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2017 | INTL | INTL
#Good morning.
My name is Bill <UNK>, CFO of INTL FCStone.
Welcome to our earnings conference call for our fiscal second quarter ended March 31, 2017.
After the market closed yesterday, we issued a press release reporting our results for the fiscal second quarter.
This release is available on our website at www.intlfcstone.com, as well as a slide presentation, which we'll refer to on this call, and our discussions of the quarterly and year-to-date results.
You will need to sign on to the live webcast in order to view the presentation.
Both the presentation and an archive of the webcast will also be available on our website after the call's conclusion.
Before getting underway, we are required to advise you, and all participants should note, that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto, as well as the Form 10-Q filed with the SEC.
This discussion may contain forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC.
Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there could be no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements.
The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Readers are cautioned that any forward-looking statements are not guarantees of future performance.
With that, I'll now turn the call over to Sean O'Connor, the company's CEO.
Thanks, Bill.
Good morning, everyone, and welcome to our fiscal 2017 second quarter earnings call.
On our first quarter earnings call, which was 3 months ago, right after the election, I indicated that the surprise Trump result would generally be positive for our business with more volatility in the financial markets.
I certainly couldn't have been more wrong about volatility.
And while the equity markets hit new highs and political uncertainty, and perhaps even turmoil, seem to exist here and abroad, the volatility index dropped to multiyear and perhaps even decade-year lows in some markets.
Volatility is one of the major drivers for our customer activity and, thus, our revenues.
From this perspective, this was a very difficult quarter for us on a macro basis.
Given the tough macro environment, we managed to achieve an acceptable result with a net earnings of $11 million or $0.58 per share.
This was well below our medium-term expectations, however, better than both the prior year and the immediately prior quarter if we exclude the marked-to-market impact of our interest rate program.
Some highlights for the quarter, I will provide more details later.
Overall, our segment income was up 15% with all segments showing better than 25% quarter-on-quarter growth, except for Securities, which was down 36%.
Securities was down due to a strong comparative quarter, which included record results for our equity market-making business as well as exceptional gains made in Argentina due to abnormal market conditions there.
Commodity Hedging, our largest segment, recorded segment income up 36%, driven by increased OTC revenues, which is a reversal of recent trends there.
Global Payments continued its strong growth with a 52% increase in transactions, while revenue capture per trade dropped 19% as we continue to see a greater number of smaller transactions from our bank partners.
This translated into a strong 26% growth in segment income.
Physical Commodities and Clearing and Execution Services, both more than doubled their segment income from a year ago, an impressive result.
On a year-to-date basis, we recorded EPS of $0.92, which was down 25% versus the same period a year ago.
Much of this decline is attributable to the $3.6 million swing due to marked-to-market adjustments in our interest rate program.
The performance of our various segments for the 6-month year-to-date period was roughly consistent with that of the current quarter, with strong growth in net income for all segments except Securities for the same reasons mentioned above.
As you all know, about 3 years ago, we decided to better manage and monetize our interest rate earnings coming from our customer float.
At the time, interest rates on T-bills were single-digit basis points, and we had a steep yield curve out to 2 years.
We initiated a ladder of treasuries with an average duration of less than 24 months, which at the end of the last quarter was yielding approximately 180 basis points on average.
Over the period, this program earned us approximately $15 million incrementally over the short-term T-bill rates and utilized around $16 million of capital in the form of incremental regulatory haircuts.
Short-term rates began to move up in 2016 to the point that, at the end of our second quarter, so end of December, we are seeing short-term yields of about 85 basis points or higher.
The incremental return of around 25 basis points earned on our ladder treasury notes, versus the yields available on the short end of the curve, do not justify the committed use of capital, and with the prospect of further interest rate increases during the year further eroding the benefit of this program.
Consequently, during the quarter, we decided to liquidate all of the treasuries maturing past 2017.
The liquidation price was roughly similar to our original cost and similar to the mark-to-market price at the end of the prior quarter.
Other than 2 tranches, which mature later this year, we have now ---+ we effectively have now all of our float invested short-term, and will now receive the benefit of further short-term rate increases in the quarter, as they are announced.
In addition, we have freed up $16 million of permanent equity to deploy elsewhere in our business.
We will continue to consider how best to monetize our earnings from our increased customer float.
And if the yield curve steepens sufficiently, we may reestablish our program.
So with that, I'll hand you over to Bill <UNK> for a more detailed discussion of the financial results.
Bill.
Thank you, Sean.
I'll be referring to slides and the information we have made available as part of the webcast, specifically starting with Slide #3, which represents the bridge between operating revenues for the second quarter of last year to the current year fiscal second quarter.
As noted on in the slide, second quarter operating revenues were $195.8 million, which is a $29.7 million increase over the prior year.
Looking at the performance in our operating segments, the most notable change was a $30.9 million or 93% increase in our Clearing and Execution Services segment.
This was primarily related to the acquisition of the Sterne Agee correspondent securities clearing and independent wealth management businesses, as well as the ICAP voice brokerage business, which collectively added incremental operating revenues of $31.9 million in the current quarter.
The second-largest increase in operating revenues was in our Commercial Hedging segment, which added $8 million in operating revenues, as exchange traded and OTC revenues grew 7% and 24%, respectively, while interest income increased 62% to $3.4 million.
The exchange traded revenue grew as a result of increases in customer volumes in the agricultural and foodservice markets, while OTC growth was driven by higher domestic and South American grain volumes.
In addition, Global Payments operating revenues increased $4.1 million or 24% off the back of a 52% increase in the number of payments made, albeit somewhat offset by a 19% decline in the average revenue per payment.
Physical Commodities operating revenues added $3.3 million over the prior year, as the Physical Ag & Energy business added $2.5 million, and the Precious Metals business increased $800,000 over the prior year.
These gains were offset by a $7.7 million decline in our Securities segment.
Roughly half of this decline was in equity market-making, which declined $3.9 million or 20% as compared to a very strong quarter for that business in the prior year.
Customer volumes were relatively flat with the prior year in this business.
However, the spreads compressed 18% versus the prior year.
Strong gains in domestic debt trading were offset by lower Argentina revenues, leading to a relatively flat result in debt trading.
Finally, our asset management business, which is solely in Argentina, experienced operating revenue declines of 53% or $2.5 million versus strong performance in the prior year.
Moving on to Slide #4, which represents the bridge from the second quarter pretax income in 2016 to the current period, overall pretax income declined 29% to $14.3 million in the second quarter of 2017.
The CES segment increased segment income by $4.4 million or 126% to $7.9 million for the second quarter.
While CES achieved significant growth in operating revenue, a significant portion of these revenues are paid out to independent representatives in the independent wealth management business.
These payments, which were recorded as introducing broker commissions, represent the majority of the $15.2 million increase in IB commissions in this segment as compared to the prior year.
In addition, similar to the first quarter, as part of the acquisition of the ICAP voice brokerage business, in the second quarter, we recorded a $900,000 charge to compensation and benefits for the terms of the acquisition, which will continue to be expensed through the end of fiscal 2018.
Commercial Hedging increased segment income $4.9 million to $18.7 million, while Global Payments and Physical Commodities segments increased segment income $2.4 million and $2 million, respectively.
These gains were primarily driven by the increase in operating revenues.
However, the Commercial Hedging segment were somewhat dampened by a $1.1 million increase in bad debt expenses in our LME business.
As shown on the table on our press release, corporate unallocated overhead reflects a $200,000 unrealized loss on our investments in the interest rate management program in the current year, in contrast to a $6.9 million unrealized gain in the prior year comparable period.
This $7.1 million negative variance, as well as the $3.9 million increase in overhead costs acquired with the Sterne Agee businesses, led to an overall $12.9 million negative variance in overhead versus the prior year.
The bottom of Slide #11 of the presentation shows the after-tax effect of these unrealized gains and losses in the interest rate program by quarter.
Slide #5 shows the interest income on our investments in the exchange traded futures and options businesses, which hold our investable customer balances and encompass our interest rate management program, excluding the mark-to-market fluctuations I just mentioned.
This program, an increase in short-term interest rates and an 11% increase in customer deposits, led to an underlying increase in interest income shown here of approximately $300,000 versus the prior year.
As shown in the bottom graph, with the liquidation of the majority of the treasury notes, as Sean discussed, the average maturity of the portfolio has been reduced approximately 5 months.
Moving on to Slide #6, our quarterly financial dashboard, I will just highlight a couple of items of note.
Variable expenses represented 57.3% of our total expenses for the quarter, exceeding our target of keeping more than 50% of our total expenses variable in nature.
Non-variable expenses, which are made up of both fixed expenses and bad debt expense, increased $14.1 million or 24%, driven by the acquisition of the Sterne Agee and ICAP businesses, which made up $10.5 million of the increase.
Net income from continuing operations for the second quarter was $11 million versus $14.5 million in the prior year, which resulted in a 9.8% return on equity, below our target of 15%.
Finally, in closing out the review of the quarterly results, our book value per share increased 12% to $24.42 per share.
We did not repurchase any of our common stock during the second quarter.
Next, I'll move on to a discussion of the year-to-date results and refer to Slide #7.
Similar to the quarterly results, all segments showed growth in operating revenues, with the exception of the Securities segment.
The largest gainer was once again the CES segment, adding $64.7 million, which was driven by the acquisition of the Sterne Agee and ICAP businesses discussed earlier, which add an incremental $52.1 million.
In addition, Physical Commodities segment added $7.2 million in revenue over the prior year, while the Commercial Hedging and Global Payments businesses added $10.1 million and $8.9 million, respectively.
On a year-to-date basis, the unallocated overhead variance was largely driven by the mark-to-market on the interest rate program, with the current year-to-date period reflecting a $5.8 million unrealized loss, while the prior year-to-date period reflected a $200,000 unrealized gain.
Moving on to Slide #8 for a discussion of the variance in pretax income by segment for the year-to-date period.
The large increase in CES operating revenues resulted in the $6.6 million increase in segment income, once again, somewhat tempered by the higher introducing broker commissions and the independent wealth management business.
The large negative variance down $15.5 million in the Securities segment was primarily driven by the strong performance in the prior year in equity market-making, as well as the effect of the devaluation of the Argentine peso, which led to strong results in our Argentine debt trading and asset management businesses in the prior year-to-date period.
Commercial Hedging grew segment income by $5.3 million, while Global Payments and Physical Commodities increased $5.6 million and $4 million, respectively.
Once again, the negative variance in unallocated overhead was driven by the mark-to-market on the interest rate program I just discussed as well as the acquisition of the Sterne Agee businesses in the fourth quarter of the prior year.
Finally, I will touch on the year-to-date dashboard, which is Slide #9 in the presentation.
Variable expenses are above our internal target of exceeding 50% of total expenses coming in at 57.4% of the total.
Non-variable expenses increased $28.1 million or 24% over the prior year, with the Sterne Agee and ICAP businesses contributing $21.3 million of that increase.
Net income was $17.3 million for the current year-to-date period as compared to $23.3 million in the prior year.
The return on equity for the year-to-date period was 7.8%, once again below our internal target of 15%.
With that, I would like to turn it back to Sean to wrap up.
Thanks, Bill.
While we are disappointed with our Q2 and year-to-date results, we believe that these are acceptable given the very low volatility environment we have experienced.
This is a testament to our diverse and growing client base and a focus on keeping costs variable.
We believe that it is unlikely that volatility will remain at current levels for an extended period, and the continued withdrawal of the Fed and other central banks from the market should encourage increased volatility levels.
The increase of interest rates and the prospect of more hikes are big positives for us.
We continue to see consolidation in our part of the market, which is generally positive, and allowing us to expand our customer footprint.
We stand poised to become a best-in-class franchise, offering our global customers high-quality execution, both in the high-tech and electronic arenas, insightful market intelligence and post-trade clearing services in almost all markets and asset classes.
This is a comprehensive array of products and services, which should allow us to take advantage of the large and noticeable, and as yet unfilled, void in the market created by the demise of certain larger financial franchises during the financial crisis.
So with that, I'd like to send back to the operator to open the Q&A session.
Operator.
Okay.
Go ahead.
We'll take the question.
Well, I don't think we want to be in the business of predicting how many interest rate increases we get, but the math remains the same.
If the delta on the interest rates increases by that amount, we should see that amount of earnings accrue to us incrementally.
So the math's exactly the same.
You just got to look at the delta and assume how much further we're going to go up from here, and you can do the math on what we think that should mean for us in terms of earnings.
No, I'm not sure I exactly follow the question.
I guess, what we were really trying to do is increase and enhance our earnings from that float 3 years ago, when in some quarters, we're earning 3 basis points on short-term T-bills and money market funds, right.
So we decided to ladder out our program.
I forget where it we started exactly.
We probably went from ---+ for that portion, we went from 3 basis points to kind of 30 basis points.
And then as the program matured and we rolled the ladder over, we eventually and steadily increased to the point to where, last quarter, it was earning us 108 basis points.
The problem is, the short-term curve or the short-term end of the curve has gone from 3 basis points to, in some instances, we earning 90 basis points.
So the enhancement we were receiving from our interest rate program had eroded to the point where we couldn't justify the allocation of capital to that program, because taking on those treasury positions required us to put more capital into our business for a regulatory haircut.
So at that point, it was just a capital allocation decision.
We weren't making the right return.
Fortunately, we could exit that program without crystallizing any material losses or gains either way.
And we've probably now, for a short period of time, are going to earn slightly less than we were earning.
But if we get 1 interest rate increase, we will be in a better position than we would have been.
And from there on, we are just going to be incrementally better in terms of interest rate increases.
So that was really our logic.
It doesn't mean we don't think that program worked.
We think the program worked fantastically well for us.
We've recorded pretax earnings of $15 million over a 3-year period, which we would not have seen.
And if the yield curve steepens again, then it will be appropriate for us to look to allocate capital once again to enhance the earnings from that float.
So this is just our attempt to continuously try and manage and maximize the earnings we get, from the endowment we get from our customers, which is the customer float.
So I guess, that's how we thought about it.
I'll let Bill give you the details, but a large portion of that came from the addition of Sterne Agee and ICAP.
And remember, in the ICAP financial reporting, we have about $900,000 a quarter, which was really part of the purchase price.
It was ---+ we agreed with the vendor or the seller of that business that we would pay an amount upfront, and over a period of time to secure the team to move over to us.
So it was sort of sign-on bonuses, a one-time thing.
That's about $900,000.
So that is sort of a somewhat temporary item, but I believe the rest of it is all related to our acquisition.
So Bill, is that ---+ do you have any more color on that.
I don't have the numbers in front of me.
Yes.
I mean, it was up about 17% versus last year.
And 7% of that was variable, and that is coming from higher net operating revenues in the business.
But the fixed portion of it was up $8.8 million.
And of that $8.8 million, $3.6 million of it came from the Sterne Agee business acquisition, another $1.4 million came from the ICAP voice brokerage business we acquired, and then the other remainder is $1.9 million came from the expansion of our IT.
We spoke for a couple of quarters here now about we've been expanding our IT operation to just get smarter and better in that area.
And it has led to increase in headcount.
So that was up about $1.9 million versus the same period last year.
Well, I think you have to ask smarter guys than us.
I mean, you just need to turn on CNBC and everyone's talking about the extraordinarily low volatility.
And obviously, it's sort of confounding at some level.
So I don't have any good insight other than I'm sort of totally kind of puzzled by it all.
You do see a ---+ I think a pretty volatile environment around us, both domestically and externally from a sort of political point of view.
You also see that the Fed is starting to withdraw.
And I'm a firm believer that the Fed and the central banks during the financial crisis, their intervention of the market, I think, by design, dampened volatility.
So if you look at volatility throughout the financial crisis, it's definitely at a much lower level than it was prior.
But they're starting to exit.
So as I said in the prior quarter, I was sort of hoping for increased volatility because all the things that I think drive volatility were sort of in place.
A little bit of uncertainty, sort of a new administration in place, Fed withdrawing from the markets, a little bit of concern over Brexit and French elections, I mean, it sort of like teed up perfectly for more volatility.
But I couldn't have been more wrong.
So I'm really not sure, <UNK>.
It's vexing.
But at the end of the day, we control the things we can control, and that is to keep growing our customer base, to get the bigger share of wallet we can, to serve our customers, take advantage of opportunities to expand into new areas.
And at the end of the day, when the volatility comes back, if we ---+ and it will ---+ if we've done all those things, we will see a greater revenue stream as a result.
So all we can do is manage what we can manage, I guess.
But if you have any good ideas, let me know.
I'm not sure I can be smart on that one.
Yes.
So it's an interesting comment.
I'm actually down here in Birmingham.
We just finished our board meetings this week.
And you know, we were talking about it.
And I think our general view was, if we have had this level of volatility maybe 3 years ago, we would have had a much worse quarter, for sure.
So I do think we ---+ our business has scaled up a little bit, which helps.
I think our business is more diversified than it has been previously.
We've made some good acquisitions in businesses that I think are less correlated to what we already do.
So I think all of those things supports what you said.
And nice of you to say that.
We appreciate it.
I do think this was a good result given the macro environment.
I mean, it doesn't make it any easier for us as management to accept or like that.
But I do think it was a good result given the macro environment, and I do think we have seen quarters over the last year or 2, where we have come close or we exceeded our 15% ROE.
And I think in a more normal environment, we would be there this quarter, if we've had some volatility.
And then, of course, you've got interest rates starting to kick in for us.
So I think, generally, we remain positive.
We think our business is very well placed, and we can manage what we can manage and control what we can control.
And the rest of it, we just have to assume that in the long-term, conditions are setting up for a better environment for us generally.
But that may not hold quarter-to-quarter or every quarter.
So that's sort of our thought on it.
Okay.
Well, thanks very much, everyone.
Appreciate your time and interest, and we will be speaking to you in 3 months' time.
Thank you.
| 2017_INTL |
2016 | CYTK | CYTK
#Yes, so we won't be able to comment on specific discussions and interactions we're having with regulatory authorities.
Otherwise we can speak more in general tone, which is to say that when you engage with the FDA at the end of Phase 2 interactions you pose specific questions.
Those questions then prompt answers and a dialogue.
With regard to EMA, it's a slightly different process as you may know, where you seek protocol assistance and scientific advice.
With regard to our regulatory interactions, we have in this quarter interactions with FDA, EMA, and other regulatory authorities, and we are together with Amgen discussing a plan for a phase 3 program that contemplates a specific protocol, and we get an opportunity to discuss the inclusion and exclusion criteria, the end points, as well as other specifics regarding the protocol or protocols, as well as other issues around CMC and non-clinical activities.
So, it's different for FDA and EMA in terms of how those conversations go, and what I can reiterate is, those are all planned to occur this quarter.
Some have already occurred and as we and Amgen are going through these together we're encouraged by already what has transpired.
I don't think I can do much better than that.
With regard to breakthrough designation, that's something that we will contemplate.
It's not something that we have determined.
Hi, <UNK>.
We've already discussed publicly how we are looking at a potential Phase 3 program that would enroll thousands of patients, and which would be event-driven, and which would be pivoting around a primary end point that would include death and hospital readmission with secondary end points that would flow from there.
And, as such, while we can't speak specifically about our own plans together with Amgen.
What we have been able to do is share with you and others that we believe that studies like the PARADIGM-HF study, the other study are ones that create some markers or bookends around which we and Amgen are discussing with regulatory authorities possibilities that may be appropriate for omecamtiv mecarbil.
So I think that is still the best information I could provide.
Certainly we have our own feelings that we are discussing with regulatory authorities about where we may lie in that space and that's what in particular these meetings are set up to discuss.
Yes, I think that seems reasonable.
I expect that we will be making a decision by following the conclusion of these regulatory interactions.
That's something that we and Amgen would be making together and that we proceed the plan to still hopefully begin a Phase 3 program before the end of the year.
So I'll turn it to <UNK> to answer in part, but I'll start by saying it was partially a function of our ability to invest in the program and do so with more confidence.
That's something we always would've wanted to do.
Now we go from 80% power to 90% power and that's informed by other analyses.
But it's also informed by feedback we're receiving from the sites and in particular with regard to enrollment rate and the design of the study, the study design seemingly to meet expectations in terms of being able to hopefully elucidate and improve safety and tolerability profile.
Yes, I think there is no particular analysis that was done.
It would always have been better to have had 90% power for the primary end point of a Phase 3 study and, again, I think this may be the third time one of us has said it.
We always would've preferred that, but we didn't feel that we really could make the investments of those resources until more recently.
And while I wouldn't say it was necessarily part of our thinking, I do think that seeing far fewer post randomization premature terminations with this design than we have with BENEFIT is also encouraging and supports enlarging the trial without taking a risk of missing timelines.
Well, when we designed the trial we very conservatively assumed that the longer open label treatment period, the slower dose titration, and targeting three different dose levels, not trying to get everybody up to 500, would have no effect on the dropout rate.
That's not what we believed.
We thought it would and it proves to have had a good effect on the dropout rate.
But just in term of the assumptions we made we assume there would be no improvement because that was the most conservative thing we could do.
But, in fact as the trial has progressed we are seeing, I think, meaningfully fewer dropouts post randomization.
It's important to know, though, that with patients now supposed to be in the study for over a year, the length of the trial alone is going to probably cause dropouts to pick up a bit as we get further and further into the trial.
As a function of disease progression.
Not for that reason, but it's always possible without taking an alpha penalty to look at the aggregate standard deviation, and we generally do that.
So if we had found that we had seriously mis-underestimated the actual standard deviation, there is always an opportunity to address that.
I don't ---+ I'm optimistic that will not happen, however.
I'll also remind you that also in the interest of being conservative, we estimated an effect size at 24 weeks, which was no different than the one we observed in BENEFIT ALS at 12 weeks.
Six percentage points from the change from baseline in SVC, even though the effect size was growing from week 4 to week 8 to week 12 BENEFIT ALS.
So we may now have well over 90% power to detect that difference at 24 weeks if the standard deviation holds true to what we estimated.
Yes, much like the SMA study, this is hypothesis-generating.
And in fact there's quite a lot of detail available on the clinicaltrials.
gov website pertaining to CK-107.
Being that that study has not yet started, we have chosen not to elaborate on this earnings call, but that information is out there.
It's a good question, but unfortunately, <UNK>, it may be a bit premature for us to respond that.
I think that may have to wait until we have finalized the study design that we can then communicate publicly.
Yes.
So, recently Amgen, in collaboration with Cytokinetics, conducted another Phase 1 study of omecamtiv mecarbil in Japan in Japanese patients, and now we are moving swiftly to begin a Phase 2 study of omecamtiv again in Japan in Japanese patients, with the goal of having that completed in such a way that Japan could be included in the potential global Phase 3 program.
Correct.
It's similar in that it will be in heart failure patients, but not something of that magnitude, nor would it be expected to be rate-limiting to the potential start of the Phase 3 program.
Well, it's really hard to know when you go into a new population what you're going to find, but I will point out that this is a study of eight weeks' duration.
You may recall the first Phase 2 in ALS is actually a single-dose study, so there will be multiple evaluations of these very functional end points over time.
So I would hope that this study will yield reasonably robust results and inform whether or not we should further develop the drug for young adults and older children with SMA.
Another way to think about this, <UNK>, is this is a population of adolescents and adults with SMA who may not be progressing as rapidly as ALS patients do, and therefore it's conceivable that we may potentially identify end points that could even point to the potential to improve muscle function, as well as potentially slow the decline in muscle function, and that's things that we will be monitoring over the course of this two-month duration treatment.
Yes, I think that an extremely important point that <UNK> just made, the fact that we have a much more stable disease platform in SMA, because they just don't progress monthly as we saw.
And that alone makes it difficult to see drug effects in ALS because the best anybody's ever been able to do is to keep them from getting worse a little bit more slowly.
I didn't say that right, but you can only make them get worse more slowly.
No one's been able really turned them.
Whereas in SMA we actually might be able to see some improvements from baseline.
I first might add that we're talking about next generation cardiac sarcomere activators, but not necessarily operating by the same mechanism of option of cardiac myosin activation as does omecamtiv mecarbil.
And then, secondly, certainly as we have learned about omecamtiv mecarbil, there could be an opportunity to affect systolic ejection time in such a way that it may not impinge on diastolic filling to the same degree or with the same therapeutic window.
So those are the kinds of things that you always look for in a next generation compound, whether it's the same mechanism or not.
Thank you.
Hi, Vernon.
The COPD patients are a little older and more functional than SMA patients, and so we didn't feel it was necessary to study first a lower dose level and then a higher dose level, but could just go in with a single-dose level study.
The rationale is that the drug has acute effects on fast skeletal muscle performance.
We've seen this with tirasemtiv as well.
It doesn't take time for it to build up.
The effects happen immediately.
So, if there is improvement in the skeletal muscles of patients with COPD, and I'm going to come back to that in a second, it ought to be a discernible within a relatively short treatment period and then again they also have a very stable platform of disease.
So it's not likely that patients who receive placebo first and then drugs second are going to be very different when they get the drug and vice versa.
They are pretty stable over time.
So the other question you haven't asked, but I'll answer anyway because I anticipate someone may, is this is not about improving respiratory performance in these patients.
The disease is associated with significant limb muscle abnormalities, metabolic abnormalities and weakness, and also something that sort of fortunate for this particular compound, a switch from slow to fast fiber predominance.
And there's a lot of literature you can find that shows that exercise intolerance in COPD patients is at least as much if not more so related to their limb muscle dysfunction than it is to their respiratory insufficiency.
So that's the rationale for going into that population.
We don't comment on what the triggers are related to milestones.
We do anticipate milestones from both Amgen and Astellas in the coming year, but I can't tell you what the triggers are.
Hi, <UNK>.
We typically don't provide guidance with respect to specific costs of the trial.
We can tell you that this would be in the range of $5 million to $10 million from an (technical difficulty - distorted audio) standpoint of adding the additional patients.
I disagree with that.
I think the likelihood is that we just can't know until we have the data that those curves that we showed you so many times for the changes over time in slow vital capacity on tirasemtiv versus placebo are going to continue to diverge over time, and it was a very conservative assumption that the six percentage point difference that evolved over 12 weeks of treatment in benefit would not evolve further.
So, yes, we may be highly overpowered to see the primary end point, but that's not a bad thing.
I'm not sure that it would necessarily produce a synergistic effect, but those of the kinds of things that we have talked about and resource limitations being what they are that's not currently in the cards.
We did not have access to the DEX arm, but they were willing to share the placebo data with us, and I think that maybe is more relevant, anyway, because what we're really trying to do is obtain a natural history exercise, if you will, to confirm that on the extrapolations we made regarding our primary end point and other respiratory end points from the limited amount of treatment duration we had in BENEFIT ALS appeared to be consistent over time and similar across databases.
And I think I'll emphasize that first characteristic, because I mentioned during the call, but I didn't say too much about it, I think it's very reassuring to have data that goes out to 68 weeks on these patients and see that the decline in slow vital capacity is highly linear over that entire period of time.
It's not as though you get six months out or something like that and then they start to decline more rapidly.
Certainly there are patients that will do that and these are mean data based on 900 plus patients, but on average the decline is highly linear and predictable over time, so that really does really bode well for us being able to demonstrate what we hope to be able to demonstrate in VITALITY-ALS.
I can't comment on that yet.
Thank you very much.
Okay, well, thank you.
Thank you, Operator.
Thank you to all the participants on our teleconference today.
We're very pleased with how 2015 ended on a positive note leading into strong momentum as we now proceed in 2016.
We look forward to keeping you updated on our progress.
We appreciate your continued support and your interest in Cytokinetics.
Operator, with that we can conclude the call.
| 2016_CYTK |
2016 | MDRX | MDRX
#Yes, our guidance pre-Netsmart was 3% to 5%.
And as we have updated guidance for the consolidated entity, we feel comfortable with that revenue range overall.
I'd say that's a good guess.
Thank you.
In summary, I appreciate everybody taking the time to spend with us on the call today.
Many of you who have been participating in this with us over the course of the last three-plus years have seen us do a lot of work here as an executive management team to try to take care of our clients, to solidify the base, to bring confidence back into the Company and to deliver consistently on financial performance.
We're pleased ---+ I'm extraordinarily pleased with the announcements today.
You see us playing offense on many different regards, not only on a global basis but on our organic investments, in research and development as a percentage of revenue.
We're leaning in, in a big way, on the Optum piece as well as the Netsmart piece, and this is a company that wants to grow profitably.
And you are seeing a team that is feeling quite good about where we are, circa 2016.
Thank you very much for your time today.
And we hope to see all of you next week in Las Vegas.
| 2016_MDRX |
2017 | RCII | RCII
#No, <UNK>, you may recall there are a number of different levers that you can pull in this business, so when we talk about pricing there is the weekly or monthly rental rate, there is the term in which to acquire ownership, the number of weeks or months.
And then there is the EPO formula that goes into that to the extent the customer wants to exercise.
And you can pull a combination of those levers, one of those levers, and so forth.
Candidly when I talk about opportunity to enhance the proposition, I think we can lower the terms which will enhance the value to the customer without increasing the rate, because they allowed those terms to go out quite a ways trying get margin.
And it has devalued the proposition and it's had a negative impact on sales.
So, part of it is right-sizing ---+ reevaluating the inventory that's in there and setting the proper rates and terms and then the bigger opportunity is the mix as we go forward.
That is where we are going to have a bigger opportunity to enhance the value proposition for the customer.
Well, as I said in my prepared remarks, looking historically, if you think of good, better, best and that is how we kind of describe our products and that may have to do with the quality of the merchandise, the features and benefits of the merchandise, the material that is in the merchandise, i.
e.
, leather versus vinyl, a refrigerator with an ice-maker versus one without, et cetera.
Historically, and again those are the aspirational products, when customers, any of us buy we have needs and wants.
The emotional side of a purchase is fulfilling the want, not the need, and I believe that is where our opportunity lies is to put a greater focus on fulfilling the emotional side, the want, which is a higher mix of the better and best.
And, as I said in my prepared remarks where we had been historically about 60% or so between the better and best, today it is only 45%.
So a much greater shift at a lower cost value if you will, and again that's had the 8% decline on our pricing, the APU.
So it is not about charging more for the same, it is about increasing the value proposition for the customer.
As you know, we are in a fixed cost business so to the extent you can drive or increase the rental associated with any agreement, the flow through could be pretty significant to the bottom line because of the fixed cost nature of the business.
That is a good, good question, <UNK>, and in fact the mix is not materially different than historical, i.
e.
, 25% or so new and 75% previously rented.
So it is not so much a new use it is the mix.
Part of the reason they have the new is it because, again the amount of buys that were made in the fourth quarter, the promotional, if you will and as we said, the fourth quarter was not as good as the company had hoped, and so there is plenty of new inventory in the system.
I think that we can work through it in the ordinary course of business.
You know we've been trying to take advantage of the income tax season when it comes and so how we might be able to move inventory quicker than you would have otherwise, given the time of the year but this is not a used inventory problem.
Thank you <UNK>, I will be honest, the metrics that we picked directionally will tell you everything.
So, we are in a relationship business having stability and continuity in customer facing coworkers is critical, hence the reason that we want to provide the turnover.
So as we can make improvements and strengthen the workforce, improve the customer relationships or selling skills and collection skills, that is going to show there.
The delivery APU, this notion of our value proposition and going to more of the better, best from good is why, again you should see the delivery APU, so what our customers wanting to rent today.
Are they in fact coming in and getting the aspirational products.
And again, fixed cost nature we drive the revenue per agreement, that's going to show the positive impact to the top line and then the flow through to the bottom line.
Collections, again the quality of the portfolio it does no good to put a lot of products on rent if you cannot then collect on them or manage the accounts when they are out there.
So, the delinquency is an important characteristic and also how much time is being spent on that aspect of the business versus being able to spend additional time on the sales side.
So any of these that we team up with really they are leading indicators and given the portfolio nature, you want to see those kinds of trends first because it's going to draw the picture, the road map, of where you're going to end up six or nine months down the road.
I think there's a couple of things, as they continue to have ---+ the mix of partners, meaning as you get into more multi-line partners rather than a furniture only, some of the behaviors are little bit different across the product lines.
So, as we expand into multi-line partners that are introducing the other SKUs, they have historically performed a little less, and so as that mix shifts you're starting to see some of that in the overall results.
There are opportunities, as I said I think some of the ---+ it is fair to say much like the core, that there are some executional opportunities as we think about across all of the businesses, whether that is collections and sales or so forth.
So part of it is a mix of the relationships that we have and the products that we're putting through that pipeline.
And then the other part is we need some further enhancements in our risk engine and the training and accountability inside the coworkers.
I'm not going to get into the specifics, they are narrow test and they will run for six months and then we will be in a position to share more as we get further down the road.
I'll make sure I understand the question there, the average length of time that an agreement is on rent, is what you're asking.
Okay, the average rental agreement in the core businesses is on rent approximately 4 to 5 months on average.
The average piece of inventory is in our system approximately 18 or 19 months on average.
Some of that was currency related, yes, there was also a bit of an uptick in the skip stolen losses within Mexico.
But overall for the year we were EBITDA positive which was the goal we outlined at the beginning of the year.
No, again, my lens is narrow if you will, compared but <UNK>, I don't have ---+ if anything appears maybe be a little bit of a tightening.
I think just since the recent change I don't know if we've seen any further impact but it is a challenging competitive environment.
We do feel that our customer base has more access to credit than they had historically, and that is impacting our business.
But as far as the recent changes with interest rates, I don't believe we've seen any material changes.
Those are approximate numbers, a dozen and two dozen.
We are expecting, anticipating both of those tests starting sometime in March, the agreements have been signed and the test periods are six months in both cases.
I'm not sure I understand your question.
I'm sorry, yes, I think there are some opportunities to continue to expand the manned store locations that we have with our current partners.
Where we want them or where we have agreed, is probably higher than that, I think we're pretty close.
But I will tell you, and again, Acceptance Now even beyond these two national tests, they continue to work potential new partners also.
So not just what we already have, but there's other smaller regional state partners, if you will, that we are continuing to develop also.
Well, there has certainly been cannibalization within product categories.
Advancements in technology, you know we see it.
The computer is going from the desktop to the laptop to now the smart phones, and so there has certainly been some cannibalization across product categories.
At the same time, I don't think any of us don't have a TV in our house, so there's still plenty of opportunity.
It's about 5% of our revenue.
I will have to follow with you later on that, <UNK>, I don't have that in front of me.
But it is posted on our website, we have all of the segment financials that were posted last evening that should have that number.
Yes it is there, we just don't have it.
Thank you.
Thank you.
Ladies and gentlemen, thank you all for your support and your interest this morning.
Please know that we are keenly focused and we are taking aggressive actions to improve our operations and results and to drive overall shareholder value.
I look forward to reporting on our progress in the coming months as we move forward.
Thank you again and have a great day.
| 2017_RCII |
2016 | OXY | OXY
#It is a lot more around the uncertainty of the price environment and it has a lot less to do with our capability to do it.
What we want to do is ensure that we are conservative with our capital programs.
We have the potential and the opportunities to certainly not only meet the upper end, but exceed it, but we're really trying to be careful about what we forecast and what programs we set up for next year.
I can tell you that what we will do is that we will put the program together ---+ we always do that at the end of this year ---+ and we will firm it up by first of next year.
But what our teams have done during this downturn is this slower period is they've enabled us to have a lot more flexibility next year to be able to ramp up should we need to or should we have the opportunity to do so.
And the ramp up could be not just in Permian Resources.
As I mentioned earlier, the ramp up could be in Colombia as well.
And in addition to that, we expect that because of the situation with Al Hosn, overall Al Hosn will have a higher production rate in 2017 because it will have a full year of production versus the warranty turnaround that we had in Q1 of this year.
In addition to that we will have Block 62 gas on for the full year and that will be helpful.
So you take those things, combine it with the flexibility that we have in both Permian Resources and Colombia, we will start the year probably conservatively until we see fundamentals start to support prices.
But we will have the ability to ramp up in multiple areas.
If prices and the fundamentals are such that we feel comfortable, we will have the flexibility to actually increase our programs throughout the year if we see that that makes sense.
<UNK>, this is <UNK>.
Good morning.
It is more than a sweet spot.
I think we are encouraged with Southeast New Mexico across the board.
Multiple bench development, these examples are over in our Cedar Canyon area but further east of that area there is acreage with even more benches that are prospective.
So very encouraged with Southeast New Mexico and the rig adds that we're talking about will likely be in the Delaware and in New Mexico.
Yes, for the chemicals cash flow we expect that capital this year is around $500 million.
Next year it should drop to less than $400 million.
The following year it would be back down to basically its maintenance levels of around $250 million.
So we will have around $300 million cash flow from chemicals this year and expect that by 2018 that would be up to around $900 million, potentially a little bit more than that depending on product prices in the chemical business.
That is correct.
We had about ---+ total, including the chemicals and the midstream business, we had this year $500 million of committed capital and almost $400 million of that is coming off for 2017.
That will be redeployed into ---+ most of that into the Permian Resources business.
Most of the rationalization in terms of oil and gas, and certainly Middle East operations, is largely behind us.
We have done that over the last year or so.
From a corporate asset perspective, we still have, as you point out, the Plains units.
There is about 80 million units of that and they've just gone through their simplification process, so we will let that sort of close out here formally in the latter part of the year, fourth quarter with their plan.
This is not a strategic investment on our part, so I would tell you that we don't look to hold on to that longer term.
So that is sort of an option in terms of liquidity that we have got.
Market value is sort of $800 million, thereabouts.
That is pretty close to right.
We do expect it to be $50 or above in 2017, but we are not ---+ certainly we are not as bullish as some people.
We are taking, as I said, a conservative view, but it would be fundamentally above $50.
Right.
Well, the way we view it is the Permian, as you know, it is a huge place.
There is lots of opportunities.
We are looking at this as a goal and objective in terms of our total expansion and there are multiple ways to get there.
We could get there with several different options.
What we have done is prioritized our options and we are working pretty much a lot of things to try to ensure that we reach our goals.
But we're happy to (multiple speakers).
The goals are to try to match what our growth profile could be in EOR with resources.
And we haven't really put what that means in terms of the exact production volumes or anything like that out there, because it is kind of hard to do at this point with respect to the EOR business.
But we are really ---+ we are in a position, because of where our operations are with respect to EOR in the Permian, we have got the ability in multiple areas to play sort of a Pac-Man approach where we can acquire a lot of smaller assets that could total up to make a material difference to us as a cumulative acquisition.
So we are not opposed to looking at a variety of smaller deals.
Again, because of our position we would have the capability to do that and make it still fit within our goals to try to make sure that these are synergistic with our current operations.
That is actually what I'm talking about.
We are going to do the same thing in both resources and CO2, because we have the ability around the areas that we currently operate to add additional properties.
That's correct.
Yes, the scale of growth is much easier in the resources business.
In the EOR business the issue that we have today is that we are constrained by some of our infrastructure.
So we feel like some of the expanding to our footprint would enable us to also expand our infrastructure to support some growth, accelerated growth, with not only what we have but what we could potentially pick up.
Currently we don't see an issue with the CO2 that we would need to accelerate growth.
We are trying to look at options for where we get the CO2, but I don't see that being a bottleneck for us.
I see the current bottleneck being just the fact that it doesn't make sense to accelerate some of our floods where our plants are sized more appropriately for a full field development.
So that is really some of the bottleneck, is the infrastructure around the existing plants.
<UNK>, this is <UNK>.
I appreciate the question.
With regard to the decline, it is really a function of the activity set from this last quarter.
As one of the things I discussed, we have moved a rig and drilled a couple of Wichita Albany wells; we drilled a couple of CO2 source wells.
So the activity set in this quarter was fairly low for Resources, which is indicative in the forecast for the third quarter.
But in the back half of the year those rigs are backend resources; we are going to add rigs.
And so we will flatten that decline toward the end of the year and then set us up with the right trajectory for production growth into 2017.
We expect that would probably be in the $1.3 billion to $1.4 billion range, but with the way the teams are still improving the efficiencies and the well productivities are getting better, we are not prepared to commit to that completely at this point.
Every time we set a target for those guys they meet or exceed it, so we are not sure that that is the exact number.
We will know better about that by the end of the year as we prepare our final plans and we get a little more information from our Southeast New Mexico developments.
<UNK>, this is <UNK> <UNK>.
Good question.
As we do with other large facilities like this, we tend to ---+ when everything is stable, we tend to test individual components and processes within the plant.
We have been doing that during the summer, which is the toughest time, the most relevant proving because of the relatively high heat in the area.
And we have been able to show our guidance for 60,000 barrels a day equivalent for Oxy share.
We have been up in the high 60,000s with the promise to get into the 70,000s just by pushing individual processes pretty hard.
The main reason for this is to assess what the expansion would look like and which components would need either total addition or enhancement or some that might just be able to take higher load.
So we think out of this will come, if you like, a new baseline which could be 110%, 112%, or even a bit higher, and from there we would design an expansion to get up to a good number, kind of the sweet spot for the investment profile and the production profile.
Of course, working with our bigger partner, the Abu Dhabi National Oil Company.
So that is kind of where we are with it.
I think it will be ---+ the fact that we did this during the summer is probably pretty good for you around enhanced production.
<UNK>, most of our acreage is HBP.
We have some drilling clocks, 180 drilling clocks, but the activity set is driven by the value proposition and the returns from these investments.
We have very few remaining lease obligation drilling wells, if any at all.
I think that is manageable as long as the ramp up, from an industry perspective, is fairly moderate.
What encourages me, at least for us at Oxy, is that we continue to have new ideas coming forward for cost efficiency.
We mentioned before last year we had this cost stand down day.
In Resources alone that generated over 1,400 ideas.
We have put in place about half of those and so we are still vetting the other half for opportunities.
Again, that crosses OpEx, capital, SG&A.
We have some other technology things we are working on the drilling side that we think can provide efficiency gains.
We know at some point that the price cycle will turn around on services, but I think we are getting well-prepared to offset that with efficiency.
Not just for us, but for the supplier as well in areas of integrated planning and logistics, crew utilization, equipment utilization, bundling of services.
There is just a number of things that we think can help offset the potential for either efficiency or cost pressure as we move forward.
So I think we can hold those kind of rates of return.
It is fairly quick.
It is really more a function as a single well or is it a multi-well pad where you want to drill all the wells and then complete all the wells.
So your time to market for that package is a little bit longer.
But, again, we are drilling in areas mostly where we have got infrastructure and so adding wells is fairly quick.
There is not a long delay.
I would add to that the way they are doing the developments now is they are doing pad drilling, so as <UNK> mentioned, the pad drilling will result in lumpy production.
That is why we are not expecting production impact from the increased activity levels this year, but we do expect it to show up in early Q1.
And that is why we set the program up that way.
It was really a part of our plan to start getting ready for 2017 production, so that is when we will see the incremental from the increased activity.
I will start with Colombia first and then we will let <UNK> take the Permian question.
In Colombia what we have done, we entered into ---+ we currently have a water flood going there now that is successful.
We got some additional intervals within that same area to develop two other zones and we have been studying and putting the water flood pilot plans together, so we will be starting the pilot first.
And then ---+ so that is why we are adding the $20 million there to Colombia is to do the pilot so that we can get some information from that before we start into full field development.
The full field development of those water floods will come after we complete the pilot.
<UNK>, with regard to the Permian acreage swaps, that is probably our most active area right now with our land business.
And so most operators are wanting to drill longer laterals, 7,500, 10,000 foot, and so acreage swaps, especially where you have got more neighboring acreage ---+ trying to swap Midland for Delaware is a little tougher.
But in a general geographic area we are seeing quite a bit of activity and we have taken advantage of that so that we can drill longer laterals.
I think we would expect that from the time that we start water injection that it would be within the six months to a year.
| 2016_OXY |
2018 | STX | STX
#Thank you.
Good morning, everyone, and welcome to today's call.
Joining me today from Seagate's executive team are Dave <UNK>, Chief Executive Officer; and Dave <UNK>, Executive Vice President and Chief Financial Officer.
We've posted our earnings press release and detailed supplemental information for our December 2017 quarter on our Investor Relations section of our site at seagate.com.
During today's call, we will review the highlights for the December quarter, provide the company's outlook for the March quarter and then open the call for questions.
We're planning for the call today to go approximately 0.5 hour, and we will do our best to accommodate your questions following our prepared remarks as time permits.
We received a lot of interest in our next strategic update, and we will be finalizing a date shortly, most likely in the early fall time frame.
In addition, we would like to note that our March quarter quiet period will begin on March 26.
On our call today, we will refer to GAAP and non-GAAP measures.
Non-GAAP figures are reconciled to GAAP figures on our supplemental information available on the Investors section of our website.
We have not reconciled our non-GAAP financial measures guidance to the most directly comparable GAAP measures because material items that impact these measures are out of our control and/or cannot be reasonably predicted.
Accordingly, a reconciliation of the non-GAAP financial measures guidance to the corresponding GAAP measures is not available without unreasonable effort.
As a reminder, this conference call contains forward-looking statements about the company's anticipated future operating and financial performance; customer market demand; industry trends; technology and product development advancements; demand for our products; continuity of access to long-term NAND supply; consummation of the Bain Capital Private Equity transaction; our perspective of the cryptocurrency market, blockchain technology and assessment of our equity investment in Ripple; our ability to execute our road map and address supply constraints to generate shareholder value; the impact of the Tax Cuts and Jobs Act; and general market conditions.
These forward-looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date.
Actual results may vary materially from today's statements.
Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in the company's SEC filings and supplemental information posted on the Investors section of the company's website.
I would now like to turn the call over to Dave <UNK>.
Please go ahead, Dave.
Thanks, <UNK>.
Good morning, everyone, and thanks for joining us today.
For today's earnings call, I will cover the high-level trends we're seeing in the business.
Our CFO, Dave <UNK>, will then discuss certain financial highlights, and I will close the call with our outlook for the March quarter.
Beginning with our operational results for the December quarter, Seagate achieved revenues of $2.9 billion, up 11% sequentially and up 1% year-over-year; GAAP gross margins of 30.1%; and a net income of $159 million.
GAAP diluted earnings per share were $0.55, including a onetime provision for income taxes of $208 million related to tax reform.
On a non-GAAP basis, Seagate achieved gross margins of 30.4%; net income of $431 million, up 5% year-over-year; and diluted earnings per share of $1.48, up 7% year-over-year.
HDD exabyte shipments for the December quarter were a record 87.5 exabytes, up 28% year-over-year.
The average capacity per drive across the HDD portfolio was also a record 2.2 terabytes per drive, up 29% year-over-year.
And the average selling price per unit was $68, up 3% year-over-year.
GAAP operating expenses were $444 million, down 15% year-over-year, and non-GAAP operating expenses were $390 million, also down 15% year-over-year.
Cash flow from operations for the quarter was $850 million, up 30% year-over-year, and free cash flow was $773 million, up 38% year-over-year.
Achieving revenue and profitability growth and significant cash flow generation in the December quarter reflects Seagate's strong execution and the competitiveness of our storage portfolio, particularly in cloud-based environments as average capacity per drive continues to grow rapidly.
I'm very pleased at the traction we have gained with our mass storage solutions across the enterprise, edge and consumer markets.
In addition to the solid December quarter results, in January, we announced that Seagate has entered into a long-term NAND supply agreement with Toshiba Memory.
This agreement will provide continuity of NAND supply for our expanding product portfolio.
We have matured our entire technology portfolio over the last several years and today, we have a broad offering of flash-based products that are ready to scale and grow across multiple markets.
Diversifying and expanding our competitive HDD mass storage portfolio with SSD and enterprise storage solutions will enable meaningful future revenue growth and profits over the next several years while providing significant value for our storage customers.
We look forward to updating you on our progress in the future.
I'll now turn the call over to Dave <UNK> to go into more depth on our operational activities.
Thanks, Dave.
For the December quarter, we achieved year-over-year revenue and profitability growth, with record exabyte shipments of 87.5 exabytes and record average capacity per drive of 2.2 terabytes.
For the enterprise HDD market, we shipped a record 37.4 exabytes, with a record average capacity of 4.3 terabytes per drive.
In the nearline market, we shipped 35.1 exabytes, and our average capacity per drive reached 5.9 terabytes per drive, up 31% over last year's strong demand and up 75% from the December quarter 2 years ago.
Overall, HDD revenue was up 2% year-over-year in the December quarter.
The growth in hyperscale and cloud storage deployments continues to represent an important opportunity for Seagate, and we are confident in our nearline HDD portfolio designed to serve these environments.
Our 10 TB nearline product was the leading enterprise revenue SKU in the December quarter.
In addition, we achieved sequential volume and revenue growth in our 12 TB nearline product as we continue to ramp for material revenue contribution in the March quarter.
As nearline capacity demand continues to grow, we expect continued opportunity for our mass storage portfolio that delivers multiple capacity points for different application workloads.
Use cases will cause capacity points to span from 2 to 4 terabytes for certain applications and up to 16 terabytes for other customer needs.
At Seagate, we believe we're well poised to help our cloud customers with their stringent and diverse requirements.
Looking ahead, cloud-based enterprise market demand continues to be strong, and supply remains bit constrained.
In the enterprise market, the long-term trajectory of growth and infrastructure spending in the large cloud service providers and hyperscale companies continues to have significant velocity.
Critical to supporting the massive growth in data is our ability to continue to provide mass storage solutions that optimize areal density and have the greatest reliability, quality and total cost of ownership benefits.
Seagate has demonstrated technology leadership with generations of storage technologies and products.
Over the last 5 years, we've been the leader in areal density with our SMR and TDMR areal density solutions.
And we continue to make progress towards the introduction of our heat-assisted magnetic recording or HAMR technology, which will open up a rich space for high capacity and great value.
We anticipate launching our HAMR portfolio in 2019, and the future investment costs are already contemplated in our existing operating expense and capital expenditures long-term model.
In the edge and consumer verticals, we had a strong year-over-year exabyte growth in almost all end markets, including PC compute, consumer, surveillance, gaming and NAS markets.
Our 1 terabyte per platter, 2.5-inch platform, continues to perform well.
Using our areal density advantage, our 2 terabyte per platter, 3.5-inch platform continues to ramp for desktop markets, providing a great value for customers needing a 2-, 4- and 8-terabyte capacity points.
In addition to positioning ourselves for growth in the silicon business, we continue to minimize our alignment with the 500 GB client consumer and mission-critical 15K hard drive markets as we believe these workloads will, over time, move to mobile silicon cloud storage.
In the December quarter, these products represented less than 8% of our total consolidated revenue.
December quarter non-HDD revenue, primarily from the Cloud Systems and Silicon Group, was $213 million, down 12% year-over-year, mostly due to the divesting of our high-performance computing assets and OEM legacy system demand.
Looking ahead, we continue to be bullish about our opportunities to leverage our long-term NAND supply agreement with Toshiba Memory Corporation for significant revenue growth and expanding margin contributions of our silicon product portfolio in the SaaS, SSD and the PCIe, NVMe and consumer and gaming markets.
This value creation is above and beyond the base economics previously disclosed with our equity commitment letter for Seagate to invest up to $1.25 billion with the Bain-led consortium acquisition of the Toshiba Memory Corporation.
We believe that our strategic approach to the participation in the silicon market allows us to address customers' storage portfolio needs and provide for revenue growth opportunities in our business model without overhang from additional capital requirements and cyclical market exposure.
Operating expenses for the December quarter were $444 million on a GAAP basis and $390 million on a non-GAAP basis, down 15% year-over-year.
We remain on track to exit the fiscal year with non-GAAP operating expenses of approximately $375 million per quarter.
Capital expenditures were $77 million for the December quarter, for supporting the continued ramp of our new highest-capacity HDD products and maintenance capital.
For the March quarter, we expect capital expenditures to be approximately $120 million, primarily for maintenance capital and some incremental capital to address the strong cloud market demand.
We anticipate capital expenditures to remain less than 5% of our total consolidated revenue for FY '18.
Cash flow from operations in the December quarter was $850 million, and free cash flow was $773 million.
These results include approximately $34 million in cash payments related to previously announced restructuring charges.
For the first half of the fiscal year, we have generated nearly $1.1 billion in cash flow from operations, including $80 million in cash payments against restructuring charges and nearly $900 million in free cash flow.
Our balance sheet remains healthy, and we ended the December quarter with $2.6 billion in cash and cash equivalents and 285 million ordinary shares outstanding.
Our board has approved our quarterly dividend payment of $0.63 for the December quarter, which will be payable on April 4, 2018.
Interest expense for the December quarter was $61 million.
Our debt structure and levels of interest expense continues to be well within our financial capabilities, given our staggered maturities and low interest rates.
In the December quarter, we deployed $130 million towards redeeming our November 2018 senior notes.
Our net debt-to-EBITDA ratio continues to trend down and is 1.1x as of the December quarter.
As Dave <UNK> mentioned, in the December quarter, we made a onetime provision for income tax adjustment of $208 million related to the Tax Cuts and Jobs Act.
Specifically, the company recorded a onetime reduction of $208 million to earnings due to the remeasurement of our U.S. deferred tax assets at the lower enacted 21% corporate tax rate, which has no cash impact.
The deemed repatriation of accumulated foreign earnings and profits to be taxed at 15.5% for liquid assets and 8% for nonliquid assets is not impactful for Seagate because our U.S. corporation has no unrepatriated earnings.
The interest expense disallowance impact will be minor since Seagate does not have significant long-term debt held in the U.S. We believe that the impact that the international provisions, including the global intangible low-taxed income provision and the foreign-derived intangible income and the base erosion anti-avoidance tax, will be minimal to Seagate.
In summary, Seagate has evaluated the impact of the most significant provisions of the Tax Cuts and Jobs Act.
We do not expect the tax act to materially impact Seagate's effective tax rate going forward.
As we consider future use cases for storage growth, we invest in companies that align to our long-term thesis of exponential data growth in new verticals, some of which are outlined in the Data Age 2025 report with IDC.
A few years ago, we made an investment in Ripple, a company driving technology innovation for distributed ledger and blockchain use cases.
We believe the proliferation of these companies will create tremendous amounts of data, require high levels of data integrity and will alleviate friction in global financial operations and other important use cases that require the transfer of value with improved agility and transparency.
While recent attention is on the valuation of the XRP crypto assets, we believe Ripple has a real and robust blockchain technology platform, a defined and validated use case for XRP and a leading management team.
Overall, our operational and financial performance in the December quarter reflects execution of our business model and profitability improvement objectives.
Looking ahead, we will continue to optimize our business and focus on aligning our go-to-market and product portfolio advancements towards the future growth opportunity markets.
I would now like to turn the call back to Dave <UNK>.
Thanks, Dave.
The Seagate team is focused for the past 2 years on reducing our operational footprint and reshaping our cost structure to address the current demand environment.
Our supply chain, from suppliers to factories to sales and fulfillment, are now entirely focused on agility and flexibility for our customers.
I'm proud of the team for completing our significant restructuring plans.
And while we will always have cost reduction efforts, we are well positioned to shift our focus as a company to capturing new market opportunities and achieving sustainable revenue growth and profitability.
Turning to our market outlook.
We remain conservatively optimistic about the current macroeconomic environment as well as spending trends for cloud-based environments.
On the heels of the various IT component supply constraints we witnessed over the last year or so, we're continuing to monitor outgoing inventory closely.
From Seagate's vantage point, our channel inventory positions and inventory for our customers that are visible to us are, in general, lower than last year.
For the March quarter, we anticipate year-over-year exabyte growth with continued strong demand in cloud storage as supply remains tight in our highest-capacity solutions.
For the other markets we serve, we anticipate normal sequential seasonal demand declines.
As a result of the strong cloud demand and seasonality in our other markets, we expect total revenues to be down 5% to 7% sequentially from the December quarter.
This represents lower sequential revenue declines than the last few years and year-over-year revenue growth for Seagate.
We expect gross margins to be sequentially in line with the December quarter's gross margins and continue to be within our 29% to 33% long-term range.
Non-GAAP operating expenses will be down sequentially 2% to 3%, with further cost containment measures as we continue to manage our operating expenses tightly, targeting approximately $375 million per quarter by the end of fiscal '18.
In summary, I'd like to thank our customers, employees, suppliers and business partners for their contributions to our quarter's results.
Thank you for joining us on the call today, and we'll now open up the call for questions and answers.
I think we are ---+ I'd characterize us more as flat year-over-year.
But to your point, are there opportunities to move higher.
Yes, there are if the demand picture continues to improve like we saw it do so in last quarter.
It's ---+ I would say that there are some markets ---+ and in particular, we called out the enterprise solutions, some of the non-HDD assets that we're still continuing to pare, so that's work that we have to do that may have been a slight drag, and I think we can fix that over time.
But I think there are opportunities if we see the demand picture continue.
I'll let Dave answer that.
Yes.
Yes, we've been confident on some of our previous comments that we thought cash flow from operations would be $2 billion to $2.5 billion, so I still think we're well within that scope.
Clearly, when you see strong linearity and strong velocity on the results, you'll see that end up in our working capital.
So I think there's a lot of confidence going into the back half of the year.
I think the quick answer is no, I won't go into any of those details.
What I will tell you is we have a fairly broad portfolio with which to play the hand.
So we have all the way from enterprise even into consumer devices that we can use.
We're developing those right now, and we're trying to intercept not only the Toshiba NAND but all the NAND supply that we get.
And we believe that this is a good chance for us to grow.
But we haven't really quantified it yet, and we won't for a while until the deal's finally done.
Let's see.
I like our portfolio.
There's a lot of times where people tend to fixate on one product versus another.
We have a fairly strong product offering across many.
And so therefore, when we can satisfy customers who are fairly diverse in their requirements, we will do well.
I think as we've talked about before, we've been moving a ways from some of the lower capacity points over the past year, and that has served us well as well.
And from a competitiveness standpoint, all I would say is that we're ---+ from our portfolios perspective, we're leading in areal density, so we have a lot of flexibility into how to play those components into the various markets.
Yes, as are we.
We're ---+ I would say when you compare it to last year, cloud growth was almost nonexistent last year.
Exabyte growth was almost nonexistent in some of the quarters last year.
I think we ran 3 quarters in a row with a fairly flat demand profile.
If you go back historically, over the last 5 years, it's been 35%.
So to your point, to go from 0% over 3 quarters, there's going to be some backlash, higher than 35% for a while.
And we are seeing that demand in calendar '18.
When it ends, don't know at this point.
But right now, to the point, we're a bit constrained, as we've said, for the last few weeks, and we'll continue to chase it.
Let's see, logical is an interesting question.
What I would say is when ---+ a year ago, when we were being asked the question in a different way, we remained committed to it.
So we remain committed to returning value to shareholders via these mechanisms right now.
I really don't want to get into the forward-looking pieces of this because as we've seen, the market can be fairly volatile.
I think we're happy with where we are right now.
There are product launches ---+ there are products in qualification right now across NVMe, multiple flavors of NVMe; SaaS, a refresh to the SaaS portfolio; and also SATA products; even consumer products.
So specifically which product, what capacity points, it's a fairly diverse offering.
And I think this is reflecting the same thing that's going on in those markets.
So we're fairly happy with it competitively, and I think that's why we think that, both on brand strength and customer service, we'll be able to get some revenue growth when the bits all come online, when we get ---+ when we intercept all the ---+ that flash supply and get the technology integrated.
Yes.
I look at it a little bit differently.
We've taken factory footprints down, and as we did that, we had to actually move and build some buildings and things like that.
So the ---+ even the capital that we talked about, 4% to 6% of the range, we'll start applying some of that capital to bit growth, if you want to look at it that way.
We're really pleased with the way that average capacity per drive is moving north, and we're going to have the capital there to achieve that kind of growth.
Yields are something that we continue to work.
We've had a lot of focus obviously in the factories on moving things in the last 2 years as we did this restructuring.
But now we can just focus wholeheartedly on improving our yields and getting after better equipment utilization and things like that now that we have the footprint.
All right.
That's interesting.
I think there have been what we call digestion cycles in the past where large cloud service providers would buy in big tranches and then they would digest for a while, which means they'd buy less relatively.
I think we're starting to see more diversification especially in this last cycle.
And it may have been magnified by the ---+ some of the component supply, other components, not hard drives, component supply issues that happened last year.
But right now, we see a very, very healthy diverse market geographically, by capacity points, by application space, which ---+ the cloud isn't all about one application space, as people know.
There are many different types.
So to your point, helping with that ---+ addressing all those different customers with all their diverse needs is going to help us get better visibility, I think.
Let's see.
On the first point, gosh, if we start by looking at all the different customers we serve, there are some markets where we were competing with people who didn't necessarily control the core componentry like we do, but they build really cheap.
And there's a lot of disruption going on in the market.
I don't need to tell you guys that.
There's a lot of complexity in the market as well, so people can move from solution to solution very quickly.
I don't think that's going to be in our bailiwick.
I do think that longer term, it's important that Seagate is able to add value above and beyond the drive at the system level, if you will.
And part of the reason for that is we have to do it anyway when we integrate into customers' chassis and so on.
I think as you see less ---+ or as you see some of those markets stabilize a little bit, less complexity, there'll be ---+ it'll be more obvious as to what we should do and which customers ultimately we're building for.
And so we've ---+ it's been a churn for us.
I think it's going on in other places in the industry as well.
Relative to how far are we through that, I can't really tell.
But I do think it started 5 or more years ago, and it's not over yet.
So we're going to do the smart thing.
We believe that long term, it's important that Seagate maintains this kind of ability to understand and add value above the drive.
On the second part, I think your question was tightness in the market for enterprise drives.
And it's really back to the question I think Rob asked, which was long-term visibility, does that give you better visibility.
I think it does.
Most of the scale players, as they sense these kind of problems, are actually talking to us quite a bit about longer-term visibility and making sure that our supply chain is properly architected to address their needs.
So hopefully, that helps the demand picture as I answered Rob, too.
With that, thanks, everyone.
I'd really like to thank our customers, employees and suppliers and business partners for their help this last quarter.
And we'll talk to you next quarter.
| 2018_STX |
2017 | ECL | ECL
#Thank you
Hello, everyone, and welcome to Ecolab's fourth quarter conference call
With me today is <UNK> <UNK>, Ecolab's Chairman and CEO; and <UNK> <UNK>, our CFO
A discussion of our results along with our earnings release and the slides referencing this quarter's results and our outlook are available on the Ecolab's website at ecolab
com/investor
Please take a moment to read the cautionary statements on these materials stating that this teleconference, the discussion and the slides include estimates of future performance
These are forward-looking statements and actual results could differ materially from those projected
Factors that could cause actual results to differ are described in the section of our most recent Form 10-K under Item 1A, Risk Factors, and in our posted materials
We also refer you to the supplemental diluted earnings per share information in the release
Starting with a brief overview of the quarter, continued attractive new business gains and new product introductions drove solid acquisition-adjusted fixed currency growth in our Institutional, Industrial and Other segments during the fourth quarter
These were offset by a moderating underlying sales decline in the Energy segment, though previously discussed one-time sales impacts in both this and last year resulted in a wider posted decrease for that business
Product innovation and ongoing cost efficiency work led the total company's adjusted fixed currency operating margin expansion, more than offsetting the impact of soft economies, challenging end markets and continued currency headwinds
These drove the fourth quarter's 2% adjusted earnings per share increase, which includes a 2 percentage point currency translation headwind
Moving to some highlights from the quarter and as discussed in our press release, consolidated acquisition-adjusted fixed currency sales for Institutional, Industrial and Other segments grew 4%, but were offset by lower Energy sales period
Regional fixed currency sales growth was led by Latin America
Reported operating margins increased 710 basis points
Adjusted fixed currency operating margins expanded 20 basis points, as continued sales growth from our Institutional, Industrial and Other segments as well as pricing and cost efficiencies offset lower Energy results
In 2016's difficult operating environment, we focused on driving new business gains by helping customers to lower their costs
We used our industry-leading product innovation and service strengths to help customers achieve the best results and lowest operating costs and, through these, aggressively drive new account gains across all of our segments
We expect 2017's external environment to show continued sluggish economic growth, higher delivered product costs, reduced but still unfavorable currency translation effects and gradually improving fundamentals in the energy markets
We will again work aggressively to drive our growth, employing the same fundamental approach, win new business using our innovative new products and a sharp focus on sales execution, and along with pricing and cost efficiencies, grow our top and bottom lines at improved rates
We look for strong earnings growth in 2017, significantly outperforming the headwinds
We look for a better year-on-year acquisition-adjusted fixed currency growth in our Institutional, Industrial, and Other segments, as they once again work aggressively to outpace their markets, leveraging investments we have made to further improve sales and service force effectiveness and profitability
We expect Energy to be modestly accretive to sales and earnings growth, as it benefits from a more stable market
We believe our actions will lead to better growth and stronger comparisons in the second half of the year versus the first half for Ecolab in 2017 with forecasted adjusted diluted earnings per share in the $4.70 to $4.90 range this year, increasing 8% to 12% including unfavorable $0.07 per share or 2 percentage point currency impact to earnings
In summary, despite a very challenging global, economic, and market environment, we expect to deliver strong adjusted diluted EPS growth in 2017. And now, here's <UNK> <UNK> with some comments
Thanks
That concludes our formal remarks
A final note before we start Q&A
We plan to hold our annual tour of our booth at the National Restaurant Association Show in Chicago on Monday, May 22. Looking further ahead, we also plan to hold our 2017 Investor Day in St
Paul on Thursday, September 7. If you have any questions, please contact my office
Operator, please begin the question-and-answer period
Question-and-Answer Session
That wraps up our fourth quarter conference call
This call and the associated discussion slides will be available for replay on our website
Thanks for your time today and your participation, and best wishes for the rest of the day
| 2017_ECL |
2018 | LANC | LANC
#Thanks, <UNK>, and good morning, everyone.
It's a pleasure to be here with you today as we review our third quarter results for fiscal year 2018.
Doug and I will provide comments on the quarter and our outlook.
Following that, we'll be happy to respond to any of your questions.
For the quarter, consolidated net sales increased 0.8% to $296.2 million versus $293.8 million last year.
Retail net sales increased 0.2% to $152 million as continued growth in shelf stable dressings, deli/bakery, frozen dinner rolls, and the successful club test of Buffalo Wild Wings sauces were offset by the lingering impact of the supply disruption on garlic toast and lower sales for branded croutons and refrigerated dips.
Given that Easter this year fell on April 1, and was only 2 weeks earlier than 2017, the year-over-year impact on the quarter was very modest.
Foodservice net sales grew 1.5% to $144.2 million, driven by volume increases for frozen rolls and pasta, and pricing actions that were implemented to help offset higher freight and commodity cost.
Consolidated gross profit declined $4 million to $67.9 million due to the impact of significantly higher freight and commodity cost.
Gross profit for the quarter was also weighed down by increased depreciation expense and 2 unusual nonrecurring charges.
Savings realized from our Lean/Six Sigma and pricing were sequentially stronger but only served to partially offset the aggregate cost increases in the quarter.
SG&A expenses declined $2 million on reduced spending for consumer promotions and cost savings gained through the realignment and simplification of our retail broker network that was implemented in January.
Consolidated operating income increased from $22 million to $37.7 million, excluding the pretax charge of $17.6 million in the prior year quarter.
Resulting from the company's withdrawal from an underfunded, multi-employer pension plan, operating income declined $1.9 million or 5%.
Based on the factors referenced above, and excluding the multi-employer pension plan withdrawal charge, our consolidated operating margin decreased about 80 basis points.
The retail segment operating margin declined from 19.2$ to 17.3%, while the Foodservice segment operating margin improved from 9.6% to 9.9%.
Net income for the quarter was $27.6 million or $1 per diluted share compared to $14.5 million or $0.53 per diluted share last year.
Note the lower tax rate of 27.4 in the current year reflects the favorable impact of the recent tax legislation.
The aforementioned multi-employer pension plan withdrawal charge reduced the prior year's net income by approximately $11.5 million or $0.42 per diluted share.
The regular quarterly cash dividend paid on March 30, 2018, was maintained at the higher amount of $0.60 per share set in November of 2017.
Turning our attention now to retail sell-through data from IRI for the 13 weeks ending April 1, we maintained our leadership position in all 6 of our key categories.
During the quarter, we were able to increase our share in 3 out of the 6 categories, and we saw a modest pullback in the remainder due to our targeted trade reduction activities and the adverse impact of our supply disruption in the frozen garlic bread category.
With that, I would like to now turn it over to Doug to make some comments on our balance sheet and other related items.
Thank you, Dave.
Overall, our balance sheet remains strong, and I will comment on some of the larger line items within our balance sheet compared to last year.
From a high-level perspective, the increase in our cash balances of nearly $44 million since June can be summarized as follows: cash provided by operating activities of nearly $117 million, offset by regular dividends of $48 million, treasury stock repurchases of $1 million and property additions of $23 million.
In general, and given our customer credit terms, the fluctuations in our accounts receivable balances often reflect the timing of shipments in the final month of each comparative period.
The increase in the balance since June is in line with our expectations and consistent with past quarters, our collections and agings remain solid.
The increase in our inventory balances since June reflects higher commodity input cost, volume growth for our shelf-stable licensed dressing and sauces, and an earlier pre-bill of seasonal dip inventories for improved plan efficiencies.
As I mentioned, fiscal year to date cash expenditures for property additions totaled $23 million.
This level of spend is in line with our estimated annual CapEx of $30 million for fiscal 2018.
Consistent with our past communications, in addition to the new expansion project for our Angelic Bakehouse facility this year, the largest amounts have been spent on new processing and automation equipment to accommodate growth and enhance productivity.
Depreciation and amortization expense totaled $20 million for the first 9 months, and we project this amount to be around $27 million for fiscal 2018.
The increase in our accounts payable since June largely reflects an emphasis by a procurement team to extend payment terms with our vendors in conjunction with our Lean/Six Sigma efforts.
With respect to our balance sheet capitalization, not much has changed since our last commentary.
We continue to have no debt, nearly $633 million in total shareholders' equity, and over $187 million in cash and equivalents.
Borrowing capacity under our credit facility remains at nearly $150 million.
Finally, and broadly speaking, as reported in our second quarter earnings release, our income tax provision for fiscal 2018 was favorably impacted by the Tax Cut and Jobs Act.
Our blended effective tax rate for Q4 and fiscal 2018 is estimated to be 28.5%, yet our actual tax rate for Q3 was 27.4%.
The favorable difference of 110 basis points for Q3 is largely due to 2 discrete items of roughly equal size.
First, the continued refinement of the estimated impact of the Tax Act on our deferred taxes; and second, the current year treatment of the favorable tax impacts relating to stock option exercises with our tax provision, as further discussed in the footnotes to our previously filed financial statements.
While these items may recur in Q4 as well due to their nature, it is not possible to estimate their exact impacts.
Looking forward, at this time, we continue to estimate our effective tax rate for fiscal '19 to be approximately 24%.
Thanks for your participation with us this morning.
I will now turn the call back over to Dave for our concluding comment.
Dave.
Thanks, Doug.
Looking ahead, I would like to update you on a few key strategic topics that are relevant to the remainder of our fiscal year.
First, during the third quarter, we fully implemented the corrective actions on our frozen garlic bread business and we are now supplying the business at normal levels.
We do not expect further supply disruptions.
Second, both commodity and freight costs remain at elevated levels.
For the third quarter, commodity inflation, net of sourcing activities, approximated 1% of consolidated net sales and elevated freight costs represented just a little bit less than 1%.
We expect both commodities and freight to remain at comparatively elevated levels throughout the remainder of Q4.
Third, early in our fiscal third quarter, we implemented selective price increases in both Retail and Foodservice segments in response to these higher commodity and freight costs.
To date, we have been successful at passing through the price increases in our Foodservice segment.
In our Retail segment, some work remains to fully achieve the net pricing.
Fourth, we will continue to generate cost savings from our Lean/Six Sigma program at or above the mid-7-figure level that we've achieved each quarter through the previous 3 quarters of this fiscal year.
Finally, on the sales volume front, we're excited to announce we began shipping the new parmesan ranch flavor as an addition to our retail segments line of Olive Garden dressings.
We expect this item to be in nearly full distribution by the middle of the summer.
That concludes our prepared remarks for today, and we'd be happy to answer any of your questions.
Sharon, over to you.
Can you quantify how much you think frozen bread impacted retail sales in the quarter.
Let's see.
You know, I would say it's a 7-figure number, lower 7-figure number is probably would I would estimate for you, <UNK>.
Okay Looking at SG&A that came in lower than I was forecasting in the quarter.
Certainly appreciate that consumer promotion can be a little more volatile quarter-to-quarter but curious how we should think about that line going forward, and specifically, can we expect similar amounts of SG&A leverage over the next 3 quarters as a result of this retail broker network realignment.
Or if that's just a 1 quarter benefit, how we think about that.
I would say if you were to look at it, there were the2 drivers.
One was sort of an intentional pull back on the timing of some of the consumer promotion work and that was mainly around the New York Frozen as we were having supply constraints.
As you might expect, we pulled back on advertising because there was no benefit exacerbating that problem.
But the other piece is in fact this broker realignment.
The bigger component of that being the pullback on the consumer work for New York.
But there is a piece, a smaller piece that's going to be part of that on a going basic.
Okay.
Got it.
Looking at the pricing and trade spend in retail, it sounds to me, and correct me if I'm wrong, that perhaps trade spend in retail was a bigger offset to price than maybe you anticipated.
I know you referenced pushing more pricing through, but just curious how you would describe sort of your customer's appetite for such action in this backdrop.
And then what are the key learnings from this first wave of pricing you talked about that are applicable going forward here.
Sure.
Maybe what I'll do, <UNK>, if you'll allow me, is to take a half a step back and talk about in the context of Foodservice first.
So as we've shared with you in the past, with our agreements with our big national account customers and even with distributors, we have mark-to-market provisions in those contracts.
And as we've seen cost elevate, we've been very diligent about quantifying the impact and passing those along to the Foodservice customers.
And to date, we've been able to achieve that and you can see it manifest in the results.
On the retail side, I think it's essentially exactly what you have described.
In some cases, we've had price increases that have gone through.
But given the seasonal nature of some of the products, we've protected events where we had made a prior commitment.
So that deferred the realization.
But I would speak more broadly to the fact that it remains quite a challenging environment from a pricing perspective.
You folks on the phone probably have seen the article in the Journal today talking about what CPG is going through, and we're not immune from those same discussions.
But as I shared with you guys in the call in the last quarter, this is an area where we've taken a very direct stand with our retailers and we continue to push.
And I think for the whole industry, there's a benefit here to continue to try to push.
I'll get out of here with this one.
I know you called out licensed products as a catalyst in Retail this quarter.
I suspect Buffalo Wild Wings is still fairly a small piece, but it would be great to get an update on how that's performing and also any color on when or how that might scale, as I believe as you indicated so far that's just Club so far.
And I'll leave it there.
No, thank you for asking.
So hopefully, you guys had a chance to see it in Costco and BJ's as well and I would tell you, it performed exceptionally well.
It exceeded our threshold.
It exceeded by several fold the Club channels thresholds and BWW was quite excited about it as well.
So the test is going to continue through the month of March.
We have a little bit more to go and we're actively in discussions with our partner, BWW, about where we go from here.
So these are ---+ it's an exciting product.
It performed very, very well and it's one we're excited about for a couple of reasons.
One, it's a great tasting product.
But the other thing is it opens up optionality for us in a whole range of new categories where we feel like we have unique products, unique capabilities, and the Buffalo Wild Wings brand is just a tremendous equity.
Sure.
Historically, what we've shared with you guys is low single-digit growth and that really remains the same.
With obviously one of the X factors being where things net out from a pricing perspective.
If we're able to, Mike, get a little strong price utilization, maybe it's at the higher end of that, if we're challenged on the price utilization maybe at the slightly lower end.
We're quite excited about the products you laid out.
Not to say that we don't have a couple of areas of the business that have small challenges.
If you look at the crouton category, albeit it small, it's one that's being impacted more aggressively by private label than others.
But I think as you're thinking about the algorithm that continues to be our view today.
So we'll step back and maybe frame it first in the context of input cost and what we saw in the most recent quarter and what the outlook is a little bit farther out, and then I'll maybe jump into pricing to allow you to put the whole thing together.
I'd start by saying on the input cost side, you heard in the comments earlier.
I think what we described is that our aggregate commodity inflation net of sourcing activities was about 1% of our consolidated net sales.
So you\u2019ve got to do that math.
And we said if you looked at freight, inbound and outbound together, it was also about 1 point.
So you could see those were both quite sizable numbers and again, they were net of sourcing initiatives.
If you take out freight and you look at the commodity side, we've reached sort of place where we feel like we're running pretty close to neutral [PNOC].
So pricing and other activities are net of those commodities.
We're able to hold those off.
The newer news that's come on is the freight inflation and the rate at which that\u2019s hit us.
That's been probably, if I was to describe it simply, the bigger offset that we've hit.
Now, how do we think about all of this on a go-forward basis, Mike.
And this is, again, I'm going to double-click on the cost side.
Our view on commodities is we're going to continue to see inflation but we expect the rate of inflation beyond Q4 into Q1 and into the next fiscal year to be slightly less aggressive or more modest than we've seen to date.
But that's our view today and that could change, right.
That's one [egg] issue, avian influenza away from changing the dynamic.
But our view is that beyond Q4 you should start to see inflation gradually start to moderate.
The other thing that we're seeing is ---+ now that was commodities.
If you'll look at freight, essentially as we went from I guess it was Q2, we saw a step change in freight costs because of the hurricanes and then a subsequent step change when we reported in January because of the new ---+ the electronic logs.
And what we are seeing there is they remain at elevated levels but they are not going up.
So we sort of are in a situation where there's structural imbalance between the demand for loads ---+ or demand for trucks and the supply.
But there, we're not seeing it continue to run up.
So as you sort of look beyond, what I would expect to see is certainly ---+ I guess I'll look to Doug here.
On the fly, I would say certainly by Q2, we should start to lap the worst of the freight inflation notwithstanding some other events.
That's our expectation sitting here today.
And on the commodities side, Mike, what I would say is I would expect to see those start to moderate a little bit, notwithstanding some other event that destabilizes things.
Now, move beyond that, our pricing, trade activities, everything, and Six Sigma remain in place.
So I would expect that you're going to begin to see improvement from this point on but you're going to see some bigger increases as we start to lap the increases in freight to set us back a little bit.
I think the short answer is you nailed it.
That's exactly right.
It was driven by that ---+ the incremental trade spend in that period against the price increases that went into play.
What I would say, <UNK>, is we continue to believe that there are opportunities to optimize our trade spending.
So we're working 2 different levers.
There's the list price lever, which we're continuing to pursue like other peers in the CPG space and we're making headway in some places.
In other areas, it's a more tenuous process.
That dynamic of price increases going in from quarter-to-quarter can create some lumpiness on trade spending because part of the negotiation with the retailer might be to protect some of the events for a period of time and that's part of the dynamic.
If you move beyond that sort of period-to-period dynamic with list price increases and some trade offsets to protect events and you study just ---+ and then you say look at our trade on a percentage of our gross sales.
That remains an opportunity for us to optimize that as well.
We've invested in tools.
We've invested in capabilities.
We have some great folks here and we continue to believe that there's an opportunity there to drive some improvement.
We do.
What I would tell you and what I would point to is laddering back to one of the other questions, just the strength of our pipeline.
We have a couple of pretty exciting items that are in there and some others that we're not sharing with you that continue to make us bullish.
We didn't mention in the earlier commentary about Flatout and Angelic, and both of those businesses are coming online and doing a nice job as well.
So for those reasons, we're cautiously optimistic about our ability to continue to provide organic growth.
So maybe I'll take the ---+ why don't you go ahead.
You want to jump into that one.
That's perfectly fine.
<UNK>, to your question, as we've conveyed to you in the past, certainly, it is our first desire to invest back into the business the excess cash that we have available.
And then certainly, following that, as any M&A opportunities that may come up.
And as we've all talked about, multiples are a bit high right now but that doesn't dampen our enthusiasm or our activities in that area.
And then certainly, we've been increasing our cash dividends over the past 55 years so that will most likely continue.
And then to your point, once we've exhausted all other opportunities, we certainly would (inaudible) that special dividend.
But nothing has been talked about at this point in time and so I would just convey to you that it's status quo at this point.
More to come on that as we get into the future quarters, but nothing to report again today.
So <UNK>, swinging around to your first question then on the view of the network and some bigger structural investments that would drive sort of a step change in our cost structure, we continue to aggressively evaluate those opportunities.
We've met with our Board to talk about a few of those.
We're meeting with our Board again at our next meeting to go over some others and we look forward to having some things to share with you probably as we move into the net fiscal year.
So consistent with what we've said before, what we're continuing to drive every day in the business I really the operational improvements that are coming out of Lean/Six Sigma where we're improving our yield, reducing waste, and all that sort of stuff.
And that's really what's driving that mid-7 figure per quarter improvement on cost.
The sort of tranche of activities that we're looking at over a longer period of time would require us to invest in sort of bigger levels of automation and some other ideas.
So we have ---+ we've identified them and are working with our Board.
And just a little bit premature to share with you guys our thinking right now.
But I'd say stay tuned.
We look forward to sharing some of that with you.
That is correct, <UNK>.
I guess one has to define a good portion, but I would convey to you that while it was probably the largest piece of the CapEx to date, I would be quick to point out, we've invested a good amount in capacity and automation.
I would jump in and say, <UNK>, it is.
The project has been completed on time.
We went out with a number of different objectives that we've hit on time.
New capacity that we've invested in is coming online.
We're achieving a number of new wins for new distribution on the items.
So we pretty feel good about (inaudible).
Yes, absolutely.
<UNK>, I would qualify that and say more doors but also over a longer period of time, potentially even more categories.
I don't think we've given the exact percentages in the past, <UNK>.
But I would just convey to you that the dressings and sauces is a far larger category to the Foodservice (inaudible).
I think a part of it was driven by some promotional activities by some of our customers.
That was certainly a piece of it.
And the other piece is, <UNK>, the Sister Schubert's rolls that we're selling into different Foodservice partners that are used in sliders, some of them are becoming core menu items.
And some, as Doug had pointed out, are also LTOs and they're just performing exceptionally well for us and for those partners.
So part of the business we expect to continue to grow and become more meaningful in time.
On the pasta side, you're familiar with the fact that we do have Reames Noodles, a small pasta business and we leveraged the same assets to do some work with some Foodservice partners.
Thanks, Sharon.
Thank you to everybody on the phone for joining us today.
We look forward to talking with you in August when we share fourth quarter results.
Have a great rest of the day.
| 2018_LANC |
2016 | ANDV | ANDV
#Thank you.
Oh no, first ---+1Q of 2016 versus 1Q of 2015.
I don't know the number offhand.
I can tell you that the demand is good ---+ very good, so I think days ---+ I don't know what the number is off the top of my head, but I think it is important that it is ---+ that demand is strong that we are experiencing.
What we said, <UNK>, was that we have two specific groups of assets.
One is the pipeline and rail facility that we acquired ---+ that Tesoro acquired at the beginning of this year.
We expect to drop that down in the second part of 2016, and an acquisition that we will be making in Alaska with some additional distribution assets in ---+ combined with some existing Tesoro distribution assets in Alaska will be dropped down this year also.
And we said that the combination of those two drop downs would probably provide EBITDA to TLLP on an annual basis in the range of $70 million to $100 million.
We have to let that growth through our process ---+ evaluation process between Tesoro and Tesoro Logistics and the conflicts committee.
So it is a formal process of set market rates and that, so it would just be premature for me to comment on that.
We do look at comparables and see what other people are doing in the industry, but we also look at the nature of these type of aspects and the potential from a growth standpoint now.
So it is just too early to say that, but you can get your own range from historical drop downs and that.
| 2016_ANDV |
2016 | LABL | LABL
#In revenues, you mean.
So none of the divestitures were from acquisitions.
We haven't divested any businesses.
The beverage business that <UNK> referred to is some business that we exited, and that is business that we have had for many, many years, low-margin beverage business that is from our legacy Multi-Color businesses.
Yes.
Specifically, in any given quarter, any given year, pricing varies between -1% and +1% impact on revenues.
This fiscal year, since the Q2 and Q3 it continued to be a -1% impact on the topline.
And that is slowly starting to reduce as we work through those new arrangements.
It is fair to say that we've re-contract several large customers in the middle of last calendar year.
That is great for us in terms of stability in medium term, but has involved some short-term price concessions.
And we are feeling the effect of that in Q2 and Q3, and that will continue to tail off in future quarters.
Well, if we continue to see disappointing quarters, then we won't do anything.
But on the basis that we can see improvement in our current book of business and make acquisitions, we think acquisitions do add meaningful value, both financially and strategically.
If we did not acquire, we would not be able ---+ if we were just a North American business today we would not be able to defend our global customer business that we have in North America easily.
And secondly, we'd miss out on opportunities to add a lot of value and miss the boat in terms of being a genuine global player in the space and the leveraging of customers and best practices and procurement that that provides.
So, done well, we think they have and can continue to add good value.
But we are not going to do it, come hell or high water.
We are going to do it because it makes financial sense and in a manageable way.
Thank you, everybody, for attending and your questions this morning.
We are focused on improving our quarterly results going forward and, fundamentally, we don't see that there is any significant change to the environment that we operate in.
These are self-inflicted, short-term challenges and we will work through them and move forward.
And we look forward to talking to you again next time around.
Thank you for your time.
| 2016_LABL |
2016 | GOV | GOV
#Sure.
Let me make sure I understand the question, <UNK>.
You want us to give some color on our ability to lease assets as leases expire or we have vacant space.
Is that correct.
Sure.
It's a good question and I appreciate the opportunity to provide some color.
I guess there is several different ways to look at that.
I think, one, and let's just talk about GOV particularly, if you look at our occupancy historically over the last three or four years, we've maintained a pretty high occupancy.
This Company's occupancy has never dipped below 90%.
We have bumped around 94% to 96% for the last several years, and we have had ---+ we routinely have 7% to 15% of our revenue expiring in any one year.
So, we wouldn't be able to obviously maintain high occupancy like that if we didn't consistently renew leases or bring new tenants to place.
I think, again, speaking specifically about GOV, we've had some relatively large vacancies across the portfolio that we have re-leased in a relatively short amount of time period.
One example would be our property in Rockville Pike that the FDA moved out of.
That was about 110,000 square feet of vacancy in what is somewhat of a weak market.
And within a year, we were able to backfill 100% of that space with another government tenant and we think we will probably be able to grow that tenant in the building, and they will ultimately end up taking more space than what the FDA occupied.
A second example would be a building we own in Atlanta, Georgia, in Executive Park that the CDC occupies, and they vacated.
And within about 12 months, we were able to backfill that building 100% with Emory University.
The other ---+ in some of these cases, the FDA is an example, we have lost tenants due to them outgrowing our buildings and us not being able to accommodate their growth.
So, that's one of the reasons where we've had some vacancies.
But we routinely across the RMR companies, we are leasing 1 million square feet of space a quarter.
We have very good relationships with brokers across the country.
And I think when you look at senior housing properties, trusts, select income REIT and GOV on a combined basis, all of our companies have done a good job of maintaining high occupancies.
So I don't know.
Did that help answer your question, <UNK>.
Yes, I appreciate that comment.
Sure.
As I said, we have a pretty decent pipeline of potential opportunities today.
It's six or seven potential opportunities; $150 million, $175 million in value; relatively broad range of cap rates, probably from around a 7% to maybe as high as a 9%.
I think today what we are looking to acquire at GOV would be buildings that give us an acquisition yield at 8% or maybe above, where we have ---+ it's a stabilized building that doesn't have any near-term lease expirations, and buildings where there is not a tremendous amount of building capital.
So what we are trying to find are buildings that are accretive, both on an FFO and an AFFO basis.
And we think we can do that, that 8% to 9% range, and provide a good spread over our weighted average cost of capital.
The government lease market tends to be a more narrow leasing market ---+ or, excuse me, not leasing, I'm sorry.
The acquisition market tends to be more narrow than what you would find for Select Income REIT.
Just simply there are less buildings on the market to buy that are majority leased to government tenants.
From a Select perspective, Select has maybe a slightly lower weighted average cost of capital today, has the ability to buy assets on an accretive basis anywhere from maybe 7.5 and above.
But there is a pretty good pipeline of potential opportunities that are suburban office, strategic to tenants, with long weighted average lease durations or industrial buildings.
You sometimes have to look at a number of deals before you find one that is within the pricing range that makes sense for your cost of capital, but they are out there.
And I think our perspective is it's more important to be patient and buy the right buildings than to rush and try to grow the companies.
Let me make sure I understand the question.
As we look out 2 to 3 years, do we think we will continue to be able to grow same-property cash NOI and maintain high occupancy.
It's very difficult to provide great color out two or three years.
I think what I would do is maybe point to the headwinds with the US government that we have been dealing with over the last really three years.
If you go back and look, there have not been approved budgets.
The US government has been doing short lease renewals, and just simply kicking the can down the road.
We are getting to a point where the US government is now more focused on long-dated lease renewals, which we find very positive.
We think we will have approved budgets going forward, which will allow the agencies to create longer-dated housing plans.
And we should be able to grow the weighted average remaining lease term across our portfolio.
We think that's very positive in that the longer our weighted average lease term, the less average lease expirations we will have in any one given quarter, which will allow us to better spread out our leasing capital.
We also think that, as we look at leasing spreads, just like this quarter where we had 4.4% average roll-up in rent, we should be able to continue to have flat to maybe slightly up increases in rent.
It really depends on the economy and whether it continues to remain a more landlord-friendly leasing environment than a tenant-friendly leasing environment.
Yes, <UNK>, let me take a look at the list real quick.
And some of these are a little bit far out.
And maybe the way to look at this is more on what are some of the larger blocks of space.
Because what we have in most of these, we have relatively ---+ we have ---+ a lot of these are ---+ well, all of these are actually less than 1% of rents, so it's a lot of smaller spaces.
Probably our largest space is a 38,000 square foot bay in Buffalo, New York.
And that is a fourth quarter move-out.
So, we have ---+ we've ramped up our leasing efforts on that.
There are a handful of prospective tenants in that market that we are beginning to have dialogue with.
We have hired both government leasing brokers as well as nongovernment leasing brokers to give us the best opportunity to find tenants.
And I think our building is reasonably well-positioned in that market to be successful.
It may take us 12 months to find the right tenant.
It may take us 12 months to find two or three tenants to replace that one tenant.
But we think that we are doing the right things in terms of making the space presentable and providing brokers adequate incentive to show the space, and that that will help us be successful.
So, we are optimistic that we have pretty good prospects to backfill this space.
And I would say that's across all of our potential move-outs across the portfolio.
It's the next 24 months, yes.
Yes, I will give you an example.
We have ---+ if I look at the size of the square footage of our tenants vacating over the next 24 months, we've got a lot of spaces that are 1,600 square feet, less than 1,000 square feet, 3,000 to 4,000 square feet.
Those types of spaces really shouldn't take as long to lease, because you don't have to find large tenants.
Of the 130,000 square feet of space the vacates represent, we have one 38,000 square foot space, a 40,000 square foot space, and a 20,000 square foot space.
So those are the ones that will take a little bit longer to lease.
In some cases we might be able to do it in less than a year.
In others, it may take a little bit longer than that, depending upon the market.
So, what we do on our at-risk category is we include 100% of the revenue for a building if we think they are at risk of downsizing or vacating.
So it's capturing 100% of that, and in many cases, these are potential downsizing risks that probably would be more of a 20% to 25% of the total loss.
And that is assuming we don't roll-up rent.
I think that's a very difficult question to answer, because every lease is a little bit different.
Every market is a little bit different.
For the government leased buildings, there are some buildings where we have a lot more negotiating strength than in others.
Particularly buildings where there are high security parameters or less options for the government to relocate out of our properties.
So, I think you're going to see, across the portfolio, a mix of roll-ups and you're going to see some roll-downs.
I think what we had said over the last ---+ what we've said, that over the next 12 months or so, we would expect our rents to be flat to slightly up.
I think that's consistent with our specific portfolio.
I would say that the market generally has become a little bit more landlord-friendly than tenant-friendly.
But again, I think it depends a lot on markets and you have to look at what the individual market's overall vacancy factor is as you try to make that assessment.
Oh, okay.
Well, as we've talked about on numerous occasions, the US government leases are flat, so we don't have contractual rent bumps.
What we have is the right to grow operating expenses based upon a change in CPI.
And if you think about where CPI has been over the last couple of years, it's been pretty modest.
We have some rent bumps in our state leases and in some of our nongovernment leases, but when you think about the US government representing over 70% of our rental income, and those leases are flat, we are not going to show a lot of internal growth from contractual obligations.
I don't have any expectation that the government is going to start agreeing to contractual increases in their rent.
I think that's the way they've always done it and I think it would be unreasonable for us to project to the market that we would get anything different than that.
Thank you, operator, and thank everyone for joining us on today's call.
I look forward to seeing you as we go to conferences and when we are out in the market.
Thank you.
| 2016_GOV |
2017 | KMX | KMX
#Thanks, Bill
Good morning, everyone
With regards to sales mix by finance channel, CAF net penetration decreased modestly to 44.2%, compared to 45% in last year’s third quarter, Tier 2 represented 15.4% of sales compared to 17% in last year’s third quarter, Tier 3 from third parties grew to 10.8% of used unit sales compared to 9.7% last year and similar to prior periods this year, sales where customers paid cash or brought their own financing also increased relative to last year’s third quarter
The allocation of sales across our lending channels was for the most part driven by the mix of credit applications
We continued to see growth in applications across the credit spectrum
It was more pronounced at the higher and the lower ends
Also, we did observe some weakness from one of our lenders in the Tier 2 space
For CAF, net loans originated in the quarter rose 8.6% year-over-year to $1.5 billion
This was due to CarMax’s sales growth and an increase in the average amount financed, partially offset by the lower penetration
CAF income increased 15% to $102.8 million, driven by a 10.4% growth in average managed receivables and a lower loss provision, which was partially offset by slight compression in the portfolio interest margin
Total portfolio interest margin was 5.7% of average managed receivables, compared to 5.8% in both the third quarter of last year and the second quarter of this year
For loans originated during the quarter, the weighted average contract rate charged to customers was 7.7%, compared to 7.3% a year ago and 7.6% in the second quarter
The ending allowance for loan losses was $128 million or 1.11% of ending manage receivables, up slightly from 1.10% in the third quarter of last year, but down sequentially from 1.15% in Q2 of this year
Now, I’ll turn to corporate finance items
As you probably noticed in the release, we experienced a reduction in our effective tax rate
The tax provision was positively impacted by $8.7 million in Q3. This relates to our adoption this year of the new FASB guidance regarding share-based compensation
The new standard requires the impact of share-based awards settlements to be reflected in the tax rate, whereas before it ran through shareholders’ equity
We expected this would introduce volatility to our tax rate and this is the first quarter where it has been significant
In regard to capital structure, during the second quarter, we repurchased 1.5 million shares for $107 million
That’s down from last quarter’s pace as you would expect based on the stock price during the quarter
Before I turn the call back over to Bill, I’ll comment briefly on tax reform and its anticipated impact on CarMax
Our federal tax picture is pretty straight forward
So we would expect the substantially lower corporate tax rate to benefit our financial results and cash flow in future periods
We are evaluating the magnitude of the benefit, now that the legislation has been finalized and is awaiting the President’s signature
Additionally, in the period of enactment, which we expect to be our fourth quarter, we will be required to revalue our deferred tax asset based on our estimated new tax rate
We believe this would result in a one-time unfavorable impact on our tax provision of an estimated $50 million to $65 million
This range could be impacted by our analysis of final law and our fourth quarter financial results
Now, I’ll turn the call back over to Bill
The subprime, <UNK>?
I don’t know if excited is the right word, because we are obviously more concerned about the denominator and overall growth would be best for us
But I can give you a little bit of color on the subprime
As I mentioned in the prepared remarks, we saw the volume of customer applications being strongest at the highest and lowest ends
So, I think, at least in our system that says that more customers at that low end are applying for credit than we have seen in the past
And another piece of puzzle from the perspective of the subprime penetration is, we have seen this quarter and in some last quarter as well an uptick in their conversion of the applications that they see, meaning conversion to sale
So there’s been a modest uptick in the performance of those subprime lenders
I don’t know how that persists, but obviously, after a period where we saw them declining several quarters ago, it’s encouraging
Mike, we can add a little color to that also
If you look back at our growth plans and our history, capital availability has not been a gaining factor for us in our decisions regarding growth and investing in our strategic initiatives
We are at the pace that we are at because we want to make sure that we can execute successfully on the growth and that we have the bandwidth to focus on innovation
So that’s always going to play into our thinking with regard to our pace of growth and how fast we move on things as well
Hi, <UNK>
I ---+ hey, <UNK>
I am ---+ I can’t really talk about what we are going to see in the following quarter, because it hasn’t happened yet
But I can give you a little color, Tier 2 and Tier 3 overall, there’s a number of things that have been going on here
The volume that Tier 2 you are seeing has been much more flattish, as I said, since the growth of applications has been more pronounced at the high and low end
So that’s planning it a little bit on the Tier 2. And then, as I did mentioned, we have a lender that has ---+ had a significant pullback
In the Tier 2 space we expected that every lender we are partnering with is going to bring some incremental value to the table
So if we see some weakness in one of the lenders, the incremental value that that lender is ---+ has been providing is likely to trickle down to Tier 3 and see them, and probably, have a little bit less conversion there
So we would expect that we are feeling some impact on sales
And it ---+ it’s an issue that has been percolating for the last several quarters
I can’t really say how long it’s going to be
But the conversion in Tier 2 is down a little bit, because of that and then so for a combination of the volume, the conversion and that one particular lender, I think, Tier 2 is a little bit is weaker than it has been historically
And conversely, we are seeing Tier 3 up a bit, because their performance has been a little bit stronger, and I think, we are seeing some trickle down from Tier 2 into that space, that we wouldn’t have otherwise seen
Hi, <UNK>
Yeah
I’ll speak to that, <UNK>
I mean, if you look at the CAF income picture from kind of a big picture perspective, receivables are up 10.4% in the portfolio, that’s the combination of what we are originating, what’s ---+ and what is rolling off
Our interest margin contributions are only up 8.8%
So we are still seeing a bit of compression in that
But as we are growing the portfolio, the loss provision is lower by $4.4 million this year and that’s really reflection of last year we were in an environment of escalating losses
So, not only were we missing our booked expectations, but we were building the provisions for expectation of higher losses
And this year in all three quarters we have been generally in line with our expectations
So that ---+ I think it’s pretty straightforward how the environment has evolved, like, where it goes from here, I am not sure
With regard to us versus others, I can only speak to what we are seeing in our system and the performance of our partner lenders, and as I mentioned in the Tier 3 space, we’ve seen some improvement in conversion of the applications that they see
And I could also remind you that back when we saw the subprime part of our business start to decline, we were ---+ we ---+ other people were not seeing the same thing at that time either
But I don’t know if we’re bellwether or we just run a little bit differently than what you’re hearing elsewhere
| 2017_KMX |
2017 | XEL | XEL
#Thank you.
Okay, you got me stumped on that one.
Anybody around the room.
<UNK>, you got it.
Pardon me, I'll double check on that.
But I think (inaudible) it's right now, frankly.
<UNK>, this is <UNK>.
I think that, after concluding our Texas rate case that was approved by the commission, we had negotiated the ability to file the CTRF filing immediately.
You should expect to see that from us sometime this month.
Well, I would say, we're not seeing it now, but we certainly have saw it in past years.
That's why we had some of the issues we had a few years ago is, we pushed through a significant amount of capital particularly associated with the re-licensing of our nuclear plants.
The bottom line is, I think it's very difficult to justify more than a 2% to 3% increase in rates.
And that's why we've been very cautious as we ---+ you heard in my remarks before, we have a lot of money we can spend in the grid and we'll go as fast as our customers and our regulators want us to go.
And typically, that means an inflationary-type pace of rate increases.
This is why we're so excited about steel-for-fuel, because it pays for itself.
I absolutely ---+ we're very mindful of that, and our capital plans respect that.
You're welcome.
Hey, <UNK>.
Yes, it would start to give details around that $1.5 billion, correct.
Are you talking about ---+ the upside, I think, that you're referring to would be the $1.5 billion of renewables that we didn't have specifically identified projects for, <UNK>.
Is that what you're talking about.
The only thing that we had to ---+ we were confident in, that's why it was in the forecast ---+ but that we had to actually solutionize, if you will, was the $1.5 billion.
Everything else is pretty much identified.
<UNK>, it's <UNK>.
The construct you're talking about was something we were talking about through most of 2016.
When we gave you new capital guidance at EEI or on the third-quarter earnings call, we rolled all of the upside capital from that into what I call our base capital plan and that's reflective of the $18.2 billion capital plan that we now talk about.
So it's all in there.
That's correct.
I think our rate base growth rate has us 5.5% rate base growth rate over the next five years.
Well, I think, <UNK>, every time we have significant changes either to the upside or the downside, we're always going to take a look at what that means for our long-term growth rate, and update accordingly.
And so as you get more time and more certainty ---+ and certainly what you're talking about would be execution.
As I mentioned, we'll take a look at it, and we'll take a look at it if there's any tailwinds ---+ or headwinds, rather, that might have surfaced as well.
So look for us to ---+ we'll continue to review that long-term growth rate.
And if it needs to change, we'll change it.
Well, I'm not going to get specific on the timeframe.
We just continue to look at what's happened, and what we think will happen in the future.
Well, I appreciate that <UNK>, because you're right, it is.
And again, I think, as I've said before, our rate base growth is going to increase.
But when you have things like steel-for-fuel, the pace of rate increases is modest.
And that's really important, we think, to long-term success.
Yes, absolutely.
You're trailing away, <UNK>.
Well, it sounds like you like or story, <UNK>.
We appreciate that.
We'll keep working on it for you.
All right.
Good morning, <UNK>.
Good.
This is <UNK>.
Yes, we've been working closely with other ---+ like I mentioned, other CEOs in the industry, with EEI, the trade group, as you know and so yes, we've had some preliminary discussions, but I would emphasize the word preliminary.
I think there's a long way to go with tax reform, I really do.
And again, I think when we're talking about tax reform a year from now, we'll be talking about something that looks, I believe, a lot different than what's on the table now.
I mean, it's just ---+ our industry's impacted, we think there's a way to address that.
We think normalization might be that pathway.
But when I think of other industries, the retail industry, et cetera, there's major potential disruption.
So I'm optimistic about tax reform, but I think it will probably look a lot different than what we're talking about today.
I do think the Senate is going to weigh in, and we've heard that.
Well, I don't think ---+ if you read the commentary from key members of the Senate, I think they're saying that they appreciate what the House has done, but they're going to have their own version of what tax reform should look like.
It's early.
I think you'll see the House version get passed.
Then the Senate will take up what I believe will be their own version.
Which, my personal opinion, and based upon conversations we've had, will look a lot different than the House version.
We haven't even talked about transition rules and I think there will definitely be transition rules because of the potentially disruptive nature.
So I think <UNK> said in his remarks, give us a couple more quarters, let's see how things go.
Things are moving fast in this Administration, but I really do think, to get it done, unless you try to jam it through in a budget reconciliation process ---+ and even then, I think you would be hard-pressed to get a majority of senators voting on that.
I do think this is going to take some bipartisan work and I certainly hope it is a bipartisan product, because I think that's better for the country, in my personal opinion.
All right, thank you.
Thank you all for participating in our call this morning.
Please contact our investor relations team if you have any follow-up questions.
| 2017_XEL |
2015 | KIRK | KIRK
#Okay, as far as traffic through the quarter ---+ and if you'll recall from our first two quarters, we haven't had large traffic gains to speak of, but we've been right around flat, slightly negative.
And that was the case at the beginning of third quarter as well.
Always coupled with strong conversion; we've had strong conversion throughout the year.
October, there was a little hiccup there.
Traffic dropped off another few points in that month and there were a lot of things going on, to your point.
We do have a concentration in Texas.
I think there was a general slowdown in retail generally during that time frame.
As we've come into the early part of the fourth quarter, we're not seeing quite that level of decline in traffic; it's a little better.
I think I alluded to that in the November commentary.
As far as Texas goes early this quarter, it's a little better than it was in October as well.
There's a lot of diversity in our markets in Texas.
We do have some very strong stores that are out in the more oil-producing areas, and along the border as well, that are weighing it down maybe more than what you might think just in the metro areas of Dallas and Houston.
So there's a lot of things going on there.
I think to answer your question, it's a little better in the fourth quarter so far than it was in third.
Well, like Mike said in his comments, we are at an elevated level but not to the point where we are concerned.
A lot of that inventory is seasonal.
The halloween, harvest selling through as successfully as it did is an indicator, typically, of how our Christmas assortment will perform.
I think you couple that with the fast-turning nature, the fact that we have reduced receipt to account, we feel like it's completely manageable.
There's not an aging issue, it's current.
It's got a lot of the stuff that we want for this time of the year.
Like I said, that clearance mechanism we have in January is also there to help us move through any items that are non-seasonal in nature to start the year fresh.
And also obviously, <UNK>, it reflects the growth in the store count and the growth in e-commerce.
Those are natural increases that we have baked in there.
Well, I would say a little more than half of the overall increase is growth driven.
Then there's a component, and I think that if you looked at the end of the quarter we would be ---+ on Christmas seasonal ---+ we would be about $3 million higher than we were last year, and that was planned.
That's what we wanted from this year.
We saw opportunity in last year's assortment to go deeper on some classes of SKUs that were selling really well last year, so we did that.
So that's a piece of it.
And then the other, I think, is just some overhang from softer sales in Q3.
That would be the component that we're planning for through a stronger promotional expectation for the balance of the year, and relates to what Adam just mentioned in terms of what we need to work through.
And it is manageable, given our turn rate.
Thank you, <UNK>.
I think it gets into some of the other areas of assortment, <UNK>.
Wall decor hasn't been performing as well as we would like to see.
I think we're on top of that.
I think the mix there was in a shift mode and we're working through that.
I'm not worried about anything content-wise in the assortment.
So wall decor has been a little soft.
Lamps have been a little soft.
That's a very competitive category right now and we have been reducing that assortment a bit as we work through the year.
There are some things, yes, that we're having to work through but nothing that I see is really holes in the assortment that we can't fix.
Well, I think it's more traffic driven, <UNK>.
I mean yes, some of the core product is a little higher in terms of how much we have on hand simply because we haven't had the foot traffic that we need that we would have to normally move through it at the rate that we planned.
I think it's more that and it's just adjusting some of those core buys going forward to make sure that we're matching pace with sales trends.
<UNK>, I'll just add that the conversion metric is one of the barometers for the health of the assortment.
The conversion was still up in Q3, so I think that just bolsters Mike's point that the traffic is the reason for any level of inventory overhang.
It's better than, certainly, what we called out related to Texas and that Gulf Coast area.
California has been a strength.
The Midwest, there's pockets of the Midwest that were doing really well, that Upper Midwest Michigan, Ohio area.
And then we're doing really well in the Southeast, Georgia, Alabama, Florida has been good traffic.
It's mixed but strength throughout the country in different areas, but for that concentration there in Texas.
Yes, for this year we are basically complete with our schedule.
We will have 42 stores open going into the holidays.
We may have one more pop up in January we're working through.
And as we walk into 2016 we, as we've said before, anticipate that pipeline to come earlier in the year.
We are well positioned to have a good chunk of the opening schedule open in the front half.
Even beyond saying the front half, spread across the front half so that we're not so concentrated which is what we had this year.
Next year's class should be very much more front-loaded than you saw this year.
Sure.
Just shy of 70%.
And that's not customers, that's revenue.
So the amount of revenue that we had generated through the site, 70% of that was shipped to store.
Hey, Dave.
That's obviously hard to do, but yes, I think it would be.
We were running, before we got a little more heavy in the way of promotion, we had a nice conversion gain.
If you go back into the prior quarters, you had it too.
So yes, when we get them in the store, they're buying, whether it's promotional or not.
It's hard to confine conversion to the category level.
We are seeing early strong results out of that assortment so that's part of the conversion gain.
I think that is a component of it, yes.
That's right.
We've got some planned percent offs and things that we do.
But yes, we are pleased so far with the progress in that assortment, so that's a good sign.
I think it is; it's not seasonal.
We're heading into the seasonal period here with that and we just talked about it and its early performance.
It's more every-day product in some of the core categories that we carry and letting that come back in line over a few months here should be all we need.
I think we'll wait on being really specific there.
The one thing I would say is as you start to go in to the end of the year, we're going to start being up against the effect of the port slowdown which held our inventories levels low beginning, really, about this time last year and continuing on through April.
That's something to keep in mind when you look at year-over-year compares as we go forward.
We will do that when we get to the comparison and we talk about it.
Thanks, <UNK>.
<UNK>, I would call it out as we're softer in the western part of the state.
Some of the markets like San Antonio along the border, Austin and further west, it's offset a bit by Dallas and Houston being a little stronger.
Then we're also seeing some weakness in Oklahoma and Louisiana.
<UNK>, this is Adam.
For what we experienced in Q3 and what's going to bleed over into the margin in Q4, these inbound charges that were very, what I would call, discrete items to the quarter, should not happen again next year.
We've had planned measures in place for awhile to avoid those type of charges.
The plan from earlier in the year was to get our second facility up and going in Jackson to defray some of those charges.
As Mike mentioned, we weren't able to get that facility up and going fast enough and created a bit of an inbound backlog which caused these per diem and demurrage charges that we saw.
For those charges, yes; those should be leverageable next year.
But overall supply chain, I think, you're probably not going to see the leveraging effect until we get a more robust chain all the way back to the port which could include a form of a West Coast bypass as well as a second facility outside of Jackson.
But I think next year we do have the opportunity to hold the line on supply chain costs given the measures that Adam mentioned.
So that discrete component should not occur.
One thing is it's line by line, as we look ahead.
If you are talking about the fourth quarter, there's not a lot we can do.
We can control some of the marketing spend but I think it's important that we maintain activity there to continue to drive traffic.
As we go forward, I think we're past a lot of the fixed cost investments that we've made.
Holding the line on corporate expenses is going to be really important and we certainly intend to do that going into next year.
Beyond that it's looking at every line item and seeing what you can control best and putting that into place.
Thanks.
It's a competitive space.
I think there are a lot of promotions going on but it's hard to really pinpoint by retailer.
We've certainly baked that into our fourth-quarter plans and we think the season is going to be a little more promotional, given the slowness overall that was in place toward the back end of Q3.
So we planned for that.
I think it's the systems have really helped us achieve the string of positive comp quarters that we currently still have in place.
A big part of that is being able to identify core merchandise which now makes up almost 40% of our total sales, every-day products that have a steady sales rate.
That was a big win as we implemented a lot of those systems and processes and we've benefited from that.
I think going forward, the core, now that it's in place, I think we need some maybe deeper scrutiny as to knowing when to pull back on some of those items and know when to inject the new, to make up for that volume.
I think the bigger opportunity going forward system-wise is regionality.
We're doing a little bit of that now.
It's an initiative that we've really been working on with our merchants and planners to get more store-specific with our assortment.
We've got a long way to go there but we do have the tools in place to help us with that.
So those are all sales and margin drivers as we look ahead that we really haven't fully experienced yet.
It would be somewhere in the range of ---+ it's a wide range ---+ but say mid $60 millions to maybe $70 million.
We had ---+ of course a lot of that depends on the fourth-quarter operating performance, but you'll recall we did pay out at $26 million dividend earlier in the year.
We'll have some more share repurchases ahead of us which will use some of the cash.
We've got a slightly higher CapEx number really due to that end-of-year timing issue that I mentioned.
So still a very healthy cash balance and we feel like we're well positioned to make the investments we need to make going into next year.
It's early, <UNK>, and we're going to give a lot of color on that the next time we speak.
But I think that we can, with a modest comp, achieve that.
I mean there are some roadblocks, potentially, to that for all of retail, particularly when you talk about labor costs.
For us, I think supply chain's going to be a focus but something I think we can hold pat.
And if we can comp and continue this growth plan and it be more front-ended, we do have the opportunity, I think, to generate leverage at a 3% comp range.
Thanks, <UNK>.
Thank you, everybody, and we appreciate your attention and time on the call today.
We look forward to talking with you next quarter.
| 2015_KIRK |
2016 | AKAM | AKAM
#Well, I'm concerned about all our competitors.
That said, we see much more competition from dozens of other companies than generally we would have from the large cloud providers.
Our performance is a lot better.
We don't really see the competition at all from them with the security product capabilities.
It's primarily around delivery.
We have been competing against at least one very large cloud company for nearly a decade that is known to bundle in CDN services.
We have a lot of our customers use that company for hosting their website, either a store there or with compute.
And they use Akamai to provide the delivery of the video or accelerate the delivery of applications or to secure the content.
So I don't see any change in terms of the competition from these large Internet infrastructure companies against Akamai.
So no change there.
Now, for their own content, as we've talked about at great length, there is a couple of them that are delivering more of their own content.
And that of course has had the impact on our overall revenue growth rates issue.
But in terms of competing with other third parties, no.
No change there in terms of the impact they are having on our business.
There are a lot of startups out there.
I think that has always been the case, too.
They don't use the cloud providers.
What we do see is the attackers.
They use the cloud infrastructure and they can mask where they are coming from to make it harder to defeat them by coming from the big cloud companies.
But we see the main competition is from the folks that have been doing it for a decade.
And the one big change we've seen in the competitive marketplace has really worked in our favor, and that is the major carriers.
As I mentioned, several years ago, most of those major carriers competed actively against Akamai.
And now the vast majority of those carriers partner with Akamai and make use of our technology.
And that has been the one fundamental shift in the competitive landscape.
And when I say competitive, I mean now an entity that's competing with us for third-party content.
So the major shift in the competitive landscape has been favorable.
We've always had a lot of startups.
For a long time, we've had companies that have competed against us, and they would be the majority of the competition.
The cloud companies have been out there, most of them, for a long, long time.
And no shift there.
The only shift that's impacting our revenue is the DIY in a couple of large accounts.
But that's not competing for third-party content.
And I don't expect it to.
I think there's certainly a set of aggregators, and they are growing.
And also the broadcasters going out directly as well; that is growing.
And I think right now, just the all different avenues being explored by the major content owners and broadcasters.
So I don't see right now a single offer, an aggregated offer, hitting the marketplace that will take over.
I think you will see a lot of seeds planted and flowers will bloom and both aggregation and the broadcasters going direct with their content.
And we service all of those entities.
We are seeing strong OTT growth among the aggregators as well as the broadcasters who are taking some of their content and making it direct.
Yes, we are always working on lowering our costs, to trying to get more bits per second out of each square foot of colo, out of each kilowatt hour, out of each dollar of CPU.
And we have a really great track record there; a lot of initiatives underway.
And I expect to see continued progress.
As <UNK> noted, we are in a situation right now where we do have in some geographies capacity that's available.
And so you see us in a situation where our CapEx for server purchases is a little bit less than our long-term model.
And as traffic growth reaccelerates ---+ and if the traffic growth is quite strong outside of the few accounts that we have talked about, that fills up that capacity, and that helps as well.
As you've got fixed cost and you have a little bit extra capacity in some markets, that hurts the margins and your costs a little bit.
But I think we've had good progress there.
We will continue to have good progress; plenty of initiatives underway to improve efficiency.
Yes.
There's no real direct impact from Brexit that we see at this point in time.
Obviously, there's been currency fluctuations, and so that can change the foreign-exchange rates.
There can be impact in the equity markets.
But I don't see any real impact to our business.
Yes; we are investing a great deal to substantially lower the cost of media delivery.
And in fact, the Octoshape acquisition, that was part of the acquisition thesis.
We have been very happy with that acquisition.
It also greatly improved performance at the same time.
We are in the process of integrating their technology across our platform, and you will see us be delivering more of our content as we go forward from clients and client devices.
In some countries, that is happening already.
And it does substantially lower our cost and that enables us to pass on lower pricing for our media customers.
That's a great question.
And you will see, as the market evolves, you have Akamai, which has expertise in the cloud, has tremendous capacity, has great performance capabilities, now bringing very strong security technology into our platform.
You have, on the other side, companies that have past experience in security as a box that is purchased and deployed in the enterprise's data center.
That world is going away.
The security technology needs to move into the cloud.
And it's very hard to take technology that was dedicated to a single customer and operated by that customer in their data center and now make it in the cloud to try to make it work in a multitenant environment, give it sufficient capacity, and make it perform well.
And on top of all that, make it be affordable.
So we have tremendous home-field advantage in the cloud compared to the companies that are trying to figure out how to move into the cloud.
And I think it's because of this that you see several of the ---+ some of the well-known box providers now being bought by private equity or looking for ways to evolve the company.
Because it is hard to take what they have and produce the kind of capabilities that Akamai can now offer in the cloud.
| 2016_AKAM |
2016 | CYH | CYH
#We've got the reserve on the balance sheet of the first CDRs, $260 million, roughly.
And I think that <UNK> said there's been no update to that, really.
<UNK>, those eight hospitals are ---+ the problems with those hospitals are one of three or four or five things.
Competition in a couple of markets certainly is an issue.
HMA got behind the curve and we didn't move quick enough in terms of doing some things in those markets that we should have, so competition is an issue.
One particular market, which is well-known, is that we had a physical plant problem and we've been able to solve the physical plant problem but unfortunately, it created a lot of issues in that particular market.
We've got a couple of markets where there are physician issues; these are not necessarily competition issues.
I'd say the competition issues are some of which are also physician issues.
But these might be issues with groups that we may had a relationship with that we decided that the relationship wasn't working the way we thought it should work and we made some changes there.
Or we decided from a compliance standpoint, there might be an issue.
So it is a number of different issues, but there's no question about the fact that it's taken us much longer to resolve these issues than we've anticipated.
It's a mixture of sole providers and some of competition.
Some of both, <UNK>.
They were down pretty much the first quarter, and there's suspected improvement in those over the remainder of the year.
Well, the fourth quarter will be the best quarter of the year.
We've had this uptick in demand as a result of the (inaudible) and co-payments; that would be the best quarter.
And then we're coming off a quarter of $633 million, so there will be some improvement next quarter.
But clearly, the fourth quarter would be the best quarter.
Yes, we were $633 million for the first quarter and probably if you go back, the last three quarters averaged better than that, at $661 million for the third and $696 million for the fourth.
But looking at the first quarter, a run rate and we had about $56 million ---+ had about $18 million of HITECH, which brings it without HITECH $615 million.
And the Quorum is $56 million, so that reduces it, and then we're probably going to reduce roughly $15 million to $18 million for the Las Vegas investment.
Gets you a quarterly number.
Generally speaking, it's all of the above.
But having said that, we've done a good job of recruiting.
We've done a lot of recruiting in Florida and for these hospitals as well.
And a number of physicians did leave.
It's taking a long time to get these physicians up and going, the new ones that we recruited.
But look, it's all of the above.
Every possible scenario here has happened in terms of these facilities.
But having said that, I think there's a couple things here I think important to talk about as well.
There are a lot of good assets that were in HMA.
We will end up with a lot of very good facilities from HMA when we get through this.
