the quarter.
This compares to a 110 basis point drag for the year indicating sequential deceleration.
Now let's turn our attention to the Canadian segment.
Sales in Canada represented 8% of total Company revenues in the quarter.
For the quarter, sales in Canada decreased 27% in US dollars, 14% in local currency.
The 14% sales decrease consisted of a 17 percentage point decrease from volume and a 1 percentage point decrease from lower sales of seasonal products, partially offset by a 4 percentage point contribution from price.
Weakness in the oil and gas industries continued to affect sales to Canada's customers.
All end markets, except government and forestry, were down versus the prior year.
From a geographic standpoint, sales in Alberta were down about 30% in the quarter whereas sales in all other provinces in aggregate were down 4% versus the prior year.
Let's conclude our discussion of sales for the quarter by looking at the other businesses.
Again, this group includes our operations primarily in Europe, Asia and Latin America and currently represents about 18% of total Company sales.
Sales for this group increased 41% in the 2015 fourth-quarter versus the prior year.
This performance consisted of 33 percentage points from the acquisition of Cromwell and 18 percentage points of growth from volume and price, partially offset by a 10 percentage point decline from unfavorable foreign exchange.
Organic sales growth in the other businesses was primarily driven by MonotaRO in Japan and Zoro in the United States.
Earlier in the quarter, we reported sales results for October and November and shared some information regarding performance in those months.
Now let's take a look at December.
There were 22 selling days in December in both years.
Total Company sales were flat versus December 2014 and consisted of 4 percentage points from acquisitions and a 1 percentage point benefit from the favorable timing of the Christmas holiday offset by a 2 percentage point decline from unfavorable foreign exchange, a 1 percentage point decline from volume, a 1 percentage point decline from price, and a 1 percentage point decline from sales of Ebola-related safety products in 2014 that did not repeat.
In the United States, December sales decreased 2% driven by a 2 percentage point decline in volume, a 1 percentage point decline in price, a 1 percentage point decline from sales of seasonal products, and a 1 percentage point decline from lower sales of Ebola-related safety products that did not repeat, partially offset by 1 percentage point from higher intercompany sales to Zoro and a 2 percentage point benefit from the timing of the Christmas holiday.
December customer end market performance in the United States was as follows: retail was up in the mid-single-digits; light manufacturing and government were up in the low-single-digits; contractor, commercial and heavy manufacturing were down in the mid-single-digits; reseller was down the high-single-digits; and natural resources was down in the low 20s.
Daily sales in Canada for December decreased 30% in US dollars and were down 17% in local currency.
The 17% sales decrease consisted of an 18 percentage point decline from volume and a 1 percentage point decrease from sales of seasonal products, partially offset by a 2 percentage point benefit from price.
Similar to the quarter, all end markets, except government and forestry, were down versus prior-year.
From a geographic standpoint, sales in Alberta were down about 30% in December whereas sales in all other provinces in aggregate were down 8% versus the prior year.
Daily sales for the other businesses increased 41% in December consisting of 30 percentage points from acquisitions and 18 percentage points from volume and price, partially offset by a 7 percentage point decline from unfavorable foreign exchange.
The organic growth was driven by Zoro in the United States and MonotaRO in Japan.
Let's move on to January.
Please note that we benefited from New Year's Day falling on a Friday in 2016.
In 2015 the holiday was on a Thursday resulting in light sales on Friday, January 2.
Daily sales growth in the month of January to date is trending better than December's flat sales performance, even after adjusting for the holiday benefit.
Late January sales may be affected by the winter storm in the Northeast.
There were 35 branches closed on Friday, January 22 and at this point we do not have a clear picture as to the magnitude of lost sales.
Now I would like to turn the discussion over to <UNK> <UNK>.
| 2016_GWW |
2017 | LOCO | LOCO
#Thank you, operator, and good afternoon.
By now, everyone should have access to our third quarter 2017 earnings release.
If not, it can be found at www.elpolloloco.com, in the Investor Relations section.
Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements.
These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.
These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
We expect to file our 10-Q for the third quarter of 2017 tomorrow, and we encourage you to review that document at your earliest convenience.
During today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to comparable GAAP measures are available in our earnings release.
With that, I'd like to turn the call over to Steve <UNK>.
Thanks, Larry, and good afternoon, everyone, and thank you for joining us on the call today.
Third quarter results included revenue growth of 5.6% and pro forma net income of $0.15 per share.
While our comparable restaurant sales remained positive during the quarter, our earnings reflected the impact of increased labor cost system-wide, continued investments in our loyalty program and ongoing challenges in our Texas markets.
System-wide comparable store sales grew 1.7% during the quarter, including a 2.4% increase at franchise restaurants and a 0.9% increase at company-operated restaurants.
Sales growth slowed towards the end of the quarter and has remained soft thus far in Q4.
Despite the softness, we remain confident that our efforts to highlight what we believe are our authentic differentiated brand and QSR+ positioning, along with initiatives to leverage technology to improve the consumer experience, are the right strategies to drive long-term success of the brand.
During the quarter, our entree promotions were focused on Overstuffed Quesadillas, Taco Platters and Burritos.
Our Taco Platters performed particularly well, receiving strong customer feedback and addressing an area of opportunity on our menu.
These craveable Taco Platters included the choice of Chicken Avocado Tacos, Chicken Bacon Cheddar Tacos, Avocado Tacos Al Carbon or Shrimp Mango Tacos served with seasoned rice and slow-simmered pinto beans.
We believe this differentiated offering, which highlighted our fresh ingredients and unique favors, could become a permanent menu item in the future.
Our unique Family Meal offering also continued to resonate with consumers, offsetting some of the softness we saw in entrees.
During the quarter, we kept the focus on the $20 price point, which helped drive our strongest Family Meal growth of the year, up almost 6% compared to last year.
For the balance of the year, we will continue emphasizing this price point, as we believe it provides good value in this highly value-focused environment.
Our new local rewards loyalty program continued to gain momentum in the quarter.
This program, accessible through our new mobile app, offers customers 1 point for every $1 spent at El Pollo Loco and a $10 reward after collecting 100 points.
In addition, customers can receive surprise offers tailored specifically for them based on their purchase history.
As of the end of third quarter, we had over 400,000 members, and transactions from loyalty members accounted for 4.7% of sales.
In addition, we are investing in systems to analyze loyalty customer data and create marketing programs that are based on specific customer buying habits.
We will continue to invest in our loyalty program, which we believe will drive frequency and, in turn, drive sales in 2018 and beyond.
I also want to provide a quick update on delivery.
While delivery is now available in approximately 28% of our locations across the system, the initial uptake has been modest.
We continue to believe that delivery can drive sales growth in the future, and we'll continue to optimize this service.
We expect to test a new third-party partner in the Las Vegas market during the fourth quarter and if successful, we plan to roll out this new service during the first quarter of 2018, which is expected to cover 80% of our system locations.
We believe that leveraging technology not only improves the guest experience by bolstering both convenience and value for our guests but it also allows us to better connect with our customers.
Turning now to development.
During the third quarter, we opened 3 new company-operated restaurants, 1 in Sacramento, 1 in Phoenix and 1 in Southern California.
Additionally, franchisees opened 1 new restaurant in San Antonio.
As for full year 2017 expectations, we now expect to open 15 to 16 company-operated restaurants, along with 7 to 9 franchise restaurants this year, as we have lately encountered permitting delays.
Due to these delays, 2 company-operated restaurants have slipped into early 2018.
Looking ahead to 2018, as we mentioned on our previous earnings call, we expect to build fewer restaurants versus 2017 in both Texas and overall as a result of using more selective development criteria.
We'll provide more detailed information regarding our 2018 development plans on our fourth quarter earnings call.
We currently have 12 company-operated and 2 franchised restaurants in Houston and 7 company-operated and 4 franchised restaurants in the Dallas-Fort Worth market.
Performance in these restaurants continues to be below our expectations and as such, we'll be implementing a brand relaunch in both of these markets.
The brand relaunch is planned to encompass everything from operations to facilities to marketing, with the goal of driving brand awareness bringing guests into our restaurants and delivering a wow experience.
Highlights of the relaunch include: The retraining of all employees from area leaders to cashiers; the restructuring of our menu, which we believe will make it easier for customers to understand and customize their orders, while also making it easier for operators to execute; and an enhanced marketing strategy incorporating social and digital media; a PR program centered on the 1 year anniversary in Dallas; as well as improved and additional signage.
The full Dallas relaunch kicked off this week, while Houston, which was delayed due to Hurricane Harvey, will hold off on some of the marketing-related initiatives until January.
The incremental cost of the program incurred during the fourth quarter will be approximately $300,000.
We will continue to analyze our efforts in order to fine tune our strategy to attract customers, drive sales and improve profitability in these competitive markets.
Our Vision remodels, which we believe better showcased our QSR+ positioning, are continuing to drive positive results.
We've completed 8 company remodels in total and have 6 more in the pipeline, which are currently scheduled to be completed by the end of the year.
Additionally, our franchisees have completed three 3 Vision remodels this year as well as 10 remodels in the Hacienda style.
We are continuing to work to value engineer the Vision design in order to reduce cost, while still achieving the intended sales lift.
Looking ahead to 2018, we expect to complete 20 company and 30 franchised remodels next year, all of which will use the Vision design.
Before I turn the call back over to Larry, I'd like to commend our entire team for the way they handled the challenges delivered by Hurricane Harvey.
Our priorities in the days following the storm were taking care of our employees and reopening our affected restaurants.
To support our employees during this time, we continued to pay them while their restaurants were closed.
In addition, we established funds to aid distressed employees and to support charitable relief efforts.
We also believe that a reopening of these restaurants quickly was important in order to provide our employees with some stability in the face of such disruption and tragedy.
Through the hard work of our teams in Houston and the support center, we were able to reopen all effected stores within 3 weeks, and I would like to thank all of our team members for making this possible.
With that, I'd like turn the call over to Larry, who will go over our third quarter results and 2017 guidance in detail.
Larry.
Thanks, Steve.
For the third quarter ended September 27, 2017, total revenue increased 5.6% to $101.2 million from $95.8 million in the third quarter of 2016.
The growth was largely the result of the increase in company-operated restaurant sales, which rose 5.8% in the quarter to $95 million.
We estimate approximately $450,000 in lost sales as a result of Hurricane Harvey in our Houston market.
This increase in company-operated restaurant sales was driven by the contribution from the 25 new restaurants opened during and subsequent to the third quarter of 2016 as well as by a 0.9% increase in comparable restaurant sales.
The increase in company-operated comparable restaurant sales comprised a 1.7% increase in average check, partially offset by a 0.8% decrease in transactions.
Franchise revenue increased 1.6% in the quarter to $6.2 million from $6.1 million in the third quarter of 2016.
This increase was driven by the contribution from 15 new restaurants opened during and subsequent to the third quarter of 2016 as well as by 2.4% growth in comparable restaurant sales, partially offset by a decline in franchise and development agreement fees, and fees received from franchise restaurants related to their use of our point-of-sale system.
Turning to expenses.
Food and paper cost as a percentage of company restaurant sales decreased 70 basis points year-over-year to 29.3%.
Improvement was predominantly due to lower commodity costs, particularly lower contracted chicken prices, partially offset by higher food waste and loyalty program incentives.
While we experienced higher avocado prices during the third quarter, they have since come down and as a result, we continue to expect full year commodity deflation of about 2.5%.
Labor and related expenses as a percentage of company restaurant sales, increased 170 basis points year-over-year to 29%.
The increase in labor expenses was due primarily to higher workers compensation expense, higher minimum wages in California, specifically Los Angeles, and the impact of incremental labor required for 25 new restaurants opened during or after the prior year quarter.
While we have recently seen an acceleration in wage rate increases, for 2017, we continue to expect labor inflation of about 4%.
Occupancy and other operating expenses as a percentage of company restaurant sales, increased 100 basis points year-over-year to 23.4%.
The increase was primarily due to rent expense relative to revenue volume generated and other incremental costs related to restaurants built in 2016 and in the first 39 weeks of 2017.
General and administrative expenses were essentially flat year-over-year in the quarter at $8.3 million.
As a percentage of total revenue, G&A expenses decreased 40 basis points year-over-year.
G&A expense in the third quarter of 2017 included $933,000 in legal costs related to the securities class action litigation as compared to $519,000 in securities litigation cost in the third quarter of 2016.
Excluding the cost associated with the securities litigation in both periods, G&A expenses in the third quarter of 2017 decreased approximately $380,000 year-over-year and were 80 basis point lower year-over-year as a percentage of total revenue.
The decrease resulted primarily from an increase in revenue, a decrease in preopening costs and a reduced accrual for annual bonus program.
Depreciation and amortization expense increased to $4.7 million from $4.1 million in the third quarter of last year.
As a percentage of total revenue, depreciation and amortization increased 30 basis points year-over-year.
The increase was primarily driven by our new store development.
During the quarter, we recorded approximately $15 million of expenses related to the impairment of assets of 8 restaurants in Texas, and 2 units in Northern California.
Additionally, we closed 3 restaurants in Texas, resulting in a closed store reserve expense of approximately $1 million.
We recorded an income tax benefit of $2.5 million in the third quarter of 2017 and an effective tax rate of 37.8%.
This compares to a provision for income taxes of $2.8 million and an effective tax rate of 35.2% in the prior year third quarter.
We reported GAAP net loss of $4 million or $0.11 per diluted share in the third quarter compared to a net income of $5.2 million, or $0.13 per diluted share in the year-ago period.
In addition to our GAAP net income, we have calculated pro forma results adjusting for onetime or unusual items.
To arrive at pro forma net income, we have made adjustments for income and expenses associated with our income tax receivable agreement, gains or losses on disposable assets, gains and losses on disposition of restaurants, asset impairment and store closure costs, gains and losses related to a fire in one of our restaurants and recovery of insurance proceeds, legal expenses associated with securities-related lawsuits, insurance proceeds related to the reimbursement of legal expenses paid in prior years for the defense of securities-related lawsuits and expenses associated with executive transition.
We've added back provision for income taxes and have applied a 39.5% income tax rate.
Included in our earnings release is a reconciliation of our GAAP results to our pro forma results.
We believe that the pro forma results provide a useful view of our business and cost structure.
Accordingly, pro forma net income for the quarter was $6 million as compared to $6.9 million in the third quarter of last year.
Pro forma diluted earnings per share were $0.15 for the third quarter of 2017, compared to $0.18 in the prior year period.
We estimate that the negative impact of third quarter earnings as a result of Hurricane Harvey was approximately $300,000 before tax.
In terms of our liquidity and balance sheet, we have $7.1 million in cash and equivalents as of September 27, 2017 and $85.3 million in debt outstanding.
For the foreseeable future, we expect to finance our operations, including new restaurant development and maintenance capital through cash from operations and borrowings on our credit facility.
For the full year, we now expect our capital expenditure to total $39 million to $41 million.
Turning to our outlook for 2017.
We are revising our guidance for the full year 2017.
We now expect pro forma diluted net income per share of $0.61 to $0.63.
This compares to a previous range of $0.64 to $0.67 and pro forma diluted net income per share of $0.66 in 2016.
Our revised pro forma net income guidance for 2017 is based in part on the following annual assumptions: we expect system-wide comparable restaurant sales growth to be 1% to 1.5%.
We now expect to open 15 to 16 new company-owned restaurants and expect our franchisees to open 7 to 9 new restaurants.
We now expect restaurant contribution margin of between 19.3% and 19.6%.
We expect G&A expenses of between 8.1% and 8.3% of total revenue, excluding CEO transition costs and legal fees related to securities class action litigation.
We now expect adjusted EBITDA of between $64 million and $65.5 million and we continue to use a pro forma income tax rate of 39.5%, which reflects our successful program to obtain [watsi] credits.
Now I'll turn the call back over to Steve for closing remarks.
Thanks, Larry.
In summary, we continue to believe that we will drive sales and profitability through our efforts to highlight what we believe our authentic brand, our differentiated offerings and our QSR+ positioning.
Our loyalty program is gaining momentum, and we're getting ready to test a revamped delivery platform that we believe will drive incremental sales.
We will continue to invest in technology to bolster convenience and value, and improve the guest experience.
We are implementing a comprehensive brand relaunch in Texas, planned to encompass everything from operations to facilities to marketing, designed to drive brand awareness, bring guests into the restaurants and deliver a wow experience.
We believe that our authentic brand, differentiated product and strong value equation position us well to drive positive financial results and create long-term value for our shareholders.
Again, I'd like to thank you all for your continued interest in El Pollo Loco.
We are now happy to answer any questions that you may have.
Operator.
Yes, sure.
This is Steve.
We started off really in July and August pretty strong, we were at a 2.9% system-wide in July and 2.8% in August.
We saw some softening begin in mid-September, and that continued so far into Q4, although we're positive as we are ---+ as we sit here today in Q4.
So we believe the primary reasons for that softness was there's some heavy competitive discounting that began in September, and we think some of the customers that were attracted to that and the deep discounting.
Also the biggest impact was in our entree business that we saw, although we have a very good Burrito business, our Burrito LTO in September didn't perform quite to the expectations that we thought.
So overall, a little tough competition in the end of September, and that competitive aspect continued on.
If you talk about the loyalty aspect, we feel very good on our loyalty program.
We talked about that on the last call, in fact, Alex.
If you look right now, we've got about over 450,000 members as of today, and we continue to add new members on a daily basis.
So it's a little over 4.7% of sales.
We think this is really a long-term sales drivers, as it increases frequency.
Additionally, new to this ---+ and the great part about loyalty is you get great consumer data, and it'll help us better understand the customers and drive even more effective promotions.
We hired a company called Ansira to help us do this data analysis.
So we think that's a long-term driver, especially as we get into 2018, into sales.
And Alex, just to add to these comments.
You're asking a question regarding mix, and I think you're getting at these loyalty incentive impact on (inaudible).
I think you called that out precisely because if you look at it, and those are numbers - mix came in roughly flat to maybe down a 1/10.
And you certainly saw favorable mix with our Family Meals, but that was offset by the incentives through our loyalty program.
If you look at the average check on the loyalty program, it's somewhere around $4 to $5 as a result of those incentives.
So you can see when you're driving that program, that mix within the loyalty program is offsetting your favorable mix on your Family Meals.
And then just I also want to ---+ the (inaudible) received was right around the numbers, we saw some softness in September and then we've seen, certainly, the start of Q4 has been softer than we expected and hoped for, but as Steve highlighted, we are running positive, and we're really positive, a little over 1% so far this quarter.
I'll give you a little bit color.
We were working with Olo Dispatch, and it's really in about 28% of our system right now.
What we weren't participating in with that so far was the delivery marketplaces which many consumers are using, and what we are doing is we are going to test in fourth quarter here with DoorDash to become a delivery service provider.
We're going to test that in our Las Vegas market.
And they can not only do that, they operate in the marketplace, but also can do our direct orders, which is what we're doing now at a very reasonable fee.
So we're very excited about that test, because if it's successful in fourth quarter, we'll roll it into the system next year.
And we think that'll take us from about ---+ currently about 28% of our stores are participating in delivery, we think that'll take us to 80 plus percent.
So we're excited about that test in Las Vegas.
And Alex, just to clarify, Olo ---+ we're still using Olo.
Olo is our ordering mobile app provider.
And so where previously we were using them along with UberRUSH, we're now looking to test them in conjunction with DoorDash.
So Olo is still a very good partner, we're working with them.
So it's really just the delivery service provider we're relooking at, not the mobile app provider.
Yes, we think DoorDash has a real focus on the large orders and especially catering orders.
They've got a very good performance on the catering side, which is a big potential for us with our ---+ both our Family Meals and then large office caterings.
So far, when we looked at the average check for mobile ordering in the mobile app, it's run higher.
Certainly, a chunk of that is catering orders coming through mobile.
So it is running higher and right now, I think it's running at ---+ 1.4%, 1.5% sales is being done via mobile ordering.
Great, thank you, operator.
We want to thank everybody for joining us today.
We appreciate your time and your interest in our brand.
Have a good evening.
| 2017_LOCO |
2017 | MAT | MAT
#Thank you, <UNK>, and good afternoon, everyone
My plan for today is to walk you through our second quarter results and discuss potential headwinds and tailwinds for the remainder of the year
But before going any further, I want to remind everyone that unless otherwise noted, I'll be referring to net and gross sales in constant currency to provide better visibility into the underlying top line trends
And to provide more transparency into the fundamentals of the business, I'll also reference some adjusted financial results that exclude non-recurring executive compensation and severance related to our business transformation
As always, reconciliation to GAAP numbers are provided in our press release and slide deck
So let's walk through the P&L, beginning with the top line
In the second quarter, net sales were up 2% as reported and up 3% in constant currency versus the prior year
Gross sales were up 1% as reported and 2% in constant currency
From a brand perspective, sales growth in the second quarter was driven primarily by Cars 3, and partially offset by continued declines in Monster High and Ever After High, continued softness in MEGA, American Girl, and Thomas, and a decline in Barbie due to a tough year-over-year comparison with last year's renewal of our content distribution agreement with Universal
Excluding last year's licensing revenues from the content distribution deal, Barbie was up low single digits on a global basis for the quarter, with global POS up double digits
Looking at the business by region, we were pleased by the broad-based strength of our international segment this quarter, with gross sales growth of 6% as reported and 8% in constant currency and POS up low double digits
More specifically, we saw sales acceleration in the quarter in our Latin American business
We also saw sequential improvement in our European business and continue to see strength in key emerging markets like China
International growth was partially offset by declines in North America
Gross sales in North America were down 2% as reported and in constant currency
For the quarter, POS for North America was up mid-single digit
While we faced some short-term headwinds in the second quarter, it's still early in the year, with the majority of the business for the year still in front of us, and we remain focused on executing the strategies we laid out for the organization
Exiting the first quarter, the retail inventory overhang from the 2016 holiday period have been addressed
While global POS continued to outpace shipping in the second quarter, the high single-digit POS momentum of Barbie, Hot Wheels, and Fisher-Price year to date resulted in leaner retail inventories versus the prior year as we entered the third quarter
The combination of strong POS and leaner retail inventories gives us confidence that shipping will align with POS over time
Moving on to the other P&L drivers, sales adjustments were 8.8% in the quarter versus 9.1% in the prior-year period
Our reported gross margin for the second quarter was 41%, down 430 basis points versus 45.3% in 2016. During the second quarter, gross margin was primarily impacted by increased royalties due to the higher sales of our licensed entertainment properties, unfavorable mix due to a shift away from our higher-margin doll business, lower licensing income, and slightly elevated product costs due to timing of year-over-year cost savings programs
Strategic pricing partially offset these headwinds
There was steady important in our gross margin rate from first quarter, as we continue to gain scale with revenues increasing sequentially in the second quarter
Additionally, we incurred a lower obsolescence expense in the second quarter and saw a very little impact in ForEx as compared to the first quarter
Continuing on, as planned, advertising was down slightly as a percentage of net sales for the second quarter
We remain disciplined in SG&A
Adjusted SG&A was up approximately $12 million or 4% year over year for the quarter, driven primarily by employee costs related to merit increases, investment in the expansion of American Girl, including the new store opening in New York City this fall, as well as continued investments in China growth
Finally, adjusted EPS for the second quarter was a loss of $0.14 compared to the prior-year loss of $0.02. Our year-to-date tax rate was 22.8%, including discrete items
Excluding discrete tax items, our tax rate was 21.6% year to date, which is consistent with our expectations for the full year
Now turning to the balance sheet and cash flow, receivables were up $123 million year over year, primarily due to the later sales in the quarter as well as country and customer mix with longer sales terms
We expect two-thirds of the increase in receivables to be collected in the third quarter
And as expected, our owned inventory was up year over year, partially due to lower year-to-date sales and to support the continued positive global POS trends we're seeing for Barbie, Hot Wheels, and Fisher-Price, and our licensed entertainment launches throughout the year
Overall, we're comfortable with our inventory, both owned and at retail, as we entered the third quarter
We ended the second quarter with $275 million in cash
Year-to-date cash from operations was negative $549 million, down $308 million year over year, due to lower net income as well as heightened levels of receivables and inventory
More specifically, the year-over-year decline in cash flow from operations was driven primarily by lower net income of $77 million, higher accounts receivable of $126 million, and higher Mattel-owned inventories of $13 million
And as I said earlier, while our key power brands showed continued momentum, American Girl, Thomas, and parts of our innovation pipeline are performing below our expectations
In light of these challenges and our plans to continue to invest in our business as well as in our new strategies, we may not have sufficient flexibility under the current debt-to-EBITDA ratio of our credit facility at the end of the third quarter of 2017. Accordingly, we intend to amend the ratio under the credit facility before the end of the third quarter, and we are highly confident we'll be able to do so
At June 30, 2017, Mattel was in compliance with its debt-to-EBITDA ratio
We continue to deploy capital in a disciplined manner to both manage the business and reward shareholders
As expected, capital expenditures were up in the second quarter, as we continue to make investments to grow the business, including the increases in automation as well as to build a new American Girl store in New York City
Our second priority after investing in the business is to continue to reward our shareholders with a dividend
As announced at our June Investor Day, our board declared a third quarter dividend of $0.15 per share compared to $0.38 per share in the third quarter of 2016. The dividend was right-sized to facilitate the strategic investments Margo presented last month, increased financial flexibility over time, and strengthen our balance sheet
Our third priority will be to evaluate as appropriate strategic partnerships, M&A opportunities, and share buybacks, as we seek the highest available returns on our capital
And while we continue to target a year-end cash balance of about $800 million, we expect to come in below our target again this year
However, we believe we will continue to have sufficient liquidity to invest in the business
To position ourselves for a strong 2018, our overarching goals for 2017 are to exit the year with POS momentum overall, particularly in our key power brands, and to end the year with clean retail and Mattel-owned inventory levels
And as I said at our Investor Day in June, we recently completed a rigorous strategic review with Margo and the senior leadership team
We made some tough calls to temper our revenue expectations to low single digits for the full year
While we began 2017 expecting top line growth in the mid to high single digits for the year, our low single-digit expectations reflect lower sales for Thomas, American Girl, and MEGA, which represents about half of the reduction of our full-year revenue outlook, as well as the impact of lower sales from our fragmented innovation pipeline, which we're rebalancing and refocusing for the rest of 2017 for improved productivity
As we look ahead, we continue to target low single-digit sales growth for the year and expect the growth in the second half to be driven by: incremental licensed entertainment portfolio, including Disney's Cars 3 and Warner Bros
Justice League; our key power brands, Barbie, Hot Wheels, and Fisher-Price; and our strategic investments in emerging markets, which will partially be offset by continued declines in Monster High and Ever After High
Additionally, we expect second half sales to be more weighted towards the fourth quarter, as consumers continue to buy later, which reflects the timing of our promotional efforts and marketing spend, the timing of our new product launches, and how retailers are likely to tightly manage inventory leading up to the holiday season
We expect continued gross margin headwinds in the second half versus 2016 due to lower licensing income, including last year's franchise licensing agreement to expand American Girl into the Middle East, and mix royalties due to more entertainment-based properties, including Cars 3. However, we do expect sequential margin improvement in the second half of the year compared to the first half of the year due to the seasonal scale of our revenues relative to the first half of the year
The unfavorable year-over-year mix impact will be less severe in the second half since the weighting of Cars 3 revenue as a percentage of total Mattel revenue will be substantially less in the second half of the year than the first half of the year
And while we've already begun making progress on the strategies presented at Investor Day, we continue to focus on running the business and ensuring very strong execution in the upcoming holiday season
Additionally, we remain committed to continuous cost improvement with our two-year $240 million cost savings initiative, led by our global supply chain organization, which will help offset inflation, labor rates, and product costs
As a point of clarification from Investor Day, over the medium term we expect the cumulative incremental investment in our strategy of around $250 million to $350 million
Our goal is to partially offset our strategic investments over time by freeing up an additional $150 million to $200 million as we reshape our operations and seize savings via commercial realignment, supply chain transformation, and the future benefits of IT transformation process to optimize critical business decisions
As for the timing of our strategic investments, we're still working through the exact phasing of some of the investments
When we complete this work, we'll provide milestones against which you can measure our progress
Before I close, I'd like to address the recent announcement of my departure from Mattel and CFO transition
Having spent over 17 years on the leadership team here, it's time for me to pass the baton
However, I do plan to stay on board in the interim to ensure a smooth transition
I'm excited about the new strategy and confident that the new leadership team will both transform Mattel and regain our leadership in the industry
It's truly been an honor and a privilege to be part of this great company, and I will truly miss all the very talented people at Mattel
With that, we'll now open the call for questions
Operator? Question-and-Answer Session
Yes, I think it's pretty simple
We're highly confident that we can amend the ratio under the credit agreement before the end of the third quarter
We've been talking to our lead bank, and we're highly confident that we will be making that amendment
I think with regard to the $300 million, I think at this point we don't think we're going to exceed the $300 million, but we're tracking it closely, and we're going to build what we think we can sell
I think we've got some good results outside the U.S
We're going to track the U.S
closely
And if it's slower, we'll build lower and we don't expect it to be substantially lower than the $300 million
With regard to the current covenant, we renegotiated it in the second quarter to 3.75 times
And at the time of the June amendment, we did not have Q2 actual results
When we look at the timing of revenues in the second half, which currently we see more of that shifting from the third quarter to the fourth quarter, so given our 2Q performance and the shift in revenues, we want to make sure we have sufficient flexibility on the current debt-to-EBITDA ratio of our credit facility at the end of the third quarter of 2017. We're still looking at that
We've talked to our lead banks, and we haven't determined what we're going to take that ratio up to, but it will be higher than 3.75 times
And accordingly, we're going to attempt to amend that in the third quarter, and we're highly confident that we can get that amendment based on the discussions with banks
I think, as you said, we are sticking to our low single-digit growth for the year
And when we look at the drivers, first, we've got POS momentum in our key core brands, and we're looking at incremental licensed entertainment portfolio, including Disney's Cars 3 and Warner Bros
Justice League, as I said, our key power brands of Barbie, Hot Wheels, and Fisher-Price, and our strategic investments in emerging markets, which again I think will be partially offset by continued declines in Monster High and Ever After High
Okay, let me first take the revolver versus commercial paper
We haven't really accessed the revolver since 2009. We basically have great liquidity in the commercial paper markets, and the revolver is a backup facility to those commercial paper markets
Regarding inventories, again, I think what we're really looking at is to tightly manage our inventory, both our owned inventory
We want to end the year clean with regard to retail inventories
So as I said earlier, we've made the tough decisions really right now as to what we expect to sell in the second half based upon our POS trends
And what we're trying to do is ship in what's going to sell through, and then we want to end the year with clean inventories at retail as well as our owned inventories
I think with regard to the Cars question, we're going to wait and see what happens with regard to the release of the DVD and streaming on-demand, and we will adjust accordingly our production in the back half of the year to support revenues in 2018 if there is more revenue that we generate because of the strong POS around the globe
I think with regard to making those tough calls we talked about to temper our revenue expectations for the year, we're doing that right now
We're looking at year-to-date POS, and we're aligning our full-year revenues with regard to what we think POS is going to be for the balance of the year, so we went from mid-to-high single digits to low single digits
And I think that's going to be a big part of execution in the fall that we ship in what's going to sell through, and then we end with clean retail inventories as well as our owned inventories in our warehouses
| 2017_MAT |
2015 | PKE | PKE
#So I think we're going to decline to quantify it specifically, and I have to remind you that June is a five week month and July and August are four-week months, so we would always talk in weekly averages.
The month of July actually was a month in which that one-time sale occurred, $2.2 million so that pushed July up a little bit.
But I'm just looking at---+
Right, okay, so I'm looking at it in total because the aerospace is flat across the quarter except for that one-time sale.
Yes, I expected that question.
I think we're going to decline to quantify it by percentage or anything like that, but it's meaningful, it's significant.
You could look at the numbers without getting your pocket calculator out, and saying the month of August was not like the prior months, and particularly if you look at the Singapore line item, that's where you see it.
The rest of the lines are going sideways, maybe a little up, a little down, nothing to even speak about.
But that Singapore number actually dropped to some extent in July, and dropped further to August.
I think that it's similar to August.
September is trending with August.
Sure, so this is two answers to the question, I guess.
One is, yes, there's an ongoing trend, the Taiwanese and even some Japanese company comes in quite aggressively, and that's maybe a longer story.
If you want to look at the quarter, August and September, I think that's absolutely nothing to do with it at all.
The good news is, I think we have developed some pretty solid positions with these two leading Chinese OEMs, and they are very significant companies.
And like I said, two of the three largest electronics OEMs are now these two companies, and that's kind of a new development.
So actually that's going in the positive direction.
But I think that ---+ I don't know, my sense is that the Chinese economy is really not very happy right now, and obviously these companies, are not just supplying into China.
These are large companies, but I think they still are very much driven by the Chinese economy, not just in terms of the market, but also the psychological factors, which affects, I think, their way of looking at the markets.
As aerospace is kind of much more steady as you go, electronics companies are very reactive, and they turn on a dime, so the story for August-September, I don't believe, and Asia, I don't believe that's a market share story.
There's a longer-term trend where the lower end of our high performance product keeps getting picked off, and picked off, and picked off.
We basically sell very little non-high performance products, and almost none in Asia.
I don't remember the percentage, but 7% or something like that is very significant.
So it's being picked off, and the market share story is the lower end of high performance.
Our job, of course, is to push hard with our new products, because there's very little we can do to protect the lower end of our product line, even though it's high performance, other than getting in the mud with the Asians, and I think that's what is the expression ---+ like a one way ticket to Palookaville, that's a real, real bad strategy, if you asked us.
Just one of those companies asked us to do joint development project with them, so I don't want to say anything more about that.
But I feel, other than the fact that the market is really troubled, I think we are happy to be positioned well, we feel we're well-positioned in Asia.
These are the up and comers, the names that we've been talking about for the last 20 years.
I'm not saying they aren't a factor anymore, but these are the people that ---+ I mean these companies are very large also, so I don't know if up and comers is the right way to talk about it.
Maybe not as well known by western people, but I think these are the companies that we really want to be aligned with, for the future.
So I think that's a correct statement but you're comparing it to what I was hoping for, of course, and I was hoping for better.
But the reason that the electronics top line is what it is, is because of the adoption of the new products.
If we're just continuing to sell the legacy products it wouldn't be a good thing at all, not just in terms of the current P&L, but also in terms of our position strategically.
So you have to ask ---+ what you asked me really, because electronics moves so quickly, but ---+ and there are a lot of pretty hot issues we're working on.
However, in terms of new products, I have to be a little careful here because some of these things are highly confidential, and we are working with a large circuit board, a very large circuit board company and also OEMs on accelerated development work and commercialization of our new products, and that's something new.
Those are not just ongoing things that there's special activities, so it's not just more of the same.
We still have to make these things work.
We still have to bring home the bacon, if you will, so these things are not in the bank, but these activities are different.
They're significant, they are consuming, and they are not just showing the ongoing kind of development activities that we've been involved with, or commercialization activities we've been involved with for the last three to four years, with the new products.
This is, in the last three months I would say, the activity has become heightened.
Not interest, no, no.
It's a lot more than interest.
It's putting a lot of work and effort into being qualified on programs, and with large OEMs and customers.
Yes, it's not interest.
We're exhausted actually from how demanding this work is.
At least I am, and I'm old, so I get exhausted easily.
I think FY16, aerospace is a lot more predictable than electronics, of course.
I think that we should look for more or less flat over the first and second quarter, over the third and fourth quarter.
I mean, the opportunities are very palpable, present, but they don't have months involved with them, they have years and decades.
So I'm not aware of anything that would significantly impact up or down the aerospace situation in the short-term.
That's correct.
The big drivers for us with GE are the 747, which is kind of flat, and the real big driver is the A320neo with the LEAP engine.
Now, Comac, you mentioned, the bigger story for Park is C919, which has the LEAP engine, as well.
That's another big program for Park, but that's still a couple years out.
The ARJ which is CF34-10 A engine, that's our program, you're right, but it's smaller.
So the big drivers for at least GE, we're talking GE, 747, which doesn't seem to be much more than flat based upon the forecasts that we're receiving, and the big one is going to be ---+ that has a more immediate impact, will be the A320neo, the LEAP engine the C1919, like I said, is also a LEAP engine, but that's a little bit further in the future.
That also has some big potential revenue associated with it.
The forecast we talked about this, and like I said, aerospace doesn't change every three minutes like electronics does.
Let's talk calendar years, because that's where the forecast is structured.
It more of a jump in FY17 and FY18 than in FAY16.
The programs, there's also Embraer, they have a CF34-10E engine, and I believe that we haven't switched over to that program yet.
Once we do, then it will be our program, meaning that there might be legacy inventories being worked down.
I have got to be careful about saying too much there.
The other, we talked about both the Chinese programs, which are good programs to be on.
And then there's the Passport 20 program, and that's not only the thrust reversers and cowling to nacelles, but it's also some internal structure of the engine, which is an exciting thing for Park.
That's a new area for Park.
And we're working on a number of other engine platforms for GE and Boeing aircraft, for different parts of the aircraft which would not be ---+ sorry different parts of the engine, which would not be as significant as these numbers we're talking about, which are mostly for thrust reversers and cowlings and very large parts, but we're looking at other parts of the engine.
A number of them, and a number of different engine platforms.
But you're asking about big revenue drivers, that really hasn't changed.
The biggest one of all is going to be the A320neo, I think, and that's happening now, and then I would think the next big driver might be even the Comac 919 because that could be significant, if the Chinese are successful in introducing that aircraft.
That aircraft is a single aisle aircraft to compete against the single aisle Boeing and Airbus airplanes.
That's a lot different than the ARJ, which is a regional jet, which doesn't really go into Boeing and Airbus' turf so much.
Well, could you explain a little bit more what you're asking.
Oh, I see, yes.
India we do some aerospace work and electronic work already.
Pakistan, I don't think so.
What were the other countries, I forgot.
Yes, Russia, we have not been successful in Russia.
We tried in aerospace, haven't gotten anywhere, electronics, there was nothing there for us.
Brazil, oh, Mexico not too much.
So I think India's probably the only country on that list where we have some meaningful presence at this time.
Some of these are through like GE, may use contractors in these countries, but that's really not our work.
That's just being qualified on programs, so we can't really take too much credit for that.
We stopped disclosing that, but maybe <UNK> can take a look.
There was one.
TTM.
Our largest customer, I thought that what's <UNK> was going to say.
Of course TTM acquired Viasystems, so that's our largest customer, and I think we might have even told you our second largest customer is in our annual report, which is generally GE.
I think that there's a little benefit in the second quarter and I think the third quarter will be similar to the second quarter, in terms of the copper impact.
We are not talking about significant dollars here.
This is a sensitive topic because I think in our policies we passed these changes on to the customers, but there's some time a lag effect.
So again, a little benefit in Q2 as compared to Q1.
Q3 probably neutral of Q2 but little ---+ let's keep it in perspective, small.
Yes, I think that I tried to cover it, but obviously I didn't do a good job.
The answer is no, because it was really a one-time item.
These are 2015 accruals that we ---+ for bonuses and profit sharing, which had not been paid yet, but we could only do that once, obviously.
Now it's kind of late in the year.
FY15, in other words the year that ended February 2015, so it's getting kind of late, we need to pay these things.
So that's a one-time item.
It's a one-time adjustment.
We reduced our accrual, which actually has real impacts to the people at Park, in the Company in terms of their profit-sharing and bonuses, but it only can be done once for 2015.
And like I said, it has to be paid.
So it's not, that adjustment is not ---+ is a one-time thing, and it's not sustainable.
So it isn't really a true-up.
I guess you could say it's a true-up but it's a real adjustment in what we plan to pay.
The bonuses and profit-sharing, based upon the quarterly performance and other things.
Look, why don't we look at the first quarter's $5.8 million, looks like the fourth quarter is $5.6 million, the third quarter is 5.7 million.
I think we're talking about those kind of numbers.
And I can't give you that kind of resolution down to the last dollar, but we're probably talking more in the $5.5 million range I think, <UNK>, not the $5 million range.
Thank you.
This is <UNK> again.
Thank you, everybody, for listening in on our second-quarter call.
<UNK> and I are at the Melville office, so please feel free to give us a call if you have any follow-up questions.
Again, thank you and have a good day.
We'll talk to you soon.
Goodbye, now.
| 2015_PKE |
2016 | GES | GES
#So I think from the occupancy cost and improvements in rent, it's going to be a case by case store by store discussion.
It really depends on what those economics end up being for us to know what the impact.
And so, at this time, we really don't have any further guidance to give on that.
But we just know there's an opportunity because we have so much flexibility in the portfolio in the US and Canada.
Moving onto the gross margin opportunity itself, I think this really ties into some of the things that <UNK>'s talked about in the supply chain previously.
We believe that there is tremendous opportunity longer-term for us, based on the priorities he outlined on previous calls, as well, which is to strategically basically lineup a very strong supplier base and then work with fabric platforming opportunities and ensure that we actually drive the IMU improvement.
That IMU Improvement is already embedded in the guidance that we provided for this year in our gross margins and I'm talking on a global basis, it affects both US and Europe.
And over the course of the three-year plan, we continue to work on this.
Right now, we really don't have IMU improvements embedded.
But it is something we are going to continue to work toward.
In addition to that, I would like to say about supply chains, all the initiatives that we are adding so many initiatives, and I want to share with you several initiatives that we are trying to implement at this moment, like for example, since I arrived to Guess.
For example, is reducing the calendar, trying to potentiate, as much as possible, an open to buy.
As well trying to optimize our sourcing country's portfolio.
So, it means trying to be much more not so dependent on for example China, and trying to open new markets or new sourcing markets that we believe we can get really good price without jeopardizing our quality.
So, I think from a gross margin perspective, we basically embedded, in the US and Canada especially, nothing more promotional than last year.
I think we're expecting to be roughly equivalent.
So, that is what is assumed in the gross margin projections globally, not just in the US and Canada actually.
And regarding our pricing strategy, we are trying to always be very consistent with the price that we have in the Americas, and basically try to do price alignment in all the markets.
We just opened, for example, several markets where we try to be always and use US as a benchmark for other markets.
Regarding the lead times, I think that we have to split it into two.
The first one will be the tradi---+ , or the formal collection that we'll have a specific lead time.
But at the same time, we have to take into consideration the open to buy.
And open to buy basically what we are trying to do is have a newness on a monthly basis during the normal season into our stores or into our partners.
So this is important to take into consideration.
It is not as much thinking about the traditional lead time that you have to do the collection itself.
It is that we are leaving as much as we can in open to buy in order to shorten the lead time for that open to buy.
Thank you for the question, because I think it's a very relevant question.
Basically, we continue 100% concentrated on improving our product.
And basically, one of the reasons as I mentioned before, of the increase of order value in Europe wholesale is basically because I believe we are upgrading and elevating our product, and we are taking a lot of initiative in order to do that.
And basically, the product before, I think that we were pushing several categories.
Like for example, denim, dresses and knit tops.
And right now, what we are trying to do is outfitted collection.
It means basically, we are producing in product a whole collection with inside the collection we have trends, we have all the things that they must have that we have to have in that particular collection.
And at the same time, what we are trying to do is express in our stores or in our shop-in-shops in wholesale, they are trying to be very outfitted.
It means basically, you can be dressed or you can leave our stores dressed from top to bottom.
It means you can buy several items at the same time and always constant for example, whenever we do our visuals, broadly you went to our store lately, I think that you can see that we are presenting or we are doing a visual merchandising much more commercial than before.
And not how you say, not doing marketing on one particular product category.
More as a collection as a whole.
So this is a very important point that we believe we will continue doing this.
Because at the end, for us, what is important is expressing inside the store and showing in the windows what we are able to do in product.
In a way, I think they are different markets.
Also, I think the US at this moment is very challenging in general.
This is one of the reasons.
Rest reassured all the initiatives that we are doing in Europe, we are doing in the US, even more elevated I will say.
It's a question of time that I will see results in the US.
And I'm very excited what is happening in Europe, but it's not reflecting in the US.
But definitely rest reassured that we are doing exactly the same thing as we are doing in Europe at this moment, we are doing even in a more extreme way in the US.
Basically, visual merchandising, replenishment, assortment, allocations, all the initiatives that we believe is the right path for us, in order to be successful and in order to start seeing some positive comps in the US, we are doing as well in the US the same way as we are doing in Europe.
I'm going to answer to the first part of the question and <UNK> will answer on the second one.
Regarding the first question, I think that what is important and that you should keep in mind that right now, our allocation is not US.
Our allocation is what we are selling in that particular store in LA, comparing with the particular store in New York.
And it's based on demographic behavior of each of the stores.
So at the end, what is important to know is that we are trying to tailor-made the product for each of the stores and also each of the cities and each of the regions.
And <UNK>, just following through on the tourist versus non-tourists, we haven't really specified the number.
Obviously, it's material enough for it to drive the comp and that's why we're calling it out as a driver.
Things have been tough.
I think consistently tough and we were expecting it to be tough in the first quarter as well.
And we expect this to continue and to at least the end of the first half.
So, let's see because that's when we lap the tourist drag at the experience from last year.
Broadly, yes.
From a profitability perspective, the thresholds that we apply basically apply to all the concepts that we're looking at for new stores or renewals.
And so for these particular stores, these particular concepts, they're obviously more profitable concepts, and we're able to get stores that are hitting our thresholds both from a four wall perspective, as well as a payback perspective.
And that's why we're looking to focus on expansions on these concepts.
On a commercial point of view, I think both concepts have a lot of potential in the US and Canada.
That's why we decided that I think we should concentrate more on the expansion of those two formats instead of the other formats.
That's why we are trying to develop both formats.
We're happy that they perform well during the quarter, because if we believe that has a great potential.
This is basically a reassurance for us that the G by Guess.
is going to have the potential we think.
At this moment, we have a few stores in G by Guess.
which you cannot compare with the other formats, because the other formats are bigger.
But at the same time, we are performing very well in the quarter and we believe that G by Guess.
with this split between men's and women's, which is basically the penetration of both at the same, I think is a very ---+ has a potential on a commercial point of view and on a product point of view for the US and the Canadian market.
It's our first underwear store in mainland China.
But as you may know, we have several underwear stores and we are very successful in Asia with that particular product category.
We believe that this underwear category could be very successful and has a lot of potential in mainland China.
And you know very well that our balance sheet has a significant amount of cash in it, but a lot of the cash is overseas.
As you again said, most of our growth is focused on international expansion, so that's quite convenient because the cash is already overseas.
From a US perspective, we basically see that our cash needs are being met with what cash we're generating over here, be it licensing or other businesses.
So we haven't really contemplated any kind of repatriation because our cash is sufficient for our needs right where it is.
For China, for China retail, what I can tell you is that basically it is a matter of timing.
And definitely, we will continue I think we have positive comps during the quarter in mainland China, but it's softer than we anticipated.
The reason why is because we're in the process of trying to adapt to the new ---+ we are pushing retail versus wholesale at this moment and basically this is taking a bit of time.
But at the same time, we open a lot of stores in several cities of China, which is ---+ I mean the receipt of the brand is quite positive.
At the same time, I think it's a question of timing.
Right now, we are ---+ all the profits on operational point of view, we have the accountability, and before we were having several partners that they were working with us on all these.
It's a little bit softer, but it's still very positive and we will continue working in order to improve this.
And I hope that they say the results in China, particularly in retail, we'll continue to accelerate on a faster pace.
Regarding the wholesale in China, basically what we are trying to do is moving some of the stores from our existing partners to retail.
So this is taking a bit of time, but definitely, I think is according to our strategy of going much more into a direct model in China.
Exactly.
And on the Americas wholesale, just as a reminder, the US Canada and Mexico and Brazil in that category ---+ in that segment, sorry.
And so the US is actually been slightly better, but I think the really important thing to note is that Canada and Mexico is now doing very well within the Americas wholesale segment.
They have had been doing well since the beginning of the year and that trend is continuing.
Brand perception for me what is important, is whatever the customer perceives at one point of time in one particular place.
So I mean it will depends.
Definitely our brand perception is different between what let's say, Los Angeles and in Shanghai or in London.
But definitely we are not ---+ I think the Company feels very comfortable with the brand position that we are having and basically with the DNA that we have been having for the last 50 years.
And definitely, we will continue on this path and we will continue ---+ what we have to try to do is basically elevate our product without ---+ and trying to continue working in a comprehensive collection and an outfitted collection, more than a trying to develop or trying to push one particular product category.
I think this is a particularly I was mentioning in the US.
I don't think that this is happening somewhere else.
Maybe a little bit in Europe, but not in Asia.
I think where it's very strong and this is happening big time at this moment is in specifically, in the US market.
| 2016_GES |
2016 | WPX | WPX
#Thank you.
That's only for a 1 mile lateral.
Okay.
(laughter)
Yes, I think, obviously, every basin, every stack of rocks is going to be a little bit different.
In the Williston basin, I think we may ---+ for current commodity price, lateral design, everything we are doing, we may have seen that point of diminishing returns.
As I mentioned, we drilled or we completed some with 10 million pounds, some was 6 million pounds.
And remember, it's so many other things than just how much sand we're putting in the ground.
But how do we put that sand in the ground, the techniques that we use ---+ and how does that translate for the cost into value.
Specifically in the Delaware, I also mentioned it is relatively early in its operational maturity cycle.
And so we do ---+ we have peer companies that have tested well over 3,000 pounds, nearly 4,000 pounds per foot.
And we're watching that very closely.
We've been to 2,000 and even 2,500 pounds per foot in some of our wells.
And we're watching those.
I can tell you, you kind of have to jump to the other side and know that at some point you're going to kind of miss in front, and then kind of have to back off a little bit.
We are prepared to do that.
At the same time we want to understand ---+ you know, water cost is a big, big, big driver.
And so how much water and fluid does it take to put that sand away.
And sometimes that can really be the driver of that point of diminishing returns.
Yes, we get that question a lot.
And it's a really good question, and it's one that's a little tough to answer, because so many times it's a combination of somewhere in between.
What I try and point to and really be thoughtful around is things like just drilling wells in half or 40% of the time that we were drilling before.
Obviously, those are structural changes that ---+ we're going to hang on to those great ideas and continue to improve from there.
So those things I see not so much affected by inflation.
Certainly, on the stimulation side, the rate that we are being charged today on stimulation ---+ certainly in a steady-state or an inflationary market, those costs have to come up for our suppliers and service companies to survive.
And so we will see some inflation on some of those.
I would say overall, where we are at today ---+ and we've done some internal work that says okay, yes, in a steady-state $50 or $60 or $70 oil, how much inflation do we see in each of these components.
Summing that up, I would say if you take the starting point of $100 oil, where we were, to where we are at today, and then you reply back and get back to $100 oil, I would say we give back maybe a third to 40% of what we've gained during that period ---+ give that back in terms of inflation and just higher costs with the vendors.
We've about 60,000, 65,000 in the Stateline, 60,000 in the Stateline area.
And we think all of that is X/Y capable.
So we're pretty fired up about that.
I would say it's more than that, but it gets a little bit spottier as you go to the North.
We have some lower working interest.
And to be honest, we just haven't focused the team on that acreage very much.
The Stateline is so deep and so much to work there.
That's where the disproportionate share of our capital and G&A, since they are technical time, is being devoted.
Well, yes, if you think about our leverage, we talked about 2.5 ---+ 2 to 2.5 turns when we laid our original strategy out.
Obviously, with our pullback, I think every, every company has had to step back and look at what the target is.
That being said, I certainly think that we can ---+ we wanted to represent what we could do with our assets.
Basically, in layman's terms, just drill our way into a capital structure, if you will, just because of our ---+ just unbelievable quality of our assets.
So we've got to balance that versus additional asset sales.
I would say that asset sales are much lower on my priority list than they were 12 months ago, as we started our deleveraging.
You've seen commodity prices come back up.
You've seen us execute.
And so I think now we have got time to step back and really contemplate and make sure that we ---+ the next moves we make are the ones that need to be made for the long term and not get too fixated on a ---+ with the short-term outlook.
Yes.
And I think if you go back and you look at the returns that we were generating in this lower commodity price environment in the post ---+ the months after the RKI acquisition, the returns now in comparison to those ---+ we can delever, if you will, through the drill bit; whereas at those old returns, we weren't going to be able to.
And that's why we were so focused on the asset sales.
Now we have kind of flipped that around.
And given the asset sales, and the amount of debt that we've been able to take down, and what we've got remaining on the balance sheet, I think the returns that <UNK>'s team has driven to have given us the opportunity to delever consistent with what our acquisition economics were, which was to basically grow the production.
Well, I think we've talked about was ---+ well, at strip ---+ let me think through that.
I mean, we always model internally here, <UNK>.
I know you look at it as strip pricing.
We have a tendency to recognize our well positioned hedges that we have.
And so if you looked at 2016 outspend, I still think that when we talked about adding another rig, maybe even knocking down a few DUCs, you're still only $100 million to $175 million of outspend for 2016.
And so that would have ---+ doing that, you're going to start seeing a pretty nice uplift in 2017 cash flows, because it will have the full-year impact of that.
I think what you have to look at is our capital guidance is still $350 million to $450 million.
So I don't know if it's our outspend has necessarily ticked up in relationship to what we had originally guided to.
I think most importantly is as you think about 2017, even at a strip pricing, you have to create ---+ as <UNK> mentioned earlier, the activity that we've got planned for the back half of 2016 is going to create that much more cash flows in 2017.
So the outspend for 2017, just as a result of what we're doing this year, is going to decrease.
I think the next question is: what are commodity prices going to look like as we start planning for 2017.
And that will probably drive, more importantly, what our capital level will be next year.
Okay, well, thank you very much for joining us today.
We appreciate your continued interest in WPX and look forward to next quarter's call.
We'll see a lot of you out on the road.
Take care.
| 2016_WPX |
2017 | KR | KR
#Thank you, <UNK>, and good morning, everyone, and thank you for joining us
With me to review Kroger’s second quarter 2017 results is Executive Vice President and <UNK>hief Financial Officer, Mike <UNK>
As you know, Kroger has competed in an ever-changing retail landscape for 134 years
Our success over time boils down to one thing, our relentless focus on the customer
That focus allows us to deepen our connection with customers and create shareholder value
The customer remains the center of everything we do
The four core elements of our <UNK>ustomer 1st Strategy are as relevant today as they were when we first introduced them
How we invest each year to drive customer engagement changes regularly based on customers’ changing needs and wants
This showed in our second quarter results, as we returned to positive identical supermarket sales growth, and both loyal and total households increased
Traffic was up, unit movement was up and market share was up
Our customers’ perception of our prices is excellent and we continue to get even better
Based on our second quarter results and expectations for the balance of the year, we have confirmed our annual net earnings guidance
The operating environment will continue to be incredibly dynamic
But more importantly, customer behavior is changing faster than ever before
For the last few quarters we’ve talked with you about our expanded view of all the food our customers eat, and how we’ve been working to redefine the market as share of stomach rather than share among traditional grocery stores
We know that the massive, $1.5 trillion U.S
food market creates a unique and sustainable growth opportunity for Kroger
You’ll see changes in the way we go to market as a leading indicator of the lens through which we view our market
We see anyone who sells food as competitors in the future
Kroger has a history of successfully evolving to meet our customers’ changing needs, because we put the customer at the center of everything we do
We are transforming today, too
We are reprioritizing and accelerating investments in our <UNK>ustomer 1st Strategy in order to anticipate and meet rapidly-evolving consumer demands to shop with us for anything, anytime, anywhere
Our transformation is all about redefining the customer experience
As our business continues to improve, we remain committed to delivering on our guidance for 2017 and believe we have the ability to grow identical supermarket sales and market share in 2018 as well
In this dynamic operating environment, we will continue to provide annual guidance as we have done for many years but will no longer provide longer-term guidance
This will provide needed flexibility in how we invest to position us for the future success
We look forward to getting into the details of our goals and priorities at our upcoming investor conference in October
But in the meantime, I’d like to begin to create a vision by sharing several ways we are redefining the customer experience to be America’s inspiration and destination for everything food
We’re doing this by combining our knowledge of food and our ability to personalize through the use of data analytics; we’re doubling down on digital; and we’re leveraging new and ongoing partnerships to deepen our connection with customers and drive revenue
I’ll take a few moments to share more about each of these areas where we have deep credibility from our past and are aggressively developing for our future
Food retailing is more exciting than ever before, especially as more of us become foodies
<UNK>ustomers have nearly an unlimited number of options when you combine tastes, flavors and types of meals with the growing number of food outcomes that consumers are focused on
Those outcomes might include eating for health or for enjoyment, for example, or for lifestyle or performance reasons
Kroger is uniquely positioned to be the partner our customers turn to for their meal needs because we know food and we know our customers better than anyone
Meals have always been our expertise
Kroger is often the one driving change and innovation behind the scenes
We are very proud of the role we’ve played for over a decade in making natural and organic products more affordable and accessible to America, especially for shoppers on a budget
We’ve always believed that our customers shouldn’t have to pay higher prices just because a product is natural or organic
We developed our Simple Truth brand to be honest, easy and affordable because our data told us this was a great customer need in the marketplace
Today, Simple Truth is the biggest natural and organic brand in the country by volume
This market continues to provide a robust opportunity for Kroger
Similarly, our culinary innovation team is bringing truly affordable and incredibly tasty meal kits to American households through our Prep+Pared offering
Just last week, we announced that we are expanding our offering of Prep+Pared to more than 50 stores in three of our divisions, <UNK>incinnati, Louisville, and Ralphs
Across Kroger, we know our customers better than anyone
We have a 13-year advantage of using data insights to connect with customers
Data analytics are fully integrated in our business, as 84.51° helps us make merchandising, operations and marketing decisions
In the last year alone, Kroger has made more than 3 billion personalized recommendations to customers through product offers, promotions, recipes and more
Data analytics is helping us win with Our Brands by identifying the best products to bring to market based on consumer behavior and taste trends
Research by an independent third party shows us that our customers favor Our Brands over national brands and competitor offerings
The strength of Our Brands is what our customers realize Kroger quality is superior, and at a very affordable price
It truly is quality without compromise
<UNK>ustomers get the best and most innovative quality at the best prices
We will build this momentum to be the premier private label destination in America
<UNK>ombining our love of food with our data expertise allows us to offer content that inspires
We recently launched a new My Recipes feature on Kroger
com that serves up a personalized selection of suggested recipes
The recipes offer greater diversity of meal ideas, all based on your individual purchase behavior
Our growing collection of recipes is also searchable by a variety of filters including seasonality, world cuisine, meal or dish type, and cooking style
While online recipes are not new, serving them up on a personalized recipe for your family is and customer and your family will love the new offerings
And this is distinctly Kroger
Personalized recipes are just one example on how we are bringing the combination of food and data together to create new and highly-relevant customer experiences, especially through digital and ecommerce
<UNK>ustomers expect a great shopping experience and the ability to interact with us digitally or online in a seamless way
Our digital efforts are all about making things easier for our customers and providing personal, affordable and exclusive options that fit their needs
This includes our mobile app, for example, in addition to Vitacost
com, <UNK>lickList, Express Lane and home delivery
Today, we have more than 25 million digital customer accounts
As we said in our press release, our total digital sales are up 126%, driven by <UNK>lickList
We operate more than 813 <UNK>lickList and Express Lane locations offering the convenience of online ordering and curbside pickup
By the end of the year, we will offer the service at more than 1,000 locations
<UNK>ustomers continue to respond exceptionally well to <UNK>lickList
We know that in the future more customers will want the option of home delivery, so we are also testing various home delivery models with companies like Uber and Shipt and on our own in more than 150 stores
We will keep making the strategic investments to serve customers anything, anytime and anywhere in the near future
With new entrants in a fragmented market, we’re also transforming our business and building partnerships to deepen our relationship with, and create value for, our customers
We’ve been preparing for new market entrants for years, and the fact that Kroger is trusted by more than 60 million households annually is a great strength when customers have more food choices than ever before
We continue to gain share in key categories like natural foods, produce and fresh prepared foods
We will continue to focus on growing our core business to generate free cash flow and deepen our personal connection with customers
These changes also create opportunities to work with our existing partners to deliver more value for customers and to identify new partnerships to create alternative revenue streams
Now, here is Mike to share more details on our second quarter results and to walk you through changes to our capital allocation process and long-term guidance
Mike?
Thanks, Mike
I’m often reminded of the saying, “may you live in interesting times”
These are interesting times in our industry, and I know some of you wonder how Kroger can continue to thrive in such a dynamic operating environment
We have a history of evolving to meet our customers’ ever-changing needs
The key is to proactively see where the customer is going and to proactively address the changes
That is what we are doing today
Through innovation, Kroger is redefining the food and grocery customer experience based on our core strengths
Kroger has more data than any of our competitors, which leads to deep customer knowledge and unparalleled personalization
We have incredibly convenient locations and platforms for pickup and delivery within one-to-two miles of our customers
We have a leadership team that combines deep experience with creative new talent
We have the scale to win with more than 60 million households shopping with us annually
In fact, we’ve been named America’s most beloved grocery store several times
We have a proven track record of consistently returning capital to shareholders through an increasing dividend and share buyback program
And, we have a track record of connecting with our associates, customers and communities to uplift and improve lives, as evidenced by our team’s response to Hurricane Harvey
Now, we look forward to your questions
Question-and-Answer Session
<UNK>urrently quarter-to-date, and this is without the hurricane effects, we would be above where we finished the second quarter and we would be closer to the high side of the guidance range
The reason we exclude the hurricane is because one day it’s a positive, one day it’s not because of obviously one day you will have business that’s up 100% or 200% and the next day it’s basically zero
So, we just ---+ until we get completely through the two hurricanes and when we release third quarter, we will obviously give a lot more insight
But so far, we would be trending ahead of second quarter and closer to the top end of the range
And on changing the range, as Mike mentioned, if we left the range the same as it was before, it could have meant, we would have had positive ---+ negative identical, excuse me, for the second half of the year
And obviously, we wanted to make sure that everybody understood that we do expect identicals to be positive and the trends that we’re seeing so far, the identicals continue to improve
In terms of how much it encompasses, it would be everything that you mentioned plus some
And as Mike mentioned in his comments on the space optimization 84.51° is helping us look across the whole store and how do we use space
So, obviously, in some cases, it’s continuation of adding more fresh space
It’s also in terms of the products that we offer to the customer, every single item has to earn its right to be on the shelf and categories have to earn the right to have certain amount of allocation
So, it’s all of those things
The expense would really be driven by two things
One, when you make some changes, there are some equipments that you would write off
As you make the changes, there is certainly the labor and the cost in doing the changes, plus some of the equipment gets written off almost immediately
So, it’s both of those factors that is behind what Mike was mentioning
I would say, the broad comment would be, from an M&A standpoint, we would be equally as excited today as two years ago, when we find the right person to partner with
And as you know, when we look for someone to partner, we’re looking at somebody that brings things to us as much as we bring to them
We would continue to be aggressively looking at anything digital that adds capabilities
You may recall, in the past year and a half or so, we merged with a company called <UNK>et6 and another company called You Tech
And we were able to use in both of those situations, the 84.51° and accelerate the work that they did and accelerate some of the work that we’re doing plus brought a great amount of talent to our <UNK>ompany
So, we would increasingly look at curtain capabilities that somebody would bring to us and how do you partner with them in a way that would bring that capability
But for the right merger opportunity, whether it’s digital or physical, we would be as excited today as two years ago, but it would obviously have to be somebody that fit in well with where we operate and has a business that’s strong
Well, as you mentioned, Ken, it’s only been a week and a half, so it’s very early in the process
And as I mentioned in our prepared remarks, we’re really proud of the work that we started over a decade ago, and making sure natural and organic product is affordable to all customers, and we never felt like just because something is natural or organic, you should charge a premium for it
In terms of the impact, obviously, it’s way early, but there isn’t anything that would cause you to develop any point of view at all, in terms of changing trends, but it’s only been a week and a half
So, I would caveat it a million different ways
Obviously, the discussion around it has been longer than that
I don’t think ---+ I actually don’t look at two-year stacks very much, because I sold whatever I sold last year and I’m selling that plus more this year
And we feel very good about the underlying health of our business
As we said in the prepared remarks and in response to questions so far, ID sales so far in the quarter are pushing the high end of the guidance range
We grew loyal households, we grew total households, we have strong market share growth and strong tonnage growth
And I would also remind you that as our brands continue to gain strength and gain a bigger share of both units and sales that comes at the expense of a lower retail ring, which winds up being a bit of a headwind to reported ID sales
And we have been very aggressive with how we position those products inside of our stores
It’s a great question and it’s hard to answer because the thing that we’re trying to do for our customers is to do it in a way that’s totally seamless
So, the customer continues to come into the store and shop, so we actually get more of their total basket
So, it’s helping comps but it’s helping comps from that total customer household and how much they’re spending with us
So, it’s helping identicals but it’s really hard to say <UNK>lickList is X percent of it or Y percent of it
I don’t know, Mike, anything want to add?
I’ll give a little bit broader answer than just your question
First of all, we would talk about it in terms of our brands versus private label, because from ---+ and it’s something that took us longer than it should have
But, if those brands, they are our brands and the customers tell us they love it and one of the things that we probably should have done years ago but we hadn’t but we actually, was much more aggressive on hiring a third-party company to do a broad test taste and quality preferences for our brands across multiple national brands and other companies’ private label programs
And we always thought we were good but we came out even significantly better than what we would have even thought
So, it really highlighted the progress that our team has been making on improving the innovation in our brands, the variety of offerings
If you look at Simple Truth, obviously five years ago it didn’t exist; today, it continues to grow double digits
So, when you look at overall, our customers tell us they love our brands
And we continue to even get more aggressive in terms of creating additional innovation, brands, offerings within, new flavors
In terms of the potential, at this point, the only thing that I would say is it’s ---+ would be massive
And one of the things that we did several years ago, we went to the outside and hired a new leader for that team and about half of our team is from the outside
And when you go and look at Europe, obviously, on the Our Brand product in Europe, the market shares there are significantly higher than the U.S
And we would be much more focused on how do we make sure the innovation, the quality and the offerings that we have, we earn the right for the customers to take it to that kind of level
In terms of our plant capacity, if you asked our manufacturing team, they would probably tell you they’re at almost capacity
I’ve always found and we’ve always found that we always figure out ways to produce incremental product and do it very efficiently
So, in terms of capacity, it is one of the great things about knowing how to operate plants, we could easily expand capacity, either through process change or additional expanding plants, things like that, whether is needed
Not at this point
I don’t know, Mike, if you ---+ not at this point
As you know, we are continuing to provide a little bit more insight than before
Yes, On the crossover with Walmart on digital, I actually don’t know the answer to that
And it’s incredibly easy to develop a shopping list with us, the work that our teams have done working with 84.51°
We do a lot of work on predicting what your shopping list will be, to make it really easy to do
The one insight that I can give you and we’ll have to go back and look to see the overlap on Walmart is ---+ our success on <UNK>lickList is very consistent across the country
You don’t see one place where it’s 1% and somewhere else it’s a 100% variance of success
It’s pretty consistent
On the Lidl, obviously, they continue to open stores
So far, what they’ve done has been pretty consistent with what we expected
And obviously, you’ve heard us talk about from a pricing standpoint, we won’t lose on price; we’re not trying to lead the market down on price, but we are not going to lose on price
The success so far in terms of being able to maintain our business and grow our business, we feel very good about the ability to compete against all the Lidl and anybody else
So, I wouldn’t say there has been any surprises so far
Obviously, they are our great competitor but there is a lot of great competitors out there
Well, as everybody on the call knows, we make our investment decisions in terms of what do we think is best for our business three to five years out and which intern means what’s best for our shareholders three to five years out
There is no doubt that <UNK>lickList is a headwind on earnings currently and we’ve even continued to accelerate the speed in which we put <UNK>lickList in
And so, it’s incremental headwind
We feel very comfortable, when you look at it over a three to five-year period of time
Our customers will appreciate that we offer <UNK>lickList; our associates obviously in terms of being able to provide the service will be glad; and our shareholders will be glad
So, we can clearly see where we’re ---+ there is a path where we’re indifferent on whether somebody comes into the store or shops with us on <UNK>lickList
It’s you have initial paying and that would be a ---+ of what caused to affect the long-term guidance perspective
I would say it’s fairly common or fairly traditional time of a transition
It’s just at anytime you go from higher prices to lower prices, the thing that gets disruptive is how quickly will people lower prices and then the flip is the case as inflation creeps back in, how quickly will people adjust prices the other direction, to continue to protect the gross margin dollars that they would have in those products
And that’s what causes the disruption in the short run as you’re cycling through the two of those
I would say broad based, there isn’t anything that’s really out of the realm of what you normally see
The one exception to that would be what we talked about earlier in the year relative to some low milk prices earlier in the year and eggs continue to be pretty inexpensive as well
But, those would probably be the only two categories that I would hold out as maybe exceptions to the norm right now
The other thing that we have such great relationships with local agencies, almost always we would be considered part of the first responder group, because people understand that it’s important for the glossary stores to get stocks
So, our associates would be given clearance as a first responder in most cases
One <UNK>PGs, as you know, we always work with <UNK>PG partners, trying to understand how we grow our business on a combined basis
So, both of us are very focused on growing the business
I think <UNK>PGs continue to aggressively, incrementally try to work with us on helping grow their business
It’s one of the things that’s nice about having the great insight we have with 84.51°
We partner with most <UNK>PGs in a different and more deep way that also involves product innovation
So, there is no doubt, there is tremendous amount of change going on, the <UNK>PGs feel that change, and we’re working with the <UNK>PGs for both of us to grow our business
But, obviously, we’re also working and focusing on growing our business as well
Outside of that, I really wouldn’t say that it’s ---+ there has been a massive trend change, what do they always say in economics, all short statements are wrong
So, you give the scenario and I can find it somewhere
The biggest change would be ---+ continue to be milk and eggs across the country; everywhere else would be puts and takes
The biggest thing that the 84.51° insight shows us is the customer decides where to shop based on their total experience
And obviously that total experience is what’s the shopping environment like, so what’s how the associates treat the customer
What kind of rewards do you have, what type of personalized offers are you making, which is very hard for anybody to see that other than each one of us as a customer individually
And then, obviously from fresh product standpoint having great produce, meat, deli, dinner tonight, these kind of things
So, the thing that’s really important is the all of that together, the price, the specific price items, really each one of us would have different items that are in our biggest hot button
So, it would be factoring in all of those things in terms of how we decide where to price and how to price
And the insights, the biggest part of the insights is, it really is important to customers for their over total experience not just one dimension of the experience
Yes
On the milk and eggs, I just ---+ I didn’t ---+ the comment I made, I didn’t intend to infer that it changed anything from the first quarter in terms of broadening out or narrowing or anything on milk and eggs
What was the second part of your question?
Well, I guess, I would broaden it
We feel good about the pricing investments that we make and based on what the customers’ telling us, it continues to connect as we expected
And it’s ---+ we feel good about it when you look at everything in total
Also in some of the costs ---+ operating costs categories, the second quarter trends improved versus the first quarter as well
We feel very strongly that we would expect additional consolidation going forward and the consolidation will happen the way you describe, plus other ways in terms of companies merging and other thing
So, we don’t think there is any doubt that you’ll continue to see a lot of consolidation
You’ve always heard us talk about ---+ anything that happens, you should assume that we’ve looked at it
And if you look at what we did with Marsh, obviously those work out really well for us, because of specific trade areas that we haven’t been able to get into
And by buying some stores from somebody in that situation, you’re able to get into trade areas and leverage all your existing infrastructure
Those we always like, but they’re lumpy
So, you won’t have any for a couple of years and then you’ll have a whole bunch of them happen
But, those are once that we will always be interested in and always take a look at
But, you should assume that our overall view on the merging with somebody is the same and we continue to look at stuff
If you look at natural and organic overall, it’s over $16 billion business for us on an annual basis
So, obviously, it’s an important part of our business
It continues to grow strongly and we would continue to see a great opportunity in that space
We find more and more customers
For some items, they will purchase natural organic items and other places, they will buy traditional items
And for us, what we try to do is, we don’t judge a customer on how they eat, and we try to make sure we have what the customer wants at a great value
In terms of the share of market, it depends on how you define share of market
If you look at Simple Truth, last year it was about a 1.7 billion category for us
And if you look at the $16 billion in total that would obviously include some non-branded meat items and other items
So, that would give you some insight in terms of share of market
If you look at grocery overall, grocery typically on units is close to 30%
So, obviously, there is still a lot of room to grow
When you look at total, we get more of the customers business and that’s what we find the reason why we are so supportive and keep working on it
In terms of the share of business, at this point, we wouldn’t give the specifics on stores and what percentage of their business is in <UNK>lickList
It’s a reasonably wide range
And the range isn’t driven by anything that ---+ it’s more specific stores
So, I know one store that has a pretty high percentage, it’s right off the interstate, so that store has gained a lot of new customers because it’s easy on and easy off, the interstate and their trade area for <UNK>lickList is completely different than their trade area for the store
For us, what we’ve tried to design is a business model that we know at certain percentage of business it’s more efficient to do it in store because of not having incremental asset investment
At the point in time that it grows, it’s easily converted to dark stores or a freestanding warehouse facility where you put in more automation
So, what we’ve tried to do is design where we can support and partner and make money and the customers will take it to whatever percentage of our business they take it and we’ll be there for them as they go
So, we’ve really worked hard on having a model that’s easily scalable and scalable in terms of what percent of penetration it becomes
So, thanks <UNK>
Okay
Thanks, <UNK>
Thanks to everyone on the call
Obviously ---+ hopefully you hear some of the comments that Mike and I are making, Kroger is playing to win
And the things that we do are what we believe will be best when you look out three to five years for our customers and associates
And what we’ve always found, when we do both of those, then, our shareholders are well rewarded as well
And the business continues to generate great free cash flow and we have great opportunities in front of us
So, and then one other comment, as you know, I always like to share some additional thoughts with our associates that are listening in
First of all, I would like to send our well wishes to the people of Huston and especially members of our Kroger family whose lives have been turned upside down by the recent hurricane and its aftermath
Our thoughts and prayers are with those who are now bracing for Hurricane Irma as well
Since the rains stopped in Houston, you have shown nothing can stop the strength, resilience and power of our amazing associates
Many of you stayed in or couldn’t easily leave stores, distribution centers, plants and offices and stayed overnight and worked tirelessly to not only serve our customers, but to provide food and supplies to first responders and local shelters
As a company we’ve sent nearly 2,800 semis packed with food, water and other critical supplies to the region
More than 350 individual associates from all corners of the country traveled to Houston to lend their hands to help uplift the community
Having a physical presence and truly being part of a community is always important
This is perhaps never more apparent than when natural disasters strike
You and our stores are a vital part of the communities we serve
What I’m most proud of is how you’ve taken care of each other
Whether that’s giving a hug to someone who needs it or traveling across the country to work side by side in reopening our stores and warehouse, we take care of each other, it’s who we are
Each day we open our doors and welcome our neighbors with true hospitality and generosity, and together, we make the world a better place
Thank you for all you do in big ways and small ways to feed the human spirit
We are truly Kroger Strong
That completes our call today
| 2017_KR |
2017 | TCO | TCO
#Well, there's lots of issues on Zhengzhou.
We're going to be totally leased but ---+ and at really wonderful merchandise, but a lot of it is sales based.
Remember, we been talking forever about the fact that about half of the income is going to be sales based.
As you're seeing in Xi'an, sales have begun and as successful assets in China have shown over the years, they start low and they really gain and if they're good assets, they really start to perform and they become very strong assets.
Where on that ramp-up right now with Xi'an.
We expect the ramp-up to be similar in Zhengzhou, but until it's open, it's very hard to say.
We originally forecast about 4% of the first year of unlevered cash on cash, three years later stabilization being at 6% to 6.5%.
We actually feel comfortable on Xi'an and on Zhengzhou that we're going to be there.
We actually feel better, and we've said this, at Hanam, but Hanam has a little less at risk in terms of the sales and it started out very strongly.
We had the cost reductions along the way that increased our overall expected yields.
But telling you what we're going to be on Zhengzhou as against that 4% that we threw out there.
We also have ---+ it's a complicated funding that includes loans in China that are also at a high rate.
So when you start to look at what the overall return is, you have to take all this stuff into consideration.
I think it's very hard for us to tell you today where we expect to be this year in 2017 on Zhengzhou, which is not even open yet.
I think both Macerich and us are very pleased with our acquisition.
It is a terrific, interesting asset.
We talked earlier in my comments about the food there, which is over $100 million of food is being produced there.
We think ---+ we actually believe that there's some significant development opportunities there and we are working through them.
These kinds of things do take time.
They don't get done and when you come up with the idea, you can't just go do.
You've got lots of constituencies, starting with the users, that you have to deal with, especially if they are larger users.
We are working through it, working with the community and all of that and when we have something to say, we will.
Bottom line is we're happy we bought the asset and we believe that Macerich as well.
Just to finish that thought, when we bought the asset, we underwrote the asset believing that in the near term the value creation would been in releasing tenants that rolled in the first few years up to higher rents and maybe taking occupancy up a little bit, but mostly rolling existing tenants up to market.
In the medium to longer term, we saw that there could very likely be some redevelopment opportunity.
We still believe that, that is the case but you won't likely see it in 2017.
It was always more of a medium to longer term thought.
But we're on pace of where we hope to be from a cash flow perspective and over the medium to longer term, I think you will see some opportunity there to add to our redevelopment.
All right.
I will take the first piece.
We always have higher expenses in the fourth quarter.
That always affects our recoveries, plus we have some new centers and there, so you put it in ---+ and revenue is generally flat.
It's pretty difficult for us to have that situation.
The question about Asia ---+
It's similar.
Today we are on a gross as opposed to triple net lease with most of our tenants, so it similar there and if you heard me earlier talk about percentage rent or sales-based rent being about half in China of all rent, obviously all of the cam costs are included in those as well.
We do get ---+ we are intended over time to, as the assets stabilize, to have some margin in that as well.
We'll see how it goes.
I think in general it's improving.
The new centers obviously have an effect on that.
Exactly what's going to happen with Asia is difficult to tell you right now.
But we will get back to you on it.
Well, I mean, given the quality of our real estate, most of our department stores are doing well.
Macy's made their announcements, there were no store closings.
Sears has made announcements.
We only have three Sears stores.
There were no closings.
Penney has made announcement.
We only have four Penney stores.
There were no announcements.
We don't think we're going a lot of opportunity as our peers are to buy back our boxes because generally the real estate is strong.
We were delighted to have the opportunity to buy back the Saks store in Short Hills and as I said earlier, we have very strong retailer interest.
If we have the opportunity, we will.
In all three Sears spaces ---+ one of them is Seritage, but two of them is owned directly by Sears.
In all three of those, we would be very happy to get them back.
It's not like we haven't tried.
We have tried, but we haven't been able to make a deal and again, we're not going to have the same level of opportunity that our even the high-quality peers will have.
I think generically they think they can make a profit wherever they're going to build a new store, open a new store.
I think [Sandeep] said on his call about quality real estate.
David said the same thing on his call.
It's all about great real estate and that great real estate is going to continue to take market share, because tenants are not going to go into secondary locations, especially with omni-channel retailing alive and well.
I think when you look at good real estate, it's going to get all the good tenants and whoever the emerging tenants are, they're going to be there.
The social experience that we're all creating in our real estate with entertainment, with restaurants, with the newest merchant, all of this is because they want to be where shoppers are.
They want to be in the best markets and that's the best real estate.
We feel very strongly that good brick-and-mortar is going to get better and frankly going to take market share, because as weaker real estate goes by the wayside and atrophies, better real estate is going to get stronger and stronger.
When you look at our occupancy, it may be down 50 basis points but when you look at the Sports Authority, it's 130 basis points.
If we hadn't taken back the boxes, which were extremely accretive to make that decision, then we would actually be printing an 80 basis points higher number right now in terms of occupancy.
We'd be at our highest occupancy maybe ever.
We think almost all our key metrics are up.
In fact, I think they're all up except for occupancy that I just discussed.
We think ---+ our NOI growth of 3.9% is a healthy number.
These are healthy numbers.
So we think that our real estate is showing that it's solid and that it's going to continue to improve, especially as others get weaker.
Thank you.
Thank you, Emily, and thank you all.
We'll be talking to you in the coming weeks.
Bye-bye, everybody.
| 2017_TCO |
2018 | REX | REX
#For 2017, it was $6.91 per ton.
Yes.
Every 6 months.
Yes, there's a test performed every 6 months to make sure that the regions that we're putting on make the correct changes to allow for the reduction in the admissions that we discussed earlier.
We haven't.
| 2018_REX |
2016 | AIN | AIN
#Thank you, operator, and good morning everyone.
As a reminder for those listening on the call, please refer to our detailed press release issued last night regarding our quarterly financial results with particular reference to the Safe Harbor notice contained in the text of the release about our forward-looking statements and the use of certain non-GAAP financial measures and associated reconciliation of GAAP.
For purposes of this conference call, those same statements also apply to our verbal remarks this morning.
And for a full discussion please, refer to that earnings release as well as our SEC filings, including our 10-K.
Now I will turn the call over to <UNK> <UNK>, our Chief Executive Officer, who will provide some opening remarks.
<UNK>.
Thanks <UNK>.
Good morning everyone.
Welcome to our Q1 2016 earnings call.
My comments this morning will be a bit more extensive than they usually are.
As always, I'll summarize the highlights of the quarter.
<UNK> will follow with more detail.
I'll then turn to our outlook and we'll close with Q&A.
But since this is my first opportunity to talk with all of you since we completed our Composites acquisition on April 8, and since the acquisition effectively doubles the size and growth potential of AEC, we thought today's call would be the right time to give you a more detailed view of our outlook, both near and long-term, for the new combined AEC.
But first let's start, as usual, with a review of the quarter, which was another good quarter for the Company.
Against an unusually strong Q1 2015 and despite a sharp drop in year-over-year Machine Clothing sales, Q1 adjusted EBITDA was essentially flat compared to a year ago.
Both businesses again performed well as Machine Clothing continued to generate strong profitability and AEC's strong growth.
For Machine Clothing, even though sales, excluding currency, declined 7% compared to Q1 2015, there were no top-line surprises.
Essentially, the trends of the previous three quarters continued through Q1.
That 7% year-over-year sales decline was due primarily to the significant and permanent drop in publication sales that we experienced in the first half of last year, and that we talked about in last year's earnings calls.
When we exclude that drop in the publication market, or alternatively, if we look at the top line on a sequential basis, what we see is the following: sales in the Americas, Europe and China were stable; sales in the growth grades were stable; sales in the growth grades accounted for 75% of total sales; we continue to perform well on new machines; and we were particularly encouraged by the performance of our new technology platform in development trials and in actual product sales in the tissue market.
