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2017 | THG | THG
#No.
I think we have the investment capacity to do what we need to do from a channel perspective, a product perspective, et cetera.
There is still a tremendous amount of expense leverage as we grow the Business, across our agency plant, which, as you know, is largely a fixed cost and pretty expensive to run.
But there's a lot of headroom there in leveraging our fixed expense base.
So, no, I don't view any upward pressure on the expense ratio here in the US.
I'll kick it to <UNK>, and maybe let the Chaucer guys interject here.
Basically with the account profile that they write, we sort of target roughly 10% of premium on an annual basis for catastrophes.
And this year it came in at less than 1%.
The target combined ratio for the business is 95%.
We have always said that; we expect to deliver that or better.
And as you know, cumulatively since we've owned the property, it has produced cumulatively a 90% combined ratio.
We are happy with the profitably of the business.
The cat environment certainly helped this year.
The business has inherent volatility, and quarter to quarter it will produce that volatility.
<UNK> or <UNK>, I don't know if you have anything to add to that.
As we have spoken about before, the previous five years were really low attritional and large losses in the business of Chaucer.
And this year in particular we had some higher losses and it just sort of is a reversion for the mean kind of a concept.
And the cats will come when they come.
But somewhere south of 95% I think is a good overall combined ratio.
It was 90% this year; it's been 90% or lower in other years.
I think it's going to move around a little bit, but it provides for a nice model.
<UNK>.
I'll just add that there's no correlation between the cat risks and the large loss accounts.
We do write risk towards the catastrophe line.
So the fact that we have had very low activity on that side but yet a higher number of large losses.
Just to point out that the actual number or the quantum of large losses paid out in the fourth quarter, or reserved in the fourth quarter, is almost the exact same number as what our 12 running quarter average is.
It's not that much higher than our history shows.
I will kick that to <UNK>, he can talk about ---+ go ahead, <UNK>.
So, <UNK>, you're right in the fact that the higher the reinsurance purchasing is, the lower the net premium will be, and that would put pressure on the expense ratio itself.
We have in 2016 actually reduced our expenses, but you could probably expect, which we normally targeted the 45% expense ratio, but that's going to be subject to volatility in the foreign exchange rate.
I'm going to kick it to <UNK> <UNK> for the answer.
As you know, we've been really thoughtful and measured on our rate strategy, and frankly, have been ahead of the market by 1 point or 2, varying by line.
We're going to continue that strategy.
And we do see, as our competition takes more rate, that we may become more competitive on a relative basis.
Of course, that varies state by state, but generally speaking we also will take some additional rate opportunistically in certain states.
So you have headwinds here and there, but generally the net of it will be that you should expect mid-single-digit growth on a go-forward basis.
Thank you very much for your participation on the call today.
We are looking forward to speaking with you next quarter.
| 2017_THG |
2017 | PAHC | PAHC
#Thank you, operator.
Good morning, everyone.
Welcome to the Phibro Animal Health earnings call for our third quarter ending March 2017.
On the call today, as usual, are <UNK> <UNK>, our Chief Executive Officer; and myself, <UNK> <UNK>, Chief Financial Officer.
We'll provide an overview of our quarterly results, and then we'll open the line for your questions.
Before we begin, just the standard reminder that the earnings press release and financial tables can be found on the Investors section of our website at pahc.com.
We're also providing a simultaneous webcast of this morning's call, which can be accessed on the webcast as well.
Today's presentation slides and a replay and transcript of the call will also be available on the website later today.
Our remarks today will include forward-looking statements, and actual results could differ materially from those projections.
For a list and description of certain factors that could cause results to differ, I refer you to the Forward-Looking Statements section on our earnings press release.
Our remarks today will also include references to certain financial measures, which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP.
I refer you to the Non-GAAP Financial Information section on our earnings press release for a discussion of these measures.
Reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the earnings press release.
And now here is <UNK> <UNK> with some introductory comments.
Thank you, Dick, and thank you, everyone, for ---+ who is joining us this morning.
As you saw in our press release, our core Animal Health segment showed modest sales growth for the quarter.
Double-digit increases on nutritional specialties and vaccine products were the drivers of the segment growth.
These products have shown double-digit increases every quarter this year.
The MFA and other category declined 7% as we saw ongoing reductions in the United States sales in medically important antibiotics as the U.S. industry fully implemented the voluntary guidance with regard to these products.
We also saw continued cyclical weaknesses in our Brazilian markets, but we saw growth in other products in regions within this category.
We made the decision to bulk up on our investments in both product development and organizational capabilities for the Animal Health segment, which reduced profitability in the quarter.
While we continue to actively seek business development opportunities, the current valuations for many of the available assets make a build-versus-buy model increasingly compelling.
I'd also want to recognize the efforts of our Mineral Nutrition team, who are continuing to book share while delivering improved profitability.
We believe we have the opportunity to leverage the capabilities of our Mineral Nutrition business and incorporate some of our high-value products, improving efficiencies for our customers.
I will now turn it back to Dick and look forward to answering your questions at the conclusion of this presentation.
Thanks, <UNK>.
So on Page 4, just a reminder before we get into the numbers, we do present our results on both a GAAP basis and also on an adjusted basis.
Our adjusted results exclude various items, including acquisition-related items, things like intangible amortization, inventory step-up on a purchase, accrued compensation costs, transaction costs and accrued interest.
We also exclude unusual nonoperational or nonrecurring items, things like the pension settlement cost or gain on insurance settlement that have happened during our current fiscal year.
Also excluded are some other income expense items, notably foreign currency gains and losses, which mostly arise from intercompany transactions and intercompany balances, and then also the income tax effects of ---+ related to the pretax adjustments and any unusual or nonrecurring income tax items.
So on Page 5, let's first review the highlights for our March 2017 quarter.
Our consolidated sales were almost $190 million for the quarter, a 3% increase compared to the same quarter last year.
The increase was driven by volume growth in the Animal Health segment and volume growth and commodity pricing in the Mineral Nutrition segment.
GAAP results included a $7.5 million gain on an insurance settlement.
We reached the settlement of our claims under our liability insurance policies for damages that we have incurred a number of years ago.
We previously have recognized in our financials the cost of the damages.
GAAP results also benefited in the quarter from a reduced provision for income taxes due to a $3.8 million release of a valuation allowance related to certain foreign operations.
And in addition, the GAAP income tax provision included a $1.4 million benefit related to the exercise of employee stock options.
Our adjusted results exclude ---+ among the other items, exclude the insurance settlement gain and the favorable tax items.
Our adjusted EBITDA was $29.7 million for the quarter, even with the prior year.
I will discuss the segment performance in the coming slides.
And adjusted diluted EPS was $0.37 a share, a $0.03 decrease or 8% below last year.
Compared to last year, increased depreciation expense and a higher effective income tax rates were the primary reasons for the decline.
Our effective income tax rate this year was 28.7%, about 2.6 percentage points above last year.
On Page 6, we present selected line items from our results.
Looking at adjusted gross profit.
Adjusted gross profit increased by $300,000 or 1%.
One of the reasons for the relatively low growth in gross profit was the depreciation expense increased $1 million year-over-year and pulled down the gross profit number.
On the adjusted SG&A line, total ---+ adjusted SG&A increased $1.3 million in total, fundamentally due to a $1.6 million increase in the Animal Health segment.
To position ourselves for future growth, we increased spending in the segment on product development and organization capabilities.
On Page 7, looking more closely at the Animal Health business.
Sales in the segment of $121 million grew $2.6 million or 26 ---+ or 2% over last year.
The growth was driven by double-digit increases in the nutritional specialties and vaccine product groups, offset by a decline in MFAs and other.
Nutritional specialty product sales of $27.6 million grew $4.8 million or 21% over last year on volume growth of products for the U.S. poultry and dairy industries.
Vaccine sales of $17 million grew $3.9 million or 30% over last year on volume growth across most of the product portfolio.
Sales of MFAs and others were approximately $76 million on the quarter, a $6 million or 7% decrease from last year.
We saw reduced sales of medically important antibacterials in the U.S. due to regulatory and consumer preference factors.
We saw sales decline in Brazil resulting from challenging economic conditions.
We did have sales growth of other products in the category that partially offset the declines.
Adjusted EBITDA of $31.8 million for the quarter decreased $300,000 or 1% compared to last year.
Gross profit growth was offset by increased operating expenses for new product development and organization capabilities.
On Page 8, looking briefly at our other segments.
Mineral Nutrition net sales of approximately $57 million increased $4 million or 8% from last year due to volume growth and to higher commodity pricing.
Segment adjusted EBITDA of $4.3 million was an increase of $300,000 over last year, in line with the sales growth.
Performance Products net sales of approximately $12 million were slightly below last year, but favorable product mix and input costs kept adjusted EBITDA approximately even.
And corporate expenses at $6.9 million decreased slightly year-over-year.
On Page 9, looking at our capitalization and capital allocation.
Our leverage ratio continued to improve, and the ratio of trailing 12 adjusted EBITDA to total debt was 2.6x at March 31, 2017.
Our positive cash flow continues to improve the leverage ratio.
We also had $49 million of cash on the balance sheet at quarter end.
For the quarter, we generated $31 million of net cash flow before financing.
In addition to generating cash from earnings, we also benefited from a $7 million favorable working capital and other sources of cash and a $7.5 million benefit from the cash received from the insurance settlement.
We invested $6.4 million in CapEx and other investing activities, broadly consistent with recent trends.
We paid a routine quarterly dividend in the quarter and have declared the same amount to be paid in June.
And on Page 10, looking at our guidance.
We have updated our annual financial guidance.
The updated guidance on both a GAAP and an adjusted basis is presented in detail in the press release.
We now forecast Animal Health net sales in the range of $490 million to $495 million, a 1% to 2% increase over last year.
We see consolidated net sales at $760 million to $765 million, also a 1% to 2% increase.
And we forecast adjusted EBITDA in the range of $118 million to $120 million, a 4% to 5% increase.
So that's the conclusion of my prepared remarks.
Operator, if you would please open the line for questions.
Thank you.
I would say broadly, our expectation for the remainder of the year is a continuation of the trends we've seen so far this year, <UNK>.
So double-digit growth in nutritional specialties and vaccines and continued decline in the MFA and other category, averaging out to, give or take, neutral to slightly positive growth, certainly positive growth for the full year.
And looking ahead, we're in the middle of our budget discussions and reviews, so I think it's a little premature for us to be talking about next year.
We'll put out guidance in late August when we announce our annual financial results.
Right, I mean ---+ it's <UNK>, <UNK>.
Thank you for asking the questions.
We are beginning to see sort of the ---+ I think we've seen the bottom.
We're starting to see some of the increases reflected by the input costs having now come down.
I mean, it was pretty dramatic.
They lost a planting.
So corn prices were very, very high.
I think it's come back down now.
Business is getting better.
I mean, the overall economy in Brazil is not getting a lot better, so consumption of a lot of protein has been down in country, but exports are starting to pick up.
I mean, they lost sales with a higher input cost.
They're starting to regain those sales.
So I think we are going to see better results in Brazil in the coming quarter and continuing better results for the coming year.
As we all know, Brazil is an extremely important factor in the worldwide protein markets.
So I think that the bigger factor has been pricing.
The low price for milk and most derivatives has continued a lot longer than everyone has hoped for.
I think it hasn't declined.
So we're starting ---+ again, as things sort of stabilize, I think our customers are feeling any better when we start seeing some growth.
I mean, clearly, trade restrictions anywhere in the world affect the whole protein market, not just the milk, not just the dairy, it's across every industry.
So I think we hope that our leaders get this right, and we don't go into various trade wars.
I don't want to call out various deals that have been recently done.
But I mean, you're in a business, there have been various deals that we've seen done that have gone at multiple ---+ many high ---+ relatively high multiples of sales, which clearly values our business a lot higher than you guys are currently valuing it.
But on a going-forward basis, it's making us, as I said in the prepared remarks, decide to spend more money internally developing products and sales capabilities than acquiring it.
So in answer to ---+ so the long answer to the question, yes, we see valuations continuing to increase in this business.
So I think ---+ <UNK>, thanks for the question.
I think what we've seen and what we're continuing to see is the guidance has put a lot more focus on use of antibiotic in the United States.
And there is a repositioning among our customers of their product offerings, and this is sort of being worked out as we speak.
So we're seeing in the marketplace some customers who are using products or raising animals that we'll call no antibiotics ever.
There are customers who are raising animals with no human antibiotics, only animal-only antibiotics.
We're seeing customers who are using these traditional methods of raising animals.
And their markets are segmented also, a lot to do with what their consumers are prepared to pay.
So that's being worked out.
Besides that, this is all happening at a time when there's normal cycles in this business.
I mean, every different weather pattern, I mean, we've always seen taking the chicken industry, as you know, so well.
And basically, the turnover happens every 4 to 6 weeks.
So we have to see this year play out and just get into a really ---+ to understand exactly what everyone is doing and how everyone is doing it in the various cycles.
So our business has always been different quarter-to-quarter.
This is being worked at the overlay now as these new demand and new uses of products, our customers have to see if this works.
I mean, different weather, different times of the year creates different demands, different disease patterns.
I mean, what we have to all remember is we're in a business of supplying products that treat animals that are sick.
And again, animals get sick differently depending on weather.
I mean, this past winter, we saw not a very heavy winter, so we saw a drop in demand for some of our PRRS products because the pigs weren't as sick as they were a year before.
So that is ---+ so that's the overlay we've been seeing.
On top of it, as you know, we've been introducing more of our vaccines and more of our nutritional specialty products into the same area.
And our customers have to get used to, again, different time of year, using these products.
So we want to be ---+ we're cautiously optimistic as we go forward.
We're very optimistic to the fact that we have managed and our customer managed to move very, very quickly away from some ---+ using some antibiotics that worked extremely well to using these new nutritional products that work well.
But it's an ongoing cycle.
So it's hard to predict what's going to happen 2 months from now, 3 months from now, 6 months from now.
We're seeing a continuing uptake in the use of our vaccines, a continuing uptake in the use of our nutritional specialties as people are starting to replace some of these antibiotics.
And this is unfolding.
So ---+ and so there is a range of products in our MFA category that are not antibiotics.
And some of these are older products.
Some of these are chemical products.
And as customers move away from using antibiotics, they necessarily are going to move to products that are not antibiotics but are ---+ but perform quite well.
So within our portfolio, as Dick was mentioning, we had some of those products.
Those products have increased sales while the antibiotics have dropped.
But ---+ and again, we ---+ holistically, we're treating an animal, and we're going to treat the animal with a range of products.
And it's vaccines, and it is nutritional specialties, anticoccidials, antibiotics.
And again, we want our customers to raise their animals as healthy ---+ healthy and to create profitability.
Yes.
And the only thing I'd add to that, <UNK>, is our ---+ within that MFA category, the demand for our broad product range in many international markets continues unchanged.
So the MIA concept is largely a U.S. concept.
So to there, we are increasingly spending our money on the parts of our business that are growing rapidly.
So we're increasing spending in the vaccine segment.
We're increasing our spending on development in nutritional specialties.
That's on the development side.
These products are used across many species, I mean, easily ---+ per species and heavily our businesses in the poultry area, where we increasingly look to move these products into the swine market and potentially even to the cattle market.
Well, we'll just say thank you to everyone, and we'll talk to you in late August when we announce our annual fiscal year results and talk about guidance for next year.
So until then, take care.
Bye, everybody.
| 2017_PAHC |
2016 | BBBY | BBBY
#We can move on to the next.
Well, we did see an increase in coupon usage for the second quarter with a slight decrease in the average coupon amount.
I mean, price transparency continues to be prevalent and the coupon helps bridge that gap if there is a difference.
From the coupons critically ---+ it has always been an important part of our value proposition.
But at the same time, we are committed as an organization to move to smarter, more intelligent marketing, personalized, targeted, being more meaningful, and being more efficient and optimizing that over time as well.
So ---+ I think that when we go back to the old question, was it like in 2008 and 2009 when people became more cost-conscious, became more aware of pricing when things started to go down this track, you know, the coupon has clearly ---+ and has been associated ---+ strongly associated with what's been very important.
But really we need to be working, and we are working, on becoming a lot more intelligent about our marketing and making it much more personalized.
You know what.
I think that, as Susan ---+ as <UNK> said, I guess, in this last quarter, that the coupon redemption was actually up.
So, at the same time, I think that people aggregate ---+ they gain intelligence about it over time in terms of how they aggregate them, how they use them.
So that does change.
And I think what other competitors do in availability of coupons, impacts things as well in their marketing.
So but I don't think, if you are looking for a thesis, that it has become a lot less responsive or a lot more responsive, we cannot support that thesis.
Good question.
It's funny because it's all integrated for us.
So a customer goes into a store, and whether they are literally standing there and they are buying online on their phone today, or a customer is researching online and going into a store.
So it bleeds in many different ways, so it's not easy to predict.
But we would expect and we would be modeling that incrementally both should improve.
Again, being up against a weaker third quarter, it's, in both cases, across our businesses and the additional days benefits whatever channel you shop through and whatever concept you are shopping with.
So we should see it incrementally across every way we do business.
Well, I'll take the first part and you will take the gross margin.
Okay.
The $29 ---+ nothing is permanent.
Right.
I guess death is permanent, but I'm not even sure taxes are.
But the $29 is something that we've planned now through the holidays.
But we have to be nimble enough to respond to competitive environment and into things that we learn and see in this time frame.
But we are modeling and planning on that through the holiday season.
But again that ---+ so we would not term that as permanent.
For the margin question, I'll leave that for <UNK>.
Sure.
So to your point, when you exclude the 12 basis points, there was a little bit of improvement, I guess, in the deleverage.
But essentially, we are always looking to improve any aspects within gross margin, the merchandise margin, as well as, as we discussed earlier, even though we have increases in coupon expense, we are looking to optimize, through coupon strategies, how to improve that.
We are always focusing on strengthening our deals with our vendors and the additional differentiated products.
That helps to mitigate margin erosion as well.
Yes.
And as <UNK> had said earlier in our comments, we had anticipated the pace of gross margin deleverage to be reduced, and less than last year.
So (multiple speakers) ---+ okay.
So, you're right, <UNK>.
We have talked about how 2015 is a peak in terms of the CapEx spend for us and that we anticipate coming off that after 2016.
One of the items that we've called out for 2016 and previous years is our POS, which we do believe that will not be as anniversarying as much as it has in the peak for 2016.
So there are items that come on and there's items that come off.
But POS is one of them that I can call out.
And also the new Lewisville distribution facility that we mentioned in the call earlier, that is just opening for inbound freight this past quarter but will start opening for outbound freight next month.
So that's another call-out that we made earlier in the year in terms of part of the CapEx spend for the year.
As you recall, that's an 800,000-square-foot facility.
I guess what you're asking, <UNK>, is there a new normal.
No, it's so dependent upon technology, things change so quickly, we are seeing literally hundreds of vendors that we didn't see three years ago with opportunities of things that we might want to try or do or look at.
So I think that that's right to think that way, that there's more opportunity, more things to ---+ that are possible and things that we would be choosing among than, historically, when you were opening up stores, and that's the world you lived in.
And the things that you were doing, whether it be in logistics or real estate or construction office or planning, the things that you were doing were much more predictable and they would staid; whereas the things we're looking at today are rapidly changing.
So I think there is a new normal.
But what <UNK> and <UNK> were saying, for the foreseeable future is that we do see what's on the horizon, the short-term horizon, and that we see the spend coming down.
But I do think there is a new normal.
You know, I would say that we need more time.
I mean, the pressures on gross margin are ---+ continue to be innate to all of retail as retail is just going through a transition.
And we have been going through a period of investment for some time.
And at the same time, hopefully, with the new POS system, the backend and the frontend put into place for the Web businesses, a lot of the big expenditures, hopefully the things that we'll be building on won't be as expensive as putting them in place initially.
Well, you're right, <UNK>.
For the moment, really there has been little marketing around most of it.
So ---+ and it will be an effort to be better known for these areas.
But I think it really starts with us doubling down on being viewed as the expert for the customers' home and everything home-related.
And if we start there and do a good enough job there with differentiated products, with really getting better services and solutions in place, then it opens up the doors to these other things.
The further you move from the trunk of the tree out to the branches, the more difficult it is to tell the story.
But when we are adding lighting and furniture and those type of categories, those will be easier for us.
But for someone to look like ---+ for a chicken coop, that will be less likely.
But again, we're not in a rush to make a mistake.
We have to do it right and be diligent about it.
We also have to vet all these vendors that have vendor direct to make sure that they could ship, they could ship on time, that their product is what they say it is, that their customers' experiences are good before we would want to be out there pounding our chest that we have it.
But over time, if we execute against the core business and continue to earn the reputation and the credibility with the customer, growing these other aspects of the business will be a marketing effort that's a lot more easily done.
But it's a great question, <UNK>.
Hi, <UNK>.
Yes, we did call out, in an order of magnitude, payroll-related expenses for Q2 that's similar to the ---+ an increase that we saw in Q1 as well.
And we believe payroll and wage pressure will continue.
We are not immune to it.
It's impacting the broader workforce, including all of retail.
It's also something that we are seeing, as you pointed out, being a more than one-year impact, that there are scheduled increases, depending upon the state or the city or the county, for multiple years out.
So we will need to incorporate that as we make our plans going out, and provide that communication in the future.
But we do see continued wage pressure.
You know, I think that is not something that we directly provided, although I'm sure with some of the communication and information that we've had, you could make some assumptions from there.
That's probably not the direct answer.
It's something we can consider in the future.
But I do believe, with some of the assumptions we provided ---+ or some of the metrics we provided, you could make some relative assumptions.
But overall, it's not material.
The entire sales activity for One Kings Lane for the quarter is not material.
It's a small part of the overall business.
Yes.
There was a multitude of reasons for assumption changes in there.
We've updated it for Q2 actuals.
It reflects modeling changes for non-comp businesses such as Linen Holdings and 1 One Kings Lane.
It reflects changes in timing for new store openings and closes, and reflects changes in shipping and sales return estimates.
So it's a multitude of items in there.
And we will continue to update that as the year progresses.
Well, right now we are working on our fiscal 2016 year.
And when we get closer to fiscal 2017, we will provide information on where we think that model and EPS range would look like for next year.
And if you wouldn't mind repeating the first part of your question.
I believe it was investments in cost of goods sales, cost of goods sold, and SG&A for the year.
Well, we are going to continue investing in payroll.
As we had mentioned, we do have wage increases, and we are committed to providing superior customer service in our stores.
And so the technology expense is also associated with our strategic initiatives, and we will continue to see some of that as well.
It depends on our mix of strategic initiatives as we roll forward in terms of IT projects.
I'm sorry, <UNK>.
Go ahead.
Well, in terms of CapEx, if we invest less in CapEx in future years, the less CapEx you would have over time, you have less depreciation associated with that, if that's what you're asking about.
And considering all your existing assets remaining the same, you would see, over time, a benefit in the P&L with less depreciation.
No.
But what we would say, <UNK>, is that a lot of the benefits have yet to be derived, the closing of the San Francisco Wharf, and the system conversion, a lot of the benefits, obviously, we haven't begun to see yet.
Yes, we took on some inventory for One Kings Lane.
We also took on a little inventory related to the opening of the Lewisville, Texas facility we talked about.
In our inventories, we continue to manage them.
We are obviously getting ready for holiday, and so we think they are in good shape and they are going to continue to be tailored to meet customer demand.
And then also going forward, <UNK>, you look at that settlement.
We said it a few times.
The inventory we are adding for the furniture and home decor business, that's heavy VDC.
And that if you go into our Hyannis store, the Bed Bath, the new store there, I think you will see an example of some opportunities to do what we call Store of the Future, which is to show product not carried and make it available to the customer, and reduce inventory carrying costs.
You're welcome.
Here's the answer.
The answer is that we don't have a target.
But we do have the objective to drive differentiated product.
And I think you've probably heard it from us before.
And everybody will cringe, but differentiated product is life-and-death to us.
So it really is.
So if you look at Bed Bath & Beyond, which does depend a lot on branded product, we work on lead-time, first-to-market with product, but we've worked very hard on.
If you look at Artisanal or you look at ED bedding, or you look at what we have done with Wamsutta, very important.
If you look at concepts like Cost Plus World Market, Christmas Tree Shops andThat!, largely proprietary, significant proprietary products.
Look at One Kings Lane and that we have now launched this private-label program.
If you look across Harmon, where we measure cost in growing our private-label product, in each of the categories that we do business in, it's essential for us to drive differentiated product and to, over time, be known for it.
So ---+ but we don't set a goal because it goes down to what we are able to execute and customer acceptance of it.
So, in certain categories, things that have a plug, it's very difficult for us to drive a lot of differentiated product.
So, I can't answer the question with a percentage or a number, but I could tell you that it's larger in certain businesses, smaller in others, and being driven passionately across all.
Thank you, Adrianne.
And thank you all for joining us on the call today.
We look forward to having you join us on our next quarterly earnings call, which is scheduled for December 21, 2016.
Have a good night.
| 2016_BBBY |
2016 | ROP | ROP
#Thank you, Deanna.
And thank you all for joining us this morning as we discuss our fourth-quarter financial results.
Joining me this morning is <UNK> <UNK>, Chairman, President and Chief Executive Officer; Paul Soni, Vice President and Controller; and Rob Crisci, Vice President of Planning and Investor Relations.
Earlier this morning we issued a press release announcing our financial results.
The press release also includes replay information for today's call.
We have prepared slides to accompany today's call, which are available through the webcast and also on our website.
If you turn to slide 2, we begin with our Safe Harbor statement.
During the course of today's call, we will be making forward-looking statements which are subject to risks and uncertainties, as described on this page and as further detailed in our SEC filings.
You should listen to today's call in the context of that information.
Next slide ---+ today we will be discussing our income statement results for the quarter primarily on an adjusted non-GAAP basis.
A full reconciliation between GAAP and adjusted measures is in our press release this morning and also included as a part of this presentation on our website.
For the fourth quarter, the difference between our GAAP results and adjusted results consists of three items.
First, we completed the divestiture of ABEL Pumps during the fourth quarter, resulting in a pre-tax book gain of $70.9 million.
This was partially offset by an impairment charge of $9.5 million relating to an imaging investment we made in 2007.
Second, a $4 million purchase accounting adjustment to acquired deferred revenue relating to software acquisitions made in 2015.
This represents revenue that those companies would have recognized if not for our acquisition.
Finally, we have a $2.6 million inventory step-up expense relating to the acquisition of RF IDeas.
Now, if you'll please turn to slide 4, I'll turn the call over to <UNK> <UNK>, Chairman, President and Chief Executive Officer.
And, after his remarks, we will take questions from our telephone participants.
<UNK>.
Thank you, <UNK>.
Good morning, everybody.
We\
I think so.
Deanna, we're ready for the Q&A portion of our call.
In industrial, Roper Pump is almost exclusively oriented around upstream oil and gas.
It's not a huge business but it has a big drawback when you have the change in fracking.
It's primarily a US business.
Its oil and gas component was down 30% in 2015 from 2014, and we expect it will be down another 30% in 2016 from 2015.
But it's still a fairly small number.
It's about a $20 million revenue drag that we're modeling into 2016.
None of the other businesses in industrial technology have anything to do with oil and gas.
They are instrument companies, or over half is the Neptune water meter business, which is going to grow next year.
So, it's just that one isolated.
And there's no midstream and downstream activity, really, in industrial.
When you get into energy, much bigger total dollars of what you're talking about.
About 60% of the segment is oil and gas but only some of it is upstream.
Primarily the upstream portion, or a couple of very small businesses ---+ Viatran and [DAS], a little bit of AMOT ---+ and then quite a lot of Compressor Controls.
Compressor Controls has been living off of a great project backlog.
Their service work, we expect, could be a record this year in 2016.
But we think their project work will drop really dramatically.
It could drop $30 million, $40 million.
The midstream and downstream activity for the year has been really decent all the way along.
The only drag has been the currency.
But then in the fourth quarter we didn't get as much of a seasonal uptick in those downstream businesses as we normally do, so mostly testing businesses.
That bodes for slight deterioration probably in 2016.
The rest of the energy businesses, the $40 million, are really mostly test and measurement businesses.
And then we're up really sharply at Zetec, so that helps offset that.
That's why we're saying 15% for energy, but it's 30% for the upstream portion of industrial.
It's certainly going to be very solid growth in 2016.
It's about a $10 million divot each quarter for the Toronto project as it fell off.
There's a little bit of revenue we're still getting out of Toronto for last minute adjustments but it's not very meaningful.
It's just domestic growth in commercial water meters and new wins in projects.
We are having share gains that are really obvious to us when we look at the data.
And we're going to have further share gains in 2016 that we're confident enough of based on all of our contacts with our bid process.
Shannon, the Toronto project really completed substantially in the first quarter of 2015.
So it was still in that $10 million comp range in the fourth quarter against the fourth quarter of 2014.
And then we'll have a little bit of a headwind in the first quarter on a year-over-year basis.
But then after that it's going to be more normalized.
So it's not an acceleration that we're looking for; it's really some headwinds that start to go away.
If you talk to our salesmen they will tell you it was massive pricing.
But there's no pricing pressure.
That's just silly.
That's not the issue at all.
It's just pure ---+ the biggest component, of course, is currency.
Then from a unit situation, it's the project work at Compressor Controls this year, and it's really easy to detail that out.
Those numbers are pretty good.
Last year, we actually said when we initiated guidance, we thought upstream would be down about 20%.
You correctly challenged us about ---+ CapEx is down 30%, might it not be down 30%.
And we said, it could be down more than 20% but we thought ---+ we had a particular arrangement around surface drilling, which is new technology, which has rapidly gained share, and it was doing that at the time and we thought that would continue in the second quarter.
But in the second quarter they basically stopped all ordering and consumed all inventory they could and that hurt us a little bit.
And then in the fourth quarter, we didn't get any seasonal bounce ---+ well, we did, but not as much as you normally would.
So, we're very comfortable around guiding down $20 million on oil and gas and industrial and around $50 million in energy.
I think that's quite correct.
And then there will still be a little bit more drag on a nominal number basis with currency.
But it's definitely not pricing.
The guys have been pretty correct all year long except for that Q2 situation at Roper Pump where our supply agreement got suspended for that quarter.
The segment book to bill was like 0.88 for energy in the fourth quarter.
And it was 0.97 for industrial.
On the industrial side, that 0.97 is typical for a fourth quarter, but it's definitely lighter.
You asked about visibility also.
For the product businesses, particularly around upstream and even on the mid- and downstream, those are generally going to be book and shipped inside of a relatively short window, two months or so.
Where we do have better visibility, and why we're talking more about this, is on the Compressor Controls side, because it's more of a project business.
And that's where we saw an order shortfall in the fourth quarter leading to that 0.9 book to bill area, and why we're expecting that to be a tough year for the project-based business because we have good visibility in that area.
It's certainly possible.
We talk about it quite a lot and there are a lot of different avenues for achieving that.
It could be spun off as an independent entity where people would be able to make a one-for-one decision about whether they wanted to be in that space as an investor.
It could be put together with another business in some kind of merger.
Again, it's not something we would likely sell because the tax [leakage in the] sale is just pretty prohibitive.
And the businesses are very good.
The oil and gas businesses ---+ when we put the whole thing together, they have an EBITDA margin of 34%.
And they don't take a lot of assets.
They are very cash accretive to our number.
And for those people who like EPS, they give us terrific EPS, but there's no amortization.
But you're right.
It's something we're always going to look at.
And certainly there have been more than one phone call inbound about people who'd like to do something.
But selling them is not the best thing for our investors.
Finding a tax-free alternative to that would be more attractive.
It's a whole lot more of what we know than what we hope.
We don't really have very many businesses, only one or two, that have any tie to something that's a larger macro end-market.
The markets that we serve are so niche that they end up being more driven by our activity around new products or new software releases rather than a hope for some macroeconomic recovery.
We're not really expecting any of that.
That's not something we try to forecast.
It really doesn't drive very many of our businesses.
But it's not as simple as orders in hand, because we really don't have orders in hand for products or for activity that's going to ship in the third quarter or fourth quarter.
So we're not a project type of E&C business like that.
But it's really around things that we know that we're going to be able to introduce to the niche markets that we serve; and uptake and new products growth in those areas.
In terms of acquisition.
The bid-ask spread is wide.
It's always wide.
But we were able to deploy $1.8 billion last year and we've already got $0.25 billion done now.
We don't anticipate any difficulty at all.
I do think that the notes out today are interesting.
There weren't any IPOs in January.
If you were a seller of private equity, you might continue to say whatever you think somebody is going to listen to, but the reality is, their net costs are going up and their exit strategies are diminishing.
And we remain the best mid-market acquirer of assets on the face of the earth.
So we're not going to have any difficulty finding high-quality businesses at rational prices.
You know what.
We always look at it as the cash return we can get out of an investment.
What happens is, it's usually difficult for an industrial asset to have the kind of cash returns that we are going to demand.
But whenever we see them we're willing to make investments in those.
We bought a pure product company in RF IDeas this year, which is just a world-class business with terrific leadership, very high margins.
Relatively light assets, but they are certainly making stuff and they are selling stuff.
So, it depends on the quality of what it is we see.
But we would never buy something at a public market deep discount.
Let's say some energy business dropped 30%.
We wouldn't buy something because it dropped 30%.
We would only buy something because its forward cash returns were extremely attractive.
Generally, as a rule, people over-pay for low-quality assets under the theory they are going to find some way to make them better.
We'll leave the buying of distressed assets to others.
We want to buy businesses that have consistent growth and recurring revenue and light asset models.
And we haven't seen anything, other than RF IDeas, in the last two years in the industrial segment that qualifies for that.
It's a good question; but, sorry, I have to dissect it.
Remember that in the medical and software we have a huge amount of recurring revenue.
So the recurring revenue ---+ it's not going to grow by a high number.
So when we say mid to high single digits, that has to be something that takes the whole segment into consideration.
The product portion and the new software sales have to be higher than that in order to get the whole segment up to mid single digits.
I don't think that there's any ---+ certainly, Sunquest in the second half of the year should have outsized growth to what it's had throughout 2015 because we've had the meaningful use improvement in 2014 and beginning of 2015 that is a comparative drag, and that will go away as 2016 matures.
I don't think there's really any particular driver in the medical software.
In the software businesses in the RF component there are some drivers that have had escalating growth.
I don't know, <UNK>, if you want to add anything.
No, I don't think so.
I think it really will be ---+ we expect 2016 to be led by more higher, probably a higher V on the medical products side, with some continued new product introductions.
We introduced some things at Verathon in the latter part of 2015, so those start to really ramp up.
We have other new products that are being introduced to the market, as well, as well as continued growth around some image-guided surgery applications that Northern Digital continues to just perform phenomenally well on.
And, as <UNK> mentioned, on the software and services side, that's a mid single-digit grower, anyway, because of the huge amount of recurring revenue.
And that's what we expect, particularly in the latter part of 2016.
We're not expecting a whole lot of recovery at all in the imaging world.
I think that's expected to be flat to maybe up a little bit.
Conversion ---+ you mean like leverage.
You'll have to come up to your own.
We expect that to be in 40% to 50% range.
It is certainly true that, on things that are relatively large in a potential acquisition, maybe there will be less competition for those assets as the year unfolds than there have been in the last three years.
I notice on some of the large things that we looked at, if they get bought by private equity, it isn't one fund.
It's three guys going together.
But debt staples are still out there.
We're looking at a deal Friday that has a 6.5 times debt staple on it.
As long as debt staples are that high ---+ we wouldn't use it, because private equity is going to use that, right.
They can put in 4 turns of EBITDA and you're still at 10.5 times EBITDA.
The kind of businesses that we acquire, if they were public they tend to trade at 25 times enterprise value to EBITDA or more.
I know it's hard for people to follow that, because they're looking at traditional multi-industry stuff, multiples that are dramatically less.
So we're going to continue to look at these things that are worth a great deal from an arbitrage perspective in a public market versus what we have to pay for them.
And those tend to crowd out the lesser-quality businesses where people pay 8, 9, 10 times for something that's worth 10.
We tend to pay 11 and 12 times for something that's worth 25.
That's really how we get all of this alpha performance consistently over a long period of time, and that's going to continue.
Now, last year, we did something that I wouldn't have forecast, which is, we did six or seven deals to get to $2 billion.
We would have rather done a $1.5 billion deal and a $500 million deal.
But the small deals were unbelievably compelling and they are all growing double digits, so it was a good thing to do.
We are still seeing a lot of those kind of opportunities.
So as the year unfolds it will be a battle between saving our powder for a really large transaction or going ahead and investing early on things that are somewhat modest.
At the end of the day for our shareholders, the results about the same.
It's just it's easier for us to do a large deal than five small deals.
It should be an easy year for us to deploy capita;, it's very favorable.
Maybe just for a second, let's just think about risk in general when you look at transactions, because people are asking questions about, would we buy some cheap stuff.
The cheap stuff in industrial ---+ and there's all kinds of stuff and their public stocks are going to continue to deteriorate and you could buy them ---+ what's wrong with those is, they can get disintermediated from distribution channels.
They can wind up with a freemium model out at Google on some bizarre thing, or they wind up with Amazon selling past their competition at low price points.
There's all kinds of things that happen.
They desperately need absorption.
If revenue falls off there's nothing they can do without big restructuring charges.
When we get to our space, it's really around whether or not the people in the niche that we acquire have domain expertise, which is very hard for somebody to break into.
The entry barriers for their success are entirely different.
The risk is that we continue to assess the quality of the management teams that we acquire well, and we understand whether or not there are technologies that could leapfrog what they do.
We spend most of our time around the people aspects of the business, and then around maybe risks that those people don't see that we would put a different factor on.
We tend to discount their forward growth projections because we don't pay for synergies for forward growth.
We only pay for what we think the business is going to deliver at the time of the acquisition.
And that really puts a huge dampening effect on the risk that we might otherwise have.
And we've been blessed to be fortunate in that arena.
But I think our disciplines are such, we actually start with somebody's balance sheet and then we start with what it takes to run the business.
We don't do ---+ what a lot of private equity people do is, they'll buy a software company and they will mandate an immediate 10% reduction.
One of the private equity firms out there actually goes in and does a listing of the highest paid people and they whack off the highest paid people and put new college guys in at big salary reductions.
And then that kind of hideous activity doesn't manifest itself in the business for four or five years.
You have to understand what each private equity group's business model is when you're looking at the assets they hold and you're acquiring it.
And I think we can do that better than anybody.
Yes, I do think so.
What we're really seeing out of Verathon is a refresh, so it's not a completely new product category, which actually reduces the risk for us.
These are really upgrades and extensions of their existing GlideScope in 2015 and then BladderScan in 2016.
So those are a couple-year adoption rates that go on there.
Northern Digital doesn't have to get up to double digits.
They just have to continue double-digit growth.
They've been growing at double digits here for a couple years, as they are really the leader in both the optical tracking as well as the electromagnetic tracking for computer-assisted surgery applications.
And those continue to just expand, those applications just continue to expand.
Whenever there's a new one that an OEM customer wants to design, they always come back to Northern Digital because they are the world leaders in that technology.
No.
Let's go back and think about.
The reason I said some time ago that the Sunquest and MHA acquisitions were more transformational than the Neptune and TransCore transformations were is because, at Neptune, we paid 4 times EBITDA the enterprise in December of 2003 to acquire Neptune at what some people probably thought was a high price, for $500 million.
The next year, in 2004, we paid about 4 times, again, the trailing revenue of the firm, 3.5 or something, for TransCore at $600 million.
Neither one of those businesses have lend themselves to adding exciting bolt-on activities to them, or giving you domain experience in an area that was easily widened.
So, when you acquire a leading laboratory software provider in a world that's going to have more and more laboratory instrument usage, and will move to genomics in the immediate future, you have big upside ramp.
When you have MHA, with senior living and nursing homes and all of the things around non-acute hospitalization shifts in demography ---+ these things just give you all kinds of opportunity.
Good heavens, we've acquired now SoftWriters for MHA, which is growing at double digits.
It's a terrific acquisition.
We've been able to acquire CliniSys, which we can connect, really, with Sunquest.
We acquired Data Innovations, which is a phenomenal company that guides all of the instrumentation in a hospital into various systems, and yet it's part of Sunquest.
That's why we can look at these things, which are somewhat synergistic, at least in the marketplace or in the information technology side of them, that we couldn't do with the industrial and energy businesses.
Thank you.
And thank you all for joining us.
I know there were a couple of folks still on the line for follow-up questions; we'll get back to you as soon as we can.
Otherwise, we look forward to talking to everyone in three months at the end of the first quarter.
| 2016_ROP |
2017 | KIM | KIM
#I would say on the surface, it's the same.
They haven't really changed it.
But the rating agencies also watch the macro issues.
So I'm sure that will be part of the conversation with them.
But I think it really comes down to us meeting the balance of the metrics that they are after, which is really trying to bring the net debt to recurring EBITDA down into that low 5 range.
So we have a little bit more work to do there.
But when we look at all of the other metrics that the agencies look at, we really meet them, from size of the company, equity market cap, consolidated NOI coming from the portfolio, clearly the simplification of the business with no foreign investments and no currency exposure.
And they're not really concerned really about our development or redevelopment pipelines either because relative to $18 billion of assets, it's fairly modest.
The debt maturity profiles have been dramatically improved as well.
Well, again, it's a general reserve.
So it will account for some portion of the lost rent but not ---+ if you lost someone in January for the full year, on a large scale, it wouldn't encompass that.
Sure, <UNK>.
We finished up the year at 89.9%.
Our target for year end was 90%.
We actually came 9,000 square feet short of that target.
So if you're willing to lease a 9,000-square-foot vacancy, we have one available for you.
But, going forward, we clearly think there's more run room there, small-shop activity has been very strong for us.
Just in terms of the last quarter, of the 107 deals we did, 27 of them were with restaurants, 21 were with personal-care services, 12 were with medical uses, 5 were with mobile operators.
So you see that the fitness, the services, and the restaurants and food components really are the driving force behind the occupancy lift there.
And small-shop optimism ---+ I think when you look at it from a business perspective, with the new administration, is actually near all-time highs.
So when we look at our pipeline of opportunities there, we think we can push it to 90.5%, and hopefully push that even higher.
Our all-time high was 90%.
So clearly if we can push that up to the 91% range or even higher, that would be fantastic.
We're happy that they are going back to the old ways, allowing you to capitalize them because it makes much more sense.
And we are planning to early adopt it.
So one of the reasons ---+ it's actually good because it does, it narrows that difference between what would be NAREIT FFO and what FFO as adjusted would be.
We're planning to currently adopt effective January 1.
Correct.
On the new leasing spreads, we clearly think that below-market leases is where <UNK>co shines.
And we have that as our acquisition thesis for a long, long time ---+ having great real estate with below-market leases.
So as you know, these leases are long in tenure and they take a long time to get at, but when they do come to maturity or when we are able to recapture them, that's really when we can unlock the value and mark those leases to market.
So a few of the deals that we talked about already, Lifetime Fitness replacing the Macy's at Suburban Square, and some of our other former Kmart boxes that we were able to reposition really were the drivers of our new-store lease spreads there.
Renewal spreads are healthy as well because they actually include options.
So options actually are usually a little bit below what our normal renewal spreads are.
So when you lump those two together, that's actually a very healthy renewal and option spread for us.
And when you combine that with new leasing spreads, obviously is where you get to our double-digit combined leasing spreads.
From a retailer environment standpoint, location is key.
Everything is very much a local level of decision for retailers when they look at the opportunity set of what's available in the market.
Typically we think our product is actually insulated from the shadow supply that we've been talking about.
Many times our retailer base doesn't necessarily want to deal with having an interior entrance.
They just prefer to have an exterior entrance and a big field of parking.
And they also like to have that co-tenancy with the best-in-class open-air shopping-center retailers and the visibility from the street.
So all those things combined, we clearly think that our repositioned portfolio is in good shape and should continue to produce solid spread results.
The key, obviously, is, with supply and demand, is that a huge flood of supply doesn't hit the market at the same time.
So what we've seen so far is that there's been a steady drip of supply.
And that actually is relatively healthy for us as we are able to recapture boxes that are below market and reposition them with best-in-class retailers.
So if there were a large-scale bankruptcy that changes that dynamic, clearly that would have pricing pressure on both new leases and renewals.
So we have been looking at our portfolio and making very local decisions on if we think now's the time to renew a tenant and lock them in longer term, then we do engage them with that conversation.
As you've seen with our occupancy, it continues to tick up.
As you see with our spreads we continue and are able to produce solid spread results.
So far the supply and demand is in our favor, especially since we're repositioned in the best markets in the US.
I think when you look at our anchor lease expiration schedule, it's relatively modest over the next two years.
And we do conduct regular portfolio reviews with our tenants.
And the nice thing about the portfolio reviews we've been doing, not only with the ones that are continuing to expand but the ones that have pulled back on their store openings, is their portfolio health with us is extremely hot.
And so we continue to think that the reposition portfolio gives us good insight into the retailer quality we have.
And even the ones that maybe are on our watch list, the stores that we have with them are actually performing quite well.
So that gives us some good insight into how we can perform over the next few years if there is a dislocation in terms of supply.
I mean if you look at the leasing expiration schedule, we know historically that somewhere around 75% of the leases that have options have exercised.
So if you take that into account, you're only looking at somewhere between 2% and 3% a year of real true roll to deal with.
The only thing I would add to that is if there's an option opportunity for a retailer and their lease is below market, there's usually a higher percentage chance that they are going to take that.
I think it will be relatively consistent in the first quarter.
We do see some seasonality there.
And obviously there's some retailers that did not perform over the holiday season.
But we think that over the year we'll be able to have a modest increase in occupancy both in small shop as well as anchor boxes.
No, it really is about timing.
I think we still are very confident about delivering the 2020 vision.
We realized we had a lot of work to do to get to where we are today.
I'm really happy with the execution.
I think timing-wise on the disposition program, I think we hit that window and were able to really execute on it probably at a pace even faster than we anticipated.
And this year when you look at what we're trying to do, we obviously want to grow FFO while reducing leverage.
And usually those two things are very difficult to do.
And we're trying to make sure we hit that.
And when we look at our 2020 vision, we've finished off the heavy dispositions, we started to ramp up our redevelopment/development spending, which clearly is not yet flowing.
But when we look at 2018, 2019, and 2020 that's where we see the growth coming, that's where we see a lot of the projects coming online and continue to think that, that's where we are headed.
Yes.
So the redevelopments should contribute somewhere between 20 and 40 basis points.
And then the balance obviously is coming from the organic, which is a lot lower than it was last year.
Instead, we had 70 basis points being contributed in 2016 from the redevelopments.
And it's really attributable to there's more projects that are actually coming offline that are going to fuel growth in 2018 and beyond.
The redevelopment projects that you're outlining for 2017 are actually back loaded.
Many of those projects are delivering in Q3 and Q4.
And so that's why, again, it doesn't necessarily flow through the full year.
But we do see the flow in the 2018 pick up and continue to think as we deliver those projects that, as you've seen, we've been able to promote more projects into the active pipeline from the shadow supply.
So when we look at our shadow pipeline, the key for our team is to really pull those forward as quickly as possible so we can continue to grow that active pipeline.
And we've been successful in doing that and continue to think we're just getting started on our redevelopment plan.
When you look at our Kmart and Sears exposure, we've been obviously salivating to get those back for a long period of time.
And a lot of those are coming due without any more options remaining.
So we've been able to actually put redevelopment plans in place for every single one if and when they come back early or if we're able to strike a deal to recapture boxes early.
So the plan is still in place to redevelop those boxes and continue to show the mark to market of over 300% for that portfolio.
So we obviously are watching that closely.
In terms of recapturing and having that in our acquisition target, there's no acquisition bake-in for recapture of those boxes.
We have constant dialogue with all of our retailers, especially ones that have assets that are way below market and continue to try and see if there is an opportunity for us to recapture early.
But in our guidance there's nothing baked in for that.
Well, relative to 30-year bonds, the savings, at least on the first-preferred debts going to be ---+ available to be redeemed would be in March as a 6%.
We're probably somewhere around 4 1/2%, 4 5/8% if we did a 30-year bond today.
So there's some potential.
However, that's not baked into our guidance.
Again, we're focusing on net debt-to-recurring EBITDA, on a consolidated basis, so we have to just watch carefully where it makes sense to do that.
The other two coupons are 5 1/2% and 5 5/8% that become callable later in the year.
Again, nothing baked into guidance in terms of redeeming those.
But, again, at the right point, those could be an opportunity.
That's the net of it together.
Hi.
You mentioned that some of the hurting retailers still did reasonably well at your centers.
Was there also a regional bias to that in terms of geographies that performed the best.
No.
When we look through the portfolio with our retailers, they typically have a national platform with us.
And when you look through the assets that we have and where they were located, there was not really a regional bias.
They just went ---+ we went asset by asset and talked about the store performance.
And each one seemed to be an outperformer for them.
So that gave us confidence.
Thanks.
We always look to try and expand our rolodex of retailers in our shopping centers.
And we are seeing more in terms of entertainment as well as service and fitness.
And that's our first Lifetime Fitness deal that we have in the portfolio.
That's our first West Elm deal that we have in the portfolio.
But I think when retail starts to blend in terms of all of the different channels, I think that's accurate.
We've been talking about that for awhile.
Sephora is probably the one that comes to mind where they have been actively working with us to expand and talk about the open-air center as their real growth vehicle going forward because they are already in all of the A malls.
So when you look at the portfolio of retailers in malls that would fit with some of our centers, you really got to pick the best in class because you want to be careful there.
No, that really ---+ that site ---+ and, again, it's probably site specific.
But where the location is, it's almost like a perfect hole in the doughnut, where there's really no retail in any real area of about five miles radiance wise.
So we've seen, regardless of where oil is and regardless of some of the issues that have been hitting Houston, the retailer demand has been very, very strong there.
And Target is set to open in just a few months.
So all of the junior boxes in Phase I are spoken for.
The restaurants are starting to lease up now and the small shops are starting to fill in nicely.
So we really haven't seen any pullback at all there.
I think you saw that the S1 has been updated and we continue to look at all opportunities there.
We still think it's a phenomenal investment for the Company long term and continue to see how we can either monetize a portion of it or work with the real estate.
So that is a continued ongoing effort for us.
I think the Company is watching closely to see how and when and how quickly the deflation impact starts to subside, which will really help the business.
And that should lead to other opportunities.
We'll just end it on that.
So thanks, everyone, for participating on the call.
And just a reminder, additional information for the Company can be found in our supplemental on the website.
Thanks so much.
| 2017_KIM |
2018 | PARR | PARR
#Thank you, Doug.
Good morning, everyone, and welcome to Par Pacific Holdings First Quarter 2018 Earnings Conference Call.
Joining me today are <UNK> <UNK>, President and Chief Executive Officer; Will <UNK>, Chief Financial Officer; and <UNK> <UNK>, President and Chief Executive Officer of Par Petroleum.
Before we begin, please note that some of our comments today may include forward-looking statements as that term is defined under federal securities laws.
Such statements include, but are not limited to, those concerning plans, expectations, estimates and our outlook for the company.
Any forward-looking statements are subject to change and are not guarantees of future performance or events.
They are subject to risks and uncertainties, and actual results may differ materially from what is indicated in these forward-looking statements.
Because of this, investors should not place undue reliance on forward-looking statements, and we disclaim any intention or obligation to update or revise any forward-looking statements.
I refer you to the latest Forms 10-K and 10-Q Par Pacific Holdings filed with the SEC for a more detailed discussion of the major risk factors affecting our business.
Further information regarding these, as well as supplemental financial and operating information, including reconciliations of certain non-GAAP financial measures to the most comparable GAAP figures may be found in our press release and our investor presentation on our website at www.parpacific.com or in our filings with the SE<UNK>
I'll now turn the call over to our President and Chief Executive Officer, <UNK> <UNK>.
Thank you, Matt.
We reported solid financial results in the first quarter due to strong contributions from Wyoming Refining, our Logistics unit and our Retail business.