As we said, we can point out the ones that are not performing very well and I think we're on track to get those problems resolved.
The other thing that I'm pretty excited about that we haven't really talked about ---+ and we have a slide on, slide 8 ---+ is our new Management group that's working hard now and they are just getting in place.
But we have a very good sound group of people that will be operating our divisions now going forward.
We have three new Division Presidents.
One has only been there for a short period of time.
So I think we're moving ---+ I think we're headed in the right track in terms of all of the things we're doing, but time will tell.
Clearly, the Florida [lip] program, which cost us $10 million this quarter, $10 million in the third and the fourth quarter, and cost us another $10 million this quarter, was not helpful.
And I think the challenges of managing physicians there is part of the HMA markets has been more than it has been in the CHS legacy markets because we've had to recruit so many.
It's all of the above.
We had solely issue, we had ---+ there's some markets that aren't great markets.
There's some markets that are great markets.
There's some facilities that need work, that the work hasn't been done on them.
You name it ---+ there are a number of those kinds of things.
Having said all of that, there are still a lot of very good facilities within HMA that will perform well over the years going forward.
If you go back to the third quarter, we had a physician salary issue and a lot of physicians; and clearly, we've added a few more physicians in the fourth quarter that are a little better.
But we were down on physician practice results.
We had a drug issue also, and I think our volume results were not as good, especially in Florida, with the seasonality goes on.
We had a negative admissions, I believe, of about 3% in the fourth quarter.
And we had about a negative adjusted admissions by 1.2%.
So actually, we improved 250 basis points from the third and first, but we had another drug issue we also called out that activity.
This quarter, we had some operating expense issues that popped up on us.
Our revenue per unit and our payer mix wasn't as strong as we'd hoped it to be.
It was still positive, but we were about a 1% revenue per adjusted admission this quarter.
Last quarter, we were 2.5%.
The quarter before that, we were 2.2%.
So our revenue per unit, which is something we have got to continue to work on to get a better revenue per mix, and we'd anticipate that to get better.
So from that perspective, that got worse in the quarter.
I think the expenses were a little bit better managed probably in the fourth quarter than they were in the first quarter.
We've had a really tough January, which we didn't recover from quite as well.
In the next two months, the managed care utilization, managed care rates have been pretty good all throughout it.
Yes, first of all, we're going to recruit less physicians this year than last year, I believe.
So it will be less starts because we had a really good year last year.
Two, we're going to improve the productivity to ones we've got, especially the ones that have been around for awhile and I've been there.
There may be some ---+ and there will be some contract changes to make them more interested in that result.
We're going to manage the revenue growth better.
We've got four or five initiatives around chronic care management and other activities.
Star rating around Medicare Advantage business that we've got underway to try to help that.
And also, some of the Medicare wellness activities.
So, hopefully get more volume there.
And then become more known.
The physicians that we started out with in the third quarter of 2015, have been around now for another six months.
They will be much more productive now than they were then, so that will be that.
Plus, we'll bring less in.
So one of the things we're trying to accomplish in terms of our physician practice improvement is standardization.
Everything from schedule management, standard hours, online scheduling, all those things that ---+ and we continue to look at the contracts and all that, as <UNK> said, in terms of revenue improvement, we're working hard in a number of areas.
We're also bringing a lot of technology to our physician practices that we did not have before.
As we standardize everything from supply and staffing, we're getting much more sophisticated in terms of how to go about managing these practices, including helping the physicians in terms of coding improvements and all of the things that physician practices need.
So we've stepped it up quite a bit in terms of our ability to manage practice.
We should see the result of that by the end of the year.
Yes, on the Quorum, we had an internal budget and we pulled out our internal budget for the first five months.
And of course, I think they had an actual in first quarter also.
But it's more like $225 million we're pulling out of Quorum.
And again, there's a difference between our budget ---+ our internal budget ---+ and what they are going to perform as a separate company.
So there are some differences.
As it relates to UHS investments, probably $35 million to $40 million.
They had a good first quarter---+ and again, this is our numbers.
It may not be Steve's numbers.
But $35 million or $40 million going forward.
And then about probably $30 million to $35 million ---+ probably $35 million to $40 million off the group of assets unnamed, the 10 hospitals and other operations that we expect to remove in the third quarter.
So, said another way, most of the shortfall in the low end of the guidance relates to changes for those assets used in our internal budgets for those facilities.
And then on the high end, we did reduce it $50 million and they're at a range from $150 million to $100 million.
So the high end was 2.7.
Yes.
That's correct.
I think they were $275 million, $265 million, but I'll let them speak to their exact numbers.
But we took out what our budget was and again, there are costs that they've got that we don't have and there are all kinds of different allocations to go along with (multiple speakers).
They've got an income statement that may be different than our internal budget that we're looking at.
There's new contracts, a lot of them in Florida.
I think we had six or eight new good-size contracts that went in place January 1.
And we've got another similar number going in, in the second and third quarter for Florida because we're working to improve the Florida revenue.
If you look at the midpoint of our volume growth, it would be 1.5% and we were at 1.3%.
If you start to consider the flu and Easter offset, Leap Day, and if we do about a 1% volume growth, we were about less than a 1% revenue growth than we thought for the year.
Our revenue per unit growth would be somewhere around the 2% to 2.5%.
Again, we ran that pretty much last year.
So if we get the 2.5%, we also had about a 90 basis-point increase in our managed care utilization last year.
I think it was a flex bottle on that this quarter of 10 basis points or 20 basis points.
And that's basically where the $100 million comes from, is doing a much better job holding the volume for the rest of the year in the 1.5% range and being more like a 2% revenue per unit would get us a much more revenue than we got off the first quarter.
You're looking at just EBITDA, <UNK>.
And clearly, as revenue goes away, EBITDA goes away, interest expense gets reduced, depreciation gets redone, there's less demand for CapEx.
But from an EBITDA perspective, you've probably got about $65 million to $70 million probably of Quorum that won't be there.
And you've got probably $15 million to $20 million on Las Vegas.
And you've got the remaining portion of the first year.
But based on where we will be looking at, you'll have less interest expense for a whole year.
You'll have less depreciation and less needs for CapEx.
And actually, I'll probably ---+ these facilities other than the Universal, which I guess we have $35 million cash last year, although we had about $50 million of EBITDA ---+probably the 10 hospitals and the other investments are probably not that cash flow-positive for us.
So that helps our cash flow next year.
Yes, I'll take the first one.
I think what we've got done, we clearly were not pleased for where the first quarter was, and so there's new cost initiatives to bring costs back down.
I think I mentioned in the first month, the quarter was not that good and we didn't react fast enough throughout the quarter to get back where we needed to be.
So there's some cost initiatives under way to help some in the second quarter, a whole lot better in the third and fourth quarter.
I think I've mentioned some of the other operating items that we'd called out that we served up and at least half of those who think will go away on their own.
It shouldn't be something that repeats itself.
As it relates to the physician recruitment activity, <UNK>.
Yes, <UNK>, I think what we're doing is trying to enhance and improve the practices.
Hopefully, it will improve volumes instead of creating a problem with volumes.
So I don't think we're concerned about losing much volume in terms of the activity that we are ---+ the issues that we have in activity, we're doing in terms of correcting some of the productivity.
So I think it's a positive, not a negative.
It should be going forward.
We may lose a few along the way, but anybody that we lose probably is not a big volume physician anyway.
You know, <UNK> we've done similar things about looking at the employed physicians in the past, and when we've done that, we still have been able to grow earnings and volumes as a result of it.
And I think we'll be able to do that to the same thing here.
Thank you again for spending time with us this morning.
We are focused on the execution of our strategies that we have outlined today and improving our leverage ratios.
And we want to specifically thank our Management team and staff, hospital Executive Officers, hospital Chief Financial Officers, Chief Nursing Officers and Division operators for their continued focus on operations.
Once again, if you have a question, you can always reach us at 615-465-7000.
Thank you.
| 2016_CYH |
2016 | SPGI | SPGI
#The CMBS pipeline has actually been quite weak.
CMBS issuance was down over 60% in the second quarter.
There were 10 transactions that were completed.
We were on one of them and we continue to claw our way back into that market.
The pipeline now right now is actually quite weak.
It is a trend that started off in the first quarter ---+ first and second quarter, continued in CMBS.
We have hired a great team.
We have retooled our approach to be business over the last couple of years.
It is our hope that we get included on more and more deals on the CMBS market over time.
We do continue to rate many of the single borrower transactions but those also have been quite weak during the quarter.
I would point to two things.
One, compared to Q1, Q1 was an abnormally terrific growth quarter for our Global Trading Services.
It was up quite considerably in the first.
We still had very nice growth in that area.
It's only 10% of that mix.
But we still had very nice growth in the second quarter, but it just wasn't quite as fast as what we saw in Q1, so it wasn't as accretive as we saw previously.
It is still a challenging market out there in terms of the profit pressures on the commodities space, so we are still seeing growth, but it may be costing us a growth point or two.
Thanks, <UNK>.
I assume the way you are asking the question was you are looking at more on a sequential basis from first to second quarter.
Some of the expense difference between the first and the second in that general range that you mentioned had to do with the drop-off ---+ what <UNK> mentioned in terms of some of the outside professional fees that we were paying either to lawyers or more significantly in some of the work that was underway in the risk and compliance area to ensure tight complaints with some of the Dodd-Frank requirements, which we had to do last year.
So that money has been spent.
We do have that risk and compliance investment now in the run rate, so that benefited some of the expense quarter-to-quarter.
On a go-forward basis, it's not like we expect minimal revenue.
We have to ---+ to <UNK>'s point, we are trying to be more commercially oriented going forward, but we are going to be influenced by what is going on with issuance trends.
I just would say that our forward outlook is not assuming this robust activity that we saw clearly here in the second quarter.
Let me just give you a little bit about ---+ nobody has asked this question, but since I'm prepared for it, I will tell you a couple of factors that (laughter) you haven't asked yet.
Related to the overall issuance market going forward, as you know from what we just gave you, we do see that there is going to be a reduction in the overall issuance for 2016.
But if you look forward further, and you look at the 2016, look out forward to 2020 or so, there's two factors we're looking.
One of them is total debt markets, including bank loans, which we don't necessarily rate.
The market is large.
We think it is going to grow by trillions of dollars.
In fact, it could span over the next five years to a $73 trillion market, including a large increase in China.
We do think that there is an increase in the combination of refinancing, as well as new financing going into that.
We are targeting, through all of our businesses, in market intelligence, a couple of businesses there, and then also in ratings, more and more penetration of loan markets and models and things like that.
So we look at the size of the markets and how they are growing longer-term than just the next quarter.
Over the rest of the year, though, we do think that there is a large amount of debt maturing between now and 2021.
The issuance ---+ the maturations over the rest of the year are actually not that strong.
That's why we see the full-year down about 3.8%.
We are concerned about the Brexit, what kind of impact that might have on issuance.
US interest rates and global interest rate outlooks have been quite volatile and they're changing all the time.
So in the short run, we usually expect possible volatility.
As you've have seen, as you track this business, quarterly issuance can go up and down.
But with a very long-run five-year view, we see some very large numbers of $73 trillion overall corporate debt market, which includes bank loans, and then through 2021, $10.3 trillion in debt maturing that is actually publicly issue debt.
We do see that there is a lot of activity.
We are trying to build our business around this and trying to expand it beyond just being a single ratings approach to the market, looking at bank loan rating, RES, different types of loan evaluation services, et cetera, so this is a big area for us to focus our strategy going forward.
The leading indicators should be higher oil prices.
That is probably ---+ I am giving you an unscientific answer, but if I were going to what's one of the most important correlations to overall volume, as well as activity, it has to do with the price of oil.
As you know, as we dropped into a very low oil price early this year, even though it's recovered somewhat, there a lot of people that exited the industry.
You had a large increase in defaults and bankruptcies in the US, in particular, in different types of oil businesses.
So probably getting a higher price of oil would be the largest factor that could bump up growth to the double-digit range, if that was still possible.
We have still been growing quite steadily in the mid-, single, mid- to high single-digit range, despite this because there is still such a demand for information and for our prices to be embedded in different kinds of contracts.
But double-digit range would require more than just ---+ would require a lot of work from us, but in particular, for the price of oil to be a lot higher.
The only thing I'd add to that is just keep in mind, we are trying to grow off an ever-increasing base, so double-digits off $700 million is a little bit different than double-digits off $0.5 billion.
So the reality is the business is working hard to expand its product line.
We have been investing to expand out the product line beyond oil.
That now represents one-third of the business.
We're also looking to do more than just price assessments, and we're investing to do more in the area of supply/demand analytics, so we also, from a longer-term point of view, need to build out the product line and increase our offering.
Andre.
Are you muted.
Okay, operator.
He is not there.
The primary driver would be, first is the level of overall debt issuance because that is probably the first and the second most important driver.
There could be a little bit of impact from what goes on with fund flow relative to US equity markets that could impact our indices business, but now, we have pretty good revenue visibility outside of debt issuance because so much of our business today is recurring revenue subscription-based.
The only thing I'd add to that is that, as you know in our industries business, we do have certainly ---+ as you know, we've change the way we characterize our revenue.
If AUMs continue on a very steady increase, that would also be a benefit.
That revenue tends to drop almost all straight to the bottom line.
That could be another factor that would put us up towards the higher end of the range.
And that's for the flow issue and an overall stock market level.
Flow and market level.
Right, so two things there.
We have a resource model that takes everything that you just mentioned into account in terms of our forecasting.
We are able to manage the staffing level through attrition, if we needed to.
We're also able to manage it through our bonus pool, our bonus accruals, if that was something we needed to look at to ensure that we are accruing according to the level of staffing we have, as well as the level of activity.
Those are two of the most important levers.
But we have built a way that we've got some flexibility, as well, by having analysts that are spread around the globe; they are not all concentrated in London and New York.
Despite the Brexit being a concern for us, we do have significant staffing in other European cities, including Frankfurt and Paris and Madrid.
We also get support from our partner, CRISIL, in India.
They are part of the overall flow as well, and some of the aspects to work flow processes of crunching numbers, et cetera.
So we have various variables we use to manage that.
That's part of what John Berisford is doing a great job at.
Thank you.
This is an iterative process that could take a while.
There was no low hanging a fruit.
This is something that's not ---+ it's very important for us to approach this from a relationship point of view and we hope that there is a continuous steady penetration of more products, more services our customers, as I mentioned.
There is no league table for loan ratings, and this is another area that we're trying to do more and more of as we think also around the globe, is most markets are more bank markets as opposed to loan markets.
We're trying to penetrate with more services in that area, as well, so this is something that we hope we can see continuous improvement and growth in the top line from many, many different factors.
It's not just the contract terms.
We have good relationships with our customers, and as you can imagine, any time when you to renegotiate contract terms, it's not always easy.
That's an area that we've been spending a lot of time on, structurally, as well as strategically.
The industry itself is going through a massive amount of change with Barclays having changed hands, with ICE having bought IDC, with what's happening in Europe with the exchange transaction going on there in the interest of fixed income investments around the world.
As well as all of the main asset managers, large goal of asset managers, looking at so much change and volatility in the shape of the fixed income markets, especially with pricing liquidity concerns creeping in.
We think it's an area that it will continue to develop.
We think there will be more and ETF products and target date products, retirement products, et cetera, that are developed over the years.
We would like to play in that.
We are off to a good start with our dialogue with the asset managers and with ultimate distributors about these types of products and services.
We have a core set of indices around the S&P 500, as well as some other fixed income indices.
We have about $40 billion right now in AUMs in the fixed income index space.
We are looking at all different ways to grow the business, whether it would be continuing to grow and penetrate with what we already have and what we are developing, as well as looking at the different properties that pop up for sale and whether or not they could be valuable to be added to our portfolio, if the price is attractive, as well if the capabilities they bring are attractive.
So continues to be an important potential growth area for us and we do have dedicated resources to seeing how we can grow in this area.
Okay.
Thank you very much, everyone.
With that, let me conclude the call.
I am pleased that we had another strong quarter.
The financial performance was excellent, ending up with an EPS growth of 17% and year-to-date cash flow of $513 million, et cetera, is all something that we are very pleased that we have been able to achieve.
But let me end the call again by thanking <UNK> <UNK>.
He has been a great partner and he is heading off to Yale University and they are going to get the benefit of his experience and expertise.
Thank you, <UNK>.
We wish you all the best.
Thanks, everyone.
| 2016_SPGI |
2017 | JNPR | JNPR
#Thank you, <UNK>
Good afternoon, everyone
We delivered good year-over-year revenue and earnings growth in the June quarter
Total revenue was $1.309 billion at the high end of our guidance range, with growth driven by record revenue in Switching and continued strength in the Cloud vertical
We delivered strong profitability metrics, with year-over-year growth in operating margin, operating income and diluted earnings per share
I'm pleased with our overall performance as we continued to benefit from our diversification strategy
We're executing on our strategy to lead the transformation to the cloud, and I'm happy with the continued strength in our cloud-oriented solution across our key focus verticals
Enterprises continued towards digital transformation by adopting hybrid cloud and SaaS models
Top of mind for many of our customers are security and visibility of data and workloads in a multi-cloud environment
Telcos are going through a significant transformation as trends such as SD-WAN, 5G, IoT, and overall broadband growth are driving the need to evaluate Cloud-grade architectural shift in order to increase automation, reduce costs and enable greater service speed and agility
In the quarter, we unveiled Cloud-Grade Networking to accelerate agility and innovation in the cloud era
Cloud-Grade Networking builds on carrier-grade reach and reliability and enterprise-grade control and usability, bringing cloud-level agility and operational scale to networks everywhere
This announcement includes two new foundational products: Junos Node Slicing and Universal Chassis, which reduce operational overhead and create an environment for operational agility to thrive
Junos Node Slicing is a critical technology in the transition to Cloud-Grade Networking and in particular, the movement to disaggregated networking at the edge
By enabling the ability to run multiple isolated services at the edge, combined with a powerful and efficient data plane, service providers and enterprises can optimize their infrastructure while offering differentiated services with enhanced operational and administrative isolation within a single chassis
This is enabled by converging multiple concurrent services on the same physical routing infrastructure
This differentiated technology has already enabled a Tier 1 service provider network win for us, and we expect that we'll have broader impact as our customers learn about its powerful benefits
Universal Chassis is a breakthrough system allowing customers to standardize on a hardware platform across their data center, core and network edge
It is designed to provide customers with the ability to adapt to ever changing business requirements with a common hardware platform that supports a continuum of optimized switching and routing use cases across their network
Universal Chassis can create significant value for our customers by enhancing their ROI through reduced qualification and logistics cost along with greater investment protection
Now, I would like to summarize the highlights across Switching, Routing and Security
In Switching, we saw continued momentum with year-over-year and sequential revenue growth across all verticals
Two effects continued to see strong year-over-year growth in cloud data center, driven by the industry's migration towards 100-gigabit infrastructure and as our customers adopt end-to-end solutions with Juniper's ToR and spine portfolio
We also saw year-over-year and sequential growth in our EX products
In Routing, the MX had good year-over-year and sequential growth
And we also saw strength in our PTX products within our cloud customers and new insertions in telecom in the second quarter
In Security, we announced enhancements to our Software-Defined Secure Networks platform and expanded our public cloud offering with the introduction of virtual SRX 4.0. Our SDSN enhancements deliver pervasive security across multivendor environments, public clouds and private cloud
Juniper's SDSN platform and its ecosystem help organizations unify security for their networks, giving customers a streamlined way to integrate products and manage their security operation regardless of the vendors they choose
In addition, we continue to add new logos to our Sky ATP customer portfolio
In the quarter, we continued to see momentum with Contrail and had several new customer wins, including a large Strategic Enterprise customer in APAC and a large telecom customer in EMEA
AppFormix and Contrail have been integrated for seamless operations management of Juniper's hardware and software
This allows us to bring the powerful machine-learning capabilities of AppFormix to our entire portfolio of products, and we are now applying this capability in various customer use cases
We had another strong quarter in our services business, where we saw strong renewal and attach rates of support contracts and an increase in demand for professional services
To summarize, I'm pleased with our execution and the continued momentum we are seeing in our Cloud vertical and our Switching business
I am proud of the strength in our product and services portfolio and excited about the opportunity we have in front of us
We saw good momentum in the first half of the year, and we anticipate delivering revenue and non-GAAP earnings growth for the full year
I would like to extend my thanks to our customers, partners and shareholders for their continued support and confidence in Juniper
I also wanted to thank our employees for their continued hard work and dedication to successfully execute on our strategy and create value for all of our stakeholders
I will now turn the call over to Ken, who will discuss our quarterly financial results in more detail
Actually, Rod, let me start
And then Ken, why don't you weigh in? So on the first question around growth, goes without saying we're pleased with what we've seen in the first half of the year
We're off to a strong start for 2017. It certainly gives us confidence that we can meet our objective of achieving revenue growth and earnings growth in 2017 all up
Having said that, with respect to the specific verticals, remain optimistic about Cloud vertical
A lot of focus inside the company at maintaining the momentum in the Cloud
However, we've always said that the Cloud vertical is going to have some lumpiness
There's going to be a timing of deployment factor that we need to weigh into our overall outlook on a quarter-over-quarter basis
Telco, it's going to be more of the same
I think nothing really changes all that much either in the positive or the negative direction
The engagement level with our telco customers is very high
And it's all very much around new architectures, new ways of driving service revenues, et cetera
But the new mode of operation, the new build-out that drive these new modes of service delivery are just going to take some time
So we're not expecting anything materially different in the short term
Enterprise, there actually in Q2, we saw some good momentum with the exception of the federal government
And there, we have to see how the federal government spending plays out for the rest of the year
But generally speaking, we've done a good job in compensating for weakness in federal government with the broader enterprise
So all up, we remain optimistic about the year, and we're off to a solid start in achieving both revenue and margin growth for the full year
Sure, <UNK>
I'll start with the question about Routing
And then we'll address the first question or the point of clarification you're asking about
The routing market is largely driven by the Telco vertical and the Cloud vertical
And those are a little bit of a tale of two cities right now where the Cloud is really spending quite a bit on their wide area networks, making sure that their customers for their Cloud services continue to get the optimal experience
And that involves investments in their wide area network
That's somewhat offset by weakness in the Telco vertical, all up, which is obviously significant factor in Routing
So yes, traffic is growing
But there are sort of other factors at play that results in Routing from a revenue standpoint or total addressable market standpoint not growing all that well
Having said that, I think that there are some things that are going to be happening at some point in the future around metro buildouts, around new modes of delivering services to enterprises that leverage things like new Cloud-managed solutions to connectivity and security that we are very much engaging with our customers on today, difficult to tell exactly when that will result in actual revenue growth for us
But that said, we're doing everything we can right now to participate in those new modes of spend when they become a reality in the market
The last thing I would say about Routing is there is a big geographic component to this
China is a country that's still investing quite heavily in routing today
They're driving a lot of the world's sort of wide area traffic growth
And in order for us to participate effectively in that market beyond the level that we are today, we need partnerships
And there is a, as you know, quite a bit of focus right now by the company on creating partnerships such as the one that we have with Lenovo today, that will enable us to tap into that market as effectively as possible
And just to add some color on the first question, <UNK>a, I appreciate the question
Juniper has always been a company that has derived much of its success by focusing on those that operate the world's largest, most scalable networks
And that's certainly true for our service provider on our Cloud vertical
So, in some sense, due to reasons of strategy where we're focusing as a company, where our strengths lie, and the concentration of where spend is happening in our industry, concentration in our business is not new
I think the timing of deployments just so happened that resulted in a little bit more concentration than usual in the Q3 timeframe
I'm not prepared at this point to provide any additional details just for reasons of confidentiality about the specific customer though however
So, <UNK>, I appreciate the question
We're just off to a really solid start this year
I think, as you saw in the Q2 timeframe, we sort of hit the high end of our revenue range
Part of that had to do with sort of just timing of deployments of big projects that we have been working on
There is no change to our confidence in terms of our strategy, our ability to execute, our products that we have in the market today and the products that we're working on that we know that will be out in the market in the future
And also our vertical focus, so the Cloud vertical continues to be a really important vertical for us
I don't think that there's going to be any material slowdown in terms of their need to invest in their networks to keep ahead of the traffic that they are seeing on a yearly basis
But we just have to factor into all of this the timing of those deployments and the timing of the projects
And I think you also mentioned Switching
Obviously very happy with the Switching performance that we have demonstrated well ahead of our long-term model
I think we've said in the past, and I'll say it again just now, that expecting that level of ongoing outperformance at Switching is probably unrealistic only because the numbers start to get big
But that said, the new products are doing really well
Our customer adoption is excellent
The feedback that we're getting from our customers and our partners is also very, very encouraging and there is a lot more room for us to grow and take market share in the Switching business
Sure, Jeff
Let me start
On the question around Switching, we have expected and we have seen that Switching is in fact the main growth driver for the business
I expect that to continue with the comment I just mentioned around the fact that expecting these levels of outperformance relative to our long-term model in Switching to – at some point they're going to moderate
But that said, that's not a comment at all that I think you should take that would demonstrate a lack of confidence in the product, the technology and the market focus
All of that I would say is working really, really well for us right now
And on the point around spine switches, the main intent of our spine switching products has been to enable us to participate in and compete for net new Switching business, especially in the data center
And that's exactly what they're doing
So even in opportunities where we're coming in with the spine switches and, of course, our top of racks, the bulk of the revenue that we'd see could be in other areas of our portfolio like in the top-of-rack switching but we would not have an ability to compete or to win without the breadth of that portfolio
So it's as expected and we're very pleased with the momentum thus far
And I think it will continue in terms of being a growth driver for us for the rest of the year and for the foreseeable future
Let me address that
So Cloud-Grade Networking includes a number of different sub-products
One of them is really around this concept of a Universal Chassis
Ken just talked about how we as a company are operating and executing with far more efficiency
It's true in our engineering group, it's true in other parts of our organization as well
Well, one of the ways in which we're achieving that is by developing fewer products that address a broader market opportunity
This concept of a Universal Chassis has the ability to address a number of routing or switching use cases
And it adds tremendous value for our customers because it gives them an ability to evolve their deployments, their investment protection to address a variety of different use cases as their business requires it
The Universal Chassis, the first iteration of it is in the market today
It's a product that supports both routing and switching, and eventually will also support edge routing capabilities as opposed to just core routing capabilities
And while it's still early, typically these things take a couple of quarters, maybe nine months to get to revenue, I do expect revenue for this first iteration of Universal Chassis in the second half of this year
And of course, the innovation engine continues to crank
So across Routing, Switching and Security, you can expect that there's going to be a number of new products that will continue this ongoing cycle of refreshes, and of course that will help us in maintaining the momentum that we've seen thus far over the last couple of years
Thanks, <UNK>, both good questions
First on the appointment of Bikash Koley as CTO, very, very happy with this hire
Just as a reminder, Bikash hasn't actually joined us yet, but we anticipate that he will in the next month
What he brings to the table are a number of different things, but I'll just sort of summarize it in a couple of different ways
First and foremost, you know that we have over the last couple of years, really honed in our strategy on what we believe is the biggest trend that is impacting our industry
And that is the Cloud
It's by no means saying that this means that it's just around the hyperscalers or the cloud operators
Cloud is in fact an architectural evolution that's becoming a way of life across every vertical that we participate in today
And all of our customers in these verticals, whether they be Telco, Cable, Enterprises, government and of course the hyperscalers are looking for real leadership from a product direction, from a services direction that helps them to make this transition to a cloud architecture that helps them become far more agile and to save money, just as the hyperscale providers have demonstrated can be possible
And of course, Bikash has been a part of that at his current employer, Google
Secondarily, I believe and I've always believed that having real technical knowledge, not just in the products themselves, but in the operation of products and the operations of networks, allow you to develop better solutions for your customers
And Bikash has that as well
I mean, he has now spent a number of years running what is a large network
And that knowhow helps us in developing better solutions, I think, for all of our customer base
Moving on to the question around Security, so yes, we would look to both organic or inorganic
But quite frankly, the focus right now on Security has been on achieving stability and returning to growth
And that means a lot of organic work execution that's necessary to turn around this part of our business
We continue to enhance our product offering with recent emphasis on the enterprise and the mid-range where we actually start – have started to see some momentum
We are getting positive data points from customers, from partners
We're seeing some geo specific momentum so, whereas, EMEA was a bit of a challenge for us in the Q2 timeframe
Actually there was momentum in Security in EMEA, which gives us some confidence that we're innovating in the right way
And very importantly, Security has become a critical element of some of these future modes of engagements with our customers
So as we talk to our customers around SD-WAN, for example, one of the really differentiating attributes of our SD-WAN solution is that it has Security embedded
So while we're starting to win opportunities in the SD-WAN space, we haven't yet seen the revenue that will help the Security number, which I anticipate we will start to see in the future
Once we get the stability, I think, yeah, there is certainly a possibility for us to start to look at inorganic approaches to accelerate the momentum in our business
But we're taking a deliberate, methodical approach right now to this part of our business
Well, so if you look at – what we've done just historically, we've made a couple of acquisitions in the optical space
We believe there is an architectural inflection point where customers can achieve vast levels of cost efficiency by managing and operating their networks across packet and optical
And then the last one was a company called AppFormix, which is around automation, in particular, in the cloud data center, but has much broader applicability than that
And that would be sort of indicative of what you might expect in the future as well
I just mentioned Security
Even in the domain of Security, I think any sort of inorganic activity that we would contemplate or explore would be more around the new modes of security, not so much of around sort of the physical perimeter firewall which is current mode
New mode is around enabling customers to migrate to public clouds or to hybrid cloud offerings without compromising their data, their users, their workloads
I think, there's quite a bit of innovation right now in the industry in that domain and that would be an area that we would consider as well
<UNK>, first, I want to understand a little bit more about your first question
When you say dual sourcing, are you talking about the intent of cloud providers to dual source their
I mean, the Cloud vertical for us is not a new vertical
I mean, we have been in this vertical now for as long as I can remember
And we have been, sort of, intimately tied down at the engineering level with our cloud customers now for a number of years
And it's always been a very competitive environment
So, by no means do I ever feel like there – that we don't need to be on our toes
We're always having to demonstrate to them how we're innovating in ways that are very, very specific to the kinds of network that they're building out, the operational models that they want to deploy, the telemetry capabilities that they want, et cetera, et cetera
And yeah, some of them do have sort of an internal strategy to go to dual vendor – dual vendors to procure that technology
But even in those circumstances, our goal is to always get the lion's share by demonstrating that we can perform better or innovate in a more appropriate way for their business
On Security, and I think, the question was around whether we're driving Security products in the Cloud vertical
And that certainly is the case, but I will say that different cloud providers have very different security requirements and security models that they deploy inside of their networks
In some cases, they believe in the big iron that sits at the edge of their data centers, for example, and secures traffic going in and out of those data centers
For that, we have a fantastic product, our high-end SRX
But that business will be very lumpy from quarter-to-quarter depending on where the deployments are
In other cases, it's really more around securing through micro segmentation inside of the cloud network
And that's really more around a software approach to security, and that's more of an emerging opportunity for us at Juniper
Maybe, <UNK>, it's worthwhile just summarizing the areas of focus that we currently have with respect to gross margins
First, there is opportunity when it comes to value engineering
And there is a concerted effort right now in the company to optimize our products for cost of goods sold in a way that will help gross margins
Secondarily, I mean, Ken has mentioned how we've gone after strategic customer insertions in particular in APAC, and we need those to pay off over time
Third, there's innovation
And one of the questions I was just asked around where are you contemplating inorganic moves, one area I did not mention is the area of silicon photonics
The primary reason is because we believe that there is an opportunity there through innovation to achieve better cost of goods sold from an optical standpoint
And last but not least, it's around business models and it's around software
It's around selling the value through Contrail, virtual security, SD-WAN
All of these emerging opportunities I think have the ability to not just help top line, but to also help gross margins
But they're largely going to be gated by how fast the industry moves
Now, we're out there sort of really selling the value to our customers
We're encouraged by the wins that we're getting, but it's sort of the timing of the benefit is not 100% clear at this point
<UNK>, let me start with the Security question first
So, I outlined the main areas of focus
I also provided some of the data points that we are now picking up on that give us some confidence that the work that we are putting in is going to pay off for us
I believe the second half and in particular Q4 would be sort of a quarter that I would expect to start seeing some year-over-year growth in the security market
So that's how I view the opportunity right now in Security and how we are expecting the rest of year to pan out
And Ken, do you want to talk a little bit more about gross margins?
Okay
<UNK>, let me start with the second one, the Tier 1 versus broader Cloud
We don't break it out, first of all, but I will say the following
Our penetration in the Tier 1s from a Routing standpoint is one that has been in place now for a number of years
So we've certainly had way more runway and way more of an ability to achieve the kinds of penetration across our Tier 1 Cloud customers in the Routing space more so than we've had on the Switching side of things
In Switching, we view it as more of an opportunity
We certainly have a strong Tier 1 presence in Switching, but we have less market share and penetration than we do in Routing
And, therefore, that's certainly a potential growth area for us
In the meantime, I think what I have said on this call in the past is that there is a broader opportunity in the cloud space, not necessarily with the hyperscalers, but the broader cloud market when you look at SaaS providers, regional cloud providers, telco cloud that's here now that we are benefiting from
I mean, a lot of our business momentum in fact is from that tier of cloud provider
And I think that's a very healthy thing
Price erosion, again, is not something that is easy to describe without a whiteboard and some slides
We can certainly do something like that maybe at our next Analyst Day
But it's the nature of this business that we're in
Every time a new port speed is introduced into the market, as it achieves mass adoption, you will expect, as we would do, that pricing will start to go down and it offsets the benefit that you would get from the traffic growth alone in the market
So all up, the Routing space is roughly a sort of a flattish type of total addressable market from a growth standpoint, but traffic is growing at 40% plus year-over-year
So that would give you an idea of the price erosion that we're seeing in that market space
In the data center switching side, there of course, there is price erosion just as there is everywhere
However, I think that market is growing at a faster clip than in the data center and that's why we are so focused on data center switching as part of our strategy
Thank you, Steve
First from the standpoint of hyperscalers, I think we acknowledge that this is a competitive market and especially as we demonstrate the momentum and the success, we can expect that the competitive levels to only intensify
Having said that, I think it really is just a matter of execution for us, execution from the standpoint of how we engage with them, execution from the standpoint of our innovations and on all fronts, I feel good about where we are and where we're going relative to the hyperscaler opportunity, in addition to the broad Cloud opportunity that is before us
And as far as Cisco's announcement, I have been now for two or three years talking about automation as being the next big thing in networking
There's a very important reason for that
If you think about what our customers across every vertical want more than anything else, it is the ability to move fast, to innovate quickly and to do so with a certain level of cost efficiency
You achieve that by first, providing them with innovative Routing, Switching, and Security products that outpace Moore's Law from an economics of traffic movement standpoint
But importantly, considering that most of our customers invest far more in the cost of operations than they do in CapEx, the only way to address that problem is through automation
And for that reason, we've always had a lot of automation capabilities across our platforms, whether it be the automation capabilities of our systems themselves, the API driven nature of those systems, Contrail has a way of automating Cloud operation, AppFormix has an ability to provide machine learning capabilities to create visibility inside of a Cloud data center, our NorthStar Controller is essentially an automation platform for our wide area
So I think it's good to see our peers in the industry recognize the importance of this trend, and it has been and will continue to be a huge area of focus for us
Yeah, thanks
I appreciate the question
In Switching, this is pretty consistent with what we've done historically
We don't necessarily break out the performance of all of our specific product lines
And we didn't do that for QFX in Q2. However, I think it's safe to say that we would not be able to post this type of overall Switching momentum without strong QFX performance
So we're very happy with the performance of our QFX product line in the Q2 timeframe
It's a result of a deliberate strategy and some really solid execution by the team, which I am very proud of
EX is more of a campus-focus product, although it does see some data center and combined campus data center type of converged build-outs
And we saw good momentum there in the Q2 timeframe as well
Our primary strategy is on the data center, the Cloud, and these larger enterprises that are building out their campuses as on ramps to the Cloud
And for that, you need a high degree of performance, operational simplicity and automation and I think the EX from all three of those dimensions is an extremely competitive product
| 2017_JNPR |
2016 | LXP | LXP
#It is retired.
No, we discussed the area of the concern, which is Houston.
We can't really see any other place where we are.
I think we're pretty well-diversified by industry type and markets, so we feel because of that diversification we have a level of safety.
No, in fact automotive has been very strong and suburban Detroit has been doing extremely well.
So there are areas in and around Detroit where we think that automotive can be a good play.
(multiple speakers).
No, it is a few miles from their headquarters.
Thank you.
Yes, we came in at like $27.1 million in 2015, to TIs and leasing costs, and we project it in 2016 to be about $25 million.
Time will tell how things are looking when we get to that point later in the year.
Right now we continue to view the buyback as the better use of capital.
Great, thanks to all of you again for joining us this morning.
We think we're going to have a terrific year and we're looking forward to reporting our results to you every quarter.
Thanks again.
| 2016_LXP |
2017 | DIOD | DIOD
#Good afternoon, and welcome to Diodes' First Quarter 2017 Financial Results Conference Call.
I'm <UNK> <UNK>, President of Shelton Group, Diodes' Investor Relations firm.
Joining us today are Diodes President and CEO, Dr.
<UNK> <UNK>; Chief Financial Officer, Rick <UNK>; Senior Vice President of Sales and <UNK>eting, <UNK> <UNK>; and Director of Investor Relations, Laura Mehrl.
Before I turn the call over to Dr.
<UNK>, I'd like to remind our listeners that the results today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm.
As such, these results are subject to revision until the company files its Form 10-K for its first quarter year 2017.
In addition, management's prepared remarks contain forward-looking statements which are subject to risk and uncertainties, and management may make additional forward-looking statements in response to your questions.
Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.
Actual results may differ from those discussed today, and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission.
In addition, any projections as to the company's future performance represent management's estimates as of today, May 09, 2017.
Diodes assumes no obligation to update these projections in the future as market conditions may or may not change.
Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms.
Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details.
Also, throughout the company's press release and management's statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income.
For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 60 days in the Investor Relations section of Diodes' website at www.diodes.com.
And now, I'll turn the call over to Diodes' President and CEO, Dr.
<UNK> <UNK>.
Dr.
<UNK>, please go ahead.
Thank you, <UNK>.
Welcome everyone, and thank you for joining us today.
Revenue in the first quarter was at the high end of the guidance, increasing almost 2% sequentially as compared to typical seasonality of down about 5%.
Sales in Europe were particularly strong with a [resurgence] in the revenue from the industrial market, combined with strengthening demand in North America.
Additionally, our automotive revenue continued to grow from the record level achieved last year, resulting in growth of almost 25% over the prior year quarter.
Also, notable in the quarter, gross margin exceeded our guidance and has surpassed 31%.
The improvement was due to increased loading at our manufacturing facilities as a result of the stronger business environment as well as better pricing; in particular for [analog] products acquired from Pericom.
Our KFAB facility is up and running with stable monthly output attained in March.
When combined with lower SG&A and R&D expense as a percent of the revenue, we delivered GAAP profitability of $0.02, despite the KFAB closure accruals.
Excluding the accruals, non-GAAP earning per share was $0.14.
Further, our strong cash generation enabled us to pay down an additional $11 million in long-term debts.
As we look to the second quarter, our business as well as the overall market are showing signs of continued strength.
As a result, we expect to deliver 10% sequential growth, 33% non-GAAP gross margin and 22.3% of revenue for R&D plus SG&A, all at the midpoints.
This strong start to the first half of the year brings us within closer reach of our target operating model of 35% gross margin, and 20% R&D plus SG&<UNK>
With a broadened product portfolio and an expanded sales channel following our integration of Pericom, we are well positioned to fully capitalize on those improving market conditions.
With that, I will now turn the call over to Rick to discuss our first quarter financial results as well as second quarter guidance in more detail.
Thanks, Dr.
<UNK>, and good afternoon, everyone.
Revenue for the first quarter 2017 was $236.3 million compared to $232.1 million in the fourth quarter 2016 and $222.7 million in the first quarter 2016.
Revenue for the quarter was up 1.8% sequentially and reflects better than expected seasonality, due primarily to strength in Europe and North America.
GAAP gross profit for the first quarter was $73.9 million or 31.3% of revenue, including $0.5 million related to KFAB closure accruals.
Non-GAAP gross profit was $74.4 million, or 31.5% of revenue, excluding the accrual.
This compares to fourth quarter 2016 GAAP gross profit of $67.3 million or 29% of revenue, and first quarter 2016 of $64.2 million or 28.8% of revenue.
The increase in gross profit margin was due primarily to improved utilization and pricing.
GAAP operating expenses were $64.6 million or 27.3% of revenue and $57.3 million or 24.2% of revenue on a non-GAAP basis, which excludes $4.8 million of amortization of acquisition-related intangible asset expenses, $2.3 million of KFAB closure accruals and $200,000 of retention costs.
This compares to GAAP operating expenses of $61.9 million or 26.7% of revenue last quarter and $62.8 million or 28.2% of revenue in the first quarter 2016.
Looking specifically at selling, general and administrative expenses for the first quarter, SG&A was approximately $39.7 million or 16.8% of revenue compared to $39.1 million or 16.8% of revenue last quarter, and $39.5 million or 17.7% of revenue for the first quarter 2016.
Investment in research and development for the first quarter was approximately $18 million or 7.6% of revenue compared to $17.7 million or 7.6% of revenue last quarter, and $18.1 million or 8.1% of revenue in the first quarter 2016.
Combined, SG&A plus R&D was $57.7 million or 24.4% of revenue compared to $56.8 million or 24.5% revenue in the fourth quarter 2016 and $57.6 million or 25.9% revenue in the first quarter 2016.
Total other expense amounted to approximately $7.3 million for the quarter, including $3.5 million in interest expense and $3.8 million negative currency translation as a result of the stronger Taiwan dollar.
Income before taxes and noncontrolling interest in the first quarter 2017 amounted to $2.1 million compared to $2.7 million last quarter and a loss of $2 million in the first quarter of 2016.
Turning to income taxes.
Our effective income tax rate for the first quarter 2017 was approximately 26.6%.
GAAP net income for the first quarter 2017 was $1.2 million, or $0.02 per diluted share compared to GAAP net income of $1.3 million or $0.03 per diluted share last quarter.
And a GAAP net loss of $1.7 million or $0.04 loss per share during the first quarter 2016.
The share count, used to compute GAAP diluted EPS for the first quarter 2017 was 49.7 million shares.
First quarter 2017 non-GAAP adjusted net income was $7 million or $0.14 per diluted share, which excluded, net of tax, $3.9 million of noncash acquisition-related intangible asset amortization cost and $1.8 million of restructuring cost related to KFAB closure accruals.
This compares to non-GAAP adjusted net incomes of $7.7 million or $0.15 per diluted share last quarter and $5.9 million or $0.12 per diluted share in the first quarter 2016.
We have included in our earnings release a reconciliation of GAAP net income to non-GAAP net income, which provides additional details.
Included in the first quarter of 2017, GAAP net income and non-GAAP adjusted net income was approximately $2.7 million net of tax, noncash, share-based compensation expense.
Exuding share-based compensation expense both GAAP EPS and non-GAAP adjusted diluted EPS would have increased by an additional $0.05 per diluted share in the first quarter.
Cash flow generated from operations was $45.6 million for the first quarter of 2017.
Free cash flow was $26.5 million for the first quarter, which included $19.1 million of capital expenditures.
Net cash flow for the quarter was a positive $17.3 million, including the paydown of approximately $11 million of long-term debt.
Turning to the balance sheet.
At the end of the first quarter, cash and cash equivalents totaled approximately $265 million and short-term investments totaled approximately $33 million.
Working capital was approximately $551 million.
At the end of the first quarter, inventory decreased by approximately $2.2 million from the end of the fourth quarter 2016 to approximately $191 million.
The decrease in inventory reflects a decrease in finished goods by $14.3 million and increases in work-in-process of $5.9 million and raw materials of $6.2 million.
Inventory days are 107 in the quarter compared to 111 days last quarter.
At the end of the first quarter, accounts receivable was approximately $205 million, a decrease of $12.2 million from last quarter.
AR days were 80, compared to 90 last quarter.
Our long-term debt, net of the current portion, totaled approximately $400 million.
Capital expenditures again for the first quarter were $19.1 million or 8.1% of revenue, which was within our 5% to 9% revenue model.
Depreciation and amortization expense for the first quarter was $23.7 million.
Now, turning to our outlook.
For the second quarter of 2017, we expect continued growth in revenue with further improvement in gross margin and profitability.
More specifically, revenue is expected to grow to a range of between $250 million and $270 million, or up 5.8% to 14.3% sequentially.
We expect GAAP gross margin to be 32.5% plus or minus 1%, including approximately $1 million of KFAB closure-related accruals.
Excluding these accruals, we expect non-GAAP gross margin to be approximately 33%.
Non-GAAP operating expenses, which are GAAP operating expenses adjusted for KFAB closure costs, retention costs and amortization of acquisition-related intangible assets are expected to be approximately 22.3% of revenue, plus or minus 1%.
We expect net interest expense to be approximately $3.3 million and our income tax rate to be 26.5%, plus or minus 3%.
Shares used to calculate diluted EPS for the second quarter are anticipated to be approximately 50 million.
Please note that the purchase accounting adjustments for Pericom and previous acquisitions of $3.8 million, after tax, and KFAB closure accruals of $800,000, after-tax, are not included in these non-GAAP estimates.
With that said, I will now turn the call over to <UNK> <UNK>.
Thank you, Rick, and good afternoon.
First quarter revenue was up 1.8% sequentially and better than typical seasonality, driven by strong sales in North America and Europe in the automotive and industrial segments as well as solid growth in the communications market in Asia.
Globally, OEM sales were down 5.5% while distributor POP was up 6.2%, as channel rebuilt inventory in anticipation of strong Q2 demand.
Europe and North America both had record POS quarters, but overall POS was down 8% after a stronger-than-expected Q4 in Asia.
Distributor inventory was flat in the first quarter.
Customer activity and design activity once again remains strong across all regions.
We continue to penetrate our key customer base with an expanded sales footprint and broader product portfolio with significant customer synergy and cross-selling opportunities for the Pericom products.
We set revenue records in the quarter on timing, protection, IntelliFET and CMOS LDOs, driven by recent design wins on new products.
In terms of global sales, Asia represented 79% of revenue; Europe, 12%; and North America, 9%.
From an end market perspective, consumer represented 27% of revenue; communications, 26%; computing, 19%; industrial, 21%; and automotive was 7%.
Let me now provide more detail within each of our end markets.
For the consumer market, we released a family of new low dropout voltage regulators that combine extremely low quiescent current with an exceptionally small package to provide market-leading LDO devices for the growing Internet of Things space.
These devices were designed specifically for wearables or other highly space-constrained battery-operated consumer products such as smart watches or activity monitors.
One interesting emerging application in this space is what is known as asset trackers, which are miniature devices that can be attached to key rings, cell phones or other portable consumer goods to provide tracking capability for locating an item if lost or misplaced.
We are working with several companies on innovative products for this emerging market, with the design wins across our logic, audio and LDO devices.
Also new for Q1 in the consumer space were linear LED drivers for decorative and strip lighting as well as rectifier bridges and trenched Schottky parts for LED TVs.
In the communications market, we are seeing increased adoption of our hall effect sensors and smartphone covers.
We released a new high-sensitivity dual output unipolar hall switch this quarter, which further expands our presence in this space.
We also released several additions to our AC to DC power controller product line, including a constant current, constant voltage power converter that supports the Quick Charge 2.0 protocol as well as a high performance power switch for charger and adapter applications.
Key design wins in the mobile communication space during the quarter included several CMOS LDOs into next generation smartphones, plus an expansion open AC to DC content for cell phone chargers targeting Europe and India, in addition to our base market in Asia.
In the computing market, we released a new low-power 5 gigabit Mux/DeMux re-driver to support the USB 3.0 protocol for computing and portable peripheral market space.
We continue to see strong acceptance of our USB 3.0 and PCIe re-drivers in desktops, workstation and server applications, with a strong ramp in the quarter on our 10-gigabit USB 3.1 re-driver and our 8-gigabit PCIe SATA combo re-drivers in workstation platforms.
In other computing applications, Diodes launched a family of high-current load switches featuring low quiescent current and a small footprint for portable PCs, ultra books and tablets.
We introduced our first USB Power Delivery switch for USB type C applications.
In the industrial market, we received initial orders for our newly released family of 24-volt high-accuracy micropower LDOs.
Leading customers in the lighting and e-meter markets have already adopted and are moving to production using this new line.
We also saw increased demand for our standard linear products with key wins for our interface devices in both security control and elevator control systems as well as continued momentum for our LED drivers across a variety of retrofit lighting sockets.
Also, for the industrial applications, Diodes launched a range of high-voltage gate drivers including several 50-volt and 100-volt parts aimed at power tools and drones as well as Diodes' first 3-phase 600-volt part for motor driving.
As I've mentioned in the past, Diodes' 175-degree C qualified MOSFET technology is ideal for industrial applications.
And we added 2 devices to our 40-volt and 64-volt series that are optimized figure-of-merit to minimize losses in switching applications.
And finally, in the automotive market, Diodes launched a stream of new products across several product groups, including MOSFETs, IntelliFETs, Bipolar Transistors, TVS, trench Schottkys and SBR platforms.
MOSFETs from Diodes' high-temperature and Shielded Gate MOSprocess technology are becoming the backbone of our expanding automotive qualified discrete product portfolio.
MOSFET products from this family continue to drive customer qualification activity and design in among Diodes' Tier 1 automotive customers.
We were also very pleased to release the industry's first packet switches that are auto-qualified through AEC-Q100 grade 3.
These new PCI express packet switches target applications in infotainment, telematics and Advanced Driver Assistance Systems.
The vision-based ADAS systems for autonomous driving vehicles will require significant data processing and PCI express is emerging as the protocol of choice.
We are working with multiple market-advancing customers in this space and are well-positioned to support this exciting new area.
Also in the automotive market, we are seeing a move to USB type C connectors for charging and data transmission in vehicles and are working with several major module manufacturers to provide a complete automotive type C solution.
In summary, we had a solid quarter, with above seasonal results and are expecting an acceleration of growth in the second quarter on continued market strength.
We are well-positioned across our customer base with an expended sales footprint and product line to drive long-term revenue growth and share gains.
With that, I'll open the floor to questions.
Margins 35%.
And what's your question.
35%.
(technical difficulty) You know some of the CSP, some of the BDFN.
Those are high end of the packaging.
We are short of those capacity.
So we still continue invest in that area and some of those are 33%.
Some of that's standard or packaging.
We still have some underutilization.
And at the same time, we are continuing to change our mix.
So when we get to future, we believe we are on the way to get this 35% GP.
Okay.
I think Rick can give you that utilization.
So ---+ well first of all, let's talk about pricing.
On a mix independent basis, which means that it's not dependent upon the types of product sold, it was about 2%, which is right in the midpoint of where we think it normally is.
And the utilization was impacted because in the first quarter, we had Chinese New Year, but the assembly tests areas are in the 79% to 80% range.
KFAB, of course, was low because of the January and February issues.
OFAB was 90%, which is better than what we would expect a wafer fab to run; and then the SFABS, the Shanghai fabs, were in the 60% range.
Yes.
So we've committed to the landlord that we will turn the building back to them on November 15, 2017.
And we will be moving that production to our own internal fabs and to external fabs.
And I think we said previously that we would be saving about $3 million a quarter, starting whenever the fabs are fully utilized overseas.
I think what we actually said was $10 million to $15 million of the saving after we fully rent in the SFAB and OFAB.
I think we're having a relatively ---+ to be honest with you, I think we're seeing some decent revenue across segments.
I think you'll see our industrial, automotive and communication segments probably leading; probably the one that's the slowest may be communications.
Computers, looks like we have a lot of new products in and some next-generation desktop, notebook and servers.
So we believe we're going to see a little bit of prebuild into the third quarter on that.
So I think you could say that pretty much all segments are up, when our numbers are in that good of ---+ when we're showing such strong guidance.
Pericom, too.
Pericom from the acquisition.
I think Pericom will start to ramp in the second quarter.
I think we're broad-based growth, but I think we have had some long-awaited design wins that are going to start to ---+ that are starting to come into production in mid second quarter and through third and fourth quarter.
And one of the area is our frequency product.
The product that originally Pericom de-emphasized those kind of products, okay.
Crystal and crystal oscillators.
And since Diode took over, we change direction.
We went out to the customer.
We want to grow this area.
And I think now the customer coming back and we start to fit the capacity to ramp it.
So those will be another factor of the growth from Pericom acquisition.
Yes.
We watch that pretty closely.
And we look at the order patterns, we look at where people are.
Yes, certainly channels being more aggressive, but it's more aggressive over longer periods rather than trying to pack it all into one quarter.
So when we ---+ when product is a little tighter, then we start to look at our base demand in each on of our product areas and one of our packages.
And we're really not seeing ---+ even with the KFAB area, we're not really seeing people, like, focused on trying to hoard parts or anything.
It's really more just kind of working through on a schedule.
So I would say that the aggressive marketplace is a little bit more aggressive on a longer-term basis rather than stacking up.
And as you said and as ---+ I think we said in the script, North America and Europe had record POS quarters.
And we expect Asia to have a big bounce back second quarter.
Thank you for your participation today.
Operator, you may now disconnect.
| 2017_DIOD |
2017 | COG | COG
#Thank you.
Thank you, Anita.
I appreciate the interest from all of our either new shareholders, or long-term shareholders.
As I previously mentioned, this is an inflection point for Cabot.
We continue to generate the free cash flow.
At the same time, we have a very clear path to doubling our production in the next few years.
So all this is good, and I look forward to our next opportunity to visit.
Thank you.
| 2017_COG |
2015 | DGX | DGX
#First of all, many hospital outreach labs that we look at and we have purchased have a larger percentage of the business with Medicare.
So we do take into consideration what the Medicare rates will be in our evaluation of the business.
Second, if that is true then we believe this could be a further catalyst of more outreach businesses interested in looking at their options.
What we've said, we have a nice M&A pipeline many of those assets that we're considering are hospital outreach assets ---+ and we are encouraged by it.
And we still believe with the projections of what we have for rates that the cost synergies will be realized by bringing their volumes into our infrastructure, we can build a nice business case related to the cost synergies associated with those acquisitions.
It's been a deliberate part of our strategy.
It's key to what we believe will happen at the marketplace that is more hospitals relying on us for their laboratory services.
In the second part of our working with hospitals.
Our hospital outreach opportunities where we help them with their inpatient laboratory.
We're working on a number of very large opportunities there and we hope to share some of that with you in the next few months and going into 2016.
So stay posted, but we are encouraged by the progress and I think all the change that we see happening in healthcare in general is going to be a further catalyst for more interest in what we have been talking about for several years.
That's a large driver certainly, <UNK>, but the other one is if you recall after the first quarter when we had a little more impact from weather than we had anticipated, at that point I shared that for us to get towards the upper end of the range we would've had to execute some meaningful M&A.
So while we went in to the year thinking that we could do the 2% to 3% without any M&A, after the first quarter headwinds we had based on weather, especially in the Northeast and in Boston specifically record snowfalls, where we have a very important share in a large portion of our business was going to take some M&A.
So as you've seen we've announced two deals this year.
One of them just last night, Superior and then MemorialCare.
Those are not large enough at this point and were not done early enough to contribute significantly in 2015.
So therefore a combination of a little bit of the unexpected volume softness in Q3 and not getting a deal done---+ large enough deal in a timely fashion is really the two drivers.
Yes, it is still early but we're encouraged.
We closed in July.
We've consolidated our business into one Q Squared Solutions.
We are now working through the integration that we put in place.
We still believe there's a nice business case of a creation opportunity for the joint venture now that we'll realize 40% of in subsequent years, so we're still encouraged by that.
And then second to your point, the days are still early but this market has consolidated and we're now in a smaller subset of companies that are addressing the marketplace.
And we believe that now with Quintiles and us working together we have a stronger presence with pharma and we're optimistic about the prospects.
So as that develops and we have some opportunities to talk about as far as wins within the joint venture we will ---+ and I'm sure Quintiles will as well but it is still early with that.
We are encouraged.
Thank you.
Thanks for the question, <UNK>.
I'm sure you recall that at the Investor Day in November I talked about ---+ and <UNK> talked about, the fact that we foresaw 2% to 5% revenue growth through 2017.
1% to 2% coming from M&A so an organic level of growth of 1% to 3%.
And earnings growth, not earnings per share, but earnings growth of 8% to 10%.
And that was going to be fueled by three drivers.
One was going to be some of the continued synergies and leverage we would get out of the transactions we executed into 2014 carrying into 2015.
The second driver was our Invigorate program, which moving our goal from $700 million in run-rate savings to $1.3 billion.
And we didn't lay out how that would drop through by year.
But given the size of that growth in savings and efficiencies, we talked about the fact that contrary to the past several years it would be large enough to not just offset the headwinds that Invigorate had paid for in the earlier years.
You know, the annual wage inflation and some sort of price erosion but actually would contribute to the bottom line and that would be significant.
And then yes the third lever was as we return to organic growth that there's a fairly high drop through and that would help us to leverage our earnings growth faster than revenue as well.
Those are the three levers.
And while were a little bit disappointed in the softness of Q3, we have grown.
As <UNK> pointed out, revenue was minus 400 basis points in 2013, minus 200 last year and plus 100 this year.
So we are growing and we are getting some leverage.
And we expect to continue that's progress.
Long winded answer but while we haven't given any guidance for 2016 yet, the outlook I laid out would suggest yes we are confident that we will continue to grow our earnings faster than our top line.
<UNK> just a follow up with that.
I said in my introductory comments we continue to believe that we can deliver on that goal we set out which is the additional savings opportunity.
We exited 2014 with $700 million run rate savings.
We said there's another $600 million.
The goal is now $1.3 billion.
We are nicely on our way.
We see that reflected in the results.
But I would like to also underscore another thing which you have seen in the last couple of quarters.
And that is, the emphasis we have in our strategy is to continue to focus our energy and our investors on a higher growth portion of our portfolio.
The richer portion of our portfolio which is more the advance esoteric genetic fee services.
We have said that is growing nicely.
We see that reflected in our revenue per req.
So that headwinds that we've seen before in the last two quarters we haven't seen.
So we feel good about the progress that we're making on it as well, to make sure that we get a better yield in our portfolio than what we've seen in the past.
So you put all of that together, coupled with the M&A just to underscore what <UNK> said.
We believe that the 2% to 5% growth for this business over a three-year period is solid.
And we believe the 8% to 10% growth in earnings ---+ real earnings in operating income is achievable.
We're confident we can continue to do that as we go forward.
I will begin with this and alternate to <UNK> on the returns and how that affects our goals we have laid out.
First of all it is both.
It's both managing hospitals in-patients laboratories in some form.
In some cases it might not be entirely but some portion of it.
And then finally it is helping them with their outreach business.
And in some cases we would it acquire their outreach business, which we have done for the last three years.
And there so much in healthcare goes you see one strategy, you've seen one strategy.
So we've engaged with the C suite around their lab strategy.
When this goes well we are their lab partner going forward.
We've demonstrated this already with a number of our joint ventures we have, and a number of the outreach businesses we've acquired.
We're clearly their lab partner going forward, and I think this is a direction that we'll see more of in the future as the healthcare system in this country continues to evolve.
Now with these potential deals around what we call laboratory professional services, and also outreach, they do effect our earnings and growth rate differently and I think you are referring or asking the question about return on invested capital.
So <UNK>, could you give us some perspective on both sides of the growth with hospitals.
Certainly.
Thanks for the question, <UNK>.
Let's start with the professional laboratory services.
What we've talked about in the past is this is really organic.
There is not a significant capital outlay.
It might be a little bit of capital upfront as we transition some of the volumes into our labs and out of their labs.
But it's not anything of significance.
It is lower margin versus buying someone's outreach business where we're capturing all of the margin on a go-forward basis.
The way these deals work is given our economy scale in our efficiencies we can save them significantly enough money to get them to sign a multi year contract with us to perform that service for them and we basically split that savings with them as part of the negotiation, but we don't have a large capital outlay.
So from a ROIC perspective these deals, while lower margin than our current business, are very attractive on a ROIC basis.
Again, as I said, it's a source of organic growth that largely was unaddressable previously.
So it is getting into a market and area and inpatient and outpatient that is a new source of growth for us on the top line.
On the outreach, we certainly expect to continue to pursue such deals.
We talked about how the economics work very well.
They are basically paid out through cost synergies.
We've demonstrated the ability to do that successfully.
We know how to do that.
And we think is excellent for our shareholders.
It is part of the 2% to 5%.
So when we talked 1% to 2% of M&A, it is really those outreach businesses ---+ small tuck in, fold in outreach or small labs for that matter, but a portion of that is going to be outreach.
We can fund that within our operating cash flow and still maintain our commitment to deliver the majority of our free cash flow to our shareholders.
So, I wouldn't anticipate a significant shift in capital intensity to drive that strategy.
Certainly the professional laboratory service business is not going to require a ton of capital.
Finally on the outreach and any other M&A we talked about the three metrics used.
One of them is that these need to be accretive to our ROIC plan of record by year three, so we're very focused and make sure that even the acquisition that they are growing our ROIC.
Thanks.
Sure <UNK> I will take this to start and I'm sure that <UNK> will add to it.
First of all, if you look at the market there is a bunch of puts and takes as you describe it.
First of all we believe the Affordable Care Act and the number of uninsured decreasing will add more lives to the system.
We have said consistently that when people have insurance we believe in what we do in that way there for that would be good for us.
Albeit what we have seen so far for lives in the system from the Affordable Care Act are much less than what we anticipated back three years ago, as we all know.
But we said in the past two quarters that we are starting to see some of those Medicaid lives enter the system so that is providing some volumes and most people would agree that they will be increasingly less uninsured in this country in the years ahead.
That is what we modeled in our expectations going forward.
So that's number one.
Number two is, there is ---+ there continues to be a push for higher deductible insurance programs offered to employer-based healthcare offerings in this country.
We believe it's about 40% of employer sponsored healthcare is high deductible and that clearly has pushed pressure on utilization.
I've said before that those of us blessed with being reasonably healthy are paying for the majority of our healthcare out of our own pockets.
So people have thought twice about using the system, and most people would agree over the past seven years or so that some portion of the utilization softness has been caused by this effect.
We believe actually that, that will continue.
There will be more and more pressure on employers.
They'll be pushing more responsibility to employees.
Employees will consider when and where they use the healthcare system.
And that will have an effect on utilization.
With all that said, we think that's actually a good thing for our business because we offer such a strong value proposition.
And we believe price transparency and the visibility of the wide variation on pricing in the system is actually a good fact for us given our value in our prices in this industry are so attractive.
So that's the second effect.
The third effect is we do have an aging population; us baby boomers.
We already see that in our results.
We talked about infectious disease growing.
All seeing some nice growth in hepatitis C, as an example.
We're all baby boomers are encouraged to get tested given the new drugs of the marketplace to cure that.
The age of the baby boomers [slug up] our market place will continue to grow; the population grows.
So you put all that math together and we continue to believe that in the mid-to long-term this industry that we're in should be growing in value 2% to 3%.
We believe there will be more value per test going forward given the advancements in the introduction of the new genetic base services we have demonstrated in our results as well.
We believe that there are some sub markets that are growing faster than that, but some of that 2% to 3% is the dynamics of what is happening overall in healthcare as well.
Based upon more people with insurance, higher deductibles for those of us to get our healthcare from our employers, the aging population, and the growth in the population.
So hopefully that provides the perspective you're looking for what we see in the macro market overall.
Great question.
First of all, we're very encouraged about the prospect ---+ the opportunity with Inovalon.
The reason why that we think this is so encouraging and why Inovalon thinks it's so encouraging is our presence in healthcare.
You think about our presence, particularly in the [worked for] healthcare, we have over 200,000 placements of our order entry results reporting system, Care360.
We interface with all the EMRs you can think of the planet.
The large EMR companies like Epic, Cerner, and McKesson, and also the small homegrown activities.
We sell to 50% of physicians in this country, we sell to 50% of hospitals.
So we're right in the center of the ecosystem of healthcare.
So that's why we have a large presence.
And the nice thing about that is what we will do with Inovalon is attach their capability into the workflow of the physician.
So it is not something that they have to disrupt their workflow to get access to.
So we're working on the actual integration of their applications into our applications.
So the physician or administrative when they are working through the work up on the patient and the completion of gathering all of the information of the patient will be able to access all of that information.
As far as go-to-market, like so much in healthcare it is obviously complicated.
We have people that call on physicians, both primary-care physicians and all specialists.
That portion of our sales force will be informed and be talking to the customers about this prospect.
We also have an information sales force.
These are highly specialized people to get into more of the content associated with us and Inovalon, as well, is providing some capabilities on the ground level as well as broadly support the sale as well from a real specialists perspective.
So it is a hybrid sales approach but we are encouraged about the prospects for us and Inovalon going forward, and we have launched this in the fall to get off to a good running starts going into 2016.
Hello Bob.
I appreciate you saying that Bob.
We believe we bring a lot of value to the table.
On the same side they bring all of the content to the table and there's a lot of content.
They built a nice capability with the quality metrics application.
The collection of all claims data is real time.
So there's some very sophisticated approaches to gathering the information and serving that up to physicians.
So we think the 50/50 split fairly recognizes the value we deliver and the value they deliver and it's a good partnership.
We think that's a fair split but we are happy about the value you think that we bring to the table because we think it is a good opportunity for us.
Bob, real quickly the analog might be some small independent lab came up with a new esoteric test.
So they created the whole test.
They didn't have the ability to sell it to the health plans as well as we could.
And to do the pull through with <UNK>'s said, our coverage because it is going to be ordered basically like a CPT, like a test.
So I think you would say okay 50/50 is pretty fair.
They did the innovation, obviously they did the IP, et cetera, and we are really the commercial arm to help sell that and educate people on the value and the opportunity.
First of all, the reports vary based upon what you're asking for.
Some of the patient history are nice, well presented summary of patient history.
The quality metrics are somewhat of a simple ---+ this is what you need to do to close the gaps in care, related to quality metrics, to qualify for stronger HEDIS scores, your star ratings ---+ so that is another report.
As far as the pay for here in many cases it will be the risk taking organization, the insurance company.
It would be the person that has the motivation to do this.
But in other portions of this, particularly related to HEDIS scores it could be the provider organization that's clearly incented to do a better job of closing the gaps of care and see the value, and therefore will pay us for this.
In terms of the investment required is a little more complicated than adding a couple of test codes to our compendium.
It's not significant investment required to get this capability in our Care360.
Pretty much all organic <UNK>.
In the quarter M&A was [rounding].
Less than 10 basis points.
As we said earlier we expected some M&A sooner.
We have gotten a nice funnel for M&A.
And you will see that in subsequent months.
But the third quarter was pretty clean.
But it was the fourth consecutive quarter of organic revenue growth.
Okay.
Thanks everyone for joining.
As we have shared, we had another solid quarter.
We are making good progress executing our strategy.
We do appreciate all your support and interest in our Company and have a great day.
| 2015_DGX |
2017 | OGS | OGS
#Thanks, <UNK>.
Good morning, everyone, and thank you for joining us.
Net income for the first quarter 2017 was $76.5 million or $1.44 per diluted share compared with $64.7 million or $1.22 per diluted share for the same period last year.
Results were driven by new rates from investments made in our systems, which includes the effect of the Kansas rate case and various Texas filings approved in 2016.
Net income was also impacted by the new accounting standard for share-based compensation that we adopted prospectively on January 1, 2017.
We recorded a $5.2 million tax benefit and income tax expense, which resulted in a $0.10 per diluted share positive impact in the first quarter, slightly higher than the $0.08 per share indicated in our guidance in January.
The impact in future years of the new standard will be driven by the performance of our stock and our relative total shareholder return compared with our peers.
Weather was 24% warmer than normal, and we experienced 12% less heating degree days compared with the same period last year.
But our higher percentage of fixed monthly service charges and weather normalization mechanisms mitigated the effect, with minimal impact on our net margin from sales customers.
Operating cost for the first quarter increased compared with the same period last year, reflecting an increase in outside services, material, bad debt and IT cost, partially offset by lower legal and employee-related expenses.
Capital expenditures for the first quarter were approximately $70 million compared with $75 million for the same period last year.
The decrease was due primarily to the timing of projects planned in 2017.
The mix of operations and maintenance projects and capital projects was weighted less to capital projects in the first quarter of 2017 compared with the first quarter of 2016.
The net result was slightly lower capital expenditures and slightly higher operations and maintenance expense in the first quarter of 2017.
We still expect capital expenditures to be approximately $350 million in 2017, with more than 70% targeted towards system integrity and replacement projects.
Yesterday, we affirmed our 2017 earnings per share guidance of $2.87 to $3.07 per share.
The ONE Gas Board of Directors also declared a dividend of $0.42 per share.
As a reminder, our targeted dividend payout ratio range is 55% to 65%.
At March 31, 2017, our current authorized rate base, defined as the rate base established in our latest regulatory proceedings, including full rate cases and interim rate filings, was approximately $2.9 billion.
Considering additional investments in our system and other changes in the components of our rate base that have occurred since those regulatory filings, we project that our rate base in 2017 will average approximately $3.1 billion, with 41% of that being a rate base in Oklahoma, 32% in Kansas and 27% in Texas.
And now I'll turn it over to <UNK> <UNK>, ONE Gas President and Chief Executive Officer.
<UNK>.
Thanks, <UNK>, good morning, everyone.
ONE Gas is focused on leading the industry as a safe, dependable provider of natural gas to our customers, an important component of our strategy, and while we reinvest in our systems and facilities.
As you may have read in our press release, we have some regulatory activity to highlight on this call.
So I'm going to begin with Texas.
In March, we made a filing under the Gas Reliability Infrastructure Program, or GRIP, for the incorporated and environs customers of the Central Texas Service Area for $4.9 million.
If approved, new rates are expected to be effective in June.
In the West Texas Service Area, we also filed a GRIP for $4.5 million.
And if approved, new rates are expected to take effect in July.
So now moving to Oklahoma.
We filed our first annual performance-based rate change, or PBR, after the general rate case that was approved in January of 2016.
The filing demonstrated that we are earning within the allowed range of a 9.0% to 10.0% ROE.
Therefore, we did not request a change in base rate.
And in Kansas, we are expecting to file a request for interim rate relief under the Gas System Reliability Surcharge rider during the third quarter, with new rates effective January of 2018.
As always, I'd like to close by thanking our 3,400 employees for what they do every day for our customers.
I appreciate their hard work, dedication and commitment to delivering our product, natural gas, to more than 2.1 million customers safely and reliably.
Operator, we're now ready for questions.
Yes.
So this is <UNK>, <UNK>.
A couple of different points there.
The entire tax benefit related to this item was recorded in the first quarter.
So the $5.2 million relates to some long-term incentive shares that vested in that period.
And so it's recognized all of that point in time as opposed to being spread across the entire year.
So overall, our effective tax rate, absent that item, would be pretty consistent for the balance of the year, as it has been in prior years.
Then on a go-forward basis, each first quarter is the vesting period for the long-term incentive program.
So depending upon what our share price does over the vesting period, as well as how our share ---+ our total shareholder return compares to our peer group, will determine what that expense ultimately is each year and what that tax benefit is that gets recorded.
Does that help you.
Close.
The one difference would be that you look to the share price at the beginning of the 3-year period.
And so it's a ---+ it's what ---+ when the shares were granted, so the ones that were vested here in 2017, they were granted in 2014.
So you look at what happens to the share price over that period of time.
Probably a little bit deep in accounting, but that's the inside part of it.
Yes.
So just broadly, and there's a little bit more detail that will be in our 10-Q that we file later today.
But 2 of the states compare the weather in the current period to an average 10-year period, and one of the states uses an average over a 30-year period.
And so it's a comparison of the actual heating degree days that you experience in the current period compared to what those averages were in that either 10- or 30-year average period that's used as the comparison point.
And then to the extent you experience more or less, you get a ---+ you make a revenue accrual either to the customer's benefit or to help the company in the case of a warmer year, like this year, that effectively smooths out the revenues that you recognize, so you don't get a dollar ---+ a big dollar impact from the weather.
<UNK>, you're exactly right in terms of the income statement.
So the $5.2 million is truly related to the tax benefit from the grants that vested in the first quarter this year.
Now there was an $11 million impact that was recorded to retained earnings on January 1 when we adopted the standard.
And that related to some tax benefits that we had not been able to recognize in prior years.
And so that was a catch-up piece, but that did not go through the income statement.
That was recorded straight to paid in capital.
No.
The impact can be positive or negative.
So again, I'll get a little deeper into the accounting perhaps.
But whenever the awards are granted, you measure the compensation for book purposes on that date.
And to the extent that the share price increases or decreases, that creates a tax difference because your tax deduction is the value of the shares that are actually vest and what the price is at the vesting date.
So if that price were lower and you had less tax expense, it would create a negative tax impact.
In this case, these were shares from 2014, and I think we were trading somewhere around $34 ---+ $33, $34 at that point in time, so you have the increase in the share price and then the actual performance of the units.
Yes, as well as the performance of the units.
So if you had performance shares that vested at 0, that ---+ it's not going to matter what the share price is.
That would have a negative impact on it.
You should be prepared to set for the CPA exam now, so look forward to talking to you.
Thanks, <UNK>.
No, the ---+ you're exactly right, the accounting for that is exactly the same.
In the first quarter, we did have 2 awards that were granted.
That was through the $68 share.
We've had a $69 share in April, and the $70 share will exhaust that program.
So after first quarter, there's the potential for 2 additional shares, one of which has already been awarded.
That's correct.
They're expensed on the day that they're granted.
So Chris, this is <UNK>.
Right now there is no plan to continue that program.
Chris, all of those ups and downs on the gas cost actually gets passed through to the PGA.
The only thing that I would mention that can be affected by that is if gas costs rise, then you have ---+ there's more defaults on the bill.
So we had about, I think, about $800,000 of a delta between this quarter and last quarter last year; same period last year of about $800,000.
Now that is the portion that we don't collect on, that doesn't pass through to the right payer.
So you pass through the gas cost, but then the service piece of that, we have to book.
So because that's not separated from the bill, you can have a little bit of an impact as gas prices rise as it relates to that phenomenon.
And Chris, just a little more detail.
At the end of '16, we were under-recovered by about $20 million.
And at the end of the first quarter, we're under-recovered by roughly $5 million.
So we've collected some of the under-collection ---+ under-collected position that we were at year-end.
Yes, that's pretty close to a push.
Those mechanisms adjust fairly frequently.
So it would take a pretty extreme situation to get too far out whack.
The thing I'd say to that, Chris, is that Oklahoma has been pretty resilient even when gas prices were down into the $2 range.
Now granted there's a significant [amount more] drilling rigs running all over the United States right now than it was this time last year, but if you look back at Oklahoma, it was over 60% of the drilling rigs are running when the price was in the $2 range in our territories in Oklahoma and Texas.
If you look forward to today, it's around 65%.
So what it tells you is the lifting cost in our territories are fairly low.
So not only can they sustain the lower prices, but they're sure going to be drilled because their margins are better as the prices increase.
It's typically ---+ yes, short answer is no, Chris.
But people that are typically who want to work on the rigs are not necessarily the people that would be working inside the cities on our assets.
| 2017_OGS |
2017 | WWE | WWE
#: Thank you, and good morning, everyone.
Welcome to WWE's First Quarter 2017 Earnings Conference Call.
Leading today's discussion are Vince <UNK>, our Chairman and CEO; <UNK> <UNK>arrios, our Chief Strategy and Financial Officer; and <UNK> <UNK>, our Chief Revenue and Marketing Officer.
We issued our earnings release earlier this morning and have posted the release, our earnings presentation and other supporting materials on our website, corporate.
wwe.com/investors.
Today's discussion will include forward-looking statements.
These forward-looking statements reflect our current views, are based on various assumptions and are subject to risks and uncertainties disclosed in our SEC filings.
<UNK>ctual results may differ materially, and undue reliance should not be placed on them.
<UNK>dditionally, the matters we will be discussing today may include non-G<UNK><UNK>P financial measures.
Reconciliation of non-G<UNK><UNK>P to G<UNK><UNK>P information is set forth in our earnings release and presentation, which are available on our website.
Finally, as a reminder, today's conference call is being recorded and a replay will be available on our website later today.
<UNK>t this time, it is my privilege to turn the call over to Vince.
: Good morning, everyone.
<UNK>s you obviously see, we've delivered pretty strong revenue growth of 10% and that, of course, is due to our Live Events as well as network and television businesses, generally speaking.
<UNK>nd speaking of Live Event attendance, that's always been one of my barometers since Day 1.
<UNK>nd we've increased our attendance by over 100,000 in the quarter compared to last year, which is pretty amazing, 91 events as compared to 72.
<UNK>nother barometer, of course, as you know, I always use is our ---+ the content in terms of our social media as well as digital.
Our content had more than 4 billion video views on social and digital combined platforms for the first quarter, up 8%.
<UNK>nd it continues to be, as you know, for many, many years now, we've been trying to be a part of that land grab.
I'm happy to say we're still grabbing and holding onto ours, and it looks well.
Social media itself, 774 million followers, that's up 23%, which is extraordinary and speaks to the power of the brand and the health of the brand ongoing.
<UNK>nd many of you know, the WrestleMania results were excellent in terms of all aspects.
<UNK>nd as far as our Monday Night Raw and SmackDown television shows are concerned, they continue to hold their own and do better than that.
<UNK>nd generally speaking, we're ---+ with a network averaging 1.49 million paid subscribers over the quarter, that's 16% above 2016.
<UNK>nd right at WrestleMania, right after 1.95 million subs, we just missed 2 million, which we were hoping for.
<UNK>ut nonetheless, the business is very, very healthy, and bodes well for the future.
: Deanna, please open the lines to questions.
: So it's important that we grow in every conceivable way, whether or not it appears as though it's a direct correlation or not.
<UNK>nd again, through Stephanie's efforts and <UNK> and head corporately, there's a huge effort on our part to grow our base, and you can start growing the base, and continue to grow the base.
<UNK>s far as women is concerned, again, they're gatekeepers many times to programming and what have you and the likes of whether or not they enjoy the brand.
There's an initiative now and has been for a while, but initiative is everyone is trying to get to the younger audience.
One of our secrets, of course, has been generation after generation.
So again, we continue to broaden our platforms on an overall basis.
<UNK>t the same time as <UNK> and <UNK> were talking about, we can capitalize on the data that we do have with our current super fans.
So you have to grow, and we're looking at all of those areas and continue to invest in all of those areas, whether it's direct, okay, we're going to invest $1 here, it comes right back to us tomorrow.
That's not necessarily our point of view.
We have a long-term point of view.
We try to get as many different areas, many different demos and what have you as we possibly can, whether it's through CR initiative, whether or not it's consumer interest or direct back to backs.
There are many different ways that we're doing it.
<UNK>ut generally speaking, it's a broader audience.
: Just want to say thank you to everyone.
We appreciate you listening to the call.
<UNK>nd certainly, if you have any questions, don't hesitate to reach out to us, <UNK> <UNK> or <UNK> Guido at (203) 352-8600.
Thank you.
| 2017_WWE |
2016 | LAMR | LAMR
#Sure.
I think probably the most instructive thing is to look back and see how the original auctions progressed.
And it was very interesting.
As you know, they had a menu of markets and an expressed desire to sell them and price them individually and not necessarily in a package.
And I think they did a good job of running that process.
We've managed to hone in on the markets that made the most sense for us.
And I think we got them at a fair price.
I would note that the markets we were either outbid on or did not bid on went for a higher multiple, if that tells you anything.
You can look at certain filings and see that the multiple for the markets that ---+ the trailing multiple for markets we didn't get was north of 13.5%.
And of course we were 12.5% ---+ trailing 11.5% forward.
So that's fairly instructive.
There were good operators out there bidding.
A small venture backed group that does a really good job got Fort Smith and Wichita.
I wish them well.
Fairway, I believe, prevailed in the market.
And some investors who are longtime outdoor folks, that I'm glad to see are getting back in, prevailed in Portland.
So as I look back on that auction, I'm happy with valuation.
The industry is strong.
It has good independent operators, good financial backing.
And just ---+ I think Clear Channel can be pleased on how that process ultimately concluded, and we are as well.
Looking forward, we have constantly said since we became a REIT that we want to operate in a leverage band of 3 to 4 X EBITDA to total debt.
We are up on 3.8% side of that, which would indicate we have a little bit of powder left.
But we also generate so much free cash flow, it wouldn't be a bad idea to whittle that down to 3.5% and have even more powder left towards the back end of the year.
So we'll see how the year progresses.
We're very happy with what we have.
We're very happy with, again, industry valuations and industry players.
So all good on that front.
Well, thank you all and thank you for your interest.
I look forward to visiting when we report our first quarter for 2016.
For those of you on the West Coast, next week I'll be at the Morgan Stanley conference in San Francisco, presenting on Tuesday.
Thank you all.
| 2016_LAMR |
2016 | POWI | POWI
#Thank you.
Good afternoon.
Thanks for joining us to discuss Power Integrations' financial results for the second quarter of 2016.
With me on the call are <UNK> <UNK>, President and CEO of Power Integrations, and <UNK> <UNK>, our Chief Financial Officer.
During today's call, we will refer to financial measures not calculated according to generally accepted accounting principles.
Please refer to today's press release available on our website at investors.
power.com for an explanation of our reasons for using such non-GAAP measures as well as tables reconciling these measures to our GAAP results.
Our discussion today, including the Q&A session, will include forward-looking statements reflecting our forecast of certain aspects of the Company's future business and financial results.
Such statements are denoted by words like will, would, believe, should, expect, outlook, estimate, planned, goal, anticipate, forecast, and similar expressions that look towards future events or performance.
Forward-looking statements are based on current information that is dynamic and subject to abrupt changes.
Our forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from those projected or implied in our statements.
Such risks and uncertainties are discussed in today's press release and in our most recent Form 10-K filed with the SEC on February 11, 2016.
This conference call is the property of Power Integrations, and any recording or rebroadcast is expressly prohibited without the written consent of Power Integrations.
And now I'll turn the call over to <UNK>.
Thanks, <UNK>, and good afternoon.
This was a record revenue quarter for Power Integrations with sales of $97.2 million, up 14% from a year ago.
Non-GAAP earnings was $0.60 per share, up more than 25% year over year.
And we generated $23.6 million in cash flow from operations in the quarter.
For the first half of the year, revenues increased 9%, comparing favorably to the broader analog semiconductor industry, which most likely experienced a slight contraction in the first half of the year.
The primary driver of our growth in the first half has been our success in the smartphone charger market, which is undergoing dramatic technological changes driven by a pair of inherently conflicting trends in the mobile device market.
On one hand, OEMs are incorporating larger batteries in their phones in order to improve battery life while supporting bigger displays and other power-hungry features.
On the other hand, device makers are also pushing to reduce charge times in order to reduce downtime for end users.
These seemingly incompatible objectives can be met only with a drastic increase in the power level of smartphone chargers, and that is exactly what we are seeing in the marketplace.
Just two years ago, virtually all mobile phone chargers were delivering 5 watts or less.
This year, hundreds of millions of smartphones will ship with higher power chargers ranging from 7.5 watts to as high as 20 watts.
Nearly all top-tier OEMs are now participating in this trend, and all of those are using our products in high volume.
While increasing the power level of a cellphone charger may sound routine, the fact is that rapid charging introduces difficult tradeoffs for power supply designers.
In order to deliver two, three, or even four times as much power out of a charger while maintaining a small form factor, designs must be extremely energy efficient and component count kept as low as possible.
Integration is the key to solving these challenges, and we believe our InnoSwitch products are the most highly integrated power conversion ICs on the market.
While earlier products were confined to the primary or high-voltage side of a power supply, InnoSwitch straddles the barrier between primary and secondary sides of the circuit.
This allows us to integrate components from both sides of the safety barrier, enabling dramatic improvement in performance while reducing component count, complexity, and size.
These characteristics make InnoSwitch extremely well suited for rapid charging applications, and that's clearly reflected in our recent results.
Revenues from our communications category, which includes mobile phone chargers, are up more than 30% in the first half of 2016.
This growth reflects not only our increasing share of the charger market, but also the rising dollar content, which stems from the combination of rising power levels and the higher level of integration offered by InnoSwitch.
While rapid charging has already had a significant impact on our results, we expect it to be a growth driver for years to come.
This is for a number of reasons.
First, penetration of rapid charging is still in the early stages, and even existing designs will continue to migrate to higher power levels over time.
Second, new technologies such as USB-PD, direct charging, and Type-C connectors are just beginning to emerge.
And all of these technologies will drive the need for more innovative power conversion ICs.
Third, rapid charging has huge potential beyond mobile phone market, particularly in tablets and notebooks.
And finally, as successful as InnoSwitch has already been, we believe the next generation devices due out later this year will be even more attractive.
Perhaps more importantly, rapid charging represents just a fraction of the opportunity for InnoSwitch in the AC to DC power supply market.
InnoSwitch has already won designs in more than a dozen non-cellphone applications in all four of our end markets categories, and we have designs in progress at nearly 400 customers.
We expect a further acceleration of design activity once we introduce the next generation InnoSwitch, which not only offers a higher level of performance, but also addresses significantly higher power levels.
While we expect the InnoSwitch product cycle to be a multiyear growth driver, our growth opportunities extend well beyond the AC to DC power supply market.
So far this year, we have introduced four new members of our LYTSwitch product line as we continue to refine our offerings for the increasingly fragmented LED lighting market.
Lighting revenues are on track to grow this year, and we expect even faster growth next year as our latest LYTSwitch products begin to ramp.
In May, we introduced SCALE-iDriver, a new line of IGBT drivers targeting applications between 10 and 100 kilowatts.
SCALE-iDriver is the first product synergy from our 2012 acquisition of Concepts, combining our SCALE IGBT driver technology with the FluxLink technology used in our InnoSwitch devices.
The result is an IC that brings an unprecedented level of integration to a market that has historically relied solely on discrete designs.
Applications include industrial motor drives, commercial and residential solar, medical equipment, electric vehicles and more.
We estimate this market to be half a billion dollars in size, bringing our total market opportunity for IGBT drivers to roughly a billion dollars.
All told, our served available market now exceeds $3 billion, and we expect it to grow further in the years ahead.
This expansion will be driven in part by product introductions that enable us to address power conversation applications where we don't currently have a presence.
But it also comes from growth in a number of verticals in which power silicon content is rising.
For example, electronic content in consumer appliances has been steadily expanding thanks to stricter energy efficiency requirements and the migration from mechanical to electronic control, a trend that should continue as IoT functionality comes to market.
Meanwhile, older lighting technologies are giving way to LEDs, which require AC to DC drivers, and mechanical utility meters are being replaced by electronic meters that need efficient, reliable power supplies.
Other trends include electrification of transportation and the increasing use of rechargeable batteries in products such as power tools, lawn equipment, and bicycles.
In summary, our first-half results were strong, we are gaining market share across a broad range of power conversion applications, and we believe we are poised for continued above-market growth thanks to a robust product cycle and an expanding addressable market.
The high-voltage power conversion space continues to evolve in ways that demand integration and energy efficiency, and we are responding with some of our most innovative products ever.
And with that, I will turn it over to <UNK> for a review of the financials.
Thanks, <UNK>, and good afternoon.
I will quickly touch on a few financial highlights, and then we will open it up for questions.
As usual, my remarks will focus mainly on the non-GAAP numbers, which are reconciled to the corresponding GAAP figures in the tables accompanying our press release.
Q2 revenues were $97.2 million, an increase of 14% sequentially with growth across all four end markets.
Communications revenue increased more than 35% sequentially, driven mainly by the continuing ramp of rapid charging designs for the smartphone market.
Industrial revenues increased more than 10% sequentially on broad-based strength including LED lighting, high power, and metering applications.
Sales into the computing market increased mid single digits sequentially, while consumer revenues also grew mid single digits on strength in appliances, most notably air conditioning applications, which typically reach a seasonal peak in the June quarter.
The relative strength in communication revenues resulted in a meaningful shift in end-market mix with communications increasing 4 percentage points sequentially to 27%, and consumer falling 4 points to 35%.
Industrial and computer held constant at 32% and 6% respectively.
This change in mix was a primary factor in the sequential decrease of a 130 basis points in our non-GAAP gross margins.
Looking ahead, we expect gross margin to remain fairly steady in the second half as end market mix should be a bit more stable than we have seen over the past couple of quarters.
Non-GAAP operating expenses in the second quarter were $30.7 million.
That's up sequentially as expected, reflecting annual merit increases and accelerated R&D spending as we work to bring a larger than usual number of new products to market.
Nevertheless, non-GAAP OpEx came in slightly below our forecast for the quarter, and increased less than 2% from a year ago.
Non-GAAP operating margin was 18.7%, up 120 basis point sequentially, reflecting the strong revenue growth.
Our non-GAAP tax rate for the second quarter was just over 4%, resulting in non-GAAP net income of $17.7 million, or $0.60 per diluted share.
That's up from $0.50 in the prior quarter and $0.47 a year ago.
We generated $23.6 million in cash flow from operations in the quarter, while capital expenditures totaled $2.8 million.
Cash and investments on the balance sheet increase by about $17 million during the quarter to $202 million.
Internal inventories increased slightly in terms of dollars, but fell to 86 days on hand, a decrease of 12 days from the prior quarter, reflecting the stronger than expected revenue growth.
We do expect to build some inventory in the second half to get back into our target range of about 110 days plus or minus 15 days.
Our outlook for the third quarter is for revenues of $96 million to $102 million, which would be up more than 10% year over year at the midpoint.
As mentioned earlier, we expect end market mix to be fairly stable, which should result in a gross margin similar to the Q2 level.
Specifically, we expect non-GAAP gross margin to be in the range of 50% to 50.5% for the September quarter.
Non-GAAP operating expenses should increase slightly to around $31 million, while the non-GAAP tax rate should remain in the range of 4% to 5%.
With that, I'll turn it back over to <UNK>.
Thanks, <UNK>.
We'll move onto the Q&A session now.
Kelly, would you please give the instructions for the Q&A.
It is true, <UNK>, that certain markets are faster.
So if you look at what has increased the addressable market this year, it's primarily the SCALE-iDriver, which adds $500 million to our $2.5 billion addressable market, so that brings a total of $3 billion.
However, we have additional products that are coming out, including our next generation InnoSwitch that'll add to the addressable market this year, and plus some additional products next year that'll expand the market further.
So I would say in terms of time to revenue, some of the lower power markets are faster.
They're typically in the 6 to 12 month range.
Whereas the high power products tend to be more in the year to year and a half kind of a design cycle; for example, for the iDriver.
The yen hasn't had an impact yet.
It'll start having an impact in Q4.
And you're correct; it takes about nearly five to six months.
But as you know, the yen has been moving through this year from the 120s down to somewhere in the 105, 106 level.
So the unfavorable impact will start in Q4, and if it remains at the current level, more so in the next year.
However, a lot can change between now and the end of the year, so it's hard to predict the full impact for the next year.
But the start of the yen impact is more so in the Q4.
It's a little difficult to calculate that because it's such a dynamic market right now.
To the best we can estimate, roughly one third of the smartphones have started using rapid charging.
As far as our share, we think there are really clearly two leading solutions.
One of them is ours.
I would say that in terms of dollar value shipped, we are clearly number one.
Clearly, we have done better than we expected in the cellphone, or the communications market, I should say, particularly in the rapid charging market with InnoSwitch.
We have exposure to all of the Tier I customers except one.
And the ones in China have done extremely well, and particularly there is one Chinese OEM who has done extremely well.
But I would say that all of our Tier I customers have done well in terms of rapid charging products we ship to them.
And we've got to be careful because when we ship rapid charging products, it's not only the unit volume, but it's also the content is so much higher for us.
So our revenue doesn't necessarily reflect the number of units of smartphones or even rapid charging phones.
But as far as we are concerned, it's been a significant growth in that market.
The second area where we have done very well of course is industrial where we have grown double digits sequentially.
And that has been across multiple areas, including high power, LED, metering, electric chargers for electric vehicles like bicycles, and also chargers for power tools and lawn mowers, and so on and so forth.
It's very, very broad-based.
So those are the two main areas.
Absolutely, and that's why I think we are able to talk about the margin remaining even though the yen is going to start impacting us in Q4.
It is the higher volume that we are going ---+ you know, we don't have our own fab, so we don't have as much fixed cost.
But we do have some fixed cost, and that is what is actually enabling us and helping us offset the yen impact that we are starting to see.
And that's why we were mentioning that we expect the margin to remain in the level compared to Q2 for the rest of the year.
(Multiple speakers) sort of remain the same.
No, the weeks in the channel are down from ---+ last quarter was 7.3, which is, as you know, because of Chinese New Year, and now it's down to 6.5.
So typically, we run at 5.5, 6 weeks, so you may say it's slightly, but I wouldn't say it's of any significance.
Our backlog is better than in the past.
As you've noticed that our turns have been gradually going down, so we built a reasonable backlog in Q2.
Our bookings in Q2 was sequentially better than Q1, consistent with our forecast for Q3.
So I think we are in a stronger backlog position than we were in Q2 for Q3.
Absolutely.
One of the unique things about our product is it integrates a switch in it.
So as you go to higher power levels, your content is higher, and therefore, our ASP would be higher.
I'm sorry, I wasn't sure which ---+ what product.
iDriver.
Okay.
So the iDriver was introduced in May this year at PCIM Europe.
The interest level is very high.
The feedback is extremely positive.
We don't expect any revenue this year, but we do expect some revenue next year based on the feedback we have seen so far.
As I said, it typically takes a year to a year and a half for that type of product.
It goes into markets of renewables, UPS power supplies, motor control, and so on.
And my expectation is we should have some revenue in the second half of next year.
So basically, we are keeping ---+ our lead time is the same except for, obviously, certain products where, because we've had such a demand, that we are a little tighter.
But we are actually ramping up our production as well at different places.
So we believe that over the next two quarters, we should get back into our range.
Okay, well I know it's a busy day out there for earnings, so appreciate everyone listening in.
There will be a replay of this call available on our website, which is investors.
power.com.
Thanks again for listening, and good afternoon.
| 2016_POWI |
2015 | PRFT | PRFT
#Thank you.
Good morning and thanks everyone for joining.
We appreciate your participation on the call this morning.
As we indicated in the preliminary results we issued earlier this month, Perficient's performance in the second quarter fell below our initial forecasts.
The softness we experienced in Q1 carried further into the quarter than we had anticipated and impacted the results.
However, as we indicated with our preliminary results and you'll note from our Q3 guidance we believe things have already turned and the second half of the year will be substantially stronger with growth on both the top and bottom lines.
Q2 bookings were very strong and the pipeline remains as large as it has ever been.
Additionally, revenue per billable day continues to increase and projects that had been delayed are now underway and growing as we had hoped.
Before I continue I'm going to ask <UNK> <UNK> to read the Safe Harbor.
Thanks, <UNK>, and good morning everyone.
Some of the things we discuss in today's call concerning future Company performance will be forward-looking statements within the meaning of the securities laws.
Actual results may materially differ from those discussed in these forward-looking statements and we encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different than contemplated in today's discussion.
At times during this call we will refer to adjusted earnings per share.
Our earnings press release includes a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measure prepared in accordance with generally accepted accounting principles or GAAP and that is posted on our website at www.Perficient.com.
We have also posted a slide deck which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in accordance with GAAP on our website under investor relations.
<UNK>.
Thanks, <UNK>.
So we continue to focus on leveraging the ABR improvements we've made over the last several quarters across a larger book of business to drive organic growth.
Another point, though, to make here is billable hours.
We've talked about a mix shift from onshore to offshore as offshore growth outpaces onshore.
The total billable hours in Q2 were actually up 5% sequentially and up more than 13% annually.
We're also getting more leverage from our global delivery team.
6.5% of revenues in the quarter came from our offshore team versus 2.5% in the year ago period.
Obviously some of that comes from the acquisition we made of Zeon earlier this year but not all of it.
As I said before the offshore business is growing at a pace ahead of the onshore business which is positive.
Our margins offshore are significant and in addition to that represents a key differentiator in terms of our competition as well.
And our ability to use offshore as an extension of our project teams versus just a BPO allows us to charge meaningful rates, $45 an hour to $50 an hour for offshore resources, again yielding very, very high margins.
So while overall utilization was lower than we had planned in the quarter and lower than our goal we're confident we can manage it back into our target range in the low 80s going forward.
We've talked about this a couple of calls but it remains worth reiterating that enterprises are reacting to market forces and competitive landscapes moving faster than ever.
All companies are dealing with digital transformation and rising consumer and constituent expectations.
And our expertise around digital experience, business optimization and industry solutions has us positioned extremely well to benefit from the digital transformation that's underway.
In fact, Perficient is now the agency of record or primary digital and creative provider to a handful of large accounts and more than two dozen midsize and smaller accounts.
You can see much of that work by the way at commerce.
Perficient.com.
If you're interested I encourage you to take a look at it.
Our strong partnership with many of the world's leading technology innovators continues to help drive our business and underscores our differentiation.
We continue to receive meaningful recognition from our partners for our work and expertise.
Particularly exciting during the quarter were the accolades we received from Microsoft, a really great achievement for us.
We were named partner of the year in all three of their regional markets: East, Central and West in the US.
Obviously it's an honor to be recognized as the top partner in just one market but to sweep the entire country is something else altogether.
We're very excited about it.
In fact Rich Figer, the senior director of US enterprise partner group sales at Microsoft stated having, and I quote, unanimous confidence for Perficient across our partner sales executive teams in all three regions across the United States.
So extremely well positioned there.
It's confidence like that from our partners and our track record of maintaining and growing long-term client relationships that continue to reinforce our belief that we're continuing to build something great and unique at Perficient.
I'll touch on a few other notable topics and speak to our outlook for Q3 after <UNK> shares the details about the second-quarter results.
Then as usual we will open the call up for questions.
<UNK>.
Thanks, <UNK>.
Total revenues for the second quarter were $108.5 million, a 7% decrease over the year-ago quarter.
Services revenues were $97.2 million for the second-quarter 2015; excluding reimbursable expenses, a decrease of 1% to prior-year quarter.
Services gross margin for the second quarter of 2015 including stock compensation.
Reimbursable expenses were 36.3% compared to 38.2% in the second quarter of 2014.
SG&A expenses increased to $24.8 million in the second-quarter 2015 from $22.4 million in the comparable prior-year quarter.
SG&A as a percentage of revenues increased to 22.9% from 19.2% in the second quarter of 2014.
EBITDAS for the second quarter of 2015 was $13.4 million or 12.4% revenues compared to $18.8 million or 16.1% of revenues for the second quarter of 2014 with the decrease primarily the result of lower than anticipated revenues.
The second quarter of 2015 included amortization of $3.4 million compared to $3.7 million in the comparable prior-year quarter.
This decrease is primarily due to intangible assets related to previous acquisitions becoming fully amortized during the quarter, partially offset by the addition of intangible assets from acquisitions during 2014 and 2015 and the implementation of our ERP system which went live in the third quarter of 2015.
Our effective tax rate for the second-quarter 2015 was 19% compared to 42.1% in the second quarter of 2014.
The decrease in the effective tax rate is primarily due to an additional research and development tax credit recorded during the three months ended June 30, 2015 which was related to the finalization of the Company's 2014 research and development tax credit.
Net income decreased 37% to $4 million for the second quarter of 2015 from $6.4 million in the second quarter of 2014.
Diluted GAAP earnings per share was $0.12 a share for the second-quarter 2015 compared to $0.19 for the second quarter of 2014.
Adjusted GAAP earnings per share decreased to $0.25 a share for the second quarter of 2015 from $0.33 in the second quarter of 2014.
As a reminder adjusted GAAP earnings per share is defined as GAAP earnings per share plus amortization expense, non-cash stock compensation, transaction costs and fair value of contingent consideration net of related taxes divided by average fully diluted shares outstanding for that period.
Our earning billable headcount at June 30, 2015 was 2205 which included 2,077 billable consultants and 128 subcontractors.
Ending SG&A headcount was 399.
Now let me turn to the six-month results.
Revenues for the six months ended June 30, 2015 were $219.1 million, a 2% increase over the comparable prior-year period.
Services revenue for the six months ended June 30, 2015 excluding reimbursable expenses were $195.8 million, an increase of 5% over the comparable prior-year period.
Services gross margin for the six months ended June 30, 2015 excluding stock compensation reimbursable expenses were $36.1 million compared to ---+ I'm sorry, 36.1% compared to the 37.3% in the prior-year period.
SG&A expense increased to $48.9 million for the six months ended June 30, 2015 from $43.1 million in the comparable prior-year period.
SG&A as a percentage of revenue was 22.3% for the six months ended June 30, 2015 compared to 20.2% in the comparable prior-year period.
EBITDAS for the six months ended June 30, 2015 was $29 million of 13.2% of revenues compared to $32.8 million, or 15.3% of revenues in the comparable prior-year period.
For the six months ended June 30, 2015 included $7.2 million of amortization compared to $6.5 million in the prior year.
Our effective tax rate for the six months ended June 30, 2015 was 27.7% compared to 42.2% for the six months ended June 30, 2014.
Again the decrease in the effective tax rate is primarily due to an additional research and development tax credit recorded during the three months ended June 30, 2015 related to the finalization of the Company's 2014 research and development tax credit.
Net income for the six months ended June 30, 2015 decreased 14.5% to $8.1 million from $9.4 million in the six months ended June 30, 2014.
Diluted GAAP earnings per share decreased to 20 percent share from $0.29 per share in the comparable prior-year period.
Adjusted GAAP earnings per share for the six months ended June 30, 2015 was $0.50 a share, down 12% from $0.57 a share in the comparable prior-year period.
We ended the second quarter of 2015 with $60 million in outstanding debt, down $7.5 million from March 31 and $6.8 million in cash and cash equivalents.
Our balance sheet continues to leave us well-positioned to execute against our strategic plan.
Finally, our days sales outstanding on accounts receivable were 81 days at the end of the second quarter of 2015, up from 79 days in the second quarter of 2014.
This continues to be an area of strong operational and financial focus.
I will now turn the call over to <UNK> <UNK> for a little more commentary.
<UNK>.
Thanks, <UNK>.
We sold 33 deals north of $500,000 during the second quarter averaging $1.2 million each.
That compares to 38 in the first quarter, averaging about $1 million each and 29 in the second quarter of 2014 averaging $1.1 million.
So four more deals and a higher overall average year over year of $100,000 per deal.
A good year overall in large steel bookings and we had solid volume growth sequentially and annually for deals below that range.
So from an industry perspective healthcare, financial services and retail and consumer goods verticals remain our strongest performers.
We've talked for several quarters about our continued focus on developing and marketing Perficient-owned IP to our clients.
While we didn't close any material sales during the second quarter our pipeline continues to grow there.
We expect additional sales this year including actually in the third quarter.
Finally, we're continuing to look to supplement our organic growth with accretive M&A and with firms that help deepen our expertise and expand our reach.
We're looking to complete two to three more deals remaining in 2015.
So turning our attention now to the expectations for the third quarter, Perficient expects its third-quarter 2015 services and software revenue including reimbursed expenses to be in the range of $111.5 million to $122 million comprised of $104.5 million to $110 million of revenue from services including reimbursed expenses and $7 million to $12 million of revenue from software sales.
At the midpoint of the third-quarter 2015 services revenue guidance represents growth of 7% over the third quarter of 2014 services revenue.
So with that we can open the call up for questions.
Operator.
Yes, thanks <UNK>.
We really didn't have cancellations materially.
I would say cancellations are a part of the business and Q2 was normal in that regard.
It was really delays, both delays to deal closures so some extended sales cycles and a few big engagements, a few big deals as well as delays and just ramping up on deals that were already closed.
So the one large deal that we've talked about a few times.
We're really the source of that delay.
I think the answer to your question in terms of whether we'll earn all that revenue or not I think over time the answer is yes.
Again we didn't see cancellations, what we saw was delays.
But we started from a lower point now coming from Q2 to Q3.
So unfortunately those people didn't go to work on other projects waiting for this projects to start.
A good chunk of them were on the bench which is why obviously revenue was down and margins are down for Q2.
Now it's rebounded, so I would look at it as though honestly Q3 is sort of what we expected Q2 to be and then we'll build on it from there.
So we are expecting a pretty strong Q3.
As the guidance reflects we've tried to be conservative of course in our guidance based on what happened in Q2.
So we feel good about it and feel confident and we do believe that we can build on that in Q4.
It's too early to determine that but I'm optimistic that while these delays hurt us in Q2 I think ironically they may actually help us in the fourth quarter and going in primarily transitioning from the fourth quarter to the first quarter.
We typically have a seasonal slow start to the first quarter due to the fact that a lot of projects reset or a lot of renewed contracts start in January and don't necessarily start on day one.
The good news is we've got a big chunk of contracts now that extend beyond six months that have closed and should extend into Q1 and help us bridge that gap that we normally see.
So I'm optimistic we'll buck the seasonal trend in the early part of Q1.
Again it's early to say but I think that might be some silver lining in what we experienced in Q2.
Yes, it was down 9%, a little under 9% for the quarter.
Our guidance right now is roughly flat before Q3, down a little actually at the midpoint but again we tried to be conservative there.
And if I'm correct on how we bridge Q4 and Q1 I actually expect us to see growth again in Q4.
One of the things I want to point out and I alluded to it in the script, though, we are seeing a mix shift.
So while revenue was down and we talk about focusing on hours, so revenue was down 9% obviously a negative.
Hours, though, were down organically half of that, 4.5%.
So again sort of a positive.
And if you look forward to Q3, I think we'll actually see again flat to growth in hours and that should repeat again in Q4 and going forward.
We really focus on driving volume up.
We expect that didn't benefit us as much in Q2.
Obviously it was down some but we held that bench for these late starts.
That's behind us now.
We do expect to drive utilization into the 80s beginning here in Q3.
And with that shift to offshore we should begin to see more margin expansion and actually overall growth in billed hours organically.
Yes, we are going to stick with the full-year guidance we issued a couple of weeks ago, a few weeks ago.
Yes, so on the tax rate the adjusted tax rate should be somewhere in the 37%, 37.5% range in the back.
Obviously the lower rate in Q2 that I talked about was driven by this adjustment to the research and development tax credit.
Margins, certainly with utilization increasing will be increasing and I think you're going to be roughly flat with where they were in Q3 of last year, maybe up a little bit.
And share count.
And share count obviously depending upon what we do here in Q3 with buyback should come down and we're modeling it down if we do additional buys.
But it's about $34.3 million right now fully diluted.
Yes, so utilization overall including offshore was actually up.
So again part of the impact here is a mix shift which will be positive long term but at the same time so we had some utilization being made up by offshore, but we were holding more expensive resources on the bench and onshore.
So that was the biggest impact to the gross margin really.
I will let <UNK> talk about the operating margin and some of the SG&A.
I know we had some one-time cost there.
<UNK>, do you want to detail it.
From an SG&A perspective if you look at year over year by quarter certainly revenues coming in lower than we anticipated affected the percentage.
But we also had sales moving from trade shows and sort of one-time things that were higher on this quarter as well as some professional fees associated with this R&D tax credit that we talked about.
In addition to that we have made some investments in finance, HR and IT in anticipation of growth and we anticipate the SG&A as a percentage of revenue did go down as we get into these higher revenue numbers in the back half.
I still think we're going to see some expansion for US rates, onshore rates as well as offshore actually.
Our offshore rates are phenomenal for offshore rates.
Like I said before $45 to $50 an hour and substantial gross margin.
It's a small, still smallest piece of the business but it's not moving the needle tremendously, although it is adding tremendous value.
So we do expect rates that will expand somewhat going forward.
I think we were flattish, slightly down maybe in the quarter.
But one of the things to keep in mind, these larger engagements that we've talked about will be lower rate.
However, the margins will still be as strong or stronger due to the fact that since they are long term they will be very high utilization projects.
So we've made great concessions to win a $50 million engagement as an example that runs a couple of years.
However, the margin on that opportunity should be as strong or stronger than our average.
If that makes sense.
So again you might see rates flatten a bit or bounce around a little bit where they are now.
Overall I do expect expansion but not at the pace we were given the mix shift of the business.
You know, I think <UNK> we did in Q2.
So that was one of the things that caused the challenge we had in Q2 was there were some specific ones that were responsible for the most material component of the impact.
However, there was kind of an across-the-board sales cycle extension.
Deals closed but maybe not as rapidly as we expected sort of in aggregate.
That's actually changed.
Bookings have been quite good, were quite good actually in the latter part of the second quarter, have been strong starting out this quarter.
We expect a strong July and August here.
And it's too early to see September but we've got some really good momentum going that I am anticipating will continue.
So I can't put my finger on what caused the more macro across-the-board slowdown in terms of the sales cycles or extension of sales cycles.
That was a factor but it seems to be past us now.
No, we are going to be adding capacity.
We've got, in fact we've got a strategic team assembled right now to drive additional capacity in sales.
We've done some hiring already and we anticipate doing more.
I believe, though, that as the business scales the sales as a percent of revenue might climb a bit but I think we will be able to grow into that or grow with that.
And we've already got some strategies to offset some of the additional investment there and other areas.
So overall SG&A impact might be modest.
Again if we can get the top-line growth that I think we'll get it won't be huge but we are investing in that to your point with the intent of driving additional organic growth.
It's still our goal to get this business to high single-digits organic growth or better.
I believe we can do it.
I think the portfolio we have and the position we have in the market is there and I do think sales capacity is one of the challenges and we're addressing that now and adding sales capacity right now.
Good question.
Retention is good.
Our voluntary attrition is running right around 20%, slightly above.
Our goal is to have it basically slightly below; frankly, I think below 18% or so is unhealthy.
People it's a tough business and when people need to move on they need to move on, so we're satisfied with the retention.
It's actually better than it was a year or two ago.
In terms of attracting talent I'll say what I always say to this and it sounds cliched but it's very true.
It's always hard to find good people.
I don't know of any skilled IT folks that are unemployed, it's just not the environment we are in and it's not the environment we been in for a long time.
So it depends on the technology or their skills of course.
Some areas are very, very hot.
Some areas are more stable or mature and we always try to hire the best, so it's always a challenge.
We've got a great recruiting team, though, and we've done well in hiring into some of these larger demand areas that we're experiencing right now.
So that ramp up was a challenge for our recruiting team but they've been able to keep pace with that ramp now that it's finally started.
You know, right now we've got to be cautious.
I would say right now we do expect and all indications from the customer are that that ramp will stay, will now stay on pace to what we expected.
And I think ultimately it ramps to I want to say it's $30 million, $40 million annually, maybe even beyond that.
However, again we're not counting on all that necessarily because things can change.
The logistics of what they're taking on is challenging so we want to be nimble and be able to pivot if that pace slows.
However, they are committed, I was going to say they are committed to the engagement.
We've heard nothing other than they are absolutely committed to making it happen.
But the work that we're doing for them is the overall engagement they refer to it as the complete digital transformation of their business.
I think I mentioned before they've got $0.5 million of services only budgeted for this and it is the digitization of everything patient facing as well as doctor facing within their organization.
So mobile, analytics, portal, everything that falls under that umbrella are all things that are on the table.
Well no, unfortunately we were ready.
Part of the reason the margins got hit.
And again I would say in hindsight we probably we maybe could have seen that it was going to be more difficult for them than they realized but it's a huge undertaking.
The program is made up of many, many project teams and just the logistics of getting all that pulled together and managed effectively so that their dollars are being used wisely, it took them longer than they had originally anticipated.
But again the pace is good now.
We had no indication to believe that it will change now, although we're being wary of that possibility.
And we'll see how it presses on but yes the delay was more on them than us but certainly understandable.
I think the rate only dropped a couple dollars.
Don't forget that the acquisition of Zeon pulled the rates, so the organic drop was only a couple of dollars an hour.
And that's I think you can expect that to bounce around a bit as I said earlier but the larger drop that you may be referring to actually (multiple speakers)
Yes.
It's (multiple speakers)
It's flattish organically and that's kind of what we expect.
It's a dollar or something.
There hasn't been voluntary turnover to speak of.
I think there are some people who were struggling who opted out but that's ongoing.
Let me say it this way.
I would say there's been no more voluntary turnover than we would normally see.
And with maybe one or two exceptions nobody cited the plan.
I think the folks have embraced it now.
We continue to tweak it.
The intent of that plan obviously was not to be punitive in any way at all.
It was to help drive more alignment to our strategy and I think the folks understand that.
We're working with them to help them meet their goals and I think they've adapted to it really quite nicely.
In terms of productivity our folks did a great job and I'm very pleased actually with what they accomplished.
They work hard and put up good numbers.
<UNK>ly with some of the attrition that we had both voluntary and involuntary we find ourselves with less capacity than we'd like to have and less capacity than we believe we need to drive the organic growth goal that we have.
So as I had mentioned earlier we are working very hard and in a very focused way to change that and bring people on board.
In fact we've hired I think three or four salespeople in just the last couple of weeks.
Yes, it's a good question.
I don't have a crisp answer.
I do expect that we'll some more fluctuation there.
I think we're at a fairly stable point though.
I don't necessarily think it will be tremendously volatile.
And for us utilities are included in that and I think utilities seem to be faring much better than the producers.
So we feel pretty good about that side of the business.
A lot of data there, a lot of BI opportunities in the utility space.
So we're hoping we can make up any losses or drops from the producer side on the utility side.
But yes, we do expect continued volatility.
I do still think, though, that the other verticals, not the least of which of course healthcare and fin serve can compensate and more than compensate for that.
You know, it is coupled to a couple of key wins.
We've always done pretty well in that space but it's not been a huge vertical for us.
And I expect it will be about the same as it has been, when things settle out it will be about the same percent of revenue that it's been historically.
Telecom is a space that we continue to see good opportunity in.
We've got a fantastic relationship with a key account there but also expanding beyond that account leveraging that skill set.
All right, well thank you all for your time today as usual.
And I'm very much looking forward to an excellent Q3 and the opportunity to have a call here in 90 days talking to you all about a great quarter.
Thank you very much.
| 2015_PRFT |
2016 | CI | CI
#<UNK>tine, that isn't a factor at all.
So to underline the MCR, our focus on physician engagement continues to deliver exactly the results we'd expect ---+ quality and affordable care to Medicare Advantage customers.
So the sanctions have not had an impact.
The quarter-over-quarter impact is two major factors.
First, there's less favorable impact from favorable prior-year development, so we had significant favorable prior-year development last year, de minimis amount of prior-year development this year.
Second, we are seeing some impact from the growth in the recent market expansions, and those markets, when we first did launch a market, tend to run at a higher MCR than our established markets, so that's somewhat shown up as a little bit of an increase in the quarter-over-quarter comparison.
But underlying the results, so excluding the prior year, our Medicare Advantage business results and the MCR are very consistent with our expectations.
We expect to see M&A opportunities as we go forward in the marketplace.
So as you recall, first, broadly, one of our priorities for M&A has been and continues to be seniors and MA in a broader sense of the word.
We are not aware of any impediment in any way, shape or form correlating the sanctions to our ability to be active from an M&A standpoint even in the current period.
<UNK>, I don't think we are going to give specific details, but you can rest assured it's going to have a negative sign in front of it.
I apologize.
It sounds like we temporarily had a line issue.
If you don't mind starting over with your question; unfortunately, the line blanked out for a period.
<UNK>, I don't think it's helpful to reconcile in detail, but a way to think about it is, and we tried to be very clear both in the press release and in our comments today, you could think about, as we step from the first-quarter results to this quarter, taking everything into consideration for the impact of the disability business and the life business, we noted a $0.90 change for the full year to our EPS outlook.
And to the prior comments, we indicated you can think about that as approximately driven by two-thirds of the disability portfolio and one-third by the life portfolio.
We had not provided a segment outlook for you, but as we stepped into the year, our expectations stepped down from start of the year through the first quarter.
We knew we had operational changes and, as I noted in my prepared remarks, it is clear that the magnitude of the impact and the timeframe to remediate is longer.
So we understood we were putting those processes in place.
We believe we made provisions for that, but the impact is order of magnitude significant relative to that.
But I think the, A, understanding we knew we were making the process changes; B, put some provisions forward for that, but, at the end of the day, the most important part for you to think about is that $0.90 impact for the year as we sit today with the majority of that, or two-thirds of that, more specifically being driven by disability.
So, first and foremost, the core MA business absent the step-up in costs for the MA sanctions activity is performing well.
Two, as we look to 2017, to the core of your question, we would expect to improve margins in part driven by the runoff or absence of the sanction costs.
And three, maybe broadly inferred in your question, we continue to look at this as an attractive both growth and earnings segment from the ability to both grow it and have attractive margins over time as we leverage the proven physician engagement models we have.
First, just to define for everybody's benefit, when we talk select segment for our Company, this is for employers with 51 to 250 employees, so the over 50 marketplace.
We have focused on bringing innovative, transparent both engagement and incentive-based models and over time our results here have been tremendous not just from a growth standpoint or earnings standpoint, but from the value we deliver back to those employers and employees by having those aligned models.
As for results, we have grown again this year.
Our customer base in a pattern at least on a year-to-date basis is similar to last year's pattern.
And to the core of your question, we continue to see this as an attractive growth market as employers in that space continue to look more aggressively toward alternatives that again are transparent and aligned and these programs are performing well and we are excited and optimistic about the future for this business.
Well, we are seeing pressure both in the on-exchange ACA compliant and the off-exchange ACA compliant.
Expect both.
Meaning our assumption for the remaining part of the year, yes.
And as we noted before, those programs that have the more advanced models with the physician-aligned collaboratives are performing better, and our expectation is to position as many markets as we are going to be in with those models into 2017.
As we noted, our employer health care business and our Global Supplemental or Global Individual business continues to perform very well.
Obviously, that performance was eclipsed by the items you made reference to.
So as you are looking for offsets or the positive forces, the positive forces come out of those two large well-performing businesses with the offsets that you made reference to.
<UNK>, I would ask you to think about every business has seasonality patterns that are attached to them.
So for example, in the employer health care business, we always have an uptick in spending in the latter part of the year to prepare for 1/1 activities and enrollment activities, etc.
That's an illustration of movement of seasonal patterns in the book of business.
The MLRs tend to perform differently because of the high deductibility plans, etc.
Simple answer is no.
<UNK>, obviously, a very important point you raise.
We are quite cognizant of the timing, the decision criteria, etc.
, and our team is poised to be able to dynamically manage that as the next 30-day window unfolds in front of us and we are prepared to make whatever trade-off decisions we need to make as our final judgment around the enrollment cycle unfolds.
I'm not going to comment or speculate on CMS's conclusion.
The most important piece is we are 100% focused on fully remediating and getting the validation as quickly as possible so we can put ourselves in a sustainable position.
Obviously, we will update you as soon as we have clarity and conclusion to the final steps there.