Machine Clothing profitability was again strong, as it has been for the last several quarters, for the reasons that we have discussed before ---+ last year's restructuring, continuing productivity improvements, and lower material costs.
The combined effect of these three sources of cost reduction was to essentially offset the impact on adjusted EBITDA of that large permanent drop in publication sales.
AEC also had a good first quarter, driven by growth in LEAP.
Sales improved by 19% and adjusted EBITDA swung from a loss of $0.9 million to a positive $1.5 million.
From an operational perspective, performance was strong across the board.
Preparation for the LEAP ramp, deliveries and quality for JSF, the plan to restructure our portfolio of legacy programs and new business development all continued on track.
And as I mentioned, shortly after the end of the quarter, we completed the Composites acquisition.
Our integration efforts are well underway and are also right on track.
We will include the acquisition in our consolidated AEC results starting with next quarter's earnings release.
So in sum, this was a good quarter with flat adjusted EBITDA against a strong year-over-year comp and with both businesses performing well and as expected.
Now let's turn to <UNK> for more detail.
Thank you <UNK>.
I'd like to refer you to our Q1 financial performance slides.
Starting with Slide 3, net sales by segment, excluding currency effects, total Company net sales in Q1 decreased 3.9%.
Also excluding currency effects, MC net sales were down 7.2% in the quarter against that strong Q1 2015 that <UNK> just referred to.
AEC net sales increased 18.8% due to growth in the LEAP program.
Turning to Slide 4, total Company gross margin was 42.1% in Q1 compared to 42.3% in Q1 of last year.
MC gross profit margin improved to 47.9% of sales in Q1 compared to 47.5% Q1 2015 despite the drop in sales.
This step up in MC gross margin over the past five quarters is partially due to a stronger US dollar against most major currencies since early 2015, particularly the Brazilian real and Mexican peso.
MC gross profit in absolute dollars declined to $69.6 million in Q1 compared to $75.3 million last year as a result of the lower sales.
Looking at Slide 5, earnings per share, we reported net income attributable to the Company in Q1 of $0.42 per share compared to $0.38 per share in Q1 of last year.
Q1 2016 EPS was reduced by $0.03 per share for acquisition expenses.
We expect an additional $5 million to $6 million of direct acquisition expenses in Q2.
While restructuring expenses only had a $0.01 effect in Q1, Q1 2015 EPS was reduced by $0.18 per share for restructuring.
The restructuring charges in both periods were principally related to MC plant closure costs in Germany.
Other EPS effects in one or both periods related to discrete tax items and foreign currency revaluation are noted on the slide.
Excluding all the adjustments, adjusted EPS in Q1 2016 was $0.46 per share compared to $0.45 in Q1 2015.
Slide 6 shows adjusted EBITDA for the quarter.
Adjusted EBITDA in Q1 2016 was $41.3 million compared to $41.5 million in Q1 last year.
MC adjusted EBITDA was solid in Q1 at $49 million compared to a very strong Q1 last year of $52 million.
AEC adjusted EBITDA improved to $1.5 million in the quarter compared to a loss of $0.9 million in Q1 last year due to the growth in LEAP.
Lastly, Slide 7 shows our total debt and net debt before the effect of the acquisition that was completed in April.
Total debt in Q1 declined $10 million as repatriated cash was used to pay down debt.
Net debt, total debt less cash, increased about $5 million compared to the end of the year to $86 million.
The increase was mostly due to incentive compensation payments that typically occur in Q1.
Along with the successful completion of the acquisition in April, we also amended our revolving credit facility to increase it to $550 million and extend it to April 2021.
The terms of the facility were essentially the same as the previous agreement.
In addition to assuming a $23 million capital lease, total debt increased $205 million to fund the acquisition and related costs as well as financing fees and initial cash requirements of the new business.
The interest rate on the initial borrowings under the new facility was 1.5% plus one month LIBOR, or 1.95%.
Including the impact of the increase in total debt, our leverage ratio increased to 2.57 at the date of the acquisition.
Now I'd like to turn it back to <UNK> for some additional comments before we go to Q&A.
Thanks <UNK>.
Turning to our outlook, in Machine Clothing, we do not see any significant deviation from our expectation, but given the current exchange environment, full-year 2016 adjusted EBITDA should be in the upper end of that normal $180 million to $195 million range.
The typical seasonal pattern in this business is for sales to increase from Q1 to Q2, and for margins to decline as annual salary increases are implemented.
Last year's unusually strong performance in Q1 notwithstanding, we expect a return to the normal pattern this year.
Q2 sales should improve somewhat over Q1.
Profit margins should decline.
The net effect is that we expect Q2 2016 adjusted EBITDA to improve compared to Q2 2016 and first-half 2016 adjusted EBITDA to be comparable to first-half 2015.
The primary risk to this outlook continues to be global macroeconomic conditions, particularly in commodity driven economies like Brazil.
Turning to AEC, our short-term outlook remains unchanged from what we described in our Q4 earnings call and then in our February 29 investor call about the acquisition.
We expect the acquisition to contribute roughly $65 million of sales and $10 million of adjusted EBITDA to our results in 2016.
That's since the date of acquisition, April 8 through the end of the year, $65 million of sales, roughly $10 million of adjusted EBITDA.
On a pro forma full-year basis, the acquisition would add $80 million to $90 million in sales and $13 million to $15 million in adjusted EBITDA.
If we look at AEC as a whole, including the acquisition, our pro forma full-year 2016 outlook is for sales to grow to $190 million to $200 million compared to pre-acquisition full-year 2015 revenue of $100 million.
Pro forma full-year adjusted EBITDA for the combined AEC would be $15 million to $17 million, including $10 million of R&D spending, compared to a pre-acquisition loss in 2015 of $16 million which included that $14 million BR725 charge.
So, $190 million to $200 million in combined full-year pro forma sales in 2016 and $15 million to $17 million in combined full-year pro forma adjusted EBITDA.
As for our longer-term outlook, the new AEC has the potential to reach approximately $450 million of annual revenue by 2020.
The latest progress in new business development adds to our confidence in this growth potential.
And driven by growth related operational efficiencies and STG&R leverage, we expect steadily improving EBITDA margins through the rest of the decade growing to 18% to 20% by 2020, again for the combined entity.
This growth potential is based on six key sets of programs.
First of course is fan blades and cases for the LEAP engine.
Total orders for LEAP now exceed 10,500 engines and CFM's latest forecast is for annual engine sales to grow from 100 in 2016 to 500 in 2017, 1,200 in 2018, 1,800 in 2019, and 2,000 by 2020.
The annual rate of AEC sales of ship sets will be somewhat higher than the annual rate of CFM sales of engines.
This program has the potential to account for as much as $200 million in annual AEC sales by 2020.
The second key program is airframe components for the Joint Strike Fighter.
AEC is producing a variety of parts for the airframes of each of the three versions of this aircraft.
Total sales, which should account for roughly $30 million of pro forma annual revenue in 2016, are expected to begin to ramp in 2017 and have the potential to reach annual revenue potential of $75 million to $100 million by 2020.
The third key program is airframe components for the Boeing 787.
AEC is producing the forward fuselage frames for both the 787-9 and the 787-10.
Production began to ramp this year and has the potential to contribute $50 million to $60 million in annual revenue by 2020.
The fourth key program is Sikorsky's CH-53K, the Marine Corps' next-generation heavy lift helicopter.
AEC is producing the tail rotor pylon, horizontal stabilizer and sponsons.
The first versions of the CH-53K are currently undergoing flight tests.
Low rate initial production is scheduled to begin in 2017 and the ramp is expected to begin in 2019.
This program has the potential to generate more than $20 million of annual revenue by 2020 and at full rate production early next decade, it has the potential to generate more than $100 million in annual revenue.
Fifth is a cluster of parts for other engine programs, including components for the LiftFan of the Joint Strike Fighter, which we are producing for Rolls-Royce, and the fan case for GE's 9X engine.
The ramps for these parts will be spread through the rest of the decade and into early next decade.
Depending on the outcome of current negotiations on parts for other engines, this fifth set of programs has the potential to generate $25 million to $50 million of annual revenue by 2020.
And finally, the new AEC produces parts for numerous legacy programs, most notably bodies for a family of Lockheed Martin standoff air to surface missiles, and vacuum moist tanks for most Boeing aircraft.
In aggregate, these legacy programs have the potential to generate $50 million to $70 million in annual sales by 2020.
AEC's ability to actually realize the revenue potential of these six sets of programs will hinge primarily on two variables ---+ how well we execute against demanding requirements and schedules, and whether the schedules for each program hold firm.
There's always the risk that demand will slip to the right, but given the strategic importance to our customers of each of the underlying program platforms, we continue to view our ability to successfully execute as the primary risk factor here.
Our ability to realize the new AEC's revenue and profit potential is going to be mostly, if not entirely, about operational execution.
So, to conclude, Q1 2016 was another good quarter for Albany highlighted by strong profitability in Machine Clothing, LEAP driven growth in AEC, and shortly after the quarter, the acquisition of our Composite Aerostructures division.
Our outlook for Machine Clothing continues unchanged.
We expect to end the first half of 2016 on track toward full-year adjusted EBITDA in the upper end of the normal $180 million to $195 million range.
And for AEC, including the acquisition, we expect pro forma full-year 2016 sales to grow to $190 million to $200 million, pro forma full-year adjusted EBITDA to grow to $15 million to $17 million, and assuming good execution and an absence of significant market based delays across the six key sets of programs, rapid growth through the decade accompanied by steadily improving profitability.
And with that let's go to your questions.
Daniel.
Yes, I think the best way to think about this is, again, how we think about the full year year-over-year.
There will be fluctuations quarter to quarter, but everything we see says we should be in the upper end of that normal range.
And going into the second half, we will be right there.
The blended EBITDA margin is what I described to you, 18% to 20%.
So that would be for everything.
If you take those six key programs ---+ let's leave LEAP aside because LEAP is an extraordinary relationship that we have where it's unique technology, exclusive relationship, life of program, unique kind of contractual arrangement.
So the other programs mostly are sole source.
The primary exception is that some of the parts on one of the variants of the JSF is dual source.
But I think the more significant point is, for many of these programs which are DOD programs, you wind up as the sole-source supplier, and then contracts proceed in blocks.
So the next block of purchases for JSF, it will be a three-year block, and so you get a three-year contract.
You're mostly the sole-source through that.
And then toward the end of that block, you negotiate the next block.
And as long as ---+ this is pretty standard life in DOD.
As long as you don't screw up, you continue to renew those contracts because, as the program ramps, it's a high risk for the customer to switch out suppliers unless they really are forced to do it because of systemic performance failures.
So there certainly ---+ there isn't the guarantee and the certainty that you would expect on the LEAP side, but I think you should take literally what we say.
As long as we perform, as long as we execute on the requirements and the schedule, we should be able to realize that revenue potential and profit potential.
Let's take CapEx and then Cozz can give you a swag on the D&A.
But what we had said before the acquisition was that we expected total CapEx for the Company, including AEC and reinvestment in Machine Clothing, to be on average $70 million a year, for between 2015 and 2020, on average $70 million a year.
2015 was light, but we expected 2016 and 2017 to be heavier, and above that average because those are the LEAP ---+ those are the peak spending for LEAP because that's when we need to invest all the equipment for the steepest part of the ramp for the LEAP program.
And then we thought, unless there were major new programs hitting, that CapEx spending would drop off.
But over the periods, $70 million a year on average.
With the acquisition, it's a similar story.
Add about $10 million on average per year through the period, but that will be frontloaded.
At the same time that we are investing heavily with LEAP, our colleagues in Salt Lake will be investing heavily for the ramp on the Boeing forward fuselage frames, and then JSF.
So while it will average 10 ---+ while it's likely to average $10 million a year over the five years, the first two years will be closer to $15 million to $17 million average.
So add all that together, we should be in the $85 million-ish to $95 million range of capital spending in 2016 and 2017, and then probably dropping off from that below the $80 million average for the period.
Now, all of this is subject to caveats.
The first is timing can vary.
This is basically we are giving you a picture into the projects, the volume of projects we are approving, the precise timing of them may get delayed or may come forward a bit.
So Q1 looked a little bit light but we expect a surge in capital spending over the next several quarters.
And then on D&A ---+ <UNK>.
The AEC segment in Q1 had D&A of $3.4 million.
And so that's our current run rate.
We expect, with this acquisition, probably not quite get to $5 million per quarter for the rest of this year, so it will add ---+ going in, it looks like it's about $5 million of annualized depreciation and amortization for the acquisition.
So if you add that to our current run rate, it brings us a little under $5 million per quarter going forward for the rest of this year.
And of course, that number will increase as we put the CapEx in over time.
But if you just look at the rest of this year, $1.3 million to $1.5 million more of depreciation and amortization for the acquisition is probably a good estimate.
The three plants, including the one we're building now in Mexico, are based on the assumption that ---+ are based on the expectation that CFM and Safran have going out well into the next decade.
So we do not anticipate the need for more than three, but they are going to be three very full plants.
We are not ---+ we are right on track.
We are not ---+ we are meeting delivery schedules right on track.
The challenge for us now is we are ramping up each plant and we are about to start a third plant.
But at this stage, we are right on track.
And from everything we see, we should be right there as it ramps.
It's a really interesting phenomenon that goes well beyond Boeing.
In our minds, the right way to think about this is there is a sea change taking place in the aerospace industry.
Across the board, up-and-down the supply chain, every OEM is making the swing from 10 years of more, 10 years plus of massive investment in new platforms.
And now it's making the turn to return on investment and recovering, basically recovering from the massive investment in developments.
So literally every OEM is doing everything possible to squeeze costs out of themselves and out of their supply chain.
And so success in this environment, the premium goes from unique technology to operational excellence.
And operational excellence means, in the end, high quality, low cost.
That then, as you become more and more productive, reduce your costs, you then have to share those gains with your customers.
And in so doing you not only preserve your position on existing contracts but you have an opportunity to get more contracts.
And that's how we view it, but we do feel that's playing into our strength.
We are spending heavily on R&D.
Our view is if we have an opportunity that's coming our way because of a next-generation CFM engine, we ---+ as long as the ROI is there, we are delighted to invest more in capital and more in development and R&T to go there.
One of the beauties of, in our minds, of this model of the combination of these two businesses is we are very well positioned to take advantage of ---+ to make the investments required to take advantage of significant opportunities as they come along in the aerospace industry, and there are not that many independent Tier 2 suppliers capable of saying that.
So, to us, let's say Boeing pulled the trigger on some sort of middle of market aircraft in CFI and won the business, and that would require us to ramp up investments, both capital and R&D, we would be thrilled, and we're prepared to do that.
That's just ROI for us and for our investors.
But you are really getting a piece of ---+ one of the cores of our whole model as a company is position ourselves to aggressively invest in appealing, new opportunities as they come along.
And the only way ---+ as you know, the only way you can grow in aerospace, you cannot do so in a cash starved mode.
The ROI has to be there, but if it is, then we will continue to move aggressively.
No, and it's not slow.
The ramp up of LEAP is taking place in an incredibly compressed period of time.
We are talking basically three years, going from start to 2,000 engines a year, that's never happened in commercial aviation history.
And the ramp down of CFM is happening at the same time with the same velocity.
So while what you describe may be happening on some platforms, it's certainly not happening on the platform that's right in front of us.
And if you listen to the Safran earnings call or the GE or what GE Aviation talks about, they spend an enormous time and energy focused on making sure their supply chain can deliver.
But in the case of CFM, GE and Safran, most of the suppliers are the same.
The parts are not radically different.
We are the ---+ we are one of the major points of change as they go from a CFM engine to the LEAP engine.
That's why we try to give a range, give an estimate of full-year 2016 and a range for 2020.
That's as much as we are prepared to disclose now.
And a ship set number isn't all that meaningful since they're multiple parts on three different variants.
So we are really not ready to go there beyond the disclosure we just gave you.
I think, rather than give you a precise number for next year, if you think in terms of broad trends, that 25%, which is publication grade, that's part of a sectoral structure decline driven by digital displacement.
That's heading down 5%, 4% to 6% per year no matter what.
And sometimes it's lumpy, as we saw last year.
The interesting question about that decline is does it level off at some point.
Is there some tail in the publication grade industry where there is kind of a steady-state capacity to supply limited amounts of publication papers.
And it's hard to gauge where that is.
But what we can say with mathematical certainty is, with every step down in the market, our exposure to that market declines.
And when you're down to 20%, 15% of sales, even a big drop in that 15% has a small effect on our revenue and on our income.
So, we are slowly but inexorably moving to the zone where big drops in the publication markets will have diminishing effect on us.
There's an asymptotic effect there.
Now, if you look on the other side, the 75%, which are growth grades, those ---+ that growth is almost completely a function of GNP.
So whereas the 25% is going to head down no matter what, the 75% is only going to grow when there's healthy GNP around the world.
So, one of the challenges over the past couple of years is we've seen these step downs in publication, and we haven't had the economic juice to drive the growth grades.
And that's why we've been relying more on cost reduction of various sorts to offset the publication declines.
At some point, that's got to switch over.
We need, in the long-term, we need the growth grades to pick up to 1%, to 2%, to 2.5% GNP driven growth while that 25% shrinks to 15%.
Yes.
It's exactly what I just described.
Particularly if you take key markets like China, Indonesia, Brazil, Vietnam, Southeast Asia, it's all of South America, as those economies' GNP revive, then sales in the growth grades are going to accelerate.
But if they remain in the doldrums, and again, if you think of this as a link to oil prices, so many of those economies are commodity-driven, and oil prices get depressed, their economies get depressed, you just don't have the economic juice to drive the top line on that 75%.
As that returns, then we should come back to the point where a 2% to 3% growth in that 75% more than offsets ---+ 75% going to 80% going to 85% more than offsets a 5% to 7% decline in the publication grades.
But where is that economic activity.
Look at Brazil, look at China.
On the automotive side, we're continuing our probe.
We've been working with two OEMs at the very high end of the automotive market, and we have now ---+ those opportunities have now matured to a point where we have to make a bet and start spending real money.
And so we've decided to go with one of those two, which is a much bigger opportunity, a bigger array of opportunities, with a substantially larger OEM.
And so we are taking a hard run at that this year, and it will be development of genuinely crash-worthy structures, like at the front of the car.
And so that probe is continuing.
Now, that is not ---+ that is, in our minds, a next generation family of growth opportunities, so that is not ---+ we haven't factored anything into ---+ anything in the way of revenue from that probe into our estimate of a potential for $450 million in revenue in 2020.
There's a second probe that we haven't really talked about that is part of ---+ came with part of the acquisition that our Salt Lake City colleagues have been working on, which is they make parts, they make frac plugs for the oil and gas industry.
And this isn't the best time in the world to talk about the oil and gas industry, but those are interesting parts.
They are basically consumable parts, have to be replaced, and so they've been exploring that market and have learned a lot in that process.
The parts are good.
The challenge is how you distribute parts into the field in a highly fragmented industry like that.
When we ---+ a few years ago, when we did the diversification study analysis of possible applications outside aerospace, that led us to the automotive market.
We concluded that the second most compelling application was down-well drilling.
So, we will continue to probe both.
But it really is important to think of them as probes.
I mean this was like you get in there, explore and then learn, and what you learn may lead you to conclude, yes, keep going, or it may lead you to conclude wrong model, that's back off.
So neither of those is in any material way in the $450 million.
The new platform that we've been investing in in the Machine Clothing side, it really is ---+ I guess the simplest way to describe it is it really is a composite structure.
We're applying and exploring the application of composite structures to the production of these belts that we make for the paper and related industries.
And what we've so far found, we really went into it looking to see if we could come up with an inherently lower cost way of making these belts.
But our first, most encouraging set of applications so far is that we are finding that when we make ---+ instead of traditional woven structures, we make these composite structures for the tissue industry, that it is allowing our customers to make differentiated tissue.
So tissue and towel, for example, is softer or bulkier.
And so it wasn't the outcome that we were expecting going into this, but the first wave of applications are very encouraging ---+ is really to apply these belts to customers in the tissue and towel market that creates performance advantages for the customer.
Yes, as you know, we've been doing that over the past few years, and we'll continue to do that.
The Machine Clothing business generates a lot of cash, generates it in various countries, so I don't think there's really any major change to the plan.
We'll keep looking at those pockets where the cash gets generated, and try to ---+ we try to average $20 million to $30 million a year of repatriated cash.
Again, the key objective there is to minimize the cash tax cost of doing that.
So that's an ongoing plan that we are continuing into this year and forward.
The actual cash that we used to pay down debt was money that was part of a $20 million repatriation that came back at the end of ---+ in December, at the end of 2015.
So, we didn't do any actual repatriations in the first quarter.
We used cash that had come back right at the end of the year.
Thank you, everyone, for participating and for the questions.
And we'll be out there in a variety of conferences and visiting as many of you as possible over the next couple of months.
And if we don't talk to you then, we'll talk to you on our next earnings call.
Thanks a lot for participating.
| 2016_AIN |
2018 | HMSY | HMSY
#Thank you, Sonia.
Good morning, and welcome to the HMS earnings conference call for the first quarter of 2018.
Joining me are Bill <UNK>, our Chairman and Chief Executive Officer; and Jeff <UNK>, our Chief Financial Officer.
This call is being webcast and can be accessed by the Investor Relations section of our company website at HM<UNK>com.
Today's earnings release as well as an investor slide presentation containing supplemental information are posted on our website as well.
Bill and Jeff will provide their perspective this morning on our first quarter financial results.
And following their remarks, we will open the line for questions.
(Operator Instructions) Before we get started, I want to remind you that some of the statements we will make today are forward-looking, based on our current expectations and view of our business as we see it today.
Such statements, including those related to future performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially.
As a result, they should be considered in conjunction with the cautionary statements in today's earnings release and risk factors described in the company's most recent SEC filings, including our Form 10-K.
Financial results in today's earnings release reflect preliminary results, which are not final until our first quarter 2018 Form 10-Q is filed.
Finally, we may refer to certain non-GAAP measures this morning.
And a reconciliation of those measures to GAAP is included in both our earnings release and the investor presentation.
We are now ready to begin.
Bill.
Thank you, <UNK>, and good morning, everyone.
Following a record fourth quarter, we are encouraged by the strong start to 2018, reflected in the financial results we reported today.
Total revenue, adjusted EBITDA and operating cash flow in the first quarter each exceeded our expectations, which we believe positions us nicely to achieve our full year objectives.
The significant year-over-year growth in Payment Integrity revenue is an ongoing indication that the initiatives we implemented in 2017 to enhance the analytics and operations supporting PI are continuing to boost savings for our customers and generate added revenue for HM<UNK>
Having recently passed the 1-year anniversary of our purchase of the Eliza consumer engagement platform, we are intensely focused this year on cross sales to our existing customers, particularly the middle market Medicaid plans, where Essette and Eliza have relatively low penetration.
We have spoken previously about international target list of customers, which we began to approach at the end of last year, and the positive reaction we have received about the capabilities of our new care management and consumer engagement solutions.
We have inked several contracts and are in active dialogue with a number of our existing COB and PI customers about purchasing these new solutions.
More broadly, we continue to use technology to leverage our unparalleled database and analytics to innovate on behalf of our customers and their members.
As we announced earlier this week, we hired a Chief Technology Officer to assist in that process.
Jacob Sims has extensive experience leading large-scale healthcare IT organizations and technology-based product development.
So he is well equipped to ensure that we proactively maximize technology, stay at the forefront of changes impacting a rapidly evolving healthcare IT world.
A good example of our internal innovation activity is the new population risk intelligence product we have developed.
This analytics software solution assist with early and accurate identification of health plan members, who will most benefit from effective intervention and personalized engagement designed to change behavior and improve clinical outcomes.
We had spoken previously about this effort, which began with an experiment in 1 state last year, including both the state fee-for-service population and the Medicaid managed care plans in that state.
We will have more to say about this important new approach to total population management in the weeks ahead, as we formally launch the product.
We worked hard during 2017 to overcome execution challenges, particularly with regard to Payment Integrity and related implementations of newly sold PI business.
We have refined the entire implementation process for both PI and COB to eliminate projects on hold due to HMS-caused delays, improved throughput and reduce the total time required from contract signing to revenue generation.
Going forward, we believe we now have the people, technology and processes in place to achieve the revenue growth we expect this year.
There were 3 factors, which contributed to the sequential and year-over-year growth in PI revenue we saw in the first quarter, including revenue from existing COB clients, who bought Payment Integrity products for the first time.
Scope expansions with existing PI customers, which produced incremental revenue was the second contributor.
And the last is product yield improvements we put in place in recent months, which continued to expand our audit portfolio, increase audit volume, improve the savings rate per finding and lower the turnaround time for customers for whom we are already doing PI work.
From a product perspective, data mining and complex clinical reviews were the 2 areas of greatest PI outperformance in the first quarter compared to our expectations.
More generally, we are seeing Payment Integrity growth that is broad-based and spread across multiple health plans and state Medicaid agencies.
That should mitigate the risk that any individual customer actions related to provider operation concerns or other network issues, which meaningfully impact PI revenue this year.
Jeff will now provide added detail on the first quarter performance.
Jeff.
Thank you, Bill, and good morning.
I will begin this morning by reviewing first quarter revenue from both the customer and product perspective.
Total revenue of $141.4 million included $8.4 million in Medicare RAC revenue due to reversal of a portion of the appeals reserve related to the original contract.
Following expiration of our old Region D contract on January 31, the requirement to maintain a reserve for open or pending appeals ended and we reversed the associated reserve.
Excluding the reserve release, normalized revenue for the quarter of $133 million was slightly above our projection.
The RAC reserve release resulted in a net benefit in the quarter of $0.05 per diluted share such that normalized adjusted EPS was $0.17.
Eliza revenue was $9.7 million in the quarter.
Excluding that from the year-over-year comparison, since we did not close on the acquisition until last April, first quarter commercial revenue was up double digits, state government revenue was up low-single digits as those coordination of benefits and total revenue was up over 8% on an organic basis excluding both the Eliza revenue and RAC reserve released in the quarter.
As always, we expect to see a modest step-up in each of these revenue components in the second quarter followed by a more significant uptick in the second half.
Coordination of Benefits revenue was approximately 65% of total revenue in the first quarter compared to nearly 78% a year ago.
That is a positive reflection of the diversification resulting from the addition of our new care management and consumer engagement vertical as well as the relatively faster growth of Payment Integrity revenue in the quarter.
Adjusted EBITDA of $35 million included a benefit of approximately $6 million from the reserve release, but it was still meaningfully higher than the 2017 first quarter total of $20 million.
This strong performance reflect both the leverage we get on incremental revenue and ongoing efficiency and cost-savings initiatives.
Though the effective tax rate in the quarter was approximately 32%, we continue to expect it will be in the range of 28% to 30% on a full year basis.
As we pointed out in our February call, that projection is based on the new lower federal rate, partially offset by the laws of deductions for subsidizing the state and local taxes, domestic manufacturing and certain executive compensation.
The rate this quarter was due to a higher level of stock compensation relative to the rest of the year, which was a result of annual equity grants to employees made in the first quarter.
Equity compensation was $9.5 million in the quarter, just under half of the projected $20 million for the full year, and we expect the balance to flow roughly equally among the remaining 3 quarters of 2018.
Operating cash flow was relatively strong at $14.7 million despite the usual payment of annual cash bonuses to employees at the beginning of each year.
We continue to execute on our share buyback authorization, and we purchased another 384,000 shares in the quarter for approximately $6 million.
Since the current program was put in place last November, we have repurchased approximately 1.25 million shares at a total cost of approximately $20 million, which equates to an average price of just under $16 per diluted share.
Free cash flow was positive in the first quarter of the year for the first time in 4 years, which further indicates the overall strength of our financial performance to kick off 2018.
Capital expenditures in the first quarter were $5.8 million, but we do expect the pace to pick up as the year progresses and still anticipate full year expenditures of approximately $33 million.
The focus of our CapEx continues to be technology-based investments and our growth as well as maintenance of our data security and IT systems.
We also have an active pipeline of acquisition opportunities, which we continue to monitor and pursue.
Our primary focus at the moment, however, is strengthening and growing our existing franchise, particularly new care management and consumer engagement vertical.
In short, we believe our overall performance in the first 3 months of the year creates a solid foundation for achieving our full year 2018 financial objectives.
Bill will now have concluding remarks, and then we'll be ready to take questions.
Bill.
As Jeff just mentioned, the new year is off to a strong start for HM<UNK>
Looking ahead, we recognize the need for consistent and predictable performance throughout 2018.
And we are committed to achieving it.
Reaching our objectives is aided considerably by a favorable environment for sales of our services.
Macro factors, such as the growth of government programs and aging population with a high incidence of chronic disease, unsustainable cost pressures throughout health care services and an ever increasing focus on the consumer experience provide a positive backdrop for our business.
We also have the data, the analytics, the customer base, a committed and engaged workforce and a highly leverageable business model, which we believe will support and sustain profitable growth throughout this year and beyond.
Before closing, I want to recognize the hard work of HMS employees around the country and in every department throughout HMS, who contribute each day to the company's growth and add success and service to our customers.
In recognition of that contribution, we have recently announced internally that we will be sharing a portion of the federal tax cut savings with employees by increasing the company match to our 401(k) plan.
This is not a onetime bonus, but an indefinite change to our plan design, which will provide an added incentive for employees to save for their future.
A long-term reward for plan participants and an ongoing reminder of our appreciation.
Operator, we are now ready for the first question.
So we usually see a modest uptick in Q2, and then further ramp in the second half of the year.
Technically, if you look at us just historically, about 40% of our revenue is in the first half and 60% in the second half.
So you should expect that growth.
I would also say that getting through the backlog of implementations and more timely executing on those is wind in our sails from that perspective.
Yes, so as we talked about in our call in February, we do expect the consumer engagement and care management vertical to grow double digit this year.
So that hasn't changed.
I think with the level of interest we've seen and some of the sales that have already taken place both in the fourth quarter and the first quarter of 2018, we believe we'll be able to achieve that double-digit revenue growth in that product line.
Thank you, <UNK>.
It's a good question.
So we have been using MLT and AI to assist us in reading medical records and to replicate what a medical record coder might do.
For competitive reasons, I'm not going to go to deep dive into how we do it, but what that is meant to do is, as we ramp new revenue in PI, we won't need to add as many resources.
And we're also making sure that we have more appropriate findings.
So one of the things that's really important to us, our clients, and of course, the providers is that we lowered the number of false positives.
We've always been very good about how our system scores, the probability of recovery anyway, but the technology we're using now helps us get through to false positives much quicker so that they are not distributed to the providers for audit.
Jeff, anything you want to add to that.
Yes, I think we've also talked about using robotic process automation to automate more manual task, I think, which also then allows us to redeploy some of those staff and resource.
We are working on that to hiring initiatives, like driving incremental yield for our customers.
So I think it's a win both from a cost perspective as well as the revenue lift perspective.
We started to see some of that in 2017 and expect to see more of that as we progress through 2018.
So we were implementing machine learning and AI in a couple places in the company.
PI is not the only part of the company that we're doing that.
And we have 2 models.
One is purely a machine learning tool that is ---+ that does this very specific task and can do that on a repetitive basis.
The other model is a mentor-based machine learning, more of an artificial intelligence.
So it learns from how we do the work and then, of course, the better ---+ the more efficient and effective our reviewers are, the more efficient and effective the tool is.
And so that's more a mentor-based model technology in AI, and we have also deployed that.
So there is really a couple different tools that we are both experimenting with or are in production in a number of areas of our business, not just Payment Integrity.
Yes, we didn't update guidance and don't plan updating guidance each quarter.
We did provide full year guidance in a range.
So as we indicated in the call, with a strong start to this year positions us nicely to reach our full year objectives.
But we're measured when we provided guidance in February, and we want to remain in that mode just with 1 quarter.
We didn't contemplate the reserve release when we gave our guidance, so I would point to the normalized revenue and adjusted EBITDA numbers for the quarter as the basis for comparison.
Yes, the delta is, as we have recorded pluses and minuses over time in the RAC revenue related to reserves, it flows through to our bottom line and then our equity ---+ our bonus calculation.
So there is a favorable bonus impact calculation from $8.4 million.
So it was a little bit over $2 million.
So the net benefit of the reserve release was just over $6.3 million.
And then you have the tax affected as well to get the EPS impact.
And so that takes it down to about $4.3 million after tax affecting it.
For those 2 plans, not yet, but we anticipate that as we continue to build those relationships and the Eliza brand becomes more the HMS-Eliza brand that we'll have opportunities with those accounts.
So Bill, you touched on this in your prepared remarks.
You have made a few investments in PI since the back half of last year, in the analytics implementation team, revenue conversion.
Just given the longer tail of some of these items, could you walk me through what played out in the PI segment this quarter versus what is still to come or could ramp going forward.
I'll start and ---+ this is Jeff, and I'll let Bill jump in.
So as you may recall, we did talk about actually exiting the third quarter that we started to see a significant uptick in the number of medical records we were requesting.
Some of the technology investments we made and our improved screening helped drive that volume increase.
And typically, we have a 90 to 120-day lag from when we request a record to actually having a finding and revenue generation.
So I think PI is playing out as we expected.
We saw that trend of higher volume of request continuing into Q4.
I think right now we're just talking to capitalize and see the revenue recognition from that lift.
So I would characterize that there is a lot of hard work that was done throughout 2018, both from an implementation improvement process and just looking at the whole PI revenue process and ---+ revenue recognition process in total that we're starting to see the results and the fruit of all that effort hitting in the first quarter.
It was our strongest PI quarter in over 4 quarters and was up sequentially from fourth quarter, which is very typical revenue flow pattern for us.
Typically fourth quarter is our highest quarter and then first quarter, we see decline.
But we actually saw PI revenue increase in the first quarter, which we think is a good sign for the year.
As a follow-up to that on PI, could you, given recent market trends, give us an update on any build-out investments that are being made in your prospective PI product.
So we continue to invest in the prospective product to ---+ as we said in the past, our prospective product really was focused on complex clinical reviews, DRG, place of service, those types of things that we do in the complex world or the complex clinical side of coding.
We are now in the process of moving the other data mining edits, virtually any edit that we run retrospectively and trying to ---+ or attempting to repurpose them on the prospective side, so it can move into that engine.
It has a slow adoption rate.
As we talked about before, it takes a little longer to implement these.
They are more complex, but we have had increased adoption in the quarter in the marketplace.
So we still see that as a strong grower in the future for our business.
Given it's a machine learning kind of build-out, would then your PI product have a little more of a healthier margin than some of your peers.
I wouldn't say ---+ I won't compare it to peers, but I think, as we look at it, the more than we are a leverage technology to both improve the screening and our success rate, we should see margin lift from that over time.
So we devoted a lot of time to resources in 2017 to improve implementations overall and, in particular, PI.
As we mentioned on the call, we do think we have the people and processes in place to work through the inventory of sold business for both PI and COB so that we are at a normalized level at the end of the year.
We did budget much more discreetly at both customer and product level our implementations and so we have refined our tracking and analytics implementations significantly in the back half of 2017.
So we do have better visibility, which allows us to respond to changes because changes will happen.
Customers will make changes in their plans.
And I think the other effort we've done that Bill noted on his prepared remarks is, we took a very hard look at projects that were on hold and are in implementation queue based upon issues that HMS could control, and we have resolved all of those.
And so now our queue is very clean, and I think we have a very focused team that is monitoring it every month.
We certainly look at it and review it every month as an executive team and we can respond accordingly to changes.
So I think it's a combination of a lot of work that was done throughout 2017 that we're starting to see the benefits hitting in 2018.
Hi <UNK>, this is Jeff.
I'm not going to give explicit details, but I would say, it's always a faster ramp to expand existing customer base than ramping up a new customer base.
So you should expect that of the 3 expanding sales of existing customers and yield improvement have a more immediate impact on revenue, whereas new customers always take more time to ramp up.
So I'll just point you that more weighted towards existing customers and yield improvement, but with new customers over time ramping up.
Well, I think our product suite is attractive across the markets we serve, both government and the commercial or health plan market.
The Payment Integrity continues to be appealing, particularly across our customer base because remember we were in state RACs ---+ Medicaid State RACs and then most of our commercial plans are government risk.
So ---+ but they typically have center margins and are audited.
So they have to get the payments right.
So we continue to see an uptick in interest there.
And then, as we roll out the rest of our total population management solution, we have a unique approach to this, which we'll discuss more as the product is launched in the next month.
But what customers are starting to appreciate as we talk to them about it is the ability to identify high-risk members that they don't ---+ they are not currently working on from a care management perspective, engage them through an Eliza engagement platform and then manage them through Essette Care Management tool.
So we are presenting a very holistic approach to managing high-risk members or potential high-risk members.
So I think those are the things that are resonating in the market right now.
And of course, COB continues to ---+ continue to get upsells across our customer base.
Yes, and I would just add, we've mentioned this before, but care management and member engagement, both Eliza and Essette, they are principally focused on commercial marketplace.
The government process ---+ the government marketplace is much more complex, much more detailed RFP processes.
We have started and having active dialogue in the state market for both of those products as well as well as the risk-intelligent product that Bill mentioned.
And we do see that we're going to ---+ we believe we're going to get traction there over time.
We don't think there is going to be a big 2018 impact, but we are seeing more interest there and do think we have a good upside opportunity to sell those products into the state market as well.
Well, we haven't seen a lot of procurement.
We just started marketing in the state market, but the states typically buy through procurement, so RFP driven.
We haven't seen many RFPs for this.
There have been a number of RFPs for care management systems that are wrapped into MMIS solutions, and so we are bidding with partners there.
But we haven't seen a lot of population management RFPs out of the state market yet.
What we're trying to do is either sell with a more holistic approach with the 3 tools linked together or just sell our new population risk intelligence product, which helps them do everything from identifying members that they today don't know ---+ they don't have care management programs and based on their analytics are not finding that they will become high-risk members.
And of course, it comes with a suite focused on opioid analytics, which, of course, is very important for the states right now.
But we really haven't seen many RFPs in this arena and clearly not for consumer engagement.
And we do think we are well positioned to be competitive.
First and foremost, because of all the data that we currently already have, which we think positions us well to be very competitive using the data we already have from position claims, hospital claims and pharmacy claims.
So we think that does give us an advantage as we look to how utilize and work with that data to provide actionable insights to states.
Yes, so that is the risk intelligence tool that we talked about.
The state itself is ---+ I think we're in final contract stages to have the contract countersigned.
It's ---+ also we've subcontracts in front of the 5 health plans in that state.
That's the product that I said we will do a formal market launch within the next month.
And it will be ---+ it will not only be launched independently, but we'll talk about the integration of that with Eliza and Essette.
Yes, so you're right.
We're not giving a lot of detail about the product until it's launched for competitive reasons.
But I would tell you the leg up we have is the fact that the state authorizes the use of the data, right.
So if the ---+ like in our pilot state, we took all of the claims and encounters at the state ---+ encounters were the encounters from the managed care plans.
Typically, encounters from managed care plan of the states are pretty accurate in terms of the services provided.
They're just not accurate in terms of pricing, but that's not important in this realm.
What's important is the services that the member is receiving or the gap in the services.
And so we took those claims and encounters to get a full picture of the person and then as the managed care plan signs in every day if the state has delegated a new member to them and they reach a risk score that is high enough to fall on to one of the ---+ one of the risk scoring areas, so that could be a noncompliant diabetic, or someone with a potential opioid abuse, they will ---+ that patient will be ---+ basically be at the top of the queue in that screen and they can drill in and see the physicians, the drugs they are taking, the number of encounters, where they have used the ER for primary care, all those things.
And it will immediately give them a path of who needs engagement now.
The interesting thing is that our clients have told is, it usually takes them 4 to 6 months to figure that out.
So they know this on day 1, that's a real, real help in terms of getting that person managed better, more effective care management and impact on more our end and the outcomes, which is very important.
Yes, so if they have the risk profile day 1, then as you know, Jamie, with a comprehensive platform of both care management and member engagement, we can also provide the best way to reach out to the patient to change their behavior as well as care management platform with Essette to help manage the patient through the continuum of care.
So that ---+ we do think we have a unique offering from that perspective and coming to the market with something differentiated.
Yes, I mean, it's a clean number, but it did include a stepped-up level of stock comp expense, Jamie, that I noted.
And so ---+ stock comp expense, we do expect will trend down for the remaining quarters of the year.
Given we're about a year past Eliza, just curious, have you seen any meaningful attrition in the client base.
What's been the retention.
Retention has been very high.
I think we have ---+ we talked about our Eliza revenue model.
In 2017, about a 1/4 of it was on a PMPM recurring revenue model.
We did see some nice growth in that in Q1.
So we are seeing more technology-driven revenue generation at Eliza in Q1.
Always there is going to have puts and takes, but transactional revenue, which we view as recurring because it occurs every year, that can be a little more lumpier on a quarter-to-quarter basis.
But we haven't seen any meaningful customer departures.
And as Bill noted, we have seen several cross sales and are still getting good receptivity in the marketplace on it.
And it is, I think, as a new sale on the care management ---+ excuse me, on the member engagement, we wouldn't necessarily expect a SaaS model on new sale.
It's going to ---+ we believe we're going to start transactional and evolve over time into the recurring revenue model, which we believe will ---+ is a higher-margin model and positions us to see margin expansion over time.
Great.
And one last one from me, just in terms of the PI business, can you give us a sense in terms of visibility and, I guess, maybe kind of the current trend on the volume side.
Or what type of backlog you have right now to work through if you look out to the remainder of '18.
So we saw the ---+ as I mentioned, we saw the stepped-up volume of requests starting in September, October time frame.
That level has continued.
I'd say it's been stable, but stable at a much higher level than our average run rate for 2017.
So I think we have good visibility on that.
We're continuing to add some expansions as Bill noted, and of course, expanding within existing customer, that can be quicker to revenue generation and then we are still implementing throughout the year.
So I think, overall, we expect to see PI growth double digits in 2018.
I think we're well positioned to do that based upon first quarter results.
Well, I'd like to thank you all for attending our first quarter call and look forward to our second quarter call.
Have a good day and a wonderful weekend.
Thank you.
| 2018_HMSY |
2016 | AAN | AAN
#Yes.
We appreciate the question.
Our largest accounts continue to grow nicely driven by a couple of things.
We have the good fortune of being partnered with really good retailers who are growing their businesses.
And that certainly helped provide a nice stable support to ours.
But they've also been great partners in finding ways to increase the volume of our programs within their doors by zeroing in on the way we deliver the product at the point-of-sale, revisiting the range of marketing activities associated with our offering.
And really partnering with our field sales team which is doing a phenomenal job of driving new growth there.
So that's been positive.
That's good.
We are excited to complement that with the infusion of some new opportunities through the pipeline which is going well.
Yes.
Good question.
Certainly, the regulatory environment is something we think a lot about, and have invested significantly in over the last few years.
And honestly at Progressively we were doing it along the way.
And then we repurchased by Aaron's, Aaron's was along the way as well.
We made some significant investments.
We've actually brought in, in the last year a Chief Compliance Officer for the whole organization.
That will just further augment the work we have going on in each of the divisions, which has been going on for a while, as I mentioned.
We're definitely investing there.
But at the end of the day, for us is all about doing what's good and right for the customer.
And making sure we are as compliant as we can absolutely be.
That's an area in this day and age, you just have to be focused on.
We believe it could be a core competitive advantage for us.
But it takes effort and investment and is something we have been investing in and will to continue to invest in going forward.
Yes <UNK>, this is Steve.
We obviously have our annual guidance policy.
And have said, as it relates to DMI, we thought that it would be up to a $0.10 drag for the year.
That would be including the GAAP numbers.
And we are not providing any guidance on the quarterly basis.
So, the guidance we provided early for the year remains unchanged.
Yes.
I can speak to that.
This is Douglas again.
We're managing, as I mentioned before, the business ultimately for EBITDA.
So there's a trade-off between our promotional activity and our advertising activity.
And ultimately it is going to affect margins in various areas.
But we're focused on EBITDA and really the return on that capital that we put into both promotions and in advertising.
We're going to continue be promotional.
And we're going to continue to advertise.
But it may be heavier and certain periods rather than others as we go throughout the year.
We may do it with more intensity within certain periods than in others.
We will continue to asses that.
And we will continue to pursue that strategy.
And in terms of pricing, that will offset some of the pricing increase we put in place.
But we will only do it if we think it's a net positive to our bottom line.
And ultimately <UNK> from a competitive standpoint, we've still feel like our prices are very competitive in the market.
And relative to our franchisees, they're lower in most cases.
And so, that's always a good control for us from a test perspective.
We work on that when we made the decision to increase prices.
And we feel good about those decisions.
But as Douglas said, it's more complicated than that given the promotional strategies that go into any quarter but that all will continue.
Yes.
Good question.
We have seen a couple of folks move out of the market.
I would say I haven't detected a material change in the competitive landscape.
Maybe during the last quarter, [not] that was implied in the comment.
The market continues to be relatively more competitive in the regions for the smaller opportunities.
And less competitive for the larger national accounts, where scale and access to capital are larger barriers to entry.
We're obviously happy with what's implied in the 14% growth in door count.
It validates the value proposition of the progressive offering and proposition with respect to opportunities that are out there.
And we have said in the past, that pipeline includes opportunities in our traditional core of furniture and bedding as well as those outside of that, which is another good indicator of broad appeal of the offering.
Good question.
We've said that it's a great addition to the Progressive business and our strategy.
Retailers have been asking for it, and we think that it's a nice fit for those retailers who decide that they'd like to have a one-stop shop for non-prime lending and leasing under one roof.
We've been focused, in the early days on building a team and the infrastructure and plan to introduce it strategically into the retail relationships that we are working with and that's really still the plan.
Thank you.
Thank you very much.
Thank you all for participating in the call, and your interest in Aaron's.
And we look forward to updating you on our second quarter on our next call.
Thank you.
| 2016_AAN |
2017 | HNI | HNI
#Good morning, everyone.
As usual, <UNK> and I will share the assessment of the first quarter 2017 and then provide some thoughts on the outlook for the second quarter and then full year, and then we'll open up to questions.
Results were slightly better than we expected.
Now we have a bunch of information to share with you.
I would say we have lots of numbers, maybe too much numbers, but we'll roll this through and then see where the questions are.
Our businesses continue to compete well and generated sales at the high end of our anticipated range.
As expected, the demand environment started slowly then improved throughout the quarter.
We're pleased with the positive customer response to recent investments in new products and selling capabilities.
We delivered another quarter of strong operational performance, providing further margin improvement.
This now marks a long string of year-over-year increases in non-GAAP gross profit margin.
Our margin improvement is a result of a very deliberate process.
We're focusing our businesses on areas that drive the most value.
The strategic streamlining makes our organization stronger and more capable to aggressively pursue profitable growth and serve our very important customers.
In addition, we continue to significantly invest across our businesses, increase capabilities, business process simplification and manufacturing process efficiencies, all contribute to our position as the best cost producer.
This allows us to deliver greater value to our customers driving both growth and future profitability.
We are a stronger company due to these efforts.
We're well positioned with a strong platform to grow the business.
We continue to remain focused on the long term and are confident in our ability to double our earnings every 3 to 5 years.
I'll now turn the call over to <UNK> for some specifics on the quarter, and then he'll roll through a bunch of numbers for you.
Thanks, Stan.
For the first quarter, non-GAAP net income per diluted share was $0.26 compared to $0.31 in the first quarter of 2016.
Consolidated net sales decreased 2.9% organically and decreased 4.7% in total when including the impacts of acquisitions and divestitures.
In the office furniture segment, sales decreased 4.9% organically and declined 7.1% in total.
Within our office furniture segment, sales in our supplies-driven business decreased approximately 6% organically, or minus 7% including the impacts of acquisitions and divestitures.
Sales in our North American contract business decreased 1% organically, or minus 4% in total.
And sales in our international business decreased 20%.
Looking at our hearth segment, sales increased 3.5%.
Within the hearth segment, new construction sales increased 3%.
Sales of retail wood and gas products increased 2%, while sales of pellet appliances increased $2 million or approximately 26%.
HNI non-GAAP consolidated gross profit margin increased 60 basis points to 38%.
Labor and material productivity gains and the favorable impact of divestitures were partially offset by lower volume.
Stan.
We're seeing improvement in our markets, although conditions remain choppy.
In the second quarter, we are forecasting solid organic growth led by our contract business, which we expect to increase 12% to 15%.
Activity levels, project funnel and in-house orders provide confidence in our sales projections.
In our supplies-driven business, we're expecting organic sales to be up 1% to 4%.
Total organic office furniture sales are expected to be up 5% to 8%.
Within our hearth business, we expect sales growth of 1% to 4%.
New construction sales are expected to be up 3% to 6% as growth in single-family starts continue.
Sales in our retail wood and gas business are projected to be down 2% to 5% due to seasonal timing and mix.
Sales of our pellet appliance businesses are forecasted to be up more than 40% or $1 million to $2 million.
In total, we expect HNI consolidated organic sales to be up 4% to 7% for the second quarter.
<UNK>.
I'll give some additional information on our second quarter outlook.
The growth rates Stan just referred to were all organic.
When including the impacts of acquisitions and divestitures, we expect total consolidated sales growth to be flat to plus 3% in the second quarter.
We also expect total sales for the office furniture segment in the second quarter to be flat to up 3%.
Non-GAAP gross profit margin is expected to be similar to the prior year when it was 39.9%.
Non-GAAP SG&A, as a percentage of net sales, is also expected to be similar to the prior year when it was 30.6%.
Our estimate of non-GAAP earnings per diluted share for the second quarter is in the range of $0.65 to $0.72.
For the full year 2017, our outlook for net sales remains unchanged.
We expect consolidated organic sales to grow 3% to 6%.
Office furniture organic sales are forecasted to be up 3% to 6%.
Sales in our hearth business are expected to be up 2% to 5%.
Including the impacts of acquisitions and divestitures, total consolidated sales are forecasted in the range of minus 1% to plus 2%.
Total office furniture sales are expected to be relatively flat to the prior year.
Our current best estimate of non-GAAP earnings per diluted share for the full year 2017 is now in the range of $2.80 to $3.10.
Stan.
Okay.
Let me wrap this up then.
Simply, our strategies are working, and we remain focused on creating long-term shareholder value.
We're well positioned to deliver profitable growth and enhance our already strong market position.
So with those comments complete from <UNK> and myself, we'll now open it up to questions.
No, I'd say, Budd, that we're seeing pretty good activity on the project side.
And particularly, architecture wall is a benefit for the quarter, and we're feeling pretty good about the funnel in the back half from the project side.
Yes, we are ---+ yes, exactly.
It is profitable business for us.
We're the industry leader in this as well.
I mean, we have significant share in pellet appliances.
We've got good know-how.
We have great intellectual property, and we have very efficient operations.
It fits into our other core part business, and so we're able to sort of accordion that up and down as needed and maintain our cost structure and keep it profitable regardless of what the volume is.
No, we didn't have a lot in the first quarter.
Inflation was about $2 million in the first quarter.
And as you would recall, Budd, we index steel so that it tends to lag going up and tends to lag going down, and so we are ---+ it's bounced up.
Steel has bounced up significantly.
Now you also know that steel is much less of a input cost as it needs to be, so ---+ or as it used to be, excuse me.
But we tend to lag, and that's why it was not as much first quarter as it ---+ you might think.
Yes, Budd.
We have a ---+ we still have some charges yet to come in the second quarter.
We're looking at about a little over $9 million of non-GAAP adjustments.
That's pretax.
And then in the third and the fourth quarter, we have a little over $8 million in the third and between $3 million and $4 million in the fourth.
They look at that as accelerated depreciation and the typical stuff.
Yes, there's quite a bit of transition cost in there.
Yes, it's the same as you're seeing and not a bit much, et cetera.
And again, I'll just sort of rephrase what I said to Budd.
We don't ---+ it's really nice growth, and I'm excited about it.
But don't ---+ we're not calling in our chits that we're like outperforming everybody.
This ---+ anybody that's tracked contract business world for any time frame should know that claiming share gain is a canard and claiming share loss or praying about share loss in the short term and midterm is a waste of time.
So ---+ and you know that's kind of how I think about this.
So we have nice performance.
A lot of it has to do with where you're positioned and what's going on, et cetera.
So it's not a whole lot more than I think, just timing and mix and where we're positioned, et cetera.
Some of that's coming from new product, but it's a lot of just day-to-day, grinded out company-by-company stuff.
Yes.
Yes, no, it's ---+ when we're talking about contract and outlook, it's contract in a big sense of international and North America.
We have not quantified that, Matt.
Because again, it's typical of our sort of overall continuous improvement sort of mentality.
So it goes all the way from very finite pruning product line, even options on product lines to pruning categories, to consolidating, to some cases, pruning customers.
And then the big one that we talked about last time was we pruned some businesses out of the whole system as well, so it's very broad based.
It's consistent with our sort of daily improvement, rapid, continuous improvement sort of culture and way of thinking.
Yes, no, Matt, the reason we lowered the top end of the range $0.05 had to do with inflation coming in at the top end of our expected range, and we're also seeing a greater opportunity to invest in the business.
And as a result, we're seeing less upside for 2017.
It's a good question, Matt.
It's harder to get pricing these days, I think, right now.
So the answer is not really supporting it specifically.
If it is, it'd be more like 2018 before we would see that.
The inflation isn't crazy.
It's just ---+ I think it's modest inflation.
And so because of that ---+ it's harder to get price, I think, to cover that.
You had said last quarter that you had expected sales to improve throughout the year.
We certainly saw that in Q1.
Was that improvement choppy.
Or was it consistent throughout the quarter.
And did you see this trend in both office and hearth.
And then finally, with this improvement, to what degree is this really more company-specific efforts that you're yielding profits from.
Or is it more post-election animal spirits being better.
Yes, those are great questions, <UNK>, as usual.
I think the improvement we\
Okay.
Helpful.
And one of the things that we are starting to hear from our ---+ this is more on the contractor base, is that you're seeing more bids that are bigger and their backlogs.
And this is something that's really started to change over the past, say, 4 to 6 months.
What visibility do you have with your business to either support or debunk that observation from large national contractors.
Okay.
We're talking about building products, <UNK>.
No, we're talking about guys that are building football stadiums to office buildings to hospitals and schools.
Yes.
I would say we are ---+ because of where we compete, we tend to be really more in the small type of bids and the medium type of bids and not as tuned in maybe to the mega bid sort of stuff.
That said, our ---+ right now, we're in a period of seeing some good large- and medium-sized project business, but I wouldn't say that we would support or deny that premise that you stated there.
Okay.
Of the asset that you announced divesting last quarter, you're able to distinguish on the top line the impact.
But what was the profitability or maybe margin impact of taking that asset out of the picture.
So <UNK>, there's more than just the one asset that we have divested, but the one being the big one.
So for the year, our divestitures will lower top line by approximately $100 million and will increase EBIT by approximately $3 million, so it's definitely accretive.
So the other divestitures, <UNK>, that <UNK> is referring to would be, periodically, we will free up or we will divest contract dealers that we brought in-house to help, and then we typically will help straighten those up.
And then typically, we'll sell those back to the local entrepreneurial talent.
And so that's part of what <UNK> is referring to in addition to this other big business we divested.
Well, yes, your definition of underperformance is always in a shackle bag, and so, Greg, these businesses are choppy, volatile.
International for us is 5% of the total HNI sales.
Based on where you're positioned, et cetera, you're going to see different orders.
So a significant portion of our business in Mexico and the Mid East, which has been rather volatile, and then China and India moves around depending on what projects we win and what's going on there.
So what makes it better.
Well, it's just day to day, grinding it out and hitting the right mix and timing of the business.
Well, we are one of the leaders in China.
China is very much a regional business, and it's about investing in selling capabilities and product.
There's no big silver bullet here.
It's just driving the business forward.
We like what's going on in China.
We like how we're positioned in China.
China is a important business for us, and it's just day-to-day management, keep the ball rolling, so to speak.
And Greg, just to note, we are expecting some acceleration there in the second half since ---+ kind of 15% to 20% growth rates international for the back half of the year.
Yes.
I think your comments are right on.
Small business sentiment is improving.
It's not improving as much as contract.
It's a very ---+ as you know, we are the market leader in that segment.
It's a very volatile segment due to sort of the changing supplies nature.
We have several large customers that, sometimes, the results get moved around based on how they inventory and stock.
I think there's a lot more to play out there.
We are well positioned.
We're broadly diversified.
And I think we've got a ---+ it's a significant profit generator for us and will be in the future.
So again, it's more of invest wisely in product and the selling capabilities and serve those customers as efficiently, as effective as we can.
And as that market improves, we will improve likewise.
Well, thank you very much for tuning in to the HNI first quarter earnings call.
We look forward to talking to you all in the future, and have a great day.
| 2017_HNI |
2016 | RGS | RGS
#Yes, it is.
It is driven by weaker traffic.
As I said in my scripted comments, mall traffic has been challenging.
We still have the stores since we have to operate them, so we're really focused on what we can control.
We have been closing mall stores at an increased pace, and working hard when we do that to save stylists so that we can move stylists from one mall salon into potentially another mall salon, or potentially even into a salon that isn't in the mall.
Because when we do that, we can bring guests along with that stylist and we can help another salon be successful.
But it is ---+ a big challenge for us is traffic right now.
Yes, good question.
So a few things.
No.
1, when we started here we said that our focus was going to be on making all of our salons successful.
And I think that in a large portion of them, we see real success.
I would say three quarters of them were positive cash flow, but we've got about a quarter of them that are not positive cash flow.
And we've seen over that time, the continued success of the franchise business.
And the real interest, in 2013, when we started to sell much more aggressively the Supercuts brand, the interest in our brand.
In my scripted remarks, I talked about how fast we were growing there.
So as we looked at all those things together, we said, there's a real opportunity to accelerate this.
We've sold right around 200 of them.
But at that time, when we sold 200 of them, we weren't contemplating potentially selling SmartStyle or potentially selling some of the Supercuts.
It was more around ---+ we have sold some of the Supercuts, but very few, and no SmartStyles.
When we started to look at it that way, we saw a real opportunity to accelerate the business.
So it was kind of all those things coming together, <UNK>, that got us to the point that said, we should now take this business that is very profitable, growing very nicely, and accelerate that growth because that'll be good for Regis as a whole.
Thank you.
Thanks, Lisa.
Thanks, everybody, for joining us.
If there's specific questions, I know Mark and Paul will be looking forward to talking to you off line.
We'll look forward to talking to you at the next call.
| 2016_RGS |
2017 | HAL | HAL
#Look, that's something that is closing, I'd say, sort of every day as we work it.
It's ---+ but let's go back to why there is a spread there.
And it's because we're aligned with very good customers.
They're very efficient, and so we want to be part of their business.
And we believe we can do a lot to help drive down sort of their overall cost and lower their cost per BOE.
And so that's why we never had a ---+ we abandoned half the market to go move somewhere else.
We absolutely want to support all of our customers.
So I'm not going to give you that spread.
But I will tell you it's something that I think I'd said in Q1 that we would be closing in on that over 4 quarters, so look for some time early in '18 to have that done.
Yes.
So I mean, I would say we're probably in the 60% range or so for the following reactivation.
The important thing about that equipment is that it is built for total cost of ownership.
I mean, we don't sell this equipment in the market.
Our guys at Duncan are absolutely motivated by one thing: what is the most resilient, efficient piece of equipment.
And I go out and check to make sure that it's competitively priced, which it is.
But more important than its cost is what it does for our guys in the field and the way that it's integrated.
So it runs at higher rates.
It uses all available horsepower.
It's more efficient by still about a 20% efficiency compared to what we see in the market.
So when I think about how do we make the best returns in the marketplace, we always think about how do we drive capital off of a location.
And the first thing to do is have more efficient pumps on location.
Look, I think it really is part of the science of frac, and that is ---+ it\
Well, again, I'm not going to get our strategy around price anywhere.
But what I would say, Latin America is not too different in terms of the contract cycle in terms of ---+ the length of contracts typically have a muting impact.
There's plenty of ---+ quite a bit of equipment in the world today.
And so certainly, look forward to that, but I would not ---+ it's not enough to change the overall trajectory.
Dave, congratulations again, and you'll certainly be missed.
Your comments and ---+ would be missed greatly on the calls.
My question relates to the Permian sand that's been recently ---+ a lot of new capacity additions have been announced.
And there's a good chance that prices are going to fall quite sharply in the Permian for E&P companies there.
What impact does that have for pressure pumping companies as sand prices fall in the Permian.
Is it neutral.
Or is it negative or positive.
And then also, how do you think about your own investments in transloading and rail transportation.
Would that change if most of the sand is recently sourced.
Look, that's great for us.
It's good for our customers.
It's good for us in terms of lowering cost per BOE.
I've been fairly vocal about why we don't own mines, and that's ---+ this is an example of why not and from Halliburton's standpoint, why we wouldn't want to be invested and tied with sump costs to a place as technology moves a different direction.
The transload infrastructure that we have is valuable.
I would say the ---+ probably the toughest spot to get to realistically is the Permian Basin.
And local sand, in my view, opens up a whole new avenue of what is lower cost.
And some of the things that we're doing around delivering sand, we're always looking at how do we get sand delivered at a lower cost point.
And I think our containerized solutions that we're implementing are right in the sweet spot of that kind of development.
Okay.
And you don't see ---+ are there any long-term negative implications, or cost implications for rail cars or other things that you may have leased or the industry may have leased.
No.
I mean, the stuff works all over the country, and that's a fairly localized solution.
So I like what we're invested in, and we've always been careful.
Again, to ---+ we target about 50% of our capacity is managed internally, and we do that so that we can flex with the market.
And that's how I see this.
Well, look, I ---+ we're in large part agnostic to the type of sand.
The reality is we study sand closely to understand how to better design chemistry to make better fracs.
Cost is always a component of that, but we've seen other media sort of go into vogue and out of vogue.
And we've got MicroScout, which is a nano-style solution ---+ a micro-style solution.
So I think that, obviously, what's being talked about today is consistent with what I hear from customers and what is being consumed today.
But again, the drive for better science is always going on, and that's one of the reasons our labs are constantly looking at how to take what's available and make it better and how to either ---+ or to substitute with things that are better.
So I think that's the answer and hoping it's appropriate.
Well, it's one data point, and so I will clearly be watching that.
The sense that I get is more around design and what is the most ---+ I mean, our clients are dead focused on lowest cost per BOE, making more barrels and at a lower cost.
And so designing things that can consume less sand but deliver more barrels or as many barrels is clearly what they want to do.
Thank you, Candace.
Before we close, there are a couple of points I'd like to highlight.
First, our second quarter performance demonstrates the strength of our North American franchise and our ability to adapt to a rapidly changing environment.
Second, Halliburton's relative performance for the balance of this year will remain strong as a result of our ability to grow North America margins and maintain revenue and margins internationally.
Look forward to talking with you next quarter.
Candace, you may now close out the call.
| 2017_HAL |
2016 | BCC | BCC
#Thank you, Brian.
Good morning, everyone.
I'd like to welcome you to Boise Cascade's second-quarter 2016 earnings call and business update.
Joining me on today's call are <UNK> <UNK>, our CEO; <UNK> <UNK>, head of our Wood Products operations; and <UNK> <UNK>, head of our building materials distribution operations.
Turning to slide 2, I'd point out the information regarding our forward-looking statements.
The appendix of the presentation includes reconciliations from our GAAP net income to EBITDA.
And with that, I will turn the call over to <UNK> <UNK>.
Thanks, <UNK>.
Good morning, everyone.
Thank you for joining us for our earnings call today.
I'm on slide 3 right now.
Our second-quarter sales of $1.04 billion were up 9% from second-quarter 2015 as a result of growth in engineered wood products and our distribution business.
Our net income of $19.2 million was down 5% from second-quarter 2015.
Wood Products reported segment income of $16.3 million in the quarter or EBITDA of $31.1 million.
The team in Wood Products did an outstanding job during the quarter of managing the integration of the recently acquired EWP facilities in Alabama and North Carolina.
The acquisition was essentially neutral to EPS in the second quarter.
Wood Products made a number of operating changes during the quarter to increase the proportion of internally produced veneer used in EWP and to reduce our plywood production in response to market conditions.
In addition, we have seen good progress on a number of actions to improve efficiencies and control costs while we combat the current weakness in plywood and lumber pricing.
Building Materials Distribution reported segment income of $29.1 million or EBITDA of $32.5 million.
BMD took full advantage of the seasonal uptick in demand for all products and customer segments.
The modest favorable pricing trends on key commodities like OSB and lumber and a good mix of general-line products contributed to the impressive gross margin performance in the quarter.
Touching briefly on capital allocation, Wood Products is finishing up the major dryer project at our Florien, Louisiana, veneer and plywood operation, which will reduce operating costs and provide additional internal veneer production capabilities.
Our spending related to recommissioning LVL production at the recently acquired Roxboro, North Carolina, EWP facility is underway.
And we expect to have LVL shipments from Roxboro to customers late in the third quarter.
We have also completed a number of smaller growth and cost reduction related capital projects in both manufacturing and BMD that are showing encouraging results.
We will continue to look at acquisitions when we believe opportunities can help us create long-term shareholder value.
We did not have any share repurchase activity in the second quarter.
As a reminder, we have 1.1 million shares remaining on the 2 million share repurchase program authorized by our Board in February 2015.
Finally, we remain committed to maintaining a sound balance sheet and financial flexibility.
We expect to manage towards our gross debt to EBITDA target of 2.5 times over the near term.
<UNK> will now walk through the financial results in more detail, and then I will come back with a few more comments on the outlook before we take your questions.
Over to you, <UNK>.
Thank you, <UNK>.
I'm on slide 4.
Wood Products sales in the second quarter, including sales to our distribution segment, were $346 million, up 2% from second-quarter 2015.
Wood Products reported EBITDA of $31.1 million, down from the $34.1 million reported in the year-ago quarter, principally because of the lower plywood and lumber sales prices as well as higher OSB costs used in the manufacture of I-joists.
Higher EWP sales volumes, particularly with the addition of the Alabama LVL operation, contributed incremental EBITDA, which offset much of the negative price variances from plywood lumber and purchased OSB.
BMD sales in the quarter were $850 million, up 12% from second-quarter 2015.
Sales volumes were up 13%, and pricing was down 1% in BMD.
BMD's EBITDA increased $10 million from the comparative-year quarter, driven primarily by a higher gross margin of $18.8 million, including an improvement in gross margin percentage of 100 basis points.
BMD's selling and distribution expenses increased $7.7 million with higher sales activity levels.
The corporate segment reported negative EBITDA of $7.1 million in the quarter, up $1.3 million from the $5.8 million reported in second-quarter 2015, primarily due to higher incentive compensation costs.
Turning to slide 5, our second-quarter plywood sales volume in Wood Products was 378 million feet, down 33 million feet or 8% from second-quarter 2015.
The $271 average net sales price for the quarter was down $31 from 2015's second quarter.
Of note, the $271 average was a $10 sequential improvement from the first quarter of this year, representing the first positive quarterly sequential comparison since third-quarter 2014.
The North American industry operating rate for plywood continues to be negatively impacted by imports of plywood from South America and decreased exports from the United States, driven by the relative strength of the US dollar.
We expect to manage our plywood production to demand again in the third quarter, with an emphasis on gaining additional value from using our veneer to produce engineered wood products.
The new plywood capacity being built by private equity investors in Mississippi has started initial commissioning work and may ship product later this quarter, which could put pressure on pricing.
Plywood pricing in the first several weeks of the current quarter is up about 10% in the West and flat in the South compared to second-quarter 2016 averages reported by Random Lengths.
We are about evenly split on our sales volumes between the West and the South.
As a reminder, our plywood pricing fell from $302 in the second quarter 2015 to $282 in third-quarter 2015, so we should face less of an earnings comparison headwind this quarter on plywood pricing.
Turning to slide 6, our second-quarter sales volumes for LVL and I-joists were up 33% and 14%, respectively, compared with second-quarter 2015.
Adjusting for the sales volumes attributable to the acquired EWP locations, our LVL volumes were up 11% and I-joists were up 3%.
As we continue to increase the production of Boise Cascade branded LVL at the two acquired facilities in the third quarter and we shift incremental customer order activity to the most logical production and shipping point, we won't be isolating the acquisition impact on EWP volume comparisons in the coming quarters.
LVL pricing was up 2%, while I-joists sales price realizations improved 3% from second-quarter 2015.
We did announce an EWP price increase in the Western United States and Western Canada in the second quarter, which we would expect to have a modest positive impact on our overall EWP realizations as we move through the third quarter.
Moving to slide 7, BMD second-quarter sales were $850 million, up 12% from second-quarter 2015.
By product area BMD sales of commodity products increased 12%, general line products increased 10%, and EWP sales increased 13% in BMD.
The gross margin percentage for BMD in second quarter was up 100 basis points compared to second-quarter 2015, driven primarily by favorable price trends for OSB and lumber during second-quarter 2016 as well as stronger margin contribution within our general-line products.
On slide 8 we set out the key elements of our working capital.
Company net working capital, excluding tax items and accrued interest, increased $9.3 million during the second quarter.
Inventories increased with higher seasonal sales activity, largely offset by higher accrued liabilities.
As a reminder, the statistical information filed as Exhibit 99.2 to our 8-K has receivables, inventory, and accounts payable data broken down by segment for those that are interested in more detail.
I'm now on slide 9.
Our cash balance increased by $14.9 million in second quarter.
We reduced our outstanding revolving credit balance to $45 million at the end of the quarter, which was $10 million lower than the March 31 balance.
We ended the quarter with total available liquidity of $415.2 million, which reflects the $20 million increase in our bank line commitments to $370 million and a higher borrowing base collateral level.
Our gross debt to EBITDA was 2.9 times at June 30.
As <UNK> mentioned earlier, we expect to manage our balance sheet toward our gross debt to EBITDA target of 2.5 during 2016 and 2017.
I would note our effective tax rate in the second quarter was 35.8%.
We would expect the full-year tax rate to fall between 36% and 38%.
<UNK>, I will now turn it back over to you.
Thank you, <UNK>.
The consensus estimate for 2016 US housing starts has declined modestly to [1.2] (corrected by company after the call) million starts from the earlier consensus of 1.23 million.
The year-over-year growth in housing starts the first half of the year has essentially all occurred in the single-family arena, which uses about three times as much wood per start compared to multifamily starts.
The mix of starts and the resulting impact on installed square footage is an important variable for our revenue growth in EWP and distribution.
The pickup in single-family construction this year has been encouraging, as it has created a more favorable demand backdrop than indicated solely by looking at the change in total housing starts.
We continue to believe that demographics in the US will support a return to normalized thousand starts of 1.4 million to 1.5 million starts.
I won't cover the last section of the outlook slide, as it is the same operating plan we have laid out now for several quarters.
The four sub-bullets are really about us executing effectively against the market opportunities in front of us.
I want to thank our employees for some really good work on controllable factors in the second quarter.
There is good momentum on a number of initiatives, and I am confident that there is more we can accomplish in the quarters ahead.
Thank you for joining us on our call this morning.
We would welcome any questions at this time.
Operator, would which you please open the phone lines.
<UNK>, this is <UNK> <UNK>.
I would say that the situation in the eastern half of the United States, partially driven by the acquisition, has been pretty fluid.
And we've had some wins, and we've had some losses.
And I think we're still kind of assessing how all of that comes together.
Overall, though, I would tell you that the transaction has been very favorably received by our customer base, and we're pleased with how it's proceeding.
But I would emphasize that it remains pretty fluid.
<UNK>, this is <UNK>.
I think that's probably as good as any number.
And kind of the buildup on that is ---+ you know, we still think BMD ends up with midcycle revenue somewhere in the 3.5 to 4 range.
And we've guided to a 3% EBITDA number as a rough guess, which would get you to $110 million to $120 million in BMD.
Corporate is probably $22 million to $24 million negative, and then the balance is in Wood Products.
And a fair amount of that was driven by what we were assuming at the time with plywood pricing.
So of that midcycle number in Wood Products that would be pushing up in the $180 million to $200 million range, we had penciled in about $70 million in EBITDA from the plywood business, which ---+ we are clearly not operating that level today.
And the pressure on pricing because of South American imports, and we'll see what happens with the start up in the Mississippi plant ---+ that's probably the piece that has the most concern at the moment.
But the flipside is I think we're very pleased with what we are seeing on the GP integration, and that should have, frankly, some integration benefit and probably push the BMD number up closer to the $120 million, $125 million.
So I think that $300 million, $310 million is still a reasonable number to think about, but it will take some recovery in plywood.
Yes, I think ---+ unfortunately, the latest numbers I have are as of May.
But if you look at May year-to-date, the shipments into the US out of Brazil are up to May's number ---+ that was the high point ---+ at 60 million cubic meters, which if you translate that, it's about 66 million square feet.
And it's 30% of Brazil's exports.
And it wasn't that long ago, back in 2014, that the US was only getting about 7% of Brazil's exports.
The good news is I think a lot of the domestic supply has adjusted to that reality, and I'm probably in the near term more concerned ---+ late third quarter and certainly seasonally as plywood weakens in the fourth quarter, we'll see what pressure the addition of this Mississippi plant causes and how many shifts they decide to run.
But seasonally, we've had some firming in pricing, and certainly the first part of the third quarter has been pretty good.
And less pressure as the exchange rate on the Brazilian currency has been in the low 3s, at the 3.3, 3.4 kind of number ---+ they seem to be much more sensitive to price.
So the situation has improved from where we were six months ago.
This is <UNK>, <UNK>.
I would add that I think that we are seeing more seasonal effects right now, and it feels like the impact of the Brazilian piece has been pretty well absorbed and factored into the pricing in the marketplace.
<UNK>, this is <UNK> <UNK>, good morning.
Certainly the quarter was good on a lot of fronts.
As you recall, the first quarter finished with some good momentum that carried us into that.
The seasonality kicked in; we had a nice mix of products in terms of EWP general line and the commodities.
Had some moderate tailwinds, both in wood and steel on the commodity piece.
And it had a healthy mix of directs and warehouse.
And so if you think about that from a modeling standpoint in terms of our margin, I would just encourage you to think about what we've done historically and the range historically.
And that could be the best guidance you could use there.
But we were pretty happy.
We are not expecting 11% incrementals on sales.
I think we have kind of historically guided into the 4%, 4.5% range.
And as <UNK> said, we had a number of things that contributed to margins.
If you look at the full-year average for 2015, we were at 11.6, and in the second quarter this year we are at 12.5, and we are at 12 year to date.
And as <UNK> said, there's a couple of things that are contributing to that that should make it modestly better than 2015, but certainly not anticipating the 12.5 to hold as we move into the second half of the year.
No, I think ---+ this is <UNK>, <UNK>.
I think that between 3 and 4 Real to the US dollar, I think that the US still provides an attractive opportunity for them.
I think that ---+ but obviously, as you get closer to 3 it becomes less of an attractive opportunity.
And so there's capacity that's left to come here, but I think they look at Europe, they look at other markets and make their best decisions.
So that's one thing to think about.
And the other thing to think about is the Real has moved down fairly sharply from the beginning of the year, and I don't think we know at this time how long the lag is on that.
You've got 30 days on the water; you've got the manufacturing schedule.
So we may ---+ if it stays at the level it's at that and Europe remains an attractive market, you may see less coming this direction.
It's clearly a concern, yes, that if the Real weakens, then would have two things to worry about.
<UNK>, a little more on the mill in Mississippi.
The local mayor's office does a weekly update, and they have started running veneer blocks.
They are not heating them yet, but they have started running various machine centers and doing checkouts.
So by the end of the third quarter, I would expect them to have volume in the market.
Yes, sometime in September, if not late August.
<UNK>, this is <UNK>.
Let me touch on both points.
You may recall in the first quarter, our manufacturing business ---+ one, because of the weakness in plywood and others trying to make sure that we had good service programs, we did offer dated terms between manufacturing and BMD and some of our other independent wholesalers and put more product out into the market in first quarter, which caused the volumes in manufacturing to be up relative to the housing starts.
I think that's part of the reason ---+ you know, adjusting for GP, you see 11% on LVL and low single digits on I-joists.
Part of that was frontloading inventories in March ahead of the spring building season.
So as we get into the back half of the year ---+ right now I'd say that inventories in the field are very normalized relative to the demand levels.
And I would expect third quarter and fourth quarter our EWP numbers to be more in line with what you're seeing on single-family starts.
And again, we are going to have a tougher time in third and fourth quarters sorting out the impact of the GP facilities and isolating that as we ship orders to Alabama and North Carolina with the new facilities and potentially away from Louisiana to capture freight and operating synergies.
But the underlying base demand, I think, will be very much in line with single-family starts.
This is <UNK>.
On the cost reduction side, I don't know that there's any one thing that really stands out.
I think it's just part of the ongoing effort to improve things.
As an example, TC mentioned that with the start-up of the new dryer in Florien, we're going to not only have more volume; we're going to have a different cost structure.
The biggest issue that I think ---+ that relates to ---+ in that area is really the shift of products ---+ shift of veneers into EWP and the decisions, ongoing decisions, to cut back our plywood production as it got near our cash cost position.
So it's really ---+ we think about our business being marketing veneers.
And so it's finding better homes for the veneers.
I think the guys did a really good job in the second quarter.
As far as the fire codes, I'll give you my thoughts, and then I'll let <UNK> talk about it.
But I think we continue to see that as a challenging market issue, and we continue to develop products to combat that.
I do not think it's going away, and I don't think it has yet stabilized.
But <UNK>, your thoughts.
You know, on the fire issue, <UNK>, frankly, the bulk of the states that need to implement the code change have not yet done so.
So there's going to be more impact from it.
The relative number of basements is not a huge number, so the total I-joists volume is not massively impacted by it.
And the key is having another solution available that keeps you from losing the rest of the EWP business in the house.
So that's really been our focus there.
It's not over with, and it's ---+ but I would not say it's an enormous factor in I-joist consumption, but it's certainly a negative factor.
A couple of things I'd add on <UNK>'s comments on the cost side.
I think if you compare the fourth quarter, where our downtime in veneer and plywood cost us money, the types of downtime we took in the second quarter actually enhanced margins.
So that was ---+ I think the team did a really, really stellar job.
The other place I'd say that based on some of our past communications is we've made some very, very substantial progress addressing issues we had in the Eastern Region that we talked about a year ago.
Okay.
Thanks, everyone, for joining us.
Appreciate the time, and Brian, thanks for hosting.
We will talk to you all next quarter.
Have a great day.
| 2016_BCC |
2018 | FRGI | FRGI
#Thank you, Raph.
2017 was a busy yet transformative year at Fiesta.
Last March, we embarked on a journey that would revitalize 2 great restaurant concepts, each with tremendous brand equity and growth potential.
We carefully crafted a detailed Strategic Renewal Plan and then quickly put the team in place to implement that plan.
While we began implementing the plan, we reduced our marketing efforts until we were ready to reintroduce our guests to our brands to experience comprehensive improvement, addressing among other things, food quality, hospitality and restaurant facilities.
Two hurricanes in the third quarter, one after the other, delayed our progress.
However, we have established real momentum and feel great about our trajectory.
Today, we are gratified to see that our revitalization efforts are taking hold at Pollo Tropical and we intend to capitalize on this in 2018.
As you know, we relaunched Pollo Tropical brand in October, and the improvement in sales during the fourth quarter this year demonstrates good progress.
The brand recorded its best comparable sales performance in the past 7 quarters and has increased comparable sales in December, January and February months to date.
In December, Pollo generated comparable sales of 2.8% in Florida, exceeding the Florida Black Box industry benchmark by 40 basis points, due in part to advertising to support our relaunch.
Miami-Dade and Broward County areas, our core markets where we initially focused our renewal plan efforts, have led our sales recovery as expected.
Comparable sales in Miami-Dade County, our largest market, were 3.8% and exceeded the Miami-Dade Black Box industry benchmark by 130 basis points.
Comparable sales in Broward Country were 3% and exceeded the Broward Black Box industry benchmark by 50 basis points.
Momentum continued into January, and we grew comparable restaurant sales by 0.6%.
It is important to note that brand comparable sales in January were negatively impacted 70 basis points due to a fiscal calendar shift of New Year's day.
Miami-Dade and Broward County areas increased comparable restaurant sales by 2.6% and 3.3% in January 2018, respectively.
Pollo Tropical, Florida, comparable sales were 0.2% lower than Black Box Florida benchmark, while Miami-Dade and Broward County areas exceeded the Black Box Miami-Dade and Broward County benchmarks by 0.7% and 1.4%, respectively.
Month-to-date through the first 3 weeks of February, Pollo comparable sales increased 1.2%, led once again by Miami-Dade and Broward Counties with February comparable restaurant sales growth month-to-date of 3.5% and 2.9%, respectively.
We continue to prioritize the importance of using fresh and high-quality natural ingredients and are, therefore, excited to have transitioned Pollo Tropical to No Antibiotics Ever, or NAE, chicken.
NAE chicken is meaningful to health-conscious consumers looking for high-quality, natural ingredients, and our transition marks a significant milestone for the company.
With that, Danny will provide an update on our initiatives underway at Pollo Tropical.
Thank you, Rich.
Over the past several months, we've been conducting research in all of our markets, speaking to current, occasional and lapsed users of the Pollo brand.
We've talked about many things, including what is important to them, what products they want, what we're getting right and what we must do to get better.
During these studies a very important finding emerged in the area of product opportunity.
Our loyal and lapsed users were asking for one new menu item more than any other in all of our operating markets, a boneless fried chicken option.
And keeping with the renewal plan's primary objective of brand revitalization, our culinary team spent months considering, developing, testing and launching this new product platform.
As a result, Pollo Tropical recently introduced its citrus-marinated crispy Pollo bites in all locations.
This exciting new product is founded on the 24-hour citrus marination process that made our brand famous.
And taking this recipe along with our fresh never-frozen chicken breasts and the NAE product, hand-cutting each breast into large pieces before breading and frying, we have developed one-of-a-kind product.
Our citrus-marinated crispy Pollo bites don't come from a conveyor belt, a machine or a plant.
They are not widgets.
Like our fire-grilled chicken, they come from the kitchens of our 146 Pollo Tropical restaurants and are prepared fresh each and every day and only after they've been marinated for 24 hours.
In addition, guests have the option to choose if they wish to dip or dunk their bites from a variety of our unique island sauces, including cilantro garlic, guava barbecue, pineapple rum and many more.
We introduced the new crispy bites in our Southwest Florida, Atlanta and Jacksonville markets on January 15th of this year.
They were promoted as a 5- and 8-piece meal option and that's a kid's meal offering and also as a 5-piece add-on option.
In the Southwest Florida market, we also promoted this new product with television and social media support where we saw products mix build in excess of 3%.
On February 12, these markets began expanding the platform to include salads and the Create Your Own TropiChop bowl.