Adjusted earnings per share were $0.18 in spite of challenging crude differentials in Hawaii, which negatively affected our quarterly results by more than $25 million when compared to the first quarter of 2017.
The impact of these dips was partially offset by the favorable impact of Small Refinery Exemption to the Renewable Fuel Standard 2017 requirements.
Wyoming reported record seasonal sales in the quarter at nearly 18,300 barrels per day compared to 14,800 barrels per day for the first quarter of 2017 and also realized an improved gross margin per barrel on a year-over-year basis.
We are very pleased with the market profile coming into the traditionally strong summer season.
Our Hawaii refining operations also had record on-island sales of more than 69,000 barrels per day, and our distillate yield continued to be healthy at 47%.
The high crude differentials we faced in the Pacific are largely a result of the current OPEC production constraints.
The production cuts have had a particularly significant impact on medium sour crudes and have also created a highly backwardated market, which exacerbates the cost of our Hawaii supply chain.
Our Hawaii retail business continued to perform very well with gross margin growth of 8% on a year-over-year basis.
Segment profitability was down 6% as we felt the impact of higher minimum wages at our store expense level.
Sales volumes ebbed somewhat with same-store fuel volumes declining 2.8% and merchandise sales declining 0.7%.
We believe these trends are related to a variety of factors, including the adverse impact of retail price increases on consumption, limited conversion work at our stores and competition at The Street level.
On the strategic front, we had several notable accomplishments.
We previously announced an agreement to purchase 33 convenience stores in the Spokane, Washington region.
We closed this acquisition at the end of the first quarter.
I'm pleased with the integration of the business, and I look forward to this expansion of our mainland activities and the enhanced diversification to our business profile.
We believe the Rocky Mountains and the Pacific Northwest are great regions in which to focus our growth initiatives.
Internally, our distillate hydrotreater project in Hawaii continues to be on time and on budget.
We expect to have this project operating in time to supply additional clean distillate products to address incremental demand generated by IMO 2020 standards.
In Wyoming, we have several projects ongoing to increase distillate production yields and debottleneck our crude unit to achieve greater flexibility and meeting summer demand.
And finally, we're making progress on the new fuel retail opening in Hawaii and working on other locations in the growing areas of West Honolulu.
At this point, I'll turn the call over to <UNK> to report on our operations.
Thank you, Bill.
In Hawaii, our combined Mid Pacific Index was $7.40 per barrel during the quarter compared to $8.90 per barrel during the first quarter of 2017.
The relatively weak margin environment in the first quarter was driven by overall elevated crude pricing.
On the product front, market conditions are favorable.
4-1-2-1 Mid Pacific crack spread on Brent basis was $7.38 per barrel in the quarter compared to a 5-year average of $7.19 per barrel.
Global demand is strong, and inventory levels, especially for distillates and fuel oil, are low.
However, on the crude oil side, as Bill mentioned, OPEC production discipline, geopolitical dynamics, combined with strong economy and strong demand for oil, continued to support high oil prices in a backwardated market structure.
As a result, our Mid Pacific crude oil differential in the first quarter averaged only $0.02 per barrel discount to Brent compared to a 5-year average of $1 per barrel discount to Brent.
Our Hawaii refinery throughput in the first quarter was 76,000 barrels per day with 98.5% operational availability.
We sold a total of 84,000 barrels per day in the quarter, including record-high 69,000 barrels per day of on-island sales.
The EPA granted our Hawaii refinery Small Refinery Exemption for the calendar year of 2017, which resulted in the net first quarter RINS benefit of approximately $9 million for the Hawaii refinery.
Our adjusted gross margin was $5.20 per barrel, including positive $1.30 per barrel related to the RINS benefit.
This quarter, we estimate our negative capture to be $1.25 to $1.50 per barrel driven by the following 2 items: first item is a negative $0.65 per barrel impact associated with export timing.
As a reminder, in the fourth quarter of 2017, we realized approximately $1 per barrel of positive capture mainly associated with low exports.
In the first quarter of '18, we almost doubled our exports compared to the fourth quarter, mainly with low-value product, which drove our realized adjusted gross margin down.
The negative $0.60 to $0.85 per barrel lift is related to the backwardated market structure and elevated shipping rates for the crude oil processed in the quarter.
Our production cost in the quarter was $3.64 per barrel.
So far in the second quarter, our combined Mid Pacific Index is approximately $8 per barrel with crude differentials improving by approximately $0.50 per barrel for our third quarter crude oil purchases.
Our second quarter planned throughput is in the 72,000 to 73,000 barrels per day range.
In Wyoming, our 3-2-1 Index was $15.65 per barrel during the quarter.
This is compared to $16.51 per barrel during the first quarter of 2017.
In the first quarter, our refinery throughput averaged 16,500 barrels per day with 98.9% operational availability, and we sold record-high 18,300 barrels per day.
The EPA also granted our Wyoming refinery Small Refinery Exemption for the calendar year of 2017, which resulted in a net first quarter RINS benefit of approximately $4 million for our Wyoming refinery.
Our adjusted gross margin in the quarter was $13.96 per barrel compared to $9.45 per barrel in the first quarter of 2017.
Excluding approximately $2.70 per barrel of net RINS benefit, our results for the quarter represent a strong capture rate of approximately $3.25 per barrel over historical performance.
We attribute the strong capture to our increased commercial and operational flexibility.
As reported in the past, our ability to rail and truck oil product outside of our market and support this incremental demand with our improved deal flexibility is critical to smooth out seasonality and enhance profitability.
In the first quarter, our Wyoming refinery produced record-high distillate of 7,400 barrels per day, and our premium gasoline sales represented over 13% of our total gasoline sales.
Production costs were $7.74 per barrel, approximately $0.60 to $0.70 per barrel over our run rate, mainly related to inventory adjustment.
Market environment is now improving in the Rocky Mountains as we approach gasoline season with close to mid-cycle gasoline inventory and low distillate inventory.
So far in the second quarter, our Wyoming 3-2-1 Index has averaged $19.20 per barrel, and our target throughput in Wyoming is approximately 17,000 barrels per day for the quarter.
And now I'll turn the call over to Will to review financial results and Laramie highlights.
Matt, it's <UNK>.
Like every quarter, we optimize our crude slate based on what the LP and the model is giving us.
And ANS happened to be an optimization at 40% like African crude at 40% and the mix of both with other crude gave us the optimized yields.
Beyond that, I won't go into more commercial details.
This is Bill.
Yes.
It's ---+ I would say mainly on the fuel retail side.
And actually, while margins were good, it was a difficult environment in terms of sales volume because there was a lot of activity going on within our store network during the quarter.
Also with rising fuel prices at the pump, you do see some changes in customer habits.
That impacted parts of our business as well.
Generally speaking, when you have rising pump prices, you ---+ I believe you tend to see customers migrate toward value-oriented brands.
And also the spread can widen between the premium brands such as 76 and high-volume retailers.
So we believe that there are increased sales at the high-volume retailers and then also increased sales at our value-themed Hele brand.
Did that answer your question.
No.
We did not receive a waiver for 2016, and we're not going to comment on any conversations we're having with the regulatory agencies.
Sure.
No impact on our operations.
We do have a terminal in Hilo, which is reasonably close to the volcano, and ---+ but there have been no ---+ the only real impact that could have taken place probably would have been with respect to the large earthquake, and we inspected our facility shortly after and had no issues.
This is Bill.
We're still debating and discussing that.
I think one of the big issues with E15 is just whether the car companies are actually going to abide by this and deal with the warranty issues associated with automobiles on the road at E15.
We'll watch it, obviously.
I don't expect if the market does shift to E15 that it will have any material impact on our business.
Would you want to add anything to that, Will.
Yes.
Let me just correct, it's not 18 million, 18,000 barrels per day rate, really our record-high sales in the quarter in Wyoming.
That was great to see, especially outside of the season.
For the rest of the year, we are planning around the 17,000 barrels per day type of run rate, and sales will be accordingly, probably 17,000 plus more in the summer, slightly less in the winter.
I have a few, and I'll back out in the queue and let us back in if you can.
A follow-up on the inquiry on the Hawaii volcano issues.
Since a good deal of our online sales and our on-island sales and desire is for jet fuel, are the other islands or main islands where you guys, I would think, some more jet fuel, are they experiencing increased jet landings.
And is the Big Island an area where we do a lot of on-island jet fuel sales.
And are they losing aircraft landings due to the ash issue that would be a problem for aircraft traffic.
Well, keep in mind that most of the air traffic to the Big Island is Kona, which is on the other side of the island.
And I'm not aware of any impact on our jet fuel sales with respect to the volcano, either up or down.
I think most activities continue to move on.
Kilauea is on the south and east side of the island closer to Hilo.
There's not as much tourism in that area, other than people driving over to the volcano.
And let me also say that all of our stations are operating on the Big Island as well, so we really don't see any impact in the business associated with the volcanic eruption at this point.
Okay.
And then regarding Laramie, regarding the transaction with an in-basin oil and gas producer at the end of February, where our equity ownership percentage was reduced by the issuance of new units for an aggregate total valuation of that acquisition of, I think, $28.1 million, your 10-K said.
The implied price per unit, I think if we did the publicly available numbers accurately, was fractionally above about $400 a unit.
And I was just wondering what is the value per unit of Laramie on Par's books.
And if you can't be specific, can you at least say is this current $400 a unit valuation in which they were issuing shares units, is it greater or less than the value of Laramie's units on Par Pacific books.
Okay, great.
And is there an accounting principle or something else.
What was the reason that Par Pacific no longer will include share of Laramie's unrealized derivative gains and losses in your calculation of adjusted net income.
Okay.
And then my last question before getting back in the queue, and I do have a few others, so hopefully there's time.
But my last question before getting back in the queue is with respect to ---+ you've acquired additional retail.
Laramie's acquired some things, and obviously crude prices have really strengthened.
In light of the things that have gone on in the last, call it, 6 months and where you are, and debt's coming down, is the focus still kind of tuck-in acquisitions.
And whether it's tuck-in or maybe additional, a larger acquisition, has there been any shift as to what areas you're finding attractive versus other areas where it's not as much of a focus.
<UNK>, our focus remains the same.
We think we have two very good franchises, really three, including Laramie, which is an investment.
In Hawaii, there are some opportunities for growth that we'll continue to pursue.
And then in the Rocky Mountains, we have a toehold with our Wyoming position.
We've added to that in terms of the mainland activities with respect to our new retail franchise in Spokane, and we think there are multiple opportunities to continue to grow in that region, where we have synergies associated with our existing assets.
Yes.
We need to look at the index and see the trend, and we basically follow the index.
We had ---+ our market environment this quarter was $7.40 per barrel of the combined index.
And in our prepared remarks, we spoke about the crude differential, which is traded at Brent flat.
It was much better in the last, year-end quarter.
But in addition, this quarter, we had some negative capture that we broke down in our prepared remarks.
The $0.65 per barrel associated with the export timing is noise.
We exported 1.3 million barrels this quarter compared to almost half of it in the previous quarter.
And our export is typically a low-value product, which pushes down our realized gross margin.
So this is noise.
And then we spoke about the backwardation and the shipping rates that we had to face in this quarter.
Backwardation is still there, and the shipping rates are already back to historical ranges.
We don't see much on the competitive landscape that changed.
It's another market with supply-demand dynamics, where you have an interface between the Rocky Mountains and the Midwest, and it will continue to move up and down.
And in some days, it will be better than the Sioux Falls, Chicago, alternative, and sometimes, it will be under, like this quarter.
Obviously, we don't try and we cannot drag the market the way we want.
We just continue to participate based on supply-demand and market opportunities.
We think it's still early for the IMO to really have an impact on the market.
The Brent minus $8 to a Brent minus $10 type of Sing 180 is slightly under mid-cycle.
It's not very weak.
It's just slightly under historical average, but you're right.
Inventories are very low, which means we have more upside than downside.
And the reason inventories are low is because heavy crude is less available and refineries are more complex this year than compared to where they were two years ago.
So the Russians cannot flood the Singapore market with fuel oil.
They have more equipment to finish fuel oil into light products, and then also the demand side is positive with strong economy in Asia, et cetera.
So we're going to continue to follow the market, and we think there is an upside to where we are at this point.
I think the IMO market will start affecting the market mid next year or early '19.
And then, just to complete that picture, HSFO may be weaker next year, and probably high-sulfur oil gasoline will be weaker.
We need to remember that for every barrel of these two products we make, we make over 4 barrels of clean product: jet fuel, ultra-low sulfur, diesel, low-sulfur fuel oil, and therefore, overall IMO is not a concern for us.
It's really the other way around for both refineries.
You answered a few of them, but I just had 1 or 2 left.
You closed on the Cenex acquisition at the end of the quarter.
Can you update us.
Is there any integration that you may have to do, information systems, payroll systems.
Any major CapEx or other things that the company needs to do to have this thing click along.
<UNK>, our team did a great job, and they ---+ we converted all the systems over in the first week of the acquisition, really the first day of the acquisition, and things are going very smoothly.
We don't anticipate any additional capital associated with the integration.
There will be some normal maintenance capital associated with just the upkeep with respect to the stores, but things look good right now.
And here we are at the ---+ in May, so halfway through the second quarter.
The results and the cash flows are operating at your expectations or better.
We're happy with where things are right now, yes.
Excellent.
And then last call, I think it was ---+ you talked about increased competition that was somewhat occurring in the Wyoming area with the strong performance it had in this last quarter and all that.
I think you thought things would correct.
Is this indication of a correction.
Or is there still some shifts in the competitive landscape for us to keep an eye on in Wyoming.
No.
Like we addressed the question earlier in the call, we don't see any change on the competitive landscape in Wyoming.
We do have more flexibility and more options than we ever had in the past.
So when we choose, we put oil product on railcars or trucks, and we target other markets that are short and present opportunities for us.
And we also have enhanced distillate capability now after doing the HDS project, and we can also make a lot of premium gasoline as we are long octane.
So we have more flexibility.
We are less reliant on the Rapid City as a market, and we'll continue to optimize sales.
Got it.
In fact, it seems like you've made that refinery much more competitive by doing all of that.
Last call, in the year-end call, you referred to debt to total cap as a potential indicator of whether it's acquisitions or other shareholder ---+ returning capital to shareholder issues.
When you referred to that, I just want to confirm, you were referring to book value of equity, not market value of equity, right.
Okay.
And lastly, upcoming non-deal road shows, conferences, et cetera that you guys have on the calendar that can give us a little more advanced foresight on that you're going to provide us here before we see the press release of it.
Thank you, operator.
Thanks for joining us this morning.
Our team has done a great job of overcoming the crude dips in the Pacific due to strong results in Wyoming and our Retail unit.
We're excited to be involved with our new team in Spokane and look forward to their contribution to Par Pacific's success.
We continue to see opportunities to build on this base with additional acquisitions, and we will stay in touch.
Have a good day.
| 2018_PARR |
2016 | AGCO | AGCO
#<UNK>, as usual when you ask questions to get my straightforward answer, I would think that we didn't place the guidance because we want to be conservative and careful here.
When it comes to South America, we speak, of course, more optimistic when we are there and talk to the media in order to try to motivate farmers to get out of the depression.
And it looks like it's too early to talk about 2017, but it looks like as if Brazil bottomed out and potentially will look better next year.
Yes.
This quarter, we're about close to $13 million.
Next quarter, we're expecting it to be around somewhere between $14.5 million to $15 million.
So as a percent of sales year over year, it's up about 0.2, 2 points on the margin.
So that is an impact.
That will probably be a little higher than our run rate next year, but our run rate will be up about $10 million on an annual basis because of the Cimbria acquisition.
It will.
SG&A will be up because we'll be adding Cimbria into our results in the fourth quarter, as a percentage of sales probably won't make much of a difference though.
Well, we're still working those price increases and probably not ready to give out any numbers at this point, but for sure we've talked with our marketing teams about monitoring the steel price increases, and understanding that we need to make sure our pricing offsets that completely next year.
So that'll be our intent, but we don't have firm numbers to give you yet, <UNK>.
My idea is that the industry would need something like 5%.
It will be difficult for sure, but on the other hand we also, let's say, everybody is hit by inflation, as <UNK> mentioned steel and things like that, so we need it.
yes.
So, <UNK>, the increase you saw in inventories, most of that was not related to Brazil.
Most of that'll take place in the fourth quarter.
We had about, yes, we had about half of that increase was related as a function of currency and the other half was acquisitions.
So, we do expect to offset, as you said, about $80 million of inventory build in the fourth quarter that'll take place in Brazil.
We hope to offset a good part of that in reductions in both North America and Europe.
It'll be probably throughout 2017, I would say mainly first half.
It will be longer than just the first quarter, though, <UNK>.
Yes.
We don't want to talk too much about 2017 yet, but we feel, of course, I do, and my take on Europe right now is it will be flattish I would call it.
So we looked into the various markets and it's a very mixed picture as usual, so some markets well do better and some will be more difficult.
So therefore, I think Europe already this year was rather stable and I'm expecting the same also next year.
No, I would say, what ---+ let's say, I talked about the overall blended view, and part of that view is that France will most probably go down and other markets will go up slightly, so therefore the mixed picture.
That wouldn't have had any impact on our specific results.
I think there were some unusual activity in some of the industry demand numbers.
I think most of that'll get washed out here in the fourth quarter.
Yes, the high-horsepower tractor month supply is probably fairly similar, but it is coming down, and so we're making progress there.
Overall, the overall month supply as we said, we haven't made as much progress because it's being offset by some new product introduction inventory that on a low-horsepower side that's going into the market.
So we've lowered our dealer inventory in North America through the first nine months by about 15% or so.
And then on the high-horsepower side, it's over 20% reduction.
So we're making progress, but as the market continues to soften, that makes it a continuous process that we're going through.
We'll check our progress at the end of the year and determine what further actions if any we need for next year.
Morning
Morning.
Well, <UNK>, in the third quarter, we did have some lower margins.
I think one of the main reasons was the mix was different.
We had some high margin business outside of Brazil that was in the third quarter of 2015, which we didn't get in 2016.
So it's kind of unusual geographic mix change there.
And then also, we did expect to get some of the price increases that we were focusing on in Brazil.
In our results in the third quarter, we didn't get as much as we had expected.
And that's offsetting some of the material cost inflation that we're seeing in the market.
And so as a result, our margins were a little tighter than we wanted them to see.
We're hoping to make more progress here in the fourth quarter on our margins.
Well, in Brazil, our incrementals are typically a little lower.
We're not as vertically integrated in Brazil.
But everything being equal, they should be over 20%.
We've got a lot of activity going on in Brazil next year with new products with the Tier 3 models coming in.
And so it will be ---+ we have to go through all that detail to see where we end up and we'll be able to share more of that in our <UNK>cember Analyst Meeting.
Well, Rob, for us, we can, and I usually speak for us.
We're in the process of introducing our new Global Series.
So we're in the process of adding dealers.
So, for us, that tends to increase our numbers.
I can't really speak for the other guys.
We have seen a slowdown in the commercial hay business, which that category of tractors lends itself somewhat and then also we see those tractors sold into kind of residential, construction and more general economy, weekend farmer kind of activity.
So, some of that relates probably to some slowing down in the general economy as well.
Well, I think what we're seeing in that market right now is certainly a pullback in demand in the grain storage equipment net.
Usually everyone is focusing just on the silos, but a lot of that business is also in the conditioning, drying equipment, also the conveyance equipment as well.
So there are multiple aspects to that.
What we're seeing is a significant pullback in the conditioning equipment because the harvest have been quite easy and the grain has been relatively dry.
So the hours on the equipment don't require any replacement this year.
We're also seeing a pullback in commercial activity as some of the big processors are pulling back on CapEx right now.
And so as we look forward, I think there is still a stable amount of on-farm storage demand and equipment for on-farm, but also very important in this is the activity levels and the commercial area, ports, processors and their project CapEx.
And that's where we're hoping to see some recovery at some point, but that's the main reason why we're down right now.
Sure.
We're running a little behind in most of the markets, but also we're performing better on the material cost side as well.
So it's not really impacting our margins too significantly.
It's a competitive environment in all of the markets we're participating in.
I would say the main reason for the decline is the, as I said, delay in some of the pricing that we're expecting to get in South America.
I mean, your point's right that the pricing is heavier there than our other markets, and we are expecting some sales increases there, but for the most part, we had expected that.
And so we pulled back a little on our expectation on Brazil pricing.
And that's the main source of the slight change in the pricing guidance that we gave.
I would say, it is a little more challenging, but for the most part the farmers are still doing quite well in Brazil.
With the real weakening and a lot of their ability to export their crops, their margins are probably better than farmers in other parts of the world.
And so from that standpoint, I think there is a healthy sector down there.
Also, the sugar sector is kind of recovering at this point because the prices in sugar are way up.
And so there are some more positives right now in the market.
So I would expect that to carry through into the credit availability as well.
This is, as you know, the most advanced and most efficient and lowest lifetime cost conventional wheel tractor in the world.
We developed it for mainly the markets of Europe and Eastern Europe, but saw quite some traction and interest from American farmers.
We actually will sell about 100 or so this year.
We could sell more if we could produce more.
So it's a pretty good start and I think this tractor helps in various area.
One, it helps to improve our brand image.
Two, I think this low weight and low soil pressure tractor will change the market in America quite a bit from this big four-wheel-drive articulated into more intelligent solutions.
And therefore, we are optimistic that this will also see growing demand in the years to come.
Yes.
There was some modest one-time costs, but it was offset by the income that we got for the 20 or so days of the year.
So there was no real impact to our bottom-line results because of that.
No, we're obviously working on our 2017 budgets and projections right now with them.
So it's early days in getting our plans together there, but there's nothing that we've seen so far to change our expectation.
Nothing new.
Yes.
So, <UNK>, it's probably pretty self-explanatory, but the tax benefits that the farmers have had this year are being minimized just by the fact that the harvest was so bad and their income levels are going to be down.
So much like Section 179 in the US kind of ran out of steam that's kind of what we're seeing in France.
In general, you could say that there's a trend towards bigger and higher horsepower equipment in tractors and combines in Brazil.
We also basically try to get more intelligence by showing the new Fendt tractor in this market, which did get a lot of attention.
So I think within the next year, you will see the average horsepower getting closer to what we have already in the US or in Europe.
And with regard to the market trends, I think that our team in Brazil believes that there has been some increased demand in 2016 as a result of buying ahead of the higher priced Tier 3 equipment, but they don't believe it's that substantial.
So I think there's a modest pull forward, but nothing that should impact significantly 2017.
Sure.
The receivables, as you say, typically would come down a little, mainly it's a geographic mix issue.
And we have, as you know, in our footnotes, you can read about the fact that a lot of our receivables are transferred to AGCO Finance, our retail finance subsidiary, a JV that we have, that's not consolidated, so a lot of those receivable do come off our books.
We saw a ---+ our gross receivables are actually down, but the amount that we sold into AGCO Finance and was down is in more than our gross receivables are down, so that makes the net receivables go up.
So I would assume most of that'll get sorted out here in the fourth quarter and won't be a full-year impact to our cash flow.
Sure, <UNK>.
We're in the middle innings of getting that factory ramped up.
During 2016, we're very close to having almost all the models that we're going to produce in that factory be released, but certainly not having them in all our markets ready to be sold for a full year.
So that should be a help for us in 2017 and a help for our factory in 2017.
Don't have the volume improvements yet for 2017, but it'll be another step up in volume and another step up in margins that we would expect as a result.
In terms of market shares, it's still early days.
As I said, we're not getting ---+ we don't even have all the products introduced yet.
But we are making progress in our market share in the low-horsepower sector as a result of these new models and we expect that to continue.
I think the impressive part is when you visit the factory that this is again we learned from other investments we made like the big Fendt factory in Germany, the factory in China is better again.
The layout would allow us to assemble Fendt tractors there in theory.
So it's a state-of-the-art super efficient factory, and you will like what we are doing there in the future.
Yes.
We're addressing that with our Board in the next few meetings and we'll have more information on what our plans and new authorizations will be in our Analyst Meeting in <UNK>cember.
So that's on the table for discussion, and we certainly expect to continue to do share repurchases, some of that needs to be balanced with our new acquisition and additional debt we just took on, so something that we'll determine in the next month or so and report back to you.
We also, just to let you know, we manage our interest of visitors into China by inviting them for very authentic food.
So, you're welcome to come and visit.
Thanks, <UNK>.
Bye.
| 2016_AGCO |
2016 | AMWD | AMWD
#Thank you.
Good morning, ladies and gentlemen.
Welcome to this American Woodmark conference call to review our fourth fiscal quarter and full-year results for FY16 ended April 30, 2016.
Thank you for taking time to participate.
Participating on the call today from American Woodmark Corporation will be <UNK> <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Senior Vice President and Chief Financial Officer.
<UNK> will begin with opening comments, followed by <UNK> with a detailed review of the quarter and year and an outlook on the future.
After <UNK> and <UNK>'s prepared remarks we will be happy to answer your questions.
<UNK>.
Thank you, <UNK>, and good morning to you all.
Our fourth quarter brought to an end a very successful fiscal year for our Company.
For the quarter we grew sales 16% over prior year, with key drivers once again being our new construction and dealer channels.
Similarly for the year we grew revenue 15%, continuing to outperform the industry as a whole.
Looking specifically at new construction, we had a very strong quarter, growing our <UNK>berlake business 27% over prior year.
For the fiscal year we grew by 21%, far outpacing single-family starts that were in the lower teens.
Our message has been very consistent regarding our market share gains associated with our winning direct service model.
From an industry perspective we have seen little change in the underlying dynamics.
Labor and land shortages remain as key bottlenecks, which, when combined with the low existing home inventory, continue to drive up home pricing.
With median new home prices over $320,000 and lending remaining difficult for first-time homebuyers, entry-level home demand remains soft.
And although numerous initiatives exist to try to bring the first-time homebuyers back to the market, I personally do not believe we will see significant change within calendar year 2016.
On the positive, though, demand for higher-end homes is strong and we do expect it to remain so into our FY17.
Taking a look at our dealer channel, we had a very strong revenue comp for the fourth quarter, growing 35% over prior year.
For the fiscal year we grow our revenue 31%.
Our Waypoint team continues to do an outstanding job of differentiating themselves relative to our competition.
The results are very evident with the significant market share gain year over year.
As we look forward, we expect to continue to over index within the dealer channel and comp favorably due to our ongoing share gain.
Within home center, a more challenging quarter.
We were up only 1% for the quarter and 4% for the year.
Home centers themselves reported lower than average comps in our category.
However, as I mentioned last quarter, we are seeing much greater competitive promotional activity.
Although we have moved up some in our own promotional spend in our fourth quarter we remain far less than competition.
The result has been some shift of market share.
Up to now we have resisted following the trend as the cost is high and is not having any significant impact on bringing additional consumers into the door.
It's simply moving share from one to another.
Historically, over the long term it has been our position to respond appropriately to strong competitive promotional activity to minimize any shift in share.
As we move forward we will continue to evaluate our promotional strategy and make sound business decisions.
Regardless, we will remain very focused on working with the home centers on longer-term strategic solutions to drive market growth.
From a gross margin perspective, we came in at 20.3% for the fourth quarter.
This was down from our prior-year margin of 20.9% with an incremental gross margin of 16.3%.
<UNK> will provide more detail but the key drivers were higher healthcare and increased depreciation as we brought on the second phase of our South Branch expansion.
For the fiscal year, I'm extremely pleased with our gross margin at 21.1%, an improvement of 260 basis points from prior year.
Likewise, incremental gross margin was very strong at 39%.
Our manufacturing system continues to operate very efficiently with much greater stability.
On net income, we generated $13.4 million in the quarter, up 18% from prior year as we continue to leverage our SG&A spend.
For the year our net income was up 65% ---+ simply exceptional performance.
With an operating margin of 9.2% for the quarter and 9.8% for the year we have reached a level of performance rarely achieved in the history of the Company.
As we look forward, we're getting more assertive regarding our investments to continue to profitably grow our business in the long run.
Not only are we planning on two significant product launches in FY17 but we are focused on continued core and strategic investments.
We have built an indisputable competitive advantage in the markets we serve and are determined to strategically leverage this advantage.
As such, we remain extremely confident in our long-term journey.
With that, I will turn it over to <UNK> for the detailed financials.
Thanks, <UNK>, and good morning, everyone.
The financial headlines for the quarter ---+ net sales were $240.9 million, representing an increase of 16% over the same period last year.
Reported net income was $13.4 million or $0.81 per diluted share in the current fiscal year versus $11.3 million or $0.69 per diluted share last year.
Exclusive of after-tax non-operating charges related to idle land disposal of $0.8 million or $0.05 per diluted share, the Company generated $14.2 million or $0.86 per diluted share of net income for the fourth quarter of the current fiscal year compared with $11.3 million or $0.69 per diluted share for the same period in the prior fiscal year.
For the 12 months ended April year-to-date net sales were $947 million, representing an increase of 15% over the same period last year.
Net income was $58.7 million or $3.57 per diluted share in the current fiscal year versus $35.5 million or $2.21 per diluted share last year.
Exclusive of after-tax non-operating charges related to idle land disposal of $0.8 million or $0.05 per diluted share, the Company generated $59.5 million or $3.62 per diluted share of net income for the entire current fiscal year compared with $35.5 million or $2.21 per diluted share for the same period of the prior fiscal year.
For the current fiscal year the Company generated $71.8 million in cash from operating activities compared to $58.7 million for last year.
Some additional comments on sales performance, starting with the new construction market.
Recognizing the 60- to 90-day lag between start and cabinet installation, the overall market activity in single-family homes was up over 18% for the financial fourth quarter.
Single-family starts during December, January and February of the prior period averaged 675,000 units.
Starts over that same time period from the current year averaged 795,000 units.
Our new construction base revenue increased 27% for the quarter.
As we have stated on prior calls, we continue to over-index the market due to share penetration with our builder partners, and the health of the markets where we concentrate our business.
The remodel business continues be challenging.
On the positive side, unemployment continues to improve.
The April U3 unemployment rate dropped to 5% and U6 dropped to 9.7%.
Both measures were lower than the April 2015 reported figures.
Residential investment as a percent of GDP for the first calendar of 2016 improved to 3.4% versus 3.2% for the prior year.
Although the percentage is improving the index remains well below the historical average of 4.6% from 1960 to 2000.
Existing home sales increased during the first calendar quarter of 2016.
Between January and March of 2015 existing home sales averaged 5.05 million units.
That same period for 2016 averaged 5.3 million units, an improvement of 5%.
Interest rates remained low in the quarter with a 30-year fixed rate mortgage at 3.61% in April, a decrease of approximately 6 basis once versus last year.
All cash purchases in April were 24%, down from 25% in March and unchanged from last year.
The share of first-time buyers improved.
The April reported rate was 32%, better than the prior-year rate of 30% but well below the historical norm of 40%.
On the negative side the median existing home price rose 6.3% for April, the 50th straight month of year-over-year gains, impacting our consumers' affordability index.
Consumer sentiment dropped to 89 in April versus the 92 reported at the beginning of the calendar year.
Home ownership rates remained low versus historical averages.
The percent of Americans who owned their own home in the first calendar quarter was 63.5% or 0.2% below last year's rate.
Our combined home center dealer remodel revenues were up 7% for the quarter.
Waypoint represented over 10% of our overall revenue and grew 35% in the quarter.
Promotional activity remained higher than the prior year for the fiscal fourth quarter as we responded to competitive positioning and market conditions.
The Company's gross profit margin for the fourth quarter of FY16 was 20.3% of net sales versus 20.9% reported in the same quarter of last year.
The Company generated a year-over-year incremental gross margin rate of 16% for the fourth fiscal order.
Gross margin was negatively impacted in the quarter by higher healthcare and incentive costs, plus higher depreciation costs related to the previously announced plan expansion.
Year-to-date gross profit margin was 21.1% compared to 18.5% for the same period in the prior year.
Year to date the Company generated a year-over-year incremental gross margin rate of 39%.
Gross margin was positively impacted in the year by higher sales volume, customer management, product mix, pricing and improved operating efficiency.
Total SG&A expenses decreased from 12.4% of net sales in the fourth quarter of the prior year to 11.1% this fiscal year.
Through 12 months SG&A improved from 11.9% of net sales to 11.3%.
Selling and marketing expenses were 7.2% of net sales in the fourth quarter of this year compared with 8% in the prior year.
We generated leverage in selling and marketing costs through expense management and lower display and product launch costs.
General and administrative expenses were 3.9% of net sales in the fourth quarter of FY16 compared with 4.4% in the prior year.
The decrease in our operating expense ratio was a result of leverage from increased sales and ongoing expense controls.
With respect to cash flows, the Company generated net cash from operating activities of $71.8 million during FY16 compared with $58.7 million in the same period in the prior year.
The improvement in the Company's cash from operating activities was driven primarily by higher operating profitability, which was partially offset by higher customer receivables.
Net cash used by investing activities was $40.8 million during the fiscal year compared with $56.6 million during the same period of the prior year.
The improvement was due to a $27 million reduced investment in certificates of deposit, which was partially offset by increased investment in promotional displays and property, plant and equipment of $10.7 million.
Net cash used by financing activities of $6.1 million increased $17.8 million during the fiscal year compared to the same period in the prior year as the Company repurchased 243,143 shares of common stock at a cost of $16.6 million, an $11.5 million increase from the prior year.
And proceeds from the exercise of stock options decreased $6.2 million.
In closing, the new construction market continues to improve, with single-family housing starts approaching 800,000 units.
Land, labor shortages and low existing home inventories continue to increase new home pricing.
Unemployment rates and consumer confidence have improved but the middle income consumers' willingness to spend on a new home or begin big ticket discretionary home improvement projects remains low.
Although the market remains uncertain we continue to be pleased with our progress.
We established all-time highs in net sales and net income.
However, we also realize that our journey has only just begun.
As <UNK> mentioned, we are excited about our future and our ability to continue to win in the marketplace.
Regarding our FY17 outlook, for the market we expect single-family housing starts to grow approximately 10%, interest rates to climb along with continued increases in the average price of new homes.
Both actors will negatively impact affordability, particularly for the important first-time and first-separated buyers.
Unemployment should remain steady and cabinet remodeling sales continue to be challenged until economic trends remain consistently favorable.
Growth is expected at roughly a mid-single digit rate during the Company's FY17.
In this environment our expectations for Company performance are as follows.
The Company expects that its home center market share will be relatively stable in FY17 and it will continue to gain market share in its growing dealer business.
This combination is expected to result in remodeling sales growth that exceeds the market rate.
The Company's new residential construction sales growth outperformed the new residential construction market during FY16.
Management expects it will again outperform the new residential construction market during FY17 but by a lesser rate than FY16 as its comparable prior-year sales levels become more challenging.
Inclusive of the potential for modest sales mix and pricing improvements the Company expects it will grow its total sales at a low teen rate in FY17.
Despite anticipated material inflation, costs related to two product launches, and impacts in the first half of FY17 for the West Virginia plant expansion, the Company expects to maintain operating margins for FY17.
Before taking questions, I know many of you have followed American Woodmark for a number of years.
During that time there's been one constant with the investor relations community ---+ <UNK> <UNK>.
This will be his last earnings call as he will be retiring at the end of the month.
I wanted to take this opportunity to say thank you to <UNK> for over 40 years of service to our Company.
This now concludes our prepared remarks.
We'd be happy to answer any questions you have at this time.
Yes.
Going back to my closing remarks there, we are anticipating some material inflation as we go into FY17.
We do have a couple of specific product launches that we will incur, as well.
And then we've got a bit of carryover associated with our plant expansion that went online the second half of FY16 that will show up in the first half of FY17.
The other remark I would make, and I think we will get questions on this, is over the long term we've said that our goal for operating margin was to be at 8% to 10%.
We certainly got very close to the 10% mark in this last fiscal year.
But 2002 was, honestly, the last time frame in which we came close to that operating margin level.
So, we want to make sure we build a strategy in place that we can maintain that margin and not see that erode.
This is <UNK>.
When you think about it, I'm sure a lot of questions are ---+ what's in store for us longer term.
Right now we are, I mentioned, really, the past three recalls, about our strategic initiatives and the work we're doing.
We have a lot of work underway that's really focused on longer term.
To <UNK>'s point, if you had told me two or three years ago that we would be up to 9.8% operating margin I would've said no way, just given the challenges that we were facing, the economy and the industry.
So, I'll say we got to what our initial target was much more quickly.
Now the question is, do we have a different longer-term target and that's really what we are evaluating.
So, absolutely, from a strategic and just from an initiative perspective we definitely want to move beyond that 10%.
What it is we really don't have that answer yet.
It's hard to do an apples-to-apples comparison between us and our competition given our mix and the markets we serve and so forth.
But we want to continue to focus on longer-term opportunities.
And, yes, we are evaluating and we feel we have some very significant longer-term opportunities to continue to grow not only top line but also bottom line.
We've certainly got that factored in, as well.
Our team has a deck of productivity related projects that they will go after.
We will clearly get leverage from incremental volume running across the platform that we've got.
And then we've got to manage those improvements with some of the other headwinds that we're expecting as we go forward.
From a productivity, obviously labor costs fairly consistently go up.
That's normal in any industry.
Productivity has always focused on offsetting those labor costs.
Then we also have a number of projects really focused on productivity to help with inflation and so forth.
But we get the question many times, and it's been a while since we've done it.
We will keep a very close eye on inflation, particularly from a lumber perspective.
And the question comes back, is how much of that can you get back in the market through pricing.
We're not at that stage yet but it is something we're going to watch very closely.
Sure, <UNK>.
In our business, traditionally the timing historically has been set by launches within the home center markets.
You typically do one late summer or early fall and another one mid winter.
If you look historically at the launches we've had as a Company, we follow that trend.
This past year we were focused more significantly on really creating that stability and capability of our manufacturing platform, which we achieved.
That's resulting in a lot of confidence in us out in the market, and it's really one of the key drivers, along with just the service, that is getting the market share improvements we're seeing in new construction and in the dealer side.
So, that investment was well worth it, it's paid off.
And now we're really back to saying ---+ okay, we've got a stable platform, we can launch more product.
We've spent the past six months doing a lot of research with regards to what products are we going to launch, and really where the market is going, what the trends are.
I'm not going to give specifics, actually, on what we are launching but we do have two fairly significant launches late summer and in the winter that do come with associated launch costs.
We've talked about that many times Even strategically, it's one of the big initiatives for not just us, the industry as a whole, for home centers.
The cost to launch product is you have to go out, you have to update all your displays, change out selling center doors.
That cost we will bear during the year.
And then obviously the delayed impact from when you actually do the launch to when you actually start seeing a return on the investment, there is a lag there.
So, we built the cost in.
We built in, with obviously the late summer/early fall launch, we started to build in some revenue enhancement from that later in the year.
So, all the costs we incur in fourth quarter, really we won't start to see a return on that until FY18.
So, two good launches, really focused on product.
We're continuing to work on other, I'll say, projects.
We talk about solutions.
We've got a number of solutions that we are working on that are really, I'll say, innovative that we are not ready, nor have we budgeted specific costs or savings to those, but pretty significant opportunities that we are also working on.
You hit it absolutely.
There's a delay.
We obviously won't launch something unless there's a return on it.
If you look at our mix and where we are growing share, absolutely we're going to launch new product.
<UNK> talked about the comps getting a little bit tougher out there, particularly that dealer world.
But we are planning to continue to grow pretty aggressively.
These new products, in our opinion, required to do that.
So, yes, there's an investment made and there's a return on that investment through market share gain in the dealer world.
Certainly in the new construction market, will continue to help us to over-index.
The home center is always a challenge.
We mentioned that the promo costs are up.
We did see some share shift the last quarter.
We are evaluating our promotional strategy.
It's costly.
It's not really an ideal place where I like to spend money.
But if we need to spend more money in the promotions to get the share back in balance then that's what we will evaluate and make a decision on.
But, ultimately, when you launch a product like this, there is a lot of cost in the home center.
It tends to be a little more where you have to launch product to defend your share because we are sitting with very high share in the home center market.
We want to maintain that share.
Is there an opportunity to pick up a little share.
Yes, there is.
And one of the challenges specifically, or one of the big boxes specifically, we feel there's some opportunity.
It's not going to be the return that you get, say, in a dealer world because of the fact that we are already saturated there.
We have a big chunk of share in the home center already.
There's costs there.
You defend, you maintain share, hopefully pick up a little share.
But that business is very critical to us so you have to make these investments.
I don't have that number here for me for the full year.
Within the quarter from a year-over-year perspective it was going to be about 40 basis points.
Hi, <UNK>, it's <UNK>.
If you go back to when we had the call last quarter, we did announce it had gone up.
It's been fairly stable since then at the high level.
We were playing the wait-and-see game to hopefully see it come back down.
What we can say is it really has not come down like we expected it to so now we are evaluating whether really what our strategy and position will be going forward.
It comes down to the financial return on the investment to take your promo costs up as high as competitors are and what we get out of it.
It's a little bit different formula for us, just given our mix, where we play as a stock player versus a semi custom.
So, all that comes into the equation when you look at our promotional costs.
Like <UNK> said, though, it is our goal to defend our share.
We are very high number one overall, if you look at the SOS or special order cabinetry in home center between Lowe's and Depot, and we want to maintain that position.
And obviously I want to focus more on the strategic side of it and growing the business and getting consumers in the door, but at the same time we will do more likely what's necessary to maintain our share over the long term.
We just prefer it to make financial sense.
We have started to see some increases.
I think I mentioned this even last quarter around particleboard, certainly on the fuel and transportation rate side, as well, and a bit on the maple, soft and hard maple.
From a year-over-year perspective there really wasn't much movement per se in lumber.
There was some variation by species but in aggregate not a major player for us.
But if you do the Q3 to Q4 look we did see an increase predominantly on the maple species into that period.
As <UNK> mentioned, earlier we always evaluate and look at this on a monthly basis, and if we see that those trends are going to sustain and be there for some time then we will look at necessary actions to make sure we can offset that.
As far as February through May, it's fairly consistent.
New construction markets remain very strong.
As you said, there was some pluses and minuses on the weather.
Some areas, like Texas, obviously getting a lot of rain, and in the Northeast we actually saw a lot of rain.
Not a big impact, though, so fairly stable on the new construction side throughout the quarter.
There is a leg there, as you know, so you can't really look at a direct impact from rain right now.
The rain last month will really impact us 30 days from now ---+ 30 to 60 days from now.
On the remodel side, once again fairly consistent.
Obviously with our growth in the Waypoint business we go out, and it's hard to tell you exactly how much is really the dealer business as a whole growing versus our own share growth.
Obviously very significant share growth in there.
Conversations with dealers, it's going very strong.
They continue to see the more affluent consumer walk in the door, and it's been fairly consistent.
Same with home center.
Home center ebbs and tides just because of the promotional calendar.
You get a couple months where the home centers themselves may run heavy promotions, and it empties the quote log, and then you will see a corresponding delay for the next 30 days or so.
So, you really have to look at averages over three to four months to really trend that.
It was, as they reported, it was down lower than we expected for the fourth quarter.
Can't really give you any specifics as to why.
It's just that middle-income consumer that is not really walking in the door.
But, for the most part, long answer, but fairly consistent throughout the quarter.
As far as what we're seeing for FY17, May is completed, we are analyzing the data now.
We're basically about where we had planned on expectations-wise.
We continue to grow in new construction and dealer.
And even home center, once again, based on prior promos, is looking fairly decent, about where we expected it to.
Yes, we have that constant discussion and we evaluate that quite regularly with regards to the bottlenecks.
We're good for now, good for a while here, after the South Branch expansion.
That was expansion on both finishing operations as well as what we call our mill operations on the machining side.
And we have plenty of assembly capacity.
During the recession a lot of capacity taken out in the industry.
That's something we continue to analyze ourselves, is where the industry as a whole is sitting through productivity gains.
We are doing very well.
And no major investments required for the foreseeable future.
But your question about long term, yes, we do plan to continue to invest in our business.
You have to be careful because of the cyclicality of this thing.
It's a beast, as we all know, and we know it goes up and down and you don't want to put too much overhead in the ground.
But right now, with the growth opportunities we feel we have as a Company and some of the markets we're looking at, we do plan to continue to grow.
The question is what type of investment and when, and there's a lot of variables in that.
But for the foreseeable future we are very good on capacity and we will continue to grow, but we will continue to evaluate it.
Yes, it's always a tough question because we don't provide guidance from a quarterly perspective.
We prefer to just keep you oriented around a full-year perspective.
The only comment I did reveal a bit was around the West Virginia plant expansion, which would be more of a first half.
But at the same time we will have projects that will start to benefit us in the second half.
So, I really don't have anything to add about any big swings from a first half to second half.
Thank you.
Since there are no additional questions this concludes our call.
Again, thank you for taking time to participate.
Speaking on behalf of the management of American Woodmark we appreciate your continuing support.
Thank you and have a good day.
| 2016_AMWD |
2015 | SFNC | SFNC
#Yes, <UNK>, as you probably know, we've been planning with both Liberty and First State for several months for the integration.
They have done an excellent job in identifying cost save opportunities, and I would tell you that they both had great first quarters and particularly on the expense side.
So, I would say that we're probably a little ahead of the game with regard to realization of those cost saves.
We still think that our original projections (inaudible) come out but they were just a little earlier than we had projected them to happen.
So we were the beneficiary of a little bit from a timing standpoint in the first quarter.
But remember, they are only in our financials for one month and one day in the first quarter.
I will just touch on that briefly and I'll let <UNK> <UNK> to talk a little bit more about that.
Our cash position is good.
We are restructuring our investment portfolios.
So all three banks sold some securities during the first quarter.
We're holding that cash because we didn't want to go back in all at one time and invest it in the securities portfolio.
But I'll let <UNK> give you a few more details on our cash position.
Yes, <UNK>, as you know on the purchase accounting of a mark-to-market on investment security portfolio and as we mark those securities, we looked at what would fit into our portfolio.
So we have a couple of hundred extra million in liquidity right now that we will layer back into the investment portfolio over the next couple of months.
We don't want to put it all in one time, we want to layer it in and obviously the rates are on the lower end right now.
So we'll look for opportunistic times to put that in.
We would like it obviously to go into the loan portfolio.
You mentioned on the loan to deposit ratio, we're in the low 70% range.
Our target over a period of time would be north of the 80% range, is where we would like to be.
But as we merge the companies together and put new programs in place, that would be our target over that period of time.
<UNK>, we have.
We will take a look at it now.
I am going to let <UNK> talk a little bit about the excess mark we have on our books, what that means to us long term and surely give you an idea of what the financial yield that FDIC would have to look like for us to be willing to exit that loss share [please].
Yes, <UNK>, we're looking at the possibilities of exiting the market or the FDIC loss share agreement.
One of the things to remember for our company is the excess mark that we have related to the [Kansas loans], related to that we have the FDIC indemnification asset.
Those assets ---+ that is being expensed over the life of the loan or the agreement period whichever shorter.
We have a negative amount in the non-interest income.
So it could be when we analyze this that there is a one-time hit.
All that would be a timing difference of when that expense hits whether it's on the day we sign the agreement or we expense it over the next period of time.
But we continue to evaluate the financial trade on this if it's worth exiting or not.
The FDIC is looking at it more today than they have in the past.
So we're hopeful at some point we will exit.
<UNK>, I'll talk a little bit about our modeling run-off on loans.
And we never model keeping 100% of the loans.
We usually build in about a 10% run-off.
We're very hopeful and optimistic that that's not going to happen and we don't believe it's going to happen because the same staff that made those loans at both Missouri and Tennessee are still in place taking care of those customers.
So we're hopeful that our run-off will be less than our model of 10%.
I am going to let <UNK> <UNK> talk a little bit about where we're experiencing this organic growth.
Hi, <UNK>.
This is <UNK> <UNK>.
Most of our loan growth is coming out of some of our metropolitan markets.
Wichita has been a great loan growth market for us, so is St.
Louis, Little Rock has contributed some good growth.
As in just our legacy footprint in Arkansas from Jonesboro, that's always a good loan growth market for us.
Little Rock has shown some relevant growth this past quarter as has South Arkansas.
As you remember, we're in the ag business and the ag business cycle is just starting to pick up and some of the agricultural lenders in our footprint are starting to see some benefit at the end of the first quarter, most of that's going to be coming in the second quarter.
So that's the history of where we're seeing most of our pick-up in our core loan growth.
Well, it will be if we lose 10% of the acquired loans in our model.
If we don't, then we expect it to be double digits as we've experienced over the last several quarters.
First on the reported NIM with the increased accounting interest, it's going to be bumpy just like it has.
It will be anywhere from [4.10 to 4.50].
On the core side, we're very pleased with this staying pretty consistent at the [3.85, 3.86] level.
We see the core side span [3.85 to 3.90] in the next couple of months.
We will have a pick-up in the second quarter as we fund those agri loans.
But probably not as much as we've seen in the past based on the size of the balance sheet.
But I would say a pretty stable core NIM in the foreseeable future in that [3.85 to 3.90] range.
Sure, <UNK>.
I am going to let <UNK> <UNK> field that question if you don't mind.
Well, <UNK>, as you noted our trust and our mortgage income and investment banking income are all pretty solid.
Our deposit fee income was soft and that's really a reflection of frankly NSF fees.
This quarter is typically historically a low point for NSF fees.
That's not surprising, tax free funds, honestly probably the lower price of gasoline has helped consumers a lot.
That's all good news in many respects.
It does show up in NSF fee income.
We would expect that historical trend to continue and we'd see some rising of those deposit fees over the coming months.
<UNK>, this is <UNK> <UNK> again.
We've talked a lot about our non-interest income lines of business and the real opportunity we have long term from the revenue enhancement standpoint.
We've just hired Philip Tappan in the last quarter to head our financial services division.
Phil looks over our trust, our investments, our insurance and our new private bank operation.
Some of the increases you've seen is because of our increased emphasis on those product lines.
And quite honestly, they are very limited in their offering throughout our footprint.
So our priority over the next two to three years is to make sure we have those products and services available in all our markets.
So Philip has done a great job and I certainly expect those areas of our business to continue to increase our revenue opportunities.
<UNK> that's a good question.
When you put ---+ in the last 12, 18 months when you put four banks together it's hard to figure out what the legacy is and what was Bank yesterday, but I can just tell you, as you can see we've had good legacy growth.
The fee income, as we said, we've had a little bit of challenges on the end of sales with some of those service charges in the credit card area.
On the expense side, we've seen good cost saves as we look across our efficiency initiatives.
So I don't know if <UNK>, he has got a page with him, respond to that.
Hi <UNK>.
<UNK> here.
We have seen some organic improvement in Simmons First National Bank.
We are up significantly in the legacy assets being compared to where we were in the first quarter of last year.
And those are trends that we expect to see going forward.
So we've got the legacy improvement of SFNB and then we are just layering on these acquisitions to help accelerate that improvement and growth.
<UNK>, we've talked a little bit about our legacy loan growth and that continues to be strong.
So that would be in those numbers.
And I think we've talked before about exceeding our expectations on the cost save model on Metropolitan and certainly I would tell you that Delta Trust acquisition, we've exceeded that cost saving estimate as well.
Our merger-related costs, particularly on these two latest transactions were below our model, which is one of the things that has contributed to our stronger equity position on our balance sheet.
So I would tell you that both on the revenue side and the cost save side, we're doing a little better than we anticipated if you'd asked six months ago.
Another good question and it is the big challenge trying to get our hands around that too.
I going to give you some numbers, but it's like you said a range of where we will be.
Again we're putting these companies together.
We've got cost saves we're putting in from past acquisitions and cost saves from future ones.
But I'd tell you without the cost saves going forward we're looking at a run rate on a quarterly basis of about $62 million would be a good number and that number will be reducing with the cost saves as we go forward.
That's what our modeling is showing right now as we look to the next couple quarters.
Yes, as we said Liberty converts tomorrow.
It's generally about 30 days before some of those cost savings start hitting.
Community First will be September 4 and it will be 30 days.
So we think fourth quarter of this year will be a good run rate going forward with all the cost ---+ most of the cost saves in.
<UNK>, for fear of being strangled by some of these guys sitting around me, we're continuing to be very active in talking to prospective merger partners.