I'm not disclosing at this point in time.
As we noted, we expect as we look forward for 2017 we have margin improvement opportunities in the Medicare book of business in part driven by the removal of the remediation costs, and then we will talk further as the year unfolds relative to 2017 guidance more comprehensively.
A couple of comments, <UNK>.
Broadly speaking, we've been quite pleased over an elongated period of time for both the intersection of the service and productivity service delivery we provide to clients and customers.
The ongoing growth of that portfolio of businesses in very difficult economic times, low interest rates, low employment, growth rates, etc.
, and a tremendous margin level.
Our strategic objective has been to maintain margins in line with our historic performance and continue to grow that book and that portfolio.
These investments will put us in position to continue to further improve the customer experience, as I noted before, be aligned with emerging regulatory best practices and be in position to again exceed those margins on a long-term basis.
I think that's a good way of thinking about it, and as we think about infrastructure, as I noted before, this is not a technology problem; it's a workflow and human capital program.
So to be clear, we operate at about 27% today, which is low based on historical levels, low based on our goals and objectives.
We see the ability to raise that 10 points for, I will call it ordinary course of business, and illustratively 15 points for strategic M&A.
Broadly speaking, you should think about the vast majority of the costs and the resources for purposes of annual enrollment period as largely being variable.
So if you are putting them in buckets, nothing is ever at 100%, but you should think about them as largely variable.
Two, as noted by prior callers, the timeframe is rapidly coming upon us to make final decisions relative to ramping and staging.
That's both beneficial.
That is not a cliff decision in terms of your cost structure, the variability allows you to dial up and dial down, and we would expect to be confronting some focused decisions over the near-term 30-plus day window and we are highly focused on that.
<UNK>, historically, we've prioritized Medicaid below certain other segments, so seniors or Medicare, expanding our global footprint, expanding our retail capabilities as examples.
We have viewed that over time that the Medicaid marketplace would continue to move more toward, we will use the broad term, managed Medicaid, programs within states to focus on high risk populations where we believe we have the opportunity to create differentiated value through physician collaboratives or clinical models, etc.
And we believe over time that will continue to present opportunities be it organically or inorganically.
So it's a subset of the Medicaid world as it allows where we believe we could actually create differentiated value through either clinical engagement, physician engagement or both.
I would think about prior-year this way.
So in the quarter, we had about the same level of favorable prior-year department in our commercial employer business this year as last year, but we had reductions in both Individual and Medicare and that resulted in an overall de minimis amount for the entire Company.
Actually Individual is included, but so is our broader employer business.
So in the overall scheme of things, Individual is a smaller contribution to the trend result and, as I said when this came up earlier, we really don't see any significant changes in the underlying trend factors in the components.
Thank you.
So just briefly to conclude our call, I'd like to highlight some key points.
Cigna's second-quarter results reflected solid revenue and earnings contributions from our Global Health Care and Global Supplemental Benefits business and a disappointing financial performance in our Group Disability and Life segment, reflective of short-term challenges that will improve.
The 40,000 outstanding members of the Cigna team around the globe work diligently every day to fulfill our mission of improving the health, well-being and sense of security of the people we serve, and we will seek to continue to effectively operate our business guided by our strategic framework to create sustained value for customers, clients and shareholders.
Again, we thank you for joining our call today.
| 2016_CI |
2017 | WD | WD
#Thank you, Erika.
Good morning, everyone, and thank you for joining the <UNK> & Dunlop First Quarter 2017 Earnings Call.
I have with me this morning our Chairman and CEO, Willy <UNK>; and our CFO, Steve <UNK>.
This call is being webcast live on our website, and a recording will be available later this morning.
Both of our earnings press release and website provide details on accessing the archived call.
This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com.
These slides serve as a reference point for some of what Willie and Steve will touch on this morning.
Please also note that we will reference the non-GAAP financial metric adjusted EBITDA during the course of this call.
Please refer to the earnings release posted on our website for a reconciliation of this non-GAAP financial metric.
Investors are urged to carefully read the forward-looking statements language in our earnings release.
Statements made on this call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements describe our current expectations and actual results may differ materially.
<UNK> & Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
We expressly disclaim any obligation to do so.
More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC.
With that I'll turn the call over to Willie.
Thank you, <UNK>, and good morning, everyone.
I recently celebrated my 50th birthday and as a gift, my father arranged for me to visit the U.S.S.
Roosevelt aircraft carrier as part of the Navy's distinguished visitors program.
It was an amazing experience to watch fleet operation and spend time with the men and women of the United States Navy.
As I lay in my bunk, listening to the final plane coming to a roaring stop at 1:30 a.
m.
in the morning, and I was awoken only 4 hours later by the first plain off, I thought about the amount of practice it takes to ensure that flight operations can be executed flawlessly.
Every one of the 5,000 people on the U.S.S.
Theodore Roosevelt knew exactly what his or her job was, how to do it and how it fit in the mission of launching and retrieving squadrons of F-16s.
And while operating an aircraft carrier and flying fighter jets is dramatically different than leading a commercial real estate financial company, I couldn't help but look at <UNK> & Dunlop first quarter 2017 performance and think that our focus, definition of mission and exceptional execution is somehow analogous to what I watched happening on the U.S. Roosevelt: Define the mission, establish roles and responsibilities, practice, improve, execute.
Do it again.
And once again, W&D is posting financial results that reflect our team's incredible performance throughout the first quarter.
$5 billion of total transaction volume is a first quarter record.
Record loan volume usually generates record revenues which topped $158 million this quarter, setting us up nicely for over $600 million in revenues for 2017.
Net income swelled to $43.2 million, an increase of 180% over Q1 last year, generating $1.35 per share.
As shown on Slide 3, trailing 12-month revenues now total $640 million, with $4.52 in earnings per share.
Finally, as we mentioned in our last earnings call due to the size of our servicing portfolio and the cash flow it is generating, we surpassed $50 million in quarterly adjusted EBITDA for the first time in the company's history.
And skipped right over the $40 million in the process, as our previous record was $36.2 million.
Our first quarter financial performance underscores many of the themes we have been discussing for several years.
Continued growth of our loan origination platform, recruitment of highly talented mortgage finance experts, organic growth of the loan servicing portfolio and the economies of scale achieved when executing on our strategy.
In February, we provided investors with our view of the market opportunity over the next several years, with continued growth in all business lines and the specific target of generating over $1 billion in revenues by 2020.
We also established ambitious strategic and financial goals for 2017.
And with 1 quarter under our belt, we're firmly on the path to achieving our annual objectives.
The 2 Fed fund rate increases seem to have impacted investment sales activity across the industry, which according to Real Capital Analytics, was off more than 18% in Q1 from the previous year.
At <UNK> & Dunlop multifamily investment sales team posted 83% growth in Q1, generating $287 million of investment sales activity.
That is the great start to the year.
And while we saw plenty of volatility in long-term rates throughout the first quarter, the cost of borrowing was not greatly impacted by the 50-basis point rise in short-term rates.
With the weighted-average coupon for fixed rate loans we originated in Q1 being 4.42%, up only 14 basis points from 4.28% in Q1 of last year.
It is our belief that due to the attractive yields on 10-year U.S. treasuries versus others sovereign debt instruments, that the yield curve will continue to flatten and that borrowers on the margin will continue to put long-term, fixed-rate financing on their properties as interest rates rise.
Before I turn the call over to Steve to run through our financial performance, I want to underscore an achievement we recently announced.
In 2012, we established the objective of being a top-5 lender with Fannie Mae, Freddie Mac and HUD over the ensuing 5 years.
We took the core team at <UNK> & Dunlop at that time, added CWCapital, Johnson Capital, Engler Financial and Elkins Mortgage and ended 2016 as Fannie Mae's second-largest partner, Freddie Mac's third-largest, and HUD's fourth largest partner.
Achieving such an ambitious goal in just 4 years is a testament to the outstanding professionals at <UNK> & Dunlop, and reflective of the brand and market presence we've built in the commercial real estate industry.
It is also reflective of our strong and corporate culture, and our ability to acquire companies, seamlessly integrate them and then grow their loan origination and brokerage volumes dramatically on our platform, all while providing our clients with exceptional execution and high-touch customer service.
Deerwood Mortgage, which we required in Q1, is sixth acquisition since the financial crisis and provides us with an exceptional team focused on the massive greater New York area.
We're extremely pleased to have our Deerwood colleagues with us.
Let me turn the call over to Steve.
And I'll come back with further comments on our strategic objectives and outlook.
Steve.
Thanks, Willy, and good morning, everyone.
At the risk is sounding like a broken record, Q1 2017 was yet another stellar quarter for <UNK> & Dunlop.
And speaking of breaking records, this was the most profitable first quarter in the company's history, with just over $5 billion in transaction volumes and diluted earnings per share of $1.35 compared to $0.50 in the first quarter of 2016.
Diluted earnings per share include the $0.27 benefit from reduced tax expense related to the vesting of employees' stock awards during the quarter that I will explain in a moment.
As the bottom line results imply, our key metrics for the first quarter were all above our expected target ranges.
Slide 5 provides a summary of our key metric performance for the quarter, and as you can see, they all outperformed the prior year rather dramatically.
Operating margin was above our range of 27% to 33% at 35% and well above the 26% we achieved in the first quarter of 2016.
Margins benefited from strong revenue growth in the quarter, as we originated over $4.7 billion in financing volume and completed just under $300 million in the investment sales.
We continued to see strong market dynamics throughout the quarter, as evidenced by our 108% increase in Fannie and Freddie volumes.
We aim to once again one of the largest partners for Fannie and Freddie in 2017 and more than doubling of a volume of business quarter-over-quarter is a great start towards achieving that goal.
Our HUD volumes were up 67% to $207 million, as our HUD team strives to originate over $1 billion of loans this year.
We achieved that level just once before in 2013, and with such a positive first quarter and strong pipeline, the team is well on its way to exceeding that mark again.
Our acquisitions of Elkins and Deerwood, along with our existing team, contributed to strong capital market volumes during the quarter as broker originations increased 53% year-over-year.
Operating margin also benefited from lower personnel costs as a percentage of revenues, which were 35% compared to 36% in Q1 '16.
First quarter is typically our lowest quarter for personnel expense due to the structure of our commission arrangements.
So as our bankers and brokers move towards top-end of the commission list, I would expect the personnel cost to the percentage of revenue to steadily increase over the remainder of the year towards our historic average of around 40%.
As we've seen in the last few quarters, gain on sale margin continues to benefit from the relatively high percentage of our business going to Fannie Mae versus other executions, and finished the quarter at 204 basis points, above our range of 180 to 200 basis points.
In Q1 '17, 40% of our financing business was with Fannie versus 31% in Q1 '16, accounting for the increase in gain of sale margin from a 188 basis points last year.
Return on equity was 28%, above our target of high-teens and over double the 13% we achieved in Q1 '16.
We have seen our return on equity above 20% in each of the last 4 quarters, even as our stockholders' equity has increased from $502 million to $644 million due to the effective deployment of capital and the strength of our core earnings.
As I mentioned in our last earnings call, it is our expectation that due to the size of our servicing portfolio and core profitability that EBITDA is going to grow dramatically in 2017.
As highlighted on Slide 6, we generated $50.3 million of adjusted EBITDA in Q1, an increase of 55% over the $32.4 million achieved in Q1 '16.
This is a record amount by a wide margin and reflective of the strong growth we've achieved in both our loan origination and servicing businesses.
The servicing portfolio grew by 26% to $64.4 billion and the weighted average servicing fee increased from 25 basis points at March 31, 2016 to 27 basis points at March 31, 2017.
We ended the quarter with cash in the balance sheet of $51 million, down from $119 million at year-end.
In addition to paying our annual bonuses during the quarter, we also used cash to acquire Deerwood, grow the interim loan portfolio by $91 million in outstandings, pay income taxes and purchase and retire shares of our stock to facilitate employee tax withholding on stock compensation.
As I mentioned earlier, our results included a $0.27 per share benefit from reduced tax expense associated with the vesting of employee stock awards during the quarter.
In Q1 '16, we adopted a new accounting standard that requires the difference between the book expense and tax benefit from the vesting of stock awards be recorded to income tax expense rather than as a direct adjustment to equity, as required under the previous accounting method.
The difference between the book expense and tax benefit relates to the difference between grant date fair value of the stock, which drives book compensation expense and the vesting date fair value of the stock, which creates the income tax benefit.
This accounting change had a meaningful impact on our quarterly results due to the vesting of our 2014 performance share plan and the significant appreciation in our shares over the last 3 years.
On Slide 7, we provide a summary of all the stock awards that vested during the quarter, along with the calculation of the $0.27 benefit.
As you can see, the average grant price of each share that vested during the quarter was just over $17, while the value of the stock on the vesting date averaged almost $40 per share, resulting in a reduction in tax expense of $8.7 million compared to just $300,000 in the year-ago quarter.
It is important to note that we did not consider this tax benefit when setting our objective of double-digit growth in earnings per share for 2017, as the ultimate adjustment from future vestings either positive or negative is difficult to predict.
We were expecting a strong first quarter, particularly in comparison to the relatively slow first quarter of last year and we certainly achieved that.
At this point, we could simply repeat our results from the last 3 quarters of 2016 over the next 3 quarters of 2017 and achieve our objective of double-digit earnings growth.
However, we believe we can continue to grow earnings over the next 3 quarters given the current market dynamics, the strength of our pipeline, the increased size of our origination team and the steady growth in servicing-related fees and income.
As such, we remain optimistic in our belief that will continue to show year-over-year growth trends through the remainder of 2017.
With that, let me turn the call back to Willy.
Thank you, Steve.
I want to loop back for a second to the aircraft carrier I visited recently.
When a fighter pilot lands its F-16 at the carrier, he's shooting for the third catch wire on the deck.
If he picks up the first or second cable he is coming at too steep an angle.
If he catches the fourth cable, he's coming too flat and missed the target.
And if he misses all the 4 cables, and needs to take off immediately, it is called a bolter.
Every day, the landing performance of the fighter pilot is analyzed and if a pilot gets too many bolters, he won't be flying fighter jets on the carrier much longer.
As I listened to Steve run through our financial performance, I think it is fair to say that W&D team caught the third cable pretty consistently throughout Q1.
The results Steve just discussed are a fantastic start to the year and our business is very well-positioned to perform at a high level going forward.
We established a goal at the beginning of the year to build an $8 billion to $10 billion asset management business at <UNK> & Dunlop.
Last week, we reached agreement with Blackstone Mortgage Trust to create a joint venture with the strategic purpose of originating multifamily interim loans.
This new partnership with Blackstone will greatly enhance our ability to scale our interim loan business and also, bring with it a partnership with the largest owner of commercial real estate in the world.
We will fund 15% of the equity investment in the JV as well as underwrite, service and asset manage the loans originated and held by the joint venture.
If we're successful in growing the outstanding loan balances through this partnership from the $313 million in loans on our balance sheet today to over $1 billion, our capital commitment will be somewhere between $30 million to $50 million, significantly lower than the $100 million of capital invested today.
This partnership provides us with a fantastic opportunity to expand our product offerings, while freeing up capital to grow our core loan origination and investment sales platforms and invest in new lines of business.
We've accomplished many things at <UNK> & Dunlop throughout the company's long history and worked with many fantastic institutions.
It is a true honor to be in a partnership with Blackstone.
And it is our intention to make this joint venture the cornerstone of both our asset management business, and a more expansive partnership with Blackstone over the coming years.
We will continue to grow loan origination in 2017 with a long-term target of $30 billion to $35 billion by 2020.
That will require us to continue adding mortgage bankers and brokerage experts.
And with the addition of Deerwood capital in Q1, we are well on our way to meeting our goal of adding between 15 to 25 bankers and brokers this year.
We also have a goal of growing our servicing portfolio to over $100 billion.
And at our current loan origination pace, we are on track there as well.
We have gained economies of scale by growing our top line and managing costs.
In Q1, our only expenses that exceeded budget were commission expense, bonus accrual and depreciation and amortization.
And those are all good expense overages as they are all directly correlated to increased loan origination activity.
As Steve mentioned, a 35% operating margin in Q1 exceeded our target, but it also demonstrates the financial results that can be achieved by maintaining cost discipline during a time of exponential growth.
Even in a quarter with robust origination volumes that drove overages in compensation expense and amortization and depreciation, personnel cost as a percentage of revenues decreased year-over-year due to the scale we have created.
We're very focused on how we can implement technology to reduce our costs and enhance the client experience.
And we'll likely make some significant investments over the coming years to remain technologically competitive in our ever-evolving industry.
Those investments could take the form of additional technological resources inside <UNK> & Dunlop, consulting contracts to third parties, or the acquisition of a firm with technology that can be integrated into W&D's existing product offering.
I'd like to finish by discussing our servicing portfolio and the forward revenues we have amassed in growing the portfolio to over $64 billion.
As Steve mentioned, servicing revenue has grown dramatically and our weighted average servicing fee is now 27 basis points.
Due to 86% of our servicing fees being prepayment protected, we currently have nearly $1 billion of forward revenues that are contractually obligated to <UNK> & Dunlop.
Mortgage servicing rights are the present value of the future servicing income, and are very similar to software licensing fees or subscription fees.
They are contractually obligated income and unless the loan defaults, we will collect every dollar of those forward revenues.
Similar to a software or subscription fee business, investors in <UNK> & Dunlop should pay close attention to the quarterly change in net mortgage servicing rights as a leading indicator of future growth in servicing fees.
I'd ask you to turn to Slide 9 which provides the data to illustrate at this point by showing our net MSRs, defined as a mortgage servicing rights added during the quarter, net of any amortization and any prepayments in the portfolio during the quarter.
If you add up the quarterly totals for 2016, we added $110 million of net mortgage servicing rights during the year.
If you look at the Black Line showing servicing fee income, you can see that our quarterly servicing fees have increased from $31 million in Q1 2016 to over $41 million in Q1 2017.
And as the slide finally shows, we add $41 million of net mortgage servicing rights in Q1 of this year.
<UNK> & Dunlop's forward revenues are an extremely important component of our company's current and future financial performance and as such, we will start focusing on this as a key metric in our reporting going forward.
I want to congratulate my colleagues at <UNK> & Dunlop for yet another fantastic quarter.
Our business and financial results speak for themselves.
It is the culture and people of W&D that made us a great company.
The demographic trends behind growth in the multifamily industry are well known, and W&D is extremely well-positioned to benefit from this continued growth.
With that, I would like to thank everyone for joining us this morning.
And open the line for any questions.
Specifically, <UNK>, what you mean.
I guess.
Clearly, as you know we do a fair value on the entire MSR portfolio each quarter.
And that has historically been significantly higher than what we're carrying the book at.
I think the point that we're trying to make here is, what we are booking is an indicator of future growth in the servicing fees as opposed to necessarily a valuation point.
We haven't disclosed that publicly, <UNK>.
As you can imagine track it very closely.
And we work very hard to capture as much of it as we can we can.
But we have not disclosed that number.
From the public data that we've seen as far as our competitor firms, <UNK>, everyone had solid first quarters.
We grew, I believe, faster than everyone that I've seen.
But nonetheless, it was a solid quarter for the industry.
I would put forth that the election and the subsequent market movements changed the attitude in the commercial real estate industry dramatically.
And I believe that Q1 was somewhat of a sorting out as it relates to where interest rates were going to go and whether there were going to be any cap rate adjustments related to interest rate movements.
And that is what if you put, if you will, downward pressure on investment sales.
Although as you saw in our investment sales business, we actually had growth in the quarter.
But my sense is as we head into Q2, and without having a dramatic rate increase, those price adjustments that some investors are waiting for are not being waited for further.
And I would think that we have increased investment sales activity in Q2 and continued refinancing and financing volumes in Q2 and throughout the rest of the year given the current market environment, as Steve mentioned.
Yes, I put forth the following.
As you know we had a very strong Q4 and there wasn't a lot of carryover business between '16 into '17.
It was a very consistent flow throughout the first quarter.
And as Steve mentioned, our pipeline for Q2 looks very good.
And I would say to you that as we look out at the overall activity across every business line we have, they're all in very active.
There's not one that's sitting there saying oh, investors haven't gone there or people don't like that source of capital.
We're seeing very active markets across all of our business lines.
That's an annual origination target.
And we haven't disclosed the specific fees as it relates to asset management fees and origination fees as such in the joint venture.
But there are fees between us and Blackstone to reward both parties for helping grow the venture.
We haven't broken that out, Steve.
I would just put forth that as we talked about in our Q4 call 3 months ago ---+ a little bit less than 3 months ago, the team that we put on the field, if you will, in 2016 really didn't have that much impact on our 2016 financial results, which as you know were fantastic.
So, I do believe that what we are now gaining right now is the additional flow from having added quite significantly to the team in 2016.
And as you know, we continue to add the team in 2017.
But I would also put forth to you that our top mortgage bankers, the people who are at the top of lead tables as it relates to production volume, are as productive if not more productive than they have ever been.
And I do truly believe that is due to the brand that we have.
And the fact that when people are thinking about specifically agency financing and HUD, they say, if you want to go to the best, you go with <UNK> & Dunlop.
There are 1 or 2 other competitors that are in same, if you will, competitive set with us and you know who they are.
But I do believe that the brand and the reputation we've built is starting to incrementally win that additional, if you will, unit of business.
So I think it's a combination of new feet on the street, access to deal flow, as well as the overall platform growing in the productivity of the very, very talented bankers that we already had at W&D.
Yes.
There are 2 things there.
First of all, as you look at our market share over the past several years, we have sort of been in a band with both Fannie and Freddie in sort of 10% to 12% of each their annual volume.
It's obviously our hope and expectation to continue to grow market share with both of them.
But to some degree, as we move up with one on our given quarter and have a sort of slow quarter with other one, invariably they kind of revert back to the mean.
With that said, I did underscore what we're seeing from a borrower preference standpoint, which is going with long-term fixed-rate financing as we are in this increased rate environment.
And Fannie has been stronger than Freddie.
Doesn't mean that they won't change their strategy and get very, very competitive on these products in the next quarter or 2.
But year-to-date and throughout 2016, Freddie Mac was a stronger floating rate lender and Fannie Mae was a strong fixed-rate lender.
So as our clients are opting for long-term fix rate financing, Fannie Mae has been the more competitive bid.
And that has therefore, driven stronger volumes of Fannie Mae.
But I would underscore Steve that both Fannie and Freddie move in and out of the market and move in and out of certain products throughout the year given their overall origination volumes, and where they sense the competition playing and where they want to play.
And so I wouldn't sit there and sort of, sit back and say okay, for the rest of the year Fannie's going to own the fix rate market and Freddie's going to own the floating rate market.
That 2 of them jump in and jump out.
And then the only other thing I would underscore there is the following: private equity firms, the big sponsors, typically like floating rate debt, because it gives them prepayment flexibility and as you know their fund lives are typically 7 years.
So they would want to buy assets and move them inside of a 10-year window.
And so therefore, they typically shy away from long-term fixed-rate financing and opt towards short-term floating-rate financing.
And as you've seen with some of the big deals that we've been in the past with big sponsors, those have typically been large deals, but typically done with Freddie Mac on floating-rate debt.
I was just going to add to what Willy said on the brokerage side, so ---+ where we are seeing a pretty significant lift from the acquisitions we have done is on the broker production.
And I would expect to see outsized performance on the brokerage side, which is why we've guided gain on sale margin to the 180 to 200 basis point range.
We'll see, what the Fed does from an interest rate standpoint, Steve.
But as we have spoken about, where we are projecting that if the yield curve continues to flatten.
And that the 10-year U.S. Treasury remains relatively low, given buyer interest in continuing to hold that.
As such, long-term fixed rate financing is still relatively very cheap.
And so other than very, very consistent continued rate increases by the Fed throughout this year and into next year, I don't really think that the interest rate environment is going to change too significantly to slow down the normal financing environment.
If ---+ as we saw in Q1 from an M&A standpoint, big rate movements in a short period of time typically get real estate investors to pause and wait for cap rates to adjust.
And so if you get sequential rate increases, I do think that the M&A activity and investment sales activity will slow for a period of time, as people wait to see whether prices adjust.
And just as we're seeing right now, once they have seen whether they either adjust or don't adjust, they just come back into the market.
The second thing is that I was very surprised that with only 70 basis points of GDP growth in Q1, that the equity market didn't sell off a little bit more.
And that we didn't actually get more of a rally in treasuries.
And so as a result of that with the equity markets continuing to perform the way they are, I do think there is a general sense out there that CEOs and owners of commercial real estate are investing.
They think that growth is coming.
And I think that, that is net positive for both the equity markets as well as some of our business from an investment standpoint.
And then the final thing is on a kind of a political landscape.
President Trump came into office with a laundry list of things he wanted to get accomplished.
Everybody knows that, that laundry list has not actually come to fruition nearly as quickly as the president would have liked.
And I do believe that right now, there's a sense that those major initiatives are going to need a much bigger lift than the President expected.
And therefore, I think that Congress is really focused on the major topics.
And as such I think that GSE reform, as much as it gets bantered around, is a topic that a lot of people think needs to happen.
I don't know whether you saw Don Layton came out yesterday on Freddie Mac's earnings, and basically said that having a 0 capital cushion is not going to impact Freddie Mac's business going forward.
So as much as people hear that there is 0 capital cushion at the agencies, given their lines of credit at the Treasury that are established under HERA.
Right now GSE reform is a topic that is being discussed on Capitol Hill, but from our standpoint there are 2 things: one, doubt any significant thing happens either this year, potentially next year; and the second thing that is very consistent in all conversations on GSE reform is that the multifamily businesses of Fannie and Freddie have private capital in front of public capital.
And that they work.
And so our thinking is even if there is something on GSE reform legislation, that it really will not impact the multifamily businesses of Fannie and Freddie.
Well, Chuck, a couple of things.
One, I follow our competitors press releases quite a bit.
And also, have a pretty good sense from a recruiting standpoint who is adding people and who is not.
And throughout 2016, I don't think it's a stretch to say that we were one of the few that was actually adding capital during 2016.
Because it was our view that the markets were strong and were going to stay strong.
Where I think some of our competitors felt that the markets were coming to the end of the cycle and therefore, were holding.
And therefore, what we're seeing right now is that additional sales force, the people out there every day are really starting to benefit us.
When many of our competitors last year were not adding.
I think the second thing on that is as we have continued to grow this platform and grow the brand, we're picking up that incremental piece of business, as I talked about previously.
And I think that just comes from having executed for some great clients who then turn to other clients and say, why aren't you working with <UNK> & Dunlop.
The third thing I'd say there is, as you know we have been some large transactions in the past.
Although, Q1 really didn't have too many big transactions.
It had one specifically on the student housing side which we announced.
But we started to work with some of the larger borrowers, some of the sponsors, and clearly working in to get access to them is a very difficult thing.
But once you get in there, they're a huge source of potential deal flow.
And we've been very successful at capturing deal flow from some of the very biggest owners of commercial real estate in the country.
And as it relates to your question, on can we move up in the league tables, we were #1 with Fannie for 3 years and then fell back to #2.
As you can imagine, we are desirous to get back into the #1 spot.
On the Freddie side, we have been #3 and #4 and we were #3 at the end of last year.
Can we jump up to #2.
We'd love to.
But we've have got to keep our head down and keep going.
And then on the HUD side, as you saw in the press release we made just a couple of weeks ago, and I highlighted on my comments, we've now gotten into the top 5 with HUD.
And we're thrilled to have ended last year in the #4 position.
And as Steve said in his remarks, given what we did in Q1 and given the HUD pipeline, yes, we very clearly move up in the league tables on the HUD side, given the team we have and the pipeline we have right now.
So Deerwood, as I mentioned, was our sixth acquisition since our financial crisis.
And as you know, up until now we've only acquired either loan origination platforms or investment sales platforms.
We continue to look for them and continue to think that we know how to both identify them ---+ identify platforms that are culturally aligned with us.
And be able to execute on the acquisition and then integrate the people which is no minor feat, and then actually take their volumes to a whole different level.
So given our track record there, there's absolutely no reason for us to sort of forget about that as a means for our future growth.
And quite honestly leveraging off the capabilities that we have at <UNK> & Dunlop.
With that said, I did outline what we're focused from a technology standpoint.
You may recall Chuck, that we made investment in a technology firm called Rentlytics in Q1 of 2016, which is a real estate technology firm.
And we continue, we have seat on their board and we watch what they're doing and their growth.
So we have invested in the technology front in the past.
But what I outlined in my comments is really very focused on how can we make <UNK> & Dunlop more efficient in what we do, how can we make our customer experience more customer friendly and efficient on their end.
And then, eventually, once we've made real progress there, how can we start to analyze the data that comes out of our today $64 billion servicing portfolio to try and grow our business in new ways.
And that's a multiyear project but what is really exciting from my perspective is that we're very focused on it.
We have already embarked on this sort of multiyear strategy to first focus on efficiencies, drive some costs out of the business, make ourselves more customer friendly.
And then once we have done that, we then go to the next level, which is really starting to look at the data and how it can help us grow our business.
And Chuck, we remain focused on building out our asset management business.
And that's another area where we'd be desirous of doing some potential M&A transactions.
So that hasn't really changed.
It really, really depends on the opportunity.
As you know <UNK>, we've got plenty of spending capability, if you will.
And we are generating a huge amount of cash right now.
And as you know also, with the amount of debt we have outstanding and with the EBITDA we're generating right now, we have the ability to put significant leverage on the company where we needed to do so.
But with all that said, it really depends on the opportunity at hand.
And we have ---+ since CW which you may recall, we doubled the size of the company when we bought CW.
And we integrated them successfully throughout 2013 and have benefited dramatically from that acquisition.
But subsequent to that, we've basically being buying smaller companies.
And we've gotten great, great returns from them.
So it really ---+ it's not as if we're out elephant hunting nor we're looking for just smaller firms.
We are ---+ I think we're known as a company that people can be acquired by that the culture is a fantastic place to work.
And that the ability for the loan originators and the investment sales brokers to grow their individual business at <UNK> & Dunlop is dramatic.
And that's out there.
And so what ends up happening is that people call us and say, hey, we've got an old partner who wants to retire, would you like to think about buying us.
We've got ---+ we can't seem to grow like you all are, could we benefit from your scale and your capabilities.
So those types of opportunities are representing themselves to us.
And I would put very good analyzing which ones we ought to engage on, and which one we should pass on.
Great.
I thank everyone again for joining us this morning, and congratulate the W&D team again for just an absolutely fantastic first quarter.
And wish everyone a very good Wednesday.
Have a nice day.
| 2017_WD |
2015 | PII | PII
#<UNK>, you know us well enough.
We don't talk about future product plans.
I'll leave it at that.
They'll both be accretive, but very slightly accretive for the full year.
I wouldn't adjust your estimates on it.
Right.
It's embedded into our guidance on both top and bottom line.
They're both small companies right now, that are niche players, that we think can really benefit us going forward, with attracting a different customer set and different products.
But the impact is pretty small.
And, in fact, early on in Q2, as we get through the transition and the integration and all that, as you know, there's always those transaction costs that will hurt us in the near term.
But we're excited about both of them.
<UNK>, I think we've been pretty clear on our remarks.
I think we're critiquing ourselves, and I think what we're stating unequivocally is, we think we can and should have done better on that.
We want to provide more flexibility.
There is certainly an education process that will take time for them.
And they have been asking for ---+ very much so ---+ quicker lead times and more predictable ship lead times.
That's the two biggest complaints that they used to have with us.
This is addressing those issues.
But I also understand that they want flexibility to run their business.
And we need to be able to do all of those things.
And that, frankly, is what we're undertaking to execute here in the upcoming weeks.
We have an incredibly strong dealer network.
And when the system works best is when there's strong profitability in all parts of it.
One of the ways that our dealers are more profitable is, they carry less inventory.
And to the extent that we can reduce lead times, give them the right inventory, at the right time, to meet their customer demand, everybody wins.
The reality is, as <UNK> just described, as we move towards RFM, and then ultimately, long term, towards more of a pull system ---+ which Huntsville will be very key in helping us get to ---+ we didn't execute it perfectly.
And, as we set up our RFM stocking profile, there were just some units and some box counts that weren't right for some dealers, and we were too slow to adjust to that.
<UNK>, this is <UNK>.
I would say, absolutely not.
We know that, in critical, important segments of the ATV and the side-by-side marketplace, price and value is a really important constituent.
Again, as <UNK> says, I think competition makes us better.
We have been actively expanding and developing our value lines over the last few years.
One of our big winners during the recession was how hard we were able to play value.
And I think this is just one more reminder, as we continue to go forward, to make sure that ---+ ideally, you want to win with product versus promotion.
That's really been the Polaris strategy for years.
And I think as you go forward in the outlying product plans over the next couple of years, I think you'll see Polaris continue to be focused on this segment.
It is an opportunity for us.
And recognize ---+ and that's part of what drove the strategic acquisition of Hammerhead.
It's going to allow us to leverage that capability to play bigger in the lower end of the market.
Obviously it doesn't help in the third quarter but, over time, that's going to be a nice part of our ---+ part of the answer to how we compete better.
The Chinese market potential for off-road vehicles is a really long-term play.
What we've seen to date ---+ we've got great new leadership over there.
We're optimistic about it.
But what we sell mostly is the high-end RZRs, the high-end motorcycles.
And that is an opportunity for us to build a profitable and good-sized business there.
The opportunity to leverage Hammerhead for sales into China is probably somewhat limited.
We can use it, probably over time, to assemble some of our products and reduce the cost of selling what we have there.
But really the opportunity is for us to leverage their brand, and leverage really strong engineering and manufacturing capability to sell products, not only in the US through our distribution, but really, globally, into some of these markets where they just can't buy a $5,000 ATV, or a $5,000 side-by-side.
We're going to have the ability to hit a much lower price point with a very good-quality product.
Yes, all right.
Yes, the Brutus story is ---+ it's not as good as we want it to be is, I think, the bottom line.
We have this in our adjacent markets group under Matt.
They're making a number of adjustments, where we're selling in this into our work and transportation portfolio.
Retail is increasing, but we're seeing some distribution erosion, which I think is a little bit inconvenient in the short run.
But, long term, we need to have the right dealers that are capable and interested in retailing that.
And that's the transition Matt and team are working through that.
We're going out direct and selling it as part of our portfolio.
The Bobcat guys are doing fine.
Again, I think the reality on this one is, we probably over sold this one a little bit, about how big it was going to be and how quickly.
The product is fine, particularly at the high end with the PTO.
The high-end work end, we're doing quite well.
It's really the base models that we're more struggling with.
So, we're making some course corrections, and I think it's going to be smaller than you guys thought it was going to be and we thought it was going to be for a while.
But we still are pretty committed to Brutus being a key part of our work and transportation strategy going forward.
<UNK>, this is <UNK>.
I think it's an interesting phenomenon.
Frankly, we came with a number of ETX models, and, frankly, we were constrained on supply for most of the first several months since rollout.
Demand has been pretty good.
But I think competitors have responded aggressively in the value segment.
And frankly, our share, at least in ATVs, was down in value.
Because, again, people have just changed the price-value relationship really significantly between promo and discounting on that.
And then, again, it's been most of our competitors in that segment.
So, we chose not to go down completely and get that dirty and fight.
Because, again, we've got some great product with ETXs.
And I think that, again, those will normalize over time, and I expect that we'll continue to see share gains over the long term with that product.
But, in the short term right now, we are not seeing that.
Yes, but not quite as ---+ again, it's a little bit more strategic, based on what products have what product entry.
Whereas an ATV is ---+ almost everybody's in that segment, and it's a little bit of a free-for-all right now.
It's a little more strategic, I would say.
And our ETX has powered through that, I think, better on the RANGER side.
<UNK>, you're really good with your math on a quick basis.
Because we hadn't really looked at it that way.
We don't talk in a constant-currency basis.
We recognize that our customers and dealers and shareholders and everybody else has to deal with the currency swings.
So we don't really look at it that way.
But, the fact is, you're right.
And you'll see that all the way down the P&L.
We're battling through some pretty significant headwinds, some of which we had built into the budget, and some of which we did not.
And so we are challenged, but we're powering through and making adjustments in sales and in margins, and all throughout the operation, to offset these pressures.
| 2015_PII |
2015 | ULTA | ULTA
#We don't really have any metrics we can share.
I would tell you that the rollout went very smooth.
This was one that was pretty high risk and we accelerated it, to make sure we could get it in before holiday, so things went very smooth, all things considered.
We did get some step-up in the technology, as far as cyber protection as part of that system, so we are very happy that we were able to accelerate the implementation of that.
Matt, historically, what we ---+ as you well know, we have been experimenting with this model for quite some time.
So historically, as we rolled it out to new markets, we saw a sales hit in year one as people kind of got comfortable with the program, and we saw that moderate over the course of the year.
So the going-in assumption was like a one-year cycle time to get back to what I would call an equilibrium with the guests.
This rollout, the conversion that we did with the 50% of the country in 2014, we didn't see that.
We saw sales actually accelerate from our expectations and, of course that equated to more points being earned and more of a margin headwind, because of that, because people are more engaged, and it's easier to understand.
Yes, we haven't really seen that.
Again, it's a different scale now.
We've got the whole country on this program, and I can just tell you from the inside, we are very excited about what this program provides to the Company, and the opportunities that we're going to have to drive more engagement, more focused offers to our guests, by using our CRM tool.
And, again, we are in the very early stages of this.
Yes, I will start with the content.
And absolutely, we are very focused on that.
And this is a category industry that is so driven by trend and content, new discoveries, so we're building content, we are working with our vendor partners to acquire more content, and you will see more of that to come from us for sure.
In closing, I would like to thank our 22,000 dedicated associates for a really terrific 2014, and their tireless efforts to differentiate Ulta Beauty and to continue our strong momentum into 2015 and beyond.
And thanks to all of you for your interest in our Company.
I look forward to speaking with you all again soon.
Thank you.
| 2015_ULTA |
2017 | AHL | AHL
#Thank you, <UNK>.
Good morning, everyone, from the New York blizzard.
We are happy to be here this morning to explain what was going on in Aspen in the last quarter and what will be going on in the next year or two.
As you would expect following our preliminary results published on January 30, our fourth-quarter results reflected an operating loss per diluted share of $0.34 and an operating ROE of minus 2.8%.
We ended the quarter with diluted book value per share of $46.72, an increase of 2% from the end of 2015.
During the quarter, we completed a comprehensive review of our insurance operations.
The goal of this review was the optimization of the portfolio, and we expect that the actions taken following this review will result in expanded margins and an attractive of rate of profitable growth in 2017.
We first started talking about this review in late 2015 after the appointment of David Cohen as President and CUO of Insurance.
When Steve Postlewhite took over as CEO of Insurance in May 2016, Steve and David continued to build upon a substantial body of work that already had been done.
They were looking to identify the best opportunities for long-term profitable growth in the insurance business.
Their review found that most of insurance lines were meeting or exceeding requirements.
These lines, which include UK, Property and Casualty, professional lines, credit and political risk, surety, crisis management, and many others, performed very well both in the quarter and in the full-year 2016.
They grew profitably during 2016 and are expected to accelerate these growth rates in 2017.
We also identified some elements of business, which we decided not to continue to rewrite.
There were many different reasons for deciding to reduce our appetite for these lines.
Chief amongst these was that the future expected returns did not meet our current requirements.
Hence, we concluded it was best to put our capital to work in areas of potentially higher returns.
Consequently, we have ceased underwriting a great deal of primary casualty business, whether required through programs or assessed on a risk-by-risk basis.
In all, approximately $150 million of insurance business or just under 5% of our total underwriting portfolio, fell outside of the refocused underwriting guidelines and was not renewed.
As part of the decision to exit certain accounts, we purchased additional reinsurance to protect ourselves from the runoff of some of the discontinues business.
The reinsurance provides for up to approximately 40% duration in expected losses for this book.
We believe this will substantially mitigate any potential residual risk.
We also placed considerably more per asset reinsurance, reducing end volatility going into 2017.
The expense of these two purchases negatively impacted the quarter, as did the decrease in loss activity and some of the repositioned lines.
We were able to place the runoff cover and the additional seat of reinsurance ahead of schedule in the fourth quarter, having originally anticipated these being completed in the first quarter of 2017.
Turning now to Reinsurance.
For many years our Reinsurance business has achieved satisfactory and has continued to perform well in 2016.
Reinsurance experience net cat losses of [$113] million, which led to a 90% combined ratio.
But taking into account the market headwinds and the cat experience, we believe we have done well.
In our Casualty reinsurance business, the difficult market conditions are well-known.
However, less well understood is how our casualty reinsurance colleagues prepared for these conditions.
With a smaller portfolio of carefully chosen plans, rigorous adherence to strict pricing requirements, and careful responses to tough term conditions, this business has achieved very satisfactory underwriting margins.
At 1/1, we managed to achieve a small rate increase, the first in many renewals, and we won a few new business opportunities with the existing select plans.
Within our Property reinsurance portfolios, we have seen the deepest rate reductions over the last few years, and we have responded by carefully managing our net exposures toward better priced business.
Despite the difficult rate environment, the Property teams have performed well.
Especially, we recorded very good results across many of our specialty lines, including Contingency and Marine.
The other piece of our Specialty business is AgriLogic, and I'm delighted with the success of this business in its first year as part of Aspen.
The AgriLogic team has exceptional insights into crop risks and has some very innovative technology to help price those risks.
These assets, coupled with an entrepreneurial and energetic spirit, enable AgriLogic to deliver a gross underlying loss rate of 62% for the quarter and 75% for the year.
Our investment in the business has allowed them to improve their systems and align with Aspen's processes as they become further integrated.
Turning now to the 1/1 Reinsurance renewals, approximately 50% of Aspen reinsurance renewals, excluding AgriLogic, take place on 1/1.
We had very strong renewal season.
We grew the book by approximately $10 million on an underwriting yield basis, while experiencing a negative rate change of just under 2%.
This is a result of the close relationships we've built with our clients and the expertise and solutions we are able to provide for them.
January renewals are slowing the rate declines compared to those of last year.
Although there was broad pressure on those lines with variations depending on geographical location and line of business, there was little lift occurred outside of the markets expectations.
Terms and conditions, along with overall commissions paid in [per hour yield], did not change significantly.
In Property cat, we managed to renew with rates down 3% in the US and 5% for the rest of the world.
As mentioned earlier, we had a good renewal in Casualty reinsurance while achieving a small rate increase.
We are very pleased about achieving good outcomes with existing Reinsurance clients and achieving favorable pricing.
We have been able to achieve this because of the breadth of products we offer and the geographic spread of distribution.
One example is our US regional clients initiative.
We have doubled our client base and grown gross premiums written from $20 million to $50 million since the team began this initiative three years ago.
This was an important quarter for Aspen and with the actions we have taken, we are positioned well for the future.
Now I would like to turn it over to <UNK> for his comments, and then I will make some further remarks.
Thank you, Chris, and good morning, everybody.
For the year, we produced operating ROE of 4.8%, underwriting income of $126 million, and grew diluted book value per share by 2% to $46.72.
However, for the quarter, we recorded and underwriting loss of $18 million; which was heavily affected by the repositioning of the lines in the insurance portfolio, which cost approximately $60 million.
This $60 million is comprised of three separate elements.
The first is $30 million of increased loss activity in the quarter.
The second is approximately $20 million of additional acquisition expenses.
The third is $10 million of costs related to the runoff reinsurance we purchased in the quarter.
On a positive note, we generated a $30 million of incremental underwriting income from the remaining lines in insurance.
It is these lines that we look forward to growing profitably in 2017.
Turning now to Reinsurance, we produced an underwriting income of $11 million, compared to $70 million in fourth quarter of 2015.
The reduction in underwriting profit was due to $25 million increase in property and energy related losses, $15 million of higher cat losses and $10 million of one-off commission related adjustments.
It is worth noting that the fourth quarter of 2015 was a benign loss quarter in Reinsurance.
Turning now to the underlying performance in our operations.
Gross written premiums for the group was $606 million, a decrease of 5% compared to the fourth quarter last year.
The change is largely a result lower premiums in insurance reflecting the repositioning that we discussed.
Further, and in line with our strategy of reducing earnings volatility, in mid-November we placed a 50% quota share covering our Casualty, Financial, and Professional insurance business.
This followed the placement of additional quota share on various marine and energy classes effective July 1, 2016.
These placements had a substantial impact on ceded written premium, which increased to $177 million in the quarter from $40 million in the fourth quarter of 2015.
Whilst the impact on ceded earned premium was modest, at approximately $19 million in the fourth quarter, we expect the retention ratios to fall to between 70% to 75% in 2017.
As a result, we also anticipate lower earnings volatility, a lower expense ratio, and greater flexibility in deciding where to deploy our capital.
The loss ratio for the group was 63.2%, an increase from 53% in the fourth quarter of 2015.
We recorded net cat losses of $55 million, or 9 percentage points, primarily from Hurricane Matthew, the New Zealand quake, and the Tennessee wildfires.
This compares the total net cat losses of $46 million, or 7 percentage points, in the fourth quarter of 2015.
Total reserve releases for the group were $51 million in the quarter, of which $35 million was from reinsurance and $16 million from insurance.
For the full year, we recorded $129 million of releases with $87 million in reinsurance and $42 million from insurance.
Our accident year ex-cat loss ratio was 62.6% compared with 55.1% in the fourth quarter of 2015.
The increase in the accident year ex-cat loss ratio is attributable mainly to the additional losses we incurred in those insurance lines that we repositioned.
We also experienced an increase in property and energy related losses in our Reinsurance segment, although this impact needs to be balanced with the fact that the fourth quarter of 2015 benefited from benign loss activity.
Turning now to our segments and firstly insurance.
Insurance reported an underwriting loss of $30 million for the quarter, or a 109.1% combined ratio.
For the year, we produced underwriting income of $6 million or a 99.6% combined ratio.
Turning to the sub-segments within insurance, within our property and casualty sub-segment.
Our UK property and casualty business has continues to perform extremely well in 2016, with 10% growth in premium and a combined ratio of 67%.
While premiums in our Financial and Professional lines were up just over 11%, and we achieved good targeted growth in areas such as surety and accident and health, we produced an excellent combined ratio of 87% across our Fin-Pro insurance business.
The marine, aviation, and energy market has faced a tough year, both in terms of price and loss activity.
As a result, we have been very selective in the business we have written.
For the year, while we reduced our exposures and had lower premiums, we saw improved profitability compared to 2015, with the loss ratio improving by 11 percentage points.
The substantial increase in ceded premiums across the insurance segment resulted in a retention ratio of 57% in the quarter, compared to 91% a year ago.
The largest contributor to this increase is our Casualty, Financial, and Professional lines cover.
As I mentioned earlier, the Reinsurance program has a modest impact on ceded earned premiums at this stage; however, we expect to see these benefits build through 2017.
We have $17 million, or 5 percentage points of cat losses, compared with the $23 million, or 7 percentage points, in the fourth quarter of 2015.
The accident year ex-cat loss ratio was 68.3%, compared with 64.6% in the fourth quarter of 2015.
Importantly, if we adjust for the business that fell outside of the refocused underwriting guidelines, the ex-cat accident year loss ratio for the go-forward business was 58.9% for the quarter, and 57.4% for the full year.
The acquisition ratio for insurance in the fourth quarter was 23.8%, compared with 17.3% in 2015.
This is due to $12 million of one-off commission adjustments related to lines we've repositioned.
Whilst the fourth quarter of 2015 benefited from $8 million of favorable profit commission adjustments.
Looking ahead to 2017, the higher pro rata reinsurance spend will reduce the acquisition ratio.
While the operating expense ratio will increase as a result of lower earned premiums.
However, as the ceding commissions earned through in 2017, we anticipate this will have a positive impact on the overall expense ratio.
Turning to Reinsurance, Aspen RE delivered underwriting income of $11 million and a combined ratio of 95.9% in the fourth quarter.
For the full year, Aspen RE generated $119 million of underwriting income at a combined ratio of 90%.
We had cat losses of $38 million or 13 percentage points in the fourth quarter, about $15 million higher than the fourth quarter of 2015.
The accident year ex-cat loss ratio was 56.2% compared with 42.4% a year ago.
There are a few items that impacted this comparison.
Firstly, the fourth quarter of 2015 benefited from very benign loss activity.
Second, the impact of AgriLogic, which added 2 percentage points in the current year.
Finally, we did see an increase in energy and property related losses.
Turning now to expenses for reinsurance, the acquisition ratio was 22.1% compared with 20.8% in the prior year.
The increase reflects $10 million of one-off commission related adjustments in the quarter.
On a full-year basis, however, the ratio improved to 19.2% with a benefit from the inclusion of AgriLogic, which attracts a very low acquisition cost.
Before turning to investments, I just wanted to reflect on the results for the full year.
We saw a significant increase in cat activity in 2016, with net total cat losses of $164 million, primarily due to US weather-related storms, Canadian wildfires, and Hurricane Matthew.
This compares with just $90 million in 2015.
Reserve releases continue to be strong at $129 million.
The ex-cat accident year loss ratio for the group was 58.4% and broadly in line with 2015.
And we produced $186 million of operating income at a combined ratio of 98.1%.
Our Reinsurance segment had another very good year despite the increased loss activity, and the insurance segment was again profitable for the year despite the impact of a fourth quarter of the correctives action resulting from the underwriting review.
I will now move on to investments.
During the fourth quarter, we took advantage of raising equity markets and sold $200 million of our equity portfolio.
This reduced equities to 6.8% of our total portfolio.
Net investment income was down 7% to $43 million in the fourth quarter, as a result of lower dividend income, due to the reduction in the equity portfolio I just mentioned, and the movement of sterling and other currencies against US dollar.
For the full year, net investment income was $187 million up 1% from the prior year.
Total return on aggregate investment portfolio was negative 1.8% in the quarter, reflecting the impact of the approximate 60 basis point rise in bond yields.
For the full year, total return on the aggregate portfolio was 2.2%.
The fixed income book yield was 2.5%, broadly in-line with 2015.
And the duration of the fixed income portfolio ended 2016 at 3.9 years.
Finally, I'll make a couple of comments about capital.
We repurchased $25 million of ordinary shares in the quarter, bringing total buybacks to $75 million for the year.
Also the Board approved a new $250 million share repurchase program, taking us through to the start of 2019.
Our approach towards share repurchases has not changed, and we will return excess capital to shareholders when it is financially more attractive than deploying it elsewhere.
Naturally, the extent to which the program is utilized will depend on a number of factors, including underwriting performance, our expectation of changes in interest rates, and the prevailing share price.
Lastly, following the issuance of our $250 million of preference shares in the third quarter of 2016, we used some of these funds to redeem our 7.401% preference shares at the beginning of 2017.
With that I will now to call back to Chris.
Thanks, <UNK>.
What I would like to do with these last comments on today's call is to give you some flavor of why both the Management and the Board of Aspen feel emboldened and invigorated about the future of our underwriting operations.
What it comes down to is the energy, the talent, the expertise, and the problem-solving capabilities of our lead underwriters and the teams that support them.
Both our underwriting segments are well positioned to operate successfully in a competitive environment while remaining agile in order to continue to provide valuable service to our clients and capturing new opportunities.
In insurance, we have a great blend of tried and trusted experience, combined with new talent with excellent track records who joined us more recently.
For example, in the UK our P&C operations are led by Clive Edwards, who has been a colleague of mine for over 16 years.
In his time at Aspen, Clive has never produced a combined ratio over 100% and, in fact, has only twice exceeded 90%.
What is particular exciting about Clive's operation is it combines great technical underwriting ability, very good profits, and impressive top-line growth.
In addition, about six years ago, we launched the combined property and liability policy in the UK, targeting clients who favor the risk management approach.
Since this launch, this effort has gained considerable traction and UK P&C is expected to grow by 15% in 2017.
Another initiative we began five years ago and which is bearing a lot of ripe and tasty fruit today is our professional lines and management liability operation led by Bruce Eisler.
From a standing start, Bruce has created a business with almost $300 million of premiums and impeccable underwriting performance.
The interesting thing about Bruce and his team, is that the more business they do successfully, the more clients and more brokers want to do business with them.
For this year and beyond, we expect a significant expansion of our franchise in these lines, especially in the United States.
Another star worth mentioning, is Mike Toppi, our global head of surety.
Mike has produced extraordinary returns for us in the last five years and in 2016 realized selective and strategic opportunities from the energy and mining sectors.
We've taken some steps to grow our underwriting team and regional distribution capabilities, and we expect, based on Mike's track record that we will continue to deliver superb results.
Other talented members of our teams are working in new initiatives in crisis management, in accident/ health, in [railwood] business, and in excess casualty amongst other areas.
Our investment in talent and new product areas with insurance during 2016 has led to a very healthy pipeline of new opportunities.
Coupled with the actions we have taken on the portfolio, we believe we are in a very strong position to achieve growth in both top line a bottom line going forward.
The future for Aspen Insurance is very bright.
For Aspen RE, the recent January renewals we gained demonstrated then strength of our relations with clients and our ability to find opportunities even in a difficult environment.
The challenge for our reinsurance colleagues going forward is slightly different.
They already have some of the best performers in the industry, so the question is how to maintain that position.
One of the ways they will continue to build on their success is by a rigorous, carefully thought through approach to customer management.
Bear in mind, it's a broker market and we have two customers; the broker who brings us the business and the clients who ultimately pay the premiums.
My Reinsurance colleagues understand both types of customer and give them the responsive, intelligent, and joined up solution to all of their needs.
Original regional strategy for Aspen RE has driven top-line growth and consistent profitability despite challenging market conditions.
This strategy has enabled us to achieve organic growth through the expansion of our presence in the Middle East and Africa by the creation of a hub in Dubai, further penetration in Asia-Pacific with our business in Sydney, Australia and in Shanghai through Lloyds.
We expect our original strategy to continue to drive profitable growth in the future.
<UNK>et conditions obviously are not easy.
With the attributes and strategy I have discussed here, as well as other initiatives, such the insurance portfolio repositioning behind us, we believe both our insurance and reinsurance operations are now very well placed to succeed.
With that, we'll pause and get ready for any questions you may have.
<UNK> here and thanks for the question.
Just to confirm, yes, you're right.
I did mention the fact that it was $10 million for the runoff cover.
The size of the book, is, it's one of the programs and it's one of the more significant programs that we had.
We purchased about $160 million worth of cover and that includes the original run off premium.
It is the difference there between roughly the $100 million of premium of $115 million of premium $160 worth of cover that we purchased.
It certainly gives us a decent amount of flexibility and headroom if any of that moves against us.
<UNK> here again.
Just to confirm you're absolutely right.
The existing lines and the going forward lines in the insurance book did produce an accident year ex-cat loss ratio 2016 of 57.4% so you are bang on.
You've heard correctly.
It was just an opportunity for us to tell you how successful those lines have been.
You can never predict with absolute certainty what the future will hold.
But certainly that future looks bright in insurance if we are able to keep that up.
Good morning <UNK> and thanks for your question.
I think you take us back to a conversation we had three months ago quite rightly.
There were some things I didn't know three months ago.
I didn't know there were going to be some losses in the quarter beyond ---+ quarter of the year before, beyond plan B, our normal expectations which knocked it sideways in the quarter, just for that quarter.
I did know that we are planning on buying some runoff cover and also restructuring our reinsurance arrangements.
I didn't know the cost of that and I didn't know when the work would be completed.
We actually thought we could be done this year.
We got the main pro rata deal away on November 16 and I think we did the runoff cover much, much later, almost in the last few days of the year.
It made sense to spend the money on getting those pieces of protection in place sooner.
So there was a charge to the quarter that I didn't anticipate and those two things were not on my mind when I made my comment about exceeding the cost of capital.
We clearly didn't do that last quarter.
I think with this medicine having been taken, we have a pretty strong franchise and reinsurance already and we have an improving franchise and insurance.
I think the $150 million in business was non-renewed was not likely to create a lot of value for our share holders here going forward.
It's been eliminated and we are working hard to replace it with business that we believe makes a lot more sense.
We hired something like 80 people last year.
We moved on about 30 people last year from insurance operations.
The talent has been upgraded.
All these things make me, the Company, very, very confident indeed of REs future.
I would be back to saying to we were looking to do ROEs that exceed our cost of capital.
I'm not going to, as you know we don't give guidance.
I am not going to be more specific there.
So that seems to me a successful operation ---+ absolute terms and a successful operation relative to the peers and that is one that I think we want to carry on running.
I do admire your (inaudible) and the way you just persist but the basic answer is, we don't give you ROE guidance and we are also not going to give you the number to which we can add a number which equals ROE guidance.
I am sorry but I think you understand how it is.
Thank you all for joining us on this snowy morning.
We appreciate your questions.
Goodbye.
| 2017_AHL |
2015 | PX | PX
#So your ---+ the answer to your first question, of the 50 basis points improvement that we saw in operating margin across the top of the house, I would say most of that probably was lower natural gas.
Now that doesn't take away from the great performance that we've had from everybody around the world to be able to grow operating margins in environments where volumes are weak.
So we feel pretty good about that performance.
But I would say probably most of that 50 basis points, 30, 40, something like that, where you could attribute to lower natural gases.
To your question, yes, we've taken out a lot of costs.
We're still taking out costs as we go into next year, which will help, obviously, from an earnings per share standpoint next year.
As volumes come back, and I think those of you who have followed us back to 2009, you know that we're pretty stingy in terms of how we add costs back.
And I think that's ---+ because of that we're able to get pretty good leverage, or very good leverage on any kind of incremental volumes on a very lean cost structure, and we're very conscious of that.
So obviously, volumes start to pick up quickly; we can respond quickly.
So nothing we've done is going to take away from our ability to capitalize on any recovery we see.
But we will be stingy in terms of how we had add those costs back.
For us, it was heavily impacted by the pull-back in oil well services.
And we do provide a lot of hard goods into those regions, both in the north-central and the south-central.
I ---+ this lead lag kind of question has come up before.
I went back and looked at some of our history, and I would say that most quarters I looked at, it looked to me like hard goods and gases moved pretty much coincidentally, and that in a few quarters, it looked like hard goods might have led the gases decline maybe by a quarter or so.
So, I don't anticipate any big drop-off in gases as a result of the hard goods becoming weaker.
We could still see some pressure going forward, but basically as I look at Q4, I'm pretty much expecting the same thing that I saw in Q3, both from a hard goods and gases standpoint.
Yes, I'm sure could I give you a sense of it.
I would say in the US, which are luxilon, two primary products are around mid-70%s.
Argon would be a higher utilization and Brazil looks like about low 80%s, luxilon.
Europe would be in the high 60%s, 70%ish, let's call it.
China, I talked about.
India would be low 70%s, mainly because we just started up a large plant there and we had some merchant loading to go through.
And then Korea looks to be low 80%s.
A lot of that is going to be a function of what happens to the top two ---+ the numerator, which is operating profit.
Normal operating profit after tax.
So if we get some volume recovery around the world, obviously, we're well positioned to take advantage of that, and we'll get nice leverage, and that will move the ROC up.
The capital base is affected as we've had some large projects that have been ramping up, anything that's had merchant liquid and a lot of projects in Asia have had merchant liquids; it has been slow to ramp so that affects the ROC.
And also we did a large acquisition, UCO2, in 2013, and with acquisitions like that, you're looking at the better part of 10 years before you're able to get the return on capital neutral to the corporate average.
And I think going forward, as we do some of these acquisitions, we're not talking about a ton of money, maybe $500 million, $600 million, or so.
That does have a bit of weighing down of that on the overall return on capital because, again, acquisitions take longer to become neutral to the ROC than capital projects do.
Al right.
So your first question is about next year.
Now, we're going to be going ---+ getting into the planning process next week, and certainly, we'll give guidance in January for next year.
But we are going to have some project contributions, that's for sure.
I think you could have negative run rates on volume in the first half.
And of course, the second half comps would be better.
So I'll wait and answer that question in January, but it looks to me like we're certainly going to have pressure on the first half, but large projects are going to help for 2016.
With respect to backlog, is there a point with which it's no longer healthy.
I think $1.6 billion is fine from a backlog standpoint as we look at contributions from the backlog going forward in the future.
A lot of it is based on project timing.
Maybe this year is 1% or so next year is a couple percent.
Then as we get into 2017 and 2018, 3% lacks more reasonable to me in terms of contributions of ---+ from the backlog.
Again, I think that I'm not too worried about it dropping much below that.
Again, this is just a function of the amount of activity that we are seeing today in the Gulf Coast, and all those projects are large.
So hydrogen supply, carbon monoxide supply, they tend to be very large capital projects, and there are half a dozen or so that we are ---+ that we're working on today.
With respect to what's going to happen out in 2018, 2019, I don't really know the answer to that, <UNK>.
I just know that what we're working on today is going to carry us certainly through 2017 and into 2018, and then the projects that we were to close, it would be probably second half of 2018 before we would have chance to start anything up.
More likely, it would be out into the 2019 time frame.
So that's about as far out as I'm willing to project, but to me, looking at the activity for the next three or four years, I think we'll be in pretty good shape.
Obviously, today, we're very much hunkering down, taking cost actions, taking advantage of some good growth opportunities in areas like healthcare, food and beverage, environmental.
There are some acquisition opportunities, both in Brazil and the rest of South America today, and this is where we talk a lot about the negative effects of the strong dollar, but this is actually where the dollar helps, when we start looking at some of these acquisitions.
I've said that pretty much in the worst of times, we can still hold around a 20% operating profit quality business.
I think when they can see some growth ---+ first of all, they've got to get stability in the political arena.
They need to get the fiscal house in order.
But as I look at kind of Brazil long term, you have a lot of people that were lifted from the lower rungs of society, say, into the middle class.
I don't think they want to go back.
The institutions there are democratic.
They have a democracy.
They have pretty sound institutions.
They're transparent.
They have a lot of resources.
They have some industries that are competitive on a global stage.
What I really think Brazil needs long term is to have more Embraers.
More companies like JBS Meat Packing, companies that can compete on a global stage.
They just need more of those kind of industry champions long term.
But as far as people ask me when I think Brazil is going to turn, my answer would be, I think the next logical inflection point would be the 2018 election, because the current party will not be in power when that takes place.
And I think that is probably about the time that we're going to start seeing more confidence in the future.
And a lot of what Brazil is suffering through today is a crisis of confidence.
So it will happen.
They will come back.
They always go through cycles, and they always come back very strong.
And when they do, obviously, our volumes - you'll see in that our volume, you'll see that in pricing, you'll see a much stronger currency.
We'll get tailwind from that, the and we'll be operating around a mid-20%s, I would say, operating profit to sales.
But that's not going to happen for a few years.
Maybe I get surprised on the upside.
I tend to be a skeptical kind of person.
That's kind of how I see Brazil.
Well, I think as far as the macro factors that I described, I think we're going to see that for awhile.
I think long term, US ---+ you have to be bullish on the US.
It's hard for me to be bullish on anything, but I think ---+ I would say bullish on the US for a couple of reasons.
Number one, if you look at investors around the world today, the US is the emerging market, compared to all other so-called emerging markets.
And the US obviously has much lower risk.
So the US market is very attractive.
Energy costs are very low, and I look at electricity rates in the US compared to other parts of the world that we participate in and the power rates, electricity rates are lowest in the US.
You would expect that at some point, the US is going to start building out its scale ---+ or upgrading its infrastructure, and that's going to be very positive for the economy.
So I would say medium term, long term, you've got to be a bull on the US, but short term, we've got some macro factors that we have to deal with.
I talked about energy.
I've talked about the effect of the strong dollar.
We certainly are affected by that.
I'm going to turn that over to <UNK> and let him answer.
Hi, <UNK>, how are you.
Believe it or not we've actually modeled exactly what you're saying back in history.
What you tend to find, the CPA, to your point, will reduce the denominator.
But remember, you also have translation reducing the numerator.
And while the timing may be different, because the numerator will be average rate, the denominator will be end of rate balance sheet; over time, they catch up.
So what we tend to find is in a longer period, a couple quarters strung together, currency impact tends to be washed.
You will see it on an instantaneous metric, and you will see it in a sort of quarterly metric.
When you do like we do an average over five quarters, currency works its way out.
So I still think it's a valid metric.
But as <UNK> said, the best way to grow this for us right now is to grow the numerator.
We've been doing, I think, a pretty good job to keep the denominator in check.
We've been doing a good job to mitigate in the numerator some of the headwinds on the volumes, but we're looking to try and grow this out in the next few years to get this number up.
80%.
80% fixed, 20% variable.
it's pretty close to that metric.
We have some swaps that are maturing here that will put us a little more fixed in the next four months, but right now we're probably 80/20.
You're welcome.
Well, it's ---+ If I were to split the activity level in North America, I would say it's probably 20% refinery hydrogen opportunities and 80% chemical based.
And the chemical-based opportunities would be for acetic acid; they would be methanol; it would be MDI, those kind of opportunities.
And what's interesting about them is they seem to take a long time to get the closure.
It seems like we're always looking at them, and they're going back and refreshing their feeds and so forth.
It is possible that some of these people in the Gulf Coast are a little bit more concerned about cash today, even though they have very good projects on the drawing boards.
But it's our sense that several of these projects are going to break loose.
We feel very good about how well we're positioned, and that's why I say I think the backlog can stay up around current levels on the strength of what's taking place in the Gulf Coast, predominantly in the chemical industry going forward.
Well, there's ---+ we have quite a few customers ---+ and I don't know; it's not a huge number.
Maybe a handful or so of large steel producers in places like Brazil that clearly are operating below take-or-pay levels, but they are paying, and that has been our history.
Good morning.
I'm going to answer it that I think the returns are holding about the same as what we have seen in the past.
The activity that I ---+ that we're mainly engaged in today in North America, what I like about all these projects is they have very solid terms and conditions, very high guarantee cash flows.
So they've been de-risked to a large extent.
But again, I'd answer the question by saying I think the returns are pretty steady with where they've been, and it seems like all the competitors have areas that they're focused on, somewhat different than each other.
And I think that's a pretty healthy thing.
It's a bit of mixed bag.
I think when you looked at, obviously, soft drink sales are down, carbonated beverages are down.
However, any time somebody opens up a restaurant, they need a carbonation service, and that's where CO2 comes in.
Even though CO2 volumes themselves could be lower as a result of weaker soft drink sales, the fact that every new location needs a carbonation service means that we're able to grow that business.
It is true that the craft brew business continues to grow double digits so that's been a positive for us.
We've been a bit disadvantaged in recent years that in we haven't had strong sources of CO2 as we would like.
We've solved that all within the last year, so we feel very good about our CO2 business from a source standpoint, which is critical to being successful.
And then I look at the food freezing business itself is growing with CO2, and also dry ice.
Dry ice is an area that we haven't focused on historically, but that's a market that's growing pretty nicely, and market segments like bio pharma are helping to drive the growth in dry ice.
Yes, <UNK>.
This is <UNK>.
I can answer that question.
When we make these investments, like any investment, they're very long term.
So we always model currencies, as I'd imagine all bidders do, in terms of what the long-term outlook.
You tend to source and sell in the same currency when you do these projects.
You're building a lot of assets.
Half of it is built in local currency for the construction.
And then you receive the revenues in the local currency.
We use things like inflation protection and sometimes we'll index to other currencies.
So we've done that in all currency environments, high and low.
So the long story short is, I don't think it's affecting it at all because all of us have considered currency risks and effect in our investment process throughout our history.
So I wouldn't say there's any material change on any respect.
| 2015_PX |
2016 | TTWO | TTWO
#Yes, in this instance, we would agree with what you're observing, which is that the bigger and better are getting stronger.
And that's consistent with the nature of the entertainment business.
Which is, as entertainment businesses mature, a greater proportion of consumer attention and therefore revenue goes to the highest-quality releases.
Essentially when entertainment businesses are nascent, people are willing to experiment among a number of brands.
And as they mature, all consumers' tastes tend to narrow and focus on the biggest titles in the businesses.
This has been true from time immemorial, since the beginning of the electronic entertainment business, across every different type.
And it's why we've had this strategy that we've had at this Company, which is ---+ create and put out the highest-quality releases, and do a limited number so you can really focus.
And focus not just on your existing IP, but try to launch new successful IP every year.
And we've been able to do that most years since we took over the Company.
And that's why we have 11 titles that have each sold over 5 million units in an individual release, and something like 45 that have each sold 2 million units or more in a (technical difficulty) release, which we think is the standard-bearer of the industry.
So yes, the strong get stronger, and that was true in motion pictures and in television and in music.
It's going to be true in interactive entertainment.
And that puts pressure on us and on our key competitors to continue to deliver the highest-quality titles, and to focus on doing so.
So we see it as an opportunity as much as a challenge, and certainly for the haves, it's a much better place to be than the have-nots.
So in talking about guidance from this past year, when we set original guidance, it was our best estimate at the time when we gave out those numbers.
We had a very light release schedule.
And as you mentioned, some of our titles performed stronger than we had expected ---+ GTA V and GTA Online.
And that, coupled with our tax credit, is what helped us to have these fantastic results for this year.
And <UNK>, in terms of Mafia III, obviously this is a title that we're very excited about here, from a creative perspective, but also from a commercial perspective.
We think this title has the perfect combination of what people are looking for in an open-world, story-based-driven title, with a lot of things that a lot of games don't have.
A lot of time and money has gone into us.
We've got a great creative team being led by Haden Blackman.
So we are very excited about this title and prospects of the title.
And when you get this right in this particular genre, you can obviously achieve significant success.
In terms of ---+ and we've done that before, in general.
So in terms of providing you with a specific model that you can go by, I don't have anything specific for you to go there.
But I can tell you that our expectation is that we should be exceeding anything that we've ever done on the Mafia side before, again, from a creative perspective and a commercial perspective.
So you can always look at the previous Mafia titles as a benchmark.
But again, I wouldn't stake too much on that, because we think this time, we'll vastly exceed what the previous Mafia had been able to accomplish over the past.
That's something that the labels will decide and talk about in due course.
Certainly we wouldn't rule it out.
It will be largely an economic decision.
We wouldn't do anything that's not going to look great creatively.
So the starting point is, is this going to delight consumers.
Is this going to look good.
You know that we're a Company that is not driven first and foremost by ---+ can we create revenue this way.
We will start by saying, will this be exciting to consumers.
Will they be happy with it.
Will it reflect well on our brand.
Will it reflect well on our Company.
And if the answer is yes, then it may well be a compelling opportunity.
But if the answer is indifferent or no, then even if we have an opportunity to make a few bucks, we probably would decline.
So I think that's the lens through which we look.
The actual decisions are made by the labels.
So in terms of our outlook, we have contemplated recurrent consumer spending in the outlook, we've contemplated product drops.
There could be changes there, and perhaps there's some opportunity.
But this is the outlook as we see it now, and we contemplated all aspects of our business.
But things can change.
In terms of metrics, we haven't really shared a great deal of metrics on our in-game spending.
We certainly give broad numbers around recurrent consumer spending.
And its been great.
More than a quarter of our non-GAAP net revenue last fiscal year was recurrent consumer spending.
So certainly the numbers are meaningful.
And we have mentioned that we have 31 million signed-up users of Grand Theft Auto ---+ or sorry, of NBA 2K Online in China.
So we have mentioned that metric.
We have talked about usage of Grand Theft Auto Online in the fourth quarter.
So we've given some metrics.
We don't tend to give a broad array of metrics, because this is still a work in progress, and it's still a developing activity here.
And because we don't want people to extrapolate ---+ even though the results have been excellent, we don't want one to extrapolate that they're perpetually a nice, gentle upward sloping curve.
Because it's too early in our experience to see that.
In terms of our strategy, our strategy ---+ and I know it sounds like motherhood and apple pie, but it genuinely is our strategy.
We're trying to delight consumers as they engage in our products.
And when we make a content drop, we want that to be something exciting to consumers.
And we know if we do that, then we will increase engagement, and therefore, we will increase spending, and therefore, we'll increase revenue and profits.
And of course, we are a profit-seeking enterprise.
We are focused squarely in the real world, and we're a for-profit Company.
But the way entertainment businesses survive and thrive ---+ with the backdrop, as <UNK> mentioned, of being exceedingly efficient, well-organized, professionally managed and fiscally, highly disciplined.
But with that backdrop, our focus turns entirely to creativity.
And that creativity surrounds what's going to make consumers most excited about our titles and most excited about our brands.
And most engaged with our titles, and repeatedly engaged with our titles.
And then as they are engaged, we need to give them opportunities to spend.
That in and of itself enhances the game experience ---+ doesn't detract from it ---+ that we don't put up toll booths and we don't annoy our consumers.
We simply get paid along the way.
And that's what we aim to do, and that has had a great result around here.
But many of our competitors are actually proud of the fact that they're primarily data-driven, that they're focused on the content supporting the data that supports the purchases, that supports the revenue, that supports the profitability.
We do not do it that way.
We are creative.
We make an incredible entertainment experience, and then we seek to monetize it.
Yes, it's a good question, <UNK>.
GTA V has continued to sell, as you know.
When we talk about the unit sales, certainly there's been great news there, because we've sold so many units.
We have not tracked what happens to the GTA V sales when new content has dropped into GTA Online.
So we would be speculating about what influence there would be.
But I think anything that makes GTA Online exciting is good for GTA V.
And I do expect that it's going to continue to be a very strong title going forward, and a great catalog title over time.
If history is any guide, that will be the case.
In terms of the pipeline for online content on an ongoing basis, that's something for Rockstar to talk about in due time, but there is content coming.
Yes, I mean the initial results are very encouraging, which is, I think we probably took away from those comments, but it is early yet.
The scores are good, consumers like it, a lot of people playing it and really loving the game play.
But I wouldn't want you to draw a conclusion that the Battleborn curve is necessarily the Borderlands curve.
Because we just don't have any of that information yet.
So we're encouraged, and we feel good about it.
It remains to be seen how it performs.
And in terms of ongoing digital content, we've said there's more content coming.
And again, we'll leave the specifics to the label.
Yes, I don't think we've talked about it yet, <UNK>.
So for digital, our financial outlook assumes that we're going to generate modestly lower digitally delivered revenue in FY17---+ like a percent decline in the mid-single digits.
This is driven by our assumption that recurrent consumer spending will be moderately lower, around 10%, and full-game downloads will be roughly flat.
For recurrent consumer spending, we expect it to be lower, based on our assumption that growth in virtual currency for NBA 2K and higher revenues from downloadable add-on content for a variety of our titles will be more than offset by moderating revenues from Grand Theft Auto Online.
And we expect our full-game downloads to be roughly flat, as last year benefited from the launch of Grand Theft Auto V for PC.
But over the long term, we expect digitally delivered revenue to grow.
And as we continue to execute our strategy to drive greater engagement in recurrent consumer spending, and as our industry transitions more towards full-game downloads, we expect it to grow over the long term.
Yes, and in terms of ---+ this is <UNK> ---+ in terms of Asia, our Asia strategy was set in motion a number of years ago ---+ [won't be] open the headquarters in Singapore, became a publisher in Japan, and entered a number of other markets.
And then we also tried new kinds of products that we felt would be quite challenging to launch in Europe or in the US, but could be opportune to launch in Asia ---+ largely, free-to-play, massive multi-player games.
We've had strong results with NBA 2K Online in China, and we mentioned those as part of today's call.
We've launched Civilization Online in Korea, and that will also launch in a number of other Asian markets.
And we're working on a number of other really interesting opportunities.
So that business has already been very fruitful for us, has grown from a very small part of our business to a meaningful part of our business.
And you know, it's a very exciting part of the world, and people's appetite for games is somewhat different than here in the US or in Europe, with a significant focus on massive multi-player games and a significant focus on the free-to-play model.
So we don't believe that all models work in all markets.
We think you have to tailor what we bring to a particular market for the needs and desires of the consumers in that market.
So we're incredibly excited about Asia.
And I would just like to make the comment that we, as an industry, are just scratching the surface in China, of what's possible.
And I do believe ---+ and that may be a contrarian point of view ---+ but I think that an area of China that has remained very challenging, which has been the distribution of Western products.
I think the Chinese government will realize more and more that it is actually not challenging, that it's actually beneficial.
That it's what consumers want.
That it will not cause consumers to have a view of Chinese society that is in any way unfortunate for the government.
And I think restrictions will probably be loosened.
My guess is, not within the next 12 months, but I do believe, in the coming years.
And that's going to be incredible news for us.
Because of course, the middle class alone in China is bigger than all US households.
So we think that there's an amazing opportunity there.
We're poised for the opportunity.
Naturally, we comply with government regulations wherever we are in the world, and China is no exception.
But I am of the view that it's time for restrictions to be softened, and that it will be beneficial for Chinese society ---+ as they see it, not just as I see it.
And I do believe that creates a massive opportunity for us, and not reflected in this year's numbers, next year's numbers or anyone's outlook for the industry.
Well, thank you so much for joining us today.
We're very pleased with our results.
We're proud of our outlook.
But what we're really proud of is our colleagues all around the world, almost 3,000 of them, who are engaged every day in trying to make the very best interactive entertainment properties on earth, to bring them to market.
And to run a really solid serious and responsible business, in making sure that we delight consumers as they experience our products.
So we feel very grateful to have an opportunity to work in this business about which we're so passionate, grateful to our colleagues, and we're really pleased with the results.
Thanks for joining us.
| 2016_TTWO |
2015 | SCSC | SCSC
#Thank you and welcome to ScanSource's earnings conference call for the quarter ended September 30, 2015.
With me today are <UNK> <UNK>, our CEO, and <UNK> <UNK>, our CFO.
We will review operating results for the quarter and then take your questions.
A slide presentation that accompanies our comments and webcast is posted in the investor relations section of our website.
Certain statements made on this call will be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to risk and uncertainties that could cause actual results to differ materially from such statements.
These risks and uncertainties include but are not limited to those factors identified in the release and in ScanSource's SEC filings.
Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.
ScanSource undertakes no duty to update any forward-looking statements to actual results or changes in expectations.
We will be discussing both GAAP and non-GAAP results during our call and have provided reconciliations between these amounts in our slide presentation and in our press release.
These reconciliations can be found on our website and have also been filed with our Form 8-K.
<UNK> <UNK> will now begin our discussion with an overview of our results.
Thanks, <UNK>, and thank you for joining us today.
We delivered strong results for the quarter with net sales within our expected range and non-GAAP EPS above our expected range.
We reported record net sales of $871 million and non-GAAP earnings per share of $0.68.
During the quarter we executed well on our strategic initiatives including returning cash to our shareholders through share repurchases.
Our three acquisitions during the past year, Imago, Network1 and KBZ all contributed positively to our growth and delivered strong operating performance.
This quarter we went live with our SAP ERP system in North America.
This followed our February implementation in Europe and we now have over 80% of our business worldwide using our global SAP ERP platform.
The new system went live on time and on budget and we produced very good operating and financial results.
However, our implementation was not perfect as we were replacing the legacy system we had been using for 20 years and our employees have learned plenty of shortcuts that became second nature over that time.
So yes, we had a few bumps in the road and we benefited from the loyalty and patience of our customers, vendors and our own employees who worked tirelessly.
We are still learning how to best operate with our new system and we are regaining efficiencies and serving our customers and vendors.
Another key initiative we accomplished was the completion of our acquisition of KBZ on September 4.
As Cisco's top video products and solutions distributor worldwide, KBZ focuses its business almost exclusively on Cisco and complementary vendors.
The KBZ team is focused on forming deep local relationships and educating resellers on how to be profitable with Cisco programs including our KBZ branded service program called Zcare.
The integration of the KBZ acquisition is going very well and we expect our Cisco collaboration and network security business to be areas for growth.
We are very pleased with KBZ's financial results for September, a seasonally strong month due to year end federal spending.
Consistent with our value-added strategy of dedicated business units providing specialized focus in specific technology solutions, we are bringing our networking vendors together.
This will allow us to provide more customized solutions and value adds to our networking customers and vendors.
As of October 1, 2015, we branded ScanSource Security as ScanSource Networking and Security to provide more resources and focus on our fast-growing networking vendors and as our security products, especially video surveillance, are increasingly delivered as part of the total network solution.
We are excited about this organizational change and believe it will enhance our go-to-market strategy for this business.
Starting with the second quarter of fiscal year 2016, we have moved some business operations from our communications and services segment to our POS and barcode segment, and we will reclassify prior period results to provide comparable information.
With that, I will turn the call over to <UNK> to discuss our financial results in more detail and our outlook for next quarter.
Thanks, <UNK>.
We exceeded our expected financial results due to three main factors.
First, the acquisition of KBZ was not in our forecast and we closed that deal at the beginning of September.
Because of the greater public sector seasonality, KBZ's financials for the one month we reported were strong.
Second, our recently acquired Network1 had better operating performance and forecasts in a difficult Brazilian economic environment.
And third, a higher than forecast gross profit margin due to timing of vendor programs.
On a consolidated basis, net sales totaled $871 million, a 10% year-over-year increase or 15% in constant currency.
The year-over-year change in foreign currency exchange rates had a negative impact of $37 million.
First-quarter 2016 results include a full quarter for Imago and Network1 and one month for KBZ.
Excluding these acquisitions, first-quarter 2016 net sales increased 2% year-over-year in constant currency.
Our first-quarter 2016 gross profit of $87.6 million or 10.1% of net sales compared to $77.6 million or 9.8% of net sales a year ago.
This reflects the favorable mix of international business from our acquisitions.
Operating expenses were $59.2 million or 6.8% of net sales compared to $45.8 million or 5.8% of net sales in the prior year quarter.
Last year included a $2 million credit for bad debt expense while this year we had SAP related one-time ERP cost of $2.4 million.
Excluding these impacts, operating expenses as a percent of net sales would be 6.5% this year compared to 6% last year.
In addition, operating expenses were higher year-over-year due to the higher margins from international acquisitions which have correspondingly higher operating expenses.
Our first-quarter 2016 non-GAAP operating income was $28.4 million or 3.3% of net sales compared to $31.8 million or 4% in the prior year quarter.
Our effective tax rate was 34.5% for the first quarter 2016 and 33.4% for the prior-year period.
First-quarter 2016 non-GAAP net income was $18.9 million or $0.68 per diluted share compared to $21.6 million or $0.75 per diluted share for the first quarter 2015.
Foreign currency translation had an estimated $0.04 negative impact when compared to last year and the SAP one-time cost had a $0.06 negative impact as well.
Total shares outstanding as of September 30, 2015, were 27.1 million shares, a decrease of approximately 5% from year ago from share repurchases.
Average diluted shares for the first quarter 2016 totaled 27.9 million shares, down 3% from the year earlier period as a result of share repurchases.
Now shifting to the balance sheet and capital allocation plan.
We continue to execute on our capital allocation plan and remain disciplined and focused on acquisition opportunities that are strategic, accretive to EPS and increase ROIC.
The acquisitions we completed during the last year were in keeping with our strategic business plan, value-added distribution model and focus on growing our bottom-line profitability.
At September 30, 2015, we had cash and cash equivalents of $41.2 million and debt of $94 million for net debt of $51.8 million.
During the quarter, $61 million of cash was used for the acquisition of KBZ and associated working capital and $42 million was used for share repurchases, while cash from operations consumed $58 million principally from higher working capital.
Consistent with our overall financial plan objectives, leverage increased to approximately 0.45 times trailing 12 months EBITDA and lowered our weighted average cost of capital.
Our days sales outstanding, DSOs at September 30, 2015 were 56 days, up from 55 days.
Higher inventory levels led to lower inventory turns for the quarter, 5.3 times compared to 5.7 times for the prior year.
Paid for inventory days increased to 13 days up from 9.7 for the prior year.
These working capital metrics exclude the impact of the KBZ acquisition.
During the quarter, we purchased additional inventory in order to not disrupt our customers and vendors during our SAP implementation in North America.
Our return on the invested capital totaled 14.6% for the quarter.
As of September 30, we had purchased over 1.6 million shares for approximately $61 million and executed over 50% of our authorization as part of our planned capital allocation strategy.
We have now repurchased over 6% of our outstanding shares.
Turning now to our next fiscal quarter and let me add some additional color here.
The forecast also assumes a stronger dollar compared to the previous quarter a year ago reflecting US dollar exchange rates of 1.12 for the euro and 1.53 for the British pound and an average Brazilian real exchange rate of 3.91 for the US dollar.
The foreign translation negatively impacts our forecasts versus the prior year by an estimated $33 million for sales.
We expect net sales for the quarter ended December 31, 2015 to range from $900 million to $980 million and non-GAAP diluted earnings per share to range from $0.72 to $0.80 per share.
I would like to turn the call back over to <UNK>.
Thanks, <UNK>.
We have two reporting segments and I will start with Worldwide Barcode & Security.
Net sales of $516 million increased 3% year-over-year and 10% in constant currency.
This increase includes our KBZ acquisition for one month.
Our security business in North America and our POS and Barcode team in Mexico had record sales quarters.
It was a strong quarter for big deals in North America, Europe and Mexico for our POS and Barcode business units.
In North America, we had a strong quarter in enterprise point of sale systems and solutions and continued to realize strong growth in our retail and hospitality payment solutions.
Our payment processing terminal sales achieved record results, more than double over the prior year quarter.
The EMV Chip and Pin opportunity is still gearing up in North America and we continue to make investments in our payment terminal configuration center and secure encryption capabilities to support this fast-growing business.
We had good results for our mobile computing and printing products and solutions as well.
We are pleased that Alex Conde, who joined ScanSource with the purchase of CDC Brazil, is now our President of ScanSource Point of Sale and Barcode for all of Latin America.
Alex's team had another strong quarter in Brazil in spite of the economic challenges that country still is experiencing driven by continued growth in retail and hospitality markets and specialty technology solutions.
A big growth opportunity continues to be the required government mandated fiscal solutions.
With the economic slowdown in Brazil, our strong balance sheet gives us a strong competitive advantage and we have gained market share from competition and increased the number of customers served.
Our net sales of Brazil increased 10% year-over-year in local currency but declined 29% when translated into US dollars.
Our security business had another record sales quarter driven by growth and networking especially from our wireless vendors and the strong resurgence in our video surveillance products.
eRate spending for schools to purchase technology was a seasonal assist to our strong results this quarter.
We expect to see strong growth from our change to consolidate our networking vendors in this business unit in the future.
Also as I mentioned earlier, KBZ delivered exceptional results in the month of September principally from the public sector business.
Now to our second segment, Worldwide Communication & Services which had net sales of $355 million.
Net sales increased 22% from a year ago or a 23% increase in constant currency.
This strong increase includes our successful and ongoing integration of Imago and Network1.
In North America, we had solid performance in our enterprise business and good services growth with all of our top vendors.
We also did a very good job growing our smaller audiovisual lines.
In late October, we expanded our collaboration offerings with the launch of Unify in North America.
Unify's platform of communication solutions fits well with our value-added model and service offerings.
In Europe, we are finding good opportunities for bringing our businesses together.
We had year-over-year sales growth in local currency and improved operating performance.
We are also benefiting from Imago's services offerings and expanded offerings with newer vendors including Unify.
Network1 rebounded in Brazil and Latin America with solid operating performance that exceeded our planned sales and profitability.
This included run rate business and big deals as well as strong growth in Latin America where our team sees opportunities in Chile, Colombia, Mexico and Peru.
Network1 successfully kept a focus on the small to medium-sized businesses while also working closely with vendors on big deals.
We are excited about what we accomplished this quarter and we believe we are on track for continued growth.
This week we announced an expansion of our headquarters in Greenville and plans to add more than 100 highly skilled positions here in the next five years.
During the past year, we completed three acquisitions and all three acquisitions had strong operating performance for the quarter.
We implemented our new SAP ERP system in North America and our team is working very hard to use the new tools in SAP to accelerate profitable growth and we made significant progress in moving towards a more optimal capital structure while returning cash to our shareholders through our share repurchase program.
So now we will open it up for questions.
Yes.
<UNK>, we have not broken that out on the growth rates in constant currency excluding acquisitions.
We have not done that and we don't intend to disclose that at this point in time.
Sure, <UNK>, it's <UNK>.
We have been talking about that program as you know for over a year and what our customers tell us is that only a small percentage of the retailers and point of service providers in the US have implemented the new technology to date.
It started mostly with the larger retailers first and so October 1 was the official cutover date that the credit card companies suggested would be the critical date.
What we are seeing is that there is a continued need for these products to be sold into the marketplace so we believe it is like typical in the new technology.
It is a multiyear process, not a single quarter and certainly not in the near foreseeable future.
Yes, just a couple of points on this on the balance sheet.
In the script, I talked about the inventory levels.
That was a big driver about the use of working capital.
We brought in additional inventory due to the SAP implementation to ensure we were not going to disrupt customers or vendors.
It will be determined as how far as how fast we work that inventory down based on the progress that we make going forward.
We anticipate longer-term for that use of cash and working capital to come down and our working capital to improve.
So it is temporary and I would say if you remember, we have talked about a leverage ratio of at least 1 times so that is what we are working toward to get to the 1 times and we made progress on that but also there is a great deal of focus on our working capital in order to make sure that that is in line and as I said, the inventory levels were higher due to the SAP implementation in this quarter in North America.
Yes.
This is <UNK>.
So the decline in the operating income is largely driven by this bad debt credit that we had that was a favorable pickup last year, $2 million that we talked about in the September quarter last year.
That was a very large contributor to the decline in the operating income percent year-over-year.
And I would add the second piece would be the mix.
The mix and then you have the $2.4 million of SAP one-time cost that gets allocated to these segments so you have that in there.
If you take that out then it gets closer to where it was in the prior year.
<UNK>, here is something that was about in our communication some of our fastest-growing product lines have been our lower margin product lines if you will.
No, the range that we are giving is consistent with the range in the last quarter.
So we have new acquisitions in here.
We have three acquisitions in the last year that gives us a little bit of caution about the range and making sure that it is appropriate.
So I would say that was the biggest reason for the range being where it is.
This is <UNK>.
I will make a couple of comments.
One is in our market business we have been fortunate that there has been this underlying demand for these fiscal printing solutions and that was mandated by the government.
We are the primary go-to-market distributor frankly the only distributor for the Bematech product line in Brazil.
And Bematech focuses a lot of effort and always have at fiscal printing and so we are benefiting from this requirement that these retailers and point of service providers who take cash have a fiscal printing solution that is updated.
So that is happening even though the rest of the business has had some delays in purchasing.
We mentioned that two quarters ago that some of our larger projects in our Barcode and POS business were delayed because of the impact of the currency because obviously a lot of these products that we still bring in the country are US-based so the pricings are higher now.
So we have seen that.
The fiscal printing has offset that decline.
And on the communications side, Network1, they have been opportunistic at taking advantage of the business that is available in the market right now because our competitors are weaker.
We generally are competing against smaller local companies and our guys believe that our ability to provide credit terms, reasonable credit terms and provide inventory stock in inventory is allowing us to increase our market share in a market that is not growing to the one that we are taking share in.
So we really believe locally we are doing well even though the translation still is weak that we are able to gain market share in this time and so that is from a long-term perspective, we think it is very positive.
Because we will be able to come out once things start to settle down where we will have even stronger market position in the future.
So we really like the fact that we got into Brazil, we like the fact that we have got a great team that knows how to manage their margins, manage their expenses and still show strong profitability even though the translated revenue is less than we would like.
That is true.
The difference here is the rest of the ScanSource North America point-of-sale market business is so much larger than the chip and pin business.
Even though chip and pin business doubled for us year-over-year, it wasn't enough to move the needle on that entire business as much as it would in Brazil.
But yes, we like the fact that we have located in each of our markets opportunities to grow even when the rest of the market is not doing so well.
And we recognize that even in North America there are always opportunities and we have got the best network of resellers and customers.
And these guys, they are independent business people and they find ways to sell something to somebody and that is why we feel good about our business model long-term because we have got the best customers in the marketplace and they will find a way to sell product.
<UNK>, this is <UNK>.
On the SAP, it is related ERP cost that we have been calling one-time in nature, that actually goes away.
So in the first quarter was the last quarter that we will have those type of costs at that level of spending.
So we will continue to work on SAP and we will continue to look to gain efficiencies and additional functionality but those costs that we have been reporting in the last couple of quarters is one-time related go away and are not in the forecast.
Great.
Thank you for joining us today.
We expect to hold our next conference call to discuss December 31 quarterly earnings results on Tuesday, February 9, so that is a new day of the week for ScanSource, so Tuesday February 9, 2016.
Thanks very much.
| 2015_SCSC |
2015 | REX | REX
#Good morning and thank you for joining REX American Resources fiscal 2014 fourth-quarter conference call.
We'll get to our presentation and comments shortly as well as your Q&A session but first I'll review the Safe Harbor disclosure.
In addition to historical facts or statements of current conditions today's conference call contains forward-looking statements that involve risk and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements reflect the Company's current expectations and beliefs but are not guarantees of future performance.
As such actual results may vary materially from expectations.
The risk and uncertainties associated with the forward-looking statements are described in today's news announcement and in the Company's filings with the Securities and Exchange Commission including the Company's report on Form 10-K and 10-Q.
REX American Resources assumes no obligation to publicly update or revise any forward-looking statements.
REX is proud to report record fourth-quarter and fiscal year earnings and diluted earnings per share.
Diluted earnings per share for the fourth quarter increased 31% from $1.95 to $2.55 and the full-year diluted EPS increased 151% to $10.76.
Net sales in revenues for the fourth quarter declined 13% to $127.7 million compared to last year's fourth quarter primarily reflecting lower ethanol and distiller grain pricings for the quarter.
These prices decline for the full year as well but the distiller grain pricing decline was more significant in the fourth quarter as China had backed away from the market during that time.
Our plant production rate for the fourth quarter remained relatively consistent with year-to-date production rates as we ran about 10% to 15% above nameplate capacity.
The production rates continue to substantiate our belief that we have amongst the best quality plants in the industry.
Gross profit increased 14% for the quarter to $30 million versus $26.3 million as lower corn pricing more than offset the lower sales prices.
REX benefited during the quarter as the spot ethanol pricing was stronger than CBOT during November and December and we were able to get a better price by not locking in our ethanol.
In addition on average our corn pricing was below CBOT as we were able to take advantage of our plant's proximity to the corn.
Selling, general and administrative expenses declined on a quarter-over-quarter basis from $5.3 million last year to $4.1 million this year due to lower incentive compensation in the current year as bonus caps were hit earlier in the year and lower expenditures related to the deep heavy oil project.
Equity income from our non-consolidated plants increased slightly from $7.6 million to $7.9 million.
As we mentioned on our last earnings call, we completely paid off our bank debt during the fourth quarter on the consolidated plants which has resulted in lower interest expense.
The above items contributed to an increase of 28% and our net income attributable to REX shareholders to $20.3 million and an increase of 31% in diluted earnings per share to $2.55.
During the fourth quarter we used cash of $9.8 million to purchase about 161,000 shares and $33.5 million in the retirement of the consolidated debt.
We now have 497,582 shares remaining on our current buyback program.
For the full year we spent about $10 million on capital expenditures.
$7.6 million of the expenditures occurred at the NuGen plant to expand their ethanol, corn and dried distiller storage.
We now have storage of 2.2 million to 3.2 million bushels of corn and 4.3 million to 5.2 million gallons of ethanol at the two consolidated plants.
I would now like to turn the call over to <UNK> <UNK>, Chairman of the Board, for his commentary.
Thank you.
The ethanol industry is a cyclical industry; currently, it is a struggling industry.
In the first quarter many, many plants in the industry are struggling to turn a profit.
Oil prices are probably the biggest cause of that.
During the fourth quarter as everyone knows oil prices dropped drastically.
It's made the export market more challenging because we're priced last competitive to oil; also make E85 and E15 less competitive.
Another issue is there's been no finalization of blending requirements from the EPA and the uncertainty does affect the industry.
In terms of ethanol inventory levels there's high, many plants came on last year that maybe shouldn't have come on or aren't as efficient and were previously closed.
They are currently still running and that's created a glut on the market and it's drastically reduced crush spreads.
Going forward the industry will continue to face heavy lobbying pressure probably as great as ever from the oil companies.
They refused to pay any attention to the benefits of ethanol: air quality, national defense, deficit reduction, trade balance of trade, energy independence, and totally focus on their marketshare and the lost marketshare to ethanol.
And again they will continue to do that; however, with the Iowa caucuses coming it is our belief that there will be no major legislative changes in the near future.
In terms of EPA they seem to be in no great urgency to set blending limits and we don't think that they will cause great harm to our industry in the near future.
Maybe even will benefit the industry if they ever do come out with their blending limits.
Oversupply issues should ease somewhat.
Inefficient plants have already started to cut production.
Driving season is about to start.
Demand will pick up; it was a rough winter, that limited demand.
But we do expect with driving season gasoline to increase and simultaneously ethanol consumption to increase.
DDG prices also are looking better.
Right now the Chinese market has again reopened and that should help DDG prices in the future.
REX continues to have great plants.
We have Fagen built, ICM technology, good rail, solid corn belt locations.
Because of this even with the narrowing crush spreads, even with crush spreads down a little bit our plants are still running at a slightly better than breakeven pace.
The margins in the last couple of weeks have gone up.
We don't know if ---+ a little bit.
Not anywhere near last year, but we hope this is a positive trend until production goes down and until the glut gets eaten up a little bit we remain wary.
DDG prices like I said earlier for REX, like the rest of the industry with the entry of China back into the market should help us in the future.
Cash at year-end we had $137 million in cash.
We had no debt and no debt again is something that will help us in the future in terms of increasing or doing better than the rest of the industry.
The biggest reason we feel we'll do better is our plants location, people, etc.
but having no debt is also a big benefit.
Our share buyback continues.
We have 497,582 shares currently authorized.
The current price of our stock means that our plants are selling well, well below the replacement cost of the plants.
These plants have had great returns and so we look at our shares as our share buyback program as one great way to spend our excess cash.
And again we buy on dips and we're very wary we don't buy ---+ we buy to lower the share count, not to replace options and that type of thing.
Our strategy has always been is currently to buy to lower the share count.
We also continue to explore building a new plant.
We believe that permitting now is possible but a go/no go decision would have to wait until the industry has better economics.
We also are looking at opportunities to buy plants and with the industry doing a little worse those opportunities may come.
We have nothing imminent but again we buy opportunistically and we look to if the industry goes into a prolonged slump there may be that opportunity like there was in the past to buy plants and we plan on being there.
We're true believers in the ethanol business if we can buy plants at an opportunistic price.
Looking forward in terms of other things other energy businesses we continue to look for other alternative energy businesses to go into.
So far only heavy oil has shown up on our radar.
We have nothing imminent other than that.
In terms of our heavy oil technology we continue to explore it.
We hope to have a pilot plant up this year.
There's billions of barrels of heavy oil out there that's unrecoverable.
It's our hope that we can create a process to recover this oil.
It is unproven technology.
We do not recommend people buying our shares because of our patents in this technology, at least not at this time, but we are going to see what we can to see if this technology works.
In conclusion we're proud to report a record year net income of $87.3 million, earnings per share of $10.76.
And again all this can be contributed not just to our great plants which we think are the best in the industry but more importantly the great employees which we feel are the best in the industry.
And they are really what makes us a really, really great company in the ethanol industry.
I'll now leave it open to questions.
We don't currently have any major expenditures planned.
I would tell you I would expect it to be anywhere from $2 million to $5 million and no major projects on the plate right now.
I think it will help a little bit in this quarter but I expect a bigger benefit next quarter.
Dry distiller grains there's a little bit of a lag between ---+ you have to go out a little bit further selling the product.
But prices definitely have gotten better since China has gotten in the market.
We have looked at acquiring other producers.
One thing that we are looking at that I didn't talk much about is increased, slowly increasing the capacity of our existing, not necessarily buying more shares in the Company so we own minority position but increasing the capacity of our existing plants.
And that's probably the most efficient thing we can do in terms of growing the Company is just gradually grow our existing plants.
We have looked at ---+ we would want Fagen/ICM corn belt plants and we have looked at them.
But the pricing that we've seen has been greater than ---+ or the pricing that other people have been willing to pay is greater than we're willing to pay.
We are opportunistic buyers.
You try to increase a little bit as you can get more ---+ basically you do little things, we're one of the few ---+ a couple of our plants were one of the few that the EPA said were extremely efficient and allow more RINs.
But there's nothing that I can report today that is not in <UNK>'s numbers.
But that could be something that comes up if we're lucky later in the year.
It would be a little more capital expenditures should that come up but it's nothing we can talk about today.
In terms of capital expenditures.
One of the beauties of our Company in the fourth quarter was we did very little hedging out and we were on the spot market.
CME is not the spot market.
Even the most current month is not the spot market.
The spot market had a nice spike during part of the fourth quarter which allowed us to get an average price.
It's pretty significantly above the CME price.
Today the spot market is not above ---+ it's not significantly above CME.
It's pretty much right ---+ it's not anything ---+ CME would be a good barometer of where we're selling our product at.
We actually sell a little below CME because of transportation and things like that but fourth quarter was unusual because the spot market was extremely strong.
No, my feeling is it was someone who had sold something out and we don't know who someone who had committed something to someone and got caught and they had to buy the product at a higher price.
Yes, we do not know who that is and that's just my gut feel of what happened.
We'd like to do about 10% more.
At a certain point the EPA RINs haven't become a factor but we'd like to get it up about 10% more and we think the EPA would cooperate with that.
So we're not ---+ I can't say 100% sure but that's probably what we're ---+ what we would like to do.
So we'll see what happens.
Right, it's improving.
You get better as you go down the experience curve you get better each year at what you're doing just better efficiencies, change see where we can make things a little better.
And as you can see we started with 100 million gallon nameplate on these plants, we're running well in excess right now of 100 million nameplate.
So we've already way surpassed what originally these plants were planned to do.
So that should give you some idea.
We right now because ---+ right now we have what we have.
I don't think that's an issue at the moment because the industry's is on the downside of a cyclical industry.
But too much I don't think ---+ I think we continue to buy in shares and never let that happen, but again that's a Board decision, not my decision, but that's been our historical what we've done historically.
I would like to thank everyone for their support and again it's very much appreciated.
And even though the industry is in a little bit of a tough time right now we're very, very big believers in the ethanol industry long term, have great, great hopes and faith that it will continue to do very, very well over a long, long ---+ over the long term.
Thank you for listening and appreciate it.
Bye.
| 2015_REX |
2018 | FN | FN
#Thank you, <UNK>, and good afternoon, everyone.
I spent my first 4 months at Fabrinet meeting with customers and employees, and I'm even more enthusiastic about the quality of our business and the strength of our customer relationships than when I spoke with you a few months ago.
Our experience and reputation as a technology-driven manufacturer positions us uniquely in the marketplace.
Since our founding, we have had a strong presence in optical communications, and I'm looking forward to the continued expansion of our business in this dynamic market.
At the same time, I believe we can increasingly leverage our expertise in precision manufacturing and advanced packaging to other markets that are adjacent to the optical communications market.
We already have a strong presence in the industrial laser, automotive and sensor markets, and we remain committed to our longer-term target revenue mix of 50% of our business coming from optical communications and 50% from other markets, mainly industrials, automotive and medical.
While we continue to make steady progress with organic growth, we also believe that M&A may be an effective way to accelerate this mix shift.
To be clear, however, the process of identifying and evaluating possible business combinations could be lengthy as we look for candidates that have the right balance of new market opportunities, reliable business trends, competitive margins and strong reputations.
We believe that this more diverse revenue mix will drive more balanced revenue and profitability growth over the longer term.
Looking at our fiscal second quarter in more detail, we're pleased to report revenue of $337 million and non-GAAP EPS of $0.72 per diluted share, both of which were above the high end of our guidance ranges.
This performance reflects the combination of continued weakness in the optical communications market, growth in our non-communications business and a meaningful contribution from new business.
In fact, this new business represented 35% of our overall revenue in the second quarter and at $119 million was consistent with our first quarter performance.
While we don't break out financials by facility, we continue to see Fabrinet West and Fabrinet U.K. contributing to our overall growth.
At the same time, while still relatively small, we are excited by the ramp in production at our new campus in Chonburi.
Looking ahead to the third quarter, while we expect our revenue to decline on a sequential basis, we expect the full impact of cost-saving measures taken in Q2 and further efficiencies to produce non-GAAP EPS which is roughly flat sequentially despite an anticipated decrease in revenue.
In summary, I am pleased that we exceeded our revenue and profitability expectations for the second quarter.
More importantly, I believe that Fabrinet remains uniquely positioned to generate profitable growth over the long term as we leverage our manufacturing expertise both within the optical communications market and in other markets for our know-how and drive a compelling value position for our customers.
Now let me turn the call over to TS to discuss the details of our second quarter performance and our outlook.
TS.
Thank you, <UNK>.
I will provide you in more details on our performance by end market and our financial results in Q2 for fiscal year 2018 as well as our guidance for Q3.
Total revenue in the quarter was $337.1 million, a decrease of 4% from a year ago but above our guidance range.
Non-GAAP net income was $0.72 per share compared to $0.91 per share in the same quarter a year ago.
In the second quarter, we experienced a $1.3 million or $0.04 per share foreign exchange headwind compared to $1.9 million or $0.05 tailwind in the quarter a year ago.
Despite this foreign exchange headwind, non-GAAP net income per share still exceeded the upper end of our guidance range.
As <UNK> mentioned, non-optical communication revenue continued to grow but did not quite offset decline in optical communication revenue.
Optical communication represented 72% of total revenue compared to 77% in the first quarter, and non-optical increased to 28% of total revenue.
Within optical, telecom was again 60% while datacom was 40%.
Reflecting the overall decline in optical revenue, 100-gig solution was $133 million compared to $157 million in the first quarter, while 400-gig solution was roughly flat at $16 million.
Revenue from QSFP28 transceivers was $42 million compared with $48 million in the first quarter as a number of customers continued to transition to low-cost CWDM4 variance.
Silicon photonic revenue was $74 million, down slightly from $77 million in Q1.
Turning to our non-optical communications performance.
We have a strong overall performance as anticipated, with record revenues of $95.2 million.
Revenue from industry laser was a record $43 million, up 15% from Q1 and 20% from a year ago.
Automotive revenue was also a quarterly record at nearly $26 million, increased 20% from Q1 and 18% from a year ago.
Sensors revenue was stable at approximately $4 million.
Other revenue was $73 million, up 20% from Q1 and 44% from a year ago, with contribution from Fabrinet West and Fabrinet U.K. New business is an important contributor to our overall revenue.
In Q2, new business revenue was $119 million, consistent with the first quarter and represented 35% of total revenue.
Now turning to the details of our P&L.
A reconciliation on GAAP to non-GAAP measures is included in our earnings press release and investor presentation, which you can find on our website.
Non-GAAP gross margin in the second quarter was 11.6%, slightly lower than Q1 and below our target range of 12% to 12.5%, primarily due to the decrease in revenue as well as the continued strengthening of the Thai baht from the first quarter.
We continue to expect cost-cutting measures taken earlier in the quarter and improved efficiency to drive improved gross margin in the second half of the year.
Non-GAAP operating income in the second quarter was $30 million, and operating margin was 8.9%, flat from Q1, due primarily to tight controls on non-GAAP operating expenses, including savings from the reduction in workforce that we made earlier in the quarter.
Taxes in the quarter were a net expense of $1.6 million, and our normalized effective tax rate was 6.3%, consistent with Q1 and in line with our expected range of 6% to 7%.
We continue to anticipate an effective tax rate of 6% to 7% for fiscal year 2018.
Non-GAAP net income was $27.3 million in the second quarter or $0.72 per diluted share compared to $0.75 in Q1 and $0.91 a year ago.
On a GAAP basis, which includes share-based compensation expenses, costs related to the reduction in force we announced last quarter, amortization of debt issuing costs and costs related to the completion of our CEO search, net income for the second quarter was $19.3 million or $0.51 per diluted share compared with $25.3 million or $0.65 per diluted share in the second quarter of fiscal year 2017.
As I mentioned earlier, we experienced a $1.3 million or $0.04 per share negative impact from the stronger Thai baht on our GAAP and non-GAAP bottom line results for the second quarter.
Moving on to the balance sheet and cash flow statement.
At the end of the second quarter, cash and investments were $287.7 million.
This represents an increase of approximately $21 million from the end of the first quarter, primarily from the operating cash flow of $40.2 million, offset by CapEx of $10.2 million and share repurchases of $10 million.
We expect CapEx in FY '18, all of which is maintenance CapEx, to be approximately $35 million.
During the second quarter, we were active in our share repurchase program and bought back approximately 315,000 shares at an average price of $31.36 per share.
Our Board of Directors has doubled the size of our share repurchase program from $30 million to $60 million.
As a result, $50 million now remain in our authorization, and we expect to remain active with the buyback in the third quarter.
I would now like to discuss guidance for the third quarter.
We expect revenue to decline in Q3.
From a profitability perspective, we expect to see more meaningful benefit from the cost reduction we made earlier in the year and other efficiency combined to produce non-GAAP EPS that is roughly flat sequentially despite an expected dip in revenue.
Therefore, for the third quarter of fiscal 2018, we expect revenue of between $316 million and $324 million.
We anticipate non-GAAP net income per share in the third quarter to be in the range of $0.70 to $0.73 and GAAP net income per share of $0.50 to $0.53 based on approximately 37.9 million fully diluted shares outstanding.
In summary, we expect the full impact of cost-saving measures to offset some of the top line impact, highlighting the flexibility of our operating model.
Importantly, we continue to be well positioned to benefit from improved market trends and increase diversification as we look ahead.
Operator, we would now like to open the call for questions.
I guess jumping right in on the guidance, TS, you talked about cost-cutting initiatives, but I'm curious if you have any directional guidance you can provide us on gross margin, whether it's going to be up, down or flat.
And then as we look at your various segments sequentially, specifically focusing on optical, is there an area whether telecom or datacom that sequentially should have a larger sequential downtick.
<UNK>, this is TS.
So if you look at the implied EPS, $0.70 to $0.73 and go backwards, I think we project a slight improvement in the gross margin despite the lower revenue.
And again, a lot of these have come from the cost savings, from the reduction in cost we took in November.
Now in terms of mix, we foresee most of the downturn from the optical communications area.
And then for the non-communication side of the equation, we believe you'll be flat or slightly ---+ sequentially slightly lower.
Is that helpful.
That's very helpful.
And I guess if we focus on that, the laser sensors and other revenue was very impressive.
Historically, you have a large customer in your fiber lasers that when they have a product refresh, you tend to get a quarter or 2 of an impact.
And then historically, there hasn't been much follow-through from there.
We're hearing from our own checks that it might be different this time.
I'm curious what you're seeing on that laser business that might make you think that, perhaps, it's a little bit more sustainable from a growth perspective this time around.
Yes, again, <UNK>, we have about 6 or 7 customers producing laser product.
So again, sometimes, one up, one down.
And suffice to say that, overall, we see again pretty strong in that area.
So again, fiber laser is only for 1 or 2 customers, and the rest of the customer in general trend look pretty good.
Great.
And just one more, if I may, I guess, for either <UNK> or for TS is if we kind of dive into the QSFP28 trends, you have the LR4 to CWDM4 transition and we have some normal seasonality in the March quarter.
I'm curious, if we try to ignore the seasonality, do you believe that this transition from LR4 to CWDM4 is largely behind your customers.
Not 100% behind yet.
We are very happy with the result on the RAM or the CWDM4.
And suffice to say that some of our customers are still shipping LR4 and PSM4 but they're ramping down.
So yes, I mean, the story for FY 2019, will be all ---+ probably all CWDM4.
So we're pretty much open for both.
As you've seen from our results, our balance sheet remains pretty strong.
We have a pretty sizable nest egg of cash, so I think we're well positioned to really tuck at any opportunity that comes our way, either small or like you said, tuck-in acquisitions or larger deals.
So we're really looking to add capability, not just add revenue.
We want to add capability that's complementary to what we do.
We're a technology-focused contract manufacturer.
We want to keep it that way.
So we're really looking to add business that diversifies, improves our mix, but it's also complementary to the technology we have today.
So we're really open to both smaller deals and larger deals.
Again, similar processes to what we did today.
We're not going to become a broad-based EMS company.
We're going to stay focused on our core technology.
And then, develop into other markets which are complementary.
A good example would be some of the autonomous driving technology that's very complementary to what we do in the optical space today, but also some of the medical equipment that we're targeting.
So medical, industrial and automotive would be the 3, I would say, market segments, but with the real focus on technology.
Okay, the new business equals $119 million, 35% of top line.
So we have about 20% to 25% occupied right now and about 45% to 50% what we call spoken for.
So it's about ---+ again, 45% to 50% spoken for.
I wouldn't worry about it a tad for this quarter certainly.
Really just what we take is, once we get up to 60%, 65% output in that facility, we will build the second facility.
We generally break ground and add capacity proactively.
We're not going to wait for a customer to come.
We're going to add capacity proactively.
So once they get up to, I would say, 65% there thereabouts outputs, we would add a new facility there.
And we have enough land and space there to add several facilities.
We probably have enough, certainly, in terms of land and capacity, we have enough to last us for, I would say, another 8 to 10 years.
Okay.
Thanks very much, everyone.
Thank you for joining us on our call today, and we look forward to speaking with you again soon.
Thank you.
| 2018_FN |
2016 | DECK | DECK
#<UNK>, great question.
We feel really good about how that transition to the Classic has gone, especially since we made a decision to reduce price earlier and clear a lot of inventory in Q3.
We had less than we had planned on originally coming into Q4.
For the most part, the channel was pretty clean, we're taking back a little bit of inventory that we are going to continue to use to fuel our outlet business.
So we will be running the original Classic, the 1.0 so to speak, in our outlets over time at the current price, so the reduced price.
There is some inventory out there, the older Classic in some smaller doors, and some of the Bailey Bow and Button products.
But for the most part when we launch in July, in major accounts, you will see only the 2.0 or the new Classic on the floor, it won't be sitting next to the older Classic, except for perhaps a few small independent accounts across the board.
But generally speaking the top 10 of our accounts, which is the majority of our business, will be clean and it will have pure presentation of the new Classic.
The historical price of the original Classic was $160, we're bringing this one out at $165.
I think, <UNK>, that what you want to consider there is between the flat scenario and the down scenario from a sales perspective, really the only swing item is in that December quarter.
We would expect some operating margin expansion in the December quarter on the low case, and in the high case we would expect more operating margin expansion in that December quarter.
The fourth quarter is a smaller quarter, and from a basis point improvement perspective, that's the quarter that has the highest basis-point improvement.
The first quarter is relatively flat year over year and then the second quarter, the expansion is more in line with the total-year number.
On the down scenario, we are assuming a similar promotional environment we did last year, and on the flat scenario we are assuming a little bit better promotional environment.
This is <UNK>.
The goal of this fall and holiday, obviously, is not to repeat the level of promotions.
As we said last fall and holiday, the Classic and the Bailey Bow and Button promotions were a one-time event, and the goal is to get back to normal cadence of mark downs; that would be on seasonal product only, and continue back to the full-price carryover model that we've had in the past.
So, that's why you see a little bit of conservatism in the plan as well, is we want to maintain the integrity of the brand and the pricing and not have to get into a promotional environment.
Great, thanks.
Thank you.
I know we had unit growth, the average selling prices when you strip the promotions away, we know had some improvement there, but the promotional environment really put some pressure on that.
Just to answer because I think I know where you're going.
So, ASPs, if you look at them for FY16 lower than they were in the prior year, primarily driven by the lower promotion ---+ sorry the higher level of promotion driving lower ASP, and then as we look out in our guidance we are assuming a higher level ASP in the guidance because of a slightly lower level of promotion, as well as bringing on the new Classic, which will have the higher price point without the promotion.
And the Slim.
Yes, we've been focused on that for the past 12 months and when you saw what we announced with the consolidation of the brands into two lifestyle groups, relocating HOKA and Sanuk into Goleta, those transitions are still in place.
And Wendy and team are looking at the restructure of how to best streamline those brands; but it's something we are continuing to focus on, and looking across the organization and our supply chain network, SKU efficiencies within the brands, making sure our ads and drops are in line with how they should be.
And generally speaking, there's a mindset here of being more efficient, more focused on the things that are going to matter, but we will be taking a quick look, or hard look I should say, over the next 60 to 90 days of additional opportunities where we think there are efficiencies in the organization to streamline SG&A.
I'm really excited about that store design, and anybody that hasn't seen that, it's worth taking a look at the Disney Springs store we just opens a few weeks ago.
It represents the new brand positioning, which we rolled out last year, which is much more California casual contemporary.
But if you think about the fact that we opened our first door 10 years ago as a footwear store, and we've gone 10 years with expanded categories, getting into new categories of lounge and apparel and accessories; it's time to evolve our store design and in-store experience for our consumer.
So, it's a little bit more younger, a little more contemporary, a little more modern, which we think represents where the brand is today.
It does appeal to a younger consumer, and it takes in all the things we've learned over the last year with regards to service levels, customer experience, and a lot of the omni-channel capabilities that we have tested over the last two years.
So, the goal is to use that as a new beacon for the brand, and then we will take that experience down to our wholesale partners globally through shop and shops partner stores as part of our long-term effort to continue to elevate and reposition the UGG brand.
Thanks.
Let me just say it's been an incredible honor and privilege to be the CEO of this company.
And I couldn't be more excited and enthused about <UNK> <UNK> stepping into the role.
Over the last 11 years, I've had the incredible good fortune of working with so many special people to build an incredible success story in Deckers Brands, and we've created tremendous opportunity for a lot of folks.
I look forward to continuing to assist <UNK> and the management team as we move to the next chapter, and it's going to be a great ride.
I would just add that, I am incredibly grateful for the opportunity to work with <UNK> and have the support of the Board and the organization.
I'm very excited to work with an exceptional leadership team that we have at Deckers, the existing leadership as well as new leaders we've brought in over the last 18 months.
Deckers is a special place; we are a best-in-class in a lot of ways.
But most importantly, as a culture and an organization and great people that work hard and get after business.
So I'm very excited to take on the opportunity.
There is great opportunity for all of our brands and all of our people globally.
We're very focused on driving shareholder value over the long term and continuing to do great things at Deckers, so looking forward to it.
| 2016_DECK |
2016 | AEO | AEO
#Right now, we are really highly focused on our core competency businesses, as I said.
We have a lot of opportunity within bras, undies, swim, and apparel for sure.
We did assimilate a team to venture into the beauty business, but we're going to walk before we run.
We're going to approach it very strategically and do it with some thought and integrity, to be honest.
Hello, <UNK>.
This is <UNK>.
I will take that one.
In terms of trend of the business, we don't really talk about that within the quarters that we're in.
But obviously, the first 2.5 weeks here are in the bank.
We have set our low single-digit guidance and we are confident that we will be able to achieve that.
As it relates to margin and markdowns, our margin will be up and a lot of it coming on the back of favorable sourcing and great IMU expansion.
As it relates to markdowns certainly in the back half, we are still baking our plans and assessing the competitive environment.
But again, I think the cinch point for you is, we expect margins to be up.
Okay, <UNK>ie, we have time for one more question.
For aerie, I will just clarify.