To date, the response has been very encouraging.
Sales are increasing.
Guests satisfaction has improved.
And future purchase intent scores are high.
This early start was also important because it allowed us to measure the results and assess operational performance before expanding a rollout.
As a result, I'm happy to announce that was accomplished.
Just 2 weeks ago, all remaining Pollo Tropical locations, including our South Florida market in Dade and Broward Counties, introduced the citrus-marinated crispy Pollo bites.
These markets began receiving broadcast and social media support the week of February 19, and just like Southwest Florida, Atlanta and Jacksonville markets will soon expand the platform to include additional menu items across all markets.
This platform has been widely accepted by guest as evidenced by its growing percentage of total menu mix and we're only at the beginning.
The citrus-marinated crispy chicken program will soon include wrap options, party trays and a new family meal.
Furthermore, in the coming months, the brand will launch its new citrus-marinated crispy chicken sandwich program throughout the system.
The new sandwiches will play a very important role in the expansion of this platform.
On a side note, the taste of these sandwiches is only exceeded by the size.
We even had to create a larger box to hold them.
As previously mentioned, the new platform's receiving broadcast and social media support.
We are using new tactics, relevant messaging and bold ideas to communicate our points of difference with this product.
Breaking the mold of conventional thinking is important.
We believe social media will play and is playing a significant role in this introduction.
Finally, to successfully reposition our brands outside of our core markets, we are regionalizing our menus in stages to address specific needs across our footprint.
With that, let me turn the call back over to Rich.
Thanks, Danny.
As we previously indicated, Taco Cabana is several months behind Pollo Tropical in its revitalization efforts.
Since we reintroduced median October, Taco Cabana's sales performance sequentially improved during the fourth quarter, and we're able to narrow the performance gap versus the industry benchmark.
New TC brand President, Chuck Locke, who joined our team only a few months ago, and his team are working in earnest to implement plan initiatives to revitalize the brand in preparation for a full relaunch by mid-2018.
Guest metrics are improving, which we believe are leading indicators that sales momentum will continue to improve similar to the path we experienced at Pollo.
Improving guest metrics include better overall guest satisfaction scores, better social media scores, fewer guest complaints and more guest compliments.
We are focused on attracting loyal guests while increasing the profitability of each transaction by offering high-quality menu and promotional items at reasonable prices despite eliminating deep discounting; therefore, increasing our average check.
This focus is transforming our guest base and will initially result in transaction declines.
However, we anticipate a gradual improvement in trends as we build guest loyalty and frequency at Taco Cabana.
In the latter part of 2017, we reduced our operating hours at Taco Cabana and are no longer open 24/7 across the majority of the system.
In many cases, we're closing at 1:00 a.
m.
Sunday through Wednesday, while we remain open 24 hours Thursday through Saturday.
This change in operating hours has negatively impacted sales but has had minimal impact on profitability, reduced operating hours have other quantitative and qualitative benefits, including security, staffing and restaurant cleanliness.
Comparable restaurant sales declined 3.4% in January at Taco Cabana.
Similar to Pollo, sales were negatively impacted by approximately 60 basis points due to the fiscal calendar shift of New Year's Day.
Reduced operating hours negatively impacted results by approximately 1.6%.
Pricing, higher sales mix and lower discounts, promotions partially offset a decrease in transaction.
For the first 3 weeks in February, Taco Cabana restaurant sales declined 2%.
We have been experiencing improvement in our Taco Cabana sales trajectory and continue to be optimistic about our performance in the coming months as the brand has fully launched midyear.
We introduced All-day Breakfast Tacos in January as well as TC Time!, which is taco boxes where guests can order a dozen tacos ---+ or a dozen ---+ dozen breakfast tacos or a dozen lunch or dinner tacos.
TC Time! mix continues to build solidifying, affordable and differentiated platform at a great value.
We are testing draught beer and sangria offerings in select Taco Cabana locations.
Based on initial results, we're expanding that to additional locations.
Development of the TC patio party is underway for execution in the second quarter.
That includes entertainment in our restaurant's patio area and featured alcoholic beverages to complement shareable TC menu items.
We are leveraging all relevant opportunities to tell the TC story and drive guest engagement, being targeted communications, including traditional, social, digital and local restaurant marketing.
We have introduced USDA Choice inside skirt steak, seasoned chicken, seasoned shrimp and soon Applewood-smoked Texas brisket.
It's an exciting time at T<UNK>
The team is proud of our quality improvements and are sensing the change in guest appreciation of our products.
Our revitalization efforts at both brands go beyond sales improvement alone.
We also focus on improving margins while delivering exceptional and consistent hospitality.
We firmly believe that both of these objectives can be achieved in the course of 2018 as our sales continue to improve.
Operationally, we continue to refine controls, reporting an accountability to address the continuing challenge of higher food costs and labor costs, including recipe and specification changes, new labor models that we've implemented at both brands.
We believe these refinements are leading to improved execution and profitability as we are building sales.
We believe our brand culture is evolving as our teams are embracing the high standards for food quality, hospitality and restaurant environment.
I want to thank all our team members for their hard work and commitment to the Strategic Renewal Plan.
Their passion has played an important role to our early success.
With that, let me turn it over to <UNK>.
Thank you, Rich.
Let me initially touch on capital items.
As previously disclosed in November 2017, we refinanced our debt and entered into a new senior secured credit facility with a syndicate of lenders.
Our senior credit facility now matures in November 2022 and provides up to $150 million of revolving credit borrowing.
As of year-end, we have strong liquidity with only $75 million of debt outstanding.
Today, we announced our plan to implement a share repurchase program of up to 1.5 million shares of the company's common stock.
In 2018, we expect to open 9 new company-owned Pollo Tropical restaurants in Florida and 7 new company-owned Taco Cabana restaurants in Texas.
The Taco Cabana restaurants will include 5 closed Pollo Tropical restaurants that will be converted.
We anticipate that 2 Taco Cabana restaurants will close this year when we open new sites in superior locations in the same trade areas.
Investments we are making in technology and systems are expected to build sales platforms in the foreseeable future.
New digital menu boards are operating in all restaurants, and we are planning to leverage these digital platforms to tell the story of each brand through videos and to effectively deliver targeted promotional messages around different day parts and days of the week.
New website, mobile apps and loyalty programs are planned to be launched in the second quarter.
We also intend to invest in and build delivery, catering and off-premise opportunities with dedicated resources during the year, which we believe is a significant business opportunity.
We have brought in third-party industry experts, including Olo, MonkeyMedia and Punchh to help us in these efforts.
Annual capital expenditures in 2018 currently are estimated to be $60 million to $70 million, including $26 million to $29 million for the development of new restaurants.
Other capital spending will include deferred and other capital maintenance, IT and infrastructure investments, restaurant remodels and others.
Let me now turn to fourth quarter results.
Comparable restaurant sales at Pollo decreased 0.1% in the fourth quarter of 2017 compared to a 4% decrease in the fourth quarter last year.
This year's decline included a 2.7% decrease in comparable restaurant transactions, offset by a 2.6% increase in average check.
The increase in average check was primarily driven by menu price increases that positively impacted restaurant sales by 2.9%.
Mix was negatively impacted this quarter primarily as a result of a higher priced promotion, Steak Churrasco, in the prior year period.
Sales from new restaurants on existing restaurants negatively impacted comparable restaurant transactions by approximately 70 basis points.
Comparable restaurant sales at Taco Cabana in the fourth quarter of 2017 decreased 7.4% compared to a 3.5% decrease in the fourth quarter of last year.
This year's fourth quarter decline included a 12.2% decrease in comparable restaurant transactions, partially offset by a 4.8% increase in average check due to 3.2% in pricing and positive sales mix associated with higher priced promotions, sales mix and lower discounts and promotions.
As we mentioned on our last call, we completed the rollout of our tiered menu pricing in mid-October at both brands based on our pricing elasticity analysis.
And these changes resulted in incremental effective pricing of approximately 3% at each brand.
At Pollo, fourth quarter restaurant-level adjusted EBITDA decreased by $5.4 million.
Restaurant-level adjusted EBITDA was negatively impacted by a decline in restaurant sales, higher cost of sales as a percentage of restaurant sales due to renewal plan investment and higher average hygiene expenses due to the brand relaunch.
At Taco, fourth quarter restaurant-level adjusted EBITDA decreased by $7.9 million.
Restaurant-level adjusted EBITDA was negatively impacted by the deleveraging of restaurant-level operating expenses due to year-over-year sales declines, higher wages and renewal plan investments.
Please refer to our earnings release and our SEC filings for all related non-GAAP reconciliation tables.
For the fourth quarter, we recognized additional impairment and other lease charges of $2.7 million, primarily related to previously impaired locations, 4 Pollo restaurants that closed in the fourth quarter, an office location that was closed in December 2017 when we consolidated 2 administrative offices in Dallas to 1 and changes related to 2 Taco Cabana restaurants that were closed.
During the quarter, consolidated adjusted EBITDA, a non-GAAP measure defined in our SEC filings declined to $8.9 million, primarily driven by lower restaurant-level adjusted EBITDA at both brands, partially offset by lower G&A expenses.
The enactment of the new tax law resulted in a onetime adjustment to our deferred income taxes of $9 million, with a corresponding noncash increase to the provision for income taxes as a discrete item during the fourth quarter of 2017.
The change in the corporate tax rate reduced the nominal value of our deferred tax assets, but it did not reduce the future tax deductions they represent.
We estimate our effective tax rate in 2018 will be 23% to 25% down considerably from our tax rate over the last few years of approximately 38%.
Turning to our restaurant portfolio.
We opened one company-owned Pollo Tropical restaurant in Florida during the fourth quarter.
Having completed our restaurant portfolio assessment, we closed 4 Pollo Tropical restaurants in Atlanta and do not plan on closing more Pollo restaurants in the foreseeable future.
We also closed 2 Taco Cabana restaurants, including one that was severely damaged by Hurricane Harvey and one that was nearing lease expiration.
To conclude, we are encouraged by momentum at Taco and early signs of improvement at ---+ to conclude, we are encouraged by momentum at Pollo and early signs of improvement at Taco.
Guest metrics are improving, and we are optimistic about momentum building in 2018.
And as sales build, margins should follow too.
With that, we will open the line for questions.
Thank you.
Jeff, this is <UNK>.
I would certainly point you to the fact that we are expecting cost of sales to increase this year over next year from a cost of sales perspective, but we haven't specifically guided to a cost of sales target.
Yes.
For '18, actually, we've seen wage rates be fairly nominal at Pollo.
And at Taco, we expect them to be in the low to mid-single digits.
Yes.
I would say, at Pollo, we'll be at about the same level as we have been.
But at Taco, we are reducing the promotion and discount amount by quite a few percentage points.
Well, by prior margin profile, if we were to look back at the last few years, I think it's going to take us some time to get back to those levels.
We did invest considerably in 2017 as it relates to food cost, labor and repairs and maintenance.
And we also have some nonrecurring charges in 2017.
But as we lap those impacts this year, we would hope to get to at least those margins, if not, a little bit better from a restaurant EBIDTA standpoint.
Sure.
It's Rich.
At Pollo, we had implemented some moderate price increases, I think, early spring.
And then we did it in the fall.
And had ---+ and also implemented the tier pricing for the first time.
And so absolutely 0 resistance on any of the price increases.
And at Pollo, we'll be looking at potentially doing a potential price increase late spring, a nominal.
And then we'll look down later in the year again.
We still think it's a significant value for the product that we're offering.
And again, we have no issues regarding price.
At Taco, it's been a combination of 2 things.
When we introduced the new steak from the old steak, we did take a price increase on the steak.
We now have 0 complaints and very minimal impact on complaints on any price increases on the steak.
The rest is coming from not so much a price increase per se, but we've now repositioned things like the breakfast tacos where you used to have a little asterisk if you wanted to add cheese.
Now we list everyone with cheese at first and then without cheese second.
And be ---+ to be honest with you, people are ordering more with cheese.
When we roll out these new proteins, we roll out it naked, but we also roll out it as loaded.
And of course, the loaded has a higher price point.
So the feedback on the pricing has been minimal.
I don't anticipate taking just a price increase, per se, at Taco.
Definitely not now.
And I would look at it again towards the end of the year, but I would be hesitant to do that.
Because, as you know, with the reduction in discounts, that, in essence, is a price increase.
Yes.
In 2017, in the fourth quarter, we spent more in media in '17 compared to '16.
Looking out into the first quarter, I believe it's more comparable with the prior year.
It's being done on-premise at each store.
Nothing comes in any difference.
We're using our same chicken breast as we used for the other items on the menu.
It's marinated 24 hours.
We tumble it for 30 minutes and the rest is in still marination.
We then cut the chicken breast fresh, and then we hand batter it on-premise and then we fry it on-premise.
We don't anticipate, and we have not had any equipment changes.
We've got the right equipment.
But again, once we roll out the chicken breast and the sandwich and if this thing continues to be taking off as it's done so far, there may be an initial fryer we're going to need primarily down here at Miami-Dade County.
But we're ---+ that would be a good thing.
Yes.
This is Danny.
It's their most preferred item these days.
In fact, we have to make sure that we have enough for our guests.
So, yes, our employees love them.
Yes, it's a great question, and it's early.
But we believe it's coming from 2 to 3 opportunity areas.
One is when we did the research that we mentioned earlier, we identified 2 types of users.
Those that are very loyal and then those that we referred to as switchers.
They're very heavily involved in quick casual and QSR, but we have a small share of those experiences.
So within that both categories, there is a preference for this product.
So we think those switchers are giving us some of that share.
The second thing is this is a great add-on product.
And just as we're selling these as meals, we're selling just as many or almost as many as add-ons.
So it has the opportunity to increase share with those lighter users and, certainly, as an add-on opportunity with all users.
And, of course, even with our loyalists, we think they are not just dedicated grilled chicken people, they love fried chicken as well, and especially the boneless platform.
That's very important because the further out of South Florida you go, the further north, the boneless is a real preferred product.
And then, of course, most of all, the thing that makes us so special and so unique is the fact that this is a ---+ this is our citrus marination process, 24 hours.
It built the brand.
And when you finish it off with our unique dipping sauces, it's just a terrific product.
Yes, it's Rich.
I think we said both our guest sat scores have improved since we started the renewal program and continue to improve.
We're really excited to see the same thing happening at Taco now that we saw at Pollo when we first launched this back in October.
So again, the OSAT scores are going up.
The accuracy is going up.
The hospitality is going up.
And the food scores are going up significantly.
Great to see the positive comp momentum at Pollo and you underlining your confidence with the initiation of the repurchase.
In terms of the comp in January and February, I mean, you mentioned Miami and Broward are ahead of, I guess, Northern Florida.
What accounts for that discrepancy or the delta between Miami and Broward and the rest of the Pollo markets.
Sure.
I think when we ---+ in the past quarters, we talked about that we're going to concentrate on our core markets and things in the past that might have been taken away or not the deferred maintenance we started there and made the restaurants look good, both what the customer can see as well as what the customer cannot see.
The marketing dollars that might have been going to other markets that are now closed are now being spent where it should be spent where the sales are as a percentage of sales, so each one gets what they should be getting.
And so as a marketing dollars in Miami-Dade, it actually went up to what it had technically not had before.
And again, Miami-Dade, when we did the research, those guests were not happy.
They were not happy with a lot of things that were done and as soon as we changed it in the food quality, I will tell you word of mouth, as you know, is important.
And the people recognized the improvements in the quality of food and we now have lines.
And we're pretty excited about the opportunity to increase the sales, again, starting with Miami-Dade, Broward and working all the way up.
Our comps are up throughout Pollo.
It's not just Miami-Dade and Broward.
It's there though that we're outpacing our competition.
Yes.
It's great to see.
<UNK>, in terms of the margins, Q4, especially with the hurricane impact in Q3, it was a little surprising that the margins weren't a little bit higher at Pollo especially.
Is this kind of a trough.
And as sales improve, hopefully, the margin trajectory will improve alongside sales.
Or should we anticipate some more investments ---+ incremental investments to keep a lid on your margins a little bit more.
No.
I think your first comment was what we believe to be the case and that is with more sales.
And we'll be able to leverage more on the margins.
Okay.
In terms of the buybacks, do we anticipate basically taking up the leverage a little bit more.
Or do you think you'll actually have an opportunity to generate enough cash flow over and above the CapEx in 2018.
Yes.
I think it's a little bit of both.
I mean, it really will depend on where we end up as it relates to the market itself.
We are anticipating free cash flow this year.
So we think we can utilize some cash flow for purposes of share repurchases.
Okay.
That's great to hear.
And in terms of timing of share repurchases, we could see it start tomorrow or next week.
Or is that going to be a little bit down the road.
I think it will depend.
Okay.
And in terms of G&A run rates, obviously, with the incremental investments, I mean, is 2018 kind of the right level to think about it.
Could it be up or down in terms of absolute dollars.
I think we were ---+ we are certainly hoping that from a percent of revenue standpoint, that we'll build some leverage there or have a better margin on our G&A line item compared to the prior year.
Just a couple of questions on the store margin front.
And <UNK>, on the last call ---+ I guess, starting with Pollo, on the last call, I think, you said you thought store margins would sort of normalize in the low 20s and I think you might have said you thought that, that would be achievable sometime in '18 with the benefit of store closures, et cetera.
Is that still a reasonable target.
Or has that been a little bit reset here with the fourth quarter number.
No, I think it's a reasonable target.
I would say, it's low 20s to mid-20s, somewhere in that range.
So it's gotten a little bit better with some additional store closures.
Okay.
And I guess, can you help bridge us from, say, the what we're 18% or so, 17%-and-change this current quarter.
I think we've ---+ is it fair to say that in '18, you've got some investment in food where you're going to have some deleverage on the food line, you've also got some deleverage on the advertising line.
If that's not correct, please correct me.
But where else ---+ I guess, it's sales leverage, is there another line that you would point to that would suggest meaningful margin leverage on the Pollo line in '18.
Yes.
There is a couple of other areas.
One that falls in been other operating expenses.
We had more repair and maintenance expenses come through at the end of the year for both Pollo and Taco.
Advertising actually was a little bit more of a spend in the fourth quarter to support the brand relaunch at Pollo.
So those would be 2 things I would point to, but to your point, with sales leverage and an improving trajectory, we would hope to certainly improve our margins accordingly.
Okay.
And sorry if I missed it, but on the food cost line in the fourth quarter, can you share what amount of the inflation for both Pollo and Taco was.
I can and it's also laid out in the 10-K document that we filed tonight.
There is a couple of different categories that we've listed.
One has to do with the new products and how much those products are costing.
And then the other point of reference is what the commodity costs are.
So maybe I can just point you to those tables in our filings that we issued this evening.
Yes.
On the Taco side, R&M was heavier at Taco in the fourth quarter.
And then throughout the year, we spent a little bit more to ready our stores as part of the renewal plan.
So we did incur additional labor than our normalized levels.
And then from a cost of sales standpoint, I think we've now hit more of a normalized ability to execute our new recipes going into early 2018.
| 2018_FRGI |
2016 | EAT | EAT
#<UNK>, it's really interesting, because normally if you were to issue a coupon and it was redeemed at your restaurant there's an expense related to that.
Here we hope everyone would come in and redeem their Plenti points, because when they are redeemed actually it's a revenue source to us, because it's a third-party, the whole Plenti organization, and a coalition of companies that fund the points.
When they are redeemed in any establishment or for any purpose, it's a cash inflow.
So for us that's a great situation as we anticipate that we'll be a net redeemer and use of points for consumers and our guests.
Yes, they would be redeemable for any product that would be on our menu.
As we get closer towards the launch of the program we'll provide a whole lot more details on the structure and how we see it rolling out.
Yes, that's exactly it.
If someone redeemed 100 points, that value we would get back as a cash income.
(multiple speakers) accurate but we just refined our focus this quarter.
What we were referring to last quarter was oil states, and that does include markets that are not really impacted as much by oil.
So we just refined the discussion to looking at specific market areas where restaurants and the whole area is more impacted by the oil and energy economy.
So a little bit different basis, but the sequential numbers I gave you were on this consistent basis.
Yes, we do understand exactly where we stand with all three agencies and where our metrics are, related to the ranges for a BBB- investment-grade credit.
We're basically pretty comfortable with where we're at in that range.
Hey, <UNK>; Wyman.
Again, a lot of it just stayed home.
Again, these markets are under a little bit more economic pressure, so we don't think ---+ we don't have total visibility like we would on a national scale; but based on just anecdotal and what we're seeing in those markets the primary shift wasn't to a competitor.
Because we also have visibility into the whole casual dining performance in these markets, and all casual diners were down.
So it really is a pullback from the consumer perspective just because of the impact that some of those bigger economic issues are having on the community.
Definitely not.
If you're thinking of the traditional sports bar that's not where we would be heading.
That's not core to Chili's equities.
But more of a gathering place, more of a place where people could connect, and again just bringing a little more energy and life to that.
That's really back to the history of the brand and how it really got started.
Well, Maggiano's had a great quarter towards the end.
A great holiday season.
What was really encouraging about the Maggiano's business, ---+ and as you know Maggiano's is, because of their location in malls primarily, holiday season and their banquet space usage, it's a big part of their year.
And they had a really strong holiday season.
Banquets were solid, and as I mentioned their delivery business was also really a bright spot, up double digits.
So that was ---+ it was a great holiday season for Maggiano's and regionally, again, pretty much performed across the board very well.
Thanks, <UNK>.
There are some, but they are pretty nominal in the grand scheme of the program.
There's a small participation fee and some normal, frankly, fees related to marketing that we'd be performing or paying anyway, just to other providers.
So it's really the cost of points we'd be issuing and then the benefit of the redemptions.
Sure.
Yes, Jeff; thanks.
We track our brand, well, obviously internally with some of the best guest metrics in the industry, but also externally through syndicated but also through some proprietary tracking that we have out there and research that we do ourselves.
And all of the data is coming back telling us that the brand is in as good a shape if not better than it's ever been, at least in the last five years.
So we continue to monitor, looking especially close at how our food scores and how our value proposition is holding up.
The value proposition especially in these times.
And we're not just measuring ourselves; we're measuring the competitive set and some benchmark competitors that we think set the standard in some of these aspects of the business.
So that is what is at the base of our thinking that the challenges we're faced with right now really are probably more on the more tactical aspect of the business and then dealing again with some of these regional things.
I think that when you compare, like you just did, to the franchise community, which has not rolled loyalty and has not got some of the regional headwinds that we've talked about, you get a pretty good sense for what the difference could be.
Obviously, we see that in some of our own markets, as <UNK> mentioned, California, Florida.
Now all of them need to close the gap to the industry and perform better, but the absolute difference is encouraging and really, I think, speaks to the strength of the brand.
We don't talk about intra-period results, so won't really talk about what the trends are so far in the third quarter.
But what we have reiterated is as we think about what it's going to take to turn sales trends around in the back half, we've got those more compelling marketing message, less of a headwind with regard to loyalty ---+ actually some tailwind pushing us through ---+ and easier comps to lap over.
So those are probably the three primary things.
We also think some of the regional opportunities are going to be less.
That we've been dealing with them now for a while and some of those will start to lap.
It would be off of the adjusted EPS number, yes.
That's correct.
All right.
Well, we want to thank you for taking time to be on the call with us today.
We've got some work ahead of us, but we have the utmost confidence in our brands.
We've proven time and time again that these brands are powerful and that they can deliver the kind of results that we have in the past and that we're projecting to deliver in the future, specifically our new target with our Vision 2020 of 10% to 15% earnings per share growth through the next few years.
So we're excited about [accounts] seeing those results for our shareholders and we also look forward to talking to you again on our next call in April.
So, thank you very much.
Thank you, Paul and that is it.
We'll talk to everybody on April 19.
Thank you.
| 2016_EAT |
2016 | SSP | SSP
#Actually, the number in 2Q was 26%; the 12% was just presidential.
If you combine presidential and PAC, in Q2 was 26%, and in first quarter that was 60%.
But, <UNK>, that really shouldn't scare you.
That's the number we were really kind of expecting as a result of just ---+ we had a bunch of primaries in Q2 ---+ in Q1 where you had multiple, right.
Back then, you had six Republican candidates, you had Bernie Sanders spending and all that.
And then, in Q2, we had very few primaries that garnered much dollars.
Obviously, Hillary started spending towards the back half of the quarter.
Trump had not yet spent, so you can see the dichotomy there.
Those numbers were not alarming to us.
They were kind of what we expected.
I think it will grow, as we said, we expect the presidential to settle in and probably represent 30% or a little bit more than that percent of our total political spending this year.
That's okay.
CapEx for the quarter was ---+ hold on a second ---+ was about $7 million for the quarter.
And for the full year, it will be in around $30 million or so.
The List is very profitable for us now, across our group.
And, obviously our ability to scale it just adds more revenue to the bottom line.
What's the potential.
I guess it depends on how good a show we produce.
RightThisMinute, which was, as you know our first foray into the programming space and its partnership with us and Cox and Raycom, is now in 94% of the United States.
It has national distribution, national sales, did very well in the up fronts.
It's clear on the ABC O&Os this September.
So I think we look at The List, The List's ratings in this last season, if you take the 100-plus shows that are in syndication, on adults 25 to 54, The List was ranked number 11.
We've got a really good show here.
You can see from the quality of the cities that we've cleared early that this is a program that we expect is going to continue as we move into 2017 sales and when we take it out to [nappy].
Obviously it has a proven history in syndication.
We think there's a lot of growth still for the show.
And, as I mentioned, it's very profitable and we expect it to continue to be.
It is produced out of our facility in Phoenix.
We've built out some space there.
We're able to control that.
It's not produced in LA or New York.
That's very much by design.
When we were building our shows, we wanted to try and control the costs of the production.
I think we've been able to do that.
I think we're producing a very successful national show, quite frankly, at a fraction of the cost of what you see some of the big shows produced by the networks or the big studios.
I think our business model is intriguing and I think that's why you see a lot of our peers following our footsteps.
And, quite frankly, I think you see some of the production studios even trying to learn more about how we do what we do at such an effective cost.
Hello, <UNK>, it's <UNK>.
Retail was up, low-single digits.
Are you talking about our political number.
Let me take a look here.
I don't know off the top of my head the percentage we have on the books.
Can we get back to you on that, <UNK>.
Versus 2012, I don't have the 2012 numbers in front of me.
Yes, I think if you look at a lot of the ---+ what's been reported relative to where are the critical states and where we've seen quick ramp-up in terms of spending.
There's really been three primary states reported: Florida, Ohio, and Pennsylvania.
And our footprint's really favorable in those, and those markets are active right now.
We've got two big Ohio markets in Cincinnati and Cleveland.
And there is spending going on now and it's ramping up with new buys being placed on a regular basis.
And then you get to Florida, and that's a great footprint for us, being in West Palm Beach, Tampa, and Fort Myers.
We think that a lot of the focus is going to come down to those three states, and we've got five good stations in two of those states that the spending is happening now, and since the conventions, quickly ramping up there.
And we think Ohio and Florida are going to be two of the battleground if not the battleground states, and we think we're going to remain very consistent with spending through all of third quarter there.
Thanks, Lea.
Thanks to everyone for joining us today and we will talk to you soon.
Have a good day.
| 2016_SSP |
2017 | UVE | UVE
#There wasn't a reversal.
As I've mentioned in previous quarters, we have lowered our stock-based compensation.
And the reason it's been lowered is that it's a fixed dollar amount versus a fixed share amount.
When it was a fixed share amount, you had awards that would take place in the future, and as the stock price goes up, so too does the comp expense.
So now they're fixed dollar amount and we are experiencing less stock-based compensation as a result of that.
What also happened during this quarter in particular, is the reduction in pretax income from the storms reduced the basis from which we calculate management incentive bonuses.
So those two factors drove down the expense ratio, I think by about 2%.
We do have a target.
I'm not quite sure I can share that with you right now, <UNK>.
But I will tell you that we are seeing, as I said earlier, a very positive closing rate from our quote to bind.
I think, as we get a little bit more in depth with some marketing, some things that we have lined up to start doing, we are going to see this thing gain a lot more traction than it has.
We are very pleased right now that we have done $2 million in premium.
A lot of people said that this couldn't be done.
It was much too much of an extensive process for people to do online.
But I think we are seeing a segment of millennials and then people that just, their time is valuable to them.
They want to go ahead and do this type of process online.
So the best part about it is that we have built all these platforms, own all of these systems ourselves.
And it gives us the ability to change and manipulate it on a daily basis as we see fit to positively affect the platform.
So a quick answer to your question would be I think you are going to continue to see the growth that we have had since we've been on all these states in the last say three months.
And I think that the growth will be exponentially growing in a positive manner.
No.
We have seen really no AOB as it relates to that.
It's unquantifiable the number is so small.
Really, I think we've had 47 instances on 7,000 claims, so nothing really to talk about that's of any worry to us.
We booked $2 million above the actuarial [best].
No, not at all.
I don't have that handy.
<UNK>, I'd be happy to have a conversation off line with the schedule P in front of me.
Yes, obviously, like I said, we've been building this department since mid-2015.
And we are seeing approximately around a 10% return rate to us right now on our overall incurred losses that are affected.
Look, we run an insurance company that most of the claims are water related.
So baked into that, obviously, there is a lot of circumstances where we are able to recover from a subrogation perspective.
Since we started this in 2015, the beauty of it is, due to the statue of limitations, you can go back X amount of years and work on the claims that you had in those previous years.
So that's what we've been doing.
Working on that and trying to figure out how best to utilize our expertise in getting some of that money back from a subrogation purpose.
Theoretically, we have our own internal law firm here.
And inside, we use those folks as well as our other subrogation folks to participate.
And when we see claims from a fast-track perspective all the way up to large loss that we believe there are some subrogation connotation attached to it, we then put it into its appropriate bucket and then those folks start working on it.
So that's a huge part of our business.
Yes.
Well, I mean, when you look at the net returns year over year, we had about a 96% increase in net investment income, and that's the result of several things.
A lot of actions that we have taken.
We had about 33% increase in invested assets.
So that certainly accounts for some of it.
We have also, as the securities mature, or we put new money into the portfolio, we've been funding [munis] to take advantage of the tax benefits on that.
We have been reallocating our allocation from US governments over to those munis.
We have also extended the duration out.
Our average duration is now in excess of three years.
Where it was some years between two and three last year.
All of that has increased the yield.
And we have done that without necessarily sacrificing our credit quality.
We still have a very high credit quality of AA minus.
In addition to that, our returns have improved as a result of negotiations that we have gone through with our investment advisors to negotiate the fees down.
And that, certainly, increases return on investments.
Now, the rate environment.
Obviously, rates went up a little bit.
And they may continue to go up a little bit, and we will have the same impact as everyone else.
There's going to be no negative impact to any of our entities at all.
I would tell you that the only positive would be maybe there is additional organic business maybe that we could attain because of it.
But I would be cautious about that.
Because most of those smaller carriers were mostly takeout companies.
Again, I don't think it's anything that would be a negative for us at all and may be a slight positive.
Look, we are always open to the possibility of listening and looking in the MA arena.
We just haven't seen anything right now that fits our portfolio or what we want to do going forward.
We are very pleased with the way we are putting business on organically with our traditional agency force as well as Universal Direct.
We are always looking and listening, <UNK>.
But there isn't anything right now that I would tell you that is increasing our appetite.
Take care.
Have a good day.
As always in closing, I would personally like to thank all of our shareholders, employees, Board of Directors, policyholders, and my Management Team for their hard work and loyalty to Universal.
This concludes today's call.
Thank you.
| 2017_UVE |
2017 | SWKS | SWKS
#Thanks, <UNK>, and welcome, everyone
The Skyworks team delivered exceptional results in the December quarter
Let me begin with a few highlights
We achieved revenue of $914 million, up 9.4% sequentially and above our guidance range
We expanded gross margins to 51.2% and operating margins to 38.8%, illustrating strong operational execution and prudent expense management
We produced record earnings per share of $1.61, $0.03 better than our guidance and perhaps most importantly, we generated nearly $0.5 billion in cash flow from operations in the quarter, another record for Skyworks
In addition to our strong P&L and balance sheet performance, I am especially pleased with our design win execution, particularly at marquee customers
Of note, we secured SkyOne platform wins with multiple Tier 1 Sky OEMs, extended our leadership position in diversity received systems and secured a key win in our custom high band PAD portfolio
We ramped fully integrated fully integrated low, mid and high band solutions integrating SkyBlue technology for Huawei's Mate9 platform, their flagship phone
We launched multiple devices across Samsung's entire portfolio and gained momentum in China, with key wins at market leaders Oppo, Vivo, Meizu and Xiaomi
All of these wins were captured by resulting the growing complexity and performance requirements inherent in today's advanced mobile architectures
Specifically, we're seeing the continued shift to highly integrated transmit solutions, leveraging our core capabilities in gallium arsenide, temperature compensated SAW filtering and enhanced power management
In addition, we are benefiting from the rapid move toward carrier aggregation, a major catalyst in driving higher data rates with expanding bandwidth in both uplink and downlink transmission
In parallel, we continue to expand our opportunity by growing our content reach with new revolutionary diversity receive systems, specifically targeted at the most complex carrier aggregation challenges, as well as a growing suite of analog solutions from Wi-Fi, GPS, antenna tuning, signal conditioning and more
Now moving on to our broad markets portfolio and IOT
We expanded our design win pipeline to include wins with Netgear home security system, ARRIS cable modems as well as Comcast and Rogers with carrier-grade broadband gateways
In addition, we secured design win supporting the latest voice assistant technology from Amazon, Google and Microsoft
We also capitalized on the newest trend towards home Wi-Fi mesh networking, with key wins at Linksys, Ubiquiti Networks and other leading OEMs. And finally, we broadened our footprint across the automotive sector, leveraging the diverse array of wireless protocols supporting connected car applications, vehicle to vehicle communication and 4G telematics
In this past quarter, we were pleased to have consummated a strategic design win at a leading U.S
electric car OEM
Our Q1 results, strong outlook and design win momentum reflect solid tracks in spanning out mobile, IOT and broad market portfolio
The success we are demonstrating is part of a secular multiyear fee and we are still in the early innings
At a higher level, Skyworks is at the epicenter of a sea change in mobility
Our end markets are driving a substantial move from brick-and-mortar to a rapidly growing mobile economy
This trend places an unprecedented burden on analog RF and mix signal performance, vastly increasing the value and utility of our solutions
It's compelling to see how many different avenues mobile technology now supports, whether it's streaming 4K video, social media, mobile payment or rapidly evolving areas such as augmented reality, virtual assistance and the connected car
Popular apps including Facebook, Uber, Netflix YouTube, Spotify, and Wave, all share key characteristics
They require ultrafast, low latency highly secure and efficient connectivity, as well as location-based services
These challenging needs are invariably facilitated by an integrated Skyworks engine
Importantly, we uniquely support all the wireless protocols enabling these diverse applications including Wi-Fi, Bluetooth, ZigBee, GPS and LTE
Further 5G represents a massive growth opportunity for our industry and certainly for Skyworks
In fact, market projection suggest 5G data rates will approach 10X the speed of card 4G and LTE solutions
To put this in perspective, downloading a full-length HD movie in 3G took one day
In 4G, the same file took minutes
On a 5G network, this content will be downloaded in mere seconds
At the same time, the connected car is yet another catalyst that offers significant opportunity for Skyworks
Looking out over the next years, the amount of data that will be delivered to and from the car is estimated to be 5 to 10 times more than the bandwidth used by today's smartphone
For instance, by 2020, a single autonomous car is expected to consume 4,000 gigabits of data per day and real-time diagnostics, positioning, vehicle-to-vehicle communications and that's equivalent to the daily data consumed by more than 2,000 smartphone users in 2017. Skyworks is uniquely positioned to capitalize with solutions that solve all of these daunting connectivity challenges, setting the stage for outperformance across cars and new markets
With that, I will turn the call over to <UNK> for review of our financial results and Q2 outlook
Thank you, <UNK>
As our first quarter results and outlook illustrate, we are off to a strong start in fiscal 2017. We delivered solid revenue and earnings, set a record for EPS and quarterly cash flow, while guiding about March quarter consensus estimates
Our profitability and increasingly strong cash generation is allowing us to fund growth and deliver higher returns to our shareholders
In fact, the new $500 million share buyback authorization announced today reflects the confidence of both the executive team and our Board with respect to our strategic outlook
Skyworks' systems level expertise, operational scale and deep customer engagement are enabling us to capitalize on the rapidly expanding mobile and IOT ecosystems, while positioning us for 5G leadership
That concludes our prepared remarks
Operator, let's set the lines up for questions
Question-and-Answer Session
For us right now, the market backdrop looks quite good and we continue to see an increasing push in mobile for higher complexity, higher performance and that for us as you know translates into opportunity
It's not all with one or two accounts
We're starting to see some great penetration with leaders in China
We mentioned Huawei, certainly large players in the U.S
, large players in Korea are all exhibiting that
And then in parallel and we talked about this for a while, but it's really coming together nicely that our broad business, our broad market portfolio continues to grow
Looking at a year-over-year basis, we're reporting a 10% to 15% year-over-year growth rate with that opportunity and that providers just another boost for us in terms of topline
It was slightly above 40%
Thanks, <UNK>
Sure <UNK>
What we're seeing is very good success in keeping pace with our core architecture SkyOne architecture, switching architectures, but we're now augmenting this with new technology and kind of what I call an expanding product reach doing great work in carrier aggregation, both uplink and downlink
We have some unique solutions that we really pioneered in the industry around downlink receipt side, addressing CA and the complexities
We're taking that kind of an engine and pushing that forward to names like Huawei and names like Samsung and some of the other China players
Our GPS technology is getting adopted now on a quite consistent basis
Wi-Fi has been moving to MIMO architectures in mobile and also in some of the broader markets
So, it's really quiet a mix and what I am really pleased about is our ability, our team's ability to look long at these challenges in mobile and then architect very unique solutions with customer’s hand-in-hand to finally deliver what makes Skyworks special
So, we see that trend continuing
Yeah absolutely
So first of all, I'm pleased with our execution in Q1 with gross margin coming in at 51.2%
Looking at Q2 obviously, this is a seasonality softer quarter with revenue down approximately $74 million, $75 million and so that you can see reflecting into the gross margin
Having said that, we are feeling ---+ we're very well positioned for further margin expansion in the second half of 2017 as we expect the next three quarters to see sequential revenue growth going forward
Yes, and let me add to that <UNK>
We were very confident that as <UNK> articulated, as we stepped through the second half fiscal and second half calendar year, you're going to see revenue and margin step up
So, we're committed to continuing that path
Sure, our growth and success outside of our largest customers has been outstanding
Huawei became the number two account for us this last quarter
They're going to continue to be one of our leaders
We have our customer in Korea, who will continue to grow significantly into 2017 and our largest customers will set up very well for us as well as we address some very complex architectures with compelling products
So, we feel really good about that on the mobile side
And then let me remind you that the broad market portfolio from the infrastructure to IOT to early stages of automotive, all look good and the staff there are double-digit year-over-year
Sure <UNK>
I think part of the driver there as you probably know is just really the upgrade cycle across the Board
So, you have your most developed accounts that will be moving up with higher levels of complexity, bringing in more complex EA architectures, maybe even going MIMO on the radio potentially that's out there
And then you have your value tier players that are moving up maybe at a higher rate percentagewise, but haven't quite hit the dollar value of the top tier
So, we address all of that
We're not a player that spends much time with the 2G or 3G market
So, the segments that we address, we think it is a double-digit tam opportunity
One of the things that we've been going at Skyworks is we continue to innovate and elevate our portfolio
So, these products today that we're selling and enjoying share gains, that just didn't exist three or four years ago
So, we're continuing to push the envelope
There is also a lot of technology that flows between mobile and IOT
Our very strong portfolio and Wi-Fi, we have a Bluetooth portable
We have a GPS portfolio
None of that is really part of the traditional RF TAM, but it matters
Our SkyBlue technology for power management is becoming more and more pivotal for us in design wins
So, it's really a broadening suite
In overall TAM, probably 10% to 12%, but I think we have some unique opportunities to address it in our portfolio
Yeah absolutely
So 5G is really going to be a game changer for the space
It could present up to 10 times the date rate that we see today in 4G
There are these three big themes when you look at 5G, you try to create a faster data pipe, lower latency, more efficient
It's about increasing bandwidth which is going to drive carrier aggregation of the click, higher modulation schemes that you're going from 256 QAM maybe to 1024 higher density as complexity
There is MIMO architectures that will scratch that pipe
All of these themes are very important and if you think about frequency for it <UNK>, if you move up to some of these higher frequencies in 5G, they are very often TDD modulation, so time division duplex and TDD requires band pass filtering
It doesn’t require duplex or so
We have a unique opportunity there to stretch our TC socket with only too higher frequencies in a TDD domain and gain additional share
Sure, <UNK>
Yes, the growth should span across our larger customers
It should also span across kind of what I would consider a value Tier portfolio, the Oppo and Vivo and maybe to a lesser extent Meizu and Xiaomi moving up
Huawei, we mentioned today is now a clear number two customer for us
They have really stepped up in terms of the content, the richness of content and the reach of technology, providing opportunity for us to deliver mid-band, high-band, low-band solutions, power management, diversity receive, addressed CA uplink and downlink
So, we see a great opportunity with the value tier moving up and then the high tier actually increasing their content
Those are the important themes
And then the additional in parallel opportunities in broad markets continue to span and we expect double-digit growth there for the foreseeable future
Yes, sure
Both sides of the equation there are critical for us
Certainly, flagship phones and what we're seeing there is really a great opportunity ---+ actually we're really happy about it as we talked a lot about this technology and this ecosystem within mobile and that tremendous ecosystem, all these great applications that we enjoy driving change in hardware and it's happening
And each year every customer has different cycles, but every success of generation of smartphone technology that we address has had increasing burden, increasing challenge and increasing opportunity for Skyworks
That's what drives the content for us
We've also been able to push our reach
We're moving the areas within this technology, new areas to enjoy further gain
So, we feel really good about that trend continuing
Our teams are doing a phenomenal job right now with the most critical customers, with the smartest people on the customer end and in Skyworks to make sure that that happens
So, that's going to be big part of the story
But in parallel you hit on the other key point
There's a tremendous volume of mid value tier players producing smartphones today that haven't yet enjoyed that big step up in performance
And if you look at Huawei as a case study, we've worked with them for many, many years and had a great relationship and been involving just about every platform and the big swing for us is when finally, the technology and PAD technology in power management ad Wi-Fi and some of these complex system were adopted the revenue accelerated
There's a value tier today that's significant that hasn’t yet made that movement
We're going to work very closely to make that happen with them
Sure
Well, China all in for us is about 25% of revenue and it’s not just mobile
We have a pretty strong infrastructure position in China across Huawei, across ZTE and others
The mobile business is strong and then there is some other broad market portfolios there
So, it’s about 20%, 25% of the revenues there and what was the second part of the question?
Thank you
With respect to the M&A element there, just to remind everyone, we are very focused on our core franchising connectivity
It's a significant market
There is a great deal of investment going forward there that has turned to be profitable for us and fruitful for us
But at the same time, we do evaluate M&A opportunities
We look at a lot of potential transactions
We have a very high bar with our financial consideration on that end
But we keep an open mind
We announced the 500 million shares repurchase program here today and we certainly have the opportunity if the right deal comes about to exercise an M&A transaction
Yes absolutely, it's really about our ability to outperform on design wins that were consummated kind of in the middle of the prior year and now flowing forward
So, we were really excited about that the content reach again is expanding
We’re engaging more and more with fully integrated SkyOne Solutions rather than power amplifiers and filter separated
The carrier aggregation products that we put forward and diversity received are quite compelling in the market and then again, the roster of IOT accounts that we’re bringing forward continues to grow and the content within those applications where maybe we had ---+ we started with a single Wi-Fi device
Now we have 3x3 devices
We’re embedding GPS more and more
We got Bluetooth opportunity
So, the whole spectrum is expanded
And as we look at March, we feel very good about our guidance there as <UNK> indicated
Backlog coverage is solid
We’re fully booked and it’s a very balanced quarter as well
Yes, sure, sure, great question
Well as know, when we go to market, our strategy is to sell a system solution
So, it input to output performance
So, it incorporates our highly customized and curated gallium arsenide technology, unique filtering technology, SOI packaging, testing
The whole engine is really a Skyworks signature and within that engine, we select the best process and the in best technology to deliver what our customers want and outperform technically
So, this is not the first high band win
We have been clocking and clicking design wins here for a while
This one was meaningful for us
It did move us up to some higher frequencies above 3 gigahertz and let me also remind you and I answered the question earlier that in some of these domains, there is a need for a TDD Time Division Duplexing versus FDD, Frequency Division and that can change the technology curve and the selection as well
So, it will continue to grow in that space
We’ll continue to grow in mid band
We’ll continue to move our TC technology up higher and continue to lead in low band as well
Sure, well let me start with you mentioned carrier aggregation
We have an incredible portfolio in carrier aggregation
It nothing to do with BAW
We can use TC-SAW
We can use other capabilities, organic capabilities and we're a market leader there without question
Looking now, there are opportunities where a higher frequency, high performance BAW filtering makes a lot of sense, but we don’t sell discrete devices
So, our plan is to try to create the best engine, the best complete sub system that meets our customer's needs
In many cases, we can do it with our organic technology
We do have a path foundry partners to bring in BAW within our modules if needed
Our TC-SAW capabilities continue to improve and if you look at spectrum, the most crowded spectrum is in the lower frequency bands
700 meg up to 1.1 gig, very, very crowded
TC-SAW capabilities are ideal
Bulk acoustic wave can’t play at those lower frequencies and anywhere some frequencies that are very high with extremely high performance needs where BAW’s critical
So, we’re not hindered by any of that
I think we feel very comfortable with our outlook
We have a lot of great technology choices
And if you look across the peer group, there are some players in our space that don’t in-house gallium arsenide
They go to foundry partners
So, it's not uncommon to have a few points of technology where you outsource in partner and we do that on occasion, but invariably, we use our own organic products
Sure, sure well let me start with the organic product line
So, we have a really strong competitive left in with our TC-SAW facility, SAW Japan as you may remember, this came about through our joint venture with Panasonic, which is now wholly owned entity with Skyworks
And we have capacity to do about 3 billion units of TC-SAW per year and we have room right now
We're not a full utilization, but we have a really strong pipeline going forward that’s going to enjoy the benefit of those filters
If you look at what we can do, it's just really again, it depends on the customers' need, it depends on whether you are in a frequency duplexing domain or a time division duplexing domain
There is nuisances there and so we try to match the best complete system with the customer need
We do have BAW, we're completely aware of BAW acoustic wave technology and what it can and can't do
We have strong partners right now that we can bring it in on a foundry basis
We continue to look within the walls of our company to do it organically or construct devices that are just as competitive organically
Some of that is TDD
What I'll tell you today we enjoy a robust opportunity with the filtering we have today augmented by our gallium arsenide or switching our packaging and our complete systems focus
Sure, sure, well, China of course is a meaningful growth driver for Skyworks
I mentioned earlier on the call it's about 25% of our revenue all in
And it's a market that consumes and exports, right
We have a lot of Tier 1 players that are moving up and inside Huawei and then it's an export market as well and we can enjoy both sides of that
One of the things that has helped us in China is having a strong baseband partnerships, very tight coupling with Hisilicon captive to Huawei today
Also, a lengthy relationship with MediaTek and MediaTek is really in route now to move towards higher levels of integration adopting SkyOne like structures from Skyworks that's a big pop and names like Oppo and Vivo continue to look strong for us
We don't do much at all with the 3G and 2G white box markets
So, our revenue is really driven around the market leaders
And I'll tell you that right now Huawei is the one that's really stepping up in content and the others are moving along that curve
So, I think there is going to be some upgrade opportunities within 4G with some of the mid and value tier players within China
Right and that's China as well, so that's global in China specifically
Yes, the facility has several innings of opportunity ahead
It continues to be competitive weapon
And we've got our growing list of customers and expanding set of new frequencies that we're going to be addressing
So, it continues to be an important weapon
I believe right now if we look at our outlook, we'll probably be okay for capacity for a bit, but just depends on how big our designs wins are here going into the second half
But I think that the factory is running well, increasing number of customers enjoying that benefit and the demand signal for integration ---+ intergraded duplex's, integrated filtering for us has been tremendous
Yes, no, I appreciate that and you're right
I think we weathered a bit of storm here in '16 and most of the clouds there have abated and it's not just market shares
We’re gaining share, we’re creating new content
We’re expanding in IOT and in broad markets and its meaningful and its sustainable
We’re confident that the second half for us should be a double-digit growth rate year-over-year
We think we’ll have strength going into the next fiscal year as well just given our outlook and our design wins that we've secured recently
So, we feel good about it
Again, there is room to go on the margin line
We’re going to work that
The demand side let's say, looks very good and more diversified I should add
Right
Tony and also GPS, GPS has really been prolific here over the last two or three quarters and forward-looking outlook as more and more devices now location services matter, highly precise locations matter
And we have some really unique things that we do in our Mexicali factory to shield and kind of manage the complexity of GPS and the size requirement
So, that continues to roll out and it’s a big driver in IOT
So, we have attachment across mobile, but the number of IOT nodes that we could lever with GPS I think is quite compelling and that's in other case where we're just starting to rack up the design wins
We have really good technology
It takes advantage of some of the core IP that we have in the amplifiers that we have today in cellular and trying to design and shape those for other applications
Sure
Yes, the broad markets in IOT space should be up about 10% to 12% roughly
If mobile is not typically bullish here in the March quarter, we do have unique customer dynamic where some customers in fact are up even within mobile and that’s all about content
So, it’s not a particularly unusual signal
One of the reasons why we’re doing better than seasonal is just again a higher growth rate in the broad space and also with one of our larger customers in Korea content step up, which also provides a sequential gain in revenue
Sure, sure
We’ll take a shot at that
Well, the broad market opportunity is more unbounded right
There is really kind of an infinite set of customers that we're addressing and moving the dial across the Board whether it be just adding the new applications and new customers
And then even within IoT, there's a content opportunity where the customers and consumers they get used to a low range technology want to augment it perhaps with higher-end solutions maybe they had MIMO and Wi-Fi or maybe they go from a wearable technology that is just Wi-Fi and then it stretches to LTE
So, there is an action there that I think has tremendous upside and really the market continues to expand
In mobile, mobile is more characterized
I know there's a lot of detail on the unit count
There is a lot of detail on customer innovation, interaction, but what is missed in mobile is again this tremendous economy that relies upon the hardware and relies upon the kind of technology that we offer and so what we see there and it’s been increasing, is a continued push for performance-oriented solutions and every year there is a different requirement, there is a different opportunity for us to expand upon may be its frequency bands, may be its bringing in new opportunity for us to expand upon maybe it's frequency bands, maybe it's brining in new technologies
We talked about Wi-Fi and GPS there happening, they're happening in some cases
Diversity we see as a new solution for Skyworks
So, all that continues to move and then we have this major 5G upgrade cycle on the horizon
It's a few years out, but Skyworks will be very well positioned there and when that does occur, you will have the backward compatibility for 4G and 3G
So, you'll basically have some duplication of content or some enrichment in content without the legacy going away
So, there is a lot of things on the horizon if you look out
Again, the near term looks good
We talked about it, but if you think long about where the markets are headed and the continuous demand for mobile technology and mobile data and the economy that we've been speaking out far, it looks promising
They're contributing, but there's a long way to go in terms of the adoption
While we've talked a lot about, they're embracing this technology now and it's been great for them, it's been great for us and I think it's going to propel their business with the performance driven product, a number of products and we're seeing that move up a bit
MediaTek is a partner of ours
We're working with them and their reference designs to continue to bring integration to the masses in China
Some of the value Tier players Oppo and Vivo for example are moving along that curve, but they're still not to where we expect them to be
So, that's a continuous process and that doesn’t mean units have to go up
That's really the content and again there is a big, big opportunity for us value tier moving up to mid-level and high levels of performance and bringing the kind of technology that we have into their products
Sure
I think the highest growth categories are really around the connected home high-speed access points and routers
You got these HD cameras
We have design wins with the whole Google net suite
We have design wins with the Netgear, Linksys, Ubiquiti, Wi-Fi mesh
That continues to roll and the content in some of these access points and routers and gateways could be very high, can be double-digit content
A lot of it is Wi-Fi and there are some other switching technology as well
We're then taking that and spanning out into a variety of newer opportunities early innings with products like drones and we have designs there
Automotive, we think could be a phenomenal catalyst for us for semiconductors in general and for Skyworks
If you think about what really matters in an autonomous car, the connectivity piece right
We have cars today
We're all driving cars, but connectivity is going to really matter
So, in order to make that market work, we're going to need very aggressive 5G solutions, massively expanded data pipe for both the transmit and downlink
All of that's going to be incredible opportunity for us and broad markets are that's going to be out there a few years
Cellular infrastructure has been a market we've enjoyed for a while
It's not the fastest growing market
It's solid from a market perspective and we have a number of players there that we're engaged with and that also will go through a 5G upgrade cycle
We have within the portfolio
It's not a significant piece, but it does play in some of the infrastructure markets
It plays in some optical products
We have a little bit of business there, but we monitor the right technology for the application and for the customer need
The gallium arsenide technology that we have as you know we have two very significant fabs are really highly customized and curated gas solutions that proliferate our portfolio
We do have some opportunities with foundry partners to bring in SOI and some other variance around the semiconductor space
And we had access again as needed
So, it's not a mission critical technology
It may play a little further out here in 5G, but at this point it's on our radar screen and it's an opportunity
Thank you, operator and thank you all for participating on today's call
We look forward to seeing you at upcoming investor conferences and other events during the quarter
| 2017_SWKS |
2016 | CRS | CRS
#And that should leave us about ---+ that will leave us flat effectively, when you think about year end versus year end.
Well, if you look at it from a sequential standpoint, <UNK>, our backlog, whether it is in tons or dollars, is pretty flat.
It's about the same.
Certainly, if you look year over year ---+ so, March last year ---+ you will see a decrease, and that's primarily driven by the energy market, as well as industrial.
And that's the oil and gas business that we supply through the industrial market.
Good morning, <UNK>.
<UNK>, I'll answer the first part, and then maybe come back on the second part.
For us, we haven't given any specific guidance for longer-term inventory.
We have said that we will come down to be flat for the end of this fiscal year.
As we tried to talk about ---+ as we continue to implement the Carpenter operating model, our goal is to improve the efficiency of our mills here, and that is leaning out our inventory.
As we talked about in our last quarter call, we expect our work-in-process levels to come down year over year, although inventory levels will stay flat year over year.
It's because we will see an increase in our raw materials, and we'll see a slight increase in our finished goods.
But what we are doing with our operating model is improving that flow through the factory and through the mills here, where we are taking waste out of the system, reducing the surplus inventory sitting at different steps.
So as we continue to execute that model, we continue to believe that the inventory levels will come down.
We don't have a specific number as to what that will be.
But our expectations are that, as that continues to decline and as volumes in our end markets continue to increase, we should be able to improve the turns of our finished goods, which should allow inventory to continue to reduce over the next period ---+ year or two.
And, <UNK>, this is <UNK>, if I could just add ---+ certainly, our goal is to take inventory down.
We think we have a means to do that.
Over the next year ---+ over the next two years.
From a development ---+ you asked a question around developmental inventory ---+ we do have developmental inventory on hand, primarily at Athens.
But it's not a significant amount of our total inventory.
And we hold that relatively flat quarter [over quarter].
I think last quarter I said 20%, and it is very close to that number as we speak now.
Well, I will tell you that we have a lot of discovery ahead of us, which means we have a tremendous amount of opportunity.
Some of the ---+ over the last three quarters, the results you have seen has been a direct impact from the work that we are doing, and the items that we're solving to root cause.
So I am very confident and very pleased with the work that we have done over the last two or three quarters.
And quite frankly, without this, the results would not be what they are today.
But we are ---+ as I said in my remarks, we're just getting started, and the potential, quite frankly, is significant moving forward.
Right.
I'll answer it this way, and that is: In our journey to get to a shop floor that is efficient and operating under the principles of the Carpenter operating system, if you ---+ we're in the first inning.
So there is a lot of opportunity that's out there.
No specific comments, obviously, but as we have articulated being a solutions provider and connecting with the customers, there are opportunities that could present itself.
In many ways, we can do that organically with the titanium powder project.
But going forward, possibly there are some opportunities.
Quite frankly, our focus right now is dealing with the operational challenges that we have and the opportunities in front of us, and working our commercial and marketing team to branch out into new applications where Carpenter products can solve critical problems for our customers in areas that we have not participated in, in the past.
I look at it a little bit differently, <UNK>, as I speak with all of our customers, and our customers' customers in some cases.
They understand the value and the unique position that Carpenter has in the market.
And what we want to do is, we think we can build going forward by understanding their needs and then filling out our portfolio to best support that.
And that will take us wherever it takes us.
Yes.
Yes, $8 million to $10 million a quarter.
Just to clarify, <UNK>, that includes basically depreciation, the fixed costs and the variable costs that we have.
We have a full workforce in Athens right now that we have trained, and we are running at 20% utilization.
The point to make there is, as the volume starts coming in, it is basically going to drop right to the bottom line, ex the raw materials.
There are no other costs that need to be added as we increase the volume of that facility that aren't already in our numbers today.
So thanks for bringing that up.
75% is fixed of that number, and 25% then is the variable piece.
When I say variable, it is certainly not variable now because we're not running much volume through there.
But once you have a plant up and running, those are the operators on the shop floor.
So, 75% fixed of that $8 million to $10 million, 25% variable.
Yes.
It's very different.
And what Carpenter had done in the past is very product specific.
So we sold a product.
And what we're doing now going forward is we're going to sell a solution.
And what that does is that opens up a lot more applications for us as we talk to customers now.
We have a much more robust and rich conversation of what their challenges are, and how the Carpenter products and alloys can help solve that.
So it opens us up significantly outside our traditional applications and markets.
It's a different discussion now that we have with the customer.
You're welcome.
| 2016_CRS |
2016 | MSTR | MSTR
#Yes, on that last one <UNK> for the most part they will recognize ratably over the term of the contract which could be somewhere three years, four years, five years it depends on the deal in the contract.
Yeah, I think ---+ although we are hiring we've got our eyes on the bottom line pretty closely and we've managed to keep the overall operating expenses under control.
So even when we're hiring we're not thinking that we're going to go ahead and drive costs without some visibility and clarity with regard to where the revenues going to come from.
Our view in general is you ought to be a little operator enterprise software company with consistent operating margins.
And so I would say that we wouldn't want them to be moving lower and we're not expecting that we're going to continue to hire and drive cost north unless we actually see revenues coming along for the ride.
The other piece around operating margins and operating expenses in general is, again taking out that effective R&D capitalization.
For the most part our costs were ---+ our operating expenses were exactly the same year-over-year.
Our cost of revenues were a little bit higher year-over-year and piece of that is when you're able some of these deals that we talked about these OEM deals that get recognized ratably over time.
We're still paying the commissions upfront.
So there tends to be a little bit higher cost and a little bit of disconnect between the costs and the revenues.
But we've been pretty disciplined about our costs and trying to keep them stable.
And I think we'll continue to do so.
Again as I mentioned in the prepared remarks, we saw an increase in headcount overall in the organization while keeping our operating expenses relatively flat.
And again that I think is a sign of good financial discipline.
So we had 17% operating margin in Q1 on a GAAP basis, 17% in Q2, Q3 and Q4 tend to be higher revenue quarters for us while Q4 especially.
So we would like to see margin expansion overtime beyond where we were in the first half.
I think we're on the version 9 platform for something in the order of like seven or eight years.
It was a reasonably long period and so it had a chance to stabilize.
With version 10 I think it's not uncommon when there is a dramatic new release of an enterprise software platform that it takes anywhere from 12 to 24 months before the product stabilize and season.
So I think that we're moving into the zone right now 12 months after we released it where we could expect it to start to stabilize.
We have factored that into our thinking.
I certainly think that in the 2017 time frame we've got a great product to take out to the market and I would expect that we're going to find new applications, new customers and new sources of revenue from the product at that time.
Right now we're thinking really hard about various ways that we can expand our addressable market and grow the business and some of our initiatives include our worldwide symposiums where we've got about 100 of them scheduled over the next 12 months and we're enthusiastic about those.
The second is a jump start program in our education where we're actually going out and offering an intro to MicroStrategy in about 29 different metro markets around the world every month and that's a new program that we think will pay dividends for us.
And we're reevaluating our desktop product and the way the way that we've been distributing it.
We're considering some new innovative marketing programs to use the desktop product to seed both new accounts and existing accounts and other institutional areas like education and alike in order to create lift and a viral effect.
We'll probably have more to say about that in time.
If you look at the enterprise analytics business in general over the past 10 years the barriers to entry continue to go up and the demands of enterprise customers are becoming greater.
If you are going to compete in the market, you need to be able to support relational data structures OLAP data structures, big data structures.
You need to have deployability and security and scalability and of late you need to support more interfaces.
10 years ago, you could have a product that ran on the web.
Today you need a product that runs on a PC, a Mac, three different web browser, IOS and Android and you also need a brand new set of APIs, addressable APIs.
And so what you had five, six, seven, eight years ago is probably obsolete.
Now, if you look at the most successful embedded analytics tool I can remember was Crystal Reports.
The guy who was at Crystal Reports who make that entire program successful is Tim Lang, he is our CTO, and he'll tell you that Crystal Reports lost their verb and their mojo many, many, many, many ago.
So you've got lots and lots of organizations that embedded some kind of reporting a long time ago and they reaching end of life and as they reach the end of life in these various embedded repot solutions they start to look around and ask the question what's going to take me in to the next decade and I think MicroStrategy is really well positioned there because we basically support all the various document types.
We check the box on banded reported and OLAP and analytics and transactions and alike but we've also supported all the interfaces.
Five years ago you could have been an OEM and said we're going to providing reporting but only for the web and now your customers want the reporting on their Android tabs and want in their iPads and if you don't actually have that then you start to look not competitive.
So the migration to mobile the expansion requirements combine with the degradation of the traditional enterprise reporting vendors 16 of them much have gone off to die and the balance of Oracle right and dozens of them ---+ in 98 there were 100 companies I competed against.
Today 99 of them are gone.
So they are embedded in other companies in the IBMs and the SAPs of the world et cetera and they don't quite have the same attention, they don't have a passionate CEO and a passionate senior management team that's going to bleed and invest and tinker to make them competitive.
Someone who is sitting around saying how do we make sure that our reporting works against 50 petabytes on Spark because that's what you want to do to be competitive today.
So I would say in general in the OEM business we've got big OEM customers coming to us and they've got increasing requirements on the front end and increasing functionality requirements and they've also got increasingly complicated data environments and their existing partner whoever they built their last generation of stuff on is dead or buried or dormant or just not living up to their requirements and they are staring at a very difficult situation or difficult problem which is are they going to rebuild or build their own analytics tools from scratch.
Are they going to stick with maybe a geriatric tool, are they going to look for a new tool and when they look for a new tool we normally perform well because we've got a great embedded analytic solution and we can check all of their boxes and the management team is live and ticking and the CTO is alive and kicking and we've got aggressive enthusiastic plans to solve their cloud problem, their big data problem, their mobile problem, their productivity challenges.
So I think that's really what fuels our strength in the OEM business.
In the last three years we've been progressively more and more engaged at the detail level with every one of our customers and partners, listening very hard to what it is they want from us.
And after the hundreds and hundreds of conversations that we've had I think it's strengthened our profits and resolve to be to be driving a single unified platform.
I think our unique differentiating advantage of MicroStrategy is we're the one company that can deliver to the enterprise a platform that combines both analytics and mobility.
And mobility is where all the hot new interesting exciting things are going on but analytics is the core source of all intelligence and competitiveness for many, many of these companies.
So we're taking this single enterprise platform for analytics and mobility into the marketplace.
I think that we see more demand for than ever.
In our technology strategy, we're really focused upon the desktop and a unified toolset.
And as our desktop product gets better I believe it will expand the footprint and the addressable market for us and allows us to go from the large long scale enterprise analytics deployments to get to them to the middle of the market to the departments to the quicker and more agile deployments.
And I think that will increase the number of installations and probably increase the deal volume.
And it may in fact cause the average size of the deal to decrease but it should expand the overall addressable market.
So I'm enthusiastic about the opportunities that that we've got ahead of us, as we continue down the path of generating successful more powerful desktop tools.
Well, I think we have many types of customers and so if they are a new customer then they really have their option to deploy via the desktop first or to deploy via the web or deploy via mobile or to deploy via custom application using one of our APIs.
And I really think that that the decision of which of those to use is more function of the customer than it is whether they're not new or older the like.
What we're really doing is increasing the options that they have at their disposal.
I rarely see anybody in the marketplace that would say we really only want your platform for one of these things.
It's very difficult to find a big customer, a big enterprise that doesn't have a suite of custom applications that they're going to code using Java and deploy via android iOS or the web.
It's very rare they want also option and enterprise web reporting apps.
They just want to deploy over the web.
And it's ---+ and those same customers have mobile applications that they want to deploy and of course they have armies of desktop analyst that would like to get their hands on an agile data discovery titles.
So you'll find all of those use cases.
And look our best customer is one that is deploying dozens of applications on our architecture and we pride ourselves on giving them the choice.
They can use any of those things and they can share common data model and the common object model and that's what makes us special.
We made some great strides with Usher in version 10.4.
On the back end we incorporated this Costco real-time eventing tool which means that we can now deliver real-time telemetry from the Usher digital wallet directly into our analytics logs and we can join it with enterprise data and that's an exciting feature.
And on the front end, we upgraded the digital wallet so that we now have a fast batch capability and we can do things like automatically log into website just by having the mobile phone with the badge on it in our possession, you don't actually have to click or type or do anything.
So people like the idea of having fast badge on the front end, they definitely like the idea of analytics that are real-time and can be integrated.
We are still in a development phase with the Usher product but what we see is, is an increase in the number of pilots we're running and an increase in the enthusiasm of our customers.
Especially, with regard to using the security wallet as a way to integrate their networks and mobile applications so that a salesperson can identify or can communicate with a customer quickly and also using that digital badge as a source of telemetry to actually enrich their analytics.
So I think, as we go forward we will see more and more opportunities for us to deploy and I look forward to be able to discuss some big reference accounts sometime in the coming year.
I want to thank all of you for your time today.
We appreciate your support.
We look forward to speaking with you in 12 weeks and for that have a good rest of the summer.
| 2016_MSTR |
2016 | IIVI | IIVI
#Well, <UNK> talked about a couple of different things.
Let's just start with the ---+ from the communications market in an aggregate, particularly the use of silicon carbide substrates in the RF, that's part of what drove the bookings in particular.
We also have continued to have some pretty decent strength in the military end market.
Though as people have seen in general, and also with us, it tends to be a little bit longer to revenue.
Those are probably the particular main drivers.
Sorry, <UNK>.
Anyway, yes, please go ahead, <UNK>.
Well, I think actually the main thing that is really driving it is positive volume variance across quite a few of the operations.
Communications for sure, absolutely, because it's so much of volume; but even on the silicon carbide side, in the materials processing components.
Some of those guys not only have continued to improve the operating efficiencies in their factory ---+ at, let's just call them comfortable, not at capacity levels, which is a very good thing to do, and very hard.
But on the optical side, particularly in photonics, where they are really starting to push the limits of the capacity, and have been for a while, they start to get very, very nice operating efficiencies off that.
We added about 30% capacity for pumps and amps through last year, and still continue to see those sort of efficiency gains.
So that is really fundamentally the main driver.
There's no question that mix is probably helping a lot.
For example, <UNK> talked about the undersea buildout.
That has a particularly good effect on the mix, but it's not a lot of revenue.
So the main thing really comes down to just the efficiency of how our people around the world are running the operations they are in.
<UNK> <UNK>, I'd like to add, <UNK>, with regard to performance products, we did see a real strong pickup in our semiconductor bookings in the last ---+ during the quarter.
So, that also contributed.
And, in fact, it is interesting that we also saw our first EUV-related order in some time.
So, it's, I think, a very positive indicator.
Okay.
So <UNK>, we make materials for wafer stages, for wafer chucks in the front end, for a whole host of those components.
And recently we have been expanding into the back end of the line, and so we have a suite of new products.
And I would say both front-end and back-end, we are seeing a lot of interest as we expand into the marketplace.
It does feel like things are warming up.
In the back end, <UNK>, our segmentation or our carbide is around wafer chucks, heater blocks, and for both inspection tools and for wafer probing and wafer bonding tools.
Okay.
Well.
Okay.
Thank you, Chelsea.
To conclude our call today, I would like to say that our Q1 FY17 results were enabled by the unyielding enthusiasm, sense of urgency, and teamwork of our 9,500 employees determined to contribute to the success of II-VI and our customers.
Their dedication, commitment, innovations, and hard work makes it possible for us to meet customer expectations.
They continue to pave the way for our future growth with the development and introduction of new products, and by initiating new programs to improve our overall quality and operating efficiency.
As of today, nearly 4 weeks into the quarter, it feels like we're on track to deliver another good quarter ending in December.
Thank you for your interest in II-VI and for your questions today.
Chelsea, this concludes today's call.
| 2016_IIVI |
2015 | GILD | GILD
#Hi <UNK>.
Yes so Japan is an exciting opportunity for us, and as you may know, it's the first product we have launched in Japan.
So on the back of this, we are actually establishing or have established our Japanese entity and we hope that that entity will be a platform in the future for us to launch a whole series of future products, not just in the hepatitis C space.
So it's exciting.
We have launched for Sovaldi for GT 2.
We launched that late in May, the 25th of May, we got pricing agreement and launched.
And it's gotten off to a good start, although it is extremely early days.
There are around 200,000 GT2 patients in Japan who were diagnosed, and as I already mentioned, have really no interferon-free option other than Sovaldi.
So we are very happy to be able to help meet that unmet medical need.
We are working to agree pricing on Harvoni.
We should have that agreed fairly soon, and we are confident that that will be a happy outcome for everyone and we shouldn't have any delays in launch.
There are no statutory discounts on pricing in the first years.
There is a statutory system, and it's typically 2% to 5% discounts every two years or so that we have seen historically.
We would envision that that would happen.
There is also a mechanism whereby you have to forecast your revenues going forward, and there is a system of capping prices based on whether you go through that ceiling that you have self-agreed.
So there are mechanisms, but there is no discounts, per se, on a day-to-day basis and we wouldn't expect any discounts on Sovaldi or Harvoni at least for the first two years.
Well, I think we have to just stand back and look at our product and recognize that there is incredible amount of value and incredible amount of innovation, first of all in Sovaldi, then Harvoni, and then in what we're calling our wave 3 and wave 4 products.
I think it's that innovation that is our negotiation strength really, and I think all payers would like fundamentally to make highly innovative medicines that work incredibly well available to their patients.
And so we have to negotiate and come up with terms that work for both sides.
But we are very optimistic and we work very hard to keep good contacts with the payers across the US to make sure that they're fully aware of what's coming next and making sure that we're all on the same page.
So I think we're quietly confident that we can continue to have strong and good relationships and high levels of access to all of our medicines and especially our next HCV innovation.
That's a good question.
We haven't really given long-term guidance.
I think overall, relative to our launches, we will continue to expand geographically, which will drive some of the costs, and as <UNK> articulated, we are focused a lot on bringing additional patients to care and looking at linking to the care.
I don't see that being major incremental steps up in terms of SG&A.
So there is no significant trend difference in what I'd say, but I am hard pressed to give you too far a look forward without providing additional guidance.
Relative to R&D, I think we have always taken approach that we'll advance things in the clinic as it makes sense, right.
We feel good with the level of spend we have today, but we are very optimistic about our pipeline.
So you could see absolute dollars go up.
Where that falls relative to percentage of revenue is something that will be to be determined as we provide guidance in 2016 and beyond.
Sure.
Thank you, Candace.
Thank you for joining us today.
We appreciate your continued interest in Gilead, and the team here looks forward to providing you with updates on future progress.
| 2015_GILD |
2016 | BBT | BBT
#Yes.
I think we will end up this year with improvement.
It may be in the [57-ish] kind of range.
Pretty confident about that.
We still think over the next two or three years, we will get to the mid-[50s].
And I know some people talk about the low [50s].
That's not going to happen unless you get a substantial ramp-up in the yield curve.
Remember this is a numerator/denominator problem.
We are assuming the economy will grow at 2%, 2.5%.
And there will be a slow ramp-up in the yield curve, but not dramatic.
Therefore, it makes it harder to grind out efficiency improvements.
Still though, with the opportunities we have to generate additional revenues out of our investments we've made and the ability to generate additional efficiencies from the investments we've made, we think will be able to hit those targets.
Our strategies, in terms of capital deployment, remain the same.
But we've always said they adjust from time to time.
The ones that don't change is you always use capital benefits to get the maximum organic growth you can get.
Number two has been and will remain dividends.
The swing is between buybacks and M&A.
So what I was leading to earlier is there is a flip there, going forward, for a while, in terms of buybacks being more important than M&A as we focus on realizing these opportunities.
With regard to dividends, we can sort of hope.
Our CCAR application is in and, as you know, we never can say for sure what's going to happen.
But we would certainly expect to have a dividend in increase.
Because even though our dividend payout's somewhat high, it's not high by traditional standards.
And it's not high relative to the stable revenue streams that we have.
So we are very comfortable with the dividend increase this year.
<UNK>, are you talking about primarily the energy area.
We made our decision, <UNK>, some time ago, to be a long-term player in the energy market.
We are not going to change that long-term strategy.
Energy is an important business for the country, for the world, and for us.
We enter into relationships on a very conservative selection basis and a conservative underwriting basis.
Obviously, everybody is really energized about ---+ no pun intended ---+ about concerns about energy now.
And we're taking it very seriously.
And we're marking our boot really aggressively and all that.
But, look, I think there's a much higher chance that oil will be at $50 by the end of this year than $30.
And I think, over the long term, the energy business will still be a really good business.
And so we will stick with it, and we will stick with our really good clients and will continue to be supportive to the industry.
That would be for the entire CCAR period, which would extend into 2017.
If you look at National Penn and Swett & Crawford, those two add in approximately $100 million to $110 million in expenses into the second quarter off of their base.
If you add in maybe an additional $30 million more in expense saves, then that leaves about $60 million left, approximately.
I would say second quarter, usually, we have higher revenue so you pay out higher commissions.
That's a percentage there.
And then probably the next biggest increase that we have across the board is probably just in technology and IT.
We continue to invest in those areas, and those areas continue to increase some.
I feel that we are very focused on our expenses.
I think we have a chance of maybe exceeding what we are saying, beating it.
But right now, we are just putting out conservative numbers from an expense base.
As <UNK> said, we will focus on improving efficiency throughout the year.
With all these acquisitions closing first of this quarter, it's going to be really messy trying to put it all together.
Yes, correct.
No, <UNK>.
I think this is more temporary.
I think that we've had a range of 41%, 42%.
45% has been kind of high, frankly.
We think in terms of 42%, 43% is kind of normal.
We don't want to get too far out of balance one way or the other.
It depends on, again, the interest rate environment.
If your interest rates go down, then your net interest stream income goes up as a percentage.
But on a normalized basis, I'm fairly comfortable with our net interest income anywhere in the 40%, 42%, 43% level.
Originally, you had the net interest income being down, which would drive the ratio up.
On the other hand, insurance is not at the level that it would be relatively because it affects the business, and so that would affect it.
The temporary impact has been the removal of American Coastal last year, which, of course, will come right back now when we add Swett & Crawford.
So it's not any change, <UNK>, from a long-term point of view at all.
It will be right back where we want it to be: 42%, 43%.
And then probably, hopefully, hang in that level because, hopefully, the net interest income comes back up.
Yes, <UNK>.
That's exactly right.
I'm not trying to say that we wouldn't dare do any tiny little bitty something.
But as a practical matter, we're just not focusing on M&A now in the insurance or bank, which are our two primary areas.
Truth is, we've got a lot going on in both of them.
We've just set out so much opportunity.
And there is a time to buy, and there's a time to run.
The last 24 months were the time to buy because the times were right.
There was a window for us, and there were some really good opportunities.
And we are really happy about what we did.
And now is the time to take some time and to adjust what we've done and run it really, really well and get the benefits for the benefit of our shareholder.
This is a shareholder-driven strategy, building our profitability up and reaping some of the benefits of the recent investments we've made.
That applies to insurance and banking and basically everything else.
Well, all of us have to wait to see what Fed approves.
As a practical matter, if I were you modeling, I would be modeling for higher buybacks.
It's lower.
The resi runoff is planing out, if you will.
Then you get the seasonal activity buildup in the second.
It's going to be ---+ from an organic basis, I would say we have a little bit more loan growth from second to third, how we sit now.
Visibility out a couple of quarters is not perfect.
But if we're 1% to 3%, you might add another percent or two to that for second to third.
But we'll see how the economy plays out.
No, no, our request has the same flexibility in it that we've always had.
But the guidance I'm giving you with regard to our focus on profitability management versus M&A is very hard.
<UNK>, this is <UNK>.
What I would say from a CCAR perspective, obviously nothing is approved yet.
But the last several years we've focused and we've traditionally been one of the higher ones on the payout ratio on dividend.
We hope that would continue with CCAR 2016.
As far as the total payout ratio goes, I would say we like where our capital ratios are today.
As <UNK> said, we're going to probably use 25%-plus up in capital for organic growth.
So the remaining percentage would probably be in buybacks.
<UNK>, it's really a matter of looking at the number of deals.
Ideally, to be honest, we wouldn't have done as many deals in as short a period of time as we did.
It's just they were available.
And I wish you could, but you can't ideally lay out your M&A plans on a linear basis and reject them whenever you want to have them.
They come when they come, and you take advantage of them when they are there.
We took a bit more in the last year and a half at one time than I personally would like to have.
And you combine that with all the other activities we have going on, there's huge investments in the back room in terms of systems and processes and so forth.
It's my very strong intuitive judgment, and our collective team's judgment, that it's time to focus on taking advantage of what we have.
Sometimes people think about M&A and all this as kind of a linear upward sloping line.
It's not.
It's more like a stair step.
You ramp up in terms of acquisitions; and then you take a period of time and you rationalize them; and then you ramp up again.
We are in the flatter part of the stair step where we are going to be focusing on rationalizing what we've already invested in.
We think that's shareholder friendly because if you continually roll up all the time, you're never getting any real payback until you stop growing or doing M&A for little while.
And that's not fair to the shareholders.
This is more about taking advantage of what we did in the last year and a half.
And when we get that done, we will be interested in M&A again.
But for right now, we are focused on getting the advantages of what we've already done.
You know, what I would say is right now we would be forecasting margins to probably be in the low [340s], probably throughout 2016.
Our rate hike that we have in November helps us, but it's not a huge impact in the fourth quarter.
We are pretty much not assuming on any real rate rise off that.
We feel very good about our mix.
The mix is going in our favor ---+ loan mix, funding mix and our spreads are coming in nicely.
And our core margin has stabilized.
So I feel GAAP margin in the [340s], low [340s], is about right.
Good question, <UNK>.
The rate hike is in November.
It really didn't have a huge impact on net interest income.
You look at the yield curve, we would keep our yield curve relatively constant where it is today.
We don't really think it's going to steepen up much in our forecast that we have.
If you look at our balance sheet, our balance sheet is pretty balanced.
About half of our assets are floating and half are fixed.
When the curve actually came down some in the early part of 2016, the fixed portion got hurt a little bit from a net interest income perspective because those get priced off the yield curve.
But we did a great job with our funding costs, keeping that very stable.
All that is very sticky.
We're having huge growth in funding and wider margins in our deposit franchise right now.
On a year-over-year basis, <UNK>, I think I feel fairly comfortable that we will have 12%-plus growth in NII on a year-over-year basis from 2016 to 2015.
Could you translate that for me a little bit, <UNK>.
(Laughter).
Purchase accounting, what I could tell you is that the Susquehanna purchase accounting is starting to come up a little bit.
But we have National Penn that will have the first time for go on for this quarter.
So purchase accounting is going to be pretty robust for most of this year.
It will trend down over time.
But 2016, I feel very comfortable that GAAP margin will be in the low [340s], second, third, fourth quarters.
And core margin, we feel, is stabilized, starting to improve some.
That could actually get into the low [320s].
| 2016_BBT |
2016 | KSS | KSS
#We don't really have the NPD data for the second quarter yet but I'm assuming that it will tell us that Amazon continues to gain market share as do off-price.
We did a lot better in the second quarter than we did in the first, so I think that will probably help us out as well.
From a traffic, Kevin talked about, we are doing a good job with the credit card customer.
They continue to shop us and shop is more than they did last year.
We have to continue to make inroads with a non-credit card customer.
That's part of the thing we talked about.
I think <UNK> asked the question earlier on loyalty trying to engage them more, trying to round them up to a higher level of reward to get them to come in more frequently and raise the response rate, to hammer home the differentiation of us providing Kohl's Cash and the Yes2You rewards versus our competition.
All that takes time.
It's not going to turn on a dime.
So we just have to continue to do that.
If you start to notice our broadcasts I think you'll see a more consistent theme on highlighting those vehicles versus just saying what the current event is.
I think over time that is going to resonate with the customer and get them to come into us more often.
I think Wes definitely covered the key points.
And if you think about what we've covered in the call, <UNK>, we're definitely trying to bring out the message that we know that we've got to improve our speed strategy in private brands.
And we've been working on that and we're now starting to get confidence that we can scale that across the store.
So that's a big one.
And I think Michelle is now more confident than ever that wrapping loyalty platforms together allows us to move customers up through Yes2You and credit card combos that would lead to higher engagement and higher sales.
The other part that I think it's probably important for you to understand is that we do think that we have a big opportunity to amplify both the rollout but more importantly the relevancy of our store base.
So we made some store closures.
As Wes said we monitor stores all the time but there are no stores that we would anticipate closing next year right now.
And the indicators through things like our ability to ship from store more effectively and less expensively and Buy Online, Pick Up In Store adoption rates I think give us a sense that that's also a key element for us to see the value in having a broad network of brick-and-mortar stores.
I think it's a big advantage.
No, I could still think it's going to be about 30 basis points in total for the year.
Shipping cost is about 20 and then mix is about 10.
The bulbous portion of that is obviously the biggest advantage in terms of profitability.
That's moving up nicely but not to the point where it can help us out significantly yet.
I think the fourth quarter will be a big indicator of how good that can be.
You alluded to split shipments.
That's something we're working on very diligently.
The ship from store option for us makes us competitive with Amazon Prime in terms of we can get the shipment to the person's house in less than two days about 90%-some of the time.
So speed is a big initiative from that perspective but if we had to ship it in two packages that's a problem.