We're seeing a lot of activity in the market.
I will tell you that we had originally several years ago established sort of a 350-mile radius around Central Arkansas as our target territory.
That's probably expanded a little bit since our territory now includes the entire state of Tennessee.
I would tell you we're looking at more of an inside out growth strategy.
We said we'd like to go west, the multiples going west are a little high now.
So we might have some opportunities in some contiguous territory to Tennessee for instance.
So we continue to work first for an organization whose culture is very similar to ours.
If we go into a new territory, we will make sure that we have a good strong management team in an organization that is well respected, a long history, excellent service in the markets.
And quite honestly, we're having discussions with several of those institutions that meet those characteristics right now.
I really can't give you much of a timeline.
We're very comfortable with our ability to integrate these two deals as we've mentioned earlier.
So I would expect that if we're successful with any of these discussions, we will slot closings and conversions similarly to what we've done with these two deals.
I would tell you, again that's a bumpy number as we go forward.
While that is $10 million in the first quarter, remember there is also some indemnification asset that goes against that number as we go forward.
I think <UNK> was saying ---+
For the second quarter for Liberty and First State, we're going to add about $3.5 million in accretion, just for those two new portfolios.
That is the expected credit mark accretion in the second quarter for those two deals.
And, <UNK>, remember those numbers are in ---+ those are at our expectation levels of the numbers we gave last year when we projected the earnings going forward for those entities.
Thank you, <UNK>.
<UNK>, we've set as our target based on our current risk profile a range of operating capital TCE of 7.5% to 8.5%.
So we're well within those guidelines.
It's quite honestly, probably 30 basis points higher than we thought it was going to be, primarily because of the delay in the closing.
So we got the benefit of earnings of Liberty and First State during the first three months of the year, actually for three months because we expected to close last November.
They rolled into capital instead of earnings.
So we're pleased about that.
We're going to sit on this capital and try to utilize it in future acquisitions.
If we get above 8.5% then we've got some deployment issues that we'll start talking about internally.
Either larger cash pieces of acquisitions or potential stock buyback.
So I would tell you that over 8.5% based on the current risk profile, we will consider that to be excess capital.
Well, I'm going to answer it this way, I'm looking at our Lead Director at the end of the table and he was expecting me to expect us to have record core earnings.
So, yes, that's the result of our acquisitions.
They've all been very strategic and all been very good financially for our company.
So I would say, yes we expected to have record core earnings.
Well, thank you very much for joining us today.
Many of you we will see between now and the end of the second quarter, but we'll look forward to doing this again the end of June.
Thanks a lot and have a good day.
| 2015_SFNC |
2016 | CMP | CMP
#This is <UNK>.
It applies to both, and the dynamics are little bit different in both segments, because you get a lot of big box retail stores take their initial fill and get ready in Q4, so whether it snows or not, you don't see as much of an impact in Q4.
And then when you get to Q1 and it hasn't snowed, you get a lot of not refilling because there's no pull-through.
So we tend to see, if it's a mild winter, a bigger impact on the C&I deicing side in Q1 than we do in Q4.
We look at 10 year averages as [asar we get] for where we are compared to normal, and the 10 year average for Q1 on the salt side, I think it's about 4.8 million tons, and [20]16 was down at about 4.2 million tons.
There's lots of moving parts within that because as we mentioned we did like the bid season results and the commitments were up a little.
But again that was put against winter mildness in Q1.
So we think we were down about 600,000 tons from a normal average winter.
If you look at 2015, I think the 10 year average is somewhere around 4.2 million tons.
I would characterize the business as significantly geared towards the fixed cost.
We try to variableize what we can, but these large unique assets tend to have more fixed costs than variable, and our competition, I would guess is they're very similar to us in terms of that.
So we all have fixed cost to cover.
And as to the approach through the bid season, I won't speak for our competitors, but we certainly will take that into account as we go through the season.
There's been no shift in strategy.
There may be more timing than anything else, but no shift in our pricing strategy that would drive additional volume into the second quarter from the first.
I think we will have some states or municipalities that may fall just below the minimums, and part of our bidding strategy would be to roll as many contracts over as we can, so that is a work in progress.
In terms of the volume in the quarter, <UNK>, is anything else that stands out.
I don't think so.
I think the market size is just likely to be a little smaller as we go into this year when we look at remaining inventories.
So I think we're just thinking across the board, slightly lower volumes.
We're talking relatively small numbers and the percentages that you're talking about when you say huge, the tons aren't that significant, <UNK>.
I think if you look at the numbers that we have through the first quarter, through March, there's only about a 1,500 ton difference between first quarter of this year, slightly higher than first quarter of last year.
And that's the timing of when vessels or shipments land, more than anything else.
A slight tick up in March, right.
<UNK>, this is <UNK>.
As we mentioned, we're going to be reporting this on a quarter lag, so in Q2 we'll be reporting the Q1 results.
I think we mentioned on the last call that we expected the full year result from this to be a single digit number, so in total not large.
And there's certainly will be some seasonality to it.
The start of the year tends to be very slow there, and a lot of the volume is weighted towards the back end.
So one of the things that you will see is that their fourth quarter is going to fall over into the first quarter of next year.
So we should be sitting here in a year, hopefully looking at a very strong fourth quarter, where we've picked up the whole quarter, not just a few days.
I think it is still a bit to be determined.
As we've mentioned, both my comments and <UNK>'s, that with the price of MOP still trying to find a bottom, some of the action that we've seen in the pricing in the first quarter in the US on MOP, even as we've lowered the price of SOP, that pricing relationship hasn't changed significantly.
And so we probably haven't picked up as many tons from the more less chloride sensitive crops than we would have hoped.
We're just continuing to watch that and manage it and stay close to our customer base, and we'll just have to see how the quarter plays out ahead of us, before we would make any pricing decisions.
Picking up those additional volumes and additional share was definitely part of our strategy, our longer term strategy, and last year the timing was right to do that for a variety of factors.
And we've signaled that we expect the size of the bids this year to be smaller.
We would expect to hold our share, we aren't looking to grow share beyond this level that we're at, and we'll just have to see how it plays out.
| 2016_CMP |
2017 | KO | KO
#Good morning.
Certainly, hi, <UNK>.
So, this year the commodity environment was relatively benign and we anticipate that next year ---+ the same thing.
As we said, next year will be largely the same as what we've seen in 2016.
We do anticipate that with the refranchising that our exposure to commodities goes down significantly.
As we talked about (technical difficulty) CAGNY.
So there is a ---+ we will give you some more flavor of this in the modeling call but yes, there's a significant change in the impact to the Coca-Cola Company as it relates to commodity.
Thanks <UNK>, <UNK>, and <UNK>.
Last year we made significant progress as we accelerated the transformation of our Company into a higher margin business, while keeping focused on consumers.
With a strong foundation set, now is the time for a seamless leadership transition and I have every confidence that <UNK> is the best person to take us through the next phase of our sustainable growth.
There's no question that this phase will look different than the past driven by a broad consumer-centric portfolio across all categories, while enabling consumers to control their intake of added sugar.
And this is going to require a change to some of our strategies, many of which have already begun, and now need further scale in regions all around the world.
As always, we thank you for your interest, your investment in our Company, and for joining us this morning.
| 2017_KO |
2016 | WWE | WWE
#By being creative.
We'll have an awesome WrestleMania and it will be very attractive to our audience, just as attractive as last year's.
Hey, <UNK>.
As far as ratings are concerned, our are down, but not as much as the networks in general that we're on.
I think you can see a decline in a lot of the networks in general because people are not watching television as much as in some capacity as online, or things of that nature.
<UNK> mentioned the ecosystem.
It's extremely important for us to be able to do television as well as ---+ television is sort of the old media, and not that it is not important to us, it's extremely important.
But when you add in all the YouTube, you add in all the digital you add in all the social, our audiences is consuming our product in the way they want to and when they want to.
And that's important for us to be able to do that, so it's not just about television ratings anymore.
We're not Philippe Dumond.
We're not looking at it that way, in old-school, we're looking at a from the standpoint of a total ecosystem, which as you can see is extremely strong for us.
So it's not just about television ratings, which we used to, before new media, used to live and die by.
I think again, it's a combination of valuation.
I think one thing from an NBC U standpoint, it's generally speaking, we're live programming and that has tremendous value.
So I think going forward, we are going to be even more valuable to NBC U in terms of Raw SmackDown or whatever we do.
And it goes back into that whole huge ecosystem and I think, again just based on sheer volume alone and sheer popularity, we are poised to take advantage in that, not just in terms of promotion but from a financial standpoint.
So I think as we continue on, we're going to be more and more valuable to everybody.
It sure will.
Thank you, everyone.
We appreciate you listening today.
If you have any questions please do not hesitate to reach out to us, <UNK> <UNK> or <UNK> Kiernan.
Thank you.
| 2016_WWE |
2015 | SSP | SSP
#Yes, that's correct.
So when we announced the deal originally, <UNK>, we talked about $35 million between the two companies, us and JMG.
That ---+ those synergies will end up splitting about equally between the two businesses.
And some of those synergies, as I said, relate to some after-acquired provisions in contracts that came due in 2014.
And as we really sharpened our pencil and put these adjusted combined metrics together by quarter, we didn't feather those in in the prior periods, but again real money that we will have and that will realize in the forward period.
So we've included $10 million of the $16 million of those synergies in the historical adjusted combined numbers.
We finished our 2015 budget on a new Scripps basis and I am very confident we are going to at least achieve all those synergies that we have laid out.
I think we'll ---+ I feel very comfortable hitting it and I think there is a little bit we can do better than that.
We've sort of ---+ it's sort of taking lots of opportunities to improve efficiencies all the time, right.
And at some point, it gets a little squishy as to what is a synergy and what's not.
We are always driving efficiencies throughout our organizations.
I am sure our costs will go down because of that.
Whether we actually put it in the synergy box or not, I am confident we will continue to drive savings.
Hey, <UNK>; it's <UNK>.
I think our guidance is that we expect core business to be about flat in second quarter.
We see some movement around in the categories a little bit, as I ---+ we reported services had a terrific first quarter and I see this same trend in that continuing in second quarter.
Auto seems to be moving around a little bit from market to market, as I said in the comments here.
It's trending down right now, although we have an opportunity to right some points moving forward.
Retail has improved.
That's been nice.
I think some of our other top categories ---+ travel and leisure, food services ---+ are kind of tracking like first quarter.
So I think the things that we can control locally ---+ the home improvements, the services categories like that ---+ are having a lot of strength as we look at the quarter.
And I think some of the other more national-oriented categories seem to kind of be on pace with first quarter, but moving around a little bit.
Yes, I think that's certainly what we are expecting.
We [had] a significant amount of money in political last year, so that will open up, especially September and October and the beginning of November.
And I think we'll be able to take advantage of that open inventory.
As I said ---+ as we've kind of said in the past, we are spending a lot of time, like I think many others are, just kind of looking at all the greenfield report and all the stuff that the FCC is putting out.
And as a publicly-traded company, we have a responsibility to look at value creation on a market-by-market basis and some of the prices or some of the opportunities to see long term what's the best way for us to create value for the Company and for our shareholders.
We are big advocates that we think that there is a really good opportunity for broadcasters.
If we can transition to a greater standard, the ATSC 3.0 will give us a lot more opportunity to create businesses and build businesses off of our spectrum footprint.
But we're also kind of looking market by market.
And so, look, we've been in this since day one, <UNK>, as you know.
I expect we're going to be in this for the long haul.
But as we've shown in the past, we'll look at our assets and see what's the best value created for our owners and make decisions there.
So I don't think a lot has changed since last time we talked.
Hey, <UNK>; it's <UNK>.
I've got <UNK> here in the room and so if I say something wrong, he will kick me or if he needs to add anything.
Look, I think we had a really good first quarter.
As you saw, we outpaced many of our peers with a plus 5 ---+ I shouldn't say we ---+ Journal did, but our collection of assets now.
And a lot of that was driven by auto; very strong in first quarter.
I think my comments indicated that it's moderating a little bit, but I think a lot of our base is already laid in.
A lot of our sports franchises, the Brewers and other things, are laid in, and so with all that base laid in we do feel like flat is the right number.
<UNK>, anything else you want to add there.
Hi, <UNK>.
I won't kick <UNK> on my first call here with my new Scripps friends.
But Green Bay Packers in Q1 for us, that's a big deal in the radio group and so that was certainly a driver for Q1.
And Q2, <UNK> talks about some of the categories that are moderating a bit.
On the other hand, Brewers sales are meeting your expectations and then some.
So we think the flat call is a reasonable place to be right now for Q2.
Hey, <UNK>; it's <UNK>.
Look, integrating stations takes a long time.
The structural part we're well underway.
There is day-one integration, there is month one, and then there is year one and beyond.
And so mission accomplished on day one and month one, and now it's about just from a technical standpoint getting them set up, making sure that our sales structures, our sales visions our digital products are all aligned.
And so it's going to take us a little bit of time, especially on the digital front, to bring in some of those products.
We got some training on sales strategies and things like that.
But I think, really, we always look at integration as a 12-month process.
And especially with this company's focus on journalism and storytelling and really aligning our news organizations to really represent those communities, we think that takes a little bit of time and even some technology and training.
But we are going to be working awful hard.
As <UNK> said, we are very focused on 2016.
We think 2016 is going to be a tremendous year and our ability to integrate the new Florida and Nevada and Wisconsin stations, the additional station in Michigan where we know there will be great political, we have a tremendous urgency so we can take advantage of the political cycle next year with our new properties.
That's correct.
Sure, 84 million.
You know, <UNK>, hard to say.
I stopped betting on picking the winner of the Sweet 16 and figuring out what the FCC was going to do a long time ago.
We clearly believe that some new regulation as it results to ownership in all of media is something that needs to be addressed.
A lot of this is really antiquated and doesn't represent the way people are consuming media now and the opportunities to cover communities, but ---+.
So I can't handicap it, but obviously we are staying close to it.
And if there is an opportunity for change and our Company can benefit from that, we will certainly be looking at it.
Look, we are involved in a lot of organizations.
I'm on the executive committee at the NAB, on some of the affiliate boards, I've been working with others, so I think we are working with much of the industry to try and put our industry in the best position possible.
Hey, <UNK>.
Local is strong across, so I don't think I see any really variations by region on the local side.
The national is where there is wild swings, depending on market by market.
We had some markets that nationally were up and pretty healthy and we had other markets ---+ Detroit national was off over 20%.
San Diego was off over 20% as well.
And we had other big markets like Tampa and Indy that were more than double digits declines.
So those are ---+ as you can see, I just touched on four stations that are all over the country.
There is not a consistency of region, it really is by market.
We've really dug in hard to better understand what's going on there, and so to go against ---+ with the Olympics, some of those larger markets had a big influence of Olympic dollars last year and so that kind of lowers the base a little bit for the market this year.
Telecom moved around a lot last year.
A couple of the big players in telecom came in to markets and were aggressive and they have kind of been lighter this year.
I think some of it has to do with in media and telecom waiting to see what the FCC and the DOJ are going to approve, so they've backed off a little bit this year.
We also had over $1 million in first quarter last year in Obamacare money and Medicare money and so ---+ but that wasn't evenly distributed across markets, that was market specific.
And so in a market like Detroit there was a couple million dollars of Obamacare money in the market.
And so I think we've dug in.
We are not seeing any significant trend toward people moving to network, moving to cable, moving to digital.
We are seeing, on occasion, advertisers doing all those things, just like we pulled from all of those things as well.
But I would say it is more of a market-by-market issue than it is a geographic issue, <UNK>.
Yes, I think that was ---+ as we got to know Journal and their strategy, that was something that we got really comfortable with.
I think we've talked to you and everyone else in the past about our desire to be deeper in the markets that we are in.
Obviously we've got massive commitments with big buildings and hundreds of employees and towers and licenses and all that kind of stuff.
And a lot of our digital strategy has been around how do we get deeper in a market.
How do we extend our content further.
How do we create more new advertising streams.
Obviously, we've got thousands of advertiser relationships in every one of markets.
And so I think as we started looking at the opportunity to own three, four, five, six radio stations inside a market where we have TV, as well as all of our digital, our mobile, our social assets, I think it's something that we continue to be optimistic about the opportunity.
I've had the opportunity to visit all of the joint markets; I've seen the way they are integrating.
There is a lot of support across each other.
There is a lot of opportunity promotionally to lift up the platform.
Quite frankly, we think there is a whole lot more.
And so our ability to bring in our digital assets and our digital strategies as well as ---+ I think we're going to be a lot more creative and a lot more local and for some of those things that really I expect to create value on the audience side as well as on the advertiser side in those joint markets.
Okay, thanks, Tom.
I just wanted to remind everybody about our Investor Day in New York at the Warwick next Wednesday.
Send me an email if you need the details and we will hope to see you there.
Thanks, everyone.
Thanks, Tom.
| 2015_SSP |
2017 | WLH | WLH
#Thank you, Candice.
Good morning, and thank you for joining us today to discuss <UNK>iam <UNK> Homes' financial results for the three months ended March 31, 2017.
By now, you should have received a copy of today's press release.
If not, it's available on the company's website at www.lyonhomes.com.
The press release also includes a reconciliation of non-GAAP financial measures used therein.
In addition, we are including an accompanying slide presentation that you can refer to during the call.
You can access these slides in the Investor Relations section of the website.
Before we continue, please take a moment to read the company's notice regarding forward-looking statements, which is shown in Slide 1 in the presentation and included in the press release.
As explained in the notice, this conference call contains forward-looking statements, including statements concerning future financial and operational performance.
Actual results may differ materially from those projected in the forward-looking statements, and the company does not undertake any obligation to update them.
For additional information regarding factors that could cause actual results to differ materially from those contained in the forward-looking statements, please see the company's SEC filings.
With us today from management are <UNK> <UNK>
<UNK>, Executive Chairman and Chairman of the Board; Matt <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Senior Vice President and Chief Financial Officer.
Now I'd like to turn the call over to <UNK> <UNK>.
Thanks, <UNK>.
We're very pleased to have started this year with strong orders and absorption momentum.
Net new home orders for the first quarter were 865, up 26% year-over-year, representing our 24th consecutive quarter of year-over-year growth.
Even more encouraging is the acceleration of our monthly absorption pace as the year has progressed, with the rate increasing sequentially each month and averaging 3.5 sales per community per month for the quarter.
That momentum strengthened into April, where our sales pace was 4.8 homes per community, generating new orders of 432, up 48% over April of 2016.
Our dollar value of orders for Q1 was $453 million, up 35% over the prior year.
On a trailing twelve month basis, the dollar value of orders was $1.5 billion, up 21% over the previous twelve month period and up 71% over a two year period.
We ended the quarter with dollar value in backlog of $634 million, up 34% over March 31, 2016.
Units in backlog increased 24% year-over-year to 1,099 homes at quarter-end.
ASP of homes in backlog as of the end of the first quarter was $577,000, up 8% from the first quarter of 2016, and 11% higher than the ASP of homes closed in this year's first quarter.
As of the end of April, our backlog grew to 1,318 units with an associated dollar value of $756 million.
A driver of our strong orders performance was the significant progress on our community count growth year-to-date.
Community count averaged 82 during the first quarter, up 19% year-over-year, increasing to 90 average selling communities in the month of April, as a result of opening 13 new home communities during the first three months of the year.
Our community count ramp was coupled with strong absorption and demand from our recent openings, as well as our existing communities, with meaningful year-over-year absorption rate improvement in March and April.
As we've gained sales momentum through the spring selling season, we have experienced pricing power across our markets, raising prices at 2/3 of our communities during the first quarter.
The combination of these positive supply and demand dynamics, successful opening of new strategic projects, and the pricing power we're experiencing in many of our markets, is yielding gross margin expansion with our current GAAP gross margins in backlog of 18%.
We had anticipated that the first quarter would be the lightest quarter of the year from a deliveries, gross margin and revenue perspective, and the actual results achieved in those metrics were driven by several factors.
Our backlog conversion for the fourth quarter of 2016 had exceeded our expectations, especially in the month of December, and throughout the first quarter we experienced disruptive weather conditions in many of our markets, in particular, torrential rainfall in Seattle, Portland and Northern California, which affected the mix of deliveries achieved.
Our first quarter deliveries totaled 499 homes, down 8% year-over-year.
Our average sales price for homes closed during the quarter was $518,700, up 8% year-over-year and, when combined with our unit deliveries, translated into home sales revenue of $259 million, down slightly from $261 million in the first quarter of 2016.
In addition, our financial results for the first quarter were below our expectations, primarily due to a delay in the closing of 25 units at one of our projects in California, which had been included in our prior guidance for the first quarter and now has been recognized in Q2.
Despite the backdrop of challenging weather, we've been able to get our new communities open to capitalize on the favorable market demand dynamics.
We've maintained our spec/start strategy, and while inclement weather has increased cycle times in a number of our markets, we've been successful in getting enough starts on the ground to be on track to meet our annualized delivery goals.
As of the end of April, we have delivered or started construction on over 3,000 homes.
The underlying fundamentals of the business and market dynamics remain strong, and our overall growth story for the year remains intact.
We're getting our new communities open and they've been well received by the home buying public.
We've pushed pricing where we can across all of our markets to capitalize on the significant demand.
And as I said, we're getting our houses started.
Overall, we feel we have good visibility into our deliveries universe, expect backlog conversion and gross margin to improve as we move throughout the balance of the year.
For a discussion on our financial results, I'll turn the call over to <UNK> before wrapping up with some commentary on our outlook for the remainder of 2017.
Thank you, Matt.
As Matt mentioned, total homebuilding revenue for the first quarter of 2017 was $259 million, down slightly from $261 million in the year-ago period.
The decline was driven by an 8% decrease in deliveries to 499 homes, compared to 543 in the first quarter of 2016, offset by an increase in the average sales price of homes delivered to $518,700, up 8% from the prior year.
During the quarter, our homebuilding gross margin percentage on a GAAP basis was 15.6%, compared to 17.7% in the year-ago period.
Our adjusted homebuilding gross margin percentage was 21.1% during the first quarter, compared to 24.7% in the year-ago period.
The decline in gross margins year-over-year was driven by project and geographic mix.
Our gross margins for Q1 came in a bit lower than expectations due to the timing of deliveries from one particular project, as Matt mentioned, which had gross margins well above the Company average.
We believe that our Q1 gross margins represent a low point and we expect to see sequential improvement in the second quarter and meaningful lift through the back half of the year.
Our sales and marketing expense was 5.7% of homebuilding revenue, consistent with the first quarter of 2016 on a percentage basis.
General and administrative expense was 7.3% of homebuilding revenue compared to 6.8% in the year-ago period, due in part to a slight increase in G&A expense on a dollar basis and a slight decrease in homebuilding revenue.
These combined for a total SG&A expense of 13% for the quarter compared to 12.5% in the first quarter of 2016.
Income from our unconsolidated mortgage joint ventures decreased to approximately $250,000 from $1.2 million in the prior period, due primarily to costs associated with the internalization of the loan fulfillment teams in our primary venture, which impacted financial contribution in the current quarter.
We expect contributions from this venture in Q2 to return to normalized levels, and based on our plans for increased size and scale, this revised venture structure will enhance profitability going forward.
We recorded a benefit from income taxes during the first quarter of $5.6 million.
We expect our tax rate in future quarters to be approximately 34% to 35%.
On an adjusted basis, excluding the $14.1 million loss on extinguishment of debt, pretax income was $6.9 million for the quarter and net income was $4.1 million, or $0.11 per diluted share on a fully diluted share count of 38.4 million shares.
We recorded GAAP net loss available to common stockholders of $10 million for the quarter, or $0.27 per share, primarily driven by the debt extinguishment cost mentioned earlier.
Our adjusted EBITDA for the quarter was $22.5 million.
For the first quarter, our land acquisition spend was $55 million and horizontal spend was $19 million for a total land spend of $74 million.
For 2017, consistent with our guidance on last quarter's call, we expect $210 million to $220 million of land acquisition spend and horizontal spend of approximately $140 million to $150 million for a total land spend of approximately $350 million to $370 million for the full year.
Now turning to our balance sheet.
We ended the quarter with $1.8 billion in real estate inventories, $2 billion in total assets, total equity of $749 million and cash of $39.5 million.
Total liquidity as of March 31 was approximately $120 million.
As of March 31, 2017, our total debt to book capitalization was 60.1%, down by approximately 100 basis points from last year.
Our net debt to net book capitalization was 59.2% at quarter end, down from 60.2% at the end of first quarter of 2016 and up slightly from 57.6% at December 31.
As we move through the coming quarters, we look forward to continuing to make improvement on our balance sheet metrics and achieving our long-term leverage goals.
Now I'll turn it back over to Matt.
Thanks, <UNK>.
Before we open up the call to your questions, I'd like to provide some additional information regarding our outlook for the remainder of the year.
For the second quarter, we expect our backlog conversion rate to be between 73% and 77% and that ASPs will be in line with first quarter closing ASPs.
On last quarter's call, we laid out our expectation for sequential improvement in homebuilding gross margins in Q2 over the first quarter, with a meaningful pickup in the back half of the year.
We currently project homebuilding gross margins for the second quarter to be in the mid-16% range.
We continue to expect a significant increase in gross margins as we move through the back half of the year, based on our significant number of backlog units and current homebuilding gross margins in backlog of 18%, as well as expectations of an increased percentage of new home orders and deliveries coming out of our strategic assets, that we've previously outlined, that have recently opened.
SG&A percentage for the second quarter is anticipated to reflect approximately 100 basis points of year-over-year improvement from Q2 of 2016.
Lastly, we expect minority interest from our homebuilding joint ventures to be between $1.5 million and $2 million for the second quarter.
Overall, we're very encouraged by the start of our year and remain focused on delivering another year of significant growth.
We believe that the early results from our new project openings and robust spring selling season year-to-date, as well as significant progress made from a production standpoint, give us good visibility into our 2017 projected performance and a high degree of confidence in our ability to achieve our full year financial and operating goals.
For the full year, we continue to expect deliveries of approximately 3,000 to 3,250 homes, home sales revenue of approximately $1.65 billion to $1.75 billion, and pretax income before minority interest of approximately $135 million to $150 million.
Thank you again for joining us today.
I'd now like to turn the call to your questions.
Operator, we're ready for the first question.
Yes, sure, <UNK>.
Look, I think that Q2, like we said, we expected to see some sequential improvement.
I think the performance that we've seen in the first quarter has been strong.
As I mentioned, we raised prices at approximately 2/3 of our communities in the first quarter.
I'd say the average price increase, if you looked at stores that were open in January through April, the average price increase has been about 3.5% on those communities that we've raised prices.
So certainly, that's part of what's contributing to the margin growth in backlog, coupled with, as we've laid out on prior calls, some key strategic assets that we're opening over the course of the first six months of this year.
And those that have opened have seen good success and significantly higher gross margins than the Company average.
Those things are really contributing to the significant pickup in the back half of the year, which is well, candidly, what we had expected to see.
I think the pace in April, obviously, is extremely strong.
And we're going to continue to use pricing as a mechanism to keep overall absorption rates in line with what we can produce on a production basis.
I would agree with that statement.
Yes, I think sales year-to-date on both of those projects have been strong.
So if I look at Bayshores, for example, we've seen year-to-date sales of about 125 homes out of that community, spread across five different product lines.
So I think good consistent demand really across each of the respective products.
Turning to River Terrace, which we've also previously highlighted, up in the Pacific Northwest, we really feel like we're starting to get our production legs underneath us.
And year-to-date on that project, we've seen almost 100 net sales out of that community as well.
So I think both of those projects are continuing to be drivers for us.
As we've mentioned on other calls too, we've recently opened our Affinity master plan for sales in Summerlin, Nevada, and just getting ready to kick off our Denver Connections project in Denver.
So we think that those communities will continue to add solid community count and continue to help absorptions as we move through the balance of the year.
The first question I had, could you could repeat what you said on the minority interest income for 2Q.
<UNK>, it's <UNK>.
We said $1.5 million to $2 million for Q2.
Okay, great.
And then just wanted to focus on Colorado.
It looked like orders were down there double-digits for the quarter, but the community count has started to tick up a little bit.
Can you give us some insight into what's happened there.
<UNK>, it's Matt.
Good question.
I think that was one of the few points in Q1 where we saw absorption rates tick down year-over-year.
We've mentioned previously we had, over the course of the last year, installed a new management team in Colorado.
And one of the things that they've taken to heart is really looking at all of our portfolio product, redesigning it to get costs down.
And for most of Q1, what we were dealing with was selling the remaining specs under the old product that we had developed.
We've been rolling out our new product, which is more efficient from a build and cycle time perspective and we think, candidly, something we're going to get paid for by the consumer relative to bed, bath count and things of that nature.
As I look at April's performance for Colorado, their absorption rate ticked up by about 30%, if I look at April's pace, compared to their monthly pace in Q1.
So I think that we should continue to see Colorado start to put some better numbers on the board and obviously, getting our Denver Connections project opened up should improve our Q2 absorption rate quite a bit there as well.
That's great.
And then one other question, and I apologize if I missed this.
I believe on the last call, you guys had said that gross margin and SG&A margin should collectively show about 100 basis points of improvement for '17 over '16.
Is that still the expectation.
Is that how we should be modeling.
Well, I think certainly, we're continuing to see leverage on the SG&A side as we move through the year.
And I think we're pretty encouraged by where we're seeing gross margins in backlog in the back half of the year.
So I'd have no problem with you modeling that kind of spread, <UNK>.
Yes, good point.
I think when you look at Washington, we talked a bit about that last year, we really got gapped out last year in Washington.
I think that's a market that's continued to see really good demand dynamics.
We really dealt last year with horizontal development delays, as well as municipality delays relative to entitlements, and have been able to replace the community count that we had last year with new communities that, candidly, have better segmentation, better appeal to the first-time buyer - heavily weighted towards attached from a product standpoint.
And I think the absorption in demand there has been significant.
We've increased price there on every one of our communities and, candidly, had the biggest price increases across the company and yet, absorptions continue to be extremely strong.
What we've got to balance out a little bit in Washington is just the fact that it has rained like a son of a gun over the course of this year.
I think we had over 60 days of rain in first quarter in Seattle.
And while our guys do a heck of a job of getting houses started and doing a lot of work in the rain, they don't make umbrellas big enough to put a house underneath them.
And you can't quite finish them until the weather gets a little bit better.
So we are really excited about the demand trends there and, certainly, what we're doing on a pricing basis.
And I think the production will continue to catch up.
But yes, just a great market for us.
Well, look, we're four months into the year.
I think as we laid out for you, we've got the low end of our production range either closed or started for this year, and that's certainly a better place than where we were a year ago.
But I think there's still a lot of work left to get done this year.
And as we move through maybe the midpoint of the year, that's probably a better time for us to tighten up any sort of guidance ranges.
At this point in time, though, we feel comfortable with the reiteration of what we had laid out for you at the beginning of the year.
Okay.
Well, with no ---+ sorry.
Operator, do we have anybody else in the queue.
Just wanted to dig in a little more on the April order trends and ultimately for 2Q.
So looking at the slide deck and the monthly comparisons, last year, it looks like June was a very strong month.
If I remember correctly, I think you had some community openings and some strong absorptions in that period.
So in relation to the strong order pace, the strong absorption pace put up in April, when thinking about that in the context of the full quarter, would you anticipate some moderation as you face those more difficult comparisons as we get into the June period, for instance.
Or do you think about it more as the strong absorption pace showing a bit more sustainability.
<UNK>, I think it's a good question.
On slide 3 of our slide deck, we intentionally lay out for everybody the year-over-year, month-by-month trends.
Look, it's certainly very difficult to project where future demand from a new orders perspective comes.
I think that both March and April have been very encouraging from an absorption perspective.
Last year, we did see May dip off as it relates to April and compared to June.
This year's May is, again, really only four weekends in the month, so I would probably expect May's overall absorptions to be a bit softer than April's, like last year.
As we think about June, we do have some new community openings that are still scheduled for the balance of Q2.
It's just really hard for us to predict total absorption rates.
We've got what our absorption rates were each of May and June last year.
Not sure that we would anticipate things being radically different from an absorption rate standpoint, but we do believe that we would anticipate some benefit coming from a larger average community count over the course of the second quarter.
Got it.
That's very helpful.
And I guess just following up on the community count point.
Just in relation to the 82 communities in 1Q and that ramping up to 90 in April, can you give a sense of the markets that maybe saw more of that outsized growth in the month of April.
And then as you mentioned, with some of the anticipated communities through the remainder of the quarter, any notable differences geography-wise, where those might be flowing through.
Well, I think the community count growth really has come from Colorado and the Pacific Northwest.
And so balancing those two, we've seen stronger absorption rates out of the Pacific Northwest than, say, Colorado.
But we're encouraged by some of the new openings that we have in Colorado.
So I think those things have kind of an overall net neutral mix.
We did get a bit of a pop from opening for sales our Affinity project in Nevada.
So overall, you've got a mix of our higher-absorbing markets, as well as our more muted-absorbing markets.
Our projections are that community count's going to hold pretty stable over the course of the quarter, somewhere in that high 80s to 90 range, with new openings coming on, as well as some closeouts rolling off.
So we don't anticipate a lot of volatility relative to community count, which is an improvement over years past.
Great.
And last, just a very quick clarification because I missed it.
Can you reiterate the backlog conversion guidance for 2Q.
Yes.
<UNK>, we'd indicated 73% to 77% for Q2 based on our Q1's ending backlog.
Thank you.
I'd like to thank all of you for joining us on our call today.
And we look forward to speaking with you next quarter and providing you updates on our progress.
Have a great day.
| 2017_WLH |
2018 | MATW | MATW
#Thank you, John.
Good morning.
I'm Steve <UNK>, Chief Financial Officer of Matthews.
Also on the call this morning is Joe <UNK>, our company's President and CEO.
We have posted on our website, which is www.matw.com, the first quarter earnings release and financial information we will discuss this morning.
The earnings release can be found on our homepage.
For the quarterly financial data, on the top of our homepage under the Investor tab, click on Investor News, then click on Financial Reports to access the information under the section Matthews International Quarterly Reports.
Today's call will be available for replay later this morning.
To access the replay, dial 1 (320) 365-3844 and enter the access code 442278.
The replay will be available until 11:59 p.
m.
February 9, 2018.
Before beginning the discussion, at the advice of legal counsel, I have been advised to read the following disclaimer as it pertains to forward-looking statements.
Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks and uncertainties that may cause the company's actual results in future periods to be materially different from management's expectations.
Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct.
Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-K and other periodic filings with the SE<UNK>
To begin the conference, I'll review the financial results.
Joe will then provide general comments on our operations.
For the quarter ended December 31, 2017, the company reported earnings of $1.10 per share compared to $0.32 per share a year ago.
The increase primarily reflected the following: acquisition synergy realization; lower acquisition-related costs compared to a year ago; benefits from recent U.S. tax legislation; higher sales in several of our businesses, including marking products and cremation equipment and an increase in U.K. and Asia Pacific brand sales; the impact of recent acquisitions and favorable changes in currency rates.
On a non-GAAP adjusted basis, earnings per share for the fiscal 2018 first quarter were $0.64 per share compared to $0.66 per share a year ago.
The significant factors in the year-over-year change in non-GAAP earnings per share included acquisition synergy realizations; higher sales of marking products, cremation equipment and an increase in U.K. and Asia Pacific brand sales; the impact of recent acquisitions; lower income taxes as a result of the favorable impact of the international structuring and a reduction in U.S. Federal income tax rates; and continued slow brand market conditions in the U.S. and Europe; and lower sales of caskets and memorials, reflecting an estimated decline in U.S. casketed deaths.
A reconciliation of non-GAAP earnings per share and adjusted EBITDA were provided in our press release yesterday, which has been posted through our website.
Non-GAAP adjustments for the first quarters of fiscal 2018 and fiscal 2017 primarily included acquisition-related costs, intangible amortization expense and the non-service portion of pension and postretirement benefits expense.
The fiscal 2018 non-GAAP adjustment for income tax regulation changes consisted of an estimated favorable tax benefit of approximately $38 million for the reduction in the company's net deferred tax liability, principally reflecting lower U.S. Federal tax rates, offset partially by an estimated repatriation transition tax charge of approximately $13.5 million.
Consolidated sales for the quarter ended December 31, 2017, were $369.5 million compared to $349 million for the same quarter a year ago.
The increase principally reflected the higher sales of marking products in our Industrial Technologies segment and cremation equipment and related products, our sales in the U.K. and Asia Pacific brand markets, benefits from recently completed acquisitions and the favorable impact of changes in foreign currencies against the U.S. dollar.
Changes in foreign currency rates were estimated to have a favorable impact of $7.4 million on fiscal 2018 first quarter consolidated sales compared to a year ago.
These increases were partially offset by the impact of slower brand market conditions in North America and Europe and lower sales volumes of memorials and caskets.
Consolidated operating profit for the quarter ended December 31, 2017, was $17.9 million compared to $19.1 million for the same quarter last year.
The decrease primarily reflected higher intangible amortization expense in connection with recent acquisitions, the impact of lower sales in the North America and Europe brand markets and a decline in memorial and casket sales volumes.
These items were partially offset by the impact of acquisition synergy realization and the reduction in acquisition-related charges.
In the SGK Brand Solutions segment, sales for the first 3 months of fiscal 2018 were $191.8 million compared to $175.8 million a year ago.
The increase reflected sales growth in the U.K. and Asia Pacific markets, benefits from recently completed acquisitions and the favorable impact of changes in foreign currency values against the U.S. dollar.
These increases were partially offset by slower market conditions in the U.S. and Europe.
Operating profit for the SGK Brand Solutions segment for the first quarter of fiscal 2018 was $3.2 million compared to $4.2 million for the same period a year ago.
The decrease in segment operating profit reflected lower sales, excluding the impact of acquisitions and an increase of approximately $1.5 million in intangible amortization related to recently completed acquisitions.
These decreases were partially offset by the favorable impact of changes in foreign currencies against the U.S. dollar of approximately $560,000.
Additionally, fiscal 2018 operating profit for the SGK Brand Solutions segment included acquisition integration costs and other charges totaling $3.8 million compared to $6.2 million in fiscal 2017.
Memorialization segment sales for the first 3 months of fiscal 2018 were $144.9 million compared to $145.6 million a year ago.
The sales decrease reflected lower sales volumes of memorials and caskets, partially offset by an increase in sales of cremation equipment and related products and the benefits of recently completed acquisitions.
Memorialization segment operating profit for the fiscal 2018 first quarter was $14.5 million compared to $14.4 million for the same quarter last year.
The increase in the segment's operating profit reflected the benefit of acquisition synergies and other productivity initiatives and higher cremation equipment sales, which were partially offset by the impact of lower memorial and casket sales volume.
Fiscal 2018 operating profit for the Memorialization segment also included acquisition integration costs and other charges totaling $807,000 compared to $2.1 million in fiscal 2017.
Industrial Technologies segment sales were $32.8 million for the first 3 months of fiscal 2018 compared to $27.6 million a year ago.
The increase primarily reflected higher sales of marking products, the benefits from recently completed acquisitions and the favorable impact of changes in foreign currency values.
Operating profit for the Industrial Technologies segment for the 3 months ended December 31, 2017, was $318,000 compared to $506,000 for the same period a year ago.
The benefit of higher sales were offset by an increase in intangible amortization related to recently completed acquisitions and investments in the segment's product development project.
A summary of operating results by segment, including non-GAAP adjustments for the quarter, are posted on our website for your reference.
Gross profit for the fiscal 2018 first quarter was $130.7 million compared to $127.3 million for the same quarter last year.
The increase in gross profit primarily reflected the impact of higher consolidated sales and the realization of acquisition synergies and other productivity initiatives.
These increases were partially offset by lower sales, excluding acquisitions in the North America and Europe brand market.
Consolidated gross profit as a percent of sales was 35.4% for the fiscal 2018 first quarter compared to 36.5% a year ago.
Consolidated selling and administrative expenses as a percent of sales were 30.5% for the 3 months ended December 31, 2017, compared to 31% for the same quarter last year.
The improvement primarily reflected the benefits of cost reduction initiatives, including acquisition integration synergies and lower acquisition-related charges.
Investment income was $467,000 for the 3 months ended December 31, 2017, compared to $337,000 a year ago, principally reflecting the return on investments held in trust for certain of the company's benefit plans.
Interest expense for the fiscal 2018 first quarter was $7.8 million compared to $6.1 million for the first quarter last year.
The increase reflected higher averaging ---+ higher average borrowing levels primarily related to the acquisition and higher average interest rates in the quarter, partially reflecting the company's recent bond offering.
During the quarter, the company completed a $300 million 8-year bond offering at a fixed interest rate of 5.25%.
Proceeds from the offering were used mainly to repay outstanding borrowings under the company's domestic credit facility.
At December 31, 2017, outstanding borrowings under the domestic credit facility were $565 million.
Additionally, during the quarter, the credit facility was amended to increase certain leverage ratio covenants.
The facility matures in April 2021.
Long term debt at the end of the current quarter approximated $1 billion compared to $911 million at September 30, 2017.
The increase primarily resulted from additional borrowings for the company's recent acquisitions.
Other income and deductions net for the fiscal 2018 first quarter was a net expense of $659,000 compared to net expense of $555,000 a year ago.
Other income and deductions generally include, among other items, bank-related fees and the impact of currency gains or losses on certain intercompany debt in foreign denominated cash balances.
The company's consolidated income taxes for the 3 months ended December 31, 2017, represented a benefit of $25.2 million compared to expense of $2.5 million for the same period last year.
As noted earlier, the income tax provision for the current quarter includes an estimated favorable tax benefit of approximately $38 million for the reduction in the company's net deferred tax liability, principally reflecting lower U.S. Federal tax rates, offset partially by an estimated repatriation transition tax charge of approximately $13.5 million as a result of the recently enacted U.S. tax legislation.
The current quarter also reflected the impact of the realization of certain tax credits in connection with the company's recent international structuring and a lower blended U.S. Federal income tax rate on current income.
Preliminary balance sheet and cash flow statement data is posted on our website for your reference.
For the fiscal 2018 first quarter, the company purchased approximately 76,000 shares under its share repurchase program at a cost of $4.4 million.
At December 31, 2017, approximately 1.7 million shares remained under the current share repurchase authorization.
Additionally, as we previously disclosed, we received a claim in September 2014 seeking to draw upon a letter of credit issued by the company of GBP 8.6 million with respect to the performance guarantee on a project in Saudi Arabia.
We assessed the customer's claim to be without merit and accordingly initiated an action with the court.
Pursuant to this action, a court order was issued in January 2015 requiring that upon receipt by the customer, the funds will be ---+ were to be remitted by the customer to the court pending resolution of the dispute between the parties.
As a result, the company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer.
The customer did not remit the funds to the court as ordered.
On June 14, 2016, the court ruled completely in favor of Matthews on ---+ following a trial on the merits.
However, as the customer as not honored this court order and remitted the funds, the company continues to monitor the company's ---+ the customer's noncompliance with the court order and our assessment of collectibility related to this matter.
Accordingly, it's possible that this matter could have an unfavorable impact on the company's future results of operations.
Finally, the board yesterday declared a dividend of $0.19 per share on the company's common stock.
The dividend is payable February 19, 2018, to stockholders of record February 5, 2018.
This concludes the financial review, and Joe will now comment on the company's operations.
Thank you, Steve.
Good morning.
Our first quarter results were modestly ahead of our expectations.
Continued strong results in our Industrial Technologies group, strong performance in our SGK Brand business from the U.K. and Asia markets, improved results out of our cremation equipment business and continued synergy capture from several acquisitions, all helped to offset lower volumes in our casket and cemetery business and slow market conditions in our North American and EU brand business.
Having said that, however, during the quarter, we saw a significant improvement in our business.
We got clarity of our ongoing interest cost as a result of the ---+ of our bond offering.
We saw a return of strong tobacco orders in our EU brand business as well as significant increases in orders for our engineering business where we design and build web-based solutions utilizing our technical cylinders and rollers.
We also saw increased order activity in our Industrial Technologies business for both printing equipment and warehouse automation software solutions.
As you may be aware, our recent acquisition of Compass Engineering, a leading provider of automated warehouse software to the logistics industry, is a significant addition to our strategy of becoming an integrated provider of technology to the e-commerce industry offering integrated printing solutions with software and picking technology.
In our Memorialization segment, a severe flu season is causing increased demand of our funeral home products, at least in this early part of the second quarter.
The severe weather, however, is impacting our memorial sales due to the inability to set markers or stone in the cold weather.
We expected only ---+ that to only be a delay and to recover those sales later in the year.
In our brand business, recent wins in North America and the U.K. and cost initiatives look promising for a better year in this business as well.
All in all, we are pleased with the direction of our businesses and feel confident of delivering a strong full year result.
On a full-year basis, we expect to deliver a significant improvement in our adjusted EBITDA and another strong year of cash flow from operations and free cash flow approaching $4 per share.
All this should result in an increase in our non-GAAP earnings per share of at least 10%.
Again, I remind you that the results and guidance we are providing today include an estimated $7 million of research and developments spending on our new product for our marking products division.
We are on track for early to third quarter beta testing and expect to have a commercialized product by the end of the calendar year.
We remain excited by the opportunities that are created by our new product and are confident of the value proposition that it creates for our customers.
Regarding our acquisitions, the integration costs that we will incur this year are declining as we move into the final year of our significant integrations.
Although several smaller acquisitions will not be complete, the significant expenditures should end this year.
The investments we made during these integrations, particularly in our ERP system, are expected to drive down costs and lessen the cost to achieve benefits from future acquisitions.
Regarding new Federal tax law, we estimate that the benefit derived from the lower U.S. income tax rate generally offset increased interest expense resulting from our recent bond offering will have a significant reduction to our deferred tax liability by $38 million.
With that, I'd like to open it up for questions.
For those of you who will be asking questions, we request that you limit them to 1 question and a follow-up question until all those who wish to participate in the Q&A session have had an opportunity to do so.
John.
So let's start ---+ that sounds like a multipart question, so let's start with that, what it brings to us.
Recently, in the last several 4 or 5 years, we've acquired a company by the name of Pyramid Controls, which is part of the integrated solution that we're trying to provide.
Pyramid focused on warehouse control software system principally for retailers and brands.
What Compass brings to us is the same type of warehouse control automation, but for the logistic companies with major transportation companies and delivery companies across the United States.
Our expectation is, over time, to strategically bring this 2 businesses together to provide a solution that goes end-to-end from a retailer's website all the way to your doorstep on 1 single platform.
Couple that with the technologies that we've added on the printing side and the new product we have coming out, and the expectation is to add additional technologies into the automated warehouse.
We have a compelling solution that we think we're going to bring about, and Compass is a big part of that.
On a practical matter, one of those things that you'll see in our P&L as we move forward is Compass, being a low-asset-based company, brought to us a significant addition to our intangible assets.
This year, we're going to start to push close to $30 million a year in intangible amortization as a result of recent acquisitions, one of them being ---+ and Compass, which is a significant contributor of that.
We expect Compass this year to push an additional couple $3 million at least of EBITDA to our P&L from where we started off.
So that's ---+ I think I've answered all your questions at this point, Dan.
If there's more, let me know.
Well, we are getting our Board of Directors out to see the operation, that's how excited we are.
We're going to have the sample test provided to our first beta group, which will be our Board of Directors here in February.
So we're pretty confident where that's coming out.
We're looking forward to what it can do.
The value propositions to ---+ for our customers with ---+ and what we think is the most compelling part of the story around that product, and the ability to eliminate a large part of the downtime associated with repair and maintenance on the product is the value proposition itself.
We expect that we'll be in the market by the end of the calendar year.
You know what product development is like right now.
We are bullish on that time line.
Our expectation is that it will be there, and we'll start to see revenue offsetting some of that development costs early calendar year 2019.
Good question, Jamie.
(inaudible) It's one of the many factors that are causing us to increase our guidance for the year.
We're seeing it on the Funeral Home side today.
We expect that to translate to the memorial side.
But as I said in my comments, that flu season comes with severely cold weather.
We've also seen a modest downtick in our cemetery products, setting of stone and bronze, excuse me, is difficult in that cold weather.
We expect that to be a multiquarter uptick for us, to be honest.
Thanks for making my job easy, Jamie.
That's exactly right.
Well, we have had a couple of recent awards.
We don't want to call out names, and we're not going to get into the business of calling out wins and losses.
That's ---+ This is a business where there is always ups and downs with respect to wins and losses with customers.
Not significant numbers.
We have ---+ are fortunate that we've been able to land a couple of very significant new accounts that are ---+ or that one do not contribute anything into the first quarter and one that is only ramping up into a ---+ it'll be a multiyear ramp up for us.
They are significant accounts and will be beneficial to us.
They are in spaces like retail where a lot of the product label work is moving and in pharmaceuticals, which is a little bit off the CPG side of the business, so they ---+ we think is a good balance for where we can spread our risks.
It's ---+ <UNK>, it's generally timing.
But our fiscal first quarter, just from a seasonality standpoint, tends to be the slowest from a cash flow perspective.
So no.
What we ---+ with respect to Joe's remarks on projections for the year, we expect that we'll achieve those cash flows over the next 3 quarters.
Okay, John.
Well, that seems to be the end of our session this morning.
We appreciate everyone participating in the call, and we look forward to our call after our second quarter earnings release.
Thank you.
| 2018_MATW |
2016 | MUSA | MUSA
#So, on the raze and rebuilds, these are locations where we have very small kiosks where we have significant available land underneath that to expand and the economics warrant a complete raze and rebuild as opposed to just a refresh.
We started with some of the highest volume returns that were just simply underpumped.
I mean we had stores that were delivering 500,000, 600,000 gallons out of four to six pumps.
And so with a larger number of dispensers, diesel at every pump, coupled with that 1200-foot small store versus the kiosk, you basically have gone in and replaced everything.
The returns on those are going to be more in the 20% to 30% unlevered after-tax range because they are just fantastic stores.
And if you went out and built ---+ found a location that looked just like those today and built a store, you would get exceptional returns as well.
Obviously, there is a finite number of those where all the conditions around the current format, the available land, the baseline economics to do reinvestment add up.
We are going to do those in a ratable, and we have talked about doing approximately 20% next year.
I think the returns that we have shown in our pro formas on the analyst report, et cetera, are in that 12%-plus range on an after-tax unlevered basis.
I will add, none of those returned metrics include our products ---+ any product supply in wholesale uplift associated with that.
So, if you allocated the $0.025 to $0.03 margin that we get across our network on average to one of those stores, you would have significantly higher returns than that.
So we know that we need to continue to add new stores, and there's opportunities and we are going to do those with our independent growth plan in markets where we can generate those high returns, but we have got to continue to reinvest in our network, and raze and rebuilds is just a part of that.
Sure.
And, by the way, if you noted the $0.059 on a retail equivalent to basis compared to $0.05 last year, which was above the trend, and so, look, I think this is one of those areas in which I would ask everyone to remember to do two things.
One is, always look at it over any rolling 12-month period because you are going to have the rising and falling price environments.
And so when a rising environment the way inventory transfers to cost of sales creates a positive benefit, just like it did last year and you typically see a rising environment in Q2.
You typically see a falling environment in parts of Q3 and Q4 and in Q1 a rising environment.
So you can't just look at a quarter.
You have got to look across any 12-month period.
The second thing I would say is, after relationship between RINs and the spot prices in the market and the wholesale prices in the market need to be considered together.
The spot to wholesale price differential has decreased during this period of higher RINs on a pretty significant basis where the difference in the two is sort of the net that we are looking at.
So people shouldn't get overly excited in our earnings if RINs are at $0.90 versus $0.50 because you see that impact in the trade-off because spot prices are higher, and that is something, I think, the EPA and RSS anticipated.
So we haven't been ---+ even though we track them separately and report them separately for transparency purposes, we have consistently encouraged people to not look at those as purely additive.
So you have to look at all of that in combination.
Our transfer to retail kind of absent the impact of the RIN does benefit from periods of tight market conditions, and so we saw more pipeline maintenance activity in allocation along Colonial in Q2.
We saw the ARBs open more in Q2.