It was 30% of the total aerie business.
And then what did you ask regarding women's.
The apparel had some record highs in some of those businesses.
We look at the apparel business as a complement to our core competency businesses and that's how we're really approaching it.
For instance, in swim, cover-ups, and we'll continue to approach it that way.
Great.
Thanks, everyone.
That concludes our call today.
We appreciate your participation and continued interest in American Eagle Outfitters.
| 2016_AEO |
2016 | HSY | HSY
#Yes.
I'll make a couple of comments.
If you look at what the overall category trends ---+ and I'll give you where we were ---+ if you look at the chocolate category, it was up.
We were up pretty consistent with the category.
If you look at non-chocolate, we actually lagged the category.
And then if you looked at gum and also mint, we would have outperformed the category on those segments.
We have deemphasized a little bit the level of activity that we've had in some of our sweets business.
And so that certainly is showing up in the business.
One brand in particular ---+ it was a great brand, but if we just look at the absolute programming we've had on a brand like Twizzlers, it was a little bit lower and that ended up showing up some in the overall business.
If you look at the sweets business and some of the channels where it does well, you can also follow that with, I'll call it, income cohorts.
And one of the things that we're doing in 2016 is using our Allan Candy acquisition to leverage a portfolio there on peg bags in select places where we think that can really benefit us.
So we did see within that segment an opportunity, and we're going to try to leverage that, as well.
And then some of our competitors also had emphasis on some of those brands which also would have had an influence on our performance, as well.
Great.
Thanks for the question.
We really like where we sit right now on a leverage basis.
It's something that we go back and pressure test every year.
And one of the benefits that it gives us is that it gives us a lot of capacity to do something incremental.
If something big and attractive and incremental came along in the category, we would be very open to it.
I don't think that our leverage would be constrained in that situation.
But as we sit here today with the opportunities in front of us, we feel very good about where we are.
Think of Sofit as test and learn.
It's a brand out of India.
It's soy protein, and it's part of our efforts to learn about the protein segment, plant-based.
And so you're seeing it more from a test and learn standpoint.
We're going to be able to make that in the US versus, obviously, try to ship it from India.
So as you know, with beverages and so forth, close to home is always a good idea.
But it's a brand we think is very interesting, but it's really about us having a learning approach.
And I'm delighted you found it on Amazon, because we just ---+
Thank you for joining us today.
I'll be available for any follow-up calls that you may have.
| 2016_HSY |
2017 | K | K
#Thanks, <UNK>
We'll start with our transformation of U.S
Snacks and an update on our DSD transition on slide number 16. I'm very pleased with the execution of this extremely complex undertaking
Customer feedback has been very good, and our operational metrics are all on track
By the end of July, we were shipping completely via warehouse distribution to all customers and exiting our DCs, trucks and equipment and reducing the workforce
We are working diligently with our customer to ensure all details and issues are taken care of
And I'm extremely proud of how our organization has risen to this challenge
From the standpoint of in-market performance, you saw the impact of the transition in our scanner data and we expected this
We pulled right back on promotional activity in order to facilitate the production and shipping of initial inventories to the warehouses of our customers
This resulted in sharp declines in incremental sales, promotional volume and number of displays
Our average number of items are down, too, reflecting our SKU rationalization
Now, as we look forward, we will see momentum build behind a more focused assortment on-shelf and fewer, but bigger, displays with an emphasis on quality positions
All of this will be supported by significant increases in brand-building against our largest brands, as we move from push to pull
The net results of all of this will be an improvement in our in-market performance over the coming weeks and months
From a financial perspective, the transformation of Snacks remains on track
We have already begun to boost our brand-building investment
And, as you can see in our Q3 P&L, the expected overhead reductions are coming through to the bottom line
An undertaking of this magnitude isn't easy
We've come a long way and we still have work to do
But you're starting to see U.S
Snack's future taking shape
There is no question that this will become a stronger, more profitable business
Snack's Q3 results, summarized on slide number 17, came in as expected
Net sales were impacted by the factors we've already discussed: the list price adjustment; the pullback in merchandising; and the rationalization of SKUs
Nevertheless, we also saw a strong increase in operating profit and operating margin
We did boost our brand-building investment in Q3, which bodes well for future performance
And this was more than offset by a ramp-up of overhead savings during the quarter, as we reduced our workforce and exited distribution centers, trucks and equipment
In the fourth quarter, we're working to build momentum
We're increasing brand-building significantly, including in-market promotional support
And we expect to see an improvement in consumption
Meanwhile, we'll be close to a full overhead savings rate, boosting profit
We'll give back some benefits from Q3, including hurricane-related shipments and some brand-building timing, but profit growth will still be very strong
Now, let's turn to slide number 18 and U.S
Morning Foods, where our top-line and in-market performance have been below our expectations
There are some things that have continued to work well
We've continued to gain share in kid-oriented brands like Frosted Flakes and Froot Loops, which have brought to market innovation and brand-building that have excited consumers
And we've continued to improve our profit margins through effective productivity initiatives
Where we've fallen short is on bringing enough excitement to our adult-oriented health and wellness brands
This is the segment that is most holding down the entire cereal category's sales and especially ours
What we have to do is get back to running the playbook that worked well for us before this year and that is working well for our kid-oriented brands to-date
So here's what we're planning for 2018. Firstly, we do have stronger commercial ideas
We have new media that will emphasize the health and wellness credentials of Mini-Wheats and Raisin Bran, two brands that simply didn't have strong enough brand-building this year
We also launched the next phase of the Special K Own It campaign, emphasizing the brand's inner strength credentials and positioning
And we've got great ideas for our kid-oriented brands, emphasizing out of breakfast snacking, for example
Secondly, you will see a step change in innovation next year
We'll renovate and innovate against our core, with news on Frosted Flakes and Froot Loops as well as more fruit-filled Raisin Bran and Special K that moves into probiotics
This is bigger innovation activity than this year
We'll also try some new things that are new to the category
These will lean into health and wellness and into convenience
And you will hear more about them in the months to come
Third, we'll drive bigger in-store excitement, with stronger properties and events and programs that leverage a total Kellogg go-to-market model now that U.S
Snacks is no longer in DSD
Imagine, for example, promotions and displays featuring Rice Krispies and Rice Krispies Treats together
We can now do that seamlessly for the first time
We'll do these three things for Pop-Tarts as well
This brand will come to market with strong food news in January
And we'll follow that up with differentiated innovation around mid-year
We know what needs to be done because we've done it before
Remember, we stabilized U.S
cereal in 2015 and 2016, and we've done it this year in our other three core cereal markets, all following the same playbook
For the rest of 2017, I don't see a change in trend for Morning Foods
But I am encouraged by the strength of our plans and expect much improved performance in 2018. Now, let's talk about Specialty Channels shown on slide number 19. This business posted its ninth straight quarter of sales and profit growth in Q3, a reflection of continued good execution by our team
Sales growth in the quarter was led by both convenience and foodservice channels, Specialty segments like K through 12 schools and cafeterias, with an added pickup from hurricane-related orders
The hybrid direct and broker approach we implemented early this year is giving us greater focus on key accounts and channels, while more economically expanding our reach to new customers
And it gives us confidence in the future growth potential for this business
Margin expansion continued on the strength of ZBB and RGM efforts
These are important and growing channels for us
And our sustained momentum reflects our continued commitment and focus to winning wherever the shopper shops
Turning to slide number 20 and our North American Other segment
We had signaled an improved second half
And this segment certainly delivered, with a return to top line growth in Q3. U.S
Frozen Foods sustained the momentum it started the previous quarter
Eggo accelerated its consumption growth and share gains on the strength of its removal of artificial colors and flavors and the success of Disney-shaped waffles
It also benefited from the exit of a competitor
This was skewed mostly to the east coast, and the brand grew even excluding this
Our Morningstar Farms line has returned to consumption and share growth, too, reflecting focused marketing and in-store support on our core burger offerings during the summer grilling season
Kashi Company continued its sequential improvement in the quarter, as anticipated
Whilst we haven't completely lapped some of the distribution declines on the Kashi brand, we are seeing strong momentum in cereal share led by Bare Naked, which is now the number one granola brand in the U.S
Meanwhile, our renovated snacks offerings are stabilizing share, as we had anticipated, with share getting back up to flat in the quarter
In Canada, we generated continued improvement in consumption, with broad-based share gains in both cereal and snacks
This business has now lapped the elasticity impact of price increases executed last year and is showing consistent improvement as we invest behind strong commercial programming and innovation
So to wrap up North America, I'm encouraged by the way we're executing post-DSD in Snacks
I'm delighted to see our North American Other businesses turning around
And we're sustaining good momentum in Specialty Channels
Cereal is a tough category right now, but we have a stronger commercial plan in place, particularly as we get to 2018. And, of course, I like what we've done to our cost structure, which has driven continued margin expansion
I'll now hand you back to <UNK> for a review of international business
Hey, Ken
Obviously, I'm not going to talk about competitors
We're pretty much focused on doing our job and that's rebuilding momentum
And I feel good about our plan and the strength of our plan in Q4. We're reinvesting in, obviously, significant amounts of brand-building here behind a pull model
We're reinvesting in in-store promotions behind a more focused assortment and we are driving more impactful, larger displays in key positions in stores
When you exit DSD, you're always going to lose some tertiary and secondary displays, but the benefits of shipping through warehouse is that we can drive some big impact displays across our biggest brands as we build momentum into what will be a strong Q1 as well from an innovation point of view and our ability to leverage the Power of K in-store going forward across one delivered platform
So we're focused on getting the momentum back in our brands
And our plans look very strong year-to-go
As it regards Morning Foods and cereal, specifically, we're not seeing points of distribution or things happen at a category level, per se
We are, obviously, disappointed with our performance this year
And we're not hitting our plan
We're hitting our plan on many elements around kids and productivity where we're not hitting our plan has been around our biggest adult brands
And that shortfall on brands like Mini-Wheats and Special K and, to a certain degree, Raisin Bran, is what's driving a softer category performance this year
The category's going be down between 2% and 3%
And some of that, quite frankly, is on us
We need to now pivot and reassert our health and wellness credentials on those adult brands, increasing claims, news and innovation around those brands as we go into next year
So I've mentioned probiotics on Special K
We have news coming on Raisin Bran
And one thing we'll talk to you about in coming months is some more transformational innovation coming to the category around the area of digestive health and convenience as we look to really stimulate adult growth within the cereal category
As you go back over time, this category has always responded, over the past 50 years, to health and wellness, whether it was fortification, fiber, oat bran, low calorie, low fat in the 1990s and 2000s
We need to drive the health credentials of the category
And that's what our plan is as we go into next year, whilst continue to drive fun and taste and versatility, and, as <UNK> said, big consumer excitement engagement through big properties and fun in-store
So that's really where we're headed
And I'm very much focused forward right now on those things
Hey, <UNK>
It's <UNK>
It's hard for me to give you a sense of the exact volume declines, but remember what we said coming into this
There is a 50% to 20% SKU rationalization that will obviously not have that amount of impact on our business, but will have a limited impact
We hope to gain space on some of our core items to get a more powerful assortment there
At the same time, we said and we knew we would get fewer displays as we came out of DSD but more impactful displays
And we pulled right back on promotions and display support through a period of three to four months here to be able to operate effectively in what is a new model for the Snacks team
We have now pivoted
Brand-building was up in Q3 and will be up much more in Q4. Our investment in promotions and in-store support with our customers is now beginning to come to life as we reinvest behind these biggest brands, and that will continue as we go into next year
I'm optimistic we will see consumption improvement in the coming weeks and months on this business
We have a strong innovation pipeline coming at the beginning of the year, so that will accelerate into next year from a consumption point of view
So we're now, if you like, the transition is behind us in many ways
We're now very much focused on operating effectively in a warehouse-delivered model, which we think we can do because we do it across our other businesses
It's a good question, <UNK>
Our business is responding in the way we expected it to
So all of our key metrics are right where the team expected them to be
It takes a lot of work in-store to make sure tags and placement and compliance is there across 20,000-plus stores, which we used to call on twice a week
But so far so good, and we'll continue to improve as we go forward
So there's nothing outside of our assumptions in our business case at the moment that would worry us
Like I say, we're just focused on getting back to growth with our customers and then obviously working with our customers in a new delivered environment, where we can also help them from a cost to serve point of view as we're on one platform now and build those joint value-creating plans in ways that we couldn't before, which I think will be really important looking forward
Absolutely, Brian
When we laid out the business plan when we started this at the beginning of the year, this was really based on a set of consumer-based and shopper-based assumptions, which is exactly what you said
Investing money in a go-to market mechanism or operating model, the consumers don't see the benefit from, quite frankly, was not where we wanted to be
So those resources are now going into focusing on how and where the shopper shops
Whether that's brand-building in old-fashioned ways or new-fashioned ways from a shopper point of view, reaching those shoppers in whichever retail environment they choose to shop, that's exactly what we're doing
We're also investing more resources, people resources, against where the growth channels are in our business
So we're seeing, for example, eCommerce in North America in Q3 grew over 60%
So like every company, winning where the shopper shops in new environments, be that pure play or click-and-collect is right up there on our agenda
And investing in capabilities, whether it be supply chain, marketing, sales in that environment, is where some of these dollars are going
Also remember some of the highest growth potential brands in our portfolio, Pringles, Cheez-It, Rice Krispies Treats, these brands are going get significantly more brand-building, way up there in the double digits for the next year, as we look to accelerate those brands
Whether that's TV, media type investments, whether it's customer focused investments, whether it's capital into pack/price format investments to make sure that we have exactly the right offering in the right channel to fit the consumers and the shoppers' needs
What we said we're doing, we're going to do, and you'll see it come through in the months to come into next year
Thanks, <UNK>
As I look forward on our portfolio, as I emphasized, it's less about absolute money or share of voice as it used to be
It's more about getting the right ideas behind the right brands
We have a great set of existing core brands, the Core 6, as we call them
They cover 70% of the needs when it comes to the category, number one
We have to up our game on brands like Mini-Wheats, Special K, and Raisin Bran to bring, as Steve said, contemporary health and wellness credentials to those brands
We're down the track on Special K
And we're seeing the brand begin to respond, not only in the U.S
but around the world
And we're bringing more, in the way of probiotics to Special K next year
Raisin Bran and Mini-Wheats, we can do a lot more to pull out the wellness credentials of those brands and talk to consumers about them
This isn't category work, per se
This is brand work relevant to consumer needs, brand-on-brand
I've spoken before about how the category's always been driven over time, actually through nutrition
Whether it was fortification back in the 1950s, fiber, oat bran in the 1970s and 1980s, and then for a long while here, low calorie, low fat drove the Special K brand in particular and the category for years
Now, I believe gut health and science is coming back to nutrition and nutrition in the cereal category
We're well placed as a category to actually find tailwinds in nutrition in the months and years to come
It's good for cereal and it's good for our emphasis on health and wellness
You add the Kashi brands and the Kashi business to that as well and we have a on-trend set of brands, I think, for the 10 years to come
The critical thing, though, is finding great commercial ideas, renovation and innovation that can bring to life those trends in unique ways for our brands
Our portfolio and our category is uniquely placed to do that
It's incumbent on us to do it
So that's really where our focus is
35%,36% of the cereal consumption in the U.S
today happens outside of the breakfast occasion
That trend's only increasing and will only continue to increase as you think of demographics and age cohorts going forward here
And so we are agnostic to what time of day we communicate the benefits of our foods
And we'll communicate to everybody, wherever they are throughout the day, these benefits
We've had great success with some of our kid brands against millennials in certain dayparts, like the evening, and we will continue to drive our portfolio where it makes sense to fit people's days
The final thing I'll mention is we do need to still bring transformational innovation to cereal, okay, and to the breakfast occasion, which means investing more, maybe, in new alternatives in the area of digestive health and/or convenience
And we're working hard on that
And hopefully, you'll see some transformational innovation ideas come out of our company over the next few months here that show that we are investing to grow our business across these key categories
| 2017_K |
2018 | SMP | SMP
#Thank you.
Bye.
| 2018_SMP |
2018 | WSR | WSR
#Yes.
Thank you, <UNK>, and thank you all for joining us on our first quarter 2018 conference call.
We are off to a great start for the year, led by our record-setting quarter of leasing activity and square footage, dollar volume and rent per square foot.
This is the highest volume of quarterly leasing activity since our IPO.
One of the keys to the strong leasing effort was the persistence of our highly focused leasing teams canvassing of potential tenants that best fit the needs of our communities.
We attributed the success of our leasing effort in the first quarter to having a high-quality portfolio of community center properties that we assembled via the targeted investments we have made into creating needs-based centers that drive traffic.
We have accretively transformed our portfolio these past few years into one focused on driving high-frequency visits from consumers in the surrounding neighborhoods in each of our high-growth markets.
By owning well located, service-focused assets of community center properties, we produced first quarter ending occupancy that approached 91%, which is our highest level ever.
Our strategy is to become a leading real estate owner for entrepreneurial tenants that provide local-based necessities and services within the fastest growing cities of the country in business-friendly states.
Again, this is finally starting to resonate as we demonstrated in the first quarter with our robust leasing and 233 basis points of expanded occupancy.
We accomplished this by acquiring, developing, redeveloping and operating community center properties in high income neighborhoods with higher consumer spending.
With a strong start in the first quarter 2018, our long-term goals are quite achievable.
Our portfolio of geographically diversified community centers has evolved far beyond the Houston market, as we now have a meaningful presence in other highly attractive growth markets in the fastest-growing cities of Dallas, Fort Worth, Austin, San Antonio, Phoenix, Mesa, Gilbert, Chandler and Scottsdale.
Our unique value proposition is centered around our entrepreneurial culture, which is built on our differentiated strategy that focuses on neighborhood necessities and local services and is driven by a performance-rewarded culture.
We're focused our strategy on owning community center properties that have tenants committed to meeting and delivering the local necessities and services that cannot be bought online and require brick-and-mortar structures.
Digital disruption is here to stay and it is our intent to remain ahead of the curve.
As we stay focused on owning the prime assets that can provide for the needs of the surrounding neighborhoods.
These include specialty retail, grocery, restaurants, medical, educational and financial services.
We believe that our approach will continue to maximize property income and cash flow.
This provides stability from our growing base of 650 tenants, which will continue to increase and increase shareholder value.
Our ongoing approach and strategy drove strong first quarter results, including a 23% income increase in net operating income.
As we operate our business, we are constantly looking to the future and strive to balance growth while maximizing risk-adjusted returns.
That was a genesis of our long-term goals.
Some of these include: reduced leverage and improve general and administrative expense to revenue ratio, growth in our cash flow and a more robust dividend payout ratio.
Our key to success is built on the discipline, growth and driving efficiencies in our operations.
Our dividend is stable, and our cash flow is predictable.
We are energized by the successful start in 2018 and expect to continue to build upon our momentum, as we seek to create additional value for shareholders over the long term.
With that, I'd now like to turn the call over to Dave <UNK>.
Thanks, Jim.
Please note that most of the financial measures and ratios I will discuss exclude the impact of the $680,000 in professional fees incurred in the quarter related to our 2018 proxy contest.
As Jim said, we got off to a very good start in 2018.
Our first quarter was highlighted by 3.9% same-store net operating income growth, strong leasing activity and spreads and solid progress toward our 2023 goals, improving our debt-to-EBITDA ratio and improving our general and administrative expenses as a percentage of revenue taking it down to 17%.
Now let me give a few details on the quarterly results.
Revenue for the quarter grew $5.3 million or 19% from a year ago.
This was driven by acquisitions in 2017 and an increase in our same-store occupancy of 1.5% and growth in our annualized base rent per square foot of 6.6%.
Property net operating income was up $4.4 million or 23%, driven by strong same-store growth of 3.9% and new acquisitions.
Property operating margins expanded almost 200 basis points to 69% from 67% a year ago, primarily as a result of cost reductions and higher expense pass-through percentages from increased occupancy levels.
During the quarter, we signed 127 new and renewal leases, representing 374,000 square feet and $29.7 million in total lease value, representing future revenues.
This is our highest volume of quarterly leasing activity since our initial public offering.
The average lease size was 2,941 square feet.
The average ---+ and the lease term was 5.3 years.
Spreads were 12.1% positive on new leases and 13.6% positive on renewal leases for the quarter for a blended 13.4% increase on a GAAP basis.
Interest expense increased $1.3 million from the prior year quarter due to higher borrowings and an increase of 20 basis points in our overall interest rate.
General and administrative expenses decreased $535,000 or 9% from a year ago.
And as a percentage of revenue, improved to 17% from 21% a year ago.
This was primarily due to a planned reduction of 22% in our stock-based compensation.
To emphasize the scaling of our infrastructure, we increased quarterly property net operating income by $4.4 million or 23%.
And during the same time, we lowered our general and administrative expenses by 9%.
NAREIT funds from operations increased $2.7 million or 37% and was $0.24 per share, up from 23% in 2017.
Funds from operations core increased $2.4 million or 24% on a per share basis.
Funds from operations core was $0.31 versus $0.32 in 2017.
Now let me spend a few minutes on our balance sheet.
We have total real estate assets on a gross book basis of $1.1 billion, an increase of $224 million or 24% from a year ago.
Our assets have an annual in-place net operating income of approximately $93 million or an unlevered cash-on-cash return on investment of approximately 8.5%.
Our capital structure remains simple and transparent with one class of stock and operating partnership units and a combination of property and corporate level debt.
Further, our underlying debt structure comprises a mix of secured and unsecured debt and well-laddered maturities.
Our capital structure provides us with a financial flexibility to support growth opportunities.
At the end of the quarter, approximately 2/3 of our debt was fixed with a weighted average interest rate of 3.9% and a weighted average remaining term of 5 years.
We had $59 million of availability under our credit facility at the end of the quarter and the availability of a $200 million expansion feature.
During the quarter, we made progress towards improving the debt-to-EBITDA ratio to 8.4x, an improvement from 8.8x a year ago.
We also continued to maintain a largely unsecured debt structure with 49 unencumbered properties out of our wholly-owned 58 properties at an undepreciated cost basis of $735 million.
As to our guidance, we are reaffirming the funds from operations core range of $1.19 to $1.24 per share for the full year.
The details are included on Page 35 of our supplemental.
Before we get into the questions and answers, I'd like to ask that we please focus all of our questions on our first quarter results and outlook.
And with that, we will be happy to take your questions.
<UNK>.
Dave, thanks for the question.
Good question.
So we've continued to focus, obviously, on driving efficiencies in our properties.
One of the specific areas we looked at is security, making sure we have good security in properties.
We're able to do some reductions there through automation and various means.
But we've continued to work the property tax side well.
And then we also in our same-store NOI had better recoveries due to increased occupancy.
So I think we'll continue to push for efficiencies that we'll get as we scale our operations.
And we're very pleased with the start to '18.
Yes.
<UNK>, this is Dave again.
Absolutely, we're always looking at our debt and maturities.
We are having discussions with our very good group that we have in our bank group on our line of credit and looking forward to go and ahead and extending that and.
Potentially, obviously, we'll work to improve the terms of the agreement to match the improvements we've made over the portfolio of the years, but we are looking to do that.
I think we're a couple of years into the 4-year agreement.
Yes, it's ---+ <UNK>, it's Dave again.
Obviously, this is very technical accounting.
I think we provided a footnote in our earnings release that, hopefully, explains it well.
I think that the last paragraph talks to while we believe the impact to our results is if anything would be a nominal increase, we could ---+ we just have to go through with the SEC and determine the accounting, but we feel very good about the accounting.
We've provided disclosure in the earnings release that I think explains that hopefully well.
I think first of all, as I said, it's very technical.
We are committed to doing correct accounting and ensuring that we are in agreement with all the standards.
So I think that the disclosure in that earnings release, hopefully, explains it better than I could do on this call.
We believe that our accounting treatment is correct and we are going through a process.
And <UNK> just to add to that, that eventually, we have talked about de-consolidating the Pillarstone and that's been the ---+ that's been our thinking all along.
So <UNK>, Dave, again.
I guess, I would always caution in leasing spreads that it's a small amount of leases that come through in a particular quarter.
We had a very good quarter from a leasing activity.
We had a very good quarter from a spreads activity.
I think I tend to look at the rolling 12 months as a better indicator of trends.
There were a couple of leases during the quarter that were a little larger and had a large amount of the TI.
But when we look at our leasing activity, it was really across all of our markets and consistent with the smaller tenants we have.
But what cause the TI to be a little higher for the quarter, was it was one renewal with a bank that had a larger amount in it.
Sure.
I'll start out, and Jim probably can give some color.
But I think I would point to the first quarter, <UNK> <UNK>, as we said, a really good start to '18.
Our leasing volume was very good.
We always have a fair amount of leasing rolling with our model of shorter-term leases.
I think if you look at the leases that are scheduled your to roll in 2018, the percentages I'm looking forward roughly, I think it was 9% or 10%.
And the rate on those is actually a little lower than our overall portfolio.
So we feel very good about the leasing volume.
We feel very good about the start.
We feel good about the leasing spreads we had in the first quarter.
And I think we're off to a good start.
Yes and <UNK> <UNK> I'll add to that.
Our portfolio and the tenants we have mostly entrepreneurial, the size and the types of businesses they have, really did benefit from the tax cuts that have been ---+ that have gone through.
And what we are seeing is that these folks are expanding.
And it ---+ like, in the restaurants, for example, more people are eating out.
More restaurant operators are expanding their space.
They're adding more outdoor space.
They're adding fountains, they're adding missing systems things like that.
So we're seeing the uptick in the economy that is really having a direct impact on our portfolio.
And we had anticipated that when we put it together, and I think that it's really starting to come to fruition.
Sure.
I think it's in the footnotes, but I'll give it to you again.
So it's basically leases signed where there was a former tenant within the last 12 months, and the square footage was within 25% of the expired square footage.
So obviously, we look at the leases with those guidelines in mind and try to compare the ones that make sense to compare.
We provide that.
We do provide the total information in the sub data.
I just think comparing 2 things that aren't comparable doesn't make sense.
But we do provide the total lease volume, you can see the contractual rental rates entered into for the period.
So we just think it's meaningful disclosure to compare the ones that are comparable.
Sure.
I'll comment on a couple of things and.
First of all, I would say we remain focused on creating value for all shareholders.
We have a differentiated improvement strategy to create long-term value, which I think you can see has produced results as shown in our first quarter.
Yes, I think ---+ and I think, <UNK> <UNK>, that when those are pretty standard putting in change of control provisions.
And it usually evolves over a period of time.
They don't just pop up and happen.
So I think it's pretty standard.
But they're put in with the idea that you never have to exercise them.
So we are optimistic that those will never be exercised.
I was going to just say, I mean, I think our Board is committed to adding shareholder value.
Obviously, it looks at lots of attributes.
And believes the strategy and direction that we've taken is the right one.
And we can't speak to GPT and other companies, we can only speak to Whitestone.
It really is just bread-and-butter smaller leases.
I mean, there were ---+ there's always 1 or 2 that are little larger than they average, but very much a normal quarter.
The total volume was 127 leases.
I think that average size was about our average size.
The length was just a little longer than average.
So it was fairly much normal course of our strategy showing results.
Yes, that's ---+ well, that's Whitestone's.
The wholly-owned portfolio year-over-year.
It's about 1.5% same-store occupancy increase year-over-year.
Belmont contributed about 60 basis points, so Belmont was one of our lower occupied properties that we sold this year.
And the impact of that was roughly 60 basis points.
We do.
We have ---+ I think we communicated we have 3 currently in the queue.
We're working.
We think that recycling capital and where there are assets that are no longer core, we can't add any more value makes sense.
So we currently have 3 in the process of looking to sell and recycle the capital.
Yes, I think it's in the $40 million to $50 million range.
We certainly think so, <UNK>, and we have a fairly aggressive program.
What we're finding now is a lot of the spaces that we prepared to lease are now ready to lease and people are leasing the space.
They are making decisions regarding the space.
So that's a good sign.
I think we're very optimistic that we'll end the year at the higher occupancy than we have currently.
And we have given in our guidance.
We've tried to give some transparency as to the drivers.
So we've given some guidance on the occupancy levels that we've included in the guidance, but we're very positive given the good start to '18.
Sure, <UNK> <UNK>.
This is ---+ I don't have the exact numbers, but I will tell you both assets are performing as expected but we underwrote them and originally bought them if anything just a little better.
So I hope that answers your question.
Let me add, Dave, if I can.
The Boulevard place restaurant, we had the replacement tenant that we're looking at now.
We've reached the letter of understanding with them.
And we hope to go to and lease it sometime very soon.
It will be commensurate rent plus about 10%.
And then, in addition to that, we'll have some percentage rent clause as well.
And it's an exceptional tenant.
And we're pretty excited about that.
With regard to Eldorado, we're having discussions with a major coffee tenant that has over 1,000 locations in the country.
And we just acquired a piece of ground that is contiguous to ours, which is the location that they had preferred.
So we're still working on that deal.
I think ---+ yes, I'm assuming you're using the like end ---+ this update or maybe annualized base rent.
Is that what you're using, <UNK> <UNK>.
Right.
I was just going to ---+ so the thing that's probably and be open to suggestions as far as additional disclosure you'd like to see.
But Boulevard has a significant percent of rent component to its revenue that you really don't just see in the ABR, Eldorado also has a little bit as well.
Very well.
Thank you, operator.
And thank you all for joining us on our 2018 first quarter conference call.
Our strong operating results to start the year provide us with the confidence that we have the right plan in the right people in place as we look ahead.
We are a differentiated e-commerce resistant business.
And are uniquely position for continued growth and value creation in the retail segment of the retail real estate industry.
I'd like to remind anyone that we're available if anyone would like to call us and talk to us for property tours that we are always open and welcome that.
In the meantime, we want to thank you for joining us today.
And with that, we'll close the call.
| 2018_WSR |
2016 | LHCG | LHCG
#About 783,000.
I will take the first and then <UNK> can talk about the outlook.
Those couple were actually dragging that.
And when we closed them down, our Elk Valley made the aggregate push up.
And on the long-term outlook for CPS, we are really high on the service line.
But it is ---+ our ability to be successful in it is dependent on reimbursement, which is state specific, but we have to look at that on a state-by-state business.
It is unlike home health and hospice.
And we don't lead in a market with CPS.
So once we have a presence in a market in home health, then we look to see what the state reimbursement is like; if it is favorable.
And we look to add that service.
Patients need it everywhere and benefit from it.
It is just a matter of having stable reimbursement.
Well, it is not absent for any reason, that we just tend to focus on Medicare, I guess.
I did say that because of our relationships with hospitals and health systems, I think we are sourced more than most home health providers to really tackle that problem head on.
And so we spend a lot of time at it.
At a high level, I can tell you this.
From 2014 to 2015, when you look at that year, we improved our margin on that business by 500 basis points.
That is a pretty big number.
So that comes from a combination of ---+ and we grew the volume quite a bit, as you will see.
But in that mix are contracts that got terminated, which led to renegotiations.
Some of it was renegotiating contracts already in place.
And some of it was operational, where there were contracts ---+ maybe <UNK> can speak a little bit to this.
Where in some of our home health locations, we were doing the same thing to those managed care referrals.
And not in terms of patient care.
All the patient care is the same, but all the paperwork we do internally that might be required for Medicare, but not required for the commercial payer, we were still doing.
So I know <UNK> and the operators did a great job of streamlining some of that.
All of that led to our ability to expand the margin in that business and make it more profitable.
No, <UNK>.
We didn't even address it in the prepared comments.
And really nothing has changed since that last call.
I had talked about the net income effect for 2016 after mitigation being about $1.9 million or $0.06 per share.
And we were on track there.
We may be able to eke out a little bit in the betterment side, but I wouldn't model that in right now.
And to that mitigation, obviously, part of our mitigation ---+ there are kind of two trains of thought.
You either go straight to the MSDRGs that are just going to be LTACH appropriate or you work toward site neutrality blending.
And ours is the latter.
In our rural markets and in the HIH world that we are in, we simply didn't have the latitude from a pipeline standpoint to do that.
So our strategy is to manage those site neutrality patients, open up that pipeline, because it is an opportunity to provide services to those newly qualified patients.
Number two, we are meeting with every host hospital to ask for their help in decreasing some of the ancillary and rents, as appropriate.
And it is tough for them, too, but they see the alternatives.
And then honestly, where we do have any opportunity with agency or contract labor and some of the nuances inside the walls, mitigate that as much as we can.
So those three in combination lead to that $1.9 million.
And I said it on the last call, and I think we have to sit where we said then is that you have got to bake that in double for 2017.
That is kind of where we are headed.
No.
What I mean by that is this takes effect for us on the costs report on the last half of this year.
So as people keep asking us what do you look at for 2017.
If you take that effect on the last half of this year, I would just multiply that time two on that EPS effect going forward into 2017.
In July.
Yes.
That is in ---+ in July, it does.
That is correct.
So you're absolutely right.
The lion's share of this will start in the September earnings period and go through, of course, December.
Thank you, operator.
And thank you, everyone, for joining the call this morning.
As always, if any questions that you have between earnings calls, please feel free to reach out to us.
First to <UNK>, and if you need to get to <UNK> or <UNK> and myself, <UNK> will arrange that.
So thanks so much.
| 2016_LHCG |
2017 | PYPL | PYPL
#Thank you, <UNK>
And thanks everyone for joining us today
I’m pleased to say that PayPal delivered another strong quarter of financial results, achieving new milestones for the Company on multiple fronts
PayPal generated 3.136 billion in revenue, the first time we've exceeded 3 billion in a single quarter and representing 20% of FX-neutral growth, nearly a 110 basis point acceleration from the first quarter and 70 basis points from a year ago
We've exceeded our guidance and delivered $0.46 of non-GAAP earnings per diluted share, up 27% year-over-year
Our non-GAAP operating margin grew by a 110 basis point year-over-year to 21%
We generated 747 million in free cash flow, up 51% from a year ago
Perhaps more importantly we had strong performance across our customer metrics
We gained 6.5 million net new active accounts, the largest organic quarterly gain in the past three years and up over 80% from a year ago
We ended the quarter with 210 million active accounts including 17 million merchant accounts, growing our base at 12% year-over-year
Given our first half results, we now anticipate our net new active additions will exceed 25 million for 2017. Engagement once again increased growing 10% year-over-year, our customers now transact 32.3 times per year, up from 29.4 times a year ago, and 31.7 last quarter
Our growing base and increasing customer engagement enabled us to pass another milestone, as we processed a 106 billion in payment volume exceeding 100 billion in quarterly TPV for the first time
TPV grew at a currency neutral rate of 26% year-over-year, accelerating 75 basis points from last quarter
Our volume growth was driven by our leadership in mobile
In the quarter, 34% of the payments on our platform were made on a mobile device
PayPal processed approximately 36 billion in mobile payment volume in Q2, up 50% year-over-year
This growth is largely driven by the exceptional and differentiated consumer experiences we enabled on mobile devices
One Touch adoption continued to expand in the quarter with over 60 million consumer accounts opted in
Merchant accounts accepting One Touch now numbered just over 5.5 million growing by 500,000 in the quarter
Venmo users sent and received 8 billion in the second quarter representing a 103% increase from this time last year, as we continue to achieve increasing network effects in the millennial markets
Based on the strong trends we're seeing across the business, we're once again raising guidance for revenue and EPS for the full year
<UNK> will share more details about our results and guidance in his remarks
Our performance is driven by the cumulative effect of multiple incidents
We have fundamentally retooled our technology and infrastructure, leading to significant improvements and availability and develop our productivity
We have meaningfully improved our core experiences and expanded our suite of products
Our overall scale is accelerating due to the network effects of our two sided platform
It is clearly a macro secular shift toward digital payments and our customer choice results continue to exceed our expectations
We have completed a rollout of choice across our on-boarding, servicing and checkout experiences in the United States and over 13 million customers have opted into choice
We have the data from millions of customers over multiple quarters
We are beginning to see clear trends resulting from our choice initiative
Choice is both simplify and clarify our customer experiences, which has meaningfully reduced the volume of calls into our customer service centers
Despite our transaction volumes increasing by more than 20%, our net call volume into our global operations are down year-over-year
The results of choice on the numerous other product improvements, we delivered significant OpEx savings over the course of our three-year finding horizon
More importantly, customers who have opted into choice have meaningful increases in overall satisfaction
As a result, choice is driving a significant reduction in churn and a meaningful lift in overall engagement
And consistent with last quarter, the impact on our funding cost continues to remain well within our expectations
Based on the success of choice in the U.S
, we are pleased to be expanding this rollout into Australia, Canada, The UK and Japan later this year
Choice will also help to expand PayPal's presence in our customers' lives
These opportunities are driven by the land mark partnership agreements we have announced with technology companies, financial networks, wireless carriers and financial institutions around the world
In the second quarter, we continue to make excellent progress with our partnerships
We continue to expand our relationship with Visa, expanding our partnership in the Europe
As most of you will recall, last quarter, we announced an agreement with Visa that covered the Asia-Pacific region
Consequently, we now work around the globe with Visa
And as part of our network agreement announced last year with Visa and Mastercard, we recently announced the new service as it designed to allow PayPal and Venmo users in the U.S
to instantly transfer money to their bank account via eligible debit card, linked to their PayPal account
Findings faster and more convenient ways for our customers to fund into and out of their PayPal accounts is a key part of our overall value proposition
Throughout the quarter, we saw a relationship with issuers grow increasingly collaborative and productive
For example, we are pleased to see leading issuers including Wells Fargo and HSBC actively marketing PayPal to their customer base, encouraging their clients to link their cards into PayPal accounts
We also announced new strategic relationships with JPMorgan Chase and as of today Bank of America to utilize their token services and enable their customers to easily integrate their cards into PayPal and seamlessly create a new PayPal account from their properties
Furthermore, as part of our expanded relationship with Citi and Chase, we will make Citi ThankYou Rewards Points and Chase Ultimate Reward Points available in our PayPal wallet to be used as a funding source for consumers shopping at our 17 million merchants
As I've said on last quarter's call, it's hard to overstate the difference in the relationships we now have with companies across multiple sectors to many once view as potential competitors
We are confident these partnerships will drive enhanced value to our mutual customers
The accelerating and extensive scale of our two sided global platform, which will allow consumers and merchants to transact instantly in new context, across operating system, technologies and platforms, create a strong foundation and is very attractive to multiple partners
Our open technology platform has enabled expanded partnerships with Google, Apple, Facebook and Samsung over the past few months
These agreements benefit both PayPal and our partners by creating innovative consumer-focused experiences that connect their combined billions of consumers to new buying experiences enabled by PayPal's powerful platform
In April, Google announced an expansion of our partnership to make it easy for consumers to use PayPal as a payment method in Android Pay wherever it is accepted, in-store, in app and online
In addition, Android Pay users on Google's Chrome mobile-web will be able to seamlessly pay at the millions of online merchants that accept PayPal, simply by using their PayPal account and fingerprint authentication
Just like the deployment of One Touch, this great new checkout experience will be available to millions of PayPal merchants without requiring any integration work from the merchant, further extending the value we bring to our merchant customers
Also in the quarter, Facebook announced additional commerce experiences with PayPal that will be available within its Messenger platform
At F8 Facebook shared that over 1 million joint PayPal and Facebook customers have already enabled our payments experience within Facebook Messenger
Earlier this month, PayPal and Apple announced an expansion of our iTunes integration, which mean customers can now buy games, music, movies and in-app purchases with PayPal, on their iPhones and iPads in the Apple App Store, iBooks, Apple Music and iTunes stores in 12 countries including the U.S
, Australia and parts of Europe
We anticipate that this integration will expand to more countries around the world in the coming months
This complements our existing integration into Siri and Apple iMessage and marks a growing relationship with Apple
Finally, we announced a strategic partnership with Samsung
Users of Samsung Pay in the U.S
will be able to use PayPal to pay for purchases in-stores using Samsung Pay's mag-stripe emulation technology, which is used at the vast majority of merchants that accept cards
The totality of these partnerships reinforces the fact that we're becoming an underlying open payments platform and wallet for many of the leading technology platform, OEMs and wireless carriers around the world
We continue to make good progress in rolling out Venmo as a payment option for PayPal merchants
As we shared last quarter, we're not introducing the ability for U.S
PayPal merchants to accept Venmo as a mobile payment option
Venmo users are now able to use Venmo at an expanded number of PayPal merchants such as lululemon and Forever 21 and I'm quite encouraged by the early results
We expect that the ability to pay with Venmo will be widely deployed across millions of our PayPal merchants by the end of this year and I look forward to sharing more details in the coming quarters
The ability to deliver new consumers and enhanced sales growth to merchants of all sizes is a key benefit of PayPal, especially as the world becomes more global and increasingly digital
As of today, this includes bringing the power and reach of the PayPal platform to the expansive and rapidly growing Chinese consumer market
We're very pleased to announce that PayPal has signed a strategic partnership agreement with Baidu, the leading Chinese language internet search provider with approximately 700 million users
This partnership allows Chinese consumers to pay with their Baidu Wallet and PayPal at our merchants outside of China
Beginning later this year, this partnership will provide Chinese consumers more ways to discover and buy from PayPal merchants in the U.S
and will eventually expand the PayPal's entire global merchant base outside of China
We expect this partnership to drive significant demand and additional cross-border trade over the PayPal platform
In addition in helping our merchant customers maximize their opportunities in the age of digital commerce, another key part of our strategy is helping underserved consumers, join and thrive in the digital economy
This vision drove our recent acquisition of TIO Networks, which adds bill pay functionality to our two sided platform, offering consumers the ability to access a digital network and benefit from the convenience and speed of digital bill payments
Last week, we announced that we have closed our acquisition of TIO Network and I would like to take this opportunity to welcome Hamed and the TIO team to the PayPal family
Three years ago, we set off to transform PayPal
Our goal is to create an open platform for digital commerce to deliver innovative mobile checkout experiences that blur the lines between physical, online and mobile shopping
We set off to create an integrated suite of services, experiences and APIs that could extend the power of our two sided ecosystem, to our merchants with a little and I'd say no integration work required
That vision has grown increasingly important to our merchants in today's rapidly evolving retail landscape
Our execution in support of that vision is yielding strong results and expanding our leadership position
Our efforts to place our customers' frontend centered everything we do is driving the scale and engagement on our platform
It has opened the door to strategic and reductive partnerships that have extended the PayPal experience across multiple contexts in existing and new geographies
But we know we are still in the early stages of our transformation and we are just scratching the surface of the opportunities in front of us
We are fully committed to delivering a true core experiences and additional innovative and comprehensive solutions for our customers, helping our consumers and merchants to navigate the rapidly evolving and expanding digital payments landscape
And with that, I would like to now turn the call over to <UNK>
Dan, it’s Dan on
Nice to hear you and thanks for the question
So I am quite pleased with our progress on engagement
It is up 10% despite really what is an accelerating day right now which is kind of the high-class to have
We are seeing tremendous adoptions across merchants and consumers into the PayPal franchise
As I mentioned, we think we’ll exceed 25 million net new actives for the year
In past couple of years, we’ve taken our active user engagement up almost seven transactions per user across the whole days
And if you look under the covers what we’ve done here quite a bit, the news is even better because the majority of our user engagement right now is coming from the core PayPal Wallet and in many prices before it was coming from growth of Braintree and core PayPal
But now it is being driven the majority from our PayPal core wallet and that is a great story for us
And if you look at our product growth and our core PayPal franchise over the last several quarters, we’ve taken multi-year trend that have been drifting slightly down in terms of their real growth year-over-year and we have bent these curves across pretty much every single one of our core products and they're now up and accelerating
So, that is a piece of really good news that you probably wouldn’t see from a number in and up itself
And it kind of feels like, we’re just at the beginning of this
We've got One Touch that is driving engagement, that’s driving increased engagement and it’s accelerating across the base
Choice still new, but choice engagement and summing up into choice that engagement is up quite substantially, and I am really pleased with what we are seeing from choice
As I mentioned, we're about 13 million plus customers that are in choice now, that will grow and that will impact engagement
We’re obviously just beginning of the journey the movements in your context
Now, we now at basically major agreements, we're pretty much every major issuer, we’ve got agreement from the financial networks to utilize their tokens and those start to move us, move more an in-store environment as we go into next year, that'll also drive engagement
Right now, there's no engagement with Venmo, it's P2P, but we don't count that in our engagement
So also you'll see that drive up
TIO just came on
Our new partnerships with Facebook and Google are going to start to kick in, that's really not in our guidance right now, as they ---+ those things are going to start to accelerate and drive our future growth as we look into '18, '19, '20. So, we still have a goal that would consumer use PyaPal two times a week
That is our goal, not to drive once a week, but to drive two times a week
And I feel with all the initiatives we've right now and the trending that we're seeing that over ---+ our medium to long term that’s within our reach too
So feeling pretty good about where we're on the engagement side
You've violated first quarter rule, one question, but otherwise okay
Correlate with it and I admire that
So, listen one of the things I mentioned in my opening remarks is we're beginning to see a tremendously collaborative relationship with issuers right now
We're seeing I mentioned two that are marketing to their pace to actively encourage them to link their cards into our PayPal account
And that's happening because we're going to drive growth for them, as <UNK> mentioned in his remarks, our MS TPV ---+ our TPV growth outside of eBay is growing at 30% and we're the perfect digital distribution channel for financial institutions especially now that we've implemented choice
And consumer will opt on how they want to pay and where they want to pay on that
And so I think this acceleration of our net new actives is coming at a lower cost to it, so it's really found sort of one-two punch that’s positive for us now, but especially as we look forward
Just to add to that, we saw first [indiscernible] well and we spent a lot of time as we started the transition of the Company from being really single product type of company to being a platform company that offers a suite of services to both merchants and the consumers
And where we found and with a ton of detailed research and analytics on this is when we add an incremental service to a consumer or even to our merchants, we see the lifetime value basically double
And so a consumer adds to P2P, we see them they engaged more, their use of PayPal goes up, their churn goes way down, and it is a gigantic benefit for our flywheel and for our economics
And so, the more products and services and experiences and more engagement we could have with the consumer and a merchant, the better the LTV is for us
And that comes through us, as Bill said, historically as we have seen with P2P and others
We also start in-store with Vodafone as we go down, we have seen these
People have used Vodafone and PayPal in-store
They use PayPal more in app and online because the distinctions between those things are blurring especially with mobile
And so, our ability to engage with consumers and drive that engagement is a good thing both for consumers, for merchants and for the economics of PayPal
I'll start then maybe Bill can supplement
So, I would say and as I mentioned in my remarks, there's no one single thing driving the growth of those net new active
And as I mentioned, you know, I said I think we'll do an excess of 25 million net new active that would imply so that we're going to do another on average 6 million or so in the third and fourth quarter
So we see a continued strength in net new active
That's coming as a result and Bill won't say this, but I will from the great work that Bill and his product and engineering teams have done, great work that have done
The risk teams have done around improving our core experiences
And as I mentioned, we're bending multiyear curves now and we’re seeing now really nice year-over-year growth in our core experiences
Availability just thing like availability is up, that matters a lot, we'll wait and see
That matters a lot
We got a new mobile app there
We got One Touch
We got choice coming in
Choice is driving both reduction in churn which helps to net new actives obviously, but it’s also driving additional new adds because the on-boarding process is so much more streamlined, and then you also have partners that are now actively marketing PayPal because together we're sort of allies in advancing digital payments and tapping into that growth
So I think there is a number of things and we also obviously with 210 million people now on the platform, we’ve got maybe at a tipping point of these network effects right now where there's so many merchants on the platforms, so many consumers on the platform, that it's a must have for people especially if they move into mobile check out experiences
I think what Bill and the risk teams have done and things like One Touch have really been an unparalleled kind of a mobile checkout experience, almost two times the conversion of the industry average
And so, I'll look at a number of things that we've done over the course of the last several years, and they're beginning to take hold in the market, and really driving our results and Bill would you answer that
I'll just add one last thing and then we'll be done with your question, <UNK>
We didn't underestimate what can happen with Baidu, I mean we're now tapping into that Chinese consumer marketplace, and that is going to open up a whole new market for consumers to come on to the PayPal platform, interact with our PayPal merchants outside of China and drive what we think could be substantial cross-border traffic
And I talked about this, it's not just Baidu, it's Baidu and PayPal
So almost a little like we've done with Android Pay that it's a cobranded experience and sign up to our PayPal account from there
So, there're a lot of things that we're working on, a lot of things we still want to implement but feel good about the current trend right now
Yes, so, we've done I think 24 major partnerships in the last 18 months and you've seen it last quarter starting to accelerate actually
And it's accelerated that people are beginning to understand the assets that we bring to our partners
We obviously bring our scale to partners and when you talk to different platforms whether it'd be Baidu or Google or Samsung, the ability to tap into 17 million merchants we have that long tail of merchants, that's a very difficult asset for others to replicate and it's accelerating in its growth
If you look at other partnerships, we can add potential for pretty significant additional growth for them, whether that's driven by mobile and we can do a One Touch or TPV that's accelerating
And as you know, we also control value prop end-to-end, there're very few players who do that, there're some players that can take a piece of it, but very few players own it including risk, custom service, brand reputation
And we own all of that parts of that proposition and we've also changed our model, quite a bit, we're an open platform and a suite of service both branded and unbranded that's operating system and device and technology agnostic
And so, we're ---+ and very importantly, we're a neutral third party platform
So we don't compete with any of our merchants or partners who are allies in advancing digital payments
So, I think our positioning is really good within the entire ecosystem to continue to partner
There're a number of other partnerships that are on the horizon and I think the more we partner the more people see that the benefit of doing that could be quite substantial, so I think we announced enough partnerships right now, so we'll save some for the next ---+ for the next announcement
But I think we're really well positioned on that front
On the M&A front because you got two questions in there in a very subtle way
But on the M&A front, look we've a very strong balance sheet
<UNK> mentioned, we've $6.4 billion of cash equivalents on our balance sheet
We're generating ---+ now with our guidance is over $2.9 billion of free cash flow for the year
So that’s the competitive advantage for us
There is no question about it and we are very active and looking at range of opportunities around the world, both big and small
But look those opportunities needs the time to our vision in our mission
They got to accelerate our progress either against the key vertical or geographic expansion
We do tuck-in acquisitions from a tech or functional capability like a TIO type of things, but we look at this in the through the lens of do we build, do we partner or do we buy
And the amount of work that <UNK> and Bill done on there, respective platforms with risk capabilities or full infrastructure ---+ I mentioned the increased developer productivity, we can put out a ton of releases, now we put out some like 30,000 releases in the quarter
I mean it's amazing in velocity of new functionality and innovation that Bill and his team are putting out into the market place
And so, well, we used to have to buy at onetime because it would take us month to make a change on our website because we have such a monolithic infrastructure
Now, there is a rapid velocity, a very innovative services coming in
Second thing is we can partner now in ways that we never partnered before
We have new velocity about cooperating with people
It's created in environment that gotten very competitive one to one that’s much more cooperative
We have a ton of complimentary resources that we can use with partners
And now many times where we used to think that we will have to buy something, we can that partner on a commercial relationship to go and do that
And then obviously, if we can't do any of that we look at buy and we do that in a very disciplined manner
We have got certain amount of skill and capabilities and so you can expect us to continue to be acquisitive, but in a disciplined fashion and within the context that what I just mentioned
So, I’ll start off and then I’ll turn it over to Bill
But I think there is a real difference now with the partnerships that you mentioned that are major tech platform companies
I think none of that really wanted to go into payments as an end to itself
It was a means to an end that they have
And so, it might be more engagement on their platform and that engagement lead to key metrics that they want to try to keep the advertising, it could be other thing
And when we made the shift to being an open payments platform as opposed to just seeing a button as I check-out experience, and really open our platform up to pretty sophisticated technological upgrades through open APIs with the partnership we had with tokenization and that kind of thing
We were then able to become really in many ways an underlying payment OS or those tech platforms that enable them to create the experiences, that they wanted to drive for their end user
And so that partnership is fundamentally different right now and it has evolved greatly over the last several years
I'll ask Bill to add a color to that, but it's a very different conversation that we have now then we used to have
I'll start off with that
Obviously, we've worked closely with JP Morgan Chase over the last couple of years actually, as we've talked about the potential for how we might work together
And I'm really pleased with where we came out in this partnership
We both see a lot of value in it, if two very strong companies lending what are really impressive assets to create consumer experiences, including as you mentioned processing through Chase Net which obviously does give the potential
We are not talking about any deal terms one way or another, but potential for lower cost from that
So I'm really pleased with the comprehensive nature of the partnership that we have with Chase because time to work through all the details of it
But I think both of us are really good about and really good about what we can drive coming out of that
I think you just think about things like reward points, Discover, Chase, Citi have all decided that utilizing the reward points within the PayPal platform to utilize those for purchases that are 17 million merchants
That’s a real significant differentiation for those particular financial institutions and their customers who are using their instruments, but also for PayPal because you now can utilize those reward points in a split transaction
You have X number of reward points, but maybe couldn’t do that full transaction
You can now split that, you can use this reward points to purchase 40% of which we are going to do and then the other 60% can be done to whatever funding instrument you select as a consumer
That’s a little over a cost funding mechanism as well for us so
There are all sorts of things within these relationships that we have, they try to enhance value for our mutual customers that, if you parse through them, it's really quite significant and differentiated from where we were certainly a year or so ago
Now the in-store stuff, we obviously now have the ability to use industry tokens from these Mastercard and others
And now, we are working with each of the FIs to use their tokens for their particular instruments
And so, you will start to see that’s just a naturally begins our rollout
There really is much of a trial and error per se on this
We will have the ability for our PayPal customer, if they are opted into one of the bank services that’s provided token, we will use network tokens with that
And you will simply be able to use that instrument seamlessly across where actually it is accepted now on android phone for instance across in-app experience, online experience, or an in-store experience without us having to do bespoke customization of software at the point of sale terminal
So that would just be a natural rollout utilizing existing POS technology
Okay, so thank you for that last question, <UNK>
And thanks everybody for joining us
We really appreciate your time and we look forward to speaking with all of you soon
Thanks a lot everybody and thank you operator
| 2017_PYPL |
2015 | MDT | MDT
#Well, a number of points.
First of all, our confidence and our belief and really, surety if you like, in the long-term opportunity in emerging markets is completely unchanged, and we are not at all wavering on that.
That's just a matter of fact.
The way in which we approach that market, to tap into that opportunity, particularly in the short term, actually has been more complex and more difficult than we first envisaged.
And so the growth rate has been slower than what certainly we had originally thought.
I think having said that, there's certain fairly respectable double-digit growth that we can expect reliably, but we want that to be higher.
And we're looking at methods to which we can ---+ we are continually actually looking at methods to which we can do that sooner rather than later.
And as we're learning, channel optimization is a key factor, partnerships with governments is a key factor, and finally, referral chain development is something that we need to approach with far greater scale than we've had before.
These are all important factors.
As far as Covidien goes, there are a number of things that make us optimistic that this combination will help us.
One, there is a complementary strength in certain markets.
In the Middle East and Latin America, where between Covidien and Medtronic, we have complementary strengths.
As a result, we now have our emerging market profile diversified between China, Middle East and Africa and Latin America as the big three centers within emerging markets, while previously on the standalone Medtronic basis it was primarily China.
So that gives us a little bit of diversity in these markets that we didn't have.
And finally as we've talked about before, simply the scale that we now have will allow us to penetrate more geographies much more efficiently than we could before, and just adding more sales teams around the world, either in underpenetrated regions within countries, or in brand-new countries, will have to contribute.
So we haven't pieced all that stuff together yet, and we are in the process of prioritizing some of those investments.
And again, we're trying to accelerate the growth profile in emerging markets with actually a pretty great sense of urgency.
I think a number of things.
First of all, as we go forward, this is going to reflect in our overall productivity.
I think that's the best way to do it.
Although we will keep track of our value capture efforts, we're very detailed and granular programs, I think at some point, new efforts that are a result of the combination, versus efforts that were already in place that get accelerated, gets very mixed up.
And instead of trying to divide those things up, we're going to commit to certain levels of productivity that we get out of different line items in our P&L.
And that's the way to do it.
We feel good about a long-term productivity that we can get out of this.
That value capture, the synergy effort is going to eventually morph into a long-term productivity benefit, extending way beyond the three years that we've projected.
I think that's the correct way to look at it.
That this becomes a productivity engine of significant magnitude that we didn't have before.
And to some extent, we're pretty excited about it.
Thanks, <UNK>.
Sorry, we've gone past the top of the hour, but we'll take two last questions.
On the tax rate it's assumed in the guidance, <UNK>, but what we're saying it will probably be toward the higher end of the range until the credit is approved, but assuming it gets approved, then that would be in that range.
It's basically assumed in there.
Well, I can't go through all the numbers you just laid out, <UNK>, because I don't have those in my mind.
Let me look at it from the way ---+ you're right, our revenue growth overall, as we indicated is the mid-single digit growth plus 1% to 1.5% related to the extra week.
So just taking the midpoint of the range of 5%, you're saying somewhere around 6%, 6.5% revenue growth.
What, as we indicated on the comments overall from the operating margin perspective as we looked at it, we know from the standpoint of what we're driving there, as far as the 100 basis points of improvement on the operating margin as we go forward, we're driving about 400 basis points of leverage, and the operating income line on an operational basis before foreign exchange.
And so the point is yes, we are getting that 400 basis points of leverage that we've talked about in the calculation.
To offset, that's negatively impacted by foreign exchange, and so it's all going to get back, and foreign exchange is offsetting the majority of the overall operating leverage that we've talked about, that we're trying to drive towards.
So the rest of the numbers get a little more difficult as think about the number of shares that have been issued and the various tax rates that are going on between the various years, as we go forward.
But no, the guidance is kind of in line with what we were expecting from the overall standpoint of earnings per share growing.
Again, as we've talked about, that 200 to 400 basis points faster than the revenue.
But unfortunately with $0.40 to $0.50 of FX hit, you take the $4.30 to $4.40, and add $0.40 to $0.50 to that, I think you're going to get to the point that it is on a constant currency basis, is significant leverage over and above the revenue growth.
So on LINQ overall, we have to think about it in terms of its three indications for use.
So syncope, cryptogenic stroke and atrial fibrillation.
On the syncope side, we're probably in the low to mid-20s penetrated, 20% and again I'm just talking about the US and Europe, because that really is the only place currently where it's generating the very significant revenues, and we're still building up reimbursement in other places around the world.
In cryptogenic stroke, it's more like 5% penetrated, and then when you look at atrial fibrillation, it's more like 1% to 2% penetrated so there's still plenty of growth opportunity left, obviously in the product.
Now, we don't expect competitors looking, who have basic capabilities in electronics, are going to look at this and ignore it, so we expect at some point were going to see competitors, but frankly, we haven't seen anything yet.
I think we're now at a point as we look at our five-year plan where we think this will be a $1 billion contributor to the overall Company in terms of its overall diagnostic sales.
And as <UNK> pointed out, when you look at syncope patients you put one of these devices in, roughly 8% to 9% of those patients will wind up with a pacemaker within a year, and by the time you get out to year three, it's more like 20%, so it really is the source of the low-power growth that we have seen in the United States, in terms of growth in units.
So we think it's an important product line, in terms of what it does for us on product sales, but it also provides us now with service revenue opportunity, longer-term to monitor patients.
And so we'll be updating that as our plans develop.
Thanks, <UNK>.
Time for one last question.
Just to be clear, the 30% number is the heart valve therapies number, so it's a combination of our transcatheter valves and surgical valves.
So actually, the TAVI growth in the United States is faster than the international growth.
So our growth in overall was about 50% and in the US, we almost doubled our revenues in TAVI during the quarter on a year-over-year basis.
So the US is considerably faster, in terms of its overall growth.
So important, I just did want to finish up that we don't do any meaningful stocking of transcatheter valves in the US, just finish your first question.
On the transcutaneous pacing product line, obviously we're talking about OUS now, or Europe, with the CE mark that we now have.
And there is no separate reimbursement in the sense of this product line obtaining different reimbursement in Europe.
So it basically is being targeted at a specific set of patients who might be at risk for infection, and single chamber patient population, although we do see an opportunity to see a mix shift toward more single chamber pacing because of the benefits this product line offers in terms of lower expected complication rate.
So we think it's an important breakthrough, but you will see us be very deliberate in the rollout of this product.
It requires very different implant technique than what the standard pacemaker has, and so you will see us doing very significant training and education as we roll this out, and that will gate some of the speed with which it grows.
Thanks, everyone.
And thanks to all of you for those great questions.
And with that, on behalf of our entire management team, thank you again for your continued support and interest in Medtronic.
We look forward to updating you on our progress on our Q1 call, which we anticipate holding on September 3.
Thank you, and have a great day.
| 2015_MDT |
2017 | DEA | DEA
#Good morning.
Before the call begins, please note the use of forward-looking statements by the company on this conference call.
Statements made on this call may include statements, which are not historical facts, and are considered forward-looking.
The company intends these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Act Reform of 1995, and is making this statement for the purpose of complying with those Safe Harbor provisions.
Although the company believes that its plans, intentions, expectations, strategies and prospects, as reflected in or suggested by those forward-looking statements, are reasonable, it can give no assurance that these plans, intentions, expectations or strategies will be attained or achieved.
Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including, without limitation, those contained in Item 1A Risk Factors of its annual report on Form 10-K for the year ended December 31, 2016, filed with SEC on March 2, 2017 and its other SEC filings.
The company assumes no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Additionally, on this conference call, the company may refer to certain non-GAAP financial measures, such as funds from operations and cash available for distribution.
You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company's earnings release and separate supplemental information package on the Investor Relations page of the company\xe2\x80\x99s website at ir.
easterlyreit.com.
I would now like to turn the conference call over to <UNK> <UNK>, Chairman of the Easterly Government Properties.
Thanks, <UNK> and good morning.
I would like to begin by highlighting the company's achievements in the first quarter of 2017.
We were very pleased to acquire the 75,000 square-foot Sandy, Utah Occupational Safety and Health Administration laboratory, which when combined with our other properties, represents a portfolio of 44 buildings with over 97% of its annualized lease income, derived from the full faith and credit of the United States federal government.
OSHA, Sandy, well represents our focused investment discipline.
This state-of-the-art laboratory serves the entire country by providing the analysis of a multitude of chemicals, and maintaining OSHA's online chemical sampling information database.
This facility is 1 of 3 locations nationwide, which also houses the Directorate of technical support and emergency management for OSHA, an important division with provides specialized technical support to the broader OSHA mission.
True to Easterly's philosophy this laboratory's mission is critical in the hierarchy of the tenant agency.
Easterly's announcement in the first quarter of its pending acquisitions of 2 VA outpatient clinics marks the company's entry into an important new market, which it's been following for several years.
The acquisition of these 2 new state-of-the-art Class A VA outpatient facilities totals to combined 414,000 square feet of leased space, all backed by the full faith and credit of the U.S. government.
The first facility is located in Loma Linda, California and is a one-of-a-kind premiere asset in the VA health system.
Located just 2 miles from the federally-owned VA Hospital, this brand-new 327,000 square-foot ambulatory care facility sits on a 37-acre campus, is surrounded by over 2,000 parking spaces and addresses the outpatient medical needs of the surrounding 72,000 veterans in the region.
The facility will employ approximately 500 VA health professionals and provide 50% of VA Loma Linda's outpatient visits for the region.
Services provided within the Loma Linda ambulatory care Center include; primary care, women's health, dental, imaging, employee health and blood draw services.
The facility carries an initial 20-year noncancelable lease with the VA, which will not expire until May of 2036.
The VA Loma Linda acquisition is expected to close in the second quarter of 2017.
The second VA outpatient facility is located just outside of South Bend, Indiana, and is currently under construction.
The VA South Bend Outpatient Clinic is very similar to VA Loma Linda, but on a smaller scale on 86,000 square feet.
This facility will employ 190 VA professionals, and also provides outpatient services to the many veterans surrounding the region.
The VA estimates the facility will see 12,000 patients in its first year of operation, 14,000 patients in its second year of operation and 16,000 patients in its third year of operation.
The services that be will provided at VA South Bend include: Primary care, mental health care, audiology, optometry, radiology, cardiology, pulmonology, podiatry, urology and gastrointestinal endoscopy.
When construction is completed, which we expect will occur in the third quarter of this year, this outpatient facility will be leased to the VA for an initial 15-year noncancelable term.
The VA South Bend acquisition is expected to close in the third quarter of 2017.
Both of these properties just described, squarely fall into Easterly's VA acquisition and development targets.
These are mission-critical facilities within a highly important department of the U.S. government.
These leases are backed by the full faith and credit of the U.S. government and are not subject to cancellation and carry long, stable lease terms, which result in a steady cash flow and superior risk-adjusted returns for our shareholders.
Also of note, pro forma for the addition of these announced pending VA acquisitions, Easterly key portfolio performance metrics are substantially enhanced.
Easterly's average portfolio age will decrease from 12.9 years to 11.6 years.
Further, the remaining lease duration of the portfolio will increase from 5.7 to 7.1 years.
These are highly attractive metrics for the company's portfolio, which continues to grow through the addition of accretive deals that fit within the previously mentioned bull's eye target universe.
Turning to development.
Our team remains active in responding to all opportunities to develop brand-new, nonspeculative, Class A facilities, on behalf of the federal government with long attractive lease terms.
Yesterday, Easterly was pleased to announce the lease award for the development of the 52,870 square-foot FDA laboratory in Lenexa, Kansas, just outside of Kansas City.
This exciting project, which will be led by Mike Ivy and his team, will be a relocation of the current Kansas City district laboratory, 1 of 13 critical laboratories for the FDA, located strategically throughout the country.
This brand-new state-of-the-art facility will be approximately 40% larger than the lab it is replacing, and will feature highly specialized and specific design features and functionality for the needs of the FDA for decades to come.
The laboratory will be fully equipped to perform the chemical analysis of food and drugs, regulated by the agency, which heavily contribute to the FDA's overarching mission of protecting and promoting the health and safety of the American public.
This is a wonderful opportunity for the company to deepen its relationship with the U.S. government, now marking 2 active development projects with the GSA for the beneficial use of the FDA.
Additionally, our asset management and development teams are currently engaged in a number of value added projects to our existing portfolio.
There are currently 15 mission enhancing projects underway for a combined total of roughly $4.7 million, fully funded by the government, which aid our tenants in their ability to perform mission, while also keeping our already young built buildings updated.
An example of a current government funded improvement project can be found in our ICE field office in Charleston, South Carolina.
At ICE Charleston the government is pursuing a $2 million-plus facility upgrade to reconfigure existing space to allow both ICE and DEA law enforcement to collaborate and function more efficiently in their joint mission of investigating those in violation of federal laws.
Our current acquisition pipeline is strong, as we continue to pursue opportunities to accretively grow the Easterly's portfolio for our shareholders.
These acquisitions fall within what we refer to as the bull's eye of our target market.
To reiterate, our target market includes buildings leased to a single tenant of the U.S. federal government, are often the result of a design-build award and are usually over 40,000 square feet in size.
If we find a building that meets these criteria, we then underwrite the agency and the hierarchy of mission of the perspective building before performing the traditional underwriting.
We continue to see opportunities that are actionable in the near to midterm and will maintain our rigorous underwriting standards, targeting 100% renewal for this class of federally leased buildings.
I'll now turn it over to <UNK> for discussion of the quarterly results and earnings guidance.
Thank you, Bill.
Today, I will touch upon our current portfolio, discuss our first quarter results, provide an update on our balance sheet, review our 2017 guidance and cover this quarter's capital markets activity.
Additional details regarding our first quarter results can be found in the company's first quarter earnings release and supplemental information package.
As of March 31, we owned 44 operating properties, comprising nearly 3.2 million square feet of commercial real estate.
The weighted average lease term for the portfolio was 5.7 years, the average age of our portfolio was 12.9 years, and our portfolio occupancy remains at 100%.
In addition, 97.4% of our lease revenue is backed by the full faith and credit of the United States government.
For the first quarter, FFO per share on a fully diluted basis was $0.31.
FFO as adjusted per share on a fully diluted basis was $0.30 and our cash available for distribution was $12.2 million.
GAAP measures and reconciliations to GAAP measures have been provided in our supplemental information package.
For the 12-months ending December 31, 2017, the company is reiterating its guidance for FFO of $1.25 to a $1.29 per share on a fully diluted basis.
This guidance assumes acquisitions of $350 million in 2017 including the OSHA Sandy acquisition completed in the first quarter, the announced VA Loma Linda acquisition with an anticipated closing date in the first quarter of 2017 as well as the announced VA South Bend acquisition with an anticipated closing date in the first quarter of 2017.
This guidance does not contemplate any dispositions.
This guidance is forward-looking and reflects management's view of current and future market conditions.
The company's actual results may differ materially from this guidance.
Turning to the balance sheet.
At quarter end, the company had total indebtedness of $337.8 million, which was comprised of $158.2 million outstanding on our unsecured revolving line of credit, $100 million outstanding on our unsecured term loan facility and $79.7 million of mortgage debt.
Availability on our line of credit stood at $241.8 million.
In terms of leverage, net debt to total enterprise value was 26.8% and net debt to annualized EBITDA was 4.9x.
On March 27, 2017, the company successfully completed a public offering of 4.3 million shares of its common stock, all offered in connection with forward sales agreements at a price to the public of $19 per share.
The forward purchasers also granted underwriters a 30-day option to purchase up to an additional 645,000 shares at the public offering price, which was exercised in full.
The company expects to physically settle the forward sales agreements and receive proceeds, subject to certain adjustments, within approximately 6 months from the date to the prospective supplement relating to the offering.
Assuming the forward sales are physically settled in full, net proceeds to the company is expected to be approximately $90 million.
Finally, as previously announced last week our Board of Directors declared a dividend related to our first quarter of operations of $0.25 per share.
This dividend will be paid on June 29, 2017, to shareholders of record on June 14.
I will now turn the call back to the operator for questions.
Good morning, Manny and Jill.
First of all basically since we went public, there have only been 2 opportunities for build-to-suit projects within the GSA space that we would actually be interested in completing.
And I'm pleased to announce that we won both awards.
So basically, if it's in the bull's eye, we don't make the determination on the development opportunity.
If it's in the bull's eye, it could be the FDA, it could be Secret Service or any of the mission-critical agencies that we think are important.
So that's a bit random, but I will say, that certainly with Mike Ivy and his development team's expertise, it's probably not surprising after you've engaged to build 1 FDA labs that they see the sort of work and the sort of background experience you've had that they probably look towards you to do others.
The VA opportunities, I've already discussed, and those were 2 wonderful opportunities, one much larger than the other.
But we think that the VA is an area that we've certainly been looking at for the last several years, and we're very happy to be able to get these 2 properties signed up.
I think that it's probably no secret that the current administration is very much in favor of what we ---+ the moniker being gun toting agencies.
So you think of the FBI, the DEA, ICE, CBP, the federal courts, that make up over 62% of our portfolio.
So I think that they are certainly in favor now.
Obviously, there's some agencies that are not as much in favor.
But again, they're going to continue to exist, they're just going to be different priorities going forward.
We are very pleased to have our particular EPA laboratory based in Kansas, by the way an all Republican state, because it's mission is enduring and is actually more ---+ will actually endure past the current administration's tenure, not that we take a position on who's in Federal office.
But I think we're looking for long-term enduring missions of the agencies.
And we believe every single building we have in our portfolio certainly fits that to a T.
Absolutely.
I'm happy to announce that we have renewed SSA Kearny Mesa, and which is a very small property, not in our bull's eye, but we have renewed that for the next 10 years firm, and 15 with the soft term at the end at basically the current rent amount, which we would expect as ---+ the smaller nonbull's-eye properties to renew.
I'm also happy to announce that we have renewed ICE Otay, actually we have just combined 3 leases that were expiring under different years and moved them all back to 11/27/22 so you might see that reflected, we're very pleased there.
No cash changes on the rent, but obviously, the government realizing that this is a long-term place for them to operate from, and it is the second busiest border crossing in California.
On our noncore assets, we've said in the past, that all of these, we believe, are terrific properties, but also sources of funds as we drive ---+ we're I think 97.5% full faith and credit now, as we drive to 100%.
So when we see opportunities come up, we will move those properties out of the portfolio.
And as we purchase portfolios in the future, there will be, occasionally, buildings that are either noncore or not in our bull's eye, and obviously we'll want to move those out at some point accretively for our shareholders.
Well, I think that ---+ let's just take it in a reverse order.
The United States Forest Service is actually ---+ this is its operational headquarters.
They've got 198 million acres.
I don't think they're just going to open up the fences and eliminate one of the greatest resources the United States has.
So we're not particularly worried about that one.
In fact it's actually gaining employees as other, older facilities are being consolidated into it.
But I will say, that we don't look just the next lease term, we're looking 2 lease terms out.
And when you're sort at 11 with these new acquisitions, 11 and some years old and the average tenancy in these buildings is over 40 years, I will be all set for this conversation about 10 or 15 years from now.
But correct, as buildings do get older, we will constantly look and make sure that we can see a lot of runway for their mission, for a particular building, that they're meeting mission, but luckily, and not so luckily, that is not a problem today.
<UNK>, I'd say that there's no changes at all.
It's just the VA is just like adding FBI or DEA or another of the federal courts to our set of opportunities.
We're looking at lots of opportunities in the GSA, and you'd expect most opportunities, in the end, to be the GSA, because it's a much larger universe.
However, I will say, that as we mentioned, the federal government is on a 10-year $63 billion program to update and build new VA facilities for our $22 million veterans out there.
So certainly, as we drive towards new buildings, there are going to be more opportunities than usual within the VA space.
And we've tried to figure out the sizing of that and that's probably ---+ those opportunities, we figure, expands our bull's eyes from 500 to 550, and perhaps, $3 billion to $4 billion worth of opportunities there.
But I think you're going to see a fairly consistent path going forward.
I think that ---+ certainly, there will be opportunities there.
We would love to develop some VA's.
I will tell you that it's a very competitive market, as you can imagine.
And we will see ---+ with our team led by Mike Ivy, I can think of no better person to be able to take advantage of winning some of those awards.
But I'd also like to get back to the fact that we've said that we're going to sort of do 10% to 15%, max being sort of 15%, of our entire portfolio and development.
I will say it is an incredibly accretive, attractive opportunity for us whether it be in VA or in mission-critical GSA facilities, as we are usually getting brand-new, 15 to 20 year, full faith and credit leases on buildings that are squarely in the middle of our bull's eye.
We will have built them.
We certainly know the quality our team puts forward with our wonderful design build contractors out there.
So little risk and a lot of upside.
Yes, Mike, as we've shared in the past, we're very comfortable with leverage levels for full faith and credit U.S. Government cash flows, as ours is in the 40% to 50% range, which would regulate to 6x to 7x EBITDA.
So with the addition of these 2 new VAs and the duration they bring to the asset side of the portfolio, continue to be comfortable with those leverage levels.
| 2017_DEA |
2015 | WCG | WCG
#You're essentially asking directional guidance.
In the Q3 call just like we did last year we're going to lay out what we see at that time for headwinds and tailwinds.
But what I will tell you on all this rate changes they are fully reflected in this year's guidance.
And obviously you can infer the back half versus the front half based upon the MBR guidance that we've specifically given for Medicaid.
We reflected the rate they provided us even though I'll repeat we are in discussions with them on certain elements of that rate.
But it was in the lower half of the range they provided publicly.
Thank you.
I've just got three brief remarks.
First, I want to thank you all for your questions this morning and for your interest in WellCare.
Second, I want to summarize we are pleased with our building momentum but we are far from satisfied with our current level of performance.
And third, I do want to take this opportunity to thank our 6,400 associates for their commitment on behalf of our members and for their enormous contribution to our improved results.
Thank you operator.
This will conclude the call.
| 2015_WCG |
2018 | AHL | AHL
#Thank you, and good morning, everyone.
On today's call, we have Chris O'Kane, Chief Executive Officer; and <UNK> <UNK>, Chief Financial Officer.
Last night, we issued our press release announcing Aspen's financial results for the first quarter of 2018.
This press release as well as corresponding supplementary financial information can be found at our website at www.aspen.co. Today's presentation contains, and Aspen may make, from time to time, written or oral forward-looking statements within the meaning under and pursuant to the safe harbor provisions of U.S. federal securities laws. All forward-looking statements have a number of assumptions concerning future events that are subject to a number of uncertainties and other factors. For more detailed descriptions of these uncertainties and other factors, please see the Risk Factor section in Aspen's annual report on Form 10-K filed with the SEC and posted on our website. Today's presentation also contains non-GAAP financial measures, which we believe are meaningful in evaluating Aspen's performance. For a detailed disclosure on non-GAAP financials, please refer to the supplementary financial data and our earnings release posted on our website. With that, I'll now turn the call over to Chris O'Kane.
Well, thank you, <UNK>, and good morning, everyone.
Before we discuss the results, I want to comment briefly on recent speculative news with regards ---+ regarding Aspen.
I'll reiterate what I said on our last call.
Our board is very open-minded, we're considering all angles.
And we rule nothing out in terms of preserving and creating shareholder value for the future.
We won't comment further on these matters on this call.
So let's turn to our results.
I'm pleased to say we had a very good start to the year with strong premium growth across both Aspen Re and Aspen Insurance, particularly in the lines we have targeted for growth.
Reflecting ongoing support from our clients and distribution partners, in the first quarter of 2018, we achieved more than $1 billion of premium in a single quarter.
Both segments generated underwriting profits.
We improved our total expense ratio and we continue to implement our operational effectiveness and efficiency program.
Digging deeper into these results, Aspen Re delivered good top line growth, and after the heavy cat impact last year a return to underwriting profits and good underwriting margin.
At Aspen Insurance, where we have 2 regional businesses in the U.K. and the U.S., plus 12 global product lines, we achieved top line growth and underwriting profits in 13 out of these 14 lines.
All in all, while we still have work to do, this was a quarter of good progress.
We operated ---+ we reported operating income of $0.91 per diluted share for the quarter, an annualized operating ROE of 9.2%.
We ended the quarter with book value per diluted share of $38.70.
Looking at our segments.
Aspen Re continued to build on a strong record of performance, achieving a combined ratio of 90.1%.
We started the year with successful renewals in January.
Our reinsurance colleagues remain very disciplined with pricing and cross-reinsurance overall.
Rates were up 5.3% in the first quarter.
Rates in property cat were up 8%, Other Property was up 6%, while Casualty and Specialty each increased by around 4%.
The level of rate increase that we achieved on our portfolio was better than the overall market.
We set ourselves a goal of eliminating the bottom 5% of our portfolio by concentrating on better-priced business and improving the average rate on the continuing book.
As a result, total gross written premiums at Aspen Re grew by 10% compared to the first quarter of 2017.
Most of the premium growth in the quarter came from our Specialty Reinsurance business and related primarily to our Crop business.
Transitional fronting arrangements following the sale of AgriLogic in the fourth quarter of 2017 accounted for much of this increase.
We also grew our property cat premiums in the quarter as we took advantage of improving pricing to write some additional property business in North America and Europe.
While we grow gross lines, we continue to leverage third-party capital thrust in Capital <UNK>ets and we managed our net exposures carefully.
Our reinsurance team has continued this disciplined approach at the April renewals.
While rate increases have moderated and rate increases for Japanese renewals were flat, we still achieved a rate increase of just under 4%, excluding Japan.
The Japanese renewals reflect the experience of those Japanese contracts.
We've already completed a reasonable sample of Florida, and other wind renewals set in June.
For loss affected accounts, we're seeing rate increases up to 7.5% and accounts without loss are renewing in the range of flat to plus 5.
The vast majority of renewals are still to come and we will report on them in our next earnings call.
Turning now to insurance.
We talked last quarter about actions we were taking with the aim of reducing volatility and improving the profitability of our insurance business.
These actions included increased use of quota share reinsurance, eliminating voluntary participation in our own reinsurances as well as reunderwriting and non-renewing parts of our U.S. property and downstream energy books.
Gross written premium increased by 14% in the first quarter.
Most of this growth came from lines that we have specifically targeted for growth over the last couple of years.
These lines include Accident and Health, Excess Casualty, Crisis Management as well as professional and some other related lines.
As I mentioned earlier, 13 out of our 14 lines achieved underwriting profits in the first quarter.
Indeed, the growth lines that I referenced a moment ago grew by 24% this quarter and accounted for 46% of our total gross written premiums, producing an accident year ex cat loss ratio of 54% in the quarter.
In addition, I'd point out that the average accident year ex cat loss ratio for these lines over the last 5 years were under 54%.
Business written at Lloyd's, which includes some parts of these lines, accounts for 30% of the premium written this quarter and achieved an accident year ex cat loss ratio of just over 60%.
So, as you can see, the vast part of our insurance business is performing very well.
Aspen insurance achieved a combined ratio of 96% in the first quarter, a significant improvement from the fourth quarter 2017.
We are not yet completely satisfied and certainly have more work to do, but we're making very good progress, and I remain optimistic.
I will now turn the call over to <UNK>, who will take you through our financial performance in more detail.
Thank you, Chris, and good morning, everybody.
We started 2018 with a good first quarter.
Top line growth, positive underwriting income in both segments, and success in reducing our expense ratios resulted in a return to operating profitability.
We produced after-tax operating income of $63 million, a combined ratio of 95.5% and diluted book value per share of $38.70.
Gross written premiums for the group were $1.1 million, and an increase of 12% compared with the first quarter of 2017, with growth coming from both segments.
Seeded written premiums increased to $481 million due primarily to the increased quota share reinsurance we previously discussed and now includes a 60% quota share on our U.S. property book.
As a result, the retention ratio for the group is 57%, down from 69% in the first quarter of 2017.
The loss ratio for the group was 58.1% compared with 56.5% in the first quarter of 2017.
We recorded net cat losses of $24 million or 5 loss ratio points, principally from winter weather-related events.
Total prior year net reserve releases for the group were $38 million or 7 percentage points.
Aspen Insurance accounted for $30 million of the net favorable loss reserve development in the quarter.
These releases were primarily from short-tail lines, including favorable loss experience from the 2017 cat events.
Aspen Re accounted for the remaining $8 million of net favorable reserve development in the quarter with the reduction in releases reflecting the conservative view we have taken of the 2017 crop year runoff.
Our accident year ex cat loss ratio was 60.7% compared with 56% in the first quarter of 2017.
The current quarter was impacted by a small number of midsized losses in insurance and reinsurance.
Consistent with what we've done in the past, we tend to take a more conservative view of the midsized losses in the first quarter of the year as we build our large loss loads across the remainder of the year.
Turning now to our expense ratios.
I'm very pleased to say that the total expense ratio declined 270 basis points to 37.4% compared to the first quarter of 2017.
The decrease was primarily as a result of the reduction in the acquisition ratio.
Importantly, however, the G&A ratio was also lower than the first quarter of 2017, and we are on track to achieve our targeted savings of $30 million this year from our operational effectiveness and efficiency program.
I'll now turn to our segments and firstly reinsurance.
Gross written premiums were $624 million, an increase of 10% compared with the first quarter of 2017.
The specialty subsegment recorded the largest increase and the crop business was the primary driver, contributing $115 million of premium in the first quarter.
It's worth noting that this included close to $40 million of premiums related to a transitional fronting arrangement we have with CGB as part of the sale of AgriLogic in the fourth quarter of 2017.
Noncrop premiums of approximately $510 million were up slightly from the prior year as we benefited from rate improvement, writing more property cat.
I want to make a few comments about our Aspen Capital <UNK>ets business.
Historically, we've consolidated the cat business that we retroceeded via ACM.
However, going forward, these premiums will be disclosed in the same way as any other third-party reinsurance.
And this is the main driver of the increase in seeded written premiums within our reinsurance segment this quarter.
Our reinsurance business recorded underwriting income of $28 million and a combined ratio of 90.1% in the first quarter.
We recorded net cat losses of $15 million or 5 percentage points on the loss ratio, principally from winter weather-related events.
The accident year ex cat loss ratio was 56.6% compared with a very low 50.3% in the first quarter last year.
The first quarter included approximately 3 percentage points from a fire-related loss in Australia.
And the shipment business mix resulting from the growth in our crop premium also added about 3 points to that ratio.
I'll turn now to insurance, which produced an underwriting income of $9 million and a combined ratio of 96.3% in the quarter, both of which are significant improvements from the fourth quarter of 2017.
Gross written premiums were $493 million, an increase of 14% compared with the first quarter of 2017.
Growth came primarily from our Financial and Professional lines, and to a lesser extent from our Property and cat ---+ Casualty subsegment.
We continue to see further impact on our insurance book this quarter from the reinsurance changes that we implemented in 2017.
The net written premiums were $211 million, a decrease of 12% from $238 million in the first quarter of 2017.
This resulted in a net to gross written premium ratio of 43% in the quarter compared with 55% in the first quarter of 2017.
The flip side of the decrease in net owned premium from these reinsurance changes is the seeding commissions we received and the resulting improvement in the acquisition ratio to 13.9% this quarter compared with 17.9% in the first quarter of 2017.
The net loss ratio in the insurance segment was 57.1% compared with 61% in the first quarter last year.
We had approximately $9 million or 4 percentage points of net cat losses from weather-related events in the U.S. and the U.K. The accident year ex cat loss ratio for the first quarter was 65.4% and is a significant improvement from both the third and fourth quarters of 2017.
The current quarter included a credit loss in the U.K. and a fire-related loss in the U.S. I'll now move on to investments, where we generated net investment income of $47 million, in line with the first quarter of 2017.
We took advantage of strength in the equity markets and liquidated our equity portfolio during the first quarter.
The total return on our aggregate investment portfolio was a negative 90 basis points in the quarter and reflects mark-to-market changes in the fixed-income portfolio, driven by rising interest rates.
The fixed income book yield was 2.63%, up from 2.56% at the end of 2017.
The duration of the fixed income portfolio was just under 4 years at the end of the first quarter 2018.
Before I finish, I wanted to provide an update on our PMLs.
You will notice that our PMLs reduced significantly, reflecting lower exposure to our key perils.
In combination with the additional quota share reinsurance that we purchased, we recently placed a $225 million cat bond to provide fully collateralized cover for losses from a broad range of perils worldwide, including wind, earthquake and wildfire.
This 3-year deal was competitively priced and oversubscribed.
And with that, I'll now turn the call back to Chris.
Thanks, <UNK>.
So 2018 is off to a good start with targeted growth and solid underwriting contributions from both Aspen Re and Aspen Insurance.
These results reflect actions that we've taken and continue to take to build on the strength of the Aspen franchise and position the company well for the future.
One of those actions is the Operational Effectiveness and Efficiency Program we launched in 2017.
This transformational program is meaningful for Aspen, and we expect it to create a more dynamic and scalable platform to execute on opportunities and enhance long-term shareholder value.
Much of the work over the first few months has been getting the framework of the program up and running.
At the same time, we've been looking closely at the ways we work, the technology we use, and how we spend our money.
We have taken actions to reduce our expenses, instigating a first wave of streamlining in December, and closed down some peripheral offices in New York during the quarter.
An important element of the program that we've been working through is the selection of an outsourcing partner.
Following a tendering process, we recently selected Genpact as our outsourcing partner, and we have now entered into a phase of due diligence with them to assess the feasibility of outsourcing much of our middle and back-office support processes across the business.
As <UNK> mentioned, the program is already starting to produce the anticipated savings.
While it is still early days, we're making good progress on implementation, and look forward to updating you further about these efforts in due course.
The Board, the leadership team and employees across the company remain fully committed to delivering strong results and building shareholder value.
Thank you for participating on the call this morning.
With that, we are happy to take your questions.
And that's a very interesting and a philosophical question to start an early morning call with.
We could talk for the next hour about it, and I don't think anybody wants to listen ---+ to do that, and you probably don't either.
I think there are a couple of things going on.
I think that the 2 deals this year represented excellent ---+ absolutely excellent value for the shareholders of the 2 companies that wrote insurance and reinsurance that were bought.
I think almost any board at any time in the history faced with an opportunity to get that much value for their shareholders would take it.
Question is, is whether that is the new normal, and I'm not sure that it is.
I think there might have been special circumstances, special relationship following those things.
That said, I think there will be more M&A, there will be more consolidation.
And that is absolutely the way of the world, but maybe the beginning of this year saw more than the normal allocation and maybe prices were a bit more generous than you might expect to see over time.
To your point about capital, I think that's particularly true in the cat business.
There's no question that the best pricing in property cat was at 1/1 and it's fallen a little bit in April, and it looks like it's falling a little bit more in May, June.
This is because, while I think that the established reinsurers, writing on their own common equity basis, operate with the same standards and the same philosophy.
You have no loss, the price can erode a little.
You have a loss, the price goes up to reflect the experience.
That's becoming sort of a minority taste and you have people who are essentially commission earners ---+ they still call themselves underwriters, but the fundamental business model is earn commission for capital that is more na\u0102\u017bve and therefore seeking a lower return and isn't using these kind of price-related techniques.
So you're absolutely right, in property cat that's the case.
I don't think the ripple effect of that outside of property cat is all that great.
Yes, to some extent in some property ---+ probably in areas like Marine, in Energy, in the Casualty lines it really isn't a significant factor.
What it says to me, if you're building a hybrid business that does insurance and reinsurance, the thing ---+ the place that may be historically you've made lot of your money, like property cat, is not going to be your place where you make most of your money in the future.
I don't rule out the possibility of attractive moments of little inflection points post losses.
Some of those may be more local, it may not be the whole property cat, while it may just be somewhere in the southern hemisphere or somewhere in Asia where it might be.
But some of the fund has gone, business model has changed.
Our reaction to that is to have a broad base of insurance and reinsurance.
In fact, we look at our own performance.
We've probably done as well, maybe a bit better in our Casualty Re and our Specialty Re in particular, than we have in our property cat Re.
Although property cat Re has done very well, it's not actually for us over the last 10 years has been the best place.
There are different factors driving the consolidation.
I think it's mainly investor led, some of it is cost led.
The guys, who I think, matter a lot are the buyers.
And what we find with the buyers is post some of these transactions is they're coming to smaller reinsurers and say, we want to have choice, we need diversification of our counter-parties.
We really like the guys in such and such a place, we're not so sure we're going to deal with them in the same way on the same scale now that they are part of this other place.
So I wouldn't overlook the role of clients which is ---+ after all, it's their money is getting spent and their wishes that we are all trying to meet.
So <UNK>, I'm sorry, it's a bit long, but I think it was a great question, I hope I did justice.
Yes.
I'm certainly sympathetic to the idea that you'd want your deliberations to be clear before you enter the roulette wheel phase of the underwriting season.
I think we certainly have the time to do that.
There's no sense of urgency.
You could ask <UNK>, whether he has been working hard these last few months, and I think he will confirm that.
<UNK> and the finance team, the legal team, the underwriting teams all very hard at work.
We had a 3-day board meeting ending yesterday.
So noses have indeed been to the grindstone, we work very hard.
But there's a lot to do.
There are many, many different possibilities and players that we have to evaluate, and it's a big job.
You would want us to do it absolutely right, which is what we're trying to do.
It's hard to answer that question with a yes or no.
I think that the multiple is going to be a function of a couple of things.
One is the company is being brought, its performance and its prospective performance.
And we all know, when you look at the prospective performance, the reality could sometimes deviate from that.
But then you've got to look at the combination.
What are the synergies.
Are they big or are they small.
And if a company is bringing another company something that it really hadn't got in underwriting terms, but isn't bringing a need to preserve a big operational infrastructural system, then you tend to get some of the better multiples that way.
Also the absolute level of multiple of both players.
Companies trading at a certain level seldom buy companies trading at much higher level.
So too complicated to say yes or no.
A lot of factors having a part to play would be my view.
Yes.
So a couple of things.
First of all, this is hardly an issue at all on the insurance side of the house.
It's much more a reinsurance issue.
But if we step back a moment and look at our premium, what I said to you on the call was in both insurance and reinsurance we had year-on-year growth, quite considerable growth in top line in insurance, and the company passed $1 billion of written in the ---+ for the first time in history, about $1.1 billion, which is the best we've ever had.
So, like the real proof is the numbers, and the numbers are okay.
But to achieve that, what we're drawing on is what I said to you over the years: We have exceptionally able reinsurance underwriters, with exceptionally good relations with our clients and brokers.
At a time like this, they have to reach out to those clients and say, here's what's going on with Aspen, here's how we fit with what you expect from us in the past, and what you can expect from us in the future.
And I can honestly say to you, we have not lost a single client through this process.
We have had some detailed conversations though, where we had to say this is what we're doing, and our potential futures involve these sorts of things, and any of those futures actually is a way that works for you, we continue to be a good counter-party.
And people accept that to greater or lesser extents.
But we trade with everyone we've traded with before.
Some of the places where we are putting our participations are a little different.
Situation gets complicated as well, as I mentioned in the call, in reinsurance.
I don't know if you know that expression, bouquet underwriting, people used to use in the London market ---+ you take some good stuff, some middling stuff, and some bad stuff, and you hope that the good and the middling more than compensate for the bad.
But our reinsurance guys at 1/1 decided the bad was too bad and the good wasn't actually compensating.
So we pulled the rug on some of the less performing stuff.
Some of the clients have said, okay, if you're not going to help us on the stuff that nobody wants, we're going to have to retain some of the stuff that you like.
So our premium volume came down as a consequence of that.
I think that was the right thing to do by the way, because we looked at the numbers, and we wanted to basically just slightly improve the quality of our reinsurance accounts.
Well, I'd simply say thank you very much for joining us on what I know is an extremely busy reporting morning.
The team, myself, <UNK>, <UNK> are always available if there are any questions or clarification you need to follow up on.
Thank you, and have a good day.
| 2018_AHL |
2018 | SFBS | SFBS
#Thanks, Will.
Good afternoon, and welcome to our fourth quarter earnings call.
We'll have Tom <UNK>, our CEO; and Bud <UNK>, our CFO, covering some highlights from the quarter, and then we'll take your questions.
I'll now cover our forward-looking statements disclosure, and then we can get started.
Some of the discussion in today's earnings call may include forward-looking statements subject to assumptions, risks and uncertainties.
Actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings.
Forward-looking statements speak only as of the date they are made, and ServisFirst assumes no duty to update forward-looking statements.
With that, I'll turn the call over to Tom.
Thank you, <UNK>, and good afternoon.
Welcome, all, to our conference call.
First, I'll cover a few things.
It is sort of an unusual quarter, as everyone knows, with the tax law changes and the DTA write-off in the quarter.
I'll first say that I'm very pleased with our loan and deposit growth for the quarter and, obviously, for the year as well.
We had a great year.
All the metrics are good in terms of where we are, and I'll come back to talk about loans and deposits a little bit.
I will say that Bud and our tax advisers did an outstanding job of minimizing their DTA write-down, and Bud will go into more detail on earnings and our DTA write-down in a few minutes.
Just I'll cover a few normal metrics that are covered in terms of where we are, in terms of ---+ we don't see any slowdown in loan demand.
At this point in time, it's still very robust.
Our pipeline is down a little bit from prior quarter.
When I say it's down, it's down about the amount of 1 loan.
So if we'd had 1 more loan in the pipeline, it would have been even with the September 30 number and even with December 31, 2016 numbers, so just we don't see any ---+ again, we don't see any decline in loan demand, still a very robust pipeline from that standpoint.
From our production standpoint, we had the same number of production people at the end of the quarter as began, 129 people.
Again, we're not ---+ it's not a typical quarter where we see a lot of growth in personnel during the fourth quarter.
But again, we're continuing to focus on all of our production personnel being more efficient and having a larger loan and deposit portfolios.
I will say the loan and deposit growth for the quarter was strong throughout our footprint.
There's almost no weakness in terms of loan.
No ---+ not every region had very strong loan and deposit growth, but every region had either strong loan or deposit growth, and most of them had very strong loan and deposit growth.
So from that standpoint, we are very pleased with where we ended the year.
We're pleased where we're starting the year.
We don't see any impediments to success at this point in time.
And I'll turn it over to Bud <UNK> now to talk more about specific numbers for the quarter.
Thanks, Tom.
Good afternoon.
First, on our margin ---+ our net interest margin was 3.66% for fourth quarter, 3.77% in the prior quarter.
Our excess liquidity on average increased in the fourth quarter by $225 million.
Average growth in the fourth quarter.
Loans was $277 million; investment securities, $18 million; and Fed funds sold $225 million.
From a deposit standpoint, non-interest-bearing DDAs increased $81 million; total deposits, $503 million.
Loan yield went up by 2 basis points in the fourth quarter, 4.68%.
Our deposit cost increased 5 basis points, so 77 basis points in the fourth quarter.
Just overall growth, loans grew $222 million in fourth quarter; deposits, $295 million; and total assets, $370 million.
From a noninterest expense standpoint, we've moved into our new building in fourth quarter.
Costs related to that move were $347,000.
Our incentive, we reversed $786,000 over accrual in the fourth quarter.
And our efficiency ratio improved.
We were 32.05% in the fourth quarter and 34% in the third quarter.
Credits, still excellent credit quality.
Nonperforming loans to total loans is 0.19.
It was 0.26 at September.
And our nonperforming assets to total assets, 0.25 versus 0.28 at September.
Fourth quarter net charge-offs, above normal, they were 56 basis points.
Fourth quarter charge-offs, 70% of the charge-offs had to do with one industrial contractor.
And we also had 5 other charge-offs that were already fully impaired.
Nonperforming assets decreased from September.
They were $17.5 million at the end of the year versus $18.8 million at September.
ORE did increase $6.7 million at the end of the year versus $3.9 million at September 30.
ORE expenses were up a little bit for the fourth quarter but still very low.
They were $160,000 in the fourth quarter.
We did add TDRs.
We added one TDR for $4.2 million.
That was changed to an interest-only loan, so that did ---+ we did add that in the fourth quarter.
From a tax standpoint, our tax rate for fourth quarter was 41.25%; without the deferred tax adjustment, 32.76%.
And if you also back out the stock option credit, it was 33.73%.
Year-to-date tax rate, 32.2%; 30% without DT<UNK>
And if you also take out the stock option credit, it was 33.4%.
And for 2018, we are projecting our tax rate to be 20.94%, let's see, and then year over ---+ just stock option credits year-over-year, the credits were $4.6 million in 2017, $7.2 million in 2016.
Going back to the deferred tax allowance adjustment, different components.
Net charge-offs are part of that equation.
From a tax standpoint, your net charge-offs are your actual deductions that you booked provision so the fourth quarter charge-offs had an impact on the deferred tax adjustment.
We also have proprietary tax credits that factor into that adjustment.
That was part of our deferred tax allowance or helped to lower our deferred tax allowance.
Plus, there was bonus depreciation in 2017 related to our new building, and that also helped reduce our deferred tax adjustment.
And I think that's it for me, Tom.
And I think that's it for me Tom, right now.
Well, we'll open it up to questions today because I'm sure we have a few.
Will, can we take the first question, please.
This is actually Peter <UNK> on for Brad.
I just wanted to get a little bit of color, maybe if you could on just the charge-off this quarter.
I know you still have tremendous and pristine asset quality here.
Just wanted to get a little bit more color on maybe the characteristics of it and kind of the moving parts, and maybe if you see anything systemic there.
Appreciate that, that's really great.
Maybe just touching on the net interest margin a little bit.
Obviously, you had an influx of liquidity this quarter.
You had a sub debt and, obviously, deposit growth was really strong.
Can you just talk about the moving parts here going forward.
How much ---+ can you remind us, one, the seasonality in the deposits, and maybe kind of what it looks like in terms of deploying just over the next couple of quarters.
Yes, Peter, this is Bud.
Historically, first quarter, slower growth.
Historically, really, from deposit side, we've probably stayed even or actually decreased in deposits in the first quarter, starts to tick up in the second quarter and keeps building to the fourth quarter.
Fourth quarter is always our strongest quarter.
I think we're like everyone else, we're looking at deposit costs just to make sure that we're trying to control that.
We did December ---+ month of December, the margin had an improvement from loans that repriced in December.
84% of our loans that have a floor are now above that floor, but we also had $152,000 in interest income we had to reverse on that one credit that we're talking about so ---+ and then there's also loans that will reprice at the 1st of January to mid-January.
Some of our loans don't reprice immediately, it's usually the next month.
It usually takes 60 to 90 days to get all the loans repriced.
They're tied to a floating rate.
Peter, this is Tom <UNK>.
I think what we saw in December is, I think, many banks anticipated the Fed rate increase in December and went ahead and increased deposit rates either on special ---+ on a one-off basis for specials or ---+ and probably a little bit less on posted rates.
But that's pretty typically in our industry, I think, to see the rate increases in December on the money market side, especially.
No, I did not break ---+ I think that we should be ---+ I think we've covered that in the third quarter or it broke it down.
I don't have that with me.
Only thing I had was what actually repriced in the month of December.
Go ahead, Bud.
It didn't really make any ---+ I know when we did the budgets, no real major changes from an income standpoint.
I don't ---+ I think if you look at mortgage rates, they're still pretty low.
Every time we think refinancing or something along that line is finished, that doesn't seem to happen so ---+ but I mean, we did not make any major changes to what we're projecting for fee income for 2018.
I think that'd be a good estimate.
Historically, it happens in the first quarter.
It could change, but I could see that happening in the first quarter.
You're talking about fourth quarter 2016.
That was a one-time event.
Do you want ---+ tell me again what your ---+ was it offset or anything, is that what you were saying.
Not in fourth quarter of last year, no, because that was ---+ we had incentive over accruals.
There were some other positive income adjustments also, the one along with that in 2016.
Betas, we've looked ---+ we've hired Darling Consulting Group to help us with our ---+ assist on our asset liability management.
Deposit betas really haven't meant a whole lot, I guess, in the last few years.
I think we're like a lot of people where you're doing one-off special rates, we haven't really ---+ we just now have increased our posted rates.
So it's kind of hard to say we're going to do x based on the next Fed increase.
That kind of went out the window when rates got so low in '09 and forward.
So we looked at it but we just not ---+ just hadn't been really any change since the Fed increases from December 2016 forward.
Yes.
We really haven't seen that in our markets where people are changing posted rates.
I think like Tom was talking about, people are still doing specials or anticipating future Fed increases, so we really haven't seen the ---+ just overall posted rates increase.
That, I don't have with me, but I can ---+ I will look at that.
So given sort of the, I guess, once in a lifetime benefit from tax reform, is there kind of a skew with how you guys are feeling about strategically using that benefit, people, platforms, clients, one more than the other.
Maybe just kind of ---+ any color on that.
Yes.
<UNK>, this is Tom.
We're going to use it for the shareholders, 100% of it.
We don't ---+ what we say is we're a disciplined growth company.
I realize there are some competitors who do some different things.
What ---+ most of the people we compete against have a significantly lower return on equity than we do, and some of them are very low compared to our return on equity.
So we try to have discipline about how we do our business and how we price our loans, how we price our deposits.
We think we do have discipline, and we're going to continue ---+ we think our return on equity reflects it at this point, and we'll continue to do the same.
So we think there's opportunity to bring more money to bottom line for our shareholders and not ---+ and used in any other fashion or form, <UNK>.
(inaudible)
Okay.
I guess maybe kind of along that, are there any, I guess, market you think are more susceptible to competition.
Or kind of how does ---+ I mean you guys ---+ because some people are saying it could be some of the benefits competed away.
Maybe if there's any kind of color in how you think about the competition changing at all in your markets.
Yes.
There's competition.
It don't matter if you're a retail bank, there's ---+ or a commercial bank.
And we're certainly a commercial bank.
But if you're retail bank, you go find somebody advertising a huge rate to ---+ for retail money market accounts.
So there's always somebody out there like that.
And the disciplined players are the ones that are going ---+ I think that are going to be more successful.
But we don't see any ---+ we don't seek any ---+ foresee any changes with our competitive environment to date, <UNK>.
We don't think our competitors will try to reduce price and use ---+ reduce our profit margins to be more competitive.
I just can't imagine that they would do that at this point in time.
I know that the analyst community is concerned about it, I realize that and, certainly, it's a valid concern.
But we don't see that happening at this point in time.
Okay.
And then just last for me, I guess, maybe kind of ---+ the flattening of yield curve more kind of short-term rates rising than long-term rates coming down.
I guess, given kind of ---+ and I appreciate you guys saying that the credit ---+ the charges you guys have are more long-standing issues, and you guys took the opportunity.
But does the rate hikes feed into kind of your underwriting models in terms of credit loss potential.
And then maybe just kind of if there are continuing rate hikes, what level do you think would ---+ could lead to additional charge-offs and losses.
Yes.
We're a long way from rate hikes that will contribute to additional credit losses at this point in the cycle, <UNK>.
If you're assuming 3 or 4 rate hikes, 2018, that's 100 basis points.
We are not ---+ we are primarily a C&I bank.
We're not an income CRE bank.
Obviously, it would affect your cap rates on the income CRE if you have a 200 to 300 basis-point increase in loan rates.
Obviously, we don't see that happening anytime soon.
But if it does happen, we'll be less affected than our other competitors there, CRE banks, because we are a C&I bank, and we don't see any significant increase in charge-offs as a result of higher rates.
Obviously, we are like everybody else with ---+ half of our loans are fixed rates.
So if fixed rates go up, obviously, that helps us over time.
It won't help us first month but helps over a 2-year period of time.
We could average our rates up significantly on our fixed rate portfolio.
So we're like any other bank, we're certainly interested in seeing ---+ if fixed rates go up, that certainly would be accretive to our income.
| 2018_SFBS |
2016 | GBX | GBX
#You bet.
The answer to the question is, for reasons that are historical and strategic in the nature of Saudi Arabia and its special relationship with the United States, they adopted US AAR standards, rather than the European standards.
Having said that, there are many European ex-Pat executives who helped to run the railroads, and they do it well.
And there's a lot more harmonization between the US and Europe, in terms of the people who run these large companies.
For example, our good customer Freightliner, is now owned by Genesee & Wyoming.
So but the real answer to that is, the base question is, there's always been special relationship between Saudi Arabia and America.
And while it may appear that the US has pivoted to Iran, that's not really true.
We have to support Saudi Arabia, and they prefer US products in this particular area.
They also acquire perfectly fine equipment and services in other areas of their economy.
The second driver for Saudi, is simply the development of the third pillar of their economic platform, which is mining.
They have oil, of course, and gas, but they have petrochemicals, and now they are really working on the mining, and looking at construction of new railroads.
So this is a very thin market, and there are many participants in there, and there are other car suppliers, notably China, that have supplied that market in the past.
We have a geographic advantage we believe under our model, but it's not just Saudi Arabia.
It's the other Gulf Cooperative countries, which is essentially a Sunni-based market, and the countries of near Asia that are strategic allies of Saudi Arabia and the West.
I think, actually there were a few tank cars that were ordered during the quarter.
They were not for energy.
And I do, while again, there was some cover hoppers that were ordered, they were not the small cube sand covered hoppers.
But on the backlog and the [go forward], we can dig into that a little more deeply.
But there is, we do have customers who are making adjustments.
I mean, oftentimes, and that's why if you look at some of our disclosure in our 10-Q, we say that our backlog is indicative of what we believe is going to be ordered, because as we've talked about several times, we're very focused on helping our customers solve their problems, as long as it's a win-win for both the customer and (multiple speakers).
Well, they are orders.
We've said that they will be ordered, so just to correct that technical misstatement.
They are orders, but there is ---+
Some of those orders is what you're saying, right.
So we like managing that very actively.
We have a risk committee that meets, I think once a week now on the portfolio.
And there are ---+ they're asking for some of the secret sauce I suppose, but I doubt any of us in this business would want to give you, but we'll give as much granularity as we can.
Maybe we should post something, just to be fair on that, from what we want to say about that mix, and how we brought it down.
One of the things that everybody has got to understand though, is there are different qualities of customers.
Customers have specific operating needs.
There are two types of energy cars, oil by rail, and other energy cars that are tank cars, and then there is sand cars.
So one of the real motivations for us to do the WLR deal was to mix, have other product we can mix with sand cars, and make a balanced portfolio.
So we are doing a lot to manage that exposure.
And I don't know if that's helpful or not.
I think possibly, <UNK>, the difference is in last quarter, we were including along with crude, we were also including ethanol as part of those energy cars.
So I think that is probably the mathematical difference.
And we are more refined in our disclosure this quarter to focus on the truly crude part.
Hey, <UNK>.
How are you.
Sure.
So I would say that, we talked a lot last year about the GBW joint venture, about how 2015 was really going to be the year that that management team spent knitting those operations together.
And I think as we came out of our fourth quarter of 2015, Jim Cowan and his management team have really been successful in doing that.
And I think what you're seeing for the first half of this year, is that steady improvement where they're driving performance through their operations.
They've really, they send swat teams into the various locations, where they may be having some difficulties whether it's operational difficulties, or making certain they are getting the right mix of work into the shop to match what its strengths are.
So I would say that's a group where they've really kind of embraced some of those core management techniques, to be able to manage such a broad network of shops and strain the benefits out of it.
Jim Cowan, I think from his prior life, still stays in touch with some of you guys, and I don't think he's been too shy about having some fairly aggressive gross margin goals.
But he should not be publishing those if, we should be publishing those.
So I hope he's not doing that.
But I think he's known as Mr.
Margin in the industry, and he's got very positive, very strong goals.
I am really high on this guy.
He is actually getting a lot done, and on the team he's built.
You bet, <UNK>.
No.
I don't want to give you the impression that customers are out there willy-nilly changing car types.
In fact, there's been an advantage to us in recent redeployment to ---+ of our concentrate ---+ our plans for building different kinds of cars to extend runs.
So on the manufacturing side, we've a very buttoned-down plan to deal with a very large backlog of box cars, that is causing this changeover issue that <UNK> addressed.
As well as we're making efficiency improvements in our automotive production capabilities, and we are also streamlining our costs.
One example is we've been ---+ just really doing a lot more with less people.
We've furloughed a number of people in some of these factories, in reducing our costs in dramatic ways.
But the basic dynamic, in an industry where everyone agrees there's going to be less demand and more difficult circumstances, will be to adjust the lines appropriate to the car type.
And there's at least 20 different car types, and they're not all the same, as we often remind all of you guys.
So it's not an area that I'm particularly concerned about.
It's just normal in this type of market.
But they'll be ---+ the changeovers are related specifically to box car and automotive.
And just one other thing to add <UNK>, on just on the absolute number of units being delivered, that also has to do with car types.
So for example, we build fewer box cars per day, than for example, we were doing sand cars earlier in the year.
So some of it is, just as you get into these more complicated car types that have higher number of hours to build ---+ so it comes in.
So from a top line and a revenue perspective, they're a higher ASP, but maybe we do fewer of them a day, because they are more complicated and take more hours.
That's a great question.
I don't know where you get these questions, but you obviously know something about the business.
The answer is it is a more complicated and difficult market, so we have to be competitive.
In some cases, our value props have to be more than competitive to address our market share goals.
Doesn't mean that necessarily it's going to reduce our margins, because we have lots of weapons in past history to deploy.
But one, I would think of the things to watch, since that's such a great question would be, plant by plant to the degree, we are granular in some of that and type, car type by car type.
What's the outlet for those car types.
What's the outlet for intermodal, which one of our big products, historically almost half, 50% of the market, great customers in that business.
What's that going to look like.
And our marine backlog, what's that going to look like.
And then, what kind of pick up, are we going to get on these foreign adventures.
How risky are they.
Those are some of the things I worry about, and I often don't see things that I worry about in some of the questions.
You've touched on one though, so I congratulate you.
Thank you.
Thanks, everyone for spending the time with us this morning.
We appreciate your interest in Greenbrier, and look forward to chatting with you over the coming quarter.
Have a great day.
Bye-bye.
| 2016_GBX |
2015 | ANF | ANF
#In terms of the prototype, <UNK>, we have opened a couple of stores.
They are more open in feel, slightly lighter in terms of the ambience, and we made adjustments to the way that we lay the product out.
So far the results are encouraging, but it's very early days.
In terms of pricing, pricing really is an ongoing thing that we look at on a continual basis.
There's no strategic shift in pricing other than we have to be very mindful of our brand positioning and we have to be competitive.
Then in terms of the organizational structure and people, quite a few hires obviously are now embedded in the business and they are all making an impact on the improvements that hopefully we will see in the brand next year.
Like you say, the balance of the assortment is an evolution.
It's a continual process and it's something we change on a reactionary basis to what customers need.
Essentials is a very important part of the mix, but so is more improved and a higher design content product.
So all I can say really, <UNK>, is that it's something that is a continual process.
From the Hollister perspective, it's part of our good/better/best pricing strategy and we are currently finding success, both with our entry level with the must-haves as well as our fashion offerings.
It has been a nice balance between the two.
We, too, are encouraged by the positive response.
Clearly, as we've discussed several times today, our conversion has been up significantly, domestically and internationally, which signals that the customer likes what we're putting out there.
And we'd like to believe that that will continue.
<UNK>, some of that remains to be seen as we move through the quarter, but what we can see today: from a top-line perspective we do see the FX pressure abating, but still being a headwind, so abating from what we've seen in the prior few quarters.
However, as you mentioned, the hedging benefits ---+ we had larger hedging benefits last year in the fourth quarter as we were just stepping into these rate declines that we don't expect to anniversary.
So on the margin line we expect the FX headwinds to be very consistent with what we've seen for the prior quarters, but on the top line abating somewhat.
In the fourth quarter, right.
There is obviously a big dependency on the exchange rates, so based on ---+ however, we do have some hedging benefit that we experienced pretty much throughout the year this year that we'll be up against next year.
So obviously very much dependent on where the currency rates and how they move through the year, but we have a known headwind on the hedging benefits from this year going into next year.
| 2015_ANF |
2016 | TWI | TWI
#Well, the first thing, as I mentioned, if you look at the cash receipts, I spend an awful lot of time out on the road, and I've been with an awful lot of dealers, whether they're Case or Deere.
And almost all of them have been moving a lot of used equipment.
And I think you have to give the OEs a lot of credit, instead of going out and banging up the market of new stuff, they've been sitting there pretty good taking their punishment and letting the dealers sell off a lot of their trade-ins.
So the dealers have reduced the pricing of their used equipment just trying to get it down, mainly because they wish to get it down.
You've got a lot of big farmers who might trade in 10 big tractors to buy 10 of the newer ones, but that the price of the trade-ins is way down, so they're looking at, well, let's just use them for another year.
But they got the cash.
When you look at cash receipts, farmers are getting ---+ unless a farmer went out and bought an awful lot of land and mortgaged his land, they're pretty good.
Yesterday I was in Fargo, the day before, I was here in South Dakota.
And you can see they're getting all ready to plant.
So I think ---+
Well, I think what we're going to see, in ours, I think that we will probably be stronger in ag sales in quarter-wise in second quarter than we will be first quarter, because we flushed out the inventory, the OEs.
We're switching ---+ our ag sales in the second quarter will be dependent on various parts of the country and weather.
In other words, if you have a wet spring, our ag sales are just going to jump pretty good because you got to have bigger flotation tires, and that's the way ---+ and we make them.
Nobody else makes as many as we do.
And those have probably the best margins.
Then the summer will be like most summers.
But then come fall, it depends there, too.
If it's a dry fall, which it was ---+ fall last year was probably the first time in 20 years it was such a great fall, you did not have a big rush of [taking] tires out for combines and tractors because it was so nice.
If it gets to be wet, then that's going to be a real big boom.
So we are dependent on weather, <UNK>.
I would think every quarter because nobody knows, [like I said] ---+
---+ it's soft.
Yes, the order book.
I would say it's a mixed bag.
The big items are not being ordered until the last moment, okay.
I would say from 150-horsepower down, your order deck is moving up.
Above it, which is our bread and butter, it's more of the last moment.
And the same thing is going on in the aftermarket.
Now, the big kahuna for us, of course, is the lawsuit we filed on everybody from China, India, and everything, and that's going to make a big differential.
So now that the DOC has already said, hey, they're moving forward, International Trade Commission agreed on India and Sri Lanka.
You were around when I did it before, Titan did.
And we were pretty successful.
There's no doubt we'll be successful now.
We're going to try a different, because the ICT didn't touch the tire and wheel assemblies because of not enough volume there.
Has to be 3%, and it wasn't.
But our point, as my press release said is that this is nuts.
Steel, you have duties on steel and everything.
But technically, if you mix them together, there is no duty.
So I think with our friends, the steelworkers, we're going to have to do that administratively.
And I think we'll win that too.
So line up the cry towels for some people, but it's the law.
And I think the law's on our side and we will prevail.
And when that happens, you can just pull up the chart, you can figure out how many hundreds of millions of dollars, and that's not all coming to Titan.
My friends at Firestone insist that we always have to lead and pay the bill.
I think that right now everybody's been put on notice.
So if you go buy a bunch of stuff now, and we win, the duty goes back to the [time], because you've been given notice [that] the lawsuit, and they took it up.
Yes.
Okay, that's a good deal.
Good luck with that, Maury.
Last question and I'll jump off.
Could you just help us with EBITDA and ITM.
Because you said, obviously, it could be for sale.
But how do we think about maybe trailing 12-month EBITDA, something like that, just so we get a sense of value.
Thanks.
And good luck this year, Maury.
Well, I'd rather not, because we never break anything, then you set a precedent.
But let's put it this way.
It's north of nine.
I mean in the nine figures, then we would be interested in selling it.
Well, I would love to have bought a bunch of stock when it was down around three bucks, four ---+ $2.80, whatever it went to.
I would have loved to.
Only problem is, I'm restricted, Titan's restricted.
We can't do it because of the bonds, the big senior bonds, okay.
We've had enough lawyers look at it.
We've looked at it, so.
No.
I can always buy bonds back.
That we can do.
Well, you see, you have two situations.
We're the only one that has this situation.
You have the tires that have been the same tires for the last 40 years.
Now, you sell, in the aftermarket, you sell them to tire dealers, big wholesalers, et cetera.
So you've got a sales force that's out doing that.
Then you have the new, which <UNK> explained, in the LSW tires, which we have gone out, and we have like 180 farmers now who have turned around and found out that you put a set [of new] tires on your tractor, your combine, your sprayer, your implement, you can turn around and that equipment will perform better, even a freaking grain cart will perform better.
So what is happening is that in order to make that channel, we only have a couple who I would call very progressive dealers in tires who have taken the LSW, because you got a wheel and a tire.
Now, so we have gone to equipment dealers, the guys that sell the equipment, and the farmers.
So we're doing both.
So that we went to the big farmers.
The big farmers are buying.
We have made them house accounts.
We call it our R&D farms.
But what happens when other farmers see them, they want the same thing.
They go to the equipment dealer, whether it's a Deere, a Case, or whoever, AGCO, and then we sell right to that equipment dealer because you have to buy a tire and a wheel.
Once you've got yourself set up, you just have to buy tires.
So that's what we're [growing] there.
And we're doing the same thing in the construction business.
Going to the big huge construction contractors.
And that's the long term.
We're going to be our destiny of the product we make.
Do you want to touch on that <UNK> or <UNK>.
Well, what is going down, as <UNK> talked about, you go in, and what happens is you start reviewing everything that goes into a tire or everything that goes into the wheel.