So we're continuing to fine-tune our algorithms to allow more packages to go together and not split shipments.
And I suspect we'll have more improvement as we move into the back half on that.
I mean, is it fair to say, Wes, that the opportunity on the online margin is more about improving the net merchandise margin the next few years.
Yes, the shipping costs given where we think online is going to go is going to probably be around 30 basis points.
But if we can increase the apparel penetration through the combination of having both better product and smartly extending assortments and things like special sizes and big and tall, even footwear with some of the wide shoe options, that will allow us to do a lot better from a merchandise margin perspective.
We made a lot of progress online from a clearance perspective and cleaning that up and I think there's also opportunity with reducing SKUs which will help as well.
No, nothing to share with you right now.
But as we said that continues to be a key focus for Michelle, both adding new brands to our portfolio but also strengthening the ones in key areas.
Active and wellness is a great example with Nike.
And then secondly, the speed initiative in private brands has an equally and important role as she sees the mix of national and private brands evolving.
Wes might be able to answer the first part.
I can definitely reiterate ---+
Because there are malls very similar to when Penneys was pursuing their different strategy we didn't see a big pickup.
We haven't seen a big pickup from the Macy's closures.
I would think the mall-based retailers would see more of that.
Then from a store closure perspective it's hard to predict the future.
If we can start to drive top-line sales more consistently that should make these stores better.
I don't see ---+ we mentioned earlier, I don't see any stores that we're going to close next year.
When we get a better idea of what the retained sales are going to be from the 18 that we just closed in June that will tell us what our projections are going forward and make us feel better about either be more aggressive on closing stores or more conservative once we get that information.
And just generally go, <UNK>, again, I think we all feel that the role of brick-and-mortar stores in our future we actually are more convicted about it than less convicted about it.
Now there can be individual stores as we go through the next few years that Wes might determine financially don't make sense to have.
But if you think about all the things we're talking about whether it's the rollout of these 35,000 square foot stores as a potential to replace larger stores over time or it's all of the easy experience initiatives that we're implementing or it's the adoption of Buy Online, Pick Up In Store and our utilization of ship from store to make customer convenience on online orders easier and as Wes just said faster, they all to a great extent point us toward saying that having a really strong base and portfolio of stores is an important element of why we're actually going to be successful in the future.
Fewer stores generally are not going to be a ticket to success in our mind.
That doesn't mean if stores don't pass a financial hurdle that we won't close them or downsize them.
We will have smaller stores in the future.
As leases come up I think it will be smarter for us to relocate into a smaller store in the next five years.
But I think Kevin is right, distribution points as digital becomes a bigger part of everybody's business is important.
Obviously we don't scale things like that in terms of volume externally.
Internally we have a plan.
I think the way Michelle spoke about it when she announced the launch of it is it will be the biggest launch that we've done.
And it's going to be funded accordingly.
And more importantly, from my standpoint, Michelle is looking at the overall active area because as you just heard in the script, we have brands in that area that are performing at extremely high levels.
So we're not looking for Under Armour to diminish the rate of growth on other brands.
We are looking to expand our opportunity in active and wellness and also expand for Under Armour points of distribution to reach customers that they have not been as successful reaching.
So we feel great about that.
You give u ---+ traffic is going to be down, give us credit for being smarter than we really are.
I'm just thinking we're going to be down somewhere between down 2 which was the run rate we had just recently and flat.
We think there are a lot of things moving in our direction to get to flat.
If we get to flat it's going to be because traffic is less negative.
I don't think traffic has to be positive for us to be flat because between a combination of either more units or slightly higher AUR or hopefully both we are going to have a higher transaction value.
I think there definitely is opportunity in the national brand portfolio to improve speed and it's definitely a focus for many of our key suppliers.
We are probably talking more about it with you on the private brand side because we completely control that.
And we know the elements of the cycle from design all the way through to delivery that we can take time out of on and we've piloted and experimented and seen the results.
I think, frankly, Michelle would tell you that she believes the metric that will improve if we effectively scale up speed beyond where it's been, has been piloted so far will be sales.
Yes, there's a corresponding positive that comes with more effective inventory and, therefore, if sales improve, as you know margins on private brands are quite bit higher and so there's a possible margin implication that would be to the positive, as well.
But I think the number she is looking to change the trendline on is implement speed in order to have more relevant product which will sell better, turn a little faster and indirectly I think raise our merchandise margin because we'll just be doing better in private brands.
It is Kevin.
There's definitely editing opportunities in our private brand.
And when I say private brand I'm including our exclusive brand portfolio, so the entire portfolio that represents almost 50% of our business.
And I think the factors that will impact that will be how quickly we can scale up the speed initiative.
It will probably tell us pretty quickly which of the brands benefit the most from that and therefore will point us in the right direction in terms of downsizing and then eliminating others.
We definitely know that that's an opportunity for us.
We broadened the base of private and exclusive brands that we have to offer over the last five years quite substantially and I think Michelle feels like there's a chance to tighten it up.
Our big private brands, though, the billion dollar-plus brands of SONOMA and Croft & Barrow and Apt.
9, they are not going away and those of the ones that probably will benefit the most.
There's always good things and bad things in private and exclusive brand results.
But generally the really good things have been the brands like SO that have had the speed initiative applied and the things that have struggled more ---+ and also things like SONOMA where we've relaunched it, and the things that have struggled more are those brands where we haven't had any adoption of the speed initiative.
So that's how we're thinking about it.
You're pretty new, <UNK>, so I'm going to help you with this.
So the reason we ---+ well, first of all, we didn't take the guidance down from where the consensus was.
You guys took it down for us so we thank you for that.
But the reason it is at $3.80 to $4 is that if things don't improve from today the quarter that we just reported we'll make $3.80.
Our internal expectation from a sales perspective are to improve.
If we can hit those we will make $4.
From a leverage perspective we've lowered our internal go from a 2% to 1.5%.
We did much better than that this spring.
If you do the math on the numbers I gave you we should leverage that a little bit about the flat comp for the year.
I can't sign up for that forever, but we do have a lot of initiatives going forward where I hope to do better than the 1.5%.
But that's what we're committing to at this point.
Well, this was the last batch of rollouts.
The new beauty environment in the stores we just rolled out in the spring averaged about a 34% comp in beauty, which was similar to the first two stages.
So it is now complete and it should continue to comp in those 267 stores in the 30% range through the balance of the year and slightly into next.
So that's been a big success and we are very happy with it.
Michelle is working on trying to get additional brands to strengthen that environment now that the physical environment is rolled out.
A lot of questions, <UNK>.
On how we think about we're navigating the weather changes that happen in regions and parts of the country over time.
I think generally there's two answers to that, <UNK>.
One is, and I think Wes may have mentioned it, if not I will make sure you know, as we look into the fall and holiday we definitely are planning ---+ we've planned down seasonal categories substantially more than the overall business.
So we feel like we want to make sure that we're in front of that and not chasing it.
And we'd much rather be in a position where we run low or do have to chase product in highly seasonal categories.
So the plan has that aspect to it.
The longer-term answer is definitely the speed initiative because many of our national brand businesses are less weather sensitive and most of our private and exclusive brand product is actually relatively highly weather sensitive.
So I think longer term we feel like speed initiative is the solution.
We've position private and exclusive brands I think, Wes, on an inventory basis really well going into fall and holiday.
We are down ---+
We are down like mid-teens.
In total inventory.
So I feel like we're in a really good place on that.
In terms of consumer behavior I think there isn't any new news there.
We had modest improvement in our business and in traffic but it's still negative.
So until such time as we can implement these merchandising and marketing changes we don't want a plan for traffic to turn positive.
So as we said earlier in the call, we are planning traffic to be lower than sales in the near term.
In terms of competition, I think Wes also addressed that a little bit earlier.
We continue to see and we expect that both Amazon and generally off-price space is gaining share and so to the extent we can we are really focused on making changes to our business model that would allow us to compete more effectively.
And one of the things that we're probably doing and have a stronger point of view about is the importance of our stores to do that.
We're in a good position in that we have stores who pass our hurdles and are financially performing.
But traffic is down so if we don't get that turned around at some point we will have to be looking at those stores more effectively.
But we're piloting these much smaller stores as perhaps replacements, so we continue to have points of distribution but they are less square footage, and then we are trying to utilize them as points of distribution through BOPUS and ship from store strategies.
So I think Wes and I and Michelle, Sona and Rick Schepp we all feel like stores are really important part of our future and we just have to make them work harder for us with customers.
And having more presence in markets had an impact on brand awareness and share awareness.
Beyond just distributing product and access points it just makes you a more important competitor in any particular market across the country.
Thank you.
Thank you.
Thanks everybody.
| 2016_KSS |
2017 | NWN | NWN
#Thanks, <UNK>, and good morning, everyone, and welcome to our third quarter earnings call.
The company continues to operate very well in my opinion.
So far this year, net income has increased about $4 million compared to last year.
The utility reported solid results with another quarter of strong customer growth.
We also continued to see positive momentum in the local job market in the housing sector.
For example, over the 12 months ended September, Oregon's total employment grew 3.9%.
That is the second fastest rate amongst all 50 states.
Over the last 12 months, Oregon's average monthly unemployment rate was about 4% or a decline of 1% from the prior year.
During that same period, home sales were down about 2% in the Portland area and average home prices increased by nearly 10%.
In our Washington service territory, average home prices over the past 12 months increased about 11% and home sales were up just over 1%.
Meanwhile, permits increased about 6% during that time in the Portland Vancouver area signaling construction remains strong on the heels of a very healthy 2016.
All these positive indicators translated in nearly 12,700 new customers connecting to our system over the last year for a growth rate of around 1.8%.
During the quarter, we also filed for our third consecutive rate reduction through our annual purchase gas adjustment.
As a result, for the upcoming heating season, Oregon residential customers will see a 6% drop in the rates and Washington customers will see a 3% reduction.
Over the last 3 years, Oregon customers have seen a cumulative rate decrease of 15% on top of annual bill credits.
Washington customers have experienced an 18% decrease.
As a result, customers are paying less for their natural gas now than they did 15 years ago, an amazing statistic in my opinion.
These lower prices continue to boost our competitive position.
In fact for the typical home we serve, natural gas enjoys up to a 70% price advantage over an electric or oil furnace.
It's gratifying to be able to pass this incredible value on to our customers while also providing them safe, reliable and of course exceptional service.
Adding to the good news, I'm proud to announce that for the 5th year in a row, our customers ranked Northwest Natural first in the West in the 2017 J.
D.
Power Gas Utility Residential Customer Satisfaction Study.
The company also posted the second highest score of all gas utilities in the nation marking the 10th time in 11 years we've scored #1 or #2 in the country.
I believe these consistently strong scores are a testament to Northwest Natural's culture of continuous improvement and dedication to superior customer service.
Finally, this morning, I'm pleased to report that in the fourth quarter the board approved a dividend increase making this 62nd consecutive year of annual dividend increases.
Northwest Natural's 1 of only 3 companies on the NYSE that can claim this outstanding record.
With that, let me turn over to <UNK> to cover some of the financial details.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
I'll start with a review of the quarter and year-to-date results and wrap up with cash flows and 2017 guidance.
First of all, I'd like to remind you that our earnings are seasonal with approximately 70% of our utility margin generated during the cooler first and fourth quarters with the loss generally in the third quarter as there is minimal heating load.
In addition, please note, I will describe individual earnings drivers on an after-tax basis using the statutory tax rate of 39.5%, which is very close to our effective tax rate of 39.4% for the 9 months ended September 30 and our expected annual rate of about 40% for 2017.
Turning to results.
For the third quarter of 2017, we reported a net loss of $8.5 million compared to an $8 million loss for the third quarter of 2016.
Results for the quarter reflect an $800,000 decrease in our utility segment net income partially offset by a slight improvement in the gas storage and other segment.
The utility's third quarter performance reflected a $1.7 million increase in O&M expense from higher payroll and benefit cost as well as costs related to upgrading our employee safety equipment.
Partially offsetting these costs was a $1 million increase in margin primarily from customer growth.
Our gas storage net income for the quarter increased slightly mainly reflecting lower operating expenses offset by lower revenues.
Turning now to our year-to-date financial results.
For the first 9 months of 2017, we reported net income of $34.5 million compared to $30.6 million for the same period last year, an increase of $3.9 million.
Results were driven by a $5.1 million increase in the utility's net income partially offset by $1.3 million decrease in our gas storage segment.
The utility's increased net income reflected an uptick in margin and other income partially offset by higher O&M and depreciation expense.
The $7.4 million increase in utility margin reflected strong customer growth and the effects of a colder winter in 2017 compared to 2016.
Margins are largely stabilized from variability in weather.
However, weather can affect margins as we do not have weather normalization ---+ a weather normalization mechanism in Washington and a portion of Oregon customers have opted out of this mechanism.
So far, 2017 has been colder than 2016.
Our service territory experienced 11% colder than average weather along with record breaking precipitation in the spring.
This compares to 2016, which was 22% warmer than average.
Offsetting these positive margin factors were lower gains from our gas cost incentive sharing in Oregon.
The company and customers continued to benefit from lower actual costs than prices set in rates although the spread has narrowed this year.
Also impacting the utility was a $2.4 million increase in other income mainly due to a non-cash charge taken in 2016 as we closed the environmental cost recovery docket.
These items were partially offset by a $3.4 million increase in O&M from payroll and benefits as well as a $1.6 million increase in depreciation expense.
Turning now to the gas storage segment.
For the first 9 months of 2017, net income in this segment decreased $1.3 million reflecting lower asset management revenues from Mist as well as higher expenses at Gill Ranch for pipeline and compressor maintenance.
Moving briefly to cash flows.
During the first 9 months, the company generated $193 million in operating cash flow.
We reinvested these proceeds back into the business with $145 million invested in capital expenditures, including the construction of the North Mist Gas storage expansion and returned $40 million to the shareholders through dividend payments.
During the quarter, we also had a successful $100 million debt issuance at competitive rates and were able to reduce and retire both short and long-term debt.
Moving to 2017 guidance.
We continue to forecast accrued capital expenditures in the range of $225 million to $250 million for 2017 including the expected $80 million to $90 million of spend for our North Mist expansion, of which we have recorded $72 million in the first 9 months.
The company reaffirmed 2017 earnings guidance today in the range of $2.05 to $2.25 per share.
Guidance assumes customer growth from our utility segment, average weather conditions, slow recovery of the gas storage market and no significant changes in prevailing regulatory policies, mechanisms or outcomes or significant laws or regulations.
With that, I'll turn the call back over to <UNK> for his concluding remarks.
Thanks, <UNK>.
Before we open the call up for questions, I wanted to update you on 2 significant priorities for us this year.
As we've discussed in the past, we believe Northwest Natural has an important role to play in helping our region move to a low carbon renewable energy future.
Today, natural gas is the cleanest energy option to reliably meet our region's biggest energy needs.
In fact Northwest Natural delivers more energy in Oregon over a year than any other utility in the state yet the use of natural gas in our customers' homes, businesses and industry accounts for only 8% of Oregon's total greenhouse gas emissions.
While we think that's a pretty efficient starting point, we believe we can do better.
It's why we've rolled out a voluntary carbon savings goal.
We are identifying new areas where we can proactively reduce emissions using our existing infrastructure, which is one of the most modern tightest pipeline systems in the nation.
One example of using our system in new ways is a renewable natural gas project we're partnering with the City of Portland.
As announced in April, the city believes this project is the single largest climate action ever today.
The project includes city building renewable natural gas production facility to convert biogas from Portland's largest wastewater treatment plant to our pipeline quality standards.
Once clean, a portion of the renewable natural gas will be used to fuel heavy duty vehicles located locally while the rest will be delivered through Northwest Natural's existing pipeline system.
Northwest Natural is building and will maintain the vehicle fueling station for the city.
Currently we are in the process of installing the fueling station and expect it to be operational by the end of the year.
We are proud to be part of this effort and we believe this will be the first of others to come.
Finally, this morning, let me give you an update on our North Mist Gas storage expansion project.
As we discussed before, the North Mist project will support grid reliability by supplying unique, no-notice storage service to Portland General Electric that can be drawn on any time allowing them to balance the variability of additional renewable power on the electric system.
The estimated cost of North Mist is $128 million and includes development of a new reservoir, a compressor station and a 13-mile pipeline.
We continue to expect the majority of the construction to be completed this year.
The most critical task of this project is ensuring the pipeline is completed this year so we can begin injecting natural gas into the reservoir in early 2018.
So far, nearly all segments of the pipeline have been constructed and we are connecting the final segments near the Port Westward generating plant as we speak.
In the coming weeks, we will be performing multiple tests on the pipeline including hydrostatic testing and in-line inspection.
We continue to expect completion of the pipeline this year.
The compressor station components have been manufactured and are currently in Houston, Texas.
Originally we expected the station to be installed and tested this fall.
However, due to unexpected delays resulting from Hurricane Harvey, we now believe the compressor station will be installed and tested in the first half of 2018.
As with any construction project of this size, there may be delays in 1 aspect of the plan or another.
But in this case, the compressor station delay is not changing the overall project timeline.
We expect to inject natural gas in the reservoir beginning in the first quarter of 2018 once the pipeline's installed.
Therefore, the project remains on track to be in service during the fourth quarter of 2018.
When the expansion is placed into service, the investment will immediately be rate based under an established tariff schedule already approved by the Oregon Public Utility Commission.
We're pleased to be on track with our key initiatives at this point in the year.
As we head into the last few months of 2017, we are continuing to evaluate the timing of a potential Oregon rate case filing.
As many of you may recall, our last rate case in Oregon was 5 years ago.
Since that time, we have continued to invest in the system on average around $130 million per year or, if you will, a CAGR of around 3% and expenses are higher today than they were in 2012 as you can clearly see on our year-to-date results and will continue to see.
All of these factors suggest strongly that we should file an Oregon rate case late this year or even early next year.
There are obviously other factors we are considering as we finalize this decision in the next month or so.
Thanks again for spending time with us today.
Brian, I think we're now ready to open it up for questions if anybody would like to ask a question.
Thank you, Brian.
I guess our 14 minutes of prepared remarks were just as complete as they needed to be.
So, we appreciate everybody joining us today.
We'll go ahead and close the call down now.
As always, reach out to <UNK> if you have any specific questions.
Thanks, everybody, for joining us today.
Have a good Friday and have a good weekend.
Thank you.
| 2017_NWN |
2015 | PCAR | PCAR
#Sure, we actually added a table in our press release at the very end of the schedules.
That's okay.
I can't comment on what the competitors have done and our press release has been updated and not any significant developments during the quarter.
So that's about all I can say about that.
We have a great team that delivers great results as evidenced by the press release, and so I sleep pretty well most nights I got to tell you.
There's always challenges, always opportunities, and so we look forward to seizing those and taking advantage of those as we move forward.
So that'll always continue to be our approach.
Thank you.
So the effects of the euro on revenue for the quarter was about $250 million.
So you add that back to the equation, and part of it is a little bit larger mix of the light-duty trucks, the model LF compared to the CFXF mix during the first half of last year.
No, just customer demand.
All the trucks are great and the LF is particularly popular in the UK and very well received by customers and that market has grown a little faster than the rest of Europe, reflecting their economic growth.
And so we're seeing some benefits from that phenomenon.
I think as <UNK> said, we've gotten the benefits of operating leverage and that should continue.
Obviously freight rates are dependent a lot on diesel prices and so that will go up or down as diesel prices move.
But again, our team has done a good job of transitioning to PACCAR branded components and with our newest designs, we have a higher element of proprietary content.
So I think we're in good shape and positioned well and shouldn't see significant movements from where we're at currently.
So we continue to be a pretty small player in that market.
Our team is doing great.
The factory is running very well, the quality of the product is excellent and very well received by the customers.
Our dealers continue to invest in their facilities to fully represent the DAF brand in the market.
The market this year will be down substantially probably in the 45,000 to 55,000 truck range.
South America total probably 70,000 to 80,000 trucks for the year.
But we have a great team and a great long-term perspective on building our business and it will be a bigger and bigger contributor to PACCAR's results over time.
No we opened and expand distribution centers on an ongoing basis and it's just part of continuing to support that growing Parts business.
And our dealers needs to have same-day delivery to meet their needs.
So I don't ---+ there won't be any margin impact as a result of that transition.
I think we'll continue to see that grow.
The more and more customers that a lot of times they'll start with some level if they're a larger fleet.
And as they get experience, most will often increase their percentage penetration in their fleet with the MX engine.
So we expect that to continue to grow 50% to 60% over time.
It certainly has ---+ the engine has the capability to meet about 80% of our customers needs.
So we're very excited about the potential for that as we progress over the next three, five years.
I think over time.
We install PACCAR engines, branded engines, purchased from Cummins for our medium duty product.
It's always a possibility but nothing on the short-term horizon for us in that area.
Typically hasn't been our approach.
We have a great engine to support our product and we can ---+ got the capacity to support future growth.
But selling to other OEMs is not an avenue that we've thought about pursuing.
Yes, it's possible but really not part of our thought process at this time.
I would like to thank everyone for their excellent questions and thank you, Operator.
| 2015_PCAR |
2016 | INVA | INVA
#Good afternoon, everyone, and thank you for joining us.
With me on the call today is <UNK> <UNK>, our Chief Executive Officer.
On today's call, <UNK> will review the highlights from the quarter and I will review our financial results.
Following our comments, we will open up the call for questions.
Earlier today Innoviva issued a press release announcing recent corporate developments and second-quarter financial results.
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 filings with the SEC.
Additionally, our adjusted EBITDA and adjusted cash EPS to non-GAAP financial measures will be discussed on 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 <UNK> <UNK>, our Chief Executive Officer.
<UNK>.
Thank you, Eric, and good afternoon everybody.
I'm pleased to say that Innoviva had another strong performance during the second quarter of 2016.
This included positive Phase 3 clinical results for RELVAR, also known as BREO in the United States, further share in volume gains for both products, significant growth in earnings and operating cash flow and continued capital returns to our investors.
In particular, we are pleased with the performance of both BREO and ANORO in the US where prescriptions and market share reached all-time highs.
According to IMS, TRX market share for BREO now exceeds 10% and ANORO exceeds 8% for the most recent weekly report.
We believe the productive collaboration between GSK and Innoviva commercial teams has contributed significantly to achieving these gains and are optimistic as we work to build BREO and ANORO into leading global respiratory franchises.
Second-quarter 2016 net sales for RELVAR BREO were $209.9 million, up 30% from $161.9 million in the first quarter.
This increase was largely driven by a strong performance in the US market which grew by almost 40% compared to the first quarter of 2016.
According to IMS, BREO TRX market share gained almost 2 percentage points during the second quarter which equates to more than 656,000 prescriptions, a 25% increase over Q1.
We remain confident in the US growth potential for BREO due to continued strength in our new to brand market share, an important forward-looking indicator of growth potential.
According to IMS in the week ending July 15, new to brand market share increased to 16.8% overall and to 28.4% for pulmonologists.
As a result, we believe BREO is well-positioned for continued strong performance in 2016.
We also announced during the second quarter positive clinical study results from the Salford Lung Study of RELVAR in COPD.
RELPAR achieved a statistically superior reduction in exacerbations compared to usual care with a p-value of 0.025.
This is a very important result in a world force effectiveness study in COPD as these data demonstrate the effectiveness of RELVAR BREO when taken by patients in every day clinical practice.
Total net sales for ANORO during the second quarter of 2016 were approximately $65 million compared to $48.1 million in the first quarter of 2016, an increase of 35%.
Sales of ANORO were driven by higher US TRX prescription volumes of approximately 35% in the US market and strong performance from non-US markets including Japan, Germany, UK and Spain.
Overall, we remain optimistic about the potential for both products and look forward to continued improvement in revenues and market share.
During GSK's call yesterday, they noted a positive view regarding the 2017 reimbursement status for the respiratory products and that they expect to achieve a similar to slightly better overall coverage next year without significant pricing concessions.
I would also like to remind everyone that we generally expect a degree of quarter-over-quarter volatility in reported sales relative to the underlying TRX performance.
This volatility results from a variety of factors including for example normal slower summer, stronger winter seasonality, changes in wholesaler inventory levels, asthma COPD customer mix, accounting reserve true ups and couponing levels.
As a result when evaluating progress towards our goals, we primarily focus our analytic efforts on market share metrics that detail underlying demand for our products.
During the second quarter, we returned approximately $27 million of capital to our investors through the purchase of common stock and $10 million face value of our convertible subordinated notes.
I would like to point out that since our Company's spin-off two years ago we returned a total of $223.4 million to our investors through a combination of dividends and stock or debt repurchases.
This illustrates our continued commitment to generate value of our stockholders and our efforts to capture favorable market pricing windows when we can.
Now I will turn the call back to Eric to review our second-quarter 2016 financial results.
Eric.
Thanks, <UNK>.
We had a strong financial performance in the second quarter of 2016.
Total revenues included $35.7 million in royalties earned, a 157% increase over the second quarter of 2015 offset by $3.2 million of net non-cash amortization expense and other revenues.
Royalty revenues earned included $31.5 million for BREO and $4.2 million for ANORO.
We had only approximately 2% negative impact from currency movements between the first quarter of 2016 and the second quarter of 2016 on our revenues from non-US markets since have a limited exposure to recent fluctuations in the British pound exchange rate.
The long-term historical growth trend in our relative revenues remain strongly positive in the second quarter.
Looking at the prior eight quarters on average, our royalties earned have grown at a compound rate of approximately 37% which reinforces our continued confidence and the prospects of a Company for 2016.
Total operating expenses in the second quarter of 2016 were $6.6 million compared to $5.5 million in the second quarter of 2015.
This increase is mostly related to a non-cash accrual of stock-based compensation associated with a pre-spin-off off legacy program.
On an annual basis, we maintain our guidance level for our 2016 operating expenses of R&D and G&A before stock-based compensation accruals in a range of between $18 million and $20 million.
During the second quarter of 2016, we repurchased approximately $19 million of common stock at an average price of $11.23 per share.
Since the start of the $150 million repurchase program, we have now repurchased a total of $70 million of stock.
As <UNK> mentioned earlier, we also repurchased in the open market $10 million face value of our convertible subordinated notes due 2023 for a purchase price of $8.1 million and recovered $0.4 million from the corresponding termination of the pre-existing cap call arrangement resulting in a net cash consideration of only $7.7 million.
As a result of the share repurchases in the quarter, we reduced our shares outstanding by $1.7 million and on a fully diluted basis, by an additional 0.5 million shares associated with the conversion rights for the notes we repurchased.
We continued to generate positive and growing cash flow from our operations in the second quarter of 2016.
Income from operations increased to $25.9 million compared to $5.1 million in the second quarter of 2015 and adjusted EBITDA was $34 million in the second quarter of 2016, more than triple the $10.4 million we generated in the second quarter of 2015.
For the second quarter of 2016, our adjusted cash EPS was $0.17 per share, up significantly compared to an adjusted cash EPS of negative $0.02 per share in the second quarter of 2015.
Cash, cash equivalents, short-term investments and marketable securities totaled $153.9 million at June 31, 2016, net of $26.7 million used in stock and debt repurchases.
As a result of the continued growth of our royalty revenues, the Company is beginning to repay the principal on its long-term debt with $3.3 million reserved for the payment of principal on our nonrecourse notes to be paid in August.
Additionally, we further decreased our leverage by $10 million through the repurchase of a portion of the convertible notes.
We also had $35.7 million of royalty receivables from GSK at the end of the second quarter which puts us in a strong liquidity position for the remainder of 2016.
Now I would like to turn the call over to <UNK> for final closing comments.
Thank you, Eric.
In summary, I'm pleased with the performance of Innoviva through the first half of 2016 due to significant revenue increases for both products, positive clinical results from the Salford Lung Study, increased prescription volumes, higher market share and continued progress in the commercial efforts for both products.
As a result, we remain optimistic about the long-term potential of our product portfolio.
Our primary focus in 2016 remains the optimization of the commercial success and global rollout of BREO and ANORO and believe that both products have significant untapped commercial potential.
There are many exciting developments happening here at Innoviva and we remain optimistic about the future prospects for the Company.
I would now like to turn the call over to our conference facilitator and open the call for questions.
Let me go ahead and take that and thanks for the congrats on the quarter, <UNK>.
So the close triple, we did have an acceleration in the timeline we announced here a few weeks ago.
This really is not a particular change in the long-term outlook of the business.
I would say there is just an acceleration on the triple itself.
We always thought this was a possibility going in but I think as you know, we had historically been a little more conservative in terms of the timing around it, being a little bit more in alignment with having to finish some of the studies as opposed to having accelerated approval here.
So again long-term, there is really no impact of where we had been before but this is a quicker filing.
With regard to what is this going to do, we think there is a home for every one of our products and I'm going to simplify this quite a bit when we talk here just for simplicity sake, there is a lot of bleed that happens in between the various categories.
But generally speaking when we thought about the gold guidelines, the existing gold guidelines, there is Box A, B, C and D.
Generally speaking we had always assumed that ANORO would have a very strong home in Box B which is high symptoms, few exacerbations.
That Box C would be the home for BREO.
Again this is going to be more exacerbations, less symptoms and then Box B with patients with a severe COPD was the home of the triple.
We still generally think that is the right place to go and the reason I'm saying generally is there is bleed over from boxes as you kind of go up and down and around.
So at least as of today nothing has really changed that view at all.
We think there is a very good home for each of these products.
With regard to what percentage of patients are going to be on each, we will have to see how that all ends up taking out.
There are different numbers of patients from different studies and you mentioned a couple that I wouldn't quibble with those numbers that have different numbers based upon different studies.
So overall long-term, this is exactly in alignment with where we wanted to be.
The intention was to create a suite of respiratory products all centered around the ELLIPTA device so that as a patient progressed in their disease they would continue to have the same device all the way through which would facilitate the transition from one product to the other so it is exactly in line with where we would expect it in COPD.
The last thing I will say is this really has no impact whatsoever on asthma.
Asthma is going to be a LABA/ICS market for the foreseeable future.
So hopefully that covered it but again I would say right down the middle of the fairway where we thought things were going to be, just a little bit quicker [filing] potential for the triple in the US.
Thanks, <UNK>.
This is Eric.
I can answer that question.
It is all a program we approved back in October is $150 million.
That runs until the end of 2016.
The purchases we have done in this quarter, the average price was $11.23 for this quarter and part of our strategy is to try to make sure that we can implement our program.
Obviously we will try to make sure we don't impact the stock.
We are a price taker so we are consistently working with our bookers.
There are occasionally some limitations.
We have blackout periods when we have to structure programs that are a little bit less than our control to do that but to the best of our ability, we try to implement the plan.
Maybe just one final comment on that, <UNK>.
When we put the program in place, there were five quarters in front of us that the program had.
So we are 60% of the way through that.
We are closing in on halfway through in terms of the total repurchases that have happened under there.
So within the arrow bars of how share repurchase programs go particularly ones that are not meant to move the stock or rather to capitalize on pricing when it became available, I'm feeling pretty good about where we are.
So our intention is to continue in exactly the same direction with the share buyback program here, be opportunistic when the prices present themselves.
We are certainly not in any intention of trying to drive the price up or anything like that.
Thanks, <UNK>.
This is Eric.
To address the British pound (inaudible) and net sales.
For BREO, we have less than 2% year to date of our net sales that come from the UK market and for ANORO, it is less than 5%.
So we have a limited exposure to the British pound exchange rate fluctuations.
And secondly, we have about more than 50% of our net sales that are for the US market and more than 68% I think of our net sales for ANORO are US denominated.
So we have already in our portfolio a relatively lower risk on currencies.
And all the other currencies move back and forth occasionally which is why even though some currencies occasionally move a lot in the aggregate, we have been embedded if you want to hedge into the allocation of a non-US sales by markets, so we have limited exposure I would say right now.
It is <UNK>.
We don't get too much into detail on the ex US sales as you guys know.
It is a little harder to dig in and get the right metrics there particularly metrics that are widely available.
So the access of information that we have generally would not be something that we would share too broadly.
I would just make this comment, it is generally in line with where we wanted to be this year when we look at the overall expectations from an annual perspective.
I know we haven't provided guidance so unfortunately that is a very imperfect answer for you in terms of how to think about that and how to measure it.
But generally we are in line with our expectations on a global basis.
I have highlighted this quarter and last quarter some very nice performance by the US so one could assume that the US is doing perhaps slightly better than our expectations here this year.
But I would not unfortunately be able to go too deep into any particular discussion about some of the other areas just because that data like I said is not generally public.
We have made some comments historically the Japanese subsidiary is doing a very nice job.
That is one of the larger subsidiaries at this point.
And then after that, you kind of things that move around up and down and sideways sort of on a monthly basis.
A lot of words but I do know we are a little bit unsatisfying because we are stuck from a confidentiality basis about providing too much more detail on that.
<UNK>, first of all, thanks for the congrats on the quarter.
I don't have that right here in front of me so I would be mis-recalling that probably if I was to look at those numbers.
I think they are generally of the same magnitude difference what you are going to see with BREO between the TRx and NBRx.
Eric just actually handed this to me here.
So let me go ahead and give you the numbers as opposed to that.
So the ANORO market share at NBRx has increased.
This is data here for the most recent week reported to 14.8% so again, we were at about 8.2% for the last week so call it plus 6%.
Again that is a pretty similar delta between what you have seen with that and with what is happening with BREO today so those have been fairly similar.
In the guidance we have tried to give is somewhere in the 6 to 12 month timeframe we have historically seen the NBRx convert into TRx.
Hopefully we continue to see those trends out there.
But again we are feeling pretty good about the US market at this point.
I don't have any specific numbers I can provide you.
I can tell you it has been a little tougher path in terms of bringing ANORO to primary care doctors.
I think we've talked about this before publicly.
The education process with primary care doctors has been a little bit tougher.
What you are seeing is a fairly rapid uptake amongst some of the pulmonologists and that has been something that has been in place for quite a while.
For example, if you were to take a look at the pulmonologist numbers for the last week that was out there for ANORO, the NBRx numbers are around 17% and the TRx share is 11% so again, higher than what you are seeing for the market in general which of course would imply on the primary care doctors you are going to see correspondingly lower numbers there.
So that has been a big challenge we have had with ANORO is sort of the education effort for the primary care doctors of where exactly it fits in the treatment regimen.
You do find a lot of stickiness again at the primary care doctor level with some of the existing treatment regimens, the single agent LAMAs, the LABA/ICS.
They are pretty well ingrained and they know what to do with them.
So it will be a longer rather than shorter path we believe with ANORO.
The last thing I would add if you were to go and take a look at our performance relative to STIOLTO, you are going to see exactly the same type of trajectory with STIOLTO which of course is the LAMA LABA from Boehringer Ingelheim that we are seeing today.
So we don't really believe this is anything to do with our commercialization effort.
It is more a facet of the market and how it is going to probably develop.
That is a great question.
The only thing I could reasonably guess would be to look at the uptake trajectories for all of the recent respiratory products.
So you look at BREO, you look at ANORO, you look STIOLTO, you look at [IMCRUZ], so all of these ones that have come out here so you have some that are existing treatment regimens like BREO, you have some that are new treatment regimens like ANORO or STIOLTO and they all have these similar shapes which is they tend to start with a fairly shallow curve, it builds over time but it is not a vertical slope, it is sort of a slow growth and long trajectory growth cycle.
Given that is the all of these products are launching, it seems like the best comp you would look at.
Obviously it is going to be what it is going to be when it comes out there and clearly a lot of doctors are experienced with triple therapy albeit in an open format meaning with two separate devices, even products from two different companies.
I don't know there is a lot of education effort that would be there but similar to BREO, BREO didn't have a lot of education about where LABA/ICS fits in.
So if is history is any guidelines it would seem like that would be the best comp I could point you to but of course it is going to be what it is going to be.
We are very interested in getting the data out there.
Of course I couldn't make a comment about any particular venue for it other than we are very interested in getting this data out there.
It is great that data.
We were very happy when we opened it up and the last think I would of say is historically GSK has liked ERS, it is a good venue for them so we will see where it all comes out.
But it is an historically new where there is some level of familiarity with GSK.
Lots of factors in there of course.
The first one is when and if it is a generic going to be approved and there is a very wide window around that about when it may come and if it comes what it is going to look like, etc.
We have been pretty consistent in saying our general expectations here are perhaps it would be coming in late 2017, early 2018, sometime in that timeframe and what that would imply would be one full round of review plus some additional review from the regulatory agency.
Obviously they could happen in a first round or they could happen in some round later than that, that really remains to be seen.
So that is sort of the first question that has to be asked.
I wouldn't want to get into contracting strategy about are we going after multiyear contracts or shorter-term contracts.
I really wouldn't want to get into that level of tactics with what we are doing.
I would say we are feeling good and comfortable about the current coverage we have out there and I had mentioned the comments that Glaxo had made yesterday.
So generally we think the market is reasonable for us today and we have plenty of coverage and we are not seeing at least at this point any significant additional pricing that is being taken as we are looking forward here.
The last piece will be when and if somebody comes, who is it, what does the product look like, how aggressive are they going to be, what is the supply situation like.
And again, it is a whole additional pod of unknown.
You have a number of public comments made by people like Mylan that they would potentially have some supply issues if they were to come out.
And they talked about how their discounting strategy may or may not be affected by that.
So again it is really a little difficult to say.
The last thing I am going to add on this is all of that being said, we remain confident there is a very substantial home for BREO that is out there today.
It will be the only one today, LABA/ICS product in the US that would be competing there.
We do not believe it is likely that 100% of the market will go generic.
It could be a significant portion goes over time but we don't think it would be 100% of the market going generic.
And then last piece on that is if you look at historic respiratory launches as I talked with the last question from <UNK>, these don't just necessarily go vertical which means there is still plenty of time to build share here.
So we will see how it all goes.
Obviously there is some more positive and more negative scenarios one could come up with but our best guess today is there is a pretty good home for BREO going forward.
Thank you very much, operator, and thanks everyone for participating.
Have a nice day.
| 2016_INVA |
2015 | IBKR | IBKR
#You ---+ that, if you mean that those rates are higher than ---+ no, all of our rates are the same.
So we are always benchmark plus anywhere between 0.5% and 1.5% depending upon the amount borrowed.
That's right.
But also, I don't expect those margins to continue at the diminished level forever either.
(laughter)
Thank you.
| 2015_IBKR |
2015 | ACN | ACN
#We have, of course, a range, <UNK>, is 3 points to cover scenarios like that on the downside.
So we've accounted for it to the extent we have a 3 point range.
And I ---+ we don't have any evidence of any notable change in client budgets to the worse, which is your question.
We don't have any evidence of that through our channels.
And again, our pipeline looks very good which is indicative of the level of client discussions that are underway currently.
Thank you, <UNK>.
Your question was about Financial Services, the Financial Services Operating Group; correct.
Okay.
So commenting on the FS, we continue to be pleased with the results.
You see, again, double-digit growth in Financial Services.
This is an industry if you look all together, which is one of the largest.
I think we mentioned at the IA Day that if you put together capital market and banking would be one of the largest, if not the largest industry at Accenture.
And of course, this is an industry historically and currently investing in technology and in transformation.
So we continue to be very pleased with the opportunities offered by Financial Services.
They have to transform and of course, Digital-related services are extremely relevant in Financial Services, almost by definition.
It's a B to C and it's enabling a lot of digital native technologies to maximize connectivity with clients as well as digitalizing their operations.
This is an industry where historically, we made the right investments.
I think about the investments we made in insurance where we are extremely well-positioned with our software solutions and thinking about the investments we made in credit services where we are now building a leading independent mortgage processor in the US and very pleased with the momentum we're getting in Brazil, where we are expanding our services and credit services to, again, take a position.
We just announced this quarter a very niche, a very good acquisition in Boston on asset management called Beacon.
I'm very pleased with that, adding super deep expertise.
So overall, we are very pleased with what we're doing in FS which is quite broad-based across the different region as well.
If you look at North America, if you look at, especially Europe, where we're doing very well, excellent result in growth markets.
So this is the industry where I'm coming from.
This is the one I love the most.
Yes, the ---+ in the context of the overall Accenture organization, the acquired headcount is just not that ---+ it's an important skills that we're acquiring but in the context of the overall headcount to your question, it's just not that material.
We see growth in headcount, really across our business, including, by the way, in our GDN.
You'll see in the statistics that a high percentage of the headcount is in our Global Delivery Network and again, I think the theme that underpins it, whether you're talking about Strategy, Consulting, Application Services or Operations, the common theme is this digital rotation and the services and the type of work we're doing in that regard, really, as a driver of the skills we're acquiring as a general thing.
Well, I would say as a general rule, if you look at Accenture Strategy, Accenture Consulting, and the project-based work in Application Services, which is this deployment of new tech and let's just say, packaged software, even more broadly.
The return to revenue is in all of those cases is faster than, let's say, the rest of our business that I didn't call out.
And that's just ---+ those are just structural differences.
So when you see such strong growth rates in our consulting type of work business, that just reflects bookings that convert to revenue faster than, let's say, certainly the typical operations contract would or an Application Maintenance contract would.
That is correct.
So Application Services has what we have traditionally called Application Outsourcing, which is ---+ or Application Maintenance work.
That maps to our outsourcing type of work.
The rest of Application Services, which is really about fundamentally development work, application development work, whether it be new tech or could be development around existing legacy applications, packaged software deployment, et cetera, that is what we would have historically referred to as systems integration and that maps to the consulting type of work.
We're not going to comment specific ---+ I mean, not in specific terms on margin for each dimension.
I think we've said before that the nature of digital, just as a general statement, it tends to be in high demand.
We have unique and differentiated skills and capabilities and arguably, positioning in the marketplace and all of those things lend themselves to better economics.
It's our job to deliver on that but it certainly creates the right environment for better economics.
Your last question was ---+ the other part of the question was, so digital economics ---+
There is to the extent that a high percentage of our digital bookings are consulting and consulting has a higher velocity.
Specifically, I think you're referring to the Application Maintenance, Application Outsourcing piece of Application Services.
What I would say is that there's no doubt that, that continues to be a highly competitive market.
When we comment on pricing, we comment on pricing in terms of the profit percentage on work that we sell and in that part of our business, we see stable pricing.
Thank you.
Hi, <UNK>.
Absolutely.
Happy to comment on this, because I truly believe that we are proposing to the marketplace and organizing Accenture in a very unique and differentiated way.
And I tend to believe that none of our competitors yet could match the capabilities and the organization we're putting in place.
First, indeed, we have created five Accenture Strategy, Accenture Consulting, Accenture Digital, Accenture Technology and Accenture Operations, all at scale, all with highly differentiated skills, very different positioning compared to the competitive environment, different economics.
And to your question, indeed, they are run as a business with the objective of being top class in their own category.
But of course, where we differentiate in the marketplace is our unique ability to combine our services to deliver what we are calling the end-to-end services, because we truly believe more and more clients are buying an outcome more than an effort.
If you want to deliver an outcome, you need to contribute and participate to the design and planning, typically done by Accenture Strategy and Accenture Consulting, the high-value services and consultancy, if you will.
Then you're moving to building solutions with absolutely leading and cutting-edge solutions, exactly the job of Accenture Digital for digital native solutions and Accenture Technology for the leading platform solution or application packages.
And when you have been building solutions, you're moving to Accenture Operations, the part of Accenture where we could operate on behalf of the clients, either the business process, the cloud operation or their security operation.
The depth and breadth and kind of operating model is absolutely unique in the marketplace and is a great source of differentiation for Accenture.
And on top of that, indeed, <UNK>, we're putting our rotation to the new.
Each of the five have a clear mandate to rotate their business to a new type of services for Accenture Strategy is going to be being cutting edge in developing digital technologies and creating new business model for clients.
Accenture Technology will now imbed very innovative ways of doing development which we're calling, liquid, intelligent and connected.
Accenture Operation will be extraordinary analytics rich in the way we are developing operations.
And in security with the acquisition of FusionX, we are absolutely at top of the game in terms of simulating cyber attack.
So all this architecture we're putting in place and I said that with a lot of passion and energy during that call, is indeed unique in the marketplace, <UNK>.
<UNK>, let me just add to what <UNK> said and address another part of your question.
A key component of what <UNK> just said is that our talent strategy is aligned with our five businesses.
And so we have talent that is managed, nurtured, developed, specific to Accenture Strategy.
Those people tend to work essentially, exclusively on Accenture Strategy work.
We have people that are identified as Accenture Consulting, developed, nurtured, et cetera.
Those people tend to work, for the most part, exclusively on consulting work.
By the way, that includes our account leads, people who are predominantly deployed to our operating groups that, really, not only deliver consulting services, but are also the integrator of Accenture capabilities to serve the client's need.
You have operations where, again, we have a talent model for operations.
Mike Salvino and Debbie Polishook manage that workforce.
They, for the most part, work exclusively in operations and then you have Accenture Technology.
Accenture Technology is a little bit different in that they have a unique talent model but yet some of those technology people support the development-type work, the new tech.
Some of those people may actually even be part of consulting project delivery.
We also are have some of those people that, at points in time, may be part of our operations project delivery.
They work a little bit more across the organization, but beyond technology, we also have the innovation labs and things like that.
But excluding Technology, the other businesses are very specific and fit for purpose in terms of the talent model and the types of projects those people work on for our clients.
I can't characterize.
I can characterize only the trend is clear that you see, a shift from investment in the legacy, if you will, to investment of the new.
I tend to believe that this shift is increasing and as reflected in our growth in Digital-related services.
Now I don't have any market data that would characterize the percentage of the shift.
It's there.
It's getting bigger and indeed, we could take advantage of this shift in terms of budget, as reflected with our 20%-plus growth in Digital-related services.
On balance, yes.
Thank you, <UNK>.
Yes.
So first of all, we still have room to expand our GDN headcount in our model and certainly, we don't see that we've reached a destination and we wouldn't go any further.
Having said that, one of the things that highly differentiates Accenture is our deep industry expertise and our client account teams that are at the client site each and every day, working shoulder to shoulder with our clients.
And so the thing about our model is that we have a very strong presence in each of the geographic markets around the world where we operate.
That's a vital part of what is distinctive about Accenture.
And then we extend that and complement that with arguably the best technology Global Delivery Network in the world.
To your question, we have the opportunity to take that further and we'll see how the market evolves and then we'll respond accordingly.
Great.
I'll just say ---+ I can't really do justice to the questions.
I'll just share a couple of quick points.
First of all, the free cash flow guidance is still above 1 in terms of free cash flow to net income, so very healthy level of free cash flow.
I mean, a couple of things that influence it.
One is the DSOs; the other is timing of cash tax payments that not only impacts a particular quarter but can be different fiscal year to fiscal year and the third is CapEx, just to name those three because you called them out.
And we do anticipate a higher level of capital spending this year as compared to last year.
So that's in the mix as well.
Okay.
Certainly time now to wrap up and I want to thank you again for joining us today.
With our first quarter being up, clearly, we have created strong momentum in our business, especially with investment we made in Digital, Cloud and Security services which we are now calling at Accenture the new.
And that makes me really confident in our ability to continue to successfully grow our business and gain market share.
I want to take this opportunity to wish all of you, our investors and analysts and our Accenture people, who are hopefully listening to the call a very happy holiday season and all the best for the new year.
We look forward to talking with you again next quarter.
In the meantime, if you have any questions, please feel free to call <UNK>.
All the best to all of you and the best for the new year.
| 2015_ACN |
2017 | AES | AES
#Good morning, everyone, and thank you for joining our first quarter 2017 financial review call
Today, I will discuss our financial results and provide updates on our strategy to deliver attractive risk-adjusted returns to our shareholders
Since our most recent call in late February, we have made significant progress on a number of key objectives for 2017. We advanced our construction program, which will be the major contributor to our cash flow and earnings growth over the next four years
We capitalized on our existing platforms to further enhance future growth by targeting long-term US dollar-denominated contracts
We have taken steps to decrease our covenant intensity and merchant exposure
These steps will reduce our financial and operational risk
We continued our efforts to strengthen our credit profile by prepaying $300 million of Parent debt
This also increases Parent free cash flow by lowering interest expense
We are on track to achieve our $400 million per year cost reduction and revenue enhancement program
I will discuss these achievements in more detail in a moment, but first I would like to summarize our financial results on Slide 4. In the first quarter, we earned $0.17 of adjusted EPS versus the $0.15 we earned in the same period last year
We generated $546 million of consolidated free cash flow, $56 million higher than last year
Based on our first quarter performance and our outlook for the remainder of the year, we are reaffirming our full year guidance for all metrics
Now I would like to turn to our strategic accomplishments
As you can see on Slide 5, we have 3.4 gigawatts under construction and expect it to come online through 2019. Overall, we have achieved significant progress on all of these projects
Turning to Alto Maipo on Slide 6, as you may recall Alto Maipo is an expansion of our existing Alfalfal plant in Chile
As we discussed on our last call, the project has been experiencing tunneling challenges resulting in cost overruns estimated in the range of 10% to 20%
Over the past couple of months, we have made significant progress on this project
First, we have secured additional financing commitment for up to 22% of the project cost equivalent to $460 million including contingencies, of which $117 million will be funded by AES Gener and the remaining $343 million will be funded by the project lenders main contractor and minority partner
Second, Alto Maipo is now about 52% complete and we remain on track to reach COD in 2019. Turning to Slide 7, at our Eagle Valley, CCGT in Indiana, the EPC contractor is sub-contracting some of the work in an effort to accelerate the recovery plan
On our February call, we’ve revised the completion date for this project to the first half of 2018. However, the EPC contractor is projecting substantial completion before year end 2017. Although any delay is unfortunate, we have a fixed price contract with the EPC contractor under which they are incentivized to finish the project in a timely manner
The CCGT has achieved several important EPC milestones, and we expect first fire to occur in the third quarter
Turning to Slide 8, in our 1320 megawatt OPGC 2 project in India, we continued to make steady progress on construction and the project is expected to come online by the end of 2018. Finally, turning to Slide 9 and Colón in Panama
I am pleased to report that we have reached a number of milestones on our Colón CCGT and LNG regasification facility in Panama
The LNG facility is efficient to handle 80 Terrra BTU annually
Our CCGT will use about one quarter of the tank’s capacity leaving substantial upside potential to meet the fuel needs of additional power plants, ship bunkering services, and downstream commercial and industrial customers
We will continue to focus on providing a cleaner, more cost-effective alternatives to oil-fueled power generation while at the same time satisfying a growing need for natural gas in Central America and the Caribbean
To that end, on Friday, we announced that we have entered into a joint venture with ENGIE to market and sell LNG from our Panamanian LNG terminal to third parties in Central America
This joint venture will help us monetize the tank’s remaining capacity as additional LNG is sold using our terminal
It also further strengthens the agreement we signed last year to jointly market LNG in the Caribbean from our Andres regasification facility in the Dominican Republic
With ENGIE as our partner, and both Colon and Andres online, in 2019, we will have the leading position in Central America and in the Caribbean’s LNG regasification market
Turning to Slide 10, as you know, we are the world leader in battery-based energy storage
We currently have 394 megawatts in operation, under construction, or in late-stage development not including the 82 megawatt of our advanced energy storage platform that we have sold to third-parties
Since February, we have delivered 37.5 megawatts of four hour duration storage, the largest lithium ion energy storage installation in the world, the San Diego Gas and Electric
Following our successful commissioning of this project, San Diego Gas and Electric has awarded us another 40 megawatts four hour duration project
Although energy storage has significant potential for growth, at this point, we have not assumed any material contributions in our outlook
Turning now to Slide 11 and our cost savings and revenue enhancement initiatives
This year, we are merging our Europe and Asia strategic business units which will drive significant savings
We are also continuing the work we began last year on standardization and improved sourcing and reliability
These initiatives put us on track to achieve $50 million of incremental annual benefits in 2017 and to hit our $400 million annual savings target by 2020. Now turning to our continuing efforts to reshape our portfolio beginning on Slide 12. As we have discussed on our recent calls, we have been repositioning our portfolio towards businesses that are less carbon-intensive and have long-term US dollar-denominated contracts
This repositioning is a key element of our strategy to reduce the risk of our portfolio
This year, we have already announced our plan to sell or shutdown 3.7 gigawatts of merchant coal-fired generation in Kazakhstan and Ohio
This is 26% of our total coal-fired capacity and 70% of our merchant coal-fired capacity
Specifically, we divested 1.7 gigawatts of coal-fired generation in Kazakhstan for net proceeds of $24 million
With this sale, our only remaining assets in Kazakhstan are two plants with 1 gigawatt of hydro capacity, which are under concession that expires in the fourth quarter of this year
We expect to exit Kazakhstan following the expiration of this concession
We have already announced the shutdown of 1.3 gigawatts of merchant, coal-fired capacity at DPL
Subsequently, we’ve also agreed to sell an additional 739 megawatts of DPL owned generation for $50 million in net proceeds
Although the Kazakhstan and Ohio merchant coal sales appear to have low value on a per kilowatt basis, on a PE basis, we managed to achieve a multiple of roughly nine times
We will continue to update you as we make progress on additional asset sales to further reshape our portfolio
Turning to new businesses
Slide 13 provides an update on our Southland Repowering in California
As a reminder, we were awarded 20 year PPA by Southern California Edison for 1384 megawatts of capacity which includes 100 megawatts of energy storage and 1284 megawatts of combining cycled gas capacity
Last month, we received final environmental approval for the project
We are on track for financial close and to begin construction by mid-2017 with completion of the gas-fired capacity in 2020 and the energy storage capacity in 2021. We anticipate funding the $2.3 billion in total project cost with a combination of non-recourse debt and approximately $400 million in equity proceeds from AES
Turning to Slide 14 and our pending acquisition of sPower
We continue to see the potential for adding 500 megawatts to 1 gigawatts of renewable contracted power annually with attractive low double-digit IRR
Furthermore, we see an opportunity to capitalize on the development skills of the sPower team to tap into the growing market for renewable PPA for large corporate and incorporating energy storage on their platforms
We received the FERC approval for the transaction last month and expect to receive the remaining approvals and close no later than the third quarter
As you can see on Slide 15, we are also making progress on renewable in Mexico, and Brazil
In Mexico, we were awarded exclusivity to negotiate 25 year US dollar-denominated PPA with private offtakers to build a 306 megawatt wind project and a 60 megawatt co-generation plant
These are our first Greenfield developments in Mexico in many years and we see a number of other good growth opportunities in light of the market reforms implemented by the Mexican government
Lastly, we signed the acquisition of the 386 megawatts, Alto de Sertão wind farm in Brazil that we announced on our last call
This project will help diversify Tietê’s fuel mix and hydrological risk
With an average remaining contract life of 18 years, the project will also help to reduce future exposure to short-term price movements
This 600 million Real acquisition is being funded entirely with debt capacity at Tietê demonstrating once again our ability to utilize local debt capacity in order to grow our business and improve returns
Turning to Slide 16, this brings us to our portfolio, which we expect to generate 8% to 10% average annual growth in all of our key financial metrics through 2020. This growth is largely driven by the completion of our projects under construction, our cost savings and revenue enhancement initiatives, lower interest expense, as we continue to delever, and attractive returns from recent acquisitions and our development pipeline
We see further upside potential if we are able to capitalize on the LNG and energy storage opportunities I discussed earlier
Turning to Slide 17, our portfolio will generate $3.8 billion in discretionary cash through 2020. This is largely driven by Parent free cash flow and the proceeds from asset sales
This internally generated discretionary cash is sufficient for us to meet our dividend growth commitment to fund our growth platform and reduce our corporate debt to achieve our strategic objectives
Overall, we remain confident that we can deliver attractive growth to our shareholders through 2020 and beyond
With that, I will turn the call over to Tom to discuss our first quarter results, capital allocation and guidance in more detail
Thanks, Tom
We have made significant progress in executing on our strategy by advancing our construction programs which is the key driver of our earnings and cash flow growth capitalizing on the advantages from our existing platform in markets where we have a strong position to make investments to ensure growth beyond 2020, rebalancing our portfolio to reduce risk and complexity by exiting non-core businesses and redeploying the proceeds consistent with our capital allocation framework, prepaying parent debt to improve our credit profile and achieving investment-grade metrics and optimizing our cost structure to improve operational efficiency and achieve our $400 million in annual savings target by 2020. With these actions, we are positioned to deliver average annual growth of 8% to 10% in all key metrics including free cash flow, earnings, and our dividend
Combining this growth and our current dividend yield will result in a total return of greater than 12%
We believe our attractive total return proposition will be better reflected in our share price as we continue to make progress on our strategic objectives and guidance
Now, we will be happy to take your questions
Question-and-Answer Session
Good morning, <UNK>
Good morning, <UNK>
Okay, let me take the first one
In terms of the first, this is what we have announced before, I mean, I think we’ve delivered, actually more than delivered every year in terms of the guidance we set out
So what we are saying is we feel very comfortable with the $50 million that we announced and is in our guidance for 2017, and an additional $50 million in 2018 and last time we also announced that we – that program will continue ---+ this sort of productivity improvements will continue in 2019 and 2020 although somewhat at a decelerated pace
So, basically, this is just a reaffirmation of what we announced before
Now on the – sorry, the second question is in terms of, when you are talking about the dilution from the sale of the DP&L assets
Yes, <UNK> it’s probably couple of things when you look at DPL it’s probably about a penny and obviously it depends upon terms et cetera
But maybe it’s about a penny in terms of the – what we are looking at, but that was all contemplated when we gave our guidance in February
I would say on a cash flow basis, DPL will be pretty neutrally cash flow EBITDA minus CapEx is pretty much breakeven as we see it through our forecast period even before other indirect costs
No, <UNK>, that is part of the 50 for this year and part of the 100 for the end of next year
So we will continue to take steps, obviously as we divest those assets, that also helps us to accelerate this process
Well, I think, what Tom and I said, I mean, the main is our construction program
So we had three CCGTs that will be online in 2018 we have the cost-cutting program that we have announced and we’ve had the continued delevering
So those are the three main items that are going to contribute to the increase in our earnings and cash flow in 2018.
Yes, it does
Yes, that’s correct
And like all of our numbers, that’s based on currency and commodities, forward curves as of today
Good morning, Greg
Greg you are right
This includes the cost overruns
So there is a typo there, as you mentioned
Yes, probably, maybe just rounding
Sure, hi, Angie
In Brazil, what we are seeing is, last quarter, we saw flattening of the decline and this year we might seeing a slight pickup in demand
But, more like 1% demand has decreased like 10%
So, overall, we are modestly optimistic about Brazil
The President is taking a number – on a number of the important reforms that it flow through, going very well for the country, but we expect a gradual slow recovery in Brazil
Now this year, they are having a drought and as Tom mentioned, I think, it’s a good example of how our change in commercial strategy and the level of contracting that we have had made it, quite frankly a very small issue, where two years ago it was a very big issue for us
And so, it’s basically the same asset I should say, but it makes a very big difference
So, with the acquisition of the wins that will help provide Tietê with basically assets which are not correlated with hydrology which are contracted at 18 years at good prices
Now regarding our utility, which is Eletropaulo and remember we sold, Sul
What we are doing is moving forward on listing it on Novo Mercado and that is going well
And so basically, being on the Novo Mercado means, one share one vote and therefore we would no longer consolidate Eletropaulo in our numbers
Now the company has had a significant recovery in its share price this year and it’s continuing to make improvements operationally
We have not secured anymore contracts for Alto Maipo at this stage
It’s part of the Gener portfolio
So, they have basically the Gener, it’s highly contracted through 2021, 2023. So we don’t have any immediate issues at Gener
I mean, last year was a record year for Gener, both on earnings and cash flow
This year is also looking extremely good
So, what we are seeing, again, as re-contracting rates passes that window, what we’ve seen on the – we have signed some new contracts, especially one of our subsidies of Gener which is Guacolda and these were rates around 70. But we continue to see sort of a long run price in the sort of mid $60 per megawatt hour and that’s without assuming any sort of rebound in mining activity or more rapid growth of the economy
Chile is growing about 2%, 2.5% and traditionally it’s been growing more sort of at 4%, 5%
So we have a pickup in economic activity
We think these prices could improve further
That will depend a little bit on – to what extent we have partnerships in those deals
This year, with the acquisition of sPower and some of the new things we’ve commissioned, we’ll be close to that number in terms of new projects and acquisitions
So, but it will depend on how much of those projects we own and whether it’s 50%, whether it’s 80%
We continue to plan to basically include partners on most of our big projects
Well, when I think of the new strategy that we announced, based on the prior five year strategy, it would be an evolution of it
We think that the key elements are really having platforms, integrating renewable with existing capacity from thermal and hydro
And also being a leader in new technology
So, we are all about three months into the new strategy and we will update you next time
Thank you, <UNK>
That’s a very perceptive question
It’s 52% complete that includes all of the works and all of the equipment
On that tunneling we are more than a third complete on the tunneling
And basically what happened here is that the rock ended up being a less crusted than all of our projections and that’s what’s really slowed us down, because when you have to do more reinforcements you have to go more slowly and it was a bit surprising, because this is an expansion of an existing facility Alfalfal
So it’s in the same mountain
It reterminates some of the same water
But that is what it is and as you are right, we are not the first to have encountered a different lock and what was expected once you start tunneling
That’s exactly right
We have three of them in operation now, three TBMs and a fourth one on order that’s coming down
So we will have four TBMs operating on this site
Okay, thank you
| 2017_AES |
2015 | SBNY | SBNY
#We like to stay $3 [million] to $5 [million].
We'll keep it at that.
Although, I daresay, if we had to pick one, I would say the top range.
Thank you.
Thank you for joining us today.
We certainly appreciate your interest in Signature Bank, and as always, we look forward to keeping you apprised of our developments.
Lori, I'll turn it back to you.
| 2015_SBNY |
2017 | KHC | KHC
#Thank you, <UNK>, and hello, everyone
I'll start on slide 5 with our U.S
As expected, organic net sales performance continued to improve in Q3 to a 0.4% decline
Volume/mix performance was in line with what we saw in Q2.To the plus side were consumption-led growth in Lunchables and P3, gains in foodservice and a roughly 30 basis point benefit from hurricane-related consumer pantry loading
But these were more than offset by distribution losses in nuts and cheese, as well as lower shipments in meats and coffee
By contrast, pricing began to come through stronger in Q3, reflecting higher prices in cheese and bacon to address rising commodity costs, as well as pricing in desserts that were partially offset by the timing of promotional activity versus last year in a number of categories, including Oscar Mayer cold cuts and Capri Sun ready-to-drink beverages
We also saw stronger EBITDA performance in Q3 than either Q2 or the first half, with adjusted EBITDA up 6.8%
As <UNK> mentioned, incremental Integration Program savings of $125 million between the U.S
and Canada was a key contributor
Beyond Integration Program savings, lower overhead costs and favorable pricing were partially offset by unfavorable key commodity costs, particularly in meats and cheese
On our last call, <UNK> talked about a better balance of pricing and key commodity costs in the second half versus what we saw in the first half
While this did, in fact, happen, it was less pronounced than anticipated, due to a step-up in dairy and bacon costs during the quarter
Going forward, there are a couple of factors that will impact U.S
performance in Q4. Organic sales growth in Q4 will see a 30 basis point headwind from hurricane-related consumer pantry loading in Q3; as George mentioned, delayed production line start-ups impacting cold cuts; as well as the fact that we're up against the strong 2016 fourth quarter that included some degree of retail inventory build that we don't expect to repeat this year
That said, we do expect solid EBITDA growth to continue, reflecting our ongoing focus on profitable sales, as well as further cost savings that I'll speak to later
Let's turn to slide 6 and Canada, where in the third quarter we continued to see our focus on profitable sales pay off
Pricing largely reflected increased promotional activity versus the prior year, as we're essentially seeing 12 months of merchandising activity being fit into the last nine months of this year
This is due to the delay in reaching go-to-market agreements with key retailers in Q1. Volume/mix mainly reflected ongoing consumption growth in condiments and sauces that was offset by lower shipments of mac and cheese versus the prior year
At EBITDA, similar to the U.S
, we had solid mid-single-digit constant-currency growth and more than 200 basis points of margin expansion
Here, gains from cost savings and lower overhead costs, as well as improved product mix, more than offset the impact of lower pricing from higher promotional costs versus the prior year
Looking ahead to Q4, we expect a similar picture to Q3 on the top line with solid underlying growth and a good level of in-store activity
However, with the strong headwind in December as we expect to end 2017 with lower retail inventory levels than seen at the end of Q4 last year
At EBITDA, grocery continue to improve from a combination of cost savings and a better balance of pricing and input costs versus the prior year
That brings us to Europe on slide 7, where we saw a very solid quarter
Pricing was sequentially better than Q2, but continued to be weighed down by trade investments to address competitive activity in our Italian infant nutrition business
Volume/mix improved to 4.1% growth, driven by strong consumption gains in condiments and sauces across the region, as well as gains in foodservice, although there was a small benefit within all of this from shipment phasing versus last year as we mentioned on our last call
Importantly, the ongoing stable consumption growth in the UK gives us the confidence that the business is on the right path
At EBITDA, we continued to benefit from volume/mix gains and strong efforts to control costs, and this more than offset unfavorable input costs in local currency driven by transactional currency headwinds
Going forward, in Europe, we don't expect organic sales growth in Q4 to be quite as robust as Q3 due to a combination of program timing and comparisons
However, we do expect to see a combination of organic net sales growth and cost efficiencies continue to drive EBITDA growth
Finally, let's look at our Rest of World segment on slide eight
Clearly, the 3.6% organic net sales growth was not the acceleration we had expected and remains a lower rate of growth than we would expect on an ongoing basis
We did see strong, double-digit gains in markets like Indonesia, China, and the Middle East, driven by the focused investments we've been making to drive condiments and sauces, as well as our Planters nut businesses, and this was very much in line with our expectations
That said, for the second quarter in a row, a number of one-off factors contributed to this performance, including an unfavorable impact from distributor network realignment, which we have seen in the past couple of quarters, but should begin to fade as Q4 progresses
We also saw lower shipments in Brazil as we've seen a general slowdown in the market, but most acutely impacting our canned vegetable business in the quarter, even though we continued to grow market share
In addition, Q3 was further held back by overhang from the GST change in India, primarily impacting our nutritional beverages business and to a lesser extent lost sales due to the hurricane impact in the Caribbean
At EBITDA, we saw the solid underlying growth I mentioned, together with the tight focus on costs show up at the EBITDA line
Adjusted EBITDA was up 6.4% in constant currency terms in the quarter and margin is now moving in a positive direction, consistent with the expectations we laid out on our last call
Going forward, we do expect the impact of the one-off factors I mentioned to fade in Q4 with organic sales reaccelerating, and this should happen despite a headwind from Chinese New Year-related shipments shifting into Q1 2018 due to a later-than-normal holiday
We also expect to better leverage the investments we've been making over the past year, driving stronger growth in EBITDA
This brings us to our outlook for the total company
I'll start by picking up on the sentiment <UNK> laid out earlier that while our numbers have not been as strong as they could have been, the impact our investments are making in the marketplace and our P&L are building the positive momentum we expect and need to continue delivering sustainable profitable growth
Our focus from here is to close out the year strong and make sure that we continue to make progress against the things that will drive positive momentum in 2018. This should play out on three fronts
First, seeding and growing organic sales
In the U.S
, this means executing our strong pipeline of innovation, renovation, marketing, and go-to-market initiatives
In Canada, to sustain the recovery in our activities at retail, as well as innovation-driven gains in our grocery portfolio; in Europe, to continue improving our share performance where we currently compete as well as capturing the whitespace in front of us including the repatriation of the Kraft brands; and for rest of world growth to accelerate with the return to run rate performance in both our EMEA and Latin America regions, each driven by a combination of innovation and whitespace gains
Second, continuing to build profit momentum
On cost savings, we're now targeting between $1.7 billion and $1.8 billion of cumulative Integration Program savings by the end of 2017, or $500 million to $600 million of net incremental savings in 2017 versus 2016. Ramping up supply chain related savings will be a key factor
We're confident that the savings are there, it's more a matter of timing relative to the end of the year
Another factor at work will be business momentum picking up in the form of sequentially better organic net sales growth in the areas where we've been investing the heaviest and the levers that provides at the EBITDA line
And finally, we continue to expect a more favorable balance between pricing and input costs as we go forward with Q4 sequentially better than the third quarter
The third and final part of our outlook is below the line costs, specifically the tax line
Based on the flow of discrete items we've seen through Q3 and what we're forecasting for Q4, we now expect our full year 2017 effective tax rate to land at approximately 29% versus the 30% we think is representative of our run rate on an annual basis
All things considered, we remain confident that a strong earnings profile should continue to show through, driven by a combination of profitable organic sales and EBITDA growth
Thank you, and now we'd be happy to take your questions
Question-and-Answer Session
This is <UNK>
And thank you for the question
So to summarize my comments from earlier, I'd say in Q4 we'd expect organic sales to reflect two things
One, some one-off headwinds from the U.S
and Canada, but we do expect this to be offset by acceleration in rest of the world
So I think that's kind of the trajectory you would expect for organic sales
The other thing I would say is we continue to expect strong EBITDA growth globally into Q4.
Hi, Matt
This is <UNK>, and thank you for the question here
So to answer your question, I think there are a few things to note on how the P&L is playing versus last year
So on gross margin, as you asked, the performance versus last year really reflects two factors
So first, we've seen an unfavorable balance in pricing and commodities, with commodity inflation that we've talked about in first half and last quarter
I'll reiterate that we did see improvement in Q3, and we expect to see an accelerated improvement in this balance into Q4. And in fact with that improvement in Q4, it should enable better flow through of savings – of our integration savings to the bottom line to EBITDA
The second factor here to highlight is we did have some increased depreciation and amortization expense within our gross margin line
If you actually take this out – and it's related to the footprint projects that we've talked about previously – if you take out this increase, our gross margin actually increased in Q3 by 35 basis points
So again, we started to see the improvement in Q3 which we expect to improve with PNOC and into Q4.
Hi, Rob, this is <UNK>
And thanks for the question
So to answer it, I think this increase in integration savings that we saw from the $1.7 billion to a range from $1.7 billion to $1.8 billion
Again, this is net of some of the inflation and investments we talked about, so that's an all-in number
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Okay
So it would've been higher, but are you raising your freight number in there also? Would it have been higher
Again, this is an all-in number, so it's net of some of the inflation investments that we've had
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Okay
Good afternoon
Thanks, <UNK>
And hi, <UNK>, thank you for the question
So on the SG&A line, I'd say we did see a significant decline versus prior year as a percentage of sales, and that really reflects lower people cost that we've seen, as well as ZBB savings versus prior year
The one thing I want to note to address your question is as you update your models, you should not straight-line the SG&A as a percentage of sales like you saw on year-to-date in Q4 – or sorry, year-to-date in Q3 into Q4, because we do have some seasonality in this line item
So I'd say if you think about EBITDA for the year – sorry, for Q3 globally, we saw strong EBITDA growth up $120 million to $130 million
That was really driven by two things
One, cost savings in North America, as well as growth in Europe and rest of the world
So if you look at North America, we're actually up $100 million, and the difference there, the $30 million, is really driven by Europe and rest of world
So in North America, we have the benefit of $125 million of integration savings
The delta there, the $100 million growth in EBITDA, was really driven by the unfavorable balance of pricing commodities that we talked about, which did improve in Q3, but was still had one for us, and that was partially offset by savings in the business
So that's kind of the rough trajectory of EBITDA versus prior year
Hi, <UNK>
Thank you for the question
So I think to answer your question, like I said, we had an increase in depreciation related to the footprint which if you strip this out we would've had increasing gross margin of 35 basis points
So I think the disconnect there is really timing related relative to the ramp up that we would see in some of these programs relative to the CapEx that we have to spend
| 2017_KHC |
2015 | XLNX | XLNX
#With the Qualcomm, I can't tell you without disclosing when they're going to ship the product.
Hence, I am precluded from answering that.
But other partners are in different stages of deployment.
If you are a little further ahead, if you are further behind.
And so over time, we do expect this to be a significant growth opportunity for us, but this is not measured in months.
This is a couple of years out, at the earliest, before it starts becoming visible.
Yes, <UNK>, on the spending patterns out of China, and just generally Asia, as we have been communicating here, we do see positive signs.
But we don't really see ---+ we see the positioning that there could be brisker growth out there, in the next two quarters, for us, the rest of our fiscal year.
But our customers are certainly not committing to that level at this point in time.
So it's one of those situations, again, where you don't know whether it's a false signal.
That they are saying, it could be bigger than this, it may not be bigger than this.
So we've put a number in that we think is more in the center of likelihood there.
And then relative to next year, it's very difficult to forecast for the whole year on the wireless segment, but I don't think we're looking at it based on how poor this year is.
I don't think we're looking at it as a down year for us, next year.
That's about all I'll say on that.
It's an emerging market, and it's a little too early to figure out how it will turn out, but it is clearly in the hundreds of million of dollars.
Could it be $1 billion.
Yes, it could be a $1 billion.
But I think it's premature to count on it being that big, because it is an emerging market, and we expect it to be a very bifurcated market.
Again, it's important to look at the end customers, and these are the big data center companies in North America.
And then there's the big data center companies in China.
Each of them has an ecosystem and an in-software environment that they totally control.
And they tend to have an application, which ---+ their applications are different, and they tend to do it their own way.
So we do expect it to come out with a vast plethora of solutions.
And we believe we will be in a good position to provide that, as opposed to dictate a small number of solutions, which we believe will be the competitive approach.
The biggest challenge to integration is power.
And if you look at this market, it tends to use a pretty high-performance processor and a relatively large FPGA.
You need those in order to get the acceleration.
If you look at those, those tend to be relatively power-hungry devices, so there's a limit to what you can do by integrating them to one package.
And so even if it's just interfacing to an Intel device, we believe that we will be able to provide a companion device, which will enable a differentiated solution for several of the players in that market.
So we do expect to play in that market, too.
And definitely in any non-Intel market, we expect to be ---+ to have a very strong position, with regards to servicing the requirements, as the primary provider of FPGA solutions, and the largest provider of FPGA solutions in the market.
So what typically happens is, when we roll out the first device, it goes through a lengthy evaluation phase.
And as soon as we get to clear understanding of the level of functionality, we then do a rapid rollout of the full-on devices.
The functionality of this initial device has exceeded all expectations.
We've got it back faster, and it operates much, much better.
And hence, we already shipped it to customers, just to demonstrate the level of functionality.
So I would expect the rollout of the next devices to be as fast as we can.
We do need to complete the evaluation of the first device; that takes significant amount of time.
Typically, this process takes about 1 year to 1.5 years from the first device until you have most of the family rolled out.
And given the success, and the fast turnaround we got from TSMC, and the functionality, both on the manufacturing side and the engineering side, we should do better than we have in any previous generation.
And it is a very broad and deep product offering.
It has a very high performance processor subsystem, with a significant number of embedded dedicated accelerators.
And the combination of those will enable us to take it and compete over time, against ASSPs, in more and more markets.
So it is ---+ we think this is a watershed moment for us, in terms of the rollout.
Yes.
At this point in time, we don't think it's necessarily a bellwether to any sort of a cycle.
It was just, I'd say, consistent with maybe what we've seen in some other component companies of a little softness in that market for a short time period.
So it was just a matter of the turns profile.
We still ---+ we are expecting continued strength on our new products in that particular area.
Some of the older designs, just we're taking a pause, probably some inventory adjustments there.
But the new products continue to be strong in that particular end market.
So I think it was more ---+ it's just more of a situation for how things played out at the end of the quarter than it is any sort of a forecast for the future.
And <UNK>, if I can just add color, it's a market that develops very, very slowly.
And as a result, to the extent there was a downturn, it was the older technologies, right.
But what we have seen ---+ and this was driven by Zynq ---+ is in 28 nanometer, we actually saw significant and vibrant growth.
So ---+ and this is an expansion play for us, because the Zynq product offering is different from anything we've had in the past.
So we are now seeing that enable us to grow into new areas.
And so we fully expect ISM ---+ even if there are pullbacks from time to time, we expect to see that to be one of our more promising growth markets going forward.
And it's Zynq and it's the MPSoC.
Again, given the nature of the design wins, some of those design wins, even on 28 nanometer, are five or seven years old, and are just now starting to hit the ---+ and become visible on the Zynq side.
And that will grow to be a bigger part of our business going forward.
So this is a never-ending process.
And it's ---+ I've often heard the term that we have reached saturation, in terms of our capability to improve, in terms of density, cost, et cetera.
And as soon as I hear that, we set a new bar and surprisingly, we hit the new saturation point.
So I think the opportunity for improvement, while not trivial, is very significant.
And we continue to do that on numerous fronts, and it requires a lot of engineering effort and ---+ both in house and together with our foundry partners.
But I don't think you should assume that this is as good as it gets.
Now, with regards to moving to future nodes, the good news is that we are reaching the old historic so-called saturation densities, with new nodes, faster than we reached them with old nodes, even though the new nodes are significantly more complex and have more manufacturing layers.
So I think, in particular, if you look at the [SIM C], their ability to continue to improve, and the volumes they run, are very helpful to help us improve on those fronts.
And we continue to push to achieve those, regardless of the node, both on old nodes and new nodes, and it's something that we need to do.
So the strategy is both to continue to improve in that regard, but also to provide market growth.
And the market growth comes through expanded product capability.
And that's ---+ I will admit that, over the past few years, I have two years of not delivering that.
But we are intent on delivering that going forward, for sure, much better than we have in the past two years.
I'll just add one comment on that, as we ---+ if there was a question behind your question around, are we sacrificing growth to protect margin.
And no, that's not what we are doing in this.
We end up ---+ what we have here is a situation where we have customer and end market mix that's pretty favorable for us, so we're at the high end of our 68% to 70% stated model for the current period and situation.
And there are ---+ we aren't tied by accepting deals at lower than that margin, if we need to.
We just have a portfolio and a balance, and we drive cost reductions where we think volume is going to be, and we put more focus on that.
And I think you're just seeing a disciplined, efficient situation that we put in place here in the Company, and I 110% agree with all of the things that <UNK> just said.
<UNK>, just to clarify, are you asking generally.
Or are you asking with data centers in particular.
Okay.
So with regards to data center and the acceleration, that subset of applications, as we're going through cloud-ification or whatever the appropriate word is, and that's a major growth element, a significant portion of the CPUs that are being deployed are now being deployed in these large data centers.
And the typical usage is very different from what the general purpose server did.
As they build up these big data centers in particular, when you look at the massive players in that market, they tend to have very specific applications.
And those applications tend to be massively parallel.
So if you think of things like search, et cetera, you can see how you could benefit from massively parallel solutions.
And what sort of happens is, for better or for worse, if you go to just making the CPU faster, the return there is not significant.
And if you just go to multi-core CPUs, there's a limit to what you can achieve there, again, without blowing the power envelope out the water, or out of the data center.
And so what has happened is, the biggest limiter is power.
And the performance per power configuration that you get from an FPGA or programmable solution is superior for most of these applications.
And the factor we have seen consistently is anywhere from 10 to 50, and it depends on what application exactly, and it can change even between ---+ in the same Company, as they shift things around.
So there is, if you believe, if you look at that, then that implies that the traditional ability to address the customer's requirements through selling them faster CPUs, or more parallel CPUs, is limited.
Hence the desire to have a programmable solution.
And the combination is very beneficial for what is becoming a very large part of the ---+ what used to be a traditional server market.
And that's ---+ best we can tell, that's what the customers are telling us.
That's what they're excited about.
We do believe that the Intel acquisition of Altera was driven by a desire to control that, and to make sure that the rollout is driven, and not in any way compromised, by the CPU power requirements and hence, the rationale for doing it.
And these same customers tend to have a very independent desire to control their destiny, which probably opens up opportunities for other non-X86 architectures, for other players, if there is a competitive X86 that will [shown] at the right point in time, together with FPGAs.
That may have been more than you asked, but that's the comprehensive answer.
Thank you.
I don't know if I can comment on others as compared to us.
I can certainly comment on our business.
Our strength in Asia Pacific was wireless business for us, a little better in China, and then the India exposure that we had mentioned earlier, I think in one of the answers to one of the questions.
Those are really the bigger drivers there, along with some wired business going on.
<UNK> talked about 5G prototyping; obviously, the Chinese manufactures are involved in that as well, and as well as the other Asian manufactures as well.
So we've been participating in all of that.
So we've seen really good new product and new development product, as well as some of the legacy LTE design wins that we've won, become stronger.
I would say industrial was solid or okay for us in Asia as well, but not knocking it out of the park.
The North America phenomenon for us was really more about the aerospace and defense business declining than it was anything else.
The decline was really driven mostly by the tail end of shipping into the Joint Strike Fighter, and the rest of our businesses there were good.
And in fact, the wired business was even up a little bit in North America, as well.
So I don't know if that helps you at all, <UNK>, but (multiple speakers).
Okay.
So sadly, it is smaller because we believe that the ---+ if you look at the Chinese approach, they invest very heavily in infrastructure.
And they do it on a broad level, and they do it quickly, and they try to make sure, maybe not at the same level you've seen in the Western world, that there is good coverage.
And India, culturally, it's incredibly cost-focused.
And the challenge that exists today in India is, even though there's over 1 billion people there, and it's definitely a large country, the problem is that there are a lot of carriers, probably far too many.
And I think very few, if any of them, are making any money.
So the approach is to do the minimum, right.
And as a result, the deployments are likely to be, in aggregate, quite a bit smaller than what has been done in China.
And that's ---+ it is what it is.
Maybe over time, it will improve.
But you go there, it is a ---+ still a very poor country, with a still-small middle class.
And if you go to China, you can see the infrastructure there is phenomenal, and the middle class there is much larger.
And so I believe that that's the major driver for the difference between those two deployments.
From a content perspective, there is no significant content differences.
Our [participation] is just gated by our penetration into certain manufactures who have won the contracts with various carriers.
So where we have more content at a given manufacturer, than we'll ---+ and they win the business in India, they won't participate.
But there's nothing about the structural content of an Indian base station that's really different than any of the other rest of the world.
<UNK>e, thank you.
Okay.
So maybe <UNK> can do the automotive one, and then I'll give you the answer to the very loaded questions you asked at the beginning.
Just at the high level on automotive business for this fiscal year, we're expecting a 30% year-on-year increase.
So full-year FY16 versus full-year FY15, we're expecting 30% growth in our automotive business.
And that's based on ---+ from a product perspective, it's based on our penetration of Zynq into a variety of applications, led by the advanced driver assistance capability.
Where we compete with Mobileye ---+ and by the way, we do have other design wins that aren't Mobileye-oriented.
They could be in radar, distance sensors, things like that, various different FPGAs than that.
But relative to the direct competition with Mobileye, it's around forward-looking cameras.
And so again, our business is broader than forward-looking cameras, but that's where we do the head on with Mobileye.