And so that tight supply environment does positively impact our business in those proprietary barrels as well.
And so that was more favorable in Q2 than in the prior year period.
And so this is one of these topics we could just keep going on.
There is a lot of (multiple speakers) there.
But I think the key is, look at it over any 12-month period, on a rolling basis, and look at it in its totality.
I can speak to ASaP.
As you know, we are currently in year two of our three-year timeline, and some of the benefits from ASaP were already embedded in the 2016 guidance and also in our corporate goals.
And we are already starting to see those appear in the quarterly results, and those should be amplified as we go through the third quarter and through to the end of the year.
So we are still expecting to generate approximately $50 million of recurring benefit this year, primarily from the rollout of Core-Mark, that transition, as well as the store labor model.
And then we also, on top of that, expect to reduce working capital by about $15 million throughout our chain by implementing more efficient inventory practices.
So that guidance remains consistent, and you won't see that appearing all in one place.
It will be reflected in expansion of merch margin merchandise, reduction in site labor costs, as well as an expansion of our anticipated fuel margin.
So it is not all in one place, but it is all embedded within our annual guidance.
Yes.
One thing I will add, on labor rates, we have actually been able to hold total rates fairly constant in part because of mix.
And so with the store labor model, we optimized the number of assistant store managers.
We have lead cashier positions that we are creating.
And so we are balancing that out across the roles, and that is helping on that front.
In terms of over time, if you're speaking to the specific FLSA regulation that is kicking in December, we do not expect a material change in December overtimes.
And then, as we develop our plan, for 2017, at present we would expect that any increase associated with that can be offset by other improvement levers that we have available to us.
To answer your second point, I would repeat what I told ---+ answered <UNK>'s question.
If we have continued high RIN prices, we would expect to see it continue to offset the differential between the spot and rack prices in that part of the business.
And so it is going to be ---+ there is a positive net increase for that.
We have got to continue to evaluate what that is and how much of that is just invested in additional capital.
That goes into adding E-85, E-15 dispensers, et cetera, to support renewable fuels.
In terms of the timing, we were clearly aggressive in the prior quarter coming out of the launch of the independent growth plan and put a major dent with the $150 million share repurchase.
And so we took a more measured approach.
We started the program late in May, so there were not ---+ there wasn't as much time in the quarter for that.
But we continue to be in the market with the program and set parameters.
And, clearly, if the stock has had a major run up, if you set some of the parameters, you may not be buying as many shares under certain tranches of the program.
For those of you on the call who don't have <UNK>'s benefit of getting to Little Rock or Arkansas, for that matter, on a regular basis, this is going to be a 3450-square-foot store.
And so, as we said before, we are building a handful more of those a year in selected markets.
You typically have seen those in Arkansas, Louisiana, Colorado and a few other markets.
And so we continue to do that in markets where we think that offer can be distinctive and competitive and meet consumer needs, and frankly, it keeps a foot in the door on the bigger box model.
The predominance of the Express stores you should expect to see are the 1200-square-foot models within the halo effect of this demand aggregator of price-sensitive consumers, and that will be the predominance of the mix.
So, won't hazard a guess on future prices.
I will go back to the discussion we had in February around the guidance where we gave guidance of $0.30 to $0.50 on the RIN, but we also gave guidance, I believe, of $0.25 to $0.45 on product supply in wholesale.
And if we said if RIN prices were above that, we would expect our contribution from product supply and wholesale to be lower because there's direct offsets there and we continue to see that with elevated spot prices and the spot to rack price differential being compressed.
And there are days where that spot to rack differential is negative several cents.
And it encompasses 100% of the RIN value at that time.
So, again, want to be very, very clear, the guidance holistically gets you to about $0.025 to $0.03 incremental contribution from our proprietary sourcing and spot contract barrels.
And we could just put that in our fuel margin instead of reporting $0.11 margins this quarter.
We could have reported $0.16 margins, but we had broken that out historically.
We did that at the spin.
We continue to do that from a transparency standpoint, but there are offsets within that.
And so, if we continue to see higher RIN prices, we would expect to see higher spot prices and compression in the spot to rack differential that becomes the basis of the transfer price.
So we are three days into it.
I will tell you that the number of card applications is ---+ on a daily basis is greater than what it was on a monthly basis before because it had not been a priority to promote that when we had a very attractive cents off program with the prior card that was available.
Our market research shows that more consumers that shop at our stores prefer an immediate cents off discount, and so we would expect to see those consumers gravitate towards that card and that offer, which will be great and continue to drive traffic to our store and the store behind it as well.
So, basically, replacing an offer that was there, while maintaining other cards that provide different types of discounts.
So we do expect to see some uplift there, but it is really too early to tell.
If you think about consumer behavior, there are some consumers that will always say, I am going to drive out of my way two or three miles to get an extra $0.01 or $0.02 off.
And those dedicated, loyal price-sensitive customers are loyal customers, and we can kind of count on them day in and day out.
If the differential to the surrounding area in a rising price environment compresses and the reason it would compress is that the branded marketers are only selling one or two tanks of fuel a week because they are high-priced low-volume stores.
And so not having their tanks replenished as often, meaning their cost of inventory in the tank is lower than someone who is turning their tanks every single day like Murphy USA or other high-volume retailer, and so being aggressive and holding a $0.10 differential, say, to the state average in a rising price environment would mean that you would be given away significant margin with little volume upside, it would be an economic to do that.
So, as that as that differential closes, you maintain your very loyal customer, but there is a customer on the margin that says, I am going to go out of my way to buy the lowest price, but you know what, if prices get within some range, I am not going to be as price-sensitive on the margin.
The other thing we note is in very high price environments, the number of price-sensitive customers goes up, and in very low price environments, people don't go as far out of their way on the margin.
So, if you break it down into the relative price sensitivity of customers, you can explain and see how in a rising price environment, you shed a little volume.
The cents per gallon you would have to put on the street to keep that volume would be lost on every customer, and it would not be economic to do so.
In a falling price environment, where you are typically starting with very large margins, you can afford to put an extra $0.02 to $0.03 on the street and pick up the additional volume across the stores and the customer base.
And so that is how we think about it, and we look at a month like June when we have same-store comps that are positive in every region.
That kind of reinforces the view that you shed a little on the way up, you pick it up on the way down.
As it relates to total market share, we have been consistently growing total volume at the network level at or above the level of total volume growth in the markets that we are in.
It is largely done by adding new stores.
And so, as we add new stores, we are taking volume away from competitors, but other advantage retailers add new stores as well, and they take some volume away from us as the high-volume retailer opens within a mile of one of our stores.
But, from a market share standpoint, we have been consistently growing market share year over year.
So the journey toward E-85 has been very steady.
It has obviously started with a small base, but it is continuing to grow.
It is growing more in certain states where there are maybe additional incentives or in the corn belt in those areas.
There are a number of retailers out there that, including Murphy USA ---+ that have been adding E-85 and E-15 to their stores, and if you look at any of our new stores, they have the flexibility to add enhanced renewable fuels, including the bio diesel at every dispenser.
And so that is one of the things that we continue to look forward to.
Consumer adoption varies in different geographies, and I think that is another thing, when you talk about the value of the RIN, depending on where ethanol is priced relative to gasoline, if ethanol is higher than the price of gasoline, the way you will consistently drive volume towards E-15 and E-85 is to use that RIN value to lower the street price to create adoption.
And so an E-85 where there is lower energy density needs to be priced below an E-10 on a consistent basis to drive that consumer adoption, and that is what we do.
So the promotion's effectiveness really cuts across every single category, including fuels.
It is just taking a much more analytical-based approach to our promotions.
And so having built that capability last year, it is just a new mindset towards evaluating on the front end, what is the expected breakeven of the promotion, how should we think about pricing it, what is the level of vendor funding to make it attractive, what might be incremental labor be associated with that product, damages, signage costs, et cetera.
And so it is just taking a much more analytical and comprehensive view of it.
And when you think about, for example, some of our candy promotions, they may drive anywhere from a 500% to 1000% uplift on units.
So making sure that the pricing and the inventory availability and all that is there in place to make it an economic program versus just driving more units and volume is key.
So that has been pretty systematic, and it has been improving contribution $2 million, $3 million, $4 million a year to the bottom line.
So that is kind of an example of that.
Around pricing, again, it is just being more systematic with some of the talent we have been able to hire and some of the tools we have been able to develop to just measure elasticity and cross elasticity across individual items and baskets to get better overall economics from that.
And so if you look at the total year-over-year improvements we have had, a portion of that is obviously from new stores, and a portion of that is obviously from Core-Mark and other investments like Super Coolers.
But a significant amount of it still remains from pricing and promotions, merchandise mix, optimization that we do.
And we believe we still have more opportunities on that front.
So we get data and it lags from various agencies, et cetera, that give us a really good sense of this at the state level, being able to break it down to specific store levels as pretty difficult.
We do have models that help us understand relative performance across those markets.
And so, for example, some of the variables we look at are population density, population growth, et cetera.
And so if you evaluate those markets using census data, if you know the population is declining and becoming less dense and other factors in rural areas are negative, you would expect to see that market declining in volume.
Now, we may actually pick up volume because a couple of very weak stores end up closing on the margin, and we pick up that volume.
So we understand it the state level and the changes there, but getting it down to a local market area would be pretty difficult.
Well, we are growing market share on average across the states we are in.
There are certain states that have a greater level of competitive intensity.
In those states, depending on the number of stores you add, you may actually be losing share in those markets.
If you are not growing in certain Midwest states at the same rate in the future and others are growing maybe with a different type of model that is less fuel dependent, they may pick up share in that market relative to you.
Certainly, in markets like the Southwest and Southeast that are very, very strong markets for us, we see very positive trends there across our stores and the states as a whole.
It is a really good question, <UNK>, so there are two things that we talked about.
One was the timing of the new build.
We had 44 locations open in Q4.
Q4 is not a great time to open stores for us.
It is kind of lower volume.
It is typically going into Q1 and Q2.
It is a rising price environment.
It is harder to be more aggressive with your introductory price.
And so having in the future more control over the timing of when we can start construction on a store that we will have with our Express stores, as well as them being able to load level those throughout the year will result in a favorable comp because in the future because we will have more stores opening in Q3, which is typically a falling price environment, and so you are just going to be further along in your ramp up in the future.
So that is kind of point one.
There is a timing impact there on the USA sites where you had more constraints about when you could open versus the Express model where you have a much greater degree of control.
The second point is the mix.
And so when we took a portfolio approach towards the stores, you are going to have in your mix great stores, good stores, average stores, weak stores and some very weak stores.
The 2015 build class had a lot more Midwest stores, which historically have underperformed.
In that 44, 22 were in the Midwest.
And so there are some great stores in the Midwest, and out of those, we opened some great stores.
But with our Express model, we know what are the markets and the geographies and the conditions that separate good and great performers from weak and very weak performers, and we will not be acquiring on our own in the Express independent growth model weak or very weak locations.
And so the rationale that we provided this quarter about the timing and the mix should have an equal and opposite effect in future years under our independent growth strategies.
So there's a couple of ways to look at it.
One is, our business model is simpler than take one of the big-box store models that has 7000-square-foot stores.
I ventured a guess that every manager that would fall under this regulation who is a potential exempt employee at a big-box store is making well over $47,000 a year in salary.
And so I would think those exempt store managers at those bigger stores are probably less affected than we would in our simple model.
That said, the majority of our store managers are within a breath of getting to that number when you think about changes like the annual merit increase and reallocation of other benefits that we pay out in cash form that are not considered salary.
So we have got levers that can get the majority of the stores very close to that.
What we have that is probably different than many of the competitors is a high number of kiosks in rural geographies where the average wage rate is 5% to 7% to 10% below the national average.
And so the number established by this regulation doesn't take into account geographic pay models.
And so there is a subset of our stores where there is a gap, and that is where we are evaluating what is the best approach to do that.
What I will say is our store manager turnover rate is exceptional in part because we have benefits like 401(k) and others that many other retailers do not have.
And so I think we have been, as a Company, able to have good retention because of benefits.
Unfortunately, some of those benefits don't count in the way this regulation is designed.
So we want to be thoughtful about how we comply, both from a cost and economics standpoint, but even more importantly, from an employee engagement and retention standpoint.
I will tell you there are other levers that we have that have nothing to do with salary or pay related to face the next wave of store labor optimization.
That could more than offset any incremental costs that we have.
And so there may be some incremental costs.
We think it is going to be in the low single digits under any scenario, and we believe we have the ability to offset that through other levers that don't impact employee engagement and retention.
I assume you want both the expense side and the capital side, so I will give you both.
For the second quarter, we spent approximately $1.7 million, which was expensed, and another $1.6 million that was capitalized for a total of $3.3 million for the quarter.
And that brings us program to date spending of around $26.5 million, of which $16 million we have expensed and another $10 million that we capitalized.
So my knowledge and understanding of the Walmart Express stores that were closed were that they were stores that were kind of in that 10,000-square-foot range.
They were in very, very rural markets.
When we do our market cluster analysis, they were in kind of our seventh and eight out of eight clusters in terms of the makeup of the markets.
And they would have been kind of the markets generally we would have not gone in because of the population density growth and other parameters.
So I would ---+ if I had to classify them, they are very rural dollar store competitors, and I think that was the intent of the model.
And so if they put ---+ if they acquire a few of them, they have gas in front of them, I don't think it is going to have any significant impact at all.
I don't see the dollar stores getting into gasoline in a material way for just core economics focused capability reasons.
Great.
Well, thank you for your support.
We are really proud of this quarter.
We are excited about the initiatives and the ongoing work our engaged team has going on, and we will look forward to speaking to you in another quarter.
Thank you very much.
| 2016_MUSA |
2016 | WPG | WPG
#Good morning.
The have been no changes to our methodology and our pull for same store.
Those corporate allocated costs to property level were excluded from that calculation, and repairs and maintenance are still in property operating expenses, <UNK> <UNK>.
Yes, there's a little bit of a catch up in the first quarter from the savings realized, but then on a go forward basis it does reduce what the property taxes will be on those properties going forward.
But certainly a bigger impact in the first quarter from that.
I think in terms of if you want to look at the moderating growth out of the next couple quarters, I think it relates to the bankruptcies and working through, and as we mentioned, we have provided an accommodation of about 50 basis points in our overall growth.
And, we're just being cautious as it relates to how we're viewing the NOI growth the remainder of the year.
Hi, it's <UNK>.
I don't want to comment on any particular retailer.
I would just say that we've got on appropriate accommodation for what we know today.
There are public lists out there.
I think it's 10% or 12% of our stores are on that list.
So it's certainly manageable.
I would also say that if you look at generally speaking occupancy cost for that retailer would be about where a retailer would focus and want it to be.
In terms of our projections going forward.
Yes.
We're making some assessment that we are going to a keep a portion of that portfolio.
So we're factoring in what we think our potential exposure would be in terms of downsizing, what they're going to look like through restructure, reorder.
<UNK>, I'll tell you what's exciting to me is we have multiple offers to refinance the asset.
We really have multiple options here.
At this point we haven't made a final decision, but I think we'll make one shortly.
Absolutely.
Absolutely correct.
And we certainly have that optionality.
<UNK>, it's interesting because we're obviously ---+ we're increasing our occupancy, we are increasing our [deal] pipeline.
There are certainly ---+ what the retailers are doing and what the level of interest is in these assets is very different than what you read about in the media.
And especially with these redevelopments we have going on.
And positioning these malls to be dominant in their markets.
It's easy to paint A or B with a broad brush, and generally is A going to be better than B.
Sure.
But if you look at it on a case-by-case basis and you look at examples, like a Longview we've talked about a lot.
It's one of our big redevelopments, one of the first malls I visited after the merger where we're adding a Dick's Sporting Goods and an H&M, and we've got a dozen stores putting new store fronts and committing to new ten year terms.
It's a case-by-case, mall by mall study, but I think you are absolutely correct that what's being said in the media and what we're seeing out in the field are very different.
The CMBS market has definitely stabilized since probably last time we were on the phone for our year end call.
As <UNK> said, and we're not going to get into the specific commentary on Mesa, but we're in the market and there's interest in firm financing, there's interest from CMBS lenders on that opportunity.
So I think the CMBS market itself is clearly moving in the right direction.
There's a lot of stabilization there.
I think if you've got a good story on a property and you've got a stable NOI and stable situation with your tenants, there are opportunities today.
You know <UNK>, that's an asset we'd ultimately like to unencumber.
So our plan ultimately is to get back into the unsecured bond market.
And when we do, doing a bank deal gives us ultimate flexibility because we'll move forward with the financing that is pre-payable without penalty.
And it is a great asset.
It's doing over $500 per square foot, and we'd like to add it to our unencumbered pull down the road.
Yes, I think in most of those deals there's a concept of a qualified borrower.
It's going to range in terms of what those qualifications are.
But typically there are the ability to transfer those loans.
<UNK>, it's <UNK>.
It's really across the board ---+ I'm sorry, <UNK>.
It's really across the board, and if you think about the handful that are going back to lender, plus the two non-core we sold, that's about 6% of our NOI.
So it's a fairly significant amount of the portfolio.
I think people look at the non-core list, and we had calls on that.
But since we've created the categories, there is reverse inquiry really in all the categories.
No, not at all.
I would say we are very open-minded and willing to sell assets and upgrade and [cull] the portfolio.
It's certainly has fared well for others, and it certainly has fared well for myself and <UNK> in the past.
So that's something we consider.
It's just not a program that we are out there talking about.
If you think about the last year, there was the integration, there was building the [deal] pipeline, they were putting systems in place.
We've sold some assets, we've taken some assets and transitioned them to lenders.
So there's been a lot of activity here over the last 12 months.
There's only so much that an organization can handle at one given time.
When we developed those categories we tried to do our best job of understanding ---+ it was really more about growth than it was about sales per square foot.
We want to create a Company that can deliver meaningful growth on an ongoing basis so that we really categorize the Tier 1 as the higher growth assets.
And hopefully we did a good job of creating the bucket that you wouldn't see a lot of movement of these malls going forward, other than outward.
Hey <UNK>, this is <UNK>.
Absolutely.
I think as we get through the process and we understand what's working well and what could be working better, we're always looking to tighten up the belt, and we think there's definitely opportunity going forward to cut costs.
No.
I think as we come out of this year and look into next year, it's something we would probably talk more about as we talk about our guidance for next year.
It was really getting through the integration, building this pipeline, delivering results.
And then as we get here in the second half of the year, looking where we can tighten up the belt.
As it relates to Tier 1 and Tier 2 we have asked the leasing team not to even look at the list, and the development team not to look at the list because we want to treat every asset equally.
As it relates to investing, there's clearly a much higher threshold to invest capital into Tier 2.
But when we're meeting with retailers, and we're marketing the portfolio, we're really agnostic between Tier 1 and Tier 2.
It's just about leasing space and bettering occupancy and performance across the portfolio.
<UNK>, I would probably use the word opportunistic versus optimistic in that I personally have seen about 90% of the NOI, been out with the retailers, we've gotten our arms round the portfolio, we built this deal pipeline.
So we're seeing a lot more opportunity.
It's hard to use the world optimistic when you look at where the world is today.
The environment is really difficult, and it's a very challenging business.
But we're seeing opportunities everywhere, and the more I travel and the more I see these assets, and now we're getting through the cycle of actually having things come online that we've invested in, we're seeing a lot of opportunity.
So that's were my head is.
<UNK>, this is <UNK>.
I think this relates to ground-up development.
We had one project that has been in the works ground-up on the community center side that we have underway at Fairfield Town Center.
We will move forward with that.
It made sense to do that, but we have nothing else in the works right now.
And Tier 2, we will be opportunistic.
I think that's the word.
We do have ---+ we're bringing Dick's Sporting Goods into New Towne Mall to replace the Sears.
That's a Tier 2.
But as <UNK> mentioned, the return threshold is a little bit different in terms of how we look at allocating capital.
But we will be opportunistic and there will be opportunities for us to create value in the Tier 2 as well.
Thank you.
Well, it's a process with the servicer and you need to be in default, and if you've got an asset that's generating cash flow, you typically can't engage in those discussions with the special servicer until you're closer to maturity.
So right now, we've got plenty on our plate that we're working through.
It is a process.
It takes months and multiple quarters, typically.
But we've got a lot of experience in terms of how to deal with it.
And we're trying to address the timing.
A lot of it is just driven to the point where you need to have some type of default and if you've got a property that's cash flowing, it's hard to get there until you have a payment default.
You are.
Yes.
You can't just stop paying interest.
That's not the way it works.
I mean, our pipeline and our redevelopment spend in 2016 is about $150 million to $200 million.
Probably with where we're trending right now we're probably going to be on the lower end.
I think what <UNK> was referring to were projects that were actually going to come online in 2016.
Some of that we have already spent the capital.
But I think as we look out this year into the next several years, that about $150 million to $200 million is kind of a good run rate in terms of opportunities for redevelopment that we think we have in the portfolio.
It's <UNK> again.
We see these same opportunities as I've said ---+ as I've traveled, as I've seen these assets, as we build our development team up.
We continue to find opportunities, and I think for the next few years, anyways ---+ I can't look much further out than that ---+ we can have these same type of opportunities for growth.
Thanks so much.
You may contact us directly if you have any additional questions.
Thank you all for joining us today, and have a great day.
| 2016_WPG |
2017 | TIF | TIF
#So real quickly on the input side, what I would tell you is that we have been in a relatively favorable environment as it relates to both metal prices as well as rough and polished diamonds.
We expect that to continue through at least the 2017 time horizon.
As you know, we have a relatively long supply chain on rough and polished, so a lot of the cost visibility that we have into 2017 is basically pretty tight and borne out by things that have already come to pass, so to speak.
Then with respect to our metals, we tend to go out with forwards and lock in our metal pricing, as well.
So we're pretty confident about the gross margin plot that we spoke to in the context of our 2017 guidance.
And, <UNK>, in terms of what has changed, again as I said a moment ago and as <UNK> indicated when he arrived a few months ago, I think I'm not surprised by it but I'm certainly impressed by the number of initiatives underway, both to in terms of improved customer service, the work that's been doing around inventory productivity and efficiency in IT development.
And I think most importantly what hasn't changed is that this culture remains very strong and resilient.
And everyone at Tiffany, despite the obvious challenges and some of the changes, continues to be passionate about the brand and confident in our future.
Tiffany most certainly is one of the world's great luxury brands.
It's not broken and everyone here is simply committed more than ever to making it greater.
So I feel really good.
Hi <UNK>, it's <UNK>.
In answer to the first part of your question we are definitely moving in that direction through savings that we've already achieved in global procurement and savings that are anticipated.
We are not going to get more granular than that in terms of exactly how much it was in 2016 and what it will be in 2017, but we are definitely (technical difficulty) that target that we had specified for 2018.
And then are there opportunities for cost savings beyond that.
I'd turn it to the other <UNK> here, but I think the answer is going to be we are always going to be looking for opportunities to run the business more profitably, more efficiently.
<UNK>.
You know, I completely hear you.
And as I mentioned a little while back, the global procurement initiative is still in its early days and we are finding enormous benefit from the work that's being done in that area.
And it's now starting to grow into a lot of other areas of the business whether it's respecting store design, case lines, lighting.
We are finding enormous opportunities in all those areas and we are very confident that, as <UNK> said, we will be able to achieve the target level savings that we laid out by the indicated date, if not sooner.
But, <UNK>, I will just add, ultimately we need better sales growth.
I think that's the obvious.
And if all of these initiatives we are pursuing can generate better sales growth combined with what we are working on on the expense side that's what will give us a return to good operating margin improvement.
Well, I will just same in terms of Net-a-Porter we have been very pleased with the relationship with them.
And it's certainly, and guys feel free to chime in, but it's certainly possible that that 6% of sales could gradually move up closer to the 8% or 10% as some younger customers certainly opt more for shopping online and they will use our website more.
But we never think it is going to be a very large number because it's not the nature of our business.
The gift and accessories, luxury accessories revamp that we are underway with, that will lend itself, we think, to more e-commerce transactions by its very nature.
I think that's a critically important point.
The disappointing sales growth in e-commerce over the year I think more than any recent years more than anything else is a function of merchandising assortment and the fact that we have not had growth in lower price point jewelry and, of course, there has been an absence of gifts.
Those are, gifts are being put back, active product development in jewelry under $500 and that's going to have, that should have an important impact on our ability to grow e-commerce sales because those, that's the heart of that business.
You have already touched on a few that are critically important.
So let me just add certainly enhanced clienteling efforts that are going to be informed by our new CSR systems, somewhat operational but it will have an impact on sales, would be more intelligent, client-focused staffing programs in all of our stores.
We are working very hard to improve the store experience built around better assortments and creative visual merchandising.
Again, I think you referenced, I referenced also the Tiffany Touch customer service program.
I think so much of the effort around, in addition to obvious new product development and pace of new product development really is going to be built around enhancing all dimensions of the customer in-store experience.
And when Mike just said CSR, he meant CRM.
CRM.
Excuse me.
I'm betraying my bias.
Let me start with the last part of your question because it's the easiest.
We certainly see the Mainland, if I can use that term, Mainland China opportunity as continuing to be very, very significant.
Again, the brand is still in its early, relatively early stages of development in that market.
We have good awareness but lots of opportunity to improve awareness, lots of opportunity to optimize the store network.
So I think we are as optimistic as we've ever been about the opportunities in Greater China.
And in terms of your question about unit growth, jewelry unit volume growth in Asia-Pacific during the year part of it was just core better growth but a lot of it was due to the fact that we opened a number of new stores.
So that unit growth is not on a comp store basis, it's on a total region basis, total sales basis.
Nonetheless, we were pleased with it.
And then in terms of Hong Kong, as everyone knows Hong Kong really softened almost 2.5 years ago, started in October 2014, but finally in 2016 we started to see some improvement.
Still down but certainly getting less bad from quarter to quarter.
And at what point will it completely bottom out and start growing is anybody's guess.
But we certainly think that the worst part is probably behind us and we are getting closer to stabilization there.
We will be innovating across all categories in 2017 and 2018.
There will be newness in silver, gold, platinum, diamonds, so we are not getting get too technical in terms of how we are dividing up our newness by category or by material.
But there will certainly be newness in silver just as there will be across every other category.
Two good questions.
So with respect to the loans that we had previously made in order to be able to access supply, the good news is that has all largely passed us at this point.
We have one loan that's outstanding as a performing loan and after this quarter, and it is very de minimis, a couple million dollars, and as I said it's a performing loan.
That should be all that remains with us.
So we think that we have processed through all of that.
With respect to your other question, I don't want to evade it because it's a fair question, but I think for me there's just an abundance of opportunities there for us.
So a lot of work has been done, a lot of really good work has been done.
But that said, and despite the fact that it's an 180-year-old Company, there is still enormous opportunities going forward that we have the ability to access.
So maybe one thing I would offer it is the state of the IT systems because of the Company's rapid growth phase is an opportunity for us now and that we have the ability to stitch that together in a seamless way and that's going to give us a lot of additional capabilities going forward.
So maybe one thing is I would have thought that maybe there was a little bit more of an evolved IT infrastructure as it relates to the financial queue.
But this is something that is easily addressed and we are going to get after it in short order.
And, again, that will just become an opportunity.
Let me try to answer the first question, <UNK>, around the overall going-forward direction of product assortment, product category.
As I think everyone on the call knows, part of the magic of Tiffany over the very many years has been our ability to balance those categories and to move forward with them all simultaneously.
Critical to that has always been our ability to drive lower price point sales because of the very favorable margin profile of that category, and once again as you've heard before we've stabilized that segment.
We also feel very good about the fashion segment gold, the fashion part of the segment and once again relative to the entire mix that also has favorable gross margin profile.
So I think we are not finished certainly, but right now we are feeling relatively good about the direction of category evolution.
And, of course, as we've said now many times on the phone, we have the work in progress on watches which we are pleased with and, of course, the upcoming gift collection which also should be additive incremental to gross margin.
So on that score of product balance, relative category growth going forward, we are in a pretty good spot right now.
What I would offer is at the end of the day when you ask questions about gross margin and things, we are really focused on operating margin.
We really want to try and put together a sustainable business model to eke out about 50 basis points on the operating line each and every year.
Certainly within our product offerings certain groupings within that have higher gross margins than others, silver fashion as an example.
That said, we enjoy pretty attractive gross margins in the absolute across all our product offerings.
And I don't want us to become fixated on gross margin as it relates to product mix because at the end of the day I'm happy to sell an incremental item across any of our offerings because in the absolute they are very accretive and attractive to us.
So product mix does play into it, but I don't want to overplay the role of that in our overall business model.
And certainly we are going to continue to try to drive sales of high jewelry because, again, (technical difficulty) are not as robust as they are in other parts of the product, spectrum, on the margin they are just, wonderful, so we have no problem enjoying the success from those sorts of sales.
And, finally, the last question about the millennials and the advertising campaign, I don't know, that's always a difficult, unanswerable, difficult-to-know question.
But as some quantitative evidence, I would simply point out that, again, the fashion category is where we have enjoyed the most relative success.
So I think that speaks at least directionally of some success in appealing to millennials.
Well, certainly in terms of timing they are already at the table.
We had our first Board meeting which was a very productive, helpful meeting.
Certainly the new directors collectively they bring a wealth of, obviously, a wealth of highly relevant experience and expertise whether it's consumer products, luxury and livestock products and are busily retailing.
I don't think that as we said a couple of weeks ago we feel very, very confident in the fundamental strategic direction of the Company.
So I'm not, from my perspective not especially looking for a dramatic left or right turn in our strategy.
I think they along with the entire Board will help evolve our strategic direction and, again, we are confident that they will all contribute importantly to that.
I will just say it will be November for the introduction of the full non-jewelry luxury gift collection.
Margins are attractive.
And in terms of January trends we did say that things were slightly better in the US.
Part of that is just coming from some big transactions in the New York flagship store.
And we did already mention that we had some shift from the earlier Chinese New Year that benefited some business in Asia.
And so we are not going to get more specific than that.
So January came in a little bit better than we had expected.
And we've planned accordingly for 2017.
Yes, we are assuming at some point business in Hong Kong will stabilize without getting more specific than that.
But we said in 2016 we saw it sequentially getting better and we hope that we continue to see that in 2017.
And certainly it would be very nice at some point to talk about it flattening out but not yet.
And in terms of Chinese tourist travel and Korea, we are not going to get ---+
We'll see.
It's a little bit early to make a call on the implications of that.
But, again, we are pretty comfortable in dealing with the dynamics of tourist movement around the world.
So we will see how that develops.
We've certainly got a strong position in Korea, a strong store base.
Okay, maybe one or two more questions and we will wrap it up.
<UNK>nifer.
It's been 6% of worldwide sales for several years now.
And I think it's important to put it in perspective relative to our global luxury peers.
6% is probably about average for luxury peers and it's significantly larger than hard luxury peers.
Having said that, we do believe that, obviously, we'd like to restart growth.
But, again, I think the key, as I said before, the key to that segment or that distribution channel really is going to be about product innovation and development.
So I think I will leave it at that.
Well, let me say the obvious.
We are not about to proliferate the SKU count.
So probably more or less your suggestion that combined with the pace of new product introductions an increased pace of new product, new collection introductions, net SKU count probably will stay where it is or it might even continue to decline a bit.
But the key will be building ---+ growth is going to come from a combination of, one, new collections and if you look at the evolution of our assortment over the past 10 years far more concentrated today in important collections than it was 10 years ago in multiple smaller collections.
So we want new collections, but they have to be big and they need to be impactful.
And, of course, Tiffany T would be the model, one of the models going forward for that.
At the same time, we need to be mindful that the existing collections, Return to Tiffany and Return to Tiffany Love, they have to be renewed and we have to continue to animate and increase and inject energy into those.
So it's going to be as it always is a very careful balance making sure that we have significant new collections that marketing can drive, at the same time making sure that core collections that will always be the majority of sales continue to grow at the same time.
So it's a complex balancing act.
I think at this point I will decline to speak for Reed.
He hasn't been here that long, although he has made from my perspective tremendous progress.
But I think what you said, if I can just repeat that, because I think it is critically important for everyone on the call, in addition to product design Reed will lead the brand's artistic and design vision with respect to stores, to e-commerce, to marketing, to advertising.
We are right now I know Red's is heavily engaged in looking at new store prototypes.
So I think we are going to look to Reed for, obviously, a comprehensive, integrated brand vision.
What that brand vision is going to be, other than it's not going to be a radical left or right turn from where we are, I think it's going to be a continued evolution and fine-tuning of what we have.
But I think it probably would be premature for us to speak about that today.
I think we are going to wrap it up.
I hope this has been helpful to all of you.
And have a great day.
Thank you all.
<UNK>nifer, let's wrap it up.
| 2017_TIF |
2016 | MIK | MIK
#Steve, this is <UNK> <UNK>.
I can help answer that question.
As had <UNK> communicated on the call, we are lapping $4 million of legal fees from Q1 of last year, which is a good news item for this particular quarter that we just closed.
We also got some reimbursement against those legal fees in Q1.
Finally, as you mentioned, in our Fuel for Growth world, we do continue to make strides there across our P&L to help things.
We did see a bit of an offset to some of those savings.
That savings was really a shift in our advertising expense in Q1.
It was a little larger than what we would have spent in Q1 last year, which was in support of our TV campaign.
So that was part of the trade-off of what we invested in.
The full-year number has not changed.
Q2 this year is a little lighter in store openings than what we would have saw in Q2 last year.
We ramp back up in Q3.
That's really due to available real estate timing for when we can get into the store.
So no change for the year.
Good morning.
So <UNK>, it's <UNK>.
We are basing it off of the 2.2% to 2.7%.
That is the core number that I would be looking at.
When we look at the back half and our full-year guidance, we would still be within the top end of our range.
Firstly, our direct sourcing is a small portion of our business today.
We're not going to quantify that.
Secondly, over the past few years, we have been working on a lot of things.
We did know that sourcing likely provided an opportunity for us over time.
Part of the attractiveness of the Lamrite deal, when we looked at them about the acquisition, was the fact they had an infrastructure in China that would allow us to scale our direct sourcing capability faster than we would have on our own.
So since the day I walked in here 3 1/2 years ago, this has been on the road map.
It's just a question of when we could get to it, to do it successfully.
There is a lot of work.
There is investment that needs to be made to do it successfully.
Lamrite gives us an opportunity to accelerate that.
And additionally, again, back to the road map.
We didn't talk about it publicly necessarily, but the sourcing opportunity of, again, becoming a bit more sophisticated in our sourcing process and breaking out commodity costs and doing bottom-up cost building ---+ that has always been on the road map.
But it's taken some development of internal skill sets that we may not have had before.
So we're getting to it now.
And the timing is appropriate for us, because we've made a lot of progress on some of our customer-facing efforts.
Still more to be done.
But now there is opportunity to ---+ and we believe it's material opportunity ---+ to improve our product costing.
Which again, given our scale and our size in the industry, will give us an opportunity to both flex our muscle a bit more with customers, we think, in providing really good values to them, in addition to providing additional value to shareholders.
Yes, guys, I'm not sure we're prepared to give a third versus fourth quarter.
We're not going to get into that habit of breaking out the quarters.
I think what we've said so far is to the extent we're going to comment right now.
On a cost basis.
On a per-store basis.
And the retail value of them ---+ we are a cost inventory Company ---+ but the retail value on that would be higher.
But the cost on our books, in fact, is lower, due to the sourcing initiative.
Sure.
Candace, I think we have time for one more question.
<UNK>, I'm going to cut you short on it a little bit.
It's too early to comment on the Pat Catan's stores.
We've had them for a few months.
They have 30-odd stores.
They are a different box than ours, so there are learnings that we are getting from them at Michaels, and there are Michaels learnings that are benefiting Pat Catan's.
I'm sure we'll talk about that more.
On the TV advertising, some of the TV advertising we have done has been incremental spend that's been funded through our Fuel for Growth effort.
We do believe long term there is potentially an opportunity for us to reinvest some of the Fuel for Growth savings, to communicate with the customer in a more aggressive way than we have before.
So that's what I would say on that.
Thanks, <UNK>, I appreciate it.
I'm going to wrap us up, since we are running a minute or two over.
Let me thank everyone for participating today.
Also I want to be sure to thank our 55,000 team members across all of our brands, our distribution centers and support centers, for working together to deliver this quarter for our customers, our team members and our shareholders.
We are the leader in this industry, and we will continue to remain focused on connecting and inspiring with the customer in new ways, as we work to achieve our Vision 2020 strategy.
Again, I appreciate everybody joining us today, and we will look forward to talking to you later this year on our second-quarter call.
Thank you.
| 2016_MIK |
2016 | DAN | DAN
#Hey <UNK> this is <UNK>.
There's certainly some flexibility there, not only on the capital spending side but also on our operating expenditures given where the market goes In many cases we need to make sure that we deliver for our customers and follow their production schedule but we certainly have some control over the timing that we could influence that.
Thank you
In terms of sequentially it was noticeable from the end of last year.
And it will be noticeable, but we have not given the specifics on the balance of the year.
But it will have a noticeable impact on the margin profile.
Thank you <UNK>.
Nice to talk to you again.
I am bullish.
And I tell you otherwise you know made.
I bullish now that Fords in pretty good shape, as it relates to their launch.
They put a lot of focus energy resources and other into their ability to launch of the last two or three years.
We have seen the evolution coming off Fusion ---+ just talk North America Fusion platforms, was a challenge they'd be the first to say two or three years ago too much better success as it relates to the F-series F-150 stock.
With a couple of snafus here and there ---+ okay whatever.
Nothing to substantial but they have done a lot of things right things I think to put themselves in a good position as it relates to our releases.
You understand that well in terms of what we are seeing.
They are still in line with our forecast.
I feel pretty comfortable any manufacturing Company ---+ you'd be the first one to say this you never know that something could come up and bite you that they certainly have pulled ahead a lot of their activities ---+ APQP activities and focused on their launches so I feel pretty good about it.
Not necessarily <UNK>.
We still have the ability more than sufficient liquidity to be able continue our share repurchase program.
So in the balance of the year we will continue to evaluate the market and continue to execute on that opportunistically.
Thanks <UNK>.
Let me take those.
To go back Chris you go by, Chris or <UNK>.
Thanks for the questions.
I'll try to hit all of these make sure you tell me if I miss one.
Let's go to the last one first.
On the Wrangler, I would tell you nothing is a free pass in any of our businesses so certainly the customer could've chosen to do different things.
I don't know that other dialogue with our competitors know we were in a good position to take on incremental volume.
I would call it more [fully] toward the bottom side of that ---+ the answer to that question.
That we fell in line.
As it relates to your CV questions as it relates to a conquest, is it captive moving to supplier.
It's a combination of all of the above.
I announced three different awards.
One being with the Isuzu /Spartan no one falls into more ---+ I could be an optimist ---+ I'm pretty sure that falls into a new platform in general.
The two that I imagine down in Brazil, one was conquest, one was captive supply moving out into the supply base, which of course is Dana.
Again thanks, Chris.
Divestitures I don't see anything imminent there.
I very much like the way Dana fits together.
I hope at the risk of not being redundant to anything I have said in the past.
We're not talking about a Company that is trying to pigeonhole bumpers with seats, with tires, with whatever.
We're very much the liner from the engine back to the rear axle and everything in between.
We see a lot of internal benefits with our customer because of that.
And of course all of our Driveline stuff goes across three of the four platforms.
I feel very good about that at least for today and anything's possible in terms of change.
But I don't have [anything] on my to do list on that one.
As it relates to the inorganic side, [when] we go there I think anybody worth their salt running a Company has to see that as one of the levers of opportunity, all depending on what it does for you strategically, the price point at which it may be.
We keep them on the radar like, hopefully, any sophisticated Company would.
Yes, the impact on the 2018 backlog is quite small.
Most of the volumes for these programs ramp up and 2019 and beyond.
So that's where we start to see the impact which is where we referenced the total program volumes rather than the backlog period we're currently measuring.
We haven't provided that but what I can tell you is the program [life] sales make up the majority of what we announced today for the program.
So we're not sure ---+ we can't disclose it at that point.
We have not commented on that margin profile of the business well out into the future.
I think that's it for the presentation in question a comments today.
Thank you everyone for joining the call.
Just in quick summary, to the at least the window of when I came here almost nine months now.
One of the key things many of us have talked about is about we need to get the top line headed in the right direction.
To me that's always a result of the actions.
The actions of course our customer satisfaction and being the supplier of choice and certainly I am proud of the Dana team for putting us in that position to be able to announce the things we announced today.
Certainly staying the path and doing the right thing.
I hope that comes through loud and clear very still very comfortable with where we are at for the year.
Thank you for your attendance today.
| 2016_DAN |
2016 | ORLY | ORLY
#Thanks.
No.
Nothing really any different than we've seen in the past.
I mean, there's always a scramble for great people in the market.
But nothing ---+ really no changes that we've seen.
Hard to know what's going to happen a year from now, but you would expect that we would have the absence of that LIFO ---+ big LIFO charge in the second quarter of next year and see a big year-over-year gain.
It was not that significant.
February was the strongest month, but the differences were not that significant.
But it was a difference that was worth mentioning, because I know you all like to know the cadence of how the quarter progressed.
And we would have viewed the end of the period as being the weaker portion directly related to some of the weather things that we were talking about in the spring, that have now strengthened as spring has gotten here.
Sure.
<UNK>.
No, our plan is to execute the same business plan and strategy that we've executed across the country, as we expand into some of these Northeast markets that are more densely populated and have more cars than people.
Certainly, having parts close to the customer is a critical component of success in our business, and we'll continue to execute the strategy that allows us to have distribution capacity that allows us that availability advantage that's so important, we feel like, to our success.
Okay.
Thanks, <UNK>.
Okay.
Thank you, <UNK>.
Okay, the Leap Year in comps, if we included it, would be ---+ we would have had a 7.4% comp in the quarter if we had included Leap Day.
I'm unsure of the 30 basis point Easter effect in sales on EPS.
We are open on Easter.
Easter business is just slower.
Yes, I assumed everybody knew that we didn't close the stores on Easter.
We are just not as busy on Easter as we are any other Sunday.
Nothing.
I think that our competitors are very price competitive today.
I think we have always been in a very price competitive business.
So that's always something that we monitor and shop and watch for.
But you know pricing has remained rational for some time and we would expect it to in the future.
Our competitors ---+ many of them have really good supply chains.
I think ours is, generally speaking, more robust.
And I think that we maintain a availability gap over most of our competitors, but I think some of our competitors are improving them.
And I think they have the ability to improve them.
It simply takes time and execution.
Distribution centers are long-term commitments, so some of the strategies that some of our competitors have in place now are hard things to roll up and change quickly.
But I think, over time, if our competitors have the will and the ability to execute a different supply chain strategy, they will do so.
At the same time, we'll be working to maintain a supply chain and availability benefit and positive GAAP for us, which we been successful at doing in the past.
Different lines and categories.
Different suppliers.
They have been significantly higher than we had planned.
We're not planning those types of numbers in the back-half.
Okay.
Well, our relationship with Broadleaf is simply an effort to refresh and upgrade our web presence, and we are in the process of doing so.
They've got a great platform, and we are enthused about the opportunity to work with such a progressive company.
And we feel like we have some opportunity to improve our Internet presence, and are in the process of doing so.
And I'm sorry, what was your second question.
Yes.
Yes.
It's grown a lot over the last few years.
And we have a very strong Web presence when it comes to B2B, and we have had for a number of years.
I would suspect that we are one of the higher suppliers from a percentage standpoint, when it comes to the percentage of our sales on the professional side that are done electronically.
I actually don't have the percentage in front of me.
It's grown significantly and it will continue to grow.
Still, the vast majority of our business is done via phone call.
It will be ---+ yes, it's still phone call.
So we have a lot of opportunity, over time, to convert that business to electronic, which we think is pretty sticky.
The customers, once they start using your systems, it can stick with you pretty well.
And then secondly, it creates some efficiency for us at the store by not taking a phone call, and simply receiving a pick ticket and shipping a part.
But the trade-off is, you don't maybe develop as close of a personal relationship with a customer as you would on a phone call.
So there's some trade-offs.
But phone call is still the majority of our professional business.
Okay.
Thank you.
Thanks, Brandon.
We'd like to conclude our call today by thanking the entire O'Reilly team for our outstanding first-quarter results.
We are extremely proud of our record-breaking first quarter, and remain extremely confident in our ability to continue to aggressively and profitably gain market share, and are focused on continuing our momentum throughout 2016.
I'd like to thank everyone for joining our call today.
And we look forward to reporting our 2016 second-quarter results in July.
Thanks.
| 2016_ORLY |
2016 | SEDG | SEDG
#We never give the precise numbers mainly because it's influenced by many (inaudible), but it's less than 50%.
And indeed, SolarCity, as I mentioned before is, for the first time after quite a long period, is below 10%
So again, also here we're not giving the exact numbers, but it is increasing every quarter by a few percentage.
It's not yet got to third of our total business, but it's in the right direction.
As I think previously our goal is to reach 2017 ---+ to finish 2017 where 50% of the business coming from commercial, and 50% is coming from residential, and I think it's doable.
So, I think we're on the long-term goals, we will reach these numbers.
So, as mentioned before, I guess that we're a little bit slow on this rollout.
And I would expect that, if we were expecting the majority to be from the new inverter in Q3, I think that will be two quarters later.
The reason are simple.
We mainly, in one hand, didn't want to stop the cost reduction on the older products, and we need them for storage because it will take a little bit longer until we will adopt the new inverter for storage purposes.
So, we had to keep enough resources on keep improving and reducing the cost of the current generation, and that came a little bit on the favor of rolling up the new inverter.
That plus the fact that we need to adapt the production line, and we don't want to risk the total capacity and to take even a slight risk of being, again, in a situation that we need to [air-ship] inverter as we have been doing five, six quarters ago.
The total of the two elements cause us to slow down a little bit ramp-up and to be a little bit more careful in this, but nothing is in another level.
So, we feel very comfortable that we can meet all of our cost reduction targets with the current blend we have, so I think that we'll keep increasing gross margin as was originally planned with the current blend between the current inverters and the new one, which is, as mentioned before, a little bit different than what we thought few quarters ago.
The plan was to ramp up all the products in Mexico.
We're just ending up with the economy of scale in China and in Europe.
We found out that we'll ---+ ending up with more expensive inverters coming in Mexico than from China, and it wouldn't make anything positive to our growth.
But, we're planning to put all product, the full [mirroring].
So, we keep the full mirroring, and we'll just have the two factories we currently have will adapt, line-by-line, to produce instead of the current inverters, the new inverters.
And that's why it take a little bit longer than expected.
But, we weren't ever planning to do Mexico only from the new inverter.
That wasn't the plan.
No, I think that we will ---+ what I believe, that we won't have impact on the long-term model as well as on the revenues.
I think that we do the blend early enough and slow enough so I think that it won't affect the model you have.
So, the line is running very smoothly and very nicely in general.
It has the potential to reduce big portion of the labor that can impact up to 10% of the cost of the optimizer.
We didn't ---+ we need six automated [line] currently.
We have one.
Five others supposed to be ready some time in Q3, and hopefully installed still during 2016.
So, I think that most of the real impact of a fully automatic line from the financial perspective will occur during next year.
But again, saying all this, everything that we have in the model is supported by the cost reduction plans that we're currently having, and we feel very comfortable with keeping (inaudible), increasing our gross margin and profitability along the lines that we previously gave you.
Thank you.
So, I feel that we have a relatively good view, but I\
Sorry, okay, can you one more time.
It was a little bit broken.
I'm not trying---+.
So, I think that as [we described] in the past, the main geography so far for on-grid is Europe, mainly Germany, because of a specific subsidy.
They are subsidizing 25%, direct subsidy of 25% of the extra, or the direct cost of the storage part of the solar system.
So, Germany is the biggest market today for storage.
Australia, as mentioned before, is a very strong market.
US, we start to see a very nice demand.
And South Africa is probably the fourth country due to a unstable grid.
So, these are the main four markets we see.
We do see very big potential in many other countries, such as India and some other remote areas.
But, I think this will come to [a massive] only when the prices of the batteries will reach a price of below $200 per kilowatt hour.
So, I think that the fact that we'll have other suppliers will not change [the] geography.
It will just simply give the customer the ability to choose from more than one option.
I think we plan that it will be 50%-50%.
Commercial is growing worldwide very nicely, and we are growing very, very nicely in commercial, and we are becoming more and more competitive with every larger inverter we're introducing.
So, I think that it is definitely growing.
I wouldn't expect it to be more than 50% in 2017.
I would expect it to be more than 50% beyond 2017.
But, for 2017, I think we'll end up where it should be around 50%-50%.
I don't think it will grow faster than that.
In summary, our fiscal third quarter results show continued successful execution of our business strategy, with strong revenues, consistent growth in profitability, and accelerated cash generation.
Thank you for joining us on today's call.
| 2016_SEDG |
2016 | ECHO | ECHO
#Well, <UNK>, that tends to be true with LTL where you pay by the pound.
But in truckload we are paying for the full truck for the full trip from point A to point B.
The weight is really not a factor.
Yes.
I don't have our weight per shipment in front of me, but I would say that it's true that in past in the soft economic situations you will see LTL shipments average weight can decline and if it does decline, that can pull down your revenue per shipment.
And our weight didn't move that materially so a lot of it was fuel and just actually a little bit of softness on the rate side that we saw on the LTL side.
Yes.
<UNK> mentioned it I think in his prepared remarks in the script and I'll kind of repeat it.
I think that there are three kind of big areas that we have seen that we believe there's opportunity.
The first, and probably the biggest of the three, is the ability to grow our truckload business.
And the reason we see opportunities to do that is that Echo historically had a much stronger network west of the Mississippi and Command had a much stronger truckload network east of the Mississippi and both of us have respective customer bases that kind of reflected the ability to execute in those parts of the country.
Not that neither of us didn't do business nationally but our strengths were in those regions.
So we believe that there is opportunities for all of our sales people to continue to grow and expand our relationships with their customer bases based on this more competitive and effective network.
And we have already seen anecdotal evidence of that.
We have had sales reps that may have struggled on a lane previously running around really happy with the new capacity that we have and the ability to execute on the specific lanes, not enough quantitative evidence to really gloat about but just to give you the anecdotes from some of the sales people that are dealing with freight every day.
The second piece of the puzzle was to drive additional Managed Transportation business due to the 200 Command reps that have significant customer relationships.
And we have already seen a couple of wins.
<UNK> highlighted $6 million of new business signed.
And there's a long sales cycle there so it's not overnight.
But we believe that the transactional or brokers that part of our sales force has always been a key component to driving our managed transportation business.
And so by expanding that sales organization in that way, tapping into those relationships and educating our people we think that's another nice opportunity to grow.
And then thirdly we can expand our LTL and parcel services across the Command customer base.
Historically Command was a 95% truckload business, did not offer LTL services across our customer base.
And now that they have access to and the technology to implement the LTL capabilities that Echo brings to the table which include very competitive rates of over a hundred LTL carriers it makes them much more competitive and able to expand that service.
So those are the three primary drivers and ---+ that lead us to the revenue synergy opportunities.
Yes, <UNK>.
I mean we really ran them as two separate companies right up until October when we physically merged the two and merged the technology.
And the LTL platform was just released to the Command people about a month ago.
So we really spent the better part of the last year thoughtfully looking at the two organizations, figuring out what the structure of the new combined company would look like, looking at compensation plans, looking at best of both processes, finding the right technology solutions to support those processes and then working out the physical logistics of the move and the training and the implementation of the new system all the while writing the code to complete the integration.
So it was a lot of work and it's really just now that we're able to start going after those synergies.
Thanks, <UNK>.
Well, I think you tend to get a lot of the annual bids come up in the second quarter.
So, we saw some of that impact in Q2 and probably the bulk of it in Q3.
I would also say that the cost of a truck has been a little bit volatile.
While it's generally been soft we see moments in time or weeks at a time where it suddenly gets tight and prices spike up so that's probably added a little bit to the compression.
So it kind of feels like we're at a turning point and we can't predict when it changes.