I mentioned one about the scallops versus a full 360 contract.
So in our welding process, where you might have on a ---+ just think of a 46-inch size big wheel.
Well, it's got a 360 degree weld.
Well, you can put four six-inch welds, and that's all you need to keep that center if it's pressed in there in that wheel.
And you'd have some scallops on that thing.
So what you do is you're going to buy because it's a circle, and you're punching a circle out of a square, if you turn around and make your square a little smaller, you're only chopping the corners of the square off, and when you form it, those come up, and then you weld those.
Well, when you're dealing with big steel, you've got the situation where you're taking a lot of metal out.
So a lot of these items, that's for a wheel.
Now, let's get to a tire.
You get to a tire and you ---+ the large ---+ we're the largest when it comes to all these 100 horsepower and down, let's just say 40 and above, tractors.
And those are going up this year.
And we supply, whether it's Mahindra, Ellis tractor, Kioti tractor.
You just go down them all, Kubota, that come in, and they buy tire and wheel assemblies.
The same situation there, when you look at the tires, a lot of times, they just said they want this tire.
So when you look at certain equipment that's out in the world, you see that they've got various tires where you can take a lot of cost out of that tire.
That tire's [been around] for 40 years.
And so they just got used to it.
They don't need that tire on that piece of equipment.
Looking at it, you can make it so it looks the same, but you can take an awful lot of stuff inside that (inaudible).
<UNK>, to answer your question on that, <UNK>, I mean, it's really indicative of all the efforts that we've put in over the last couple years to get to this point.
We've highlighted a number of those factors that have led to this.
I mean, our scrap rates are now lower than they were last year.
Our cost of quality through our warranty continues to go down.
We have plants that have gotten more efficient as we've reduced headcount.
And what Maury's alluding to here with taking out raw materials, couple examples on that, we've put in sensors in one of our large tire plants that can take out the variability.
So as you know in finance, any time you got variation, it adds risk and decreases value.
Well, we've taken variability out, so now we're putting less material into our gauges of the [kind of] rubber.
We're able to spread our fabric better with these sensors and get more out of our fabric than we used to.
So these are incremental things.
So it's not one thing that we can sit here and say, yes, this is the holy grail that made it all happen, but there's definitely a lot of initiatives that have kind of added up to the secret sauce that has really gotten us to this year where we saw an improvement in our gross margin percent.
so I think what we will do in 2016 is see those initiatives roll forward, and then continue to build upon them.
And so the only thing we've got to do is make sure we keep getting the volume into the plants and absorb as much of the fixed cost as we can.
You're exactly right.
The $5.5 million I alluded to in the plant that I was at this week, I mean, those are permanent improvements.
They don't go away.
And like I said, it comes from stuff that certainly we have on the table now that did we have it before.
I'm not saying we didn't have it before.
But really what the last couple years has done is we've gotten the team really pushing more aggressively towards the initiatives that benefit the Company.
And so there's good things that come out of a downturn.
It's painful living through it, but there's definitely good things that will benefit us in the long term.
<UNK>, this is <UNK>.
I want to make a couple more comments on this.
During the course of 2015, we had upwards of 250 projects in play that materialized in our results.
And the comment you made, and I made it during kind of my section, was these are accumulative.
So these are permanent changes.
And by the way, it's not just cost reduction.
It's profit improvement.
We've delved into areas like pricing, attacking our invoice programs.
We have growth initiatives relative to sales, operating expense, redeployment in terms of driving more value creation.
So there's a lot going on here.
And that pipeline continues to be filled and replenished.
And so it's just a machine that continues to churn relative to contribution to the results you're seeing.
Well, the first thing is you have what you call a maintenance CapEx, okay.
Maintenance CapEx for all the factories worldwide, we probably only have to be real close to about $20 million.
That's where you ---+ all the other stuff you have to keep doing, safety, environmental, whatever.
But then it's like anything else, everybody, as both <UNK> and <UNK> have mentioned, you go to every factory.
Every factory, when they do their budget, they'll come up with big CapExes.
Hell, lot of them might even think to start building a brand-new plant.
So what the situation is, it's most of our CapEx, a great part of it, we use to either improve our efficiency, reduce our cost, or come out with new product.
And what we have, once you cross that $20 million, that's basically being put into mostly reduced cost or new product.
And you're wide open on where the top or the bottom could be in reference to that.
But your floor is $20 million, probably anywheres from $16 million to $20 million.
Did I answer your question or not.
I would say I don't know what the percentage of it is.
But you're probably between $20 million and $30 million.
And then I think it's going to just keep growing.
I don't know.
I haven't even looked at 2014, so I'd just be making something up for you.
<UNK>, it's continued to increase.
The trend lines look good.
In a recent meeting we had with our management team, our ag product manager is extremely confident that the trend line for 2016 will [get] better than what we saw when you look at (inaudible) 2014.
So it's moving very positive.
I can tell you right now that the largest farmer in Illinois who farms just soybean and corn has new tractors from [mother of] the green machine.
They came with new LSWs.
All his combines, I believe he brought, it's either 12 or 14 new combines.
And those all have our big 12-50-46 LSWs, both front and steer, the 850s on the back.
And then over in Iowa, a dealer out there has been, he's been running a program where he would switch out and if you got a used tractor, used combine, he'll switch them out and put LSWs on for the farmers.
So that's two.
Up in Canada it's moving.
Most of the equipment on the big stuff up through there, we're going to be looking at.
The big thing about the LSW is because you work at lower inflation pressure, you end up with less compaction.
Number two, you ever see all these combines with duals.
Ask yourself, well, why the hell they got duals.
They got stalk stompers on those combines and everything.
They're running duals because they think that's for flotation and they can get them out [first], be stable on a combine.
Military, for almost 20 years, has gone super singles.
Put a big super single on there, you outperform everything.
Instead of having four tires, you have two.
You get better pull, better fuel, better ride, less compaction.
Well, it's a big country.
The next show we have Ride-N-Drive, is in Arizona.
Most people don't know, but big farmers down there are dairy farmers.
So We want to keep going just like automotive, went through automotive like barnstorm.
Took about six, seven years, though.
Yes, I think what we're seeing is a steady increase, <UNK>.
The inflection point comes from many different sources.
I think what Maury talked about earlier, some of his comments with the test farms that we have, as that population base grows and the acceptance, and I read a few of the comments from those reports which are just a small subset of the positive comments we get, the inflection point comes when that population base just continues to spread the word.
And so I think our job is pretty simple from the standpoint that we have a great product that makes equipment perform better, we just got to continue to get it out there in the market, build good products, and develop new products to continue to fill out the product portfolio.
So I think we probably [made it] more complicated than we needed to at the beginning.
We approached it more of a disruptive technology that is tougher to sell.
I think we really just got to look at it as it's a sustaining technology taking wheels and tires that already exist in the marketplace and just making them better.
And so I think we really got the team focused.
We got a good group of test farms.
Like Maury said, we got equipment dealers that are pushing the product hard.
We're in the OEM books.
The market recognition of the LSW is strong, as I mentioned, 23 points higher than IF and VF.
So all the trend lines are good and positive.
Is there an inflection point.
I believe there's one coming, but I don't think there's anything that we can sit here and point to specifically right now.
Well, I don't think what's happened up in the oil sands has basically been spent.
And we've already bought the molds and everything for Goodyear.
So what you have is a factory.
It goes through ---+ you're just putting it in.
The biggest expense is, which you already have the bodies, the engineering.
In fact, our Russian plant just added in the curing side, they added another shift because of their orders.
So that's what it is.
You're not talking ---+ this is no big money for a big launch yet, okay.
I can make a couple comments there.
In terms of the tire reclamation, we don't build anything.
So we're recycling tires.
So there really shouldn't be much of effect on working capital there.
And in terms of tires, the initial tires that we sell into Europe are being sourced from North America, and I don't see that having a material impact on inventory or working capital as well.
Working capital, we fully expect to improve, as I said during my section.
Initially with the EVA framework there is a lot of emphasis on productivity and profitable growth.
In fact, the BIF, or the Business Improvement Framework that was mentioned, 75% of those initiatives I talked about, 250-some-odd that flowed through 2015, were related to the plants and productivity improvement.
So that's where our focus has been.
In 2016, we have an acute focus on working capital improvement.
So I expect working capital to contribute to cash generation in 2016.
Well, yes.
I mean, with SG&A, you had some currency impact and some one-time items.
So, no, I wouldn't think that level would be sustainable.
But with that being said, we have continued to reduce operating expenses.
And I've said on previous calls that, relatively speaking, when we're in 2013, certainly higher level of sales, our operating expenses is fairly lean.
And what we've done, even though we have reduced it, we have also looked for opportunities to redeploy it from lower-value opportunities to higher-value.
So we'll continue to do that.
I mean, at the end of the day, it's about profit dollars at the end of that P&L statement.
And sometimes we're going to have to invest to produce more profit.
And so we'll continue to look for those opportunities.
You got that there, don't you, <UNK>.
Yes, I have it.
So adjusted EBITDA for Q4 was $3.2 million, full-year adjusted EBITDA was $54 million.
Yes.
For 12 months, the year ago was $89 million.
And I don't have Q4 of last year at my fingertips.
I believe it was roughly about $8 million or $9 million.
Yes.
We're looking at, I think we put out between $30 million and $35 million, in that range.
You're welcome.
And thanks to everybody, whoever stayed on.
You have a good weekend.
| 2016_TWI |
2015 | GPS | GPS
#Thanks, <UNK>.
I will start, <UNK>, with Q2 and marketing was down, driven primarily by Banana and then the absence of Piperlime, and a little bit of Gap.
For Q3, we will probably expect it to be down again.
You might remember, we had a fall campaign for Gap last year, which we're not anniversarying.
We're probably going to be down some, because of that alone, and also the absence of Piperlime.
No other dramatic changes.
We might even invest a little more in other brands like Old Navy.
I would say it's probably a little early to talk about holiday, because we haven't finished those plans, but I don't know, <UNK>, if you want to add anything.
I will give a somewhat trite answer, honestly, but nonetheless I think one that I feel pretty strongly about which is, the best marketing is good product.
And if I look at Gap as an example, we drove a strong business back a couple years ago in spring of 2012 with modest marketing, but exceptional product.
And so what I can say is that as we feel better about the product, that will help us think about the marketing that we are willing to put behind it.
But I do believe that your marketing should lag good product, and that a lot of what will drive the bounce in the business is good product in the stores, which then puts the marketing behind in maybe the next period.
So we're managing it very carefully, and again, as <UNK> said, too soon to talk about what we are going to do in Q4.
It's not really there yet.
Directionally, <UNK>, I would tell you for sure Gap is going to be the tightest, followed closely by Banana.
Because of their performance year to date, and because of ---+ we have the most confidence behind Old Navy, we're going to be very tight with Gap and Banana.
And then, to your point, Old Navy is still manage for their sales levels tightly.
They're going to have more inventory, for sure, to feed their momentum.
But I think they're onto something really good, and we're all holding hands, and would like to see a little improvement in turn as we go forward.
I think across the board, tight, but directionally Old Navy is definitely going to be inventory better than Gap or BR.
Starting with ROD, you are correct <UNK>.
We have said that most recently it would take a low to mid single positive comp to leverage ROD, for the reasons you laid out, more of the mix for international and some higher rents.
With regard to the impact of the store closures on ROD, I would say it's not going to be that meaningful, and the reason is you'll recall that the stores we're closing mostly in the lower quality centers.
And in those centers, we actually had pretty favorable rents.
When we take those out of the portfolio, it doesn't really help your ROD leverage much, because as a percent to rent, that wasn't the issue with those stores.
It was more brand positioning with those stores.
If you just go to categories, and I'll be consistent here and not call significant change in the business in the back half, even though the team has been able to make some incremental changes as they look at both fall and holiday.
So if I look at Gap order, I expect bounce as we're getting the aesthetic on trend, quality, et cetera, on track.
You can just look at the public data and see where we've given up market share.
Mix is a big category in women's where we gave up market share.
It is a mixed cycle right now.
It is an opportunity for us to get our share and more than our fair share.
Denim is coming back, which is a place that powers the brand, and I believe we have really good product development in the pipeline.
And those are two big categories for the brand, and should always be brand drivers for Gap.
I'll just stop there at the moment.
The team has obviously been focused across the entire assortment, but to be able to ride the bounce in denim, and then reclaim and more sell our fair share in knits is a big opportunity for us.
Amber, we have got time for one more question.
You're right.
You're right, <UNK>.
It's a good call-out.
Just before, as we were putting into the public announcement, we started taking some small actions in the first quarter, related mostly to some inventory and related to the store closures.
And when we gave our initial estimate on June 15, it included a little bit of that action we had already taken in Q1, building into the announcement.
So consistent with that, the number we just gave out for the first half has a little bit of spend in Q1, as once it was announced, we accumulated the total charges.
Correct.
The franchise operations continues to be a business that we believe in really strongly.
Obviously, also, some foreign-exchange headwinds there, which we don't call out separately.
But we're bullish on it, and now, we're really just starting to put Old Navy into the mix, and so far the redone Old Navy in the Middle East and in the Philippines has been very positive for us.
I don't want to go into a lot more detail right now, but it's a business that we are long-term committed to, and getting Old Navy in the mix was pretty powerful for us.
Great.
I'd like to thank everyone for joining us on the call today.
As a reminder, the press release, which is available on GapInc.com contains a full recap of our second-quarter results, as well as the forward-looking guidance included in our prepared remarks.
As always, the Investor Relations team will be available after the call for further questions.
Thank you all.
| 2015_GPS |
2017 | QHC | QHC
#It is based on a calculation.
For example, this particular period was based on the base year of 2013 compared to a previous year of 2010.
So it is just based on that estimate at this point in time and that was the information that we receive from the California Hospital Association.
We are looking into that to make sure that allocation is correct.
And just to clarify it, it would take the allocation from $34 million in 2016 to $21 million in 2017 going forward for the next three years.
One, we don't give any cadence of based on the volume trends is point in time and it is a little early right now; we are still in the process of closing the books.
So at this point in time we would not be giving any information on 2017.
But there was a little bit more of a flu that we saw in the first quarter than we did see in the fourth quarter.
So we would say that.
And just in addition to that, I think our physician recruitment activities have really been very successful associated with it.
We had 75 providers start in the fourth quarter 2016 and first quarter of 2017, that is 75 commencements of providers who are actually seeing patients.
We anticipate that would have an effect going forward.
As we look forward to our future growth ---+ and I think we identified when we first came out that it would take us about 18 months on these first eight hospitals and we are ahead of track on those.
We are looking at additional assets to make sure that our debt structure is aligned and that is why we are looking at a few additional hospitals associated with that.
As we go forward, every day we work on volume growth, we work on expanding services.
One of the key areas I think we identified was we are generally in underserved areas.
And so, we have been focusing on recruiting doctors for these underserved areas because in our hospitals one doctor makes a big difference associated with it.
And we had identified in the specialty areas that we were underserved in regard to orthopedics, general surgery, gastroenterology and cardiology.
We recruited 19 of those providers in 2016, which makes a big impact.
We have focused on our intensity of services ---+ we were able to take our Medicare case mix in the fourth quarter of 2016 and move it above 1.4, which was our goal for the year was to get that case mix up which represents the intensity.
And part of that is opening up four ICUs in our hospitals that were closed down so that we could take care of the sicker patients.
So, we will continue to re-focus our hospitals toward what are the opportunities in the community, what are the growth opportunities, where are the specialty needs and grow the intensity of the patients that we take care of as well as having the providers take care of the patients that are coming to our emergency room.
So we will continue to do that.
And we think there is great opportunity associated with that.
<UNK>, right now, based on what we have under letters of intent, we are probably somewhere in about 20% to 25% of that number.
Some of the additional hospitals that we have included are some larger hospitals that would make up a larger bulk of the number.
Well, when you are in a collection agency a lot of those are time payments, things that will take place.
So it will be over a longer period of time.
But based on everything that we've seen and reviewed we believe we are very comfortable with the net realizable value there.
No, we would really like to wait until we close out the books and records.
Because, as you know, a lot of things like, for example, adjusted admissions is based on your gross inpatient/gross outpatient revenue.
And as we are going through all those cycles now with the closing of the books, all that will be impacted by that.
So we just want to stay away from first quarter at this point in time.
It is the cumulative roll up.
So ---+ and remember that all started I think roughly I want to say around 2010.
So as you were getting like ---+ for example, all of those cuts kept cutting into the wage index, etc.
So yes, that is a cumulative number rollup of all of those cuts that have taken place.
Yes, <UNK>, there were.
Some of the add backs that were included in there, for example, is roughly about ---+ I want to say about $5.1 million to $5.4 million per quarter to get credit for not being able to accrue the California provider program.
So that was part of it.
In addition, another item that was an add back was for the hospitals that are losing money we had put in approximately a number of about nine hospitals that were looking to divest and we estimated those losses, those are also an add back that is taking place.
And then also some savings as we bring in the billing offices, but those numbers are basically minor.
Then we also adjusted for the net senior secured leverage ratio, it steps down ---+ technically it was stepping down to 4.25 ---+ well, at the beginning of Q3 and we moved that up to give us a little bit more room and time to sell these facilities.
That is correct.
And under the new agreement it would give us that add back during the quarters.
However, you would then adjust that back to 103 ---+ section 103 of the credit agreement to make the adjustment for whatever actually occurred for those facilities once we sell those.
Yes, what would take place is ---+ let's just use an example and say that the estimate is $1 million a quarter, so let's just go with that.
And so, we would have that $4 million.
But then let's say what actually happens once the hospital is sold that the number is either $3 million or $5 million.
You (multiple speakers) adjust to that number and reverse out the old number.
I would say it is probably getting to be a little bit more current.
There was some of it that was old but some of it is the denials.
We started seeing a growth in commercial or I should say managed-care.
And as we were digging into it we were noticing some higher denial factors that are taking place.
We haven't technically given up on all of that, we are still working on old denials and trying to improve that whole entire process.
But again, part of that was basically what we were seeing some of the stuff currently.
No, we are assuming the higher denial rate.
So going forward we will be adjusting to that, but at the same time we are extremely ---+ we brought in a separate group of people that are helping with the denials so that we can try to keep those at bay.
But at the same time we are using a higher denial factor until we see debt improve.
Several of them lost money in the ---+ one definitely lost throughout the entire 2016.
A couple of them lost in the fourth quarter but were low margin for the full year.
Does that make sense.
I think one of the things to really take a look at is when you take a look there is a pattern there when you go through it.
Don't forget in the third quarter ---+ and if I am going off the reservation here bring me back in.
But if you look in the third quarter, don't forget, one of the unusual items, don't forget, is we sold the tax credits in Illinois for about $8 million, we had the New Mexico gross receipts tax of $2.3 million.
So that lowered the taxes and licenses line item for that particular quarter.
Now going forward we will continue to get that $8 million from Illinois.
So that will still come in in the third quarter.
In addition, what we did is point out that we will not be able to record the California, so all of that will accrue ---+ if it all comes in, which we believe it will with CMS, it will come in in the fourth quarter.
I do want to state something very interesting here though, even though that number is $21 million, remember California is usually running about 15 to 18 months behind in their payment.
So technically that amount doesn't impact our cash flow, it actually is really bizarre.
We expect in the third or fourth quarter to get $33 million in cash from California that related to prior year programs.
So even though the number is $21 million the cash coming in for 2017 is actually higher if that makes any sense.
So, and then again don't forget in your volumes ---+ and again I don't want to talk about the first quarter.
But let's remember February 29 ---+ you had a leap year last year.
So you did have that one year, and I'm talking off the top of my head.
I thought that accounted for about 3% but I could be wrong.
But again, as <UNK> has mentioned, we brought on quite a lot of physicians, we are seeing some good things in that area.
And I will probably just leave it at that if that makes any sense.
Did I answer your question.
<UNK>, <UNK>, are you still there.
Nobody else is in the queue, so if you have another question or two.
Yes, <UNK>, I would tell you that, perhaps as we had the opportunity to announce what the first quarter was, you will see ---+ you could possibly see the impact of recruitment associated with that.
But I think that what we have always felt like is we are seeing patients in our emergency room and we are transferring them out to other facilities.
One of our hospitals was transferring 60 patients a month out to another facility.
And we had nothing close by to keep them and we had no specialists that we could hold them in our communities.
We believe that is where our great opportunity is.
I think as you look at our primary service area ---+ and again, 80% some of our hospitals are sole community hospitals in their individual primary area.
Our market share is only around 33% in our primary service area.
What a great opportunity for us to bring an orthopedist into the community, introduce them to every doctor, introduce them in the community to have an impact.
In many of our hospitals one doctor makes tremendous impact associated with it.
And we have 75 doctors who have commenced practices in the fourth quarter and in the first quarter of 2017.
We do believe that the startup associated with these patients, since they don't have competitors, they are not competing against a group of 20 orthopedists in a community, they are the orthopedist.
And it is a different situation than you would see in many of our markets.
It is not.
It is just ---+ we have committed about $98 million I think in 2016, although cash flow we show about $80 million-$88 million.
We are lowering that number down in the $70 million range associated with that and that is just a belief of us being fiscally responsible.
I mean, we have to be fiscally responsible for the cash flow that we bring in.
Our goal, <UNK>, I think we told you, we were positive cash flow at the end of 2016.
Our goal is to continue to have a positive cash flow for our Company.
We think that is vital.
And our spend on capital needs to reflect what the cash flow is for our Company.
Basically what we did is on the lower end, the $150 million to $170 million, actually includes the facilities to be divested for the period of time from January 1 to the point in time that we believe they will be sold, our estimate based on what they will be sold.
The $170 million to $200 million is the add back for the period of time for those losses.
So, when we went and looked at it looking at the run rate, similar to what you did, depending on how you look at it you would have to ---+ because Q3 would have had the $8 million in it, we have the add back relating to the $8 million.
Depending on how you do the run rate you would also have the adjustment relating to the California provider program.
And so, that is how we came up with that range of numbers just making sure from that regard.
And then adding back any positive that we had, any changes we are doing with cost-saving measures and then also for the positive on the revenue side.
<UNK>, I would say that is a combination.
We still get ---+ we will get individuals out of the military who are more seasoned, we'll get new graduates who want to start up their own practice associated with it.
So I wouldn't tell you there is any one consistency between those two; I think it is variable.
I can only speak to our results.
We are up 23% in physician commencements from 2015 to 2016.
We have hit new records in regard to fourth quarter and first quarter 2017 in regard to what we have recruited.
And so, I think from our standpoint anything could change (multiple speakers).
<UNK>, those are gross numbers; it is very difficult for us to get to the net numbers.
Mike, I don't know if you have any specific numbers associated with that.
We are not seeing ---+ we've worked very diligently with our doctors to try to reengage them in our facilities.
We still have doctors who leave for whatever reasons, whether it is health or retirement associated with that.
But we are seeing positive growth associated in these categories.
It is, yes.
Absolutely.
I think, <UNK>, the big thing to look at there is we would probably be normal within our peer group.
But remember, with the number of divestitures we have, it just doesn't make a whole lot of sense to be investing in potentially facilities that we are getting very close to selling from that regard.
Now we are not going to shortchange quality by any stretch of the imagination, but we have to be frugal also in what we are doing.
That would be right.
<UNK>, we had announced that we had a letter of intent to purchase that.
We are still working with that hospital to look at our relationship and how it might change.
The hospital has changed a little bit over its time and so we are still looking at how we can have a positive relationship with it even if it is not a full acquisition.
Let me throw something out there.
We talked about these facilities, these facilities that we are talking about that we have sold and will be selling range anywhere from about $33 million to $38 million in negative EBITDA.
And then when you tack on the CapEx associated with it, throw in another $15 million, you are throwing out a whole lot of negative cash flow just in those facilities.
And so, I hear what you are saying from the standpoint ---+ and I will let <UNK> follow up with that.
But the first and foremost thing we have got to do is get and really concentrate on the hospitals that are doing very, very well, that are very profitable, have a lot of potential to grow.
And take those that are draining us of the cash and getting those off.
So, I think with that (multiple speakers).
Yes and I will just add, <UNK>, our priority ---+ and we have not been shy in saying this and we are absolutely committed to this ---+ is to right size our assets, right size our portfolio to be able to build upon.
And we have to do that first, that is our number one priority and we are still focused on that.
We are just completing ---+ coming close to completing our first year of operation.
And our goal was to get our assets in line and we are still focused on that.
And, Mike is right, we are showing about $15 million, maybe $20 million less than last year, but a lot of that has to do with not spending money on hospitals that are for sale.
And we are still investing where we need to invest to make sure they are a safe facility.
But you don't do the growth opportunities.
My goal is never to miss an opportunity for growth.
<UNK> let me just ---+ yes, I think it is fair.
Let me remind you first of all we are part of HealthTrust Purchasing Group's [pharma] supply expenses, we get the value.
And that tends to be 17% to 18% of our overall cost associated with it.
So we get the value of companies like ACA with the same purchasing price.
So it is a great value that we have.
Wages, wages are unique to every market.
There is no national I am going to save money because I am larger or smaller; it is unique to every single market.
And we believe we are competitive but we are also fiscally responsible.
And we are going to stay fiscally responsible associated with that.
And I believe that, yes, by having the right assets that allow us a strong base we will be able to grow both at our current hospitals and as we go forward in the future.
Thanks, <UNK>.
Yes, I think part of that is ---+ and I thought that meant the three, but maybe it was the two, but I thought it was the three.
The other part of that related to as the receivables are being collected, and again that takes a longer period of time.
So at that point in time we had included also the amount that we would get potentially from the receivables, that is the difference and that process is still ongoing.
Kelly, thank you again.
I want to thank all of you for being on the call and your interest in Quorum Health.
We do believe we have a great story to tell, we believe we have great associates working for us.
We believe we have engaged our doctors going forward.
And we believe as we execute our strategy that we will be a successful Company going forward.
So we thank you for your time.
Thank you, Kelly.
| 2017_QHC |
2017 | SCG | SCG
#Thanks, <UNK>
Up again, our earnings discussion on slide 6. Earnings in the second quarter of 2017 were $0.85 per share compared to $0.74 per share in the same quarter of 2016. And our electric margins were slightly offset by the impact of less extreme weather in the second quarter of 2017, when compared to the same quarter of last year
In the footnote, you will notice that weather increased electric margins about $0.04 per share in the second quarter 2017, compared to $0.05 per share in the second quarter 2016, resulting in a negative $0.01 per share impact to earnings quarter-over-quarter
Additionally, increases in gas more margins due to customer growth and rate increases, as well as positive variances O&M and other income will partially offset by CapEx related items, including interest expense, depreciation and property taxes
Please turn to Slide 7. Earnings per share for the six months ended June 30 2017 were $2.04 per share versus $1.97 for the same period in 2016. Our electric margins were significantly offset by the impact of milder weather in 2017, compared to the prior year
As noted at the bottom of the slide, weather decreased earnings by $0.20 per share for the first six months of 2017,while weather was earnings neutral for the comparable period of 2016. Additionally, increases in gas margins, as well as positive variances in O&M and another income will partially offset increases in interest expense, depreciation and property taxes
Now on slide 8, I'd like to briefly review the earnings results for our principal lines of business
SCE&G second quarter 2017 earnings increased versus the same quarter of 2016, due primarily to increasing electric margins, actually offset by the impact of weather, as well as increases in gas margins and lower O&M
PSNC earnings were up $0.01 per share for the second quarter of 2017 over the comparable period in 2016, due to higher margins as a result of the late 2016 rate increase and customer growth
SCANA Energy’s earnings for the quarter increased due to higher gas margins
I would now like to touch on economic trends in our service territory on slide 9. Through the second quarter of 2017, companies announced plans to invest approximately $480 million with the expectation of creating over 7500 jobs in our North and South Carolina territories
At the bottom of this slide, you can see the South Carolina unemployment statistics as of June 2017 and 2016. South Carolina's unemployment rate is 4% and it's the lowest to state has been since December of 2000. South Carolina continues to see a decrease in unemployment despite continued growth in the labor force
The other states in which we have service territories, North Carolina and Georgia also continue to see declining unemployment rates of 4.2% and 4.8% respectively
This positive business development continues to play a significant role in the strong customer growth numbers for our business
On slide 10, we present customer growth and electric sales statistics
The top half of the slide shows the customer growth rate for each of our regulated businesses
SCE&Gs Electric business added customers at a year over year rate of 1.6%
Our regulated gas businesses in South and North Carolina added customers at a rate of 2.9% and 2.6% respectively
The strong customer growth continues to be a key fundamental for our businesses
The bottom table outlines are actual and weather normalized kilowatt hour sales to retail customers for the 12 months ended June 30, 2017. On the 12 month ended basis weather normal sales are higher by eight tenths of a percent versus the prior period
Please look to slide 11, which recaps our regulatory rate base and returns
The pie chart on the left presents the components of our regulated rate base of approximately $11.5 billion
In the box on the right you will SCE&G base electric business in which we are allowed a tentative quarter percent return on equity
The adjusted earned return for the 12 months ended June 30 2017 and the base selection business continues to meet our stated goal of earning a return of 9% or higher
As you recall, we're allowed a return on equity of 10.25% in our gas LDC in South Carolina
These rates are set according to the Rate Stabilization Act
The earned ROE of the gas business for the 12 months ended March 31 falls outside of range of 50 basis points above or below the allowed ROE then we filed to adjust rates
As of March 31 2017, the 12 month earned return for SCE&G gas was below the band
And we recently filed for an annual increase of approximately $9 million in mid-June
These rates will become effective beginning with the first billing cycle in November
As of June 30 2017, the 12 month earned return for PSNC Energy was 10.78%
This temporary situation is mainly due to timing and will move back towards the allowed ROE, as CWRT [ph] placed into service
Slide 12 and 13 present our CapEx forecast and financing plans slides respectively
These are both consistent with the slides for Mondays call covering the new nuclear project decision
I would now like to discuss our 2017 earnings guidance on slide 14. We are reiterating our 2017 GAAP adjusted, weather normalized earnings guidance range of 415 to 435 per share in our internal target of 425 per share
I also wanted to reset O&M expectations for the year, as we now project 2017 O&M expense to be relatively flat
This is primarily due to labor and related savings
Our long-term GAAP adjusted, weather normalized annual growth guidance target remains unchanged as we plan to deliver 4% to 6% earnings growth over three to five years using a base of 2016s GAAP adjusted, weather normalized EPS of 397 per share
On slide 15, we present some of the main drivers that are contemplated as part of the growth strategy
PSNC Energy has had a solid growth story for the last few years
We will continue to grow this business using the integrity management rider and periodic rate cases to keep up with the growing demands of our North Carolina territory
Additionally, rates stabilization increases may be needed to maintain a reasonable earned return at the SCE&G business as we continue to make investment in that system to meet demand due to customer growth in South Carolina
As you are aware, these plans are not new to SCANA, but I've been overshadowed by the focus on the new nuclear projects
As we continue to refine our strategy there could be additional growth at these gas businesses
Additionally, we will focus on O&M control, particularly at SCE&G
We will also reap the benefits of lower projecting interest expense, as we issue less debt and accretion from our share buyback program
Slide 16, compare some of the aspects of our five year plan before and after our decision to cease construction and pursue abandonment of the new nuclear project and it's consistent with what we presented on Monday's call
As we previously discussed, we planned to focus our strategy on the core electric gas business and on the redeployment of capital
I will now turn the call over to Steve to discuss wind down activities at the site
It’s just kind of the timeframe
Earlier we were really just taking a little shoulder view of it of the period over the next, I guess, three to four years and here we're got a little further down in our financial plan and I guess getting a little more prescriptive about it
And I'm quite confident we'll make adjustments on that as we move through time due to a variety of changes in cash flows and share prices and things like that
But that's just our late assessment
Yes…
Very fair question
So the asset itself is not - is not going to be used in the business <UNK>
So the asset can't be used for its intended purpose initially
So it's less much like inventory, parts or something like that it can't be used for its intended purpose, then you can deduct it for tax purposes
But we're confident in that tax position
Now again, we're going to – and think of the other side of that, that revenue that's coming in from that abandonment is going to be taxable income
So certainly the cost associated with it should be a taxable deduction
Before you move on, let me point it this way for you
If we didn't deducted then how would you ever deduct it, it would have been deducted through depreciation, had it been put into service
You clearly get a deduction for any incurred cost, so it would never get deducted if you didn't deduct it now
Sorry to interrupt you
What was your other one?
Okay
Very good
| 2017_SCG |
2016 | NJR | NJR
#Thanks, <UNK>.
Good morning, everyone, and thank you for joining us today.
For those of you who have seen this morning's earnings release, you know that we had a strong third quarter.
Our year-to-date earnings were also solid, and we remain on target to achieve our earnings guidance range of $1.55 to $1.65 per share for fiscal 2016.
As we begin this morning and as <UNK> mentioned, I wanted to remind everyone that during my presentation I'll be discussing our future and I'll be making forward-looking statements.
The actual results may be affected by many risk factors, including those that are listed on slide 2.
As <UNK> noted, the complete list is included in our 10-K, and I would ask you to please take the time to review them carefully.
As noted on slide 3, I'll be referring to certain non-GAAP financial measures such as net financial earnings, which I will refer to as NFE.
We believe that NFE provides more complete understanding of our financial performance; however, I want to emphasize that NFE is not intended to be a substitute for GAAP.
Our non-GAAP financial measures are discussed more fully in item 7 of our 10-K, and I'd also ask you to please take the time and review that disclosure carefully as well.
Moving to slide 4, our NFE in the quarter were $0.13 per share, compared with $0.03 per share in the third quarter of fiscal 2015.
New Jersey Natural Gas recorded higher utility gross margin from customer additions and the SAVEGREEN project, which is our energy efficiency program.
Our ongoing investments in our infrastructure enhancement programs are on track to improve the safety, reliability, and integrity of our distribution and transmission systems, and that will benefit our customers as well as the growing communities that we serve.
This quarter our unregulated subsidiaries also performed well.
NJR Clean Energy Ventures recorded a $6.2 million increase in their NFE as three commercial projects were placed into service.
Our expectation is that two more will be completed by the end of the calendar year.
Turning to slide 5, in addition to our strong financial results, we began operating our natural gas liquefaction processing plant at our Howell LNG facility.
We now have the ability to liquefy pipeline natural gas for peak day use.
The plant supports system integrity and reliability and reduces LNG transportation and capacity costs.
Customers will benefit from lower natural gas costs, while the reduced emissions will benefit the environment since we no longer need to truck LNG to New Jersey from out of state.
Our base rate case is currently in settlement discussions, and I will discuss that in a little bit more detail in just a minute.
But I did want to point out that the Board of Public Utilities recently extended the SAVEGREEN Project, which, as I noted, is our efficiency program, through December of 2018.
Since SAVEGREEN's inception in 2009 we have been authorized to invest approximately $220 million in this program.
SAVEGREEN allows us to provide financial assistance to our customers for energy efficiency investments while advancing the state's clean energy goals.
We are authorized to earn a return on our SAVEGREEN investments ranging from 6.69% to 7.76%, and that includes a return on equity that ranges from 9.75% to 10.3%.
We recover our SAVEGREEN investments over two to 10 years depending on the type of energy efficiency investment.
Our infrastructure improvement initiatives include the NJRISE project.
That includes six capital projects designed to improve NJNG's service disruption response and strengthen the overall safety, reliability, and resiliency of our natural gas system.
These initiatives also include the Safety Acceleration and Facilities Enhancement program, which we refer to as SAFE, where we are replacing 276 miles of unprotected steel distribution main to further enhance our system.
In addition, on July 19 we are proud to report that we retired our last remaining low-pressure distribution system which was located in Freehold Borough.
Low-pressure systems were legacy systems originally developed to deliver manufactured gas.
They became obsolete with the advent of interstate pipelines; and similar to the retirement of our last piece of cast-iron in December 2015, we became the first local distribution company in New Jersey to accomplish this milestone.
We're also very pleased that PennEast recently received its draft Environmental Impact Statement from the FERC.
This represented an important step forward in the approval process.
Moving to our unregulated solar and onshore wind business, NJR Clean Energy Ventures, our residential Sunlight Advantage program increased its residential customer base by 323 customers and now serves over 4,500 residential solar customers.
In addition to that, construction continues at Ringer Hill, which is our fourth onshore wind project, and we expect that that will be completed in the first quarter of fiscal 2017.
Once Ringer Hill comes online, we will have more than 120 megawatts of installed wind capacity.
And I would note that the market for solar and onshore wind energy continues to grow as customers look to reduce their energy costs with environmentally friendly energy.
Turning to slide 6, as you know, we filed a base rate case in November of 2015.
I'm pleased to share with you this morning that the parties are actively engaged in settlement talks and that the procedural schedule has been suspended by the Administrative Law Judge.
It's our current expectation that we will have new rates in place early in fiscal 2017.
On slide 7 you can see that our Southern Reliability Link, which we refer to as the SRL, continues to make progress.
This 30-mile pipeline is designed to support improved system safety, reliability, and resiliency in Monmouth, Ocean, and Burlington Counties.
The SRL was approved by the BPU in March of 2016.
The BPU found the project to be reasonably necessary for service, convenience, and the welfare of the public.
And SRL, as we talk to you this morning, is continuing to go through the permitting process.
Moving to slide 8, our long-term average NFE growth rate goal is 5% to 9%.
That assumes fiscal 2013 as the base.
The expected earnings contribution from our individual business segments remain unchanged, and on the dividend side our annual growth goal remains at 6% to 8% with a targeted payout ratio of 60% to 65%.
Moving to slide 9, as we continue to discuss our strategy, I wanted to briefly review our model for growing each of our businesses, beginning with New Jersey Natural Gas.
I think, as everyone knows, NJNG is the primary driver of our performance and our expectation is that it will continue to comprise the majority of our earnings, assets, people, and capital investments.
Utility gross margin is the key to our profitability.
That profitability is supported by customer growth, by our energy efficiency programs that support our state's public policy initiatives including the SAVEGREEN project.
It's also supported by our basic gas supply service incentive programs that allow us to share the utility gross margin earned with customers and shareowners; and finally, our accelerated infrastructure programs.
We think when you look at the fundamentals of New Jersey Natural Gas, those fundamentals remain very strong.
Moving to slide 10, our midstream investments, which currently include Steckman Ridge and the units that we own in the Dominion Midstream Partners, we expect that the future contributions to our midstream NFE from the PennEast Pipeline will ultimately ---+ we own 20% of that.
We will also consider additional midstream investments that meet our financial and strategic criteria.
But taken together, New Jersey Natural Gas and NJR Midstream are currently expected to contribute about 65% of our total NFE in 1fiscal 2016.
Turning to slide 11, our NJR Clean Energy Ventures portfolio currently consists of more than 93 megawatts of commercial solar and more than 40 megawatts of residential solar through our Sunlight Advantage program.
We have three operating onshore wind farms, and we expect to complete our fourth onshore wind farm at Ringer Hill early in fiscal 2017.
We continue to evaluate new opportunities and currently expect the NFE contribution from these distributed power assets to remain in the range of 10% to 20%.
Moving to slide 12, NJR Energy Services' strategy is based upon the management of its diverse portfolio of transportation and storage assets.
These physical assets, combined with the expertise of our team, drive the net financial earnings from NJRES.
You can see, looking at the chart, that we've also developed additional sources of revenue from producer services, utility asset management, and electric generation management contracts.
So in summary, you can see that we've built a portfolio of energy businesses that are focused on meeting the needs of our customers not only today but also in the future.
And we believe that by focusing on energy-related businesses that are aligned with our competencies that we are putting ourselves in a position to build long-term value for our investors.
With that I will turn it over to <UNK> <UNK>, who will review our financial results; and then I'll be back with some closing comments.
<UNK>.
Thanks, <UNK>, and good morning, everyone.
On slide 11, we've broken out our NFE by operating company for the three and nine months ended June 30, 2016.
NFE for the third quarter of 2016 were $11 million or $0.13 per share, compared to $2.5 million or $0.03 per share last year.
For the nine months ended June 30, 2016, NFE totaled $140.1 million or $1.63 per share, compared to $156.7 million or $1.84 per share in the first nine months in 2015.
The chart on slide 14 shows the changes in utility gross margin in the past 12 months.
As you can see, customer growth is the largest contributor to the improvement.
Our BGSS incentives are down year-over-year due primarily to decreases in the storage incentive program and the value of capacity.
Since its inception, the BGSS incentive programs have saved customers approximately $859 million.
And as <UNK> discussed, our future growth in NJNG will be based on continued customer growth, new rates, and a variety of regulatory programs.
Turning to slide 15, we added 5,289 new customers in the first nine months of fiscal 2016, with approximately 45% converting from other fuels, primarily fuel oil.
These new and conversion customers, combined with a large industrial customer switching from interruptible to firm service, are expected to contribute approximately $3.9 million annually to utility gross margin.
Although additions are down for the nine-month period ended June 30, 2016, due to timing differences, we're on track to add 8,150 customers to our system in fiscal 2016.
This will represent about a 4% increase over the prior year.
Through fiscal 2018 we expect customer growth additions of 24,000 to 28,000, representing an annual new customer growth rate of about 1.6%.
Slide 16 reviews NJNG's capital spending for the first nine months of fiscal 2016.
Customer growth and expenditures to maintain our system represent the majority of the spending.
We invested $23.8 million in our SAFE program in the first nine months of 2016, replacing approximately 41 miles of main.
Overall, we replaced 257 of the 276 miles we intend to replace as part of SAFE.
For the first nine months of fiscal 2016, we invested $9.4 million in our NJRISE program.
While the majority of the expenditures to date have been for excess flow valves, we've also completed preliminary engineering and design work on other important of storm-hardening efforts.
Our liquefaction plant was completed in late June and we invested about $9.6 million for that project this fiscal year.
And lastly, we invested $1.8 million for our SRL project so far this fiscal year.
As <UNK> said, we received BPU approval to construct SRL, and last month the New Jersey Department of Environmental Protection determined the SRL project to be administratively complete, which will be followed by a public comment and technical review period.
New Jersey Natural Gas continues to proceed with obtaining construction and road opening permits for this project.
Our midstream assets, which are shown on slide 17, produced NFE of $2.3 million in the third fiscal quarter of 2016 compared with $2.5 million over the same period in 2015.
Though modestly lower, the consistent results reflect increased storage service revenue and demand for up services at Steckman Ridge, which partially offset the loss of revenue due to the transfer of our ownership interest in Iroquois that we exchanged for 1.8 million units of Dominion Midstream Partners in September 2015.
Moving to slide 18, NJR Clean Energy Ventures' current portfolio provided NFE of $2.4 million for the third fiscal quarter of 2016, compared with a loss of $2.8 million for the same period last year.
The positive $6.2 million swing quarter-over-quarter was due primarily to a greater amount of investment tax credits we recognized.
NJRCEV placed three commercial solar projects into service in the third quarter totaling 10.9 megawatts.
Two additional solar projects are expected to be completed by the end of 2016, increasing our commercial solar portfolio to 104.4 megawatts.
Our Sunlight Advantage program added 323 residential customers or 3 megawatts in the third fiscal quarter.
This brings the total number of residential customers to almost 4,600 and our residential solar portfolio to 40.6 megawatts.
Our solar portfolio's operational availability was in excess of 99%.
That high availability rate, combined with the performance of our wind farms, has driven revenue to $28 million for the first nine months of fiscal 2016 in the production of SRECs and electricity.
As shown on slide 19 we've been actively hedging our SREC sales.
When considering our expected generation, we are 97% hedged for fiscal 2016 and, as you can see in the chart, have been actively hedging future years.
The red line represents the SRECs expected to be generated from our existing portfolio.
We believe that the increasing number of SRECs, the expectation of continued strength in SREC prices, and the impact of our hedging program, combined with the expected earnings from our wind investments support our forecast of 10% to 20% of our total NFE coming from NJRCEV in fiscal 2016 and beyond.
Our onshore wind portfolio is illustrated in slide 19.
Ringer Hill, our fourth wind project, is under construction; and when completed in early fiscal 2017 we will have approximately 120.3 megawatts of wind generation.
Adding the three operating wind farms to our current solar portfolio brings our distributed power portfolio to more than 214 megawatts, of which 37.5% is wind and would increase total investment in wind to approximately $232 million.
We intend to provide an updated long-term capital plan a little later, in year-end's earning release.
As <UNK> mentioned, NJRES is having another good year, performing within our guidance range.
However, as you can see from the chart on slide 21, margin decreased on a year-over-year basis due primarily to lower volatility and narrow price bids resulting from warmer winter temperatures.
Consequently, NFE declined as well for the same period.
On slide 22, you can see the impact volatility has had on natural gas prices in one of NJRES's key market areas over the past two heating seasons.
This fiscal year's results are based on a return to more normal volatility.
I'll now turn the call back to <UNK> for his closing comments.
Thanks, <UNK>.
I want to conclude our call today by summarizing our shareholder returns, which you can see on slide 23.
As you look at those numbers, you can really see how we've been able to reward our shareowners both in the long-term and the short-term with very good returns.
That really reflects the efforts, the work, every single day of our more than 1,000 employees.
Because without everything that they do on behalf of our customers, we cannot have achieved the results that we have.
I've said this on every earnings call, but I would say it again: that our employees are the foundation of our Company, and I'm grateful for what they do every single day.
So thank you for your time today and we would be happy to take any of your questions.
| 2016_NJR |
2017 | ZEUS | ZEUS
#Thank you, operator.
Good morning, and thank you all for joining us to discuss Olympic Steel's 2017 financial performance in both the third quarter and the first 9 months.
On the call with me this morning are Olympic Steel's President, <UNK> <UNK>; Chief Financial Officer, Rick <UNK>; President of our Chicago Tube & Iron Business, Don McNeeley; and Executive Vice President and Chief Operating Officer, <UNK> <UNK>.
Since late last year, our metal-consuming markets have been recovering nicely, and our customers expect strong demand to continue into 2018.
With that, we are pleased to announce our continued progress on profitable growth.
Olympic Steel's performance this year is the direct result of our historic and ongoing investments in equipment, facilities, products and people.
Regardless of market conditions, strong capital management and execution in customer service has been essential for our growth strategies to be successful.
As expected, all 3 of our reporting segments, carbon flat, specialty metals, and pipe and tube, generated growth in shipping volumes and sales in the third quarter.
Consolidated operating income improved in both the quarter and the first 9 months of the year.
Much of our growth ---+ much of the current growth has been driven by our carbon flat product divisions.
Shipping volume of carbon flat products was up 14% for Olympic Steel in both the quarter and the year-to-date periods.
This was well ahead of the 3% growth in overall industry shipments for the MSCI data.
Specialty metals also outpaced the industry average, with our shipments increasing more than 7% in the quarter and more than 9% in the first 9 months.
Sales of our pipe and tubular products also rose sharply, increasing 18% in both the third quarter and for the 9-month period, resulting from both strong shipping volumes and higher selling prices.
Looking ahead to 2018, we have many reasons to be optimistic.
Our philosophy has always been to manage the aspects of the business within our control, and we have.
Now the macroeconomic picture, supported by GDP growth, appears to be turning in our favor.
For example, it was announced last week that the Chicago PMI rose to 66.2 in October, up from a bullish 65.2 reading in September.
This was the highest level since March of 2011.
In the same report, order backlogs, which have been trending higher since the beginning of the second quarter, reached their highest level in 43 years.
That came just after setting a 29-year record in September.
The manufacturers and fabricators we serve in the heavy machinery and industrial equipment sectors echoed this positive outlook.
It is also noteworthy that all of this is happening in absence of any clarity or certainty around the potential tax reform legislation or concrete plans for future infrastructure spending.
Anything constructive coming out of Washington would stimulate further demand.
And as we support fair trade, we expect the 232 issue to be resolved sometime next year, favorably.
So in the industry response to the increase in production, U.<UNK> manufacturing firms expanded their workforces at the highest rate since June of 2015.
Now many manufacturers are concerned about their ability to hire enough skilled workers to meet the growing demand.
I will note that Olympic Steel has consistently attracted and retained high-quality employees.
We believe this is because we continuously manage the company for long-term value.
In addition, we have a history of providing genuine career advancement opportunities.
We also pride ourselves in providing a safe working environment and a socially responsible culture.
For all these reasons and more, we are continuing to invest in future value initiatives and believe M&A opportunities are available.
<UNK> will cover some of these growth initiatives in his comments.
Entering the final quarter of 2017, we would anticipate typical seasonality and some sequential softness around the holidays.
That being said, the outlook for pricing and demand in early 2018 is promising.
Additionally, this morning, we announced the Board of Directors approved a regular quarterly dividend of $0.02 per share, payable on December 15 to shareholders of record on December 1.
And with that, I will turn the call over to Rick <UNK> to share the financial highlights for the quarter and year-to-date.
Thank you, <UNK>.
Good morning, everyone.
So consistent with our experience in the first half of the year, we realized 13% higher year-over-year shipping volumes in the third quarter, and each of our 3 reporting segments earned record highs in market share.
In addition, higher average selling prices have contributed to our sales growth.
As such, our consolidated net sales in the third quarter totaled $331 million, and that's up 24% from the same quarter of last year.
Year-to-date, our net sales improved 28% to just over $1 billion, and that's up versus $800 million in 2016's 9-month period.
The most significant sales increase was in our carbon flat products segment where net sales increased 27% in the quarter and jumped 33% for the 9 months.
For this segment, shipping tonnage was up 14% for both the quarter and the year-to-date periods.
And our growth in carbon plate was particularly strong.
Year-over-year average prices for carbon flat products rose 11% in the third quarter and 17% in the 9-month period.
Sequentially, our third quarter average sell price for flat carbon products also increased 1% from the second quarter.
Net sales of our specialty metals products increased 16% compared to last year's third quarter on 8% higher shipping volume.
For the 9 months, net sales increased by 20% on 9% more volume.
Our pipe and tube segment net sales increased over last year by 18% for both the third quarter and the year-to-date periods.
Consolidated gross margin was 19.9% in the third quarter.
That's down from 21.3% in 2016's third quarter, and that's primarily due to consistent gross margin dollars per ton earned on a higher average selling price.
In our flat products segment, year-to-date gross margin per ton actually increased compared with last year.
Total consolidated gross profit dollars grew by 15.5% in the third quarter, and they were up by 17% in the 9 months compared to last year's periods.
We recorded LIFO expense of $700,000 in the third quarter, increasing our 2017 year-to-date LIFO expense to $1.5 million.
This reduced our recorded third quarter net income by $0.04 per share, and it lowered our 9-month net income by $0.08 per share.
Last year, we recorded $700,000 of LIFO income in the third quarter and 9-month period, and that increased EPS in those prior periods by $0.04 per share.
Ongoing cost-cutting and continuous improvement initiatives helped us control operating expenses.
Our operating expenses increased 6.3% in the quarter and 8.2% for the year-to-date period, and that was well below the 30% increases in shipping volumes.
Our ability to aggressively manage expense while significantly increasing our sales volume resulted in operating income increasing to $5.3 million in the third quarter compared with essentially breakeven in last year's third quarter.
For the 9 months, operating income reached $26 million, which was more than 3x higher than our operating income of $8.4 million in the same period of 2016.
Interest expense was higher in the third quarter at $2 million compared with $1.3 million last year, and that's due to higher average borrowings to fund working capital requirements and higher base LIBOR rates in 2017.
Year-to-date interest expense increased from $3.9 million last year to $5.4 million in the first 3 quarters of this year.
Year-to-date, our effective borrowing rate was 3%, and that compares with 2.4% last year.
We recorded an income tax provision of 30.9% in the third quarter, and that benefited from higher than previously estimated tax credits.
And also, you may recall in the first quarter of this year, our income tax was reduced by $1.9 million, and that was related to one of our employee retirement plans.
Together, these added $0.19 per diluted share to net income in the 9-month period.
Last year, our tax rate was unusually high because of a valuation allowance recorded to reduce certain state deferred tax assets.
Moving ahead, we would expect our effective tax rate will normalize in 2018 in the 37% to 39% range, and that would be subject to any tax legislation that may take effect.
Third quarter 2017 net income was $2.3 million or $0.20 per diluted share, and that compares to a third quarter net loss of $1.8 million or $0.16 per share last year.
For the first 9 months, we reported net income of $14.8 million, and that's $1.30 per diluted share compared with net income of $1 million or $0.09 per diluted share in 2016.
Now let's turn to the balance sheet.
Accounts receivable declined from the end of the second quarter to $151 million at September 30.
The quality of our receivables is excellent, with average days sales outstanding at 39.7 days for the 9-month period this year.
Due to this year's strong sales volume and higher pricing, working capital increased by $14 million in the third quarter, and that was primarily to fund higher inventory and accounts receivable.
Inventory increased by $17 million in the third quarter to $280 million.
Since the beginning of the year, inventory has grown by $26 million.
Year-to-date inventory turnover for our flat products segment totaled 4.6x.
That's just slightly below the 4.7 turns we averaged in 2016.
Total debt at the end of the quarter increased to $221 million, and we had $110 million of availability under our asset-based lending agreement.
In the last 9 months of 2017, we experienced strong operational cash flow of $27 million, and that was deployed into the increased working capital that I spoke of just a minute ago.
We used $47 million in cash to fund operating activities.
And year-to-date, our capital expenditures totaled $6.5 million, most of which was deployed for processing equipment for our growing specialty metals business.
Finally, shareholders' equity increased to $268 million or $24.47 per share at the end of September, and our tangible book value increased to $22.36 per share.
We plan to file our 10-Q this afternoon, and it will provide additional details on the quarter's results.
With that, I will now turn the call over to <UNK> for his operating review.
Thank you, Rick.
On our call in early August, we stated our future outlook was bright, and that was before the exceptionally high ISM readings posted in September and October by Chicago PMI, which, with the exception of July, followed a strong manufacturing PMI in June as U.<UNK> industrial production had risen 5 consecutive months in the first half of the year.
This promising economic backdrop extends well beyond the United States and the domestic markets.
Higher industrial production in Asia, particularly in China, and Eurozone has created meaningful demand for metals.
As a result, that demand is supporting global prices, lifting pricing from a small trough in late June to a stronger finish by the end of September.
Moreover, the rebound in global activity is benefiting a number of our customers that export machinery and industrial equipment.
On top of that, the value of the U.<UNK> dollar has declined, resulting in U.<UNK>-manufactured products becoming more attractive to foreign buyers, and we are benefiting from both of those catalysts.
This enhanced business climate fits well for Olympic Steel as we look to finish this year strong, our best year in more than 5 years, and anticipate continued success in 2018.
We have completed ---+ or are currently concluding discussions for 2018 business renewals with many of our customers, and we like what we are hearing.
All of the major industries we support, such as heavy equipment, lifting equipment, food services and agriculture, just to name a few, are projecting that healthy demand will continue in 2018.
And we are winning new business, as our performance over the last 3 quarters demonstrates and, in particular, this third quarter.
The auto sector, although shy of last year's record levels, has been strong for Olympic Steel.
The outlook there remains tempered.
However, our specialty metals products and capabilities align well with the ongoing light weighting trends in automotive, and we are anticipating stronger volumes in 2018 and 2019.
Year-to-date, tonnage in our 2 flat roll product segments has grown by 114,000 tons, which is 13% higher than in the first 9 months of last year.
This would not be possible without the capital investments we made exiting the recession and the solid execution by all of our business segments.
As we have pointed out on previous calls, one of our primary initiatives has been expanding our professional sales teams across all of our business segments.
Combined with providing customers with high-touch level of service that is unmatched in our industry, these efforts are reflected in the volume gains we are now generating.
We continue to gain traction cross-selling tubular and pipe products from our existing flat roll facilities.
As mentioned at the top of the call, shipments of these products have increased in 2017, and prices for these products typically lag flat roll by a quarter or 2 in price action.
Our toll processing business has also been brisk.
Year-to-date, toll processing has increased more than 14% compared to last year.
From an operating standpoint, there was a minor pressure related to higher distribution cost.
This was an industry-wide occurrence as demand for 18-wheelers increased to assist with hurricane relief efforts.
We used contract carriers to supplement our proprietary fleet, and this short-term demand spike added to transportation cost.
We have a few capital projects underway to satisfy strategic areas of profitable growth and specific products and geographies.
Our Schaumburg facility has been bursting at the seams, primarily due to higher shipments of specialty metals products.
As a result, we are adding 42,000 square feet to our existing facility to house a new cut-to-length line dedicated to stainless steel and aluminum products.
We will maintain running the current line for cold-rolled products.
We are also refurbishing and repurposing a carbon splitter for stainless steel processing, which will be installed in our operations in Streetsboro, Ohio.
That's expected to come online in the middle of 2018.
Overall, we are pleased with our accomplishments and financial results thus far in 2017.
And we are optimistic that the macroeconomic and market conditions are in place to benefit Olympic Steel and domestic steel consumption over the next year.
With that, operator, let's open the call for questions.
Sure, <UNK>.
Dave <UNK>.
I'll take a swing at part 1 and part 2, and Rick can add a little bit of color.
Our spot business has grown.
Our business-to-business with other service centers has grown, up, I think, from 7% to 10% this year.
It's a combination of having access to material and our willingness to respond to our smaller strategic partners in the service center business that are allowing us to penetrate deeper into the marketplace.
So that business continues to prosper.
That's been a strategy that we've had in place now for 34 years, and it's continuing to work well for us.
I thank you for the second part question on plated.
It has been enormously beneficial for Olympic Steel.
We've had an emphasis on value addition.
And then we have reemphasized some of our as is plate distribution strategies, which would couple with my answer to part one of your question.
And so that business continues to roll forward.
We picked up according to the MSCI, MAR report, we've gone from roughly 4% service center participation to 5% service center participation this year.
Needless to say, 25% growth is enormous.
And our prospects for continuing that look very, very strong as we continue to operate what we call a business within a business in a number of our flat roll facilities, which also serves plate.
Yes.
I think very little has changed in that regard, <UNK>.
The industry continues to be plagued with concern.
So at this time last year, as we talked on the National Election Day a year ago, there was a dramatic concern, and people were winding inventories down.
That changed immediately the following day.
Whether you characterize it as the Trump bump or whatever, the reality is that our manufacturing businesses that we supply really got significantly stronger, and we had market positions.
So our positions ---+ we have positioned ourselves post-Great Recession to not only absorb additional business that recruited over the last 7 years, but to welcome back our old accounts to their fullest extent in these years.
And we're seeing all of that.
From our competitor's perspective, we do see a reluctance to hold inventory, and so we are prospering as the market continues to move forward.
So this is <UNK>.
I would tell you that from January ---+ sorry, <UNK> from the beginning of the year, literally from January to the beginning of October, we've seen almost consistent daily demand.
Clearly, with price reductions on the CRU and in the marketplace in October, people, when they see those kinds of significant reductions in price, kind of hold back on their purchases.
So we've seen a reduction on the daily shipment in October, which we're seeing a recovery on in November.
So we think it's, to some degree, an anomaly as people were looking to see where the bottom of the market is.
So the daily shipments in October were down somewhat, but we do anticipate that they will be coming back during the course of the rest of this year relative to the days that are missing because of the holidays, but we're seeing some daily shipment recovery already.
And then, <UNK>, I'd say, and <UNK> mentioned it, I think for 2018, we're quite optimistic that those daily rates are going to be higher on a year-over-year basis.
So we're ---+ obviously, you've got the fourth quarter with less shipping days and, as <UNK> described, the October low, but we're very optimistic going into '18.
Yes, maybe in the second quarter when we were expecting maybe some kind of activity on June.
But since that time, there'll be ---+ it has no impact at the moment really.
I mean, when you saw some pre-buying maybe in June, but we saw that basically being chewed up through the third quarter.
So at this point, if it comes in some fashion, I don't think anybody is really paying much attention to it in 232, other than the steel mills.
I mean, obviously, my business ---+ my customer's business will be impacted if 232 comes about, but we're not seeing any of that in terms of behavior at all at this point.
<UNK>, this is <UNK> <UNK>.
We have started to see that ---+ we started that a year or 2 ago, and it progressed nicely in 2017.
And 2018 and beyond, we'll continue to see growth from that area.
Yes.
So '17, we don't see much change from the numbers that we provided.
2018, obviously, <UNK> highlighted the expenditure in Schaumburg.
And we're going through our planning right now for budgeting capital expenditures for next year.
My preliminary guidance would be subject to an update next quarter.
But my preliminary guidance would be ---+ will be around our depreciation level for next year, which is around $19 million.
Yes.
I think, look, the problem with a snapshot as opposed to a moving picture is you only get one day to look at the trend of the company, and it gets 3 pictures over the course of the year.
So it is our expectation that the inventory will be down at the end of the year in all of our sectors.
And so you just caught a snapshot at the end of the third quarter where the inventory was a little bit higher than we would have liked.
But we would still tell you that the indication relative to where we want to be is a lower inventory position.
Great.
Thank you, operator.
Both Rick and I will be in New York City later this month at the Goldman Sachs Metals & Mining Conference on November 29.
And we will also be attending the Cowen and Company's Energy & Natural Resource Conference on December 5.
So we hope to see some of you there.
And once again, we thank you all for joining us this morning, and thank you for your interest in Olympic Steel.
Our fourth quarter full year results next year will be released sometime in February.
So thank you all.
| 2017_ZEUS |
2017 | MON | MON
#Thank you, <UNK>, and good morning to those of you on the phone.
Thanks very much for joining us today.
I'm pleased to share that we've returned another solid quarter for fiscal year 2017, and in doing so, have an even clearer line of sight on our 2 priorities for the year, namely delivering on our operational plan and key business milestones, and moving to closure on the Bayer merger agreement.
So let's begin with the Bayer path to completion on Slide 6.
Bayer continues to lead the filing process with support from Monsanto, and continues to target closing by the end of the year.
The filing in the European Union is expected to be submitted in the next few days and the response to the second request issued by the U.<UNK> Department of Justice was recently completed.
Once the EU filing is in, all key initial submissions will have been made.
In addition, we've already received clearance from several regulators, including South Africa, for which Bayer agreed to provide remedies.
The clearance progress has been steady and consistent, and we remain encouraged by the advancement of other proposed combinations, as our industry undergoes a healthy transformation to better serve the world's farmers.
And while other deals have their merits, we believe this merger is uniquely beneficial, as shown on Slide 7.
It has the capacity to benefit growers by accelerating innovation, by delivering integrated solution tools and by expanding offerings to new crops and geographies at a time when they're most needed.
One other benefit it delivers is complementary R&D expertise to enhance discovery efforts, leading to increasingly meaningful benefits for growers around the world, and global agriculture meets together to solve the conundrum of growing more with less inputs.
We know that there are ways to grow food better, smarter and more efficiently.
Collectively, we've created undelivered many of the building blocks necessary to meet future needs, but there's still much more to do.
Despite near-term supply, the demand for corn and soybeans continues to grow, as shown on Slide 8.
The rigors of climate change and competition for resources will only serve to intensify this need.
We're well positioned to develop this next-generation of solutions, as shown on Slide 9, with the broadly licensed Climate FieldView platform and our strong foundation of seed, trait and chemistry solutions.
The combination with Bayer should only serve to accelerate our ability to bring those to the growers who need them most, and our open platform continues to expand and evolve.
I'm encouraged by the positive farmer experiences that we've been hearing and seeing for Roundup Ready 2 Xtend soybeans, Bollgard II XtendFlex Cotton and Climate FieldView, as they reach record levels of penetration.
In fact, combined, these new technologies are on more than 125 million acres in the U.<UNK> in just 2 to 3 short years.
In addition, we've recently received several regulatory approvals for our products.
In April, we received the EPA approval of NemaStrike Technology, keeping this blockbuster product on track for commercial launch in fiscal year '18.
We also recently obtained the EPA approval for SmartStax PRO, our next generation of cotton rootworm control technology, which we expect to launch around the turn of the decade, pending receipt of certain import approvals.
And finally, this Vistive Gold soybeans just received import approval from China, clearing its final regulatory hurdle for full commercialization in 2018.
These factors also play into the high-quality performance that our business is delivering, with gross profit up more than 12% through the first 3 quarters.
Our innovation leadership is driving our growth and the completion of our third quarter bolsters our confidence and the outlook for the rest of the year.
To that end, our guidance range for fiscal year '17 is expected to be at the high end of the range for as reported earnings per share, and is confirmed at the high end of the range for ongoing earnings despite the continued tough ag market.
I am very pleased with what our team has accomplished, maintaining its focus while balancing our 2 imperatives.
The business remains on its growth trajectory and the progress and the combination continues at a steady clip.
So with that, I'll pass it to <UNK> to provide the operational update.
<UNK>.
Thanks, <UNK>, and good morning to everyone on the line.
Our focus on delivering the key business imperatives has powered us through the third quarter, and achieving our 2017 key milestones will place our company on a path to deliver on our strong growth to the turn of the decade.
Specifically, the ramp of our latest technologies has been record-breaking, with Roundup Ready Xtend, Intacta and Climate FieldView.
Our costs have been coming down in both U.<UNK> corn and soybeans, and our pipeline continues to advance.
As we delve into the specifics, let's start with corn, as shown on Slide 10.
This quarter is all about the Northern Hemisphere.
Let's begin with the U.<UNK>, where we're sold out of our DEKALB Disease Shield hybrids in their first year of introduction, and we remain on track for genetic share gains.
This was offset by lower than anticipated planted acres and a modest decline in our germplasm price/mix.
A key inclusion on those disease shield hybrids was our Acceleron B-300 SAT microbial product, which was first ---+ was the first launch from the BioAg joint venture with Novozymes.
Early season reaction has been positive, and we look forward to seeing how the rest of the season plays out.
In Europe, acres planted to corn year-over-year ended up relatively flat, and our team delivered modest germplasm price/mix lift in local currency, along with anticipated genetic share gains.
Overall, we're still expecting our full year global corn germplasm price/mix lift to be flat to up low single digits as a percent in local currency, primarily driven by the strong double-digit growth in the first half in Brazil and Argentina.
For soybeans, the momentum continues to be tremendous in our latest technologies, as shown on Slide 11.
With 50% growth in gross profit in Q3 alone, we now expect to deliver approximately 30% growth in our soybean gross profit as well as strong margin improvement for the full year.
Let's start with Roundup Ready 2 Xtend soybeans in the U.<UNK>, as shown on Slide 12, where our ramp year for the trait has been outstanding.
There are about 20 million acres planted across the country and we're hearing great feedback on the performance of the varieties and on the efficacy of the trait and herbicide system in managing tough-to-control weeds.
Based on information we have to date, the overwhelming majority of our customers are experiencing success with on-target application of Xtendimax with VaporGrip technology, and are following the label and good stewardship practices.
So I'm looking forward to seeing how the rest of the season unfolds.
In South America, the strong performance of Intacta Roundup Ready 2 PRO technology once again underpins the record penetration we are delivering.
For a fourth consecutive year, Intacta Roundup Ready 2 PRO is delivering a greater than 4 bushel per acre yield advantage based on 2017 field trials.
With this continued strong performance, growers have added another 15 million acres this year, increasing penetration to more than 50 million planted acres across South America, as shown on Slide 13.
Our focus is now shifting to next season, where we have established the price in Brazil, commensurate with the performance and reflecting an increase in local currency, which included the removal of the transition rebate that expired in fiscal year 2017 as expected.
In cotton, on Slide 14, the growing experience with Bollgard II XtendFlex varieties and the ability to use dicamba herbicides in season has now driven our trait penetration to more than 5 million acres in the U.<UNK> This is well over our anticipated penetration of more than 4 million acres and is nice to see given the substantial growth in cotton acres this year.
In addition, we're increasingly confident in our delivery of the third straight year of genetic share gains in cotton, and look to build upon this in the years ahead with Bollgard III XtendFlex cotton.
Moving to our other crops.
We still expect modest, but steady growth in vegetables for the full year.
We also continued to strategically manage our product portfolio as planned, with 2 additional deals struck recently, one in Ag Productivity and one in Seeds and Genomics, and we expect to receive the benefit in our fourth quarter results.
Shifting to digital tools, our Climate FieldView platform continues to see major advancements in its strategic differentiators in this space, with our partnerships, collaborations and strong adoption, as shown on Slide 15.
In terms of partnerships, we have signed up 3 new platform partners, Ceres Imaging, TerrAvion and Agribotix that will deliver valuable high-resolution imagery to farmers.
In addition, in May, Climate acquired HydroBio, an agricultural software company, with unique irrigation focused data and analytics capabilities.
This not only reinforces our partner of choice reputation in this space, but also expands the suite of products we expect to be able to offer farmers in the years ahead, and we'd expect even more announcements here before the end of the fiscal year as we continue to evaluate more than 25 potential technology partners.
In terms of adoption, we are ahead of where we expected to be for paid acres, registering more than 35 million, well above the original target of 25 million acres.
We also just recently announced our official commercial launch in Brazil after concluding trials on nearly 1 million acres, as shown on Slide 16.
With continued significant progress in adoption and partnerships and increasing interest in licensing opportunities, Climate FieldView remains a very promising area on the horizon for us.
At our Ag Productivity segment, we are now seeing the anticipated glyphosate-based herbicide price improvement, translating to the retail market.
This has resulted in year-over-year improvement in gross profit for the segment for the third quarter, and we expect this improvement in pricing will extend into the fourth quarter, despite year-over-year headwinds we saw in the past.
We're also increasingly confident in glyphosate's re-registration in Europe, as discussions have been progressing positively.
In addition, XtendiMax with VaporGrip technology continues to contribute to the bottom line, as trait penetration for the Roundup Ready XTEND crop system drives demand for low volatility dicamba formulations.
Moving to pipeline products.
As <UNK> mentioned, we recently received the highly anticipated news from the U.<UNK> EPA that NemaStrike Technology has been approved.
This puts us on track for commercialization in 2018, and allowed us to place hundreds of Ground Breaker trials across the U.<UNK> this year, as shown on Slide 17.
As we've done with numerous new technologies in the past, these trials will give growers firsthand experience with NemaStrike Technology, and will inform our launch for 2018.
With blockbuster value and strong interest from licensors and growers, we're excited to move the technology into their hands.
All in all, this was a solid quarter, in line with our expectations.
And as we look confidently to close out 2017, we've shifted our focus to growers' infield experience with our latest technologies, managing returns in the Northern Hemisphere and to the selling season in South America.
With that, I'll hand it over to <UNK> for his financial review.
Thanks, <UNK>, and good morning to everyone.
In the third quarter, we delivered as reported earnings per share of $1.90 and ongoing earnings per share of $1.93, in line with our expectations.
Let's look at the specifics.
Our soybeans gross profit grew by 50%, driven primarily by 3 factors in the U.<UNK>: the reduced cost of goods for Roundup Ready Xtend; the increased acres planted to soybeans; and the benefit from the sale of its both traded varieties.
Similarly, cotton gross profit improved by 31%, thanks to the increase in U.<UNK> planted acres, greater Bollgard II XtendFlex acreage and genetic share gains.
Corn gross profit was down slightly, in line with expectation, and mostly due to lower planted acres in the United States, coupled with the previously mentioned grower demand-driven timing shift into Q2.
This was partially offset by lower cost of goods in the U.<UNK> due to improved production volumes.
Global corn price was essentially flat in the market where commodity prices continued to be challenging.
Finally, other crops season traits gross profit declined due to the absence of the benefit from the alfalfa license in the prior year.
Ag Productivity gross profit increased about 12%, given the improvement in both pricing and volume for glyphosate-based herbicides and the continuation of XtendiMax dicamba-based herbicide sales coming through in the results.
Our SG&A and R&D expense increased about 8%, primarily resulting from increased incentive expenses, driven by the growth in the business and from the increased investments in Climate.
However, we remain on track with our target of $500 million in savings by the end of the fiscal year 2018, as shown on Slide 18, across cost of goods and operating expenses as compared to our fiscal year 2015 base.
These savings are helping to offset inflation rate increases globally.
Lastly, free cash flow fiscal year-to-date is a use of cash of $158 million versus the prior year use of cash of $251 million.
This improvement reflects the increase in operating cash flows from dollars as compared to the prior year.
The increase in capital expenditure relates to the construction of the dicamba manufacturing facility in Luling, Louisiana.
Looking out for the end of the fiscal year, as shown on Slide 19.
We confidently expect our as reported earnings per share to be at the high-end of the range of $4.09 to $4.55, and again, confirm our ongoing earnings per share at the high end of the range of $4.50 to $4.90.
For free cash flow, we also still expect to be at the high-end of the range of $1.2 billion to $1.6 billion.
As we look at the specific components of guidance, let's start with Seeds and Genomic gross profit, which is now expected to be up high single digit as a percentage for the year.
This reflects outstanding growth in both soybeans and cotton as well as modest growth in corn, partially offset by the absence of the benefit from the alfalfa license in Q3 of fiscal year '16.
In our other segments.
Ag Productivity gross profit is still expected to be in the range of $850 million to $950 million, as both glyphosate and dicamba deliver anticipated results.
As part of our continued portfolio optimization efforts, I am pleased with the recent deals we've signed, and we expect to receive the benefit of roughly $70 million in non-core asset sales gains in the fourth quarter.
About half of these gains will benefit the Ag Productivity segments, and half will benefit Seeds and Genomics.
Both are expected to be recorded in other income, and are considered in our guidance.
Despite the recent weakening of the Brazilian reais, we still anticipate the change in currency rates year-over-year to be relatively neutral to earnings.
And finally, we still expect our SG&A and R&D expense to be up mid-single digits as a percent due to increased commission in South America, incentive increases and greater spend at Climate, consistent with the drivers in the year-to-date results.
In closing, we are delivering solid returns on innovation, and doing so with financial discipline as we return our business to growth this fiscal year.
We have confidence that the outlook for the balance of the year is on sure footing, and we look forward to updating you at the fourth quarter.
Thank you for your time today, and with that, I will pass it to <UNK> for the questions.
Yes.
That's good.
I think we're taking a conservative outlook.
But <UNK>, maybe just a little bit of color.
Yes, <UNK>, so it's just exactly as you described.
As we look at Brazil, the local price for corn is depressed compared to last year.
So we obviously are taking that into consideration as we look at pricing our genetics.
So we don't anticipate the same kind of improvement that we saw last year from a pricing standpoint, and it will, as we expect, cut the acreage back a bit.
So we're planning for somewhat of a reduction in acres.
It's still too early to call from our ---+ from how we see it and what the acres will actually come back, but we do anticipate it will be down some.
It's a bit stronger in Argentina, as we look at the Argentina market with the demand for corn there in both domestically and from an export standpoint.
But we don't see the same kind of pricing opportunity that we saw last year.
But we still feel really positive about the performance of our portfolio, the performance of our genetics and traits, and our pricing will be fine going into next year, and we still see growth occurring in that part of the world.
It's probably safe to say, <UNK>, that we took ---+ we were careful in how we manage our inventory this year as well, how we sold out.
Yes.
We're in a great position in Brazil and Argentina.
Last year, as you mentioned, <UNK>, the acres were up significantly, and it's always a really good day when you find yourself with significant price increases in a sold-out position.
And that's where we found ourselves in Brazil this year.
Yes, so good position on varieties.
In fact, in many ways, we're seeing it play out with Xtend now as well.
Because of the early delays, we get a chance to call it in the chess boards.
But <UNK>, final steps and then the migration to 2s.
Yes.
So as noted in the call today, soybeans has had a phenomenal year, both in North America with Xtend, and as well as Intacta, as to your question, Chris, in South America.
Intacta continues to do extremely well.
The big, big driver on Intacta has been and continues to be another year of delivering 4 bushel yield increase, and that's where the real value is, and so we're excited about hitting 50 million acres this year.
We continue to look to grow that into the total opportunity down there.
We still expect somewhere around 75 million acres by 2019 on about 100 million acre opportunity.
And we do continue to look at Argentina and building it out there.
But again, I'll remind you that in Argentina, insect pressure isn't as severe as it is in Brazil.
So Argentina has never been as big an opportunity as Brazil has been, but we do continue to build it out for Northern Argentina and work with the government on the system.
And what really gets me excited about Intacta in South America is the work our R&D team has done to bring us the next-generation of Intacta 2, and we're already starting to build the plants to make the big transition from Intacta 1 to Intacta 2.
And as I said for a couple of years, I don't think we'll ever fully penetrate with Intacta 1.
We'll be making the transition to Intacta 2, bringing a new technology with a new and better insect control into the marketplace.
But we feel reasonably good about where we sit right now in South America with soybean.
We're chasing 75 million acres by 2019.
So Don, thanks for the 2 questions.
So <UNK>, maybe a little bit on guidance and our stance in guidance this year.
Yes.
So Don, so as you know, historically, Q4 has always been a smaller quarter, and typically resulted in a loss.
And last year, it was somewhat unusual with the favorable impact of the sorghum JV deal that we had and better-than-anticipated final volumes in both corn and soybeans.
So this year, we are looking at way more normalized volumes.
And the key thing there is we are also expecting half the amounts of deals that we had last year, and this is one of the reasons at this point in time since we've calibrated the benefits from deal around $70 million, this is why despite the increase you see in our guidance on GP in both Ag Productivity and Seeds and Genomics, I mean, modest increases there.
You see the total EPS not changing dramatically because we have scaled down some of our assumptions as well on the deals.
So all in all, I mean, pointing to the high end of our guidance, you're looking at a year where we're looking at double-digit growth for the full fiscal year in terms of EPS in a really challenging environment.
So that's the way we're thinking about it now.
Thanks, <UNK>.
And then your question on Xtend, Don, we've talked for years about the decade of the bean, and this is clearly the year of the bean.
So we are delighted with the rollout of Xtend.
It took a long time to get here.
But if you look at beans and corn, just to put some context on this, we've won 25 million acres this year from a standing start, so our biggest launch and at a time when growers are really looking for help for this resistant weeds.
So <UNK>, against the backdrop of 25, how are you looking at it.
Yes, so Don, you think about this, you pointed out 25 million acres of combined corn and soybeans in the marketplace.
That's a multiple fold larger launch than we've ever experienced with any technology.
And I think it speaks volumes to the farmers' need for additional tools and technology in the marketplace to control weeds.
What we've seen so far, Don, is the vast majority of farmers and applicators using our products are seeing great results, both from a weed control and efficacy standpoint as well as the application itself and the products they input.
So we feel really good about what we're seeing.
I'd remind you, to your point of the ---+ 33 out of 34 states have approved our XtendiMax with VaporGrip technology.
But Arkansas, as you noted, was one of them that never approved that product or was the only one that never approved that product.
As it stands today, as we look at inquires across the entire country in the 34 states, where we're approved, it appears that the plant lord in Arkansas is getting a lot more inquiries than we're getting across the combined rest of the state or states that have approved XtendiMax with VaporGrip.
So the key here is, is that it's the largest launch ever.
The number of inquiries we're experiencing would be normal for any product.
Even products that have been established in the marketplace would experience a number of inquiries every year.
So we feel really good about where we're at, and we'll continue to work with every farmer that's purchased our technology and work with them to have a positive experience, but I couldn't be more excited about the performance we're seeing across all the states.
I guess, I would say early days, but we're feeling good in both crops.
There's a possibility of a little bump.
Yes, I'm always cautious to get ahead of ourselves because returns and everything is not completed yet.
But I do feel good today telling you that the indicators would tell us we expect genetic share gain in the U.<UNK> in our corn business and soybean business as well.
And the one I'm more confident in is cotton because it's so strong, and we've seen it for 3 years in a row.
So we ---+ I would tell you that it's kind of the Triple Crown on share growth across the 3 different crops this year in the U.<UNK>
So a couple of things to keep in context, and it's all consistent with the points you made in your question.
Yes, we've been somewhat limited based on inflation in Brazil.
It's not very often when you're talking about inflation being your friend, but inflation has been our friend when it comes to pricing of Intacta.
So we haven't been holding our price flat in Brazil.
We've actually been moving it up with inflation the past number of years.
So we have improved our position.
As noted, there was a transition payment that was occurring from the old Roundup Ready formulation or trait to the new Roundup Ready 2 and Intacta, and that expires.
And with that expiration, it feels a bit like a price increase to the farmer and a benefit to us because it just goes away.
So it just extinguishes itself.
So we'll feel the benefit of that.
So we would expect going into this year that we'll see somewhere in the range of double-digit, but it still has to play out as we look at that transition payment expiring and the price move that we took, which was a positive uptick this year, again, on top of the previous years.
Thanks for the 2 questions, Jeff.
We'll maybe take the second one ---+ second on Ag Productivity.
Yes, so looking at the replants, it was ---+ Mother Nature was not kind to farmers.
They started planting early with great conditions, and then there's pockets, where it just ---+ it became really tough, and to your point, there were farmers replanting for the second and third time, unfortunately, this year.
Here's the context and the reminders.
Every year, there's replants.
And if you're one of the farmers that's affected in that area, it can be devastating and it's incredibly frustrating.
But when you look at it across the entire marketplace, it's always a relatively small percentage in total.
We accrue for that to occur in the marketplace.
Jeff, I would guess, there's probably a slight chance it's going to ---+ more than a slight chance that it's going to be more than average.
But it isn't going to be all that high.
So to your point of will it change our position with inventories, et cetera.
No, we're well prepared for that.
The change in corn planted acres from last year to this year was more significant than the impact of replant.
So we're well-balanced going into next year.
Yes, and that would be the same across the industry, that's (inaudible) piece.
<UNK>, expenses on Ag Productivity.
So Jeff, I don't have the details in front of me.
But as our total spend, our total spend is increasing with the health of our business, and we are seeing growth on both segments.
And some of that translate into commission in South America.
Some of that translates into higher incentives.
So specifically, regarding Ag Productivity, I mean, I don't have, as I mentioned, the detail in front of me.
But these are the key driver at the company level, which definitely play a lot in Ag Productivity since the base is lower, and there's also the launch of the dicamba formulations in the market that may also have impacted that.
So overall, I mean, this is together with the trends of our spend in the company, which is really associated with the growth of the business.
So when you look at the year and our forecast on what we expected, we're tracking within expectation.
We're tracking within expectation, yes.
Not at this time, <UNK>.
As I mentioned in my prepared remarks, I think we're making steady progress.
And the next piece of visibility will be the submission to the European Union, which we're working towards by the end of this month.
And given that, then the ---+ if that occurs in that time frame, then we anticipate that we would still be working towards closure by the end of this year.
But beyond that, we have not [based] at this time.
No.
It's completely ---+ it comes as a second part of your question, but it's completely separate from our deal with Bayer.
And we continue to look at that process.
We're pursuing alternative purchasers at the moment.
So no, there's absolutely no linkage with the transaction.
Yes.
Thanks for your question, <UNK>, and I really can't comment on that.
I've learned over the years, and you've been on many of these calls over the years, that speculating on regulatory processes is never a good idea.
So I think the next major one, as I said, is Europe.
And in the coming days, I think our progress has been steady and sure.
But I think a comment on an individual jurisdictions is ---+ I don't think that's something that we should be doing at this stage.
Well, thanks very much, <UNK>.
Let me just begin by thanking you for your support and patience on the line today.
We felt through this year that it's been important to continue to update our owners and investors.
So we thank you for your support.
I wanted to thank my team as well who've done an outstanding job on delivering on our operational plan and our deal milestones while we continue to serve and support our customers, the growers around the world.
And as we look at the work through the summer, that's going to remain our priority as we close out this fiscal year.
So thanks and congratulations on a strong performance to my team.
And with that, we look forward to joining with you and talking to you again in October as we close out this year.
Thank you very much.
| 2017_MON |
2018 | DAKT | DAKT
#Thank you, operator.
Good morning, everyone.
Thank you for participating in our Fourth Quarter and Year-End Earnings Conference Call.
I would like to review our disclosure cautioning investors and participants that in addition to statements of historical facts, we will be discussing forward-looking statements, reflecting our expectations and plans about our future financial performance and future business opportunities.
All forward-looking statements involve risks and uncertainties, which may be out of our control and may cause actual results to differ materially.
Such risks include changes in economic conditions, changes in the competitive and market landscape, management of growth, timing and magnitude of future contracts, fluctuations of margins and the introduction of new products and technology and other important factors as noted and detailed in our 10-K and 10-Q SEC filings.
With that, let me highlight some of the financials, starting with fourth quarter comparisons.
Orders for the fourth quarter of fiscal 2018 were $162 million as compared to last year's fourth quarter of $178 million.
Most of the order fluctuation this quarter is attributable to the variability of timing and large projects and account-based businesses in Commercial, Live Events, Transportation and International business units.
Notable orders for the fourth quarter of fiscal 2018 included projects from all applications in Dubai, a number of college stadium upgrade, Transportation niche orders in the U.S. and Saudi Arabia, a soccer stadium in Europe and a couple of projects exceeding $1 million in the High School markets, continuing the trends we see in High Schools using larger video applications.
As a reminder, we derive a significant portion of our orders and sales from large dollar size projects, primarily for college and professional sports facilities, entertainment venues, transportation record applications and from account-based business in the Out-of-Home niche.
The timing and amount of these contracts can cause material fluctuations in our orders, sales and earnings.
Awards of large contracts and their timing and amount are difficult to predict, may not be repeatable and are outside of our control.
Our business also fluctuates seasonally based on the sports markets and construction cycle and is dependent on various schedules based on our customers' needs.
Sales for the fourth quarter of fiscal 2018 were $138 million as compared to $144 million last year.
Net sales increased in International and the High School Park and Recreation business units, decreased in Live Events and Commercial business units and remained relatively flat in the Transportation business unit quarter-over-quarter.
The decline in sales is a result of lower orders and the timing of conversion to sales according to the customer delivery needs.
Other financial comparables include gross profit as a percentage of sales at 21.6% for the fourth quarter of fiscal 2018 as compared to 23.5% a year earlier.
The decrease in gross profit percentage was primarily due to warranty charges.
Total warranty as a percent of sales increased to 4% as compared to 1.7% last year's fourth quarter.
We are working through a couple of site-specific issues and do not believe these to be pervasive through our product line.
Operational expenses for the fourth quarter of 2018 were $35.2 million compared to $32 million for the fourth quarter of fiscal 2017.
The increase in total operating expenses of $3.2 million was primarily attributable to the increase in selling expenses of $1.3 million, which is due to personnel-related costs and also due to the planned increases in product development activities in both control systems and display applications, which increased $1.3 million as well.
General and administrative expenses increased $0.6 million, primarily for personnel-related expenses.
Operating loss as a percentage of sales was 3.9% for the fourth quarter of fiscal 2018 as compared to operating income as a percentage of sales of 1.2% for the fourth quarter of 2017.
Now turning over to the full year-over-year comparisons.
Orders for fiscal 2018 were $583 million as compared to $614 million in fiscal 2017.
Orders increased in the International and High School Park and Recreation business units and decreased in Commercial Live Events and Transportation business units.
Order changes are primarily due to timing of usage of digital technology, but continues to be demand ---+ continue to have demand in the marketplace.
In addition to the orders already mentioned, notable orders for the year included multimillion dollar projects for professional baseball stadium, the national hockey arena and increase of account-based International and Out-of-Home orders across multiple geographies and continued demand for sports upgrades in colleges and universities and in professional soccer, both in the U.S. and across Europe.
Transportation market orders included projects for mass transit applications and over-the-roadway messaging systems.
In the Commercial market, orders for on-premise applications were lower due to a national account project in FY '17 with no similar type of project recurring in FY '18, volatility in the spectacular large project order timing and increases in Out-of-Home orders.
High School Park and Recreation market demand remains strong, including orders for larger sport application projects.
Sales increased to $611 million as compared to $587 million last year.
Net sales increased in Live Events, Transportation, High School Park and Recreation and International business units and decreased in the Commercial business unit.
Live Events net sales increase was primarily related to the timing of production and delivery of upgraded or new solutions for arenas, professional sports, and colleges and universities.
High School Park and Recreation's increase of net sales follow the increase in orders and the related conversion to sales during the year.
Transportation's increase in net sales is related to the variability of large order production timing caused by customer project schedules.
International net sales increase was mainly attributable to the market demand in the Out-of-Home niche.
Commercial net sales decreased as a result of lower order volumes in our on-premise and spectacular niches, offset by an increase in our Out-of-Home niche sales.
Gross profit was 23.9% on a year-to-date basis for both fiscal 2018 and fiscal 2017.
Gross margins in fiscal 2018 were impacted by an increase in warranty as a percent of sales, changing from 3.5% for fiscal 2018 as compared to 2.5% in fiscal 2017.
During the year, we incurred costs for specific site issues and choosing to provide additional coverage on a historical product defect to preserve our customers' relationship.
Operating expenses increased $8.2 million or 6.6% for the year due to the product development increase of $6.4 million, for additional resources focused on velocity of development and deployment of display and control solutions to the market.
Selling expenses increased $1.1 million or 1.7%, primarily for personnel-related cost, offset by recoveries of receivable previously written off, and general and administrative expenses increased by $0.7 million or around 2%.
Our overall effective tax rate for the year was 55.2% due to the change during the year to revalue our deferred tax assets due to the enactment of the U.S. Tax Cuts and Jobs Act of 2017.
This act changes the U.S. tax rate from 35% to 21%, along with other changes.
The impact of the tax change accounted for approximately $0.06 per share of our loss during fiscal 2018.
Looking ahead to future years, we expect an expected tax rate of approximately 21%, taking into account the new U.S. tax rate, benefits of the research and development tax credit and estimations for states and other geographic tax rate.
As we have previously noted, our effective tax rate can fluctuate depending on changes in the tax legislation and the geographic mix of taxable income.
Our cash and marketable securities position was $64.3 million at the end of the quarter.
We reported a positive free cash flow of $14.4 million for fiscal 2018 as compared to a positive free cash flow of $31.1 million for fiscal 2017.
The fluctuation in free cash flow is the result of timing differences in operating assets and liabilities, primarily for reduced accounts payable and increase in inventory and income tax payment and the $9.6 million increase in capital spending this year as compared to last year.
Primary uses of capital included manufacturing equipment, research and development testing equipment and facilities, demonstration equipment for new products and information technology infrastructure.
We expect capital expenditures to be less than $20 million for fiscal 2019, and we made no repurchases of stock during fiscal 2018.
Our backlog is $171 million going into the first quarter.
Much of this backlog is projected to be realized over the coming few quarters.
We expect sales for the first quarter of fiscal '19 to be somewhat less than 2018 as we completed a number of NFL stadiums in 2018 with no similar sized projects expected in the first quarter of 2019.
Of course, sales could change pending project bookings and customer schedule changes.
I'll now turn over the call to <UNK> <UNK>, our Chairman, President and CEO for commentary on the year and outlook.
Thank you, <UNK>.
Good morning, everyone.
While the overall results for fiscal 2018 were below expectations, we remain optimistic for the future.
We proactively increased product development activities during fiscal 2018 and introduced additional narrow pixel pitch solutions and control features to our broad array of offerings.
The marketplace is using these types of solutions in many applications from sport to retail to commercial buildings and transportation hubs.
Warranty claims challenged our bottom line, however, we have maintained strong relationships with customers through our demonstrated commitment to serve them over the long term.
We made facilities improvements and invested in new testing machinery and processes to further the robustness of our product lines.
And we continue to grow our global accounts business and have continued success in European, Middle Eastern and Asia Pacific geographies.
We are focused on winning more orders, and we'll continue our velocity of product development to match the industry's growth and solution demands.
Specifically, we see these opportunities and trends in the marketplace.
Sport, Commercial and governmental entities continue to choose digital applications to support their needs.
This demand is driving long-term growth globally in the LED video display industry, as well as other digital applications.
Digital systems have a known end-of-life that will drive continued replacement or refurbishment of the installed base.
Our range of solutions and global capabilities makes us the industry's most experienced digital display provider.
And we continue to release new or enhanced product lines and comprehensive solutions targeted towards our broad market base as well as specific customer needs.
This allows for success in markets during natural ups and downs of each segments.
In each business area, we are expecting the following: our International business unit will continue to be poised for growth through increased adoption of digital systems as well as our focus on increasing market share in our segments of sport, Out-of-Home, Spectacular and Transportation.
We expect continued demand and growth for larger sized orders due to the adoption of video and sporting applications in the High School Park and Recreation market.
Transportation has growth opportunities due to a continued investment in U.S. Transportation systems, the stability of federal funding and increasing advertising and in-store promotional application needs in mass transit facilities.
In our Commercial business unit, we see opportunities for growth, mainly driven by digital opportunities in the Spectacular segment, both new and replacement systems for a national account-based business, expansion of solutions for indoor applications and continued activity in the billboard segment.
We expect Live Events sales to maintain order levels of prior years.
While optimistic about our long-term future, various geopolitical, economic and competitive factors may impact order growth.
For example, current trade discussions could have an impact on our competitiveness globally.
For fiscal 2019, we expect to continue to invest at similar levels in our development area.
Over the coming months, we continue to release our latest generation of technology, featuring narrow pixel pitches, new features in our control systems and interactive contact features.
We will also continue development for modules using Chip-On-Board technology.
While these efforts will increase development expenses as a percent of sales in the near term, we believe this investment is appropriate to drive forward new solutions to meet customer needs and to expand our global market share.
Rollouts of products, including display and control solutions, are expected throughout the coming year.
We expect continued success in growing our business profitably over the long term.
While our path will not always be smooth, our business will continue to be lumpy.
We believe the growing market and our industry-leading solutions position us to generate long-term profitable growth.
We provide proactive support from initial project planning throughout the intended use of the system, leading to satisfied customers and repeat business aligned with natural replacement cycles.
And we continually innovate to meet our customers' needs today and over the long term.
With that, I would ask the operator to please open the line for questions.
Greg, this is <UNK>.
That is still our target to have our warranty spend less than 2%.
Yes.
In our Live Events business, we still see strong interest in digital, both in the competition bowl and outside the competition bowl.
But the business itself will change based on the projects available in the current year, and there's not as many new facilities opening up this fiscal year as some of our previous fiscal years.
We believe we'll continue to invest in product development at the similar levels of last year.
So we do not intend for the dollar value in product development to grow.
But we believe the products that we're releasing will give us a room on the top line to grow.
And so we believe the percent spend in product development will start to become more in line with what our expectations are internally.
They are available now and they are mainly targeted at the U.S. transportation and fuel market.
Not that they couldn't be sold elsewhere, but that's where the ---+ they were tailored for that customer base.
Thanks, everybody, for attending the call today.
We appreciate your attention.
And we hope that you have a great summer, and look forward to talking to you again at our Q1 call in September.
| 2018_DAKT |
2017 | PPL | PPL
#Thank you.
Good morning, everyone.
Thank you for joining the PPL conference call on first quarter results as well as our general business outlook.
We're providing slides of this presentation on our website at www.pplweb.com.
Any statements made in this presentation about future operating results or other future events are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from such forward-looking statements.
A discussion of factors that could cause actual results or events to differ is contained in the appendix to this presentation and in the company's SEC filings.
We will refer to earnings from ongoing operations or ongoing earnings, a non-GAAP measure, on this call.
For reconciliations to the GAAP measure, you should refer to the press release, which has been posted on our website and has been furnished to the SEC.
At this time, I would like to turn the call over to Bill <UNK>, PPL Chairman, President and CEO.
Thank you, Joe.
Good morning, everyone.
We're pleased that you've joined us this morning.
With me on the call today are Vince <UNK>, PPL's Chief Financial Officer; and the presidents of our U.S. and U.K. utility businesses.
Moving to Slide 2, our agenda this morning starts with an overview of our first quarter 2017 earnings results, a discussion of our 2017 earnings forecast and a brief operational overview.
Following my remarks, <UNK> <UNK>, Chief Executive of our Western Power Distribution subsidiary will provide an update on our U.K. incentive performance.
Vince will then review our segment results and provide a more detailed financial review, then we will take your questions.
Turning to Slide 3, today, we announced first quarter 2017 reported earnings of $0.59 per share, compared with $0.71 per share from our first quarter 2016 results.
Adjusting for special items, first quarter 2017 earnings from ongoing operations were $0.62 per share, compared with $0.67 per share a year ago.
This reduction in earnings was driven primarily by lower foreign currency exchange rates, as expected, partially offset by an April 1, 2016, price increase in the U.K. An unusually mild winter in Kentucky also negatively impacted earnings.
The State of Kentucky, in fact, experienced its warmest February on record.
I'm pleased with our first quarter results, and despite the abnormally warm winter, we are off to a strong start to the year and remain confident in our ability to deliver on our 2017 earnings guidance.
Let's move to Slide 4, which highlights our 2017 ongoing earnings forecast.
Today, we are affirming ---+ reaffirming our 2017 forecast of earnings from ongoing operations of $2.05 to $2.25 per share, with a midpoint of $2.15 per share.
Looking beyond 2017, we remain confident in our ability to deliver overall compound annual EPS growth of 5% to 6% from 2017 through 2020.
As we have highlighted on the year-end call, we expect 4% to 6% compound annual growth in our U.S. utilities from 2017 through 2020, and 6% to 8% growth in the U.K. The drivers of this growth are summarized in the appendix on Slide 21 and are consistent with the growth drivers discussed on the year-end call.
We have significantly reduced our exposure to foreign currency exchange rates through our ongoing hedging program, as we've increased our hedge levels even further during the first quarter.
While the British government formally began its exit from the European Union, we are well-positioned to deliver our long-term growth, even if exchange rates were to fall well below today's current levels.
However, the pound-to-dollar exchange rate has been very stable since the U.K. officially began the Brexit process on March 29.
In fact, the exchange rate has actually strengthened some, with current rates around $1.29 per pound.
Vince will provide you with an update to our hedge status during his remarks, but I will highlight now that with the additional hedging we did since year-end, we can achieve at least the low end of our 5% to 6% compound annual EPS growth range, even if the pound falls to $1.05.
Delivering on our commitments really comes down to execution, and that is something that we have demonstrated over the years, which is a clear strength for PPL.
As we've discussed in the past, we have a very straightforward business plan, which we believe is low risk.
And as noted on the slide, we continue to target annual dividend growth of about 4% a year from 2017 through 2020, having delivered on that commitment earlier this year by increasing the annualized dividend in February from $1.52 per share to $1.58 per share.
Overall, we continue to maintain one of the strongest dividend yields in our sector, while maintaining our investment-grade credit metrics.
Now let's move to Slide 5 for an update on our utility operations.
In Kentucky, our rate review before the Kentucky Public Service Commission continues to move forward as we reach settlement agreements in April with all of the parties involved.
The settlements are subject to approval by the Kentucky Commission.
If approved, it will result in a total annual revenue increase of $122 million for our Kentucky utilities.
The settlement also includes other adjustments that relate to the timing of cost recovery, such as depreciation rates.
The settlements provide for the ability to invest in intelligent control equipment that will enhance reliability and enable faster restoration of service.
It also will give Louisville Gas and Electric the ability to improve natural gas safety and reliability by replacing the aging natural gas service ---+ field service lines, with new plastic lines that run from the street to our customers' homes.
As part of the proposed agreement, the companies have agreed to withdraw the current request for a full deployment of advanced meters, and we will establish a collaborative with the interested party to address issues raised with that proposal.
This will result in the removal or deferral of just over $300 million in total capital expenditures from the 2017 through 2019 capital plan.
The settlement proposal includes an authorized 9.75% return on equity using our filed capital structure.
The agreement gives us the ability to enhance our reliability and continue providing safe and reliable service to our customers.
A public hearing on the rate review is scheduled to begin on May 9.
An order in the case from the Kentucky Public Service Commission is still expected on or around June 30, with new rates going into effect on July 1 of this year.
In Pennsylvania, PPL reached a new 5-year labor agreement with the International Brotherhood of Electrical Workers Local 1600.
The agreement ratified by bargaining unit members in March will take effect May 22.
It continues our long-standing practice of providing competitive wages and benefits for our employees.
We believe it is also in the best interest of PPL shareowners and our customers.
In the U.K., as I mentioned earlier, Article 50 was invoked on March 29, which formally began the process of the U.K. exiting the European Union.
That process is expected to take up to 2 years to complete.
As we've discussed in the past, we expect no changes to our U.K. operations as a result of the exit.
I will now turn the call over to <UNK> <UNK> to provide an update on WPD's performance against our RIIO-ED1 incentive targets.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
Let's move to Slide 9 for a more detailed review of our first quarter earnings.
First quarter earnings from ongoing operations decreased by $0.05 over the prior year, driven by lower earnings from the Pennsylvania Regulated segment of $0.02 and $0.02 from the Kentucky Regulated segment.
Corporate and other was lower by $0.07, primarily due to the timing impact of recording annual estimated taxes.
For those on the call that are well-versed in tax accounting, this is just the result of the quarterly APV 28 adjustment, which will reverse over the remainder of the year.
These lower earnings were partially offset by an improvement in the U.K. Regulated segment of $0.06.
Before I get into the segment details, let's briefly discuss the impact domestic weather had on our results compared to last year and compared to our plan.
Compared to last year, mild temperatures during the first quarter of 2017 had an unfavorable $0.02 impact for our Kentucky segment, with heating degree days about 27% lower than normal in the quarter.
The impacts of weather in Pennsylvania were relatively flat, year-over-year.
Compared to our plan, domestic weather had a negative $0.03 impact.
Let's move to a more detailed review of the 2017 segment earnings drivers, starting with the Pennsylvania results on Slide 10.
Our Pennsylvania Regulated segment earned $0.12 per share in the first quarter of 2017, a $0.02 decrease compared to the same period a year ago.
This result was due to higher operation and maintenance expense due primarily to timing and higher depreciation due to asset additions.
Higher transmission margins from additional capital investments were offset by lower peak transmission system demand in 2017.
However, transmission margins for the full year are still forecasted to be in line with our original expectation.
Moving to Slide 11, our Kentucky Regulated segment earned $0.14 per share in the first quarter of 2017, a $0.02 decrease compared to the first quarter of 2016.
This decrease was due to lower gross margins as a result of lower sales volumes due to the unfavorable weather that I talked about earlier.
Moving to Slide 12, our U.K. Regulated segment earned $0.45 per share in 2017, a $0.06 improvement compared to a year ago.
This was primarily due to higher gross margins, driven mostly by the April 1, 2016 price increase.
In addition, lower results from lower foreign currency exchange rates in 2017 compared to 2016 were offset by a decrease in O&M, primarily from lower pension expense and the timing of network maintenance expense and lower income taxes as a result of pre-funding pension contributions into our various U.K. pension plans.
Part of the reason for the pre-funding of the plans was to take advantage of tax deductions at the higher statutory rate of 20%, which was effective through March 31, versus 19% which became effective April 1.
These positive tax results enabled us to restrike $0.04 of 2017 earnings in the first quarter, adding additional U.K. earnings hedges in 2019 without impacting the midpoint of our 2017 earnings guidance of $2.15 per share.
Moving to Slide 13, since our year-end call, we continue to layer on additional hedges.
We are now contractually hedged 100% for 2017 at an average rate of $1.21 per pound, and we are 99% hedged through '18 and '19 at average rates of $1.41 and $1.32 per pound, respectively.
As a reminder, every $0.01 in the FX rate above our budgeted rate of $1.30 represents about $0.01 in earnings per share.
So just for 2018 and '19, we have about $0.13 of additional hedge value above our budgeted rate.
It's that additional hedge value that gives us so much confidence in our ability to meet our earnings guidance targets even though 2020 is still contractually unhedged.
And just to reiterate what this bottom table shows, if we were to use all the additional hedge value, we could still achieve our minimum 5% growth rate through 2020, even if market rates drop to $1.05 per pound.
However, at current exchange rates, we would not need to use all of this value to achieve our earnings growth targets.
And in fact, the EPS growth rate would be at the high end of our 5% to 6% growth range and the additional hedge value would be available for other purposes.
The hedge program we've developed was designed to protect us against the downside risk of the pound losing value, but it also provides us with a lot of upside opportunity if the pound remains at current levels or even strengthens.
Based on the current hedge levels, our view is that this risk reward proposition is now skewed much more to the upside than to the downside.
Moving to Slide 14, we've provided an illustration of the high-, medium- and low-currency forecast from up to 17 financial institutions.
These forecast do not represent PPL's internal forecast or our planning assumption.
But you can see from the chart, even the fairest view is around $1.40 per pound for 2020, in the bullish case is much higher.
And as I said, to the extent exchange rates remain at current levels or move consistent with these estimates, the additional value created in our plan will not be needed in 2020 and could be used for a variety of purposes, including mitigating potential tax reform or hedging future years beyond 2020.
And finally, turning to Slide 15.
We continue ---+ sorry, we show our updated RPI forecast.
In recent months, we have seen RPI rates strengthen above our business plan assumptions.
We believe RPI now represents some upside potential to the plan, but as you can see from the sensitivity table, it's not likely to be too significant.
That concludes my prepared remarks.
I'll turn the call back over to Bill for the question-and-answer period.
Thank you, Vince.
In closing, I'm confident in our ability to deliver on our commitments to customers and share owners.
And as I said, in my opening remarks, we're very pleased with the strong start to the first ---+ in the first quarter.
As we look ahead, the state of our business is strong and our strategy for growth is clear.
We will deliver industry leading customer service in our reliability.
We will invest responsibly in a sustainable energy future.
We will continue to execute on our infrastructure plans.
We will maintain our strong financial position, and we will engage and develop our people.
That's our focus each and every day as we work to provide safe, reliable and affordable service to our customers, while growing value for shareowners.
Thank you for joining us on today's call, and with that, operator, let's open the call to questions, please.
Sure.
I'll let Vince take that question.
Yes, Greg.
We're waiting for formal approval from the commission before we adjust the capital plan, so you can, yes, adjust accordingly.
Sure, and I'll ask <UNK> to comment on that, but just as a reminder, even though we didn't hit the maximum rewards, we still came in above our projected amount, the estimated amount that we had in the business plan.
So we're very pleased with the outcome, but I'll ask <UNK> to comment on what it would take to achieve the maximum rewards.
Sure.
Well, as we've talked about before, we have a 3-year kind of rolling-forward hedge program.
And as we get into the midpoint of this year and the year-end, we will then look to layer on additional hedges for 2020.
Again, we would probably (technical difficulty) on additional hedges for 2020.
Again, we would probably (technical difficulty)
Yes.
A couple of thoughts there.
One is we are not looking at acquisition opportunities to maintain the mix or change the mix at all.
I think, we're happy with the organic growth opportunities we have in the U.S., and so we're focused on growing our U.S. businesses through deployment of capital.
And as you're aware right now, we're essentially spending about $3 billion a year in capital.
$2 billion of the $3 billion is in the U.S., and $1 billion in the U.K. So over time, even though the U.K., EPS-wise, is growing faster, we are deploying more rate base on the U.S. business side.
Relative to other opportunities, we've obviously, been very focused on making sure that we protect against the currency fluctuation.
So that has been a major focus of making sure that we meet our 5% to 6% EPS growth.
Then as we indicated, we're very pleased with where we sit right now.
Sure.
Well, first off, I would say we can still hit the top end even with some delay of the capital.
The $300 million that we talked about is really, in the grand scheme, not that meaningful to the EPS growth story.
And as Vic commented, it's possible that, that could come back in, albeit, may be on a delay.
Once we get to the point where we know the outcome of that particular capital program, we'll look at other opportunities, whether it's in Kentucky or elsewhere, where we could see some potential future growth.
So we'll wait and see, but as I said, I don't think that $300 million is really that meaningful to the growth story at all.
I'll let Vic comment on that.
<UNK>, this is Vic, this is ---+ it was just a ---+ there were 15 parties to the settlement negotiations and just some of the parties were concerned, they didn't understand the mechanics of the process.
They didn't ---+ there's still some reluctance in Kentucky to move forward with smart meters, and we just couldn't resolve it in a settlement fashion.
So we decided to put it into collaborative and tried to deal with some of those issues, privacy issues, access issues, when we turn people off, those kinds of things, we want to do automation.
Those are the kinds of issues that was surrounding the discussions, and based upon that, we just decided we'd get into a collaborative and pull it out of this proceeding.
Yes, there is an update, and I'll let Greg <UNK> take care of that.
So the update is that we had filed a feasibility study with New York ISO, and that's been completed and come back positive.
The other study that we had the New York ISO do is called a carrier study, which is basically economic review, what's the economic impact of the project.
We got the preliminary results back.
They are confidential, but I would say they're very positive.
So everything is ---+ everything we've gotten back from New York ISO has been positive.
Yes.
So we're ---+ so the next steps are we are proceeding with the Article VII process.
We will have to do a system reliability impact study.
We've ticked that off.
And then we have to basically select an approval process, whether it's a public policy project, which would have to be opened by New York ISO, or there's another separate process under [Paris], which is the economic project.
So we still feel confident with the 2021 to 2023 dates.
Start construction.
| 2017_PPL |
2017 | ATO | ATO
#Thank you, Jim.
Good morning, everyone, and thank you for joining us.
This call is being webcast live on the Internet.
Our earnings release and conference call slide presentation are available on our website at atmosenergy.com.
As we review these financial results and discuss further ---+ our future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act, on forward-looking statements and projections could differ materially from actual results.
The factors that could cause such material differences are outlined on Slide 26 and are more fully described in our SEC filings.
Our first speaker is Chris <UNK>, Senior Vice President and CFO of Atmos Energy.
Chris.
Thank you, <UNK>, and good morning, everyone.
We appreciate you joining us and your interest in Atmos Energy.
Yesterday, we recorded fiscal 2017 earnings from continuing operations of $3.60 per diluted share, which represents the 15th consecutive year of increased earnings per share.
Our performance, as expected, was in the middle of our updated guidance range that we communicated in August.
Slides 5 and 6 provide financial highlights for each of our segments.
Our 2017 performance was especially satisfying as we're able to achieve earnings per share growth of about 8% despite weather that was 30% warmer than normal and 12% warmer than the prior year.
This underscores the importance of our rate design and regulatory mechanisms that serve as the foundation for consistent and predictable revenues and cash flows.
Rate outcomes from our 2016 and 2017 regulatory activities provided approximately $97 million of incremental margin year-over-year.
In fiscal 2017, we completed 19 filings that resulted in annualized operating income increases of approximately $104 million, which will also benefit fiscal 2018.
We also experienced positive economic activity and customer growth, particularly in our distribution segment.
Net customer growth approximated 1% or about 28,000 customers, which contributed almost $6 million in incremental margin.
And we saw about $6 million of incremental transportation margins through increased automotive manufacturing activity and the addition of several new customers, primarily in our Kentucky/Mid-States service area.
Our O&M spending focused in safely maintaining our system in hydro testing, in-line integrity testing and other monitoring activities.
Our employees did an excellent job managing all of this work, keeping O&M inflation to just 1.5% year-over-year.
Capital spending increased 5% to $1.14 billion, with approximately 80% of our spending focused on improving the safety and reliability of our system.
We spent $850 million in our distribution segment, an increase of 15% over fiscal 2016, as we continue to increase the rate at which we're replacing at-risk and vintage pipe.
Spending in our pipeline and storage business decreased 17% to $287 million as prior year spending in this segment included the completion of our major APT storage fortification project in the DFW market.
Strategically, we completed the sale of our nonregulated natural gas marketing business in fiscal '17 for $147 million.
We are now a fully regulated natural gas company.
A portion of the proceeds were used to acquire the North Texas pipeline for $85 million.
This acquisition contributed $0.01 per diluted share during fiscal '17.
However, more importantly, it will help us meet the gas supply needs of the growing DFW market.
Finally, we successfully completed $975 million of long-term debt and equity financing.
The net proceeds were used to replace $380 million of short-term debt with long-term financing; refinance $250 million of long-term debt that will save our customers over $5 million per year; and the financial capital expenditures program.
At September 30, our equity total capitalization was 52.6%, and we had approximately $1.1 billion of capacity available under our credit facilities.
All of these developments position us well for a successful fiscal 2018.
Yesterday, we announced that fiscal 2018 earnings are expected to range from $3.75 to $3.95 per diluted share.
We expect fiscal 2018 to be consistent with fiscal 2017 with the continued successful execution of our investment strategy serving as the primary driver for next year's results.
Capital expenditures in fiscal 2018 are expected to range between $1.3 billion and $1.4 billion.
This will allow us to continue our focus on system safety and infrastructure spending, upgrading our natural gas delivery system.
And we anticipate receiving annual operating income increases and implemented rate activity of $120 million to $140 million.
Next week, we will be hosting our Analyst Day, which will be available through our live webcast.
We are looking forward to providing more detailed update during that presentation.
Thank you for your time, and I'll turn the call over to Mike for his closing comments.
Well, thank you very much, Chris, for that great update, and good morning, everyone.
Fiscal 2017 represented yet another remarkable year for Atmos Energy as we continue to successfully execute our investment and regulatory strategy, focused on becoming the safest and most reliable natural gas utility in the country.
This strategy, along with exceptional dedication and effort on the part of our 4,600 employees, is paying huge dividends to our customers in the form of improved reliability and service; paying dividends to our employees in the form of meaningful and challenging work as well as development opportunities; and to our shareholders in the form of delivering consistent financial results, including an increasing dividend.
Our shareholders experienced a 15% total return on their investment for the 2017 fiscal year.
And since launching our infrastructure investment strategy back in October of 2011, our total return to shareholders was 211% as of September 30, which significantly outpaced the peer group average of 156%.
In recognition of our consistent performance, the board declared our 136th consecutive quarterly cash dividend.
The indicated annual dividend for fiscal 2018 is now $1.94 per diluted share, a 7.8% increase over fiscal 2017.
This is our 34th consecutive year of increasing the dividend, and it supports our commitment to providing an attractive return to our investors while continuing to successfully execute our infrastructure investment strategy.
We're very well positioned for the future as we move into the seventh year of our journey to become the nation's safest natural gas utility.
With the sale of our nonregulated marketing business, Atmos Energy is now a fully regulated, pure-play natural gas distributor, making the company an even more attractive investment with a stronger valuation.
We're operating in jurisdictions where regulators understand that investment is needed to modernize our distribution and transmission system.
Our regulatory mechanisms have provided the opportunity to make these needed investments by allowing us to minimize lag, recover our costs and provide a competitive return opportunity for investors, which further supports our effort to invest in the safety and reliability of our system.
As of September 30, we had 10 regulatory proceedings in progress seeking annualized operating income increases of $59 million.
Through yesterday, we have completed 2 of those proceedings for about $6 million.
Most of this increase came from the approval of our annual pipe replacement program in Kentucky.
We recognize that growth, along with consistency and predictability, are very important.
Next week at our Analyst Day, we will present our updated 5-year plan through fiscal 2022.
Our strategy remains the same.
We have a very long time horizon of needed infrastructure investments.
The low and stable natural gas price environment allows us to continue to invest in the safety and reliability of our system while keeping customers' bills very affordable.
These investments will enhance the value of our rate base, which is expected to support continued earnings per share growth of 6% to 8% per year.
Our earnings growth, plus the dividend, should support a projected total return to shareholders of 8% to 10% annually.
Now before we go to questions, as most of you know, Susan Giles will retire at the end of November after 15 years of leading our Investor Relations department.
Susan was instrumental in developing our strategic messaging as we transitioned from an acquisitive company to one that now grows organically through safety, reliability and other system modernization investments.
For 15 years, Susan has been a valued adviser, a relationship builder, a great communicator and a straight shooter.
She's been an advocate for the company, and she's earned the respect of the investment community and those of us who have had the wonderful opportunity to work with her day to day.
Susan set the bar very high for herself and those around her.
But most of all, Susan cared about doing the right things the right way.
We will be forever grateful for her contributions, and we wish her the very, very best in her retirement.
Now Susan's most recent contribution was helping attract her successor, <UNK> <UNK>, who's celebrating her inaugural earnings call today.
<UNK> brings 18 years of experience on Wall Street, another 7 years of experience in accounting and corporate finance roles.
<UNK>'s experience is a perfect fit to lead our Investor Relations efforts going forward.
We're very glad to have <UNK> join our team.
And if you haven't already met her, you'll enjoy meeting her next week in New York.
Lastly, I cannot close out a successful fiscal 2017 without acknowledging the leadership and contributions of Kim Cocklin, who recently moved to the role of the Executive Chairman after 7 years as CEO and 11 years with the company.
Building on our strong foundation, high-quality assets, very capable leaders and healthy culture, Kim recognized the need to invest in our infrastructure, and he guided the restructuring of our rate mechanisms to make those investments feasible.
Every single area of the business has improved under Kim's leadership, and every stakeholder, customers, employees, communities and shareholders have benefited from his vision.
And our journey to safety is only beginning.
I've had the distinct pleasure of working closely with Kim for nearly 10 years.
I look forward to continuing to do so as both he and I assume new roles.
So we appreciate your time this morning, and now I will turn it back for question.
Tim.
This is Chris <UNK>.
In terms of the current plan through 2020, we didn't assume any material customer growth.
It's hard to predict that year in and year out.
Same thing for transportation margins.
In terms of financing, we did have in there a very balanced mix of long-term debt and equity financing.
And again, we'll update that through 2022 next week.
Yes.
Chris, consistent with everything else we have in our plan, I mean, we base it on things that we know and already have in place.
So we're conservative about any estimates for upside of growth.
I think you'll find that the financing strategy is going to be consistent with what we've been doing the last few years.
Right.
On the weather side, remember, we have ---+ WNA has 97% coverage in our margins.
So year-over-year, we were just down about $3 million.
If I recall correctly, we "lost" $86 million margin from weather before WNA.
But WNA pretty much brought all that back.
So again, the mechanisms are working very, very well.
And on the share count, we\
This is Chris.
The Railroad Commission was guiding the ---+ or regulating the industry in Texas 30 years ago.
Unfortunately, I do not immediately recall what the Commission did at that time.
We can find out very quickly, but it just ---+ right now, we don't have that at our fingertips.
Okay.
Yes, <UNK>, thanks.
This is Mike.
No, we do not see any change in our views on M&A, and we don't expect to have that as a portion of any of our plans between now and 2022.
I mean, we've ---+ as you know, valuations are extremely high, and we've got the opportunity today to convert over $1 billion a year in spending into earnings with reasonable certainty.
So it's definitely not in our plans given the environmental conditions we're operating in now, but we never say never.
Obviously, if something came along, we would look at it.
But really, we've got this tremendous opportunity.
We've got a very long runway of investment opportunities.
We've got constructive regulation.
We've got regulators that understand the importance of investing in safety and reliability at this time when gas prices are low and stable, it keeps customers' bills very affordable.
And we've got a lot of growth in our areas to support.
So we don't see that our views on that have changed or will change.
No.
We're very comfortable with the assets we have right now and the plans that we have at this point in time.
Thank you, Tim.
Thank you for joining us today.
I'm going to remind you that a recording of this call is available for replay on our website through February 6.
We appreciate your interest in Atmos Energy and thank you for joining us.
Goodbye.
| 2017_ATO |
2016 | LAMR | LAMR
#Thank you, Jennifer, and good morning all.
Welcome to Lamar's Q2 earnings call.
We are pleased report a strong second quarter all the way around, particularly in the key AFFO per share metric.
And as we move into the back half of 2016, we're quite comfortable with our previously issued full-year AFFO per share guidance.