Our strength has been in the dual or stereo cameras, where there's two cameras looking forward, versus one mono-camera.
That's where we have got our original foothold, and we're very confident about our ability to compete with Mobileye across a broad set of platforms.
Several of our customers actually believe they are competitors to Mobileye, because they are doing the full solution and trying to win the designs at a variety of platforms at various automobile manufactures.
So as we sit here today, looking about this year's growth over last year, and next year's growth and the year after, we can articulate, to ourselves, pretty much every platform that we've won in this regard.
And can see the kind of growth level that is potentially ahead of us, again, continuing this double-digit growth on a go-forward basis.
Because we know we've won these designs, and the designs are very sticky for multiple car year models.
So with that, I'll hand it over, for the rest of the answer, to <UNK>.
And I'll try and respond to your very big question in a succinct way, because otherwise, we won't get home for dinner tonight.
But the ---+ my perspective, and this is no longer in dispute, is that the semiconductor world is going through a significant structural change, and it's being driven by economics.
And as a result, there's actually less and less players.
I think that that is no longer a bone of contention.
You just need to count, and see how much smaller it is.
It's significantly smaller.
There's fewer and fewer, to the point of almost none, getting refreshed through the venture world.
And the cost of moving forward, from generation to generation, is actually going up, and there's fewer and fewer players who can do that.
So if you step back and look at that entire trend, that clearly is an opportunity for companies who can move forward, and we are one of those companies.
That's why we were first at 28 with TSMC, first at 20 with TSMC as a semiconductor player, and that's why we got the 16 out way ahead of the competition.
The reason that we do that is not just for bragging rights.
It's actually because once we have that leadership, we can expand the markets that we address.
If you look at what happened to Xilinx over the past 10 years, the role our devices play, and generally the role FPGA devices play in a customer's systems, is changing.
And as a result, I will concede that the historic [glue logic] FPGA market is not growing.
But what is happening ---+ and you could argue that that is a reason not to invest ---+ but what is growing is the [SAM], in terms of new markets we're addressing.
If you look at our business, you can see that even though this is not happening quite at the rate we had hoped, we are displacing ASSPs.
So ---+ and if you look at the Zynq product offering, that required a new investment, a big investment, but it's now starting to pay off.
The past two quarters, both grew by around 40%, and this is just the beginning.
And that enables us to play, and in markets we have not played before.
So that's the strategy we have.
We believe that yes, the results are not there, in terms of the overall numbers.
But if you look at the change in the markets and the competition, then actually, there is an opportunity.
And in order to do that, we are continuing to develop and be at the leading edge.
Having said that, we can still do it and deliver profitability, which is in the higher echelon.
So I ---+ our strategy is to continue doing that, because we believe that the opportunity is there, the markets are developing and unfolding.
And if, just to take one example, automotive was a market which was very, very low single-digit percent for us, and now is ---+ we expect for that to grow over the next few years.
Industrial control, again, another slow market, is a market where we can displace a lot of solutions, where in the past, the customer would go to Freescale and TI, et cetera.
And to a large extent, a lot of those historic players are no longer around.
And part of that strategy requires us to continue to provide leadership.
It also requires us to invest heavily in tools, so that our customers can exploit the opportunity that our silicon provides them.
And that's an ongoing element, and that's the strategy at this point in time.
The challenge on the M&A side is that there's very few companies out there, that we can buy, that fit into our business model and actually augment our offering.
And hence, you agree ---+ you're right in pointing out that we haven't done much there.
But I do believe the investments we're making, while continuing to deliver best-in-class profitability, will over time enable us to continue to grow.
Okay, <UNK>, thanks for the question.
So it has been very successful.
There is tiers of products that we are providing.
There's high level synthesis, which is something we have had for close to five years, and there's the SDX families of products that are going out.
We have ---+ SDX-L, I believe, has thousands of users at this point in time.
SD-SoC is starting to be used broadly.
It's a big enabler to grow the population of users beyond the hardcore ---+ hardware FPGA designers.
So it is essential, and the technology is doing well, and the market deployment is doing well.
The reason that the financial implications aren't yet visible in a big way is that the initial targets for those markets were industrial control and automotive, and those two markets move at a slower cadence.
With the new generation, we're actually expanding the number of markets we're addressing, and we expect to see increased adoption of them.
So yes, it is essential, and it is something we need to do in order to displace ASSPs and to address the bigger SAM.
And so far, in terms of the technology and the deployment, it's going according to plan.
Yes, sure, thank you.
| 2015_XLNX |
2016 | CINF | CINF
#Good question and it hasn't come up yet, <UNK>.
I think it's just a mixture ---+ we are using a very opportunistic allocated capital approach, so we are really not focusing on particular lines of business, and so we are just looking at them account-by-account trying to make sure that we understand each one both quantitatively and qualitatively.
And since we are, I think, in a pretty good position as a startup, we can be very selective, but it is not driven by any particular line or coverage type.
Yes, I don't really have a precise number.
It was a good mix, in that 50/50 range give or take, but I don't think you should read anything into that in terms of run rate or anything as we do look at it opportunistically.
No, I think that issue is a little bit separate, so, again, it's just looking at the reserves following a consistent process and looking at it from a quarter-to-quarter basis.
So that was a little bit different.
Following the normal process, but mostly case in the D&O.
Certainly there was nothing ---+ again, nothing that was special that was in there following our normal process.
I would say that it was spread over ---+ actually that one was spread over some pretty evenly accident years.
So you are looking at 2015, 2014, 2013 about $4 million for really each one of those and $4 million per year and then it was $3 million for accident year 2013 and prior.
So it was really just following our standard process and again, it's kind of tough.
As we are growing it, it's still I will say young, but you've got a lot of new policies coming in and we are just being conservative in the way we set our picks there.
In terms of our share count, it's about 166 million, <UNK>.
166 million.
Thank you, <UNK>; and thank you so much for your comments regarding us.
Thank you.
It means a lot.
Thank you, Jessa.
Before we end, I did want to correct one set of numbers that I gave in answer to Paul <UNK>'s question.
I picked up the wrong line and in terms, Paul, of the auto current accident year combined, or loss ratios before catastrophes, it's 79.1 for the current quarter, 81.6 same quarter a year ago, but my comments reflected the auto.
And with that, I'd like to thank all of you for joining us today.
We hope to see some of you at our annual shareholders meeting Saturday at the Cincinnati Art Museum.
Others are welcome to listen to our webcast of the meeting.
It's available at cinfin.com/investors and we look forward to speaking with you again on our second-quarter call.
Thank you very much.
| 2016_CINF |
2017 | DLTR | DLTR
#All right, thank you.
I would thank you for the question, because it gives me a chance to brag a little bit on our folks who have worked very hard on really just the basics, but the hard work that goes into running our stores.
Where are we.
While we know we're not to the finish line, but I would color it this way.
Our in-stocks, what our customer sees on the shelf, is certainly better than where we started 18 months ago.
In our efforts to catch up on some of the deferred maintenance and cleaning, and the basics that we need to run a full, clean, recovered store are in place.
Our operational teams are heavily focused on our consistency of providing that day in and day out.
I commented on it, but for our customers, it really revolves around, are we first-of-the-month ready at Family Dollar.
That's a very important focus for us to gain consistency with our customer.
It tends to show up with our first-of-the-month business and our share of SNAP that we take.
Those are the things that I would say we've improved on.
We have more work to do across all of those.
I am pleased with the efforts our folks are putting towards it.
It's going to be one of just the basic table stake foundational initiatives that we stay with for several years, because we will always be able to find a way to improve.
As we start to be able to renovate some of our older stores, our customers store by store will see something that's different.
That's just as important when we're talking about the stores that serve their neighborhood.
I'm encouraged with where we are at.
More to be done, but it's a consistent message and focus around the organization right now.
Hi, <UNK>, this is <UNK>.
I will take the first part.
In order to answer your question about Duncan, let me take you back to about 18 months ago when we made the acquisition of Family Dollar.
At that time, if you remember there was no President at Family Dollar.
The President had already left.
I thought that when we made the acquisition that it was extremely important first day to have a President in place.
<UNK> <UNK>, who had been President at Family Dollar, my partner here for a long time, stepped up and went down, moved down to <UNK>s, and on day one we had a president of Family Dollar in place to lead the team.
He's done a terrific job energizing the team, communicating, building the initiatives, getting some traction on the business, cleaning up old inventory, doing all the things to revitalize the marketing campaign and the customer communication.
I couldn't be more proud of what <UNK> has done.
But I was still one President short with that combination.
As <UNK> went down to <UNK>s, we launched into a national search with a national search Company, looking for a President, a future President of Family Dollar, and we found Duncan.
I will tell you that Duncan, when we met, I knew that he was exactly the right person for this job.
His background, he had consumer products background, he had supermarket background, he had big-time discount store background, and he had demonstrated throughout his career a real ability to build store teams, to build merchant teams, to build an organization, and to drive success.
I was real pleased to bring Duncan on board.
Duncan has been down there just a short period of time, but I will tell you he is stepping in, and he's started running.
If you talk to the folks down at Family Dollar, I think you would hear from them that they really have engaged with Duncan and he has engaged with them in a positive way.
We're very excited about adding Duncan to the Management team.
In addition at this point in time, we brought <UNK> ---+ we elevated <UNK> to Enterprise President.
As Enterprise President, <UNK> now has responsibilities for all the customer-facing initiatives, all of merchandising, all the store operations, and real estate across both banners.
<UNK> reports to me, as does the shared services organizations report to me.
That was the trail of how all this began, and we're really pleased to have Duncan on board.
We're also pleased to have <UNK> in a new role.
I'll let <UNK> speak to the second part of the question.
Good morning, <UNK>.
From a big-picture perspective, in regards to comps, obviously from a Dollar Tree side of the equation we expect the cannibalization we've seen from the re-banner process to dissipate as we go through Q1 and Q2, and really be pretty much done by the end of Q2.
The back half really shouldn't have any head winds, per se, from the re-banners for the most part, so that's a positive on that perspective.
I think on the Family Dollar side, we think it's been a little harder for us to forecast, just in general I would say, just from a rhythm standpoint at this point in time, so we take that into consideration.
There's been a little bit more variability to the business.
It doesn't mean we believe they're not going to comp positive and be able to be a meaningful contributor at the end of the day.
I think the way we're going to look at it as we go forward is we're going to give you enterprise guidance, and then when we report the quarter we will break it out and give you the two segments, as well.
That's how we're thinking about it going forward.
From maybe a little bit bigger picture for the year, from a ---+ speaking to the moving pieces within our P&L, so to speak, on a consolidated basis, we do expect to see improvement in our gross profit this next year ---+ for this year we just started, I should say.
Really, expect mark-on to continue to improve in both banners.
We're going to work to lower our mark-downs as a percent of sales in our Family Dollar banner.
We're going to continuing to see a little bit of geography change from the standpoint on the Family Dollar banner.
We talked about this last quarter in the sense of our process where we're getting our co-op dollars net in our first costs, as opposed to offsetting advertising.
You have the benefit in gross profit; you actually see advertising expense in SG&A go up, but that's a geography difference.
We know some of those improvements are going to be somewhat offset by the higher freight costs that we've already talked about, but in general we're expecting gross profits to improve.
On the SG&A side, I think there's expecting flattish to maybe a slight improvement.
I think the head winds are, in SG&A, are going to be the pressure on store wages in both banners.
Again, we've got minimum wage increases and just general average hourly rates that are increasing more than what we've seen over the last probably four or five years, realistically.
As well in SG&A, we do have the advertising that I spoke to that will be an increase year over year.
Somewhat offsetting that then is we will expect lower depreciation, based upon the range I gave this year.
The mid-point of that range would be $620 million, which compares to last year's actual of $637 million, so depreciation is actually going lower.
Those things, as we look at that then, if you look at our operating income, at that mid-point of our guidance you would be looking at operating income of approximately 8.8% to 8.9%, which is a compared to the 8.23% that we reported on the press release today.
At the mid-point, still a nice increase in the overall operating income as we go forward.
Those are some of the moving pieces, big picture, as we move into 2017.
Hi <UNK>, <UNK>.
I think one of the things that you point out with the question is the synergy does give us some flexibility in our sector.
We certainly monitor all of the price checks, like everyone else, and what's happening across not just our sector but also the other channels as well.
Over the last 18 months, we have had a very mindful eye exactly where we are compared to each of the targets we have by market.
Our answer to that has been Smart Ways to Save, which gives us flexibility, and maybe even more than that, points to the way we show our offers to a Family Dollar customer.
We do see a customer that shops differently ---+ I mentioned first of the month before.
Clearly that's a big driver for us.
What's on shelf and end caps and either it's on sale or a priced drop is how we're approaching it.
Looking forward, we are going to watch everyone this year, as we go into price checks and see what they're doing across the shelves, and we'll react accordingly.
But to some degree, you know it's not new news.
Everyone has been waving their flag on saying they're going to bring value.
We're in a sector that delivers that with a convenience factor attached to it for our customers.
That's how we're thinking about it starting off the year.
<UNK>, again as I said in my prepared remarks, it hasn't been passed yet.
If it is passed, we really need to see what it covers and how it's done and what the rules are and all that.
I'm sure we'll be able to respond accordingly to that.
We have a lot of levers across both banners that we can do.
I believe that the pressure on the consumer is going to be potentially if passed the way everybody is contemplating could be a real issue for the consumer, but as far as retailer ---+ we're a retailer just like everyone else, we will respond accordingly.
I will tell you this.
At Dollar Tree, we are ---+ for 30 years we've been $1.
You talk about the price point.
I've been asked that question for a long time on other issues as cost changes, as expenses changed, as the markets changed, as inflation, deflation, and the like.
We are able to manage that, because we are able to manage our assortment at Dollar Tree.
As long as a dollar is a unit of currency I believe, and we can offer the best value, then we've got a business.
Let's wait until we get there.
Let's let us see if it's passed, and if passed, then what the rules are, and they we'll respond accordingly.
But I believe we have as much a right as anyone to respond and run a great business going forward.
It will be different, but let's see what the rules are first.
Good morning.
Hi <UNK>, this is <UNK>.
Let me take a swing at it first.
We're excited to have 300 stores and the renovations.
What you're going to see ---+ listen, the headline is, how do we drive a more productive store for our customers at Family Dollar that really enhances the shopping environment.
You're going to see some things that both drive traffic and enhance the customer's shopping experience, especially on the discretionary side as well.
I am not going to give the blueprint of everything that you'll see out there, but the model will be small box, still.
We certainly know how to run our box, both in urban and rural.
What we're going to drive is really the categories and adjacencies that make sense in a Family Dollar world.
I think our opportunity is to find the categories that consistently drive in traffic week in and week out, which has not always been the case as the box has been developed over time.
We certainly have the pieces to make that a better shopping environment for our customer.
Some of that can be our consumables and the frozen food and on the margins pieces, so the elements we do on seasonal.
We aren't the same party department that Dollar Tree is by a long shot, but certainly our customers still have birthdays and celebrate seasons, and those are things that we can enhance and shine up in a Family Dollar world.
The difference that we really have is we still have apparel.
Apparel is a category that for us we can win in.
It's always been a matter of space, and the dedication that you give it within the store.
Those are some of the items that when you combine with the basic elements, are smart ways to save that will come to life in these stores in a way that show our customer categories adjacencies and the items they need and want, we think, in an exciting shopping environment, is what these will look like.
You'll see a split with both urban and rural locations.
We know we can be successful in both, and you will see that split ---+ maybe not evenly between the two locations, but it will be fairly close on both.
Well, I'm counting on it.
Listen, I'm thrilled to have Duncan as a partner, number one.
Duncan is going to help us tremendously.
I would tell you that.
I would echo what <UNK> said, his experience doesn't need me to polish it up.
He's going to be President of Family Dollar.
He's going have as strong a voice as anyone at the table.
Here's what I'd like to think about.
Listen, the price checks ---+ I get more than everybody out in the field, I am sure.
The way I take a look at the price checks, and whether it's 10% ---+ and I don't know where you're checking, but we react accordingly.
It comes across both on-shelf everyday pricing.
We're rooted on EDLP.
We need to show a weekly promotion when we put our ad out there.
We want to show our customers savings on Price Drop, which are some of the things they buy most often.
It's a combination of all those things that we go to market with that react to a Family Dollar customer.
We're going to be mindful where Wal-Mart is, and certainly anybody in our sector.
But we have more than one tool to go to show our customer value in our store.
That's how we think about it.
Well, I would say, <UNK>, that as strong as they have been, in my opinion, the mix at Dollar Tree ---+ we have two different banners here.
We're a lot more discretionary in the Dollar Tree banner than in the Family Dollar banner.
My expectation is that we'll continue to grow both discretionary and consumable, but mix is going to be pretty much I think the same.
At Family Dollar, I think there's an opportunity to sell a little more discretionary.
We're going to still go after the consumable business.
We want to be the place where our customers shop for the things they need every day.
We want to be convenient.
We want to have great values for our customers and all the things that they need.
We're not backing down on the consumable business.
At the same time, we want to offer them more of the things that are discretionary at great values.
<UNK> mentioned some of the things.
Everybody has birthdays, our apparel business, our home business.
We have, I believe, terrific opportunities at Family Dollar in driving more discretionary business in our home departments, for example.
It's a big question.
It's a good question, but at a high level, that would be my answer.
As we get down into walking the stores four by four, that's how we likely look at it.
Where should we expand, where do we have the opportunity to expand, what's our customer telling us that they want more of, how are they responding to our tests when we expand a category.
That's really where we're going to get our answers.
Thank you for joining us on today's call, and for your continued interest in Dollar Tree.
Our next quarterly earnings conference call is tentatively scheduled for Thursday May 25, 2017.
Thank you, and have a good day.
| 2017_DLTR |
2015 | ACIW | ACIW
#Thanks, Phoenix and good morning, everybody.
Today's call, like all of our events, is subject to both Safe Harbor and forward-looking statements.
You can find the full text of both statements on the first and final pages of our presentation deck today, a copy of which is available on our website, as well as with the SEC.
On this morning's call are <UNK> <UNK>, our CEO and <UNK> <UNK>, our CFO.
With that, I'd like to turn the call over to <UNK>.
Thank you, <UNK>.
Good morning and thank you for joining our call.
Our quarter two is a very productive quarter and we continue to be on track to achieve our full year goals.
We delivered strong growth in net sales bookings of 18%, while overall sales bookings including term renewals grew 24%.
Our UP enablement strategy continues to gain momentum.
In Europe, a large financial institution purchased UP BASE24-eps 2.0 for their faster payments platform.
This is one of the many initial [iterative] steps towards the adoption of a broad UP enablement strategy across all our markets, and it is an important validation of the unique UP concept.
For a decade, ACI has been the backbone of faster payments infrastructure in the UK, and our leadership role there is expanding our opportunity as similar, faster payments initiatives are being contemplated throughout the world.
In the Americas, we signed a large hosted contract with a value-added vendor in the mortgage entitled industry to provide an innovative solution uniquely utilizing both our EBPP remittance services, as well as our MTS wire application.
This is another new vertical and use case and has already led to increased discussions in the sector.
Our renewals was also strong, growing 37% in the quarter and we're happy to announce a five-year extension with the IRS for Federal tax bill payment services.
As you know, the tax payment space is competitive and ACI was chosen largely because of the proven reliability of our systems.
We continue to see strong and growing pipeline of UP opportunities and expect interest to increase with the fourth quarter launch of our Linux-based version of the UP BASE24-eps 2.0 product.
Extending the BASE24 application to Linux systems has the potential to reduce our customers' hardware and middleware overhead costs by more than 50% and allow them to more broadly deploy the UP framework for efficiency and in consolidation throughout their network ---+ throughout their organization.
We are also investing in our retailer focused offerings as we continue to experience growing demand for these payment engines.
Combining the e-commerce capability of our recently acquired ReD with our legacy platform creates a truly differentiated omni-channel multi-payment offering.
Notably, ACI is taking a leading role in Payments.com, R2 Retailer Payments Conference in Chicago next week.
We expect the event to generate important dialogue on sales leads given the disruption permeating the retail payment category.
Many leading retail brands will be present both as discussion leaders with ACI executives and as conference participants.
I'm very proud of what we've accomplished this year-to-date and we're tracking well to achieve our full-year targets.
I will now hand the call over to <UNK>, who will discuss our financial results and 2015 expectations in more detail.
Thank you.
Thanks, <UNK> and good morning, everyone.
I first plan to go through the highlights of our second quarter and then provide our outlook for the full year 2015.
We'll then open the line for questions.
I'll be starting my comments on slide 6, with key takeaways from the quarter.
As <UNK> already highlighted, we had a very strong sales quarter with overall sales bookings in Q2 including term extensions up 24% over last year, net new sales bookings up 18% from last year's Q2 and up 9% excluding the [$14 million] contribution from ReD.
And we remain on track to deliver our full year target of high single digit growth in net sales.
Moving to backlog, we ended the quarter with 12-month backlog of $883 million, down $11 million from last quarter after adjusting for FX and 60-month backlog of $4.1 billion, down $10 million from last quarter after adjusting for FX.
It is important to note here however though that during the quarter, we made the decision to exit a bill payment sub-segment as a result of regulatory changes impacting that particular vertical.
The net impact to our 60-month backlog was approximately $30 million.
So absent this decision, 60-month backlog would have been up $20 million during the quarter.
We saw revenue of $266 million in the quarter, up 4% from Q2 last year or 6% on a constant currency basis, and excluding the incremental impact from the Retail Decisions acquisition, our organic revenue grew 4% on a constant currency basis.
Recurring revenue grew to $194 million or 73% of the total and specifically, our SaaS subscription and transaction-based revenues continue to grow, up 9% from Q2 last year.
Our adjusted EBITDA grew to $58 million, up 3% from last year's Q2 and when combined with our strong Q1, adjusted EBITDA is up 9% year-to-date.
We ended the quarter with $50 million in cash on hand and after paying down $84 million in debt year-to-date, we ended the quarter with a debt balance of $808 million.
Our operating free cash flow declined in the quarter, mainly due to the timing of a couple of large renewals that happened late in the quarter.
We now expect these cash receipts in Q3.
Also of note, during the quarter, we received cash proceeds of $35 million and recorded a gain of $24 million from the sale of our holdings in Yodlee, Inc.
stock.
Lastly, turning to slide 7, based on our solid performance year-to-date and our outlook for the second half of the year, we are reaffirming our previously provided full year 2015 guidance.
We reviewed and are comfortable with the Firstcall estimates for our full year revenue and EBITDA expectations.
We continue to expect full year non-GAAP revenue to be in a range of $1.04 billion to $1.07 billion.
We expect 2015 non-GAAP EBITDA to be in the range of $280 million to $290 million, which is also unchanged.
And as I said earlier, we expect sales net of term extension bookings to be in the high single digits for the full year.
A couple of other items, foreign currency fluctuations and expectations have not changed materially since last quarter's guidance was provided, and we do expect Q3 revenue to be in a range of $235 million to $245 million.
And lastly, our guidance excludes approximately $12 million in expected one-time integration-related expenses for our continued datacenter and facilities consolidation and bill payment platform rationalization.
That concludes my prepared remarks.
Operator, we're ready to open the line to questions at this time.
Thanks.
This is separate and distinct customer.
This is an upgrade to faster payment and actually using ---+ bringing in 2.0 for a broader application than how they were using our products in the previous generations.
So it's a nice validation of UP and it's also a nice validation of our ability to support the 31 countries around the world that are implementing faster pay right now and it's a good validation of UP's utility in that regard.
What I can comfortably tell you is that, last time I told you that we were actively involved with about a dozen and I can tell you that, that number ---+ that active dialogue is now reached a number that's at or above a dozen and half.
And there is a large assortment of use cases at this point.
So, we are very pleased.
These are transformational projects, so we're not going to be overly aggressive in terms of saying when.
The only other thing I will say is that we've not fallen off the charts with any of our dialogues at this point and each one has actually had probably more steps to conclusion than I would have predicted at the inception of the dialogue.
But we are growing very nicely and the interest is truly global.
We've created a real-time wire process for the closing of mortgages, [and they've even been through] a mortgage process.
We've kind of brought it into the 21st.
We have really supported ---+ and it's not a mortgage company, it's a supplier to the mortgage industry.
And I can't tell you their name, but they now have a process for which they can give you real time support to the closing process that utilizes wire.
So, the process is much cleaner and much more straightforward.
So a lot of people realize that real time payments should and does include wire as being one of the forms of real time.
I think if you look at Q3, I mean, yes, we beat the second quarter, part of that was timing of deals that came in from Q3.
We've said in the past that there are ---+ last year, we said there was certain customers that were deferring things like capacity purchases and waiting to make that decision.
At some point, the time runs out and they have to come back and purchase capacity.
So it was a strong capacity quarter.
It was really timing based on the market and, so that would be part of the Q2, Q3 optics.
I think the ---+ being a banker for as many years as I was, it would be very unfair for me to say that ---+ it'd be very unkind for me to say that a large percentage of bankers are [lemmings] and very few are change agents, but that might actually be the case.
We actually have a pilot going and I can't tell you who the pilot is.
I think that when the numbers ---+ I think there will be a lot of resistance from people who have large revenue streams at stake.
But I think when the numbers kind of prove themselves out and the significance of our active ---+ active working at the software level to the extent that it enter the perfection that it does.
I think when that proves itself out, I think there will be an orderly rush to Linux because it ---+ and if your revenue is coming down, if the regulators are bringing down the top line payments, you have to do intelligent things on the bottom line and this is a really intelligent thing because it doesn't do anything but perhaps improve your flexibility and lowers your cost.
So it makes a lot of sense.
The gating factor, gating is like in a horse race versus a gate is, there'll be a natural rollover of the hardware contracts.
And I think that will be the ---+ those will be the timings in which it will be reviewed.
But the numbers that we're giving you that are around 50% is actual use case experience of our pilot at this point.
So I think the numbers are very, very compelling.
Thanks, <UNK>.
Here is the way I explain the math to everyone, and I should explain it to you.
The answer is yes, and it was I felt a lot less comfortable saying yes when I had four or five deals and each deal you could say, well, from a timing standpoint it has a 20% to 30% chance of closing by the end of the year.
If we now have 18, 20 deals that are actively working their way through the pipe and they've got, you know what, 33%, 40% ---+ 25% to 33% chance of closing between now and the end of the year, the probability that one or two of those actually close gets very, very high.
It gets very, very high that it actually happens.
So can I tell you which one it is.
No.
Can I guess which one of five or six or which two of six or eight it is, I could kind of guess.
But I think the probability gets very, very high because we're now getting to references and things are getting to boards and things like that.
So I'm feeling more and more confident that the answer is yes.
I'd say there's probably two drivers there.
One, first, you have to take out the growth in the interchange, that's the pass through of cost that we have in the bill pay business, that growth was up $4 million year-over-year.
But we also had a large implementation project that finished up in the second quarter that was taking ---+ that took quite a bit of resources to get it done.
The plus side of that is now we free up those resources for second half pipeline implementation.
So I would say those two.
So let me be more direct, right, not that <UNK>'s not been direct, but ---+ and this is kind of ---+ this is internally a cause for celebration.
I told you guys many quarters ago that our fun times with the justice department over nothing in the acquisition of S1 we landed up inheriting a very [dis-economic] deals that we didn't discover till several months after we were integrating the business, because we weren't allowed to look at the business for the last six months before we purchased it.
And went and told you that we're taking our lumps and we moved on and we handled most of those contracts.
The final one of those contracts just completed and to give you guys an idea of living up to our word, we got a couple of million dollars of revenue, which I think we recognize ratably or whatever, and we just finished spending about $25 million putting that system in.
And so, that's actually instead why we're celebrating because that frees up an awful lot of capacity to earn real revenue going forward.
And why did we do it versus cut our losses and walk away and we did it for honor and reputation, and we bought the company that did a bad deal and we lived up to that deal.
So that stuff is all beyond us and even if you take that extra expense, S1 was still a wonderful acquisition.
So we're not going to cry in our fear about that.
And I would actually add a third element, is that, our hosting business is doing very, very well and the more we grow the hosting business, the more we temporarily depress its margin as we implement, because if ---+ as long as the percent of implementation grows, you temporarily bring its margin down and we for one don't want ---+ we like that percentage growth actually growing, it can't continually grow, but we like it growing, we're doing a lot of things to improve the speed of our implementation.
But as we've had this nice growth in growth rate in terms of the SaaS cloud part of our business, it depresses and then you take the revenue ---+ you don't have the revenue celebration on (technical difficulty) an installed basis, you then take it ratably.
Thanks everybody for joining the call.
We look forward to catching up with most of you in the coming weeks.
Have a good day.
| 2015_ACIW |
2017 | FII | FII
#Good morning.
Thank you, and welcome.
Leading today's call will be Chris <UNK>, Federated CEO and President; and Tom <UNK>, Chief Financial Officer.
And joining us for the Q&A is Debbie <UNK>, our Chief Investment Officer for the Money Markets.
During today's call, we may make forward-looking statements, and we want to note that Federated's actual results may be materially different than the results implied by such statements.
We invite you to review the risk disclosures in our SEC filings.
No assurance can be given as to future results, and Federated assumes no duty to update any of these forward-looking statements.
Chris.
Thank you, <UNK>ay, and good morning all.
I will briefly review Federated's business performance, and then Tom will comment on our financial results.
Looking first at equities.
With favorable markets and solid investment performance, we closed Q1 with record high equity assets of just under $65 billion.
Total assets in the domestic and international strategic value dividend strategies increased 4% in the first quarter to reach a record high of $38.9 billion.
The strategic value dividend fund's investment performance was solid in the first quarter, returning 5.3%.
This ranks it in the top 9% of funds in the Morningstar category, which it has been assigned, namely Large Cap Value.
We have emphasized in the past that this fund pursues a strategy different than many of the funds in this category and has moved regularly between the first and fourth quartiles over its history.
In fact, looking at the fund's quarterly returns since its 205 inception, it has been either in the first or fourth quartile 92% of the time.
And the time spent in the first quartile and the fourth quartile has been split evenly.
So the fund ranked in the top 13% on a trailing 3-year basis at quarter end, the top half for 5 years and the 98th percentile for the trailing 1 year.
Importantly, for the fund's objective of producing a high and growing dividend income stream from high-quality companies, the fund's 12-month distribution yield of over 3% ranked in the categories third percentile at quarter end.
Now while the $14 billion fund had first quarter redemptions net of $630 million, net redemptions were lower for each month of Q1 compared to December.
The $21 billion SMA strategy had Q1 net redemptions of $28 million.
Net sales for all equity funds in separate accounts in Q1 were negative at minus $1.4 billion.
However, funds with positive net sales in the first quarter included MDT Small Cap Core, MDT Small Cap Growth, Clover small value, Pru Bear and the Muni stock advantage fund.
Using Morningstar data for trailing 3 years at the end of the first quarter, 2 Federated funds were in the top docile, 8 funds or 31% were in the top quartile and 42% were in the top half.
The trailing 1 year were even better with 9 funds or 32% in the top quartile and 16 funds or 57% above medium.
On a Lipper basis, 3/4 of the assets that they rank on our equity funds are in the top half over a 3-year period.
In addition to Strategic Value Dividend, other top quartile trailing 3-year equity strategies at the end of the quarter included the MDT Small Cap Core, Small Cap Growth, Kaufmann, Kaufmann Small Cap and Muni stock advantage.
Three weeks into the second quarter, net sales of equity funds and SMIs ---+ SMAs combined are negative at about the same rate as the first quarter, while the Strategic Value Dividend Fund in April is on a similar pace to Q1's net redemptions.
The Strategic Value Dividend SMA had positive early second quarter net sales.
Turning now to fixed income.
Overall, Q1 net redemptions were minus $326 million with positive fund net sales of $155 million offset by negative net sales from separate accounts of $481 million.
Net fund sales were led by high yield, the floating rate fund and the Total <UNK>eturn Bond Fund.
On the separate account side, we added a $62 million high-yield account and added $15 million Trade Finance win fund into our new Trade Finance tender offer fund instead of a separate account.
We also had a $126 million of wins from last quarter that had not yet funded by the end of the first quarter.
Net redemptions for separate accounts were primarily due to institutional account outflows due to model and asset allocation changes and redemptions driven by the clients' use of cash.
Our fixed income business has a variety of strategies that are performing well.
At quarter-end using Morningstar data, the Institutional High Yield Bond Fund was in the top 6% for the trailing 3 years, top 11% for the trailing 5 and the top 5% for the trailing 10 years.
Our Total <UNK>eturn Bond Fund was top quartile for the trailing 1, 3, 5, 10 and 20 years.
In total, we had 9 fixed income strategies with top quartile 3-year records at quarter-end.
Others include Floating <UNK>ate Strategic Income and Ultrashort bond.
Fixed income net sales for funds are slightly negative early in the second quarter.
Now looking at money markets.
Total assets in the funds and separate accounts decreased by $7 billion from Q4.
The previous discussed transition of a $21 billion money market fund to a subadvised separate account impacted the reported assets by product type.
Excluding this transaction, money market mutual fund assets decreased by about $10 billion from Q4, and separate accounts added about $3 billion.
Our money market mutual fund market share at the end of Q1 was 7.5%, about the same at the end of 2016.
Money fund assets remain concentrated in government funds.
We believe that as spreads widen, investors who exited prime funds will over time consider and reconsider their options, including our recently launched private prime fund and our collective prime fund.
We also believe that a rising rate environment will be positive for money market funds and will encourage investors to shift some money from bank deposits.
Our prime collective and prime private funds had about $460 million in assets at the end of Q1.
Taking a look at our most recent asset totals as of April 26.
Managed assets were $262 billion, including $245 billion in money markets, $65 billion in equities and $52 billion in fixed income.
Money market mutual fund assets were $174 billion, about the same as the average so far in April.
Looking at distribution.
Q1 was another solid sales quarter for our SMA business with over $1.9 billion in gross sales and $16 million in net sales.
Total SMA assets ended the quarter at an all-time high of just over $25 billion, an increase of $6 billion or 33% since Q1 of 2016.
Federated ranked fifth in the [MII Dover] rankings of the largest SMA managers at the end of 2016.
In the institutional channel, we recently won mandates in high yield and Strategic Value Dividend.
We began Q2 with about $500 million in separate account wins yet to fund, including approximately a $126 million of wins from last quarter not yet funded.
This is offset by the amount of expected separate account redemptions.
We also had an institutional win in Q1 for our Trade Finance strategy that should fund for about a $125 million later this year in our Project and Trade Finance Tender Fund.
<UNK>FP and related activity continues to be solid and diversified with interest in MDT Small Cap and other strategies for equity, high yield and short durations.
We are prepared for the changes in the landscape related to DOL fiduciary rules.
We have 26 funds with <UNK>6 pricing, 56 funds that fit the definition of clean shares.
We put the offering of our T Shares on hold pending the delayed application of the DOL fiduciary rules and final direction from intermediaries.
We are well positioned with our $25 billion SMA business with 14 equity strategies and 8 fixed income strategies.
SMAs worked very well in a level fee wrap account structure offering transparency and potential tax advantages.
Federated, as we've mentioned before, has extensive resources and institutional knowledge and experience to assist intermediaries to navigate the changes that come directly or indirectly from the new fiduciary rules adopted or not adopted.
We have helped bank trust departments with these same challenges for decades.
We see this as an opportunity to add significant value for our clients and recently launched a new website called fiduciaryluminary.com as a value-add program for advisers on managing their practice as a fiduciary.
On the international side, we recently announced the addition of a new business development team for Asia-Pac.
The effort is led by Bill Taki, who joined Federated as the CEO of our Federated Investors Asia-Pac project.
Bill has broad and deep high-level relationships in the region cultivated over 34 years of experience in business development.
The 4-member team will focus on the regional distribution of Federated's investment strategies and growing strategic relationships with financial institutions.
The new effort for Asia-Pac complements our European, U.K. and Canadian operations.
In Canada, with last year's rollout of the new Canadian-domiciled Strategic Value Dividend Fund, assets are approaching $2 billion, up from $1.6 billion at the end of 2015.
We continue to sync ---+ seek alliances and acquisitions to advance our business in Europe and the Asia-Pac region, as well, of course, as in the United States and the rest of Americas.
Tom.
Thank you, Chris.
<UNK>evenue was up 1% compared to Q1 of last year due to lower yield waivers and higher revenues from equities, largely offset by lower money market-related revenues, which included the impact of the previously discussed change in a customer relationship.
The revenues decreased 6% from the prior quarter due largely to the same change in the customer relationship and to fewer days.
Q4 revenues in 2016 also included approximately $3 million related to a nonrecurring fee credit from a fund service provider.
These amounts were partially offset by lower yield waivers.
Equities contributed 41% of Q1 revenues, and combined equity and fixed income revenues were 58% of the total.
Operating expenses decreased 1% compared to Q1 of last year and decreased 5% from the prior quarter.
The decrease from Q1 of '16 was due mainly to lower comp and related expense reflecting lower incentive comp accruals and lower professional service fees.
This decrease was partially offset by an increase in distribution expense and lower yield waivers, and higher equity and fixed income assets.
The decrease from the prior quarter was due mainly to lower distribution expense reflecting the change in a customer relationship, lower average money market assets and 2 fewer days.
In addition, Q4 distribution expense included a $2 million expense to correct certain underpayments of past distribution costs.
This decrease was partially offset by higher comp and related expenses.
Comp and related for Q1 was impacted by seasonality and a reversal of approximately $2 million of incentive comp accrued for 2016 but not paid.
And early estimate of Q2 comp and related expense is about $72 million.
As previously discussed, the customer relationship change near the end of January resulted in a decrease of approximately $1 million of pretax income in Q1 and is expected to impact Q2 by an additional $1 million or $2 million total when compared to Q4 2016.
The pretax impact of money fund yield related with fee waivers of $800,000 was down from the prior quarter $3.4 million and Q1 of last year, $9.4 million.
The decreases were due mainly to changes in the customer relationship, higher gross yields and lower fund average assets.
Based on current assets and yields, we expect the impact of these waivers on pretax income going forward to be immaterial.
Our effective tax rate for the quarter was about 37%, and we expect the same rate for Q2.
At quarter-end, we had cash and investments of $278 million, of which $247 million is available to us.
We continue to be active in the share repurchase program purchasing 513,000 shares in the first quarter.
Tanya, we would now like to open the call up for questions.
They would signal, Bill, more of a de novo effort than M&A.
But one of the ideas is to try and duplicate the kinds of relationships we have with LVM in Germany, where you develop a good, strong relationship with the large institutions, which would mean money being managed by us in all kinds of different mandates, all the way from cash to high yield to total return bond and some global stuff on the one hand and then some retail connections on the other side.
So it's a search for big-type partnership relationships that we can grow from.
Thank you, Bill.
Let's ---+ I don't usually get into daily numbers.
But on the Strategic Value Dividend, the gross sales so far this month have averaged about $10 million a day, and the redemptions at the beginning of the month were a lot closer to $25 million a day.
And now they are down to numbers like $12 million and $13 million a day, which means that the net sales are threatening to go even par for the tournament.
And what you're seeing here in some of our guesses is the roll off of those assets that came in because this fund was purchased not with the idea of a dividend and a growing dividend, but last January, when it was declared to be the world's #1 fund in every condition.
And so I think we're seeing a very much diminishing of the net redemption picture on that fund looked at so far this April on a daily basis.
And that is the largest thing going on in terms of redemption profile here.
The second one is the Kaufmann Fund, and that has, over the years as you know, been a negative sales producer at Federated.
However, with the outstanding performance of that fund over the recent time frame bringing its numbers up for 1, 3 and 5 years into the top quartile, we're starting to see some diminution in those net redemptions as well.
So it is the performance that over the long haul is going to drive the truck.
And once that gets decanted into the marketplace, we have a lot of confidence that we have the mandates with the performance to get back on to a positive flow.
The $3 million was a Q4 item.
It was a revenue item, where we got a refund of past fees.
So that's a onetime item.
And Bill, on the fixed income, as we said, they're slightly negative.
High yield is very slightly negative.
Of course, that has been solidly positive for several quarters and years.
The institutional fund actually is a little bit positive, but the retail portion has flipped to slight outflows.
Still positive on floating rate and on Ultrashorts.
Very slightly negative on Total <UNK>eturn Bond, despite the outstanding performance profile that Chris went through.
So we had a lot of confidence that, that will flip back to where it's been as well.
Okay.
We'll divide this into 3 questions.
In terms of the 2 economic ones, namely on the prime funds and the collective funds, I'll do that one and then also on the economics of the SMA, and then <UNK>ay will take care of the other question.
So on the relative economics of the prime and the collective funds, it's basically the same as the other money market funds.
Now obviously, these funds are smaller, meaning together they're $460 million.
But we're trying to grow, I mean, working hard getting a money market fund up to a size where people are willing to take a big position is part of the challenge.
And that's why I mentioned that both higher rates gross and higher spreads net are going to be important ingredients as we present those products to the marketplace.
But basically, it's the same drill whether you're in one of our other money funds or in those.
Then on the SMA, depending on whether it's SMA or UMA, the basic pricing is about ---+ is half or a little less than half of the pricing on the mutual fund.
And the reason for that is that, obviously, the account sizes are way different, much higher, but you're fitting into a mechanism on the broker/dealer or the adviser side, where they are charging a fee for the flat service, and you do not have all of the expenses associated with running a mutual fund.
And so that's about the difference there.
<UNK>ay, you want to handle the third one.
Sure.
Ken, without commenting on the specific separate accounts just generally and fund rates, on the first ---+ in the first quarter, if you take our total money market fund business on a net revenue basis, net of the distribution expenses, it comes out to roughly around 10 basis points, a little above 10 basis points.
And on the institutional separate account side, that's more like around a 4 basis point rate, which is dominated by a handful of very large ---+ very, very large accounts.
But in terms of individual separate accounts, they're essentially priced on an individual basis.
Well, obviously, there's a huge change in the amount of money that went into govies.
And there were some participants who over that time frame reduced their pricing.
And that was a factor that we've talked about on these calls before.
In terms of the prime, because some people shut their primes down and because of the requirements of those October 14 implemented October 16 amendments, it's difficult to get that money back in.
Over $1 trillion left the industry.
I'm not aware of people doing a lot of shenanigans on the prime side with those assets.
But I would ask Debbie to give you an up-to-date version.
Certainly on the government side, as Chris mentioned, there have been a few in the market that have chosen strategically to lower fees and captured some of the assets that were flowing out of prime and into government.
I would say year-to-date 2017, that has been less of an issue or it's more of an issue in the third and fourth quarters of last year.
And maybe 1 or 2 smaller ones are still in that mode in the year-to-date 2017 standpoint, but it's not necessarily prevalent as much is it was just 2 quarters ago.
From a prime standpoint, we're not seeing that.
I think those funds are now at this point enjoying a yield curve that is fairly steep and has a lot of spreads associated with it versus treasury and government agency yield curves.
And at this point at least, it's more a battle of how do you get asset size not from a fee waiver perspective but just getting clients comfortable with the new product, with the structural changes that went into those products.
It's not being done through a fee waiver standpoint.
Well, it's interesting.
From a history perspective, generally in a rising rate environment, money funds lose assets to the direct market, whether it's repo or deposit instruments.
We're not seeing that so much in this case, but we're not seeing a whole lot flow back in.
In fact, we're trying to emphasize though at this point the attractiveness of funds versus bank deposits, the average bank deposit rate, which is a difficult thing to come up with and it is a varied range, but the average that we can find at this point is right around 53 basis points.
Our government funds are yielding 80-plus basis points.
Our prime funds are yielding about 20.
There's easily 30 to 70 basis points in spread over bank deposits, and I think it's just an awareness.
Now granted that 53 basis points, like I said, some ---+ I found a few that are out in the 1%, 105, but quite a few that are still down at a basis point.
So it's an awareness.
And I think, again, a comfortability with the new product set as it's been changed from a regulatory standpoint by the SEC back in October of last year.
That's our challenge at this point.
We do not, <UNK>ob.
We've looked at it ---+ you could double these funds looking at it from the whole strategy of $38.9 billion.
And we've looked at it in terms of whether you can get the positions we want, the liquidity on exit, if you had to the VWAPs and purchasing exercises if you go through to take positions, and we just don't see limitations on the size of that.
And it is in part because of the large cap stocks that are in there.
The other thing that we have done anyway, but it's as much a strategic diversification as anything is to create an international version, a global version, sell it over in Canada.
And this does expand the percentages of some of those foreign stocks that you're able to put into the overall mandate, which is a little bit helpful.
Yes.
Mike, it's <UNK>ay.
I'll just comment on the fee rates in the same way we did on money markets.
If you take the equity mutual funds in the first quarter ---+ and again on a net revenue basis, net of the distribution revenue and related expense that kind of passes through, that would get you to about 75 basis points.
And if you take the separate accounts in total, and of course, they're dominated by strategic value and by SMA, it would run about half of that.
And that's a rather typical relationship, I think, in the industry separate accounts fees compared to mutual funds fees where, of course, the services are quite different.
Mike, on the margin, even the unwinding the change actually the relationship really didn't impact the margin very much just as a ---+ the margin had nothing changed would have been very, very close to what it was.
So you should not expect to see the full follow through on a full quarter basis to move the margin.
Well, that concludes our comments for today, and we thank you for joining us.
| 2017_FII |
2016 | TYPE | TYPE
#A great question on web fonts.
So, I'll back up for a second and say we are thrilled at how the Web Font adoption has gone.
And just to remind folks who haven't been with us for that long, we originally thought that web fonts could be a $30 million to $50 million opportunity just solving the website problem.
And this year, ending the year at $21 million, we are about half way there, and that feels really good.
One other point I would make is, in order for us to really capture the second half of this Web Font growth, we had to see a transition from people just coming onto our eCommerce site, licensing web fonts at $10 a month or maybe a micro site, and we really had to see this transition over to the enterprise.
And we've certainly done that and it really what's been fueling our growth.
Our enterprise sales force is doing terrific, and that NIKE example we gave in the script is really being repeated across lots of enterprise customers.
So we certainly feel we are on track to hitting our original goal.
We are not going to be forecasting out web fonts any longer from an individual component perspective.
One of the things we've done, and you've heard us talk about, is we are now signing up large enterprises for customized deals.
There are so many use cases that we can now solve for a brand, and the good news is that they are inviting us in and they are sharing their print plans with us.
We're talking about their websites.
They are going through their app strategy and now we are beginning to talk about digital advertising.
And what our goal is is to create a customized license for an annual fee that has certain governors on it.
And so at this point, we are no longer going to be speaking to it in particular.
What we do is still a huge driver that enterprise strategy.
And that's a big catalyst on what's fueling the Creative Professional 15% to 20% growth.
It's the early days.
We don't have very much money built in, but the next wave here would be HTML 5 advertising.
So it's taking that same Web Font value proposition now and extending it to the digital ad use case versus the website use case.
We just launched a new subscription model called Monotype Library Subscription that we think can be an interesting thing longer-term.
This isn't a replacement for our desktop offering, but it's a next generation offering that we are offering in addition to the perpetual licensing.
I think Swyft is another catalyst within that CP portfolio where we would expect growth.
And then there's also the Internet of Things.
I don't think it's as high as a percentage of revenue from a growth perspective, but we are seeing some nice traction within the Internet of Things and some of the adoption of our Spark technology.
Yes.
So, I think we are now actually up to working with 14 manufacturers.
I can't list them out specifically, what I will tell you, a few years ago, when we talked, most of our activity was here with the US-based manufacturers.
And today as we sit here three or four years later, we've got really solid representation in the US, in Asia and in Europe.
So that business has been a nice growth catalyst for us.
It's in excess of $5 million today.
It seems as though our pricing, which is $0.50 ballpark per car, is continuing to resonate.
And I think we've got enough breadth of customers signed up today, I think the next wave of growth is going to be dependent on our ability to get those individual customers to ship us in more units.
So if you looked across those 14 customers, we may ship in anywhere from 5% to 50% their unit.
And what we've got to do now is continue to show our value and hopefully, as they bring more screens to all of their models and they unify the brand, the look and feel that's on that screen across all of their models, it presents an opportunity for us to now spread out within those accounts.
So that's still a big focus area for us and we are really pleased on where we are so far.
So ,from an ISV perspective, that's categorized in our OEM business.
And we've talked about that as a long-term grower at about 3% to 5%.
There are times when there are quarters or years where that can have a really nice impact on our business as some of the major players invest in their operating systems and their platforms.
So obviously the bigger players are the folks like Google and Microsoft and Apple, but we are also working with a whole host of software folks.
So, that's been a really nice boost for us in the second half of the year, and it's really important strategically.
So whether or not you're talking about the big operating systems guys or folks like SAP and Oracle or even folks that are creating apps because, in some ways they look a lot like ISVs or gaming folks, it's important for us to be across all of those different customer accounts because those are the folks that put fonts in the hands of the everyday user every day.
And so by working with them, we ensure that billions of people, whether they know it or not, are working with Monotype IP.
And the other big thing that drives it there is we are also able to make significant improvements to them by adding different tools to help them within their workflow.
So hopefully that gives you some color.
So, yes, we would.
When we go and do enterprise deals ---+ and I'll give a shout out to Doug here.
It's the first time he is not on the call.
But Doug ingrained in the Company years ago that, when we are doing these broader licenses, that we should only be licensing for things that we specifically see today.
So we usually do not grant license rights for different use cases that may come down the road because then, to your point, we reduce the opportunity to drive more value as they're getting more value from us.
So the strategy of our enterprise sales team as they do these deals is to first identify what are those specific use cases where the fonts will travel, and then we will create a customized agreement to give them the flexibility to do their best work across all of those use cases.
So, in an example like this, if we had done a deal two years ago, we would've not given them the rights to do digital advertising because that was still an unknown quantity.
Pricing was unknown.
How the technology would be used would be unknown.
The different people that would have to play in the system would be unknown.
So the first thing we have available to us, <UNK>, is as new use cases come online, those can be additive to that customer agreement and can drive the value.
The other thing that we look at is that some of these things are being priced based on a per use basis, per download or per user.
Those governors typically still exist.
So in many cases, we will still, if we are licensing for X amount per year, that will be up to so many downloads or up to so many users.
So if their businesses double, it creates an opportunity for us to grow with the customer.
Does that make sense.
It sure does.
It's very helpful.
And then just a quick follow-up on the display ad side then.
You talked a little bit about pricing.
I think previously on the enterprise side anyway, you guys typically aimed for kind of a $0.04 per 1,000 impression type metric.
As you now have these eight partners signed up and you had that first inbound deal, how do you see pricing holding up relative to what you saw on the enterprise side.
Yes, I still think it's too early to tell.
I wouldn't be surprised in the beginning if it holds up at the same pricing as websites.
It's almost analogous to when brands first tested web fonts and adjusted it on a micro site.
It's likely that we may get our first engagement with the brands maybe through their agency, just on one or two small campaigns.
So that feed us may be $800; it may be $10,000.
I think when we're going to be able to test the pricing is similar to when web fonts or websites went across the entire enterprise.
Now you're talking to someone at a VP or C level within NIKE that says okay, you're going to put this everywhere, what should the pricing be.
So I think that's still on the come.
We are assuming in the models that we've talked to you folks about, <UNK>, that there's a 5 X impression, 5 X to 10 X compression in pricing.
But we will see.
And we will keep you updated as we go.
It seems like a reasonable piece.
I do just want to make the point, because we've talked a lot about HTML 5 because it's so important to our long-term, in this 2016 guidance, there's very little built in for HTML 5.
There are still a bunch of unknowns and our hope is now that it appears that the logjam is broken in the marketplace, that each quarter we can give you more data points of actual activity within our four walls with customers.
This is <UNK>.
If we look at the EBITDA, and we've talked about in 2015 our investments in areas of growth, which we are excited about because we are seeing those areas of investment giving us good indicators and performance.
And as we have been saying, we are continuing in 2016 to invest in those same areas, investing in our sales and marketing efforts, investing in our infrastructure.
And the same types of investments we've been making we are continuing to make.
And we think it's important for the growth of the Company to keep that investment going right now.
It's <UNK>.
It's really an interesting time.
I mean, if you look at our business, we've got a wonderful printer business, but it's a mature ---+ it's an annuity business for us.
And what we are really focused on is everything else.
So I think, in periods where printers are growing modestly, all of the financial metrics are going to look just fine.
In years that printers struggle, it's going to put pressure on us from a profitability perspective because, to <UNK>'s point, all of the new money and investment is going on all the rest of the business, which what we are happy from an investor perspective is if you look at our financial statements, we've demonstrated our success in those markets over the last five years, certainly on the early days in displays and now big-time with Creative Professional.
So we will continue to keep the pedal to the metal there because that's the right thing for us and the shareholders long-term.
Great.
Thank you, and thank you for joining us today.
We had a solid year capped by record fourth quarter.
We enter 2016 in a stronger position to capitalize on multiple opportunities on our path to empowering expression and engagement.
Thanks again and have a great day.
| 2016_TYPE |
2017 | ADSK | ADSK
#Thanks, Cal.
Yes, <UNK>.
The one thing when you look year on year and you've got the data now for the full year of FY17, the nonrecurring element of course included six months of sweep perpetual license sales.
There won't be any suite perpetual license sales of course.
That means the total nonrecurring revenue year on year is coming down pretty significantly.
So we gave you a couple of data points earlier.
So we guided revenue into a range of $2 billion to $2.05 billion.
And said in the opening commentary that we expect 90% to be recurring.
If you do the quick math you could say the nonrecurring piece is going to basketball park $200 million.
If you look at what that was last year, that was closer to $500 million.
Where the difference is in the year on year it's certainly we're seeing great growth on the recurring side.
You see that in our ARR guide.
But the nonrecurring element of course is coming down year on year.
You'll see the same thing from Q4 to Q1.
You'll see the nonrecurring elements coming down pretty significantly.
One of the reasons we structured the program the way we did is we were really focused on minimizing the churn off of that maintenance base.
We feel that the way we structured the program, the huge incentives for loyalty that we're giving to maintenance customers is really a churn minimization plan.
We're feeling pretty confident.
Our competitors have historically tried to make incursions into our installed base as we moved to subscription.
The truth of the matter is none of them have been particularly successful.
It's really hard to compete with software that's at prices and accessibility levels that are far below what they've been historically when you come in with more expensive perpetual software.
Competitors try to make incursions.
They haven't been successful.
I think we structured this program as a churn minimization program with a primary goal.
Thanks, <UNK>.
| 2017_ADSK |
2016 | AVGO | AVGO
#This is a very hard question to answer.
And the fact of the matter is, no, we don't know how to answer to that question, because it's rather [speculative].
And because we, I mean, many of the designs are very sole source designs for a particular OEM.
So obviously, there is no switch around.
Having said, from the bigger macroscopic system, doesn't mean that that design, that opportunity doesn't disappear to somebody else, who are able to find a different set of boxes, as opposed to components.
So it's something we are not able to predict, or for that matter, estimate.
No, it's a combination of several factors.
One is, you know our overall business model in this Company, and it applies across a multiple of product lines we sell, franchise as I call it, is we compete basically on technology.
We have technology.
I mean, we are a working example of lots and lots of technology, in various areas ---+ not all areas, but in various areas, that we feel we are very strong in, technology includes engineers and IP.
And we pride ourselves in therefore, using that technology to create, develop products which are very differentiated for leading customers in the market we participate in.
We really do.
And those customers, we take very seriously, we are very loyal.
We go 100% in for the customer, and we invest to develop those products.
In return, we ask for certainty.
We ask for partnerships.
And we tend to like to enter into long-term strategic partnership with a customer, where they will continue to use us for future generations of products, which enables us to continue to invest into developing technology and product, which enables them to be successful.
And that investment is not just technology, in the case of the 8-K filing ---+ the filing, the 10-K filing, sorry, that we talked about.
It was also capacity, unique capacity in FBAR.
So it fits very, very nicely.
But this is not an unusual kind of transaction.
We do that with many of our major strategic customers, who we like to call partners, but that will be rather presumptuous, because they are customer, and we are the supplier.
But we give them technology, we give them value.
And we hope we do enough of that, that it will sign up for long term partnership with us, which enables us to continue to invest, and sustain that franchise as we call it.
And that's just a manifestation of one of many [development].
Thank you.
| 2016_AVGO |
2015 | HAFC | HAFC
#Yes, I mean I wouldn't say specifically, 15%.
By the way, when we referred to the drag of earnings, what we're referring to is that instead of a higher, bigger loan portfolio from CBI, we ended up picking up a bigger securities book.
And so the goal for us is to convert that securities book into higher-yielding loans and to enable us to do that, we need to meantime build up the platform through hiring of additional personnel.
So that's what we meant by the drag on earnings.
As it relates to the security book, I think ideally, for us, I'd like to be in the teens as far as that securities book is concerned.
As to the timing of it, it's going to be dependent upon the opportunities out there as far as loan growth is concerned.
And then, perhaps maybe based on some additional opportunities on the M&A side.
And so the timing of us attaining that teens, the securities book in the teens is going to be predicated upon opportunities to deploy basically the liquidity into higher-yielding loans, whichever form that may present itself.
No, we have no borrowings left other than TRPS at this point.
Yes, we don't portfolio any other than the unguaranteed portion.
The environment is still pretty good in terms of the premium income.
So it makes more sense for us to sell off the guaranteed part.
About 25%.
So during the first quarter, we actually saw positive momentum that increase of DDAs coming from a new Hanmi that we acquired.
Thank you.
Good afternoon, <UNK>.
They were all overnight funds, <UNK>.
Yes, we are confident that we can achieve that.
Well, the discounts, <UNK>, that we have on the FAS 91, the non-purchase credit impaired, the remaining discount, at March 31, there was $18.2 million; and for the SOPs, the remaining discount was $17.6 million which is ---+ and I don't have the numbers in front of me, but that split between a non-accretable portion and an accretable portion, but obviously this is going to run over ---+ run off over the next several years.
Included in the current quarter accretion, there was about $400,000 that related to the payoff of acquired loans.
So the run rate that you should anticipate excluding payoffs would be the accretion that we had in the first quarter is as detailed in the first quarter earnings release, less the $400,000.
Yes, in fact, that's one of the low-hanging fruit for us.
As these higher-rate CDs mature, we are basically not renewing them and so that will be a consistent practice on our part to drive down the funding cost.
Now, in lieu of that or in replacement of that, as <UNK> mentioned, we are actually generating some pretty decent deposits in Texas and Illinois through the efforts of the lending teams that are in both of those markets.
So the deposit bases are not exactly shrinking in those two markets because of the now focus by the two leaders, the Regional Presidents in terms of generating new deposits.
So, let me just share our first quarter experience if that's any indication of coming quarters.
So, during the first quarter, we were able to retain 50% of the mature CDs from Illinois region, and then about 70% of mature CDs in Texas.
So what I am trying to tell you is the retention rate is different from one region to another.
However, the positive thing is that during the first quarter, Illinois, the overall average costs for the mature CDs were over 1.1% and those that we let go they obviously did not stay with us, but we were able to retain the 50% of debt at a much lower cost at 0.7%.
So we'll keep an eye on the retention rate as well as the deposit costs going forward.
Just looking at this year, yes, we do have room to improve on the CD cost.
Any given quarter within this year, we have anywhere from bank wide $220 million to about $285 million CDs that are maturing and then we have some of the CDs from the New Hanmi region that's paying as high as 1.7% which is much higher than the cost of the overall bank.
My suspicion is that over the time frame that you mentioned, our CD book will be lower, but I don't think that's going to be the driving issue.
I think whatever CD book that we have is going to have lower cost of funds.
I think that's kind of the key indicator.
In addition, if we are successful in terms of increasing our core deposits, particularly in the non-interest-bearing DDAs, our target is to be in that mid-30s; that means that the CD book is going to be one of our parts of the liability, but part of our balance sheet that's going to shrink, but overall, our goal is to continue to drive down the cost of deposits by replacing the higher-yielding maturing CDs with either replacement CDs that's lower yielding or the non-interest-bearing DDAs and in money markets.
Yes, I would say, the latter; we're ready to go.
If there is bride that's interested, the groom is waiting.
So we're ready to go.
It wouldn't surprise me if we announce the deal sometime this year.
And so as you said, we do have surplus capital.
We're looking to deploy the surplus capital in the most efficient way possible and so we are actively exploring some options.
Okay.
Thank you for listening to Hanmi Financial's First Quarter Conference Call.
We look forward to speaking to you next quarter.
| 2015_HAFC |
2016 | PFE | PFE
#<UNK> your question on Allergan, our interactions with the shareholders both sell-side and buy-side have been very positive.
I don't think in reality there's anything under appreciated other than the street's perception of risk around the close.
I would direct you back, of course, to the excitement I have about the products that Allergan have that they just launched.
About their Phase 3 products, both in depression, and in diabetic gastroparesis, and they just got breakthrough status.
And the combination of our information knowledge, and our TAs with Xeljanz around their area, our JAKs around their expertise in that area, I think perhaps the street is right now hung up on this close issue.
<UNK> on the question regarding percentage of Enbrel business, potentially exposed to biosimilar competition, I don't have a figure on the top of my head.
I would say more than 50% of the ex-US business would be in the European Union, where we expect to see biosimilars.
We aren't expecting to see it in Japan, Australia and several of the Latin American countries, but I would say it's more than 50% of the business.
The last question was on 2016 operating cash flow.
The way I'll answer this Dave, is, if you look at our operating cash flow through three quarters, it was about $10 billion.
We expect the fourth quarter to be healthy in terms of the operating cash flow for the year.
And then obviously 2016, we want to continue to grow that operating cash flow number.
And then in terms of the uses from our perspective, the uses of how we deploy our capital haven't changed.
Obviously, investing in our business and our returning capital to shareholders.
I mentioned in my remarks we returned $13.1 billion to our shareholders in 2015 through a combination of dividends and share buybacks.
And obviously looking at some bolt on acquisitions, if those make sense.
So, no change would be how I'd answer the question on capital allocation.
Thanks Frank.
<UNK> could you deal with Hospira first please.
Yes sure.
So I think we would say that in the Hospira infusion systems business, which comprises pumps, consumables, large volume solutions.
We believe we acquired a very valuable asset that provides novel capabilities in an adjacent area.
And it adds significant value to the customers and the patients.
We are committed to insuring its success in short, medium and longer term.
Okay Frank on the leverage and then the level detail.
Yes, so I think on level of detail, we'll be providing revenue details, EPS details, projected out I believe it's several years ---+ five years.
So there will be information out there relative to projections on the Company.
On the leverage number the 2.5 to 3, in my mind that's what's possible.
In terms of what we did on buybacks, we tried to provide information when we announced the deal to give you all of the data you needed so that when you connected the dots you could model what the buyback numbers would be, right.
So we started out with the accretion dilution.
We said neutral in year one, modestly accretive in year two, more than 10% in year three, and high teens in year four.
We gave what the beginning share count number of the combined Company would be.
It was 10.6 billion shares we said we would have 5.9 billion and Allergan would have 4.7 billion.
And then we gave the tax rate which was 17% to 18%.
So with those data points we thought we provided the information that you needed in order to model what the buybacks would be.
And just to the 2.5 to 3, clearly there could be some extra juice if we took the leverage ratio up to that level.
Thanks, Frank.
<UNK> do you want to talk about China.
Sure, as we always say <UNK>, on emerging markets we'll always see quarter-to-quarter volatility.
But at the same time, we continue to expect to see growth numbers in the mid-single digit ---+ mid to high single digit range.
Frank's already talked about China.
We continue to be positive about the prospects in the short, medium and longer term in China.
It's obviously not just the world's largest country ---+ it's 1.3 billion to 1.4 billion population.
But we continue to see a strong government commitment to expanding access to quality healthcare.
We're very encouraged by steps that we see the government taking in the regulatory environment to really enhance quality standards in the marketplace.
And whilst there are a few headwinds, GDP growth is slowing but still positive, still mid-six single digit percentages.
We are seeing some pressure in pricing.
But overall, when you put all of those factors together, we continue to see China being a very positive growth driver.
Thank you, <UNK>.
And on BD, <UNK>, we see it would be more focused to smaller deals than larger deals right now.
But once we close, we'll look at the opportunities and we still have substantial flexibility.
And of course, it will be measured against the alternative uses of that cash which, right now, are scheduled for buybacks and the accretion equation.
So we'll make the decisions that we believe are best for shareholders, and we'll take into account what the assets are priced at, at the time we close.
And <UNK>, the only thing I'd add is we Pfizer standalone today generate a lot of operating cash flow.
The combined new Company, we said by 2018, will be generating in excess of $25 billion a year in operating cash flow.
So the new Company will generate significant amounts of operating cash flow.
Last question please, Operator.
Okay on the levers, <UNK> <UNK> could you indicate what you see the levers are for the close.
Thank you.
It's a net number.
The synergy number is a net number.
He asked whether it was gross or net and the answer is it's a net number.
Okay.
That should do it thank you very much for your questions.
Thanks for your time everybody.
| 2016_PFE |
2017 | SPSC | SPSC
#Thanks, <UNK>, and welcome, everyone.
We had a great second quarter.
Revenue grew 15% to $54.3 million, recurring revenue grew 16% and adjusted EBITDA grew 35% to $7.7 million.
It is more crucial than ever for retailers and suppliers to have a truly omnichannel strategy, to reach the greatest number of consumers.
And in order to succeed, they must deliver the best possible experience across all shopping channels.
The SPS Commerce network empowers retailers and suppliers to communicate and collaborate in real time to address changing consumer demands in the omnichannel era.
Our broad network and cloud platform places us at the center of the retail ecosystem.
And the increasing need to adopt to omnichannel strategies continues to drive our success.
To remain ahead of the competitive curve, retailers and suppliers must have a well-tuned, agile supply chain that can seamlessly get consumers what they want, when they want it.
As retailing becomes more and more complex, solutions created for single-channel shopping are no longer sufficient.
Throughout 2017, our team has been working to roll out the next generation of our web fulfillment product to our customers.
The first of its kind solution, moves beyond traditional EDI and allows us to develop more strategic, consultative relationships with our customers.
It provides users actionable insights and recommends the highest priority actions to take, enabling them to increase their efficiency and serve the needs of consumers better than ever before.
I want to commend the hard work of our customer success, product and technology teams, who built this exceptional product and successfully rolled it out to our customers.
This next-generation product has received phenomenal feedback from our customers.
Cashout Company, Something Special Deli Foods and B&G Enterprises are 3 of our suppliers, who are using the new web fulfillment.
They highlighted its ease of use, increased efficiency and time they saved, as well as their ability to consult with SPS directly through the interface to address the needs of their trading partners.
To remain relevant and reach new customers, retailers and suppliers are expanding fulfillment channels to customers with a variety of methods, such as buy online, pick up in store, shop/ship directly to consumer, shipped from store and ship to store.
The agility needed from their trading partners to address the many different complexities of these methods cannot be addressed quickly or efficiently by legacy or manual solutions.
Retailers are also realizing the need to upgrade their technologies, as they utilize these more complex distribution strategies to grow sales and improve their bottom lines.
One company successful in doing so is Walgreens Boots Alliance, a $100 billion-plus global conglomerate.
Walgreens launched a retail transformation project to upgrade their technology and build a global business platform with the goal of streamlining efficiencies.
As part of this project, Walgreens identified an opportunity to expand adoption of direct-to-store fulfillment and chose SPS to run a community-enablement campaign to onboard suppliers for this new functionality.
They chose SPS to aid in their retail transformation because of our cloud technology and high engagement with their network of suppliers.
SPS will run a multi-phase community-enablement campaign with them over the next several years, as Walgreens rolls out their new business platform.
Our network consisting of thousands of trading partners and our deep retail expertise enable SPS Commerce to act as an adviser to both suppliers and retailers, such as Walgreens, to help navigate the complexities of omnichannel in retail.
Retail is growing across all channels.
However, consumers have nearly limitless choices on where, when and how to shop.
So one late shipment, bad review or negative store experience can permanently break a sale.
It has never been more important for retailers to deliver an exceptional, consistent consumer experience, both in-store and online.
The SPS Commerce platform helps ensure happy customers by enabling retailers and suppliers to communicate and collaborate quickly and efficiently.
We have a multibillion-dollar global opportunity in front of us, and we will continue to grow our market leadership even further.
With that, I'll turn it over to Kim to discuss our financial results.
Thanks, <UNK>.
We had a great second quarter.
Revenue for the quarter was $54.3 million, a 15% increase over Q2 of last year and represented our 66th consecutive quarter of revenue growth.
Recurring revenue this quarter grew 16% year-over-year.
In Q2, the total number of recurring revenue customers increased 4% year-over-year to approximately 25,200 and wallet share increased 11% year-over-year to approximately 8,000.
For the quarter, adjusted EBITDA was $7.7 million compared to $5.7 million in Q2 of last year.
We ended the quarter with total cash and marketable securities of approximately $164 million.
Also we currently have 283 quota-carrying sales headcount in line with our expectations.
Now turning to guidance.
For the third quarter of 2017, we expect revenue to be in the range of $55.8 million to $56.3 million.
We expect adjusted EBITDA to be in the range of $7.4 million to $7.9 million.
We expect fully diluted earnings per share to be approximately $0.05 to $0.07 with fully diluted weighted average shares outstanding of approximately 17.7 million shares.
We expect non-GAAP diluted earnings per share to be approximately $0.18 to $0.20, with stock-based compensation expense of approximately $2.6 million, depreciation expense of approximately $2.1 million and amortization expense of approximately $1.2 million.
For the full year, we expect revenue to be in the range of $220.2 million to $221.3 million, representing 14% growth over 2016.
We expect adjusted EBITDA to be in the range of $32 million to $32.5 million, representing 21% to 23% growth over 2016.
Our philosophy on margin expansion remains the same, and we expect to invest any additional upside back into the business.
We expect fully diluted earnings per share to be in the range of $0.40 to $0.42.
We expect fully diluted weighted average shares outstanding of approximately 17.6 million shares.
We expect non-GAAP diluted earnings per share to be in the range of $0.86 to $0.88, with stock-based compensation expense of approximately $9.8 million, depreciation expense of approximately $8 million and amortization expense for the year to be approximately $4.8 million.
For the remainder of the year, on a quarterly basis, investors should model a 40% effective tax rate, calculated on GAAP pretax net earnings.
In summary, we had a strong quarter.
And we look forward to expanding our market leadership and remain confident in our ability to achieve our long-term targets.
With that, I'd like to open the call to questions.
Yes.
A couple of things, <UNK>.
I think, over time, the cost of supporting will actually be lower, as it's easier to use and more intuitive which makes that easier to support.
I think from a long-term perspective, we think it shows well.
It's going to be easier to sell.
And when we're in a retailer community enablement campaign, many times, they do want to see the underlying technologies that their suppliers are going to use.
And again, this shows ---+ although hard to quantify, I'd much rather be in a sales cycle with our newly imagined web fulfillment product than our old products.
So I think it's one of those things that, in general, it should be a very big positive.
Sure.
So for the full year, what we did is we took ---+ we revised or shrunk the guidance.
So before, we had a $2 million range.
Now we have a $1.1 million range.
Halfway through the year, it made sense for us to revise the size of that.
So what we ended up doing is we took up slightly the bottom end and we took down slightly the top end.
And that's really just reflective of what we see, as it relates to the mix of community enablement campaigns for the remainder of the year.
Sure.
So this year, as we've made some previous comments on, because of a lot of activities happening in the retail space and retailers having to make a lot of change of their back end systems, the number of community enablement campaigns that we are seeing this year compared to prior years is a bit lighter.
If you recall, community enablement campaigns is a big driver in the quantity of customers.
And so for this year, what you're seeing is that customer growth number is a little bit lower than what you've seen last year, for example.
That's really directly correlated to those community enablement campaigns.
Over time, we still believe a mix of both adding customers, as well as upselling existing customers and size of customers, all of that factors into the overall recurring revenue, which for the quarter, was approximately 16%.
This quarter, it was made up of 4% customer and 11% ARPU.
So both are important contributors to the overall recurring revenue.
But what you're seeing this year is a little bit more pressure on that customer growth number, primarily attributed to the community enablement campaign.
Yes.
So obviously, the sales reorganizations took effect January 1.
What we're seeing, I think, is a very motivated, qualified sales force.
And I think they're very focused on success at this time.
These things are never easy.
And we did it for the intent of setting us up for the long term.
And I think we've accomplished that.
And I think our ---+ as Kim had mentioned in the prepared remarks, our hiring is in line with expectations and our size of our sales force is in line with expectations.
So at this time, about 7 months into it, we feel very good about what we've done and what we've accomplished.
And hats off to the team.
Sure.
Yes, we're at 283.
And we started the year at 275.
Yes, we ---+ first up, we think we are in a very solid state on a competitive standpoint on pricing.
And I think, long term, we have capability to increase pricing.
We think, at this time, we have a very, very large opportunity in front of us and want to continue to capitalize on that.
And so pricing is not a significant part of our short-term growth strategy.
Well, I think, Tom, it's a little bit of both.
And not to be coy about it, but one of the advantages we have as a Software-as-a-Service company is we have a very, very strong land and expand strategy.
So we are very comfortable taking a small piece of business.
We're very confident in our ability to execute and then expand over time.
So although some ---+ a lot of it will come from upsells, a lot of them are from upsells that were sold, perhaps, in the last 12 to 24 months with the idea was that you're willing to land and expand.
But then we are also lending larger and larger accounts.
I think it's a ---+ just a general ---+ continued general trend for us.
And obviously, we have more and more senior reps.
And we're having a great deal of success.
And a lot has been talked about on how much pressure is on the retailers, but the suppliers and the brands really need to continue to move their businesses as well.
And they need to respond to the ever-changing demands of the retailers who are responding to the consumers.
So that puts us on a good spot from that side.
Yes.
So overall, the bankruptcies that happened last year are drag on this year's growth.
Analytics continues to be more challenged in its growth.
Fulfillment is actually growing quite nicely.
And analytics is more challenging.
I think it's a prioritization for the ---+ for both the retailers and the suppliers.
So when we ---+ we don't give middle of the year percentage numbers, but you're going to continue to see a slower growth for analytics in the overall for SPS Commerce.
Sure.
So nothing's changed in our belief that there's a multibillion dollar opportunity and that's really ours for the taking.
We believe we will continue to have lots of opportunity to grow the top line nicely.
And we believe that we can get ourselves back to a 20% growth.
What we've done, however, is just we've removed the timing associated with when we believe we could get back to the 20%.
Sure.
The way we look at it is, overall, we think that there's, again, that multibillion dollar opportunity that we are absolutely going after.
And we expect that a lot of what we currently have is the way we're going to get there.
Meaning community enablement campaigns continue to be a large driver and lead generation for us.
We also have a great channel sales team that's also ---+ drives leads to us.
Those 2 lead generations really engine speed into our direct sales force that then translate into that recurring revenue.
And we expect that mix of customers to be a combination of customers we get from community enablement campaigns, as well as some larger customers as well.
The larger customers will show up more on that revenue per customer than the number of customers.
So really, you should think of it as basically the products we have and our go-to-market strategy that we have.
All of that will just translate into more and more revenue for us, as the years go on.
Sure.
So what I would say is community enablement campaigns continue to be a large portion of our lead generation.
Nothing's different there.
The comments that we talked about that you also articulated is that some of the retailers, they have more work to do than they had maybe fully appreciated or the time line associated with the investments they need to make in their back end system.
And because of that, some of those ---+ the timing of those campaigns are not in '17.
They've been pushed out into future years.
As it relates to giving any color or expectation specifically on 2018, we really give our information as it relates to our expectations for next year.
We do that on our Q4 earnings call.
Sure.
So as a business, we believe a balanced approach is appropriate, meaning we continue to grow the top line and we also do deliver profit back to the investor.
As it relates to the exact mix in any given year, as you'd expect, there's conversations that we have with the Board as it relates to our annual planning and strategic planning.
And then we set those annual expectations that we give in the form of annual guidance on our Q4 earnings call.
So what you should expect as a balanced approach is something that we believe is appropriate for the business.
The exact mix between what is the top line growth and the profit is something that we discuss on an annual basis.
Yes, it's ---+ as one would expect, it's slightly higher than historical levels.
But I would say it's better than we had anticipated and had expected, so feel pretty good about that.
As far as ramp, I think the ramps are relatively constant.
We might see a slight improvement.
We've made some pretty big investments in overall training at SPS Commerce and, in particular, for the sales group, which ---+ it's getting good feedback and that's like ---+ has like 3 months in to that process.
So I would like to tell you that I would think, as we look out 6 months from now that I might make the comment that we are getting slightly faster ramp and higher productivity out of the gates from sales people.
I think it's been consistent with this year, on a relative basis between this year and last year.
We continue to have nice traction in the channel sales group.
And it continues to be a big part of our go-forward strategy.
I wouldn't say there's any change in historical norms, other than as we've moved and sold a higher percentage of our deals to our larger customers, we see them that as a percentage more often as that's where they tend to reside.
So we tend to see them a little more often.
Obviously, we feel we have a competitive advantage against them, and a truly multi-tenant Software-as-a Service offering as opposed to managed services, and continue to have momentum on that front.
Well, I think a couple ways.
Over time, we do believe that by delivering value, you ultimately have the ability to raise prices.
I also think the more value you add to the retailers, that's really going to be a big sales sticking point and you're going to be able to drive community enablement campaigns.
And the retailers are more and more likely to have a heavier and heavier endorsement of SPS Commerce, as they see the value-added on.
So I think, over time, it is pricing.
I think, in the short term, it really is a service and competitive sales advantage to drive growth.
Yes, I would say this.
Our M&A strategy has remained extremely consistent over the last 7 years.
We're looking for customer acquisitions, product roadmap ---+ leap forwards, I would call them, as opposed to new roadmap things and then, geographic expansion.
I will tell you the one thing, the better and better your product is, to do an acquisition where you're going to put them onto our platform, the stronger your product is, the easier that is to do and the more positive an experience it is for them.
So from that standpoint, I think execution would be significantly improved because, I think, just out of the gates, those customers would be extremely wowed by the level of our service.
Yes.
We see that all of the different markets a little bit different.
Asia is really more of ---+ part of the North American supply chain, European supply chain.
We continue to support a high number of customers and that tends to be a very important part of our sales cycle as opposed to lead ---+ a lead indicator.
In Europe, we're getting some momentum, although it's slow on analytics side.
And Australia, we're seeing nice momentum.
The Australian team is performing extremely well.
The sales force there, and the customer success teams, are having good success.
So we feel really good about that part of the world.
| 2017_SPSC |
2016 | ENVA | ENVA
#Thanks, <UNK>, and good afternoon everyone.
And thanks for joining our call today.
I'm going to start off today by giving a brief overview of the quarter, then I will spend some time updating you on some of our initiatives and finally I will share perspectives looking forward.
After my remarks, I will turn the call over to Rob to discuss our financial results and guidance in more detail.
We had a good first quarter and are happy with the continued momentum we are seeing at Enova.
In addition to strong financial results we achieved a number of milestones that position us well for future growth.
We received full authorization for all of our businesses in the UK.
We completed our first securitization and we launched a partnership with Republic Bank.
I will discuss this partnership in more detail in a few minutes.
But first, for the quarter, revenue was $174.7 million, an increase of 5.4% from Q1 of last year and above our guidance range of $150 million to $165 million.
Our US business was again a strong contributor to our results.
Q1 is generally a slower quarter for US lending but we saw strong demand, especially for our installment loan and lines of credit.
Solid credit performance was another highlight of the quarter as we were able to buck any larger macroeconomic trends that it seems some other lenders are experiencing.
We were also very pleased by the continued growth of our new initiatives, particularly NetCredit our US near-prime product as well as our Brazilian operation and our two small business offerings.
Adjusted EBITDA for the quarter was $37.8 million which was also above our guidance of $25 million to $35 million.
The higher-than-expected EBITDA was driven by the good loan performance I just mentioned as well as more efficient marketing spend across most of our products.
We believe that our Q1 performance is confirmation that our strategy is sound and our talented team is doing a great job of executing.
This is not new but it has been difficult to see the last several quarters with all the changes in our businesses.
For example, the rapid growth in NetCredit last year masked its true profit potential based on the strong unit economics we are seeing in NetCredit loans.
In addition, the drop in UK originations early last year and the winddown of the UK line of credit portfolio both as a result of changes in regulations imposed in 2014 it is difficult to see the successful adjustments we made in the UK market.
As we execute on this strategy our business continues to become more diversified which gives us multiple opportunities for growth and significant hedges against regulatory changes.
Our large subprime US business generated another strong quarter of profitability.
Even within this business, we're becoming much more diversified with 25% of our US subprime loan portfolio consisting of single pay products, 31% installment products and 44% from line of credit products.
Our UK business continues to recover and NetCredit has become a substantial business for us generating significant growth targeted at different credit segments of consumers.
And we are successfully developing our new initiatives into real long-term opportunities highlighted by Brazil and small business financing.
With total company-wide originations up over 11% from the prior year our diversification strategy is working.
This marks the third sequential quarter of year-over-year growth and the strongest growth we have seen in total originations since before the new UK regulations went into effect in 2014.
The growth in our revenue and originations continues to be led by our installment loan and line of credit portfolios and reflects our focus on creating alternatives to our short-term single pay products.
During the quarter, our total loan book grew 47% year over year.
The largest contributors to this growth were NetCredit and our small business products which led to a 44% year-over-year increase in US installment loan and finance receivables revenue.
In addition, installment loans and lines of credit now comprise 72% of our total revenue and 86% of our portfolio.
NetCredit's growth has continued at a rapid pace with originations up 22% from the first quarter of last year and loan balances up 67%.
Due to the sustained growth of our US near-prime offering, more than 45% of our total US loan portfolio is now near-prime loans and 46% of those loans have an APR at or below 36%.
In order to take advantage of the large market opportunity we see in the US near-prime space, late in the first quarter we launched a NetCredit program with Republic Bank & Trust Company.
This program leverages Enova's online lending platform by providing technology, loan servicing and marketing services to Republic Bank with the objective of expanding their online consumer lending.
The loans originated by Republic will have an APR below 36%.
We launched this program with a pilot in a single state so it wasn't material during the quarter.
However, we continued the rollout in early Q2 and expect to be in over 10 states by the end of the quarter.
From there we intend adding additional states throughout the year.
Under the program, Republic has the ability to sell the loans it originates to NetCredit.
As Rob will discuss in more detail shortly, our recent securitization positions us well to support this growth of the NetCredit portfolio.
For those of you not familiar with the Republic Bank they are a state-chartered commercial bank with over $4 billion in total assets, supervised by the FDIC.
Turning to the International front, we are pleased with the progress we've made in the UK since the drop in originations in late 2014 and early 2015 from the changes we implemented there to comply with new regulations.
We believe that business is now on stable footing and looking forward we expect to see meaningful growth.