We can't tell you with any certainty when it gets tight and how quickly after that the market reprices but that's the predictable pattern.
I would say that we have only been live for 10 or 11 days so I think that we have seen a little bit of variation and I would say it was down a little bit and then came back up.
So, but to some extent we have seen a little bit of an uptick, yes over the course of that 11 days.
In terms of what's going to ---+ how it's going to play out for the rest of the quarter is not only our execution and learning curve but the market will dictate some of that as well.
So we're hopeful to see a return to the higher growth rates for sure.
But at the same time it's a forecast looking ahead and want to be careful to just make sure we communicate this is where we are today and as you know the market sometimes acts in ways we can't predict.
So be careful we're not getting too far ahead of ourselves there.
Thanks <UNK>.
Hey <UNK>.
Hi <UNK>.
Well, I think <UNK> well articulated the fact that it's largely driven by the economic environment and the supply and demand of capacity, but I would also say counter to that, that we're real excited about this technology that we have deployed because we believe that that technology will make us more effective in sourcing trucks and almost gamifying the process of finding a truck and pricing it to the customer in a way that maximizes or optimizes our margins given the market that we're in.
Yes.
I mean that's one of the reasons we're so excited about this technology is we think it's really a game-changer for us in how we execute on truckload.
But after 11 days it's just not enough time to brag about it.
When we talked to our West Coast people in Long Beach they definitely felt impact from Hanjin in the way of delayed freight.
Some freight may be shifting modes.
But it was hard to quantify so I don't know that we can really give you anything to hang your hat on in terms ever something that's quantifiable.
And I would say the same thing with the hurricane.
Now the hurricane happened to occur while we were going through our conversion.
So normally when there are natural disasters it's definitely a negative effect in one aspect but also there are opportunities to move water and release commodities into the affected area and I would say that we probably weren't as aggressive on that as we would normally be given that we were going through a conversion and, as we said earlier, kind of in a defensive mode.
Thank you.
I would just like to thank everybody for joining us today on our third quarter call.
We're real excited about everything that we have recently accomplished and looking forward to what we can do with it going forward and we will talk to you next quarter.
| 2016_ECHO |
2016 | FAST | FAST
#I'll answer the last part and then <UNK> can answer the numbers part.
But as far as pulling back on other projects, the only thing that we've pulled back on consciously is we slowed down a bit the pace of store openings.
But other than that I don't really see us pulling back on the initiatives that we have in place.
As we talked about in 2015, a lot of the big initiatives we had from a CapEx standpoint are in our rear view mirror.
I'm talking about automation of our distribution centers and the initial build of creating and growing a vending business.
So, I don't see a lot of other pullback.
But, <UNK>, you can touch on exact numbers.
Sure.
We're still, as we're projecting our cash flow for the year, we feel very confident that operating cash flow will continue to exceed historical percentages of net earnings.
Our total CapEx will be a little bit higher than the historical percentage of net earnings due to the increase in our vending spend for the year.
And our free cash flow will continue to fall within the historical percentage of net earnings throughout the year.
So, we feel very confident that we have adequate cash flow to continue to support our initiatives throughout the year.
We continue to see our bad debt expense trend to historical norms.
We are not seeing a significant increase in bankruptcies or anything that causes us great alarm or concern.
It's a pretty quiet quarter from that perspective, so really no surprises from our end.
Whenever I touch on the current month I'm always wrong and the question is how much.
I don't know that with basically a week into the month that we've had some chance to look at the data.
I don't think it's meaningful enough to even talk intelligently about it so I'm going to defer that until early May when we report it.
Sure.
The commentary on that, both in the fourth quarter and in the first quarter is as much art as it is science.
The team that analyzes all of our sales data, slices and dices it about 18 ways to Sunday.
One of the things that jumped out for them was, they looked at frequency of items and stuff that's purchased in a less frequent basis, how that was performing in the fourth quarter, and we did see a drop off in that.
We saw some of that come back as we got into February, didn't see much of it in January.
But I'd say it's still tepid.
I think there a lot of organizations out there ---+ similar to comments I started the conversation with about what we're doing with headcount, what we're doing with expenses in general, what we're doing with store openings ---+ a lot of organizations out there have their belts really tightened down.
And I think you're seeing that, coming into the new year, holding pretty firm.
To quantify it ---+ this is a from-the-hip number ---+ but, I don't know, 10 basis points.
That's more of a guess.
Sure.
Late in 2014 we started to take probably a more serious look ---+ rather than stumbling upon stuff periodically, let's take a little more serious look at it.
We looked at a bunch of companies last year, one of them that we met early in the year in April to be exact, we ended up acquiring later in the year.
There is a few companies we're in discussions with right now.
We're constantly looking, both on the distribution side as well as some of the support service side.
That might be a manufacturing entity or some type of support service for our stores.
Only time will tell how that plays out.
I think the biggest thing is that we're open to it and we're actively looking rather than just seeing what jumps up and hits us.
But nothing in the works.
Geography ---+ the only thing that stood out there is that we did continue to see weakening deeper than we probably would have expected, or maybe a better way to say, hoped for when we were looking at it back in the latter part of 2015.
But the oil and gas areas did continue to weaken when I look at it on a sequential basis.
And time will tell if some of the recent pricing influences that positive in the upcoming months, but it continued to weaken.
But, setting that aside, the month finished very poorly.
With five days, six days, seven days, eight days left in the month, I felt we would be closer to 2%, and the month really deteriorated late.
That probably describes some things that we saw in the patterns of our larger account base because they tend to be somewhat loaded a little bit towards the back end of the month.
But, frankly, a weak finish.
That's how I'm thinking about it.
On the latter part, I don't know.
One thing that I will have the benefit of, this week is our national customer show.
We'll have a little over 5,000 customers over a three-day period in, meeting with suppliers, meeting with our employees, meeting with our onsite folks, all of our teams, our vending folks, et cetera.
So, I'll get more of a chance to get a pulse on that this week because this afternoon I'm leaving for that show myself.
But when I think of what are some of the positives, in the fourth quarter that was probably as bleak a period as you could see.
And I was not hesitant to share my thoughts on it during the fourth quarter.
But our fasteners, as an example, were down about 6% in the fourth quarter.
In the first quarter they're down around 2%.
Our non-fasteners were struggling in the fourth quarter.
I don't have the exact stat in front of me, I'm sorry, but they improved to mid single digits, upper single digits, in the first quarter.
We saw, generally speaking, an improvement in our business and that's I think what we are really talking about.
I think what we see is the business in January, February ---+ and I can't quite say that for March ---+ but in January and February felt more like where we were in October.
And I think, if I look at the last five or six months, I really think the outliers was the extreme weakness we saw in November and December.
And I think that was a function of companies just shutting down around the holidays more extensively than normal.
March ---+ only April and May will start to answer for us what really happened in March.
You mean down 10 on a sequential when you talk about pace.
There's a number of things.
One, our growth is primarily coming from large accounts.
That deepened as we went through the year.
It's primarily coming from ---+ if I think of our sales number and the weakness, we've done a nice job signing new customers, both onsites and traditional national account customers that aren't onsite.
When you're doing a nice job taking market share, you're turning on a lot of new business and a lot of times when you're turning on a lot of new business you do get some short-term mix issues going on in that a new large customer isn't at average margins for that group on day one because it takes you time, 6, 9 and 12 months, to work through some of the hiccups in the system of finding the best source of supply, finding the best part match for this item when you're turning on new business.
Typically you have your existing business that is supporting that because that existing business, you've done a better job of improving your supply chain already.
If you think of what's really hurting us right now from a revenue and revenue growth perspective, we're doing a wonderful job signing new national accounts, we're doing a wonderful job signing onsites, we're doing a wonderful job signing vending, and growing those pieces of business.
So, we're taking market share at a very good clip.
What's causing us to struggle is our existing book of business.
Our existing customers are struggling in a weak environment.
So, the more mature component of our business is going backwards, and that more mature piece has a better gross margin profile, because if I had a customer for two or three years, I've already, in many cases, established a lot of the best parts, a lot of the best sources of supply to serve that customer's needs.
That's in my mix and that mix has weakened right now.
So, that's a piece of it.
The other piece of it is on an execution standpoint we slipped a little bit as we went through 2015.
We slipped a little bit on the freight, how good we are on our freight expense versus our freight that we charge the customer.
Part of that, I think it became more difficult for our stores to operate as effectively given that fuel prices were lower.
Fuel prices is an important part of our distribution cost but it's not the only component.
But it might make it harder for you to charge freight on this item or that.
And the fact that it's a weak environment, it's a competitive marketplace.
I feel we're at a point where our gross margins are stable from a sequential standpoint but that still has been a painful process on a year-over-year basis.
There's no question about that.
Yes.
I think the biggest one is the offset we've had in the last 12 months.
You've had dramatic weakening of our existing customer base and that's hurt our gross margin because that's business where we have a very established, efficient source of supply.
That's put a pinch on that.
I believe the pace of that deterioration is slowing.
And I think that shines through in what you're seeing, what's happening in our fastener business, in our non-fastener business from a growth perspective.
So, I think that's the wild card.
I'd say it probably leans towards the maintenance as well as the construction fasteners, in many cases.
That's a relatively small piece.
I don't have the exact stat in front of me but relatively small.
Single digits.
Thank you.
With that, I see that we're at 9:44.
Hopefully there wasn't anybody else in queue that didn't get to ask a question.
I'll finish the call the same way I started the call.
Thank you for taking time this morning to listen to our first-quarter earnings call.
I hope you find our Earnings Release today as well as our 10-Q, which I believe will go out later in the week, to be informative of helping to understand the Fastenal story.
I also invite anybody that's interested to either make a trip to Winona next Tuesday for our annual meeting or listen to it in our webcast.
Thank you very much.
| 2016_FAST |
2016 | SON | SON
#<UNK>, I would tell you that relative to when we were in New York, trends are pretty much on what our expectations were.
I think the one issue might be that corrugating medium machine and what's going on in that industry would be the only difference.
Fourth quarter was a pretty tough comp for us, especially on Consumer, but even on the Industrial side.
And we fared coming out of that with growth over that quarter, so I felt good about that.
I think as we're entering this new year we're well within expectation on volumes, both sides of the business.
Again, corrugated medium notwithstanding.
Yes, I think financially, because of the pass-through mechanisms and some other things, there may be slight benefit from lower OCC prices.
But it's not going to be significant because of the amount of OCC we sell externally offsets some of the benefit that we have internally.
Well, again, we continue to expand composite can internationally and you're seeing benefit now from ---+ as these facilities begin to be better leveraged, and we're putting more volume through them.
Some of that benefit is definitely coming through in 2016.
But offsetting some of that, further expansion.
Further expansion of the facility in Poland, and opportunities to continue to expand in Asia as well.
So we're ahead of the curve.
We're excited about the expansion; but until they are fully utilized you're not going to get to that full margin potential.
But I'd rather be chasing the growth curve on this one.
Well, I think that the margins this year were a little bit lower than what we would expect going forward.
As this business ---+ the Display piece of this business has done very well over the last several years, been steadily improving, continue to be pleased with the progress.
As that business continues to improve, I would see margins in this segment also continuing to improve, moving back in 2016 probably into that 3%, 4% range and then longer-term getting above that, getting above the 4% number as we, again, shift more to Display inside this business.
Good.
How are you.
I didn't get the last part of the question.
What.
Well, new products is a difficult thing to quantify, so we talk about volume growth year-over-year regardless of where it comes from.
I think that what's actually happening in Consumer is we're continuing to see shifts out of certain formats into different formats.
In flexibles, a lot of different format changes are impacting the growth in flexibles; so we're definitely ahead of the market here in flexibles from a volume perspective.
Are we picking up share.
Potentially, but not necessarily share inside flexibles.
We're picking up share as they transfer from perhaps a rigid plastic container or a glass container, moving into a flexible-type container on that side of the business.
The same would be true ---+ well, in plastics I think we actually may be picking up some share in our thermoforming operations.
So a bit of mix of both.
I was just going to say new products are absolutely critical to all this.
When I say a new product I'm really talking about a customer engagement where they come to us with an opportunity and we're able to create a solution that meets their needs.
Both.
I think this certainly presents opportunities we may not had before.
But there is no doubt obviously when these companies come together they want to use the new leverage of volume to reduce their cost.
So it creates an opportunity and it creates a threat.
It's how creative you are in dealing with both of those that ultimately will decide success or failure.
Well, we don't think actually in those terms.
Let me go state again that we're fairly fiscally conservative; we like being investment-grade.
And no matter what we did, we'd work to return to investment-grade as soon as we possibly could.
Now saying that, we've been 2 times levered.
We've been above 2 times levered before.
And if the right acquisition comes on, I could see us stretching that even further.
But we also have said publicly that we do have some businesses in the portfolio that, if we get the right opportunity, that we would consider selling those to help fund and acquisition into an area that we consider to be more core to us today.
So we have a lot of different ways to go about and fund a fairly large acquisition and still keep a pretty healthy balance sheet in the final analysis.
So that's what you would see us doing.
Yes.
Certainly flexibles is one of those target markets for us.
We have a pretty extensive list of potential candidates.
Many of them international; we think a dollar-denominated purchase internationally right now would be a fairly reasonable thing to do.
And we are actively pursuing opportunities in flexibles.
<UNK>, I'm sorry.
You faded out right when you said international growth.
International growth in the Industrial business or in ---+.
Yes, well, certainly our international growth on the Consumer side is being fueled by the growth of composite can in Eastern Europe and Southeast Asia.
That's primarily our footprint, and that's where were focused, so we're certainly seeing that growth across those markets.
From an Industrial perspective, I think Europe's underlying economy appears to be improving, to us, because we had a very strong quarter in the tube and core business.
Up over 5%, I believe, in tubes and cores in the fourth quarter ---+ and being up year-over-year as well.
So I think that we're going to continue to see some solid performance in Europe.
I think that ---+ I think what I said earlier is that the rate of decline in Brazil or in China I don't expect to be equal to the rate of decline in 2015.
I think it's going to flatten out; maybe even see some positive quarter-over-quarter movement as the year goes on.
We'll have to see how that unfolds, but I think that there seems to be some stability at least in the fourth quarter in these developing parts of the world, particularly in Brazil and some other areas for us in the tube and core business.
Well, again, <UNK> I don't want to sound like a broken record here, but I believe this i6 process, our innovation process, is driving opportunities to interact with customers.
And these interactions are bringing us the opportunity to win new business.
We have, as I said, about 30 of these going on right now and feel good about them.
So it has driven the growth.
It continues to drive the growth, so feel very good about that.
Well, I certainly think our performance is reflective of the broader containerboard market.
Again, we were a producer for a takeout partner, so we're a very small player in this and we're just reacting to it.
I think we're just mirroring the industry.
That's exactly what we're seeing: the strong dollar impacting exports, a slower market domestically, seasonality, all that played into it.
But it probably played to us just like it played to the broader market.
No.
We're operating at the same levels that we saw.
Well, certainly it would impact potential growth opportunities that we may have had in Irapuato.
But where we are now, I think that we said it would impact revenues about $50 million in midyear; but from an ongoing EBIT standpoint it's not really going to have an impact.
As far as further reducing costs in that business, all those costs are really contained in Irapuato.
There was very little cost here to dealing with that particular issue, so I don't think we're going to see anything significant from that vantage point as far as further cost reductions because of that closure.
Well, I will tell you since the project began we've had numerous wins, just to get to a point where you can successfully produce a plastic base container.
I think right now the win that we're pointing to is the launch that we expect to occur sometime early second quarter with a customer.
So we're anxious to get it on the shelves.
In the test markets that we do the consumers are reacting very positively to this product, and that's what we were hoping for.
And we're getting much more interest in the container.
As I said earlier, coming out of the announcement in New York we had three or four new companies contact us and are engaging with us right now about the container.
Well, not yet.
I'm not sure we've gotten to those conversations that deep yet.
We're kind of in and around some of those.
I think that what we see, though, is the opportunity internationally for dollar-denominated transactions to have an advantaged situation.
So that's certainly something that we're looking at.
Yes, we did a buyback in what, 2013.
Over the course of 2013, and we tend to do just open market purchases.
We're not trying to beat the market per se; we're trying to just be consistent across the buyback.
That's not to say that if an opportunity doesn't arise that we wouldn't take advantage of it.
But that's just not been the way we've done it.
I think that's a definite possibility over time.
The innovation and being recognized for innovation could definitely be the customer intimacy leg that we see.
I think that there was a significant winter event in Q1 that impacted our Industrial businesses during Q1 and small on the Consumer side.
It's still February, so it's a little bit early to say, but we haven't seen those significant impacts yet.
I can't remember exactly the situation, but I know it did occur in 2015.
It might be a penny or two lighter than that, just depending on exactly how you averaged and look at it.
But it would be roughly an additional 6% in terms of days, if everything worked out on a pure day basis for the calendar.
Yes.
North America has been fighting erosion for some time in some of its key markets.
Frozen concentrated orange juice is one of those markets; as of late it's been powdered beverage being another one.
Those have been consistently going down over the past several years.
That business always fights erosion domestically, and that's really why we're looking for new markets with the new technology out of Weidenhammer, both the EvoCan as well as some other non-round applications that we could potentially look at as well.
But that's a consistent, <UNK>, that they face every year.
So they have to convert just to stay flat.
Well, let me just say that the capability out of Weidenhammer is for a faster production of the product.
Also they are putting a paper bottom on the product, which is a bit unique.
And we're actually introducing a new non-round container in Germany this month ---+ or have already put it out into the marketplace.
So they are bringing some technology that basically we didn't have relative to speed, paper bottom, and some other things that really create a pretty interesting container.
Yes, thank you, <UNK>.
Obviously, we talked about the changes to the organization because of the unfortunate situation with John.
Did that have an impact.
Without a doubt.
You can't lose someone of John's caliber and not have it have an impact.
So dealing with that has been an issue.
And I would tell you that during the course of 2015, we started 2015 going through an organization ---+ a reorg anyway.
We were in the process of some work we did with a consultant; we were completing up that reorganization.
It was leaning out the organization and moving resources around.
We've had to adapt to that with the new org structure.
So you had an org change that started; you had to stop it halfway through and go to a hybrid version of it to overcome this change.
So yes, and I think that that's one of the reasons why you're going to see an improved level of manufacturing productivity in 2016, as we're going to have a strong focus on that.
The organization is set.
So I expect to drive that through diligently during the course of the year.
I understand.
Thank you.
<UNK>, as far as order patterns, I would say no; we've not really seen any significant change relative to the way orders are flowing into the Company.
Right now in M&A, we really haven't seen any change there either.
I have said a couple of times I think one thing that is somewhat interesting, of course, is that if you have an opportunity to make an international acquisition, given the strength of the dollar that may present some opportunities.
So certainly on our list.
Absolutely.
We expect to continue to roll that product out onto shelves sometime in the beginning of the second quarter, in that second-quarter time frame.
Have made tremendous progress with the customer.
We've done some further test marketing, and are just getting outstanding responses from consumers for this particular product.
They're looking at the product that they bought before.
They had a metal can.
Now they're looking at it in this see-through container, and their reaction has been ---+ let me just quantify it as highly positive.
If you go to the website you'll be able to see some the things that are actually occurring around the can.
I think it will give you an idea.
But continue to be very excited about it.
Also, since that meeting in New York we've had three or four new contact from potential customers that currently use metal cans ---+ canned fruits ---+ about the container.
So we'll be engaging with them as well.
Yes, <UNK>, I would say that that's ---+ I was kind of discounting the order pattern for the Industrial business ---+ or for the corrugated business.
I think that that has been impacted.
That has been impacted for ---+ probably starting in November time frame relative to just not have ---+ we have go into a slow back mode in order to keep the mill running, but also meet what demand we did have.
So we did have slower order patterns in corrugated.
I would say purely to the market.
We haven't seen any lost share.
But as I said earlier, we're following the whole pattern of the market.
Thank you again, Michelle, and thank everyone for joining us today.
We certainly appreciate your interest in the Company.
As always if you have any further questions don't hesitate to give us a call.
Thank you.
| 2016_SON |
2017 | CNC | CNC
#Well, I think ---+ we are on record as saying that margin expansion is still a short and longer-term objective of ours.
And the higher acuity populations, as we said, we had the systems and capability and I think that we're ---+ the more of that we have, we can enhance it.
<UNK>, you want to add anything.
Yes, we've always held this long-term pretax margin of between 3% and 5%.
And I think, obviously, there's a lot of opportunity on margin.
We talk about synergies and the run rate synergies and executing on those.
I think we still have room to go as far as systems and the operational systems that <UNK> mentioned before.
Additionally, there's always investment income.
Right now interest rates are relatively low.
So there's a lot of things I think out there for the opportunity to expand margins in the future.
I think our mindset is ---+ our population is 400% of the total poverty level and below.
We're very focused ---+ we're not trying to grow beyond that except in California where we have the large group business and they have had historically the relationships to support that.
But if any of the providers that fit within our traditional provider group want to join, we'll be happy to talk to them.
But we find that the network we have is very adequate for the population we're attracting and serving.
<UNK>, you want to take the population ---+.
Yes, <UNK>, just in terms of the markets where we've had stronger presence on the marketplace in 2017.
So not surprisingly, that matches up with where we have just a stronger presence generally at the local level.
So states like Texas ---+ in addition to the California and Arizona markets, so Texas, Florida, Georgia, those are all markets where we have a meaningful marketplace in 2017.
Yes, and this is <UNK>, I'll answer your second question.
It doesn't change our views because ultimately the minimum MLR ended in June 30 and they were accruing to that level.
And July 1 there was a rate reduction in the Medicaid expansion rates ---+ a sizable rate reduction, really in combination with eliminating the minimum MLR.
So it doesn't change our views on the profitability of that product going forward.
Yes.
Close.
Close, yes, more or less.
Yes, I think we talked about that at our December Investor Day.
So, yes, it was ---+ we mentioned that.
So that was in ---+ I mean nothing has changed since our December Investor Day.
Predominantly.
Last year was a moderate level of flu, so there's a lot of puts and takes.
Obviously, we're managing over 300 products, 29 states, so ---+.
But it's a $46 billion business this year.
<UNK>.
Yes, not sure we'd comment a lot on that just ---+ other than to say that the preliminary view is it's in line with expectations.
Our analysis is pretty consistent with a lot of the reports that we've seen that have come out over the course of the last week.
So there's some variability from state to state, so we're not in a position to get into that just yet.
But I think it's a good starting point is how I would characterize it.
(Multiple speakers).
I've been upper early rehearsing for you, <UNK>.
Can you tell me what Trump said last night.
Yes, we've been talking about the bands or he's hearing us, so ---+ and any of these things he does that improves it, there's going to be a lot of discussion about it, so it's all good.
I'm just comfortable that ---+ we have our proposals in to the decision-makers.
They understand it.
They understand how big we are in this business so it carries some weight.
They are soliciting some of our opinions.
We have a very active Washington office, so any of these things that expand ---+ that correct some of the things that need a corrected will only help us.
Well, I want to thank you all for participating and I will tell you, I look forward to being able to have more of these kinds of calls with the kind of results we delivered this past quarter.
So, off to 2017 we go.
Have a great year, everybody.
| 2017_CNC |
2016 | MCF | MCF
#Thank you, Leo.
I'd like to welcome everyone to Contango's earnings call for the quarter ended March 31, 2016.
On the call today are myself; <UNK> <UNK>, our President & CEO; Steve Mengle, our Senior Vice President of Engineering; <UNK> <UNK>, our Senior Vice President of Exploration; and <UNK> <UNK>, our Senior Vice President of Operations.
I will start off by giving you a brief overview of our financial results then turn it over to <UNK>, and he'll give you a brief overview of current operations, and then we will have a Q&A session after that.
And as is typical for most companies, we will limit questions to those from analysts that follow our stock closely as we believe that is the most constructive and productive use of everyone's time.
Before we begin, I want to remind everyone that the earnings press release and the related discussion this morning may contain forward-looking statements as defined by the Securities and Exchange Commission which may include comments and assumptions concerning Contango's strategic plans, expectations and objectives for future operations.
Such statements are based on assumptions we believe to be appropriate under the circumstances.
However, those statements are just estimates, are not guarantees of future performance or results, and therefore, should be considered in that context.
I'll start with a brief summary of financial results.
Net loss for the quarter was $11.4 million, or $0.60 per basic and diluted share, compared to a net loss of approximately $18.6 million in the prior-year quarter.
We achieved this improvement despite lower revenues related to lower prices and production, due to improvement in cash cost, lower exploration expense and DD&A, and a gain on hedging instruments for 2016.
Adjusted EBITDAX, as we defined in our release, was approximately $7.3 million, or $0.38 per basic share for the current quarter, compared to approximately $14 million or $0.74 per share for the prior-year quarter.
A decline attributable primarily to lower revenues, but offset in part by lower lease operating and cash G&A expenses.
Cash flow per share for the quarter was approximately $0.33 per share, compared to $0.70 per share for the prior-year quarter.
To illustrate the benefit coming from our emphasis on cost improvement, quarter-over-quarter, we reduced cash cost, and that is LOE excluding production taxes, and recurring cash G&A by 29% and unit cost by almost 29% despite a 17% decrease in production.
And we stay focused on further improvement in reducing cost in both of those areas.
Production for the current quarter was approximately 7.2 Bcfe, or 79.4 million equivalent per day, compared to approximately 8.7 Bcfe, or 96.3 equivalent per day in the prior-year quarter.
And that was within Company guidance.
We have provided guidance of 74 million to 79 million equivalent for the second quarter of 2016, slightly below the first quarter with roughly the same commodity mix as in the most recent quarter.
Until commodity prices show sustainable improvement, we will continue to focus on balance sheet strength rather than expending capital merely to maintain production rate.
Commodity prices during the quarter were substantially below prior-year levels for all products.
Our weighted average equivalent price declined 31% from $3.54 per Mcfe to $2.43 per Mcfe.
Lower prices contributed approximately 57% of the total decrease in revenue compared to the prior-year quarter.
In response to the dramatic but unfortunately, but hopefully, short-term increase in gas prices at the end of the year, in January of 2016, we entered into swaps on approximately 60% of our forecasted PDP gas production for February through December at a fixed price of $2.53 per MMBtu.
And then in April, we also capitalized on a little run up in gas prices to enter into costless collars for approximately 27% of forecasted 2017 PDP gas production with $2.65 and $3 puts and calls, respectively.
Total lease operating cost excluding production and ad valorem taxes, were approximately $6.7 million for the quarter, or $0.93 per Mcfe, compared to $8.8 million, or $1.01 per Mcfe in the prior-year quarter, an approximate 24% improvement.
We continue to identify and pursue opportunities to reduce field operating cost through efficiencies as well as concessions from our service providers.
Guidance for the second quarter is $6.2 million to $7 million, excluding production and ad valorem taxes.
Inclusive of non-cash stock compensation expense, cash G&A was $4.2 million for the current year quarter, or $0.58 per Mcfe, compared to $6.7 million for the prior-year quarter, a 37% decrease resulting from lower incentive-based bonuses, reduced staff and related cost, and lower legal fees and franchise taxes.
Just as we have done in the field, we have emphasized internally the need to reduce administrative costs and accordingly, in August of last year, we implemented a reduction in force in our corporate offices and reduced headcount by approximately 30%.
Guidance for the second quarter cash G&A is $4 million to $4.5 million.
We had approximately $112 million outstanding on our credit facility at quarter-end, which was slightly below year-end and have additional borrowing capacity of approximately $26 million under our newly redetermined $140 million borrowing base.
The decline in our borrowing base from the previous $190 million level was a function of lower commodity prices and the lack of new reserves being added as a result of our conservative CapEx strategy in 2015 and 2016.
Our next regular borrowing base redetermination is scheduled for November 1.
Based on current prices and our focus on repaying debt during 2016, we're optimistic that we will still reflect a comparable facility availability amount after that process as we expect to be repaying debt through the year.
In conjunction with the just completed redetermination process, we were also successful at extending the maturity of our credit facility for two additional years, so it now matures on October 1, 2019.
As part of the extension, we also agreed to more market-based pricing and other minor amendments that are available in the exhibit to the 10-Q.
That concludes the financial review and I'll now turn it over to <UNK> for an operations update.
Thanks, <UNK>.
Good morning, everyone.
Thanks for being on the call with us today.
I would like to give you a brief update on what we focused on during the quarter, which was another period marked by fairly low prices and continued to pose challenges for the industry as a whole as well as Contango.
I think everybody is familiar with the drop and continued drop in rig count.
For us at Contango, it was a pretty quiet quarter from a capital spend perspective and will likely continue to be fairly quiet from a drilling standpoint until we see a little bit more sustainability or improvement in commodity prices that will help us get more confidence in being able to get out and be active again.
As <UNK> mentioned, we will utilize our excess cash flow to reduce debt and continue to focus on trying to identify acquisition opportunities that may surface as the year progresses.
We are evaluating each one of our drilling areas for cost to get a cost update in those areas to see particularly as it might apply to putting in more capital to work.
We think that if we could get prices a little bit higher than where they are, maybe in the $50 to $60 barrel range, and show some sign of stability, we would reengage on our drilling program later in the year.
During this quarter, we completed our third well, the Christensen 1 in our North Cheyenne Muddy Sandstone play in Wyoming.
We utilized a more robust frac recipe than used in our first two wells, with improved results.
We did not report those IP24 rate for the Christensen well like we did the first two wells, because we started out producing at a more conservative or restricted rate with the expectation that we might produce a flatter decline profile over time.
And so far, that has worked, at least at the initial 30-day average rate of 483 barrels equivalent per day and that's slightly better than the first two wells and is continuing on a flatter decline.
We remain optimistic that this play will provide meaningful long-term growth, but we currently believe that it will take an estimated $55 to $60 barrel oil price to generate our minimum rate of return threshold that we would like to see before going into a development mode.
We have approximately 39,000 net acres in the area and we'll be able to extend the 2016 expirations for three years to five years at minimal cost.
We also remain optimistic about the multi-pay potential that we have in the Madison Grimes area, as we have been successful in the Woodbine and Lewisville formations and where we still have meaningful upside potential in the Eagle Ford, Lewisville and Buda at slightly higher price environment.
On the cost side, we have continued our reduction efforts in each and every aspect of our business; drilling, completing, field operations and in the corporate offices.
As <UNK> mentioned, our recurring period-over-period LOE costs for this quarter were down approximately 23%, cash G&A was down by 37% versus prior-year quarter, and we have provided guidance for slightly better numbers than those from the second quarter.
I'd say on our acquisition efforts, we have reviewed and analyzed numerous opportunities both last year and in the current year.
There have been a number of reasons why we haven't been able to consummate a deal.
There's recent agreement with the sellers, the bid-ask spread, but we do believe that that's going to continue to narrow as the year goes on.
We continue to look for opportunities that contain a good mix of producing reserves and meaningful resource upside that could provide a strong platform for future growth as prices and costs improve.
While we consider our acquisition strategy to be opportunistic, our preference is to focus first on oily onshore resource plays in the Texas Gulf Coast or Rockies regions, where our current areas of concentration are.
But we will also consider other areas where we might be able to establish an additional onshore platform that could be scalable going forward such as the West Texas and Mid-Continent areas.
That's just a quick overview.
We do anticipate prices to continue to be challenged.
So we believe the appropriate near-term strategy is to be conservative with our drilling program, preserve our acreage through extensions of our core positions, use our excess cash flow to reduce debt and remain positioned to capitalize on acquisition opportunities that could provide a good combination of production and drilling upside.
So with that, open it up for questions.
Yes.
Sure, <UNK>.
Thanks.
I'm going to let <UNK> respond to that, okay.
So, <UNK>, the Christensen well was the third well in the Muddy in Weston County, and we didn't release IP-24s on the Christensen because they really weren't relative to what happened on the first two wells.
We went straight to rod pump on the Christensen well with the 583 barrel 24-hour IP.
But the 30-day was 483, which is about 20% higher than the Popham, which was just slightly better than the Elliot well, the original well.
It was really our idea that with a more intense frac job on the Christensen well with roughly one-third more proppant on the Christensen over the course of the lateral that was relatively the same length as the Popham and Elliot, that we might see a better slope on the decline curve and that's exactly what we have seen through 30-days and we expect to see that continue.
Yes, this is <UNK> <UNK>.
I think we drilled the three wells basically, I would say in the west half of our leasehold.
So I think that you can feel pretty good about the west half of the leasehold being representative of at least the Christensen well, that the most recent well, or we feel pretty good about that.
Almost all of the leases out here have extension language, so we feel like that we are able to maintain this acreage out here at minimal cost for the next three years to five years.
So really I think we're looking at 2019, 2020, 2021.
So pretty far out there.
It was in one of the other areas, <UNK>.
One that industry favors right now.
We are hopeful that we can approach that once again and we're looking for other opportunities in that area as well.
Yes, it's on a very steady decline as we, I think we've talked about in the past, it's a depletion drop reservoir, not really a water drive.
And so that gives us a lot of comfort in predicting what the decline might be.
We have been able to do that now since we have been managing the asset for several years now.
We work with our third-party engineers to keep up to date on that and we feel that asset is just a solid asset that provides us with cash flow.
And it should be, we see that as being consistent going forward.
We certainly hope we can do bolt-on.
We think we are one of the few public companies and certainly the only healthy public company in that area.
There are a couple of other guys that are in the neighborhood that are being recapitalized or restructured or whatever.
We think that in terms of the inventory, I think that certainly we still have Woodbine and Lewisville potential across our acreage.
But we also believe that the Eagle Ford is a very attractive target.
There have been quite a bit more drilling for that zone both adjacent to us and to the south of us.
We think that there is a lot of potential associated with the Eagle Ford in that area.
It's all just a function of how much is it going to cost to get it out of the ground and what price can you get for it.
But the Eagle Ford is productive in our area and that is something that we are trying to evaluate in terms of what it takes to make a good rate of return there.
<UNK>, you might have a different answer.
I think what we would like to do is we would like to find either a singular transaction or a series of transactions that would help further build our story pivot a little bit more away from the Gulf of Mexico.
That is our, again, a great asset for us, but we would like to develop more of an onshore presence with more of an oil focus that has some runway associated with it.
That's what we have been focusing our efforts on pretty tirelessly here between last year and this year.
We think that ultimately we will be able to get that done.
We're just continuing to scan the market for that type of opportunity.
And one thing I will add to that is historically, we have been pretty conservative in that we have stayed within cash flow to protect our balance sheet.
So again, especially in this price environment, we would continue to do that as we move forward.
And it would just be a matter of allocating resources to those that give us the most value either from a return standpoint and/or a strategic standpoint.
I think that's a very ---+ we think that the Muddy asset is very competitive.
We have a large acreage position there.
It would be a very core asset for us to be able to develop, and very important asset for us to develop.
That's something that we are continuing to evaluate what lateral lanes, what the frac recipe should be, so there are a lot of moving parts associated with that.
But we really like the play.
I think that if we get to that price point, we would probably be active not only there but also in some of our legacy assets back down in Southeast Texas.
One of the advantages we have in Madison and Grimes is a lot of that is HPP.
We don't have lease uses that might factor into that capital allocation exercise.
But as <UNK> mentioned, we do still have a lot of optimism for that play in general.
It's just from a timing standpoint, Wyoming is term acreage that needs to factor into the equation as well.
I would say we like to look in our areas where we have existing operational footprint.
So that would be Woodbine, Eagle Ford, all the way from Southeast Texas down into South Texas.
But also, I would say that would be our first preference.
Also I would say, if we were looking in West Texas, obviously things are pretty robust there at the moment and pretty frothy.
I would say in terms of scale from a production standpoint, maybe 3,000 barrels a day of production, maybe 10,000 acres, 20,000 acres of running room.
That might be the sweet spot for us in terms of size.
Maybe $200 million to $250 million, not that we would have to do that.
We're certainly looking for more tactical acquisitions, but if we're going to do something transformative, that would probably be more in the ballpark.
Yes, that along with other things that we have looked at.
We are certainly interested in those in that area and would like to find an opportunity to grow in that area.
This is <UNK> <UNK>.
Obviously, that's something we spend a lot of time looking at, what happens when we go back up to ramp on commodity prices.
And we have tuned all of our cost projections, both on the capital and the expense side, to what we feel like service markets will do in the future.
And quite honestly, our greatest concern will be capacity in terms of other equipment and people coming out the other side.
And we have tried to model that as best we can conservatively, I would say.
So with any luck our actuals in the future should outperform our current conservative estimates.
As far as additional expirations.
Yes.
Yes, we would probably stay in the Southwest side, but we got permit ---+ because we are still experimenting with a couple of things and we'd like to keep the variables minimal.
But we've got, I can't remember, a couple, two or three spacing units already up in the Northeast.
So we are fully prepared to go up there as well.
We could do both.
I think that we would look at as maybe even longer laterals.
We're getting pretty good uplift on a per stage basis.
I think more stages is always good.
Still tweaking the recipe just a little bit.
We will try a few different things.
I would like to thank everyone again for joining the call today and hopefully, we will have another good quarter and give you an update after the end of next quarter.
So thanks again for your participation.
| 2016_MCF |
2016 | DGX | DGX
#Yes, sure.
It's a promising market.
If you go back and look at our platforms for growth, companion diagnostics is sometimes connected with precision medicine.
It is an important part of our growth strategy.
Several things.
One is that we continue to work with the market-leading research organizations.
About two years ago we announced a relationship with Memorial Sloan-Kettering; we're actually taking their research and we are now marketing a product we call OncoVantage, with 34 actionable genes.
Actually we're going to expand that panel this year as well with their help.
So this is right in the middle of precision medicine, and clearly we're providing the companion diagnostics associated with that.
Second is, we're engaging with pharma.
We announced the work this past quarter that we were doing.
I talked about in my introductory remarks our recent announcement around melanoma.
We continue to be highly engaged with all the pharma companies that have many companion diagnostics associated with their development funnels.
So we're very well positioned in that regard.
We do work now closely with Quintiles of getting an even better view in the marketplace and better access point for a lot of the smaller pharma companies with the relationship that they have, since they are the world's largest CRO.
So we think we're very well positioned as an innovation player; and now we're positioned even better with our relationship with Quintiles in terms of access to the market.
Yes, we continue to work the market.
Our strategy is to focus on Diagnostic Information Services.
We're entirely focused on that.
All our M&A has been associated around that.
We've done some hospital outreach deals, the most notable one is Hartford's outreach activity in the fourth quarter.
We continue to have a nice funnel, and that's consistent with our strategy of 1% to 2% growth through acquisitions.
Through our outlook we believe there's plenty of prospects to support that.
In that regard, we also have been clear that we're going to only acquire when we can have a good business case to make money for our shareholders.
Many of the deals we've done so far have justified themselves based upon cost synergies which, in our experience, is the best acquisitions you can do.
So we're still encouraged.
We still have a strong belief that we can deliver this portion of our strategy, and we've delivered on that through the past several years.
We said in our comments that we're quite encouraged.
We're offering a lot of value.
Typically the payment is through payers, who are the risk-taking organizations; so it could be an ACO, those people that are managing the population and have the financial incentive to provide this information to the physicians that are treating and managing patients' lives.
In that regard we've been off and running since the fourth quarter.
Momentum is building.
We've worked through the integration.
The nice part about this is we're providing this capability in the normal workflow of a physician.
We have tremendous, tremendous capabilities at the desktop of a physician with our order entry results reporting system, which we call Care360.
So when they're in the order entry system, if in fact they want the visibility to this information that we're getting from Inovalon they can easily access that information.
And the payment model is back to, again, typically the risk-taking entity, whoever that might be, the payer or in the case of an entity that's taking risk like an ACO.
So we're working both physicians' awareness of this capability along with payer awareness of this, and we're very encouraged about the prospects.
Yes.
Well first of all, we started in the fourth quarter.
We announced this deal in October.
We've already signed some business; I mentioned that in our remarks that we signed some business.
We're starting to ---+ we'll start to see some flow in the first quarter and it will continue to build, just like building any business.
So it's implied in our guidance; we do expect some growth from this business in 2016, and that business will grow into the future.
Well, as you can imagine, you're selling to payers, so we have a hospital ---+ excuse me, we have a health system team that calls on and manages our health insurance relationships.
So there's a portion of the sale that happens there.
Second is we have a health systems sales organization that calls on integrated delivery systems.
As I mentioned, some of those integrated delivery systems are taking risk and have ACOs; so we call there.
Third is we're equipping our physician salesforce that goes in and talks to primary care physicians and all physicians, including our specialist physician salesforces.
So we're training our salesforce there, and we have over 1,200 people in our sales organization.
And this is complementary to what Inovalon already does in calling on the health insurance organizations as well.
Yes, thanks, <UNK>.
I appreciate the question.
Obviously, we're going to provide guidance that we think is prudent and deliverable.
We have provided a range.
That range certainly includes some numbers that would put us into that 8% to 10%.
I want to refresh people's memory that the 8% to 10% was a compound annual growth rate over three years, so it was not a commitment to do that every single year.
Also in my prepared remarks I reminded people that at that point we were obviously looking at a 2014 number that was $0.05 lower than we actually delivered in 2014.
And I certainly did not anticipate a reduction in our amortization, which was really driven by the fact that we did not have as much significant M&A activity in 2015.
So we feel in terms of what we committed to that we're on track.
We're not behind.
Certainly depending on where we end 2016 within that guidance we'll either be a little bit slightly below the CAGR or right in the CAGR.
Really, what we want to do is provide guidance that we feel is prudent and deliverable; and as we progress through the year obviously we'll see where we might end up within that range.
But we certainly don't think the guidance implies, given the framing I shared on 2015, that we're materially off of that 8% to 10%.
Yes, so <UNK>, I talked about three levers that would enable us to grow earnings significantly faster than revenue.
One of them was the synergies that would be continued to be delivered to their steady-state from acquisitions we had done early in 2014.
So you would imagine that probably a lot of that has been delivered.
The second piece has been our Invigorate, and it being large enough to offset price and wage inflation, and deliver some margin expansion.
Then the third element is the leverage we get from organic growth.
We committed to improving our relative performance.
As <UNK> talked about, minus 4% in 2013 and minus 2% in 2014, and then some revenue growth the last five quarters.
And certainly since there's not as much M&A in our guidance this year as there was in the 2% we got last year, which benefited from some carryover on Solstas, we're implying continued strengthening of our organic performance.
As you know, organic volume growth has a high drop-through, and as we get closer and closer to market rates, which we had committed we would do through the three-year time frame, that's going to also enable us to lever our P&L.
So you should expect accelerating organic growth which will be a driver and then continued to progress to get to the $1.3 billion of Invigorate, which will also accelerate our earnings leverage.
We never broke it down by quarter, <UNK>.
The best I'm willing to do, which I've said in the past, is that it was about 2% of our revenue and its margin was comparable.
So, you can kind of frame what that would've contributed in Q4.
Yes, well, I'll start and I'm sure <UNK> will add something to it.
First of all, we continue to build our own market model.
In 2014 when we had our Investor Day, we ran our model with a number of assumptions.
We say that the independent laboratory market is going to grow about 2% to 3% in value, and that 2% to 3% in value has, as you know, a lot of moving parts.
We also made some assumptions about the ACA impact.
We've always assumed that as we have more insured lives in the United States that that would be net positive for this industry, net positive for us.
But we all know that has been muted.
There's some question about what will happen in 2016 around some of those lives.
And then also we assume in that our advancement of technology.
We're continuing to roll out new innovation to the marketplace, which helps with the growth rate assumptions; and that was implied in the 2%, 3%.
The aging population, for instance.
Hepatitis C is a good opportunity for us, which we're taking advantage of, with the Baby Boomers who need to get tested.
So all that is the 2% to 3%.
Also what we're seeing, <UNK>, is what we refer to as density.
We're seeing a continued improvement in the amount of tests we're getting through requisitions.
Some of this also might be enhanced with the delays that we've seen since the Great Recession over the last, let's say eight to nine years.
That people eventually when they show up to the physician have more need for more testing per that episode.
So you put that all together and that's why we feel that 2% to 3% ---+ and that's not in any specific year, but in the longer-term view ---+ is a good gauge of the market.
We believe that utilization or volumes on a req basis would be slightly less than that, but on a test basis would be slightly greater than the reqs because you're getting an increase in the number of tests per requisition.
So that's what we have right now.
As I said in 2016 we saw utilization being somewhat stable.
Like you, we look at all the different indications in the marketplace to get engaged with what's happening on ---+ going on within the marketplace.
But so far it's feeling as we come out of this year somewhat stable expectations for utilization in 2016.
Sure.
What we mentioned in our prepared remarks is we have a big business ---+ it's $1.8 billion; I referred to it in my closing remarks as being advanced diagnostics, which include gene and esoteric testing, and it grew by 5%.
5%, so we feel good about that.
I would say it's a number of programs that we have launched in the past few years.
It is taking advantage of our investment that we made in our clinical franchise organization.
We have invested in a stronger team.
We're launching products in a better way.
And, <UNK>, why don't you give us the top handful of opportunities that we saw in that number.
So we feel good about that $1.8 billion business growing 5%.
We think the prospects continue to be good going forward.
Yes, so obviously we're not going to project our volume beyond this year, <UNK>.
I'm sure you can appreciate that.
What we did commit to was getting back to market levels of revenue growth and also then gaining share at some point.
But in the three-year time frame through 2017, we felt it was incumbent upon us to get back to market-level growth, and that's really what we're certainly striving to do.
I think, as everyone recognizes, we talk about utilization in a market that's really a bunch of submarkets.
So one of the drivers certainly, besides the fact that we have outstanding offerings, of the 5% growth in esoteric is that some of those markets are growing.
Certainly BRCA is a growing market; noninvasive prenatal testing is a growing market; hepatitis C is a growing market.
And then you've got things that we mentioned and it's not quite behind us, such as paps, which is a declining market.
Certainly the impact of some of the safety scares on testosterone has impacted that market in terms of utilization over the last couple years.
So there's really a bunch of markets moving somewhat different directions.
And depending on each lab and certainly Quest's share in those markets, it's going to impact us all differently.
So it would be really difficult, even if we were willing, to give you a volume number.
That's why what we really feel better about is giving revenue numbers.
Certainly if you just look at volume, you miss some of the positive mix aspects that you've seen come through in our results over the last year-plus in terms of mix, higher mix of these esoteric offerings; higher mix of better customer pricing, being more disciplined in those ways.
So that's what our focus is on as opposed to figuring out volume.
We think the demographics we've talked about are positive.
Certainly aging population, growing population.
We certainly, despite some of the recent negative news ---+ such as 40% fewer enrollees in the exchanges; some of the slower growth that we've talked about over the last 18 months in terms of enrollment; you've seen a major payer who has talked about some of the struggles with the exchanges ---+ and despite all that we still think the Affordable Care Act is adding patients with insurance, and that's a good thing for us.
So we do feel positive about volumes and trends and certainly expect to get our fair share of that.
But it would be very difficult to give you some sort of a steady-state volume organic growth projection going forward.
Yes.
Thanks, Mike, for your question.
First of all, point-of-care diagnostics has been around for decades.
I've been around for decades, invested in it, and know the market well.
Where it has been successful is where there has been a good value proposition that has delivered something to the marketplace.
So chronic disease management, diabetes, it's done well.
If you look at critical care in hospitals, if you were to go into a critical care unit with blood gas testing, that's been an example of good point-of-care testing value proposition.
And then finally emergency medicine, if you look at cardiac enzymes and the value of having those cardiac enzymes sooner, when the patient is being transferred to the emergency room, has a good value proposition.
But in other areas where it's not quite clear, where it's not compelling, those promises have not really been delivered.
With all that said, we're the world's largest Diagnostic Information Services Company.
We're always looking at ways we can improve our cost structure.
We buy from all the in-vitro diagnostic companies.
If in fact there is a better platform to do some portion of our routine testing on a much more efficient, effective platform than the current ones that we use from all the suppliers, we're all ears.
So we never not look at innovation that could be helpful in us delivering on our promise of great quality at some of the best prices in the industry.
And our value proposition continues to be very, very strong.
So point of care is a part of that, but you need to make sure that you really understand what it's going to do and where the value proposition is strong enough to get some traction.
And again we could be a utilizer of some of that if in fact the facts are compelling.
Great.
Well thanks, everyone, for all the questions and thanks for joining us on the call today.
Just to conclude we had another solid quarter and finished the year strong.
We appreciate your support, and have a great day.
Take care.
| 2016_DGX |
2017 | MDRX | MDRX
#I think it's ---+ from where we're seeing and talking to some of the pundits that are out there or both, so I just look at the backlog, or if you will, the pipeline.
We've gone through our Q1 planning, and what's out there for that as well as talking to some of the folks that we talk to on a regular basis as to what they're being asked for regarding the consulting work that they do for organizations that are thinking about doing a new system selection.
It's probably 50/50 between large hospitals, medium-size hospitals on the acute-care side.
And then on the ambulatory side, there's an interestingly robust set of activities in that regard as well.
In some cases, as I said earlier, it's because people are saying I'm not going to be as aggressive on my R&D spend, and in other cases, they're raising their hand and said I'm not going to really be accountable for ongoing government regulations, whether it's MACRA or some of these other things that are out there that are requirements in 2017 and 2018.
Thanks, <UNK>.
We're here.
Go ahead, <UNK>.
Did we lose him.
If we've lost him, then actually we'll need to conclude.
Do you have anyone else, Tim, in queue, or no.
Is that it.
They are baked in, but they're minimal relative to the overall growth.
Importantly, as we said, even with that core Allscripts business, it's going to produce in the mid-single digits.
<UNK>, just to be clear, you're talking about the ones we did in Q4 as opposed to Netsmart, right.
Top line.
You are not far.
Yes, you're in the ZIP code.
You're welcome.
Great.
Thanks everybody for joining us today.
To sum up, we had an excellent 2016.
Financial results continue to improve with accelerating revenue growth, excellent bookings, improving margins and sustainable cash flow.
Strategically, we've made multi-year investments in solutions, repositioned Allscripts with a strong fundamental core with multiple growth platforms for global expansion.
I want to thank Allscripts associates for their hard work and dedication.
They are driven by a solid vision and a culture of accountability and a passion for our clients' success.
We are dedicated to rewarding the confidence that clients and shareholders have placed in us with strong performance.
We will be holding an investor event in New York on March 21.
Look for invitations and webcast details shortly.
We will see many of you in Orlando next week.
Have a great evening.
| 2017_MDRX |
2016 | DIOD | DIOD
#Good afternoon, and welcome to Diodes Incorporated's second quarter 2016 financial results conference call.
At this time, all participants are in a listen-only mode.
At the conclusion of today's conference call, instructions will be given for the question and answer session.
(Operator Instructions).
As a reminder, this conference call is being recorded today, Tuesday, August 9, 2016.
I would now like to turn the call over to <UNK> <UNK> of Shelton Group Investor Relations.
<UNK>, please go ahead.
Good afternoon and welcome to Diodes' second quarter 2016 financial results conference call.
I'm <UNK> <UNK>, Executive Vice President of Shelton Group, Diodes' Investor Relations firm.
Joining us today are Diodes' President and CEO, Dr.
<UNK> <UNK>; Chief Financial Officer, <UNK> <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 would like to remind our listeners that management's prepared remarks contain forward-looking statements, which are subject to risks 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 <UNK>tigation 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, August 9, 2016.
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.
As a reminder, the results announced today are preliminary and are subject to Diodes 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 quarterly report on Form 10-Q for the quarter ending June 30, 2016.
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.
I'm pleased to report strong second quarter results, highlighted by achievement of record revenue and gross profit dollars.
The growth was driven by our approximately 7% sequential increase in Diodes core business with a modest 1% increase in revenue from Pericom.
Our industrial market revenue was higher in the quarter reflecting increased sales in North America and Europe.
Revenue from our automotive market also had another solid quarter of growth, as this end market continues to outpace the average growth rate of the Company.
In addition, we achieved 140 basis point sequential improvement in non-GAAP gross margin due primarily to increased utilization at our manufacturing facilities and improved product mix.
We also continued to generate solid cash flow during the quarter, which enabled us to pay down $40 million of long-term debts or a total of $73 million since the end of third quarter 2015.