That guidance we affirmed, we have seen a slight softening of activity of late and are consequently guiding to low-single-digit pro forma revenue growth for Q3, a little bit below the pace of Q2.
By the way, the SEC now requires us to use the term acquisition adjusted in lieu of pro forma in our releases.
These terms for us are interchangeable, and I will be using them interchangeably.
I'm going to turn it over to <UNK> to walk a little bit through the numbers, and then I will hit some other key metrics.
<UNK>.
Good morning, everybody.
If you have your press release in front of you, if you look at the top, there's two sections.
One is three-month results and then three-month acquisition adjusted results.
That's what <UNK> was referring to just now.
That used to be named three-month pro forma results.
The numbers are the same.
It's just again, we have retitled it as acquisition adjusted.
You can see the net revenue on a pro forma basis was up 3.5% for the quarter.
Consolidated expense growth, operating and corporate overhead was up 1.8%.
So that translates to a nice return on the EBITDA line of 5.6%.
Just to mention a couple of the second-quarter highlights.
Same-unit digital revenue was up 5.1% for the quarter.
You may recall that in the first quarter same-unit digital was up 3.4%, so hopefully we've got a trend going there.
AFFO increased by almost $16 million or 13%.
AFFO per share increased 12% for the quarter.
And free cash flow was $190 million for the first six months of the year, and that's a $26 million increase over last year or a 16% increase.
<UNK>, I'll turn it back to you
Great, thanks.
Let me highlight again that digital performance.
We are really pleased to see that number up 5.1%, same board same digital unit.
It's just a real strong performance.
We ended up the quarter with 2,510 digital units in the air.
Recall that 171 of those were part of the Clear Channel acquisition.
So year to date including that 171, we're up 221 digital units.
For the year in terms of new builds, we've added 68 as of the first half.
Again, the performance that they are turning in is exceeding our expectations right now.
Very pleased with the performance of that platform.
The national sales mix slipped a little bit Q2 versus Q1.
In Q1, we were 81% local 19% national, that turned into 77% local 23% national in Q2.
And in Q2, national was particularly strong.
It was up 9% in our book.
Local was up a little less than 2% at 1.9%.
Strong categories, restaurants up 7%, service up 14%, real estate up 14%.
Virtually every one of our top-10 verticals were strong and up, with the exception of retail which was down 1% in Q2 of 2016 versus Q2 of 2015.
With that, I will open it up for questions.
Jennifer.
Thanks, <UNK>.
The nearest touch point we have of course is the auction that recently took place with the Clear Channel asset.
And if you look at the multiples there on a trailing basis, I would say they approached but didn't quite meet where the public multiples are.
On a forward basis, maybe a turn and a half less than our trading multiple.
So it really depends on who the buyer is and what they can do with the asset.
But if you look at the pricing we released back in January for those assets, on a trailing basis it was in the 12.5% range on a forward basis.
For us, it's between 11% and 11.5% given how we're doing with the assets.
All that information was part of our release.
It really depends on the asset.
But not all billboard assets or out of home assets are created equally.
Number one, not all of them are REIT qualified.
Number two, within the universal REIT qualified assets some are of higher quality than others.
Again, it really depends on the quality of the assets and what a new operator can do with those assets.
Again, as we moved into the summer as I mentioned, we saw a little bit of a softening of activity.
So yes, that would've affected June a little bit.
You're talking really about the law of small numbers there.
But you could see in the performance of national versus local in Q2 that local softened up a tad.
We expect as we finish up the year that national and local are going to come in pretty close to each other.
Again, strong enough to meet our guidance.
Yes.
I wouldn't go completely to the full second half.
What we are seeing is just a little bit of a downdraft for Q3.
It's a little early to call Q4, and we don't quite know how political is going to shape up.
But yes, just a little bit softer than what we saw in Q2.
Sure.
So I think I can point to a couple of things.
Most importantly it's been the strength of national digital.
So in large part, that overperformance on the national book is disproportionately in the digital.
They are coming in strong, and they are using it the way it's intended to be used.
It's moving the needle for them.
So I just feel real good about that, because we are investing heavily and that investment is going to pay off.
We have also seen a little bit of acceleration in the use of our programmatic platform.
I would describe it as still in its infancy.
But it is accelerating each month, and that's an encouraging sign.
In fact, for the first time I think in the industry's history we had a screen agnostic buy.
Which means a digital dollar was dropped in to the algorithm, and we were competing head up against mobile screens without a predetermined allocation to out of home.
And we got a share of the buy.
So that was ---+ that happened in June, and it was quite something to see.
Again, it's in its infancy, but we are seeing acceleration every month in the utilization of our automated platform.
Yes, you are spot on there and it's primarily New York City.
The entertainment buys have been a little bit soft and a little bit erratic.
I don't know if it's the lineup of movies that are coming out this summer or what, but that's been a factor and it's been a category that's been a little bit, like I said, erratic for us.
The other thing is political has been hard to get your arms around this year.
I don't know what's creating that irregular pattern, but it appears to us that we should come in as predicted in October but September has been a tough call on what's going to happen with the political dollar.
We guided to somewhere between [$100 million] to [$150 million], and it looks like we're pacing to get there with [$68 million] up in the first half.
So I think it's a good guesstimate to just double what we have done.
So let me start with the oil patch.
From a top line pro forma point of view, our Southwest division is coming in the weakest, but still up.
So second quarter the Southwest was up 0.1%.
So weaker than the rest, but still in positive territory.
And given what's going on in places like Oklahoma City and Midland, Texas and places like that, I'd count that as a win.
The strongest region is the Western, followed by the Gulf Coast, followed by the Atlantic, the Mid-Atlantic and the Midwest.
We are not seeing anything that would send off alarm bells in terms of as we look across the regions.
Relative strength pretty much everywhere with the exception of the oil patch, and as I mentioned, New York City had a difficult last few months given what was going on with the movie [buys].
So in 2014 we did $7.5 million in political.
In 2015, that fell down to $4 million.
No, $7.5 million, $4 million.
And this year, we have on the books about $5.2 million in political.
September pacing slightly behind September of 2014.
We took a good long hard look at that, and we're trying to ferret out where it's going to shake out.
At the end of the day, we think we approach that 2014 number, but it's coming in in a different pattern.
But, again, October looks like it's going to approach that 2014 pacing.
We will see how it comes in.
Sure.
Let me give you a definition of REIT qualified asset is when you put it there, did you intend for it to stay there forever.
So you start with that.
And in the outdoor world, that covers virtually all of our traditional inventory, bulletins and posters and our digital units.
It also covers a little niche product that we have called logos.
Those of the little blue signs on the side of highway right of ways, food, gas, lodging.
Now, transit assets get parsed a little differently.
Bus shelters are deemed REIT qualified.
Bus benches are in a gray area, and wrapping buses, traditional transit advertising, is not REIT qualified.
Obviously buses roll.
So in a nutshell, that's how it breaks out in the out of home world.
And again, the basic rule is when you put it there, did you intend for it to be there forever.
Well, as we've said repeatedly, if there are high-quality REIT qualified assets out there, we are going to be interested and be active on the acquisition trail.
There is another out of home REIT in Outfront.
So certainly the two of us converting to a REIT has led to a nice list asset prices and asset valuation.
Do I view that as a good thing.
It's certainly been a good thing for our shareholders.
So yes, again, if there's high-quality REIT qualified assets out there in the out of home space, we will be playing.
Great, thank you, Jennifer, and thank you all for joining us on our Q2 earnings call.
We look forward to visiting with you in November when we get together again and put a wrap on the year.
Thank you, guys.
| 2016_LAMR |
2015 | WYND | WYND
#Yes, Chris, it is <UNK>.
So when we use the term sort of alternative inventory acquisition models, it really reflects two distinct approaches.
One is as <UNK> described, Ovation is where we go to our existing owners who have used the product and had a lifetime of enjoyment with the product and their exhibiting use patterns, I would say they are not using with as much frequency, we are reaching out to people and offering them an alternative to be able to sell their product either through a referral to a reseller or to us directly as sort of a graceful way to exit the product and in certain instances, continue to use the product for a period of time.
That is an area that we have been pursuing for a number of months now.
I think it is still relatively new information and the effort continues in a more formal way as we speak.
The other avenue that we approach is to go to homeowners associations to whom inventory has been defaulted and we go to homeowners associations and offer that we will pay the ongoing maintenance fee and we will also resell the inventory and so we are able to acquire inventory for very economic costs through that channel as well.
So those two factors are the factors that have driven the lower cost of goods trend and I would say we continue to expect that we will see more of that as we go forward.
So I wouldn't describe them as one time but I would describe them as opportunistic in a sense that these are sources of inventory acquisition that haven't been fully utilized that we are now utilizing probably more formally and with more determination than we have in the past.
I think we have quoted in the past that we expect 60% to 70% of our inventory ---+ I think it is around 60% of our inventory ---+ spending in a given year to be earmarked to what we consider to be capital efficient sources and they would be the two sources that I just described to you, Ovation, direct to owner or direct to homeowners association.
And then our asset affiliation model, which we are in full swing of implementing.
So I think that is the best we can do at quantifying our commitment to this type of inventory acquisition but I think everyone should expect to see us continue to do that well into the future.
If I could, Chris, I just want to respond to the question that came up earlier about the amount of inventory spend in the first quarter.
The number was around $60 million.
It really depends on the success of these programs but I would say that we would hope that it would be able to sustain these rates for a bit in cost of goods sold.
But once that opportunity, once we have recovered this inventory from homeowners associations and owners, there will be a steady flow of it on an ongoing basis but there has been this sort of buildup of opportunity that we are just tapping into as we speak.
You are welcome, Chris.
Yes and no.
Yes on the add back of deferred revenue; no, on the VAT reversal.
Actually, <UNK>, that is our global conference that we hold every 18 months for all of our franchisees.
It is one that I have commented on that we had about 6000 people at the conference.
They pay a fee to attend the conference and we pay the cost of putting on the conference.
So in essence, it is a pass-through but it does bump up the revenue and also bumps up the expenses in the quarter that it happens.
As I said, we do this once every 18 months.
But it is a breakeven, <UNK>, so we are not making any money on those.
No.
I'm going to sound a little bit like a broken record, <UNK>.
We will look at everything that is out there, everything that makes sense.
We will only do things that obviously are good for the Company and we do not forecast, project or schedule acquisitions because you really can't forecast opportunity.
You have to be prepared for it and when it presents itself, we are ready to move.
We are thrilled with the Dolce acquisition we did earlier this year.
The integration has gone extremely smoothly.
It is a great business and it will continue to add great value.
We already have quite a few of the Dolce folks here integrated into our offices in Parsippany and we are thrilled to have it part of the team.
Thanks.
Our growth that we forecast for room growth is 3% to 5% ---+ I wasn't sure if we had 2% to 4% or 3% to 5%.
The reason I was confused was this is a confusing year.
It is normally 2% to 4% and this year we said 3% to 5% because we were adding the Dolce rooms in as well so that obviously increases our growth rate.
So we are comfortable with that 2% to 4% as a long-term growth prospect.
And the pipeline, <UNK>, I wouldn't focus too much on for us frankly because we are not a lot of new construction property, we do have some new construction.
But we have properties that we sign the franchise agreement and open them the same month so you don't even ever see it on a pipeline.
Because we are largely a conversion company, pipeline has a little bit less impact and a little bit less of a predictor, probably more of a predictor on international frankly than on the US.
Yes.
Constant dollars, I thought it was a plus.
It was around flat, I thought it was down 1%, <UNK> thinks it was up 1%.
We will see if we have that here handy.
We'll get the number for you.
Again, remember that that is where we have the Chinese impact of adding more rooms internationally in China which has a lower RevPAR than the rest of the world.
RevPAR in China.
I don't have it in front of me right now.
Well, we feel very good about the team that we have in place.
If there is one area that we probably could use some more strength, it is in the international market where we grow very nicely but we do not have as many people on the ground if you looked at the balance of our sales force or development group on the ground in markets like India versus what we have here in the US.
It is not even a fair fight.
I think over time what we will see is the international markets we will continue to add development people internationally.
In the US, we certainly could take advantage of constantly changing and reorganizing our development effort here in the US.
We are also always refining it and making it a little better but we have a pretty efficient and very effective team here domestically and so I think probably to answer your question, I would say international more than domestic.
Well, we do provide key money on managed properties and we have for a long time.
That is the competitive landscape.
So yes for like Wyndhams which we are managing.
On the new construction side, the two that are probably getting the most attention right now are Wingate by Wyndham and Microtel and we are only doing key money basically where we are getting management contracts and we don't look at doing mezzanine as a standard way of doing business.
But we do have programs in place example with Wingate where we do provide a key money for new construction.
And so the answer to the question is yes, but limited.
It is not our standard operating procedure.
We are doing it with Wyndham of course as well, <UNK>, in certain international markets particularly in China, there is a bunch of new build Wyndham activity going on.
Not where we are providing key money.
(multiple speakers)
Thank you all very much for joining the call and look forward to seeing the ads roll out on May 11 for our new Wyndham Rewards program.
Take care.
| 2015_WYND |
2015 | CTL | CTL
#<UNK>, first of all on the consumer credit, a lot of folks are just switching back and forth carriers and lot of that is taking place there.
We had a lot of non-pay.
We just tightened up on those folks who were not paying basically and switching back and forth.
So we think ---+ we know we're through the majority of that, but there could be ---+ we'll continue to see the impact of this going forward.
But the majority of what caused the initial hit, I think we're through most of that.
And on the breakdown between fiber to the node and the non-fiber to the node, we really don't break that out.
But I can tell you <UNK>, that our best penetration, really, in the markets where we have the higher speeds.
And that's why we're focussed on investing more in access in 2016 to provide higher speeds for our customers such that it will give us a better opportunity to gain them as a customer.
So really the outlook for cash taxes is the same as it was last quarter.
Basically our most current information is that we really believe bonus depreciation is squarely in the radar of congressional leaders.
The House Ways and Means Committee cleared legislation, making 50% bonus depreciation part of the permanent tax code.
And the Senate Finance Committee included a two-year extension of the 50% bonus retroactive to 2015 and 2016 with their extenders package.
We believe the extenders package is going to move along and we really think that the Senate staff has been really outspoken to our people in terms of getting bonus depreciation this year.
So we feel more comfortable that we'll have bonus depreciation in 2015 and 2016, than we did last quarter.
And we felt pretty good about it then.
So, <UNK>, that's one of the things we'll have to work through as we get further into the process.
But our target is really still about three times.
We have said that we'll allow that to drift up if EBITDA deteriorates and we see EBITDA turning around out to ultimately bring the leverage back down.
So we really wouldn't be really held by a rating, more or less, in terms of keeping our EBITDA within a ratings range.
But we'll just determine once we get closer to the execution of the opportunity of the data centers as to where we might go with the proceeds there.
Thank you, Sayeed.
Overall, I'll just say I believe we have the best portfolio of assets we ever had at the Company.
Now it's really about execution.
We're taking these assets, leveraging and positioning them to drive future revenue growth, EBITDA growth and shareholder value.
While there will be quarterly ups and downs, CenturyLink's long-term trajectory, in my view, is as positive as it's ever been.
Look forward to working with you all in the months ahead.
Thank you for joining our call today and look forward to speaking with you at the fourth-quarter call.
Thank you.
| 2015_CTL |
2015 | UTX | UTX
#<UNK>, that is an interesting question.
Am I satisfied with market share.
Of course not.
I think we have sacrificed market share for margins for a number of years and it is not just in China, we have really done that globally.
But we have got this great business, Otis, which has 20% kind of margins, $12 billion business.
But we have to grow.
And I think that has been the Achilles heel of Otis, that we have not seen bottom line growth in about five years.
So, we have to think about it differently.
Philippe Delpech is the new President of Otis, he has got a great team in place and we are going to focus on kind of the basics, if you will, of how do we get back to long-term sustainable earnings growth.
Part of it is going to be by gaining share because, again, it is that market share that ultimately provides the elevators that we are going to service.
And it is also by improving service productivity, making service more sticky to the customers, showing the value of Otis service versus the others.
So I think there is a lot to do.
Will margins suffer in the short run.
Yes, perhaps a little bit.
But, let's just be clear, this is not a pricing war I am talking about here.
I am talking about targeted market share gains where before we perhaps were not always being as aggressive as we could in pursuing some of these opportunities.
And so to your point, Kone has gained share on us in China.
We are not happy, we are going to go after that and not just China really, it is globally.
And you see that in the US especially.
Last year we grew Otis orders about 40% in the US, this year we are up about 20%.
We know how to do this.
It is about having great product and a great service team and great leadership.
And we have got that across the board at Otis today and I am confident we're going to be able to regain share without sacrificing a lot of margin.
And, <UNK>, if I might add to that a little bit.
The loss in China market share to some extent was driven by a conscious decision on our part not to play in certain segments.
So the low cost social housing segment we had underrepresented or under played that market.
Gaining share in that market doesn't necessarily have to come with price, it also comes with the right innovative, highly cost-efficient product and we are working on that.
<UNK> and Philippe have been talking about increasing some R&D investment in Otis to get the right products for the right market segments.
And I think by attacking market segmentation we have seen this strategy play out in Korea, we will do that in China as well.
It is not just about dropping prices to gain market share, it is about putting the right products in the right segments at the right value.
Well, I think you hit on exactly the right part, Jeff, which is we are trying to balance the cash in terms of keeping the rating where it is today, as well as where the cash is generated into the future.
Clearly we have been out with the rating agencies, we have talked to them about the fact that we want to continue to do share buyback, we want to take share buyback up.
And we still want to keep our powder dry to do M&A over the next couple of years.
So this was a number that we felt in working with the agencies gave us enough coverage to do aggressive share buyback while at the same time preserving a little bit of powder to go out and do M&A.
And if the M&A it doesn't happen we can do more share buyback.
And it really will depend upon how much of a disconnect we continue to see between intrinsic value as we believe it to be versus where the market sees us today.
So, there wasn't a magic number here.
I would tell you the $6 billion, that is the net proceeds from Sikorsky, we have talked all along about how we are going to reinvest that.
But it is really the confidence going forward that we see in the long range forecast that gives us the ability to go out and talk to the rating agencies and say, here is what the cash flows are going to look like not just for the next two or three years but out beyond that because of these investments.
As they start to tail off cash becomes very, very strong in the out years.
And we can afford to take out a little bit more leverage.
We don't want to be down in BBB from a rating perspective, but we did take a downgrade by a notch.
And I think that is appropriate today.
The capital markets are pretty well recovered from 2009.
And we felt like we didn't need to keep the A1 P1, but we still want to maintain some flexibility.
And, Jeff, the decision to buy back shares was pretty straightforward.
I am sure like you have, and many of the investors have, we have a 10-year cash flow model as well.
And when you look at that and the [virtual] assurance that some of our investments are going to deliver in form of great cash flows when the engines come back for aftermarket and when the UTAS systems come back for repair and overhaul, etc.
, the cash flow strength of this business is phenomenal.
The Otis business generates over 100% of net income every year as cash flow.
So given the strength of our cash flows over the long-term, clearly our discounted cash flows give us a much higher value of UTX today than the share prices.
And in that situation it is very easy to make that call.
Sure.
Think about ---+ the good thing, Jeff, is that unlike the aerospace business, we don't need to spend $1 billion to create innovative products in Otis.
The beauty of the Otis model is targeted investments in R&D of $10 million to $20 million can give niche product which can attractively easily attack market segments.
And that is what we are talking about ---+ increasing Otis R&D investment by $20 million to $30 million can allow us to capture the share and segment that we had vacated earlier.
So I think it is not about increasing huge amount of investments, it is about the right pricing decisions, as <UNK> said, it is about the targeted R&D investments.
And the other thing to keep in mind is Otis has the largest scale of any elevator company in the world.
So our ability to reduce costs day in day out at Otis is bar none.
And we have to be able to take advantage of that to keep our margins at levels where they are.
Will they come down temporarily short-term.
And that is the right trade off to make.
But it is not going to be a 500 basis point margin reduction, it is maybe 100 or so.
You pretty well hit on it there, Rob.
Look, we still want to do acquisitions.
This year we will do about $1 billion of acquisitions, some smaller things mostly on the commercial side of the portfolio.
But there remains an opportunity, both on the aerospace systems side as well as on the building side of the business.
We have not seen or found an asset of the quality that we like quite yet, but we continue to look.
And it ultimately comes down to can we buy a business and create real value for the shareowners without having to give all of that value to their shareowners in the form of a very high takeover premium.
So we are going to be disciplined; we are going to keep looking.
And quite frankly, I think this slow down that we've seen in the stock market over the last six months gives us opportunity going forward to be selective and to find targets that are out there.
I think what is off the table today is the bigger deal.
We will do deals in kind of that $1 billion to $5 billion range, things that we can finance with existing cash or cash flows or what we have on the balance sheet.
But any type of deal that would require us to use UT stock ---+ UTC stock ---+ in my mind is off the table, simply because of the disconnect.
I don't want to use a devalued currency to do a deal.
So over time as this UTC share price recovers back towards where intrinsic value is, we may think of a bigger deal.
But for right now, we are thinking about kind of that $1 billion to $5 billion range and we will continue to look.
And I give the team credit, we have been close on a couple of deals.
We have walked away because the value wasn't there at the end of the day after we did due diligence, and we did the right thing.
And we will continue to have that kind of discipline going forward.
Sure.
So let me take that, and I am sure <UNK> will add to it.
But on the disc ops, it is a fairly straightforward situation.
There was about $0.16 of nonrecurring items in the quarter related to pension curtailment for the Sikorsky employees and income tax adjustment for taking away of the APB 23 assertion that we had for Sikorsky.
Those will be offset by the gains when we have that in Q4.
Operationally Sikorsky did what we expected ---+ it is on track to hit the full-year numbers, but the quarter was weak particularly on the oil and gas side and the shipments were down significantly on the S-92 and the S-71 platforms, as you would imagine.
But nothing inconsistent with what Bob Leduc said at the ---+ in the June Paris air show.
We are on track with the roughly $0.40 of operating income from Sikorsky and about $0.10 of separation costs excluding the restructuring type of items.
On the planning process, <UNK>, I think again, we have been spending a lot of time this year working in details with the business units trying to make sure we fully understand and agree to the assumptions that are being baked into the plans.
We will make sure we lay those out for you all to understand clearly as we stand up in December.
And at the same time we will be back in the mode of putting some contingency at the UTC level to make sure that we are ---+ we do not surprise.
That is the number one priority for us to make sure we live up to our commitments and deliver what we say.
If anything we want to get back in the mode of under promise and over deliver.
Yes, let me just go on top of <UNK> there.
I think the new structure gives us the ability to dive deep into these individual businesses.
We have got four guys that are running these businesses and we are in lockstep with them in terms of the planning process and the key assumptions that they are making.
So I don't expect any surprises going into next year because we didn't understand what the assumptions were or it wasn't clear what the assumptions were underlying the plan.
And obviously when we get to December we are going to have those four business unit leaders there with me.
We are going to go through each of their plans, we are going to go through each of the key assumptions that make up the plan.
And there will be no surprise with investors next year.
Obviously we were too aggressive this year on commercial aftermarket.
Again there was a reason for that, it proved to be not correct, but we are going to make sure we don't have that mistake again.
So we will be a little more conservative, we are going to have adequate contingency at the UTC level and we are going to make sure that everybody understands all of the key assumptions that go into our plan.
There are things we can't control like what happens to currency and what happens in individual markets, but we are going to get the cost structure right and we are going to make sure we have got the right organization in place to deliver on the commitments that we are going to make.
Yes, let me start with CCS and then I will let <UNK> or <UNK> pile in after me.
But very confident in the CCS outlook for the next few years.
If you think about it, <UNK>, we have been big investments in R&D; in fact, I think we doubled the R&D budget at CCS over the last five years.
We have got this great new commercial product line, we have been seeing very solid growth.
I think orders in the quarter were up 8% on commercial HVAC in the US.
Continue to seek good positive momentum on the residential side, sales are up about 7%.
So we are seeing good momentum.
The other beautiful thing about CCS is it is not just a US HVAC business, it is a global business but it has got fire products, it has got field, about 30% of their business is service.
It is really ---+ it is a global building systems portfolio.
And there is going to be growth in a lot of markets.
So we think clearly China will be down next year, we have seen that in the order rates this year, but the rest of Asia still looks very promising.
Europe, we would expect some recovery there next year.
We are not talking about 5% or 6% growth, but just modest recovery in Europe.
And I think what Bob McDonough has focused on is continued cost reduction and cost takeout to ensure that he can grow earnings next year.
So make no mistake, when we talk about three of the business will be challenged (inaudible) earnings, Bob will be challenged, but we are going to challenge him to grow earnings as much as he can.
On the cash flow side, <UNK>, we certainly expect cash flow for next year to be better than this year.
Keep in mind we have a 5 point impact on the German tax payment this year, right, which hopefully won't be there next year.
On the ---+ in terms of the makings of cash flow, we will still have a couple more years of pressure on the CapEx side because the aero ramp is not fully done yet.
We still have capital investments which are continuing to be made in both Pratt and UTC Aerospace Systems.
Obviously we will try and control that to the best we can.
And then we should start to see some improvement, we have also had build up of inventory as we get ready for the ramp.
So I think some of those factors will over time start to dissipate, but definitely just the fact we won't have the German tax payment disconnect should suggest a better cash flow to net income next year.
<UNK>, let me start and just talk a little bit about the New England logistics center.
First of all Pratt this year, I think third-quarter this year versus last year was about 55 fewer engine shipments, about 6 of those were on the military side, the other 49 were commercial.
If you do the math that is a little over $500 million in sales that we missed year over year.
The New England logistics center, you guys have heard all about it, we had some startup issues.
The good news is today we are about 94% on time with the kits coming out of there, the kit fill rate.
We should be at 97%, which is the contractual target, by the end of this month.
And we should be able to make up almost all of that production by the end of the fourth quarter.
So again, one-time thing, expect a very big fourth quarter.
And I think the learnings out of the NELC, like everything else, we treat these as an opportunity to make sure we don't do things wrong in the future.
But also it is good learning in terms of process.
So the Pratt team is focused on right now delivering to customers and getting back on track.
The rest of the working capital, <UNK>.
Yes, I think in addition to the fact that <UNK> just talked about, if you think we missed effectively the August shipments, right.
And timing of shipments is absolutely critical, as you know, because if we ship early in the quarter we can have the receivables collected within the quarter that converts into cash right away.
In the absence of not being able to do that in Q3 it left us with a much higher level of inventory and we weren't able to collect the receivables that got shipped for late in the quarter.
<UNK>e holds for Q4.
We expect to recover most of it.
The Pratt team is working very hard to make sure they can recover most of the shipment misses of August early in the quarter so that we can collect it within the quarter.
But that is the thing that we are continuing to work on.
The second point I mentioned earlier was, again, as the cut over to new programs is starting to happen at both UTAS and Pratt, there is some additional inventory which is being built.
It is almost like what CCS went through with the SEER13 transition last year, right, where you build some inventory, some safety stock and make sure that you can meet customer requirements.
So that is again a temporary short-term investment which hopefully goes away as the next year comes around.
Right, so GTF, Geared Turbofan, is really five different programs.
I think the biggest program is obviously the A320neo program.
We continue in the flight test program with Airbus and we expect to have that aircraft certified later this year.
The good news of course is we are hitting the targets that we set out to initially, about 16% better fuel burn, about 50% reduction in emissions and a 75% noise reduction.
So we are right on top of what we told customers we would be six years ago when we started the program.
You have also of course got the GTF going on the Mitsubishi regional jet, we expect first flight probably in the next week or so over in Japan on the MRJ.
That will probably go into service in 2018.
Again, core is performing great and we are on track with the performance.
Bombardier, I think they have got six airplanes in flight test today.
We continue to see very, very positive results of that.
It is a great little airplane.
I think you have heard that and it is targeted to that 110 to 130 passenger market.
And we continue to support Bombardier.
I think we will do what we can to help Bombardier, we all read about some of the challenges that they have had.
But it is a great program, it is a great product and the engines are performing really well.
We have also of course got the GTF engine on the Embraer, the E2 platforms, those are a little bit further behind in the development schedule.
Those go into service in 2018/2019, but again the same core as the rest of the GTFs.
So from a performance standpoint from reliability, it is all going really well.
The gear architecture works, they haven't seen any failures related to that in any of the flight test programs.
So, we're very confident.
Of course the challenge as you know, <UNK>, as you go through this is you have got not just the R&D investment but the negative engine margin.
So that will be a stress over the next three years as Pratt ramps up and I think I saw the latest schedule, about 1,500 engines we'll be delivering in 2018 ---+ or 2019.
So $1 billion of negative engine margin.
So the investment continues, but it is an investment that we know is going to pay off because we are going to have a very, very solid aftermarket revenue stream for the next 30 years.
So, GTF is doing pretty well.
So, I think if you are talking about total UTC guidance, <UNK>, it is (multiple speakers).
Otis will probably be at the midpoint of the range overall.
So I think consistent with what we have said all along.
I wouldn't want to give a point estimate for Otis.
But I think ---+ overall I think everything is on track with exactly what was said and communicated in July.
Yes, yes, yes.
Yes, it is a starting point of 20%, because for a long time we have talked about Otis margins at 20% or so on a sustainable basis.
And I think what I mentioned was a 100 basis points or so reduction in a transition period as we reinvest into the business through either more market share gain or through higher R&D.
<UNK>, just to kind of put a little flavor on that.
Otis spends about 1% of sales on E&D, about $140 million a year.
So we talk about additional product investment, and we will make a couple of these things, you're talking $20 million to $30 million.
You are not talking about more than probably 50 basis points of headwind from E&D over the next couple of years.
So these ---+ it is not like we are going to see, to <UNK>'s earlier point, 500 basis points of margin deterioration.
I think the 20% level is something that is our long-term goal to maintain.
It will fluctuate over the next couple of years, maybe come down as we make some investments.
But long-term we still see that 20% as a target that is achievable even with what we see from a competitive standpoint today.
And, <UNK>, I would just encourage you and others to kind of ---+ one of the things we have been obsessively focused on has been the margin at Otis which probably has forced us into some bad decisions.
I think what is more relevant is operating profit growth.
And I think that is what our focus at Otis is going to be to try and generate profit growth.
And if that means that the margins are going to be a little different than what I said or what you expect, that is okay as long as they are gaining organic growth with appropriate margins to get better operating profit growth at Otis.
No, I mean the good news is there is not a lot of skyscrapers in Wyoming and South Dakota, so the commercial construction market ---+ as you know, <UNK>, it is on the coast and it is in the Southeast.
And we continue to see very, very solid growth in commercial construction.
As I said earlier I think we are up ---+ Otis is up 20% year to date in orders in North America after being up 40% last year.
So it all looks pretty good.
And I know people talk about an industrial recession.
In the markets that we play in in the US we don't see that.
I think, again, the non-res piece and the residential piece is all very good and commercial aerospace remains strong.
So, I like the hand we have got here.
Well, not ours anyways.
So typically <UNK> what happens is you have got ---+ about 60% of current year sales come from backlog conversion and we have seen a couple of point reductions in that.
At the same time we have also seen order rates decline.
So the year-to-date orders are down about 13% for Otis.
We expect fourth quarter probably to be something similarly in line with that.
The expectation is that the Chinese government has been investing in infrastructure even though the property market has been weak, housing starts, housing completions have been down, but there has been investments in metros, in airports and Otis benefits a little bit from that as well.
So I think the overall view at this point ---+ again, this is early in the process; we will give you more specific guidance in December when we are up there.
And maybe our view might change a little bit between now and then.
But based on what we see today maybe orders down between 10% to 15%, some improvement through infrastructure investment the Chinese government is making, opportunity to gain a little share and the continuing growth in the service business which still continues to grow on the maintenance side in mid teens.
We do expect China at this point to be down between 10% to 15%.
Like what exactly it will be we'll tell you more in December.
No, no.
Thanks, <UNK>.
Okay, we are mindful of the time, our hour here is up.
<UNK> and the team will be available, of course, all day to take additional questions.
And we look forward to seeing everybody in December in New York, December 10 I think is the actual date for our 2016 outlook meeting.
And again, any questions please feel free to give us a call.
Thanks very much for listening, everyone.
Have a great day.
| 2015_UTX |
2016 | GM | GM
#Over history, South America has been a very important business for us and has delivered strong performance.
We have a very strong product portfolio there and with a lot of model-year refreshes that are happening this year that are very, I will say, economically done from a capital deployment perspective.
We have a very strong distribution network.
I think the strongest dealer body when you look across the globe, the Chevrolet brand is incredibly strong.
So we have a very strong core business franchise in South America, and we think the team has done a very good job over the last couple years of really looking at the market conditions, taking costs out, again on all drivers.
It gets to the point that <UNK> made when we were talking about Europe.
We've run that play.
We've demonstrated success in South America of really looking at how to take costs out and how to drive and increase from a revenue perspective.
So we see that business as important.
Obviously, disappointing right now with the macroeconomic conditions that no one knows for sure how long they last, but they are lingering.
But we are well-positioned and have seen improvement in the first half of this year from the first half of last year, even in a more difficult macroeconomic environment.
So a very important business for us, and we know that it has huge potential as we move forward.
As it relates to technology, whether it's connectivity we've already deployed and we'll continue to grow that over the next couple of years, we will continue to also see what the receptivity is from an electrification perspective and from an autonomous perspective, but it will be customer-driven.
Clearly we have the technology and the capability to do it.
Relative to segment reporting, we have no plans at this time to change our segment reporting.
Obviously, that's something that we continuously evaluate as kind of the characteristics of the business changes.
So the quick answer is no on any change to segment reporting at this time.
I'm not going to give you kind of our fixed variable perspective on a go-forward basis.
I would say our real focus is to continue to maintain breakeven point in the US at a 10 million to 11 million SAAR.
And that is driven by variable profit improvement and the overall level of fixed cost.
I would say importantly when you look at costs, look at North America in either the second quarter or the first half of the year, factor in what we categorize as fixed cost versus the material performance, the commercial performance; cost performance is relatively flat.
And we grew our margins, which means that variable margins improved as well, and that is supportive of maintaining a low breakeven point.
So I kind of think about costs overall, both variable cost, especially the performance aspects of that, the commercial performance, against fixed cost increases.
Okay, first our expectations are we're going to have a very strong year.
We had a very strong first half.
And when I look at second half versus first half, the fundamental driver is seasonality, which is largely even pre-Brexit was a European issue.
We were shut down in Europe to a large extent in the third quarter, and then there's the holidays and Brexit.
Those are the two biggest factors of the second half versus first half.
North America had a great first half.
We expect North America to have a great second half, continued strength.
And again, our overall expectations, improved profitability year-over-year, improved margins, improved earnings-per-share, $6 billion of free cash flow, another record year.
And the performance that we generated in the first half is supportive of that, and that's why we took our guidance up as well.
Well, I think when we put together the alliance, it was built on four aspects.
One was we are already doing with Express Drive.
Two, the power of using the vehicles that have the capability that OnStar provides, that's already underway.
There is an opportunity to cross-market, and I think that's something we're just beginning to look at.
Clearly getting Lyft customers into our vehicles through Express Drive gives them exposure to the cars from a styling, from a technology, the whole value proposition that we have across our brands in GM products.
And then demonstrating autonomous capability in a sharing environment.
So those were the four pillars the alliance was on.
As I said, those are all on track and are accomplishing exactly what we intended to do.
Thank you.
Thank you, operator.
I want to thank everybody for participating on the call today.
I think if you step back and look not only this quarter but what we demonstrated over the last several quarters, we really have very strong earnings power in this Company.
And I think that demonstrates why GM is a compelling investment opportunity.
We know the industry well.
We know what comes with challenges and twists and turns, but we also know what comes with opportunities.
I think we have shown in this quarter and quarter after quarter that we have the right mindset and are holding ourselves accountable to overcome headwinds, to seize opportunities, and to meet our commitments with no excuses.
The leadership across the Company, which I'm very proud of, are pushing themselves to beat the targets we put in front of us.
They want to win and they want to continue to drive value for our customers and for our owners.
So we will continue to execute our plan with discipline to keep driving profitable growth, generating strong returns on invested capital, and creating shareholder value as we really focus on putting the customer at the center of everything we do.
So thanks again for your participation in our call today.
| 2016_GM |
2015 | JACK | JACK
#<UNK> <UNK>, Wells Fargo.
<UNK>, we don't typically share those details, but let me just try to give you some color in another way.
I've been here for 14 years.
And in that timeframe, we've never had a product as successful as Buttery Jack.
So it's by far the most successful thing that most of the folks working in the brand today have experienced.
And when you look at the work that went into it, what's nice about what we are experiencing is, we expect similar quality cues and changes across the core menu, coming into next year.
And we think that's going to be met with a very similar response from the consumer.
And <UNK>, just let me add to that is, the Buttery Jack, in terms of the food and packaging costs, one of the things that contributed to the margin in the quarter was, the Buttery Jack actually had a lower food and packaging cost than what the LTO that we promoted in last year's second quarter, which was the Bacon Insider Burger.
And then also, it's replacing the number one and number two position on the menu board.
It's replacing the Sirloin Burger.
It also has a lower food and packaging cost than what the Sirloin Burger has, also.
So it helped generate some nice mix benefit on our food and packaging costs in the quarter, as well.
<UNK>, couple things to think about there.
First off, the Company operations have historically been 24-hour operations.
And our ---+ as we started focusing on late-night, our franchise locations, many more of them went to 24/7 locations.
In addition, on the franchise side, you have a bit more pricing than what you see us take on the Company side in recent quarters.
And then also, traffic for the franchise side was even better than traffic for the Company side.
And keep in mind, part of what you see there is just, in the base case, the benefit that the franchisees get from a percentage standpoint, on a lower AUV base, compared to the Company ops.
<UNK>, this is <UNK>.
I'll just ---+ one other thing to add onto that, with now 80% plus franchise operated, we get ---+ sorry, we earn slightly more operating EPS, on a 1% change in franchise same-store sales, than we do in ---+ with Company same-store sales.
So that adds nicely to our earnings growth.
<UNK>, we're hopeful that we will see that.
I can tell you that, I was just sharing internally, I spent the last six weeks out in the marketplace, visiting with Qdoba and Jack in the Box franchisees and corporate employees.
And there is certainly a lot more conversation.
In fact, the primary conversation has been about growth, from our operators of both brands.
And where we are with it today is that the Jack in the Box brand is working on these core improvements that we're talking about.
And I think the franchisees are starting to gear up for growth.
And they are looking at it through the lens of, if we can continue to make these improvements, then I want more restaurants.
So our hope is, and our anticipation is, that growth rate will go up.
And we're going to prepare for that.
Then <UNK>, just with respect to timing.
What we're seeing, to <UNK>'s point, is we are seeing a significant increase in the interest from our franchise operators to building new Jack in the Box restaurants.
But because there is a drive-through, and it's a freestanding, ground-up building, that process takes anywhere from, call it, 18 months in Texas to 2 plus years in California.
So activity today doesn't create a new restaurant next month.
It has a much longer timeline.
That's a great question.
We will provide that information to you on our November call.
And ---+ but we'll certainly have to re-look at that, given where the current trends are.
One thing I want to just caution everybody, for the Q3 and Q4 outlook for the Jack in the Box margins, one thing to consider is, Q3 and Q4 margins are generally more significantly impacted by higher utility costs.
As it costs more to heat ---+ or excuse me, it costs more to cool our restaurants in hot weather than it costs to heat them in colder weather.
So we usually see a 50 plus basis point change, just in utilities, seasonally.
<UNK>, just one thing to think about is, as you said, there was a weather impact.
And as you focus on the one-year basis, you could see the transactions as flat to slightly negative.
But when you look at the two-year basis, even with weather, we don't have that situation.
And that's why, when <UNK> asked the question earlier, I was trying to help folks think about the stack of sales generators over the last year-and-a-half.
Because if you look at the innovation of last year, it drove sales and transactions.
And then we stack, on top of that, the new value proposition this year, which early on, drove both sales and transactions.
And only recently, with some weather impact, do we see the transactions moderate a little bit.
But when you look at the stack, over a two-year basis, you actually have a very healthy mix of both sales and transaction growth driving the performance.
So when you look all things in, and you think about what we have been able to do, with the value proposition that has raised the average check, without reducing significant traffic, all in all, it's a big win for us.
And when you're able to then stack, on top of that, the next set of product innovation, which we anticipate happening into the beginning of next year, we're feeling really good about the outlook.
Yes, <UNK>, we never break out what our expectations are ---+ or I'm sorry, <UNK>.
I knew I'd get one name wrong today.
(laughter) I apologize, <UNK>.
It probably don't be the last one, either.
But don't typically ---+ in fact, we don't ever provide breakout on our same-store sales numbers, until the end of the quarter.
Yes, <UNK>, this is <UNK>.
So we actually out-paced the NPD QSR sandwich segment by 760 basis points.
That's the national numbers that include 16 of the chains.
And you can see, it's the biggest ones.
It's all of the major peers.
So we don't get the regional data, but that's the national number.
I would also say, keep in mind that weather really wasn't a factor for Jack in either period.
So you would have to look at that more on a regional basis, too.
I guess ---+ we don't have the data to know what the peers are doing in those two markets.
The $0.06 charge, <UNK>, is just related to the Company units.
Franchisees will replace their own equipment, and do whatever they deem appropriate with their write-off.
But it won't impact the Company at all.
We're just beginning to roll out, <UNK>.
We expect to have that done by the end of the calendar year.
So there is less than 100 that are out there right now.
And that's just recent.
Correct.
No, it's the same number, pre-tax and post-tax.
But I'll ---+ there's no additional tax benefit to that, versus any other tax benefit for any other expense.
But I'd say, for now, you can assume that's going to be pretty evenly split.
The reality will be, it will depend upon the actual implementation schedule, and how close we are to keeping on that actual implementation schedule.
But I'd model it pretty even.
Yes, we are seeing, generally, egg prices trending up.
And fortunately for us, most of our supply are coming from it yet-unaffected areas, by and large.
It doesn't mean that we are completely unaffected.
But I think our major supplies are coming from those other yet-not-affected areas.
Eggs are only about 3% of our overall spend, and our assumption about increasing egg costs are included in our 2% commodity guidance for the full year.
A couple things that are interesting <UNK>.
So we experienced ---+ and I'm going to just compare and contrast a couple things, from the past to today.
In the past, when we rolled out a breakfast platter, we sold a ton of them at dinner and lunch and late-night.
And you're seeing the same thing with Buttery Jack.
Although we do sell, obviously, the majority of them at lunch and dinner, because we serve the whole menu 24/7, there is a ton of Buttery Jacks being sold, even a breakfast.
So your assumption that it is primarily a lunch and dinner product is correct.
I don't know that it's more of a dinner versus a lunch.
I think we just need a little more time to learn that.
But it's certainly a lunch and dinner product.
But like all of our other products that just ---+ they are a hit with the guests, we tend to see a more than you would imagine percentage of sales going through the other day parts, as well.
Yes, it is.
Yes, so a couple things to think about, <UNK>.
First off, keep in mind some of our oldest facilities are in cities like Los Angeles and Houston.
They happen to be our smallest-footprint facilities, with our smallest kitchen.
And they also happen to do well over $2 million in sales a year.
So from the standpoint of any constraints, we don't see those.
Actually, the newer restaurants can facilitate even higher sales than that.
And those are what we're building today, and we would expect that the $1.8 million is something we can grow on top of.
And what's really going to be the driver of that, we believe, is the menu, primarily.
And then supporting the menu would be operational efficiencies.
But the big learning, I think, that came out of the research was that, from a prioritization standpoint, we were going to get more of a return ---+ an early return on investing in menu enhancements than we were on operational efficiencies.
So it's not that we are forgetting operational efficiencies; it's just that from a prioritization standpoint, we're going to drive the menu to be a better menu first, followed by, or least paralleled by, operational efficiencies.
Let me start with the last question first here.
I think we're not married to a number.
There's nothing magic about 81% or 82% or 85% or 75%, or 90%, for that matter.
The real issue for us is, can it be accretive to operating earnings, in a post-refranchising world.
And with the average unit volumes trending above $1.8 million right now, that makes that a very high hurdle to be able to refranchise, and make it accretive to earnings.
So I think we're pretty happy with where we are on that.
It doesn't mean that we never look at one-off type transactions.
But again, we're at $1.8 million volume, and 20%-ish margins.
It makes it very difficult to justify refranchising transactions.
I think the Board is still comfortable with this 2 to 3 times leverage.
I think, in this quarter, with the share repurchase, we actually did nudge above 2 times for the first time; we were working pretty hard to get there.
The Board is still obviously, with another $100 million share repurchase authorization, very bullish, with respect to us continuing to return cash to shareholders.
And a 50% increase in the dividend, I think, also indicates their appetite to continue to do so.
And I think the ability for us to get credit, and the free cash flow that we are generating, bodes well for us to continue to be very active, with respect to returning cash to shareholders.
So we ---+ everything you said is accurate.
We're going to focus on Qdoba first.
And the infrastructure that we're building for the Qdoba business actually bodes well for Jack in the Box, as we start to move into the same space.
The Qdoba process is well underway, and we would anticipate being able to, into next year, start to test and initiate the use of that new technology.
And keep in mind, Qdoba has not been out of that space.
We've actually been active in that space for quite some time, and we have experienced quite a bit of success with it.
But we believe, with the changes to the platform, we'll be able to engage consumers even better.
And we believe that will drive even stronger results.
Generally opens the day after, or two days after, we file the Q, depending on how early we file the Q.
So soon.
I think that is all the questions that we have for today.
Thanks for joining us, and we look forward to speaking with you soon.
| 2015_JACK |
2016 | O | O
#<UNK>, this is <UNK>.
You cut out for a second, but I think we caught the gist of what you said.
Our statement on these sort of questions is that we're looking at all opportunities in the marketplace.
So private and public that make sense for our shareholders.
And we'll continue to do so.
So that kind of sums it up.
I think I said that on the last call and don't really need to add anything to that.
We're not anticipating any changes with regard to the 1031 taxation policies.
So at this point we're not concerned, <UNK>.
Washington's unpredictable, but getting change through is often pretty difficult and takes a long time.
Thank you.
Thanks, Tracy, and we appreciate everyone for joining us today.
We look forward to seeing everyone at the upcoming conferences including NAREIT in early June.
Take care.
| 2016_O |
2015 | SHW | SHW
#<UNK>, as an ongoing basis we have never broken price mix gallons out.
What we try to do from an earlier question is we're saying that when you look at the 320 you have the Comex integration which was very positive for us.
We've taken their gallons and their footprint through our footprint.
I think also the increasing gallons of the Stores Group as well as the increasing gallons in the Consumer Group and also as we've always said that the Stores Group has the highest SG&A as a percent of sales.
So when you look at the operating margins that means that the gross margins are the highest as we sell directly to the end user.
As they become a bigger and bigger piece of the Company, that is going to create that mix.
And then there was raw materials in there.
Those are all the factors and what we said is if you look without ---+ raw materials really didn't drive this.
It was the other three factors that drove it.
Yes, <UNK>.
It looks very positive.
We commented on the call that the residential repaint activity has remained strong.
It's actually been strong for going on three years now.
And if you look at housing activity in general, there's a lot of reason to believe that the recovery is still in full swing.
Household formations have been very strong and have remained strong.
Existing home sales are up almost 8% year-over-year.
Pending home sales up almost 10%.
Average home values are pricing and continues to rise which is healthy for the industry.
And on the new construction side it's even stronger with new home sales up almost 20% and single-family starts up more than 10%.
Non-residential starts slowed a little this year, but the interesting thing this year there is that in 2015 despite it being down slightly from 2014, it's the second strong this year since 2008.
We have back to back to back strong years of starts in nonresidential activity which is going to drive commercial painting in the years ahead.
We are always looking for those opportunities.
That could be by customer or by segment and we keep a close eye on to those.
As you should expect, our teams on the ground are empowered and pursuing those opportunities as they present themselves.
Our operating margins in the consumer group were up 40 basis points in the quarter for the year.
I thought you were going to ask the other question.
We said that the Lowe's business is fairly neutral.
It's not accretive or dilutive this year.
How with all the sales could you get the operating margin up.
So I think you can imagine what kind of increase that has.
(laughing) I mean that's really where ---+ I think it's a great positive story that again that integration from Comex is creating that kind of value that the Lowe's business at close to zero operating margin is not affecting the total operating margins for the consumer.
In fact, remember, at the beginning of the year many people thought that the Consumer Group would go backwards on operating margins because of that Lowe's business.
Yes.
Well, actually no one has a product like this.
This is a very unique and exclusive and patented technology and it is a product that we are very proud of.
The market size that you asked, it's a little hard to define as we're finding more and more opportunities for this.
We look for the opportunities in schools, athletic facilities, in senior care facilities and hospitality settings, even in residential areas, wherever these infectious bacteria may exist we feel as though this product offers an application.
And in a nutshell what we have here is our Company has successfully suspended compound in a paint product that will kill bacteria.
It's very unique.
If you look at the issues, the hospital space, it's quite an issue.
The product that we have will kill 99.9% of staph, MRSA, E.
coli, and a couple of other bacteria that really pose a serious challenge to our hospital and these other areas that we mentioned.
To develop a product that does not just inhibit these microbes but actually kills bacteria is very unique and it's the first EPA registered product of its kind.
So, there might be other products, but nothing like this.
No.
And the way you go through this is very painfully would be my answer.
It took us a number of years and quite an effort on our team's part.
We are very proud of our team and the process that they went through.
So, it is a product that is, as I mentioned, EPA registered.
It's the first microbicidal paint that kills these bacteria.
It lasts up to four years.
We really believe this is a game changer in the industry.
We're very excited about it.
We had a wonderful launch yesterday and we're really looking forward to the opportunity that this product will present.
We just do not disclose that type of information.
We're very excited though, I will say that.
We're very excited.
That's fair.
I would say there was a little bit of a lag.
We didn't see it immediately, but it has accelerated recently.
Yes.
We don't break that out, but I will tell you the majority of that is actually in the Service Group.
There was no sell ---+ it was all selling out.
It was through.
There was no loading in.
We didn't see that.
On the SG&A line we've always said that a high percentage of our SG&A is fixed and we've always said that because we wouldn't open a store without a manager, assistant manager, the right staffing models.
When we open a store we consider a lot of that fixed and that's how we manage a company.
We say if we're going to open a store, probably when I sit there and look at it, the way we look at it, almost 90% of it is fixed, 10% is variable.
I think if you look at the way, and we're guesstimating here on these foreign currency, but if you remember, fourth quarter is when it really started to fall off.
If you think about the value of the dollar just jumped in the fourth quarter, so we did the comparisons get better, we don't think the currencies may get stronger, but just the comparisons get better.
So we're seeing that.
And just looking at the business and where we're at in the other areas.
Someone said it earlier, even though there was a lag we did start seeing some of the protective marine in the fourth quarter being negatively affected.
We think those are the reasons you see the 1/10 going up to the mid low single digits.
Again, this would be a better discussion for Lowe's.
Their pricing of that product is something that they determine.
In the automotive refinish business I'd say we do see some pressure there.
There's a great deal of consolidation that's taken on in that space.
We have found ourselves on the wrong side of some of the transactions that have taken place, so we felt a some pressure in our market share.
Well, every day we're trying to address that.
Our products and our services we think are good.
We are trying to align ourselves with the right customers and ensure that the introductions that we have of both new products and our people are in the right place doing the right things at the right time.
Thank you again, Carrie.
As always, I will be available for the balance of today, tomorrow, and throughout the coming week to answer your follow-up questions.
I would like to thank you again for joining us this morning and thanks for your continued interest in Sherwin-Williams.
| 2015_SHW |
2016 | RF | RF
#Chris, we certainly are very analytical and disciplined about how we focus on acquisitions.
Quite frankly, our primary focus has been on bolt-on acquisitions in the non-bank space.
2015, we did two relatively small transactions that you're familiar with.
We continue to look at the marketplace, and we still think there's opportunities in both our wealth segment as well as our capital markets segment and insurance segments for bolt-on acquisitions.
We continue to look.
I think the expectation is these are going to be relatively small in size, and still at this juncture we're ---+ valuations are that predominantly our interest is in the non-bank space.
As markets change, we always reconsider.
So markets change, we try to analyze what the changes are and see where the opportunities are.
We looked at a lot of different scenarios, <UNK>, in terms of committing to the 2% to 4% or at least indicating if we could get to 2% to 4% operating leverage, there are a lot of different scenarios.
We believe through our expectations of revenue growth and our expectations of expense management that we will get there.
The combination of how we get there may change, and we will adjust, adapt and overcome.
But our goal is to generate that positive operating leverage regardless of the environment.
<UNK>, so we did say we were looking at 100 to 150 branches.
We said we would probably be towards the upper end of that through our strategic planning period.
We've announced 29.
We continue to look each and every day at how to best optimize our branch footprint, which has included even growing some ---+ opening some new ones at times.
But it's hard to get the cadence down to give you that commitment up front because it's all facts and circumstances based.
We have to look at our footprint, what's going on in the footprint.
We have a lot of coordination that has to happen.
What I can tell you is so we had a $6 million charge on the 29 branches that we closed or made a decision on consolidating this quarter.
There will be another roughly $6 million associated with those branches, so it's ---+ call it $12 million.
And we expect a payback on that of about two years, which is what we've had historically.
So all branches aren't created equal.
They're all a little different.
If you go back and look at all of our branch consolidations, it will give you a feel for what that charge might be over time.
But it's hard for me to give you precise timing.
No, at this juncture we just have not seen deposit rate pressures.
Given such a fairly modest increase in rates, the pressure from any part of our depository base has been very muted.
We continue to watch very closely what our competitors are and watch very closely what our customers are saying to us.
But quite to the contrary, we continue ---+ you saw this quarter ---+ to grow deposits and in fact grow low cost deposits at a pretty healthy pace.
And so we're just not seeing ---+ we're not seeing that particular issue arise at this juncture.
Sure.
This is <UNK>.
As <UNK> mentioned, one of our strategic initiatives is to diversify our revenue, and in this context diversification, is away from NII and into NIR.
As we think about the desire to diversify and we think about how we can have a more fulsome offering to our customers, things in capital markets come to mind.
You saw our acquisition of BlackArch Partners, our M&A advisory firm.
We looked at insurance entities.
We will continue to do that, agencies, continue to expand there.
We would like to have a more solid offering in fixed income sales and trading, so we're looking there.
And I think that these acquisitions have a tendency to be smaller acquisitions, but they fit into our need and our desire to continue to diversify and we think fit very well with our strategy.
And really serve ---+ they fit a customer need.
Trying to identify the needs that our customers have and how we can serve those better, but at the same time, to <UNK>'s point, diversify our revenue.
But we make sure that these are incremental in nature, bolt-on acquisitions that don't ---+ that have a risk profile that we feel like is prudent.
And so I think you can see us ---+ you should expect us to continue to look at those opportunities over 2016, but our primary focus as you've seen is on organic growth in the markets we're in today with the services we have today.
But this is in addition to that.
But primary focus is organic growth.
Well, so we got a lot of work going on with CCAR to be prepared for our submission in April.
We look at a lot of different portfolios.
I think from a credit standpoint, we mentioned earlier that ex energy, our credit portfolios are actually improving.
That works one way in terms of the CCAR submission.
Energy clearly needs to be taken into account.
<UNK> laid out some of the stresses that we're seeing and how we will account for those.
From our standpoint, we have one of the strongest levels of Common Equity Tier 1 of our peer group.
We did return 93% of our earnings to our shareholders, which we think was appropriate.
And as a result, we didn't want to continue to accrete capital because we felt like we had enough capital to run our business in a prudent manner.
We look at our stresses all the time, not just from a CCAR standpoint.
We do that for ourselves to make sure we're managing and optimizing our capital in our Company so that we have enough in times of stress, and ---+ but not too much in terms of ensuring we can have an appropriate return to our shareholders.
So exactly how all this will manifest itself in CCAR we will have to see and let the ---+ we run a lot of programs.
We will just need to see what the results are.
We don't see anything drastically different than what we have submitted before, ex-energy.
Thank you.
Well, with that, we stand adjourned.
Thank you for your participation and we look forward to next quarter.
| 2016_RF |
2018 | SPTN | SPTN
#Chuck, you might be on mute.
Sure.
Let me start with the first part.
I think we are very scientific and practical.
I mean, we\
No.
As I said, it's blended.
I mean, there's investment in both retail and distribution.
Probably a little tilted for retail, but not overly.
Yes.
It's expected to be relatively [positive], potential charge of the inflation rates come through as they've been trending.
But it's not expected to be material one way or the other based on the current inflation rates that we have.
No, I mean, we've announced a couple, that we've closed one so far, and we've announced another one in the process of closing, it may close this week or it may ---+ I think it closed earlier this week.
But beyond that, it's really a question and we talked before and highlighted, <UNK>, that in the fourth quarter we sold a store to our customer.
And we're not looking to actively shrink the base.
But we need to evaluate sort of where different stores are and how they're performing.
And if there's always been an interest from a customer in a particular market where a store is underperforming, we take that in consideration.
But we're not necessarily looking to close a particular number for the year.
But we've guided with what we've already known and with the possibility that there's always another store or 2 during the course of the year.
We don't have a set plan that it's 5 stores or 2 stores or 7 stores, in that sense.
Well, I mean, I'll the answer the second part of the question first.
And I don't have it handy.
But there certainly was in Q3, and we highlighted it on the third quarter earnings call, particularly in light of the hurricanes that have hit, we experienced a lot of disruption in that regard and certain pricing changed significantly.
At that point in time, I think if you go back and look at our commentary, we thought that it might settle down some as we got towards the end of November.
But it didn't actually play out that way.
And so we've seen the trends somewhat continue in some regards with respect to the wholesale portion of the business, it gets built into the pricing and passed along, retailers are cost to us on the inbound side.
With the retail portion of the business, we sometimes have challenges in passing it along if there is significant movement, particularly in fresh categories where we're estimating in one region setting our pricing accordingly, and it comes in higher because the demand for drivers is so much.
I would say that the impacts of the fourth quarter, that we would ---+ if we were to call out anything, would probably be in the mid-6 figures.
But it's an estimate because we're going off of where we projected the rate to come in versus where it actually came in.
And it doesn't necessarily mean that if it hadn't spiked up that we wouldn't have been able to pass on a greater portion of that.
So we wanted to highlight it that it is a headwind and a headwind that is continuing.
But we didn't want to try to carve it out so much because there is some variability in estimating that figure.
We don't disclose them by region.
But I would say Michigan, which is probably the hardest hit by some of the pricing activity we've seen, would be the one that we felt the biggest impact in.
But it's also one of the ones that's bouncing back the most in first quarter.
So in total, our gallons were up because we've opened a couple, at least 1, I guess, 1.5 facilities at this point.
And then in the comps, it's a little bit down.
No, we do take title.
We do own the inventory.
I mean, that ---+ when you look at our working capital commitment, the military is in that because we do take ownership for that inventory.
So yes, we've always had them, I mean, historically the military has LIFO, and it's a LIFO charge or a LIFO credit if there's a LIFO credit.
And I think the impact is somewhere around $1 million last year.
So that was a big number for us in the fourth quarter in the military group.
Yes.
It's our sort of internal projections as to how many rate hikes there may be during the course of the year and also the timing of when those rate hikes occur.
So as much as we built a plan, and we follow along as to where the experts expect rate hikes to occur and how many rate hikes during the year, but that doesn't always necessarily align with what those experts predict.
And so at the levels that we're at now, 100 basis points during the course of the year can translate to $6 million to $7 million if they were all front-end loaded.
So just giving a little bit wider range than what we've had in the past puts us in a position that if rate hikes occur as we anticipate, we'll probably close it to the middle of that range.
If they happen earlier than we expect, we would trend towards the higher end of the range.
And if they occur later than we expect, and/or we're more profitable, trends towards the low end of the range.
So that's basically how it's just set up.
But as the Fed continues to raise rates, we just need to give ourselves a little more flexibility so that we don't get caught one way or the other in giving you folks some direction as to how we think things will play out.
And I mean, Chuck, we've consistently been share repurchasers every year, and it ebbs and flows.
We ---+ I think you could expect we'll continue to be share repurchasers where it's ---+ where it opportunistically makes sense as <UNK> said.
So yes, I get it's always a balance, I guess.
We expect to do some level of share repurchase, and we expect to pay down some level of debt.
| 2018_SPTN |
2017 | CLX | CLX
#Good morning, everyone
I'm glad to be back in IR and I certainly look forward to working with all of you in the future
But before we jump into results, let's remind you of a few things
We're broadcasting this call over the Internet and a replay of the call will be available for seven days at our website, thecloroxcompany
com
On today's call, we will refer to certain non-GAAP financial measures, including but not limited to free cash flow, EBIT margin, debt to EBITDA and economic profit
Management believes that providing insights on these measures enable investors to better understand and analyze our ongoing results of operations
Reconciliations with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks, or supplemental information available on our website as well as in our SEC filings
In particular, it may be helpful to refer to tables located at the end of today's earnings release
Please also recognize that today's discussion contains forward-looking statements
Actual results or outcomes could differ materially from management's expectations and plans
Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans
The company undertakes no obligation to publicly update or revise any forward-looking statements
With that, I'll cover results
For the total company, fourth quarter volume and sales grew 3%, with sales growing all across all segments
Our sales in the track channels remain healthy
We continue to see particularly strong growth in non-track channels including growth in e-Commerce, Home Hardware and Club
Turning to results by segment; in Cleaning, Q4 volume grew 4% and sales increased 2%
Cleaning segment topline was driven by Home Care behind record quarterly shipments of Clorox disinfecting wipes, early successes of new Scentiva wipes and sprays, as well as broad-based strength across the Clorox equity portfolio
We are especially pleased with the growth of our wipes business this quarter, given we have fully lapped last year's distribution gain in the Club channel
Overall, Home Care delivered a third consecutive year of very strong market share growth, hitting 20% on a 52-week basis, its highest share in six years
Our Professional Products business volume increased, although sales were flat following double-digit sales growth in the year ago quarter
Volume gains were broad-based with contributions from a number of recent innovations in the surface disinfecting space
Lastly, within our Cleaning segment, laundry sales and volume declined, primarily due to category softness
Positively, however, we continue to grow our premium Clorox Splash-less Bleach resulting in share gains on total Clorox liquid bleach
Turning to Household segment; fourth quarter volume increased 5% and sales grew 4%, reflecting strong topline growth in Renew Life, Cat Litter and Glad
Starting with Cat Litter; sales grew double-digits behind innovation and strong merchandising support
This also was the third consecutive quarter of market share growth for litter supported by our prior launch of Fresh Step with Febreze
Our Glad bags and wraps business saw solid topline growth behind ongoing success from our premium OdorShield trash bags, particularly in the Club channel, which more than offset the decline on our base business
Although overall track channel market share for Glad was down in the quarter, we continue to see – we continue to gain share consistent with our strategy in the higher-margin premium trash bag segment and our OdorShield trash bag delivered all-time record volume in fiscal year 2017. In addition, we continue to see strong growth in non-track channels, including Club, Home Hardware, and notably, e-Commerce
Fourth quarter non-trackable shipments were flat, in line with our expectations
We continue to feel good about our plans for this business going forward and the category is on track
Finally, we remain excited about Renew Life
Our distribution expansion plans remain on track with gains in the Food/Drug/Mass channel and behind dual placement strategies at key accounts as well as very strong growth in e-Commerce
We will continue to focus on expanding distribution in fiscal year 2018. And we've begun supporting this business with a new national marketing campaign
Turning to Lifestyle; volume declined 1% and sales grew 2%
Burt's Bees delivered solid topline growth this quarter on top of double-digit topline growth in the year ago quarter
The business also drove share gains behind incremental distribution and merchandising activities in lip care
We have a strong innovation lineup for fiscal year 2018 with some of these items already on shelve
In our Food business, volume declined slightly due to lower shipments of KC Masterpiece barbecue sauces
That said, consumption and shares in our key segments remain healthy and we are especially pleased that our Hidden Valley equity delivered a tenth consecutive quarter of share growth
To wrap up the Lifestyle segment, Brita sales were flat in Q4 as gains from innovation behind our Stream pitcher were offset primarily by strong competitive activities and a strategic choice to rationalize a lower margin part of our portfolio
Finally, turning to International, volume and sales were up in Q4 despite more than 3 points of FX headwinds, and slower category growth in countries like Argentina and Peru due to macroeconomic trends
We continue to take pricing to offset unfavorable foreign exchange as part of our larger effort to improve margin
Now I'll turn it over to Steve, to provide more details on our fiscal 2017 performance as well as outlook for fiscal year 2018.
I think we have one more question after this
Thank you
| 2017_CLX |
2018 | LGIH | LGIH
#Thank you, <UNK>, and welcome to everyone on this call.
We appreciate your continued interest in LGI Homes.
During today's call, I will summarize the highlights and results from the first quarter of 2018.
Then <UNK> will follow-up to discuss our financial results in more detail.
After he is done, we will conclude with comments on what we are seeing for the second quarter and our expectations for the remainder of 2018 before we open the call for questions.
For the first quarter, we closed 1,244 homes, a 63.5% increase in home closings compared to the 761 homes closed during the first quarter of last year.
We also generated approximately $279 million in home sales revenue, which represents a 71.3% increase over the first quarter of 2017.
Absorption in the first quarter averaged 5.4 closings per community per month company-wide.
This was an increase over the first quarter of last year's absorption pace of 3.8 closings per month.
Our top market on a closings per community basis was Tampa at 7.7 closings per month; followed by Houston at 7.1; then Orlando and Seattle, both at 6.3 closings per month.
<UNK>ompany-wide, we ended the first quarter with 79 active communities, which is a net increase of 10 over the 69 active communities that we had at the end of the first quarter last year.
During the first quarter of 2018, our <UNK>entral Division added 5 communities, our Southeast Division added 4, our Northwest Division added 2 and our Florida Division and Midwest Division each added 1 community.
These additions were offset by a decrease of 3 communities in our Southwest Division due to community closeouts and transitioning between projects.
Breaking it down, let's look at highlights from our <UNK>entral Division operations.
The price of results from Houston, San Antonio, Dallas/Fort Worth, Boston and now the Oklahoma <UNK>ity market, our <UNK>entral Division generated 521 closings in the first quarter, representing approximately 42% of our total closings.
These 521 closings also represent a 65% increase in closings for the <UNK>entral Division over the first quarter of last year.
In addition, the absorption rate in the <UNK>entral Division was one of the strongest across all divisions, averaging 6.1 closings per community per month.
During March, we closed on our first home in the Oklahoma <UNK>ity market, expanding our <UNK>entral Division outside of the state of Texas.
Our concentration outside of Texas continue to increase during the first quarter, making up 58% of our closings.
The Southwest Division represented 16% of our home closings.
The Southeast Division represented 18%.
The Florida Division represented 17% and the Northwest Division represented 7%.
As we have discussed on previous calls, we anticipate that our percentage of closings outside of Texas will continue to increase.
Another highlight of the first quarter was the results from our Northwest Division.
We had strong absorption of 5.5 closings per community per month at an average sales price of $337,000, up from $321,000 in the first quarter of last year.
In addition, the Northwest Division closed 88 homes compared to 40 homes closed in the first quarter of last year, which is an increase of 120% year-over-year.
With that, I'd like to turn the call over to <UNK> <UNK>, our <UNK>hief Financial Officer, for a more in-depth review of our financial results.
Thanks, <UNK>.
As previously mentioned, home sales revenues for the quarter were $279 million based on 1,244 homes closed, which represents a 71.3% increase over the first quarter of 2017.
Sales prices realized from homes closed during the first quarter range from the 140s to over $500,000 and averaged $224,296, a 4.8% year-over-year increase.
The increase in average sales price year-over-year reflects changes in product mix, price points in certain new markets and a favorable pricing environment.
In the first quarter, approximate average sales prices by division were $206,000 in <UNK>entral, $276,000 in the Southwest, $197,000 in the Southeast, $203,000 in Florida and $337,000 in the Northwest.
Gross margin as a percentage of sales was 24.8% this quarter compared to 26.7% for the same quarter last year.
Our adjusted gross margin was 26.4% this quarter compared to 28% for the first quarter of 2017, a 160 basis point decrease.
Sequentially, gross margins increased 40 basis points, and adjusted gross margins increased 60 basis points quarter-over-quarter.
Adjusted gross margin excludes approximately $4.3 million of capitalized interest charged to cost of sales during the quarter, representing approximately 155 basis points, consistent with previous quarters.
<UNK>ombined selling, general and administrative expenses for the first quarter were 13.8% of home sales revenue compared to 16.8% in the prior year.
We believe that SG&A will vary quarter-to-quarter based on home sales revenue.
And for the full year, we expect the SG&A as a percentage of revenue to be to be 20 to 50 basis points lower compared to our 2017 full year results.
Selling expenses for the quarter were $22.9 million or 8.2% of home sales revenue compared to $16.1 million or 9.9% of home sales revenues for the first quarter of 2017, which is 170 basis point decrease.
The decrease in selling expenses as a percentage of home sales revenue is due to operating leverage realized related to advertising costs.
General and administrative expenses were 5.5% of home sales revenue compared to 6.9% for the first quarter of 2017, a 140 basis point decrease.
The decrease in general and administrative expenses as a percentage of home sales revenue reflects operating leverage realized from the higher number of homes closed.
Pretax income for the quarter was $31.2 million or 11.2% of home sales revenue, an increase of 90 basis points over the same quarter in 2017, and this is the strongest first quarter earnings in LGI history and represents an 85% increase in pretax income dollars over the same quarter last year.
For the first quarter, our effective tax rate of 12.6% is lower than our annual expected effective tax rate, primarily due to the result of deductions in excess of compensation costs, or windfalls, for share-based payments.
Excluding the windfall deduction, our effective tax rate would have been approximately 24%, and we would expect that the second through fourth quarter effective tax rate will be between 23.5% and 24.5%.
We generated net income in the quarter of $27.3 million or 9.8% of home sales revenue, which represents earnings per share of $1.23 per basic share and $1.10 per diluted share.
Weighted shares outstanding for calculating diluted earnings per share are impacted by our outstanding convertible notes.
In the first quarter of 2018, our average stock price was $67.65, exceeding the conversion price.
And therefore, the convertible notes were determined to be dilutive.
This resulted in an approximate 2.2 million share increase to the weighted average shares outstanding for the diluted EPS calculation for the quarter.
First quarter gross orders were 2,264 and net orders were 1,798.
Ending backlog for the first quarter was 1,370 homes compared to 1,087 last year, and the cancellation rate for the first quarter of 2018 was 20.6%.
We ended the first quarter with a portfolio of approximately 45,300 owned and controlled lots, up from approximately 39,700 at the end of last year.
As of March 31, we had approximately $52 million in cash, over $1 billion of real estate inventory and total assets over $1.2 billion.
We had $510 million outstanding on our revolving credit facility and our borrowing capacity was approximately $84 million.
In addition, we had $70 million in convertible notes outstanding.
And as mentioned on last quarter's call, during the first quarter, we settled $15 million in principal and issued approximately 500,000 shares of our common stock related to these notes.
Our gross debt to capitalization was approximately 52% and net debt to capitalization was approximately 50%.
At this point, I would like to turn it back over to <UNK>.
Thanks, <UNK>.
In summary, we had another outstanding quarter.
Let me provide some guidance and thoughts on what we are seeing thus far in this quarter and looking ahead into the remainder of the year.
The second quarter is off to a great start with 606 closings in April, up 66% from the 365 closings in April of last year.
The 606 closings came from 79 active communities, resulting in a very solid absorption pace, averaging just over 7.7 closings per community per month.
We are also continuing our nationwide expansion, focusing on increasing our community count.
As previously discussed, we believe we are on track to end the year between 85 and 90 active communities.
We have started construction in our first communities in the Sacramento, <UNK>alifornia and Birmingham, Alabama markets.
Most of these projects will start sales later this quarter, with closings expected in the third quarter of this year.
We also have closed on our first project in Las Vegas.
<UNK>onstruction and sales will begin later this year, with closings expected in the fourth quarter of this year or the first quarter of next year.
Based on the strength of our first quarter closings and our strong start to the second quarter, we offered the following guidance for the remainder of the year.
We expect to close between 6,000 and 7,000 homes in 2018.
We believe our average sales price in 2018 will end the year between $220,000 and $230,000.
We predict our gross margin will end the year between 24% and 26%.
We expect adjusted gross margin, which excludes the effects of interest and purchase accounting, will continue to be strong, ending the year between 25.5% and 27.5%.
Given our continued belief that we will close between 6,000 and 7,000 homes and our reaffirmed guidance of average sales price, gross margins and community count, we continue to believe our full year basic earnings per share will be between $6 and $7 per share.
Now we'll be happy to take your questions.
Yes.
Sure.
<UNK>, this is <UNK>.
Appreciate those comments.
And yes, we look at that every quarter and based on our history, we want to be conservative with our guidance and we've had a real strong first 4 months of the year.
We had some pretty easy comps that we've had 4 straight months of 60% increases over last year.
And looking at the rest of the year, we went over with our Board of Directors, and we want to make sure we hit our guidance.
And historically, that 6 to 8 closings a month is really where we have been.
And at 6,000 closings, our guidance on that, we'd have to average 6.3 closings per month for the rest of the year.
And at 7,000, it's 7.9 based on an average community count.
So our guidance, we feel, is right in line with that 6 to 8 historical averages.
And we feel really good about the start of the second quarter.
We averaged 7.7 closings per community.
We think, May, based on what we're seeing in a couple of communities closing out, will still be strong but beyond the 6.3 to 6.5 closings per community.
And we think we're going to stay in that range in that 6 to 8 closings per month range, just the math works out to 6,000 to 7,000 for the year.
And we'll certainly look at that every quarter and very likely to tighten that guidance as we get further into the year.
But for now, we thought it was best to continue with that guidance.
Yes.
No, absolutely.
The range is still good.
We're very confident in the range.
We always want to hit our guidance.
And we're off to a great start and really positive about the business.
Sure.
Yes.
So this is <UNK>, I'll start and <UNK> can add on the digital and on the marketing spend.
So what we're thinking, if you look back on a quarter-over-quarter basis between the second and fourth quarters, we're expecting the SG&A percentage to be similar.
So in the range of where we were last year.
We've got investments ---+ certainly, we have geographic investments and overhead that we're working through.
The driver or the primary driver in the first quarter on selling expenses is really the advertising costs and the marketing costs, like you mentioned.
And then putting that in context comparing the first quarter of 2017, the ratio was higher due to the overall lower closings and lower revenue driven by the inventory gaps that we had in some of our high-performing markets.
So if you look at it quarter-over-quarter for the rest of the year, we think the SG&A ratio is going to be similar.
That puts us somewhere in that 20 to 50 basis point range for the full year, depending on where we come in on the closing guidance.
And <UNK>, I can add to that.
As far as a little bit more on the digital marketing.
Our marketing team here at corporate continues to do a great job of driving leads to our community.
The first quarter, again, we had over 100,000 inquiries or 100,000 leads from customers, looking to purchase an LGI Home.
So we have got oversized leverage, if you will, and have not needed to spend our full advertising budget in order to drive leads to our communities.
And I'm sure there's going to be a question around rates and what we're seeing.
And as rates continue to go up, and we're advertising a higher price point because of cost going up and advertising higher monthly payments, one of the things that we're forecasting is needing to spend a little bit more money on marketing.
And we're certainly willing to do that since we've been so efficient to drive the number of leads we need to hit our closing numbers.
So we're probably a little conservative on our guidance, giving us some room to spend more money, if needed, to come back to a higher rate ---+ interest rate environment.
Sure.
So great question.
So yes, so last year, we did see kind of into the first quarter and into the summer quite a bit of ramp-up, if you will, in terms of our inventory production.
We ended the year close to around 3,000 units, either completed or in process.
We ended the first quarter around 3,400 units so we still have been, overall, increasing our investment in our direct construction to give us the ability to hit the high end of the closings per community range that <UNK> mentioned.
I think we have seen, overall, what I would refer to probably as a tapering.
I think the production issue has, I guess a way to describe it, maybe stabilized in that sense.
A lot more consistency on a month-over-month basis in terms of how many starts we're putting into the system on a monthly basis.
So that has definitely helped on the cost side as well.
I think what we're looking at from what we can see at this point is that materials and labor have really kind of ---+ both in the frequency and dollar amount of increases, have been less impactful over the last 3 or 4 months, which potentially could give us some upside.
But as <UNK> mentioned, there's still are some headwinds for us in terms of affordability and how much pricing power we can really achieve.
So I think we're looking, really, at more consistent gross margins through the first quarter than a significant ramp-up in the back end.
Yes.
Sure.
This is <UNK> and <UNK> can add.
I mean, following up on the earlier question, I think we definitely saw some pricing power.
We mentioned on the last call that we are raising prices in January, so we were able to do that.
I think some of the issues we were seeing in terms of rapid and significant price increases settled a little bit, so that work to our advantage as well.
So I think a combination of those 2 factors led to the gross margin this quarter.
Maybe being a little bit higher than what we guided to in the last call.
But I think ---+ like I mentioned, I think we're maybe not expecting to see it increase so much as much on the back end as maybe we mentioned earlier as well.
Yes.
Sure.
So great question.
So first of all, we've been focused on reinvesting our process.
It's been ---+ one of our key components of our capital structure.
We've earned over $300 million since our IPO, and been able to reinvest that into the business.
We've also been very successful managing, like you mentioned, our debt to cap in that 50% range.
We've done that through our credit facility through increases year-over-year.
We have an annual renewal that's coming up this month as well.
And then we continue to consider all of our options from our long-term capital structure, the convertible notes, which we mentioned, $15 million of which were converted this quarter.
The maturity date on those convertible notes of November of 2019, so we're also thinking ahead in terms of making sure that we'll have the capacity to settle those convertible notes as well.
And then we also believe our capital structure will continue to evolve looking at the other options available to us.
<UNK>ertainly, taking into account what's happening in the markets, availability, capital, the size of issuance, those types of factors.
And we continue to believe that, over time, that our capital structure will kind of evolve as well.
Yes.
Thanks, <UNK>.
Appreciate the question.
Yes, from a wholesale standpoint, we had 31 closings in the first quarter, so that's about 2.5% of our closings, average sales prices at around $220,000.
So pretty consistent with our average sales price of our LGI Homes retail business.
And for the rest of the year, guidance would be the same as we mentioned previously.
We expect to close 200 to 300 houses in the wholesale business this year, which puts us maybe a little bit higher percentage overall, more in the 3% to 4% range.
So same impact to gross margin.
The first quarter is about 20 basis points on gross margin and then maybe slightly higher than that, 30 to 50 basis points in the second, third and fourth quarter, just because the percentage probably slightly higher as a percentage of the wholesale business.
Yes.
On the wholesale business, we underwrite to the same operating income or pretax income, if you will.
So we're really indifferent on the financial aspect of it on a one-off basis.
But we really like a lot about the wholesale business and why it's such a positive for our company is, we only sell the wholesale homes in communities where we have the supply to do it.
Not necessarily underperforming communities, but performing communities where we have extra land or extra lots on the ground.
So it's really a win-win situation where it helps move some inventory and creates a similar pretax net income.
And then, overall, you're getting the additional leverage on your SG&A by adding those additional closings.
And your second question, <UNK>, was on the move-up business.
Yes.
I don't think we've seen much of a change.
I mean, we certainly have noticed other public builders and some privates talking about the strong demand for entry-level, and I think that's positive for LGI.
I think everybody realized that the demand for the first-time homebuyer is there and a lot of demographics in our favor as far as renters getting into the first-time homebuyer markets.
But I'd say the land business is similar.
We've got a lot of deals in the pipeline.
You saw our owned and controlled lots have increased since the last quarter, so underwriting to the same guidelines and we think we're in a good shape from a land position.
Yes.
This is <UNK>.
I'll start.
I mean, I think, to your point, I mean lot cost as a percentage of revenue has definitely increased.
We talked a little bit about that on the last call.
Our average lot cost as a percentage of revenue is in the mid-18%, so roughly 18.5%, which is continuing to increase.
It's one of those items that we believe were going to continue to be a factor in terms of increasing costs.
I think you're right, it is more geographic, but even in the case in some of our longer-term markets, like Texas, the next replacement or the community that replaces, one that's being closed out, the cost to develop those lots or purchase those lots are going to be higher.
And usually, a little bit further out as well.
So even though we are in the tertiary submarkets compared to our peers, I think lot costs are definitely one of those factors that we expect to continue to increase.
I think very similar, <UNK>.
We're still seeing strong demand like we talked about, still having all the leads coming in.
The mortgage availability, I'd say, is consistent.
It's more available than it was a couple of years ago, but I'd say consistent year-over-year.
So certainly, a lot of training, constant, never-ending improvement as part of our culture here in LGI.
And we've got a lot of new markets, a lot of new managers, a lot of new sales people coming to the systems.
So we have to do ---+ continuously do a lot of training, but our conversion ratios are very similar.
Well, right now, <UNK> ---+ this is <UNK> speaking.
Right now, we're seeing it as a positive because when you're selling at a higher interest rate environment, and we have been for at least arguably the last 4 to 6 months, and we're continuing to see strong demand going along with the higher interest rates.
You as well as others are seeing increased job growth.
Tax reform has put a few more dollars in our customers' paycheck, which we see as positive.
And right now, I think everybody's feeling pretty good.
We're seeing strong demand.
So, so far, interest rates have had, I'd say, a neutral to positive effect.
<UNK>ertainly, as rates increase and the monthly payment increases, some customers may not qualify.
Some customers may have to buy a smaller square footage house to qualify.
Some customers may have to come down into an LGI Homes from a potential move up.
So right now, I'd say, neutral to positives outweighing the negatives in a high interest rate environment or rising interest rate environment.
And we think this weekend is the best time in history to buy a house because rates are only going up from here, and we're seeing strong demand.
Yes.
Well, there certainly are more builders coming into the entry-level space.
So it'd be more competitive in that regard, but we don't think it will have a negative influence on our results.
We're really focused on what we're doing here at LGI, and not focused on what everyone else is doing.
But the fact that everyone is in agreements that the entry-level buyer is really in a strong position right now, like I said earlier, the demographics is on our side and we're seeing strong demand.
I think it's a positive testament of what we believe in, that to say, very strong market right now.
But we're not too worried about the competition.
We're focused on what we're doing and it won't impact our results.
But we, overall, we think it's a positive.
Thereby, talking about the strength of the entry-level market.
No.
Just because we're just getting started up there, so you'll see that coming next quarter.
I jumped on late, so apologies if you've already addressed this.
But I wanted to find out what percentage of communities you raised price this quarter.
And with input cost continue to go up, how much are you guys been able to cover on pricing to offset that.
Yes.
I'll take it first, Jay, and then <UNK> can jump in if he wants.
But we look at price increases and our prices, quite frequently, do a real deep analysis every quarter.
And in January, we did a price increase in virtually all of our communities.
And then, again, in April because we're still seeing prices and cost increase.
In April, we did another price increase in virtually all of our communities.
So 80%, 90% plus of our communities had a price increase in April because that was necessary because we're continuing to see cost increase.
And we talked about it earlier on the call.
We anticipate gross margins being similar.
We anticipate cost continue to rise for the second, third and fourth quarter.
And us continuing to have to raise prices to offset those costs to keep gross margin neutral.
Great.
The second question I had, Freddie Mac announced that they're going to be starting a new 3% down mortgage program with no income restrictions beginning in July.
I don't know if you guys had a chance to look at that program.
What impact that might have on buyers who may be are knocked out of the FHA limit in certain areas.
Yes.
I saw the headline.
We have not done a lot of research on that.
We'll rely on our preferred mortgage partners to really give us the details.
Once that program has really confirmed and we can potentially roll it out to our customers, but if it's a program that would open up availability of mortgages to more people that, certainly, would be a positive for LGI.
Thanks, everyone, for participating on today's call and for your continued interest in LGI Homes.
Have a great day.
| 2018_LGIH |
2015 | FRED | FRED
#Yes, Andy.
The reimbursement pressures are one part of that.
I would not consider that the major part of that.
The major part is driving that script volume.
That's where we've put a lot of our initiatives and that's where a lot comes from.
But, so much is tied to that, especially in the cost to fill.
The second area is our cost to fill and that's where we're also taking the greatest action.
The gross margin ---+ there are initiatives that we will do in terms of marketing to our third parties, the PBMs, the advantages that Fred's brings to them.
And, so, it is a factor.
But the two major ones are the script volume and turning that negative script volume positive as other ---+ as most chains have seen, coupled with controlling our labor costs and other costs in the retail pharmacy to reduce that cost to fill.
No, Andy, the $20 million to $25 million reduction in EBITDA, $9 million of it occurred in the first half of the year and the remainder is really the ramp-up in that script volume.
That's not something that's going to turn immediately, and it is going to require changes to be made.
So, it's more the fact that the initiatives will be rolling in, in the third quarter.
And we do expect our run rate at the end of the year to be at the run rate that we had in our original plan.
But the ramp-up is where the EBITDA is going.
As well as continued ---+ although it's not an adjusted EBITDA, but in EBITDA it's in the LIFO.
And, Andy, this is Rick.
All I would add is, as we look ---+ you mentioned the Medicare Part D preferred networks, and in the earlier question we cited a bigger presence, or participation, in those in 2015.
If you look at that back-half impact that you referenced of around $30 million adjustment down in EBITDA, around $4 million of that's coming from that cost associated with Medicare Part D networks and being preferred status around the DIR fees.
And, as Jerry said, it gets back to a new patient or a new customer opportunity for us because it is being driven by the volume, but the reimbursements are a challenge.
In Jerry's earlier comments ---+ in his prepared comments, the Cardinal benefit has really offset a lot of the reimbursement pressures that I think you're maybe referring to.
And then it moves over to more of a volume issue on the scripts side and the lack of new patients, which we're going to attack aggressively with our targeted marketing and all the different opportunities that we have from that angle.
Yes, and Craig Barnes is here, as well.
Yes, I think I said ---+ what was it ---+ 35 to 65 basis points, something like that.
And we're at 4.5 versus 5.8.
So, roughly that could be in the neighborhood of 40%, 50% reduction in 2016.
And, of course, we'll continue to drive costs out of supply chain and anticipate maybe 2017 we would work to be more in line with that 4.5%.
I would tell you I don't see any reason why we can't be in line with that 4.5% over time.
The LIFO is $2.9 million.
The stock-based is around $700,000.
So $3.5 million, $3.6 million in total, Andy.
$6.5 million on LIFO and $2.5 million on stock-based.
The majority of that would come in the fourth quarter.
If we look at where we are the first three weeks of August and through this week, adjusted for 90-day fills, we're running around a positive 1 comp with just a few days left in this month.
And that is a total reversal of what we have seen over the last six months and even going back into 2014.
The fact that we've got positive traction going on that, we're excited and see the opportunity to go after those new patients.
Because the work that we did with our consultant partners has shown that we're not ---+ once we get the patient, we're not losing the patient.
But it's the lack of that new patient coming in on that line above it.
It's been declining and that's been the problem for us.
So, again, the marketing as we go after that is ---+ early signs are positive that we're seeing movement in the right direction.
<UNK>, that was part of the comments about being happy about the quick turn and changing.
Our forecast does still have negative in Q3 and we are pleased to see what's happening in August.
But not ready to jump out and say for the quarter, positive script.
<UNK>, yes, we are in range on the specialty side.
We have lowered that in terms of sales because of the hepatitis C changes that are taking place.
Again, Rick can comment more on that.
But the operating profit, the gross margins, are up in that area and so, accordingly, we are still planning on overall earnings.
Top line, we did reduce those.
Yes, we did reduce the top line.
But the margin, when we removed those hep C sales at a lower margin, we're seeing a better margin rate come in, which is driving the profitability very close to flat, either at or where we were in terms of current expectations and previous projections overall.
Yes, sure.
I'm going to ask Bryan <UNK> who's here to talk about our holiday season.
We feel pretty good about it.
Hi, <UNK>.
It's Mike.
So, I mentioned ---+ we've got that prototype.
It'll be ---+ the first store will be up and running 1st of November.
Like I said, we'll evaluate it.
We're looking at 20 to 50 stores next year, assuming no issues with it and we see the returns that we like out of it.
And, you know what.
At the end of the day, I mentioned the remerchandising, I mentioned relocations, so those numbers could shift more into prototype remodels and less into remerchandising.
It all depends on what we see out of this model.
And <UNK>, Mike commented on this earlier, we are ---+ and I did, as well.
We are evaluating our alternatives in terms of relocations, remodels, and new locations.
So, I don't want to yet put specifics on how many we'll do in a certain period because we are looking at some strong alternatives.
<UNK>, this is Rick.
On the Medicare Part D, today we're going to be in a similar number of plans.
There will be some in-and-out changes on who we're ---+ which networks we're in.
One of the ---+ the one that is fairly big in our area is one of the Caremark plans, and we will not be in that plan next year.
That's one of the ones that we saw the biggest impact from in terms of the DIR fees.
And part of the reason is we're seeing a shift, particularly in this particular plan, away from preferred status.
And it's a more open access network.
That being said, the reimbursement rates will be similarly aggressive to what you would have seen in a preferred network.
But going back to what we've been referencing in terms of cost to fill, another way to get your cost to fill down is fill more scripts.
Not stating the obvious.
I guess I am stating the obvious.
But that's the goal we have to attack first, with patients and scripts, in order to drive or leverage that existing capacity that we have with that fixed labor that we have to have because we have to have a pharmacist there the number of hours the store's open.
So, it would not make sense to move away totally from that strategy because we need the scripts.
And they were still profitable scripts ---+ I don't want to mislead anyone ---+ they were just less profitable year over year because of the DIR fees.
And, <UNK>, I think as we're looking at data and gathering more data and changing how we're analyzing our decisions and progress, the most compelling factor, as I mentioned earlier, is really getting that script volume up in our stores.
That's the success of pharmacies, general merchandise, all the way through our business, is getting that positive script comp back.
That's one slice of the data that we're obviously working with outside consultants who work with some of the larger chains.
It's proprietary and we have to be real careful on what they share with us and we share with them, obviously.
When you look at the payer side across the board, it's not been in Medicare Part D per se because we're not in enough preferred plans, it's not in commercial.
It's been fairly consistent as we've looked across the board on that.
It's not one certain age demographic, male, female.
I think it just goes back to what Mike <UNK> commented earlier on, the renewed focus on pharmacy marketing.
It was so small of a portion of our marketing budget for so long, in a time period when everybody else was increasing that marketing effort on pharmacy.
Thank you very much to everyone for joining us.
We do look forward to talking to you in the third quarter.
Have a good rest of the week and we will talk to you soon.
Thank you.
| 2015_FRED |
2017 | HUM | HUM
#Thanks, <UNK>, and good morning, everyone
My remarks today will also be relatively brief given our Investor Day last week allowing more time for analyst questions
As <UNK> mentioned, the first quarter of 2017 produced solid results ahead of our prior expectations, and consequently, we raised our adjusted EPS guidance to at least $11.10 and our full year Retail pre-tax target by $50 million
We also expect our quarterly EPS progression to reflect just under 30% of the full year number in each of the second and third quarters, with the fourth quarter expected to reflect the usual cost increases associated with the open enrollment season
I will now provide more details about each of our segment's operating performance
Led by individual Medicare Advantage, our Retail segment outperformed our initial estimates, largely due to better-than-anticipated prior-period development
Early indicators also suggest that medical cost utilization trends, including hospital admissions and pharmacy spend, are running well relative to our pricing expectations
Initial indications of Medicare premium levels are also encouraging
Finally, we have lowered our expectations around 2017 individual MA membership growth to 15,000 to 25,000 from 30,000 to 40,000 while we are increasing Group MA membership by 10,000 members to 80,000 to 90,000. We do not expect these changes to impact overall Medicare profitability
With regard to our Medicare Advantage bids for the 2018 plan year, our organization is working diligently on our bid submissions which are due in early June
With the overhang associated with the terminated transaction now behind us, we believe we'll be positioned for stronger growth next year while we maintain pricing discipline
We continue to receive a number of questions about the assumptions that will be reflected in our bids
For competitive reasons, we won't be specific on these, but I will reiterate three of the key points we shared at our Investor Day last week
First, we are incorporating our recent 2017 outperformance into our pricing and will reflect any new information as it becomes available in advance of the bid submissions
Second, we are assuming the nondeductible health insurance fee, also known as the HIF, resumes in 2018 as is scheduled under current law
This will result in a reduction of benefits and/or increases in premiums for our members, which could create some member dislocation given the importance of stable premiums and benefits to member retention and new sales
And third, our bids will reflect the outcome of our ongoing Stars bonus efforts with CMS, and we will update the Street on our progress in this regard during our second quarter conference call
Turning to our other businesses, our Group and Specialty segment is having another good year
Our performance is running in line with expectations, with a focus on smaller employers paying dividends as it gives the organization focus as well as the opportunity to add meaningful value for our customers
Our Healthcare Services segment also continues to deliver profits, steady cash flow to the parent, and importantly, clinical excellence and trend benders for our insurance lines
You will note that we have taken down intersegment revenue guidance by approximately $1 billion for the year
Our Humana At Home optimization continues apace and is proceeding a little faster than we had expected
We expect this optimization to continue into 2018. Additionally, we are seeing lower-than-expected pharmacy volumes, which reflect lower health plan drug utilization than we had previously anticipated
This of course is a positive development for overall Humana, though it is still too early to draw definitive conclusions
If these trends continue, we expect that the increase in health plan pre-tax income would more than offset any reduction in pharmacy profits, though it is also important to note that any utilization reductions in the health plan would be meaningfully offset by lower member cost share and CMS reinsurance payments
I will now make some comments regarding our long-term EPS targets that we discussed during our Investor Day last week
There have been some questions as to how we define low to mid-teens EPS growth
To provide more clarity around regarding our intentions, our long-term annual EPS target is 11% to 15%, reflecting our conviction around our strategy and the results it can deliver
As we discussed last week, our annual results will vary, sometimes performing above this range as in 2016, other times falling within the range and depending on the funding environment, competitive landscape and any prior year over-performance, there may be years in which EPS growth is below that range
Given our integrated model, we have multiple levers we can pull to achieve these long-term results which will also vary year-to-year
These levers include, among others, membership and PMPM premium growth, MA margin changes, depending where the prior year finished in terms of our 4.5% to 5% individual MA pre-tax margin target, Healthcare Services pre-tax growth in excess of insurance membership growth to drive additional margin, and of course, capital return and M&A
Enhancing organizational productivity will also be a prime focus of the company to achieve these results while also increasing operational consistency
Finally, before opening the call up for questions, I would like to share with you the news that <UNK> <UNK>, our Vice President of Investor Relations, has decided to retire at the end of this month after nearly 22 years with Humana
It is impossible to overstate <UNK>'s contributions to Humana over her career
She has not only been consistently recognized as the Investor Relations leader in our industry, but she has also been a critical partner to <UNK> and me, as well as to our predecessors, helping all of us navigate the tremendous change both Humana and the industry have undergone over her distinguished career
Her wise counsel and impeccable market judgment have guided us through both good times and bad, demonstrating exemplary leadership and representing the very best of Humana
We can't thank her enough for all that she has done for the company
<UNK>, you will be greatly missed and we wish you the very best
With <UNK>'s retirement, Amy Smith will lead Investor Relations
Amy is a CPA, who has been at Humana for nearly 14 years, serving most of that time in progressively expanding leadership roles on the Financial Reporting team, driving SEC reporting and development of external messaging on key financial measurements for our earnings releases
With this expertise, she joined the Investor Relations team in February 2017 and met many of you at our Investor Day last week
<UNK> and I look forward to partnering with Amy in her new capacity and she's very excited about the opportunity of working with all of you
With that, we will open up the lines for your questions
In fairness to those waiting in the queue, we ask that you limit yourself to one question
Operator, please introduce the first caller
Question-and-Answer Session
Well, <UNK>, as you know, we typically don't provide even as much commentary as we've provided to this point on the following year and I think what we've provided at this point is really all we're going to say
Obviously, the HIF is something that we're very focused on and it is a headwind that frankly all the industry will have to contend with, but we are very mindful of all the elements that are going to go into our bids and you should expect more commentary as we get to later in the year
So, that's really all we can say at this point
Hi, Josh
It is in line and you pointed to the reason why the MER is so low
It's really seasonality
There's a very steep claims curve in the Individual business as the year progresses given the benefit design of the product and so the MER and the profitability in the first quarter is within our expectations
We do still expect to lose approximately $45 million overall for our ACA and our non-ACA combined individual products
If you compare versus last year, which you may be looking at, the losses were significantly higher than what we expect this year and as you know, we exited all of our off-exchange products and meaningfully pared back our on-exchange products particularly those areas where we were losing a great deal of money
And so that really explains the difference year-over-year, but the seasonality is real in this product and that's what's explaining that low MER this quarter
Well, true, but remember that we are excluding the Individual business from our adjusted earnings, so it will help the GAAP earnings, but we've taken it out of our adjusted earnings
We are, too
Well, again, the PYD, I think the $50 million is really reflective of sort of the excess PPD that we didn't expect is the way I would describe it, and that's what's been built in to the guidance
It's broadly in that range
Remember that we don't – we expect some PPD beyond the traditional reversal of the margin that happens naturally every year and that's – we expect that in our Medicare business
What we said on the last quarter call is that what we achieved in 2016 we didn't expect to recur again in 2017, and so while the PPD is down year-over-year, it's still higher than we had expected, and that's really the $50 million number that we called out
And remember, for 2017, just we're not talking big numbers here and on a 3-million-member base, you have small levels of dis-enrollments or small differences in sales, that can easily swing numbers 10,000, 15,000, 20,000 members one way or the other
So I wouldn't make too much of the 2017 change
I would say that we are selectively looking at Group MA opportunities
There is a pipeline there
We have a team out there that is, I think, doing a really great job looking for those opportunities and we're going to pick our spots, as we've said in prior context, to make sure that we're able to earn an adequate return of capital
There's no real additional investment in 2017 for the Group MA product that's not already built into the plan
But we are looking at a number of opportunities, as I think a number of folks are, but we're going to continue to be disciplined
But we think we have a very good product that we can offer and, again, it's really going to depend on the competitive landscape, our relative market position, depending where the members are and how aggressive we want to be
But, again, I think we're going to be quite disciplined in this product
I mean, you can look at our premiums and they're sort of north of $3 billion and, call it, 10% to 12% of premium over time that we can ultimately get out of our statutory subsidiaries
There is a tail there and I would imagine in 2018 we'll start pulling out some of that capital from some of the prior reductions, but ultimately it's going to probably, likely, take into 2019 before we can get all of our capital out
I think it's fair to say, we feel very good about our risk adjustment processes
We take this very seriously
We look for outliers
We've a lot of analytics around this
We do self-audits
Again, we feel very good about our risk-adjustment practices
Yes, the retail MER is disclosed in the financials because it's been pulled out
So it's in our press release
The reported MER for retail was 88.1% for the quarter
The 88.1% excludes individual
Well, again, the full-year guidance is out there in 86% range
Remember the PDP product, in particular, drives the seasonality of that business, so over time the PDP MER as you move forward through the quarter given the product design, that MER goes down and so that's what's driving the, sort of, the high MER in the first quarter relative to our full-year guidance
Well, remember, a couple of things are going on
First from a pre-tax perspective as we indicated at Investor Day, given where our guidance is right now with the $50 million, we're at the low end of our individual MA number
But remember with the HIF coming back in 2018, that's going to impact the MER
While the MER was slightly up, there were a number of things driving the MER that ultimately pulled it down, but the HIF offset that because you put more back into benefits
With the HIF coming back, you'll have to reduce the MER and increase the admin ratio to reflect that HIF
So the components are going to change between the admin ratio and medical cost ratio, but as it relates to specific pre-tax margin guidance, again, we're not providing 2018 guidance at this point
Yes
Well, so remember that we've exited the individual exchanges as of the end of 2017. So we're not going to have any members for 2018. For 2017, we exited the off-exchange in total
So of our call it 200,000 members today, we have about 155,000 on exchange and about 45,000 legacy members, or grandfathered members
From a state perspective, Tennessee now is our largest state, followed by Louisiana and Florida
But Tennessee by far is our largest state with over, call it, 65,000 members
So it's <UNK>
At our Investor Day, we suggested working with other outside independent groups that, call it, 6% plus or minus growth rate year-over-year was something that we could expect
The variance, I would agree that the HIF had probably less of an impact this year than perhaps one would have thought on overall market growth
And that might suggest that next year it also, by coming back, may not have as much of an impact on market growth, but it's too early to tell
I mean the thing that worries us about the HIF a little bit is that it's a big number and when you go the other way and reduce benefits, that could have an impact on that overall growth rate
But it's really frankly hard to tell and hard to model human behavior and how they respond to the reduction of benefits and increased premiums
There are also a number of demographics that vary year-to-year just in terms of the number of people who are aging in to Medicare, and so that's going to vary
It's geographically based as well
And so again it's very hard to say whether that 6% is going to hold next year and what the variance around that may be, but that's broadly the number that we're thinking about
I think there are two elements there
The first is, you mentioned around the MA side
As I said, we are at the low end of our margin range at this point, but remember, this is a long-term target, so every year is going to be different
There will be years where we'll be below our long term individual MA range, and sometimes we'll be above that pre-tax range
And so that's where that lever comes in depending on where you are exiting the prior year
The second element relates to our Healthcare Services franchise
We believe that over time – and there are going to be, again, years where it's faster and years where it's slower, but there are opportunities to further engage with our members and drive pre-tax Healthcare Services growth faster than revenue growth
And that ultimately leads to more margin for the enterprise
And so I think those are the two elements of margin and how they play into the long-term EPS growth
| 2017_HUM |
2016 | CTS | CTS
#I would tell you, <UNK>, that getting to that high-end of the guidance on the revenue side is ---+ I don't see it; I see us more at the middle to ---+ middle of the guidance to a little lower, and markets would have to be very strong.
HDD would have to come back really well, and I don't see that happening in that market at the moment.
I know that Western Digital reported yesterday, and other customers, and I haven't had the chance to read the reports.
So, we are in the low-single digit growth rate for the year in total.
We expect ---+ our guidance includes that HDD is weak.
And I would tell you, <UNK>, as we look out at the growth of the Company over the next several years, two or three years, we've really looked at that and said, hey, we're going to dampen our expectations and still grow.
Yes, mostly ---+ some of them were on our OCXO products, frequency products.
So they go into some communications, some industrial applications.
And then also our non-HDD piezo products, which go into military applications, going to medical applications ---+ we're doing pretty well.
We've seen very nice growth rates there, but being offset by the HDD headwind.
We are targeting mid-single-digit growth on an organic basis, and we want to complement that with acquisition.
We've ---+ obviously it's got to be the right acquisitions.
We've always said we are targeting an overall growth rate of 10%.
We haven't backed off on that, but we're not going to do ---+ rush into any acquisitions.
We've got to have the right ones to make that happen.
And then on the market side, the numbers that Kieran just talked about, that assumes a relatively stable market position.
Yes.
<UNK>, we track that very closely.
When we look at it, we are roughly tracking about 5 or 6 points ---+ percentage points behind where our goal would be.
It's all a matter of timing.
Some OEMs decide to award things, and we've had one or two contracts that slipped, that we thought were going to be awarded this quarter but slipped into the next quarter.
<UNK>, for the rest of 2016, I'm expecting our tax rate to be in a similar range where we are right now.
It has increased from the last year.
And we will be looking at things from an overall perspective in terms of how we sustainably bring it down.
But we are not there yet.
(laughter) My goal is to have some work done on that in the second-half.
So, hopefully, we should be able to provide you more clarity towards the end of the year.
You saved me a question, <UNK>.
(laughter)
Thank you, <UNK>.
You want to take the operating income and I'll take the last question.
So, operating earnings, <UNK> ---+ actually once you exclude some of the items, the unusuals, the gain on the sale of assets and things like that, we are better than last year.
But sorry, excuse me.
We are just about on par but on lower volumes, so the percentages are better, improved from last year.
And on the sales side, we are looking at the sales being down, as we have talked about historically.
On the automotive business, we saw some product lines go end-of-life, and the ramp-up is happening in 2016.
And we have had challenges with HDD as well as some of the telecom market-related product lines in our product portfolio.
Kieran, did you want to add something to that.
Yes.
And then just, on a go forward basis for your question, we see, for the balance of the year, low-single digits, organic growth in the base business.
And we see on the Single Crystal ---+ as we've said, I think, when we announced the acquisition ---+ a double-digit growth around 10%.
March 11 was the effective date of the acquisition.
The $3.1 million in the second quarter is for the full quarter.
Kieran talked about a product line ramp-up in that business that will contribute partially to it.
We don't expect significant seasonality in this business, <UNK>.
Last year ---+ compared to last year, our debt balances are higher, and that's the primary driver of the interest ---+ increase in interest expense.
The (multiple speakers) [total] last year was $90 million.
Yes.
So, <UNK>, if you look at the timing of when the debt went up in the first quarter, the acquisition was closed on the 11th of March.
So that you don't see a huge impact of the interest expense increase in Q1, and we see most of that in Q2.
And we paid down the debt relatively close to the end of the quarter in the second quarter.
So I expect the interest expense to come down slightly from the second quarter level.
You mentioned that you are going to have a new ERP.
How much increase in CapEx should we expect out of the new ERP implementation.
So, <UNK>, in the past, we have talked about a relative range, and it's a pretty broad range at this point in time.
One of the other things we are working on right now is scoping that out.
And I expect it to be well north of $5 million, but I'm not expecting it to go significantly north of $10 million.
So I know I'm giving a pretty broad range, but that's where I expect it to be.
And once we get the numbers finalized, we can talk about it a little bit more in detail.
And we talked about this for a number of quarters in the past, as well, saying that this is on the radar and coming.
And obviously the timing is linked to the simplification of the footprint, so that we are doing it in the locations that are relevant.
2017 and 2018.
Could you repeat your question, <UNK>.
I just want to make sure I got it right.
It will be included in the Q that we will file later on today.
All right.
So, thank you for your participation on today's call.
We are busy and back to work here.
Hope you have a good day.
Thank you very much.
| 2016_CTS |
2016 | PLXS | PLXS
#<UNK>, this is <UNK>.
What I would say, is that our quarters and our forecast has been relatively consistent over the course of the last three quarters.
Obviously, we saw the big drop or reset in our forecast back around the June through September time frame.
Multiple resets and it has stayed reasonably consistent.
The projection is that we are expecting sequential growth, just not at the 6% quarter-over-quarter rate that we are expecting to see Q3 to Q2.
In general, the markets are lackluster, I would say, with maybe the exception of aerospace.
Markets, as a whole, are pretty much going sideways.
Probably the networking communications, as a whole, is the most volatile, although we are seeing strength with certain customers within that market.
Sure.
Guadalajara, first of all, in general, with respect to the productivity and cost-reduction initiatives we really didn't include Guadalajara in there in any meaningful way.
Now, with that said, the team at the site did an excellent job.
They grew revenue to better than the $50 million quarterly run rate that we had talked about.
They also drove margins to a higher level than we had anticipated coming into the quarter.
So they had a really meaningful impact to our operating margin within the quarter and we would say that right now there at essentially corporate expectations, although there is certainly room to do more at the site as we grow the site, but we won't be talking about it in terms of it being a drag anymore on our corporate operating margins.
And if we look at the site as a whole, the site is performing spectacularly.
We run a customer net promoter survey process and the Guadalajara site had a perfect score, every customer recommended them.
They also have a funnel that is really on par; it is an exceptional funnel that is on par with any of our sites within the Company.
We expect to continue to grow the site at a relatively aggressive basis.
This is <UNK>.
From a funnel breakup standpoint, it is definitely seeing significant strength in the healthcare life sciences sector.
That team is doing a really good job driving opportunities in there.
From a size standpoint, I'm going to say that there is a significant change in the magnitude of the opportunities that are in there.
There is a mix of decent size ones, medium-sized ones and smaller-sized ones.
As we go forward, the trailing four-quarters numbers, as you look back in time here, we had a soft quarter four quarters ago.
And that one will be coming out next quarter.
I do expect this quarter to be on par to maybe even a little bit stronger.
So I would expect our trailing four quarters percentage to pop up a little bit.
From that standpoint, we continue to see a good win momentum going into the back half of the year here.
And I would expect the wins to come out of there at on par with the rates that we have had in the past, maybe slightly a little better here in the near-term.
The trailing four-quarters metric, the intention here is, as revenue grows, we do need to capture more out of it to keep the wins momentum going.
So, to answer your question, yes, we do need to continue to pull more out of there to support the growth; and that is the plan.
I don't think, <UNK>, necessarily from an OpEx standpoint.
I think we can maintain this percentage around 4.4% to 4.5%.
We are getting really good leverage with productivity improvements, continuous improvement efforts that we're making both at the sites and within the corporate office.
I think where we could see some growth is in CapEx, maybe towards the back end of 2017.
If Guadalajara continues to be as successful as they have been, we may need to look for an additional site in Mexico in Guadalajara.
You could see CapEx going up to support new program ramps and potentially a new site either later 2017 into 2018.
Let's take the tax rate first, <UNK>.
<UNK>, it could be.
It is kind of a unique situation.
It really depends on where we are earning our profits around the globe.
And obviously, there's different tax rates and some lower than others.
What is unique, is that we are seeing more profitability in the US, as we go forward, which one would think that would be maybe a negative thing because of the higher tax rate.
But actually, for the next few years, that is a positive for us because we have got previous losses that we're offsetting future profitability with.
So we are not incurring any tax expense in the near term in the US.
Now if we go out 5, 10 years from now, that could change and we could be at the corporate rate in the US.
To answer your question, I think it is probably sustainable at a lower rate for the next few years.
But then eventually, at some point, we will see that ticking up as that profitability continues in the US.
This is <UNK>, in regard to the aerospace element, it is no secret that we had a couple of challenges this past summer in our center of excellence and those are past us.
I think <UNK> mentioned in his script, the fact that a lot of the performance that we've achieved here in the last quarter is based on that team really delivering for our customers; so we expect basically to return to growth from those customers to kind of set on pause for a little bit.
So, the momentum there is really driven just by our ability to execute and deliver for those customers.
It is more commercial.
Defense is, for us, it is something that there's a lot of conversations about it rebounding a bit more, but our aerospace growth is definitely more on the commercial side.
This is <UNK>, <UNK>.
From an industrial commercial standpoint, the big change in Q3 is new-program ramps.
We have some significant new program ramps with multiple customers that are driving the revenue growth in Q3.
From a market standpoint, our end-market standpoint, I would say the industrial commercial markets, while it is very broad, they are kind of going sideways or are lackluster.
We talked about the potential that semi-cap might be improving last quarter; that is not the case.
It is really kind of back to lackluster or sideways, from our perspective; oil and gas continues to be weak.
And really, our growth in being driven by new program ramps.
Go ahead, <UNK>.
The growth is really in what we'd classify in the industrial side of equation, more in the instrumentation side, and it is related to, as <UNK> talked about, a customer that we talked about probably a year ago.
It is a customer that we've won and we have experienced good growth with them; they're bringing out new products and we are winning those.
I think one of the reasons also for the little bit of a jump, <UNK> talked about the fact that industrial commercial was softer this quarter; that customer asked us to shift some components from one product line to another which impacted our revenue but allowed them to get the part that they needed out the door.
So, we'll also experience that revenue in the quarter as well.
It's deep in growth with basic customer and it's ramping some new products.
The other thing I would add to that too, <UNK>, from a new customer-win standpoint is we're seeing some pretty significant wins within the semi-cap space.
So while we're not necessarily capitalizing on it to the level that we would hope to in the future, it positions us pretty well for when that market rebounds.
Thank you.
This is <UNK>.
The issue was that the customer came in and asked us, within lead time, to build additional product.
And we were not able to secure the materials within lead time.
So there really wasn't a component constraint in terms of anything in the industry; it was just the ability to get enough parked in-house.
And so, as a result, they asked us to shift some of that inventory to build a different product.
So there is really no component constraints in the industry.
It was just a matter of them dropping in extra demand and asking us to shift the mix.
We do not see any issue of that going forward, because now we have got the visibility and basically the lead times are not an issue at this point.
I think we are in pretty good shape, really, from a productivity standpoint in the new business ramps.
There is always some inefficiencies until you get the full leverage on the revenue coming out.
That is part of the financial model is to overcome that, with new productivity, product improvements on existing programs.
We're loathe to use that as an excuse not to hit our margin targets and, of course, we are forecasting that we are going to hit our margin targets in the coming quarters.
I think we're in good shape with the ramps that we are seeing.
In terms about the ordering patterns of those programs not coming to fruition, we would expect---+ the visibility that we have at this point is that I'm not overly concerned that they are not going to unfold the way we predict or the way we are forecasting.
I think the demand is clearly there based on what is happening in the particular industries where the ramps are occurring.
I feel quite confident in terms of how the full year here is going to unfold and, frankly, how the momentum is going to start to carry into the new fiscal year.
This is <UNK>.
The wins in the APAC region, actually across all three regions, are probably evenly split across the sectors.
So as you look at the sector splits, and you apply those to the regions, the mix is probably pretty equal across them.
These will be new program wins from either existing customers or new targeted customers, but these would not be considered transfers within Plexus.
They would be incremental revenue as they ramp.
I would also just say that, in any given quarter, the bulk of the revenue from the new business wins is with existing customers by design.
We're trying to increase our share with those customers.
The commentary probably falls back to some of the earlier discussions about our ability to effectively ramp these new programs and gain leverage as well.
Because when you have a higher number of higher concentration wins with existing customers, you tend to get the leverage and manufacturing quicker; the transitions tend to go smoother.
| 2016_PLXS |
2016 | TDG | TDG
#The commercial transport growth, if you look at mid to high single-digit next year, the commercial transport growth we would expect to be higher, or higher than the average, same thing.
If you take the business jet, business jet, and I suspect the freighter, they will be a little bit of a down drag.
So take whatever number you want to use from mid to high single digits.
The commercial transport is probably on the upper end of that point and the others are down on the lower end.
I don't think so.
I think it's going to change versus the intrinsic demand, not just some trick in the comp.
Yes, I would say you can almost generally go through, now we do it unit by unit, product line by product line.
So it bounces around.
But the way I would think about it is almost take the growth in RPMs by region of the world and that will give you some pretty good idea.
I think it would be, I'm just doing here ---+
It's $650 million to 700 million.
Yes.
Well, the aftermarket shipments were sequentially up.
The bookings I don't, I just don't have a good, I'd say the same ---+ I can't say they're noticeably separated.
We're awfully close on the year, and I think the fourth quarter isn't much different.
I suspect that's a high number.
We underspent against our budget the previous year, and I expect that's a little high.
Our restricted payment is, we can go up to 7.25 net and 4.25 on secured debt capacity, for new debt, plus the including the target of that.
Are you after how much dividend can we pay out.
Is that what you're after.
At this point in time, we only have about $130 million remaining on it through the end of the year.
And we would have to get an amendment to do any more additional dividend.
Which, by the way, just so you know, almost every time we do this, you have to get an amendment.
Or the other point is if we get under six times net debt, we can pay a dividend up to that six times.
Oh, I think it would be, it's hard to say exactly what the point is when your concern gets to that.
It's a little bit of an art, rather than a science.
But clearly starting to see more announcement of turn down of rates in either predictions of turn downs in FY18 or even the beginning of FY19 would do it.
Now sometimes, you don't see the announcements.
No one announces it, but you all of a sudden see the orders are starting to slow down.
That's another thing that would do it.
And we'll just watch those as the year goes through.
We're quite, we're prepared, and as we've done in the past, we'll move quick to stay out ahead of this.
Oh, I think that is materially very close.
Why we hedge a little bit is there's no guarantee that if someone makes a change, they send us an e-mail and tell us they changed it.
But we have a pretty good bead on it.
Yes.
Like everyone in the industry, Boeing has been pressing on what they call this partnership for success, which is at least to roll into less contracts, I would say.
And we ended up about two or three years ago with a modified version of that, where the terms and conditions we agreed to generically and the rest of it is more product by product focused.
I don't know.
It was behind us two years ago, but the contract runs for five years, or maybe it was three years ago, or two years ago.
I can't remember now.
But the contract runs for five years, so you'll reengage again a couple years before the contract runs out.
No, we have not.
We have not.
As always, we hear talk about it periodically, but we haven't seen any significant activity, at least for any of the proprietary.
A very small percent of our business is non-proprietary, and that part of it, you see it.
It's not unusual to see it.
Primarily, we own the IP, and it is a very expensive switching process.
It's long and expensive.
The main way you protect yourself is deliver quality product, deliver it on time, and service the heck out of the account and fix it fast, if something comes up.
Because the math rarely works, because of the switching cost.
I doubt ---+ first, I have no idea, but that's not going to stop me from saying something, but I want to lead with that I have no idea ---+ I'd be surprised if it has much impact on worldwide revenue passenger miles.
But I guess you might see more defense spending, perhaps.
But I have no way to know how to handicap that at this point.
I would say they're more small to mid than large.
But I would also say that's almost always the case.
The bigger ones tend to, somebody decides to sell them and they come up and you've got to move pretty quick on them.
I would say the backlog doesn't look a lot different than it often looks.
Well, when I say the backlog of things we're looking at, if it's not proprietary and doesn't have a reasonable amount of aftermarket, it's not in our backlog.
Okay.
Well, yes, <UNK>, what I was trying to point out there is the bookings ran behind the revenues this year, FY16.
So what I was trying to point out is that I don't think that's indicative of FY17, because there were a few big orders placed in FY15 that were multi-year orders.
So they don't repeat each year, they repeat every other year or every third year, something like that.
I don't know if that's clear or not.
I was trying to point out what the rationale was for the bookings running behind.
It's more like they're long cycle programs.
I would say the only one that I would say that could is you pays your money and takes your choice on what the A400 shipping rate is going to be.
That was one of them.
And you know, there could well be up or down adjustments to that.
As you know, it's been running in fits and starts.
<UNK>, if the question is could it be higher.
Yes, it surely could.
And I would hope it would be.
But we have to take our best estimate based on what we get out of the product teams, what we see in our incoming booking rates, and forecast it out.
Now I would doubt we'd be very far off on the OEM programs, but what could easily move up or down ---+ I would hope up, not down ---+ is the aftermarket.
If you get more active or you just decide to restock, those things can move pretty quickly.
| 2016_TDG |
2016 | MED | MED
#Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining us.
Today I will share an overview of our performance in the second quarter including an update on key initiatives.
<UNK> will then review the second quarter financial results and guidance for the third quarter and full year 2016.
Finally, we'll open up the call to take your questions.
Our success from early in the year continued through the second quarter of 2016.
Our entire team has worked tirelessly over the last few years to better differentiate our business units and highlight their respective value propositions to clients and customers.
We know this approach will yield the best results for each business unit.
These efforts have resulted in a strong foundation for continued success.