In addition, the business is solidly profitable and should provide over $20 million of EBITDA contribution this year.
During the quarter, we made a decision to exit Canada and Australia as a lender due to the limited market opportunity we see in those countries.
As a result, we have slowed originations and will soon begin to wind down our loan portfolios.
These businesses never became significant drivers of our growth or significant contributors to revenue.
And given the relatively small size and each of their challenging regulatory environments, we didn't see this changing in the foreseeable future.
To give you a better sense of their size, Canada and Australia together comprise less than 2% of our Q1 revenue.
While our operational costs there have also been relatively small, we want to focus all of our resources and our people on our highest growth opportunities.
Turning to our new initiatives, we're making good progress with our installment loan product in Brazil.
We have been aggressively ramping up growth in Brazil and gross AR is up 91% just from the end of Q4.
In China, we still see a significant opportunity there given the size of the market and the proliferation of online lending.
But we remain cautious due to the challenging regulatory environment and uncertainties around repatriating capital from China.
To address these issues, we have shifted our model from direct lending to providing services through Enova Decisions, our analytics-as-a-service business.
In late March we signed a two-year agreement with our former China joint venture partner for these services and see a great opportunity to address the growth in this market and deliver value out of relatively low cost.
We are also pleased with the growth of our small business financing initiatives which include two complementary products: our receivables purchase agreement product under The Business Backer brand and a line of credit product under our Headway brand.
We grew small business originations sequentially in the first quarter despite the typically seasonal softer loan demand this time of year as businesses regroup from the holiday season.
As a result, our portfolio increased by more than 20% from the fourth quarter and our small business offerings now represent 13% of total portfolio.
Now I want to turn briefly to the ongoing CFPB rulemaking.
Our mission at Enova is to help hard-working people fulfill their financial responsibilities with fast, trustworthy credit.
As detailed in a recent survey by the Federal Reserve Board, 47% of Americans said they didn't have sufficient savings to cover a $400 emergency.
We believe the CFPB recognizes this need and we remain convinced that the CFPB will maintain access to credit for the many millions of Americans who need it allowing us to continue fulfilling our mission.
As we have discussed in the past, we are confident in our ability to manage through the forthcoming regulatory changes in the US and continue to believe that Enova will thrive under any likely regulatory construct and remain a large and profitable player in the industry.
Over the last two years, we have successfully managed through substantial regulatory changes in the UK.
Our sophisticated analytics with more customer history than any other online lender will also be extremely valuable in addressing any required changes and our diversification efforts position us well to mitigate the impact from proposed rule changes on our overall business.
In terms of the CFPB's process, the current consensus is that the proposed rules will be public in the next few months, possibly as early as mid-May.
As a reminder, following publication of the proposed rules, there will be a comment period followed by a CFPB response.
Once final rules are published, there will be an implementation period of up to a year.
This makes it likely that the new rules will not take effect until late 2017 at the earliest.
We have done significant preparatory work to be able to quickly assess the impact of the proposed rules on our business.
Accordingly, once the rules are published and we have an opportunity to review and evaluate them, we intend to probably communicate our assessment of the potential impact on our business to you.
To summarize, we are very pleased with our strong performance both from a financial standpoint as well as our ability to achieve important milestones.
And so far, Q2 appears to be off to a good start with a demand picking up earlier following the tax refund season than we've seen in recent years.
Enova was one of the earliest entrants in the online lending market and has more than 12 years of lending experience.
Our success is a testament to the strength of our proprietary technology platform, our advanced analytics and our very talented employees.
We have succeeded during significant changes in regulations and drastic changes in the economy including the Great Recession.
We believe that our strategy to grow our core offerings while diversifying into new profitable products is working.
We know regulatory changes are coming in the US and we believe we are well prepared and will emerge a winner.
In the meantime, our UK business is doing well and our new initiatives are driving growth and beginning to contribute meaningfully to our bottom line.
Now I will turn the call over to Rob <UNK>, our CFO, to go over the financials in more detail.
And following Rob's remarks we will be happy to answer any questions that you may have.
Rob.
Thank you, <UNK>, and good afternoon everyone.
I will first review our financial and operating performance for the first quarter and then provide our outlook for the second-quarter 2016.
We are pleased to report our first year-over-year increase in revenue since the third quarter of 2014 when new regulations began to have a significant effect in the United Kingdom.
This performance is a testament to our ability to navigate changes in regulatory environments and diversify our product offerings.
Total revenue of $174.7 million in the first quarter increased 5.4% from $165.7 million in the first quarter of last year and came in above our guidance range.
The increase in revenue was driven by our domestic operations, primarily our installment loan and receivable purchase agreements or RPA products which rose 44.5% in the current quarter compared to the prior-year quarter.
Total origination volume also increased on a year-over-year basis, up 11.3% in the first quarter.
Similar to the fourth quarter, we saw a higher mix of new customer originations relative to total originations on a year-over-year basis.
This is positive long term because new customers drive additional future revenue.
On a constant currency basis, revenue increased 7% compared to the prior-year quarter.
Sequentially, revenue was essentially flat despite the fact that we typically see a seasonal decline in demand during Q1 due to the tax refund season in the US.
Domestic revenue accounted for 82% of total revenue in the quarter and rose 21% on a year-over-year basis to $143.4 million.
This increase continues to be driven by the growth in our domestic installment products, primarily led by our near-prime NetCredit brand.
On a year-over-year basis, UK loan originations increased 33% during the first quarter on an efficient marketing spend.
While we haven't seen any major changes in the competitive landscape in the UK during the first quarter, we did see several competitors pull back on their advertising levels.
Year over year, international revenue declined 33% to $31.2 million and accounted for 18% of total revenue in the first quarter.
The decline is primarily due to the changes in the regulatory environment in the UK that occurred after March 31, 2014.
If we exclude the revenue contribution from the discontinued UK line of credit product, international revenue increased 14.7% on a year-over-year basis in the first quarter.
Moving on to asset levels, we ended the quarter with total combined loans and finance receivables balance outstanding of $523 million, up 47% from the $356 million in the first quarter of last year.
Domestic loan and finance receivable balances were up 61% on strong growth from our NetCredit installment loan portfolio and our small business offerings.
International loan balances were essentially flat on a year-over-year basis and rose 1% sequentially, marking the third quarter of sequential growth since UK regulations began to take effect in 2014.
On a constant currency basis, international loan balances were up 4% year over year.
Excluding the discontinued UK line of credit balance of $16.7 million at March 31, 2015, our international loan balance was $63.2 million at the end of the prior-year quarter.
This results in a pro forma year-over-year increase of 26.5%.
Turning to gross profit margins, first-quarter gross profit margin for the total Company decreased to 60.2% for the current quarter from 76.7% for the prior-year quarter.
The decrease in gross profit margin was primarily driven by the growth of our domestic loan ---+ domestic installment loan, RPA and line of credit portfolios as well as a higher mix of new customers which require higher loss provisions because new customers default at a higher rate than returning customers with a successful history of loan repayment as well as the gross profit contribution in the prior-year quarter from the winddown of the UK line of credit product.
Although the growth in our domestic near-prime installment portfolio contributed to the lower gross profit margin, as the portfolio continues to scale, and the underlying longer-term loans continue to season, we expect to achieve increased marginal profitability.
We expect the consolidated gross profit margin will continue to be influenced by the mix of loans and financings to new and returning customers, the mix of lower yielding and higher-yielding loans in financing products and loan originations for our international operations.
We expect our consolidated gross profit margin to remain in the range of 55% to 63%.
Domestic gross profit margin declined to 57.8% from 71.5% in the prior-year quarter for the reasons previously noted.
Our international gross profit margin declined to 70.8% from 90% in the prior-year quarter.
The decrease in international gross profit margin reflects an anticipated return to more normalized gross margins after stricter underwriting standards from regulatory changes in the UK in 2014 that lowered originations and loan balance levels.
Excluding the discontinued UK line of credit product, our international gross profit margin was 65% in the current quarter which is down sequentially from the 69% we achieved in the fourth quarter due primarily to higher growth in Brazil.
We believe loan originations will continue to grow in the UK and depending on the level of originations and the mix of new and returning customers we expect our international gross profit margin to remain in the range of 65% to 75%.
Turning to expenses, total expenses were essentially flat year over year at $73.2 million while marketing expense decreased 12.3% or $3 million to $21.2 million as our marketing spend was very efficient during the quarter.
Adjusted EBITDA, a non-GAAP measure, totaled $37.8 million in the first quarter compared to $61.1 million in the prior-year quarter and also came in above our guidance.
Our adjusted EBITDA margin was 21.6% for the first quarter compared to 36.9% in the prior-year quarter and 16.1% in the fourth quarter of 2015.
On a sequential basis, adjusted EBITDA increased 34% from a $28.3 million in the fourth quarter.
Our stock-based compensation expense was $2 million for the first quarter compared to $1.7 million in the prior-year quarter due to additional restricted stock unit grants.
Net income totaled $9.9 million in the quarter, or $0.30 per diluted share compared to net income of $24.5 million, or $0.74 per diluted share in the prior-year quarter.
Our effective tax rate in the current quarter increased to 43.6% from 38.4% in the prior-year quarter.
Due to the significant decline in the intrinsic value of restricted stock units previously granted we evaluated and adjusted the deferred tax asset balance related to those units that have vested to date, resulting in the higher effective tax rate.
Vesting events in future purpose will also impact each period's effective tax rate.
We would expect that our full-year 2016 effective tax rate to approximate 40%.
Adjusted earnings, a non-GAAP measure, totaled $10.3 million in the quarter or $0.31 per diluted share compared to $26.2 million or $0.79 per diluted share in the prior-year quarter.
We ended the quarter with cash and cash equivalents of $112.2 million and total debt of $594.4 million which is now presented net of $14.5 million in debt issuance cost.
Our debt balance includes $113.9 million outstanding under our $175 million securitization facility which was closed in mid-January of this year.
Total borrowings under the securitization facility during the quarter were $135.1 million while repayments were $21.2 million.
Because principal payments are being made on the debt outstanding based on a waterfall of customer payments received, borrowings under the facility can exceed $175 million over the life of the facility.
As a result, we believe that the current securitization facility will provide us with a long runway to support the anticipated growth of our NetCredit product.
As per our statement of cash flows, cash provided by operations increased to $98.6 million in the first quarter, up from $87.9 million in the prior-year quarter.
During the quarter, we paid off the outstanding balance on our unsecured revolver and continue to maintain over $33 million of borrowing capacity on that credit facility.
We believe our strong cash flows, availability under our credit facility and availability under our existing securitization facility will be sufficient to satisfy our working capital needs in 2016.
With that, I would like to turn to our outlook for the second-quarter and full-year 2016.
As noted in our earnings release, in the second quarter of 2016, we expect total revenue to be between $155 million and $170 million and adjusted EBITDA to be between $23 million and $33 million.
For the full-year 2016, we now expect total revenue to be between $680 million and $730 million and adjusted EBITDA to be between $125 million and $140 million.
Our outlook reflects continued strong growth in our NetCredit portfolio, a continued higher mix of new customers, no changes in the competitive landscape in the United Kingdom, the winddown of our loan portfolios in Canada and Australia and no impact to our US business from proposed CFPB rulemaking since any new rules will likely not take effect until late 2017 or beyond.
We expect that the program that NetCredit launched with Republic Bank this quarter will incur a moderate loss in its first year as we make investments in marketing spend and build appropriate loan-loss allowances on the loans that NetCredit purchases from Republic but we see the program turning profitable in 2017.
We expect the combined operations of NetCredit will continue to be profitable in 2016.
Lastly, I would like to note that in order to provide a better view into the contribution of our US and international operations, we changed the presentation of our reportable segment information in the supplemental schedules that accompany our earnings press release on our investor relations website.
We did this to report corporate services separately from our domestic, international and international operations.
Corporate services expenses which primarily include personnel and other operating expenses for shared functions were previously allocated between domestic and international segments based on revenue but are now included under the heading corporate services.
With that, I will hand the call back over to <UNK> for his additional remarks.
Thanks, everyone, for listening to our prepared remarks.
We will now open it up for any questions.
I would not say it was unusually low.
There is no deferred marketing other than a little bit on the NetCredit side you will see as ramp up as part of the program with Republic Bank.
In terms of dollars not as a percentage of revenue though.
If you're thinking about it in terms of percentage of revenue I think it was a pretty good where we were in Q1 is kind of I think where we see ourselves at least in the next few quarters.
The Q1 there's always a drop from Q4 and we certainly saw that.
But the drop wasn't as severe as we've seen in past years and we attribute that largely to good consumer demand as we don't believe much changed on the competitive front in the US.
The Q2 early demand we've seen is encouraging.
It's early and so it's hard to say where the next where the rest of the quarter can go.
It's also important to remember at least from an EBITDA perspective if demand gets too strong it can actually hurt EBITDA in the short term while helping it longer term, especially with the longer-term product.
So, I think both of those the fact that it's still very early in the quarter and the fact that demand can be strong enough that it could actually start negatively impacting EBITDA is what you see reflected in the guidance.
Yes, good question.
So Q3 is usually a great origination quarter, not a great profit quarter so that's part of what you are seeing in that.
And Q4 is a little bit of a wildcard.
We've had very strong Q4s and we've had ones that are less strong.
And that's obviously extremely difficult to predict this far out.
In terms of anything other than that demand, the other thing to think about is the program with Republic Bank.
Early on in that program to the extent Republic does sell us loans there could be some early losses as we add a bunch of provision.
Again not that those loans aren't profitable, but just as we're putting on a bunch of provision as we're building up the portfolio.
And so as that program ramps up in the back half of the year, as Rob mentioned we could expect that portfolio to have some accounting losses for the year, even though it will be a very profitable we expect it to be a very profitable portfolio.
So that I think that weighs on the second-half guidance as well.
Yes, I think part of it is we did see a reduced competitive environment in the UK, not in terms of the players but in terms of their spend.
And so that's kind of assumed in my statement of where that marketing spend might be the rest of the year.
Obviously if the competitors in the UK begin spending more we will our marketing could become less efficient there.
But we've also had really good efficient spend on our NetCredit product.
And so as that product grows it's helped us to keep those marketing costs low.
We're not going to make any guesses on originations there but it opens up a lot of additional states that we weren't lending in on the near-prime products, so we were only in about 13 states before.
As I mentioned in my prepared remarks we will be in at least 10 we think by the end of Q2 and many more by the end of the year.
So there's real significant volume that we could see from that program as it fully rolls out.
Unit economics on those loans are similar to the other loans in the NetCredit portfolio.
The way we underwrite those products is they have to have lower loss rates to correspond with the lower APRs.
So they're very similar from the unit economics standpoint and it's good profitable business for us.
We've always talked about for really all of our products we target low to mid-20s EBITDA margins.
And that's kind of our way of managing risk and managing our use of our capital.
And so we expect that both for the NetCredit for the entire NetCredit portfolio as well as sub-36% portfolio.
Look, we think we been making continued progress.
As I said earlier, I think a lot of that was masked by all of the changes that were going on.
I think it was a very clean quarter in terms of there not being a lot of changes and so I think it was easier to see the progress we made.
I think next quarter as we've lapped even more of the changes in the UK from last year that will be even more clear.
So we've been talking about our strategy, our diversification efforts being the right strategy to drive this business forward both in terms of additional growth but also in terms of reducing regulatory risk.
And I think that it's really becoming clear that it's paying off.
And as we look forward to the changes to regulations in the US, we think we're extremely well prepared for that standpoint.
We have a nice diversified portfolio base by product type, customer type and geography.
We have significant experience now adapting to new regulations both on the state-by-state level in the US and on the country level in the UK, and so we think we're extremely well positioned for the future.
Sure.
So I think our UK business will keep growing.
I think it will be steady growth.
I don't think it will be exponential growth unless the competitive dynamic in that market changes over there.
So you can kind of look where that business is now.
It's a stabilized and kind of nice steady growth from here.
The US business will obviously be smaller ---+ the US subprime business will be smaller than it is today three years out is my guess.
We haven't seen the CFPB rules but that will be my guess.
But it will still be a big business, it will still be a viable business.
My guess is there will still be a single pay product as well as an installment and/or line of credit product but combined somewhat smaller than it is today.
I think NetCredit will be a very large business, looking out probably our largest business if you look out kind of three years, three to five years.
And then I think Brazil will also be a very large business and significant contributor to the profitability of Enova.
So the only one of our businesses that generally isn't self funding is NetCredit.
The other products are short term enough and high interest rate enough that they are generally self funding and don't require significant amounts of additional capital.
Again NetCredit is the one exception.
We believe that there will be significant access to capital either through the securitization market or the whole loan market or other facilities.
Yes there's been a little bit of choppiness recently but we think it's more company-specific, specific portfolio base than any long-term market trends.
And that includes conversations we've had over the last several weeks.
So we remain optimistic about our ability to fund that NetCredit portfolio.
As Rob mentioned, we have significant runway for this year with our existing liquidity and securitization we put in place.
But that again ties back to the nice thing about our diversification efforts.
We do have a business where we can use outside capital if it's available but we have a lot of businesses where that outside capital wouldn't be required and again gives us comfort to be able to weather a lot of different environments.
Yes, that's correct.
So I think the international is going to stay in that range.
Obviously UK volumes and Brazil volumes are going to have an impact on it.
So what's happened is the UK has stabilized.
We really don't have anything left on line of credit.
I mean there's still some recoveries coming in every now and then.
But so from a growth standpoint the short-term product in the UK is growing faster than the installment and then as we talked about we've got the Brazil is growing at a pretty good clip.
Now it's starting at a smaller base but I think that's going to have an impact on the gross profit margins.
And so the 65% to 75%, which has been a fairly consistent guidance I think, is really reflective of the full international business.
So there's consumer demand for credit and credit for customers who don't have good credit histories and so can't get credit from the banks.
And what regulation did in the UK was actually favor the short-term product.
The regulator there actually thinks the short-term product is the best product out there because it's the lowest out-of-pocket form of credit for customers.
If you look at a customers say who needs to borrow $300 and they really only need it for two weeks, they can borrow that at $15 per $100 or so on a short-term product and only be out-of-pocket $30.
That's cheaper than it's going to be if they take out an installment loan for six months or a year and pay a higher rate of interest for that period of time.
And so what the regulator in the UK looked at is this more of a fee product, not an APR product even though everyone has to disclose APRs.
So in that vein they actually in some ways in their regulations favor the short-term product.
In the US, again we don't know what the rules are going to be, but I wouldn't be surprised if some aspects of the rule, particularly the ability to repay underwriting components, make the short-term product an attractive product for certain groups of customers.
And while I'm not sure we would expect it to grow the way it did in the UK, it's also it is part of the reason why we don't necessarily expect it to go away in the US after the new rules.
We're always changing our underwriting models.
I mean they are continuously updated.
And we've certainly have continued to improve the underlying technologies that will make adapting to new regulations easier than it would have been even a year ago.
In terms of the models, the actual models themselves, we don't know what the rules are going to be so there's only so much ---+ there's very little we can do in advance again other than make sure we have very good high performing models that are very flexible and allow us to quickly adapt to the new rules.
And that's exactly what we have in place.
<UNK>, yes I think that's certainly part of the equation.
We've had several quarters here where it's been stronger for new customers.
I think you also have some of the influence of beyond NetCredit because NetCredit actually continued to do very well there.
So you have the influence of the RPAs that come from Business Backer as well as with a lot of high growth there as well as on our higher cost products in the US through CashNet.
So just really stronger demand than we expected and that mix was heavier in new customers.
I just want to thank everybody for their time today.
We appreciate that and your questions and we look forward to updating you on our progress next quarter.
Have a good evening.
| 2016_ENVA |
2017 | WSM | WSM
#Thanks, <UNK>.
We're obviously focused on both top line performance and earnings growth.
And so certainly, long term could we have op margin expansion.
Potentially.
But to your point, what we think is the most important thing to do is to drive the top line growth, and so we are reinvesting a lot of those savings right back into it, with digital advertising investments this year.
We also have the annualization of our Southeast DC, which is very competitive from an advantage perspective.
And so that is definitely what we're focused on.
You can be penny wise and pound foolish and take all the savings and be a hero for a day and have op margin expansion, but that's not going to drive you in the long term.
So yes, at the high end of our op margin guidance, we're flat to last year.
We have slight deleverage.
But we think with our investments offset by our supply chain efficiencies, that's the right spot to be.
We're always looking at M&A.
We're always looking at ideas and seeing what's the right choice for the Company.
If we think there's a good opportunity to pursue, we will.
So it's not a matter of having an opinion right now as to whether we're doing M&A or not, it's a matter what the opportunity is.
We've obviously done a very good job of growing our own brands internally and we've had incredible success now with Rejuvenation that we think can grow to be a very large brand for us.
So as you can imagine, there's lots of opportunities that come our way and we evaluate all of them, and if it's a good idea, we'll do it.
No, we're not losing money delivering to people at this point.
You're saying geography on the P&L.
It's still within the advertising line within SG&A.
Is that what you're asking.
Let's let <UNK>.
<UNK>'s here.
<UNK>, do you want to answer that question for us.
Sure.
It's <UNK>.
We're really pleased with the growth in West Elm.
Growth in Q4 was almost11%.
Full year was over 18%.
And as I said, including revenue from our franchise partners, the brand's now reached a $1 billion threshold.
And the good news is that when we measure the brand awareness, it's really low.
So that tells us there's a lot more room for growth.
And the new stores have been successful.
We have a lot of growth plans in place for the brand, including hospitality and workspace, and you're going to see those growth opportunities become even more meaningful next year, as well as relentless focus on our store business and our direct channel.
And West Elm in the fourth quarter, like the other brands, was also impacted by the retail environment, specifically in the first month of the quarters, like everybody spoke to.
So you saw that impact probably more the comp business than the non-comp.
So that's why there's a delta between the non-comp and the comp.
The non-comp from the newer stores, they're doing phenomenally well.
I wouldn't read anything into that.
We continue to read them.
We don't want to get ahead of ourselves.
We've always had a really high hurdle rate for profitability in our real estate.
And there's a lot changing there now.
So you do a couple, you do some more.
You make sure it works in multiple markets.
And we have some great landlord partnerships going on and long-term relationships that are going to help us continue to evolve our stores, but also not get ourselves in a situation where our retail profitability declines because of the investment.
There's several different things that we're investing in.
We do think it's a transformative year with the amount of, it is our prioritization for the year to invest in e-commerce and digital leadership.
That's why it was the first thing that I mentioned from an investment perspective.
We're looking at everything to give the customer experience the best thing possible.
So whether it's the next generation product page, whether it's 3-D product visualization, whether it's more investment in mobile, whether it's better on site search experience.
We're also looking at buy online, pick up in store.
We're testing it in the Williams-Sonoma brand.
It's across the gamut of all the things that we are investing in.
And we do think this is incredibly important.
Obviously, we have 52%.
We're different than other retailers where we're already at the 52% hurdle rate from e-commerce perspective, but we do think the growth is going to continue to grow there.
And so it's important, with our level of profitability, what this past was 23.7%, the more we grow that channel, the better returns we get.
And so it's going to be a very strong focus for us.
Yes.
Absolutely.
There's a lot of questions in there.
Let me see if I can tackle it.
I think the first and foremost thing you have to realize is that we're giving guidance today and we're coming out of Q4 where, quite honestly, we had a negative 1, and we still see softness across the Pottery Barn Brands, and the environment is a little bit choppy, the current retail environment.
With that said, as you move through the year, we have absolutely factored in the Pottery Barn Brands returning to growth.
We've also factored in the fact that all of our growth initiatives under the covers are still growing double digits.
So whether it's West Elm, whether it is our newer businesses, whether it's the global company-owned businesses, all of that is going to continue.
And so I think when you look at those growth initiatives combined with the fact that Pottery Barn returning to growth, that is what gives us the confidence in our top line guidance.
I think you need to remember that if you look back in time with the Pottery Barn brand from the time we've owned them, they've only been negative one other time, was during the recessionary period in 2008 and 2009.
It's the first time they've been negative.
And if you look back the last six years or so, they had an average 6% comp.
So it's a matter of when they turn around, but they well.
And so that plus these other growth initiatives gives us confidence in our guidance.
I think also you asked the question about customer acquisition.
And we're happy to report that we saw very solid growth in DDC new to corp customers in Q4 with our investment in digital marketing paying off.
And this is, I think, what you're referring to in terms of a nice positive as we go into the new year.
Revenue growth, they grew 10.8% in Q4.
So they're still double digits.
On the year, they're still double digits.
So I still count them as double digit.
Thank you all for joining us.
We appreciate your support and we look forward to talking to you next time.
| 2017_WSM |
2015 | HII | HII
#Well, <UNK>, we are going to talk about this at some length on Tuesday.
Let's just say that I still think there are a lot of capability in our Business and there are customers out there that need it.
And so, to trying to find the right business arrangement that allows that kind of access to happen, is something that we believe needs to happen.
And so, like I said, we will talk on Tuesday a lot about who we think those customers are, and how we plan to kind of think our way through that.
But, yes, I still think it's important for this Business to not be so focused in on one single customer and one single approach.
Because frankly, there are a lot of people out there who do a lot great things, and that we can learn from.
And we do a lot of great things that they can learn from us, and so that's what's going to I think, ultimately create more value in this Business.
Well, I think the ---+ if you take a look at this business over the next 5 or 10 years, the single most important issue in front of the industry, not just us, but the industry, is how is the Navy to pay for the Ohio replacement program.
If that money, if the money for that program is going to be paid out of the traditional shipbuilding account, at the traditional levels, then a lot of other programs are going to be affected.
On the other hand, if there is way for that program to be funded, either outside of the shipbuilding account or above the shipbuilding account, then you have a chance for the industry to remain healthy in support of all of these programs that the Navy needs.
And so, when I step back ---+ there is probably a lot of things.
We've done some technology investment in undersea warfare.
We bought a undersea systems group that brought some technology to us, and we're interested in those kinds of things.
And you can stack all those programs up, but at the macro level, the most important issue facing the industry today is, how is that Ohio replacement program going to be funded.
It has to be done.
Its a national priority.
I am a little biased, I was a boomer sailor myself, when I was back in the Navy, but it is something that the nation is going to do.
And so, the question is now, how do you do that, and still do all of the other things that we need to be able to get done.
Good morning.
Right.
Well, what we did on this chart, is we assume that FAS and CAS move equally.
So we probably should have footnoted that on there.
So when you think about it, when the discount rate goes up, your expense goes down.
So well, that's the nuance here.
We just assumed that FAS and CAS move equally.
Yes, that's a really good question.
It's sometimes disconcerting to see the challenge for the businesses that are so capital intensive, to be in a second tier of margin relative to some of the other programs in the Business.
But when I step back, and think about why that is, I think that there is probably two things that don't get a whole lot of attention.
One is, a lot of those businesses that are at higher margin, they have actually done some of the same things that we do.
They are in serial production of their product, they just have lots of products.
And so, even in shipbuilding, where we are able to get into serial production in our programs, we are able to drive our margins, and drive our investment plans to perform very well.
The challenge that this Company has is that, a significant part of our Business is not really ---+ doesn't really allow for serial production.
I mean, serial production in aircraft carriers is ---+ yes, I mean we optimize that, if we can be build them three or four years apart, but that's not the way they are being bought right now.
And so, that create risk in the program that doesn't exist if you are producing hundred planes or an assembly-line kind of operation.
So that's one part of it.
But the other side of it is, that the capital investment that we make in our Business has a much longer life I think, than the capital investment that gets made in some of those other businesses.
These great companies that build these high-performance platforms for the Department, they are inserting technology in their assembly lines, and into the product, and they are making that investment, and they are getting that return because they have multiple products, they are getting that return pretty fast.
For us, we are make a pretty substantial capital investment in our business that's going to play out over the next 25 years.
So there is a pace to this business that's a little bit different.
And as a result, I think that our customer is able to go, and say, here is where I want to go over the next 30 years.
30-year plans change sort of the risk profile of the industry.
And so, I think all of those things, sort of conspire together to create a situation where the healthiest part of our business ---+ the healthiest business for us is in the 9% to 10% range.
We are certainly going to have quarters where we are above that, and we're going to have quarters where we are below that.
But I think that over a 30-year period, if a shipbuilding enterprise operates in the 9% to 10% range, that's a pretty good business.
(laughter) I am not saying it's impossible, that the future you will see a large pickup, or a pickup to that extent.
But Ingalls, like we said, is doing very well, all the ships are performing very well.
We have a very methodical approach to risk retirement on all our ships, both at Newport News and at Ingalls.
And this just happened to be some contract changes, completing a couple things on LHA 6 that gave us a nice little pop there.
It was a conservative assumption.
Really, when you think about this, not only is it the expense side, but it's really moves the liability side, and that's really when you want to see the discount rate go up for.
Yes, I would point out <UNK>, that overly was your word, not ours
Well, I think in the macro, that's certainly one possible future for us.
I mean, our targets are to keep both of our business in the 9% to 10% range.
The challenge that Newport News has right now is, not only do they have those three carrier deliveries, but they are all cost type work.
And so, that's a little bit ---+ just the contract types are off-balance for them, as to where they normally are.
The normal carrier construction is a price type contract, as opposed to a cost type contract.
And so, there is a little bit of imbalance in contract type at Newport News that they are going to be working through, at the same time that they are working through these three contact deliveries.
And so, that's a little bit ---+ in my experience, that's a bit unusual for them, and that's going to put some pressure on them.
We've got a great team there, and they are doing what they need to do, and we've some good targets for them.
But in the aggregate, I think it's fair ---+ you've got a good point.
If you step back and look at the entire shipbuilding business in aggregate, we certainly believe that we are going to be in that range for as far as we can see.
Right.
So certainly, when you are at this point, where we are reducing headcount at Newport News, that's going to have some effect have some volume on Newport News.
But as I've pointed out, Newport News ---+ if you step back and look at this over a 5- or 10-year period as we look at, they have in my view, they have the brightest future of any of the businesses in industry, because the demand for the products that they have out there is higher.
It's making headlines.
And so, there is a build up of the demand for the work that Newport News is doing.
And it's just we've got to get through this kind of end phase of this last cycle, the new class of ships, the inactivation, and the delay that we saw in the refueling, that we've got to work that turbulence to get to, the beginning of that future.
And so, if you go out over five years, I think Newport News is going to be in great shape.
At Ingalls, I think it's little bit different in that things are going really great there right now.
We've got four different classes of ships under construction in that shipyard.
But if you looked down the side line of each of those classes, you start to see that that follow-on programs are where all the risk is going to be.
We're at the end of the LPD program, for instance.
And so, the decision to bridge from the LPD program to the LXR program via LPD-28 is a huge decision for Ingalls, and it does create some stability going forward, assuming the LXR program can be accelerated.
And as we've talked about before, the LXR program is going to be, I think tied to what happens with the Ohio replacement program.
So these things are all intertwined.
The destroyer program at Ingalls, I think, is in reasonably good shape going forward, in terms of the outlook for destroyers.
The large tech amphibs, we are building the seven today, and we will be competing ---+ we're in a competition for the eight going forward, with the LHA 8 and the TAOX, and so that needs to get settled.
But then the question is, what happens after that.
And then the NSC, we are building six, the program of record was for eight.
There is talk of a ninth one, so that's playing out there.
There is a discussion of a icebreaker out there, that is in there.
So Ingalls, it's a little bit harder to pin down where Ingalls is going to be in 5 or 10 years, than it's to pin down Newport News, and a little bit more dynamic environment at Ingalls.
And it's ---+ a lot of their success in the future depends on how well they do the work they're doing today.
And we are very, very pleased with where we stand.
Yes, I mean, that's a good question.
I am less concerned with the mechanism for the funding.
The legislative branch has created a mechanism for the funding.
I think that the Department of Defense is thinking about whether that's the right mechanism, or if there is another way to do it, or do we just bring it back into the shipbuilding account.
I think what matters here is that you fund the design, and you fund the early lead time procurement ---+ you fund that on time.
If you ---+ we have seen ---+ excuse me ---+ we have seen over and over and over again what happens when you get yourself in a place where you need to move into production, and the design is not done, or the suppliers are not sorted out.
And so, I think what matters right now is that we keep the funding profile for the design and the early procurement, because that's going to set the stage for early success in that program.
And that's going to be ramping up over the next few years, and it's a pretty healthy requirement to keep that program on track.
You bet.
Well, I want to thank everyone again for joining us on today's call.
And I want to wrap up, by making sure that you know, that you can still sign up to come to our Investor Day, either in person or via webcast next Tuesday, starting at 8:30 Eastern standard Time.
Just go to our website, click on the Investor Relations page, follow the Investor Day link, and you can register and be part of our discussion on Tuesday morning.
We really appreciate your interest in our Company, and we look forward to seeing you.
Thanks.
| 2015_HII |
2016 | EXPE | EXPE
#Sure.
So in corporate travel, absolutely Egencia had a great quarter, so hats off to the Egencia teams for good execution there.
They did get a little bit of help from the Orbitz for Business integration and they actually completed the migration of those clients now, all of them, onto the Egencia platform.
So that was some of what you saw in their numbers.
But they did have a great organic quarter.
They did, however, continue to see evidence of that trade-down activity, particularly in Europe.
Volume held up nicely, but in general transaction values were down year on year.
And so there's no significant change on that front.
And I think, just to add on Egencia, the Egencia team now ---+ they have completed largely their VIA acquisition in the Nordics and now Orbitz for Business as well.
So they are a little mini case of what we described on the Expedia front.
I think that team finally can look forward to really steering their attentions on innovating and building that company.
And we are very excited about their position now competitively.
We have invested in their platform, in technology.
And if anything, we anticipate acceleration in growth for the Egencia brand in the back half of the year and especially going to next year.
So we are pretty excited about that team, where they've got into, and even more excited about where they are going.
As far as HomeAway and when we might see the inventory on the core Expedia brand, no update as of now but news upcoming.
Sure.
As far as TripAdvisor goes, no change as far as our view there.
Obviously, we are not in Instant Book at this point.
We think the product has improved as far as the brand representation of players who are working with Instant Book.
And so we will be in dialogue with TripAdvisor when we can, although I wouldn't expect anything to happen soon.
As far as the HomeAway new subscriptions and the change between PPB and subscription, I think it remains to be seen.
I do think that one way or the other, more and more players are going to come online and make their listings online bookable.
Whether they want to go through subscription or pay per booking is ---+ we are fairly neutral to it.
And really we just want to make it easier for our users to become online bookable.
And then, ones who have become online bookable are obviously over the long term, going to see the majority of demand in that marketplace because it's clearly what our consumers want.
And ultimately we think it's going to be a win-win in this marketplace when consumer expectations are met with homeowners and property managers.
That's really what this model change is all about.
Yes, I'd say on that one it's business as usual as far as adding the 25,000 hotels.
It's growth of about 20% on a year-on-year basis and I think that team is just getting into a rhythm.
As you know, we invested in our partner service team probably around two years ago.
We really started investing in the sales team.
And we continue to invest in that sales team, and they continue to deliver.
If there's any seasonality, I would say that we try to bring on a bunch of hotels prior to the big summer season when travelers are traveling.
So usually at the beginning of the year, Q1 and Q2, the team really tries to sign up as many hoteliers and partners as we can.
And probably during the summer we are a little more focused on managing rates and managing inventory and managing promotions so that we can deliver as much volume to our partners as we can.
But I think you should take the 25,000 as nothing unusual.
It's going to be business as usual.
And I think every quarter we are going to add some amount close to that number.
Whether it's a little bit lower or a little bit higher really doesn't matter.
I think from a long-term perspective you should look at supply addition as being a growth factor for this business.
And then when we add HomeAway inventory, that will be a little bit of a boost.
If our business, if the fundamentals of our business had changed as a result of what's going on with the chains, we might react.
We just haven't seen any fundamental change.
So chain-heavy markets, chain-light markets are really acting the same as they always have.
So for us it's about rolling forward with the formula that we have in place, which is adding to supply, driving conversion improvements on a site, using those conversion improvements to fund additional marketing and then keeping those new users in the marketplace through leading loyalty programs both at Hotels.com and Expedia.
So we will watch it.
The margin improvements are probably going to be a financial positive.
But there's not really an agenda on the margin side.
We are really trying to offer the best hotel at the best rate to our consumers, and that's what we are solving for.
Everything else flows from there.
I would say that in every market we are making sure that we have a wide selection of hotels that are providing us the best inventory at the best price.
So we do look at market by market basis.
Sometimes we will even look at neighborhood by neighborhood to make sure that where there are neighborhoods that are especially popular, we have a wide selection of hotels.
We work with those hotels on inventory and pricing and promotion and sort, etc.
And so far, the results have been good.
And it's something that we will watch quite closely.
Okay, great.
Thanks, everybody, for joining.
We will look forward to talking to you again next quarter.
<UNK>, any closing remarks.
Yes, just that we are very, very pleased with the activity that we see across the portfolio of brands that we have.
The new additions have clearly been terrific, the HomeAways, Trivagos of the world.
There's a lot of really good work going across the <UNK>.
We see the competitive environment as tougher than it ever has been.
The integration work that we are doing clearly has had some execution challenges and the macro environment, it's a tough one.
But this <UNK> has gained share year in, year out, regardless of the environment.
And I think with the strategic scope that we have now, with a scope in metasearch, alternative lodging and scale that we have with the many brands that we have within our OTA business, we are better positioned than we ever have been.
So we expect excellent execution on a go-forward basis and nothing less.
And I wanted to thank our employees for the great work this year and the great work coming up.
Thank you.
| 2016_EXPE |
2016 | SMG | SMG
#It would be sales or earnings or asset base and, depending on which deal get consummated over the foreseeable future, it will probably be on the asset base more so than the sales at this point.
But closely approaching both.
Look, <UNK>, I just want to just throw in on that.
This was actually, our January Board meeting was out in California and we did that at the GH headquarters in Santa Rosa.
And I think it was interesting in the discussion with the Board to look at sort of the five-year plan for Hawthorne.
It becomes a very significant part of our North American business within less than five years.
So I think that's the basis where sort of no matter what we do it's going to become a reporting segment.
I'm going to start by saying I hope not.
I think on the acquisition side, I'm not going to allow that.
It is a commitment we made internally.
We all sort of, what's that TV show where they sort of spit in your palm and shake hands, and brothers' oath kind of thing.
That on the M&A side, I think we've got ---+ we understand what is there, we understand the pipeline, we are, within reason, operating about as quickly as we can, meaning to keep things under control and sort of progressively move from deal to deal.
This is generally on the hydro side, where we're I think right where we want to be and I don't think it will extend into 2017 so I think that's clear.
I'm going to say, and I just said it a few minutes ago, I'm somewhat disappointed in what happened in Europe, to be honest.
I don't think it's changed our view.
And so what we have to do is begin to focus on running our business, because it is still our business, and that is going fine.
And then we have to sort of we reevaluate what the next move is and I think we have got ideas.
But I think that the most important thing right now is that we are in season and we've got to run the business.
So could that part push into 2017.
I think probably.
But I don't think that will affect ---+ because remember the ---+ I don't know exactly what we told you guys, so I could step on dog doo here.
Because I think we told you guys that we probably would have had to re-inject cash to re-capitalize that business in Europe under the existing deal structure that we had talked about.
Obviously, we don't have to do that now.
I don't think this affects our cash flow ability to begin buying shares back.
I don't think it significantly affects our go-forward plans, although, final sort of conclusion of what happens in Europe probably does slip into next year I would bet.
I think so too and regarding Europe, I think it would have been a real head scratcher for everyone if we had actually been able to go forward with the deal.
The original terms we had in place made a lot of sense.
As we add more visibility to numbers on our end and their end, it became obvious that the deal wasn't going to work and we could have tried to chase it down and overpaid, but that's not what we are in the business of doing.
So it made sense just to let that go and go out and essentially start from scratch to a degree.
But it is also encouraging that, if the company we were pursuing was able to find the valuation and found a buyer for their business at such a high multiple, I think it is pretty encouraging for us going forward as well.
A lot more to come on that and I wouldn't expect anything to happen by the end of the fiscal year for sure.
Well, on the commodities and fuel, we have almost perfect visibility now.
So we are 90%, 95% hedged on urea and fuel, so that's not a question mark anymore.
The question becomes more about volume and fixed cost leverage, so as shipments and POS come closer, we're not going to end up 16% ahead on sales by the end of the year like we were at the end of March, so a lot of the margin benefit from volume should dissipate over the balance of the year.
The Roundup impact is all front-loaded, so by just the math plays out.
So it becomes a smaller impact by the end of the year, and then the mix question, we will have to wait and see how that turns out.
We need to make up some ground on fertilizers, and if we do, we should have some upside on gross margins and if we don't, it will pull a step back down a little bit.
You will hear from us in August.
Hi, <UNK>.
Sure.
So the impact that we saw in Q2 from the calendar shift was, call it, about $100 million.
We expect that to come out of Q3.
Difficult to predict exactly with precision, but call it dollar for dollar as an estimate at this point and by the time we get to the very end of the fiscal year, all the timing issues will work themselves out.
So not a big number in Q4.
Then regarding Roundup, the $20 million impact year-over-year, we saw that 100% in Q2 so that was also a big contributor, not only to the sales growth in Q2, but as well as our gross margin rate in our earnings.
Sure.
So as part of the deal, we have access to use the brand in that other category, so we're making a lot of progress on the R&D side.
And we'll do, perhaps not a national launch, but we will be launching the new product next year on a test basis and more to come on that.
And there's two or three more that will follow, probably 2018.
So I'm happy with the progress we're making so far.
And remember all progress relating to the disposition of our European business is enabled by this update to the agreement.
That was a very important part of that deal for us was the ability to revise our portfolio.
This is <UNK> <UNK>.
On the home centers, I would say pretty equivalent, I would say hardware is up and I would say mass is down.
Not anything different other than we expected a lot more cap activity out of mass.
That was probably the biggest change.
It is a weekly promotional circular.
They reduced it significantly.
It went from like 53 a year to 13.
No, there's a commitment and everything we built, everybody was talking about POS, we built the original budget.
We loaded most of our upside into May.
We moved most of our promotional activity to May, which is about 10 times more active than we were a year ago.
So we are actually really confident about where we're going to be.
Sure, <UNK>.
This is <UNK>.
Trying to quantify for you a little bit better, I would say that the couple deals on the pipeline right now that we are pursuing most aggressively would be not quite the size of GH, both in the purchase price and the size of the sales, but similar to.
So pretty nice, reasonable businesses that would complement what Hawthorne has built to date.
That gives you a little bit better idea.
Look, I think, <UNK>, we put it in the script, we called it house of brands or something like that.
I would suggest that if you went out in sort of, call it, roughly the 2,000-ish hydro stores, particularly west coast and just look at what's there.
I think that if you look at sort of Scotts North America and the strategy we pursued really since, call it, 1999 on our US consumer business, I think we're interested in that sort of approach in the hydroponics supply side, meaning ferts, nutrients, pesticides, various other consumables, and to some extent, some hard goods, within the area and generally branded products.
So I don't think it's actually that hard to figure out and I would just say go out and do some store visits.
It's more interesting than probably consumer lawn and garden.
The other thing I'd add is if you look at the one acquisition that we did do about a year ago with general hydroponics, it's actually ahead of the business case, which wasn't any kind of a lay-up anyway.
So we feel really good about how the business is performing right now.
I think I would say yes and no.
I think generally it is a unique distribution channel, although this year, we have been in discussions with many of our largest retailers about some hydro products in what would be viewed as sort of conventional lawn and garden channels and you are seeing like Black Magic launch within Home Depot this year, which is soils and nutrients-based.
I think that what Scotts offers within the channel is not just sales execution, it is management, financial systems, capital, to some extent, some process and managements that, the ability to use our IT systems to better control these businesses and there's a lot of, I'm going to say, duplicative overheads.
So I think that what Scotts offers up goes beyond just sales support and execution support, but in R&D, in manufacturing, I could take you, regulatory and legal, there's a lot of things that we can offer to sort of these Hawthorne companies that they don't really have the scale to do today and I think that makes these deals pretty attractive.
And again, this is a sort of strategic discussion we've had at the Board level in that we are very much today, I'm not going to say low growth, but I think what we've told the street is we're going to budget based on 02 and I think that is what makes, by the way, not fiscally challenging for us based on where we are today.
But it tends to be a west coast business.
We tend to be a kind of central and east business.
This is high-margin, high-growth, young, urban and rural, more independent than the big three.
So there's a lot of things we like about that space that we don't see in our existing lawn and garden space, although the existing lawn and garden business really pays for everything.
And so we think it's a pretty good combo and we wouldn't want to miss this opportunity.
Hi, <UNK>tina.
This is <UNK> again.
No, we expect everything to dovetail for the most part.
I mean, we've seen retail inventories over the last couple of years at the end of each quarter be roughly up mid-single digits.
That's where we are right now coming off last weekend.
So the trade does not stop by any means.
I think we're in a good place, we just need it to stop raining in New York City today and get some good POS in Texas and everything should work itself out.
But everything eventually normalizes for the most part.
And shipments in POS and retail inventory come together by the end of the year, not always by the end of September, but by the time we get all the way through the season and call it Thanksgiving.
Yes.
Pricing for the quarter was down a little bit.
A lot of the trade programs we have built this year, we developed earlier in the year and they are much more performance-based, so we've phased those trade programs with sales and with sales being so high in the quarter, a lot of that expense hit earlier this year than it did last year or years in the past.
So that muted some of the price increases on an invoice sale basis that we saw take place as we flipped over to calendar 2016, so as we roll out over the balance of the year, we will see that pricing impact increase quite a bit, which again, I mentioned in my script, gives us more confidence for a gross margin rate.
I think mix is the one area that I think is of greatest concerned.
Those are the two that we will be trying to balance, but pricing will definitely be a good guy, much more in the second half of the year than what we saw in the first.
Okay.
Great.
Thank you very much.
Again, if anybody has follow-up calls, feel free to call my office later today.
You can reach me at 937-578-5622.
Otherwise, those of you who we have calls scheduled with starting later this morning, we will be in touch with you later in the day.
And right now, our Q3 call is tentatively planned for Tuesday, August 2, I believe that is, at 9:00 AM.
So we will communicate with you then.
Thanks for joining us today and have a great day.
| 2016_SMG |
2016 | WNC | WNC
#Thank you.
Not substantially.
We'll say after public comment and rule as it reads today it's much less impact and leveragable from a manufacturer's standpoint.
It is going to have impact on the physical carriers and the added requirements.
We don't necessarily see that relating into any material impact from a manufacturer's perspective at this time.
I think cancellations are a mixed bag.
Across the industry, there were some cancellations, to your point, that were just re-calendarizations moving into 2017.
I think most of the cancellations in general were within what I would call the small and medium tier players from an end customer stand point, not the larger customers.
At least that was definitely how we saw it from our perspective.
In general, cancellations have begun to really quiet as we move into this fourth quarter.
We feel the market has generally calmed down and has reset itself moving into 2017.
Well, it sounds more like former than the latter based on the way you described it.
And that is what I tried to share in my comments.
By appointing <UNK> into the role as Chief Operating Officer he effectively fills a role that I have been carrying all this time.
While I did not carry the title anymore, it is a title I had previously, and as we have expanded and have grown the business it gets that much more difficult to spend appropriate amount of time overseeing the myriad of businesses that we now have.
And this will allow me a little more freedom and time to focus on growth initiatives for the business.
So, going back to the way you framed your question, yes, it should provide me a little bit more freedom to spend time looking at how we reinvigorate the growth opportunities for the business.
So that can include acquisition growth but it also will include organic growth opportunities for the business.
Yes.
And we did not put a firm number around it because it has a lot to do with how we get there.
But, yes.
That would be a nice place to end up.
As we exit the 2020 year, it would be nice to be looking at it and be having about a third of the business having a, I will call it a dependency, on the dry van segment.
And that has really been driven by an internal look at what our business struggled with back in the last downturn.
And going into the downturn we recognized that we had a significant dependency on the dry van segment.
Nearly 85% of the business was dependent on it.
As I've said many times, that great strength became a great weakness for us as we got into the great recession when demand levels dropped by about 80%.
As you recall, <UNK>, we went from about 60,000 units of demand for our business in 2006 down to 12,000 units in 2009 and that was really driven by the dry van segment.
Less dependency on it.
Obviously we are a much better business today.
Our dry van segment operates much better than it did going into the downturn so we would manage through it more effectively.
Having growth initiatives for the business that would, not walking away, again, I want to emphasize we are not walking away at all from the dry van business, but growing the business in other areas other than dry van can really be helpful to us in the event that we some day in the future face that kind of challenge.
Thank you, <UNK>.
Thank you, Ashley.
So, while much has been done opportunities certainly abound and we will continue to be strategic but selective in pursuing opportunities to grow our business in addition to the organic growth initiatives already underway.
We will continue to seek out ways to increase returns and value for all shareholders while assuring that the proper balance between risk and reward is considered in all decisions.
In closing, we are again on pace to deliver another record year of profitability in 2016 with strong margins, continuing supportive demand environment and continued focus on execution.
Thank you all for your interest and support of Wabash National Corporation.
<UNK>, <UNK>, <UNK> and I all look forward to speaking with you all again on our next call.
Thank you.
| 2016_WNC |
2016 | XRX | XRX
#I think just focus a little bit on your question, yes, what we're seeing in the business and the actions that we're taking is to assure that we when we separate these two businesses, and obviously in 2016 as well, that we get the cost structure and operating model right for these two businesses.
When we look at restructuring and all of the strategic transformation programs, it's focused on leaning out the infrastructure of the business, so spans and layers, everything from spans and layers to how we approach the market from a selling perspective, how we approach the market from a supply chain perspective, etc.
All in leaning out cost and efficient operation not to impact our revenue flow or how we service our customers.
And I think that what we've shown in the first quarter is the ability to actually do that, to drive restructuring and kind of fall in our expectation range and hold up our full-year commitments in both BPO and in Doc Tech and in the full Company perspective.
So I think you're right, we're trying to balance all of these things.
There's a lot of stuff going on but I think we're keeping our eye on the ball and delivering fairly well.
In line with separation as well by the way, we'll do that by the end of the year.
Hi, <UNK>, it's <UNK>.
So first of all with regard to the $700 million of annualized savings this year, it's consistent with what we had previously said and underscores our commitment to deliver adjusted earnings of $1.10 to $1.20 this year.
We, as you noted, increased the restructuring.
Quite frankly we did that in order to underscore our ability to deliver the range, even though Document Technology revenues have begun the year a bit softer than we would have liked.
So this year we don't anticipate investing any of the $700 million.
Any investments of restructuring savings are ahead of us, not in 2016.
With regard to the tax-free spin, I think what we've said is it's tax-free from a federal income tax perspective.
Any tax dis-synergies associated with the spin or any one-time tax costs associated with the spin will be explicitly identified post the Form 10 filing, so as we get to quarter-two earnings announcement at the end of July.
So you should think about them benefiting both gross margin and SAG.
In both businesses, by the way, in both the BPO and the Doc Tech business.
So <UNK>, what we're going to do on dis-synergies is we're going to try to hold that conversation until the middle of the year when we can get a better grasp on what they are specifically and not kind of dribble it out.
But some of the general dis-synergies are what you call independent company cost dis-synergies.
Setting up a board, those types of things are the general buckets, but we don't want to get too far ahead of ourselves and kind of piecemeal it out.
We will have some very specific clarity in the middle of the year when we file some of the Form 10 documents and start to communicate more.
But think about setting up two independent companies and the structures that you need for that.
So <UNK>, it's <UNK>.
If I could just add onto that a bit.
We certainly expect that over time the benefits from our strategic transformation will significantly outweigh any of the dis-synergies associated with running two companies.
As you know, as <UNK> just mentioned, there are certainly public company costs.
But when you look at dis-synergies that typically impact other companies, there will be less that we face because we haven't done a tremendous amount of integration of BPO with what was the Doc Tech organization.
Yes, think about expansion throughout the year quarter by quarter.
That's the expectation, the plan.
Services margins came in about where we would have expected them to come in.
We expected to be below at the lower end of our full-year ranges in the first quarter, it's a seasonally lighter quarter for us in general, and second quarter will be better third and fourth, like that.
We are fairly confident of coming in and that's why we are reiterating the guidance on our Services margins for the full year.
And by the way for our EPS for the adjusted EPS for the full year, our cash flow, we've adjusted down and our Doc Tech we've reiterated as well, so it's kind of come in where we expected.
So <UNK>, a couple of things.
You know we took $126 million of restructuring charges in quarter one.
That should benefit both businesses as we move through the year.
We've announced another $100 million of restructuring in quarter two which should also benefit the margins of both businesses as we move through the year.
We called out a specific weakness in quarter one in customer care where we have new leadership that we've recently brought into the Company and we do expect to be able to address some of those operational and efficiency challenges as we move through the year.
So we're pretty optimistic about delivering the 8% to 9.5% Services segment margin for the year.
Yes, so I will start and then <UNK> will chime in.
And I just want to start with a level of clarity about what we are reiterating.
We are absolutely reiterating full-year Doc Tech margin in the 12% to 14% range.
That is we are confident that we can deliver that.
We are also reiterating Services margins in the 8% to 9.5% range.
We're reiterating revenue, our revenue guidance and we're reiterating our adjusted EPS guidance.
All of those things, four or five I just mentioned, are not changed at all.
We did have a lower delivery of margin in the first quarter for Doc Tech but we are very confident drupa, other product launches, timing of our savings, the flow of currency and how it affects our margins, they will all come out in the next three quarters, delivering somewhere between the 12% and 14% margins that we spoke about.
<UNK> can speak more on this as well.
So, <UNK>, just to reiterate, transaction currency cost us about 100 basis points year over year in terms of the Doc Tech margin.
So Doc Tech margin of 10.2% down 250 basis points, 100 of that was transaction currency.
We believe that $19 million pressure in quarter one turns to essentially negligible in quarter two.
And when you add on top of that the restructuring benefits that we expect to capture from the restructuring that we did in quarter one and that we're doing more of in quarter two we're very, very confident of being able to get to the 12% to 14% range for the year.
With regard to drupa, you're absolutely right, it is an investment that we make once every four years.
But it is relatively modest compared to, for instance, the transaction currency headwind that we faced in quarter one.
So the answer to that in general is no.
I'll answer the question from the combined Company perspective; that's the best way to address it.
And we'll talk about the split companies when we get further in the year.
Our ability to generate cash and to have it available to operate the business in 2016 is identical, nearly identical, to our ability to generate cash and have it available in 2015.
It's really important that we understand that, that you understand that.
About $1.6 billion operating cash flow in the year in 2016.
We have to spend more on restructuring, which we talked about.
I think that's a good investment, a very solid investment in 2016, and will benefit us some in 2016 and will definitely benefit the two companies as we separate.
We have separation costs which are unique in 2016.
We will have some in 2017, but a very small amount, a very, very small amount.
We have normal CapEx of about $300 million.
We have an additional $50 million of CapEx associated with separation that is also unique in 2016.
That gives us a cash balance, a new free cash flow, of somewhere between $600 million and $850 million.
But most of that $850 million to $600 million, the reason why we're there is because of things that we don't expect to repeat in 2017.
So as we flow into 2017 and leave 2016, we'll have a cash ability, generating ability of the two new companies that will be circa $1.6 billion just like it is this year without these one-time costs associated with the separation and with the big restructuring that we're taking.
So we don't say ---+ we don't view that a lot has changed over the last four months that we've talked to at all.
We're getting more clear which we expect to do.
We get more clear as we speak to you throughout the year but it is important that you keep an eye on the fact that the fundamental cash flow and fundamental operations of the business hasn't changed that much.
Yes, I will start with the M&A and I will have <UNK> take the share repurchase.
Last quarter we guided that we would be in the $100 million to $400 million but at the lower end of the range.
What we're doing this quarter is we're narrowing it to the lower end of the range.
We don't expect for us to be in the $400 million range so we've actually taken that off.
Most of the change is driven by the fact that we're doing the separation.
It's not really a big indication of any significant change in the market.
We are pushing hard for the $100 million as I said between both Doc Tech and Services with a big focus on starting these two companies with the right financial position and capital structures.
And that's why share repurchase, M&A, debt reduction are all being played against each other to ensure that we have good capital structures.
For M&A $100 million towards the lower end of the range, we're zeroing there.
Share repurchase, <UNK> will talk about it, but we've moved share repurchase off the table, did $1.3 billion last year, a very, very large amount of share repurchase last year.
And we don't think that we'll do any this year with a focus on debt reduction.
So I think <UNK> has stolen most of my thunder.
As she said, we did do $1.3 billion of share repurchase last year and we have also increased the dividend which is the other way that we return capital to our shareholders.
With modest M&A this year, we are going to prioritize the remaining cash toward debt reduction in order to optimize the capital structure of both companies.
So we're pretty intent on insuring that each of the two new companies starts competitive, starts lean and starts with an optimized capital structure.
And that's where we're focusing our efforts.
So it's actually lower renewal opportunities in the quarter.
So we're really pleased with the renewal rate that we delivered in the quarter of 89% which is at the high-end of our 85% to 90% target range.
But there were less renewal opportunities.
We're also really pleased that the business signings in the quarter were up 6% year over year.
So strong new business, less renewal opportunity but strong renewal rate.
We do expect the renewal opportunities for the full year to be essentially the same as it was in 2015.
But as you probably know, if you don't know now that renewals come in the year at various times.
So we expect the full-year bucket to be about what it was in 2015, maybe a little bit higher.
Okay, so it's <UNK>.
I think over the longer term we are certainly focused on growing at the market.
There are clear industries where we participate well like healthcare, like transportation, like customer care where over time we for sure should grow at the market rate.
In the near term, we do have some puts and takes associated with some contracts that we have opted out of or contracts that we've lost.
So we're pleased with the BPO growth in quarter one and believe that for the year it will enable ---+ BPO combined with Document Outsourcing will enable us to deliver the Services revenue growth that we've committed which is flat to up 3%.
BPO will be a little lumpy in certain quarters depending upon the prior-year compare.
Yes, so outside of the government healthcare space where we've made, and Health Enterprise in particular where we've made a set of very conscious decisions to not complete the platforms, in general if we move out of a contract it's because the contract profitability doesn't meet our thresholds.
That's basically we don't have a lot of these, this is not a large bucket of business, but we are being very disciplined in assuring that as we move forward with contracts that it's, particularly if they are not in the areas of focus for us, which are transportation and healthcare, if they are not in those areas and they have a very low profitability or marginal profitability we will move out of those contracts, obviously working with the client and not leaving them in the lurch.
And as we think about the new business that we compete for, we're also being very measured in ensuring that the new business that we take on has the margin profile that we're seeking longer term for the Services business.
So, <UNK>, there's a few things that I think you should understand about the impact of the yen.
First of all, we have a currency risk sharing arrangement with Fuji Xerox where they take half the good news or the bad news and we take the other half.
That happens over time.
Second of all, we do hedge.
And therefore the impacts of currency movements will be more muted and will flow in over time.
The last point that I would make vis-a-vis the yen strengthening in particular is that it tends to lead to a less competitive or a more muted competitive pricing environment, a good thing.
And we also have the benefit of translating our equity income from Fuji Xerox at a more attractive rate when the yen is strong.
I think we've had a pretty intense engagement over the last I think let's say six weeks or so that has been refreshing, painful but refreshing in many ways.
And for both our Doc Tech business, Doc Tech with DO now, and our BPO business we have found ways to improve three major areas.
One is how we approach our customers, how we approach them organizationally and in what areas we dive deep with them.
And that help us on the top line, how do we organize that go-to-market in a little bit more efficient way.
Second is how do we adjust our cost base inside particularly, we've talked about this a lot, spans and layers where we've done a lot of work but with the help of some outside resources we've been able to look at to find ways to even be more sharp there.
Then as we separate the two companies we're taking this chance to look at just about every other piece of the business that moves and figuring out a way to lean that out those pieces of business that move, lean them out and be significantly more efficient.
The fundamental strategies, though, of the Doc Tech business and the BPO business, the fundamental strategies are the same.
What we're doing here is we're rounding the edges a bit to make ourselves even more efficient.
I was pleased with the work that we've done so far.
But we still have some work to do.
<UNK> said I think there's two primary outcomes.
One is sharpening the strategy for each of the two businesses.
And the second is for sure improving our strategic execution.
And part of the strategic execution is the transformation that we've been talking about.
So the separation costs are dominated by both cost and outflows this year.
There will be minimal costs that are incurred and cash outflows that are incurred in 2017.
No, I was just asking if you had more questions.
So continue, please.
Thanks, <UNK>.
Full year, we were careful to be clear about the full year this year because we know that we had ---+ we have a lot of ups and downs in any given quarter.
On a full-year basis Doc Tech margins, Doc Tech revenue, we are reiterating our guidance and confidence that we'll be able to get there.
So no debate there.
As far as the margins go and the revenue in the first quarter, they were a little bit lighter than we would have expected but not anything that would allow us, that would cause us as I said to change our guidance.
If you think about what we did in the second half of last year, and actually in the first quarter so far of this year, but in the second half of last year, we took no restructuring in the Doc Tech business.
We did all of our restructuring in the Services segment.
So we knew that we would have pressure in margins in the first quarter because we had literally no restructuring to offset the revenue declines.
We've doubled up on restructuring in the first quarter.
We have even more to do and we've announced an additional $100 million in the second quarter and we'll top the year at $300 million of restructuring which is why we are confident that we'll be able to actually hit the margin range for the full Company that we talked about, the EPS that we talked about and the adjusted EPS that we talked about.
And the revenue shouldn't change that much.
So the way the business is flowing, no restructuring second half of the year, big restructuring this year, help us to maintain and drive the margin range that we talked about in Doc Tech and in Services.
And no, we're not moving away from focusing on the market and we will be able to actually hit the revenue guidance that we've given as well.
This is, as you can sense from listening to the call, this is a significant year for Xerox.
We have three fundamental commitments that we have made to our shareholders.
The first is to deliver our 2016 guidance.
We are on track to do that.
We are reiterating our full-year guidance in EPS and in revenue, we're doing that for both BPO and for Doc Tech and for the full Company.
Second is to actually implement a strategic transformation that gives us two very strong companies, well seeded companies on January 1 of 2017.
And we are well on board, well on past to do that.
And we are very confident in our ability to hit the second.
The third is to hit the separation date which is January 1, 2017.
A lot of work on that going very well.
And we're very confident in our ability to do that.
So these three things we are focused on and we're pleased with the progress we are making and very confident in our ability to pull it off.
So thank you for joining our call today and we'll see you next quarter.
| 2016_XRX |
2017 | MTSC | MTSC
#Thank you, James.
Good morning, and welcome to MTS Systems Fiscal 2017 Second Quarter Investor Teleconference.
Joining me on the call today is Jeff <UNK>, President and Chief Executive Officer.
I want to remind you that statements made today, which are not a historical fact, should be considered forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.
Future results may differ materially from these statements depending upon risks, some of which are beyond management's control.
A list of such risks can be found in the company's latest SEC Forms 10-Q and 10-K.
The company disclaims any obligation to revise forward-looking statements made today based on future events.
This presentation may also include reference to financial measures, which are not calculated in accordance with generally accepted accounting principles, or GAAP.
These measures may be used by management to compare the operating performance of the company over time.
They should not be considered in isolation or as a substitute for GAAP measures.
A reconciliation of any non-GAAP measures to the nearest GAAP measure can be found in the company's earnings release.
Jeff will now begin his update on our fiscal year 2017 second quarter results.
Thank you, <UNK>, and good morning, everyone.
Thank you for joining us for our investor call today.
We appreciate having the opportunity to discuss our financial results for the second quarter of fiscal 2017, which ended on April 1.
We'll also discuss our outlook for the full year of fiscal 2017.
But before I begin my discussion of our financial results and business outlook, I'd like to formally introduce our new Chief Financial Officer, <UNK> <UNK>.
<UNK> joined MTS in 2014 and has served very successfully as our Corporate Controller since that time, gaining a good understanding of our 2 global businesses.
Prior to joining MTS, <UNK> developed and demonstrated his financial and operational leadership skills in various global organizations, gaining valuable experiences ranging from SEC compliance, strategic planning and acquisitions, to operational execution and internal control.
During his time at MTS, he's had an integral role in leading our efforts to implement major upgrades to our business systems, worked closely to address the requirements of our complicated Test business and had responsibility for completing various due diligence and financing activities required to complete the PCB acquisition last year.
With his broad background and experience and his accomplishments at MTS, I'm confident that <UNK> has both the strategic and operational perspective as well as the leadership skills to ensure that PCB is successfully integrated into MTS, and that our shareholders are properly rewarded over the long term with the overall performance of our company.
Moving then to our business updates and outlook.
There are 3 key takeaways for the call today.
First, we continue to enhance our overall control environment, and specifically controls in our China operations, to ensure that we conduct business in a manner fully consistent with our MTS code of conduct.
This effort is integral to our continued success in China and other emerging markets.
With our recognized technology leadership and continually expanding customer base, this is an exciting region of the world for MTS and we remain committed to our long-term growth strategy there.
Second, the integration of PCB is continuing to progress into the close, which occurred at the beginning of our fourth quarter last year.
Over the past few quarters, teams from multiple disciplines across the company have been highly engaged in combining the 2 Sensor businesses and continuing the coordination with our Test business that brings important additional growth and cost synergies to the company in the years ahead.
The revenue and cost synergies that we previously outlined have been validated through this work, and we feel strongly that we'll be able to achieve them over the next 4 to 5 years.
Of immediate importance, once the deal closed, was the establishment of the consolidated leadership structure for the combined Sensor businesses, which was completed earlier this year with Mr.
Dave Hore of PCB becoming the President of our combined Sensor businesses.
Dave's track record in driving exciting organic growth with outstanding profitability and free cash generation through an intense focus on total customer satisfaction was ideal for our combined Sensors business.
As Dave assumed the leadership role, we took the opportunity to assess and optimize our combined Sensors operational footprint.
Based upon this analysis, we initiated a process of closing our sensors factory in Machida, Japan and are now completing the transition of production to our other sensors facilities, with most of the volume moving into our U.S. operations in North Carolina.
This work will be completed by the end of fiscal 2017.
With this and other efforts that we have undertaken, we believe we'll be able to begin to deliver both revenue and cost synergies in fiscal year 2017, although they will be fairly modest in the first year and will ramp up in the years to come.
The third key message today is regarding our second quarter performance and our outlook for fiscal year 2017, which <UNK> will then cover in more detail.
Regarding our second quarter results, we're pleased to report that revenue increased by 41% to $193 million compared to prior year.
Of the 41% increase, revenue from the PCB acquisition contributed growth of 31% and organic revenue growth was strong at 10%.
This was the third consecutive quarter of solid revenue growth from our organic business, which resulted primarily from sustained improvement in backlog conversion efficiencies in our Test business, with good growth also coming from organic Sensors volume.
Compared to the prior year the gross margin rate on a GAAP basis for total MTS increased from 32.9% to 40.8% due to improvements on our execution of our large complex Test projects.
Our gross margin rate was also favorably impacted by an increase in the mix of higher-margin Sensors revenue due to the PCB acquisition.
Excluding acquisition, integration and restructuring expenses, the gross margin rate for the second quarter was 41%.
Moving onto our business updates.
Let's ---+ first let's begin with our Test business end markets.
While we were pleased with our first half performance this year, revenue for the Test business in the second half of fiscal '17 will weaken slightly in the short term as lower orders in the latter half of fiscal '16 and the first half of fiscal '17 now flow from backlog through production.
However, with our opportunity pipeline strong and increasing clarity around customer investment timing, we expect this revenue stagnation to be short-lived and to reverse itself as we move into fiscal 2018.
As such, we continue to retain our key technical resources in order to support our customers as they finalize their specific investment plans later this year.
It is this longer-term outlook that's particularly important to our key customers, most of which have been loyal customers of MTS and leaders in their respective markets for decades.
As these key automotive, aerospace and advanced materials customers face rapidly changing market dynamics and move to aggressively incorporate the most advanced technologies into their new products, their need for new, more advanced testing and simulation has never been higher than we see it now.
To add more detail to our expectations for sales this year, we believe that we hit our low point for Test orders in the second quarter at $110 million and that the orders outlook will be strengthening throughout the second half of our fiscal year.
More specifically, our third quarter orders for the Test business are expected to exceed prior quarter and prior year levels by roughly 5% and 15%, respectively, due to the strong broad-based product line improvements, including custom and standard products in our vehicles and structures Test business, as well as our materials Test business worldwide.
Building further on this momentum, as we exit Q3, our fourth quarter sales, while more difficult to precisely predict in terms of timing, are expected to show strong double-digit sequential quarter and year-over-year improvements with similarly broad product line strength in custom and standard products across all our Test markets, as well as continuing growth and demand for our Test Services.
This anticipated strength in our orders performance will expand our backlog, supporting renewed revenue growth as we move into fiscal 2018.
Forecast orders growth partially reflects general market trends, such as growing demand for durability and aerodynamic testing of new automotive designs and increased use of simulation systems associated with automotive electrification and advanced driving assistance systems, as well as geographic growth in India and continued strength in our China markets.
We also believe that we're beginning to see the meaningful impact of our strategy to grow services as our long-term customers invest in updating trusted but aging Test products and our focus on making customer labs simpler and more efficient from an engineering design perspective.
As longer-term investors in our company understand, our Test markets are notoriously dynamic, as our customers adjust the timing, size or strategy associated with large orders to changing market conditions such as automotive and environmental regulations, renewable energies, currency fluctuation, and today, even the political environment.
Their uncertainties and adjustments are magnified at MTS as the movement, addition or cancellation of large orders reverberates particularly forcefully for long lead, highly engineered custom products.
We are, however, making focused efforts to ensure that our orders and revenue forecasting are as accurate as possible through improved algorithms, more intimate engagement with customers and their approval processes, allowing for more time for discussion of technical performance needs and including greater redundancy in our orders pipeline to allow for anticipated project timing fluctuations.
Given the general market trends, the progress we've made in our product offerings and the improvements in our forecasting, I'm confident that the orders rise we are seeing in the latter half of this year is real.
As those orders begin to flow into production, we should expect revenues to follow suit in fiscal '18.
Moving on to our Sensors business.
To provide a better understanding of the Sensors markets, it's worth noting that by its nature, order volume that flows through our Sensors business has a much shorter manufacturing cycle time, ranging from days to weeks as compared to our Test business that takes months to years to fulfill.
This means that while Sensors, for us, is largely a build-to-order business, it carries much less backlog than our Test business.
As such, our forecasting revenues is much more dependent on our anticipated short-term bookings outlook and our macro view of the marketplace in the quarters ahead.
From a market sector perspective, we define 4 broad end markets for our sensing products.
We describe these as: industrial, which includes areas such as factory automation, reliability and energy applications; test, which includes sensors used in the testing of new product such as cars, planes and trains; systems, which are complete solutions that incorporate our sensors for measuring sound and vibration; and positional, which are sensors used for precise measurement of location and displacement of critical industrial machinery and mobile hydraulic systems.
We'll now discuss each of these 4 sectors.
The first sector is positional sensors.
Demand and sales execution in this sector has been strong this year, driven by resurgence in the basic materials market such as steel and aluminum processing as customers invest for future anticipated growth.
Also, heavy mobile equipment such as earthmoving, agriculture and others are showing improvements that reflect confidence in the future for the first time in several years.
Moving then to the industrial sector.
We have experienced soft demand, driven specifically by one large customer in the energy market.
This revenue shortfall is expected to cost us roughly 2% of organic growth this year versus our expectations when the year began.
We expect the demand from this customer should rebound in fiscal '18.
The third sector is systems, where weakness has been driven by slower-than-expected sales in China and Russia, which have been growth markets.
We believe this softness will be short-lived, particularly in China, and that sales will rebound with a continued economic expansion.
The fourth sector is test sensors, and general demand for this sector has mirrored the market and technological trends as those seen in our Test business unit, meaning some weakness in the first half of the year, followed by an expected strengthening in the second half.
Of particular note this quarter, we're pleased to announce that we have been notified of a pending award for a new DoD program, which will substantially increase our business with the U.S. Military.
With this new award, our military-related bookings this year for Sensors are expected to approach $15 million, a substantial increase over last year.
The product developed to win this contract represents a new market and application for the company, and one in which we're very excited to participate.
Beyond this initial contract, looking ahead, we're extremely excited about this new DoD program, which has been under development for several years and is well aligned with the investment strategy that the U.S. government and our military has publicly articulated.
It's a new application of Sensors technology, which opens up an entirely new market for MTS within the Defense Department on mission-critical systems.
With this new product capability and the anticipated refresh of key U.S. Military systems that have been communicated to us for planning purposes, we have the potential for roughly $300 million in new contract awards for these new products over the next decade.
We would anticipate the orders for these products to follow on from the fulfillment of the initial order received this year, most likely materializing in late fiscal 2018 and into '19.
In short, we view this as a game-changing product launch for our MTS Sensors business, enabled by the acquisition of PCB, and made possible by our long-term focus on technology leadership and total customer satisfaction, that the MTS and PCB brands have been recognized for, for over a half century.
Moving onto our fiscal year 2017 outlook.
We're reaffirming our revenue forecast of $760 million to $790 million, and our forecast of GAAP earnings per share of $0.80 to $1.20 for our fiscal year 2017.
With an opportunity pipeline in our Test business of approximately $1 billion in front of us, we're optimistic about our ability to convert these prospects into orders.
In addition, our Test backlog stood at $298 million at the end of the second quarter, which we're now able to convert into revenue with a high level of efficiency.
We're also reaffirming our previous forecast for adjusted non-GAAP EBITDA, $115 million to $130 million.
In a few minutes, <UNK> will discuss the fiscal year 2017 guidance in greater detail.
A reconciliation of this non-GAAP measure to net income, the closest GAAP measure, is included in the non-GAAP financial measures in Exhibits D and E and sections in our earnings release, which is available on our website and the SEC's website.
Now I'd like to turn the call over to our CFO, <UNK> <UNK>, for some additional financial detail on the quarter.
<UNK>.
Thank you, Jeff.
My remarks today will briefly summarize our second quarter of fiscal year 2017, based on a year-over-year comparison.
Quarter 2 revenue for Sensors was $70 million, up $46 million compared to the prior year, driven in part by the PCB acquisition, which contributed $42 million in the quarter.
The remaining increase was from a 17% growth in our legacy Sensors business, driven by strengthening markets and strong sales execution.
Moving onto Test.
Revenue was $124 million in the quarter, increasing a strong 9% organically as we continued to efficiently convert our backlog into revenue.
Moving on to quarter 2 gross margin by business.
Sensors gross margin was $34 million, up $22 million, driven by the contribution from the PCB acquisition, partially offset by acquisition, integration and restructuring expenses included in gross margin of $350,000.
The gross margin rate decreased from 51.4% to 49%, driven by the PCB acquisition.
Going forward, we expect the Sensors gross margin to be in the low 50% range with improvements expected as the volume increases.
Test gross margin came in at $45 million, up 35%, mainly from the higher revenue and lower cost due to improved project execution.
Gross margin rate increased 700 basis points from 29.1% to 36.1%.
For fiscal year 2017, we expect the Test business margins to be in the 34% to 35% range, representing a 1 to 2 percentage point improvement over fiscal year 2016.
My next topic is quarter 2 operating expenses.
Operating expenses increased $23 million to $63 million and were 33% of revenue.
The increase in operating expenses primarily resulted from $700,000 of acquisition, integration and restructuring charges, $6.8 million from China Investigation expenses and incremental expenses related to the PCB acquisition.
Excluding the acquisition, integration and restructuring costs and China investigation charges, operating expenses were 29% of revenue.
Going forward, we expect operating expenses to be in the 28% to 30% range, excluding the acquisition-related costs, restructuring expenses and the cost of the China Investigation.
Next, I want to discuss net interest expense.
Net interest expense in the quarter was $7.4 million, consistent with our expectation.
We estimate that net interest expense will be approximately $7.5 million a quarter during fiscal year 2017.
Moving on to taxes.
The tax rate in the quarter was 17%, due to the significant acquisition integration and restructuring expenses in the quarter.
We expect the tax rate to be approximately 17% to 19% in fiscal year 2017, driven lower from the cost associated with the integration, restructuring and the China Investigation.
In fiscal year 2018 and beyond, we would expect the effective tax rate to be 27% to 29%, assuming no changes from the federal government.
Earnings per share increased from $0.20 per share in the prior year to $0.38 per share from the improved margins in Test.
Also, the EPS was negatively impacted in the quarter by $0.29 per share, driven by the restructuring, acquisition integration and China Investigation costs.
Excluding these charges, non-GAAP earnings per share would have been at $0.67 per share.
A reconciliation of these non-GAAP earnings to GAAP earnings is included in our earnings release, which is available on our company's website and the SEC's website.
Moving on to a summary of cash.
We ended the quarter with $97 million of cash, an increase of $1 million in the quarter.
Operating cash flow was $12 million in the quarter, driven mainly by net income generated in the quarter.
We paid $5 million for dividends, $5 million for capital expenditures and $3 million in debt payments associated with the term loan B and the tangible equity units.
Now I'd like to update you on our fiscal year 2017 guidance ranges.
As Jeff mentioned in his discussion, we have reconfirmed guidance with revenues in the range of $760 million to $790 million, and GAAP diluted earnings per share of $0.80 to $1.20 per share for our fiscal year 2017.
We are also forecasting our non-GAAP adjusted EBITDA to be between $115 million and $130 million.
We calculate EBITDA by adding back interest, taxes, depreciation and amortization expense to net income.
Adjusted EBITDA is calculated by adding back stock-based compensation, acquisition-related expenses, acquisition integration expenses, acquisition inventory fair value adjustment, China investigation expenses and restructuring expenses to EBITD<UNK>
A reconciliation of this non-GAAP measure to net income, the closest GAAP measure, is included in our earnings release, which is available on our company's website and the SEC's website.
With regard to diluted earnings per share, our guidance range of $0.80 to $1.20 includes $16 million to $18 million of acquisition, integration and restructuring charges in fiscal year 2017, which impacts EPS by $0.60 to $0.65 per share; China Investigation costs, which will cost approximately $9 million or $0.30 of EPS; incremental year-over-year net interest expense of approximately $22 million, or $0.73 per share; and higher acquisition-related amortization expense of $9 million or $0.31 per share.
This concludes my remarks for today.
I will turn the call back to Jeff for his final comments.
Thank you.
Thanks, <UNK>.
Let's begin with a recap of our second quarter results for 2017.
There were several positive results that came out of this quarter.
Gross margins in our Test business of 36.1% represent the fourth consecutive quarter that gross margins have held steady in the 34% to 36% range as operational and process improvements to reduce costs and deliver better project execution on large custom projects are being sustained.
In addition, the ability to generate strong organic growth for a third consecutive quarter through improvements in our orders conversion process demonstrates that our investments of time and capital to implement a more flexible and efficient business model are paying off.
Our ability to manage our cash requirements continued in the second quarter as working capital remains near historically low levels.
We have not used our lines of credits to meet our financial requirements.
The diverse and global customer base served by both our Test and Sensors business provides MTS for the long-term competitive advantage because this has allowed us to aggregate the resources, technology and expertise required to develop the best products and services that our customers require in today's rapidly evolving environment.
The sustained improvements in our operational performance and processes in our Test business is a critical and noteworthy achievement in order for us to provide long-term value to our customers and shareholders as this will help generate the financial resources to invest in the technologies that will drive customer demand.
The Department of Defense contract we discussed earlier in our Sensors business is an early and important example of the long-term strategic contribution that the PCB acquisition will have in the transformation of MTS into a well-balanced test and measurement company.
It's one of the many reasons that we're excited about our future.
So in closing, we're confident that the underlying economic and market factors driving the demand for our Test and Sensors products are intact and that, from an operational and backlog perspective, we expect to deliver on our fiscal 2017 guidance.
For the long term, we are pursuing multiple initiatives that will continue to advance our technology leadership position, further enhance our operational capabilities and leverage the benefits of the PCB acquisition.
We're excited about the year-to-date achievements in fiscal '17 and the long-term opportunities that we're striving to accomplish.
That concludes our prepared remarks.
I'll turn the call back to you, James, for the Q&A session.
Let me speak to the gross margin outlook, if you will, for the company in the long term.
And <UNK>, maybe I'll ask you to speak to the operating margin question, if you like.
From a gross margin perspective, you can think of our Sensor business as a 50-plus percent gross margin business, in general, so it hovers between 50% and mid-50s, but you can think of it as a 50-plus percent gross margin business.
In Test, we have gone through a period the last couple of years of large custom content in our backlog so that drove margins down, but they're climbing nicely now, so they were in that 36% range.
With an increasing mix of services over the long term and the efficiency that we're now starting to drive through our custom project execution and standard product growth, we'd like to see Test be back in the high 30s, approaching 40% kind of gross margins.
So the overall company gross margin will be a blend of those 2.
Again, with Sensors at 50-plus and Test, say, in the high 30s from a gross margin perspective and the mix will depend on the volume contributions from both businesses.
Clearly, Test is ---+ equipment is growing and we'd say in the long-term kind of twice GDP kind of numbers.
Sensors, we believe, is kind of a double-digit organic growth business over the long term.
Obviously, you see variations from that year-to-year.
But we believe that with the proliferation of Sensors in the world, that Sensors organic growth will be in the high-single to low double-digit range on a compounded annual rate over the long term.
So over time, you'll see an increasing mix from sensors coming into our overall company gross margin.
So that will tend to lift it over time.
I don't have an off-the-cuff target for the full company, but that's how you do the math.
<UNK>, any other thing you want to add.
So overall, I guess, we're targeting in the long run of EBITDA margin somewhere in the 22% to 24% range, and that's total company.
And that was EBITD<UNK>
And that was EBITD<UNK>
So 22% to 24% EBITDA margins targeted for the company.
Just want to ask, can you maybe discuss some of the other Sensor opportunities that you see maybe in the medium run.
Are there some new applications or new systems that you're currently spending R&D dollars on.
Yes.
I put them in 2 broad categories, which are impactful to the business, well, actually 3.
I spoke to the new DoD applications that we're looking at now and that are emerging, very exciting and very new to the business.
So while they've been worked for a long time, I expect those to be an impactful and meaningful part of that business going forward and as we move into '18 and '19.
But in the traditional sectors that we see growth, there's 2 broad ones, in the industrial markets where you have a lot of industrial automation and an enormous proliferation of sensors.
So our specialty tends to be in vibration sensing, so sensing when a machine ---+ how a machine's operating, how precisely it's being controlled, how its health is, all of those relate to the ---+ basically by simple vibration measurements in key components as of the equipment, as well as the position of the machine through position sensors.
So with that, you can not only predict and mitigate health issues in the machinery, but you can control it for precision and higher yields and a safer operating environment as well as a more autonomous environment.