It took approximately three years to pay off the debts from our BCD Semiconductor acquisition and we anticipate a similar timeframe for Pericom due to Diodes' strong cash flow generation.
As we look to the third quarter, we expect revenue to grow 5.6% sequentially at the midpoint, representing $250 million in quarterly revenue run rate, which is an important milestone toward achieving our goal of $1 billion in annual revenue.
Additionally, gross margin is expected to improve another 90 basis points at the midpoint of our guidance range of 32.5% with operating expense decreasing further as a percent of the sales.
We are beginning to see improvement in the general market environment and anticipate a more typical seasonal cycle going into the quarter.
With that, I now turn the call over to <UNK> to discuss our second quarter and mid-year results as well as third quarter guidance in more detail.
Thanks, Dr.
<UNK>, and good afternoon, everyone.
Revenue for the second quarter 2016 was a record $236.6 million, increasing 6.2% from the $222.7 million in the first quarter 2016 and 7.8% from the $219.5 million in the second quarter 2015.
Gross profit for the second quarter 2016 reached a record $74.8 million, or 31.6% of revenue, compared to the first quarter of 2016 of $64.2 million, or 28.8% of revenue, and the second quarter 2015 of $69.4 million, or 31.6% of revenue.
The sequential improvement in gross margin was due primarily to increased utilization at our manufacturing facilities and improved product mix.
GAAP operating expenses for the second quarter 2016 were $63.5 million, or 26.9% of revenue, and on a non-GAAP basis $58.6 million, or 24.8% of revenue, which excludes $4.9 million of transaction, retention, amortization of acquisition-related intangible asset expenses, and employee award costs.
This compares to GAAP operating expenses of $62.8 million, or 28.2% of revenue, in the first quarter 2016 or 25.5% on a non-GAAP basis.
Looking specifically at selling, general, and administrative expenses for the second quarter, SG&A was approximately $41.4 million, or 17.5% of revenue, compared to $39.5 million, or 17.7% of revenue, in the first quarter 2016.
Investment in research and development for the second quarter was approximately $17 million, or 7.2% of revenue, compared to $18.1 million, or 8.1% of revenue, in the first quarter 2016.
Combined, SG&A plus R&D was $58.4 million, or 24.7% of revenue, compared to $57.6 million, or 25.9% of revenue, in the first quarter 2016.
Total other expense amounted to approximately $2.5 million for the quarter including $3.7 million of interest expense, which was partially offset by $1.2 million of currency gains and interest income.
Income before taxes and non-controlling interest in the second quarter 2016 amounted to $8.8 million compared to a loss of $2 million in the first quarter of 2016.
Turning to income taxes, our effective income tax rate for the second quarter was approximately 27.3%.
Second quarter 2016 GAAP net income was $5.8 million, or $0.12 per diluted share, compared to GAAP net loss of $1.7 million, or negative $0.04 per share, in the first quarter of 2016 and GAAP net income of $15.1 million, or $0.31 per diluted share, in the second quarter 2015.
The share count used to compute GAAP diluted EPS for the second quarter 2016 was 49.5 million shares.
Non-GAAP adjusted net income was $9.8 million, or $0.20 per diluted share, which excluded, net of tax, $5.1 million of non-cash acquisition-related intangible asset amortization cost.
This compares to non-GAAP adjusted net income of $5.9 million, or $0.12 per diluted share, in the first quarter of 2016 and $16.6 million, or $0.34 per diluted share, in the second quarter of 2015.
We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income, which provides additional details.
Included in the second quarter 2016 GAAP and non-GAAP adjusted net income was approximately $3 million, net of tax, non-cash share-based compensation expense.
Excluding share-based compensation expense, both GAAP and non-GAAP adjusted EPS would have increased by $0.06 per diluted share in the second quarter.
Cash flow generated from operations was $16.4 million for the second quarter.
Free cash flow was $0.9 million for the second quarter, which included $15.5 million of capital expenditures.
Net cash flow for the quarter was a negative $44.5 million including the pay down of approximately $40 million of long-term debt.
Turning to the balance sheet, at the end of the second quarter, cash and cash equivalents totaled approximately $193 million and short-term investment totaled $44 million.
Working capital was approximately $542 million.
At the end of the second quarter, inventory increased approximately $5 million from the end of the first quarter 2016 to approximately $210 million.
Inventory in the quarter reflects a $9 million increase in finished goods and a $3 million decrease in work-in-process and a $1 million decrease in raw materials.
Inventory days were 117 in the quarter, which was comparable to last quarter.
And, at the end of the second quarter, accounts receivable was approximately $230 million, an increase of $13 million from the first quarter.
A/R days were 86 compared to 89 last quarter.
Our long-term debt totaled approximately $410 million.
A total of $73 million has been paid down since the end of the third quarter 2015.
Capital expenditures for the second quarter were $15.5 million or 6.6% of revenue.
As we mentioned in the past, Chengdu will be included in our full-year target model for CapEx, which will be 5% to 9% of revenue.
Depreciation and amortization expense for the second quarter was $25 million.
Now, turning to our outlook.
For the third quarter of 2016, we expect to grow revenue to a range between $242 million and $258 million, or up 2.3% to 9% sequentially.
We expect GAAP and non-GAAP gross margin to be 32.5% plus or minus 1%.
Non-GAAP operating expenses are expected to be approximately 24% of revenue plus or minus 1%.
We expect interest expense to be approximately $3 million and our income tax rate to be 28% plus or minus 3%.
Shares used to calculate diluted EPS for the third quarter are anticipated to be approximately 50 million.
Please note that purchase accounting adjustments for Pericom and previous acquisitions of $4.4 million 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, <UNK>, and good afternoon.
The second quarter set a record for both revenue and gross profit dollars, with revenue increasing 6.2% sequentially, led by strong automotive and industrial growth in North America and Europe.
OEM sales were up 6.9% and distributor POP was up 6%.
Distributor inventory increased 9% in preparation for a stronger third quarter while POS grew 8% with Europe setting another record quarter for POS.
Customer activity continued to be strong across all regions with solid design activity and wins.
We are well-positioned with customers across our product portfolio to further expand our content and drive growth for the balance of this year.
Also, the integration of Pericom continues to remain on schedule and we expect the completion of the sales integration by the end of Q3.
We continue to penetrate our key customer base with a broader product line and see significant customer synergy and cross-selling opportunities with the Pericom products.
We also continue to make progress with our automotive and industrial expansion initiatives with increasing revenue growth, new product introductions, and design wins.
From a product perspective, the second quarter was a record quarter for our MOSFET and CMOS LDOs.
We also continue to see strong momentum for our protection products and LED drivers along with a bounce-back in revenue for our Hall sensors and AC-to-DC product lines driven primarily by smartphone sales in China.
Turning to global sales, Asia represented 78% of revenue, Europe 12%, and North America 10%.
In terms of our end markets, consumer represented 29% of revenue, communications 24%, industrial 22%, computing 19%, and automotive was 6%.
We continue to make progress on our automotive and industrial initiatives with both end markets increasing sequentially.
Let me now provide more detail within each of our end markets.
For the consumer market, we released two new audio devices, the first of which is a highly-integrated 3-watt Class-D power amplifier that provides excellent audio performance and system flexibility for portable speakers; and the second, a stereo line driver designed with pop-free architecture for high audio performance at low systems cost.
We also saw the adoption of our adjustable current limit power switches by several key TV and set-top box customers.
For mobile communications applications including portable device charging, Diodes once again introduced a wide range of products during the quarter.
From our MOFSET platforms, we launched a family of CSP and DFN packets parts targeting reverse battery protection, quick charge, and load-switch applications along with two high-voltage parts targeted at charger applications.
Building on Diodes' close relationships with several mobile communication customers, we released high-surge and general-purpose protection devices to meet the needs of these customers including one product offering the highest surge and clamping capability of its kind.
Also during the quarter, our Hall sensor devices gained further market share specifically in China's smartphone market with several key wins across multiple platforms and major cell phone manufacturers.
Other new smartphone wins include a USB signal switch and a high-performance signal re-driver with integrated equalization circuitry.
In the computing market, we extended our support of USB applications with the release of a new high-performance linear re-driver designed specifically for the USB 3.1 protocol.
We are well-positioned to support emerging USB 3.1 re-driver requirements and have several critical early design wins on market-leading platforms.
We also released a bi-directional crossbar solution for switching USB 3.1 signals through a Type-C connector.
Another recent release related to the emerging Type-C connector market was a flexible cost-effective device that detects plug-in orientation of the cable.
Also in the computing space we are seeing growing demand for our SSD MUX product line to support high-density solid-state memory applications for data centers.
The need to support these applications will continue to expand with the growth of cloud computing and big data initiatives.
For the industrial applications, Diodes released several new products underpinning our commitment to meeting the needs of this segment.
During the second quarter, we released a 200-volt ORing controller aimed at N+1 redundant power supply systems to support data center requirements for 100% system up time.
Also new for this second quarter is a range of gate drivers in single channel, half bridge, and high side/low side configurations as well as a family of 40-volt 10- to 20-milliamp linear LED drivers.
Additionally, we released 40-volt to 100-volt MOSFET products utilizing shielded-gate technology that were well-suited for industrial power supply applications.
Also in the industrial space, we expanded our offering of LED drivers for non-dimmable retrofit bulb applications with a family of high-power, high-efficiency drivers that meets the latest Energy Star requirements.
Additionally, our TRIAC dimmable product series continues to be very successful in LED applications with several major incremental design wins during the quarter.
We are also seeing increased opportunities for our products in industrial camera modules for applications such as security cameras as well as e-meters and e-bike applications in China.
And, finally, in the automotive market, Diodes once again extended our range of auto-qualified MOSFETs with the addition of six 60-volt and 80-volt products featuring 175-degreee C-rated shielded-gate technology.
Diodes now has strong design win and sales momentum with this rugged technology with targeted automotive customers.
Diodes also generated strong demand for its new NPN constant current linear LED drivers for interior, ambient, and courtesy lighting.
Also within the automotive market, we are seeing an emerging trend in telematics where telecommunication capabilities are being embedded into the automotive electronic system.
Our PCIe Gen-2 packet switch is on a key telematics reference design and has also been designed into a smart antenna project.
Additionally, our new piezo driver has been adopted in several electronic tag and key-fob applications due to the efficiency and performance of this device.
In summary, our initiatives to expand our presence in the automotive and industrial markets continue to show evidence of success.
In conjunction with these efforts, we also remain focused on further expanding our presence in the portable and wearable space, which are markets ideally suited for Diodes deep expertise in miniaturization and power-efficient packaging.
Our third quarter expectations for continued growth is representative of our solid position with customers and growing content across our portfolio.
With that, I'll open the floor to questions.
Operator.
(Operator Instructions).
<UNK> <UNK>, Raymond James.
Great.
Thanks a lot.
And congratulations, Dr.
<UNK>, on getting the good revenue results here and getting the gross margin back up to your more normal levels.
Sure.
I was hoping you could talk a little bit more about how we should think about margins here going forward.
It sounds like you're seeing revenue pick back up to more seasonal patterns again.
And so, assuming there's still some modest growth, is it fair to think; continue to fill the factories, get a little bit better utilization, continue to mix in the new products so we should see, generally speaking, sort of a modest move up in gross margins going forward.
Is that the right way to sort of think about it at a high level.
Well, <UNK>, the key thing, really, if you look at our products, the gross margin of our products is above or at least at the model we set it up, 35%.
Right now, the step down of our GP was due to the under-loaded utilization problems.
And you know every quarter when we\
Well, from the expense, operating expense point of view, we mainly focus on growth of revenue.
And then, as the percent of expense, percent of the revenue, will be going down.
That is really main focus.
And for the corporate costs, some of that corporate cost still here because executive bonus, the retention bonus, and some of the, like CFO, some of the people they still stay to helping us for consolidation.
But those will be minor savings.
But our key focus is how to mutual help each other to expand the market share to grow revenue such that, as a percent of the revenue, that expense would go down.
And that's really our focus.
Well, I'll let <UNK> later on to answer.
But at the beginning, let me add it.
Pericom product, it takes time to design in and takes time to ramp it up.
We show effort to help Pericom product to expand again more this year.
But it really takes time.
But we see an opportunity and we see a lot of synergy between their product and our product.
But that kind of roll-up it takes effort to do the design win, to ramp it.
And we believe next year will be the year for us to see the result.
<UNK>.
That's right.
Yes, we were very excited about the opportunities we've seen in our present customer base to advance their product line and even outside of their traditional markets, even into the consumer market segments and so forth.
So, we have a lot of new opportunities that in, let's say, the first six months where ---+ I mean I'm actually a little surprised how well it's gone.
The other nice impact is, within their customer base and even within our customer base with their product, it's allowing us to see things a little bit earlier and get a little bit more advanced look for some of our more standard product areas.
So, actually, the match is quite good and the progress is actually better than I expected as quickly.
So, we're very excited.
Great, thank you very much.
Good afternoon, everyone.
Congrats on a good, strong Q2.
I had a question about your Q3 revenue guide.
If I look back in time at your previous quarterly revenue guidance ranges, the difference between the high and the low in your guidance ranges is about $16 million and sometimes as low as $10 million.
This quarter it's $16 million.
Why are you taking the approach of having a big plus or minus 3% guidance range relative to the midpoint this quarter.
And what's the difference between achieving the high and low end of that guidance range.
I don't know.
When we give the guidance, we just think it.
Well, first we decide; what is the midpoint.
Then, from there, we see; okay, how much potential variance could be.
And, from there, we decide.
But I hardly pay attention to the percent or something.
To be honest, like I say, first thing we decide is what will be the midpoint and after we decide the midpoint then we say; okay, what kind of range we think the market fluctuation will be.
And that's what we doing.
So, I never really pay attention of what the real percent or what's the reason behind the percent variations.
Well, before we purchased Pericom, we know their history.
And if you go back to their history, they're more focused on improving the gross margin as a percent instead of focus on the pure revenue growth.
And if you look at Diodes, we are different.
Diodes is more on growth and try to keep the gross margin at 35%.
Then, when we combined, when we purchased that, we all know that's their tradition and we all know that's what Diodes do in the past.
So, now, move forward what we will try to do will be how to help them to grow.
And that's what <UNK> just mentioned.
The opportunity is there and we see a lot of synergy.
And we see a lot of good opportunity for Pericom product to hit a better growth mode.
But like I said, it takes time.
Their product actually needs a lot of design win effort.
A lot of FAE type of effort to help them.
And it takes time to ramp it, too.
So, we would like to have both.
One is growth at the same time as we improve the gross margins.
And so, that's our charge and it's our ---+ but we are good at that so I have confidence we will move the path of growth at the same time improve the GP.
Alright.
And I just had one last question.
There has certainly been a lot of industry consolidation that's taken place.
I think most of your larger competitors ---+ and I know this is a very fragmented market ---+ but most of your larger competitors have been touched one way or another from some type of industry consolidation.
Has that helped the market environment for you.
And how do you view that as an opportunity to consolidate market share looking forward.
Good afternoon.
This is <UNK> <UNK> calling for Tristan.
Thanks for allowing me to ask a question.
So, Dr.
<UNK>, in your prepared remarks you mentioned you began to see improvements in the general market environment.
So, could you provide more color on that.
Is it more about the seasonality or is it improvement on top of the normal seasonality.
I think when we see the improvement in the third quarter it's really it's seasonality.
Okay.
Because, typically, third quarter is a growth quarter from second quarter.
And we see similar things now.
Last year is the year, it's strange, when you go into the third quarter all of a sudden it slows down.
So, third quarter last year actually slower than second quarter last year.
But this year ---+ I just came back from Asia and when I see the Asia business and I feel it's much to go back to the old cyclical type of business models now.
So, that's why I put it, say it looks like it's better.
So, overall, from fab point of view, Diodes' fab including OFab and KFab that you can ---+ one is over, one is slightly under, so you can consider that it's about for the model overloaded at 85%.
Okay.
And the BCD fab is the one we still under-loaded, especially SFAB2, which start from zero from when we took over.
And they gradually improve.
Now it's up to 70%.
But it's still not fully-loaded yet.
From the packaging point of view, what we try to do would be move everything we can move to CAT into assembly side.
So, what we'll try keep to do assembly side fully-loaded.
Okay.
And then, now the Shanghai AT side is under-loaded.
It's about 80% and we think that all the upside will push it to CAT.
So, CAT can partially continue increase and continue our fully-loaded.
It's fully-loaded.
It's about the customer, right.
Customer, yes.
So, from people point of view, especially sales people, by end of third quarter we should be all consolidated.
But then, for the administration and then in the corporate entity and all these ones, it takes time.
You probably don't know that, for example, in Asia for corporate entity they need to be signed from Pericom and rejoined Diodes.
And when they do that they could choose not to accept the offer from Diodes and then cost a lot of problem.
So, we take it very slowly.
Hi.
Yes.
I would expect it to level off in the third quarter, yes.
So, I don't think it is a concern.
I think they just saw ramps in the beginning and some new products coming in so they put their inventory in a little early in this.
So, I think it's in pretty good shape.
Well, yes, I don't have the exact details of why R&D went down.
But we buy masks and sometimes you buy masks and then you don't have that mask expense the next quarter.
So, it's tends to fluctuate up and down from that standpoint.
.
Reversals.
Those were just costs associated that we took out from a non-GAAP perspective because they're M&A-related.
Okay.
Thanks.
Pericom's internal manufacturing is their crystal and their oscillators.
And the crystal, majority of the crystal produced from Shandong Province in China.
And then, in Taiwan, Jhongli, they produce some crystal but the majority of it, the majority of the output is oscillators.
So, look at that is the two manufacturing sites they have.
Majority of ---+ their IE is used in foundry wafer fab and then packaging silicon.
Okay.
But only crystal and oscillator is produced themselves.
So, presently, right now, there are certain products where we've actually been doing some qualification internally.
But, presently, right now, all of their subcontract product and subcontract fab is still where it was and will stay there for some time.
And nothing has changed with the crystals since our purchase.
Oscillator is the same.
No big change.
Okay.
And wafer fab, we won't change it either because we don't have the capability to provide because that's all from the external foundry.
Packaging, majority of their packaging is a subaccount.
We don't have that packaging.
We cannot move in.
No.
Yes, that's true.
You are correct.
Thank you.
Thank you for your participation today.
Operator, you may now disconnect.
| 2016_DIOD |
2017 | ZUMZ | ZUMZ
#Thank you, and welcome, everyone.
Joining me on today's call is Chris <UNK>, our Chief Financial Officer.
I'll start today's call with a few brief remarks regarding our third quarter performance.
I'll then give an update on our broader strategy and will hand the call over to Chris, who'll take you through the numbers.
After that, we'll open the call to your questions.
Our third quarter sale results came in ahead of expectations during the important back-to-school season.
Third quarter comparable sales rose 7.9% versus our original guidance of up 4% to 6%.
This comes on top of a 4% increase a year ago and marks our fifth consecutive quarter of positive comparable sales and transaction gains.
We're extremely pleased with the strength of our business in a difficult regional environment as it validates our ability to serve the customer through the efforts of our collective teams.
Our momentum continued in November as comparable sales increased 7.8% for the month, representing a great start to the holiday season.
With third quarter earnings growth of 11.5% and a strong start to the fourth quarter, we are well positioned to deliver an annual improvement in year-over-year profitability.
Our results underscore our ability to provide customers with authentic and differentiated product assortments that appeal to their individual taste across multiple lifestyle categories and deliver great shopping experience regardless of where and when they choose to engage with us.
Providing the customer with a great shopping experience has always been our mission.
Our sustained success is the result of our ability to adapt to the rapid changes in consumer preferences and purchasing behavior.
Trends emerge and spread much faster in our more connected world, and customers expect to be able to experience brands on a much more frequent and more personalized level.
We have continued to separate ourselves from the competition by constructing a lifestyle retailer with our unique culture and brand at the center to build ---+ to meet increasing demands of today's consumer while maintaining the flexibility to continually adapt to future marketplace changes.
We are confident in the investments we have made and will continue to make in key areas, including working with original brands; planning and allocation; logistics; enhancing our sales channel; and most importantly, our people, who will further strengthen our competitive advantages and support long-term profitable growth.
Let me provide an update on certain key initiatives.
We continue to find new and unique brands across all departments around our product assortments.
This year, we've already launched over 100 new brands, bringing the newness in localized fashion that our customer is looking for.
These emerging brands, coupled with the growth of more established brands within our portfolio, are in our growth to success of our business model and have a direct impact on both our current results and those in the coming years.
With respect to our physical presence, we believe brick-and-mortar is critical to successfully executing our customer-centric growth strategies.
Therefore, we continue to selectively open stores in each of our geographic regions with the goal of achieving the optimal number of locations required to reach our customers and provide them with a superior level of service they expect from Zumiez.
Along this line, our pace of new store openings in North America has moderated over the past few years as we optimize our presence in each trade area.
Year-to-date, we have opened the 12 new stores planned for the U.S. and Canada, bringing our total store count in North America to 659 stores.
To reiterate what I said on our last earnings call, we are being very thoughtful and deliberate in managing our North American real estate portfolio to minimize risk and bring long-term value to both our customer and our shareholders.
We are confident that the vast majority of our stores in their surrounding trade areas will continue to achieve and/or exceed their productivity targets.
For those locations where we are less certain, we focus on both reducing rent and shortening lease terms down in the 1- to 3-year range to provide added flexibility.
This aligns with our capital spend that prioritizes those locations that we believe have potential for long-term success.
At present, within the bottom 20% of our North America store base in terms of store contribution, we have the right to exit over 85% of those stores in the next 3 years.
While this highlights the lease flexibility that we have within our lower-performing stores, it's important to note that at this time, the majority of these stores provide positive contribution and cash flow.
Overseas, we see a longer runway for growth as our store footprint is significantly smaller.
2017, we're on track to open 5 Blue Tomato locations in Europe which will bring the total store count to 34 by year end, while in Australia, we have added 2 Fast Times locations for a total of 7 stores in the market.
We're excited about the long-term potential of these markets and continue to apply a combination of best practices from each of our teams to build on the strong foundations already in place.
Lastly, we've rolled out our new customer engagement suite to approximately 30% of our U.S. store fleet.
The combination of this system enhancement and our existing digital capabilities allow us to both learn more about our customers and engage with them in a more meaningful way.
This local engagement, along with face-to-face in-store interactions, helps keep our finger on the pulse of local trends, allowing us to provide hyper-localized, authentic product assortments and a superior, personalized brand experience for our customers.
To close, we're obviously pleased with momentum we are experiencing as we head into our busiest and most profitable selling period.
We are committed to fully capitalizing on the many near-term opportunities ahead of us to deliver a strong finish to the holiday season and 2017.
At the same time, our sights are firmly on the future, and we'll continue to make decisions that are in the best long-term interest of the company and its shareholders.
I want to thank the entire Zumiez team for their hard work and dedication to upholding the cultural values that are directly tied to our strong third quarter and positive start to the fourth quarter.
With that, I'll hand the call to Chris for his review of the financials.
Chris.
Thanks, Rick, and good afternoon, everyone.
I'm going to start with a review of our third quarter results.
I'll then provide a brief update on November before discussing our fourth quarter guidance.
Third quarter net sales increased $24.4 million or 11% to $245.8 million from $221.4 million a year ago.
Contributing to this increase was the positive comparable sales growth of 7.9% and the net addition of 6 stores since the end of last year's third quarter.
During the 2017 third quarter, we saw an increase in transaction volume, partially offset by a decrease in dollars per transaction.
The decrease in dollars per transaction resulted from lower units per transaction, partially offset by an increase in average unit retail.
During the quarter, the men's category provided our largest positive comparable sales increase, followed by juniors.
Accessories was the largest negative comparable sales category, followed by hardgoods and then footwear.
From a regional perspective, North America net sales increased $20.2 million or 10% to $223.1 million.
International net sales, which consists of Europe and Australia, increased $4.2 million or 22.5% to $22.7 million.
Third quarter gross profit was $83.4 million, an increase of $7.2 million or 9.4% compared to the third quarter of 2016.
Gross margin was 33.9% in the quarter, down 50 basis points compared to 34.4% a year ago.
This decrease was driven primarily by an 80 basis point increase in inventory shrinkage and a 40 basis point decrease in product margin, partially offset by a 90 basis point decrease in occupancy costs, which leveraged on strong sales results.
The decrease in product margin is due primarily to our efforts in our European business to move through aging inventory and, to a lesser extent, a slight decline in North America.
SG&A expenses was $64.6 million in the third quarter compared to $59.3 million a year ago.
SG&A as a percentage of net sales improved 60 basis points to 26.2% compared to 26.8% in the prior year.
The decrease was primarily driven by 90 basis points from the leveraging of our store costs, partially offset by a 40 basis point increase related to our annual incentive compensation.
Operating income in the third quarter of 2017 was $18.8 million or 7.7% of net sales, an increase of 11.2% as compared to the prior year operating income of $16.9 million or 7.6% net sales for the third quarter of 2016.
Net income for the third quarter was $11.9 million or $0.48 per diluted share, an increase of 11.5% as compared to net income of $10.7 million or $0.43 per diluted share for the third quarter of 2016.
Turning to the balance sheet.
Cash and current marketable securities totaled $85.8 million as of October 28, 2017, up from $49.2 million as of October 29, 2016.
The increase was driven by cash generated through operations, partially offset by capital expenditures.
As of October 28, 2017, we had $157 million in inventory, up 4.2% from this time last year.
Turning to our November sales results.
Total net sales for the 4-week period ended November 25, 2017, increased 11.3% to $77.1 million compared to $69.3 million for the 4-week period in November 26, 2016.
Comparable sales increased 7.8% during the 4-week period in November 25, 2017 compared to comparable sales increase of 5.7% for the 4-week period in November 26, 2016.
The comparable sales increase was driven primarily by an increase in transactions, partially offset by a decrease in dollars per transaction.
Dollars per transaction were down for the 4-week period due to a decrease in unit per transaction and, to a lesser extent, average unit retail.
During the 4-week period, the men's category provided our largest comparable sales increase, followed by juniors, while accessories was our largest negative comparable sales category, followed by hardgoods and footwear.
Looking at our guidance for the balance of 2017.
Once again, I'll start off by reminding everyone that formerly our guidance involves some inherent uncertainty and complexity in estimated sales, product margin and earnings growth given the variety of internal and external factors that impact our performance.
We are currently planning fourth quarter comparable sales results in the range of positive 3% to positive 5%, with total sales in the range of $291 million to $297 million.
We anticipate that gross margins will increase in the range of 20 basis points to 50 basis points compared to the fourth quarter of 2016.
Consolidated operating margins are expected to be between 10.5% and 11%, with earnings per share between $0.78 and $0.84 compared to earnings per share of $0.74 in the prior year fourth quarter.
With regard to the fourth quarter and full year, I'd like to remind everyone there will be an extra week in fiscal 2017, resulting in a 14-week fourth quarter and a 53-week fiscal year.
The extra week will benefit sales in fiscal 2017 by approximately $9 million and earnings growth in fiscal 2017 by $0.05 per diluted share, and will be a detriment to sales and earnings growth rates in fiscal 2018.
A few other thoughts regarding the balance of the year.
Through November 25, 2017, we have opened 18 new stores, including 3 in Canada, 4 in Europe and 2 in Australia.
This brings our total store count as of November 25, 2017 to 699, including 659 in North America, 33 in Europe and 7 in Australia, and excluding 2 stores in North America that are still closed due to natural disasters.
We plan to open 1 new store for the balance of fiscal 2017 as well as potentially reopen the 2 stores I just referred to that were damaged by weather.
Full year capital expenditures are expected to be between $24 million and $26 million.
We anticipate depreciation and amortization will be approximately $27 million, in line with the prior year.
We are planning our business assuming an annual effective tax rate of approximately 38%.
Lastly, we are currently projecting our weighted average shares used in the calculation of diluted earnings per share for the full year to be approximately 25 million shares.
And with that, operator, we'd like to open the call up for questions.
Sure.
Thanks, Jeff, for the congratulations there.
From a gross margin perspective, as we did, we said 20 to 50 basis points.
What we're thinking here on a product margin perspective is we'll probably be up by 10 to 20 basis points.
We're expecting to see some benefit there on product margin.
And then we expect to continue to see some leverage on occupancy.
Obviously, based on the sales levels that we are as well as the environment, we've been able to leverage occupancy pretty well over the year.
And the guidance does assume a little bit of risk on the shrink side.
I think the one piece to call out there is it's probably less of an impact than the first 3 quarters of the year based on the fact that we started to see shrinks increase in the fourth quarter of last year.
So that's kind of how we're thinking about gross margin for the fourth quarter on the 3 to 5 guidance.
Yes.
Let me start, Jeff, and then I'll ask Chris to chime in.
And you know I'll start because I always start on this topic, Jeff, which is I don't really like to talk about differences between the channels, and in fact, I'm not even sure I like the word omnichannel anymore.
I actually prefer, I think, channelist or integrated retail as a way of thinking about what we're doing us a model.
And ---+ so again, we will share some highlights for Q3 about that in a moment, but let me just maybe phrase up a little bit about how we're thinking about where we're at, what we're doing and what's next in this area.
So we've made great progress over the last 6 and 7 years of building, I think, this integrated model to serve customers.
And this is a model that has changed actually every aspect of our business from how we micro-sort locations and trade areas to how we think about sales teams.
We don't think about a web sales team anymore.
We don't think about a the store sales team anymore.
We think about our integrated sales team and how we're serving customers and how they work together to do that.
We think about how all those things optimize customer experiences.
We think about how that's changed how we incentivize our teams across the company for this integrated channelist retail world.
And again, virtually every aspect of our business has been touched by the demands of the consumer in terms of how they can really change.
So every touch point that's guiding us, Jeff, is this idea that we're going to empower our consumer to make choices and put the power in their hands and let them choose just how they want to interact with our brand.
And we're going to be relevant at each of those touch points, highly relevant, hopefully, in both product and experiences.
And we're going to be fast at every touch point as we work through that.
So those are kind of guiding principles for us, Jeff, as we think about what we're doing and as we think about these integrated model.
And again, I think we just made amazing progress, and Chris maybe can share a little bit about our ---+ this idea of distributor localized fulfillment over the last weekend.
I mean, it's amazing what our teams can do.
And ---+ but that being said, with the progress we've made, we have much work to do, both in tuning our existing integrated sales model and in pushing ourselves to enhance and build on our ability to serve these customers.
We have a whole new way, I think, of really big ideas and initiatives in front of us over the next 3 to 5 years for us to tackle to really, again, continue to meet the needs of this empowered consumer.
So from that perspective, I think we're pretty excited about the opportunity that's in front of us in this integrated sales world.
And I'll ask Chris to share a little bit of information for you.
Yes, sure.
And just to add to what Rick said, and I\
Great.
Thank you, <UNK>.
I\
Yes, great.
Thanks, Rick.
I think, <UNK>, one of the things we have ---+ we presented in the last few quarters or last few years really is just talking about kind of where our top 10 and top 20 brands sit.
And as we look at the third quarter, we continue to see kind of a further concentration of those brands, meaning that the top 20 represent a higher percent of overall sales than they did a year ago at the same time.
We continue to also see that turnover that we talked about, 20% to 30% turnover in the brands, which again speaks to Rick's points around the newness.
And then the last thing I would point out is in June of 2016, when our results were not quite as good, Rick and I talked about some things we started to see in the business, specifically talked about 3 brands that were starting to emerge that got us kind of excited about back to school.
And as we know now from history, that materialized in the back half of 2016 and has been part of our driver here that Ricky just spoke to around some of the brands are moving the business.
And what I'd point out with those 3 brands is as we look at how they stand within our top 20, none of them have gotten to that point of kind of 6% to 9%, which is typically where our top independent brand will peak any given year.
And in fact, all of them combined are still less than 10%.
So that gives us some comfort that there's still some room for growth based on historical results.
Now that's not a slam dunk.
The brands have to continue to do their job in innovation of product and bringing newness.
And our sales teams have to do a great job presenting it to the customer.
And that's the partnership we work on.
And what I'd also say, as you talk about kind of sustainably and drivers, is I'd just kind of continue to elaborate on the long-term model that Rick talked about, the 3 drivers.
But also it's a diversification within categories.
And if you look at kind of our makeup of Q3, our men's and women's categories were the only positive categories, representing about 57% of our overall sales in the third quarter, meaning the other 43%, which is footwear, accessories and hardgoods, continues to have some challenges.
And as we look at this long term, over a period of 3 and 5 years, and then look backwards over the last 4 years, what we've seen is we've seen this happen as trends change, right.
As one category has its challenges, typically another one benefits.
And so we're really encouraged by the overall sales results we're running today with only 57% of our business positive.
And I think that gives us some opportunity as we look to the future as new brands or trends or unique items emerge in that other 43% as ---+ if we do peak in the apparel categories to help offset some of that.
Yes, sure.
As we think about the fourth quarter guidance, and maybe I'll just talk about November a little bit deeper here, as we said, we had a strong November with positive comps across the month.
And from a cadence perspective, weeks 1 and 2 were stronger and posting actually low double-digit comps in weeks 1 and 2 and then more into the mid-single-digit comps in weeks 3 and 4.
Now we don't see that as a negative.
We actually think, as we look back to last year, the first couple of weeks were pretty tough last year as it was a little bit of time of uncertainty around the election and the time after that.
And it was not a big shopping period, where as we look to this year, I think it's more normalized with some of the trends we've seen over the last few years, maybe absent 2016, of that volume spreading out a little bit more over the period.
I would tell you, we had a strong Black Friday weekend overall and are pretty pleased with our results.
But as we indicated, the results were more in that kind of mid-single digits leaving the quarter.
We had a great fourth quarter last year, as you know.
And so as we plan the business, as we think about the remaining 3 quarters of the sales in December and January, we planned it kind of at that mid-single-digit mark that would get us to the 5 in the top end of the guidance here for the quarter.
And I'd just add, <UNK>, to that, that the rest of the ---+ this is always such a wild ride in holiday because we know that the middle weeks of December are always going to be really tough, great online, tough in-stores, and so you see, as huge.
And this is true probably for the last decade, where we've seen the middle weeks of December get weaker, the troughs get deeper and the peaks get steeper.
And we fully expect it to play out that way.
So as Chris said, we're planning to that mid-single-digit number, and we expect that we'll have these tougher middle weeks and then huge weeks 4 and 5 in December.
So it always makes looking at holiday numbers a little nerve-racking as you do it, but we're pretty confident, as we've been talking about here, about our trend cycles.
And as you said, we've been going up against tougher comps, but been able to maintain the comp numbers for the current year.
So we're confident going into it, but it's always appropriate to be just a little cautious as we look forward.
Yes.
Thanks, <UNK>.
So as we look at this, you're right.
We are ---+ while we're encouraged by overall sales growth ---+ even overall sales growth, exclusive of the 53rd week, it is a little more muted.
And I think what I would point out here, as we think about the results for this year, I mean, we're pretty excited and pleased with our top line results.
We have had some operational challenges that we need to correct, which we have talked about for the last few quarters and this quarter and mainly around the shrinkage line items.
So that's something that we have strong plans in place and plan to get fixed here in the short term.
And ---+ but it's been a drag on the 2017 results, and hopefully something that will be a benefit to us as we move forward.
I think the other piece that we talked about throughout the year that has been ---+ had an impact on the year is the incentive accrual.
Clearly, the results are stronger this year.
And as we have experienced over the last few years because we have not been in the spot where we could pay out target incentives.
And today, we actually feel like these results kind of warrant that.
We've been planning that impact in all year.
That total impact on the year is about $4.6 million, just to give you some perspective.
And I would classify that even deeper from a standpoint of we accrue this based on a probability analysis as we move through the year.
And the fourth quarter of last year, we really determined that some of this was going to fall off.
And therefore, the ---+ of that $4.6 million, almost 1/3 of it is the increase in the fourth quarter because we're truing up over a period where we hardly recorded any incentive compensation in the prior year.
So that's something that we're glad to get into the base.
Has been a little bit of a drag on this year.
But as we think about 2018 and beyond, we don't expect to have that pressure.
And then there's other things, too, like we talked about within the Q3 results some challenge on our product margin primarily related to Europe.
We're taking a real strong stance in trying to clean up areas where we think we need to clean up and set us up for the long term, as Rick talked about, right, in his prepared remarks that we're very focused on that and driving the long term.
So I think, overall, we feel pretty good about some of our opportunities heading into 2018.
And we'll obviously withhold on giving any guidance for '18 until we get to March.
But I think from a cost perspective, specifically around shrink and some of the SG&A growth areas, we hope to not have some of the bigger items we had this year.
All right.
Thank you, James.
And I'll close with just by wishing everyone a happy holiday season, and we'll be very hopefully excited about coming back to you in March with our results for Q4 and the full 2017 year and a chance to talk about our initial thoughts on 2018.
Thanks, everybody, greatly for your interest in Zumiez, and we look forward to talking with you soon.
| 2017_ZUMZ |
2017 | TNC | TNC
#You are welcome, <UNK>.
Hi <UNK>.
Yes.
No real one-time piece, <UNK>.
I mean, we would emphasize that we would like to get to the point where margins are sustainable.
But in North America, as is the fastest growing and their margins generally are tend to be a bit higher and we did have a good product mix.
Even though we did see some inflation begin to come in.
I wouldn't say that had any major negative impact and we performed better operationally.
And that showed up in the numbers too.
So just all around solid quarter, we are still guiding to be in the range of 43% to 44% going forward, but we would like to get [a goo] like this under our belt.
I will comment in a couple different way there.
I mean, one, we like to be conservative as we guide to gross margins and you need to remember that the negative that's going to be happened in the year end, we are beginning to see is we are going to see inflation, we haven't seen much of it for the last three years, we will see that.
We fully intend to offset that through price.
But that's always a bit challenging.
We think we are up to the task, but we will see both of those ups and downs.
And I can tell you our internal objective is we don't want gross margins to go backward, we want them to be better than 43.5% that we had in the last year.
So our objective is to modestly improve in every year.
We can't guarantee that, which is why we gave a range and then, directionally, IPC has gross margin structure that is a positive.
I mean, it's very similar to ours, we are not prepared to be specific yet.
It's one of the things we like.
And then I would remind you that their EBITDA - the revenue is better than Tennant's.
and I mean they manage a tight ship and we will have a situation that even excluding any synergies that we gain, it will be beneficial to our EBITDA margins.
So that's a positive overall.
Yes, as we look at it I mean at a really simple level will be a little bit above on our pro forma EBITDA basis, will be slightly above three and that will quickly go down.
I would remind you that we generating a lot of cash and so does the company that we are buying.
So we will and we fully intend to be able to pay that down quickly and be below a three leverage rate, pretty darn.
And the interest rate environment is favorable to us and we are not prepared to give you any specifics on that regard, but we do have a fully committed credit situation with our current lead bank JPMorgan, and also Goldman Sachs is advising us and they fully are committed to the financing and we haven't finalized what that structure will look like, but we are certainly putting a lot of energy into it.
And I would remind you that this information, again, it is in the factsheet that's attached to the release.
We have a page in there which is the summary of the transaction terms that gives you a lot of this information.
I apologize, we didn't make it easy to find it initially.
That's why we brought it up in our talk here, but a lot of other information is there.
So I would invite you to go back and look at it after we finish the conversation here.
Yes.
We are not prepared to give you any specifics around that, but it will be overall, interest rates are pretty darn favorable.
We are going to take a full advantage of that and we will certainly give you a specifics around that when we release our earnings after Q1 and give you a far more details on the forward-looking financials on pro forma basis for the rest of this year.
And the only thing that we are really fully committed to at this point is that we believe it, we really anticipate will be a fully be accretive on a GAAP basis for the full-year 2018, and we will give a lot more details on what 2017 will look like depending upon closing date and there is a lot of variables that we need to factor in.
We are anticipating to close in early of April as we can, but we also know that anticipation is it will certainly be in Q2, but we don't know for sure what the date is right now.
Timing is often important in deals and we feel pretty good about the timing of this one, given that the dollar is extremely strong, interest rates are low and if you start reading the economic press, the Europe is beginning to see some positive signs of recovery.
So, we are cautiously optimistic about the future.
I mean, really important the timing for Europe standpoint for us is their business has been performing nicely.
Our business is improving now.
We have had three of the last five quarters our business was growing organically in Europe.
And we anticipate organic growth in Europe in the upcoming years.
So we do think the timing is nice.
Yes.
I mean, the competitive set is, I mean, they compete more honestly day-in and day-out with the [tasks] of the world and the [nilfisk] and the [cartres] and the [hockles], we don't see much, much competitively.
So some of our competitive is that, we compete more as a premier level.
We do see them in the market, but there frankly is not that overlap from both distributor standpoint and end-user.
so we think there is really positive side on both, for us to sell their products to our channel, and for them to sell our products to their channels, but we are going to manage the brands very independently and we really want them both and maintain our identities in the marketplace.
One of the really exciting things about the acquisition is that we view them because we are the premium player the market as a mid-tier band, so the brand and the price points are differentiated and it gives us a lot of opportunity with customers both their customers and our customers, for example, if you are a BSC in Europe, and you bid for a retail piece of business, where you have thousands of retail stores, not every retail store has the exact same requirements.
Some retail stores require the premium offerings and some are happy to take a mid-tier offering.
Some are smaller and require smaller products, some require bigger.
We are only able to satisfy a of portion of that need today as Tennant.
With IPC, we can go to big customers and offer them the entire spectrum of products that they need and we will be able to differentiate by the different types of retail establishments that they are trying to serve.
So this is why we say the cross-selling of business both within our channels and their channels is very, very interesting.
Yes, I will give you a directional sense of it.
I mean, we have obviously - as you financially model these things, you need to make your assumptions on synergies.
We have gone very deep.
We are assuming, we are going to be methodical as we drive those synergies and we are going to deeply assess that.
We will give you a lot more detail, when we talk about this, late April.
But they will be the classical types of synergies, certainly there is revenue opportunities for that we see.
We are not counting on that happening real fast.
But there are absolutely some synergies on the top line side.
There should be synergies on the sourcing side.
We do buy from the lot of the same suppliers.
And we will certainly believe that there will be opportunities as there should be in transactions like that.
There will be some back office synergies and there should be some from infrastructure synergies, I mean we do have multiple offices and multiple sales offices.
Again, we will be measured and smart as we bring those synergies forth and we will give you more detail on the specifics, around the timing across the year, as we get a deeper into this.
But, you can look at the synergy level of this and what we are committing to is a number that relative to other industrial deals as a percent of revenue, is certainly at the low end of what you would hear most people talk about.
So we would like to think once again we are being conservative and creating a situation where we hope we have upside to it.
The most value in the short-to-medium term will be to maintain the integrity of the IPC business and have them continue to grow and hopefully accelerate that growth, expand with Tennant's business, and then to figure out where the cross-selling opportunities are.
That is going to drive the most value for the deal in the short-to-medium term.
It's a really nice business that we will be pretty complementary to each other, both can help each other in how we compete in the market, and how we provide value propositions to end users.
So we are very excited about it.
You bet, <UNK>.
Hey, <UNK>.
Never say never, but it's not built in our current thinking.
They have five very nice factories.
One of them is a bit smaller, but they do have five real nice factories that we have obviously spent time around in Italy.
And we are not anticipating that we would do any combination of those and it's not in our current thinking, and like a said, never say never, but it's not in our current thinking.
We are just not ready to go there in 2017.
I mean, what we will say on a GAAP basis, it's not going to be accretive.
And we know that.
As you factor out and do what most companies will do and report on a pro forma basis, we are not prepared.
We would certainly like thing it could be positive.
We will give you the details later, but it's really early around what is going to end up being the intangible levels on this, the timing of the close, the timing of the savings, the cost of what we are going to pay to get the savings and inventory step up will be a real number that we will talk about.
So there is a lot of moving parts and we will look forward to providing all those details at the end of April
But definitively, accretive.
The portfolio in 2018, we are, we believe, we commit to that.
That's a GAAP basis.
We would say our order patterns have been consistent with the guidance that we have given.
And the way I would reiterate that would be, our organic range is between one and three.
And if we are going to get to the three or get fortunate enough to do better, the improved growth is going to come later in the year.
This isn't instantaneously going to get better.
But I would say that we anticipate to see growth in Q1 and we would say that the order patterns that we are seeing are consistent with what we would need to see organic growth.
I think, if you look at our three geographies, we think that we are in a great shape in the Americas markets with a stable economy, with acquisition of IPC, we are obviously very bullish on EMEA.
And what we think would be an improving economy in business.
In APAC, we are just not seeing that now.
I mean, I think it's still a slow growth macroeconomic environment.
And in a slow growth environment in APAC, we suffer a little bit because we still don't have a broad enough footprint from a direct sales and distribution standpoint.
We see years where we do great where we have a lot of big deals.
And then in other years those big deals don't translate into top-line performance, we struggle a little bit.
So we are looking for their economies to improve, but we are also working across our key markets to ensure that we have the go-to-market footprint necessary to generate not just big deals, but up and down the street business, a foundational business that's consistent year-in and year-out.
And I think, that hopefully happens here over the next two to three years.
That will put us in better stead, but right now we need the economies of China, Australia and Japan to improve for us to see dramatic change in our sales growth profile.
All right, <UNK>.
Thank you.
You bet, <UNK>.
Yes, I will give you a couple of pieces there.
I mean, one, they bring a very relevant value proposition to end users.
I mean, they have a nice aftermarket organization, also they do a higher percent of it through distributors.
So their overall aftermarkets are a smaller percent of their total revenue.
But they do bring in overall value proposition and great quality products, innovative, do a lot of the same things up, they tend to be at price points that are a bit lower.
And I would also say that, if you look at the vertical markets side of things, we compete in a lot of the same verticals.
They are going to do better in some verticals that are smaller size spaces.
We tend to do better in big size retail spaces, and that's an over simplification, but bigger factories, bigger retail sites, we do particularly well in mid-sized walk-behind machines, and ride on machines, they tend do better in the mid-size, walk-behinds and smaller walk behinds.
So there is some differences in general in size of products.
And as far as share goes, that's a complicated one.
They compete in two categories that we don't include in our market data in the case of power washers and tools, there is a lot of blurring in those two categories across the consumer side and the professional side.
And we really honestly need to get better information around the size of those respective markets.
We don't think our competitors do a good job of sizing what they are.
And that's about 37% of the revenue.
We are excited to be there.
We know many of our current customers buy all those things from other people.
So we think it is an opportunity.
What we can say is if you back out those two categories and look at the global share position, this should improve our share position from where it is today by about 2.5 percentage points roughly.
So it is a meaningful piece.
We are not ready to talk about shares in Europe, but <UNK> has commented earlier that it more than doubles our European business is a really big deal for us.
Yes, it more than doubles European business, remember that 80% of their sales are in Europe, and then 10% in Asia Pacific and 10% in the Americas.
This product category - now we are going to take our time to figure it out, but they are relevant in Asia Pacific and the Americas too.
And that's not something we have really factored into the deal either.
That's pretty much an upside to the modeling that we have done.
But our focus has to be to get the European integration right at the same time that we slowly start to look at the opportunities to take these product lines to Asia Pacific and the Americas.
As <UNK> said, we don't have three out of their four product lines, in any big way today.
So it's exciting.
The one that may be the most exciting on a global basis is the tools business, which many of you probably look at and say well - that's boring, but the fact is, they have these great and innovative modular carts, the window washing systems.
They have proprietary antimicrobial, antibacterial microfiber products that are winners in the European marketplace.
Rubbermaid is the dominant player in the U.S. right, there is really no competitor to them, the sense that They have always had is that they had a bigger partner, a bigger player in North America and market they can make headway.
The other thing I love about this business is, this stuff is purchased every day, every week, throughout the year by all of our customers.
So if we can figure out how to bring this into our portfolio, and form it in a way that it is compelling to our existing customers, it could be of a big deal for us in the future, and it's a very nice margin business, which was also surprised was, but it does the case.
so a lot of upside here that we still need to figure out with some of the product categories that we don't have a lot of experience with historically.
Yes.
First of all, there is the cross-selling opportunities within IPC's business, right, they have just started that.
Remember, they have the scrubbers and sweepers and the vacuum cleaners and the power washes and the tools business in most parts of Europe today, they still operate separately with very little cross-selling.
So that's an opportunity.
They figure that today they cross sell about 25% of the time.
And they should be cross selling at 75% of the time, with their existing channels.
So, that's one area of focus.
The other area of focus as their distributors don't have access to Tennant products today.
They would love to have the larger commercial ride-on on scrubbers and scrapers and some of our industrial products to sell to their customers.
But the biggest deal is with strategic accounts, as I said, building service contractors serving for example, retail strategic accounts, BSC will come and say us I needs some big products and need some small products, I need a mixture right, because not all of our customers in this bid are the same.
Tennant would come in and say, well we can only provide you on the premium end.
And IPC came in and said, well we can provide you the small stuff.
So we were only a partial solution so they have to go with other suppliers.
Now, we can combine the product portfolios of the two companies and walk into a Carrefour or a Tesco and other retailers and say we can provide you the whole shooting match right, from pressure washers and the tools, all the way up to largest rider sweepers and scrubbers to clean their warehouses and their bigger footprint retail stores.
This is a big deal for us.
I would add one thing to that.
We are going to go slowly, but surely.
I mean, we have two channels, respectively in each of our businesses that operate very well and satisfy a lot customers.
We want to do a better job of satisfying our existing customers and we want to provide a little disruption in the market, and we need to stay focused on.
This is about the end user experience and enhancing and going deeper with existing and garnering new customers and we want to not disrupt a respective channel, so I think that's really important.
That's important.
And so the way we would do it, initially, as <UNK> said, we are to be thoughtful and measured in terms of going after any new business opportunity.
We actually have the luxury of doing that in this deal.
And it wouldn't be that we would just give the IPC products to Tennant or vice versa, if there was a big deal, we would bring the IPC management team in to really basically, present their side of the portfolio in conjunction with their Tennant counterparts, to make sure we maintain the integrity of both organizations in both businesses, because I think that's where the value lies.
Yes.
I mean, it's important to note that it is a net headcount reduction of approximately 3%.
And it will be global.
We are making changes around the world, there won't be any one singular place that its centered on.
There will be a portion and we will provide more details as we go along here.
We really focus on that the total level of the savings, but there will be some that will flow through in our S&A spend.
There will be some that will fall through cost of goods also.
A higher percent will clearly be through S&A.
And a portion of this is we are upgrading some talents in areas and we are changing spans of control.
And we have been through a heavy investment period in five quarters of slower growth.
We felt it was a very important to adjust our overall cost structure, it was a bit high.
And it will certainly accelerate our capability at getting to our 12% target faster.
But it will affect a broad array of areas.
You are welcome.
A pleasure.
Thanks, Rachel.
We are making progress against our growth aspirations.
Our acquisition of IPC Group will put us over $1 billion sales target on an annualized basis.
Additionally, our combined acquisition and restructuring actions will move us closer to our 12% operating profit margin goal.
Looking ahead, we believe that Tennant is competitively advantaged with attractive growth prospects in a stronger global economy.
We are focused on creating value for Tennant's shareholders and we are excited about the Company's future.
We look forward to updating you on our 2017 first quarter results in April.
Thank you for your time today and for your questions.
Take care everybody.
| 2017_TNC |
2015 | CPB | CPB
#Hi, <UNK>.
You too.
Thanks, <UNK>.
Well, we definitely have been very focused on keeping our Goldfish programming strong.
I think that business is hitting on all cylinders with good advertising, a good promotional program, and the right proposition for millennials parents and their children.
So we continue to be pretty excited about our Goldfish business.
And I think that mothers still feel like that is a very positive snacking for their children.
I think we need ---+ we have more work to do on cookies, and we're working on that as we speak.
We do have new leadership right now in the Pepperidge Farm business, and that team is really coming together and focusing on the next wave of innovation ideas.
And I'm not sure there's anything more to add to that.
Yes.
So as I mentioned, we did term out some of the debt portfolio in the recent past, taking advantage of relatively low fixed rates.
We have a sizeable backstop credit facility against the commercial paper program, and we're fairly comfortable with the level of CP we have in the marketplace today.