And while we still have significant plans to continue to develop the strategic objectives, it is proving successful as we saw Take Shape for Life post double-digit revenue growth in the second quarter, the highest level of year-over-year revenue growth for Take Shape for Life in three years.
Take Shape for Life grew 10% compared to the second quarter last year representing the 6th consecutive quarter of improvement in revenue growth.
Take Shape for Life results fueled our consolidated financial performance in the quarter and helped us achieve greater leverage across our cost structure.
Across the entire business, gross margin expanded 110 basis points in the quarter to 74.8%, and our team remained focused on officially managing our expenses to support our revenue plans.
On a consolidated basis, net revenue from continuing operations was $71.1 million, earnings per diluted share from continued operations was $0.29, and adjusted earnings per share from continuing operations was $0.63.
Revenue was in line with our expectations, which when combined with the strength of our cost and expense leverage drove strong profitability performance.
As a result of this positive momentum, we are raising our 2016 annual adjusted earnings from continuing operations guidance, which <UNK> will review in detail.
Our team continues to believe that we are poised to return to growth at the total Company level in 2016.
We remain intently focused on continuing to take steps to optimize each of our business segments ---+ Take Shape for Life, Medifast Direct franchise, Medifast Weight Control Centers, and Medifast Wholesale by advancing our plans to differentiate brands, products, programs, and service offerings.
I would now like to provide you with an update on our key business initiatives for 2016.
Across our health coach network, we are helping clients redefine the path to optimal well being.
As we have shared in the past, new client and health coach growth and productivity are key metrics for determining performance within Take Shape for Life, and <UNK> will share more of the positive metrics in these areas in the financial review section.
We continue to generate increased productivity as a result of higher new client acquisitions, higher new health coach sponsorship, and a higher average order value year-over-year.
Our coach network is stronger than ever, as demonstrated by the rate of sponsorship combined with the productivity growth in Quarter 2.
We believe Take Shape for Life's continued positive momentum reflects the meaningful progress we have made executing our key initiatives to simplify the business including providing effective training and further differentiating the value proposition.
Much of the second quarter was spent planning for our Take Shape for Life national convention at Austin, Texas, held July 21st to 24th.
We are pleased to report that it was the largest convention in the Company's history with more than 3,400 registered attendees, over 20% growth from last year's convention.
Overall, the energy level, excitement and engagement from the field was outstanding, and united all attendants around this year's powerful Lead from the Future Act Now event theme.
We believe that collaboration between the field and corporate teams is the strongest it's ever been in the history of Take Shape for Life.
<UNK> <UNK>, President of Take Shape for Life and our team continue to bring our top field and corporate leaders together for planning and strategy sessions to ensure full collaborative alignment on these important plans.
Together with the tremendous partnership with a leading provider of full potential branding for global brands, we created a fully exclusive brand and product offering that is only available to our family of health coaches and clients.
We expect this new exclusive brand to go a long way towards solving for any strategic conflict that existed between Take Shape for Life and our Medifast Direct business.
This project started approximately two years ago and has been a wonderful journey to get us to the official launch of our lifestyle brand, Optavia, which we unveiled at the annual national Take Shape for Life convention.
This marks a significant evolution for us.
It is the first time in our Company's history that we have an exclusive offering for Take Shape for Life putting us in a prime position for future growth across the diverse audience not only in the United States but, over time, throughout the world.
Over the past two years, we worked closely with our field leadership, surveyed all Take Shape for Life health coaches and conducted numerous rounds of extensive research both in the United States and internationally.
We have established a lifestyle brand in Optavia that has a meaning and breadth to help our health coach community better fulfill the tremendous opportunity they have to share our optimal well being offering.
Specifically, at our convention, we launched 13 new innovative Optavia Fuelings that feature bold flavors and exciting ingredients sourced from around the world, including Morocco, Bolivia, Indonesia and the Philippines and are packed with 25 vitamin and minerals as well as probiotics, which helps support digestive and immune health as part of a balanced diet and healthy lifestyle.
Additionally, these products are free from artificial colors, flavors, sweeteners or preservatives, and are all non-GMO.
Importantly, Optavia Fuelings provide the same scientifically proven nutritional profile as our existing portfolio of over 70 products so our health coaches and clients can very easily interchange the new Optavia products with their existing favorites and our existing plans.
The response from our health coaches at our annual convention was overwhelmingly positive on this exciting brand evolution.
It's a big step forward that a brand and a product portfolio that is exclusive to health coaches and their clients.
All health coaches now have the opportunity to offer Optavia Fuelings to clients nationwide in combination with our existing product offerings.
This will help attract new audiences to Take Shape for Life while re-energizing current, even prior, clients within Take Shape for Life.
Over the course of the next year, we will undergo a gradual comprehensive brand and product evolution, and by our annual national convention in 2017 in Dallas, Texas, the full brand and product transition to Optavia will be complete.
Not only will this provide a tremendous opportunity for growth for Take Shape for Life, but as I discussed in just a bit, it presents significant upsides for our other business units who will continue to offer the Medifast branded product line.
We are extremely pleased with how far Take Shape for Life has come and are very optimistic about the continued growth and success of our largest business unit.
Shifting to our Medifast Direct business, it represents 13% of our sales in the quarter.
First a note about the longer-term potential of this business unit, as we have shared, our focus on returning Take Shape for Life to growth has included making strategic decisions that have impacted the performance of Medifast Direct.
That said, the introduction of the Optavia Lifestyle brand and the exclusive product line and the eventual complete transition by July of 2017 presents significant future potential for Medifast Direct.
That notwithstanding, our short-term revenue of customer acquisition performance has been challenging.
We have engaged additional expertise and partners as we work on immediate improvement initiatives.
This business segment is an important profit contributor, and we're taking steps to address the business performance with a sense of urgency.
The most important area of focus is the ability to invest in additional advertising that will result in new customer revenue without negatively impacting the momentum in Take Shape for Life.
We have clear financial targets in place and are very disciplined about our spending, placements and offers within specific parameters.
In the second quarter our decrease in advertising spending far outpaced our decrease in revenue, and this fueled strong profit performance.
Or as we implement new initiatives across digital media, direct response television, Web content, customer onboarding, and many other areas, we are confident we will soon be in a position to ramp up spend efficiently and positively impact our near-term results.
Additionally, our team continues to work closely with our franchise Medifast Weight Control Center partners.
As we have noted on many occasions, we are very fortunate that strong franchise business operators who know this space very well.
Together, we are working with our franchise partners to involve the offerings in the centers and initiate new pilot programs to test future concepts while continuing to deliver a strong value offering.
This business and other partnership with franchise owners represents an important part of our business and a compelling support offering for current and prospective center members.
We continue to take steps forward to accelerate the activities required to return the Company to sustainable revenue and profitability growth.
Our ongoing and consistent improvement across tiers of our business over the last few years and, importantly, the first half of 2016, truly demonstrates the positive momentum we are building and why our team is excited about what the future holds for Medifast.
With Take Shape for Life, a very significant part of our business plan, it's increasingly important that we expand the talent on our management team with individuals with extensive experience in growing a healthy direct-selling business.
To that end, I'm pleased to introduce the newest member of our management team, effective August 1st, Bill Baker joined us as our Executive Vice President in Information Technology.
Bill comes with significant leadership experience in a number of industries, most notably in direct selling at Rodan & Fields and Arbonne International.
So Bill brings a plethora of experience across the core IT function that will aid in our strategic plans across all business units and functions.
Bill's background in direct selling industry will reap immediate dividends as we improve the technology roadmap for Take Shape for Life.
We will believe this is a critical step to its further accelerating the growth in our Take Shape for Life business first domestically and then internationally.
I also want to take the opportunity to thank our entire team at the corporate offices and our partners in the field for their hard work and dedication.
As a testament to the values of both our corporate team and health coach community, Medifast was named to the 2016 Forbes 100 Most Trustworthy Companies in America list.
Our finance team under the leadership of CFO <UNK> <UNK> consistently strives to reach the highest standards of financial management, and it's an honor to be included in this prestigious list of companies from such a well-respected national business publication.
In addition, Take Shape for Life was the only organization in the direct selling industry to be recognized on the list, a significant achievement for a direct-selling company.
In addition, Take Shape for Life has been named by the Direct Selling Association to its 2016 DSA Top 20.
It is truly an honor to have Take Shape for Life recognized as a top 20 company again because of their incredible field of health coaches who work so hard every day to share the Take Shape for Life optimal health community.
We continue to reach new levels of success.
In summary, our team remains committed for delivering value to shareholders.
Our strong and consistent cash generation enables us to be in a position to continue enhancing shareholder value to both our existing dividend and share repurchase programs.
Our third quarterly dividend will be paid in August, and as of June 30, 2016, we have approximately 850,000 shares of common stock available to buy back under the existing repurchase program.
We are very pleased with our operational achievements and financial results in 2016 year-to-date, and we are confident we have the right strategic and executional initiatives in place for future sustainable top and bottom-line growth.
With that, I'd like to turn the call over to our CFO, <UNK> <UNK>, who will discuss our financial results in more detail and our outlook for 2016.
Thank you, Mike, and good afternoon, everybody.
I will now review our performance for the second quarter ended June 30, 2016.
Please note that the financial information I reference today will focus on our results from continuing operations.
For the second quarter of 2016, we had no activity from discontinued operations compared to income from discontinued operations net of tax were approximately $400,000 in the second quarter of 2015.
Before I get into the operational results for the quarter, I want to take a moment to explain an important recent decision to record a $6.1 million noncash expense for a software asset impairment.
I will reference this expense several times during the call and will reflect expense in our reconciliation of non-GAAP measures, help provide better insight into our ongoing operational results.
The impairment expense is a result of a comprehensive evaluation, a recent decision to implement a new, state-of-the-art, proven direct sales software platform for Take Shape for Life and to cease work on an internally developed software platform.
Technology solutions that have evolved rapidly in the past several years and our business requirements have changed since the scope and design of our internally developed system was determined several years ago.
The new comprehensive cloud-based software solution has significant advantages over the internally developed platform that better meets our current and future requirements and will be deployed to our field much more rapidly.
In addition, implementation of the new platform is more cost-effective, over time.
The new software platform greatly enhances our coaches' ability to manage their business activities and clients' communications.
Additionally, the software is designed to process commission payments for health coaches, provide deep insights into our business trends, and try to enhance online experience for clients and coaches.
We felt this was a very important step for repairing the infrastructure for accelerated growth domestically and internationally.
As Mike mentioned we recently hired a very talented new IT executive with deep roots in the direct-selling industry.
Bill actually assisted us for the final evaluation and decision prior to arriving this week and will now lead the team that will implement the new solution over the next 9 to 12 months.
Now I'd like to take you through our second quarter results for continuing operations.
In the second quarter, net revenue decreased approximately 1.5%, $71.1 million from net revenue of $72.2 million in the second quarter last year.
The Take Shape for Life business unit that accounted for approximately 80.7% of revenue.
The Medifast Direct business unit accounted for 13.1%.
The franchise Medifast Weight Control Center's business unit accounted for 5.8%, and the Medifast Wholesale business unit accounted for 0.4% of net revenue.
Expanding on our sales mix in more detail, revenue in the direct sales unit, Take Shape for Life, was up 10% to $57.4 million from $52.3 million second quarter of the prior year.
The sequential quarterly improvement year-over-year trending continued in the second quarter, and we were pleased to have our third consecutive quarter positive year-over-year revenue growth in Take Shape for Life.
We were also very pleased to return to double-digit growth in Take Shape for Life for the first time in three years.
There were approximately 12,800 active health coaches in the second quarter compared to 11,800 in the same period last year, and 12,600 in the first quarter of 2016.
New coach sponsorship continued to grow in double digits at 15% in the second quarter.
Average revenue per active earning health coach for the quarter increased to $44,179 from $44,123 in the second quarter of last year.
We continue to be encouraged by the improvement in our newly sponsored coach count and the increased level of coach productivity.
We believe that our increased efforts in some key Take Shape for Life strategies, the increased engagement level of our field leaders, the operational improvements in the health coach experience, and the incremental resources added to the Take Shape for Life team are having a cumulative impact that have translated into operating momentum and will, in turn, drive sustainable growth.
We continue to be pleased with the visibility we have into the key growth drivers in Take Shape for Life business, and our activities are intently focused on fueling the growth trajectory of Take Shape for Life over the next several quarters and years.
Our Medifast Direct segment revenue decreased 32% to $9.3 million, as compared to $13.7 million in the second quarter of the prior year.
As Mike discussed, this business unit continues to experience challenges, and our team is working to implement and test initiatives across acquisition, conversion, retention, onboarding and reactivation in order to drive and improve results.
Total Medifast Direct advertising in the quarter decreased 61% to $1.6 million from $4.1 million in the second quarter of 2015.
This reflects the strategic decision to manage this business appropriately given our focus on returning Take Shape for Life to growth.
It also reinforces our discipline to not only stand behind initiatives that meet our criteria while we work feverishly on implementing the improvements Mike set forth earlier.
While customer acquisition challenges continue to be addressed, this business unit continues to deliver strong contribution towards our overall profitability.
As we gain increased traction with the plans currently in place, we expect our advertising spending will slowly ramp up again.
Revenue in the franchise, Medifast Weight Control Center business unit, decreased to $4.1 million from $4.7 million in the same period last year.
The decrease in revenue was primarily driven by fewer franchise centers in operation during the period.
We ended the quarter with 57 franchise centers in operation compared to 62 at the end of the same period last year.
Medifast Wholesale revenue, which is comprised of revenue from health care providers and other wholesale partners decreased $1.2 million to $300,000.
This was expected and communicated on several prior earnings calls.
The decreased revenue was intentional as it was caused by Medifast enforcement of our business partners' compliance requirements.
It resulted in us closing a number of customer accounts in mid-2015.
As we move into the third quarter and second half of 2016, we expect this to be a much easier comparison for us.
Gross profits for the second quarter of 2016 was consistent with the prior-year period at $53.2 million.
We were pleased to see our gross profit margin as a percentage of net revenue expand by 110 basis points to 74.8% versus 73.7% in the second quarter of 2015.
The increase was driven primarily by price increase and improvements in our supply chain operations.
Selling, general, and administrative expenses in the second quarter of 2016 were $48.2 million versus $44.5 million in the second quarter last year, excluding the $6.1 million noncash asset impairment expense this quarter that I mentioned earlier, and $300,000 extraordinary legal and advisory expenses resulting from 13D [filings] in the second quarter of last year.
Our second quarter of 2016 adjusted SG&A was $42.1 million, or 59.2% of revenues compared to $44.2 million, or 61.3% of revenues in the second quarter of last year.
Sales and marketing expense decreased $2.9 million in the second quarter of 2016 as compared to our second quarter of 2015.
Second quarter operating income from continuing operations before tax was $5.1 million, or 7.2% of net revenue compared to income from continuing operations before tax of $8.8 million, or 12.2% of net revenue in the second quarter of 2015.
On an adjusted basis, operating income from continuing operation before tax was 15.7% of net revenue compared to 12.6% of net revenue in the second quarter of last year.
Income from continuing operations was $3.4 million, or $0.29 per diluted share based on approximately 11.9 million shares outstanding.
The second quarter of 2015 income from its continuing operations net of tax was $5.8 million, or $0.48 per diluted share based on approximately 12.2 million shares outstanding.
Our second quarter adjusted income from continuing operations was $7.5 million, or $0.63 per diluted share compared with adjusted income from continuing operations of $6 million or $0.50 per diluted share in the second quarter of 2015.
Adjusted income from continuing operations is a non-GAAP financial measure.
Please refer to the tables in today's press release for a reconciliation of all non-GAAP financial measures.
Our effective tax rate was 33.3% compared to 33.8% in the second quarter of 2015.
The decrease in the effective tax rate was due to an increase in the domestic manufacturing deduction and the change in the tax law making certain research and development credits permanent allowing us to recognize the credit throughout the year.
In prior years, recognition of this credit was dependent on the timing of the annual approval by Congress.
Our balance sheet remains very strong with stockholders' equity of $91.3 million and working capital of $73.4 million as of June 30, 2016.
Cash, cash equivalents and investment securities for the second quarter of 2016 increased $12.5 million to $79.6 million compared to $67.1 million at December 31, 2015.
We did not repurchase any shares during the quarter, the second quarter of 2016.
We currently have approximately $850,000 shares remaining on our repurchase authorization as of June 30, 2016.
Now turning to our guidance.
We expected third quarter net revenue from continuing operations to be in the range of $64 million to $67 million, and earnings per diluted share from continuing operations to be in the range of $0.43 to $0.46.
For the full year, we are reiterating our revenue guidance from continuing operations to be in the range of $275 million to $282 million.
We continue to take a cost (inaudible) on our top line guidance as we monitor the positive momentum from a newly implemented Take Shape for Life strategies and work diligently to reverse the trends in the Med Direct business.
As a result of our recent noncash asset impairment expense we now expect earnings per diluted share from continuing operations to be in the range of $1.38 to $1.43.
The Company is raising its guidance for adjusted earnings per diluted share and continuing operations to $1.79 to $1.84 per diluted share from our prior guidance of $1.75 to $1.80.
Adjusted earnings per share excludes $1.2 million of restructuring costs associated with separation agreements with several senior executives and a $6.1 million noncash asset impairment expense.
The Company expects annual savings associated with restructuring, excluding the current year restructuring costs about to be approximately $2.2 million.
That concludes our operational and financial overview.
We appreciate your interest in Medifast, and Mike and I are available now to take your questions.
Operator.
No, we had done a number of things in the quarter from our perspective.
One, we had a price increase that took place April 1, so we had the full quarter, the benefit of a price increase.
We also had some really good work done in our supply chain operations around the cost of getting the product to the customer, primarily the delivery cost to the customer by redesigning packaging to be more efficient in our ---+ the size and the footprint of the box.
So those things will continue to be ongoing.
I think when you look at the forecast for the full year, kind of, the implied guidance for the fourth quarter is somewhat similar to what it was last fourth quarter.
And I think there, you know, we are looking at opportunities to make some investments in the fourth quarter (multiple speakers) is advertising and also we've got a lot of packaging design and things we need to do for the new Optavia brand.
So we took the conservative approach, I think, on the fourth quarter.
We'd like to have the opportunity to make those choices in the fourth quarter if the right opportunities are presented to us.
Yes, our hybris platform is being implemented at that time, <UNK>, so once we have a new platform in for Med Direct, that would be the time to potentially increase our advertising.
We're still working on product development, as an example, on some of the products, so we don't have the product line filled out yet.
But we have signed up about [70] colleges and universities, and we also have the ECAC, the Atlantic Hockey League, and the CAA Conference where we are sponsoring three conferences.
So one of the things we're doing, <UNK>, is really trying to get the right references and start to sign these people up.
It does take some time, so we don't expect that to be material this year.
But it will also help us to prepare and experiment with the product line, so as <UNK> looks in the future at our Optavia product line, she can determine what she wants to do with those types of products down the road.
But we feel good about the progress we're making, and we're going to have some good, solid references of people working with us to give credibility to our approach.
It's a subscription model, <UNK>, because there's very little up front cost associated with it.
There's no acquisition other than as a public company, in order to be SOX compliant there are some servers we're going to have to procure, but they're relatively insignificant, just to make sure we have adequate backup.
We have <UNK> here for a minute.
<UNK>, one of the key issues is the system to allow us to do that.
I'm going to let <UNK> answer that question.
So what we do is really a cross-reference of market on understanding the potential, both from a product positioning standpoint that what Optavia presents as the optimal well being, which is a combination of not only losing weight but weight maintenance and attractiveness of, you know, a sustainable lifestyle.
And we cross-referenced that with opportunities and the market size of direct selling, which is the business model.
So when you look at that, we assess the opportunities that are also geographically close to us, so that we're able to do a cross-reference of actually starting our international expansion in the home country, in the US through the various ethnic markets and then expand, you know, then, with leadership and with people here going to foreign markets with us.
So we have looked at what that looks like from a timeframe perspective of regulatory approvals but also a time perspective of making sure that we have the right leadership that can go in with us and open those markets.
Yes, I think that's the right way to think about it.
I think we've come out of the second quarter favorable to where we expected to be, and we have an opportunity now I think to make some investments in the latter part of the year to help 2017 get off to a great start.
And we're going to monitor some of the testing that we're doing to see how that does and as we see those things, kind of, prove success in customer acquisition, you know, we'd love to make those investments into, kind of, getting a jumpstart.
So that's exactly how to look at it.
The other thing we're doing, too, <UNK>, is we're also investing in the conversion of our product lines to Optavia where we're creating very exclusive new products for our network.
And I think that's a key area for us because the first 13 were the convention, but we expect to launch more in the first quarter and more as we go through the year because our goal is to have the product line changeover done by July of next convention.
And, by the way, a very exciting thing out of convention is we had double the sign-ups for our next convention, which is the most we've ever had, and we had 3,400 people, and our sign-up process was double what it was at the end of last year's convention.
No, I think that from an advertised perspective was a low quarter and, you know, we constantly test and look at the cost of client acquisition.
We, kind of, pull the lever forward and backwards based on how that works.
But I think that is not where our expected levels are.
I think the brands further separate the opportunities to have a bigger presence with Medifast Direct without negatively impacting Take Shape for Life will start to grow.
And, as I said, as opportunities grow, our spending will grow.
The other thing, I think, <UNK>, is even the decision we made on the asset impairment is how to lower our cost as we go forward versus increase our cost.
So we are managing our cost base very, very efficiently.
I don't think there's any question.
If you'd look at the last few years, we've done that pretty well.
But we do need to put more money into advertising in the fourth quarter once we get the systems in place, and we improve the processes.
And we have a very good consulting firm we've hired that are working with us on that, and that should be a big benefit.
I think that where we take ---+ and certainly we're always looking to opportunities to take any kind of cost out, but just, I think, reframe that a little bit.
When you look at most of the costs that have come out in the past, we took business units that were not profitable, like the clinics.
And that's where a lot of our costcutting over the past several years has come from.
You know, our employee base is about half what it was because we don't have all the folks out there manning the clinics.
So that's largely where a lot of that's come from.
I wouldn't really look at it that way.
It's not we're looking for those types of things.
I think that we're looking to make investments to grow the business, and I think this past quarter is an example from a timing perspective.
With everything happening with the Optavia launch, it wasn't the right time for us to make those investments in advertising.
But that time will present itself again, and we do expect to ramp that spending back up again with profitable revenue growth.
And, by the way, we've been investing in products and in Take Shape for Life and adding resources.
We're not cutting back the investment.
I think where we've done a good job, <UNK>, is we've restructured very well out at businesses that were unprofitable to make each business profitable, and I think that's where you've seen the bigger reductions.
Yes, the 13 products we just launched are very, very similar profit margins as our existing one.
It is priced higher.
Our core product line today, you know, price points about $18.95, and the new product line, you know, is with the premium read into it's about $22.95.
So it's different price points.
Yes, the price increase affected part of our offering.
The price increase really didn't apply most to much of our acquisition offers that are out there.
So we made sure the client acquisition was really not affected this time.
So we have one quarter of history behind us, but it's very low single digits.
(technical difficulty) impact.
I think if it applied to everybody across the board, it would probably be about a 4% price increase and maybe we're getting a flowthrough of 1.5% or something like that.
Yes, I think the intent, certainly, is to keep Med Direct on trend as well.
I think our priority was the Optavia line, and I think the strategy will be different, however.
They will not be the same.
So our intent here is not to have the same products sold in each of those channels.
So we will have some planning to do with Med Direct and what that product looks like, what those offerings look like in the future, but they will be different in the offering to Optavia.
I think what you're going to see ---+ we would expect, <UNK>, some levels of improvement in Med Direct, but I believe over the next 12 months until you have a totally differentiated product line, you'll continue to see ---+ Med Direct will improve, but we won't see step function improvement until you see a differentiated product line.
And our goal, really, is to make sure that we're focusing on creating a great experience for this whole Optavia experience and, clearly, that's today's, in our businesses, 80% Take Shape for Life, and 13% Med Direct.
So I think we need to understand that's the basis of our business.
We're really a very strong, direct-selling company, and our goal is not to try to be Nutrisystems.
Well, you know, coach growth is somewhat seasonal.
So when you think about sequential growth, as you go into the latter part of the year, you know, people ---+ that's around the holidays and so we always see a little bit of [a tell].
But I think the momentum on a year-over-year basis is we feel we're pretty consistent.
So we expect to continue to see health coach growth throughout the year on a year-over-year basis.
But there is some sequential quarter seasonality.
You always do have your convention expense, which always happens in July relative to third quarter.
I mean, that has some impact, certainly.
I didn't calculate it, but the impact is probably more than several cents.
So that definitely has some impact.
But on a year-over-year basis, that's not very different.
I think the third quarter, you know, as you start to attract new coaches, newer coaches are less productive than your average coach, so you kind of ---+ period of growth.
There usually is some downward pressure.
In all honesty, we haven't seen that in the past couple of quarters, which is a great thing, to see your average revenue per coach go up at a time when you're growing is different than the trends we had seen in the past.
So with that base, it means that your existing coaches are increasing their productivity as well as you're getting new coaches.
So that's a really good sign.
So, look, I think there's definitely some opportunities in the third quarter, hopefully, if we hit on all cylinders to do better than our guidance.
But, you know, we like to make sure we set a guidance level that we feel very, very comfortable; that we're going to be able to achieve and always like to have upside.
I just want to thank everybody for participation on the call today.
Thank you very much.
| 2016_MED |
2016 | OA | OA
#Yes, hi, <UNK>.
Yes, at this point, we are trying to take a fairly conservative outlook for all future periods, including the second half of the year.
If things go according to plan, with not only the CRS contract, but maybe some others, there could be some upside.
But until we're certain that events in the business justify that, we'd like to stay a bit on the conservative side.
We haven't specifically, well, I won't break out the numbers, but one was with a ---+ Rolls-Royce on engines and composite structures for aircraft engines, and the other was a military program.
Yes, sure.
Let me just go through those one by one.
Let me start with ---+ I'll start with the satellite, the in-space satellite servicing project that we discussed earlier in the year.
Our space systems group, early in the second quarter announced a five-year contract with Intelsat as the first customer for this satellite servicing system.
Late in the second quarter, we completed a first system design review and placed long-lead material orders for the first of these satellite servicing vehicles, which is on track for delivery and launch in the final quarter of 2018, and after a check-out period, the commencement of service in early 2019.
Schedules, cost and technical performance are proceeding as planned on that project at present.
In our defense systems group, we, at the beginning of the year initiated a three-year three-step research development program to develop and produce advanced ammunition, particularly medium caliber ammunition.
In the first half of the year, we started testing, and in the second quarter continued with demonstrations of an initial version of a 30 millimeter airburst round, that works in conjunction with our own market standard medium caliber gun systems.
Also in the most recent quarter, we began detailed technical discussions with various military customers and industry partners, covering some of the work related to platform integration and related topics for this new generation of advanced ammo.
And then finally, in the flight systems group, the Company and the Air Force continued to work in the first phase of what might develop, as a four year long joint development program aimed at fielding a new intermediate and large class launch vehicle.
Our investments this year, which are being strongly supplemented by the Air Force are focused on the initial design and early development work.
And in the second quarter, we completed the vehicle's core preliminary design review in June.
A joint Air Force and Orbital ATK decision about moving the program into full development is expected in mid 2017, based on our progress between now and then, and a variety of other factors.
Well, let me start at a general level, and then I'll ask <UNK> if he wants to add any specifics.
Looking at both the ending balances in 2015, and also total working capital at the end of the first quarter of this year, the metrics there clearly indicated some room for improvement.
Part of our longer-term cash flow outlook is based on improving receivables in particular, and we saw some progress in that regard this quarter, but we still have a ways to go.
So there are, in the second quarter, the space system segment made the greatest progress in that regard.
And as we look out to the second half of the year, we expect to see, not only more progress in that segment, but also in the other two parts of the business.
And I think that will continue to be a theme that we'll talk about next year, and probably well into 2018.
I would just add to that, <UNK> and myself are leading this effort, on behalf of the executive management to reduce unbilled receivables.
And looking at details of it, and what actions we can take to monetize them, looking at potential contract terms that we've agreed to in the past, that don't enhance the ability to generate free cash flow.
So it's a process that is moving, and it will take some time.
But I'd say in the first 12 months, and we started it, it was a couple of quarters ago, a quarter ago, I guess to say, to be exact ---+ we're targeting to take out $100 million, and to move on from there.
That is not the endpoint.
We believe that the way that our contracts are structured that we can improve that.
And also bring management focus to hitting milestones, and ensuring that we're turning the receivables and improving that.
I would just add to that, <UNK>, that coming off, using our March quarter ending balance sheet as a baseline, over the next couple of years, we're targeting to reduce days outstanding on receivables by almost a factor of 2.
Well I, this is <UNK>.
We believe that we are conservative, we want to be conservative.
We don't want to be unrealistic, in terms of what we're talking about.
But this is a 10 year contract and the way it works, is there are delivery orders.
The first seven are set to be executed over time.
We're in delivery order number four right now and as we go from four, five, six and seven, there is a point there at point ---+ at delivery order seven, where the customer, the DoD US Army has a decision whether they are going to go on to eight, nine or ten.
And they can say, we don't want to go on for next three delivery orders, or we want to go on for one, or two, or all three ---+ or none.
Our assumption, which I think is a good one, is that they are want to go on to all ten orders.
This is an attractive fixed-price contract to our country, and I believe that it will go on through that period of time.
So every year we're producing somewhere in the order of $225 million to maybe $250 million in revenue over the 10 year period.
So when you look at it over 10 years and you look at the charge, it gives you a little more sense of a contract that is $2.3 billion, and we do believe it will be executed over that time.
The fixed-price contract, the largest single component in that is the material, which is brass and zinc which translates to ---+ the metal that is used, brass in the bullet.
That is pretty much fixed.
So the latitude that we have is labor costs and overheads and the like, so there's not a lot of room to move on that.
The contract also has the additional aspect that, from the first delivery order through the tenth delivery order, the price drops each time.
So the price on each delivery order decreases through the last delivery order on ten.
So it's a tough contract.
Our people have worked very hard to improve the profitability.
We will continue that, by the way.
The fact that we set up a forward reserve, is there for good accounting, but from a management standpoint, we will continue to attempt to reduce costs and improve efficiency at the facility.
<UNK>, do you want to add to that.
You're welcome.
And <UNK>, this is <UNK> <UNK>.
We do not have a balance sheet to discuss with you today.
We will, when we file our 10-Q, but we do not have that here with us today.
So that's ---+ it is not possible to give you an exact number.
Yes, I think that's fair.
We have been up around 150 or a little higher.
We would like to be below 100, exactly how much we can ---+ below we can go and when, we'll have to see, but we'd like to be below 100.
I think, in unwinding the two receivables, we talk about regularly, CRS and A350, then we'd like to get the underlying business more, what you'd think of as industry normal for a working capital as a percent of sales.
Hi, <UNK>.
Well, let me handle the first one.
This restatement involves only the US Army small caliber production contract, not the commercial ammo production that we do for Vista, or any other smaller work we do in areas like non-standard ammo and so on.
So typically, the small caliber systems division which is based at Lake City, is about a $600 million per year business.
The Army small caliber contract is about $250 million, and all of the other activities with Vista, nonstandard ammo and so, round out the rest of it.
So this effects just the Army contract.
And <UNK>, this is <UNK>.
There's two answers to your question.
One from an accounting standpoint, it will be a zero margin, there will not be a loss.
So we are accruing for that now, and over each quarter and each year, it will not show any loss, because the reserve will offset, to the extent that the embedded loss is there, that we are setting up in FY15.
On an economic standpoint, there is negative cash flow, which we can tax effect, and when you do that, it's about $25 million to $30 million a year going forward.
And to the extent that we've incurred losses up to the current point, we can go back and amend our tax returns, and there will be a tax benefit that will come through to us, which would offset part of this negative cash flow that I am talking about.
Yes, you're right, Mike.
It's really timing.
I mean, typically they're within the first say, 90 days of contract award, they're a couple of major milestones that are scheduled.
Once those are completed, payment events are triggered.
With the second order not yet in hand, and right now assumed not to be booked until the fourth quarter, we won't have an opportunity to fully accomplish some of the early startup milestones, that might have been possible had we booked things earlier in the year.
So, yes, that is mostly timing.
Only if it was really to slide way into the winter.
Okay.
Thank you.
All right.
With that, we will bring this morning's call to a close.
Thank you for joining us today, and we look forward to speaking with you again, when we report our third-quarter 2016 financial results.
So this concludes today's call.
Thank you.
| 2016_OA |
2015 | TSCO | TSCO
#Good afternoon.
You know, I would tell you that it's probably as much to do with relentless dissatisfaction.
You know, we've always done resets.
We haven't really talked a whole lot about them on the call.
For those of you who attend our IR conference, where we've got our sales meeting, you see a lot of the changes that take place with our vendors on the sales floor down there at the convention center.
So I think that this has been an ongoing thing for Tractor Supply; and I think if you go back and you look at our traffic count, you look at our comp store sales performance, you'll see that in a lot of the numbers.
We're just probably today giving more color around some of the changes we're making.
I will say, however, that when it comes to some maybe more of the commercial product, we are testing more there than we have in the past, and it seems to be resonating pretty well with our customers.
The higher price points that we have out there right now and how we're selling those price points, I think are a real show of support from our customers and their trust in the Tractor Supply brand, and also their trust with the team members that we have in our stores and the relationships they've built.
So I think we're taking advantage, quite frankly, of a foundation that's been built for years and we'll continue to try and test new things.
<UNK>, it really relates more to the maturation cycle of our new stores.
We believe that in several of the areas, it is very competitive out there, and that's why we're extremely pleased with the ramp of the stores out West and that accelerated comp that we're experiencing with those Western stores.
We'll likely see, if these hold, and as our costs tick up, we'll see it start to moderate at the end of Q3 and into Q4.
But again, we're still watching that very closely and our teams are challenged to keep costs down, so we'll see how good of negotiators they are.
I would say that the upgrades that we made when it comes to engines that are in the same size mower, but by changing the deck style and the frame, as well as upgrading the engines, if you want to call that commercial, I guess you could.
But our customers tend to like things of high quality when they can see value, and that's what we'll continue to focus on.
I'll use one other quick example.
And that is, is we added a $5,999 commercial zero-turn mower into a handful of stores.
And at the beginning of the season, we saw it performing really well and we expanded it out to even more stores and we were delighted with the sales.
And to be able to sell a $6,000 riding motor at a Tractor Supply Company store is something that I wouldn't have felt we could have done years ago.
So there is a need, and I think we're filling that need and that gap really well.
<UNK>, it's <UNK>.
We're seeing a lot of positive signs.
The comp ramp there is far greater than we'll have in our four-wall stores, because it's still a very immature business.
But no question, with the new website launch, the reason we did that was to give customers more options as far as the way to acquire the product.
Our goal is to be 24/7 Tractor.
So in order to do that, we had to do the upgrades and give ourselves the ability to have a platform that can handle that.
We are adding more and more drop-ship vendors, as we speak, daily.
We are seeing very good customer response to those additions, and more of our business is coming from that element today than probably, I would say, direct fulfillment is coming greater than what we've seen in just normal replenishment from the Franklin DC, which is the replenishment point for the on-line business.
So we're encouraged with that, because that's a direct connection between us through and it's a drop ship from the vendor.
So lowest cost for us, a little faster delivery for them.
But in general, our conversion rates are moving upward.
The amount of people that are hitting the website is increasing.
We're looking at adding new extensions of products.
You're going to see this thing develop over the next several years into something that I think can be much more meaningful.
However, I will caution you, there are a lot of things that we sell at Tractor Supply that would be very difficult to sell online and deliver to the customer, because of their cost of transportation.
So there will be a point when there's going to be some things that could be somewhat prohibitive, but all indications, all signs right now are that this thing is moving ahead well, and we are very pleased with our performance.
Mobile is growing very rapidly, <UNK>.
And the consumer who is buying from us is still somewhat within a proximity of our store base.
So we're not seeing someone in some distant place, in let's say, Alaska trying to buy a product on TractorSupply.com.
That has not been prevalent.
It's been customers that are looking at that as a convenience factor.
They can buy it at 3:00 in the morning, they can buy it at 6:00 in the evening.
That's what we're seeing.
So it's really still somewhat based around the current consumer base, the distance of our stores, within the base of the ---+ that's where the base of the business is coming from.
The only thing we have noticed, and we mentioned it in the write-ups, <UNK> commented to it, it's a little more expensive to do business in the West.
No question that occupancy costs are higher.
But our retails are different out there and the volume of those stores will be considerably different.
So we're finding plenty of sites.
There doesn't seem to be any concern for finding quality sites.
And one thing I should mention is when we open stores, we don't look at it as just opening the all A locations.
We will open stores across a spectrum of small, medium and large in volume and in size, so that we can continue to see productive store opening improvements over the next decade or so of store growth.
So we're not looking at just A stores.
We're looking at A, Bs and Cs.
We're looking at different markets, some larger, some smaller.
The mix of stores is just as important as finding the location of that store.
Thank you.
<UNK>, let me just comment on HTP and I'll let <UNK> take it from the other side.
In HTP, we can attribute generally all of our customers that are coming through from a purchasing standpoint, because it's a different format.
It's very intimate and they're willing to give us their information, so on and so forth.
Little different in Tractor, however.
<UNK>, what I would tell you is that the acquisition of new customers is critically important.
We talk a lot about the aware non-shopper and we talk a lot about how difficult sometimes it is to get people in our stores that just look at the name Tractor Supply.
We've done a lot with our assortments over time.
We've done some different things with our marketing and how we target different areas.
So I would tell you that we're making good strides.
I would tell you by the comp transaction growth, we're continuing to see that in our numbers.
And so while there is more work to be done here, I'm pretty pleased with the degree of support that we're getting from our marketing team in bringing new folks in.
I would tell you deflation has had the biggest impact.
So whether it be in our brands like Royal Wing in bird seed or some of what you're seeing on the livestock feed side of our business, we're selling some good units.
We continue to think that we're gaining share.
Units are a focus for us.
But it is difficult when you're pedaling uphill here, because of deflation on the top line.
So it's still a focus for us as an organization, and that's what I can tell you at this point.
Okay.
Thank you for your interest, everyone, and your support of Tractor Supply.
We look forward to speaking to you again in October regarding our third quarter performance.
| 2015_TSCO |
2016 | AKRX | AKRX
#So <UNK>, on your first question, on the injectables front, we have ---+ we don't have a lot of injectables that are in a highly competitive area.
And the ones that we do, we go through normal fluctuation and pricing, but we have not seen any major price changes.
And we have a small portfolio of products that are generally contracted with the GPO, but the bulk of our product base is either we are single source or we are one of the few that is promoting those products.
So we haven't seen any major pricing challenges there, as yet.
You may have to repeat your second question.
It was quite long.
Yes, so it's a combination of both.
So we're going to look at consolidating our position in each of the areas that we currently focus on.
So it would be either in ophthalmics, injectables or topicals.
And then I think we are also going to look at some 505(b)(2)s opportunities that are in late stage development, and especially in the hospital injectable area.
And as well as expanding our dosage forms there are a few areas that we would like to see ourselves getting involved with.
Some of them through partnerships, obviously, because we don't have the capabilities, for example, dry powder, powder inhalation products or transdermal patches.
But again, we're going to shy away from run of the mill oral solid business, white pill business.
So <UNK>, when we gave the guidance, it was the guidance around the entire year and not a given quarter.
And obviously, we have talked about that.
We're going to get challenged with new competitors, especially in the second half of this year with some of our bigger products like Ephedrine.
So that will have an overall effect, in terms of the pricing going forward, and as well as some volume.
And we do have some products that we had [marked for dealership] and we had factored in that.
We may lose share as a result of new competitors coming in, which ultimately affects pricing in the marketplace.
So that is all factored into our forecast for 2016.
And we obviously don't give guidance on a given quarter, but generally speaking, that's what we meant for the entire year.
So obviously, we are going to get re-engaged with M&A.
And what we meant by one-time would be in the absence of any M&A transactions, we would have a one-time number.
But given that we are going to get acquisitive in the second half of this year, so we will have the need to deploy cash towards acquisitions.
So at this point, that's where our head is more focused towards.
And we see the use of capital in terms of not only investing in the infrastructure, but looking at acquisition opportunities.
So for generic entry, obviously, you have ---+ it's a controlled substance, you have got to get a DEA quota, that's one.
And number two, you've got to be careful, given the headline news around the use of injections in executions and so on and so forth, one has to be very careful in building barriers around [the fear] of your product going into the wrong hands or wrong places.
And ---+ so that is now available through the wholesalers, but other than that, I don't see any other barriers.
And a customer relationship is also important.
We have a one-to-one direct customer relationship with a given hospital where the product is used, so we know who the customers are because we have created a control distribution system, if you may.
And we bypass the wholesale channel at the moment.
So we are ---+ as I mentioned in my prepared remarks, we are now setting up a new ---+ looking to set up a new R&D facility in the New Jersey area, which is going to quickly come up in the next few months.
And I think we are building what ---+ our goal is that we want to build capacity within our R&D facilities, to file between 30 to 40 filings a year, and we are currently not at that level.
So I expect that the number is going to ramp up to roughly around 6%, from 5% a year, going forward, in the next 3 years.
So as your first question is concerned, so our guidance of the 61% to 62% that we gave earlier on was for the entire year.
And obviously, as the year progresses, we should, in the second quarter, see some improvement.
And getting into the second half of the year, depending on when competition comes in for some of our key products, we'll have an impact on the margins.
Now what is not factored into our guidance, <UNK>, is any M&A work, or as well as new product launches.
So those two could have an offsetting effect to the margins, as well, in a positive way.
So I think the 61% to 62%, at the moment, is where we see where we are going to come out to be.
But again, it's purely dependent on the timing of a new entrant for our key products.
And as far as OTC Flonase is concerned, we are in an active dialogue with the FDA in our filing, and the filing is moving along.
And I can't predict the timing of it, but we hope to get an approval soon.
It should not be, because essentially, it's a change in labeling.
It's ---+ Flonase has become a larger product now, and the ---+ probably the OTC market has grown, but the Rx market is also growing at the same ---+ at a pretty good clip.
So one needs to have a strategy on ---+ and also depending on where the pricing comes out to be with the OTC front, one has to really optimize capacities to make sure that we are deploying our capacities in the right place for the right margins.
And so that is going to be ---+ it's yet to be determined as yet, but we will be pretty careful about where we deploy our resources, whether it's the Rx product or the private label version of Flonase.
But from an overall OTC business, our strategy remains, on both fronts, brands as well as private label opportunities.
And we're going to start looking at some branded product acquisitions to boost our sales and offering to the customers, and predominantly in the areas of health and wellness.
So we have said that there are about 50 products that we actively have responded to either a complete response letter or to an information request, and we expect that ---+ for half of those could get approved in the next 10 to 12 months.
And the ---+ we haven't really given guidance as to what the size is or what the metrics are going to be, but we think ---+ of those 25, we think about half could potentially get launched this year.
From a ---+ timing will always affect things.
I would say we ---+ from a plan perspective, we did plan for Q1 to be our lowest cash flow from operations quarter.
So we would expect it to pick up, obviously, moving forward, but no choppiness out of the ordinary.
No, and <UNK>, it's not really a target.
It's math, right.
So it's the EBIT ---+ adjusted EBITDA that we're expecting, and the cash balance at the end of the year.
So not necessarily a target, just in line with our current guidance.
We don't anticipate any more pay-downs of the term loan.
Obviously, the convert note will be ---+ is due on June 1, so in a couple weeks here.
And that will ---+ we'll settle that with shares, and that debt will disappear from our balance sheet.
So <UNK>, your first question, we've got about 38, call it, GDUFA/target action dates on our filings.
And all the recent filings that we have made, call it, in the last six months, we have received a GDUFA date.
On your second questions, given the improvements in the review process and timing of approvals, yes, we'll be better planned, in terms of the launch process.
In fact, that's a big process improvement action that we have taken as a Company, to make sure that we are prepared, in terms of on arrival of the approval that we are ready to launch.
Now, there are some products that we expect for approval that aren't necessarily first to market, and so that launch has to be coordinated better, and it may not necessarily be on the date of the approval.
It could be timing of the bid cycles or depending on the market dynamics that we would set the timelines for the launch.
And could you repeat your third question.
I don't have that answer for you.
We can come back to you on that one.
So Don, the first ---+ on your first question, guidance and our forecast has factored in anything that all the RFPs or bids that we'll do prior to giving [away] the forecast.
So that's already factored in.
We're not expecting any new RFPs or ---+ in our business, we get most of it is price challenges and right of first refusals, and that's just a daily grind that we, as a Company or as an industry, that we go through.
And so that's also resolved in our forecast.
From a non-GAAP perspective, I've stopped the practice of giving a full non-GAAP P&L.
It's just not appropriate, from an SEC reporting perspective.
We do give all the ---+ we do provide all of the non-GAAP adjustments to both EBITDA and earnings per share.
And for the most part, it's ---+ I think it should be pretty straightforward on which line item those belong in the P&L.
Of course, as we move forward, we can ---+ when we're ---+ we can provide more guidance with that.
But I think for the most part, it's pretty straightforward.
And then as far as Cyclosporine is concerned, we have responded to queries that we received from the FDA recently.
So now the ball is in the FDA's court, and we'll look forward in hearing back from them shortly.
So your first question, on the Wal-Mart and McKesson, we have a very good relationship with all of the wholesalers, and McKesson is a big customer of ours.
And so obviously, as this thing [moves forward], we obviously will have more opportunities.
We also have a relationship with Wal-Mart.
So at this point, I'm not sure what the impact is.
But again, I think that it's going to be net-net positive for us.
And the generic filing strategy.
And could you again repeat your second question.
So our focus has now been on P IV strategies, and even 505(b)(2)s, and those are more opportunity driven.
So we have most of our filings.
And what is under development, it does not fall into any of those categories.
And so as you're ramping up, our focus is going to be on the dosage forms that we are in.
I think you'll see more push towards filing for topicals, as we have acquired the assets of Hi-Tech and VersaPharm, so there is some development work that is ongoing there.
But our focus is not necessarily on the Paragraph IV first-to-file strategies.
From a tax rate perspective, speaking a bit out of turn here, but I don't see significant opportunities.
So last year, we ended up with a 35% rate.
This year, we're projecting 37%.
I think a 35% rate right now, given where we do business and the structures available to us, is maybe not a bad long-term target.
But again, more work to come on that.
I haven't done a lot this last week, as it relates to the tax rate.
And then in terms of where ---+ how that might impact acquisitions, I suppose there will be some financial engineering that we could maybe avail ourselves of.
But really ---+ don't really think ---+ I think we can compete both in terms of international and domestic acquisitions, regardless of tax rate, as long as they make strategic sense for us to look at.
So obviously, the more business that we can do internationally, that will just, I think, naturally help the tax rate.
So we'll see what comes across the [transom] and what we can identify.
I think, <UNK>, right now focus is more towards products.
And if we do go outside US, it would be to acquire a new technology that could be brought back to the US.
And we're not really focused on expanding a business outside the US, in terms of different geographies.
I think, as I said, the best case would be that we find a new technology or manufacturing expertise that we don't have, which is available to us offshore, that could benefit our offering here in the US.
Thank you once again for joining the call, and we look forward in speaking to you soon on our next quarterly conference call.
Thank you.
| 2016_AKRX |
2016 | TREX | TREX
#Sure.
On the attachment rate for the railing, we did see that railing as a percent of our sales did grow a little bit in the first quarter.
A little bit unusual.
Usually that's a slow quarter for the railing activity.
So that has been quite modest.
I'll let <UNK> take the second part of that.
As it relates to poly pricing, with recycled materials it does tend to lag the virgin pricing.
It does come down.
But generally you're looking at 3 to 6 to 8 months after.
So we have been taking advantage of that reduction in the marketplace since it started coming down.
We are seeing it level out at this point, as we are seeing the virgin pricing level out as well.
There are accounts we are still working with and negotiating with, but we do expect the gains from that as we go forward to moderate.
Thanks, <UNK>.
No, there was really very little mix impact.
Very consistent with what we did last year.
Yes, we've been a little bit surprised about the aberrant behavior of the competitors with these back-end rebates.
They've been fairly significant in nature.
They have been relatively unsuccessful in gaining additional sales, but they certainly have been effective at holding existing customers to their product category.
Our reaction has been not to respond in kind.
We think it is disruptive in the marketplace to the rest of the customers, because what happens is everybody is worried about whether or not the next guy is getting a better deal.
When you do a special deal with one customer, how do they know they're getting the best deal.
We give our customers the best deal every day.
And basically, we give them the same pricing formula based on the types of purchases and the way they purchase their product.
Well, we certainly are open to acquisitions.
We are reviewing those alternatives.
I would expect that most acquisitions we would be interested in would be related to outdoor products, and they would be rather modest in size as opposed to transformational acquisitions.
Yes, we've ---+ as we've talked before, the low price of the polyethylene have caused the market to be less receptive to recycled pellets.
In addition, we found that the new blended pellets with the different polymers are taking a little bit longer to get through testing and qualification than what we'd anticipated.
So, yes, I think it's fair to say that we pushed our horizon out a bit.
As a percentage of revenue.
It would be inclusive of that, yes.
Those are generally one-off type of opportunities.
We do have some specific advertising campaigns that are not part of our core advertising that we are doing this year.
But the details of that we really don't convey in advance of those taking place.
The guidance that <UNK> gave you on the share count is the one that you ought to be using at this point.
Typically the way we approach our share repurchases are on a very opportunistic basis.
We announce those at the next quarter's release, and therefore we would not be in a position to communicate that at this point.
It would be ---+ as a percentage of sales it would be flat on a year-over-year basis.
That was for the six months.
For the six months.
That's correct, yes.
Yes.
Basically, what we do is we look at a variety of metrics related to our website activity.
And based on that we developed a view on how we could maximize the benefit from our advertising.
And based on what we were seeing with our Web traffic, we felt that moving that to the second quarter would be more impactful, and that's why it was moved.
The investment for Trex University was in the fourth quarter as well as in the first quarter.
And that was a capital expenditure.
Capital, right.
Not SG&A.
I think it's fair ---+ when you look at SG&A on a full-year basis, we've tended to leverage the additional sales dollars we've had over the past number of years.
We would expect to continue to have some level of leverage on a full-year basis as we go forward.
I wish I could put numbers against the weather piece of it.
In the first quarter it's very difficult to determine the organic outgoing demand specifically related to weather.
We did have a strong early buy.
Our customers all recognized that the market was growing.
They built their inventory so that they could service a higher market this year than last year.
And as <UNK> mentioned in his comments, they are very comfortable with their inventory positions coming out at the end of the first quarter.
Yes, sure.
Price on a full-year basis is going to run around 80 basis points.
<UNK> mentioned that the pellet business was insignificant in the first quarter.
And going into the second quarter, we are expecting continued depressed prices.
So there will be some level of improvement, but again, not a significant driver to the revenue of the Company.
We hope some of the initiatives that we are working on will result in a higher level of sales later on this year.
But it's something that we will speak about further at the end of the second-quarter call.
The vast majority of the benefit of what you're seeing is Trex growth in the decking and railing business, growing in excess of the market, which has been stated to be growing in the low- to mid-single digits.
Yes, we haven't changed any of our guidance on capital spending for the year.
We're still expecting the $20 million to $25 million range for the year.
From a working capital perspective, looking at our numbers historically and adding in adjustments for growth of the Company would be appropriate.
One of the things that you will see ---+ in Q2 and Q3 last year, DSOs were quite high in those two quarters because of the programming that we had put in place.
If you were to model that this year, taking an average of the prior three years of each of the quarters should get you pretty close.
Well, we're certainly very interested in the opening price point typically through the two major retailers.
They do have a bid process that they utilize, and Trex will be very active in that bid process.
So in the first quarter we ran about 10% higher than we did during the prior year.
I don't have the five-year-ago number.
It would be significantly higher from a volume output perspective.
But our efficiencies in our plants have improved so significantly that, honestly, it wouldn't be a particularly good comparator for modeling purposes.
<UNK>, we don't release information on a quarterly basis.
The guidance we've given in the past is last year we were roughly 50%.
And we will be close to 50% on average for this year, as we expect to continue to see improvements in our manufacturing capabilities.
Well, that, in addition to other cost drivers and efficiencies that we have within our operations as well as cost-saving initiatives.
I would like for our operations to continue improving their efficiencies.
We'll continue to grow the Company and stay at the capacity utilization we are today.
We recognize that that isn't always going to be the case, but we do believe that there's additional room for efficiency improvements within our plants.
So we wouldn't have a split specifically for first quarter.
Those growth numbers tend to be over a little bit longer period of time.
So I wouldn't want to hazard a number on what the first quarter was growing.
We don't see any major shift in the market that would say that composites are growing more quickly from a market perspective than the mid-single digits.
The virgin spot market or contract market, excuse me, is running around $0.60 a pound and has pretty well leveled out there; whereas last year around this time, we had already seen quite a bit of drop in that marketplace.
It was around $0.70 a pound.
From a recycled perspective, we buy a lot of different classes of recycled materials.
And it really depends upon the number of buyers, the cleanliness of the products in the marketplace.
It's not as easy to provide just a pure percentage to that.
So we're not going to provide anything further related to the recycled side of it.
Suffice it to say that we are driving down our raw material purchase cost with recycled materials in line with the marketplace.
Ken, as I think you're aware, Trex has ---+ one of its strengths is the development of new and exciting products.
And certainly we continue to see the opportunity for new products and new product introductions to be a strong quality of Trex's growth pattern.
We normally announce any new products at our distributor meeting, which will occur around the first week of November.
So stay tuned shortly after that.
If there are any new products, that's when the Street will hear about them.
Thank you for participating in today's call.
We look forward to seeing you at upcoming events.
And with that, I'll turn the call back over to the operator.
Thank you.
| 2016_TREX |
2016 | IPCC | IPCC
#Thank you.
Good morning, and thank you for joining us for Infinity's first quarter earnings conference call.
The live event link on our website contains the slide presentation for this morning's call if you'd like to follow along.
We also have an Excel spreadsheet on our Investor Relations website on the annual and quarterly reports page that provides more detailed quarterly financial data, and page 10 of this report contains the definition and reconciliation of any non-GAAP items we discuss this morning.
As noted on slide 2 of this morning's presentation, certain statements made during this call could be considered forward-looking statements which anticipate results based on our estimates, assumptions, and plans that are subject to uncertainty.
For a discussion of the primary events or circumstances that could cause actual results to differ materially from those suggested by such forward-looking statements, please refer to Infinity's filings with the SEC.
Now, let me turn the call over to <UNK> <UNK>, Chairman, President, and CEO of Infinity.
Good morning, and thanks for joining us for our conference call.
I'm pleased to be joined by <UNK> <UNK>, our CFO who's on the call as well.
I'll start things off with a quick overview on slide 3.
Net earnings per diluted share were $0.69, down from $0.97 in the first quarter of 2015.
Operating earnings per diluted share were $0.68 compared with $0.90 last year.
Earnings were down primarily due to the increase in the GAAP calendar year combined ratio from 96.3% in the first quarter of 2015 to 97.7% this year.
The claims trends that we experienced in 2015 continued into the first quarter of this year as gas consumption and miles driven continued to increase.
The rising claim frequency was a bit of a surprise as most of us thought that miles traveled would slow down after the huge spike in 2015.
Just the same, we're not pleased with our results and continue to focus on what we can control including further rate increases, selected underwriting actions, claims management, and expenses.
We also experienced $1.2 million in losses from catastrophes in the first quarter, a trend that is continuing into the second quarter with the severe floods in Houston.
As a result of the claims trends and first quarter cats, the GAAP accident year combined ratio increased to 99.4% from 97% last year.
The unfavorable current year trends were partially offset by $5.9 million of favorable lost reserve development from prior years.
This development was primarily a result of decreases in severity estimates and loss adjustment expenses related to Florida and California bodily injury coverages as well as a decrease in severity estimates in Florida personal injury protection.
The favorable development was all related to accident years 2014 and prior.
This was partially offset by unfavorable development from accident year 2015 in California material damage coverages, which was driven by an increase in severity.
In terms of the top line, gross written premiums were down as expected during the quarter with an overall decline of 3.8%.
Premium growth in Texas and our commercial vehicle program was more than offset by declines in our other states.
Our rate increases in California and Florida are affecting premium growth and we expect that impact to continue through at least the first half of 2016.
So let's get into the details behind the highlights on slide 4.
In California, our accident year combined ratio of 97.9% increased from the prior year driven by higher collision frequency and severity.
We continue to see the same industry-wide trends that we experienced in the fourth quarter of 2015.
Written premium increases are outpacing earned premium changes by about 2 points, helped by a rate increase of 5.3% implemented this year on February 8th.
That revision should improve profitability through the remainder of 2016, but we're still taking additional measures.
To further offset the unfavorable trends, we filed for another rate increase and additional class plan changes and are taking rate and underwriting actions on the most unprofitable parts of our book to improve the combined ratio.
In California, premiums declined 3.9% during the first quarter, driven primarily by a reduction in new business application counts as the rate increases are affecting new business production.
Moving onto Florida, overall gross written premiums declined 7.5% during the first quarter, primarily as a result of rate increases implemented during 2015 totaling nearly 14%.
Given the unusually high claim trends in Florida, our overall accident year combined ratio is relatively unchanged at 99% compared with the first quarter of last year.
We continued to see our loss cost increase double digits, driven by increased PIP frequency as well as increases in property damage and collision.
These unfavorable trends are consistent with what we in the industry experienced in 2015.
In order to offset these trends, we implemented a rate revision on March 14th.
While the overall impact was 7%, we implemented double-digit rate increases on PIP, property damage, and collision coverages.
Switching to Texas, gross written premiums in this state grew 23% during the first quarter of 2016, primarily due to new business growth.
The increase in our 2016 accident year combined ratio is primarily due to catastrophe losses in the first quarter.
In terms of second quarter cats, which have been primarily in Texas, we've had approximately $3 million in losses so far.
We expect that number to grow as additional claims are reported and further development occurs.
As for pricing, in early April we implemented rate increases on both our renewal business and a portion of our new business, with an overall impact of 3.4% in the state.
This rate action along with additional actions to improve rates and risk selection should help improve our combined ratio.
Touching briefly on Arizona, gross written premiums grew 3.9% during the first quarter of this year, primarily as a result of new business growth.
The 2016 accident year combined ratio has improved due to a decline in the new business combined ratio.
However, much like our other states, we continue to make rate filings to address the increasing trends.
Our latest increase of 8.3% was effective February 22nd.
As for our commercial vehicle product, gross written premium growth continues to be strong with an increase of 12.7% during the first quarter.
This growth is primarily due to renewal policy growth and higher average premiums in California and Florida.
We did see a slight increase in our commercial vehicle accident year combined ratio, primarily due to an increase in new business in the first quarter.
So, much like personal auto, we're increasing rates across our commercial vehicle book to improve our profitability.
I'll now turn the presentation over to <UNK> to review our financial performance.
Thank you, <UNK>, and good morning, everyone.
Slide 5 provides a summary of Infinity's financial performance for the quarter.
I'll cover this performance in further detail on slides 6 through 8.
So let's turn to slide 6.
Revenues increased 0.9% compared with the first quarter of 2015, primarily from an increase in earned premium.
Operating earnings declined primarily due to a decrease in underwriting income from the increase in the accident year combined ratio as <UNK> discussed earlier on the call.
Effective operating tax rate for the quarter was 28.4%.
Moving on to investment results on slide 7, at the end of the first quarter cash and invested assets were $1.5 billion with fixed income securities in cash representing 94.2% of the total.
Roughly 92% of our fixed income securities were investment grade and the average duration of the portfolio was 3 years.
Our quarterly net investment income decreased 7.7% or $0.7 million principally as a result of a 4.6% decline in average quarterly invested assets.
From a total return perspective, our investment portfolio, which has a AA- average credit quality, had a pretax total gain in the first quarter of 155 basis points, with 53 basis points from current income and 102 basis points from investment gains.
These returns are not annualized.
Lower fixed income new money yields have continued to impact our returns during the first quarter.
At March, 2016, the book yield on the fixed income portfolio was 2.5%, unchanged from March of 2015.
Wrapping up on slide 8, I'll finish with a few comments on our financial position.
We ended the first quarter with $966 million in total capital and a debt-to-capital ratio of 28.5%.
Our book value per share at March 31st, 2016, was $62.60, a 1.4% increase from the prior year.
Excluding unrealized gains, our book value per share has increased 3% since March of last year.
Finally, regarding capital actions during the quarter.
We repurchased 106,766 shares for an average per-share price, excluding commissions, of $78.59.
As of the end of March, we had approximately $37 million of capacity left on the share repurchase program, which is set to expire at the end of this year.
As a reminder, we also increased our annual dividend by nearly 21% in February.
Looking ahead to the remainder of 2016, we believe our capital is best deployed to support the business operations.
However, we will continue to be opportunistic when considering returning capital to shareholders.
This concludes our formal presentation.
So at this time, we'd like to open it up for questions.
Yes, <UNK>, this is <UNK>.
It was a bit of a surprise I don't think just for me, but I think most of the pundits in our industry were predicting a bit of slowdown in the first quarter in terms of gas consumption and miles traveled and certainly along with that fewer claims.
It just hasn't happened.
I think it will happen.
I think it has to happen.
It can't keep continuing at the rate it's currently going.
But for us and the industry based on what I'm seeing and again our numbers are the first quarter of 2016 of data and the industry, what we have, is the fourth quarter of last year.
It continues to rise.
Let me give you a good case in point.
If you take a look at the PIP loss cost, pure premium and again it's primarily and this is the state of Florida, primarily driven by frequency.
If you look at our number, first quarter 2016 versus first quarter of 2015 and this is the trailing 12-month number, loss costs are up 24%.
I mean that's, you know, that's hefty.
If you look at the industry, this is fast tracked through the fourth quarter of last year, again compared with the fourth quarter of 2014, trailing 12 months, the industry is up 30.6%, 31 points.
I mean that is surprising.
I mean again it's one state and it's the state of Florida and I think Florida probably looks worse than other states, certainly worse than California, but it speaks to the fact that you know there's rate that needs to be taken.
We have been very aggressive with our rate structure.
We've taken 32 points of rate ---+ 32.2 points of rate as a matter of fact in Florida, in PIP, over the past 12 months.
So what that tells you is we're ahead of our trends in PIP.
We're looking pretty good.
But what it also tells you is that the industry is behind.
When we look at the rate filings in the state and look at practically any cover, but PIP, in particular, we're seeing a widening of the gap between rate indicated and what they are implementing.
It's just befuddling to me how that gap continues to widen.
Now, having said that, I will say that a top five writer in the state of Florida, top five, this is a big company did implement or they are implementing in May an increase in PIP and let me see if I can pull up the number here.
I've got it handy.
They're pulling up an increase of 28% in PIP.
So, when you look at this particular filing and look at previous filings from this company, you can see that they postponed it, postponed it and postponed it until the gap got so wide.
They're indication with, by the way was for 32 points and they're taking 28.
They postponed it until the point where you can't postpone it any longer and you have to take rate up.
That's what they've done.
But when we look at the numbers and the trends and I know they vary by company, but you got to keep in mind, you've got to look at the detail by state.
You just can't look at a company's numbers when they're writing in 40 or 50 states, when you narrow it down to California and Florida, that's how you look at it.
Those are the questions that you all should be asking these other companies.
What do your trends look like in California and Florida and what are you doing there.
Because those are our primary states, obviously and we're keenly focused on them.
But I don't have a crystal ball.
I wish I did, <UNK>, to say hey, in the second quarter they're going to slow down and become more normal.
I think they might.
I think you're seeing gasoline prices go up and I don't think that the trend can continue.
But doggone it, when you look at the Conning and you look at 2015 and the Conning report that just came out in the miles traveled from 2014 to 2015, it is staggering.
Look at that chart.
I mean the upward spike is amazing to me and I think when they extend that out through the first quarter, it's going to be even higher.
I do expect it will, you know, modify a little bit and slow down.
But I'm not willing at this point to say it's going to be in the second quarter.
So that's a very long-winded answer to your question, but I wanted to make those points because they're important.
It may be delayed a little bit.
It hasn't changed my thoughts whatsoever.
The company I just mentioned, the top five company, you know companies like that are going to start taking actions much more aggressively than they have in the past.
I think I mentioned a company in the fourth quarter that's a number one writer in Florida that and this was on a BI coverage I believe that had an indication of about 18 and they were taking 3.
You can't keep doing that.
I mean you can do that to a certain degree to try to maintain your renewal book, but at some point you have to pay for ---+ pay the piper so to speak and do something about it.
I believe we're going to see more and more rate actions in the second half of this year and much more aggressive rate actions.
We're seeing some actions now in terms of some underwriting restrictions that I said would be inevitable in the fourth quarter call.
Let me give you an example of that.
Nationwide non-standard auto just announced in Texas that they've stop writing new business.
Well to me that's alarming quite frankly.
It's saying that we can't get rate fast enough to keep up with the trends and the option that we have is to shut it down until we can.
This is in a state, Texas, which is pretty easy, relatively easy to get your filings approved.
So I think we're still going to benefit from all of this.
I am positive about it.
I know you know it seems like things are kind of dark right now, with the first quarter, but doggone it I've been through many cycles in my career and cycles like this typically come out in our favor.
I still believe that's going to happen.
Now, it may be postponed a little bit.
I'll tell you the floods in Houston aren't helping.
You know we had hail storms in the first quarter and now we've got floods in Houston.
I'll tell, when you have flood claims, a lot of them are totaled.
You don't go out and knock a dent out and get it back on the road.
They are total losses.
So that certainly is not helping us in the second quarter.
But again, those are one-off type cat events and that's why people buy insurance for those type events when that happens.
But I'm still a believer and still feel positive that we're going to benefit from the cycle that we're experiencing right now.
So that hasn't changed.
We're not ready to change anything yet.
It's three months.
You know we've got nine months left and we've got a lot of rate to earn in.
When you look at our average written premium and how much it has gone up relative to what we've earned in at this point, there's still a gap between those two measures.
Because of that, we've got more rate to earn in, in 2016 and 2017, I think that's going to benefit us.
So we're not ready to change anything at this point.
I would usually use ---+ <UNK>, this is <UNK>.
What you've seen in the first quarter is because with the earnings being a bit lower, the impact of the tax, you know the tax exempt muni's is a little bit higher.
So I would ---+ you know I wouldn't use that as a full-year run rate.
I'd use what you typically used.
Well, thanks everyone for listening in on the conference call.
Looking forward to the second quarter.
Thank you.
| 2016_IPCC |
2018 | CHE | CHE
#Thank you, <UNK>.
Good morning.
Welcome to <UNK> Corporation's Fourth Quarter 2017 Conference Call.
I will begin with highlights for the quarter, and <UNK> and Nick will follow with additional operating detail.
I will then open up the call for questions.
The fourth quarter of 2017 had excellent operational performance, margin improvement and overall financial results.
In the fourth quarter of 2017, <UNK> generated $428 million of revenue, an increase of 6.2%.
Consolidated net income in the quarter, excluding certain discrete items, generated adjusted earnings per diluted share of $2.32, an increase of 10.5%.
Both VITAS and Roto-Rooter performed well, exceeding the high end of our guidance.
VITAS admissions increased 4.3% in the quarter.
Average Daily Census expanded 4.7%.
And our adjusted EBITDA, excluding Medicare Cap, increased 7.9%.
Roto-Rooter continues to show excellent results in our core plumbing and drain cleaning service segments, as well as strong growth in water restoration.
This resulted in Roto-Rooter having a record fourth quarter 2017 in revenue and profitability.
With that, I would like to turn this teleconference over to <UNK> <UNK>, our Chief Financial Officer.
Thank you, <UNK>.
The net revenue for VITAS was $292 million in the fourth quarter of 2017, which is an increase of 2.8% when compared to the prior year period.
This revenue increase is comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 0.8%, a 4.7% increase in Average Daily Census, offset by Medicare Cap, which reduced revenue 0.9%, and acuity mix shifts, which negatively impacted revenue growth 1.7% when compared to the prior year period.
VITAS recorded $2.4 million in Medicare Cap billing limitations for 2 programs in the quarter, all of which are related to the 2018 Medicare Cap billing period.
At December 31, 2017, VITAS had 30 Medicare provider numbers, 2 of which have an estimated 2018 Medicare Cap billing limitation.
Of these 30 unique Medicare provider numbers, 25 provider numbers have a Medicare Cap cushion of 10% or greater, 3 provider numbers have a cap cushion between 5% and 10%, and 2 provider numbers have a Medicare Cap liability on a trailing 12-month period.
Average revenue per patient per day in the quarter was $189.33, which is 1% below the prior year period.
Our routine home care reimbursement and high acuity care averaged $163.50 and $713.35, respectively.
During the quarter, high acuity days of care were 4.7% of total days of care, which is 58 basis points less than the prior year quarter.
The fourth quarter 2017 gross margin from VITAS, excluding Medicare Cap, was 24.5%, which is a 41 basis point improvement when compared to the fourth quarter of 2016.
Our routine home care direct gross margin was 53.9% in the quarter, which is an increase of 80 basis points when compared to the fourth quarter of 2016.
And our direct inpatient margin in the quarter was 8.5% and compares to a margin of 1.2% in the prior year quarter.
Occupancy of our 28 dedicated inpatient units averaged 70.3% in the quarter and compares to a 68.2% occupancy in the fourth quarter of 2016.
Continuous care had a direct gross margin of 16.8%, an increase of 100 basis points when compared to the prior year quarter.
Average hours billed for a day of continuous care was 17.5 in the quarter, which is a slight decrease when compared to the 18.1 average hours billed for continuous care patient in the fourth quarter of 2016.
Now let's take a look at the Roto-Rooter segment.
Roto-Rooter's plumbing and drain cleaning business generated sales of $136 million for the fourth quarter of 2017.
And that's an increase of $16.8 million or 14.1% over the prior year quarter.
Commercial drain cleaning revenue increased 1.7%, and commercial plumbing and excavation increased 2.5%.
Overall, commercial revenue increased 3.3%.
Our residential plumbing and excavation increased 14.5%, and drain cleaning increased 10.4%.
Our aggregate residential sales increased 21.8%.
Just as importantly, revenue from water restoration totaled $22.1 million, an increase of $8.4 million over the prior year quarter.
Or another way to look at it is, half of our growth in revenue for Roto-Rooter came from water restoration, the other half came from core segments.
Our earnings guidance for 2018 is as follows.
Revenue growth for VITAS in 2018 prior to Medicare Cap is estimated to be in the range of 2.5% to 3.5%.
Admissions and Average Daily Census in 2018 are estimated to expand approximately 3% to 4%.
And full year adjusted EBITDA margin prior to Medicare Cap is estimated to be 15.4%.
We are currently estimating $5 million for Medicare Cap billing limitations in the 2018 calendar year.
Roto-Rooter is forecast to achieve full year 2018 revenue growth of 4% to 5%.
This revenue estimate is based upon increased job pricing of approximately 2% and continued growth in water restoration services.
Adjusted EBITDA margin for 2018 for Roto-Rooter is estimated at 22.3%.
Based upon the above, full year 2018 adjusted earnings per diluted share, excluding noncash expense for stock options, costs related to litigation, costs associated with tax reform and other discrete items, is estimated to be in the range of $10.60 to $10.85.
This compares to <UNK>'s 2017 reported adjusted earnings per diluted share of $8.43.
This 2018 guidance assumes an effective corporate tax rate of 25.7%.
I'll now turn this call over to Nick <UNK>, Chief Executive Officer of VITAS Healthcare.
Thanks, <UNK>.
VITAS had another solid quarter, both financially and operationally.
Our Average Daily Census in the fourth quarter of 2017 was 16,920 patients, an increase of 5.3% on a unit-per-unit basis over the prior year.
Total admissions in the quarter were 16,575, an increase of 4.9% on a unit-per-unit basis when compared to the fourth quarter of 2016.
During the quarter, admissions generated from hospitals, which typically represent over 50% of our admissions, increased 1.3%.
Home-based admissions increased 6.5%.
Nursing home admissions increased 10.2%, and assisted living facility admissions increased 10.5% in the quarter.
Our per patient per day ancillary costs, which include durable medical equipment, supplies and pharmaceutical costs, averaged $14.30, and are 4.6% favorable when compared to the $14.99 costs for these items in the prior year quarter.
Our inpatient care currently consists of 28 dedicated units, as well as contract beds.
We evaluate inpatient capacity on a market-by-market basis to ensure these facilities are appropriately positioned to meet the needs of our patients in every community we serve.
The sustainable evaluation and management processes have improved our inpatient margins 730 basis points in the quarter.
Within continuous care, we've continued our focus on labor management specifically related to appropriate nursing to aide staffing assignments and the appropriate utilization of outside nursing agencies based upon the patient's location and individual needs.
These efforts improved our continuous care margins 100 basis points when compared to the fourth quarter of 2016.
VITAS' average length of stay in the quarter was 91.4 days, which is equal to the average length of stay in the fourth quarter of 2016.
Medium length of stay was 16 days in the quarter and is equal to the prior year quarter.
Median length of stay is a key indicator of our penetration into the high acuity sector of the market.
With that, I'd like to turn this call back over to <UNK>.
Thank you, Nick.
I will now open this teleconference to questions.
Yes, now I'll ---+ this is Dave <UNK>, <UNK>.
I'll turn this over to <UNK> and Nick.
But so the starting point in terms of, I call it, on the VITAS side, for lack of a better word, raw which it is always going to be days of care.
And we expect the days of care organic growth to grow 3% to 4%.
Now there's going to be acuity mix shift.
Just because of our trend line over the last couple of years, we expect high acuity to trend down, but not at the same rate it's been trending down before.
That draws a little bit of squirreliness into our revenue projections but doesn't really impact the overall profitability of the day of care, at least as we've discussed in prior calls.
But basically, organic, call it 3% to 4% days of care growth.
And then I'll turn it over to Nick and <UNK>.
Yes.
And just to reiterate Dave's comment.
I mean, the vast majority of the entire projection of 2018, <UNK>, is embedded inside of organic growth and the continuation of the positive trends which we've seen in 2017 and expect to see in 2018.
Which is that to say we don't have a couple of new Florida online ---+ Florida operations coming online.
We are starting January 1 of this year.
Correct.
But the macro contribution of the overall guidance in 2018 is minimal.
We're excited by it, but it's hard to very well move the numbers.
Correct, at a macro level.
Well, to the extent that, from my perspective, VITAS is in a position that they see most, if not all, the acquisitions that are available.
Although they have a intellectual curiosity in them, they all seem to have the same issue, and that is the acquisition candidates tend to have several programs, most of which have Average Daily Census below 100, with the upside potential not much higher than that.
And I will say, given the nature of VITAS, that is a full-service hospice, with all 4 lines of service, with the kind of quality control issues and IT support, our breakeven point is just higher than that.
So it's just hard for us to offer much more purchase price for programs we don't have much hope of ever making a profit.
So that's what makes us kind of a bad candidate to approach these acquisition candidates.
And again, we have kind of a high hurdle.
We've been repurchasing stock.
And to the extent that, after you risk adjust repurchasing stock and doing acquisitions, it's the rare acquisition in this field that makes sense.
And the reason I highlight this field is the fact that, when you buy a hospice, you don't get much.
The patients, by their very nature, are short term.
There's very little bricks and mortar.
And the one thing that's of real value is the referral networks, which, by definition, this only entitles up.
So long-winded way, <UNK>, of answering your question, which is really, we're focusing on basically same-store organic growth.
Well, <UNK>, if you've heard Dave and I talk about it, we come at that question a little differently.
I'm surprised at the depths of the penetration of hospice with regard to non-trauma deaths.
I mean, it's over 50%.
It's a well-known, well-respected needed program.
And Dave thinks that number could be higher.
But the real issue comes at how early in the period of decline does a patient with a terminal diagnosis enter a hospice.
And that's where ---+ that has effects on the penetration issue, which dwarfs whether we go from 51% to 54% as far as penetration by actual patient, and that's one where it's ---+ industrywide, we continue to see an expansion of that.
We really see it, and it's good for us, is in senior communities, where they're very familiar with the benefits of hospice.
They see it with their colleagues, their neighbors.
Those people are more likely to choose hospice earlier, which means that the areas where we are right now, that is Florida and some of the retirement communities of California and Texas, where we are ---+ that trend is probably more pronounced from our perspective.
So I would say that, again, when you look at penetration, I'm surprised that it's as high as it is.
That is over 50% of the people have at least 1 day in a hospice, that type of thing.
But a lot of work on penetration.
We don't see the end of that any time in ---+ over the next several years.
Yes, frank.
So <UNK>, come at it from slightly different directions, but kind of reach the same endpoint.
What I'd say is so that roughly 2.6 million deaths in the United States every year, a little over 500,000 of those deaths are non predictive or trauma deaths, so you're left about 2.1 million deaths annually in the U.S. that are really hospice eligible or hospice appropriate.
And as <UNK> mentioned, we do about 1.1 million, the industry, a patient who passes away had at least 1 day in hospice.
So if you take 1.1 million out of 2.1 million, you end up with a little bit more than 50% penetration.
But as <UNK> mentioned, half of all admits in the hospice, they pass away in about 19 days or less.
30% actually pass away in 7 days or less.
So I don't know if their right thinking, did a patient receive at least a hospice day to talk about penetration.
I think it's potential days of care.
So the growth in the over 65 will contribute to an expansion of the days of care in the industry.
But really, it's actually materially impacting that median of 19 days.
And what I will tell you though, or <UNK> and I have seen this, that 19 day median length of stay for the industry has been rock-solid for a dozen years.
So said differently, there's still this culture of chase cure of care for a significant portion of Medicare beneficiaries at any cost, and then there's still this reluctance for about half of our patients to enter hospice at the last possible moment.
So the real question of explosive growth in the industry is when will we impact this median.
When will the 19 move to 26.
And the last piece that adds on to it, <UNK>, is the tailwind inside of the industry is the value proposition on the hospice industry has never been more aligned with the ongoing reimbursement changes along all the other verticals across healthcare.
And as we're seeing partners in the communities meet and are actively seeking mature partners that can help provide service, access education to those patients and families earlier so that the median length of stay and the adoption of hospice at the ---+ for appropriate patients occurs at the right time, and so that's another tailwind for the industry that I think continues, as well as provides an opportunity for us as a mature large national hospice organization and differentiate ourselves in the marketplace with what we can offer our partners in the local communities.
I think it's embedded inside of some of the guidance, as we talked about the ongoing EBITDA margin.
We're optimistic around the initiatives in which we continue to have in place where we've seen marginal improvement across our service clients.
And we're balancing that against the ongoing labor and wage pressures that everybody's experiencing inside of the market.
So we're still confident in our guidance for 2018 related to margins.
And in that regard, let me say, it's a constant battle.
Labor costs are fully loaded, about 2/3 of all expenses of VITAS.
The reimbursement, by definition, that hospice gets is a little below what the government determines as really industry inflation.
It's a constant battle.
But it's one that VITAS has been doing well.
I will say that ---+ I hesitate to say, although VITAS is on top of this, it's no problem.
It's a constant battle, but the one thing I look at is that is attrition rates, the average pay per hour, that type of thing, they've had good trends across all those fronts.
I think as you think about it, <UNK>, you should think about it as an ongoing run rate.
It's actually aggregated ancillary costs, which are pharmacy, but also durable medical equipment, the home medical equipment piece and medical supply.
So it's our full aggregated run rate for all ancillary services.
It's not just drugs.
But we feel comfortable in that run rate from a cost perspective.
And we're driving that down by just optimizing utilization as well as contract negotiation as well.
That's correct.
Okay.
Before signing off, I'd just make one comment with regard to a question we have gotten not on this line.
And that is, you can see that we had a CapEx ---+ a projected cap exposure in the fourth quarter.
We continue, part of our guidance, as always, to include a plug number with regard to cap.
I would just say that ---+ remind people that, that projected cap in the fourth quarter, that is the first quarter of the government plan year, not unexpected to have some projected exposure in that fourth quarter.
Overall, I think, as Dave indicated, with our overall situation with all our markets, we're comfortable with our cap situation.
Good trends, nothing that should imply a dislocation in that, whatsoever.
And I think that our ---+ in 2018, our plug number of cap is going to be ---+ may well prove very conservative as it has over the last 10 years.
So with that, I just wanted to thank everyone for their kind attention.
And we'll be back in a couple of months to discuss the results of the first quarter.
Thank you.
| 2018_CHE |
2017 | DRI | DRI
#Thanks <UNK> and good morning everyone
Let me start by saying I’m very pleased of our performance during the quarter
Our teams did a great job managing through some difficult circumstances recovering from the hurricanes
Total sales from continued operations were 1.88 billion, an increase of 14.6%
Same restaurant sales grew 3.1% and adjusted net earnings per share were $0.73, an increase of 14.1% from last year’s diluted net earnings per share
Given our consistent positive results, I’m more convinced than ever that our success has been driven by the strategy we implemented three years ago
Our intense focus on improving the food, service and atmosphere in our restaurants combined with relevant integrated marketing remains a winning strategy for our brands
The long-term investments we have made and will continue to make and these areas are paying-off and we will work hard every day to better execute in these critical areas
This back-to-basics operating philosophy is coupled with Darden’s four competitive advantages; one, leveraging our significant scale to create a cost advantage, two, using extensive data insights to improve operating fundamentals and to better understand our guests and communicate with them more effectively, ensuring our brands systematically go through our rigorous strategic planning process, and four, cultivating our results oriented people culture to enable growth
Together our operating philosophy and competitive advantages give me confidence in our ability to continue to deliver our long-term framework overtime
Turning to Olive Garden
Same-restaurant sales grew 3% outperforming the industry benchmarks excluding Darden by 400 basis points
This was Olive Garden’s 13th consecutive quarter same-restaurant sales growth driven by our focus on simplification and flawless execution, which continues to result in high guest satisfaction scores
Our promotional strategies and core menu are working together to create everyday value, and drive increased frequency for our most loyal guests and our strong-to-go performance which grew 12%
During the quarter, we ran our two most popular value promotions, Buy One Take One, which appeals to our guest need for convenience and Never Ending Pasta Bowl which highlights our brand pillar of never ending abundance
Both promotions leveraged brand equities and were supported by strong integrated marketing campaigns highlighted by Olive Garden’s most anticipated event of the year The Pasta Pass
This year in addition to making 22,000 pasta passes available we introduced the first of its kind Pasta Passport which included all the benefits of the Pasta Pass plus a trip of a lifetime to Italy
Once again, all pasta passes were claimed online immediately
The volume of social media and PR buzz surrounding this event illustrates the strong emotional connection our fans have with the Olive Garden
LongHorn Steakhouse had strong quarter as the investments we have been making for last two years are significantly improving consumer perceptions and motivating guests to visit more frequently
Same restaurant sales grew 3.8%, outperforming the industry benchmarks, excluding Darden, by 480 points
This was LongHorn’s 19th consecutive quarter of same restaurant sales growth
The emphasis LongHorn’s leadership has placed on simplification like reducing their menu items by nearly 30% has led to higher levels of execution
At the same time, they continue to enhance the quality of guest experience with strategic investments in food, service and atmosphere
As I mentioned last quarter same restaurant sales at LongHorn’s new markets continue to grow at a higher rate than in the established markets
Consumers in these new markets are discovering what makes LongHorn special, while at the same time fully realizing the value proposition that inherently exists in the brand
This performance trend is not new to LongHorn
We have seen it play out over the past 20 years as I have been associated with the brand
Now I will update you on the Cheddar's integration
The Cheddar's team is doing a great job managing the complexity of this integration which also includes integrating the two largest franchisees which were recently acquired
Merging three different operating systems into the Darden network isn’t easy but is going exactly as planned
We are at an important point in the integration progress as we transition from planning to execution
Integration related activity is peaking as we transition distribution networks including our main line distributor, produce suppliers and smallware suppliers, convert point of sales systems in 10 restaurants per week which also includes two weeks of training for restaurant prior to conversion, fully transition Cheddar's payroll system on to the Darden payroll platform and finally, we just completed open enrollment and Cheddar’s team members will be transition to Darden benefits at the beginning of the calendar year
It is our intent to integrate Cheddar’s and the two acquired franchise systems as fast as possible in order to position the brand to take advantage of the scale, synergies another benefits of Darden infrastructure
We realize this is having a short-term negative impact on sales momentum, but we believe the long-term benefit will far outweigh the short-term impact
Rick will provide an update on synergies in his remarks in just a moment
I want to thank the integration team for this outstanding work on this project
They have developed a comprehensive plan and are executing that plan at high levels
The more we learn about Cheddar’s the more excited we become of the long-term growth prospects
They are the undisputed value leader in casual dining with a large loyal guest base and average approximately 6,300 guests per week, per restaurant
Let me close by saying the holidays are the busiest time of the year for our restaurant teams as they help our guests celebrate with co-workers family and friends
On behalf of our management team and the Board of Directors, I want to thank our 175,000 team members for all due to create memorable guest experiences during the special time of the year
We remain focused on getting better every day and I look forward to making even more progress in the new year ahead
And now I’ll turn it over to Rick
Brett as Rick said, we are making no further comments on the pending tax legislation
We will update our guidance in January once the bill is passed
So, for everybody else who wants to ask as a question on it, we’re not going to answer them
As far as the consumer landscape, I think you were referring to that our GAP to NAV or our GAAP to benchmarks may have shrunk a little bit and we’ve been pretty clear and we said we preferred to operate in an environment with a stronger industry and if our GAAP shrinks a little bit, that’s okay with us
As I said in my prepared remarks, I think we had a great quarter considering everything that transpired, we saw strength in all our businesses, we started in a pretty big hole in September
I think it feels pretty good out there
I would say when I look at the benchmarks, I’m seeing about 3% growth in what the consumer is paying
So, I don’t feel it’s still the environment all that promotional right now
I know they could be getting that in a couple of different ways where they’re getting it through price or mix
But I feel like it’s fairly positive out there right now and I just feel good
I think the consumer is using the whole menu, they’re not all that reactive to what people are doing from an incentive standpoint
Hey good morning <UNK>
I continue to see ---+ when I look over the landscape the brands that are well positioned have strong value equations are continuing to take share
This is approximately $100 billion category that has been growing approximately 2%
And for those that are well positioned, I feel like they are going to continuing to do well
If your value propositions are little off and your offering is not resonating with the consumer, it could be a struggle
I think focusing on the overall industry benchmarks is somewhat dangerous because it’s been such deviation in the performance of the people that are doing well compared to the people who aren’t
So, I can’t comment and give you guidance on what we think calendar ‘18 might look like
We’ve given you what we think guidance is for the back half of our fiscal year, we always get a little nervous in December, January, February and March because weather is out of our control
We can’t control that
And if we have a bad winter, that could put pressure short-term on our same restaurant sales
But we don’t think that has any impact on the overall momentum of the business
So, as I said earlier to Brett’s question, we feel pretty good about how the consumer is reacting to our brands right now
A lot in there <UNK>
Let me start with the off-price sales
I take back to where, we identified a couple of years ago that the consumer needs data of convenience
The consumers are still looking at that for convenience
We’ve got some brands that really can satisfy that express the Olive Garden
We’ve done a great job with that
I think that’s probably, a more permanent part of our equation today
I don’t see that need state going away, I see that need state increasing
And I think we’ll continue to come up with innovative way to meet that need
As far as, we start thinking about delivery and as we’ve said before, we’ve got multiple tests going on in the marketplace, we are trying to learn
We believe that someone is going to rise up and create some scale in the space and we’ll watch those third-party delivers
We’re also watching competitors that are doing it themselves
We have a small test, we’re doing ourselves
And we’ll watches whole space kind of develop
And we’ll decide, how we’re going to participate in that
We are still very attracted to the large party delivery catering in Olive Garden where average order is over $300. That makes a lot more sense for us to market and pursue than running around delivering $10 entrees at this point in time
So, for us, it’s a wait and see
We’re very engaged in the process, where all the third-party delivery companies and we’re very engaged with our own activity around that
So, to us, so what see how these things develops
We have a filter that we run every decision through
And the first question we ask is how does our team member win if we make a decision
The second is how does our guest win if we make a decision and we believe one of our four competitive advantages is our culture even as the employee market has tightened, our retention rates have not moved it all, they actually improved a little bit
We’ll continue to invest in our team members, we believe we have great training programs, 50% of our management comes from our team member ranks which we believe are offering growth opportunities to our team members
And I think we’re doing the right thing, we’re not trying to manage to when these awards were – we’re just doing the right thing for our team members every single day and then if we then get an award that’s great
But I think you can see it in our results, we’re doing a good job taken care of our guests and we take care of our guests, we win
No, I don’t think, I think the exact opposite
I think this is a way for people to trade in the casual dining and having an experience for under $14 ---+ under a $14 check average was made from scratch food that is at a higher quality than most comparable operations they are competing against
We look at the data and the research, we’re just really impressed with the loyalty, we’ve been out doing what we call dine arounds, where our team goes out and dine with guest
And we continue to learn more and more about the admiration they have for our brand
And the accessibility the brand provides for people who probably couldn’t go out to eat in a full service casual dining environment except they can go to Cheddars and make it work inside their budget
This is a very strong brand, when I think about ---+ I know there is a little bit of concern about where the comps are and this doesn’t surprise us at all, it happened at Yardhouse, it happened at Longhorn and I believe the only ---+ Longhorn only ever had one negative full year of same restaurant sales decline and that was during the integration in its 30 some year history
The other thing I would add is that, we’ve acquired two large franchise operations inside of Cheddar's that make up approximately 35% of the system
Those restaurants, there are 54 of them I believe or approximately 54 are a significant drag on the base Cheddar restaurants that were the real base of the company owned operations that we bought
Those restaurants are dragging it down, well over percent
As we standardize the menus, because the menus were somewhat different and their pricing philosophies were somewhat different, as we’ve standardize the menus we are getting some negative check, that’s drag and it sound to
These are decisions we have to make for a long-term
And lastly as I mentioned in my remarks, integration is hard and we believe, when we look back on our couple of our last acquisitions, we didn’t go fast enough, we let integration drag on too long
And so, we made the determination during this fund that we’re going push hard and get to the other side quicker and that’s what we’re doing and we actually integrated the two franchise systems first, so they’ve actually had the most activity because their systems were so weak
And I will close up by just saying the most important thing for us to do is to get our POS systems in these restaurants so that we can start getting the data that we get to analyze our other businesses to help us make the right strategic choices as we move forward to drive this brand
Let’s not get hung up on short term quarter-to-quarter comps, this business does 6,300 guests a week, has incredible loyalty and is the undisputed value leader
Once we get to the other side of this which will be another 6, 9, 12 months, this business will be a good growth driver for Darden
12%
Yeah, I think <UNK>, every year we start off with a detailed plan for each of our business
The first thing that we look at it is what investments do we even make into the business, either through employee, experience into the guest and already be able to grow our market share and compete more effectively
We look at our advantages and we’ve always come back to that and how do we make scale work for us and that’s really, really important and so we’re not really talking about next year or next fiscal year but we’re constantly looking at how do we make our experience better?
I mean you’re really asking me to look into a crystal ball and try to project what’s happening, I mean what’s going to happen
We think our advantages and if we continue to make the right investments, whether it’s underpricing and inflation, whether that’s improving the food quality, whether that’s improving the employee experience
The way we look at it how do we increase our share of the $100 billion category, both through same restaurant sales growth and new restaurant growth
And we look at the value equation for each of our businesses and we look at Cheddar's and Olive garden
The price value relationship is really important, as we move up the continuing [ph] the we experience becomes more important
So, I am not sure ---+ if the overall industry does continue to improve, I’m telling you right now, we’re working as hard as we possibly can to get as much of that share as possible
And however, it plays out, it plays out
But we are not all that ---+ we look at the benchmarks, we report them out to you guys, but we are not sure that’s always the total opportunity because we look at the top five or six players in the industry and say if they’re doing something that we ought to try to be able to beat them not just the benchmark
Well, I think the biggest thing that we constantly think about is the employee experience and how do we ensure that we have the best team members out there to bring our brands alive
Great brand management is much more difficult in the restaurant space than it is in consumer-packaged goods where you just put your brand up on a shelf and you do some advertising
We have employees that ---+ team members that bring our brands to life every single day
So, when I think about the investment ---+ if we think about investments in general, they have nothing to do with what’s going on with legislation
We think about how do we improve the overall experience? And the competition for team members I think is going to be the most important element moving forward
How do we get great team members to bring our brands to life?
I mean we are not going to talk about anything that has ---+ you tie this to meaningful benefits of tax reform, we’re not talking about anything I am sorry David, about tax reform
We will talk about general investments and how we think about it but I think I’ve already answered that question
Yes
We’re approximately 30% online now and it continues to grow
And we do incentivize people to do that
Because we get a lot of data when they we get via online
And so, that’s an important part of the process, it just helps to simplify the operation and we’ll continue to try to migrate as much of that business over as possible
At the end of the day, we got a lot of people calling in orders, when they are driving home
That’s hard to do those online, while you’re driving
But we’ll continue with more people over the best we can
No
Let me clarify
Those negative two is inclusive of the two franchise systems that we ---+ what they call the Grier restaurants that were purchased by Cheddar’s right before we bought them
And then we purchased their next largest franchisee, which we refer to as a CMP shortly thereafter
They make up 35% of the overall system
So, in essence, we’re doing 3 integrations at once and their system has grown dramatically
Now what I said and maybe I wasn’t clear, was that, the 35% of the restaurants that were franchised and now company owned are dragging same restaurant sales down by 100 basis points
And… Were they in 1Q as well?
Yes
CMP wasn’t just a Grier restaurant
And we have negative check in the approximately 45 Grier restaurants that we brought, because we had to standardize the menu
So that negative check is part of the drag
And this franchise ---+ these are great restaurants, great people but our franchise system that was run a little bit independently of the core company owned restaurants
So, there is going to some effort and energy to get them up to the operating standards of the company restaurants
Completely understand
So, it wouldn’t be correct to compare it down 1.4 to down 2 and you had a little bit of a different composite of the base?
Yes, that would be correct
You could do that
Okay
Because the CMP restaurants are a drag
And then you mentioned that the middle of FY 2019, is now the target ---+ ahead of schedule for the integration correct?
Yeah, it is fiscal 2019. Sorry, Matt it’s for the synergies not the integration
So, the integration, we expect to have most of the integration work done on the system side by the end of this fiscal year, but we do expect them to have to continue to learn how those systems works and then take those systems and use the data that we have to help improve the performance in fiscal 2019 that’s fair
That’s where I think we were saying the integration is going to take 18 months, it’s the integration, the system is going to take less time than that, it’s just the learning and the understanding the data is going to take a little longer
But we do expect that the synergies on a run-rate basis, we will get by the middle of fiscal 2019 versus the run-rate basis we thought will be at the end of fiscal 2019. So, sorry messed up the question there
So, I guess if everything is moving forward, would it be correct to assume that potentially you could be looking to reaccelerate growth of the Cheddar’s brand or bring it back to a little bit more meaningful growth perhaps sooner than maybe what you would have thought say six months ago?
Matt, just because the integration is going a little bit faster, it’s still takes time to find sites and other things and when you’ve got a site pipeline that could be 18 months, it will take us a little longer just to rebuild that pipeline
We do expect to open restaurants in FY 2019, and we’ll talk about the number of openings et cetera when we give you the fiscal 2019 outlook
But it’s just going to take us a little while to build up that pipeline
Again, using the data that we use to help find the greater site
So, I would still expect us to open restaurants at least at the pace that we’re opening them today in fiscal 2019, but we’ll tell you more about that when we talk in 2019. Matt Kirschner Understood
And then last question, is there anything that you wanted tell us about the hurricanes as far as on the cost structure, did they impair, did you have any waste of food in the quarter that should be noted or called out that was meaningful to the margins or disparity in same store sales as far as recovering happening a little maybe regionally seeing a little bit of stronger strength in pockets
Or is it pretty much a ---+ or everything that you reported is sort of national trends?
<UNK>, thanks for that
What happened for the quarter, when we originally talked about the quarter we thought it would be down 60 basis points in the same restaurant sales and down $0.035 in - or $0.03 I’m sorry in EPS
What it turned out was the restaurants that we had in Florida, impacted and they were closed for quite a while so that impacted us in total by about 50 basis points in close days
And those are higher volume restaurants in the system average
But then we did get some bounce back in Florida
And so, each brand was impacted differently, but for the company for Darden it was slightly negative in comps for the entire quarter
So, it wasn’t negative 60 basis points, it’s was just slightly negative
On an EPS basis, it turned out to be about $0.02 unfavorable instead of $0.03, because the comp impact wasn't as bad
Now, the $0.02 is primarily proactive things that we did to make sure that the restaurants were boarded up and so they were ---+ they didn’t have any as much damage
We did have some food inventory write-off, we had some restaurants that were closed maybe a week and so that food has to be written-off
But we’re also very proactive before the hurricanes come to help mitigate any food write-off
So again, it was about $0.02 for the quarter instead of three and it was about slightly negative in comp instead of 0.6.
Alright
So, let’s start with Olive Garden, the 12% quarter I thought was I think is a really strong To Go quarter
We think about the future; the consumer need state is going to continue ---+ is going to need to continue to increase for the convenience for us to continue to growth that
We’re doing well over $0.5 million on average inside an Olive Garden box and To Go we’ve got restaurants that are doing well over $1 million To Go
So, as we think about going in into the future, you know we need consumer needs state to continue to grow
We’ll continue to innovative
I think one of the biggest things we can do on Olive Garden to Go is improve our operations as the business has improved, Dave and Dan and the team continue to work on coming up with better systems to handle the volume
It's actually an interesting business because I do a lot of pickups like at 11:15 and 11:30. And so they can use the [indiscernible] before it fills up to handle the volume
So, I think there is some operational improvements that we can make
We can continue to improve the offering to stay relevant to the guest and continue to remind the guest that its available
We have said ---+ we’re publicly on the record saying that we think overtime if the consumer need state continues to grow that this can be 20% of our business
Primarily because the type of food travels so well and we can do it more so than just entrees that we can do bulk and bulk is where we want to be
Let me move to LongHorn, we’ve been making great investments in LongHorn for the last two years, Todd and his team has done a great job of ---+ we’ve increased the size of the stakes, we’ve removed complexity in the kitchen and as we’ve mentioned we’ve taken the SKUs down, some of that through the menu, some of that through the promotional activity that we’ve done, reducing the number of new items that we introduced on a quarterly basis
And what we’re finding is we had a lot of stuff on menu items on our menu that really were duplicative and what the feeling ---+ the need they were feeling for the consumer, and we removed them and it just helps us operate much more efficiently
I believe all our businesses, all our brands, our menus are too complicated, too complex, we have items that continue to work and do the same thing over and over and over again versus having one great fried appetizer instead of having three great fried appetizers
And the more we can simplify the operation, the better the execution gets, the quality increases and the overall value the consumer is having an impact
And LongHorn historically has been a high food cost low labor cost operation
And we have simplified that operation to be able to bring the labor cost down and increase the productivity while improving the overall quality of the food product
And even as much as we’ve reduced it already, I think there’s still further reduction to be done in the LongHorn menu to improve the ---+ to simplify the operation
Those are very small kitchens that have to stay simple in order to cook the great steaks in a timely manner
That’s fairly easy
The systems having been invested in, in those restaurants, they are working on very old POS systems and so big difference in this integration than some of the others where the Cheddar's team is actually pulling from us to get this information in restaurant where some of our past integrations, there’s been a little push back because they had good systems and we are just the changing systems to change the systems
Here our systems are superior
They want the systems as soon as they can get them and they have just been ---+ they have been great to work with
We believe overall the benefits package is going to be much stronger for those team members
We think there’s a huge upside in Cheddar's in increasing their retention
Right now, their employee retentions are above the average of the industry and we believe that if we can take them from 120% team member turnover down to our norm of 70% it's going to have a huge impact on the overall operation
So, we believe and all indications are that they like the systems that we’re bringing
Ian has done a great job working with his teams and talking about the systems that we are implementing and getting feedback
So, I think this is going to really enhance their performance overtime
Yes, it's almost 30% and we’ve got different tests out there and we’ve got different products in different market
So, it’s somewhere, it’s approximately 25% to 30%
We’ve done a really good job; the management is done a really good job there of getting back on our pathway
Delivering that brand in the consumer differently than how Olive Garden delivers their brand to the consumer
And it has a lot to do with the promotional cadence and new product introductions
Yes
We were definitely seeing an increase in frequency in LongHorn
We measured that every quarter with our tokens
Yes, <UNK>, the holiday impact is minimal versus last year
The holiday shift moving Christmas basically from a Sunday to a Monday, it’s really not going to be much different than it was last year
Yes
And last year's holiday shift was about 20 basis points unfavorable
So, it shouldn’t be much different than this year
So pretty much flat this year
The industry is fighting for consumers, their consumers discretionary dollars
And I’ve said on this call before, we’re not just fighting amongst ourselves, we’re fighting for those dollars that have been spent in other places
I do think that overall, the industry is being a little more rationale
I think there has been some okay innovation and I think we’re attracting consumers again
I don’t think there is a macro trend out there that says that we’re pushing people and I think the industry is doing a better job
Good observation on the high-end category because our high-end brands with the hurricanes travel really came to a halt and they were disproportionately impacted and they had ---+ they really came back strong both Cap Grille and Eddie V's
I would also say that Texas has not stopped being a drag
That business was for 18 months, we had pretty good presence in our high-end restaurants in Texas and that had really been a constant drag and that’s kind of flipped for us now
And the Texas restaurants are doing better and not dragging so, on a high end the consumer, it feels really good out there, the consumers out there people are celebrating, I think our brands are very well positioned, Sean Martin is doing an incredible job leading Eddie Vs, and really maximizing those restaurants and put up a great number, very, very excited about that
And we’re opening a few restaurants in Eddie Vs, which is really good growth for us
Yeah, we expect to analyze the bill when it’s signed
We’re beginning to analyze it now, but we expect to have the impact of tax reform in early January ahead of ICR
Yeah
Andy, we are as you said bumping up close to our high end of our long-term framework
And it's just that, as we’ve said there are years that we could be above it, years where we can be below it
Right now, we have given you our share count for the year, which is 126 million shares
So, you could probably see that we don’t anticipate buying a whole a lot right now
But we did last year go over our $200 million
So, as we think about our return of capital, we’ll see what other uses we have for that capital and whether we’re going to go ahead and buyback shares
But right now, we’ve given you I guess the best indication of what our share count will be for the end of the year
Well, actually for the average for the year
Couple of things, one is we’re ramping on a really strong last half of last year as you think about growth and inflation as we said for the year is going to be 2%, around 2 and it's just slightly higher than where we had anticipated
It's still around 2 but slightly higher on to be around 2 range and before
But we still have you’ve done the math, somewhere in the double-digit growth rates in the back half of the year
So, we don’t ---+ while we consider that a deceleration, it's still above our long-term framework growth rate if you think about earnings after tax and our long-term framework we say 7 to 10% and that would still be above that
Yeah, I think one thing about LongHorn, we’re finetuning the menu as we pull it back
I think it’s a little bit different than the competitor that you mentioned
You know we had a lot of menu items that really weren’t working that hard for us and we’re introducing a lot of new products on a quarterly or every six weeks basis that weren’t working hard
And you’re very familiar with LongHorn Howard and a great LongHorn experience is a forceful way in a hot baked potato with sour cream and real butter
So, as we simplify our operation, we’re executing it at a higher level
We need to get the stakes cooked correctly, we need to get the food out faster and that’s what simplification has done for us
And I am really not going to comment on our competitors’ strategy
Well I think the answer ---+ there’s two parts to your answer, we don’t know who we are going to partner with yet and number, I don’t like the current economics of the partnership
And so, I am trying to understand ---+ we are trying to understand their profit model and we are trying to understand our profit model doing internally
And once we get a pretty good understanding of both those models and they are well developed I think I will have some leverage in negotiating this with a third-party or doing it ourselves
So, I am not hesitant on the business
I think the business is a good business
I am just not going to live with that current economics
We will do ourselves before we live with their economics
I understand them
They are not favorable enough for me
And I am not going to give them their discount and there’s too much profit in there because they don’t have scale yet
And so, we are trying to understand what that model looks like and what it looks like for us from a profitability standpoint, and we can pinpoint what their profit is and got to get to a better resolution if they want to do it for us
If not, we will do ourselves
Yes, <UNK>
The 2% to 3% is the long-term framework we have for a couple of reasons
One is people
We have to make sure we have enough people to open these restaurants and open them strongly and doing a great job with it
We think if we get too high above the 3% across Darden, it puts a strain on the people that we have in knowing the brand
There are some brands that are going to be above the 3% range and some brands are going to be below the 2% range but across Darden we think 2% to 3% is the right investment
And we do know that all of these restaurants on average are creating significant amount of value
But we also have other ways to return capital and to spend our capital, whether it’s in dividends or share buyback
So, we want to balance all of our capital spending including new restaurants, we think 2% to 3% is the right amount
Yes
I think the independent growth is happening in more of the big cities
And we see that, more of a real issue for our upscale brands
In Yard House and Seasons 52 and Bahama Breeze whether they’re located more in these upscale suburban areas or urban areas
We’re not seeing an influx of casual dining restaurants in suburbia that are privately owned
This is an urban phenomenon and not really impacting LongHorn and Olive Garden
We’re fairly long right now in beef
So, we’re covered and our teams are making good decisions along the way
<UNK>, we’ve had a lot of work at LongHorn and Simplification to improve labor productivity
And again, they’ve also had some deep deflation over the last few years that help margins
We still think there is margin improvement for LongHorn going forward
Maybe not to the level that we’ve seen over the last couple of years, because eventually the beef deflation is going to become beef inflation and we’re going to continue invest in quality at LongHorn
And we’re just not ready to talk more about individual brand margins going forward
Although, if you look across Garden compared to our competitors we are the only ones drawing margins to really overtime, over last few years or actually the last six months
So, we feel good about where our margin is
We don’t want to go too high on our margin, because we think value is important and that getting too far out of line with what the consumer is willing to pay
But we still have costs that we can go after, we saw our productivity gains that we can do to continue to expand our margins across Garden 10 to 40 basis points, which is what’s in our long-term framework
Give us a second to find that out
It’s probably in a couple of years, but it’s not next fiscal year, I’m pretty sure
53-week, I think it’s
We’ll get back to you on that
Thanks
And I think we’re ready to conclude the call
I want to remind everyone that we plan to release third quarter results on Thursday March 22, before the market opens with the conference call to follow
Thanks everyone for participating in today’s call
And have a happy holiday season
| 2017_DRI |
2015 | RLI | RLI
#Good morning.
<UNK>, this is <UNK> <UNK>.
Obviously without a cat, the margins look pretty good.
If you looked at it on expected basis for a catastrophe business, certainly you would expect the loss ratio and expected loss ratio to go up over time.
In our marine business, as I talked about before, we actually still are getting some rate that's holding up pretty close to what we think loss cost trends are.
And RV is more of a getting our underwriting right, so we're seeing some improvement there and we're getting significant rate increase in that space.
So overall, you would see things moving in different directions, I think.
Cat obviously on an expected basis margins would be thinning, but if you don't have a cat, it still looks pretty good.
Marine holding steady and RV improving, which is most of it.
Then you have the loss of crop, which is booked at a fairly high loss ratio and deservingly so.
And that's ---+ obviously, that mix change has improved overall margins and results and loss ratio.
This is <UNK> <UNK>, Chris.
We're always looking at opportunities, for opportunities, and we'll continue to do that.
But obviously, we're not going to make any announcements here or in the near future that we can see.
We consistent constantly look for M&A opportunities as we have in the past and we'll continue to do that in the future.
Thank you.
Yes, another good quarter.
Thanks for joining us.
We had 81 combined for the quarter, modest growth, written gross premiums but 5% net written premium growth and our book value's up to $20.36.
There have been headwinds this past two or three years, but we've really persevered, been able to get through this storm and our underwriters have just delivered solid results quarter-after-quarter and we're pleased with this quarter's results.
I too would like to thank <UNK> <UNK> for nearly 20 years at RLI.
I think <UNK> would tell you, what he would point to that, as he does about every morning to me, that ever since he's been at RLI, RLI's been below 100 combined every year.
<UNK>, thanks to you and we'll miss the multi-syllable words, but I think <UNK> will do just a terrific job in your stead.
<UNK> will still be around.
We hope to keep him around for a while.
He's going to continue as a Board member and we'll probably find some other things for him to do.
Thanks again and we'll talk to you next quarter.
| 2015_RLI |
2018 | MOV | MOV
#Thank you.
Good morning, everyone.
With me on the call is <UNK> <UNK>, Chairman and Chief Executive Officer; and <UNK> <UNK>, Chief Financial Officer.
Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with.
The statements contained in this conference call which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release.
If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non-GAAP financial measure will be provided as supplemental financial information in our press release.
Now I would like to turn the call over to <UNK> <UNK>, Chairman and Chief Executive Officer of Movado Group.
Good morning, and welcome to Movado Group\
Thank you, <UNK>, and good morning, everyone.
For today's call, I will first review our financial results, and then discuss our outlook for fiscal 2019.
Before I begin, I would like to point out the special items included in our fourth quarter and full year results for fiscal 2018 and the full year results for fiscal 2017.
Please refer to our press release for a description of these items as well as a table of GAAP and non-GAAP measures.
Our GAAP tax provisions for fiscal 2018, included charges recorded in the fourth quarter totaling $45 million, or $1.95 per diluted share.
This is related to the enactment of the Tax Cuts and Jobs Act.
This charge includes $28.2 million for the one-time tax on unremitted foreign earnings; $8.3 million for the impact of the reduction in the U.S. tax rate to 21% on our deferred tax assets; and $8.5 million related to deferred withholding and state income taxes.
The $28.2 million will be repaid in installments over 8 years.
As you are aware, Movado Group acquired Olivia Burton on July 3, 2017.
Included in the year-to-date consolidated results for fiscal 2018 was $6.8 million of pretax charges, primarily connected to the acquisition, of which $900,000 was recorded in the fourth quarter.
After-tax, the charge related to the acquisition equates to $6.2 million or $0.27 per diluted share for the year.
Our GAAP results for fiscal 2018 include a $13.6 million pretax charge, which equates to $10.5 million after-tax or $0.45 per diluted share in connection with our cost-savings initiative.
Approximately $150,000 of this pretax charge was in the fourth quarter.
Fiscal year 2017 GAAP results included charge recorded in the third quarter of $1.3 million, which equates to $900,000 after-tax or $0.03 per diluted share for an impairment of a long-term investment in a privately held company.
Fiscal year 2017 GAAP results also include a $1.8 million pretax charge, which equates to $1.1 million after-tax or $0.05 per diluted share, in connection with the vesting of stock awards and certain other compensation in the first quarter related to the announcement of our former COO's retirement.
The balance of my remarks will exclude the special items just discussed.
For the fourth quarter of fiscal 2018, sales increased 14.1% to $149.2 million.
In constant dollars, sales increased 10.2%.
We saw increased sales across each of our categories, owned brands, licensed brands, retail.
The fourth quarter results for fiscal 2018 include the addition of Olivia Burton.
This brand is performing in line with the company's expectations.
In constant dollars, total sales increased 20.1% internationally and increased 1% in the U.S. Wholesale segment sales were $121.6 million, increasing 13.4% from $107.2 million in last year's fourth quarter.
In constant dollars, Wholesale segment sales increased 8.8%.
By geography, U.S. Wholesale sales decreased 7.5% to $40.7 million compared to $44 million last year.
International wholesale sales increased 28% to $80.9 million compared to $63.2 million in the prior year, an increase of 20.1% in constant dollars.
Sales were strongest in Europe, the Middle East and Asia.
The company's Retail business was a positive contributor, with sales up 17% from last year.
At the end of the period, we operated 40 outlet locations.
Gross profit was $78.6 million or 52.7% of sales compared to $64.7 million or 49.5% in the fourth quarter of last year.
The 320 basis point increase in gross margin was primarily driven by the favorable change in foreign currency exchange rates, the favorable impact of channel and product mix and leverage on fixed costs.
Operating expenses were $64.2 million, an increase of 12.1% year-over-year.
The increase was primarily the result of the following: a $5.8 million increase in performance-based compensation and payroll related expenses; a $1.7 million increase in other expenses; and an increase of $1 million resulting from the unfavorable impact of foreign currency exchange rates.
These were partially offset by a $1.5 million decrease in marketing expense.
Strong sales growth and expansion in gross profit more than offset the increased operating expenses, leading to a better-than-expected operating income in the fourth quarter.
To this end, operating income was $14.4 million or 9.6% of sales compared to $7.4 million or 5.7% of sales in the same year-ago period.
Income tax expense was $2.1 million compared to income tax expense of $1.9 million in the same period of last year.
The effective tax rate for the fourth quarter of 15.1% was lower than expected, primarily due to changes in jurisdictional earnings.
Net income in the fourth quarter was $12 million or $0.52 per diluted share versus net income of $5.2 million or $0.22 per diluted share in the fourth quarter of fiscal 2017.
Looking at the results for the full year ended January 31, 2018, sales were $568 million, an increase of 2.8% from fiscal 2017.
In constant dollars, sales increased 2.2%.
Sales increased in both our licensed brand and retail category and were slightly down in our owned-brand category.
U.S. sales decreased 12%, International sales increased 19.9% and on a constant dollar basis, International sales increased 18.7%.
Gross profit was $300.2 million or 52.9% of sales as compared to $294.8 million or 53.3% of sales last year.
Operating income was $63.6 million or 11.2% of sales compared to $55.8 million or 10.1% of sales in fiscal 2017.
Income tax expense was $16.1 million compared to an income tax expense of $17.4 million for last year.
And our effective tax rate was 25.7% for fiscal 2018 compared to a 31.9% effective tax rate last year.
Net income was $46.5 million compared to net income of $37.1 million in the prior year.
Diluted earnings per share increased to $2 per share in the current fiscal year compared to $1.59 per share last year.
Now turning to our balance sheet.
Cash at year-end was $214.8 million as compared to $256.3 million last year.
In the second quarter of fiscal 2018, we used cash held outside of the U.S. for the acquisition of Olivia Burton.
At the end of January 2018, we had $25 million outstanding on our revolver, down $5 million from a year ago.
By the end of February 2018, we had repaid the remaining $25 million outstanding.
Accounts receivable were up $16.3 million as compared to the same period of last year, primarily due to the increase in sales.
And while sales were up $18.4 million or 14.1% for the quarter, combined with the Olivia Burton acquisition, inventory decreased by $1.5 million as compared to the same period of last year.
Year-to-date, we repurchased approximately $3.6 million of stock under our share repurchase program, primarily to offset the dilution from stock awards.
Capital expenditures for the year were $5.8 million and depreciation and amortization expense was $13.5 million.
This included $1.7 million related to the amortization of acquired intangible assets of Olivia Burton.
I will now discuss our outlook for fiscal 2019.
Our outlook assumes currency rates consistent with recent level.
Our results may be materially affected by many factors such as changes in global economic risk and customer (inaudible), fluctuations in foreign currency exchange rates and various other clauses referenced in our 10-K filing.
As <UNK> mentioned, we have a solid foundation on which we plan to drive growth in revenue and profit for the year ahead.
In light of the foregoing for fiscal 2019, we anticipate our sales will be in a range of approximately $605 million to $615 million.
We expect our gross margin percent to be flat to slightly improved from fiscal 2018.
Our outlook estimates gross margin to be approximately 53% for the full fiscal year.
We have a track record of disciplined control of our operating expenses.
We are reinvesting resources into the Movado Group Summit and the establishment of the digital center of excellence as well as making investments in our international teams to support our growth.
And with that, operating income is projected to be in a range of approximately $68 million to $71 million.
Based on the lower U.S. corporate tax rate, coupled with our jurisdictional earnings, the company anticipates a 25% effective tax rate.
And net income is expected to be in a range of approximately $50.5 million to $52.8 million.
We expect diluted earnings per share in fiscal 2019 to be in a range of approximately $2.15 to $2.25.
Capital expenditures for fiscal 2019 are estimated to be approximately $12 million.
The outlook we have provided assumes no unusual items for fiscal 2019, and excludes the noncash amortization of acquired intangible assets related to the Olivia Burton brand.
I'd now like to open the call up for questions.
So multiple questions.
I don't know if we'll reach that growth rate.
We are expecting growth this year in our movado.com website, and I would expect it to continue to grow.
But I don't think at that accelerated level.
Still nice growth, double-digit growth would be our expectations for that.
I think on the digital center of excellence is really ---+ we're building the capability on a global basis to be able to support our subsidiaries, our website and as importantly, our Wholesale customers online, and a lot of our initiatives with our partners, whether they be our licensing partners or are ---+ or are Wholesale customers that moved into a digital format.
And so, we felt we needed to really build that infrastructure to be able to support our company on a global basis.
So a good ---+ a meaningful part of our business today is done online with our Wholesale customers as well.
So people who have adapted to the omni-channel platform, whether they be department stores, specialty stores, dedicated websites as well.
So we're really pleased with the direction we're heading in that arena as well.
Yes, so I'm not really calling out anything unusual related to that, but if you noticed in the fourth quarter, I did call out that currency was a factor that lifted our gross margin in the fourth quarter, and then I mentioned that ---+ we're keeping currency flat throughout next year.
So that was one of the major underlying pieces.
So I can't give you any more ---+ insight into margin by quarter or any other cadence.
And I would add that we believe that Movado will stabilize and begin to grow again as well as Olivia Burton is accretive to our gross margin.
Well, I think you're seeing ---+ the U.S. was more challenged last year from a retail perspective, bouncing back late in the year versus international retailers.
So I think that's one thing that's skewing the overall result.
I think you had a significant focus in U.S. retailers on inventory management and resetting of the ---+ of inventory levels as well as still certain ---+ and as I mentioned in my comments, certain channels, particularly chain ---+ mall-based chain retailers have not moved as quickly to an omni-channel platform as specialty stores and department stores.
So I think you will see that again, you'll see improvements in that arena this year.
You'll begin to see that, but we've seen very good results in our department stores and specialty store channels in the U.S., we continue to see very strong growth at retail in last year in our fashion watch brands, particularly in Europe and Latin America.
So I think you saw last year, really a year of stabilization for retail and now people kind of addressing the new realities and the new environment and the new paradigm of retail omni-channel, websites, moving forward.
Well, I think over the last number of years, retailers have moved closer ---+ much closer to ordering to the season, ordering more frequently, replenishment models.
All of those things pretty much on a global basis.
So I think maintaining as little inventory for themselves as possible to be able to produce the business.
So that is not a ---+ really a more recent dynamic, but one that's been evolving over time.
As I said earlier, we expect to return to growth in the U.S. this year and part of it is that we've great reaction to our products across our brands.
And believe we have the plans in place to be able to grow the U.S. again.