Industrial equipment, we're really excited about and we see natural home for our Sensor technology for years and years to come.
Mobile hydraulic equipment, so heavy over-the-road equipment such as earthmoving, mining, agriculture, those kind of machineries, with our position Sensors are excellent for controlling that equipment and making it less and less sensitive to the actual driver and moving towards autonomy in those systems that require sensing technology.
They're affordable and offer value now to the customers that are unmatched in the industry.
So we're excited about that.
The energy market is a growing one for us for electricity generation.
And then if you think of moving from land-based turbines to aero engines, we're moving into pressure sensors to measure the combustion process on engines.
Again, both land-based and aero engines that can be used for real-time adjustment of propulsion systems and, specifically, combustion systems, that control not only the emissions of the engine but the efficiency and fuel efficiency of the engine.
So we're very excited about the energy market as it relates to electricity generation and then the propulsion market for aerospace.
What have I missed.
Industrial equipment and, of course, testing.
We have an extensive base of customers that are running our testing equipment now for decades across the entire global automotive industry, the aerospace industry and many others.
Those tests ---+ not only do customers buy equipment from MTS and now our services for maintaining that equipment and running it well, but they also consume sensors in the operation and performance of testing.
So it's the same laboratory, it was part of the rationale for combining MTS and PCB in the first place, is getting not only our testing equipment in labs, but getting PCB sensors more extensively used around the world and we're very, very excited about that.
That's the source of our ---+ of a meaningful part of our revenue synergies as we purchased PCB.
And we're very excited.
That message to customers, as I go in customer labs around the world for product development, resonates with every single one of them.
They've known PCB for decades.
They've known MTS for decades, and they think it's marvelous that our companies are together and can buy all of that very high reliability and mission-critical equipment from one organization.
And then maybe one other question on sensors.
Can you just share with us some thoughts on when you had that double-digit organic growth outlook, what's the interaction between volumes, price and mix.
So, you're probably asking more about leverage and flow through from volume impact.
<UNK>, do you want to comment on that.
No, so I think it's a little bit of ---+ I would say that the pricing side of it is pretty consistent.
I would say more on the volume side of it.
The mix may shift a little bit, especially as we're continuing to integrate and work with the PCB group, but I would say, mostly on a volume basis.
And the volume leverage is terrific in that business.
So ---+ and both of our businesses are low CapEx businesses.
We consume 2% to 3%, in general, of our revenue in terms of CapEx requirements for growth.
The inherent return on invested capital in these businesses from these high-margin products is quite good.
So we're excited to see the volume growth and the utilization of our capital as we invest for growth.
Yes.
From a margin standpoint, we expect to see strong margins from program, and obviously, with increasing volume, more volume leverage as those orders flow through.
The timing and pace of the orders is very interesting.
Again, it is a very important ---+ in our opinion, a very important and critical military investment that's being made for rejuvenation of our military forces in the United States.
It aligns fully with what the government has said and the direction they want to go and what the U.S. military has communicated through OEMs to us.
So we're very happy about the long-term outlook for that.
The exact pace of orders and how they'll meter out, what we see is this $300 million opportunity is the question.
I don't expect it to be individual, a series of one-off POs.
I think they'll, certainly, issue large multiyear purchase orders that will make up that $300 million opportunity.
The question is how many chunks do they come in and when do they start flowing.
What we would anticipate is this first order, which is embedded in that $15 million, as it nears completion, they'd start funding the follow-on orders in large pieces.
Okay, so I'd be surprised to wake up one morning and have a $300 million purchase order on the desk, but I also would not expect it to be a large number of small purchase orders.
So my guess is it will be a few divided over 2- to 3-year periods that make up the decade.
It will span ---+ it's ---+ with the anticipated ---+ we've been notified that we've won the order.
With the anticipated signing of the full contract, we'd anticipate shipments later this year and into fiscal '18.
Just clarify a little bit too.
So we do have other Department of Defense contracts included in the $15 million, which is our projection in this year.
This is just 1 piece of it that we're talking about here.
We just can't ---+ we can't say.
It's a meaningful percentage of it, but for several reasons, we can't tell you the exact size.
Great.
Thank you, James.
And thank you all for participating in our call today.
We look forward updating you on our progress again in the third quarter of our fiscal year 2017.
Thank you, and have a great day.
| 2017_MTSC |
2018 | ILG | ILG
#Thank you, operator, and welcome to everyone joining us for ILG's First Quarter 2018 Earnings Call.
With me today are <UNK> <UNK>, our Chairman, President and CEO; and Bill <UNK>, our CFO.
They will be presenting the results, but will not be taking questions.
I want to remind you that on our call, we will discuss future events and other items that are not historical facts.
These forward-looking statements typically are preceded by words such as we expect, we believe, we anticipate or similar statements.
These forward-looking statements are subject to risks, assumptions and uncertainties and our actual results may differ materially from these forward-looking statements and the views expressed today.
Some of these risks have been set forth in our first quarter 2018 press release issued earlier today, in our Form 10-K and in other periodic reports filed with the SEC.
In addition, ILG disclaims any intent or obligations to update these forward-looking statements, except as expressly required by law.
We will also discuss certain non-GAAP measures in connection with ILG's financial performance.
I refer you to our press release and other materials posted on the Investor Relations section of our website at www.ilg.com for comparable GAAP measures and full reconciliations.
In connection with the proposed business combination between ILG and Marriott Vacations Worldwide, ILG intends to file a proxy statement with the SEC, which we urge you to read along with all other relevant documents filed with the SEC because they will contain important information about the proposed merger transaction.
And now I'd like to turn the call over to <UNK>.
Thanks, <UNK>, and good afternoon to everyone.
Thank you for joining ILG's First Quarter 2018 Earnings Call.
Before I discuss our results, I want to comment on the recently announced transaction.
By joining forces, ILG and Marriott Vacations Worldwide will create a leading integrated vacation experience company with greater scale, a broader network of upper upscale resorts and complementary product portfolios to create even greater experiences for our members, owners and guests.
As strong as we are as an independent company today, we are confident that the combination with Marriott Vacations will create tremendous value for all of our stakeholders.
For our owners, members, guests and customers, the benefits of this combination are clear.
The combined company will have an impressive portfolio of world-class products and resorts, which will increase and enhance the experiences and services we can provide around the world, while ensuring we can deliver the customer service and attention they have come to expect from us.
For our shareholders, we believe the transaction provides compelling value, given the combination of cash consideration and stock component.
Our shareholders will own 43% of the combined company, enabling them to participate in the attractive long-term growth potential of the merged entity.
Furthermore, 2 ILG Directors will be appointed to the board of the company.
We're in a business where scale and efficiencies matter.
And even with our already broad presence across the most important Vacation Ownership destinations, we realize there is the potential for even greater growth as part of a larger organization.
Until the transaction closes, which is expected by the end of the third quarter, we will continue to operate as separate businesses and will be focused on delivering great service and experiences to our members, owners and guests while we diligently execute on our strategy.
In that respect, I'm pleased to report that we delivered strong financial and operating results for the quarter.
Revenue and adjusted EBITDA were $482 million and $98 million, respectively, and consolidated timeshare contract sales increased 9%, which excluding the estimated impact of the 2017 hurricanes, would have been 17% or $143 million.
This robust performance resulted primarily from the contribution of our Westin Nanea sales gallery opened in the second quarter of 2017.
We also recorded strong same-store sales, driven by solid performance at our Sheraton Vistana Villages and Westin Kierland Resorts, as well as at our Hyatt Residence Club resorts in Bonita Springs and San Antonio.
Tour flow increased 11% in the quarter, and excluding the impact of the hurricanes, we estimate it would have increased 14%.
Sales to new buyers represented 43% of consolidated timeshare contract sales in the quarter.
On the exchange side, we continue to expand our network.
In the quarter, Interval International added a total of 16 resorts located in North America, Europe and Asia.
In addition, we recently renewed our master affiliation agreement with Spinnaker Resorts, extending our long-term relationship with a great partner and a leading independent player in the U.S. shared ownership market.
The multiyear contract extends the relationship first established in 2003 and comprises the existing 9 resorts in Hilton Head, South Carolina; Branson, Missouri; and Ormond Beach, Florida.
With respect to Aqua-Aston, consistent with the plan to strengthen our business development effort, we recently announced the addition of an experienced industry professional as Chief Development Officer.
We look forward to further developing Aqua-Aston as a global lifestyle hospitality company.
Now I will turn the call over to Bill to take us through our financials, then I'll return for closing comments.
Bill.
Thanks, <UNK>.
Good afternoon, everyone.
Before I delve onto the numbers, I want to remind you that results for the first quarter of 2017 have been restated in accordance with the new revenue recognition guidance.
As I mentioned on our February call, this primarily resulted in a reclassification of certain revenue and related expenses and the net impact is immaterial.
In addition, throughout our discussions, we refer to the impact of the 2017 hurricanes.
At quarter-end, our Westin St.
John Resort Villas in U.S. Virgin Islands and Hyatt Residence Club in Puerto Rico were closed and expected to reopen early in 2019.
The closure of the St.
John gallery has, by far, the greatest impact on our results.
In addition, approximately 50 Interval Network properties are the hardest hit islands were also closed on March 31.
However, a number of them are expected to reopen in the second quarter.
Consolidated revenue was $482 million and, excluding the estimated hurricane impact, it would have been a $501 million, up 13% over the prior year, driven by our Vacation Ownership segment.
Net income attributable to common stockholders was $43 million.
Excluding the estimated impact of the hurricanes, it would have been $48 million, up 9% compared to the prior year.
Adjusted net income was $46 million, and excluding the estimated impact of the hurricanes would have been $50 million, up 19% compared to the $42 million in 2017.
Adjusted diluted EPS was $0.36 and adjusted for the hurricanes would have been $0.39 compared to $0.33 in 2017.
Adjusted EBITDA increased 7% to $98 million.
Excluding the impact from the hurricanes, it would have been $104 million, an increase of 13%.
In terms of our segments, excluding cost reimbursements, Vacation Ownership segment revenue increased $53 million to $267 million.
The increase reflects higher management fee in other revenue, higher sales of VO products and an increase in resort operations revenue.
The $27 million increase in management fee and other revenue is predominantly attributable to revenue from consolidation of our HOAs, starting in the fourth quarter of 2017.
Note that this increase is largely offset by a corresponding decrease in cost reimbursement revenue.
The $18 million increase in sales of Vacation Ownership products was principally attributable to higher consolidated contract sales, largely due to an 11% increase in tour flow, primarily driven by our recently opened Maui and Los Cabos sales galleries as well as at our Westin Cancun sales center following the first phase of renovation at that oceanfront resort.
Our Orlando Sheraton Vistana Villages property also posted strong increases in tour flow.
The $5 million increase in resort operations revenue was primarily driven by higher available and occupied room nights and ADR resulting from the increase in the number of units, which came online beginning in the second quarter of 2017.
Last year, we opened our Westin Nanea and Westin Los Cabos Resorts, completed the conversion of our Sheraton Steamboat property and expanded our Hyatt Wild Oak Ranch Resort in San Antonio as well as our Westin Desert Willow property in Palm Desert.
Segment adjusted EBITDA increased $3 million to $36 million, driven primarily from higher VO sales and stronger performance in our resort operations.
Excluding the impact of hurricanes, the increase would have been $8 million to $41 million, 24% higher than last year.
Exchange and rental segment revenue was $171 million, relatively consistent with 2017.
Excluding cost reimbursements, segment revenue was up 3% to $150 million related to stronger club and rental revenues resulting from the increase in available and occupied room nights and ADR.
Total Interval network active members at quarter-end were $1.8 million.
Consistent with 2017, and average revenue per member was $53.17, up 2%.
Adjusted EBITDA for the segment increased 5% to $62 million, primarily driven by the stronger club rental activity.
Excluding the estimated hurricane impact, the increase would have been 7%.
Turning now to our cash flow.
Net cash and restricted cash provided by operating activities in the first 3 months of 2018 was $152 million compared to $58 million.
The $94 million increase was principally due to higher net cash receipts, partly attributable to property insurance proceeds of $42 million related to the hurricanes.
In addition, inventory spend was lower by $36 million and restricted cash increased to $27 million, primarily reflecting the collection of maintenance fees due to the consolidation of our HOAs.
Net cash used in investing activities was $16 million, primarily related to CapEx associated with resort operations and sales of marketing locations as well as IT initiatives.
CapEx in the current quarter includes an offset of $3 million of insurance proceeds for hurricane property damage.
Free cash flow for the quarter was $66 million compared to $54 million in 2017.
The change is primarily a result of the increase in net cash and restricted cash provided by operating activities and lower capital expenditures, partly offset by higher net securitization activity, including higher repayments on securitized debt.
As of March 31, we had $158 million in cash, including $95 million, which is held in foreign subsidiaries and $204 million of eligible unsecuritized receivables.
Our total gross debt, excluding securitizations, was $570 million.
I'll now hand the call back to <UNK> for his closing remarks.
Thanks, Bill.
The origins of ILG date back to 1976 to a small startup called Interval International.
Over the following 25 years, the business enjoyed tremendous growth along with the shared ownership industry.
The company also attracted investor attention and went through several ownership structures, including twice with private equity and 2 other times as an operating business of a large, publicly traded enterprise.
While the management team navigated through recessions and consolidation over the years, it wasn\
| 2018_ILG |
2015 | BGFV | BGFV
#You're welcome.
Sure.
It's something that has been playing out very positively for footwear now, and apparel for a number of seasons.
We still feel we have upside in looking at what's successful, and trying to be more precise in our purchasing and the store allocations.
We think that some of the same concepts we've been working to apply to our footwear category, we think that's been a much bigger ship to turn.
And we are excited with the direction it's moving.
It's performed positively in Q1, it's continuing to perform positively Q2 to date.
And it's just shifting some more of our buy dollars to certain brand products.
Some cases have elevated price points.
It's much more of an evolution than a revolution.
We're trying to get deeper into the sizes and color offerings, the stronger selling models.
And we're excited about the progress, and think we still have runway.
Well, <UNK>, of course I think you're aware of the minimum wage impact that we are feeling in California, particularly with over half of our stores in California.
And (inaudible) approved a $2 increase in the state's minimum wage from $8 to $10, and the increase is being rolled out in two separate increments with the first $1 increase effective July 1, 2014 and then the second in January of 2016.
So we went up to $9 effective July 1, 2014.
The overall impact of the first phase of the minimum wage increase on our store employee wages, it's about $400,000 to $500,000 a quarter.
Anyway, so we've been ---+ once we get through the second quarter, we will then at least be on equal footing beginning in the third quarter at that higher rate.
And that will go up, once again, in January of 2016.
Thank you.
All right.
We thank you for your interest today, and look forward to speaking with you on our next call.
Have a great afternoon.
| 2015_BGFV |
2016 | M | M
#Well, we don't know exactly which stores it will be, but I don't see any reason for it to be dramatically different than the split of our stores today.
We did two very detailed analyses.
One which we've always done, which is how is the store performing and how do we expect it to perform in the future.
We project out cash flows and discount them back and compare that to the proceeds that we would get.
So what you would expect to be a typical financial analysis.
What we did this year, though, to supplement that is we went through and looked at all of our locations and evaluated them based on their strategic importance, which had to do with quality of the market, quality of the malls, the competition in the malls and the market; what was happening in terms of growth of income and population in all the markets; and coverage that we would need to go forward.
And ranked our stores in terms of long-term strategic importance.
So what we have done to come up with this 100 stores is married those two.
In most cases, as you would imagine, a poorly-located store is also an underperformer and so, for the most part, they were both of those.
But it did lead us to accelerate some of the closings that in prior years we might not have done without that long-term valuation of the strategic importance of location.
So that is most of 100.
There are a few additional locations, though, that have been included that are not strategically critical to the Company based on that analysis, but where, from a redevelopment opportunity, we think there's a big opportunity.
In those cases they are not underperformers, but long term they are not critical to the Macy's footprint, and so we will be taking advantage of the real estate demand for those locations as well.
But I would say most of them are both underperforming and not in good locations for the long term.
They're all over the country.
Again, we don't have the specific locations, but geographically they are spread across the country, because even in high-growth markets, there are malls that aren't strong or areas where we've got duplication.
Remember Macy's is the combination of many companies that we put together over the years, so it shouldn't be surprising that in some markets we don't need as many stores as we have.
No, not at this point.
We need to work through what stores it's specifically going to be.
No, as you would imagine, we would always like to get things done quicker.
But these are big, complicated assets, so I would say, no, it's pretty much as expected.
Yes, the intent is completely the same.
And, again, that has always been the benefit of stock buybacks: you can flex them up and down depending.
We took advantage of an opportunity after the first quarter, but we continued focused on maintaining the investment-grade ratings.
We are working hard to get back into our target debt-to-EBITDA range, the 2.5 to 2.8, which we are obviously above right now.
But we think that will happen naturally through EBITDA increases and don't, at this point, anticipate proactive debt repayment.
But that doesn't mean we couldn't do it in the future should EBITDA not materialize.
But at this point, the use of proceeds will be, as you might expect, but not proactive debt pay downs.
Although, again, it could happen and our goal remains to get back into these targeted ranges.
I can't comment at this point.
Wonderful.
Thanks, everybody.
If you have further questions, just let us know.
Take care.
| 2016_M |
2017 | CLGX | CLGX
#No, we use a planning rate so we don't incorporate discrete items.
No material impact.
Sure, so <UNK>, as you know or may know we have significantly shrunk our overall US mortgage market exposure the last three or four years.
Roughly 60% of our revenue is exposed to US mortgage volumes at this point.
Some are more of a mild exposure but that roughly is the current exposure level.
It continues to drop by design.
We still like our positions in moment mortgage we have market-leading positions in a few areas mostly data-driven analytics areas so we like that as a basic, generates good cash flow.
But we have more than doubled our international business as an example the last couple of years we have a very significant footprint; I think a quality footprint in insurance.
Our spatial business is also a double-digit grower so those will continue as long as they are continuing to grow at the faster rate than the overall obviously the proportionality of our non-mortgage business will increase so I think we will drift down from the current 60% to less.
As I mentioned, we had a relatively good business in energy, which got blown up by the drop in oil prices and gas prices and now things have rebounded and there's life in that market as well.
And I think one opportunity that we have built up but we have significant room to grow was in the public sector, which needs data and analytics for planning so the infrastructure program that the President has proposed should that get off the ground, those are things that can use our services from a planning and implementation standpoint.
There's a lot going on in the non-mortgage area but I would say our core mortgage businesses have done great, they have good margins.
We have taken share in they generate a heck of a lot of data that we can use in the analytics piece and some of the other products.
I like our position in mortgage going forward.
We are pretty disciplined on the M&A front.
I want to make sure that we have properly integrated the assets that we have and I want to make sure that we get through the client diversification efforts that we have.
There is tons of things out there, but it's a vast array of things and we want to stay disciplined.
So I don't think there is a specific answer to that question other than we look at everything, we've passed on everything in recent past and if there is something that is terrific we will look at it, if it's not we are not going to jump at stuff.
I think as long as those two clients ---+ their shares are moving in line with the market, I don't think it will be a meaningful share change for us.
I think in the short run obviously you are leaking revenue from those two clients, but you are adding it.
So I think it's going to be, assuming there's nothing extraordinary, I would expect that to be as we get out of 2017, we'll be in roughly the same position we are in today, share wise.
No, I think that this, when <UNK> said gross, Geoff, it is really only the costs associated with implementing the plan to get to the net.
The growth doesn't mean we are reinvesting in something else.
<UNK>, so both of those business units have higher margins than our aggregate Company margin level.
Correct.
We've done a lot of good things over the years to move the needle on that and I would say for 2017 there are two pieces.
There is obviously the decline with the market and the other component that we're going to see later in the year is we're going to have a pension payment, we're terminating our pension plan which will be a good slug of money as well.
So that's why we've stuck on the 55% longer-term there may be an opportunity to nudge that higher.
Just to clarify that, this is a pension payment related to one of the acquired companies it's not a broader CoreLogic pension plan just to be clear.
Great.
| 2017_CLGX |
2016 | CTB | CTB
#Chris, what I can say is that we are continuously looking at our strategy and how we could advance it potentially through M&A.
We are consistently looking for opportunities to see where we have matches between those two, our strategy long term and where there might be an M&A opportunity that can match up and contribute or accelerate that.
And as always, when appropriate, we would say something about it.
But until then, we will continue to work on it.
Thanks.
Thank you.
Thanks.
I'd like to thank everybody for being on the call today.
I would certainly enjoy getting to know you over the years and I look forward with confidence to watching this great group of people build on our successes as a team and they're continuing to focus on the strategic plan that we have in place that's going to help drive the growth.
It's been my utmost honor and privilege to serve Cooper.
And I have nothing but confidence in the direction Cooper is headed today.
And I would really would like to wish everybody the best and have a great day.
And thanks so much for all the support you've given to Cooper.
END
| 2016_CTB |
2016 | ODFL | ODFL
#Good morning, <UNK>.
On a ten-year average basis, third quarter's weight per day is generally up 2%.
If things continue to move in August and September, according to the normal sequential trend, that's the number you would get.
The year over year is ---+ again, last year looking at it, I think we were little bit stronger sequentially than ---+ just slightly than the long-term average.
We'll just have to wait and see.
We're not ready to give a range on what we think our total tons for the quarter would be.
Again, looking at it ---+ now we're trying to look more at getting back on to a consistent sequential type of change with our volumes, knowing that we've mentioned it before, we've cycled out some business, and we'll continue to look at that.
That may impact, as were growing in the last year, some of the year-over-year trends.
We haven't talked about ---+ typically it happens the 1st of September.
Last year we gave about a 3.5% wage increase.
We haven't announced that to our employees at this point.
Based on current trends, we would expect that there would be a wage increase this year.
We're just not ready to talk about the amount.
No, I'm not really ready to give any guidance on where our OR is going to be for the third quarter at this point.
We'll still continue to have some head winds on the top-line basis as we go into the back half of the year.
We knew the first half of the year was going to be more challenging than the back.
The third quarter, we'll continue ---+ the fuel should moderate if prices stay where they are on that comparison.
But a non-LTL, really it was ---+ it was more so the fourth quarter that those services were fully out of our number.
We still had close to ---+ just call it $19 million of non-LTL revenue in the third quarter of last year.
While we gave that number in the first quarter, it was about $13 million, and that's about what it was in the second quarter, as well.
If that continues the trend, we'd still have that head wind there.
It's going to vary every year based on the investments that we're making ---+ what the contribution to expense for depreciation is going to be, what our CapEx size is, and so forth.
Obviously we need more growth ---+ our growth to start with at this point.
Good morning.
That's a good question.
I honestly don't have an answer why there is a disconnect with the ISM data.
Now ISM has improved a little bit, but we haven't seen it come through yet in terms of LTL tonnage.
The why is ---+ I'm not an economist, so I have no earthly idea.
I subscribe that there is a lag with the ISM data, and perhaps three months sounds good to me.
We have seen some improvement in our sequential trends in the last couple of months.
<UNK>, would you speak to that.
Because I don't see ---+ it does feel better, the daily tonnage, the daily shipments that we're seeing feel better every day when we're looking at how much business we did each day.
<UNK>, touch on what are sequential trends are doing recently.
As we went through the second quarter, our weight per day was up 0.6% in April versus March.
The ten-year average was up 0.3%.
But remember, this is ---+ and it's the last quarter we're going to have to talk about it, but with the Good Friday in the first quarter, these are thrown off.
We would've expected that number to have been up more.
Weight per day in May was up 2.1%, versus a 4.7% average.
It was up 2.4% in June, versus the 2.3% average.
Shipments were more in line.
We talked about that when we put our mid-quarter update.
Shipments per day in May was up 2%.
When you look at years when Good Friday was in the first quarter, the average is 1.4% for us.
We felt good about the way May's revenue built from start to finish.
We saw a similar trend in June.
July pretty much has been very similar, as well.
Things feel a little bit better.
Perhaps what we are seeing, though, is once ISM turned back and stayed above 50 pretty much consistently and marched forward, that may be supportive of these trends.
It was two things, <UNK>.
One was where we pulled back our ocean container dredge operations off of the West Coast.
We discontinued those, as well as Chicago.
The second non-LTL change had to do with our global freight forwarding, where we were booking the entire revenue of the ocean containers, and the purchased transportation against that.
We have partnered with Mallory Alexander to manage our ocean forwarding now.
We don't have that top-line revenue.
We're getting a ---+ we work basically off of a commission-type basis on the net revenue.
Those are the two primary areas.
<UNK>, did I miss anything.
No, that's it.
I'll add, though, that the decrease in the second quarter was not $9.7 million, not the $6 million that was mentioned.
Correct.
Right.
That's correct.
Thank you
That was $225 million at the end of first quarter ---+ I think it's $226 million (multiple speakers).
Acquiring land and building the freight service center has been a problem ---+ a difficult endeavor for the last 30 years that I can remember.
I believe it always will be.
Unfortunately, everyone enjoys the clothes on their back and the food that they eat.
They just don't want to see a truck in the neighborhood bringing the product to them.
Our cost per door on construction has definitely risen.
The various environmental concerns, neighborhood concerns, landscaping, stormwater run-off, all those kind of things have caused the cost per door to rise.
As far as acquisition of use facilities, one of the issues we face today is most of the facilities that are out there on the market are just not big enough for us.
If we're lucky enough to find one that has some additional land that we can renovate and add doors, we've found that to be the case from time to time.
Real estate is always a challenge.
Historically, we talk about a real estate budget; but historically, we don't usually spend what we said we're going to spend in a given year, because of the time delays in acquiring land and getting through the permitting processes and so forth.
Do you have that, <UNK>.
No, and we don't necessarily break that down, Tyler.
I would say that the investments we're making are generally more in expanding existing locations.
The fact that we've only added one facility this year, it's primarily been expanding existing locations in that dollar amount.
We may add a couple of more facilities this year.
No, we haven't heard anything like that.
Bids for us is not any kind of seasonal thing.
They come in on a fairly regular basis throughout the year.
It's just something that constant communication that you have with our customer base, and between our (inaudible - cut off) department and our sales department, as well.
Obviously, that's going to vary as we grow and get bigger.
We may find that we need spin-off locations.
But right now, I think that we've got another 35 to 40 facilities when we think long term where we may grow to.
There's probably going to be some ebb and flow there as we continue to make our way and achieve our long-term growth objectives.
Right now, I will add too, that probably the capacity in the system that we have is somewhere in the ball park of 25%, plus or minus.
<UNK>, our pricing philosophy is that we target the increases we need on a fairly consistent basis to be in line with what our cost inflation is.
I think there have been periods where maybe the industry is going up more, based on capacity, or they may be cutting rates from an environment that capacity has flipped, and they're needing to get that volume.
I think our customers like our consistent approach, and we've had good success with that.
It varies.
We obviously continue to look, <UNK>, and try to figure out what we think would make sense long term for us.
We're doing a couple of different things here, as it is.
LTL is really the growth engine of the Company.
First and foremost, we've only got 8% to 9% market share.
We're going to continue to focus on this long runway of growth that we have within LTL.
If there are other services that are complementary, those other non-LTL services that we have today are the drayage, which we've changed our business model, and we're trying to focus and be able to capture coming growth, and maybe changes in capacity within that market place.
We've got a truckload brokerage operation, and we can continue to enhance that offering.
Really, we're going to focus on things that are complementary to our LTL business.
Maybe a service that when we're making sales calls on a decision-maker at our existing customers that we can leverage those relationships.
Okay.
Yes, some of those things and changes that were made is just it's always looking at what our costs are doing.
The industry changed fuel surcharge rates early in 2015.
We had just gone through a GRI, and felt like it wasn't the right thing to do to sit across our customer and say that fuel is going down, but we need a rate increase.
We worked through that.
The fuel surcharge has just become a variable component to pricing.
Like <UNK> mentioned earlier in the call is that we've got target ORs for our customers, and we're managing base rates, and any type of [bastasorial] charge, based on what the cost of handling that customer's business is.
That's been a consistent approach we've had.
We try to put in place fair pricing programs that's beneficial for both parties involved, and continue to support the growth of our Company.
Are you speaking of that new tariff that we put in.
Right.
That's been pretty small in terms of acceptance.
We went through that process of identifying it and working through it, because there were some customers that wanted to switch and not have that fluctuation and variance with their fuel, and have to update their systems every week as the DOE price is changing.
It's been responded to by some customers that really were asking for it.
We didn't really anticipate that that would become widespread and the most adopted tariff option that we have.
We've got multiple tariff options, but our 559, the most traditional one, continues to be what most of that business moves on.
| 2016_ODFL |
2016 | NWL | NWL
#It's a little bit different in that the Newell Rubbermaid business wasn't growing when we started.
So you've got a different scenario here where you've got both Newell Rubbermaid and Jarden legacy businesses growing nicely.
So the context is a little bit different.
The application of the capability of the agenda is going to be really exciting.
I think the work that the legacy Jarden folks have done on the direct-to-consumer e-commerce is really exciting.
I just got an email from Hope Margala's team on Yankee Candle, and I called my daughters right away, because you can customize a Yankee candle jar with pictures of your family for Mother's Day.
I was like girls, if we want to get it delivered by Mother's Day, we've got to do it this weekend.
That's just brilliant.
And we don't do that.
We weren't thinking that creatively on our direct-to-consumer e-commerce front.
And so there's some stuff on that side that's so applicable.
One of the first things I did was order ---+ I built online a customized Rawlings baseball mitt, and I just got it two weeks ago.
And it's so exciting.
My wife saw it.
My wife doesn't even know anything about baseball, wants a baseball mitt customized for her.
So there's some really exciting things that Jarden has done that we haven't been that creative about on the Newell Rubbermaid side.
So we have tremendous opportunity to apply that capability.
On the other side, we have a terrific design and innovation machine going now on Newell Rubbermaid; 5.6% core sales growth is a big number when 75% of your revenue is in US, and US GDP growth is 0.5%.
Now why are we growing 5.6%.
It's because we've got these innovations that are coming through the funnel and hitting the marketplace with impact.
We can apply that capability to many aspects of the Jarden portfolio, and you should expect us to apply that.
Now that's the Newell playbook working for Jarden, and the Jarden playbook working for Newell.
So the best of both capabilities applied across the total portfolio is what we're going to go do, with a real passion around brands and growth.
This idea that growth is the engine that fires this Company is really important for people to embrace.
And we mean growth through brilliant commercial execution and through brilliant brand development, and we're going to do both of those.
And I think when we're done and we look back with the benefit of three or four or five, six, seven years, we'll say, man, we really did do what we said by taking the best of both talent pools and the best of both capabilities and applying them as broadly as they are relevant across the portfolio.
It doesn't mean, and we're more sophisticated than this, it does not mean that every capability is applicable to every business.
And that's fine and it doesn't disable the scale leverage that we've got through the combination when you accept that.
It's just smart management.
And so you should expect us to push hard to make the Company leaner and meaner, to scale functions for efficiency in the business partnering areas, and to scale functions for impact across the total enterprise for growth.
But we're going to maintain intimacy at the point of demand creation, which is where the selling happens and where the consumer engages with our brands.
And if you step back from design types of concepts and focus on principles, that's the type of thing that will inform choices on specific design choices.
That's what's going to drive us.
This is a Company ---+ when we get the brand research back from this summer, I suspect, and when we expose it to you, you're going to be blown away by the quality of the brands in this portfolio.
I was within Newell Rubbermaid relative to brands I've worked on before, and I've worked on great brands, I've worked on Oreo, I worked on Dove, I worked on Axe, I worked on Ritz.
I've worked on Maxwell House.
I've worked on great brands, Kraft.
So, but these brands are really way stronger than people perceive them to be, and I suspect that when we get the brand equity work back on brands like Oster and brands like Yankee and brands like Rawlings, brands like Coleman, you'll see these great assets.
Some of them perhaps latent and under-leveraged, but great assets just like we saw in Newell Rubbermaid, Graco.
Graco is by far the highest equity score of any brand I've worked on, higher than Dove.
My energy level is really high because I'm so excited by unlocking the possibilities here with the teams.
I'm really excited by the prospects of us applying the best of what both companies have to offer across the total portfolio.
We didn't build in anything in our synergies, <UNK>, for getting tax rate down, but you should expect us to run like hell to get a better rate based upon historically what we've done on the Newell side.
So I would tell you there's certainly some upside, and we've already started the work on trying to figure out on how to bring some of the Jarden stuff into our structure and so forth and try to maximize the structure for the new entity.
That said, <UNK>, I wouldn't take the old guidance that we had on Newell Rubbermaid for around 23%-ish rate.
I think we'll find the opportunities.
Like <UNK> said, there are going to be plenty of them.
I would assume that we're going to get them gradually as opposed to overnight.
Let me start with the last part.
I think you should count on us for to articulate for you portfolio roles coming into the fall, we will be in the position to probably talk to that.
We won't use the same language.
This is a whole new Company for both sides, and so we'll brand it maybe a little differently, but it will be the same basic where-to-play choices.
We'll realign, obviously, the portfolio choices to the new portfolio.
So yes is the answer on that piece of the question.
Your question on 2017 guidance, we haven't guided 2017 growth.
I will tell you though that the $250 million to $300 million of exits that we've talked about were over two to three years.
And if you do the math on that, you'd see that those exits will govern the opportunity to break out on the high end probably through 2017.
So what is the right long-term guidance.
We haven't gotten to that yet.
I want to go through the work over the summer.
We will pull together an integrated, forward-looking model that gives you that long-term guidance.
You can capture some of that through the comments I was making through 2018 on cash and cash capital allocation.
You can back into some numbers if you chose to.
But I wouldn't want to begin to start to articulate the acceleration stage metrics.
It's just too early.
I think we may ---+ it depends on how we allocate A&P across the total portfolio, but if Newell Rubbermaid had been a standalone company this year, we would've increased A&P BPs at least as much as we increased them last year in 2016.
So I guided to 5.5%, if you member, in the fall.
The A&P ratio, we delivered about 5%, so it would've been another 50 BPs in the full year and I think you should assume that's a good number in your base-case assumptions about the legacy Newell Rubbermaid businesses.
If we do choose to spend some of the renewal savings back on brands like Yankee or Oster, we'll let you know so that you can adjust your models.
Great, thanks, <UNK>.
On behalf of everybody in Newell Brands, the 60,000 employees at Newell Brands, we appreciate all the support and the good and challenging and fair questions.
And we look forward to engaging with you in the next opportunity.
Thanks again.
| 2016_NWL |
2016 | CPF | CPF
#Sure.
Let me take that question, <UNK>.
We're pleased to report, and this was in our prepared remarks, that we completed our [Encore] branch conversion in 2015.
And that's our end-to-end system for our branches, and then of course, utilized by our back office groups.
Related to that there are a number of process improvements in thinking about the end-to-end process.
So, we will continue to focus on being more efficient and leveraging that Encore system.
The other thing is, and in earlier calls we've talked about our enterprise data warehouse.
And so, we're continuing to focus on leveraging the warehouse, including the buildout of the analytics, which really is the power behind that platform ---+ is better understanding our customers so that we can appreciate their needs and sell into those needs.
Sure, <UNK>.
Good morning, Alex.
<UNK>, would you take that question.
Yes.
Thanks, <UNK>.
Hey, Alex.
There was about $350,000 of non-recurring expenses related to a buildout of a new branch.
And so it's actually unrelated to the branch closure.
But there was about $350,000 in non-recurring expenses in occupancy line this quarter.
I'll take that question.
So, yes.
That was what I think of as a one-time expense.
And it's related to an advertising campaign that's actually going to be launching in the next week or so.
So, it's the production expenses related to that ad.
<UNK>, can you take that.
Hey, Alex.
This is <UNK> again.
As I mentioned, the fourth quarter, about $101 million was organic and about $9 million represented mainland purchases.
Thank you.
Good morning, <UNK>.
<UNK>, do you want to take that.
Sure.
Good morning, <UNK>.
I think part of our growth was driven a little bit by some real estate sales, and that liquidity flowed into our deposit base.
We did see one significant 1031 exchange deposit that took place at the end of the year.
But the bulk of our increase in deposits really was the efforts of our people in focusing in on getting core deposit growth.
Sure.
Well, maybe I'll start by talking about the buyback.
So, you can expect us, with where our stock is trading today, for us to be back out in the market in Q1, and rather aggressively.
And then, <UNK>, anything to add in regard to capital deployment.
I think the capital plan is consistent with what you've seen over the last couple of years.
So, we'll obviously pay the regular cash dividend with a yield and pay-out ratio comparable to our peers.
But we'll augment that with an ongoing share repurchase program, as <UNK> mentioned.
And we are obviously looking to take advantage of the recent downturn in the Street valuations.
So, we will be back in the market in the first quarter.
<UNK>, can you take that.
Yes, sure.
Yes, you're right.
It was down slightly, $1.6 million to $1.3 million, sequential quarter.
And it was primarily volume driven.
So, the gain on sale margin was relatively stable for the two quarters, but we did see volume decrease by roughly 7% sequential quarter.
You're welcome.
Hey, <UNK>.
Good morning.
Maybe I'll start, and then I'll turn it to <UNK> to talk about the competitive environment.
But Hawaii is perhaps a bit of a microcosm in regard to how we think about the national economy.
And so, in fact, the tourism numbers that we saw for last year were a record for us, and the spend remained high.
So, currently, for ---+ as we think about 2016, we are expecting a strong year.
I mentioned the unemployment numbers that were announced recently for December, 3.2%, which is the lowest rate in eight years.
So, we are expecting a strong economy here in Hawaii, as we think about the tourism numbers and then also as we look at construction in the state.
<UNK>.
Yes.
Good morning, <UNK>.
I think with regards to the two banks, I'll take maybe American Savings first.
I think they've been doing business as usual.
They've been focusing on their activities.
And we haven't seen any significant change in their efforts thus far.
I think for First Hawaiian Bank, it's really early to tell if there's going to be any, or there has been any significant changes in the way they operate their business.
As you know, they did make that announcement late December.
So, given the market conditions and given the fact that it's, again, very early in the ballgame ---+ I just think it's too early to tell what kind of moves they're going to be making going forward.
Sure.
So, <UNK>, on the new volume yields on the investment side, we have been investing.
In the fourth quarter, we did come in on the duration scale slightly.
So, new volume investment yields probably averaged about 2% in the fourth quarter relative to the portfolio yield dollars, more like 2.60%.
On the loan side, it was a lot better story, much closer.
New volume yields were much closer to the overall portfolio.
Overall portfolio yield on ---+ overall new volume yields was about 3.70%, weighted average of 3.70% versus a portfolio yield of roughly 3.85%.
No problem, <UNK>.
Thank you, Allison.
Thank you very much for participating in our earnings call for the fourth quarter of 2015.
We look forward to future opportunities to update you on our progress.
| 2016_CPF |
2015 | MDT | MDT
#Well, <UNK>, to your first comment about the earnings per share, the answer on constant currency would be yes, that's what we would expect to see in the back half of the year.
That's not ---+ if you look at the first half of the year, basically we've seen between 11% and 12% constant currency comparable growth overall.
And so, we expect that to accelerate a little bit in the back half of the year as we talked about, primarily because of more of the benefits of the Covidien integration, and all the integration efforts coming through.
And so, in total as related to the $850 million comment that we've committed to by FY18, we are right in line ---+ in fact maybe slightly ahead of our plans to deliver $300 million to $350 million in the current year, and right in line with the expectations on doing that for the full $850 million by FY18.
So we feel very confident about that.
We feel confident about that in our earnings per share guidance we're providing to the organization, or to the investors.
But in general, yes, that's right in line with our expectation.
But foreign exchange does continue to be a negative headwind for us, obviously, but on a comparable constant currency basis, we're seeing acceleration in our growth.
<UNK>.
<UNK>, on ---+ a good question.
I'd answer it, three parts to the answer.
One from a market perspective, one thing that's helped the cardiovascular space is the emergence of the cardiovascular service line globally, and we're seeing that, not to the same effect yet.
It's where ---+ I don't know,10 plus years behind as the neuro service lines, neuroscience service lines emerge, but we are definitely seeing that trend emerge.
And the more that happens, the more it plays to our hand, because we have by far the best breadth to cover those neuroscience service lines.
So that's one, and that is a tailwind for us.
The second is our internal capabilities of taking ---+ and this is different than actually cardiovascular.
We have implants that work with intra-operative imaging and navigation, and we have both platforms, and that gives us some flexibility.
Now we have to integrate those better, and take them to market, selling benefits versus features, and we're working on that.
But that's another tailwind.
And the intra-operative imaging and navigation is a key driver to us getting this network effect, so we can sell like I said, solutions versus features.
And then thirdly, which we're copying the play book from our cardiovascular group, is changing the way our operating principles and mechanisms, so that our businesses ---+ the silos come down to a certain extent, and they are incented to drive these cross-business unit deals where it makes sense.
So when you're bundling if you will, intra-operative navigation and intra-operative imaging navigation with some of our implants, you need to have the incentives and operating mechanisms and the analytics to do that.
And so, we're in the process of doing that.
So those three things are the things that are driving it.
But one thing gating it, is the neuroscience service line evolution in the marketplace.
Well, a number of things.
First of all, the new product growth includes the baseline product line, so that's inclusive of all of that.
So the only answer if you do the math, is that the emerging markets and service and solutions have to pick up.
Remember, service and solutions because of the integration together with Covidien, the baseline has changed.
So therefore, it's a 20 basis points where our number is like 40 to 60, so there's one aspect that will drag it down.
Those numbers are small, but in the context of what you're talking about, you're talking about the ranges of the upper end here.
So we're talking about 10s of basis points rather than 100s, so they do make a difference.
And then in emerging markets also, as we climb up into the range, it probably will help.
And outside of that, it's a matter of how much above the [$350 million] we actually get.
And again, like I've said before, we just want to be a little cautious, not so much because of our product launch activities, but because of the environment around us, which you just never know.
We just have to be a little cautious about macroeconomic pressures, political instabilities.
Those things or some health care rule changes, so we've ---+ given our past experience of these things surprising us, we're just going to be a little cautious.
And so, that's really the best way I can answer this, that I'd really like to see all three of our growth vectors above our projections, before we're really confident that we can extend the range, so that we get that level of diversification.
But in no way am I ---+ any sort of less confident about our new products execution, just because of the breadth of our pipeline.
I think that's going to happen.
I just think that macroeconomic circumstances, we just want to be a little cautious about that.
And therefore, I want to see the other growth vectors also climb to the same range, before we can get more bullish.
Well, with respect to the profit margin, I mean, you can't take our Q4 number and annualize that, because if you've looked historically, the same way that you had with Covidien that we just talked about as far as the tough comparison, our Q4, the profit margin is always much higher than the previous three quarters.
That's just historical, because we have a strong close, and so you have a lower rate.
So you can't annualize the fourth quarter.
But obviously, if we're in the 20%, 29% range for the full year that we've been talking about, then we would obviously continue to build on that number.
So that's kind of the ---+ take the average for the year, and then build on that from the standpoint of the incremental improvements that we would see from value capture going forward, is what you should assume.
But my only point is, just don't take the fourth quarter and annualize it, because it's an unusual ---+ it's by far ---+ the best profit operating margin tends to be in the fourth quarter, but we would obviously, could expect it to continue to improve.
The cash flow in the quarter, that $1.1 billion also includes some restructuring costs and charges and stuff like that.
So if we pull that out, you're probably closer to $1.3 billion.
And the point is, if you look historically at Medtronic and Covidien, the cash flow, also similar to the profits grows as you go through the year.
So it's always ---+ actually that $[1.2 billion] or $[1.3 billion] is kind of about 40% or 50%, versus where Medtronic Inc.
itself was a year ago in the quarter.
So it's ---+ we would expect still for the current year there, we're going to be somewhere around $6.2 billion to $6.5 billion in free cash flow.
And similar to what we've talked about in the profits, the cash flow also improves in the back half of the year which is normal, because first half of the year we're paying off bonuses and things like that from the prior year, and the cash flow is just by its historical nature is just lower, but the back half that will accelerate.
So we're still very confident that for the current year, we'll be in that $6.3 billion to $6.5 billion.
And similar to what we've been talking about earnings growing close to double-digits on that cash flow going forward over the next several years, and generating as we talked about close to $40 billion in free cash flow over the next five years.
We're still very confident about that.
Okay.
Next question, please.
Well, I mean, as far as the trial process, yes, there was a process where there was briefings that had to be provided by both parties, like the government and Medtronics, that occurred I believe in October.
That's all taken ---+ has been done from what I understand.
And now we're in a situation that it's in the judge's purview.
The judge has the option to take as long as she would like in this case.
We are assuming that some ---+ towards the end of our late, our FY16, early into FY17, is what she will make a decision, or [maybe later than that].
But it can go longer too.
This is up ---+ this is her decision on how quickly she move in making that decision.
As far as settlement discussions, again, I can't say anything on that because obviously settlement discussions require two parties to come together.
And at this point in time, I can't say anything about that at all.
I mean, if it happens, it happens, but in the meantime we're just waiting to see what the decision is from the court case.
First, yes, we really expect this growth to increase.
And the words that I'd like to use, and that I think I used in the commentary was that, we would like to see steady increase, and improve consistency.
So I don't want this to bounce back and forth between 15[%] and 8[%] or whatever.
This thing has to grow steadily, and our diversification across the emerging markets helps with that, and I think we'll see that.
The mid-teens goal is completely realistic over a period of time, and that's what we're aiming to get to.
The market opportunity is massive, and it's really up to us to execute our variety of strategies and get the benefits from them.
So in short, I expect this to steadily improve quarter after quarter.
Thanks, <UNK>.
Yes.
Well as far as the synergy number of $300 million to $[350] million, I'd say right now, we probably have already achieved about 40% of that, 35% to 40% of it has already been incurred.
We've indicated previously that a bigger portion would be in the back half of the year, and that's what we're still expecting.
So I would expect that 60%-plus of the benefit will occur in the back half of the year.
So we're right in line with our plans and our targets, in fact slightly ahead of where they are at.
But approximately 40%, we've already realized up to this point.
With respect to the guidance, just as far as taking a look at the quarters and stuff, all we're looking at is that if you look historically, our Q2 and Q3, historically both revenue and bottom line are relatively consistent.
There's not a big change overall between those two.
And we did a $1.03 here in the current quarter.
We're assuming that there will be an R&D tax credit that there's a benefit for in the third quarter.
And so, overall that would get you more in the $1.05 to $1.06 range.
And all we're saying, that's versus where the Street is at, I think they are a little bit higher than that number.
On the other hand, I would tell you I think the Street is a little lower in Q4, versus what we historically would see as far as an up lift.
So all we're saying is, if you look at our historical modeling, Q2 and Q3 are relatively consistent.
And it's Q4 where you see the big jump.
I think there's been too much weighting put into Q3.
And but again, these are your models.
You guys can put together how you'd like, but that's if you look at history, I think you're going to see that you're a little bit probably too high in Q3.
Okay.
<UNK>, you want to go first.
Bob, maybe the best way to think about it is just some statistics around mix.
Right.
If you look at dual chamber pacemakers right now, probably two-thirds of our product is MRI safe, as we sell into initial implants.
And with the recently ---+ two quarters ago, we launched the single chamber, we're probably now up to somewhere around 40% mix in single chamber for MRI safe.
We just launched the MRI safe ICD.
And our mix in the quarter would be probably somewhere around 20%, so there's still a lot of room to run there.
And obviously, we've not yet released the MRI safe CRTD, which we expect to do by the end of the year.
So I think that might give you some sense of how we see the mix change taking place within our business.
And with respect to the overall med tech market, look, we've had a ---+ the med tech industry has actually had a pretty good year.
And I think a lot of that as you'll acknowledge is driven by US growth.
So the US has been stronger than I can remember for a long time.
And that's not only the med tech sort of companies, but also hospitals.
Now as we go into sort of calendar year 2016, there will be some anniversarying that's happening.
And also some of the hospitals have reported slightly sort of lower growth rates.
And so, we're watching this carefully.
I don't know to what extent the procedure growth will continue at the same rate of growth.
I don't think it will slowdown per se, but the growth rate might well slow down.
So that's what we are watching very carefully.
And I think coming up to the next couple months, it's pretty crucial to see how procedures go.
But again, it really at the end of the day, it is a US story.
And to a certain degree, emerging markets, med tech has been resilient in emerging markets, compared to other industries, simply because of the nature of the industry itself, that governments continue to invest there.
So that hasn't ---+ the bottom really hasn't fallen off that at all.
And although I think we've outperformed the overall market, the market in general has been pretty resilient.
So those things holding, US growth is what's driven med tech industry.
I think US growth will anniversary, probably steady a little bit.
On the other hand, med tech in emerging markets might well start to improve.
I mean, I don't know.
I know our projections are that we'll start to improve.
Overall, we'll have to see.
Hope that helps.
We have time for one more question, operator.
I think I kind of alluded to that a little bit.
First of all, in the ---+ since the acquisition we've set up the minimally invasive therapies group under Bryan.
And Bryan and his team have really chartered a very clear and compelling vision for the future, which is outcomes-based, and very aligned with the Medtronic mission.
So that was the first step, and I think I talked about the four areas of focus within MITG.
Now we're looking at the entire range of assets that we have within MITG, and kind of assessing that against the strategy.
And as we go through that process which we're in the middle of doing, in the next six months or so, we will have, we will take action as is necessary.
But that's the way in which we're gauging it.
So the first step was to decide clearly, and get full sort of excitement with the team, and agreement with the team, that this is where we should go, which I think the team has put in place, and understand what the core product technologies that drive that, and solutions that are necessary for that.
Next is to look at the breadth of everything else, and see what fits and what doesn't.
Now some things clearly don't, and we'll have to see how we monetize those assets as we ---+ as you move forward.
But by and large, that's the way in which we're looking at this.
That is an area that is pretty active.
I mean, one thing that you just heard about was in stroke, where the LINQ product feeding into the stroke care and neurovascular channel is one that's pretty high on our list.
I can tell you that as a business, we worked as a leadership team, we worked to figure out methodologies where internally we can have our selling group sell multiple products, and do it in a way that's scalable and sustainable, and done in an organized way around the world.
I think that first step was pretty important.
So that area certainly is a big sort of enabler for us to move products around various sales channels, and we've done that.
We'll have to see how these things go forward, because a lot of discussion between sales teams using those principles, without getting distracted from their main focus as to how to accelerate their growth.
So we're optimistic that we'll start to see those, but the specifics of those right now are still sort of being generated.
The other area that I'll point out, is the translation of the operating room managed services from cath lab.
That's a big step for us, and the acceleration there is pretty exciting.
As you can see, like I've said we've already closed six of those deals, $140 million in cumulative revenue.
That's much faster than anything that Covidien was originally planning for, and we're only beginning there.
So those are the ways in which we're looking at this right now.
And over time, we're creating a structure where we can use the combined nature and assets of our Company to address many different problems, both from a technology perspective and from a co-morbidity perspective, which will be an increasing problem in health care, where we think we have the breadth of assets that we can address very effectively.
Okay, so with that, thank you all very much for your questions.
And on behalf of the entire management team, I'd like to thank you again for your continued support and interest in Medtronic.
We look forward to updating you on our progress in our Q3 call in March 1.
Thank you, and all of you, please have a great day, thank you.
| 2015_MDT |
2016 | COL | COL
#The team's still going through the actual program peds and how that all is going to flow.
But I would hope that we'll see a point or two of higher growth than we had previously anticipated, because that's what we're seeing out of this budget environment.
Again, I think we're pretty well positioned to at least get our fair share.
Long-term, I think it's certainly firms up our ability to get this business back to low to mid single-digit growth.
I would say yes.
What we're going to see is over the course of the year, the amount that goes into the deferral is going to reduce over time.
And actually I think I mentioned it with <UNK>'s question.
You're going to see Company-funded tick up a little bit, Company-funded R&D tick up over the course of the quarter.
You're going to see a little bit of a mix shift over the course of the year.
And we're on plan with respect to deferred.
So I still feel very comfortable with that $100 million net increase.
Well, I don't think I can point to exactly how much that dynamic would change our Intertrade business.
The focus of that business is all around making sure you have the right demand for the right asset and you go buy the right asset that you can turn.
And so it really gets down to a program-by-program aircraft-type-by-aircraft-type specific dynamic that that team works.
In the end, if they slow the retirement rate, that will mean that there's probably fewer spares out there.
But it also means there's probably larger demand for those used spares.
So the trick will be our ability to get to those used parts in the market to continue to grow.
I feel pretty confident that within the business that we're forecasting, we should be able to grow that again double-digit here for the year.
Well, remember, we've guided that biz jet aftermarket would be fairly muted, kind of like what we saw last year.
Obviously, 17% is a gang buster start to ---+ I think we saw 2% last year in growth.
As I mentioned, I don't think we're going to continue at that 17% rate because some of the mandate activities will come down in business aviation.
But I'm hopeful that if we continue to see, like we've seen this quarter with good sales of avionics mods, that we'll be able to create some opportunity to our forecast there.
I think it will be much closer to flat, but maybe down a little bit.
It was from the volume of flights, which drives the demand for the services.
If you think about that, we get paid to provide trips of port for a flight, if they don't take that flight.
By the way, it's by leg.
Even if they take a flight, but it's fewer legs, that means less revenue for us.
The more trips, the more legs to the trip, the higher the revenue.
Yes, generally anybody who is flying a large biz jet like that has contracted with the flight support services organization, or they may do some of it themselves.
But it's things they have to do to support that flight.
Well, that's a very small segment.
I think if you look at biz jet overall flight activity, it was up low single-digit growth.
And if you look at our commercial MRO, it tracks very closely to that overall flight activity.
So yes, I think we're ---+ we watch that very carefully.
We saw low single-digit in our biz jet MRO here this quarter.
And that tracks pretty close to that activity.
If the activity picks up, our revenues will pick up.
If the activity slows down, we'll see headwinds.
In the second half of this year, we'll see the production rate increases at Airbus for the narrow bodies.
And we're seeing A350 consistently ramp up.
We will start to see some revenues very late in the fiscal year on MAX, but it really ticks up in FY17.
Yes, yes.
No, I think that starts to hit us second half.
Second half of the year is where we'll see the benefit from 87, along with the 320s.
You should see much better growth in the second half of the year in air transport OE.
Absolutely.
Well, the market demand for our services, for our products and for the aircraft continues to be very strong.
Where we are seeing weakness is the overall things that are related to the economic slowdown, things like flight activity as an example.
But I'm not seeing any softness in their demand for aircraft, number of flights they are doing in the air transport market.
The aftermarket remains very robust.
They are continuing to fund HUD retro-fits to meet their mandated service.
The overall economy is slowing down, but I think it's still a very robust market for air transport.
I'm sorry, in what segment.
Oh, yes.
For our China business, if I put all-in, yes.
I don't have the number in front of me, <UNK>, but I would say that's a double-digit growth business and continues to grow at that rate.
Thank you, Sean.
We plan to file our 10-Q later today, so please review that document for additional disclosures.
Thank you for joining us and participating on today's conference call.
| 2016_COL |
2017 | NBL | NBL
#We'll book them by year end.
Obviously it will be set up to be booked with FID but just as far as actually reflecting it externally, it will show up at the year-end reserve booking.
Is what as critical, <UNK>.
Eagle Ford ---+ it's still a sizable position.
When you look at the resource, it's still close to 0.5 billion barrels.
And it's going to be a nice impact, especially as we finish out a number of these wells in the South Gates Ranch this year.
I think longer term, the real driver will be our ability to define the Upper Eagle Ford as a key target and do some of those tests.
We'll have some of those tests later this year.
It's still a very nice contributor.
<UNK>, those are all things that we're looking at.
I think as we get through this year and talk about what changes, if any, we're going to be making to type curves, we'll roll out some commentary as to why we think performance might be better.
Let me take the second question.
I'll turn the first one over to <UNK>, since he's driving all that timing and the project.
On the second question, as far as timing on selldown, I think for Leviathan selldown that's probably best after sanction, obviously, and as we get a little further on in the project.
But we'll be open to looking at when we can get the value that would make sense.
I think on Tamar, what we've talked about is I think we still have five to six years on that, five years from the timing standpoint.
But I would expect probably over the next couple years you'll see us bring that down to the 25%.
A lot of interest in that opportunity especially when you look at the cash flows.
On to the first part of that, I'll let <UNK> talk a little about how he sees the progression of construction work over the next couple years.
Yes, <UNK>, we're moving into the development phase there now.
We have started the procurement of the raw materials for both the subsea and the platform construction project.
I'd expect that would lead us to move into cutting steel early second quarter to mid-year.
At the same time, then, we'll be moving toward bringing a drilling rig into the field to start the first development drilling sometime around mid-year to, again, mid second quarter.
<UNK>, I would have to echo your comment.
That's one of my favorite slides in the pack on slide 12.
I think the results are just phenomenal, what we're seeing there.
But let me turn it over to <UNK> and I'll contain my enthusiasm there.
I don't think we want to give away too much of what we're doing.
But we're definitely controlling flowback on those wells.
And I would say they're staying flatter for longer under that controlled flowback than what we've modeled for a typical type curve.
And then once we start seeing decline we see shallower decline than is modeled in the type curve.
The combination of those, if you can picture a flat production profile versus a declining type curve, over time the cumulative outperformance versus the type curve just continues to widen until the actual production starts to decline as well.
That's what we're continuing to see on these wells.
As we get out to 90 to 120 days we're continuing to see widening performance versus the type curve, over 50% above, as we've noted in the comments.
We'll see how much longer that lasts before we start to see some decline and what the ultimate uplift to EUR is.
I'd be surprised if it's 50% but it will certainly be more than what we've got modeled in the type curve.
Again, we'll gather some more data, continue to watch the wells and later this year probably come out with some new type curves for that area.
Yes, <UNK>, I think on the cost side, as we said, we'll focus mainly on 3,000-pound average in the Delaware this year.
We'll probably continue to have some higher than that.
But on average that's probably a pretty good number to assume.
In the DJ, again, probably 1,800 pounds for average, some higher than that as well, but that's versus a 1,400-pound type curve.
I think as far as what we assume for production, we're certainly looking at the early results in both areas, and as we've said repeatedly, very encouraged by it.
But also, until we have enough data to really increase the type curves, I'd say we're continuing to be a bit conservative in how we're modeling production in those areas until we have more long-term data.
Yes, excited about the Wolfcamp B.
This is the first Wolfcamp B well that we brought on as Noble Energy.
I'd say it's producing right in line with our type curve expectations.
It's pretty flat right now, so we'll get some more data.
That's another one where we've got less than 60 days of data on, so we obviously need to see some more data.
But very excited about that as our first Noble operated deeper test in the area.
When you look at 2017 in the Permian, probably about 80% of our activity will continue to be focused on Wolfcamp A upper and some lower.
But we will start to test more Third Bone Spring, more Wolfcamp B and so we're excited with these early results.
On the Upper Eagle Ford, also quite excited.
We've talked in the past about how we're looking at areas where historically the Upper Eagle Ford compared similarly to the lower Eagle Ford.
And then with our enhanced completions we thought we could increase performance on both of those zones to where they would be very nice programs.
I think the first well that we've got on supports that assumption.
We're very happy with the production we're seeing out of this first Upper Eagle Ford test.
It's actually as good or maybe even a little better than some of the recent lower Eagle Ford wells that we've had in the area.
But it's one well so we need to get the second well online.
We need to get extended production from both.
We need to get some tests in some of the other areas.
We've talked about some Upper Eagle Ford test in the L&E area that we've got coming on later this year as well as a pilot in North Gates Ranch.
All that data will inform our conclusions as we go forward but very excited with what we're seeing in the early days.
I think some of what you're seeing is a reflection up in the DJ as we moved more product through the pipeline.
It results in a little higher transportation cost but it's more than offset on the netback revenue.
So that's really stood out over the last quarter and into this quarter.
It could be.
I think the companies that have the large contiguous positions will benefit probably the most with the ability to put a larger percentage of their wells into the longer laterals or design them for longer laterals.
So, yes, we'll have to see how it plays out.
We've seen the efficiency improvements over the last two years.
I think I've always said I don't think we're at the end of that.
I think a big driver of that will be some of this longer lateral and higher proppant concentrations.
As <UNK> said, we're only going to do what creates real value for us in the price world that we're in.
<UNK>, we haven't given an update on them in the pack but performance is still very strong on those wells.
I think, in general, you're right.
I've heard the same thing, that as you move to the gassier areas the optimum proppant concentration could be lower than what we see in the oil areas.
Obviously our experience so far has been limited to those Mosier wells.
And, so, as we drill more wells in the Mustang area later this year, we'll start to get a better handle on that ourselves.
But that is a possibility.
I think when you look at the performance of those initial Mosier wells and the proppant concentrations that those were pumped at ---+ I can't remember exactly what it was, I think it was around 1,400 pounds per foot, which in and of itself is enhanced relative to the historic frac designs in those areas, it's just not as enhanced, if you will, as the oilier areas.
We're quite happy with that.
We'll continue to watch those wells.
And as we move into the gasier areas in the coming years ---+ not in a big way any time soon, but in the coming years ---+ we'll test different designs there, just like we have in the oily areas.
We've talked about Wolfcamp A, upper and lower, as well, and both will be a focus for us in 2017.
I think when you look at our existing position prior to Clayton Williams where we're going to drill around 30 wells or so, probably two-thirds of those are in the upper, a little less than one-third maybe in the lower, and then a few Bone Spring wells.
I wouldn't say we've spent a whole lot of time looking at it yet.
We don't have the deal closed yet.
But it's certainly something that we're keeping an eye on, others' activity.
As we get the deal closed and start to ramp up activity we'll keep an eye on it.
Near term I think you're going to see most of the activity on the Clayton Williams acreage continue to be Wolfcamp A, as well.
But, you're right, we didn't put any value, really, on anything beyond the Wolfcamp A.
So, to the extent other zones, whether it's Third Bone Spring, Wolfcamp B or C have value potential going forward, that's just additional icing on the cake, if you will.
I think they perform quite well, <UNK>.
When you look at the onshore economics that we rolled out in November, DJ economics were very strong, 30% to 50% returns.
That was at the type curve assumptions, so 1,400 pounds per foot.
It would be equivalent to the black line on the Wells Ranch plot that we released again today that were, in the early days, showing 50% performance above.
So, clearly that outperformance adds possibly substantially to the economics.
Again, we continue to drive efficiencies and costs down where we can, too.
So, economics are only getting better.
They certainly compete with anything else in the portfolio.
And it's in an area that we continue to focus a large part of our capital program on, drilling roughly 150 wells this year and bringing on 120 or so.
From an activity standpoint, <UNK>, I think we're staying consistent with what we've been talking about which is going to be DJ and Delaware.
That's going to be dependent on performance but what we've seen, there's nothing that would change our mind at this point.
If you look at our plan through 2020 it shows increasing activity over that plan.
Then it's just a matter of how fast and any changes over that period of time.
As <UNK> said, too early to tell but we're sure watching it awful close.
I think there's a number of areas we're excited about.
We're not spending as much as we did a few years back, and we're probably not spending it in as many areas, but what we are spending it on we're pretty excited about.
The project in Suriname, for example, was a very large opportunity that our folks have worked with partners to continue to progress and we're excited to get that drilled.
I think the same thing goes for what we picked up offshore Newfoundland, the acreage we have in Gabon and continuing to look at that area.
<UNK> here, I probably ought to turn it over to her to give some of her comments.
Generally I still like West Africa if you get the right opportunities.
We're excited about what we have in Gabon and we're looking at other possibilities.
We're also evaluating Mexico.
We've decided the last couple bid rounds not to participate but we're still evaluating it and looking for the right thing with the right economics on it.
That's a good question, <UNK>.
I think it could be a combination of both.
Again, as I said before, I think we'll continue to work through why we think we're getting better performance than we expected to see.
And as we get later in this year and start to update some type curves we'll roll out some information as to where we think that's coming from.
I think, like we've talked about, we've got some developed, drilled uncompleted wells that we're focusing on this year.
And then we'll continue to watch the longer-term outlook for gas price as we move through the year.
In our plan we had planned to bring a rig in later this year.
Of course, that's always dependent on how it's competing in the portfolio and the economic outlook.
I think overall in the area we'll continue to look at what makes sense for us to do relative to what others' plans are in the area.
And if there's something that makes sense for somebody else that they have a plan to do differently and it fits in their portfolio different, we're open to looking at that.
But for right now our plan is to focus on the uncompleted wells this year that have very good economics, very competitive, and then evaluate the rig as we're getting closer to later this year and looking into next year.
Difference between Niobrara and Codell.
I think just given the nature of the formations, it's a little bit easier to pump into the Codell.
But I'm not sure as far as the performance of that whether we've seen a whole lot of difference.
Yes, <UNK>, I think it's both.
We actually had fewer completions in the fourth quarter of last year than the third quarter.
And then looking at 2017 we've got the fewest number of completions in the first quarter of all the quarters through 2017.
It's just a bit of a low spot over those two quarters in the completion activity.
Typically I think we've seen that through the winter period in past years, too.
So, that's what's driving it.
I think if you go back and look at the last four years, first quarter's been the lowest quarter for us three out of those four years.
I think, as you said, it's too early to give the outlook and trajectory for 2018.
But I think in general, and I'll go back to my comment, if you look at history, historically the first quarter, the first half has usually been less than the second half, just based on activity and also accounting for winter months, et cetera.
So, I would expect, without having a clear view of it yet, that I'll be surprised if it's not a little bit of the same.
I think as far as spending, we're continuing to look at over the next four or five years.
And what we laid out for our plan was the ability to spend within cash flow in a $50 world.
If we get a $60 world we're probably generating excess cash flow with the plan we've laid out that would drive us to look at what we could accelerate, especially if we're seeing the results like we're seeing in these programs so far.
So, we'll continue to develop that and lay it out as we go.
I just want to say thanks to all of you for fitting the call into your schedule this morning.
Look forward to having follow-up conversations with many of you over the next several days.
| 2017_NBL |
2016 | AVA | AVA
#Well thank you, <UNK>, and good morning everyone.
We're off to a great start and I'm pleased with our solid operational performance and financial results for the first quarter of 2016.
Our earnings were a little better than expected and at this point we're on track to hit our earnings targets for the year.
We expect to have another successful year delivering on our strategies of providing exceptional service to our customers and a fair return to our shareholders.
This is demonstrated by the award we recently received from CS Week for the successful implementation of our customer information system.
The Expanding Excellence Award honors outstanding contributions and innovation in a utility customer service.
Receiving this award is a tremendous honor for Avista and everyone involved with this implementation.
We're proud of our employees and consulting partners who all contributed to not only meeting our goal of a successful implementation but exceeding it.
The success of this year's four-year project established a project management model that has now been leveraged across Avista for other major technology projects.
Turning back to financial results, during the first quarter gross margin was better than expected.
Also the decoupling mechanisms we have in place mostly offset lower than expected electric and natural gas loads as a result of warmer than normal weather.
With regard to hydro conditions, we had above normal hydro generation for the first quarter due to the early runoff.
As a result, we now expect hydro generation for June and July to be below normal, although we expect hydro generation for the full year to be around normal.
In Juneau, AEL&P's first-quarter results met our expectations.
And we continue to be pleased with its operating and financial performance.
Regarding the possibility of bringing natural gas to Juneau, we continue to evaluate the feasibility of this project.
The opportunity continues to be challenged by lower oil prices and a fiscal situation in Alaska.
We're focused on identifying ways to reduce or eliminate the upfront cost for customers to convert from heating oil to natural gas.
We will continue to engage the community with the opportunity and we will keep you updated each quarter on our progress.
Our subsidiary Salix was notified that its proposal to develop an LNG plant to serve the Interior Energy Project was selected as the finalist by the AIDEA RFP evaluation committee.
Salix must now receive approval from the AIDEA board before it can begin the process of front-end engineering and design and negotiation of the contracts to build the plant.
The LNG plant is only one of the components of the full supply chain needed to provide natural gas to interior Alaska.
All components must come together in an economically feasible manner for the entire project to move ahead.
With respect to regulatory matters in March, Washington's Public Counsel filed a petition for judicial review.
This relates to our 2015 Washington electric general rate case.
The petition disagrees with several aspects of the Washington commission's final decision.
On April 29, this matter was moved to the Court of Appeals.
We cannot predict the outcome of this matter nor the timing of the resolution.
We continue to believe the commission's order finalizing our electric general rate case provides a reasonable end results for all parties.
In March we received an order from the Oregon commission concluding our natural gas general rate case that was originally filed in 2015 and in Idaho we expect to file an electric-only general rate case during the second quarter.
Based on our first-quarter earnings and our outlook for the remainder of the year we are confirming our 2016 earnings guidance with the consolidated range of $1.96 to $2.16 per diluted share.
At this point I'd like to turn it over to <UNK>.
Thank you, <UNK>.
Good morning everyone.
I am singing the blues this morning as St.
Louis took out Chicago in the first round so the Blackhawks are done.
No jersey for me today.
For the first quarter of 2016 Avista Utilities contributed $0.85 per diluted share compare to $0.71 in 2015 again as <UNK> mentioned due to increased gross margin that was partially offset by some increased operating expenses and depreciation.
We continue to be committed to updating and maintaining our utility system.
So we expect Avista Utilities capital expenditures to total about $375 million in 2016 and we expect AEL&P to spend about $17 million in 2016.
A significant portion of AEL&P's capital are related to the construction of an additional backup generation plant that is planned to be completed later this year.
At this point I will talk about some liquidity and financing plans.
As of March 31, we had $263 million of available liquidity under Avista Corp.
's committed line of credit.
We expect to extend this committed line of credit by two years to 2021 in the second quarter.
There were no borrowings or letters of credit outstanding as of March 31 under AEL&P's line of credit.
For 2016, we continue to expect to issue approximately $55 million of common stock and $155 million of long-term debt in order to fund our capital expenditures, to repay a $90 million maturity and to maintain an appropriate capital structure.
In the three months ended March 31, we issued 700,000 shares of common stock under our sales agency agreement for total net proceeds of approximately $27 million.
With respect to guidance as <UNK> said, we're confirming our 2016 guidance for consolidated earnings to be in the range of $1.96 to $2.16 per diluted share.
We expect Avista Utilities to contribute in the range of $1.91 to $2.05 per diluted share and our range for Avista Utilities encompasses the expected variability in power supply cost and the application of the ERM to that power supply cost variability.
The midpoint of our guidance range for Avista Utilities does not include any benefit or expense under the ERM and in 2016, we expect to be in the benefit position under the ERM within the 75% customer, 25% Company sharing band.
Our outlook for Avista Utilities assumes among other variables normal precipitation and temperatures for the remainder of the year.
As <UNK> mentioned earlier, we do expect slightly lower hydro conditions in June and July because we've gotten that earlier runoff.
Our 2016 Avista Utilities earnings guidance range encompasses a return on equity of 8.6% to 9.2% for Avista Utilities.
For 2016 we expect AEL&P to contribute in the range of $0.09 to $0.13 per diluted share and our outlook for AEL&P assumes among other variables normal precipitation and temperatures for the remainder of the year.
We expect the other businesses to be between a loss of $0.02 and $0.04 per diluted share which includes the costs associated with looking at strategic opportunities.
Our guidance generally includes only normal operating conditions and does not include unusual items such as settlement transactions, impairments, acquisitions or dispositions until the effects of such transactions are known and certain.
So now I will turn the call back to <UNK>.
No, we're not having any equipment delivered.
We continue to evaluate that project.
And I will let <UNK> talk about it.
Yes, we continue to evaluate the feasibility of the project as <UNK> mentioned.
We're challenged a little bit now due to lower oil prices and just the overall fiscal situation of the state of Alaska.
And the focus of a lot of the folks up there are on that type of thing.
So we're continuing to work to identify ways to reduce the upfront costs for customers to convert.
We continue to engage with the community and talk to them and we believe that the community is still interested in this and we believe that long term this makes a lot of sense for the community, lower overall energy cost for the community and an environmental upgrade over the current fuel that they use.
So more to come.
We will continue to work through the process and we will update you every quarter as things progress.
No, on the Salix side it's similar, the issues are similar for the Interior Energy Project is the cost of conversion for the customers and just the overall cost to get that customer to convert.
I think customers are still very interested in this and it's an environmental, as <UNK> said, an environmental upgrade but you really have to get the upfront cost of converting down to a level where the savings make economic sense for them.
So that's where we're focused both in Fairbanks for Salix and in Juneau for the LDC.
That's the expectation for what we expect to raise for the full year of 2016.
We know that the AIDEA board meets later this month, later in May but whether they get to an approval this is one component of a number of components of the whole supply chain, ours is one component.
So they are really looking at all of the components to be able to approve the project.
But we do know that they have a board meeting coming at the end of the month and we believe they are making progress on all that.
But we can't say whether they will have an approval at this board meeting or not.
We continue to work with them and do our part to make sure they have all the information they need from us.
Yes, this is <UNK>.
We do have decoupling mechanisms for electric and natural gas in Washington, Idaho and Oregon
Not Alaska.
And not Alaska.
Yes, this is <UNK>.
We just released our 10-Q this morning and on page 39 plus or minus a page we've identified essentially five issues that public counsel has raised that they are concerned about.
And we also listed there and summarized what the remedies that they are after.
| 2016_AVA |
2015 | TPX | TPX
#On customer mix, we have, if I'm answering your question, we have some variation between customers, as to who is doing extremely well with it and who is not as far up the curve yet.
And for those that are doing really well, we're trying to understand what it is that's driving it, and share those best practices.
I would also say, that we rolled out, on balance, a little more than two flats per store, per floor.
And given the success, we're going to push hard to get that third Flex unit, which oftentimes is actually the higher-end part of the line.
We rolled out, more commonly, the first two models in the line.
Because the idea was that we were pulling people up from cheaper price points.
But given the success, we're going to push hard to try to get that third product out there, which we call Elite.
So it's a combination of pushing more Elite and trying to share those best practices that we think will help further improve our success more broadly and more consistently across the trade.
Did I answer your question.
Yes, we have a lot of activity on cost productivity.
It's a huge driver for us right now.
And I'd say there's both opportunity to continue to reduce the current products, as well as apply global leverage, which we've talked about previously, in our buying and our R&D, and so forth.
We're still working very aggressively to try to do both.
So in the shorter term, I would continue to see cost productivity in the current line.
And then we are, at the same time, moving forward with a global project that we've mentioned previously.
Thank you.
Yes, that's about right.
We're expecting to be approaching that three times leverage ratio, <UNK>, at the end of the year, whether it's 3.1 or right in that vicinity.
As <UNK> mentioned, we're looking at approaching that long-term target at the end of the year, or maybe in the first quarter.
So we're obviously, very much looking forward to that, as we think about how to maximize value for shareholders through capital allocation.
That's right, <UNK>.
If you recall that the Investor Day ---+ you remember correctly.
And also at the Investor Day here earlier this year, we updated that expectation for more like ---+ we felt like it would be three times.
After we looked at our optimal cash and capital allocation model, we felt three times would be the appropriate place for the Company.
And so, as it relates to hazarding a guess for next year, we're certainly not setting any guidance here today for 2016.
But I'd say that also depends on what we're doing with our total use of cash at that point.
And so, as <UNK> alluded to, that would be something that we'd be looking at as we approach the target here at the end of the year.
I was talking Tempur gross margins.
Yes.
Tempur was about 40.5% in the second quarter last year on gross margin ---+ Tempur US.
Yes, I said over 600 basis points, so a little better than that.
You can't compare the operating margin, because of the segment changes.
Thanks.
We look forward to talking with you again in late October on our third-quarter earnings call.
Thank you for joining us this evening, and have a good night.
| 2015_TPX |
2015 | PEG | PEG
#Thanks.
Yes so you're exactly right, <UNK>.
You think about where gas prices were last year, and where gas prices are this year, they are lower, and so you see that come right through that line.
Of course oil prices are lower too, but gas is the predominant fuel here, and you're seeing that directly come into that line.
Remember I also mentioned that the prices for wholesale energy were lower, and that goes along with it, right.
So get lower gas prices and lower power prices preserves in spark spread for us, and that what also commented on the value that our hedges provided this year on a year-over-year basis because of that reduction, but that is directly related to the observable market price for gas versus last year.
No, no, this is just the pure fuel cost, in cost of goods sold.
So that's really gas price forecast question right.
So we really just use what's in the forward curve when we think about gas prices going forward.
The important thing to keep in mind, though, is we've got the base loaded is hedged in the current year, so we're really talking about this happening in the combined cycle, and therefore the ability to preserve the spark spread, regardless of how gas moves, protects us to an extent.
But other than using the forward curve, it's really hard to predict gas prices.
Good morning.
So I believe it's about 150 miles per year, and it would take us 30 years.
So the (inaudible) gas system is closer to 800 miles, but it would take us 30 years at that spending rate to replace everything.
So it varies, <UNK>.
Our base ROE is 11.18%, we get a 50 basis point RTO membership adder for 11.68%.
We had, I guess we still have a couple projects that get anywhere from 25 to 125 basis points in addition.
However, our last four or five projects we filed for have not received any incremental ROE incentive component.
So long winded answer, but there is no one simple number.
It starts at 11.18%, and it goes up to 12.75% or something like that.
That being the Susquehanna-Roseland project, being the only one that got that big an adder.
It comes out to about 11.07%, which is just a fraction of a bip outside of the range.
Good morning John.
Right, so sure John.
So the impact to PSE&G's earnings for the first quarter benefited $0.01 to the benefit of O&M from the Sandy recovery that goes to PSE&G.
The remaining piece of the settlement that we had ---+ the remaining about $54 million, we have to go through the allocation process, and we will do that and discuss how that will flow when we do the second quarter results.
So a couple things to remember.
On the power side, we don't flow it through operating earnings, that's below the line, which you can see in the reconciliation.
We don't do that because power spend was below the line as well, and on the utility side, remember that the recoveries we got, including a portion of the $50 million ---+ a small portion of that, was for PSE&G in the past, goes primarily to balance sheet, because a lot of the spend for storm recovery that's recoverable under our policies, capital spend and that's on the balance sheet.
So there's balance sheet and regulatory asset offset, and just $0.01 of impact for the P&L from the first quarter, for Sandy at PSE&G, and we'll do the second quarter piece when we do the second quarter results.
I think that's right, in the context of the guidance, correct.
So you've seen that we're almost done with the Sandy settlement being booked, with just $54 million to go, and you've got a big piece already booked in the first quarter, and the P&L impact for operating earnings purpose was just $0.01, so proportionately you're thinking of it the right way.
No, I think one of our slides shows you the capacity factors, and we had a slight dip in nuclear capacity that was purely related to an outage at sale on that, it wasn't planned for and otherwise the units would have been at or better than last year in terms of nuclear.
Our gas unit's picked up the slack from some of that, as well as some of the lower prices that <UNK> paid attention to earlier, but the base load coal units (inaudible) our strong winter season.
Gas prices were not below that faithful $1.90 number of 2012 that resulted in some of the dispatch of those, and of course our New Jersey coal units as well as our Connecticut coal units did run a little bit during the winter months, because of the unavailability.
The hedging is our peakers, using the demand at the level they would be called upon.
So really no change in terms of the number this year.
Remaining a kind of fundamental shift in the market that we haven't over the past four or five years.
I don't think so.
I think if anything the forward price curve would suggest that we'll continue to see robust capacity factors for our combined cycle gas turbine units, and the nuclear units will run flat out, and that's pretty much the same.
Sure, <UNK>.
The one thing that's different ---+ so what we like to have shown you in the March meeting is what's been approved, so notwithstanding our complaint in front of FERC, the $120 million, <UNK> correctly described it as $110 million to $130 million in artificial island was not included in the March investor presentation, as baked in.
Similarly, so that's the only change of things that have been finalized and are now part of the plan.
The other piece that's significantly different is that we filed ---+ have not received approval ---+ for $1.6 billion over the next five years in this gas system modernization program, and that's not in the utilities capital program that we showed you in March.
Could you just hold on a second <UNK>.
I want to get my controller off the floor.
He fell down.
(Laughter) No, you know, obviously those plants have made significant environmental commitments to them, and the capital requirements going forward on those plants from any kind of regulatory point of view is minimal.
The real question will be their age and their ability to perform in a CP market, and the rules there just aren't known.
So to the extent that the risk reward profile of CP changes our thinking on those plans, then we would have to address that issue, but as of now we're happy to run them on coal in the winter and on gas in the summer, and they do just fine for us.
They are part of an overall fleet, and that fleet has multiple dimensions to it that work well for us (inaudible).
But I'd say that the new factor in the calculus will be what does CP mean.
1500.
Sure.
So, this is ---+ we're finishing ahead of schedule.
Thank you all for joining us.
I really do hope you view this as kind of a quintessential quarter for us, as opposed to anything special.
I grant you, we didn't have anything fancy to tell you about, just steady progress in terms of new investment opportunities at the utility and solid operations all around the Company.
In other words, what we like to do: just deliver on our commitments, and then some.
I know that Carolyn and <UNK>, and to a lesser extent I, will be on the road over the next couple of months, and we look forward to seeing you.
Until then, just enjoy your Spring.
Thank you all.
Thank you.
| 2015_PEG |
2015 | CUTR | CUTR
#Thank you <UNK>.
Good afternoon everyone.
And thanks for joining us today to discuss Cutera's results for the second quarter ended June 30, 2015.
Revenue in the second quarter of 2015 increased 27% to $22.6 million when compared to the same period last year.
We are encouraged with the continued momentum and favorable trend of our revenue growth.
We have experienced double digit accelerated revenue growth in the past four consecutive quarters.
Our growth has all been organic, and fueled primarily by our recently launched Enlighten and Excel HR products, as well as continued strong contributions from our legacy Excel V and Xeo platforms.
Our North American sales team led by Larry Laber, delivered particularly impressive 57% product revenue growth this quarter, over the past six months Larry has aggressively recruited and assembled a strong team of sales professionals.
As his North American team develops further and gains momentum in the marketplace, we believe we will continue to achieve year-over-year revenue growth, and increased productivity throughout the second half of 2015.
Core physicians in North America accounted for approximately 53% of our second quarter orders, with the balance of the orders received primarily from family practice physicians.
Our sales team and the rest the world led by Miguel Pardos delivered a strong 36% product revenue growth, despite currency headwinds of the strong US dollar.
Miguel joined us last year, and also continues to build his global team that is gaining momentum under his leadership.
In particular, our Australian direct operation and distributor sales channels have demonstrated significant improvement under Miguel's leadership.
We continue to closely monitor our sales organization performance, and we will invest and expand further as productivity improves.
From a product line perspective, this quarter's revenue growth was sourced primarily from our new Enlighten and Excel HR products, and the continued growth and market penetration of our gold standard Excel V vascular system.