I mean, clearly, what's happening in the credit markets, we continue to look at that, and to evaluate alternatives, whether to term out some of that CP, or whether the use of the derivative market to convert some of that floating exposure to fixed.
But that's an ongoing thing that we continue to assess here.
You're welcome.
All right.
Thank you, Stephanie.
From all of us at Campbell, Happy Thanksgiving, everyone.
Thanks for joining our call.
A full replay will be available about two hours after our call concludes by going online or calling 1-703-925-2533.
The access code is 1665411.
You have until December 8 at midnight, at which point all of our earnings calls will be strictly on the website under news and events.
If you have any further questions please call me, <UNK> <UNK> at 856-342-6081.
If you are a reporter with questions, please Carla Burigatto, Director of External Communications at 856-342-3737.
This concludes today's program.
Thank you.
| 2015_CPB |
2016 | KSS | KSS
#On the buy online, pick up in store that's an easy one.
It's on average it's been about 25%.
It was actually more during holiday.
On loyalty we obviously had a lot more dollars since we had a lot more customers bounce back in January.
We did see a slight deterioration in the response rate.
One thing I probably made a mistake on is when you double the size of your file not everybody loves Kohl's equally.
As you add the later adopters to loyalty they are not going to respond as quickly.
So that's some learning we will do a better job of planning in 2016 because of that.
Most of it's because $7 million comes out because of the store closures.
Well we spent, last year we spent $934 million, what I'd I say $940 million for this year.
So it's a little bit of a rise.
We've been spending a boatload of money on IT for a number of years so we're starting to cycle through that.
The average life of an IT project ranges from three to five years but I would say more and more we're using three years just because the innovation cycle is so short.
Well from my perspective again the store closures help them.
We said it was $44 million, $45 million, so you can take a portion of that for the year depending on when we close the store in June, that's embedded in the guidance.
Store payroll is going to grow.
We're seeing the wage pressure.
We're not immune to it.
Other people who have reported said it's a pressure.
In this quarter it is going to be a pressure this year.
It's more than a third of our overall SG&A so that's going up.
I think we can be more efficient as I mentioned in ship from store and BOPUS.
That will help mitigate that.
We actually experienced healthcare deflation this year.
We had a tremendous year in terms of that.
Knock on wood we were lucky we didn't have a ton of large claims which can really from swing it one way or the other.
But we've made a lot plan changes in wellness initiative.
We have a relatively young population, that helps as well.
But we're going to cut advertising.
I think <UNK> asked we spent $1.011 billion this year.
We wanted to spend $1 billion.
The goal is to spend $1 billion this year, so maybe we will spend even a little bit less than that.
We can get more efficient in the E-Commerce Fulfillment Centers.
And we're going to get more efficient in corporate with the reorganization that we had.
And we have to be smarter about when positions open up not filling them and just increasing speed across the organization.
I think that will be a big help but those are kind of the buckets we're going to try to do to offset.
IT expenses also going to go up.
I mean we're spending a bunch on IT.
So IT and stores are going up.
Everything else pretty much has to go down somehow.
The 35% to 40% of our expense that is essentially store payroll, that's going up.
So we're planning it to go up, that's just a fact.
Things like the reorganization, things across the Company in the other 65% we've been working on.
This is not something we're starting last week.
We've been working on reducing those forward-looking expenses.
And one of the things that's going to big component part of that that you sort of alluded to but I think honestly has a big impact is lower inventory level.
Lower inventory level is less material handling, it's less distribution expense, it's significantly less workload in the store and that has a big impact in a positive way on store payroll.
So our average hourly wage is going up but if we're putting a lot less inventory in the store there's a lot less work to do on the store's part to handle it.
We haven't gotten there ---+
We planned the fall season.
But I mean there's not a Star Wars movie to my knowledge so we won't have to spend money on that.
Honestly I wouldn't think I think Wes just said we spent $1.011 billion or $1.012 billion in marketing this past year.
I wouldn't think about, I wouldn't take away from this discussion hey, they are going to dramatically lower the amount of marketing they spend.
We're talking about on the ledges.
We're talking about reducing it by $10 million on a $1 billion base.
The more important thing for us that we just touched on with the caller or two ago is we've got to make that $1 billion work harder through personalization.
That's really the win and then the other things become savings.
All about cold weather merchandise.
Yes, this is all about liquidating and getting out of our holiday cold weather inventories through the early part of the first quarter and repositioning our inventories at a lower level going forward.
I mean it's always been relatively fairly tight.
What happens is regionally each quarter, I hate to use the word weather, but the facts are weather can positively influence a quarter's results in a region and negatively influence another quarter's results.
So the West Coast got better results because they had better weather and the Midwest or Mid-Atlantic got lower results.
But the spectrum across from a store comp perspective, I mean it's not like there's a dramatic difference.
The sales, the comp sales really aren't driving the closure decisions.
It's really about the fixed cost and our ability to manage the other lines of expenses to make them more positive.
And then the biggest thing that changed honestly in the first quarter is our digital orders grew 30% on a very large base ---+ in the fourth quarter, sorry.
And that was something that was unexpected.
We far exceeded our plan on digital for the fourth quarter.
So that was really sort of the aha moment if you want to say that about how to take a look at the store base with a more critical eye.
They are not in the markets in which we are closing.
But that's a good thought.
And frankly we did that intentionally because we didn't want to make the results of these stores driven by anything else that was happening in that market.
But having said that I still think the biggest opportunity for the small store pilot will be as we review our overall store portfolio, as leases become up over time, if we're able to prove successful in this much smaller store and leverage the digital growth in our business I think that could be a major change for us in terms of our expense structure and our fixed cost as Wes just alluded to.
And it doesn't have to be a 35,000, we have plenty of 64,000 and 55,000.
So it's more about having the toolbox to better rightsize the store base as we move forward.
All right, thank you.
Thanks everybody.
| 2016_KSS |
2017 | RRD | RRD
#Thank you, Richard, and thank you, everyone, for joining RR Donnelley's fourth-quarter 2016 results conference call.
Joining me on today's call are <UNK> <UNK>, RR Donnelley's President and Chief Executive Officer, and <UNK> <UNK>, our Chief Financial Officer.
At the conclusion of today's prepared remarks, <UNK>, <UNK> and I will take questions.
The information that will be reviewed during this call is addressed in more detail in our fourth-quarter press release, a copy of which is posted on the Investors section of our website at rrdonnelley.com.
This information will also be furnished to the SEC on the form 8-K we filed today.
Throughout this call we will refer to forward-looking statements, including comments on our financial outlook and strategy, all of which involve risk and uncertainties.
Therefore, our actual results could differ materially from our current expectations.
For a complete discussion of the factors that could cause our actual results to differ materially, please refer to the cautionary statement included in our earnings release and further detail in our annual report on form 10-K, our quarterly reports on Form 10-Q, and other filings with the SEC.
Further, we will discuss non-GAAP financial information.
We believe the presentation of non-GAAP results provides investors with useful supplementary information concerning the Company's ongoing operations and is an appropriate way to evaluate the Company's performance.
They are, however, provided for informational purposes only.
Any reference to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release and on our website.
I will now turn the call over to <UNK>.
Great.
Thanks, <UNK>.
Good morning, everyone.
Thank you for joining us on our call today.
I'd like to begin by saying that we are pleased for our results for the fourth quarter of 2016, as we grew both our net sales and our non-GAAP income from operations for the second consecutive quarter.
Our results for the fourth quarter, similar to our third-quarter results, reflect continued improvements in our performance trend from the first half of 2016.
Our strong performance continues to be driven by our differentiated ability to provide cost-effective products and services as well as comprehensive communication solutions that enable our clients around the world to effectively create, manage, and execute their marketing and business communications.
Further, we continue executing on our strategy to optimize our core, accelerate our strategic growth offerings, broaden our existing client relationships, and scale our multi-channel communication services.
Underlying our strategic growth initiatives is our ongoing focus on adjusting our cost structure to match our sales performance while also maintaining a disciplined approach to capital allocation.
As an industry leader serving a large, fragments and evolving market, we are well positioned to meet growing client demand for innovative solutions that improve communications' effectiveness, reduce complexity and decrease cost.
The choices companies have to make to effectively communicate with their intended audiences are becoming critical in growing investments.
As our clients gain experience communicating in a multi-channel world, they are recognizing that how these communications are managed, optimized and delivered across the right channels makes those communications more effective and more impactful.
And while many companies have learned how to effectively communicate using individual channels, print or digital, or social, very few have mastered a fully integrated approach using multiple channels.
Companies are increasingly challenged to manage their content and deliver it across a complex maze of channels, all while reducing their cost.
Siloed processes, numerous suppliers, and rapidly involving technology, impact both current and future communications as brands are pressured to deliver meaningful customer experiences and the stakes are high for them to get it right.
Research from the Aberdeen Group shows that companies with strong omni-channel customer engagement efforts retained, on average, 89% of their customers compared to just 33% for companies with weak omni-channel customer engagement, yet most companies are challenged to put it all together.
Effective, impactful communications are at the heart of every successful organization and are at the core of what we do.
Whether unmatched portfolio products and services, specialized expertise and innovative technologies, we're confident in our ability to effectively serve the expanding and complex needs of our clients.
We are utilizing each of our offerings individually to extend our market position through new client acquisition.
We are providing combinations of our offerings to create bundled solutions as we expand our relationships with our more than 52,000 existing clients, and we continue to scale our multinational capabilities, including content management, digital services, and work flow automation to further expand our long-term strategic relationships with our clients by transforming the way they connect, interact, and engage with their customers.
Every day we are providing individual products, bundled offerings and integrated communication solutions across virtually all market segments to help our clients create those meaningful connections with their target audiences.
I'd now like to share a few examples of how we are creating value for our clients worldwide.
To further expand our marketing communications capabilities, in the third quarter of 2016, we acquired Precision Dialogue, an insights driven, omni-channel customer engagement firm.
We use these new capabilities to develop an innovative solution for a large national retailer faced with database inefficiencies, no real-time data, infrequent reporting, limited data analytics and underperforming marketing programs.
We rebuilt the client's database to become the realtime engine for their marketing initiatives, with RRD performing all of their analytics, managing all their marketing campaign development and executing all of their campaigns across multiple channels, including integrating their direct mail with digital, web, and mobile.
The results have been significant.
Our integrated offering through the combination of print and digital communications delivered a tremendous improvement in their return on investment as compared to their prior efforts.
We monitor performance by channel, by campaign type, and even by local store, which enables us to optimize the program for the client over time.
Our ability to develop insight-driven communication strategies that guide marketing initiatives and lead to improved client engagement through a true one-to-one dialogue further enhances our marketing communications offering.
In the complex and fast moving world of secure business communications, a growing number of our clients are searching for a more comprehensive, effective, and modernized offering to replace their legacy, homegrown, and aging data management applications.
To solve that challenge, we've developed a hosted client communications management platform that provides highly automated work flow tools to manage the entire communications process, from content create, composition and approvals through production, delivery, and optimization.
We provide these services while ensuring the highest level of security and compliance throughout the process.
Whether the individual technologies are housed at RR Donnelley or at the client's location, the work flow is seamless and provides significant value well beyond traditional print and mail business applications.
In the UK, we work with businesses to develop effective communication solutions that improve the customer experience and allow our clients to focus on what they do best.
We were recently selected to manage the omni-channel business communications services for Schroders, a global asset management company.
We have a team of 40 individuals working in a creative studio in Schroders' London headquarters to deliver graphic design, brand governance, and business presentations for delivery across all media channels.
Additionally, we provide reprographics, mail room and records management services onsite and print procurement and warehousing from a nearby RR Donnelley facility.
From creative design to digital and print production to multi-channel delivery, we are providing Schroders with an integrated end-to-end communications management service.
We also continue to extend our relationships with our existing clients while accelerating our strategic growth offerings.
Our packaging solutions team, which specialize in consumer electronics, medical devices, pharmaceutical, health and beauty, and wine and spirits markets was selected by a longstanding telecommunications client to manage a complex new product launch.
Because of our extensive capabilities, our packaging solutions team managed the entire project from packaging design through print production, including inbox materials, labels, retail packaging.
The structure of design was supported by our Santa Clara, California, office who worked seamlessly with our China new product development team to manage this complex solution.
And like many of our other clients, the success of this project has led to additional opportunities with this client.
From a market vertical perspective, in the healthcare industry we are providing the expertise in the economies of scale to execute our clients' non-core processes more effectively and more efficiently.
Our solutions integrate seamlessly into their communication work flows, with industry-leading capabilities, enabling our clients in this highly regulated industry to focus on their most critical market differentiators.
In 2016, we became among the first companies to have successfully leveraged and incorporated the HITRUST Common Security Framework program in to the annual SOC 2 audit process.
HITRUST Common Security Framework is an information security framework created to meet the specific needs of the healthcare industry.
The completed SOC 2 report attests to RR Donnelley's compliance with the HITRUST controls in three of the AICPA trust principles.
We are proud of this accomplishment as just one example of how we prioritize the importance of our data security for all of our clients.
Additionally, our sustained commitment to innovation continues to produce marketable intellectual property and create significant value for our customers.
Our approach leverages a combination of organic development, external partnerships, and new technology investments to expand our patented capabilities within areas such as variable print in RIFD technology, printed electronics, adhesive coatings, commercial and direct mail applications, and technologies associated with high-speed color digital presses.
These accomplishments, driven by our focused strategy, enable us to continue to provide differentiated value for our clients as a leading provider of effective marketing and business communications.
With that, I will now turn it over to <UNK> <UNK>.
<UNK>.
Thank you, <UNK>.
The primary focus of my comments will be on certain non-GAAP results and measures.
Please refer to the supporting schedules in our earnings release and on our website for a reconciliation of GAAP to non-GAAP results.
References and comparisons of income statement amounts to prior periods will be on a continuing operations basis after giving effect to the spin-offs of LSC and Donnelley Financial, effective October 1, 2016.
Overall, we are pleased with our fourth-quarter operating results as the net sales and profit trends continue to improve versus the first half of the year and as compared to the prior year.
Fourth-quarter 2016 net sales of $1.88 billion grew $67 million, or 3.7%, as compared to the fourth quarter of 2015.
This increase was primarily due to $80.4 million of net sales previously recognized by reporting units that are now part of LSC and Donnelley Financial and the previously announced acquisition of Precision Dialogue, which contributed $14 million of net sales in the quarter.
Partially offsetting these increases were changes in foreign exchange rates, which negatively impacted fourth-quarter net sales by $16.1 million and a $6.3 million negative impact from several small acquisitions earlier in the year.
Adjusted for these factors, consolidated net organic sales declined 0.4% as volume growth in the international and strategic services segments was more than offset by $15.5 million of lower postage pass-through sales in the strategic services segment, price erosion across all three segments and volume declines in the variable print segment.
Non-GAAP gross profit for the fourth quarter of 2016 was $363.9 million, down $9.7 million versus $373.6 million in the fourth quarter of 2015.
Continued cost reductions from productivity improvements were more than offset by price pressure in most product categories, unfavorable product mix, and a one-time charge in the logistics reporting unit within the strategic services segment.
As a percentage of net sales, non-GAAP gross profit was 19.4% in the fourth quarter, down 1.2 percentage points from 20.6% reported in 2015.
Fourth-quarter of 2016 non-GAAP SG&A of $211.4 million decreased $5.7 million from $217.1 million reported in last year's quarter, primarily due to cost reduction initiatives and allocation differences resulting from the spin-offs, partially offset by increased expenses associated with higher net sales.
Fourth-quarter non-GAAP SG&A as a percentage of net sales was 11.3%, an improvement of 0.7 percentage points from 12% reported in the fourth quarter of 2015.
Fourth-quarter 2016 non-GAAP income from operations was $101.8 million, up $1.2 million, or 1.2%, from last year, as lower SG&A and depreciation and amortization expense more than offset lower gross profit.
As a percentage of net sales, non-GAAP income from operations of 5.4% was down slightly as compared to 5.6% reported last year.
Non-GAAP adjusted EBITDA of $152.5 million, or 8.1% of net sales, was down slightly from $156.5 million, or 8.6% of net sales, reported in 2015.
In a GAAP basis, we reported a loss per diluted share for the fourth quarter of $6.98, which included a $7.42 per-share charge for the impairment of good will and intangibles in our commercial and digital print and statement printing reporting units, both within our variable print segment and a net $0.07 per share for spin-off related transaction expenses and other items.
Excluding these items, our fourth-quarter non-GAAP diluted earnings per share was $0.51 compared to $0.53 in the fourth quarter of 2015.
The slight reduction was due to higher income from operations and non-operating income and lower interest expense, which were more than offset by a significantly higher effective tax rate in the fourth quarter of 2016, primarily due to a charge to record evaluation allowance on certain state-deferred tax assets.
Next, I will discuss fourth-quarter 2016 net sales and non-GAAP income from operations for each of our segments in more detail.
Fourth-quarter 2016 net sales in our variable prints segment were $833.6 million, which is down $6.4 million, or 0.8%, from fourth quarter of the prior year.
Volume increases in our commercial and digital print and labels reporting units and growth from digital print and inserting operations of Precision Dialogue were more than offset by volume declines, primarily with our direct mail and forums reporting units and modest price erosion throughout the segment.
Variable print generated non-GAAP income from operations of $64.7 million, up slightly from $64.3 million reported in the fourth quarter of 2014.
Increases from productivity improvements, the Precision Dialogue acquisition, and lower depreciation and amortization expense were partially offset by modest price erosion and net volume declines.
Non-GAAP adjusted EBITDA was $95.7 million, down slightly from $97.1 million in the fourth quarter of 2015.
Strategic services generated fourth-quarter 2016 net sales of $497.3 million, which is an increase of $80.7 million, or 19.4%, as compared to last year's fourth quarter.
Net sales in the quarter benefited from $76.7 million of net sales previously recognized by reporting units that are now part of LSC and Donnelley Financial.
In addition, volume increases in our logistics and sources reporting units and net sales from Precision Dialogue's data analytics services offerings also benefited the current quarter.
Partially offsetting these increases were lower postage pass-through sales of $15.5 million, volume declines within digital and creative solutions and modest price declines in the segment.
Changes in fuel surcharges, which have negatively impacted our growth over the last two years, did not have a significant impact year over year in the fourth quarter.
Non-GAAP income from operations in strategic services of $1.6 million was down $10.7 million in the quarter, primarily due to a one-time charge of $8.4 million in our logistics reporting unit and modest price declines, which were partially offset by net volume increases, including those from the recent acquisition of Precision Dialogue.
Non-GAAP adjusted EBITDA was $7 million, down from $16.9 million in 2015.
Fourth-quarter 2016 net sales in our international segment were $545.4 million, which is a decrease of $7.3 million, or 1.3%, from $552.7 million reported in the fourth quarter of 2015.
Significant volume increases in our Asia and Latin America reporting units and net sales previously recognized by a reporting unit that's now part of LSC were more than offset by the negative impact of changes in foreign exchange rates, volume declines in the global turnkey solutions, business process outsourcing in Canada recording units, previously small dispositions and price pressure in the segment.
Non-GAAP income from operations in international was $51.8 million, which is an increase of $2.8 million, or 5.7%, versus $49 million reported in the fourth quarter of the prior year.
Favorable mix, higher productivity, and lower depreciation and amortization expense were partially offset by modest price erosion.
Non-GAAP adjusted EBITDA was $66.1 million, down from $67.1 million for the 2015 period.
Fourth-quarter 2016 non-GAAP unallocated corporate expenses were $16.3 million, which is an improvement of $8.7 million from the fourth quarter of 2015, primarily due to cost reduction activities and allocation differences resulting from the spinoffs.
Net cash provided by operating activities during the fourth quarter of 2016 was $117.4 million, down from $447.8 million generated in the prior-year period.
As a reminder, the prior period includes cash provided by LSC and Donnelley Financial operations and has not been restated.
The 2016 quarter also included spin-off related cash payments of $29.7 million.
Capital expenditures were $24.2 million during the current quarter.
Before we discuss the balance sheet and 2017 guidance, I'd like to briefly summarize our results for the full year from continuing operations.
Full-year 2016 net sales of $6.9 billion declined $41.6 million, or 0.6% compared to 2015.
2016 results included $123.2 million for net sales previously recognized by reporting units that are now part of LSC and Donnelley Financial and $22.4 million from the third-quarter acquisition of Precision Dialogue.
Changes in foreign exchange rates negatively impacted net sales during the year by $71.3 million and several smaller dispositions in 2015 and 2016 reduced year-over-year net sales by $37.3 million.
Adjusting for these items, full-year 2016 net organic sales declined 1.2%.
A net volume increase, primarily driven by our strategic services and international segments, was more than offset by modest price erosion across all three segments, $29.9 million of lower fuel surcharges, and $28.8 million of lower postage pass-through sales, both of which occurred in our strategic services segment.
Our full-year 2016 non-GAAP income from operations was $284.1 million compared to $300.5 million in 2015.
Notable items contributing to the 2016 decline include the one-time charge and logistics and an $8 million pre-tax charge for a legal settlement reported earlier in the year.
These items, along with price pressure and unfavorable mix, were partially offset by lower depreciation and amortization expense, cost reduction activities and growth from the Precision Dialogue acquisition.
Non-GAAP operating margin for the full year of 4.1% was 20 basis points lower than the 4.3% reported in 2015.
Full-year 2016 non-GAAP adjusted EBITDA was $488.3 million, down from $533 million reported last year.
Our full-year 2016 non-GAAP diluted earnings per share was $0.69 compared to $0.97 in 2015 due to a significantly higher effective tax rate in 2016, primarily from a charge to record evaluation allowance on certain state-deferred tax assets and lower income from operations, partially offset by lower interest expense due to lower average borrowings outstanding.
Turning now to the balance sheet, as of December 31, 2016 we had total cash on hand of $317.5 million and total debt outstanding of $2.39 billion, including $185 million drawn against our credit facility.
Remaining availability on the credit facility was $403 million as of December 31.
During the fourth quarter, we retired $222 million of our long-term notes by drawing on our credit facility, which has since been partially repaid.
Now that we've completed the spin-off transactions, our gross leverage at December 31 is 4.89 times, which is higher than our targeted gross leverage range of 2.25 to 2.75 times.
We do expect our leverage to be reduced in 2017 as we plan to reduce our long-term debt by dispossessing of our 19.25% equity positions in both LSC and Donnelley Financial and cash provided by operating activities.
At year end, our pension and other post-retirement benefit plans were underfunded by $234 million, which is significantly improved from the $680 million unfunded level at the end of 2015, which included underfunded obligations that were subsequently transferred to LSC and Donnelley Financial.
Required contributions in 2017 under all pension and other post-retirement benefit plans are expected to be approximately $17 million.
Looking ahead to 2017, we expect net sales to range from $6.8 billion to $7 billion.
Non-GAAP income from operations is expected to range from $275 million to $300 million and fully diluted non-GAAP earnings per share is expected to range from $0.90 to $1.20.
There are several key factors that impact our outlook for next year, including the following.
In variable print, we expect that the increase in net sales from the digital print and inserting operations of the recent Precision Dialogue acquisition and volume increases in commercial and digital print, direct mail and labels will be slightly more than offset by secular volume reductions in forums and statement printing and modest price erosion across most product categories.
In our strategic services segment, we expect continued volume growth in our logistics reporting unit, including a small increase in fuel surcharges, increased net sales from Precision Dialogue's data analytics services offering, plus additional net sales previously recognized by reporting units that are now part of LSC and Donnelley Financial.
We expect these factors will be partially offset by lower postage pass-through sales and modest price erosion.
In the international segment, we expect increased volume in our global outsourcing and Asia reporting units and additional net sales previously recognized by a reporting unit that is now part of LSC to be partially offset by modest price erosion, difficult economic conditions across Latin America and the effect of changes in foreign exchange rates.
We expect to normalize our variable compensation expense in 2017, which will result in a significant increase in expense.
We expect pension and other post-retirement benefits income of $15 million, which is $7 million lower than 2016, primarily due to reductions in our opev income.
We plan to continue our strong focus on cost reductions in order to offset the impact of various items, including inflation and price erosion in each of our segments.
Depreciation and amortization expense is expected to be in the range of $200 million to $205 million, we expect interest expense to be between $175 million and $180 million and our full year non-GAAP effective tax rate is anticipated to be between 32% and 33%, which is down significantly from the 2016 rate since we do not expect the one-time items recorded in 2016 to repeat.
Shifting to our 2017 cash flow, we expect cash flow from operations to range from $220 million to $270 million and capital expenditures are expected to be between $100 million and $115 million.
Before we open up the call for questions, I would like to review our ongoing capital priorities.
Although I stated earlier that we plan to lower our debt leverage in 2017 and beyond, we will continue to make strategic investments in our business, including both organic investments and acquisitions that help us de-lever over time and accelerate achieving our strategic goals.
We also continuously evaluate our portfolio for strategic opportunities to optimize shareholder value and we remain committed to our quarterly dividend, although our Board does review our dividend recommendation each quarter.
Finally, we do not expect to repurchase shares in the foreseeable future.
Now, Operator, let's open up the line for questions.
Yes, Charlie, it's hard to articulate a number of those assumptions in the prepared remarks, but we are expecting revenue ranging ---+ a $200 million range.
We do expect that to be down slightly to up slightly depending which end of the range you're on there.
We are getting benefits coming through and you can see it in our corporate segment most notably.
We're getting net benefits from the allocation differences with last year to going in to this year.
You saw that about $9 million in the current quarter.
We do have some other cost increases that have to be taken into consideration, one of which is a significant increase in our compensation expense as we normalize some of the compensation programs coming off of the lower results for the 2016 period.
So that is certainly something that has to be factored in as you really kind of look to the 2017 EBITDA as well as operating income results.
Charlie, it's <UNK>.
I'll jump in here.
I think the ---+ in terms of economic improvement, we're assuming for 2017 an environment that was very similar to what we saw in 2016.
It was a bit of a tale of two stories for those who have been following us in that the first-half volumes that were coming through from a multiple of platforms were not nearly as strong as what we saw were improving towards the back half of the year.
So we look at the collective mix across the entire year of a softer first half and improving back half.
We also saw as we completed ---+ got toward the end of the year some softness in a couple individual product lines.
So there's quite a bit of volatility that still exists across the different product offerings we have as we head in to 2017.
But essentially the sort answer to your question is an economic environment that looks a lot like 2016 is our assumption.
I'd say there's two things there.
The first one is the mix of work that is running through the units within strategic services and an increased focus on the more profitable side of that mix is directly on our radar screen as we head in to 2017.
The second piece of that is we know that we have to continue to focus on leveraging that cost structure, reducing that cost structure in certain areas as well to get those margins heading back in the right direction and both of those are firmly on our radar screen.
I mentioned a couple times in my prepared remarks, too, we had these sales that used to be reported in reporting units that are part of LSC and DFS today.
That revenue that we're recognizing today that is increased revenue in that segment, that's all outsourced business to us.
We still send that business over to LSC primarily and they actually do the production on it, so it's an outsourced piece of business for us.
Those revenues coming into that mix and creating some of the growth, those are lower margin revenues or sales for us because of the outsourced nature of those activities.
Charlie, it's <UNK> again.
Starting with the global turnkey side, as most are aware, there's a lot of large, complex customers that make up the global turnkey business and as their volumes have volatility to them from a quarter-to-quarter basis, that flows directly through to us, obviously.
So in terms of what we're seeing there and our outlook there, we are aggressively pursuing new opportunities to expand and diversify the global turnkey offering, a critical component of the future of that particular business.
From a BPO standpoint, I would say comparable approach to that as well.
The dynamics within that business I don't think ---+ there are opportunities that remain in that business to continue to improve upon the top line for that business.
It has large customers that as their volume fluctuates it directly impacts us as well.
But relative to any systemic issue, problem there relative to the customers we're serving, we think we have opportunities to grow that business or get the revenue trajectory on the right line.
Okay.
Thank you.
If there's no other questions, we're going to go ahead and conclude the call.
I would like to thank everyone on the call for spending time with us today.
With the successful completion of our first standalone quarter as the new RRD, we continue to remain confident and optimistic about our future as a leading provider of integrated multi-channel marketing and business communications services.
I would also like to take the time to thank the dedicated and talented employees of RRD for your tremendous passion, deep commitment and significant contributions throughout 2016.
With that, I'll turn it back over to <UNK> for some final housekeeping.
Thanks, <UNK>.
As a reminder, a replay of RR Donnelley's fourth-quarter 2016 results call will be posted on the Investors section of our website at rrdonnelley.com.
Thank you for joining us.
That concludes the RR Donnelley fourth-quarter 2016 earnings call.
| 2017_RRD |
2017 | MHO | MHO
#Thank you, and thank you for joining us today.
On the call is Bob <UNK>, our <UNK>EO and President; Tom Mason, EVP; <UNK> <UNK>, President of our Mortgage <UNK>ompany; Ann Marie Hunker, our VP and <UNK>orporate <UNK>ontroller; and Kevin Hake, Senior VP.
First, to address Regulation Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant nonpublic items with you directly.
And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call.
Also, be advised that the company undertakes no obligation to update any forward-looking statements made during this call.
Also during this call, we disclose certain non-GAAP financial measures.
A presentation of the most directly comparable financial measure calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP financial measure and the GAAP measure was included in our earnings release issued earlier today and is available on our website.
Now I'll turn the call over to Bob.
Thanks, Phil.
Good afternoon, and thank you for joining our call.
As stated in our release issued this morning, we had a very strong first quarter and are off to a very good start in 2017.
We feel really good about our results and are excited to share the highlights with you, led by a 56% increase in pretax income, a 170 basis point improvement in our operating margins and many record-setting achievements.
We had record first quarter revenues, $407 million, 26% better than last year.
Record closings or homes delivered of 1,038 homes, 18% higher than last year's first quarter.
Record first quarter sales or new contracts of 1,454 homes, 11% better than last year.
In fact, our first quarter sales represent the highest number of new contracts for any quarter in our company's history.
Our first quarter backlog reached a 10-year high with a sales value of $834 million, 14% better than a year ago.
And units in backlog reached 2,220 homes, approximately 13% higher than a year ago.
Our average price in backlog was, as expected, relatively flat, coming in at $376,000 a home compared to $371,000 a year ago.
We were also pleased to successfully open 24 new communities during the quarter, a record for quarterly openings, thus ending the quarter with 184 active communities, 2% higher than last year.
Obviously, we were very happy to see an 11% growth in sales, with communities up only 2%.
For 2017, we fully expect to increase our average community count by 5% to 10% over 2016.
M/I Financial, our financial services business, once again had a very strong quarter, increasing their pretax income by 45% over last year.
<UNK> <UNK> will discuss these results in more detail in a few minutes.
And we continue to see improvement in profitability, with year-over-year 80 basis point improvement in our adjusted gross margin as well as improved SG&A operating leverage.
Now I'll provide more detail about our specific regional housing markets and their performance.
First, the Southern region, which is comprised of our 3 Florida and 4 Texas markets, we had 419 deliveries during the quarter, which represented 40% of total volume.
New contracts in the Southern region increased 20% year-over-year.
We are achieving very solid results in all of our Florida markets.
Orlando and Tampa sales were strong throughout the quarter, and Sarasota, in only its third quarter of operations for us, is also off to a solid start.
We're excited about our new Sarasota division.
In our Texas operations, new contract growth was strong in the first quarter, with sales up in all 4 markets.
Homes delivered were strong as well.
The dollar value of sales backlog in the Southern region at the end of the quarter was 19% higher than last year, and our controlled lot position in our Southern region increased by 13% compared to a year ago.
We had 87 communities in the Southern region at the end of the quarter.
This represents a 28% increase from March of last year.
And as to our 4 Texas divisions specifically, we had 53 communities at the end of the quarter versus 40 a year ago.
We continue to be excited about our growth opportunities throughout the Southern region.
Next is our Midwest region, which consists of our operations in <UNK>olumbus, <UNK>incinnati, Indianapolis, <UNK>hicago and Minneapolis.
The Midwest had 379 deliveries in the quarter, 18% increase from last year and 37% of company-wide total.
New contracts of the Midwest region were up 12% for the quarter.
We're very pleased with our results in all of our Midwest markets, particularly so in our new Minneapolis division, where we are acquiring 5 new communities from another builder.
We expect meaningful growth in Minneapolis over the next several years.
During the quarter, I also want to note that we opened our first, first-time buyer Smart Series community in <UNK>olumbus, Ohio.
The Smart Series is our new line of more affordable product that we initially launched last year in Florida.
So far, this product has been very well received, and we are excited about its rollout in future communities over the coming quarters and years.
Our sales backlog in the Midwest was up 13% from the end of quarter 1 last year in dollar value, and our controlled lot position in the Midwest increased 10% compared to a year ago.
We ended the quarter with 63 active communities in the Midwest.
This is a decrease of 13% from a year ago.
Finally, our Mid-Atlantic region, which consists of our <UNK>harlotte and Raleigh as well as D.
<UNK>.
markets.
In the Mid-Atlantic, new contracts were down 6% for the quarter compared with a year ago.
Our sales backlog value was up 9% at quarter end from a year earlier.
We ended the quarter with 34 active communities in the Mid-Atlantic region, which is down 17% from a year ago.
We delivered 8 ---+ or 240 homes, that's 240 homes in the Mid-Atlantic region, during the first quarter.
This is an 18% increase from a year ago and represents 23% of company-wide total.
Our Raleigh operation had a very strong quarter, with improvement in sales and deliveries, while <UNK>harlotte volume was a bit lower as new communities have not yet come online, but please note, we have a very strong operation in <UNK>harlotte.
Demand on the D.
market remains uneven, and we are managing our investment in this market very carefully.
Our total lots controlled in the Mid-Atlantic region at the end of the quarter was essentially flat with last year, D.
being down, both <UNK>harlotte and Raleigh increasing.
Before I turn the call over to Phil, let me conclude by saying that we are well-positioned to have a very good 2017.
Our balance sheet is strong.
Our net debt-to-capital ratio is at 45%.
Our strategy will continue to focus on improving our profitability, both bottom line as well as our returns, continuing to grow our market share in our existing markets, keenly focusing on quality and customer service and investing in attractive land opportunities.
Now Phil will provide more specifics on our financial results.
Thanks, Bob.
New contracts for the first quarter increased 11% to an all-time quarterly record of 1,454.
Our traffic for the quarter was up 2%, and our community count was up 2%.
Our new contracts were up 6% in January, up 10% in February and up 14% in March.
As to our buyer profile, about 37% of our first quarter sales were to first-time buyers compared to 45% in 2016's fourth quarter.
And 44% of our fourth quarter ---+ of our first quarter sales were inventory homes compared to 47% in 2016's fourth quarter.
Our active communities were 184 at the end of the quarter.
The breakdown by region is 63 in the Midwest, 87 in the South and 34 in the Mid-Atlantic.
During the quarter, we opened a first quarter record 24 new communities while closing 18.
For 2017, our current estimate is that our average community count for the year should be up about 5% to 10% over 2016 levels.
We delivered 1,038 homes in 2017's first quarter, delivering 58% of our backlog compared to 57% a year ago.
Revenue increased 25% in the first quarter over last year, reaching a first quarter record of $407 million.
This was primarily a result of an increase in the number of homes we delivered and average closing price as well as record revenue from our financial services operation.
Our average closing price for the first quarter was $373,000, a 6% increase over last year's $353,000.
And our backlog sales price is $376,000, up 1% from a year ago.
Land gross profit was $400,000 in 2017's first quarter compared to $700,000 in last year's first quarter.
We sold land as part of our land management strategy and as we see profit opportunities.
Our first quarter gross margin was 21.3%, up 80 basis points year-over-year and up 50 basis points over last year's fourth quarter, excluding stucco and impairment charges that we incurred in the respective 2016 periods.
Our first quarter SG&A expenses were 13.5% of revenue, improving 20 basis points compared to 13.7% a year ago, reflecting greater leverage from higher closing revenue.
Improving our operating efficiencies has been a major area of focus, and we believe we will continue to see improved operating leverage as our newer divisions increased their volume and gained better scale.
The dollar increase in SG&A was primarily related to the cost of opening new communities and higher payroll-related costs from an increase in our employee count to support growth in our business and improvement in our results.
Interest expense increased $73,000 for the quarter compared to last year.
Interest incurred for the quarter was $8.2 million, the same as last year's first quarter.
We have $16 million in capitalized interest on our balance sheet.
This is about 1% of our total assets.
Our effective tax rate was 36% this year in the first quarter, and we estimate our annual effective rate to be 36% as well.
Our earnings per diluted share for the quarter was $0.55 per share.
This per share amount reflects $1.2 million of dividends preferred to our preferred shareholders and is calculated as if our convertible notes converted, adding back the convertible interest and treating the related shares as if they are outstanding.
Now <UNK> <UNK> will address our Mortgage <UNK>ompany's results.
Thanks, <UNK>.
We continue to manage our balance sheet carefully, focusing on investing in new communities while also managing our capital structure.
Total homebuilding inventory at March 31, '17, was $1.3 billion, an increase of $133 million, above last year levels, primarily due to higher investment in our backlog, higher community count and more finished lots.
Our unsold land investment at March 31, '17, is $588 million compared to $572 million a year ago.
At March 31, we had $219 million of raw land and land under development and $369 million of finished unsold lots.
We owned 4,606 unsold finished lots, with an average cost of $80,000 per lot.
And this average lot cost is 21% of our $376,000 backlog average sale price.
Our goal is to maintain about a 1 year supply of owned finished lots.
The market breakdown of our $588 million of unsold land is $183 million in the Midwest, $257 million in the South and $148 million in the Mid-Atlantic.
Lots owned and controlled at March 31, '17, totaled 24,400 lots, 43% of which were owned and 57% under contract.
We own 10,400 lots, of which 34% are in the Midwest, 47% in the South and 19% in the Mid-Atlantic.
During 2017's first quarter, we spent $82 million on land purchases and $39 million on land development for a total of $121 million.
About 20% of the purchased amount was for raw land.
Our estimate today for 2017 land purchase and development spending is $500 million to $550 million.
At the end of the quarter, we had 369 completed inventory homes, 2 per community, and 993 total inventory homes.
Of the total inventory, 279 are in the Midwest, 520 are in the Southern region and 194 are in the Mid-Atlantic.
At March 31, '16, we had 326 completed inventory homes and 801 total inventory homes.
Our financial condition continues to be strong with $672 million of equity and our homebuilding debt-to-cap ratio of 45%.
At March 31, '17, we had $111 million outstanding under our $400 million unsecured revolving credit facility.
We have $58 million of convertible debt due September of '17 at a conversion share price of $23.80 per share.
This completes our presentation.
We'll now open the call for any questions or comments.
That's a great question.
It's Bob <UNK>.
I'll take a crack at answering it.
I think in terms of pricing pressure and outlook for margins, it's very ---+ we don't have any guidance in the market on it.
And frankly, I think it's a little perilous to try to give it because it's just very, very difficult to predict things.
<UNK>onditions are good now, but it's very market-specific.
And we do have pricing power in some communities, but within the same city, we might not have pricing power in others.
I think if I had to guess, and that's what a lot of this is, I see margins being about where they are.
I mean, we're obviously seeing some pricing pressure on the raw material side.
Everybody's been talking about the last 12 hours of lumber increases and whether that's ---+ someone told me is it a paper cut or a splinter.
I don't know what it is, but I do know it just costs more.
And land prices continue to go up.
Admittedly, there's very low inventory levels.
Mortgage rates continue to be extremely favorable.
A lot of the wind is at our back, but yet, I would think if you sort of shake all that up and pour it out, I see margins staying about where they are through the near term.
And I think we can ---+ as our volume continues to grow, we believe that we cannot only improve our bottom line profit, but a central goal of our company is to improve our returns, which we've had success doing in terms of our ability to continue to see at least consistent sales pace per community.
If you grow communities by 10%, does that mean that everything else goes up 10%.
We would hope to maintain the sales pace that we're at.
But look, we wouldn't be spending $500 million ---+ this is a long answer to your question.
But we wouldn't be spending $500 million to $550 million rather on land this year if we weren't a lot more optimistic about the continued traction that I think housing has.
Not to say there won't be a hiccup every now and then, but we feel good about housing over the next several years, and we feel very good about the strength of our operating teams and the markets that we're in.
I think a lot of us want to jump in on that one, but I'll start.
First of all, job 1, job 2 and job 3 is to try to get the best possible communities that we can get in order for us to be selling our homes and communities where people want to live.
That is really easy to say.
It is not so easy to do.
I've said this before, I'd rather pay more money for an A location than steal a B or a B+.
And that's just sort of how we feel about it.
<UNK>ertain markets, there's a lot more opportunity to acquire lots on a takedown basis.
Others, it's next to impossible.
We're doing virtually ---+ I don't think we're doing any land banking.
If we are, I'm not aware of it.
Phil is shaking his head, approving an agreement.
So we have no land banking transactions.
My sense is, is that the amount of option lots will drop, but we feel great ---+ I appreciate your comment.
We feel great that we can control 24,500 lots.
Only about 10,000 or 11,000 are actually on our books today.
And while there may be a spot or 2 here in some of our markets where we're a little bit land poor, for the most part, we have a very solid outlook on our land ---+ very solid view of our land position.
Phil, did you want to add anything to that.
No.
As we came out of the downturn, we kind of taken the approach that we would like to own a 2- to 3-year supply with a 1-year supply of finished lots just because you don't want to be ---+ weather issues, especially in the Midwest, developer might have built in those type things.
So we've pretty much been consistent about keeping a year of finished lots on the books.
The interesting thing, if you look at the average finished lot cost, we talked about at the end of March, the average finished lot cost was $80,000.
Of course, again, that's driven by location, product and a lot of different things.
But if you compare that to the second quarter of last year, it was $80,000.
The second quarter of '15, it was $68,000.
So just looking at the numbers, we had a pretty big escalation in land cost, but for different reasons, that's kind of slowed down.
Of course, we also talked about our purchases the first quarter, only 20% was raw, which was one of the lowest we've had.
But like Bob said, I wouldn't read a whole lot into that.
I mean, premier location is what we're always after.
But overall, we feel really good about the land book we have right now.
The first question I had, on the gross margin, could you talk about the components of that, of maybe housing versus financial services.
And were there any onetime gains in there that we need to think about as we're modeling forward.
Jay, when you look overall, the ---+ of course, we give a lot more detail in the release and also in the Q, we'll do.
But the homebuilding margins were pretty flat first quarter of this year to last year.
We did have very strong mortgage company results.
When <UNK> talked about the gain on the sale of servicing, that was not a significant number.
That was a $200,000 to $300,000 pretax gain number.
So it did come more from financial services.
Also, there's some interest, corporate-type numbers in there with a little bit of noise now and then.
One of the things that also helped our margins the first quarter of this year versus last year in general was mild weather.
We did not have the winter-type expenses that we did a year ago.
But as Bob said, I mean, we spent a whole lot of time focusing on margins.
We try to manage very carefully.
The way we open communities, only opened a certain number of lots, try to make sure we do a good job from a product and pricing.
We did open a whole lot of communities the first quarter, the most in our history.
We also exceeded sales the first quarter in our new communities as opposed to what we thought.
So there were some good things that can contributed to our sales and margin numbers in the first quarter.
Got it.
That's very helpful.
In terms of the community right through the rest of this year, could you talk about where are you going to be favoring one region over the other in terms of adding communities.
And where ---+ yes, I guess, that one and then I've got a follow-up.
I'll say one thing and then Phil can jump in.
I think the business is about 40% in the South and 40% in the Midwest and almost 25% in the Mid-Atlantic.
I know that adds up a little more than 100%, but you follow what I'm saying.
That's about where it is now.
Expect it to sort of stay that way over the next year or so.
And while the community openings may not necessarily reflect that, because there's a big difference between opening up a community with 200 lots and opening up a community with 18.
But Phil, you can give him the more detail.
Yes.
We're staying with the same estimate, Jay, that we had after a year of results last year that we expect the average community count to be up 5% to 10%.
So one number that looks a little bit strange the first quarter is that the Midwest community count is 63 compared to 72 a year ago.
There are more communities opening in the Midwest in the next few quarters.
We do expect to have more communities in the Midwest at year-end than we started this year with.
Of course, the South shows increase because of Texas divisions getting to scale, Sarasota starting up, et cetera.
The other area is the Mid-Atlantic, which is only 3 dimensions.
Bob talked a little bit about the <UNK>harlotte communities not getting opened quite.
And again, we had a couple of larger volume communities last year in <UNK>harlotte, which have closed down.
And then D.
<UNK>.
, we do have a lower community count than a year ago.
So I would expect we look at the end of the year, there'll be pretty good ups in the Midwest, pretty good ups in the South, with the Mid-Atlantic off.
Mixing that all together, being up 5% to 10% for the year.
Understood.
Okay, that's very helpful.
And then the last question I have is in terms of ---+ I know you guys disclosed the first-time buyer versus move up, but was there any change or radical change year-over-year in maybe a taxed product that you've sold or something different in the composition of what you're selling that would explain or add to the explanation of the improvement in the gross margin.
No.
I mean, we are ---+ Bob talked a little bit about the Smart Series being a more affordable price point.
But when you look throughout our product as far as entry-level, move up, et cetera, the margins are not really significantly different.
That's right.
Well, <UNK>, as we said in our comments, based on our higher backlog and community count growth and expected growth, we expect to continue to get leverage.
We did get about 20 basis points the first quarter, so that was good.
We do have more people than a year ago.
We have 15 housing division.
Some of our Texas divisions are still getting to scale in a lot of new communities.
So there's still increases going on.
But we do feel good about and plan to continue to get continued improvement in our SG&A leverage.
No, we don't make any comments on that.
There's no plans to enter any new markets at this time.
Similar to what we've said in previous calls, we continue to look.
We think that if the right opportunity presented itself in certain markets that we have been looking at, that we wouldn't hesitate to open in another market or 2.
Beyond that, nothing really to say on ---+ in response to the question.
Well, thank you very much for joining us.
Look forward to talking to you next quarter.
Thank you.
| 2017_MHO |
2018 | BGFV | BGFV
#Thank you, operator.
Good afternoon, everyone.
Welcome to our 2018 first quarter conference call.
Today, we will review our financial results for the first quarter of fiscal 2018 and provide general updates on our business as well as provide guidance for the second quarter.
At the end of our remarks, we will open the call for questions.
I will now turn the call over to <UNK> to read our safe harbor statement.
Thanks, Steve.
Except for statements of historical fact, any remarks that we may make about our future expectations, plans and prospects constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in current and future periods to differ materially from forecasted results.
These risks and uncertainties include those more fully described in our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our other filings with the Securities and Exchange Commission.
We undertake no obligation to revise or update any forward-looking statements that may be made from time to time by us or on our behalf.
Thank you, <UNK>.
Given the challenging conditions that our business faced during the first quarter, we are pleased that our bottom line came in at the top end of the guidance range that we provided in February.
As we shared on our last call, unfavorable record warm and dry weather conditions in our markets led to very weak sales over the first 7 weeks of the quarter.
We finally saw the arrival of cooler and wetter weather in late February and March, and this drove exceptional late season winter product sales but at a significant expense to our spring-related product categories.
Trending in our overall sales and product margins did improve as the quarter progressed, and this positive trending has continued into the second quarter.
Commenting on the first quarter, net sales were $234.2 million compared to $252.6 million for the first quarter of fiscal 2017.
Same-store sales decreased 7.5% from the first quarter of last year, when same-store sales increased 7.9% from the first quarter of 2016.
In terms of how the quarter rolled out, we comped down in the high teens in January as sales of winter products were very soft as a result of significantly warmer-than-normal weather versus spectacular winter weather in last January.
Our sales trends improved each week throughout February, with comps down in the low mid-single-digit range and continued to improve in March with comps down in the low single-digit range, even though we lost a day of sales due to the shift of the Easter Holiday.
In a rather remarkable weather anomaly, we actually did more winter-related business in March than in January this year.
However, the benefit of cold weather and higher winter sales in March was largely offset by the loss of more traditional Spring-related sales.
Overall, for the quarter, we experienced a high single-digit decrease in the number of customer transactions, a low single-digit increase in our average sale versus the prior year period.
From a product category standpoint, the combination of the weak winter-related sales over the first half of the quarter and weak non-winter product sales in March impacted each of our major merchandise categories and are trending over the course of the quarter.
We saw the largest swing in sales trends in our apparel category, which is heavily influenced by winter-related apparel in the first quarter.
It illustrate apparel was down in the low-double digit range for the overall quarter but up in the low-double digit range for the month of March as winter sales finally showed some life.
Our hardgoods and footwear categories were both down in the mid- to high single-digit range for the quarter.
Our merchandise margins for the quarter decreased 58 basis points compared to the first quarter of fiscal 2017, when merchandise margins increased by 228 basis points over the prior year period.
The decrease primarily reflects the sales mix shift away from higher margin winter product categories earlier in the quarter.
As with our sales, our product margin trending improved over each month of the period and turned slightly positive for March.
Now commenting on store activity.
We have no store openings or closings to report for the first quarter.
In the second quarter, we plan to open 2 stores and close 2 stores, including 1 closure related to a relocation.
Our current plans for the 2018 full fiscal year have us opening approximately 8 stores and closing approximately 3 stores.
Turning now to the second quarter.
As mentioned, our positive sales in March and trending has continued through April.
Same-store sales for the quarter to date are up in the low single-digit range, which includes the benefit of the Easter calendar shift.
The first half of the second quarter is a relatively low volume period for us.
The keys to the quarter will revolve around the strong selling periods surrounding Memorial Day, Father's Day and the start of the summer season.
We believe we are well positioned from our product standpoint as we head into the summer, and we hope to benefit from more favorable summer recreational conditions in our markets than we experienced last year.
As a reminder, last year, we had a slow start to the summer with heavy snowpack and unusually high water levels in our rivers and lakes, closing campgrounds and impacting participation in summer recreational activities throughout much of California.
Now I will turn the call over to <UNK>, who will provide more information about the quarter as well as speak to our balance sheet, cash flows and provide second quarter guidance.
Thanks, Steve.
Our gross profit margin for the fiscal 2018 first quarter was 31.1% of sales versus 33.1% of sales in the first quarter of fiscal 2017.
The decrease in gross margin for the period primarily reflects the 58 basis point decline in merchandise margins that Steve mentioned along with an increase in store occupancy expense as a percentage of sales.
Our selling and administrative expense as a percentage of sales was 31.4% in the first quarter versus 29.5% in the first quarter of fiscal 2017.
Overall, SG&A expense decreased $1.1 million year-over-year due primarily to lower advertising expense.
We effectively managed store labor to offset increases in employee wage rates during the period.
Our effective tax rate for the first quarter of fiscal 2018 was 7.7%, reflecting the impact of the new tax legislation and a write-off of deferred tax assets related to share-based compensation.
Now looking at our bottom line.
For the first quarter, we reported a net loss of $1.3 million or $0.06 per share, including a charge of $0.01 per share for the write-off of deferred tax assets related to share-based compensation.
This compares to net income in the first quarter of fiscal 2017 of $5.3 million or $0.24 per diluted share.
Turning to the balance sheet.
Our chain-wide merchandise inventory at the end of the first quarter was up 6.3% on a per-store basis versus the prior year, reflecting an increase in winter-related products after our unseasonably warm and dry winter.
We are comfortable reintroducing this winter product carryover next season, and we see little markdown risk associated with it.
Looking at our capital spending.
Our CapEx, including noncash acquisitions, totaled $2.5 million for the first quarter, primarily representing investments in store-related remodeling, IT systems and our distribution center.
We currently expect capital expenditures for fiscal 2018, excluding noncash acquisitions, of approximately $16 million to $20 million.
This reflects continued investment in store-related remodeling, new stores, our distribution center and IT systems as well as the purchase of a property adjacent to our corporate headquarters that we currently use as a parking area.
From a cash flow perspective, our operating cash flow was a negative $8.8 million for fiscal 2018's first quarter compared to a negative $1.1 million last year.
The decrease in operating cash flow primarily reflects a larger increase in merchandise inventory and a decrease in income compared to the same period last year.