And I think the U.S. had grown very quickly over the previous years, and has been a little bit in a cyclical downturn in retail.
I think you saw that again begin to bounce back in the fourth quarter for retailers overall.
So ---+ and I think we would expect that, that trend will continue.
But we still expect to grow in Europe as well.
And Matt, your question on the gross margin was, it's not necessarily U.S. versus International, it's more of which brands.
And as we talked about, our licensed brands, obviously, the royalty goes through gross margin and our ---+ the brands we own don't.
So things like Olivia Burton and Movado would have a stronger gross margin.
So it's all in the mix of what brand ---+ what composition they are to total.
We have not.
Like any of our brands, we don't break out specific brand revenues.
It did meet our plans as we'd announced at the beginning of the year when we first acquired the brand.
So it's pretty much on target for us, and we've been really excited by the acquisition.
<UNK>, I'll jump in and I'm sure <UNK> will add some and you are right, we had a lot of initiatives kind of going at once.
So our cost saving initiatives which started this time last year, when we announced it.
Those have been fully implemented, we did pull out the right amount of dollars out of our infrastructure.
We did realize all of those savings.
So that was throughout this year, fiscal 2018.
And later in this year, we talked about not going to Basel and that would be savings for '19, although we mentioned that those savings are going to be reinvested in things like the small summit that we did, that was more intimate, like adding the digital center of excellence.
And kind of reinvesting those savings in.
So our outlook kind of has all of that mixed in, the slimming down, if you will, of our infrastructure last year as well as the new investments we have this year to support our growth.
Historically, the event happened in Q1 but the expense was throughout the year.
And that's for ---+ that was for fiscal '19.
Yes, our summit on the other hand would be a first quarter event and it's obviously, a different scale than what Basel was.
So I'll answer that.
It's just really our teams did a fabulous job in managing their inventory levels throughout the year on a constant currency basis there was actually an even bigger drop than the low single-digit drop that we had.
So they just did a really, really good job in managing the level.
There was not any one-off events or anything like that in that.
Not really.
Obviously, we're not aware, we're not including any type of tariffs or anything like that.
We don't believe that they would affect our business, but though they possibly could, okay.
Since ---+ we have one more question.
Okay.
If ---+ since we have no more questions, I'd just like to thank everybody for being on the call today.
And we look forward to speaking to everybody at the ---+ for our first quarter conference call, and wish everybody a nice holiday this weekend.
Okay, thank you very much.
| 2018_MOV |
2016 | BA | BA
#Good morning, <UNK>.
You got it.
It's mix.
It's narrow body mix within the quarter.
That's really the biggest driver there, <UNK>.
Yes, a little bit less than that on the 87.
Yes.
There was not a big difference.
I would say relatively flat.
When you look at the margin for the quarter, it's what you said.
There's some mix in the quarter, a little bit on escalation, then higher R&D, as we said, as we're ramping up the 777X.
So as I look at the next three quarters ahead, we'll have more favorable mix in there and the R&D profile will be a little bit different.
So, that's how we see the path to the guidance for the balance of the year.
Correct.
you bet.
On the overall book-to-bill, once again this year we're anticipating a book-to-bill of about 1, so similar to last year.
As you know, timing of orders is a little hard to predict, but, generally, when we look at order volume and energy in the marketplace we'd say book-to-bill of about one and continuing healthy opportunities around the globe.
Most of that, again, driven by passenger growth and replacement demand from our customers, lesser of that driven by cargo; as I mentioned earlier, the cargo market remains flattish.
The prominent demand there is in the narrow-body arena, so 737 sales opportunities for the MAX remain very robust globally.
Wide-body demand, not as hot as narrow-body demand, but still strong, especially in areas where it's driven by passenger growth, Middle East and Asia Pacific, in particular.
We're seeing that in continuing solid orders volume for 787 and for the 777.
And as I said, on 777, that current generation, we're targeting 40 to 50 sales a year to fill the bridge.
We still have work to go, but we've successfully sold 11 so far this year, so roughly on track, but we still have some work to do to fill the remainder of the bridge.
We have about a dozen or so very significant campaigns underway for the 777, so while we have work to do, we also see the opportunity to complete the filling of that bridge.
On the other side of the bridge, the 777X remains in a very strong market-differentiated place.
And if we looked out to the future on wide bodies between 787 and 777X, in particular, we feel very strong about the product lineup that we have.
So overall, a healthy, steady market demand, book-to-bill of about 1 this year, heavier weighted to the narrow-body side, but seeing reasonable demand in both narrow bodies and wide bodies.
Good morning, <UNK>.
You bet.
Hey, <UNK>, good questions.
And, first of all, on your overall margin question, <UNK>, I'll look back to you on the back end to comment on that.
But you saw in the first quarter that we did take the $0.24 charge on Tanker.
We were able to offset the majority of that which is good solid performance and <UNK> can walk you through some of the offsets there, but one of the reasons that we've reaffirmed our year-end guidance is that the first-quarter performance that we've seen broadly across the enterprise, some of the work we're doing to drive productivity, that I talked about earlier, and our plans for the rest of the year give us confidence that we will overcome that $0.24 charge and that's one of the reasons we're holding our year-end guidance.
I'll let <UNK> comment more on that later.
But specifically to Tanker, you're right, a lot of focus on that, and I can tell you that we have raised the level of enterprise focus on executing and delivering on that program.
We've, as you've seen, made some personnel changes to provide some additional oversight and emphasis on the program.
Leanne, as she has stepped into her new role is playing a strong role there along with <UNK> Fancher in teaming up with Ray and the team on the commercial airplane side, so we've got the right people on the program.
A few milestones ahead of us is completing milestone C, testing, the production approval decision.
We are about 80% complete on the flight testing that's required for milestone C and we are moving towards completion of that milestone and approval around the end of the second quarter.
Again, that's subject to the normal US government process.
The next major milestone beyond that will be delivery of the first 18 tankers and we remain on schedule to do that August of 2017.
And you're right, we have invested some money to hold that schedule.
We think it's the right thing to do.
It delivers on our customer commitments; it delivers on an important program; and we're committed to hitting that schedule; and it allows us to accelerate our movement into the production program.
Ultimately we still see this, in the long run, as a franchise program, a market of around 400 aircraft and one that will produce profitable growth for decades to come, both in terms of production and support to our customers.
So without question, this is an investment worth making.
While we don't like taking a charge, we're confident that we're doing the right things here.
We've got the right people on it.
We are now in the final stages of the development program.
And to your point about putting a nail in it, we are not now discovering new technical issues.
Frankly, this is about the fact that we are concurrently finishing up development and ramping up production.
We've got the first 7 production aircraft flowing through our Everett factory now.
In our supply chain, we're already out to airplane number 15.
So you can see there's some concurrency cost.
That is an intentional investment we're making to keep the program on schedule.
We are closing in on it.
We're not done yet.
We're going to be very focused on getting to the finish line, but I'm confident we'll get there and also confident that this is going to be a great program for our customers and our Company for decades to come.
<UNK>, you want to provide any other color on ---+.
Yes.
I think you hit the high points, <UNK>.
Yes, certainly, <UNK>, for the balance of the year, it just got more challenging and we've got a path forward to meet the guide, even taking that into consideration, but we're accelerating our productivity efforts and focus in the area to ensure that we do and we're all committed to doing that.
So we'll keep marching ahead, quarter by quarter, to make sure we achieve what we put out there.
Thanks, <UNK>.
Operator, we have time for one more question.
I think on the R&D, <UNK>, that's about right.
There's obviously some moving pieces in there as 777X starts to ramp up and Dash10 profile turns down around with MAX.
Generally, quarter by quarter, you're going to look at a similar trend right now.
And, <UNK>, on your question about the 737 family, we continue to have a very good dialogue with our customers about their future needs.
As you know, the MAX-8 is now through the production system, we've got three aircraft in flight tests.
That airplane is looking very good and we're confident that's going to add a lot of value for our customers.
We're continuing to see strong sales of the MAX family overall, as we take a look at the MAX-7, sort of the lower seat end of that family of aircraft, that is an area where we're having active discussion with our customers.
You know, it's too early to give any specific details or decisions, but I think it's worth saying that that airplane is viewed very favorably by our customers; we have a very clear value proposition that will add value and operating-cost reduction for them.
And we also have the flexibility to design it to meet their needs.
So we'll continue those discussions, and as we reach decision points, we'll make sure to make everybody aware, but we remain very confident on the MAX introduction, the transition and the value it will add to our customers.
Thank you.
We will continue with the questions for <UNK> and <UNK>.
If you have any questions following this part of the session, please call our Media Relations team at 312-544-2002.
Operator, we're ready for the first question and, in the interest of time, we ask that you limit everyone to just one question, please.
Hi, <UNK>.
Yes, <UNK>, let me give you a little context around this because when we pursue productivity and cost competitiveness, we look at all categories of cost.
So certainly, direct labor costs, head count is one of those, but there are many other factors.
In fact, other factors that are larger than direct head count, indirect costs, overhead, infrastructure, facilities, supply chain.
As a reminder, a good portion of our cost is outside of Boeing, so that's where our partnering for success initiative comes in.
So we have set cost reduction and productivity targets that span all of those cost categories.
In some cases that does put pressure on head count, and you've seen that, but it's not something where we set a head count target or apply the same formula everywhere.
It's really important that we give our business leaders and functional leaders the flexibility to tailor their cost structure to be competitive.
So it's not a one-size-fits-all and the business dynamics are very different in different parts of our businesses and different sites.
So that's important from an overall context standpoint.
Now, the reductions that we're making in Puget Sound, that you've seen in the news, again, those are being done within this overall cost-reduction effort and also being done in a way that's very mindful and respectful of our employees.
We are starting first, as you noted, with voluntary layoff packages and or attrition.
I think it's a good reminder that in a Company of about 160,000 people, normal annual attrition is about 4% to 5%, just when you look at the work-force demographics.
So that alone provides us some flexibility on how we can make head-count reductions and do it in a way that's mindful and respectful of our employees.
And so that's where we start.
In some cases we have had to do involuntary layoffs, but that tends to be on the margins and done very selectively where we don't have other options.
So that's our game plan going forward.
I won't give you any specific head-count targets, because that's not the way we do our business.
We set cost reduction productivity targets; we look at all elements for our cost structure, and if it comes down to direct head count, we deal with that in a way that's very respectful of our employees and trying to do our best to help them transition when that does become a necessity.
Hey, John.
Well, <UNK>, I would say our accounting is compliant with GAAP.
That's first and foremost and that's what it is and, obviously, Airbus is under a different accounting standard and they're adhering to that one.
So that's our focus; that's our priority; and that's how we account for everything we do within the business.
As far as focus on cash, I think just like any business, it's about the bottom line at the end of the day, no matter what accounting standard you're under.
It's about how efficient you are with your cash and how effective you are with managing that and deploying it.
So I wouldn't view our focus on cash, frankly, any different than any other business that, at the end of the day, it's all about what's left over and what your costs were and what you sold your product for and then what do you do with it.
An we're trying to keep it simple, in that regard, because, ultimately, we want to reinvest in the future and we want to return cash to those that are putting their trust in us through the shareholder base and invest in our people, and that's the priorities.
Good morning, <UNK>.
<UNK>, let me field both of those.
So, first of all, on head count, as I said earlier, we have set some aggressive cost and cost reduction and productivity targets for the year that are aligned with our overall business strategy; and we are looking at all categories of cost, and that includes beyond head count, both in our internal, indirect costs, as well as in our supply chain and I think it's important that we continue to keep that in mind.
Our direct head count is one important category, but not the only one, and our business leaders are looking across all of those cost categories.
I will say the overall macro trend that we have for this year is that we expect employment will be net down, moderately.
I can't give you a specific number there, but we are on a moderate downward trend enterprise-wide this year as we drive productivity.
As I said earlier, we're also doing that trying to be very mindful of our employees.
And as you know, I have a great deal of respect for our people.
They are world class, they're the best in the world at what they do, and, where we can leverage attrition and the voluntary layoff programs that we've put in place, we will; and so far that approach has been very effective for us.
And I think that's good for the business and good for our people, ultimately good for our customers.
So that's our headset on that approach.
On your second question about services, you're right.
It's something that we have talked about for some time.
I can tell you that we are very serious about growing our services business.
So as we've laid in our strategy for the next planning cycle and, more broadly, for the next decade, that is one of our focused growth areas.
The market is large, as I said, about $4 trillion over the next 20 years.
We have market share room to grow, but, again, I want to emphasize that we are growing services in a growing marketplace.
This is not about taking share from others or dividing up a fixed pie.
This is clearly a growing marketplace, and, with the right kind of business model, this can be good for industry and our customers.
We are taking very specific actions on that.
Our services business leaders Stan Diehl and Ed Dolanski are teamed up.
I think our one Boeing approach, where we work across commercial and defense globally is a differentiator for us.
In some cases we are looking at specific parts inside of our aircraft, as you've seen in the news, where our unique OEM knowledge, we think, will provide value for our customers.
In some cases we're pursuing modification and upgrade businesses, the 737 freighter conversion program, I think, is a good specific example there.
And then some of the work we're doing in information-based services, like gold care and performance-based logistics; those are specific things that we're doing.
So it is a focused, high-priority strategy and we have actions underway to support that strategy.
Operator, we have time for one last media question.
Certainly it's a factor, as we think about competing, and it goes really to the broader objective that <UNK> outlined on competing in the marketplace to win.
No matter whether it's exchange rates or whether the competition being more efficient or inefficient, it's all about competing in the marketplace and, as we discussed, being able to invest going forward, and then rewarding all the stakeholders that have put their trust in us.
That's fundamentally what's behind this.
But, exchange rates are going to move around over time.
We don't rely on exchange rates, but the fact is there's some times where there's an advantage, there's some times with a disadvantage and we have to have the flexibility in our own enterprise to be able to compete no matter what that exchange rate is.
And that's the headset that we have across the team and that's the focus that's going to continue to take place going forward.
That concludes our earnings call.
Again, for members of the media, if you have further questions, please call our Media Relations team at 312-544-2002.
Thank you.
| 2016_BA |
2016 | MXL | MXL
#So <UNK>, let me ---+ I think there are some qualifications to your understanding of the story of Provigent and I can only speculate based on what we've learned in the market.
We don't know the internal goings-on inside Broadcom at that time.
The first thing is that our understanding was that that one major customer was a source of the biggest revenue for them at that time, that was ramping, who later went to an internal silicon solution.
So that resulted in a decline in the revenues of that particular big customer, while they were ramping revenues at other customer.
So as a result, they dipped down before they again started picking up in revenues.
I think that is the big disconnect in the perception of people.
So they actually have been successful in securing design wins with Tier 1 OEMs now that are ramping.
Secondly, one of the reasons they were not successful is that for the longest and the strategy was to bundle their baseband with the RF radio solution that was really subpar in its performance.
When that was coupled in that manner, the OEM's interest in buying both the radio and their baseband was limited until they changed strategy and decided to promote only the baseband.
So what you have an opportunity here is, on the other hand, MaxLinear has been promoting only the radio solutions because we wanted to get to the baseband in a sequential manner on the modem side and the real customer pull was why don't you guys develop the radio first and then we'll come to the baseband.
So what the customers have done in the background is that, they have been qualifying the Broadcom baseband, while they have been working engaged very actively with MaxLinear's radio.
So in that sense, it really works out very nicely when both these assets come together.
So that may explain the contradictions or gaps in your understanding of how it played out and what it's going to play out in the future.
So together, these are going to be revenue synergies and the Tier 1 OEMs that both of us, each are working with will become part of our end customer base for us.
Yes.
I would add a little bit to that <UNK> too.
I think that, also in the process of doing our diligence on these assets, it became pretty clear to us, there is a tremendous amount of IP that's been developed by this very talented team in Israel.
And it actually was a very good thing for us to be able to do this diligence and do this deal because it would have been a very, very, very significant development undertaking internally to MaxLinear to do this organically.
I think we've been very successful because we've been focused on the RF development for this backhaul market, but there is a ---+ I think people could easily underestimate how much work it really took on the development side to get the platform to where it is within Provigent.
So we're very, very excited to be able to take kind of the running start and it's been the tremendous amount of technology that's been developed and move that forward by combining with RF.
So it's a very, very nicely fitting asset from that perspective.
I'm just very glad that we actually didn't have to develop all that technology from scratch.
So other thing, I think we've talked a lot about the microwave backhaul, I think we should not underestimate the value and importance of the millimeter wave baseband modem solutions that Broadcom has developed, as you want to go to multiple gigabits to a maximum even 10 gigabits per second data waves or wireless backhaul and then later the evolution of 5G and small cells and the densification of the networks, the millimeter-wave backhaul is going to be equally if not even more important than microwave backhaul and the market size for that is significantly higher.
So, I think that we're acquiring the millimeter-wave backhaul solutions that we don't even have into the MaxLinear portfolio in terms of both the radio and the baseband modems, and what we get with the Broadcom acquisition position in addition is the future road map items of millimeter-wave backhaul modem and the millimeter-wave radio solutions narrow band, which we will eventually be able to move to CMOS and come up with a single-chip solution for the entire market.
The combination of both assets, right.
If you look at the press release, it clearly states that if the RF transceiver access assets and the RF microwave backhaul radio and the baseband modem assets combined, it's $700 million, of which about $400 million to $500 million is the access side on the 4G market, and then the remaining is the microwave backhaul at that point in time.
And the way it goes to $700 million to $1 billion is the number of transceivers in the wireless access that keep increasing as you go towards massive MIMO and in each radio head, you'll have multiple radio transceivers.
On the backhaul side, you again have a dual carrier multiple MIMO systems also being developed for greater capacity in the microwave links, leading up to millimeter-wave links, that results in a $1 billion SAM we talked about.
And beyond that, in the 5G market, it's a whole different ball game, because, I can get into the details, but suffice it to say that you're going to have beam-forming arrays and massive MIMO with 16 antennas ---+ elements for each sectorized antenna inside a microwave base station.
So if you just do the math, it just exponentially grows, but that's beyond 2020.
So that is how we built up the SAM internally using third-party data and our own data, so that's how you get to these multi-billion dollar market opportunity in the long-term.
Thanks, <UNK>.
Yes, <UNK>, no.
As I mentioned, so we've got a ---+ we closed the quarter with $166 million plus in cash and cash equivalents, so we're going to fund it off of the balance sheet.
And given the guidance that we just provided, we'll be generating again pretty strong cash flow in Q2.
So even once these two ---+ now, when the Broadcom deal closes on June 30 or July 1 on the quarter boundary, if you take in consideration that that cash comes out of that $80 million, so we will be going out of pocket about $101 million.
We should still end Q2 or kind of around that time frame once these deals are funded that again approaching $100 million of cash.
So we don't have any liquidity constraints or concerns.
As you know, we have no debt.
So we feel very good about our position to continue looking at strategic ways to accelerated entry in some of these new markets as well.
So, okay, Tory.
The [better] thing of DOCSIS 3.1 is the primary player who will be deploying the DOCSIS 3.1 data very, very aggressively will be first Comcast, right.
And if you think of Comcast volume of about 6 million to 8 million units of data gateways as of ---+ for this year, let's say, we expect sometime in the Q3-Q4 time frame, around 10% or more we expect in volume quantities to be DOCSIS 3.1.
Now, on a run rate basis, maybe it's higher ending the year, but we don't expect to see more than 10% deployments at this stage of conservative forecasting on DOCSIS 3.1.
Can it be higher.
Yes.
But I think that next year, it really takes off pretty rapidly, because you will be ending the year on a fast clip.
So now how steep will be the hockey stick, I don't know at this stage, but we will have more clarity as we enter the next earnings call.
Yes.
It's looking like a pretty good, strong growth.
I think if you go to Europe and you look at the ads from Sky, the Q platform, that's all MaxLinear front-end.
In fact, 100% of the front end of the satellite gateway platforms in the Sky in Europe ---+ in the UK and we will have growth well beyond that.
Then, even North America, a major satellite operator is deploying 4K satellite gateways on their main box and I think this keeps continuing growing actually.
Actually, we are quite excited that finally satellite gateway is growing very steadily and we hope to continue it to grow into next year and beyond.
It's a three-year cycle is the typical way we forecast the ramps.
So we should see strong growth as even more new operators come online.
Thank you.
Alright.
Thank you, everyone.
I think with that, we would like to end the call here.
I would say, thank you, operator, and also I want to remind everyone that we will be participate in the Deutsche Bank 9th Annual Semiconductor Conference on May 19 in San Francisco, The B.
Riley 17th Annual Investment Conference on May 25 in Los Angeles, the Benchmark Company One-on-One Conference on June 2 in Milwaukee, the Stifel 2016 Technology, Internet and Media Conference June 7 in San Francisco and the William Blair's 36th Annual Growth Stock Conference on June 16 in Chicago.
So we hope to see many of you there.
With that, I want to thank all of you for joining us today and we hope to and look forward to reporting on our progress to you in the next quarter.
Thank you.
| 2016_MXL |
2016 | RLI | RLI
#Thanks, <UNK>, and good morning everyone.
I feel a bit like a broken record with these opening comments, which speaks to our consistency.
But nonetheless, we are pleased to report a good start to the year with these first-quarter results.
Starting with a combined ratio, we achieved an 88 in the quarter, modestly better than last year.
Underwriting income was positively impacted from payroll loss reserve development.
In this case $11 million coming out of the Casualty segment.
As a reminder, during the first quarter we do not perform a full actuarial loss reserve study.
Total gross written premiums was up 3% in the quarter.
Casualty, our largest segment, turned in an impressive 9% growth rate on the strength of a number of different products, including some recent product launches.
Surety was up 7%, continued a very nice run of growth over the last several years.
Property, however was down 13%.
Excluding the discontinued crop and facultative reinsurance of business that we previously reported, the segment was down 7%.
Which is attributable mostly to continued soft market conditions in catastrophe exposed areas.
Each segment turned attractive combined ratios: casualty at a 92, property at an 84, and surety at an 80 combined ratio.
Again, pretty good result leading to the aforementioned 88 overall combined ratio.
Turning to investments.
The first quarter was a good one, with a 3.2% total return.
Our equity portfolio was a strong contributer.
It was up 5.7%, result helped by our overweight utility stocks.
The bond portfolio also posted a positive total return, up 2.6% in the quarter.
And although pretax investment income was down a slight 1%, it was actually up 0.6% on an after-tax basis.
As our allocation to municipal bonds increased compared to the same period last year.
With regard to our minority investments, Maui Jim turned in a slightly lower earnings while net sales continue to grow modestly.
Foreign exchange impacts and ramp up in marketing expenditures served to depress earnings slightly.
Our other minority investment Prime Insurance, was basically flat in the quarter, compared to first-quarter 2015.
All in all, with strong underwriting and investment performance driving our results, book value per share was up 7% in the first quarter inclusive of dividends.
And now with that, I'll turn the call over to <UNK> <UNK>.
<UNK>.
Thanks, <UNK>.
And good morning everyone.
As <UNK> mentioned, we're off to a very solid start to 2016.
Gross and net written premium growth both up 3%.
Removing the impact of crop and the facultative reinsurance business that we exited last year, we were up 5%.
So our core portfolio is on a good trajectory in a challenging market.
At the same time, we were able to deliver another sub 90 combined ratio quarter.
It is not getting easier, but there are still opportunities for the skilled fisherman who know where to cast their line.
Let me provide some more detail by segment.
In casualty, gross written premium was up 9% in the quarter and posted a 92 combined ratio.
We continue to find opportunities both in our established products and within many that we have started in the last several years.
Our excess liability, transportation, and package businesses continue to grow at a double-digit pace.
Transportation and excess liability continue to be a supply side phenomenon.
With many companies suffering very poor results in retrenching or [pulling] MGA contracts.
Most of our package growth has come from expansion of distribution and share of wallet initiatives.
The opportunities are not across the board.
There are differences both geographically and within sub class.
In this market, it takes seasoned underwriting and outstanding claim people to differentiate selection, pick the right spots, and weather the storm.
We continue to invest in new people and new products across our casualty segment.
And we are working hard to get more products online and to scale.
Rate increases are very difficult to come by.
We see casualty rates as flat overall.
But we continue to see positive rate on most wheels-based business, and in [smaller count] professional liability space.
However, we are having to give back a fair amount of rate in primary general liability and larger D&O risk to remain competitive.
Our property segment was down 13% while reporting an 84 combined ratio.
As <UNK> mentioned, after taking out the impact of exited products we were still down 7%.
A lot of this is price driven, as we see rates in cat exposed businesses continue to slide at a double-digit pace.
Rate levels are at about 60% of what they were in 2013 for cat business.
We have lost out on many accounts as rates we believe to be priced at or below expected loss cost.
So the margins in this business have gotten much thinner.
Declining reinsurance rates and a better spread of risk have helped us take some of the pressure off our returns in the bottom line.
But this is not a growth business for us until the underlying economics change.
Meanwhile, we will continue to provide capacity to our best accounts and brokers where we still have an opportunity to make a profit.
Also putting pressure on the top line for the quarter was Marine, and our recreational vehicle products.
We have been able to achieve some positive rate in both of these businesses, but the growth has been elusive as a result.
The declining top line in property has caused some deterioration in the margins.
And resulted in higher expense ratios for the segment.
Our Surety segment continues to grow profitably.
We were up 7% in premium and posted an 80 combined ratio.
Our long-term presence, relationships, and consistent predictable risk appetite are a big advantage for us in this segment.
Surety was led by our miscellaneous product, which grew at a double-digit pace.
These are typically very small bonds where ease of doing business is a critical differentiator.
On the larger surety risk, we see an abundance of less refined competition.
Although results have been good for the industry, we see storms on the horizon for those who view this as loss-free business.
Surety is very specialized.
Hope and luck are not a good long-term strategy.
The odds will eventually catch up with those offering up loose credit and other terms.
Our narrow and deep surety expertise and hallmark discipline should serve us well in the short and long term.
Overall, we had a very solid quarter.
I want to thank and congratulate the RLI Associates for being different.
Their drive, their discipline, and our diversified portfolio of products delivered again this quarter.
I'll turn it back to <UNK> to open it up for questions.
Thanks <UNK>.
We can now open the call for questions.
Yes, this is <UNK> <UNK>, <UNK>.
We've added about a half a dozen products or so that have generated premium to date.
And a few of those have been smaller teams or smaller, mostly individuals, as opposed to teams that have started up products, whether it be in healthcare, miscellaneous professional, in our D&O space.
We've added quite a view in our E&S space, but we really haven't gotten those products up online quite yet
I think it's both.
I think there are some places where we are getting rate where it is needed.
And I think that's probably true of a good part of the industry, because I know the commercial auto and personal auto space in particular.
You guys all have seen they both have not been that good.
So, some of that rate is needed and then I think we've also found some opportunity where rate is, I'll say just available or available to us in a specialized niche.
And today, that's probably more true of our transportation business for us in particular.
Thank you.
<UNK> this is <UNK> again.
I think that we would say, and our underwriters would say that during 2011, 2012, 2013 that may be a lot of our competitors lost their way in regards to price.
They dropped price to either maintain market share or to grow market share.
At that time, at least in the early part of those years we were pretty steadfast in regards to what we were willing to charge for given risk.
So we weren't growing much in the 2011, 2012 timeframe.
And we have been able to take the opportunity in 2013, 2014, 2015.
In regards to current price adequacy, I think it varies risk by risk.
And I'll say class by class.
In the classes that we particularly participate in, in transportation, we feel good about certainly the risks that are in our portfolio.
That they're priced well.
But there are still a lot more room we think out there for pricing action in that space.
It's definitely more rational because we have people either exiting, leaving, pulling [NGA] contracts, or getting substantial price.
I think the people in the transportation space ---+ particularly in public transportation space, a lot of people have their results of been very poor.
And I think they're not fooling themselves anymore.
And they're getting significant price, probably double-digit increases.
And they're willing to let the business walk away now they're letting the business walk away if they are not able to get the price.
Is difficult for us to say.
We hope it's going to continue for a while.
It'll create an opportunity for us.
A lot of it is the same competitors that we've had in the past.
It's just that they have backed it with alternative capital or they backed it with re-insurers who are [letting] it off to alternative capital who are willing to take a lower return.
The one thing we have seen more recently, which is even more concerning I think is we've even started seeing some packaging within the E&S space of the cat risk and liability.
We knew this was happening, and it happens quite frequently in the admitted space.
When we run into admitted competition, but now we've seen a few on the E&S side starting to package the liability and that cat risk with the package.
They are offering both coverages.
Well they're offering both coverage.
It's both are doing it through an MGA.
So the MGA might have admitted paper as well but they're selling both products to the same customer base.
Right.
We don't write a lot of that stuff so ours is very specialized.
We're seeing rate pretty much across the board in that space.
For transportation, typically we prefer to write the $1 million primary, but we write excess as well up to $5 million $6 million.
Most trucks buy $2 million worth of coverage.
There's both a primary policy and usually some type of umbrella or excess policy attached to it.
Apart from transportation.
Obviously, we're seeing growth in the excess liability for the transportation segment as well as the primary.
But we also saw an excess liability product in our E&S space that mostly for contractors that continues to find opportunity.
We always see competition, and new people that come in and think they can be smarter than the last guy, but lost money because they think the rates are a little better.
But, I think you need to be a specialist in that space to make money across all markets.
And we see a lot of people that can fool themselves.
I can not tell you why in wheels-based business because it's not a particularly long tail line for casualties.
So it comes back to bite people fairly quickly.
But, for some reason people continuously get burned, they get out for a brief period of time.
And then their MGA finds a new market, or we'll find a new entrant to compete with unfortunately.
<UNK>, good morning, it's <UNK> <UNK>.
Your memory is correct from last quarter.
We still do have a carryover effect of crop as we said earlier.
That was between crop in the factory that was about half of the decline in the premium for the quarter.
And obviously those had lower expense ratios.
The other, I think as we said last meeting was we've got entrenched.
We like the business, we like our underwriters and if and when that market turns as <UNK> was talking about, we would be in a vantage point where we can capitalize on that and maintain it.
Said differently you don't want to be the one hiring underwriters and miss the opportunity.
As we said before we thought we'd have $8 million to $10 million of crop and we're currently about $2 million into it.
So we'll see this running through the next couple of quarters.
And fact will trickle in a little more evenly over that timeframe.
Two things <UNK>.
You're right, equities had a pretty significant uptick.
Obviously, it was first two months of the quarter were not so good as we all know.
March turned around for the quarter.
As a component of that, the utility sector helped [form] that.
But the fixed income also had a pretty good run, with the decline of interest rates.
So, all in those are ---+ the two drivers would be the fixed income as well as the equity coupled with the earnings for the quarter.
<UNK>, we do.
As we said before it is relative book, like you said it's in the neighbor of about 50% of equity.
If you look at the overall allocation of the investment portfolio, historically it's been about 80% fixed income 20% equities.
And that will vary between mid-to upper teens to low 20% for the equities.
It is a very value oriented strategy with a leaning towards dividend paying positions.
And with the value of oriented strategies being a little more favorable in Q1, certainly benefited.
You're welcome.
Thank you all for joining us this quarter.
It was another good quarter for us.
88 combined ratio, 3% top line growth, in this market I'd call that good.
And our underwriters, as <UNK> said, they're good fisherman.
So we will expect to continue to be disciplined as we move forward in this market.
Thanks again and will talk to you again next quarter.
| 2016_RLI |
2018 | NMIH | NMIH
#Thank you, Skyler, good afternoon, everyone.
Welcome to the 2017 Fourth Quarter Conference Call for National MI.
I'm <UNK> <UNK>, Vice President of Investor Relations and Treasury.
Joining us on the call today are Brad <UNK>, Chairman and CEO; <UNK> <UNK>, our Chief Financial Officer; and Julie Norberg, our Controller.
Financial results for the quarter were released after the close of the market today.
The press release may be accessed on NMI's website located at www.nationalmi.com, under the Investors tab.
During the course of this call, we may make comments about our expectations for the future.
Actual results could differ materially from those contained in these forward-looking statements.
Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings at the SEC.
If, and to the extent, the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments.
Further, no interested party should rely on the fact that the guidance of such statements is current at any time other than the time of this call.
Also note that in today's press release and on our website, we have provided a reconciliation of certain non-GAAP measures used in this call to the most comparable measures under GAAP.
Now to our conference call.
Brad will open with an update on the state of the business, and then <UNK> will discuss the financial results in detail.
After some closing remarks from Brad, we will take your questions.
With that, I'll turn the call over to Brad <UNK>.
Thank you, <UNK>, and good afternoon, everyone.
I'm pleased to report that in the fourth quarter, National MI again delivered record financial results and exited 2017 with significant positive momentum in customer development, portfolio growth and return on equity that we expect to continue in 2018.
In the fourth quarter, we wrote $6.9 billion of new high-quality mortgage insurance, up 12% over the third quarter.
This included record monthly premium NIW of $5.7 billion, which was up 19% over the third quarter, and up 47% over the fourth quarter of last year.
Primary insurance-in-force of $48.5 billion was up 12% over the prior quarter and up 51% over the fourth quarter of last year.
This is by far the fastest rate of growth of insurance-in-force in our industry.
Net premiums earned for the quarter were a record $50 million, up 12% sequentially and up 53% over the fourth quarter of 2016.
This top line growth drove record adjusted net income of $14 million, equal to $0.22 per diluted share, after normalizing for the impact of tax reform on our deferred tax asset and the change in the fair value of our warrant.
Our adjusted return on equity for the fourth quarter was up ---+ was 11%, up from 10% in the prior quarter and ahead of our 10% year-end target.
With the benefit of tax reform and the continued growth of our high-quality portfolio of insurance-in-force, we expect that our financial performance will accelerate, driving a mid-teens return on equity for the full year in 2018, surpassing our prior target of a mid-teens ROE exiting the year.
In the fourth quarter, lenders continued to respond to our strong team and unique customer value proposition, which prioritizes certainty of coverage and sensible servicing.
As of the end of the quarter, we had nearly 1275 approved master policies and approximately 840 active customer relationships.
We activated 29 new customers in the fourth quarter, bringing our total activations in 2017 to 127 new accounts, representing approximately $20 billion of NIW opportunity.
We also continued to expand our business with existing accounts, who increasingly recognize our growing presence in the market, our strength as a counterparty, our superior customer service and the value of our commitment to a broad-based underwriting approach.
Looking at the broader mortgage insurance landscape, 2017 was a good year for our market.
With continued strength in purchase originations, more than offsetting the year-over-year decline in refinancing activity.
Our purchase volume was up 7% over the third quarter, and up 52% over the fourth quarter last year.
For the quarter, purchase mortgages comprised 83% of our NIW.
With a strong economy and the demographic tailwind of millennials buying their first homes, we expect continued growth in the purchase market this year, which bodes well for our growth in the overall market in 2018.
Loss development in our portfolio continues to be better than expected.
We nonetheless continue to take a long-term view of the credit cycle and continuously monitor the flow of business to identify and address emerging risks, before they become an issue in our portfolio.
Shifting to Washington matters, we are encouraged by recent statements from the administration.
We believe the tone from Washington suggests that the FHA is unlikely to expand its footprint in 2018 and that the direction of future policy decisions will be benign to positive for the private mortgage insurance sector.
In December, our industry received a summary of the proposed changes to the PMIERs requirements that the GSEs are developing with the FHFA.
We have engaged in conversations with the FHFA and the GSEs about the proposed changes and expect to continue to provide feedback to them in the coming months.
Once any changes for the PMIERs requirements are finalized, we expect the industry will be afforded a 6-month implementation period and currently anticipate any new rules will take effect no sooner than the fourth quarter of this year.
If the summary changes, as generally outlined to us by the GSEs, were applied to our portfolio as of year-end 2017, we would have remained in a surplus position given our current resources.
We also expect to be in full compliance upon effectiveness and anticipate, we will continue to maintain an access position based on our current capital plan.
A final note.
In light of the benefits that we expect to realize from the recently enacted tax reform, I'm proud to share that in the first quarter, we've paid a onetime $1000 cash bonus to all of our full-time employees, other than our senior executive team.
We have an extremely talented, dedicated group of people at National MI.
All of our employees are shareholders and they work hard every day to deliver value to our customers and other stakeholders.
Our people have truly earned this reward and I am excited about what this team can accomplish in the years ahead.
With that, let me turn it over to <UNK> for more detail on the financial results.
Thank you, Brad, and good afternoon, everyone.
As Brad mentioned, we had another strong quarter and achieved record results across every key financial metric.
We generated record NIW of $6.9 billion and continued our rapid growth in high-quality insurance-in-force.
This drove record net premiums earned to $50.1 million, record adjusted net income of $14 million or $0.22 per diluted share and record return on equity of 11%.
Now to the detailed results.
Primary insurance-in-force was $48.5 billion at quarter end, up $5.2 billion or 12% from $43.3 billion at the end of the third quarter and up 51% compared with the fourth quarter of 2016.
As of year-end, monthly product represented 69% of our primary insurance-in-force, which compares with 66% as of the third quarter, and 60% as of the fourth quarter of 2016.
Given our current NIW mix and portfolio runoff, we expect that monthly product will continue to increase as a percentage of insurance-in-force.
Runoff rate in the quarter was 3.9%, up from 3.8% in the third quarter.
12-month persistency in the primary book was 86.1%, up from 85.1% last quarter.
Total NIW of $6.9 billion was up 12% compared with the third quarter.
Monthly product represented 83% of NIW, which compares with 79% in the third quarter and 75% in the fourth quarter last year.
Premium earned for the quarter was $50.1 million, up 12% compared with $44.5 million in the third quarter and up 53% compared with the fourth quarter of 2016.
We earned $4.2 million from the cancellation of single premium policies in the fourth quarter, down modestly from $4.3 million in the third quarter.
Reported yield for the quarter was 43.7 basis points, up from 43.5 basis points in the prior quarter.
This was driven primarily by the strength of our monthly NIW volume and resulting increase in our mix of monthly insurance-in-force.
Gross premium yield, which is before the impact of reinsurance, was 50.4 basis points, up from 49.9 basis points in the third quarter.
Weighted average rate on NIW across all products in the fourth quarter was approximately 50 basis points, consistent with the past several quarters.
We expect net yield will continue to trend in the range of 43 to 44 basis points, depending on cancellation activity and the pace at which our primary insurance-in-force trends towards the long-term 80-20 mix that we've achieved in our NIW.
Investment income in the fourth quarter was 4.5 ---+ $4.4 million, up from $4.2 million in the prior quarter.
Underwriting and operating expenses for the full year were $107 million, modestly inside of our $108 million guidance and consistent with our comments last quarter.
Underwriting and operating expenses in the fourth quarter were $28.3 million compared to $24.6 million in the third quarter.
The quarter-over-quarter increase was in line with our outlook for the year and reflects the shift in certain spending from Q3 to Q4 that we previously highlighted.
Our fourth quarter expense ratio was 56.5%, which compares with 55.4% in the prior quarter and 70.9% in the fourth quarter of 2016.
We expect to drive our expense ratio meaningfully lower in the coming quarters, as growth in our insurance-in-force and premium revenue continues to far outpace the growth in our operating expenses.
Claims expense was $2.4 million in the quarter.
We had 928 notices of default in the primary book as of year-end, including 533 notices related to loans in FEMA-declared disaster areas for Hurricane Harvey and Irma and the California wildfires.
Excluding these, we had 395 notices of default at year-end, up from 350 at the end of the third quarter.
While some fraction of the 533 defaults in the storm and wildfire impacted areas would likely have occurred in the normal course, we believe a large majority would not have occurred and will ultimately cure.
And this is reflected in our best estimate reserving for anticipated claims on this population of loans.
We paid 11 claims in the quarter, which compares to 4 claims paid in the third quarter, bringing ever-to-date claims paid to 38.
Our fourth quarter loss ratio, defined as claims expensed divided by net premiums earned, was 4.7% reflecting the impact of the disaster-related NODs.
As mentioned last quarter, we expect our loss ratio to be in the low to mid-single digits over the next few years.
Other expenses of $6.8 million in the quarter, included $3.4 million of interest expense and nearly $3.4 million, attributable to changes in the fair value of the warrant liability.
The fair value of the warrant liability is primarily tied to fluctuations in our stock, price with the expense generally increasing as our stock price rises.
Our tax expense for the quarter includes a onetime noncash charge of $13.6 million, related to the remeasurement of previously deferred tax assets and liabilities following the enactment of the Tax Cuts and Jobs Act in late December.
Moving to the bottom line.
Adjusted net income for the fourth quarter, which excludes the impact of the net DTA write-down and warrant fair value charged was $14 million or $0.22 per diluted share.
This compares to $12.6 million of adjusted net income or $0.20 per diluted share in the third quarter.
At quarter end, cash and investments were $735 million, up from $713 million in the prior quarter.
As of quarter end, we have $51 million of cash and investments at the holding company.
Book equity at the end of the fourth quarter was $509 million, equal to $8.41 per share, down from $511 million or $8.53 per share at the end of the third quarter due to the net DTA write-down.
As of quarter end, total available assets under PMIERs grew to $528 million, which compares with risk-based required assets of $446 million.
In summary, we achieved record results in volume, premiums earned, adjusted net income and return on equity.
As we continue to grow our book of high-quality mortgage insurance and manage risk and expenses, we expect that our embedded operating leverage will continue to drive margin expansion and increasing returns on equity.
With that, let me turn it over to Brad for his closing remarks.
Thank you, <UNK>.
We are excited about our record performance in the fourth quarter and the positive momentum we are carrying into 2018.
We believe market conditions remain favorable with regard to demand for our product, credit quality and the tone in Washington.
We are executing on our business plan, and against this backdrop, we are well-positioned to continue to win with our customers, drive strong growth in our high-quality portfolio and deliver strong results for our shareholders.
With that, let's bring back the operator, so we can take your questions.
Yes, why don't we just give you some specific help perhaps that makes it easy to digest.
So on the 533 NODs related to hurricane and wildfire impacted areas, we incurred a little over $800,000 of net losses on that population, which accounts for about a ---+ a little over a 1/3 of our total fourth quarter claims expense.
Adjusting for those exposures, our fourth quarter loss ratio would have been approximately 3%.
Phil, this is Brad.
Yes, the answer is yes.
As we always say, growth for us comes from growing our wallet share with existing customers and adding new customers.
We've made some important strides in the market on both fronts and feel good about how that's translated into the success you see in our NIW numbers.
We believe we have the best sales force and the best customer service in the industry and if you think about it, over the last 2 years, we've activated 300 new customers and we end the year with, as I said earlier, 840 active lender relationships.
So we've done a lot of hard work to win and grow these customers and it's really starting to bear fruit for us.
So we are proud of the results we've delivered and this is all with the backdrop that we've made a significant strides in terms of improving our overall mix between monthly and single product.
So particularly proud of that.
Sure, <UNK>.
We would expect, for the full year 2018 and beyond that we'll see approximately a 21% effective tax rate.
I think, as you saw for us in 2017, and as we've talked about a bit, we would expect to see a bit lower first quarter effective rate due to the accounting requirements for equity compensation, where we record discrete items related to the vesting of shares in period on which those shares vest, but overall, we would expect a 21% effective rate for the year in 2018 and periods forward.
Yes, sure, <UNK>.
Well, I'll clarify.
So in previous calls, the guidance that we had shared around our ROE performance had always been in the context of an exit for the year, exiting 2017 or exiting 2018.
The comments that Brad made in our prepared remarks pivot that and we're now expecting that we'll achieve a mid-teens return for the full year.
Call it approximately plus-15% for the full year.
And to the question around how that build, we would expect that, that will build somewhat during the course of the year, so we maybe modestly below that level in 1Q, but likely in excess of that, as we get into the back of the year.
And ---+ but that, obviously, depends on a number of variables NIW production, the growth in the in force, what we can achieve from a pricing and yield standpoint, how we manage our expenses and how claims development, plus obviously, how capital requirements develop.
But we got a high degree of visibility into those items, particularly for 2018 and feel good about our ability to perform and deliver on that.
We'll call it plus-15% return expectation for the full year.
No.
Look, I think we don't at this stage.
It's obviously, quite early days in terms of conversations around PMIERs 2.0 and so it would be, I'll say both premature and one in our NDA, so difficult for me to provide any specific comments in light of that.
But we feel good about our capital position and our capital options and importantly, how that match the changes that we might emerge under PMIERs 2.0.
So nothing specific to mention relative to the comments we shared during our Investor Day.
Bozo, it's <UNK>.
Just to be specific, what we alluded to on Investor Day was we expected to be in the market for an ILN transaction, as opposed to a capital transaction.
I guess, my questions both are around operating expenses.
I know you had mentioned you expect to see additional cost leverage.
Is there any kind of dollar figure you can give us you're expecting for the full year.
And then secondly on the cash bonuses in 1Q.
Can you just give us what the full amount will be or the number of employees, so we can frame that.
Sure.
Why don't I touch on the first one to start.
We won't be able to give a specific dollar amount of guidance I think, that was a bit unique that we provided in the middle of '17 as the business is developing.
But perhaps that the right way to think about it is, there's obviously a significant move between the third and the fourth quarter.
But again, that was consistent with our expectations, where we expected a portion of the Q3 outperformance that really related to timing items.
The shifting in certain projects and new hires from the third quarter into the fourth quarter actually coming through.
And I know that, that makes it a little bit more challenging to establish a view as to how we'll perform on the expense side in 2018.
So the guidance that perhaps I can offer is that our second half 2017 operating expenses are a good baseline to build from, because if ---+ because the timing differential really just shifted items between third and fourth quarter, but in total, the second half of the year, which was about $53 million as a starting point, and utilizing that and then layering a growth expectation for a business development and we are growing, right.
We ---+ and the growth will drive, expenses beyond that second half annualized run rate in a few ways, we'll certainly be making investments in our people, in our systems to support all the positive momentum and value that we're driving with our NIW and the insurance-in-force.
We had certain headcount additions towards the tailwind of 2017.
We ended the year with 299 employees versus 276 at the end of 2016, so we'll have a full year impact of those salaries coming through in 2018 versus a partial year in 2017.
And while we are largely a fixed cost business, we do have certain variable costs.
So as our NIW and insurance-in-force continues to grow, you'll see growth from ---+ modest growth, but growth related to these variable costs.
So overall, if you sort of put all of that into the mix, we would expect to see high single digit to double-digit growth in our operating expenses, off of that second half annualized run rate.
In terms of how that actually plays through ---+ in 2018, quarter-to-quarter, what we will typically see is slightly higher expenses in Q1 than we do through the remainder of the year, because of the reset of certain employee benefit items like our 401k match and payroll taxes that hit in more size in the first quarter.
No.
And Randy, just remember for us, obviously, we are in a significant growth phase.
So even before consideration of PMIERs 1.0 or changes that might emerge under PMIERs 2.0, we are consuming capital to support that growth.
We are building a significant amount through organic cash flow and organic equity built, but there's still an amount in excess of that, which is the ILN that <UNK> alluded to, that we have talked about in our November Investor Day.
So we're still in growth.
So it's not quite the same perspective and I think, as I said, it is ---+ it's early so the both and we're under NDA, so it would be both premature and candidly difficult for me to give ---+ to comment with too much specificity, but I'd reiterate that, we feel good about our capital position and our capital options and how that maps to any changes that might emerge under PMIERs 2.0.
Yes.
Yes, it was about 32% and the ---+ in the fourth quarter, we had ---+ and so this will emerge when you get a copy of our K tomorrow, we had certain market conditions, our SEU's which vest on the achievement of certain stock price thresholds.
And so in the fourth quarter, we had those items vested, which drove a smaller but similar dynamic to the windfall benefit that we see outlined ---+ that we typically see and have outlined to you in the first quarter and then in the normal course, we do a small amounts of investment income that relate to tax examinees and so both items contributed to an effective rate for the fourth quarter on an adjusted basis that was modestly below 35%.
Yes, so persistency for us in the fourth quarter was 86%.
Over the next few years, I think we expect our persistency to remain above long-term historical averages for the sector, which we peg at around 80%.
I think for the issues that you're alluding to, the large amount of our insurance-in-force that relates to our most recent vintages.
And also they'll, obviously, emerging over the last several weeks is, what's happening in the broader interest rate in refinancing environment.
I think over the longer-term, probably out past a few year horizon, we would expect our persistency to be in line with the rest of the market.
Although again, the markets persistency level will move year-to-year based on those variables, particularly the interest rate environment.
Yes.
Sure, Chris.
Our markets always competitive.
6 participants ---+ so that's a constant.
We know we have to do a good job to win with those customers.
We are always trying to do that.
Pricing ---+ market pricing generally stable as it has been and it offers up an opportunity for us to generate the kind of returns we're talking about earlier on today's call.
So from an overall standpoint, no real change in the overall competitive dynamic.
No.
Geoff, so this will ---+ right, so obviously the starting point is 21% effective rate on which we are going to be scaling off of in the first quarter and future periods.
The magnitude of that windfall benefit and the impact in particular quarter really is driven by where our stock price is at the vesting date, which for us is largely concentrated in the first quarter, because when we make our rewards versus the stock price underpinning the awards at grant.
The dynamic that you're seeing play through if that for tax purposes, the expense is crystallized and recognized based on the valuation at vest, whereas in for GAAP purposes, the expense is crystallized and recognized based on the grant date fair value and so it's likely, I don't have in front of me candidly, that you will see a similarly scaled effect on our first quarter '18, because of where our valuation is today related to if you look back where we were in each of the first quarter's over the past several years and what that means relative to the grant date fair value versus the likely fair value at the vesting date, when you get to 2019 and 2020, let's say, it really depends on where is the stock price in the first quarter of '18, first quarter of '19, first quarter of '20, and how does that relate to what will be the grant date fair value for awards that are made in the future periods.
Yes.
Maybe a touch low, but that seems reasonable.
It's a first quarter item.
So just ---+ we've got 300 employees, we consider our executive committee to be, call it 10 or so individuals, and it's $1000, pretax for the rest of the population.
And I would like to thank you all for joining us on the call today.
| 2018_NMIH |
2015 | DHX | DHX
#Sure.
So I'll start, <UNK>, and <UNK> can enhance.
So on the product development, I think what you saw on the quarter is that as we continue to build out the product development and technology teams across the organization what we've been talking over the course of the year that we've been a little bit behind in terms of hiring there.
So you saw a little bit of catch up there in the quarter along with some costs related to really integrating the oil careers website into the RIGZONE as we kind of finalized the rebranding of that segment.
So that's really contributing to what you're seeing in terms of the cost flowing through in the quarter.
I think in terms of product development and investments moving forward, what we've been saying over the course of this year which is still a case is that we look at the investments we've been making certainly in Dice and Open Web, I think moving forward we expect to get some return on those investments.
We are kind of guiding exactly where we're going to be with that on 2016, I think that is generally, where we're moving.
Second part of the question was related to FX right.
So I guess in terms of expectations for Q4, I mean I think we're still going to have impact related to FX in the quarter if you look at where the rates were in Q4 year-ago versus where they are now and what kind of most forward contracts we're saying for FX rates moving through Q4, I think we're still going to be impacted as we move through the fourth quarter.
Sure.
So I think overall the market hasn't changed very much.
I think our performance has been enhanced as we have integrated Dice with the former IT Job Board which is now Dice Europe.
So I think our own operating performance in that market .
in those markets specifically in the UK and the Netherlands and Germany over the last year, we've made a number of improvements.
So I think the overall environment is probably roughly the same, but I think our operating execution has been on the continued improvement pattern.
That is (inaudible) where you see the growth come from.
So I would say the market continues to be really rough for us.
I don't think we see any near term improvements as I mentioned earlier.
There are a handful of signs and I would say it is more a handful, where customers now think that they have cut too much in terms of their recruitment activities and they're starting to think about leveling off and coming back at a higher level, but those are few and far between.
I think from our own operating experience there tends to be a lag both on the downside and the upside and we saw that in the previous downturn in 2007 and 2008 and then the comeback in 2009 through 2010 where there is probably three to six months lag.
So if you go back right about a year ago from now is when the steep fall started.
So somehow, the customer contracts that we put in place in Q4 for calendar year 2015 reflected reduced demand.
We're anticipating that there could be some further reductions from some of those earlier contracts that didn't fully right size.
But I think then you'll start to see the year-over-year performance from individual customers will start to level off coming out of the fourth quarter and into 2016.
So I think you're going to see a little bit of a mix, but we don't believe it's going to get better in the very near term.
Sure.
So on the first one, some of it is qualitative and some of it is quantitative and some of it is anecdotal feedback we get from users, professionals who use our services across the broad spectrum.
But if you take for instance on the Dice side the number of applications and the rate of applications has been increasing during all of 2016 as we've made the process for engaging with job postings and for actually applying job postings easier.
So the rate of applications is varied, but it's been up year-over-year kind of at the 30%, almost 30% range.
The number of first time searchable resumes or profiles has increased relatively significantly during this year to the point where at various times it's almost over 100,000 in the 90-day bucket.
So we've seen a level of activity and a level of engagement across the board those are specifically on Dice.
On RIGZONE there is probably a mix between the overall market conditions and what happens in the downturn from engagement standpoint but we've made a number of changes in the service including on RIGZONE launching for the first time, detailed job alerts that users can create on their own, where in the past we did all the searching and sent job notifications from the site, now people can do it on their own.
So we've seen an increase in engagement in people doing search alerts, so there is a number of things, both qualitatively and quantitatively from a user experience standpoint.
Having said that, there is more to do and we continue to focus on each of the brands with increasing the usability and efficiency with which people interact with our sites.
So <UNK>, I will take the second part of the question.
In terms of looking out to 2016 we're obviously not guiding towards 2016 as we sit on the call today, but I think as we look at the trends that we see in Q3 we're starting to see a number of positive signs through a number of different brands and you see that reflected in some of the revenue growth rates, you see that reflected in margin expansion and some of the core segments that we have.
I think as we sit here today and as we look out into Q4 and look on 2016 our expectation is that those trends would continue as we move into 2016 and I think we've been saying over the course of this year as we move into next year and out past next year that yes margin expansion is certainly something that we have expect based on the investments we were making.
I think that certainly improvement in the energy market would help although we're not banking on that in 2016 as <UNK> said and I think the third broad area, looking out into 2016 is really the broad suite of new products that we have been talking about over the course of the year.
So <UNK> mentioned a few today in his remarks.
We have talked about shift.
He mentioned Spotlight.
We have talked about Open Web quite a bit.
We have talked about some of the other new products at the Investor Day backs a number of months ago.
So I think as we start to get more traction from that suite of products, well the revenue contribution probably won't be huge in the beginning part of 2016.
Our expectation is that we will start to see some benefit from those as we move through the year.
Yes, I think the competitive of landscape this year or probably the past 12 to 18 months has been really interesting for us.
The core traditional competitors are still that core traditional competitors LinkedIn which we always talk about as our most important competitor, that hasn't changed.
They do a fabulous job in some respects.
We think we do a fabulous job in other respects and we have a nice place in the market as it relates to them.
I think the traditional generalist Monster Crew Builder, StepStone, Totaljobs, Seek all continue on this same path.
I think from an aggregator standpoint the aggregators continue to be more and more important in the marketplace although our belief is that they have a more dramatic impact on generalists then they do on specialists and we continue to drive usage within our sites as a destination without the reliance on the pass-through.
So I think from a competitor standpoint those are all broadly the same.
I think as you pointed out and we've said this before including on Investor Day one of the things that's happened over the last 12 to 18 months as you have a lot of new start-up competitors that given the availability of financing which has been plenty for over the last 12 to 18 months has given them life and I think given the market there is much more willingness to trial those.
So we certainly see that in the tech business.
Those startups continue to be relatively small and we think that our size and our historical presence of the market gives us an ongoing advantage, but they have been there and it is been helped by the fact that there is financing and the willingness to trial.
Yes, so <UNK> it's a great way to phrase it and thanks for the clarification.
I so let me refine a little bit what I said.
I think in our core businesses is what I said I think holds, I think from a traditional provider of the services we provide and that Monster and Crew Builder and them Hot Jobs and Seek StepStone, Totaljobs and others as generalists provide, that hasn't changed very much.
I think CareerBuilder specifically has done a great job of expanding its horizons.
So they now get into places in the marketplace where we don't actually compete.
So I think you, they would take exception I think would be fine because I think they may take exception because they are expanding their horizons outside of things that we focus on.
I think from the core what we focus on I don't think the competition has changed very much.
From them, sorry just to be clear.
| 2015_DHX |
2017 | KHC | KHC
#Thank you, <UNK>, and Happy New Year to everyone
As I hope you saw in our press release, we had solid Q4 results overall with solid sales and business investments to further improve the health of our brand
But I'll start by focusing more on what we have been able to accomplish in the first full year of The Kraft Heinz Company
It formed the base and in many ways that's our agenda for the year ahead
So, let's start with our progress against the three objectives of our strategy that we laid out at the beginning of our merger
In our first objective, to deliver profitable sales growth, on the top line, we built positive momentum through the year, despite the commodity headwinds that persisted during the year, resulting in profitable sales and flat to positive organic sales growth in all regions except Europe
We generated significant gains from our Big Bet innovation strategy in our efforts to capture whitespace opportunities
This was led by condiments worldwide, especially ketchup and barbecue sauce, pasta sauce in North America and Latin America; soy sauce in China, and hot sauces and mayo in Europe
Our investments also led to better market share trends over the course of the year in core categories such as sauces worldwide including pasta sauce in Canada and Latin America; green cheese and mac & cheese in the United States, UK beans; baby food in Italy; and in Australia, beverage
That said we still have significant areas to improve in 2017. They include Indonesia soy sauces, U.S
cold cuts, baby food in Canada, and our non-measured channel shares in the UK to just name a few
We also pushed into places, whitespace, where Kraft Heinz did not previously compete, products such as Devour frozen meal, Cracker Barrel mac & cheese and Heinz Barbecue Sauces in the United States
There was Planters which now is available in both China and the UK
We also brought Heinz Mayonnaise to Europe, Brazil and Australia
And we made significant progress toward extending our foodservice presence, not just in the west but through strong performance in Canada, Brazil and Russia as well
Nevertheless, there is much, much more to go after in 2017 and beyond
It's also clear that our go-to-market investments are paying off and delivering profitable growth through distribution gains and better performance at retail
We supported go-to-market activations with better management of our field teams in Canada, U.S
, Brazil, Russia and China
These efforts resulted in phased execution improvement in a challenging retail environment all around the world, including Australia, Japan, China, Russia, Egypt, Brazil and Germany
And then our second objective, we made meaningful progress toward achieving best-in-class margins
Through our ritual and routines, including zero-base budgeting and managed by objectives, we drove sustainable improvements throughout the year
ZBB savings were a key driver of value creation across the company delivering faster than expected savings at the outset of the year and contributing to the company achieving $1.2 billion in cumulative savings since the inception of our Integration Program
As of today, we have cascaded personal MBOs directly from company leadership to more than 6,000 employees worldwide
This is a critical step in aligning everyone behind common goals and improving our day-to-day execution
To put that number in context, this represents more than 50% of our white collar population around the world
And in supply chain, we invested more than $1 billon into manufacturing upgrades in our footprint program to modernize our facilities and enhance our capacity for innovation and quality
We went live with our Global Business Services in Europe, which together with our shared service integration in North America, helped drive processes standardization and improved service levels
Importantly, as all of these was happening, we achieved a global case fill rate of 98%
We also invested heavily in our people, in our capability
For example, we promoted more than 1,700 team members worldwide last year
We expanded our talent acquisition programs worldwide, growing the volume of applicants by 40%
And in our ongoing effort to grow a better world into a partnership with Rise Against Hunger, we package and distribute more than 65 million meals to people in need
Finally, on the capital structure front, our leverage ratio was reduced to approximately 3.6 times EBITDA and we kept up our strong dividend payout
<UNK> will build more on our capital structures improvement in a moment
Overall, we made solid progress in our first full year as a merger company and it set a strong base for us to build upon in the next phase of our development
So let's turn to slide three to review our Q4 and full year financial results and how the numbers bear out our progress
As it relates to the company sales, there're really two things to highlight
First, for the reasons I mentioned earlier, we drove sequentially better organic sales growth driven by volume/mix improvement in all segments
The primary contribution to this growth were condiments and sauce globally and costs in refrigerated meal combinations in the United States
Second, we had solid price realization in most segments during the year despite a deflation in key commodities like dairy, coffee and meat in the U.S
as well as the trade investments we made in our UK and Netherlands business
Net EBITDA full year growth at constant currency was driven by strong cost savings from integration and restructuring activities, favorable net price and growth in our Rest of the World market
I should note however that our rate of growth in Q4 was held back by two factors
First, we began to lap integration savings that began last year in Q4. And, second, we accelerate our investment behind growth initiatives late in the year, as well as trade investment we made in our UK and Benelux business
Dropping down to our adjusted EPS, both Q4 and full year were up more than 50% excluding the extra week last year, primarily driven by EBITDA gains and the refinancing of the preferred stock in June
Now, I will hand over to <UNK> and <UNK> to highlight our performance in each reporting segment and what we expect going forward
<UNK>?
Thank you, <UNK>
Let me start by saying that 2016 was a solid year for our company
We made a great deal of progress in realizing our potential
But we still have a lot to improve in order to deliver our expectation for 2017. In 2017, we enter year two of our multi-year merger plan
Headwinds remain from highly competitive retail markets to persistent foreign exchange headwind, especially in Europe
So at the top of our agenda is an even sharper focus on profitable organic sales growth
By that, I mean that we will focus our investments in innovation, renovation and marketing on our leading brands, along with prioritizing fewer, bigger and bolder bets within our portfolio
These will include expanding our core by innovating into adjacent categories and new segments, where Kraft Heinz brand have the ability to win
It also includes Big Bets in existing categories by aggressively targeting on-trend segment where you're currently under indexed, such as the 2016 bet we laid in the U.S
natural cheese
For competitive reasons, we do not have a list of key initiatives to provide today, but we will certainly highlight them as we roll them out in the coming quarters
And finally, globally, we're focusing on three key brands: Heinz, Kraft and Planters, and in five categories with global potential; condiments and sauces, cheese, meals, nuts and baby food
The emphasis within these opportunities will be to increase investment levels and improve execution, which includes applying best practice for wining in each channel, from traditional retail and discounters to foodservice, and over time e-commerce
All this will be fueled by significant incremental investment in marketing, both for market capabilities and product development, covering North America, Europe and rest of the world
Our agenda also includes achieving best-in-class operating efficiency with top quality
We plan to reduce complexity through active assortment management in United States, an achieve best in class operations efficiency and quality within our manufacturing facility
Also great execution begins with great training and we are actively building a new methodology and training platform to support our performance-driven organization
But let met turn it back to <UNK> to wrap-up by explaining how our agenda will translate into 2017 financial performance
Hi, <UNK>
Hi, <UNK>
Good afternoon, this is <UNK>
Look, about the repatriation, you're right, there would be the brands coming back to us in January 2018, and there is some work to be done in preparation
But from a cost standpoint or from a revenue standpoint, there is really no benefit or impact in the year, right
There is preparation from marketing, from distribution, from our manufacturing capabilities to hit the ground and be running, but I don't think there will be an impact to – on the cost or the revenue for the repatriation efforts
Hi, <UNK>
I think, it was important to highlight that, just to give a sense of the direction of the focusing looking at three global brands and five top categories that really, when you mix all them represent 70% of the business, and you're going to move forward
That is United States and North America like I mentioned, but also worldwide
And so I don't think there is a distinction really in the amount of investment between U.S
and international
They will be – they'll be moving together
They'll pursue different states and different – what the business is by country and by region, but as a focus looking mid-term, those are the ones
I think, it's important in your question also to highlight that our business is a balance between global brands and local brands
Global brands having the strength and the scale to grow multi-categories and multi-regions; and the local jewelry (39:49) like we like to call customizing to consumer needs on local markets and regions
So we are really happy with our portfolio and the balance we have today between the global brands and local brands, and the specific categories
But those three global, we're calling global brands, in those five categories is really what's going to push us to the next level that we're calling this balance towards profitable growth
I don't think there is a distinction between investment in North America or internationally
It would be case-by-case depending on the state of the business at the regional level
Hi, <UNK>
Look, we always look with this, the way that we think the categories and the brand, we always look and think about profitable and organic growth
So the way you're directing here is all organic
And the reason for that is actually you're right to say it's true
A small part in the total portfolio, but very relevant in many countries important for us, including Canada, including Australia, including the UK, for sure Italy like you mentioned, for sure China, Mexico, you're getting to Brazil, Russia that's the biggest category we have there
So when you see all this, even the small presence, where we have a presence it's significant through the Heinz brand most part of the time, sometimes local brands like Plasmon in Italy and so on
And we believe there is a lot of opportunities, like you said, in whitespace geography, again, country-by-country, region-by-region
There is a role that can be played and we want to look at that with the right expectation
Good evening
Hi, <UNK>, it's <UNK>
Like we mentioned in the last call and continue to be, the point, our goal in Europe is to return to profitable growth
We really think that our performance – that was a weak performance in 2016 and Europe has absolutely no correlation with the cost side and like you mentioned the overhead, I think, there was a lot of correlation on the stakes, on the go-to-market and things on the promo side, volume mix that didn't work out as we showed, and what we are actually encouraged about is when you see the Q4, the performance by all the business, especially the Benelux and the UK had improved significant looking at sell out consumption, looking at share on the main category, soup, beans, sauces, and you already have 70% of renovation for the year ready in the market
So the results from the Q4 plus what you're seeing now in January moving into February, I really encouraged by a much better performance 2017 in Europe than you had 2016. Still going to be challenged, the retail environment is challenged like the density (54:59) between FX rate and everything that's happening in the continent
But that being said, I think the performance Q4 is really encouraging about we can have a better performance looking at 2017, than our weak performance in 2016.
Look again, when we talk about profitable growth and like <UNK> mentioned in the beginning, our idea of sales mix, really sales flowing to the bottom line
We have no intention of gaining sales without profitability
Component that come attached to that
There are investments that needs to be done in the marketing side and in go-to-market side that I think we have been doing and we'll continue to do it
But that being said, if we're able to create profitable growth sales in Europe that should come also with a better performance in the bottom line
| 2017_KHC |
2016 | CUTR | CUTR
#Hi, <UNK>.
We ended the quarter at June 30 with about 50 field sales guys here in North America.
We're targeting around the 60 range by the end of the year.
But we're going to be opportunistic as the year goes on to add accordingly.
On the international side, we're a mixture of direct and distributors but we've got about 25 to 30 salespeople and we'll continue to add there and be opportunistic as well, as we see fit.
Yes.
It's really more of the product mix and just fluctuations from quarter to quarter.
Not seeing significant ASP resistance there, it's mostly product mix.
We're not managing that from day to day.
We have a certain threshold at which we want to accumulate as much as we can at this level certainly.
The Board approved initially a $40 million repurchase and then second, a $10 million share repurchase.
And we, at this time, will continue to purchase our shares.
The later, <UNK>.
As you know, we are making pretty significant investments in the business as it is.
Sales force and R&D investments are at record levels.
So we think what we don't need to have that much cash on the balance sheet.
We think that at this price level that it's a great time to be opportunistic.
I'd say yes and yes in general, <UNK>, that we're just continuing to promote and invest in the marketplace and become better known out there and more aggressively seek market share.
So it's kind of across the board.
We had a meeting with the FDA to lay out what we think is the path to getting broader indications.
It was a constructive discussion.
We've done clinical work that we're currently in the process of assembling for a 510(k) submission.
I don't want to get into that level of detail, but we're encouraged by our findings and we hope to work very closely with the agency to secure broader indications.
Again, I think we're very encouraged with where we believe we can go next with the truSculpt technology and also include some features and benefits that we think are going to make a big difference.
And then of course, the 670 wavelength for enlighten, we think is a big deal as well.
So I think those two development programs are going to have, I believe, a very positive impact on the business.
Thanks, <UNK>.
It certainly is, <UNK>.
We're working on a pretty amazing technology to remove the five most popular tattoo ink colors.
And as you know, different colors of light are more effective on certain tattoo inks.
So by having a three wavelength solution, we're the only ones out there that can provide the patient with better outcomes with fewer treatments.
So we think this is a big deal and we also think that adoption of next-generation tattoo technology is in its infancy.
Well, the loss actually was a small profit once you remove the nonrecurring legal settlement and associated expenses.
And then when you add back the non-cash related stock-based comp and amortization, depreciation, it gets about a $1 million profit.
The legal settlement and the associated expenses are in general and administration expenses.
$1.2 million.
That's correct.
The cash flow from operations consumed about $300,000 but when you add back to $1.2 million, you get nearly $1 million of cash accretiveness.
Well, certainly with the Board's approval of the second repurchase program, there's comfort that getting our cash down to somewhere in the $20 million range is something that we think is more than sufficient.
We haven't had a specific discussion to talk about at what point do we stop repurchasing stock.
But we think this is a great time to be buying our shares.
Thanks, <UNK>.
I can't disclose any of the specifics of it, but it's a one-time nonrecurring legal matter that we had where there was a settlement fee as well as there were legal expenses associated that will not continue forward.
Yes, <UNK>, we are bound by a confidentiality requirement here.
You're welcome.
Thanks.
Thank you for participating in our call today.
We will be attending many investor marketing events in the third quarter and hope to see in the coming months.
We look forward to updating on our business progress in the third quarter 2016 conference call in November 2016.
Good afternoon and thank you for your continued interest in Cutera.
| 2016_CUTR |
2017 | HSKA | HSKA
#Thanks, <UNK>, and good morning everyone.
We are pleased to report a strong performance for the second quarter of 2017.
Our business was healthy, our customers were broadly strong.
Volume, margin and price improved in key products, and veterinary industry-wide market indicators continued to be positive and encouraging.
Heska's good momentum continued into the second quarter of 2017, with revenue rising 15% to $34.3 million as compared to $30 million in the second quarter of 2016.
Revenue in our Core Companion Animal Health segment, or CCA, was $27 million, a 10% increase over $24.5 million in the second quarter last year.
Revenue from core blood diagnostics grew 33% year-over-year, driven by strong testing supply sales and the successful extension of our standard new subscription term from 5 to 6 years, which triggers capital lease upfront instrument revenue and expense recognition.
We will discuss the impact that will have on modeling in future quarters in a little more detail shortly.
In line with our expectations, we saw a 7% decline in imaging as we are in the initial phases of rolling out our subscription program for the imaging product line that has been so successful for us in blood diagnostics.
In imaging, we purchased with cash the remaining minority interest in the Heska Imaging US business and have integrated it with international imaging into a consolidated Heska Imaging global business.
We are on our way towards integrating this global imaging diagnostics capability into a broader Heska strategy of providing the industry's best end-to-end diagnostics testing and software suite to veterinarians throughout the world.
Our Other Vaccines and Pharmaceutical segment, or OVP, once again had an outstanding quarter that came in a bit ahead of schedule, generating revenue of $7.3 million, up 33% from $5.5 million in the second quarter of 2016.
While growth was broadly spread throughout the entire customer base, increased revenue from our agreement with Eli Lilly's Elanco unit served as the main driver.
We expect OVP revenue to moderate in the third quarter before finishing off the year strongly in Q4.
Gross margin improved in Q2 to 43.5% as compared to 42.3% in the second quarter of 2016.
As we have mentioned in the past, we typically expect margins to remain consistently in the 41% to 42% range, with fluctuations primarily resulting from product mix.
That was the case this quarter as the OVP business achieved significantly stronger margins from their own product mix in Q2 than they did a year ago, while at the same time delivering a larger percentage of consolidated revenue in Q2 to this year as compared to last year.
We were also pleased to see margins at the higher end of our internal range in blood diagnostics and imaging during the period, along with a favorable mix of higher-margin blood testing supplies over lower-margin imaging sales and rentals.
Total operating expenses as a percentage of sales improved 30 basis points to 30.2% from 30.5%, coming in at $10.4 million as compared to $9.1 million in Q2 of 2016, which represents a 14% increase.
This increase was driven partially by expenses related to our international imaging business, which we did not own for most of the comparable Q2 period.
Excluding those costs, operating expenses grew 12% on a year-over-year basis.
Operating income grew 28% in Q2 to $4.6 million compared to $3.6 million in the second quarter of 2016.
Depreciation and amortization was $1.1 million in both Q2 of 2017 and '16.
And stock-based compensation was $0.7 million this quarter compared to $0.6 million in Q2 last year.
Our effective tax rate for the quarter was 32.9%.
As we discussed in Q1 of this year, our tax estimates have been greatly impacted by the new ASU 2016-09 accounting standard that changed the accounting for the tax treatment of stock exercises.
We received approximately $2.2 million of tax benefits from this change in Q2.
Taking into consideration the relative size of these continuing benefits along with other factors including, but not limited to, estimates of future taxable income and the length of the carryforward period of our deferred tax assets, we took a partial valuation allowance of $1.8 million in the quarter as an offset to these large stock benefits that may affect our ability to use all of our deferred tax assets in the future.
Net income attributable to Heska Corporation for the quarter was $3.3 million or $0.44 per diluted share, a 32% increase over the $2.5 million or $0.35 per diluted share we generated in the second quarter of 2016.
Turning to our capital management and balance sheet, late last week we announced the new $30 million revolving line of credit with JPMorgan Chase, which can be expanded to $50 million subject to conditions.
This new revolver replaces our $15 million asset-based line of credit and improves ---+ this improved liquidity, flexibility and expandability gives us options as we continue to pursue strategic growth initiatives.
Moving on to the balance of the year.
As mentioned earlier, we have now completed a full year since moving our standard new blood subscription term from 5 to 6 years.
As we lap a full year of these stronger commercial programs, we'd like to help investors and analysts who have not updated their revenue models to do so.
Securing an additional year of blood diagnostics subscriptions has enhanced the overall value of each annuity and lengthened the benefit period between Heska and its customers.
With the launch of 6-year terms last year, the equipment portion of each subscription moved from operating lease to capital lease recognition, resulting in more upfront instrument revenue matched by more upfront costs.
As we enter our fifth quarter under this accounting, instrument revenue and cost recognition in the first month of newly signed subscriptions will now be similar and more easily comparable to the prior year period.
Assuming steady new subscriptions and current user activity going forward, we currently expect the contribution of blood diagnostics revenue increases to vary but to be generally between 15% and 20% compared to the prior year period, which will now also have similar first month instrument revenue and cost treatment.
This accounting treatment of the initial month of equipment revenue and cost does not alter prior agreements and generally improves the total combination of margins, return on capital, profitability and subscription value for 6-year terms as compared to 5-year terms.
And because these 6-year agreements are better for customers and for Heska, we intend to continue to offer these standard longer terms going forward.
Now with all of these things in mind and consistent with our last call, we reiterate that for the balance of the year, we continue to see revenue in the range of $140 million to $144 million and diluted earnings per share in the range of $2 to $2.05.
With that, we would like to open up the call for your questions.
Operator.
Nick, it's <UNK>.
I think the folks we added in the first quarter were great.
I think some of the tests that we added towards the end of the year and some of the utilization from the folks towards the end of last year was also strong.
So I wouldn't read too much into it.
I think it was just a good continuation of subscriptions models picking up steam.
Yes, I mean, I think, clearly, 33% is not the sustainable long-term number.
We've said for a long time kind of a little bit above inflationary growing, which may be given that inflation is non-existent, maybe that's a little bit conservative.
So I can't draw out a specific number, but it clearly hasn't been 5%, it clearly hasn't been 33% on a long-term basis.
I think we did call out that we think they will moderate a little bit.
They were a little bit ahead of schedule for the second quarter.
I think that will moderate a little bit in the third quarter.
And our visibility for the full year is generally pretty good in that business, and we think the fourth quarter will be fairly strong.
Yes.
I think the ramp is steady.
I wouldn't model in the ups and the downs.
I think our guidance on that is a little bit below where we came in this quarter, and we just feel a little more comfortable modeling that than modeling the high-water mark.
When we have lower imaging and lower allergy and lower Tri-Heart and some of these other things that are lower-mix products in a period compared to higher margins and subscriptions, margins will tick up over time.
And I think we've seen that over the last couple years.
So as long as we continue to gain more subscriptions and we retain those folks and we layer on new folks and subscriptions become a larger percentage of our revenue, I think we can pick up a basis point here or there.
But I would be cautious about adding 150 basis points because we had a couple good quarters in a row.
I think we have the powder that we need to do things that are on our list currently.
And so I think the finance team has just done a great job peeking around the corner on that and giving us not only the $30 million but the ability to under some conditions to add the additional $20 million.
And we're like anybody else.
We have maybe 5 opportunities, and 5 could come to fruition or 2 could come to fruition.
And so we want to have enough ability and flexibility if it turns out to be all 5.
So I think we're in a pretty good place there.
I think we're not ready to outline exactly what 2018's business development and strategy will be, but I think we have enough powder to execute on the targets that we have in front of us right now.
So just the macro was really good in Q2.
I mean, you saw that with same-store sales in [BCA].
Our survey data also said that macro was very good.
Can you give us any color as to whether or not vets were maybe spending above their monthly minimums.
And as a follow-up to that, are you seeing any directional changes.
Or do you anticipate maybe changes in the way you structure your monthly minimums.
<UNK>, it's <UNK>.
We see good end user prosperity.
Vets are doing well.
They're in the middle of their busy work season.
Summer tends to be their busiest time seeing patients, so it tends to be a lower volume in terms of looking at strategy and optimizing their own business.
And what I mean by that is they're so busy seeing patients and running tests that they're probably not in the throes of trying to make modifications to their testing equipment and those types of things because there's clients in the exam room.
So we see really good end user use.
I had to laugh.
Just yesterday there was a CNBC article, I think, that came out with some mortgage data.
And 33% of millennials consider dog-friendly features like a fenced yard, as I think it was the #3 factor in wanting to purchase a home.
And that was ahead of having children and some other things that you would normally put ahead of dog-friendly features.
So I think the long-term trend moving towards kind of a humanization of pets and how valuable they are to the kind of the family experience is definitely intact as well.
So all of what you say, yes, there is a very nice macro market.
But it's still a lot of work to grow within a rising macro market.
And I think our teams are doing a really, really good job of doing that.
And I know I ask this probably every quarter, but the R&D expense in the rapid tests, are we anticipating now that still maybe back half of the year or should we maybe push that back a little bit.
I think we're still planning on at least one lateral flow test launch in the fourth quarter.
And as that launch comes on line, there may be an increased spend in late in the fourth quarter and on into the first half of next year to add the additional tests.
For us, the bigger hurdle is getting the first test through.
So I think we're on track.
I think actually, we're discovering that we can spend a tad less money than we had maybe forecast on the front end.
That's great.
And just any anticipated changes with epoc changing hands.
I'm guessing you guys already have some sort of supply agreement in place.
But any disruption or any color on what that impact might be.
No.
Actually, we like very much where that product landed.
Siemens acquired the epoc blood gas analyzer equipment because of the Abbott Alere acquisition.
And our contract is very solid and follows the product, so we don't see any disruption.
We're somewhat excited that it landed at Siemens.
I think that bodes very, very well for the long-term investment and scalability of that product very well.
And the more they're able to invest and expand that product line and expand volumes on a global basis, I think obviously it is good for us in the veterinary space, where we have some exclusivity in some key markets.
So we were very happy to see how that landed.
Perfect.
And if I can just to squeeze in just one little short one.
Just for clarification, the blood ---+ when you talk about blood companion diagnostic, we're talking about chemistry, hematology and handheld.
We're not talking about like the heartworm and rapids, correct.
Correct.
I don't think there are really going to be key differences in the program, and it's taking a little longer than I know some people would like.
But we're okay with that.
The core business is very healthy and growing, and we're not in a rush to get it wrong.
So we're being very thoughtful and being very careful about it.
And I would just reiterate.
Maybe I ---+ I think I've said this in the past.
Subscriptions require, I think, a greater level of confidence and a greater level of performance with the end user customer in an international launch than, say, maybe a distribution model.
If we were in a hurry, we would be looking for some distributors to buy 50 boxes, and we would recognize the revenue, and we would hope for the sell-through.
When you do a subscription model, you're on the ground in that location and you might go with some local partners, but you're obligated over a 6-year period to provide supplies, provide warranty, to provide technical support, basically to do all of the things that the customer needs to ensure that they have a successful long-term testing plan in their hospital under the subscription.
So it takes us a little bit longer to make sure that, that experience exceeds our expectations.
And we think long term for our own shareholders and the equity that we're building for our shareholders, I think building out those things and bonding with a customer in, say, Germany for 6 years is probably a much greater success than trying to find a local distributor to take 50 or 100 boxes off our hands so that we kind of show some revenues in a quarter earlier than we otherwise would have.
So I hope that makes sense.
I'm not disappointed with the team's pace.
There's a lot of work involved in making that subscriptions model work seamlessly.
Yes, off the top of my head, I don't know what percentage in the second quarter we booked as rentals.
I know we had some success booking $899 a month digital radiography rentals in the period.
And I think it was in line with what our previous kind of how ---+ what meaningful percentage was.
It wasn't 50% of our deals, and it wasn't 5% of our deals.
It was probably somewhere in between.
So I'd have get that number discretely and specifically and get back to you on it because I don't have it off the top of my head.
But I think it's going well.
And the team seems to be ---+ seems to be getting to customers that they wouldn't get to without a rental option.
It depends on the specific deal.
In general and when we add new capability in a clinic, in general, customers will renew their whole book of business with us for the full term.
Imaging has been separate in the past.
And I know we've done some that will renew the entire book of business.
And I know we've done some that have remained separate.
It's still early days.
We would never force a customer to renew their blood diagnostics benefits in order to get the imaging piece or vice versa.
And some customers see that advantage, and they want to lock in those benefits for 6 years from today.
And some customers don't want to go back and reopen that.
They're happy where they're at.
And they just don't have time to think about what a renewal means for them, so they will leave it alone.
So there's really no rule at this point.
No.
So Jim, those are minimum commitments that we'd make throughout the year for our analyzer placements ---+ for our analyzer purchases.
So we had a minimum commitment that came due in Q1.
So we'll spend the rest of the year working through all of that.
Yes, I think so.
Close.
Jim, it's <UNK>.
Yes.
So you recall last year, Jason Napolitano assumed the position in Chief Strategy and he's really focused on that business development side of our business.
He's a busy guy.
And I think he and that team are doing a great job.
There's really nothing that we're prepared to roll out publicly at this point other than to say it's certainly ---+ it's a busy position and he's doing a great job.
So I wish I could be more specific than that but I can't.
Yes, I think that's a combination of ---+ and I'll throw kudos to <UNK> and his team.
I think that's a great professionalization happening in the finance department.
I think they're doing a great job, and they really upgraded our banking relationship with JPMorgan and walked through that process and got them familiar with our current business but also our growth plans.
So I don't know if you can read into it other than to say we think we're good stewards of the business that our shareholders own.
And I think we've done a good job in the last 3 or 4 years bringing on new products that have moved that shareholder value forward.
And part of that is finance has to optimize the cost of capital and make sure that we have enough capital available when business development is ready to pull the trigger.
And I think that those 2 teams are working really well together.
And our banking partner kind of sees that future.
So I don't know what you can read into it specifically other than to say I think it's an indication of a healthy business laying the groundwork to do more things in the future.
And Jim, this is <UNK>.
Let me just say that moving ---+ transitioning away from asset-based lending into a traditional revolver just gives us so much more flexibility.
It's easier on the team.
There are no asset audits.
And there's just more liquidity as a result.
So it just makes us a lot more flexible and we can react to opportunities whenever they come across our desk.
Well, thanks, operator.
This is <UNK> <UNK>, and I just want to thank everybody who joined the call today.
I am super pleased with the results that we had in the second quarter.
The teams did a great job.
We're working inside a market that has fantastic long-term dynamics in both companion animal and production animal.
And our blood diagnostics team led by Steve Eyl is doing a great job in that space.
Our OVP segment under Mike McGinley similarly had 33% growth in the period, just had a fantastic quarter.
The finance team with <UNK> <UNK> and the relationship that they've created with JPMorgan Chase and the new line of credit is fantastic.
So everybody seems to be working together well.
And the market is very healthy, and we're encouraged.
A lot of work to do.
A lot of big competitors, but we enjoy the competition.
And I look forward to updating everybody again in another couple months on our progress.
So until then, thanks for your interest in Heska, and goodbye.
| 2017_HSKA |
2016 | PVH | PVH
#I think the G-III ---+ actually in G-III sales you will really start to see it in the fourth quarter.
Holiday 2016 they will start shipping; I guess there will be some deliveries beginning of November as they set up.
I will leave it to them; I don't want to start talking about the business for them.
I know they are optimistic and enthusiastic about how they see that business.
I know the dresses hit the floor ---+ dresses are hitting the floor and women's suits are hitting the floor earlier and they are really feeling good about that portion of the business as it relates to Tommy Hilfiger.
But I think they report in another few days.
I think let them lay it out for you.
The transition really going smoothly.
The two companies have worked together very well to make sure from an inventory point of view there is no carryover merchandise that is going to negatively impact the business.
And really worked well with Macy's in particular and our other key department store accounts to make sure that transition is seamless and I am very confident about the way that is moving.
G-III ---+ what we are hoping for is what they have delivered in Calvin Klein over the last five to seven years that they will deliver for Tommy Hilfiger.
And really take a business that is a couple hundred million dollars and turn it into a $500 million to $700 million business, at much higher price points and at better margins.
You mentioned China, again this year with the transition and some of the amortizations and some of the accounting stuff that we have to deal with it is going to be slightly accretive.
I think that business will continue to grow.
I think we are going to ---+ I guess we are projecting it to grow high-single-digits.
There is an opportunity to do more than that but it is a question of how fast and quickly we want to move.
Clearly if you look at the size of the business, round numbers $140 million to $150 million business.
Compared to a Calvin Klein business it's at least twice as large.
There is clearly a footprint opportunity for us to grow.
And I guess just having the two brands under one roof, under one logistics platform, one operating platform the synergies should start to come towards the second half of next year in a bigger way.
So it will be a much bigger contributor to profitability next year as we move forward.
And it will be a big contributor to our top-line growth as well.
So I feel ---+ I really think that will be probably, without a doubt, it will be next year for sure, our highest operating margin business in the Company for the Tommy Hilfiger brand.
Very similar to how profitable our Calvin Klein China business is.
So as we look forward we are enthusiastic and I think it will be a contributor significantly to our top and bottom line.
I think, look, we have been pretty transparent about that Asia is the region that we continue to see the biggest growth and the biggest potential opportunity to take back license businesses and to operate businesses directly.
Clearly Korea will be a big market for us.
We believe Japan could be a market for us and Central and South East Asia which would include Hong Kong, Macau, Taiwan, so some pretty substantial markets as we go forward, which should be nicely profitable as we go forward.
The key in all of that is timing of license expirations, really working hand in hand with our strategic licensing partners who have really done a great job in building the brand throughout Asia.
The other opportunity will be Brazil, Calvin Klein has a very profitable business there that, despite the economic conditions in Brazil, continues to be close to a 20% operating margin business for us.
And it is about 25% ---+ the Tommy Hilfiger business in Brazil is about 25% the size of the Calvin Klein business in Brazil.
So clear growth opportunity there that we are doing with a strategic partner where we own a little bit over 40% of a joint venture and the ability there over time to bring that in-house will play itself out.
So clear opportunities there and that is really our focus area at this point ---+ the focus areas at this point as far as license take backs.
Look, I think that business, as you said, has been a real high performer for us, particularly over the last two years.
And then we are putting on comps on top of comps and we are comping on top of double-digit comps from last year and certainly [quarters].
As we look at it we continue to see opportunities.
The big improvement in our retail stores has been a very healthy women's business and I think that only continues.
If you think about the brand in Europe it is 65% to 70% men's versus women's.
And we all know how much larger the women's market is than men's.
So that opportunity keeps presenting itself.
The productivity in our stores continues to improve and a lot of it is being driven by the women's sales per square foot growing closer and closer to the men's productivity in those stores.
So the opportunity is there to continue this momentum and a big piece of it will be driven by the women's component getting better.
And as our men's tailored business becomes a bigger piece of the pie and we continue to get strong success there throughout Europe at a wholesale level.
As we bring that product category into the stores given the much higher price point it really does wonders for the sales productivity in the stores.
The margins are comparable to our sportswear apparel margins and footwear margins.
So clearly the opportunity there is to grow men's tailored in our stores and to grow the women's business in our stores.
And there is a lot of momentum behind those businesses.
So I don't think ---+ I think we will continue to see positive comps.
I can't talk about double-digit comp store increases, but I can continue to say we will continue to see momentum.
Europe seems much healthier as a market to us.
I know all of the headlines about Europe and what you see, but as far as the consumers being ---+ spending discretionary money, it is very healthy there.
I think the fact that the dollar has strengthened has only made our Europe ---+ the pressure that puts on our US business I have talked about.
The flipside of that is it really significantly helps our international businesses.
As people travel or people stay closer to home in Europe within Europe and buy when they are on vacation or on holiday, that has really been a big win for us as well.
So I think those trends will continue.
Thank you.
Next question.
Okay, two things.
Yes, to confirm, that was Europe.
Second, we don't give global order book because most of our businesses tend to be retail based, not wholesale based.
It's really ---+ it is misleading statistic I think.
And secondarily, in the US we never give order books because we just don't believe in laying that out given the fragile nature of orders in the United States.
So, there is a lot of momentum behind the business, nothing has changed but it doesn't make sense to call those out.
Sure.
On the Calvin Klein side, look, it is all product categories.
I don't mean to sound cavalier about it when I say it ---+ is the strength is across all countries, all major countries.
All product categories we are really seeing tremendous growth in jeans and underwear because they are the two largest categories.
But our accessory business is also performing very strong there.
We have just only recently launched men's sportswear and that ---+ the percentage there are very, very high but the dollars there are small as it starts to roll out.
And we haven't done anything with women's sportswear and apparel outside of genes and underwear at all.
So that is really a major opportunity for us as we move forward.
If we start to just match up from where we are positioned geographically in the United States or even in Asia where Calvin women's represents about 40% of the volume, there is a huge opportunity in Europe for that to continue.
Just to remind everybody, the European strategy first and foremost was to take a broken Warnaco jeans and underwear business that was in the wrong distribution at ---+ and still basically breaking even and, when you pulled out the bad distribution, was losing money.
Our European business today is healthy, growing.
You see the international numbers, you see the margins there.
So our European business is really contributing significantly.
If you use Tommy Hilfiger as a comparison, the Tommy Hilfiger business in Europe is three times the size of the Calvin business, it is the only region in the world where Tommy is larger than Calvin.
The profitability is 200 to 300 basis points higher and that has to do with scale.
And I think of those opportunities as the brand now has solidified ---+ the Calvin brand has solidified its position, has got a profitable foundation, the ability to take that forward and the enthusiasm that our wholesale partners have for the brand just gives us ---+ makes us just more optimistic about that this European trend can continue for the next three to four years.
Well I guess ---+ here is the dynamic, it is the stores we are talking about that are feeling the biggest pain from the international tourist market are also located in areas like Miami, Orlando, New York, Los Angeles ---+ that they are by far our largest stores and our highest profitability stores.
So I'd use as ---+ a comparison is the Macy's Herald Square is the most profitable department store in the world, I believe.
And it is being impacted by international tourism, but it is still one of the most ---+ largest most profitable department stores in the world.
And not to put ourselves in the same category as Macy's Herald Square, but these stores are our largest most profitable stores.
And I think this tourism will balance out.
I am not going to sit here and say it is coming back.
But I do think as we get through the third and fourth quarter this year it should level off and we will continue to have very profitable stores.
If you look at our retail profitability it is as strong as our wholesale profitability.
And you see how profitable our Calvin and Tommy North America businesses are, double-digit operating margins, very profitable businesses.
So this is a just a shift in sales trends and I think our European business is benefiting from that shift and our Asia business is to an extent, and our Latin America business is.
But the US retail business is just such a big component of our sales we just feel it directly here.
Okay.
Operator, we will take this as our ---+ the next question as our last question.
Thank you.
Well, I think there is two things.
I think fundamentally it is the two brands.
What we are really talking about is Calvin Klein and Tommy Hilfiger when we talk about all the momentum in the wholesale department store channels in the United States.
And I mean if you talk to most of all new stores, they will tell you how healthy the Calvin Klein business is, how ---+ continue to fuel growth beyond the women's side of the floor or the men's side of the floor.
So I think we do have with the Calvin brand in particular a lot of momentum behind the brand.
We have been able to take advantage of some of the weakness with some of our competitors to grow square footage and to gain market share in that channel.
So I think we are outperforming.
We have positioned ourselves and I don't believe we have overextended our brands in that channel of distribution.
Where other players have talked about that they have over exposed and over ---+ we have been continuing to grow, but I think we have been doing it in a very healthy way.
We are in categories that department stores really are focused on growing, women's and men's, and we have been a solution in both of those areas.
With the Tommy brand with Macy's it continues to perform very well for us on the men's side of the floor.
And now with the G-III initiative Macy's has really gotten behind the brand and thinks it really can make up for some of the market share losses that they have had with other brands.
So I think we are ---+ I think we have been better positioned.
We know where we play in the US and understand that market positioning and it has worked for us.
Even in difficult times like last year's third and fourth quarter our two brands really outperformed the competitive set.
And I think that is what is paying off for us now as we move forward.
I hope that explains it.
And with that we are going to close our call.
I thank everybody for their attention.
We look forward to speaking to you in December about our third-quarter results.
And I wish everybody a great Labor Day.
Have a nice day.
Thank you.
| 2016_PVH |
2017 | AMSF | AMSF
#Thank you, <UNK>, and good morning everyone.
On today's call, I will start with a few comments regarding the workers' compensation market followed by some of AMERISAFE's operational metrics.
Then <UNK> <UNK>, our CFO, will conclude with the financial results before Q&A.
Let me begin with the workers' compensation market, over the last few quarters, I have described the market as increasingly competitive.
The latest state approval of cost reflect declines with few exceptions across the country.
According to Nationwide Agent surveys, 85% of agent respondents saw no change or rate decreases in their books of business.
Both of these reference points are consistent with last quarter.
We continue to experience pressure from multi-line carriers willing to once again write workers compensation.
This mostly affects AMERISAFE on large accounts, those accounts with annual premium in excess of $250,000.
However, we have not seen new capital nor new entrants coming into the marketplace.
In addition, interest rate increases have been slight, but certainly not sufficient to divert underwriters from underwriting profit.
All that said, my outlook for the market has not changed.
We saw increased competition in the fourth quarter and it is my expectation that that will continue in 2017.
To combat the increased competition, our focus during the softening market continues to be on risk selection, retaining profitable accounts and providing exceptional claims and safety services for our policyholders.
Our combined ratio of 76.8% for the quarter and 77% for the year are reflective of our focus over an extended period of time.
My reference to increased competition leads me to my first operational metric, we were disappointed with gross premiums written this quarter, which declined 9.1% from the previous year's fourth quarter.
The decline was driven by the loss of three large accounts in the quarter.
The expiring annual premium for those three policies totaled $4.7 million.
Keep in mind, our average policy size is approximately $40,000 in premium.
Therefore, the loss of large accounts, such as those this quarter has a visible impact to the top line.
Overall, we increased voluntary policy count 5% this quarter.
However, the increased policy count did not generate enough premium to compensate for declining loss cost or the loss of the large accounts that I previously referenced.
We also adjusted our pricing in the quarter in response to competition.
Our ELCM or effective loss cost multiplier declined from 1.76 in the fourth quarter of 2015 to 1.67 in the fourth quarter of 2016.
Relative to losses, the loss in our LAE ratio for accident year 2016 remained unchanged at 67.9%.
Both frequency and severity were in line with our expectations for the accident year.
Claims reported in the calendar year were down 2.3% from 2015.
As the prior accident year's favorable case development in the quarter led to $9.9 million of favorable loss development, primarily from accident years 2014, 2013 and 2012.
Altogether, our loss in LAE ratio for the quarter was 57%, up from 50.8% in last year's fourth quarter.
I will now turn the call over to <UNK> to discuss the financial results.
Thank you, <UNK>.
For the fourth quarter of 2016, AMERISAFE reported net income of $19.1 million or $0.99 per diluted share, compared with $23.1 million or $1.21 per diluted share in last year's fourth quarter, a decrease of 17.3%.
Operating net income in the quarter was $20 million or $1.04 per share, a 13.1% decrease from the fourth quarter of 2015.
For the full-year 2016, AMERISAFE produced record net income of $77.9 million or $4.05 per share, an increase of 10.5% over 2015.
Operating net income for the full year was $78.2 million, an increase of 8.5% when compared to 2015.
Revenues in the quarter declined 3.1% to $98.6 million, compared with the fourth quarter of 2015.
Net premiums earned also decreased 3.1% to $92.1 million when compared to last year's fourth quarter.
For the full year, net premiums earned were down 1.9% coming in at $368.7 million.
Turning to net investment income, we saw an increase of 8.3% in the fourth quarter to $7.9 million compared with $7.3 million in the fourth quarter of 2015.
The increase was largely due to the increase in value of a hedge fund investment, which is mark-to-market through net income each quarter.
Net investment income for the full year totaled $28.1 million, an increase of 0.7%.
The tax equivalent yield on our investment portfolio was 3.2% in the fourth quarter, down slightly from 3.3% in the same quarter a year ago.
There were no impairments during the quarter.
As part of our tax strategy, we sold some securities at a loss during the quarter to offset taxable realized gains from earlier in 2016, as well as to offset some taxable realized gains from 2013.
Our opportunity to carry-back losses to offset those 2013 gains was expiring at year-end.
As a result, during the quarter we had realized losses of $1.5 million compared with minimal realized gains in the same quarter a year ago.
The investment portfolio is high quality, turning an average AA minus rating with a duration of 3.45 and with 55% in municipal bonds, 29% in corporate bonds, 7% in US Treasuries and the remainder in cash and other investments.
Approximately 54% of our bond portfolio is comprised of held to maturity securities, which are in an overall unrealized gain position of $6.5 million.
These gains are not reflected in our book value as the bonds are carried at amortized cost.
With regard to operating expenses, our total underwriting and other expenses decreased 11.6% to $17.1 million in the quarter compared with $19.4 million in the fourth quarter of 2015.
The decrease was primarily due to lower premium based assessments and premium taxes than in the same quarter in 2015.
By category, the 2016 fourth quarter expenses included $6.5 million of salaries and benefits, $6.5 million of commissions and $4.1 million of underwriting and other costs.
Our expense ratio for the quarter was 18.6% compared with 20.4% for the fourth quarter of 2015.
For the full-year 2016, operating expenses decreased $3.5 million or 4.2% and the underwriting expense ratio was 21.9% in 2016 compared with 22.4% in 2015.
Our tax rate decreased to 31.4% in the quarter, down slightly from 31.7% a year ago.
The decrease reflects the smaller amount of taxable income compared with tax exempt income during the quarter, as a result of the smaller favorable prior year development in the quarter, compared to the same quarter last year.
For the full-year 2016, the effective tax rate was 31.0% compared with 30.2% in 2015.
Return on equity for the fourth quarter of 2016 was 15.8% compared to 19.5% for the fourth quarter 2015.
Operating ROE for the quarter was 16.7%.
For the full year, ROE was 17.1%, compared with 15.6% last year, while operating ROE for the full year with 17.2%, up from 16.1% in 2015.
And now to capital management, during the fourth quarter the company paid its regularly quarterly cash dividend of $0.18 per share, as well as an extraordinary dividend of $3.25 per share.
This quarter, the Board has declared a quarterly cash dividend of $0.20 per share payable on March 24, 2017 to shareholders of record as of March 10, 2017.
This represents 11% increase in the regular quarterly dividend.
Just a couple of other noteworthy items, book value per share at December 31, 2016 was $23.72, flat with last year's $23.73 per share and we paid out $3.97 per share in dividends to shareholders during the year.
Our statutory surplus was $394 million at December 31, 2016, compared with $371 million last year at this time.
And finally, we will be filing our Form 10-K with the SEC, including our loss reserve triangles this Friday, after the market close.
That concludes my remarks and we would now like to open the call up for a question-and-answer session.
Operator.
Well, I wouldn't like to say we chased them off, but, yes, we have approximately 74 accounts over $250,000 in force at December 31, 2016 that accounts for about $26 million of premium, but the largest one is less than $700,000.
That's a really good question, I'll start with I think during this market cycle, our number one priority is maintaining and renewing those accounts that we know were profitable and keeping those on the books.
We are seeking new business.
I don't expect us to expand our focus, change our risk selection process or expand geographies.
I do think there are opportunities out there for AMERISAFE but there is plenty of competition that go along with that, so at this point any growth, all other things being equal, may not be the prudent answer for AMERISAFE.
I think AMERISAFE as well as all other carriers at this point are just cautious about what's happening in Florida, I mean there is business to write there.
With the 14% rate increase, I think people are willing to write business.
Obviously, there's two ways you compete, you compete on business commissions and policyholder dividends because the rates are set.
So I think everyone's still in a cautious mood but there is opportunity to grow there.
No, we haven't.
Good question.
I don't know that - the court decision has been finalized, at this point, it's still in appeals.
I mean, everyone's charging the 14% rate increase at this point, but I guess it's still technically in limbo.
Okay.
I would say this AMERISAFE's reserving practices has not changed.
We are aware of the ELCM, obviously, part of the way we set our pricing is how we are reserving on accounts today, so I don't see that changing in the near future.
I don't think you can read into that that there is a change in the reserving based on how we're followed in the [various] quarters.
We are in a lumpy business and as we've said in the last few quarters, the development that we've experienced, the favorable development that we've experienced has really been driven by case reserves.
So, those don't seem to happen escalating over a period of time, first quarter versus fourth quarter.
Look comparing this year to last year, it does look like that we had less favorable development in the fourth quarter this year than we did last year and I think actually the first quarter was our largest quarter this year, but that's really driven by what's happening with our case reserves.
Correct.
Certainly, it was 1.67.
Thank you, operator.
Our record earnings this year are the result of AMERISAFE's employees focus on risk selection, safety and claims services and expense management.
Our 400-plus employees thrive on providing exceptional service to our policyholders, while balancing their responsibility to provide returns to our shareholders.
We are proud to be part of such a amazing team.
Thank you, AMERISAFE employees, for a successful year.
I would also like to express gratitude to Austin Young.
Austin has announced that he will be retiring from AMERISAFE's Board at our annual meeting.
Austin has served our Board for 12 years and his leadership has been instrumental to the company and to me personally.
On behalf of AMERISAFE's Board and employees, I would like to thank him for his service and guidance.
Thank you for joining us today.
| 2017_AMSF |
2016 | CRM | CRM
#Okay.
So hi, this is <UNK>.
So obviously we don't get into the term and length of these contracts, but you can imagine that if you're going to make a significant investment of nine-figures, it's probably a long-term relationship that you're talking about.
And so, that again has been a focus area I had mentioned earlier.
These are CEO level conversations.
We're in the Boardroom presenting to their Boards.
And we're talking about transformation, which I think is something top of mind for all of these customers.
As far as IT is concerned, you always have to talk about, and with IT.
But these are transformational sales.
These are conversations around growth, which is the top of mind for all senior executives and CEOs for sure.
But listen, in these large enterprises, the CIO is important.
And by the way, we are a great platform, and CIOs and technologists are always interested in great platforms.
And again, that message certainly resonates.
And I'll tell you that, there's definitely a transformation going on at Salesforce, and <UNK> and I have had a lot of conversations about this.
We've talked about it on previous calls.
I would say this transformation has accelerated ---+ and <UNK>, how many sales calls ---+ you were at Oracle for how long.
20.
26 years.
I was at Oracle 13 years.
I never made a sales call on a CEO, while I was at Oracle.
I mean, there was some business development things, but never CEO buying product, and being that chief digital officer himself or herself, I mean, isn't that ---+ was that your experience as well.
Yes, absolutely.
I mean, the world has turned.
And, as we talked about earlier, the CEOs are all about transformation.
And in many ways, they have become the chief transformation officers for these companies.
And so, they are personally involved, they are personally engaged.
And they want to talk to us.
And they are very interested again in us playing the role of the trusted advisor; they are interested our thought leadership, as you know.
And listen in the last three weeks, I've had more conversations with [you and CEOs] around transformation than in my entire career, over 30-plus years.
Yes.
And I look at the large transactions we did with the largest banks in the world, the largest insurance companies in the world, the largest media companies in the world, the largest technology companies in the world, which was marked throughout this whole quarter, every single transaction was done with the chief executive officer.
And those happened at the World Economic Forum, those happened in their offices, those happened in our offices, those happened at trade shows.
But I'll tell you that <UNK> and I can just probably rattle off dozens of CEOs that we are having to constantly interact with, and collaborate with, in creating these transactions.
And I think that it's really unusual, and I think that's why we are really selling more enterprise software than Oracle or SAP in the applications area.
Wouldn't you say <UNK> at this point.
There's no question that we are outpacing the competition, in terms of enterprise application sales.
There's no question, we continue to take share, and that's both market share and mind share.
And you and I were having a conversation, just the other day about one of the world's largest financial services institutions.
And kind of in the old world, what level we would be able to call on.
And in this new world, because we were with them at the World Economic Forum, we're talking to the CIO ---+ and excuse me, the CEO and their CIO, and head of operations ---+ that person would never have met with us before.
And all of a sudden, they are with us all the time.
In fact, we have a quote from our kickoff ---+ we just finished our kickoff, from the CEO of this particular institution saying, that they view Salesforce as one of their most critical strategic partners.
And <UNK>, wouldn't you say that's really about kind of our Company being able to transform our role to becoming a trusted advisor, especially in regards to these customer relationships with these companies.
Isn't that what's going on.
<UNK>, there seems like there's another level of it, which a lot of them really grill us on our own business, because they are moving to subscription-based services themselves.
They want to be a cloud company.
They want to have Internet-of-Things capabilities.
They want to be more connected to their customers.
They want to understand how we're achieving this growth, because many of these companies want to see these same growth levels.
How does it impact conversations.
Well it's interesting you brought it up.
There are two types of conversations that we typically find ourselves involved with, and again, this is at the C-level and in the Boardroom.
Number one is, you can always ask these companies, why aren't you thinking about yourself as a cloud company.
Why aren't you thinking about changing your business model.
And you should see the expression on their faces, because they are embracing that notion of transformation.
So that is certainly one.
Well nobody wants to the Uber-ized out of the world.
That's on the mind of every person out there who is a CEO.
And that's all about customer experience.
Absolutely.
Which is where we're at.
Okay.
Anyway, next question.
I'm sorry, but for some reason there was a garbled communication.
So I'm going to have to ask you to repeat the second part of that one, okay.
Can you repeat the question, again.
We'll come back to that.
Okay, go ahead, <UNK>.
Sure, I think number one is, customers are looking to build applications faster than ever before, and customers want to build ---+ and build applications once, and deploy them on every modern platform, which includes a watch, a phone, a tablet, a PC, and many different types of tablets, and many different types of PCs, and many different types of phones.
And we have delivered the most modern, most incredible application development and deployment platform, I believe in the enterprise today, which is Lightning.
And you heard Accenture talk about on our February 2 launch, how it's accelerating their own ability to build applications, not only internally, but for their customers using our Lightning platform, because there's nothing else like it.
Companies in the software industry have kind of doubled-down, and gone back and focused on building apps, and kind of getting their apps to be kind of sexier, and looking better on all these new devices.
And that's a huge mistake, because what these software companies should be focused on is building platforms that can deliver these apps, and that's what Salesforce has done.
We delivered this incredible Lightning platform.
I mean, it is amazing what it can do.
I mean, you even saw on the February 2 launch, we delivered our Lightning platform running on Microsoft Continuum, before Microsoft has been able to deliver their own applications running on Microsoft Continuum, because of the kind of flexibility and capabilities of Lightning.
And also, I would point out that's our strategy, as to my comment with <UNK> on Wave.
That is, we have this incredible platform with Wave to build these analytics apps.
And I think you know you know that we have, the most ---+ the number one platform on Amazon Web Services for building applications there, called Heroku.
And between Heroku, between Wave, between Lightning, and other capabilities that we have, this really gives developers a fast, easy and very low cost way to build and deploy enterprise apps.
And I will probably give you this great example of this company called, SteelBrick, who came with a lot of momentum out of our Dreamforce conference, with this incredible application that they had built using Lightning.
And they ended up in my office in November, and it was awesome.
And I'm like, how did you build this.
And they are like well, we just built all of this on Lightning.
I mean, I saw this App was running.
It's my dream, it's this incredible App running on the watch and phone and tablet and everything, and making salespeople more productive, and more successful, and customer service professionals more successful and productive.
And I'm saying, how did you build that.
Lightning Lightning, Lightning, and I'm like wow.
And, of course, I liked it so much, I bought the company.
And I think that, and I hope that I get to buy more Lightning companies.
Because within 30 days, I've already fully integrated that into my product, launched a new product, Sales Cloud Lightning, which includes the SteelBrick CPQ capability.
And in addition to that, I've got a fully expanded and extended capabilities across my whole product line.
So I hope there's more Lightning ISVs that are teeing up, to come know our family.
Because I mean, this is like auto integration, once they get on to our Lightning platform, and then our ability to distribute that through this multi-thousand person distribution organization, with all of this momentum is really an awesome thing.
So it is all about the platform.
It's the key differentiator for us.
Of course, we've got a great Company, that's the key differentiator for us.
Of course, we have our ecosystem, that's a key differentiator for us.
And it's also about this robust platform.
That's a key differentiator for us, and that's how we're winning all these deals.
I think you've kind of figured out our secret sauce.
Let me talk to both.
So this time, we can hear you loud and clear, so thanks for the question.
So first of all, just on EMEA, I mean, one of our growth strategies has been international expansion.
And that has certainly proven out, in terms of the numbers, and that takes many forms.
It's customer-facing, it's support resources, it's our data centers.
It's all those sort of things that have really expanded our footprint internationally, and certainly in EMEA that paid out very, very well for us.
Let me just give you an example, two customers with incredible unsolicited CEO-level remarks at the World Economic Forum.
We have entered into a relationship that we talked about on this call before with [ADB].
And at the World Economic Forum, often there are many sessions where the CEOs of these companies will host a transformational meeting, that talk a little bit with other CEOs about what they are doing, and what they see in the industry.
And certainly ADB was doing that.
And at the end of the meeting, the CEO of ADB stood up unsolicited and said, I am completely transforming the way I sell and service to my customers and engage with them, because I've chosen Salesforce as my trusted partner.
And that of course is a very significant company in Europe.
Schneider Electric is another.
The CEO of Schneider Electric was on a panel with <UNK> talking about digital transformation, unsolicited comment about how Schneider Electric is transforming its service model because of the capabilities of Salesforce.
So we have some of the most incredible global companies in the world who happen to be headquartered in EMEA, who are actually evangelizing our message in the marketplace, around transformation and connecting to customers in entirely new ways.
So when you see market leaders coming out there, at the CEO level, and evangelizing our story, that certainly sends a great message to other companies, whether they're in that industry or not.
So again, those are two proof points on EMEA.
On the line of business question, in terms of budget, look, IT organizations always have budgets.
They typically range between 1% and 2% of the company revenues, but what we've been able to tap into beyond those budgets are the line of business executive budgets, and also as we've discussed on this call, the CEO agenda.
It's an amazing phenomenon, when you see the CEO who has a growth priority, realign the budgets in the corporation to take on these growth initiatives.
And that's what we're seeing.
So it goes well beyond IT.
Certainly IT budgets are a particular component, but when the priority of a company is all about growth, you find the money to make that happen.
You find the money to make those investments, and that's what we are seeing in the marketplace.
Sure, <UNK>.
First thanks for the question, and I am happy to address that question.
We're really pleased coming off of a great year, and a great finish, but we beat our operating margin guidance.
We delivered 177 basis points this last year.
And on top of that, [to that end], are consistent with our revenue margin framework, I'll go ahead and do that 125 to150 basis points for FY17.
We feel that's really appropriate in light of our framework.
It's very consistent with it.
We think that it's appropriate and good guide.
And it also allows us to propel this growth, to really help our customers solve the needs that they have, and invest in the future to perpetuate this performance over the long-term.
So that's what I would say, <UNK>.
Yes.
I think that's a great question, and I'll tell you I believe that's a huge growth driver for us going forward.
Because still only ---+ I think the number is 72% of customers still use us for only one cloud.
So that is 72% of customers still use only use either the Sales Cloud, or the Service Cloud, or the <UNK>eting Cloud, or the platform or analytics, or whatever.
And the opportunity is to do exactly what you said, which is to deliver a customer success platform.
And we do want to go wall-to-wall with these companies.
They do see that opportunity more and more.
With some premium customers, we have had that opportunity, and I believe that is a huge opportunity for this Company as it continues to grow and expand, that we have a rich portfolio of products to offer these customers, even though the vast majority of the customers have only chosen one of those products so far.
Absolutely, <UNK>.
Thank you for the question.
I think you're hitting it right on, which is ---+ and you described it exactly right.
The compounding effect that we described, Dreamforce is a reality.
More and more of our DR is showing up in Q4.
It impacts all of the sequential growth rates more and more, as we showed in that amplified set of data we referenced.
But to kind of build on your point, there is one other thing that we're trying to make sure that everyone sees and to call out.
So I appreciate your question there, and that's regarding leap year.
And it seems like a simple enough point, that when you take a look at our revenue, and you divide it up by day, and when there's one extra day that has the effect of having $20 million of extra revenue recognition in Q1, even though it all washes out in the year, right.
But when you have one extra day of revenue, it means you have one less day of deferred revenue effectively.
And so, that's the other thing that you take a look at.
So if you take a look at the compounding effect, and you adjust for the leap year which washes all out in the year, but not in the quarter, I think you'll see just kind of an appropriate pattern there for our guide.
Okay.
Well I think there hasn't been a conversation this quarter that has not evolved around the incredible success that we've had with Accenture.
We are not the only Accenture's fastest growing business unit, but also they've now deployed already 25,000 users of Salesforce inside Accenture.
You've heard their CIO, and their CEO come to our launch on February 2, and give personal testimonial to the success that they've had, that their only regret is that they didn't go faster with Salesforce, that they are transforming their customer relationships at unheard of rates.
And this is having a broad ripple effect through the SI community, where I think that honestly they are all asking themselves, why are they not all using Salesforce, building Apps on Salesforce, and selling Salesforce and having the same great success that Accenture has had.
Some of these SIs are kind of prima donnas who have held on to the past too long, and it's affected their growth rates, and their ability to work with customers.
And in some cases, dislodged them from strategic customer situations because they were not able to move fast enough to understand these customers' needs, and got displaced by Accenture.
And we're seeing that en masse, and it's a for sure, it's a shot across the bow of the SI community, that they better go faster, or there's going to be a broad shake-up in regards to the transformations that are happening, under way in regards to these next-generation implementations, specifically those regarding Salesforce and our product line.
<UNK>.
Yes, a great question.
So first and foremost, I think we all recognize that these SIs, many of them certainly the upper tier of the SIs are very strategic influencers, and in the Boardroom, and at the CEO level, and speaking transformation to the line of business executives.
Part of our strategy has been to really strengthen these relationships over time, because we know that they bring expertise and access, and they can also drive most importantly, the customer success.
The observation I would give you, is that the most successful SIs are the ones who are very focused on Salesforce, and the ones who actually run their business on Salesforce.
<UNK> has just given that as an example.
And we are establishing what I'd call a 360-degree relationship with these SIs.
So we go to market with these SIs, they run their business on Salesforce.
And in the case of Accenture, they are actually building product, they have become an ISV.
And those are the strategic relationships that we're trying to build here, and we've been very, very successful, and the ones who get it are growing.
I had a conversation last week with a CEO of a pretty major consulting organization who was lamenting about their lack of growth generally speaking.
And my comment to this person was quite candidly, you are not focused enough on Salesforce, because if you were focused on Salesforce, your business would be growing.
And I got this look of acknowledgment, and it's absolutely true.
The success stories in these consulting practices is about their Salesforce practice.
So they've been a big part of our growth strategy.
They are starting to ---+ virtually all the large ones are running business on Salesforce.
They have made their commitments, and they're a big part of our future and our ecosystem strategy.
Well, I think that's a great question, and something that we think about every day at Salesforce, and something that we talk about every day at Salesforce, which is what kind of a Company is this.
And what is our culture, who are we, and what is it that we do.
And we've talked a lot about that on the call already, that is we have a radically different technology model, than the technology model that has been in place at Oracle, or SAP or even Microsoft.
We have a ---+ which is our multi-tenancy system built on our metadata model.
We have a radically different customer model, which is a model built on customer success, and we have a radically different philanthropic model that we've talked about, which is our focus on 1% of our equity, our profit, and our employees time go into our Salesforce.
org.
So we've of course, done about 1.3 million hours of community service.
I believe we'll do even more community service this year than Microsoft, which is a company 10 times our size, because we're just very committed to volunteerism.
We run over 25,000 non-profits and NGOs for free, which has been a gift of over $250 million in services to the non-profit community, and we've given away over $100 million in grants as well.
I think also, you know we're out there fighting for equality where we can.
You saw that with our focus on equal pay for women.
We were just at the White House speaking about that, adjustments that we've made to our own financials so that we can pay women the same that we pay men here at Salesforce.
You saw us fight in Indiana against discrimination of our employees.
And we're looking squarely at what's going on in Georgia with House Bill 757, which means that we may have to reduce our investments in the state of Georgia, based on what we're seeing with the state government there as well.
And I hope that they see the light the way that the state of Indiana did.
And in addition, I think that you see Salesforce trying to create a culture and an environment, where we reflect what we think the future of the world is, a world where there needs to be more equality, a world where there needs to be more focus on sustainability, and where there needs to be a world focused on companies that are becoming platform for change, and that the business is the business of improving the state of the world.
Those are the things that are really important to us.
I think also you probably noticed, that we opened up this call saying thank you.
It's really important to us that we have a sense of gratitude when we address our employees, and our customers, and our partners.
That's a huge part of our culture.
And at the end of the day, it's deeply a part of customer success as well, that is because of our business model, we're only successful, if our customers are successful.
So these are the things that I think are actually somewhat different than when we were at Oracle.
The narrative there, and the actions, the behavior was rewarded differently.
The things that we were encouraged to do and compensated for, and what we told our employees to do, and what we were directed to do is different than what we do at Salesforce.
And I hope that we can be an example of a benevolent company that does well, and does good.
Well, thanks so much, <UNK>.
And I'd like to thank everyone again for joining us on the call today.
You can catch up with us next week.
We'll be at several technology conferences, including ---+.
And also I'm about to go on Mad Money, with Jim Cramer in a few minutes.
I'm about to go next door to the studio, so you'll see me at Mad Money on CNBC in ---+ I think Jim's show, which I think actually just started.
Yes, we'll see you there <UNK>.
And then as I said, we'll be at several tech conferences next week, Morgan Stanley, Pacific Crest, JMP Securities.
As <UNK> mentioned earlier, catch us at one of our world tours.
If not, we'll update you on our next quarter call in May.
Thanks so much.
Thanks.
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