Our flagship multi-application multi-technology Xeo product also showed growth, and remains a strong product platform that is suited for any aesthetic office, seeking to offer a wide range of treatment categories.
Gross margin in the second quarter was 57%, up 53% in the first quarter of 2015.
The margin improvement this quarter exceeded our earlier guidance, and were a result of favorable product mix, faster than expected realization of manufacturing cost reductions, and <UNK> will add further color in a moment.
Turning to Research & Development, we have a high performing engineering team as is evident with our two new product platforms in 2014.
During the second quarter, our R&D team completed the first Enlighten product extension, that provides even more customized benign pigmented lesion treatments by extending the treatment parameters.
The expanded function has been received favorably by our Asian customers, and gives them a significant performance edge to enlighten, and creates better versatility over other Picosecond systems.
We are always looking to expand our pipeline with new products, and expect to be able to tell you more about these in the coming quarters.
We maintain our commitment to continued investments in product and clinical research and development, which drive exciting new product innovations.
The global market for aesthetic light and energy based products is growing at steady pace, and now in our opinion is in excess of $1.5 billion a year.
We believe our broad range of products, the expected market share expansion of our new products, as well as our strength in commercial leadership team, to position us to continue to capture a greater market share based on an organic growth strategy.
I would like to turn the call over to <UNK>, to discuss the financials in more detail.
<UNK>.
Thanks <UNK>.
Thanks to all of you for joining us today on our second quarter 2015 conference call.
Second quarter revenue $22.6 million, up 27% when compared to the second quarter of 2014.
Our US revenue which includes service and hand piece refill revenue grew 36%, while our international revenue grew 20% despite significant foreign currency headwinds.
Our year-over-year revenue growth has been accelerating during the past four quarters, and was up 11%, 15%, 18%, and now 27% in the past four quarters respectively.
We expect our year-over-year quarterly revenue growth to be in the range of 15% to 20% in the second half of 2015.
As <UNK> mentioned earlier, this quarter our international revenue was adversely affected by the declines in the major foreign currencies that we transact in.
When compared to the send quarter of 2014 the Japanese yen, the Euro, and the Australian dollar, each declined in the 20% range.
As a result, we had to make a foreign exchange related negative impact on our revenue was in the range of $1 million to $2 million.
Gross margin was 57%, which is higher than second quarter guidance of 55%, and higher than the 56% realized one year ago.
As <UNK> mentioned earlier, we have several key initiatives targeted at increasing our gross margin, and we are tracking ahead of schedule.
During the quarter our product improved due to a favorable product mix, and new product manufacturing cost reductions, at a faster rate than previously expected.
We expect third quarter gross margin to remain in the 57% range, and to see it increasing to approximately 59% in the fourth quarter of 2015, given the fourth quarter is seasonally our strongest revenue quarter of the year.
I will now address our operating expense results.
Sales and marketing expenses were $9.1 million, or 40% of revenue in the second quarter of 2015, compared to $7.8 million, or 44% of revenue in the second quarter of 2014.
The increase in absolute spending is primarily related to sales force expansion, commissions and higher revenue, and associated marketing activities.
We expect our sales and marketing expenses to grow moderately in absolute dollars in the second hall of 2015, but continue to decline as percent of revenue, as we leverage our sales force with our anticipated reductions growth.
Research and development expenses were $2.7 million in the second quarter of 2015, up from $2.6 million in the second quarter of 2014.
We remain committed to continued investments in product and clinical research and development that are driving our new product innovations.
As we enter expense intensive phases in new product development cycle, we project quarterly spending will be in the range of $2.5 million to $3 million per quarter for the remainder of 2015.
General and administrative expenses were $3 million for the second quarter of 2015.
Our G&A spending has been in the $3 million range during the past four quarters.
We expect to continue in that range in the third quarter, and slightly higher in the fourth quarter of this year, reflecting higher seasonal expenses.
Our net loss for the quarter was $1.9 million, or $0.13 per fully diluted share.
This includes $1.3 million of non-cash expenses related to stock-based compensation, depreciation, and intangible amortization.
We expect our third quarter financial performance to be similar to that of the second quarter, and expect to be profitable on a GAAP basis in the fourth quarter of this year.
Turning to the balance sheet and cash flow.
Net Accounts Receivable at the end of the second quarter of 2015 were $8.9 million, and our DSOs were 36 days.
We expect our DSO to remain in the 35 to 40 day range.
Inventories increased from $11.9 million at March 31, 2015 to $13.5 million at June 30, 2015.
The increase was due to an intentional buildup of inventories associated with our recently launched products, to help facilitate continued revenue growth while maintaining efficiencies within the factory.
Cash from operations generated $1.4 million during the quarter, due primarily to working capital changes.
We expect to be cash neutral in the third quarter, and generate cash in the fourth quarter.
Our cash position remains strong, as June 30, 2015 as we held cash and investments of $66.3 million, with no debt, which represented approximately $4.70 per outstanding share.
We continue to remain active with our share repurchase program, under which we repurchased 386,000 shares for $5.2 million in the first quarter of 2015, and repurchased almost 900,000 shares for $12.5 million in the second quarter of 2015.
In total we have repurchased almost 1.3 million shares for $17.7 million in the first half of the year.
We remain active in repurchasing our shares, and have over $22 million remaining in our board-approved $40 million share buyback program.
In conclusion, we are pleased with our revenue growth, gross margin improvements, generation of cash from operations, and finally that we are near our financial breakeven point.
We expect our third quarter financial performance to be similar to our second quarter performance, and expect to be profitable in the fourth quarter of this year.
We will continue investing in our R&D and our commercial operations, and expect to continue leveraging this spending as a percentage of revenue.
Our current quarterly GAAP breakeven point is approximately $25 million in revenue.
For the second half of 2015, while there are certain unpredictable factors that may impact our global business, including unfavorable currency movement, we expect that each quarter we will continue to realize improvements in our financial performance.
I would like to now open up the call to questions.
Operator.
The ASPs did bounce back a bit as we expected, because we were ceding with these luminary transactions early on with these product launches we have had, and we are satisfied that we have got the adequate coverage throughout the country and the world, in various locations to continue ceding growth in these product lines.
We did not give an average share count.
First of all, we do remain active.
We have a 10-b-51 in place for our share repurchase.
I believe that we purchased about $17 million as of the end of June.
And we are continuing to be active in the market.
We are pleased with the expansion that we saw in North American headcount.
The expansion in terms of new folks that we brought on board, and we are really happy with all of the hiring that had happened, that we were able to get them trained and supported by our sales leadership, and we think that continued hiring is our plan going forward.
I do not have the constant currency.
For the quarter at least our international business had grown $2 million, or 20% when compared to the quarter a year ago.
On a constant currency basis that would have been about $1 million dollars higher, or 31%.
All I'm assuming in a go forward basis is that exchange rates remain flat to today's rate, but I'm not assuming any other change.
Well, if you wanted to take the currency in the second quarter of 2015, and using Q2 of 2014 rates, that is roughly $1 million right there.
That is correct.
And what that means is roughly half of our international business is conducted in US dollars.
i.
e.
Well, we will address the numbers and then let <UNK> talk further about Enlighten itself.
in terms the ASPs we did see a nice bounce back as we had anticipated because of the initial ceding that had taken place in the first half of the year.
A lot of it being in the second quarter, and we are continuing to drive our selling prices, and so value, as <UNK> will talk further we have enhanced the product with our low energy green option, that we also believe adds value to the rod.
In addition to that there is a product mix where we are selling more direct, and that also brings a higher blended average.
So from that perspective, we have got the bounce back we were expecting in selling prices
<UNK>, we were particularly pleased with the expansion in North America, so I think that the team did a nice job of really focusing on Enlighten.
And we think that the product has some pretty compelling features and benefits, that we are hearing very exciting things from our customers.
And as we talked about in the past, we think this is a platform that will have lots of product line extension opportunities, and we are delighted that the engineering team is able to respond with the low energy green, which is important to our business that is interested in providing a solution for benign pigmented lesions.
We are able to get to the proper operating parameters to successfully treat those patients.
We continue to expand future directions with wavelength as something that is important to us, but we are hearing very positive hinges with the current wavelength that we have to treat this, and this is one area in Asia that is particularly exciting.
I think one of the things that we are pleased to see was our legacy products, as well as our new products are continuing to expand.
We think that is a good reflection of the way that the sales team is presenting these products, while not turning their attention away from the legacy products.
Hair removal has been around for a very long time, but it is still one of larger treatment categories in the space, and having a flagship platform now with Excel HR, we think keeps the portfolio very fresh.
As we get closer to that, <UNK>, we will share what are our thoughts are.
We are pleased to be able to get the product line extension with Enlighten in the past quarter.
Thank you, <UNK>.
I would say not that it has contracted in the distributor business, in fact, we still feel good about the distributor volume, but our direct business has actually increased which the causes the distributor business to be a little bit more diluted.
Specifically we don't have anything that is unique overseas with that product.
We have broader indications for use in Europe for example with that product, and we are working with our both direct operations, as well as our distributor partners, to capture a larger part of that market.
Thank you for participating in our call today.
We will be attending many investor conferences and marketing events in the third quarter.
We look forward to updating you on our business progress in the third quarter 2015 conference call in November.
Good afternoon, and thank you for your continued interest in Cutera.
| 2015_CUTR |
2015 | RGA | RGA
#I don't have it in front of me, <UNK>.
My apologies.
But I'll see if I can't rustle that up pretty quickly here, though, as we are on the line.
Yes, it was over $20 million.
Just a little over $20 million.
And <UNK>, let me ---+ I've got my hands on a little better information.
I was off on the Aurora ---+ that's probably close to $2 billion in terms of impact on asset levels and reserves.
$2 billion US.
That's right.
Okay.
Well, if there are no other questions, we will end the second quarter earnings release conference call.
Thanks to everybody who participated.
And to the extent any other questions come up, feel free to give us a call here in St.
Louis.
With that, we will end the call.
Thank you.
| 2015_RGA |
2018 | CLDT | CLDT
#Thanks, <UNK>.
Good morning, everybody.
Our results for the fourth quarter were strong by most measures and finished at the upper end of our guidance range.
Let's talk about a few of those highlights from the quarter.
RevPAR growth was 1.1% compared to our guidance of minus 1% to up 1%, of course, benefiting from hurricane-related demand at our Houston and Florida hotels.
Adjusted EBITDA finished slightly above the upper end of that guidance range due to RevPAR outperformance as well as the incremental EBITDA contributed by the 2 acquisitions offset by EBITDA loss at the hotel that was sold.
Adjusted FFO per diluted share was $0.36 compared to guidance of $0.35 to $0.38 per share.
But excluding the impact of the fourth quarter equity offering, the 2 hotel acquisitions and one hotel sold, pro forma adjusted FFO per share would be $0.38 above consensus and at the upper end of our guidance.
<UNK> will go into more detail regarding our operating performance.
I'm going to take a few minutes though, to reflect on our strategic performance in 2017 and also talk about our plan as we move forward into 2018.
Earlier last year, we set forth publicly a 4-pronged strategic approach to add value to our portfolio.
Let me just talk about those one by one.
First, opportunistically lease cycle capital.
We're going to selective prune assets from our portfolio that either don't fit strategically, of which there's only a few, or we believe we could generate incremental new EBITDA and cash flow by selling at a lower cap rate and reinvesting those proceeds into higher quality hotels, in higher-growth markets that earn a higher yield.
We accomplished this in 2017 through the sale of our Carlsbad Hotel at an approximate 6.5% cap, and we acquired 3 hotels, as you know, for $132 million at an approximate 8% cap.
Secondly, we want to leverage our existing portfolio via value-added additions, where possible, to simply add rooms in hotels or markets where we already own excess land or have the ability to convert seldom used meeting rooms or other spaces into existing guestrooms.
We've been converting meeting rooms or other spaces into those guestrooms.
We added 32 rooms in a new tower in Mountain View, California, and that addition is producing double-digit unlevered returns.
And of course, we're still pursuing our 2 expansions in Sunnyvale as well as the construction of a second hotel on excess land adjacent to our Hampton Inn in Portland, Maine.
Since we already owned the land, and the infrastructure is in place, the returns can be very strong, as evidenced by our Mountain View addition, if we can obtain the necessary approvals.
And given some of the markets that our hotels are located in, that can take some time, but that's where the value comes from.
We're going to selectively develop, over time, just 1 or 2 hotels in certain target markets.
I started in this industry well over 30 years ago by building hotels.
We've got the internal expertise to do that and by utilizing the operating expertise of Island Hospitality, we know we could cherry-pick a market where we see opportunity ---+ outsized opportunity that will deliver unlevered yields of at least 9% to 10% over time.
And finally, of course, we'll continue to invest in our own portfolio.
We've got to be able to compete with all the new supply and new brands that are coming in to some of our markets.
And so of course, we need to ensure that our hotels look fresh and attractive when compared to the new product.
2017 was a very successful year for us.
Operationally, RevPAR finished near the upper end of our range, adjusted EBITDA and adjusted FFO finished towards the upper end of our range, we participated in more Investor Relations events than ever, we're executing on all 4 prongs of the strategy that I just laid out and our balance sheet is in great shape.
I'm proud of that.
Our leverage is at 34%, down from 40% a year ago and way below our peak of over 50%.
In fact, we're at our lowest leverage level since 2010 and we are well positioned to deliver further on our strategic approach and accrete value.
<UNK> will get into further detail on our 2018 guidance.
But obviously, as we sit here today, our guidance does not reflect any acquisitions, any developments or reinvestment of any asset sale proceeds, or utilization of additional leverage capacity.
Our 2018 adjusted EBITDA guidance is up $2.2 million, or almost 2%, over 2017, which is a reflection of our strategy.
And we fully intend on growing our portfolio and believe we can offset approximately half of the FFO decline on a fully invested basis.
We will add earnings in 2019 also from the ramping of the Residence Inn Charleston\xa0Summerville that we should acquire as we talked about on/or about June 1 of this year, which we expect will open up, as I said, around the end of the second quarter.
Operationally, we faced some tough RevPAR comps in 2018, especially in the first quarter and the fourth quarter here.
Last year, we benefited from having 4 hotels in Houston for the Super Bowl, only 1 in Minneapolis this year.
Also, the substantial demand generated from Hurricanes Harvey and Irma, especially in Houston in 2017, will be a headwind in 2018.
Having said that, our hotels are in excellent condition as we've been investing in our hotels throughout the cycle.
And importantly, if the new tax policy spur incremental economic growth and incremental lodging demand as the impact of new supply peaks in our markets, we are in a great position to outperform and get back to growing margins.
We are thankful that we have our affiliated manager, Island Hospitality, who is working tirelessly to help us accomplish all these goals.
Working together, we've greatly enhanced our revenue management strategies, while controlling costs and minimizing margin erosion.
We must continue to think outside of the box and push our hotels and even franchisors to implement new measures that will help owners regain some of the lost margins.
Chatham still generates the highest operating margins of all lodging REITs, and we're going to continue to work to maintain our position at the top.
With that, I'd like to turn it over to <UNK>.
Thanks, Jeff.
Good morning, everyone.
Our RevPAR growth of 1.1% in the quarter was driven by ADR gains of 0.8% to $159 and a 0.4% increase in occupancy to 75% in the quarter.
Excluding our 4 Eastern hotels who's benefited from Hurricane Harvey-related demand, RevPAR declined 0.5%.
Looking at our more significant markets in the quarter.
RevPAR in the Silicon Valley Residence Inn was up 1% in the quarter, with ADR rising 0.5% to $223 on occupancy of 75%.
Over the last 3 years, we've absorbed 24% of upscale new supply in our market track as well as 9% of new supply in our market track.
The good news is that market supply growth has declined 3 straight years.
And despite all of the new supply over the last 36 months, we've managed to maintain occupancy levels over 80% over that same period.
Cat companies continue to drive our economy.
And despite all the new supply, demand growth continues to outpace supply across the Valley.
It's a great location to own hotels, and our 4 hotels are the perfect brand, that being Residence Inn, to accommodate the significant extended stay demand in the Valley.
San Diego represents our second largest market and we saw RevPAR decline 12% in the quarter.
But 1 of our 2 hotels, the Residence Inn Mission Valley, was under renovation for most of the quarter.
In Houston, RevPAR rose 23.5%.
Obviously, most hotels did really well in the quarter, but I'd like to point out that our 4 hotels improved their market share by approximately 6% in the quarter.
So we've got more than our fair share of Hurricane Harvey business and Island did a fantastic job maximizing our performance.
The hotel teams were in constant communication with Island's revenue managers, who were then managing inventory with some of our preferred customers who specialized in disaster-related accommodations.
Our growth strategy is centered on finding markets where RevPAR growth is higher than our portfolio average and RevPAR for the 3 hotels we acquired in 2017 was up approximately 3% in the fourth quarter and 4% for the full year.
It's normal when you acquire a hotel and transition management, there can be some rocky patches that we have to deal with, but we are all-in on these hotels and expect to continue, if not improve that trend.
These are 3 great hotels, and we believe we can make healthy enhancements to the top and bottom lines in 2018.
Washington, D.
C.
, Dallas and L.
A.
were other notably positive markets, while Denver was a notably weak market primarily due to new supply.
We certainly have been feeling the impact of our new supply across our portfolio, but it has been trending down.
We've maintained that the new supply has been more concentrated in the top MSA in urban markets during the earlier part in this development cycle, and we've been patiently waiting for it to turn.
New supply on our market tracks across our portfolio was 4% in 2016 and 3% in 2017.
This should bode well for us if we haven't seen ---+ if and fact, we've seen the new supply peak already as we move into 2018 and 2019.
Our fourth quarter same-store operating margins were down 220 basis points, but I should highlight that our hotel EBITDA margins were only down 50 basis points in the quarter.
We've been very aggressive appealing property taxes and we're a beneficiary of quality refunds or reductions in the fourth quarter.
Most of these refunds were not multiyear, so we should continue to see these benefit us throughout 2018 in our earnings.
Our reported fourth quarter gross operating margins were 43.3% and our hotel EBITDA margins were 35.9%, slightly below the upper ---+ the lower end of our guidance range of 36%.
Jeff already spoke to the industry-wide pressures to raise the wages, which impacted our margins by approximately 60 basis points in the quarter.
Our biggest challenge is in finding and keeping qualified labor, especially in housekeeping.
And this, certainly, this isn't just a Chatham issue but an industry issue.
Payroll and benefits represent approximately 35% of our total operating expenses and approximately 18% to 19% of revenue.
For the quarter on a per occupied room, payroll and benefits were up approximately 4.2%.
And for 2017, they were up approximately 3.3%.
Since last year, we've been proactive adjusting pay in an effort to retain our associates.
And as we've mentioned previously, it's been a challenge in a very tight labor market where new hotels are trying to poach qualified labor.
As we move forward as owners and Island as operators, we need to continue to find ways to reduce labor cost by maximizing the efficiency of our staffing model.
Other unique items that impacted our margins in the quarter were higher utility costs due to colder weather and higher oil ---+ and obviously, higher oil and gas prices.
And lastly, our R&M expense, repairs and maintenance expense was up 40 basis points as we incurred some additional costs for extra work that we decided to take on during renovations that were performed during the fourth quarter.
Good news on the expense front is that our guest acquisitions cost remained flat, if not slightly down year-over-year, and those should trend lower as we move into 2018 as a result of the brand negotiations with the OTAs.
On the CapEx front, during the quarter, we converted a meeting room at our Hyatt Place in Cherry Creek, Colorado into 3 guestrooms and 2 large suites, adding at least $1.5 million of value to the hotel.
Additionally, we performed a substantial upgrade to the public spaces, restaurant and fitness center, at our Residence Inn on the Intracoastal Waterway in Fort Lauderdale, rebranding the restaurant adding a beautiful outdoor seating area to it.
Early feedbacks has been awesome and the restaurants are performing well ahead of past performance.
We have to continue to look at our existing assets and find ways to enhance value, whether that's to continue conversion of alternative spaces to guestrooms or enhancing our guest experience by adding, for example, small bars, while delivering attractive return.
And just another note on Silicon Valley.
With respect to those 2 expansions, our guidance for 2018, at this moment, does not assume a certain construction date for either of those 2 projects nor any disruption related to taking those rooms out of service for the buildings that we'll be tearing down.
I'm going to go ahead and turn it over to <UNK> at this point.
Thanks, <UNK>.
Good morning, everyone.
For the quarter, we reported net income of $5.5 million or $0.12 per diluted share compared to net income of $2.7 million or $0.07 per diluted share in Q4 2016.
Our Q4 2017 net income included a $3.3 million gain from the sale of the Homewood Suites Carlsbad.
The primary differences between net income and FFO relate to noncash costs such as depreciation, which is $11.6 million in the quarter; onetime gains and losses, which were $2.8 million; and our share of similar items within the joint ventures, which were approximately $1.8 million in the quarter.
Adjusted FFO for the quarter was $16 million compared to $17 million in Q4 2016, a decrease of 5.7%.
Adjusted FFO per share was $0.36, which represents a decrease of 18.2% from the $0.44 per share generated in Q4 2016.
Our $0.36 of FFO per share for the quarter was within our guidance range of $0.35 to $0.38, which was provided before the equity rate acquisition and disposition that we completed in Q4.
Excluding the impact of the equity acquisition and disposition, our FFO per share would have been $0.38 in Q4.
Adjusted EBITDA for the company was $26.3 million in Q4, which is flat to 2016.
In the quarter, our 2 joint ventures contributed approximately $3.4 million of adjusted EBITDA and $1.3 million of adjusted FFO.
Fourth quarter RevPAR was up 3.7% in the Inland portfolio, which is coming off a significant amount of renovation in 2016 and RevPAR was up 0.3% in the Innkeepers portfolio, which had a significant amount of renovation disruption in 2017 that will continue into 2018.
After 2018, the renovation activity should be very limited in both of the joint venture portfolios for the next several years.
We took a number of steps in Q4 that both strengthened our balance sheet and improved the quality of our hotel portfolio.
In early Q4, we issue 0.5 million shares under our ATM and direct stock purchase plans, which generated $11.2 million of proceeds.
And on November 6, we priced a $5 million ---+ or 5 million share, $110 million equity offering.
We also sold the Homewood Suites Carlsbad for $33 million in the quarter, which enabled us to eliminate $20 million of mortgage debt and generated $13 million of cash proceeds that was used to repay bank debt.
We used the proceeds from the share issuance to fund the $20.2 million acquisition of the Courtyard by Marriott Summerville, South Carolina and the $68 million Embassy Suites Springfield, Virginia.
We also entered into a contract to acquire the currently under construction Residence Inn Summerville, South Carolina for $20.8 million, once construction is completed in late Q2 2018.
Each of the hotels we acquired was built within the last 4 years and is unencumbered by mortgage debt.
At year-end, our net debt was $531 million and our leverage ratio was 34%, which is down from 40% at year-end 2016.
The actions we took to strengthen our balance sheet in 2017 give us significant amount of dry powder to pursue attractive growth opportunities if they arise in the future, while still keeping our balance sheet in great condition.
Transitioning to our guidance for Q1 and full year 2018.
I'd like to note that it takes into account anticipated renovations of the Homewood Suites Billerica and Hyatt Place Pittsburgh in Q1, the Residence Inn Mountain View and Residence Inn Tysons Corner in Q2, the Homewood Suites Dallas in Q3 and the Residence Inn Sunnyvale 1 and Homewood Suites Farmington in Q4.
We expect to spend approximately $33 million on our 2018 capital plan, which includes the renovations I mentioned as well as other planned capital expenditures.
We expect to fund approximately $6 million of this capital out of restricted cash escrows with the remaining $27 million funded out of free cash flow.
Our guidance also assumes that we complete the $20.8 million acquisition of the Residence Inn Summerville South Carolina at the end of Q2 using availability under our $250 million line of credit.
We expect Q1 RevPAR to decline by 2% to 3.5% due to difficult comparisons for our 4 properties in Houston, which benefited from the Super Bowl in Q1 2017, and our 3 properties in the Washington, D.
C.
area, which benefited from the inauguration in Q1 2017.
We expect full year 2018 RevPAR of minus 1.5% to up 0.5%.
In addition to the challenging comparisons in Q1, our 4 Houston properties will face a difficult Q4 comparison due to the surge in business after Hurricane Harvey that benefited our properties in Q4 2017.
We expect that the impact of these challenging comparisons for our 4 Houston properties will impact our overall 2018 RevPAR growth by approximately 60 basis points.
Our RevPAR guidance also assumes current trends of healthy GDP growth combined with elevated new supply in the upscale segment will continue throughout the rest of 2018.
On a pro forma comparable same-store basis, including the Hilton Garden in Portsmouth, the Courtyard by Marriott Summerville and the Embassy Suites Springfield and excluding the Homewood Carlsbad, 2017 quarter-by-quarter RevPAR was $125 in the first quarter, $142 in the second quarter, $145 in the third quarter, $120 in the fourth quarter and $133 for the full year 2017.
Our full year forecast for 2018 corporate cash G&A is $9.6 million.
On a full year basis, the 2 joint ventures are expected to contribute $15.3 million to $16.3 million of EBITDA, and $5.9 million to $6 million of FFO.
On a full year basis, we expect FFO per share to be $1.80 to $1.94 with the midpoint of $1.87 in 2018.
Given the $0.27 decline of our $1.87 midpoint of our 2018 guidance from the $2.14 of FFO per share Chatham generated in 2017, I'd like to provide a little more (inaudible) around the reasons for the decline.
We expect same-store EBITDA for our wholly-owned hotels to decline by approximately $4.3 million, which represents $0.09 per share.
This is being driven by top line RevPAR declines, in part due to the difficult Super Bowl and inauguration comps for our hotels in Houston and Washington, D.
as well as an approximately 110 basis point decline in margins due primarily to a combination of increasing wages and declining revenue.
Issuing approximately 7.4 million shares in 2017 and early 2018 to raise $161 million of equity and using the proceeds to acquire the Hilton Garden in Portsmouth, Courtyard and Residence in Summerville and Embassy Suites Springfield is driving approximately $0.08 of the FFO per share decline.
While the equity and acquisitions are dilutive to FFO per share in the immediate term, they have strengthened our balance sheet and give us the capacity to pursue accretive debt finance acquisitions in the future.
Our 2018 guidance assumes the Residence Inn Summerville is only in our numbers for half of 2018 and we are assuming that performance for this new property doesn't achieve stabilized levels until 2019.
FFO per share could increase by $0.01 to $0.02 once a full year state-wide performance is included in our numbers.
Selling the Homewood Carlsbad for $33 million in late December of 2017 and using the proceeds to repay debt is expected to reduce our 2018 FFO per share by $0.02.
In the short term, this has reduced our leverage.
But in the future, we can get these $0.02 back if we use the incremental borrowing capacity created to acquire another hotel.
We expect the FFO per share contribution from our JVs to decline by approximately $0.04 in 2018.
While the underlying operating performance of the JV hotels remain strong, these portfolios have $1.6 billion of floating rate debt, and we expect interest cost to increase materially in 2018 based on the current LIBOR forward curve.
The remaining $0.04 decline in the midpoint of our FFO per share guidance versus 2017 is due to several factors, including an increase in G&A driven by increasing miscellaneous taxes, wages and benefits and IT costs and the impact of increasing LIBOR in Chatham's credit facility borrowings.
I think, at this point, operator, that concludes our remarks, and we'll open it up for questions.
I guess, with respect to your first question, if we look at it really simply and say, hey, if we were to lever up the proceeds from the asset sale and the equity offerings to 40%, that would allow us to buy sort of an additional $135-ish million of hotel on top of the $150 million we've already acquired or have under contract.
If we were to do or fund that with all debt under our line, that would get us sort of $0.11 to $0.13 of FFO per share sort of depending on the cap rate we acquired hotels at.
And just to comment ---+ I'm sorry, I was going to answer the ranking part of the question, but go ahead, <UNK>.
Yes.
Yes.
I think that first and foremost, and the first piece of the strategy is successful in 2017 is really pruning a few assets and really recycling capital with a positive spread.
So that's priority #1 around here, is to find hotels that are new, are in markets that are growing faster than the overall portfolio and making that kind of trade.
Additionally, I think then you come down to the second part of the story, which is just looking for any opportunity to add within the existing portfolio.
And also ---+ and we didn't talk too much about it in the script, but really look at opportunities in some of these limited service hotels to add a few more bars.
Because we have done that at a couple of hotels that produced anywhere from $90,000 to about $180,000 of new bottom line cash flow in the right location, where there really isn't easy access within walking to another facility.
That can work well.
So we're going to ramp that effort up a little bit in some hotels that we think we have a captive audience.
And really, the development of a new hotel is probably last on the list.
But still, as I said, maybe here or there, an opportunity we're considering.
Yes.
I mean, listen, we typically have targeted it to some range of an adjusted FFO per share of ---+ 70% is a little bit higher than that.
I would tell you that if you even look at our earnings for 2017, we generally paid out pretty darn close to 100% of taxable income.
Taxable income will decline a little bit in 2018.
So from a return of capital perspective, we're not paying a stupid number.
So I think we're pretty comfortable still at $1.32 a share, which is a 70% of adjusted FFO.
We do have a pretty significant CapEx number this year.
But as <UNK> mentioned in his prepared remarks, about $6 million of the $33 million has already been funded into reserves.
So it kind of lessened our cash flow out the door in 2018.
Yes.
We have seen that, <UNK>, in the Chatham portfolio.
But we've also seen it sprinkle through both our ---+ well, primarily at our Inland portfolio and there's a portfolio that is owned by ---+ partly by Jeff and with Colony, that has a little more exposure to oil and gas.
And we have seen some more business in our oil and gas markets.
If you look at our SpringHill Suites in Washington, Pennsylvania, even over the past kind of 3 to 6 months, that hotel has done really well in terms of ---+ I mean, obviously, it's pretty small, but in terms of just RevPAR growth, we're talking kind of 15% to 30% RevPAR growth.
A lot of that is crews that are coming back, whether it's for maintenance, but it certainly has spiked up a little bit.
We can say that we have seen that.
We're looking at a variety of different things.
Of course, we first start by just simply looking at existing brand standards and seeing where we think it is ---+ there's opportunity within those standards, and it's just trimming around the edges.
It could be little things like cutting out newspapers that cost plenty of money every day to put out there.
But obviously, as we know, most folks are reading news online these days anyway.
It's ---+ on the staffing front, I would say that we're pretty very, very lean, not very lean, so there's not much room there.
But efficiencies in housekeeping and cleaning rooms and the number of minutes that we budget to clean those rooms is what we're looking at right now.
And we're looking at sort of a tiered bonus formula to further encourage kind of the reduction in those housekeeping minutes.
So it's things like that, brand standards, mandate, what we put out for breakfast, what we might put out during at ---+ the evening social hour, they call it in a Residence Inn or a Homewood Suites, but we're actually experimenting in advance and for the brand a little bit, there's some beta testing in some hotels by pairing down that offering.
And we're going to monitor our guest service scores, look at our cost per occupied room, which we're already seeing some savings in those test hotels and continuing to work with the brands and encouraging them to take another look at what those offerings are.
So we're fairly optimistic that everyone's eye is on the same ball here.
In a flat RevPAR environment, as we know, we just can't maintain margins.
Yes.
I mean, that brings overall portfolio RevPAR down by about 60 basis points for the year.
So if you look at kind of the midpoint of our guidance, it's basically flat 2018 versus 2017.
Yes.
I think that's still due to new supplies.
We talked about it still kind of in that 3% range for us in 2017.
We do have 2 more hotels that are being renovated in 2018 versus '17.
We finished the ---+ we completed renovations on 5 hotels last year, we're going do 7 in 2018.
So there's a little bit extra there, but that's ---+ we are, like I said, 5 versus 7, so a little more displacement.
So I appreciate that.
Hopefully, the lack of questions is because we did a thorough job in laying this out.
We certainly tried to.
We think there's upside here as well.
We tried to be conservative in our approach.
We're bullish on opportunities to work with the brands and other folks to, as I said, minimize margin erosion.
And of course, having the affiliated operator here allows us to work very closely with them on all initiatives and on all those fronts.
So with that, we'll move forward and look forward to speaking with you next time.
Thank you.
| 2018_CLDT |
2016 | ALB | ALB
#Hi, P.
J.
, this is <UNK>.
Both businesses contributed well to that growth because on the FCC you may recall that year over year last year we went through a period with a lot of trials.
So the volumes were somewhat better this year together with the strong gasoline demand for the first half.
And on the [CFT] side, as reported earlier, we're expecting 2016 to be better than 2015 as we do not see that same hesitance with the refiners as we did notice over last year.
And that has been confirmed.
We see more change out, we see a better product mix and so also the CFT contributed to that EBITDA growth.
If you look year over year I think it is safe to say we had better performance in CFT year over year.
FCC was solid but ---+ it had nice movement, but the real growth was in CFT year over year.
Okay, let me put it correct.
Last year was the exception where we saw all kinds of measures taken because of the economic climate at that time and the oil pricing.
Over this year things came back to what we call normal; we saw regular change out, we saw the use of fresh catalysts versus regenerated catalysts.
So, I dare to say that we are getting back to normal operations and see the regular change out.
Comes to see now what the recent trends and the oil will do, but I make ---+ confirm that the first half of the year was back to normal business.
No, I would dare to say that it has to do on one hand with the quality of the mix, both the fills and the products that go in there, as well as the use of fresh catalysts versus reused catalysts.
That is one element.
On the other hand, as we reported, we have some variable cost and also favorable variable cost in the beginning of this year, first half year.
I think the thing that you have got to remember in HPC catalyst, particularly, and you focused on HPC, is what is that mix going to be.
So, if you look, we make fine margins on our FCC catalysts as well.
But we get ---+ if we get a use of a really tough complex crude that's hard to get the sulfur out and the amount of hydrogen can have an impact on it.
And if we need our specialty hydrotreating catalyst we can make better margins on that on the mix.
So, the HPC mix that we have more than anything else can impact those margins.
So, I think it is going to from quarter to quarter fluctuate.
I think over time, over a long period of time you are going to see high 20%, 30% kind of percent margins is what I would ---+ somewhere between 25% and 32% kind of margins is where it is going to fluctuate, that is what it has and I think that is what you will continue to see.
<UNK>, this is <UNK>.
That is still correct.
So we have ---+ we were fortunate to have a tailwind with China pricing.
That helped as well as some of the mix of our business in the first half of the year.
So we are seeing flat to slightly improving pricing in our business.
<UNK>, we see overall demand being down.
As you have noted correctly, and I am very proud of our bromine team.
In the first half of the year we did secure some share in the Middle East as well as secured business with existing customers.
So that was very favorable.
And while those customers continue to order into the second half of the year, it is not at the rate that we saw in the first half of the year.
So we would say that overall demand is down, it is down most significantly for us as well as for the industry in the Gulf of Mexico, but down overall.
So, it has a bit of a tail going into the second half of the year and perhaps the start of 2017.
Hey, <UNK>, this is <UNK>.
Remember when we talking about drilling fluids, we are really focused on deep water drilling.
So, it is really ---+ that is our main focus is deep water.
We are not much onshore, or not much in fracking.
So it is really you have got to focus it on deep water.
And I think what ---+ there is such a long tail on that.
And so, I think we are going to see the second half is going to be down.
That is included within our guidance and I think you will see a weak start to 2017 with respect to completion fluids.
It's up 3% overall and that is on the portfolio overall for lithium.
Battery grade material which drove most of that pricing was up much higher than that.
This is <UNK>.
So again, on the technical grade applications there tends to be in some cases a ceiling on price because the value and use, once you go beyond a certain price sometimes you can substitute out products, so you have to be careful on the technical grade side.
But certainly on the battery grade side we have gotten our fair share of price within battery grade.
Also, in terms of the way we define our pricing mix, I mean as the tolling ---+ you have to also remember as the tolling volumes coming on, we are not necessarily counting that in terms of our pricing in terms of the way we have reported out on the pricing percentages.
Right.
I mean I think you might be confusing us with someone else in terms of what we announced.
But what we have said on the call is that for the overall lithium portfolio, not the Lithium and Advanced Materials, but we expect mid-single-digits overall.
And that in the battery side we have good double-digit price increases on the battery side.
So, we are getting ---+ we are in line with where we think the market needs to be.
<UNK>, we are not in any way getting left [blind] on the pricing in battery grade applications.
If you do the math on our battery grade applications, you can see they are up double-digits, and it is not 10%, it is well into the double-digits.
So, it is right in line what you are hearing from the rest of the industry on pricing and I would expect to be able to see strength in that going forward.
As we've said that ---+ I mean, each of the contracts are going to be negotiated on an individual basis.
In terms of when we decide to adjust prices, I mean I would say those prices could take effect within the quarter.
So, I mean they can be ---+ I mean it can react pretty quick, but it really depends on when we decide to take action.
And again, each agreement is negotiated individually.
<UNK>, this is <UNK> <UNK>.
I mean we continue in the bromine business not only to make sure we are delivering cash out of the core business, but we do continue to invest in R&D as well as business development efforts into new markets, whether that be specialty applications or other core uses.
We certainly look at that and that is our best avenue to reducing some of the lumpiness.
But this business ---+ it does see headwinds and it sees tailwinds based on various end markets and various geographic considerations.
And over the cycle we continue to focus on cash delivery and making sure that our cash flow delivery is consistent year-over-year to fund the growth in the catalyst and lithium businesses.
Yes.
I think it is ---+ as I look across it what I would say is that I think lithium has got ---+ is kind of a double-digit growth for the next ---+ if you look now through the rest of this decade and as long as we get the additional resources continue.
So, I see continued strength in lithium, at least double-digit growth year over year for the next four or five years.
And that is about as far as anybody can see, right.
And that could be accelerated based on energy storage, based on EVs and other items.
But I don't see any change coming on that.
On refining solutions, demand for transportation fuels is going to drive that and that is usually going to grow somewhere around 2% to 3% to 4%.
And I think we will grow a little bit better than that because of our capabilities in the complex tough to crack crude slate.
So, I feel great about our ability to have year-over-year growth there.
It will I think moderate from what we have seen this year.
Remember this year was a bounce back year, [wouldn't] expect to see that type of growth well into the future.
But I think that the strength of our innovation in catalysts will allow us to continue to grow that low- to mid-single-digits.
And dependent upon how our incumbencies are in clean fuels we could pop above that from quarter to quarter.
But I think there is still continued growth in that catalyst business.
Bromine, as I said before, this year that bromine is outperforming my expectations.
We said they were going to be down, I still think they are going to be down this year year-over-year.
But they have got a fighting chance to get close here to what they did in 2015.
That business ---+ we are not counting on it for growth, but if we get a little bit of growth from bromine over the years, certainly the free cash flow generation from that is going to accelerate our ability to drive more of our profits into lithium.
So I think you will see that.
I think the free cash flow will continue very strong.
We will have some capital that we need to invest in lithium obviously.
But even with that I expect our maintenance capital, if you will, to probably be around 4% across our base and you are going to have growth capital in lithium that will take us up higher than that.
So, a continuation of the free cash flow story here and I think good solid growth and growth opportunities between lithium leading the way followed by refining solutions and then counting on bromine to remain flat.
It may go up one year a little bit, down one year a little bit, but overall I feel great about the ability of these portfolios to drive shareholder value.
This is <UNK>.
The operation rate is in the [90s], as we said ---+ as we announced before, so it's not changed.
We have had a strong quarter.
The demand for fuel has been very strong maybe a little pressure on it for the coming months because the industry is dealing with the [inventory].
But overall longer-term picture we believe that the demand for ---+ and the gasoline production will come back and will remain strong into the [17s].
Yes, I will let <UNK> talk about that.
We are not going to give what the specific volumes are, <UNK>, for obvious reasons.
But, <UNK>, you want to talk a bit about that and what is built into our guidance.
Okay, well, we have been supplying a different [rhythms] over the beginning of the year and did supply well into July.
For remainder of the year we do not foresee any additional volumes and that has been solidly built into our guidance for this year.
This is <UNK>.
I mean we are progressing really well in La Negra in terms of qualifying the product with really a great portfolio of customers.
You should expect to see contribution really in 2017.
And we ---+ as we said, we are focused on the long-term agreements and we have already started to pre-sell that volume with customers.
So we will bring on capacity in line with our customers' demand.
Thank you.
Okay.
<UNK>, you want to talk about HPC volumes.
Yes, I can shed some light on that one.
Year-over-year the volumes are getting better.
Longer haul there is the structural fundamentals that more fuels are going to be consumed and that more fuels need to be cleaned up so there is a structural growth pattern in there.
Looking at a different segment, however, we see that there is a shift, that one segment is growing faster than the other.
We see stronger demand in the (inaudible) area where more complex oils are being processed.
But to answer your question, we have gone through a dip last year with a lot of uncertainty on the refiner side.
We are still cautious, but we see that coming back this year, that's ---+ like I said before, we are getting back to the normal patterns.
And for the longer haul we expect the HPC volume to grow because you just need to process more oil going forward.
Thanks, <UNK>.
And if I look at ---+ your question really was about what parts of the value chain would we look at in the batteries.
And we really like where we are today.
What we are good at is resources, taking those resources, converting them into quality lithium carbonate, lithium hydroxide and other byproducts from lithium that drives higher value.
So, as I look at that, we are going to stay true to who we are, <UNK>.
I don't think you can expect to see us buying a cathode company or anything like that.
What we want to focus on is driving value which is an acceleration of our strategy to be able to gain faster growth in lithium carbonate, lithium hydroxide and in the catalyst space.
So, that is what you will see us doing.
We will be consistent with who we are.
Yes, <UNK>, this is <UNK> <UNK>.
I think we see both sides of this.
We certainly see a great leverage effect on volume and the drop through to the bottom line.
So we do take efforts on securing additional business when we can.
For example, the China opportunity this year with the favorable pricing in China was something that we jumped on in order to pick up some additional volume.
And pricing as we go forward, that is always a lever.
There is still room on the cost side, that is something that we continually look at.
We saw some cost improvement particularly in raw materials, for example, from favorable buying in the first half of the year, so we look at that continually.
And as I said before, we look at all the levers we can pull to continue to deliver consistent for growing year-over-year cash flow into Albemarle.
And that includes cost, capital as well as on the sales side.
Yes, our priorities are going to be ranked ---+ you shouldn't look at them as we look at brine versus rock versus conversion; you ought to look at it on ways that we believe it will accelerate our strategy and deliver higher shareholder value.
And that is what we would look at as opposed to focusing any one geographic area or any one particular asset.
It is going to be ---+ if we find one, if it makes sense, if we can get the right type of accretion it would all be related to driving an already articulated strategy.
Well, I mean what we will do is ---+ what I said we would do is we would have cash on the balance sheet to allow us to accelerate our strategy.
So, accelerating the strategy could be we develop more assets in Chile as well.
So, you are reading too much into it that I am going to do one or the other.
What we are going to do is we laid out a strategy, we are going to maximize the resources that we have today as rapidly as we can to meet the market demand.
And then if an acquisition allows us to accelerate that we will do it.
But it is going to be ---+ if you look at our Chile operations today with the MOU, we have already got a plan to build out the revenue capacity to use up 100% of that resource over time.
We will accelerate that and we are in the process of accelerating that today.
And if there are opportunities in Chile we are certainly ---+ we are down there, we know those resources and we will certainly continue to look to pursue those.
There are other ---+ in other areas of the world there could also be some opportunities that we would proceed from a resource standpoint as well as from an asset that may accelerate our strength and our position in that area of the world.
And that is what we are going to do.
So, we are looking at ways to accelerate our strategy and strengthen our overall global leadership position.
So, it is not going to be anything that comes out of left field; it is going to be ---+ if we do anything it is going to be very consistent with the strategy that we have articulated since we bought Rockwood in 2015.
Thank you very much.
We would like to thank everybody for taking time to be on our call today.
And we look forward to continuing our performance in 2016 and the acceleration of our strategy into 2017.
Thanks a lot.
Bye-bye.
| 2016_ALB |
2017 | UNH | UNH
#Thank you, <UNK>
Like the Optum team, UnitedHealthcare is pleased to report strong performance across the business this quarter
At UnitedHealthcare, we continue to focus on a few critical priorities
The first is quality, which includes both clinical quality and the experience consumers and care providers have with us
We are gratified to see our NPS core is advancing with consumers and clients across our product lines and with providers
Next is our relentless focus on managing costs
As customers expect us to be good stewards of their financial resources, one example, 2017 is tracking to be the ninth consecutive year UnitedHealthcare’s customers will experience fewer, inpatient hospital admissions per 1,000 people
Third is our partnership with Optum
We are further leveraging capabilities to improve performance and innovate for our customers and care providers, nowhere does our clinical engagement performed better than where it combines with the clinical delivery capabilities of OptumCare’s local market ambulatory care practices
Consumers regularly give OptumCare practices NPS scores in the 70 to 90 range and for 2018, 100% of OptumCare Medicare Advantage patients will be in plans rated four stars or higher
Together, we are able to better serve the clinical needs of UnitedHealthcare patients with the higher quality, lower cost and improved customer experience
In turn, we strengthened Optum’s practices through market leading growth, innovation and clinical insights all aimed at better serving people one at a time everyday
The fourth priority is what we refer to internally is distinction
It is how we describe the truly compelling experience we are creating for people across a variety of dimensions
This includes creating distinctive relationships with care delivery system partners and driving simplicity for consumers
On Rally, our consumer digital platform we added additional private health insurance plan selection capabilities this past quarter to help pick the best benefit plan for their needs taking into account their age, family status, health background and economics
Doing these things well leads to the final priority, I will discuss today, growth, where our innovative commercial benefits have grown with remarkable consistency and we have considerable long-term opportunities for substantial growth in the public and senior sectors
Nationally, there are about 85 million people representing 1 trillion in annual spending who do not benefit from managed care offerings
The majority of these people are served by unmanaged higher cost fee-for-service programs operated by federal and state authorities
These people will benefit from the insights and the progressive tools that effectively support coordinated patient treatment across all access points in the healthcare system
Seniors and Medicaid beneficiaries served through our more progressive care models see higher quality care, lower costs and improve value
We expect the growth for years to come as the market continues its steady shift from costly outdated programs to innovative approaches like those offered by UnitedHealthcare
In Medicare, our revenues of $16.3 billion grew more than 17% over last year
Over the past year, we added nearly 1 million people, 100,000 of them in just the last 3 months split evenly between Medicare Advantage and Medicare Supplement
We expect more Medicare growth in 2018 based on both the growing MA market and our unique value proposition, which offer stable products, a simple and personal experience and a distinctive culture
In 2018, our quality Star scores advance again
Approximately 85% of the seniors we serve will be enrolled in plans rated four stars or higher
The initial stars data for 2019 payment year once again show strong organic improvement, because our underlying plans are performing consistently at higher levels
We expect our final star ratings in 2019 payment year to approximate or exceed the high performing levels of 2018 supporting benefit value and better health outcomes for the seniors we serve and growth for our business in this important market
In community and state, third quarter revenues grew 12.8% over last year
Third quarter membership levels remain stable representing a year-over-year advance of nearly 600,000 people with the continuing favorable mix shift toward more complex health conditions and higher acuity programs, which is our strength
During the quarter, we went live with programs in Virginia and in October, the First Californians joined UnitedHealthcare under new Medi-Cal contracts in two counties
In addition, we are excited by our active pipeline of renewal and new business opportunities as states expand and diversify the populations they serve through managed Medicaid
Turning to UnitedHealthcare Employer & Individual, our commercial group full risk offering sustained momentum in a consistently competitive environment growing to serve 40,000 more people this quarter more than 0.5 million in the past 12 months and 1.1 million over the past 3 years
These results reflect improved experiences for consumers and predictable cost trend management for employers driven by a combination of innovative benefit designs and locally payer networks, all of which lead to rising retention and strong new business generation
We recently decided to enter the Northern Plain’s health insurance markets, including Minnesota beginning in the second half of 2018. Our team in Minnesota is looking forward to serving our neighbors more fully in coming years
Taken as a whole, UnitedHealthcare grew revenues this quarter by $3.6 billion to $40.7 billion nearly 10% growth and earnings from operations of $2.4 billion in the quarter grew over 13% year-over-year
Now, I will turn the call over to <UNK> <UNK> for a financial review
I assume that question is about 2018.
<UNK>, you said 2018.
Making sure, okay
A lot of work to do between now and ‘19 benefit plan because we are about two days into the selling season for Medicare Advantage and yes, tremendous growth
We have been really focused at UnitedHealthcare across all the businesses to really advance the idea that I mentioned earlier in my comments around distinction and with very key focus on some fundamental areas, substantial growth, advances in quality leveraging our Optum capabilities, managing our costs both administrative and clinical and nowhere has that, I think, shine through more brightly than our Medicare Advantage
So, I think it’s great to have <UNK> <UNK>, our CEO of Medicare shed some light on 2017 and kind of outlook for ‘18 as you kind of see things shaping up
Sure
Hi, Chris
So, as I mentioned in my earlier comments really excited about the performance across all of our businesses
We are really well-positioned and we see a lot of opportunity
So, maybe I will just ask Dan <UNK> to comment broadly on, I think particularly of note is the strong performance we have had in fully insured and then maybe Austin Pittman could just share a little perspective on the Medicaid – managed Medicaid opportunity continues to be a strong growth opportunity for us
| 2017_UNH |
2016 | NGVT | NGVT
#Thank you very much.
Yes, I think that's a great question.
Because we do have significant outages that are scheduled for the second half of year ,and I would say they're more to the fourth quarter than the third, though we do have outages in both.
Of course in every chemical business you're going to have planned outages on an annual basis.
Often times, we would plan for one to two weeks for an outage for routine maintenance.
In this case, and it's particular I think to the performance materials or activated carbon side of the business.
We have a couple of significant outages because we're replacing some major pieces of equipment that you might not typically replace but every 15 to 20 years.
And it just so happens that those are occurring this year, in this year's second half.
So as we think about the impact of outages for Ingevity overall in the second half of the year, it's probably from an earning standpoint a $10 million to $15 million impact, with the majority of that impact being in Q4.
And of course that's reflected in our guidance.
I would say that the pressure has begun to subside, but the pressure is still downward.
I think we're going to see that continue for at least another couple of quarters.
Certainly not calling a bottom for that, but certainly I guess the slope of the decline has shallowed significantly.
And you can really see that if you look at the year-over-year comparisons for Q1 to Q1 of last year, and then Q2 of this year versus Q2.
Yes.
I think we're seeing some benefits already in 2016.
I think we'll see some modest benefits in 2017.
As you know, we have a portfolio of supply agreements, and those range from annual to multi-year, and really I think for the most significant of those is going to be at least mid 2017 to mid 2018, before we're really in a position to reset those contracts.
And of course what happens at that point is going to depend on market conditions, supply/demand dynamics at the time that we're renegotiating those.
In the meantime we're trying to position ourselves strategically, both from an inventory standpoint and a contractual standpoint, to put ourselves in the best position possible to capture savings.
I think the third quarter will be very similar to the second quarter in pavement technologies applications.
Okay.
With that, I just wanted to thank all of you for participating in this morning's call.
We certainly appreciate your interest in Ingevity.
We do hope you share our enthusiasm for the business, and we look forward to talking with you next quarter.
Have a great day.
| 2016_NGVT |
2015 | ACIW | ACIW
#I'm not in any way, shape or form ---+ I'm bad, we didn't sign it, but I don't feel bad about it in the least bit.
To answer the ---+ I will let <UNK> answer the big part of the question, but we are EMV enabled both ways.
We were really ---+ we didn't do that much EMV business last year.
We spent all of the money to get everyone ready, we're SaaS enabled and whatnot, and we thought people come running in to try to go and protect themselves as quickly as possible.
We didn't see that much.
We're doing a lot more on the retailer side than on the other side.
That surprises us a little bit.
I think people are buying 40% solutions, check a box, and then when they start having losses, I think we will get to sell them 100% solutions.
<UNK> can answer.
Our expectation is that we will sign a big UP deal this year.
I would also say sales guidance is not necessarily contingent upon delivering a large UP deal.
If we close one of the large UP deals that <UNK>'s talking about, it is likely going to push us over our SNET guidance range.
We will provide that update at that time.
Good morning.
In part, we had a strong sales in 2014.
So we will begin to get benefits of those sales in 2015.
Projects, for example, that we sold in 2013 that were hosted are beginning to come online in 2015 as well.
It's really, if you look back, 2013 had 7% organic SNET growth, 2014 had 10% organic SNET growth.
That's starting to come online in 2015.
Yet, if you look at ---+ if you recall, in 2012 actually, we have to go back, we had the hiccup on the conversion of S1 billing.
So, 2012 was actually a significant decline in cash flow.
We had a catch-up in that cash flow in 2013.
So, if you normalize for that balance, yes, we are down optically, but we had a catch-up year in 2013.
In terms of modeling for free cash flow, to be consistent with what we have ---+ how we have modeled in the past, and that is, if you look at our EBITDA, our EBITDA is a range of $280 million to $290 million.
Cash taxes would be deducted from that, so $25 million to $30 million, cash interest $36 million, CapEx in the $40 million to $50 million range.
The expectation would be that cash flow would be in that, call it, mid-to-high $170 million range.
I don't expect the balance sheet to be a headwind in 2015.
I would expect the balance sheet to be a tailwind.
Yes, it was in the $40 million to $50 million range with the impact to 2013.
I'll be honest with you.
What we're doing, we are in very big institutions, and what happens is that we're showing ---+ in our latest meeting we had 100 technical people from the mortgage company, the retail bank, the credit card ---+ these guys, they're looking at this thing as the payments ---+ the universal payments.
They are actually looking at it to be the universal payment.
We are having to deal with a lot of what they affably call stakeholders, and so it is more internal.
It's not really an external selling activity that we are ---+ that is where we underestimated the complexity and the scope, was on the internal selling.
We kind of had them sold and we were chosen, and they said ---+ well gee, now it's going to take us four months to sell it internally.
It's not an issue of whether we are chosen or not, it's how to deal with the internal complexity of dealing with it.
And that is not true in one, that's probably true in four or five.
Another one we're dealing with is global, and we're helping them go through the ROI, because they understand at the corporate level how much it's worth to them, which is huge.
And now, where they start it and how they roll it around the world becomes ---+ how do you start contracting it.
Quite honestly, we were never used to dealing in this ---+ we were not equipped to deal in this complexity.
We always dealt with the really large institutions, but never at this level of complexity.
We never talk about strategy, but the point I was making in my ---+ we are providing an opportunity for people to do things at really the sub-sub-sub-cent per transaction level, and where they're paying pennies per transaction, they can't afford to pay pennies per transaction and stay in business.
So, they have to think about different infrastructures that get them to a different cost basis to stay competitive, stay in business.
And, a lot of them have one system per one payment type, and now we are up to 20 or 30 payment types at point-of-sale.
You just can't do it.
You just can't do it that way.
That is why we have both approached the retail ---+ that we are both enabling the retailers and enabling the banks, because we don't believe that either one of them can capture what is going on and maintain or improve their margins without really changing the entire cost structure.
Without talking to the Polish or the Dutch or whichever, whatever their motivation is, that is the overarching motivation.
There's no way in the world that the regulators are going to let 40% to 60% of the population be un-banked and then have the solution for the un-bank be more expensive than the solution for the banked.
So, they're going to bring pricing down.
Which is going to force them to have different technologies.
No more ---+ it's a lot more complicated than that to implement, but that is the scheme.
They've got the front end in terms of everyone has the online.
Right.
So, everyone has got the device that can initiate it.
The web is there.
So, now they've got to get the back-ends to work.
The first question, the new accounts, the new accounts are all new customers.
The new applications are where we are cross-selling to existing customers, where maybe they have a retail payment engine and we sell them a fraud solution.
But we have some pretty significant sized new accounts in 2014.
I'm sorry, can you repeat the second question.
The way I would best articulate our cross sell opportunity is to say that we're providing $600 million or $400 million of transactions against two payment types for a bank or for a processor or a network or whatever.
They are now asking us to come in, and it could very potentially be against our same technology, and asking us to take on four or five or six more payment types, that double or triples the volume that we do.
So, it's a cross sale in that we have to give them ---+ we have to enable them against those payment types, but what we are actually doing is leveraging our core technology, or migrating them to our EPS technology, so they are using both our new technology and our old technology under the umbrella of our universal payments.
Does that answer your question.
We do have other customers like the Dutch deal, where they are buying whole solutions that include the fraud as well as the payments engine and integrating them for [our net].
We have other customers that have as many as nine of our products.
I think that is the largest that we have.
And in they use them ---+ we become a preferred user, and we get used across the different parts.
I think the largest cross sell in 2014 was against the UP category, and more uses against existing technology that we had and their ---+ we had there.
In their business.
Yes.
This goes back to when we went out with Q3.
Yes, we had pushed out several deals and our expectation is those deals will close in 2015.
Some will close in Q2, and some will close later.
I'm sorry, Q1, and some will be later.
Thanks, everybody, for dialing in.
We look forward to talking to you all in the next coming weeks.
| 2015_ACIW |
2015 | HFC | HFC
#I understand the question.
What I'm going to tell you is that we're going to have to be more explicit at upcoming analyst day, which is not yet on the calendar.
But we do want to give comfort and characterization around these projects.
What I would say is liquid yield improvement is core to refinery profitability.
Yes, that does have the effect of bringing more light product to market but if you're bringing light product out of what is otherwise heavy oil discounted sales from a profitability perspective, it's a much new transaction.
The crude slate substitution, those types of projects, tend to be very high return projects.
So what we will do and plan to do, is to get this group together and demonstrate what the projects consist of, how they respond profit-wise in different crack spread environments.
But I want to leave you with the thought that we're not talking about large refined product expansions in terms of making a whole lot more gasoline and diesel.
What we're doing is improving the operating efficiency and the yield efficiency of existing plants at largely existing crude rates.
Yes.
I would say it's a couple things.
We've invested a lot of money in a lot of our utility systems.
We mentioned that at Cheyenne we've invested a lot of money in our steam boiler system, in our plant air system.
That if gives project more than their fair share of headaches in the past.
We feel we've rectified those systems.
Once deals contribute to our own reliability in the future.
I think we also have increased focus.
We have increased staff and capability, as <UNK> mentioned earlier.
We've moved a couple of people around and got a guy from Navajo named <UNK> McKee to Dallas to help us with our reliability efforts.
So there's a huge human resource component to our improvement as well.
No.
We've got a good story to tell.
We've got our refinery's running well now, We've got a balance sheet that affords a significant amount of share repurchase.
We're very constructive about future prospects to the Company.
So I think that it's important that the market understands what we have going on internally.
We look forward to producing that plus some.
Thank you.
Thanks, everyone.
Thank you for joining us today.
Give a call to Investor Relations, we'll be here to answer any and all questions.
Otherwise, we look forward to sharing our next quarter results in August.
Have a great day.
| 2015_HFC |
2015 | STZ | STZ
#For this year.
Yes, I think that, you know, we will continue to see two things, okay.
Increased marketing and the concentration of that marketing against a smaller subset of brands.
You know, as I mentioned, we have initiated TV marketing at fairly significant rates against Black Box, Woodbridge by <UNK>ert Mondavi, for example.
And with the way that we can measure very directly now through household-type surveys and pantry studies, the impact of our advertising, we believe quite strongly that some of these campaigns, in particular the Black Box and the Mondavi Woodbridge that we have previously tested, is actually not only good for longer-term brand building, but we think that it pays back in the short run with the incremental increase in purchases and consumption that we've seen in the test markets where we've run these ads.
So we are expanding that, and I think that what you're seeing basically is our depletion growth, which was, you know, in the 3.5% range, which is an acceleration, is indicative that what we're doing is working.
And then also from a depletion point of view, which is a little hard to see through our financial results, which are shipment based, we're seeing a pretty significant increase in mix as well against the business.
So pretty much I'd say that what we're doing here is working pretty well.
In fact, I think very well.
So we're pretty optimistic about the wine and spirits business for the remainder of the year.
Hey, <UNK>.
Yes, so, you know, May was tough for some of our competitors.
It was not particularly tough for ourselves.
We saw a slight deacceleration, but it was probably a result of there being one less selling day in the month, which has about, you know, a 1/20 or a 5% anticipated impact.
June, very strong.
IRI dollars for our beer business in the four-week period ending 6/21 up 14% for Constellation's beer business in dollars.
So we see no negative impact or unusual occurrence relative to May on our business.
But as I said, yes, some of our competitors have found that period to be difficult.
And regionally, the answer continues to be no as well.
There's nothing going on regionally for us in terms of a shift of geographic mix or we're not seeing an acceleration in some parts of the country and a slowdown in others.
Everything is pretty much steady as it goes, so nothing ---+ nothing for us, hence we increased our guidance now for the year to the 10% sales growth range on the beer business because, as I said in my ---+ in the answer to some of the earlier questions, it's just evident to us that our previous guidance is ---+ was understated relative to current and expected trends for the remainder of the year.
Yes, so just kind of to look at quarter-over-quarter and I'll focus on Corona because, remember, Modelo Especial is a big can brand, right, but the new launch is really focused on Corona Extra.
And for Corona Extra, say, first quarter last year, about 3% of our ---+ of our depletions were in cans, and this year it was about 5%.
You know, we clearly believe that we'll continue to see the can momentum build.
And we also know, however, that we won't end up with a can mix like the domestic players, but we think we can, you know, someday line up maybe more in line with some of the ---+ some of the other import players in terms of their can mix.
We think the cannibalization rate is fairly low.
Actually, probably below everybody's expectation.
So, you know, I don't think we can really know what the cannibalization rate is, by the way, right, because you'd have to say, well, okay, glass would have grown at X percent but for the cans.
We can't answer that question necessarily.
So we think the cans are representing ---+ let's put it this way ---+ primarily incremental business.
So probably at this, like, 3% to 5% that we're talking about right now, cans are being used on occasions where glass could not heretofore have been used and therefore we think pretty low cannibalization and pretty much incremental growth.
Yes, maybe.
I would say yes.
I would say we did see little bit of impact of weather towards the end of May, but everything just kind of bounced right back in June.
So it's kind of hard to say whether there was really any impact from that.
Probably, as I said, the sell day impact was the greatest impact that we had in May, even though, you know, the weather had to have had some kind of effect on a temporary basis on the sales, but we don't ---+ we don't think that it was anything material.
And it certainly hasn't driven any trend change into the extent that, you know, I don't know, in Texas people couldn't get out and buy a beer, you know, they restocked.
Shortly thereafter.
I think that one deal a year is an overstatement.
Let's see, since I've been CEO for the last eight years, I think we've done three deals of that nature.
<UNK> West, Casa Noble, and now Meiomi.
Our strategy hasn't changed.
No, we don't ---+ I don't think that there's, you know, any more significant deal flow.
I wouldn't ---+ I wouldn't suggest anything different will occur from a number or timing perspective.
You know, we keep our eye open for these kind of things.
They come around every once in a while.
They're very advantageous, if it's the right thing at the right time.
You know, we try to stay away from some of the, I'm going to say trendier stuff, that has a tendency to kind of go up and down.
You take Meiomi, you take <UNK> West, these were classic brands in a category, in this case pinot noir, which is not trendy, but fast growing and will continue, we believe, to be a fast growing varietal as people continue to discover pinot noir.
And we think taste preferences are, on a long-term basis, changing towards pinot noir.
So <UNK> West covers sort of the $10 to $12 pinot noir range, and Meiomi covers sort of the $20-plus pinot noir range, so that puts us in a really strong position in one of the fastest growing and most stable segments of wine, which is the pinot noir varietal in particular.
So, no, no change in sort of the frequency or ---+ of those kind of deals.
Yes, I think, as you know, our tax rates, our ETR on a given quarter is really driven by the geography of the earnings and our resolution of, you know, our various tax issues.
So I would say that, you know, for us, we're the confident in the 30.5% rate and, you know, we don't really have a view on the quarters where the delta will land.
Okay.
Well, thank you, everyone, for joining our call today.
We've covered a lot of ground, but before we go I want to reiterate how pleased we are with the excellent performance of our business this quarter.
Now the team plans to continue to capitalize on the tremendous momentum we have underway in the beer business to drive growth and enhance financial performance.
From a wine and spirits perspective, we are gaining traction, and we are on track to achieve our goals for the year.
I'm also excited about the acquisition of Meiomi wine business, which is an excellent addition to our portfolio.
Our FY16 is off to a great start, and we are eager to continue this momentum into our summer selling season.
As we head into the 4th of July holiday weekend, I hope you remember to bring some of our fine wine products to your celebrations and to please enjoy them responsibly.
We will be on the road next week as we begin to introduce <UNK> <UNK> to those of you he has not already met, so I look forward to seeing you.
| 2015_STZ |
2015 | CNP | CNP
#Thank you, <UNK>, and good morning ladies and gentlemen.
Thank you for joining us today and thank you for your interest in CenterPoint Energy.
Third-quarter 2015 adjusted earnings on a guidance basis were $146 million, or $0.34 per diluted share, compared with $128 million, or $0.30, in 2014.
On a guidance basis, as noted on Slide 4, utility operations contributed $0.24 per diluted share versus $0.19 in 2014.
Midstream Investments contributed $0.10 per diluted share compared to $0.11 in 2014.
On a GAAP basis, we reported a loss of $391 million, or a loss of $0.91 per diluted share.
The loss includes non-cash impairment charges related to Midstream Investments.
<UNK> will discuss these results in more detail later in the call.
Our business has performed well with particularly strong contribution from our utility operations.
Combined, our gas and electric utilities added more than 88,000 meters since the third quarter of 2014.
As you will hear from <UNK> and <UNK>, we've had a busy year on the regulatory front and we are pleased with our progress.
We anticipate receiving approval this year for over $138 million in annualized utility rate relief, including interim rates.
Additionally, we continue to actively manage O&M expenses, which <UNK> and <UNK> will also discuss later.
Turning to our Midstream Investments, last week, as you may have seen, that Enable Board of Directors named Rod Sailor as the new CEO effective January 1, 2016.
Rod is a seasoned industry professional and I am confident that his knowledge of and experience in the midstream industry will be invaluable as Enable continues to execute its growth strategy.
Enable recently announced a third-quarter distribution of $0.318 per unit, representing a year-to-date increase of about 3%.
We are pleased to see their fifth consecutive quarterly increase since the IPO, as they continue to navigate through this challenging commodity price environment.
Slide 5 includes highlights from Enable's recent earnings call.
They continue to see volume growth around many parts of their system.
In the Anadarko, 24 rigs are currently drilling wells scheduled to be connected to Enable's system.
Enable's Bear Den oil gathering system is now flowing close to its stated capacity.
Recent purchases of gas fields served by Enable in the Haynesville suggest the possibility for increased drilling in that region.
The year-to-date combined performance of our utility operations as well as Midstream Investments along with anticipated fourth-quarter performance allows us to update our earnings guidance for the full year to be $1.05 to $1.10 per share.
Further, we are reaffirming our target earnings per share annualized growth rate of 4% to 6% through 2018.
As we have discussed in the past, we are investing in infrastructure and technology to better serve our customers.
I am proud to say that our efforts are being recognized.
In the most recent J.
D.
Power 2015 Gas Utility Residential Customer Satisfaction Study, our gas utilities ranked in the first quartile in their respective regions.
The study measures billing and payment, price, corporate citizenship, communications, customer service, and field service.
Before I close, I want to take a moment to congratulate our legal team here at CenterPoint.
They were recently recognized by Texas Lawyer as the 2015 Legal Department of the Year in the area of pro bono and community leadership work.
The legal team's contributions are often on their personal time and illustrate our values as well as our commitment to serve to the areas that we serve.
We remain committed to our vision to lead the nation in delivering energy, service and value.
We will continue to invest in our energy delivery systems to better serve our customers and to seek timely recovery of those investments.
<UNK> will now update you on electric operations.
Thank you <UNK>.
Houston Electric had a strong quarter, in line with our expectations.
As you can see on Slide 7, core operating income was $219 million this quarter compared to $202 million for the same period last year.
The business benefited from higher usage primarily due to more favorable weather, higher transmission and distribution related rate relief, continued strong customer growth and lower operating expenses.
These benefits were partially offset by the absence of a one-time energy efficiency remand bonus received in the third quarter of 2014 and lower equity return related to true-up proceeds.
We continue to actively manage operating costs.
O&M expenses were down 0.3% for the first three quarters of 2015 versus the first three quarters of 2014, excluding certain expenses that have revenue offsets.
We remain committed to ongoing O&M expense discipline.
As you will see on Slide 8, we are successfully executing our regulatory strategy to recover invested capital in a timely manner.
We have received approval for over $50 million in annualized transmission and distribution related rate relief so far this year.
Transmission related cost recovery filings approved by the Commission in the first and third quarters this year resulted in $24 million and $14 million, respectively, in annual transmission revenues.
Also, an annual revenue increase of $13 million from our first distribution cost recovery factor filing went into effect in September.
We are seeking an additional $17 million from our most recent transmission cost of service filing and expect to receive approval during the fourth quarter.
The Houston economy remains resilient and strong.
Houston Electric added more than 53,000 metered customers since the third quarter of last year.
This represents a continued annual growth rate of more than 2%.
As we mentioned before, 2% customer growth equates to approximately $25 million to $30 million of incremental revenue annually.
On the employment front, healthcare and hospitality are making up for job losses in the energy sector with the Greater Houston Partnership forecasting 20,000 to 30,000 net new jobs in 2015.
Houston's housing market remains tight with inventory at 3.5 months supply compared to a more balanced inventory of six months.
Year-to-date through August, home and auto sales have maintained the pace set during a strong 2014.
On Slide 9, we've included a few statistics to further illustrate the size, strength and diversity of the Houston economy, which continues to perform well despite challenges associated with the energy sector.
We are pleased with Houston's growth prospects.
Houston Electric performed well this quarter and we are position to finish the year strong.
We will continue to focus on safety, reliability, efficiency and growth.
<UNK> will now update you on results for gas operations.
Thank you <UNK>.
Our natural gas operations, which includes both our gas utilities and our nonregulated energy services business, had a strong quarter, both operationally and financially.
I mentioned during the second-quarter earnings call that we expected to improve our year-over-year operating income for the remainder of 2015.
I am pleased to tell you that improvement is occurring.
As you will see on Slide 11, natural gas utility's third-quarter operating income was $11 million compared to an operating loss of $8 million for the same period in 2014.
Operating income was higher due to several factors.
The business benefited from increased rate relief, customer growth, other revenue, and lower O&M expenses.
These increases were partially offset by higher tax and appreciation expense.
Further, the Minnesota Conservation Improvement Program incentive, or CIP, which historically has been received and recognized in the fourth quarter, was approved in the third quarter this year.
Customer growth remains strong in our natural gas utilities having added over 35,000 customers since the third quarter of 2014.
(technical difficulty) nearly 2% customer growth followed by Minnesota, which added more than 1%.
O&M expenses at our natural gas utilities were down 0.5% for the first three quarters of 2015 versus the first three quarters of last year, excluding certain expenses that have revenue offsets and excluding the Minnesota CIP incentive.
As with our electric business, we remain committed to ongoing O&M expense discipline.
Turning to Slides 12 through 14, we continue to execute on our multi-jurisdictional regulatory strategy.
Constructive annual rate mechanisms plus rate cases are allowing us to recover capital investments we've made to better serve our customer base.
The annualized rate relief approved so far this year is over $65 million, which includes $48 million of interim rates in Minnesota.
We expect a final decision on Minnesota rates in mid-2016.
Another milestone in our rate strategy was the implementation of a new three-year folded coupling pilot in Minnesota which is intended to normalize the impact of usage fluctuations, including weather.
As a result, we will not employ a weather hedge in Minnesota for the 2015/2016 winter.
Finally, next week, we will file our first rate case in eight years in Arkansas.
This case will be used to ensure recovery of the substantial infrastructure investments we are making that are not eligible for inclusion in current annual recovery mechanisms.
As part of the filings, we will also request approval of a formula rate plan as allowed by new legislation.
The formula rate plan will allow our rates to be prospectively adjusted based on a banded ROE approach in a projected test year.
We expect a final order of new base rates to be implemented in the third quarter of 2016.
On Slide 15, you'll see that operating income for our Energy Services business was $2 million for the third quarter of 2015 compared with an operating loss of $7 million for the same period of 2014, excluding mark-to-market gains of $5 million and $13 million respectively.
Sales volumes were down slightly but customer count grew nearly 1% year-over-year.
The increase in operating income was primarily related to commercial asset optimization in our Gulf Coast and Mid-Continent retail regions.
Additionally, there was a favorable impact to operations and maintenance expenses relating to one-time expenses incurred in the third quarter of 2014.
Energy Services is a profitable business segment that complements our gas distribution business and allows us to provide gas purchase options to CenterPoint customers across multiple states.
We've worked hard to focus on the commercial retail business within Energy Services while reducing fixed costs associated with long-term supply and transformation commitments.
Energy Services had another good quarter and is on a path to achieve another year of strong financial performance.
Overall, our natural gas operations performed well this quarter.
We will continue to operate effectively and efficiently as we focus on growth, safety, and the reliability of our system.
I will now turn the call over to <UNK>, who will cover our financial activities.
Thank you, <UNK>, and good morning to everyone.
<UNK> and <UNK> have reviewed their respective operating incomes on a quarter-to-quarter basis.
I will provide a review of our earnings per share on a guidance basis and review utility operations for third quarter 2015 versus the baseline for the third quarter 2014.
Before I do that, let me comment on the impairment.
CenterPoint's third-quarter 2015 earnings filing reflects pretax impairment charges of $862 million related to our investment in Enable Midstream.
These impairments recognize the decline in the estimated fair value versus our balance sheet investment, which was $19.12 per unit as of June 30, 2015.
With these non-cash charges, we have reduced our balance sheet investment in Enable Midstream from $4.5 billion to $3.6 billion.
More information is provided on Page 17 of the slide deck.
Importantly, these impairments do not affect the Company's liquidity, cash flow, or compliance with debt covenants.
These impairments also do not change CenterPoint's earnings momentum or Enable's ability to participate in the development of North American energy infrastructure.
With that, I would like to discuss our financial performance for the third quarter.
On a guidance basis, our EPS was $0.34 in the third quarter of 2015 compared with $0.30 per share in 2014.
As a reminder, our EPS on a guidance basis excludes the impacts of unusual items such as mark-to-market adjustments at our Energy Services business, our ZENS securities and related reference shares, and Midstream Investments impairment charges.
For utility operations, we have provided two waterfall charts to help illustrate our normalized operational performance quarter-over-quarter.
In summary, as is detailed on Slide 18 and in the appendix, the adjustments lowered third-quarter 2014 EPS $0.01 from $0.19 to $0.18.
These adjustments are consistent with the baseline adjustments we highlighted in our 2014 year-end call.
A second chart on Slide 19 provides a quarter-to-quarter comparison for utility operations from third-quarter 2014 baseline to third quarter 2015 on a guidance basis.
We are pleased with the $0.06 per share entries from $0.18 to $0.24 on a quarter-to-quarter basis.
As <UNK> and <UNK> discussed, their combined core operating income on a guidance basis improved $45 million to $232 million in the quarter.
With respect to our cost of capital and financing activity, our interest expense was flat on a period-to-period basis.
Borrowings have increased approximately $100 million since year-end.
For the year, we expect interest expense to be slightly lower compared to 2014, despite a projected increase of approximately $300 million in net borrowings.
On Slide 20, we provide more details on our financing plan.
Our last below the line item is the provision for income tax expense.
Excluding the impact of the impairment, the tax rate for 2015 is expected to be 35%.
Further, we expect a 36% rate in 2016.
The $0.24 contribution from utility operations and the $0.10 from our Midstream Investments resulted in a strong quarter-to-quarter performance of $0.34 versus $0.30 per share.
Given these results, as <UNK> mentioned earlier, we are revising our earnings guidance from our original range of $1.00 to $1.10 to the high end of the range of $1.05 to $1.10.
We reiterate targeting a 4% to 6% earnings growth per annum through 2018 and anticipate EPS contributions from utility operations and Midstream Investments of 70% to 75% and 25% to 30% respectively.
On our fourth-quarter call, as in prior years, we intend to provide EPS guidance for 2016 and an update on our utility's five-year capital investment plans.
Finally, I would like to remind you of the $0.2475 per share quarterly dividend declared by our Board of Directors on October 21.
As we reviewed in great detail on our second-quarter call, we intend for dividend growth to be aligned with and to follow earnings growth.
With that, I will now turn the call back over to <UNK>.
We are still targeting ---+ let me make two comments.
First is the dividends are going to follow our earnings growth.
And even with the change that Enable has made to their forecast, we are still reiterating our projected, our targeted earnings growth of 4% to 6% over the next three years, and the dividend will follow that growth in earnings.
I think what we are saying is we are reiterating the 4% to 6% growth in earnings and that we are reconfirming the statement we made last quarter that dividends would follow the growth in earnings.
And of course, as you know, the dividend, actual change in dividend, is a subject that has to be addressed by the board.
I think the economy is holding up very well.
As you've seen in our data, we obviously track our meter additions.
They continue to be very strong.
Another kind of leading indicator we look at is something <UNK> mentioned, and that is the inventory of housing.
If the economy were slowing and impacting the rate of construction, our residential construction, you may tend to see an increase of inventory or a slowdown in the number of meters that we are connecting.
So far, we haven't seen that.
So we continue to see a very robust economy overall.
And as <UNK> mentioned, several sectors are taking up for some of the downturn that we have seen in the energy space.
It's <UNK>.
I'll answer that question.
Again, as <UNK> said and we made in our comments, so what we are stating is our targeting EPS growth at CenterPoint at 4% to 6% a year and that dividends would follow that.
So I think you're correct in asking the question what does it mean if Enable's earnings and/or distributions slow.
What we are saying implicitly in that is we expect greater growth at the utilities to make up for the balance in order to achieve that 4% to 6%.
We continue and are modeling to say that the utility's actual payout in terms of the cash support to dividend is 60% to 70% of their earnings.
The downside or the open position, which I would also argue has upside, in 2017 is incorporated to our thinking in the 4% to 6% per year EPS range.
We continue to believe that the fundamentals are still very strong for Enable to participate in a growing buildout of infrastructure in this space.
And right now, we are clearly in this low commodity price environment with uncertainty.
They are not contribute at the level that it was originally designed, but we remain confident that, as the market firms up, that the improvement that we will see at Enable will represent upside to the 4% to 6% growth target that we have provided.
I think, as we've shared in the past, we have a strategy in place that does not require us to participate in M&A.
We have great investment opportunities at our utilities organically where we are growing with returns that are near our allowed return.
Recent transactions in the space have suggested returns that are below that.
And any opportunity that one may consider would have to be weighed against the quality of the investments you have internally.
So we don't see a need to participate in M&A.
We see it potentially as opportunistic, but our focus is on growing and operating our utilities.
Certainly <UNK>.
This is <UNK>.
We talked about Enable and their rate relative to the 4% to 6%.
Combined our electric and gas business, we expect to be delivering greater than 4% to 6%, and the next couple of years, it really does depend upon which year in terms of which of those businesses will have earnings momentum.
But if you were to take a look at the regulatory filings, which <UNK> and <UNK> provided to you, it would certainly suggest that, on balance, there would be more earnings per share momentum in the gas business in the very near term relative to the electric business and that that might shift as we begin to look at 2017 and beyond.
In the 16-year ---+ again, I encourage you to take a look at the regulatory detail we provide in the slide deck.
| 2015_CNP |
2016 | CA | CA
#Thank you.
I believe the first part of your question is what do we believe the margin impact was for Rally, and it was approximately 1 point.
So, we were able to, as <UNK> said earlier, a lot of the good work that has been done inside of development is that reprioritizing, and we were able to reprioritize that.
The second part of your question ---+ if you could repeat it because you were also a little bit choppy, please.
As you know, we don't give guidance out by segment, but what we can tell you is as we work through what we had said back on Analyst day is they would lose money last year and they would be breakeven this year.
So, you can figure that out that you'll have a benefit in the ES segment going into this year.
We've already worked out the fact that they will be breakeven throughout the course of this year, and then, they will just improve from there.
Xceedium continued to do well.
As <UNK> had said, right on track with the business case, in fact ahead of the business case.
We were very happy with how they performed in the quarter and for the year and the buildout of their pipeline that we see, and we're just now starting to get started in places like Europe so that's a very bright product for us.
Sure, on the organic sales for the year, we're up.
It was just for the quarter that they were down so we're pretty impressed with our ability to sell these new solutions and some of the existing solutions we've had for a while in an organic fashion.
This is actually a bright spot for us.
We grew with the market in our organic business for the full year.
Actually, there's a lot of things that are going on inside CA.
Some I'll talk about and some <UNK> will talk about.
But, a lot of what we're doing with our customers when we have a whole group of people to make sure the good customer satisfaction is going on.
The second part of that is we've done a lot of reaching out to customers who were dissatisfied to find out why they were dissatisfied.
And, what we find with that is that it sometimes had to do with their install.
How it was installed.
Did they even install it.
By coming back around with them later on what we're seeing is a better uptick in our renewals.
If you noticed this quarter, we had a mid-90% renewal which is a very strong renewal quarter.
And, for the year on average of those four quarters, we were around 90%.
So, as long as we continue to see that track that way ---+ as long as a lot of things <UNK> talked about earlier ---+ your ability to install continue.
We believe that we'll continue to have the renewal yields stay up in that range, and as long as we grow with the market like we talked about back in November, we think we'll be on track.
This whole notion of customer experience is something that the Company has completely adopted, and it goes way past just what's happening on the product space.
For example, we have a team that goes through that is not in development and/or sales crawling back into some of our customers in the finance organization, in the HR organization just polling customers to see what they think of CA and what they could do following the net promoter score algorithm.
We're also making sure that for every single customer that calls the help desk especially with a high severity issue that they are getting turnaround time in four hours.
Our net promoter score has gone up each and every quarter for the last seven quarters since we've been tracking it.
The whole Company focused on this is making a big difference.
On the development side, we separated a full group out that's called customer experience and what they are doing is reviewing all of the user design as well as the usability of the product, of new Product Development.
So, having a centralized group making sure that a product that gets put into the market is easy to use, easy to understand, and easy to install, I think is going to have a lot of dividends going forward.
And, we see for what that group has been able to do so far, we're very impressed.
Well, thank you again for joining us this afternoon.
I'd like to leave you with a few takeaways.
First, we delivered very solid FY16 results with most of our performance metrics coming in line or above the high end of our guidance.
Q4 revenue for the first time on the top line has grown in nearly four years, and we expect to cross into modest growth in FY17.
We are making very good progress in our journey to drive the long-term, sustainable growth as we continue to manage the Business with thoughtful discipline and do what's in the best interest of our customers, shareholders, employees for the long term.
Thank you very much.
| 2016_CA |