In the first quarter, we paid our quarterly cash dividend of $0.15 per share, and we continued to repurchase our stock.
Pursuant to our share repurchase program, we repurchased 75,748 shares of our common stock for a total expenditure of $0.4 million during the first quarter.
As of April 1, we had $15.3 million available for future repurchases under our $25 million share repurchase program.
Like we have in the past, we will continue to evaluate the best use of our cash, whether it's for reinvesting in the company, dividends, stock buybacks or paying down our debt.
Our long-term revolving credit borrowings at the end of the first quarter were $68.9 million, which compared to borrowings of $45 million at the end of fiscal 2017 and $21.8 million at the end of the first quarter last year.
Our higher debt compared to the prior year primarily reflects our higher inventory levels as a result of the lower-than-anticipated demand for our winter-related products.
Now I'll spend a minute on our guidance.
For the fiscal 2018 second quarter, we expect same-store sales to be in the flat to positive low single-digit range and earnings per diluted share to be in the range of $0.04 to $0.12.
Second quarter guidance reflects a small benefit as a result of the calendar shift of the Easter holiday, which is expected to be offset by a small negative impact from the July 4 holiday, shifting 1 day further into our third quarter this year.
For comparative purposes, in the second quarter of fiscal 2017, same-store sales increased 0.8% and earnings per diluted share were $0.13.
Operator, we are now ready to turn the call back to you for questions and answers.
Low single digits.
I think that's pretty spot on.
I mean it's ---+ I'm not sure.
The word is it's too early to comment on that, but the category has remained somewhat soft.
Although certainly, not as impactful to our overall results as we experienced throughout last year.
I mean, we're not to be overly granular in talking about the category that's, again, we have when it's been more dramatic to our results.
But right now, just one category.
We will say that it's running though still soft but again, not as soft as it was by far over the course of 2017.
I should point out that we maintain a tailored firearm offering that's much different than many of our competitors.
So I'm not sure that we're going to be extremely impacted by what's going on competitively in the marketplace.
Okay.
We appreciate being on the call today, and we look forward to speaking to you on our next call.
Have a great afternoon.
| 2018_BGFV |
2016 | SHOO | SHOO
#Thanks, <UNK>.
I think that the big drop really is in the boot and bootie category and that's why we called that out.
As I alluded to earlier, we planned boots and booties down as a category across the Company, and while in the branded segment, it is really coming in so far in line with our forecasts, in private label, the initial orders are even softer than we anticipated.
I can tell you anecdotally we had customers whose initial orders in that category were down more than 30%.
That's not everybody, but that is some significant customers.
And that was clearly below our expectation and that's why we pulled the number down.
Of course, again, these are initial orders.
If they get some good early selling, they're going to reorder, they're going to want to chase into that category, and we may be able to make some of it up, but this is what we're looking at today.
In terms of some of the trends, I think you raise an interesting point because also the other factor here is that in the branded business, we've been able to make up a lot of the decline in boots with increases in categories like fashion sneakers.
And while fashion sneakers are improving in the private-label tier, that more massed tier where we do our private-label work, it is definitely has not gotten as big as it has gotten in the branded part of the market.
And so we are not able to offset as much of the boot softness with sneakers, for instance.
I think that this is the kind of trend that lasts quite a while.
We certainly do not think that we are in the ninth inning here.
I think that they are still some legs, and keep in mind that sneakers is the trend that is pretty broad and there are a lot of different ways to do it.
So it's the kind of thing where you can have sort of sub-trends within the overall sneaker trend and so we still think people are going to be buying a lot of sneakers for the foreseeable future.
Thank you.
China has historically been much bigger.
If you take China and the UAE together, it was probably 35% to 40% of the international distributor business.
Yes, it is everything except for the distributors, which we said was last year 35% to 40% of international.
The wholesale equipment would maybe be, you could maybe double the number.
If you're doing retail, it's probably more like 3 times.
But, in terms of the operating margin it's just way too early to say, and frankly, it depends on which region we were to move to the joint venture ownership model because there is vastly different profitability by region.
Generally speaking, yes.
But, it is really a business-by-business conversation.
So very tough to speak in generalities.
I think that clearly owned or joint ventured it's going to grow faster than distributor.
I would just be guessing if I told you exact (technical difficulties).
About half.
About half was mix and about half was apples-to-apples improvements in places like <UNK> Madden Women's and Dolce Vita.
<UNK>.
Great.
Thanks very much for joining us and we look forward to speaking with you on the next earnings call.
| 2016_SHOO |
2017 | INVA | INVA
#Good afternoon, everyone, and thank you for joining us.
With me on the call today is Mike <UNK>, our Chief Executive Officer.
On today's call, Mike will review the highlights from the second quarter of 2017, and I will review our financial results.
Following our comments, we will open up the call for questions.
I also want to take a moment to say that due to the ongoing litigation with Sarissa Capital Domestic Fund LP and certain of its affiliates related to Innoviva's 2017 Annual Meeting of Stockholders, we are not able to comment further at this time on this topic and do not intend to address the matter on this call.
Earlier today, Innoviva issued a press release, announcing recent corporate developments and financial results for the second quarter of 2017.
A copy of the press release can be found on our website.
Before we get started, we'd like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Innoviva.
Forward-looking statements include anticipated results and other statements regarding Innoviva's goals, plans, objectives, expectations, strategies and beliefs.
These statements are based upon information available to the company today, and Innoviva assumes no obligation to update these statements as circumstances change.
Future events and actual results could differ materially from those projected in company's forward-looking statements.
Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release and the company's filing with the SE<UNK>
Additionally, adjusted EBITDA and adjusted earnings per share, 2 non-GAAP financial measures, will be discussed on this conference call.
A reconciliation to the most directly comparable GAAP financial measures can also be found in our press release.
I would now like to turn the call over to our Chief Executive Officer, Mike <UNK>.
Thank you, Eric, and good afternoon, everybody.
Innoviva had a strong performance during the second quarter of 2017, driven by record-high royalties earned from the sales of RELVAR/BREO ELLIPTA and ANORO ELLIPTA.
As we said in prior calls, we believe Innoviva is well positioned to deliver value to shareholders through continuing profitability and further growth.
Our partnership with GSK has made significant progress toward the goal of building BREO and ANORO into leading global medicine for the treatment of patients suffering from asthma and COPD.
In the U.S., BREO and ANORO both continue to significantly outperform the market in prescription volume growth, resulting in new all-time high market share for both products.
According to the most recent data compiled by IMS, TRx market share for BREO is now 17.4% and ANORO reached 13.5%.
Additionally, the data show that BREO new-to-brand market share increased to 24.4% overall and accounts for more than 40% of all new LABA/ICS prescriptions written by pulmonologists in the U.S. ANORO also improved during the second quarter of 2017 with higher market share on both TRx and NBRx metrics.
In the week ending July 14, ANORO new-to-brand market share was approximately 19.4% overall, that was approximately 22.1% for pulmonologists.
I'm pleased to report that GSK recently initiated a new DTC promotion campaign for ANORO in the United States that we hope will further bolster market share gains later this year.
As we mentioned in prior calls, improvements in various market share measures remain the primary metrics of our analytic efforts to assess overall demand and progress toward the achievement of our commercial goals.
In contrast, reported net sales by GSK have experienced quarter-over-quarter volatility relative to underlying prescriptions.
During the first quarter of 2017, we mentioned that we believe reported net sales reflected traditional Q1 decreases in distribution channel inventory and some accounting reserve true-ups.
Based on GSK's feedback, we currently believe that second quarter 2017 U.S. revenues reflect favorable TRx market share and demand trends and a slight increase in channel inventory back to more normal levels.
RELVAR/BREO recorded total net sales during the second quarter of 2017 of $364.3 million, up 74% from the second quarter of last year.
Net sales from the U.S. were $232.4 million, up 107% from Q2 2016, while outside the U.S., net sales were $131.9 million, compared an increase of 35% from the second quarter of 2016.
For ANORO, Q2 net sales were $110 million, up 69% from the second quarter of last year.
Overall in the U.S. market, BREO TRx in the second quarter of 2017 grew by approximately 85% compared to the second quarter last year, and ANORO TRx, in the second quarter, grew by approximately 70% compared to the second quarter of last year.
With strong underlying demand trends, favorable 2017 reimbursement status and an effective collaboration with GSK, we remain optimistic about the potential for both products.
On the clinical side, in May, we announced positive results from the Salford Lung Study in asthma, showing the RELVAR ELLIPTA significantly improved asthma control in Salford Lung Study patients compared with their usual care.
We see this as yet another important indicator of the benefit of RELVAR/BREO for asthma patients.
And later this year, we expect to report the results of the 10,000-patient IMPACT study with Trilogy to closed triple.
Now I'll turn the call back to Eric to review our second quarter 2017 financial results.
Eric.
Thanks, Mike.
Our royalties earned in the second quarter of 2017 were $61.8 million, a 73% increase over the second quarter of 2016, offset by $3.5 million of net noncash amortization expense.
Royalty revenues earned in the second quarter of 2017 included $54.6 million for BREO and $7.2 million for ANORO.
As we've mentioned previously, quarterly net sales for BREO and ANORO reported by GSK do not always directly track prescription volume changes during the same time period due to a variety of nondemand factors.
Therefore, when gauging revenue performance, we typically analyze it over a much longer time period.
In fact, over the prior 13 quarters, on average, our royalties earned have grown at a quarterly compound rate of approximately 28%, which, combined with a strong NBRx market share for our products, reinforces our continued confidence in the company's prospects for 2017.
Total operating expenses in the second quarter of 2017 were $10.7 million.
This includes: $4 million of operating expenses, $4.3 million in proxy contest and litigation costs and $2.4 million in noncash stock compensation expenses.
Year-to-date, total operating expenses were $21.9 million, consisting of: $8.4 million of operating expenses, $8.6 million of proxy contest and litigation cost and $4.9 million of noncash stock-based compensation expenses.
As a reminder, our board is in a process of a review of our operating expenses, and we will update our 2017 guidance later this quarter when the review is completed.
Over the last 12 months, we generated approximately $166.1 million in adjusted EBITDA and currently have total debt balances of $663.7 million.
As a result, at the end of the second quarter of 2017, our leverage ratio has now been reduced to approximately 3.2x net debt to EBITDA ---+ to last 12 month's adjusted EBITDA, apologies, a significant improvement in our financial profile compared to Q2 2016 when the same leverage ratio was 6.2x.
We believe that this strength puts us in the position to further improvements in our overall capital structure.
We continue to generate strong cash flow from our operation in the second quarter of 2017.
Income from operation was $47.8 million compared to $25.9 million in the second quarter of 2016.
Adjusted EBITDA for the quarter was $53.8 million compared to $34.1 million in the second quarter of 2016.
In spite of recurring costs associated with the proxy contest related litigations, which reduce basic EPS by approximately $0.04 per share in the second quarter of 2017, our adjusted earnings per share was $0.35, still up significantly compared to adjusted earnings per share of $0.17 in the second quarter of 2016.
Cash, cash equivalents, short-term investments and marketable securities total $135.6 million as of June 30, 2017, and we had $61.8 million of royalty receivables from GSK at the end of the second quarter, which we believe puts us in a strong liquidity position for the rest of 2017.
And now I'd like to turn the call over to Mike for some closing comments.
Thank you, Eric.
In summary, we remain optimistic about our future prospects based upon ongoing gains and prescription volumes and market share for both products and a steadily improving financial profile for the business.
Our primary focuses in 2017 remain the optimization of the commercial success and global rollout of BREO and ANORO and the continued optimization of our capital structure.
There are many positive things happening here at Innoviva and we remain optimistic about the outlook of the company.
I'd now like to (inaudible) the conference facilitator to open the call for questions.
<UNK>, this is Mike.
So when we said slight, it's a small number because we've talked almost every quarter.
You have this normal fluctuation that happens kind of on a quarter-to-quarter basis.
So when we talk with GSK, they didn't note anything untoward.
Again, it's very typical to see some channel inventory go in during Q4, it tends to come out during Q1 and to normalize in Q2.
So I wouldn't get too caught up on that.
We are reflecting there is a little bit of increase, but we use the term slight to indicate that it wasn't anything dramatic.
So I couldn't give you an exact number unfortunately, but hopefully it gives you some color around it.
Yes, I think, as everyone knows, we've had a capital structure here that has been pretty successful for the company over time.
We've put this in place right before the separation and the intention of the capital structure where we had it was to really facilitate the successful launching of Theravance Biopharma, which I think everyone would agree have been a pretty successful venture.
And at the same time, to provide some additional liquidity for a company as we're working through the early start of the company and making sure we could get the products where they are today.
I think as we have matured as a company, it is certainly something we look at.
In particular, we talked earlier this year about providing capital while we're paying off some of the 9% notes.
So that's an area that we've tended to focus on.
As I said the 9% royalty notes, I think they were a terrific piece of paper for everybody involved, we put them in place when there was almost no royalty revenues.
But we're probably at a point today where it's not the optimal structure out there.
So we continue to look at a variety of different things.
I would view towards that being one opportunity that we could do some improvements, if the right alternatives came up.
Yes, <UNK>, this is Eric.
So yes, that ---+ our plan that we announced at the beginning of the year remains.
We're still working through our process.
We have a bit of time ahead of us before the next interest payment on the notes.
So I would say just stay tuned on news about how the plan will unfold on the additional capital return on the 2029 notes.
But we're still working through this.
Yes, we're certainly aware of that.
I would say ---+ I'm not able to give you any really in-depth analysis to that.
When I read it, the logic of how they wrote the paper makes sense to me.
So I guess, I would just ---+ so I understand that.
That being said, we didn't file the triple application without guidance.
So I wouldn't want to go too much further than that.
I would just say, VI, they're smart people, they understand the respiratory space.
I understood the logic of their argument, but I would also argue that we didn't enter into this filing blind and have a solid understanding of how the FDA is probably looking at it.
We will see how everything shakes out here.
There is, of course, an interesting confluence of events.
The PDUFA date and the timing of the data from the IMPACT study are not infinitely far apart.
And how all of that works together is going to be interesting to see how it comes.
So with all of that being said, we remain supporters of the triple here, this is an important product for us.
It completes the portfolio.
And I think, as everyone knows, we've been talking for a long time how important it is to us to have the full portfolio of single agent, double agent and triple agent.
Even though we don't have either full royalties, or in some cases, no royalties, (inaudible) for example, with the single-agent products.
But that full portfolio is quite important as we look forward to how the market will evolve in the future.
So we remain optimistic about the triple.
We're supporters of the triple.
And we'll see everything shakes out in the second half of this year, as we come up on our data dates and PDUFA dates.
Yes, so I wouldn't be able to give you specific internal data, but I'll give you some top-level data to think about and maybe I'll help you understand how this market probably is structured today and then potentially how it evolves going forward.
If you look at the best data I've seen, it says something like 60%, 65%, in that range of the market for LABA/ICS combination is asthma, and then the rest, whatever that is, 35% or 40% is COPD.
And the triple, predominantly we believe will play into the COPD side.
Of the LABA/ICS business in COPD today, we think about 40% of that ---+ about 40% of the COPD business is in some sort of an open triple today, and the open triple could be BREO plus Incruse, as an example, or it could be something like Advair plus tiotropium.
So there's a whole variety of different potential open triples.
My view is, that's the right place where the triple should logically play because there are going to be patients who are a little more severe as opposed to less severe.
Generally, a more severe patient would have been on medicine longer than a patient who's less severe.
So if you follow that logic, it would imply that more of the business today of open triples is in the longer-tenure products.
So the Advairs of the world and the Symbicorts of the world.
Then you'd see relatively less of that in some of the newer products, such as BREO, because they're a little earlier in the life cycle.
So I wouldn't want to go and make a comment about what we think the actual percentage of BREO patients being used in the triple are, but I think the overall market dynamics are something along the lines of what I just mentioned there with ---+ again, the big caveat of all market research data is, by definition, not perfect.
So there's some level of imperfection in there.
So that's generally how we at Innoviva think this is going to probably play out.
Could it be the case that you see a little expansion in that market as you have a better, more convenient product, certainly it's a possibility.
We think that we will have the best product out there because we have the only triple that would be approved at this point, and a single device, and of course, it's a great device.
So there's certainly some possibility of that happening.
But we'll have to see how it all shakes out.
So hopefully that very top-level data gave you a good feel of how Innoviva takes a look at the market and thinks about it.
So we'll have to see how that plays out as they ---+ we come to those dates and then see how the market develops.
But that would be a reasonable place to start from your thinking.
Yes, I wouldn't want to get into the kind of specifics around all the decisions on that.
I would just say that we're happy it's out there now and will be, we think, a good contributor to stuff going forward.
I've seen the commercial multiple times, so it is definitely out there and getting some playing time.
There are some other competitors who are out there as well, some of the newer competitors in the U.S. market.
So I don't want to get into the specifics around the timing other than, say, the BREO ads had a positive inflection on BREO, would be a reasonable assumption that the ANORO ads should have a positive inflection on ANORO as well.
I guess, my first question would be related to the ongoing cost structure review with the special committee.
You clearly noted that it's ongoing.
But was hoping maybe that you could give us any additional color on the discussions that you're having and the potential pushes and pulls and anything with respect to potential magnitude of cost that could be taken out of business.
Unfortunately, I'm not going to be able to give a whole lot of insight in there.
This, as you know, is a board-led activity, and to their credit, they're taking it quite seriously.
And I would say, there's no sacred area anywhere that's not being looked at.
What the magnitude of those numbers are going to be.
When it's all said and done, I don't know.
And as soon as we get there, we'll have some communications out.
So I wouldn't, unfortunately, be able to tell you it's going to be X% or Y%, and we're looking at this area, that area.
I feel very comfortable saying we're looking at everything top to bottom, that is for sure.
And we're looking at it with a fairly new eye as opposed to old eyes.
So stay tuned.
Q3 is underway and our commitment was to get that information out before the end of the third quarter.
And ---+ but I don't, today, see any reason why that will be a problem.
So I would say, stay tuned on that one.
Okay.
And unfortunately and kind of ironically, with respect to the litigation, continue to see cost show up similar to last quarter.
I know you're not going to comment on the merits of the litigation, but can you give us any sense if we should expect kind of the same costs moving forward.
Increasing.
Decreasing.
As long as this litigation is ongoing just so we ---+ for modeling purposes.
Yes, I ---+ that's a tough one, right.
I would hope, of course, that they don't continue, but we don't control that, as you know.
And so I, unfortunately what we're going to do is we're going to call it out, it's obviously not where we wanted to be spending funds.
That was not a choice that we made.
So I would just say that is a little out of our control.
So we have continued to talk, as you know, about things along the lines of, what are we controlling.
What is the spending we have.
That's why we're calling out all the numbers, so you guys can take a look at what we're spending and say whether we are or are not being true to the guidance.
But the other one here is not something that\xe2\x80\x99s going to be in our control.
So I hope that goes down, that would be fantastic, but we'll just have to kind of keep playing that one as cards are dealt.
Okay.
And this morning, your partner, Glaxo, noted that they don't expect a generic Advair this year, which sounds reasonable.
But now that we've had some time following the CRLs, was wondering if you guys have any additional clarity on the issues that they're experiencing and a better understanding that you could share with us.
Yes, it's a ---+ that's a great question.
I don't have any new information.
And fortunately, our guidance, for quite a while, has been ---+ we thought it was unlikely that the products would get approved in the first rounds, but they would probably be approved, or some of them will get approved on the second round.
And so we had been aiming towards next year with that guidance for quite a while.
I still hold that guidance.
So I think somewhere around the middle of next year is a reasonable assumption for the first entrant to come in.
Which one it's going to be.
Who knows.
It's a little hard to decipher the relatively meager information that some of the folks who got the CRLs put out.
They are ---+ as various mentions of the human factors, guidance as being something that was a consideration.
I don't know if that's totally true or what part of that human factors was the issue or not.
Obviously, you can think of that being less severe or more severe.
So we're generally going to stick with our prior guidance, which is, we didn't think something was likely to happen this year.
Fortunately, we were correct on the first 2.
But somewhere probably in the middle of next year, we're going to call it Q2, Q3, for a window that could be made to make sense, and that we will see.
I think folks may have seen that Sandoz filed here also, for their application.
I've always thought Sandoz was a pretty smart company in this particular area.
So all of that thinking we put in, initially, still seems to be holding the water and I don't see any reason to change the guidance that we've had out there for multiple years now.
And just 1 final question.
Obviously, the respiratory leadership at Glaxo turned over not too long ago.
And it sounds like they made some positive changes and things continue to go well, but obviously they have a new CEO in place.
Any kind of strategic changes with respect to the respiratory franchise or change in thought process.
Or is it just kind of business as usual.
Well, I would ---+ I guess, I'm going to make a couple of comments on this.
So this is a good news area for us.
We know the people who are the new occupants of the offices at the various places, we like them.
I have met with Emma, she is solid.
I had a very, very good discussion with her.
So I have no concerns about the new leadership over there at all.
There had been various changes at positions that I've previously said were quite important to us.
I know ---+ I'll give you 1 example here, we really liked the woman who used to run the U.S. sales and marketing organization, who got promoted to run Viv, she is excellent.
And as she was being promoted, I wasn't surprised at all because I think Deborah is really excellent.
And what we were hoping to get was a woman who worked for her promoted into the spot, Pam, and she got promoted right in there.
So we like the new head of the U.S. respiratory marketing, she's excellent.
We like the head of the U.S., Jack Bailey, he's very good.
And so the new organization over there doesn't concern me at all.
In fact, I would go the opposite to say, what we know about all the occupants there are positive, whether it is at the U.S. marketing level or whether it is ---+ I'll go back to Emma, again, I had a terrific conversation with her, and so I'm optimistic today about the organization.
Thank you, Beatrice.
All right, thank you very much, operator.
And thanks, everyone, for joining the call.
Have a great day.
| 2017_INVA |
2015 | ESE | ESE
#Thanks, <UNK>, and good afternoon.
Before I give my perspective on the quarter I'll turn it over to <UNK> for a few financial highlights.
Thanks, <UNK>.
As noted in the release, our third quarter earnings came in at the high end of our internal expectations despite incurring $2 million or $0.05 a share of nonoperating charges in the test business.
In May, we expected Q3 EPS to be in the range of $0.38 to $0.42 and I'm pleased to report that we delivered $0.41 per share.
Our Q3 2015 GAAP EPS was $0.45 a share which included a $0.04 gain in discontinued operations resulting from the favorable arbitration settlement related to Aclara's closing working capital.
The strength of our Q3 earnings was driven by the continued up cycle in commercial aerospace markets at PTI and Crissair, a 24% EBIT margin quarter at Doble, exceptional performance at TEQ where we delivered a record EBIT margin of nearly 18% and lower than planned corporate spending.
While Q3 performance in test was disappointing due to continued softness in the shielding markets and throughout Europe coupled with some one-time charges incurred in the quarter, we addressed this situation with significant cost reduction actions and have realigned the organization to better manage test's global infrastructure.
Consistent with our goal of positioning ESCO for sustainable long-term earnings growth, additional cost reduction actions are being implemented throughout test that are expected to result in a much more favorable operating margin.
We remain firmly committed to our well-defined financial goals.
During Q3, the impact of FX was not material.
As a reminder, for comparative purposes, the 2014 results exclude the charges related to the Crissair facility consolidation completed last year.
I'll call out a few highlights from the release to allow you to better understand the underlying results.
Q3 sales increased $4 million from prior-year primarily due to an 11% increase in sales at Doble coupled with a 5% increase in filtration sales.
These increases were muted by test sales decrease of $2 million in the quarter.
A significant accomplishment within filtration is highlighted by the continued strength of PTI in Crissair's commercial aerospace sales which increased over 15% or $4 million in Q3 which more than offset the $2 million decrease noted at VACCO resulting from lower SLS program sales in 2015.
PTI's Q3 EBIT margin was 21% and Crissair delivered over 24% EBIT driven by the significant operating efficiencies continuing to be realized from last year's facility consolidation.
As commented on throughout the year, Doble's EBIT continues to come in better than planned driven by higher than expected international sales and additional software and service business.
Doble's Q3 EBIT margin of 24% was significantly higher than the 21% reported in prior year Q3.
Test sales in EBIT were below planned and prior-year as noted in my earlier comments and this is being addressed aggressively.
For Q3, excluding the $2 million of special charges, test would've delivered approximately 9% EBIT.
Corporate costs were lower than last year due to a decrease in spending on professional fees and ongoing cost management discipline.
The Q3 effective tax rate increased over prior year due to the amount of discrete tax benefits recognized in the respective quarterly periods as well as changes in the mix of international versus domestic pretax earnings.
On the balance sheet, we continue to maintain a modest level of net debt which was $28 million outstanding as of June 30.
We remain committed to our capital allocation strategy which included share repurchases and dividends.
As such, we returned over $16 million to shareholders during the year to date period.
We expect to continue to opportunistically repurchase shares in the open market during the balance of 2015 as we continue to be supported by this strong balance sheet.
A significant highlight of the year continues to be the strength of our entered orders and our backlog.
We booked $121 million in orders in Q3, which reflects the impact of the acceleration of orders into the first half of this year and this brings our year to date orders to $415 million which reflects a $32 million or 10% increase in our ending backlog which currently stands at $334 million as of June 30.
The order strength in current backlog support our sales outlook over the balance of the year.
Regarding our remaining guidance, we narrowed our full-year EPS to be in the range of a $1.70 to $1.75 to impact ---+ as a result of the impact of the softness in test.
Comparing Q4 to last year, we're expecting a meaningful increase in both sales and EBIT at filtration and at Doble along with continued lower spending at corporate which drives the favorable EPS comparisons in Q4.
Lastly, we expect a more normalized tax rate of approximately 34% in Q4 and I'll be happy to address any specific financial questions when we get to the Q&A.
And I'll turn it back over to <UNK>.
Thanks, <UNK>.
As outlined in the press release and <UNK>'s comments, our performance for the quarter in the first nine months, while on track, is coming in a form slightly different than originally anticipated.
Our fluid flow and utility solutions businesses are performing well ahead of expectations which is offsetting the softness we're seeing in test.
As we talked about on many occasions, this is one of the benefits of maintaining a multi-segment business.
As <UNK> mentioned, the aerospace business is performing well.
Aerospace spares business has been stronger than expected and the downturn in the SLS program at VACCO is not as severe as we anticipated going into the year.
Our commercial aerospace business is well ahead of plan led by new orders for the A-350 which have been stronger and earlier than anticipated.
In addition to the strength of our orders, the execution in the business has been solid which is a result that improved operating margins.
The outlook for this business remains strong for the balance of the year and is expected to continue into FY16.
Our packaging business, TEQ, is performing well.
As <UNK> mentioned, the EBIT margin in the third quarter was approximately 18% and we anticipate some additional improvement in the fourth quarter.
This is a solid business with above average margins which is a result of our nice niche in the medical markets.
Doble continues to perform at a high level and what I'm most excited about is the success they're having with their new offerings to augment what was already a market leading set of products, services and solutions.
They were awarded their first significant order for the doblePRIME product which is their newly developed, online solutions package.
They also won their first full-scale deployment of dobleARMs.
The pipeline for this solution is robust and we have discussions underway with over 50 utilities.
Given the nature of this product, the sales cycle can be long.
But since we've been working a number of these accounts for quite some time, it's good to see tangible results.
Additionally, during quarter three, we won our first significant contract to the Doble universal controller.
This is a field force automation product.
One of the nice things about both the Doble Universal Controller and doblePrime is that they were new products developed using existing building blocks therefore minimizing development time and expense.
Our M7 product, which is the most capable test set on the market, has been commercially launched and is gaining good customer acceptance.
The bottom line, Doble's looking good and any investments we made are paying dividends.
On a test front, as we talked about over the last couple of quarters, the current market remains soft.
The primary areas of concern are the shielding business, both medical and industrial, and Europe in general.
To address this, we have taken several cost reduction actions and will continue to evaluate the business to ensure we're properly organized and structured to deliver an acceptable return.
On the bright side, test overall backlog continues to grow which bodes well for the future.
Regarding acquisitions, we're seeing a pickup in these activities.
I'm sure you've all recently seen some of the major acquisitions that have taken place in aerospace market.
Obviously, these lofty multiples being paid are raising seller expectations.
Our approach is to continue to look for small to medium-sized niche players which we can acquire for a reasonable multiple thereby providing acceptable return.
There continues to be some opportunities out there and we're working hard to supplement the growth of our fluid flow business.
Additionally, we'd like to add to our utility business and are currently evaluating several interesting opportunities.
In summary, we had a strong quarter and we're on track for a solid year and we're well-positioned for growth at all three segments.
Our focus is to improve our operational performance and execute on our growth opportunities both organically and through acquisitions.
I'd be glad now to answer any questions you have.
I'd say ---+ one thing you would notice, I think, is that while we're talking about some softness, particularly in the shielding business, the backlog continues to grow.
So what we're seeing is, particularly in the medical shielding business, and I think a lot of that is related to questions around reimbursement in the US and those types of issues.
We've seen some of that business get softer.
But what we've seen in the offset of that is some of the longer-term system business has gotten stronger, particularly in Asia and some here in the US.
So what we're really going through is a repositioning of the business and there are costs associated with the shielding business that we need to evaluate to make sure that we have the organization set up properly and that we are manufacturing the right things in the right places.
And so, it's really a shifting of the business, I would say.
The shielding business has gone pretty dramatically within the year.
It's kind of hard to catch up with those things while we are trying to reposition for some of these longer-term systems winds that we've been experiencing.
Yes, we haven't completed the valuation to understand exactly what additional actions we'd take.
I think will have those clearly in a focus by year end if there are any of those.
I would think that the margin should improve fairly dramatically ---+ well, I don't want to get too firm on that, but I do think we'll see significant improvement next year.
I think we'll see the full benefit of the actions that we're taking now in the second half of next year.
I still feel good about them.
I do think there are acquisitions out there.
As I mentioned, we're seeing more things today than we probably saw six months ago.
I know people's expectations were that some things would have probably happened by now, but with the multiples that are being paid obviously, we are trying to be very disciplined about this.
But again, I think I been encouraged by the level of things we've seen more recently.
We have been more aggressive in looking for opportunities.
We're thinking more about opening an aperture within our core businesses to ensure that we're capturing as much that we possibly can.
I think there's got to be some end to these lofty multiples at some point.
So, I do still feel positive about our ability to make those longer-term forecasts.
And a lot of that, too, if you remember, we are seeing some natural pickup in our filtration business, our fluid flow business as some of these products go from development to production.
I'm very encouraged, as I mentioned in my prepared comments, about what we're seeing at Doble.
That's where we're seeing some significant growth.
If you remember, when we put those out, Doble was the piece of business going to grow the most over the next three years and certainly the wins that we've had over the past quarter with some of these new products, bodes very well for our ability to be able to experience that kind of growth at Doble.
Well, what are seeing, particularly on the two of the products I talked about, the Doble universal controller and Doble prime, that's been a pretty rapid build of pipeline.
So, those are things you can convert very quickly.
I think will see an acceleration in those businesses certainly over the next 6 to 12 months.
That looks very good.
The arms product, we've been working that a long time.
As a mentioned, we have a lot of people that we're talking to about that.
I think getting this first award with a significant utility is going to bode well because there's often a herd mentality with some of these things.
And we've gotten in front of a lot of senior executives at a number of these utilities, which is what it takes.
What we're really selling here is something that is going to go in as a part of their IT system and so that's the decision that's made at the highest levels of the organization.
So, a large number of the customers we're talking to, we've already gone through that executive briefing stage.
The next stage is product award or responding to an RFP if there are any competitors there.
I feel good about our ability to make some of those things happen this next year.
This has been a great quarter, gained a momentum and I think that we'll see a lot of uptake on all three of those products as well as our typical products over the next year.
And the other one that I mentioned was the M7 and that was a big development that we undertook about 18 months ago.
Really took the functionality of five different boxes, combined it into one very capable box and it for sure is the most capable tester on the market.
The real benefit it has is not only putting all of that functionality in one box but you're able to significantly reduce the test time to do these types of ---+ to do these tests because what you're able to do is, rather than hooking up certain leads then having to take those down to different tests with a different piece of equipment.
We're talking about a significant, over 50% reduction in time, to perform the test.
That obviously, time is money with these things, as well as safety.
Because if you have to hook up different leads to the lines, you have to go up and down the pole or up and down with a high lift, those increase potential safety issues, and so we're able to overcome a lot of that with this new box.
This is <UNK>.
Just to put numbers around <UNK>'s commentary, there which I think, obviously, is spot on; but where we're seeing the momentum come through in the numbers sequentially off of Q3 here where we did roughly $31 million in sales with an exceptional EBIT percentage in Q4.
We're looking at almost 15% sequential growth from that $31 million.
Putting ourselves up $35 million to $35.5 million.
When you have that type of incremental step up, it's driven by ---+ that's where you see the validation of all <UNK>'s commentary on the momentum we're gaining there.
With that volume, obviously, there's an EBIT incremental pull-through as well.
In the short-term, we're going to realize this in the short-term.
Yes, obviously the software and services do carry a higher margin.
We're already performing pretty well in that business, but certainly while the dollars are not as large as what we see in the lease pool or with our hardware, the margins are certainly better.
Yes.
We feel good about that, particularly the Middle East.
We're completing the contract we had in Saudi, we anticipate getting a reload on that contract in the not too distant future.
That's opened a lot of doors in the Middle East as well as just doing the service business we've done there.
We'll probably do a couple million dollars of additional hardware sales as a result of being there on the ground with those customers.
So, what's nice about this business is that sometimes you lead with the hardware and sometimes you lead with the software and bringing it in from the other direction.
We also had some good wins in South Africa over the past six months.
They've always been a good customer but we had a pretty significant hardware sales there with the new customer over the past quarter as well.
So, I'll tell you the international business is, it's always a little trickier than the domestic business where we got such a big market share, but I'd say our plans to expand internationally are on track.
That's certainly a big piece of it.
That's the biggest project that we have, and if you remember in the first half of the year, we had a shutdown of about four months while they changed the design ---+ the customer changed the design.
So part of what we're seeing with such a strong second half is the catch up on that project.
I wouldn't put it all on that.
In fact, we've had a good orders with that business this year, as well.
We are about $7 million ahead of what we anticipated going into the year.
And a lot of that has been driven by the fact we've been looking for or working with customers to get longer-term contracts where historically, we get a month-to-month on some of these jobs.
And now we're pushing for longer-term annual and in some case even two-year contracts.
And obviously, that allows you to get some efficiencies and the material buys, as well as what we're doing in factory to increase productivity.
You bet.
Okay, let me give you an overview and then <UNK> can jump in with some of the specifics.
As you know, we've been running well ahead of orders for the first six months, and a lot of that was some things that had been pulled from the third quarter.
So, I'm not surprised that we have a little softer quarter from an orders perspective.
If you look at it for the first nine months I think we're still about 8% to 10% above ---+ 10% over on a book to bill.
So, generally we still feel very positive about it.
With our business there's always going to be a little bit of fluctuation from quarter to quarter, but I think you need to focus on the year-to-date, and that seems very positive.
<UNK>, just to throw some numbers around that.
When I talk about acceleration into the first half, I'll just give you a couple examples.
PTI, for instance, on the commercial aerospace side, in Q2 did a load a little over $20 million in orders and in Q3 it was about $13 million.
The reason that was, there were about $6 million or $7 million on just the A-350 alone that was pulled into Q2 because of the acceleration on those deliveries that they're seeing.
So, when you pull that forward, obviously we're not going to sustain $5 million, $6 million or $7 million on a specific customer as we go forward.
So what I've asked you to do is look at the quarterly profile within the groups there.
And so, probably the most substantial in Q1 was the big win in the test business for that Nissan chamber in China.
But on the filtration side, that's where we've seen most of the ---+ earlier than expected which is really a good thing, obviously, to get it in hand.
VACCO also had a very substantial first half of the year with they booked almost $48 million in orders and obviously that's not their normal run rate.
That would put them close to $100 million a year.
So what you're seeing there, is again, some pull-forwards on some things in the Virginia class.
It's an exciting time there and also, as <UNK> alluded to in his commentary, the SLS program, which is kind of in a slowdown mode for this year.
What we thought was going to be down $10 million or $11 million, we garnered $5 million of that back in unexpected orders in the first half.
So the first half momentum obviously isn't going to carry into Q3 because of those extraordinary individual items I just called on.
So, when you pull that all together for the year-to-date, I think we're in really good shape relative to the nine-month order book again, understanding the acceleration into the first half.
Yes, I'll give the numbers overview first, and then I'll let <UNK> put the qualitative aspect on it.
The way we look at it is, if you set aside the Nissan contract that's a one off, that was the $11 million order and if you back that out of the equation just so you can normalize what the regular recurring business is, we're still expected to be up somewhere in the neighborhood of 5% or 6% at the end of this year.
If we're talking at September 30, right now you'd still see a positive book to bill by $5 million or $6 million, which is a good way to start the year.
So, what we're seeing, as <UNK> said, moving away from small shielding and medium-sized shielding products more into the solution-oriented projects which tend to be a little bit larger, a little more complicated or complex.
With that complexity comes better pricing and better opportunities to make a little more money.
So, we feel pretty good where we stand today, absent the little bit of a slowdown we're seeing there and some of the charges we took.
We think we're in a really good position as we enter 2016 based on the order book that we're staring at today.
Yes, I would say that from an orders perspective across the Company, obviously, that's not the big issue.
I mean, we've been doing very well there, even on the tests side where we've had some issues.
As <UNK> alluded to though, that's where we've had some mixed changes, which we're addressing through the cost side.
But the orders fortunately and for industrial business, I think it's pretty positive that were able to draw our backlog year-over-year.
And the fact that we're doing that across all three businesses does bode well for us going into 2016.
And certainly, what we're seeing, whether it be the new product introductions at Doble that are getting traction, international business there, and then what we're seeing as far as projects going from development to production on the aerospace side, all of those things give us confidence.
In fact, <UNK>'s earlier question whether we thought our longer-term goals were still achievable, and I think this does give us the confidence as we go into 2016.
Yes, tying into the whole repositioning, as <UNK> said, realignment of what we did has changed the reporting structure from a geographical basis to a more functional basis.
And <UNK>'s comments where he talked about making sure we're producing the right products in the right geographies for the right customer so we're not shipping stuff all over the place.
And also, help mitigate some FX and things like that.
What we did is realign some of the inventory and some other things as well.
And so with that, we took the one-time charge of $0.05.
So mathematically absent that, we would've done $0.46, which would have been well above the high-end of our expectations that we communicated both at the start of the year and now.
And that would be driven by the Doble outperformance and the filtration outperformance.
So, what we take away as a positive is despite the headwinds that both the shielding market, as well as the special charges we took that we still came in at the top end of our range.
You could think about this as $0.46, and you wouldn't be irrational with that thinking.
You know, we're contemplating that, and to answer <UNK>'s question earlier, we're not looking at $5 million and $10 million worth of restructuring.
We streamlined the big things there a couple of years ago when we closed the Glendale Heights.
What I would put this as similar ranges what we did in Q3 relative to this.
I'd call it more trimming around the edges, and so if you calibrated it somewhere below $5 million or below you'd be okay.
And we're certainly hoping it's at the lower end but it is baked into our numbers.
So if you looked at the rationale in lowering our guidance by $0.05 and if you were to assume that $0.05 in Q3 and if you said it was $2 million in Q4, you'd be at $0.10.
It would be back to where we started.
So, it's not a big number and it'll have a payback that's pretty immediate, which validates back to <UNK>'s strategy of getting back to the mid-teens there.
I think the actions that we're undertaking certainly bode well for how we get there.
Yes, we should be.
Yes, I don't think there were any significant timing issues in the third quarter.
We did have some in the first half.
There's always a little bit of shifting to the left or the right, whatever, but there wasn't a significant piece of what the issue was in the third quarter.
I'd say on a full-year basis we should be there.
Yes, they are ramping on schedule.
We've not seen any acceleration of any of the other ones.
The important thing, those are all relatively small ---+ smaller compared to the A-350.
So the A-350 is the biggest one of those both from a shift set values as well as the number of airplanes to be shifted in the year.
But the rest of them remain on schedule.
Not ahead, but fortunately not behind schedule either.
So, to wrap up on this point in the short-term performance at test, I remain confident that we're on track to get the segment's EBIT back to the low teens and going into 2016 we'll be well-positioned to capitalize on our market-leading positions.
Very pleased with Doble and filtration's performance and I'm comfortable with their three-year financial goals are on track.
I'm optimistic about our growth prospects both short-term and longer-term.
Our priorities remain simple and straightforward.
Execute and deliver on our commitments in the core business, maintain our focus on new product development, supporting organic growth and supplement our existing plan with accretive acquisitions around our core business.
Thank you, everyone.
I look forward to talking to you in the next call.
| 2015_ESE |
2016 | SXI | SXI
#Thank you, <UNK>, and good morning.
Overall, we performed well in the second fiscal quarter, reporting margin expansion in four of our businesses for strong bottom-line results.
Revenues were down 3.9% from the prior year to $181.9 million, with foreign exchange having a negative effect of 2.5% and acquisitions contributing positive 1%.
Second-quarter EPS was up 5.2% year over year.
We had a net debt position of $4.7 million at the end of Q2.
We also closed the Northlake acquisition in the electronics group for $13.5 million.
In sum, our business has delivered solid performance despite the topline challenge.
In the food service equipment group, our focus continues to be on operational improvement initiatives and lowering material costs.
The group generated a 7.4% EBIT margin in Q2, up from 7.0% last year, despite a 7.7% decline in sales.
Now that our operational initiatives are progressing, we are taking steps to improve the topline in food service by reviewing our commercial strategy.
Engraving had another record quarter, while we maintained the positive momentum at electronics and hydraulics.
Engineering technologies continued to be affected by the decline in the oil and gas markets.
That said, the repositioning of that business to increase exposure to commercial aviation is moving along well and it has significant growth potential, primarily as a result of opportunities in aviation.
With that as an introduction, I will turn the call over to <UNK> to discuss our results for the second quarter, then I will be back to review our five operating platforms in detail.
<UNK>.
Thank you, <UNK>.
Slide 4 shows our historical trend of adjusted earnings per share and sales.
On a trailing 12-month basis, adjusted earnings per share ---+ per diluted share were $4.70 through December 31, 2015, versus $4.39 in the 12 months ended December 31, 2014, a 7.1% increase.
Sales were $761 million on a trailing 12-month basis as of December 31, 2015, versus $763 million in the prior period.
Please turn to slide 5.
Two of our five segments reported organic growth for the quarter.
On the chart, you can see the contributions from acquisitions and currency effect for each segment.
Overall, organic growth was down, with acquisitions contributing 1% versus Q2 last year, due to the Northlake acquisition in electronics.
Currency had a negative effect of 2.5%, which resulted in an overall sales decline of 3.9% to $181.9 million for the quarter.
Please turn to slide 6, which summarizes our second-quarter results.
Excluding special items, operating income grew 0.6% to $18 million from $17.9 million a year ago.
Adjusted EBITDA grew 1.4% to $22.6 million or 12.5% of sales, compared with $22.3 million or 11.8% of sales in Q2 last year.
Please turn to slide 7, which is a bridge that illustrates the impact of special items on net income from continuing operations.
For Q2 of fiscal 2016, these items included tax-affected restructuring charges of approximately $1.1 million, $300,000 of acquisition-related charges, and $700,000 of tax benefits related to the retroactive extension of the R&D tax credit and benefits related to the sale of an idled property.
Turning to slide 8, net working capital at the end of the second quarter of fiscal 2016 was $144.2 million, compared with $147.2 million a year earlier.
The decrease in working capital is related to the lower overall sales volume.
Working capital turns were 5 compared to 5.1 a year earlier.
Slide 9 illustrates our debt management.
We ended Q2 in a net debt position of approximately $5 million, which includes borrowings of $13.5 million to fund the Northlake acquisition.
This compares with net debt position of approximately $42 million a year earlier.
We define net debt as funded debt less cash.
Our balance sheet leverage ratio of net debt to capital of 1.3% compares with a net debt to capital of 10.8% a year ago.
Slide 10 summarizes our capital spending depreciation and amortization trends.
During the quarter, we made key investments in a panel vendor for our Hudson, Wisconsin, facility; 3-D scanning equipment in our Krefeld, Germany, location; and C&C equipment in our Tianjin, China, facility.
To date, we have spent approximately $1 million on the new aviation facility in Wisconsin.
We anticipate spending another $4 million to $5 million on this facility in the remainder of the fiscal year.
In 2016, we continue to expect our capital spending will be in the range of $26 million to $28 million.
Slide 11 details our free cash flow performance, which was $19.6 million for the second quarter.
We generated $1.53 of free cash flow per share during the quarter, compared with $1.25 per share during the same quarter last year.
With that, I will turn the call back to <UNK>.
Thank you, <UNK>.
Please turn to slide 13 and I will begin our segment overview with the food service equipment group.
As I mentioned at the outset of the call, margin improvement continues to be a key area of focus for us within food service.
Operating income margins increased 40 basis points to 7.4% on a sales decrease of 7.7% from Q2 last year.
The decrease in sales was driven primarily by lower volume at refrigeration.
Cooking solution sales also declined during the quarter.
In refrigeration, sales to large national chains remained sluggish in Q2 and were the primary cause of the year-over-year revenue decline.
Dollar-store sales also continue to be soft as a result of the merger of Family Dollar and Dollar Tree.
C stores and other small-footprint retail performed well.
In cooking solutions, the decline in sales was mostly driven by international sales, as well as a focus on operational improvements, reduction in past-due backlog, and some product rationalization.
Our Ultrafryer acquisition remains on track and we continue to actively invest in its line of products.
Our BKI business performed well, with sales up double digits for the quarter.
The display merchandising business also performed well, while the Procon specialty pumps business was down in the quarter.
In Q2, we lowered material costs by approximately $1.8 million across the segment.
The transitional costs from last year's plant move, including price concessions and freight and distribution costs, continued to trend down.
Plant productivity is also improving.
We are taking the necessary steps to leverage our operational footprint to increase productivity.
During the quarter, we moved production of a line of field ranges from our Simpsonville, South Carolina, facility to our Ultrafryer plant in Texas to help drive efficiencies and improve on-time delivery.
We are also focused on improving production efficiencies through focused factories, as we produce our commodity products at the Nogales, Mexico, facility and more complex products at our plants in the US.
We are encouraged that our operational excellence initiatives are achieving the intended results, both in the short and long term.
With these operational excellence initiatives in place and performance headed in the right direction, the team is currently reviewing its commercial strategic initiatives, ensuring that the business remains aligned with the Standex 2020 vision.
Turning to slide 14, the engraving group had another excellent quarter, achieving record sales and operating income.
Sales growth of 19.9% was primarily driven by a double-digit increase in our Mold-Tech business across all of our regions, as demand for automotive molds remained strong.
Organic sales were up 29.8% and currency had a 9.9% negative impact.
Operating margin was 23.3%, with operating profit up 25.2%.
In addition to the strong performance at Mold-Tech, sales also increased at our rolled plate and machinery business due to large orders.
Our Innovent business also had a strong quarter, as a result of an increase in diaper drum sales.
As I've mentioned before, several global auto OEMs are beginning to require textures that can only be produced with the newer technologies of laser engraving and nickel shell slush molding.
We have begun the installation of four new lasers in North America and China, as well as ramping up our nickel shell production in North America and in Europe.
We remain encouraged with the progress of our design centers.
This quarter, we are investing in our design center in Detroit and also expanding other design hubs in North America.
The picture here shows our design center promotion at the recent Detroit Auto Show.
The demand trends and momentum in engraving are strong and we expect this to continue throughout calendar 2016.
Going forward, we will ramp up production of nickel shell molds over the next 12 months to increase capacity and meet demand.
We are also focusing on increasing penetration in non-automotive Mold-Tech sales.
Please turn to slide 15, engineering technologies group.
Organic sales were down 21.7% year over year, primarily due to lower energy sales, partially offset by increased sales in aviation.
We have put cost reductions in place to offset the lower demand in the oil and gas markets, and we have shifted our focus at the aviation market, where we are seeing very good demand.
Aviation continues to grow and we are creating the capacity to fulfill customer needs.
For example, we signed our first agreement for a plant in the UK to supply aviation engine parts, which we will use to further penetrate the market in Europe.
Also, the construction of our new Wisconsin plant is on track and we expect to be in production at the facility by the end of the fiscal year.
Our Enginetics acquisition performed well, up 11.2% for the quarter.
The operational improvement initiatives that we have in place in this business are paying off, as we are seeing better performance and an increase in demand.
We continue to look for opportunities to drive further value out of that business through operational initiatives.
Looking forward, we anticipate exiting the fourth quarter of 2016 with margin improvements generated from sales and margin growth in aviation and an easier year-over-year comparison in the oil and gas market.
Operating margins should be in the midteens for Q4.
We continue to be excited about our Enginetics acquisition and aviation opportunities as we ramp up capacity to support our long-term awards, and we continue to be encouraged by the number of new business opportunities.
Please turn to slide 16, electronics.
Sales increased 1.9%, primarily due to the Northlake acquisition at the beginning of Q2.
Foreign exchange negatively affected sales by 5.2%.
China and Europe grew, but were offset by softness and continued customer inventory adjustments in North America.
Operating income increased 4.4%.
Sensors were slightly up from the prior year.
We continue to see more opportunities in sensors and we are accelerating the growth laneways in sensor technologies through market tests.
The capacitive sensor picture here is one example.
We expect our new sensor programs to drive growth over the next 12 months.
Magnetic sales were strong in the quarter, driven by military, aerospace, and our planar business.
Industrial and medical sales were down.
As I mentioned on last quarter's call, we acquired Northlake Engineering early in the second quarter.
Northlake directly supports our electronics group's strategy to expand our high-reliability magnetics business into adjacent markets to drive growth and profitability.
This acquisition positions us to provide a wider array of solutions to customers in the medical equipment and power generation markets.
Power generation and distribution is new for Standex and is an attractive growth opportunity.
The integration process is on track and we are currently working on the sales team, operations, and supply management.
We remain optimistic about the electronics business long term.
We are focused on new business opportunities, strategic laneways and market tests aimed at increased volumes, and on the consolidation of operations into our Northlake facility.
Our hydraulics group, as you can see on slide 17, had a good quarter.
Sales were up 2.7% year over year, primarily related to the dump truck and trailer market, which is tied to the strong North American construction environment.
We are gaining share in the US in mobile hydraulic cylinders by having quick turnaround to custom quotations and short delivery times.
Production in China was up 20% in the quarter and backlog and order intake were up double digits.
Operating margins were 15.2%.
On the operations front, our robotic welding machines at our Ohio facility are up and running and they are driving performance improvement and efficiencies.
Looking ahead, we are focused on developing unique custom engineering to solve customer issues and utilizing our dual production capabilities in North America and China.
We are also focused on our recently launched OpEx plan in hydraulics.
To wrap up and summarize our business performance in Q2, turn to slide 18.
This shows the major contributors to the sales change.
The decline in oil and gas and energy markets contributed 3% to the decline; FX, 2.5%; and reduced spending by our top four customers in refrigeration, another 3.5%.
Growth in China, the Northlake acquisition, and strength in other businesses added back 5.3%.
So turn to page 19.
In sum, the food service sales decline was concentrated in refrigeration's top customers.
Engraving's momentum should continue into Q3.
In engineering technologies, aviation continues to grow and oil and gas remains a headwind for the coming quarters, though somewhat less so than in Q2.
Electronics expects North American sales to recover in the second half, and Europe remains strong, with less FX impact in the second half.
Finally, hydraulics' end markets ---+ dump truck and dump trailers ---+ remain strong, with residential construction and passage of the highway bill, as well as continued penetration into refuse vehicles.
Please turn to slide 20.
In summary, we performed well from an operational standpoint, despite the decline in overall sales.
We are taking the necessary steps to improve each of our businesses and are seeing the results of those efforts.
Our Q2 margin performance was very strong, with improvement in four of our businesses.
We were especially pleased with continued improvement in the food service EBIT margin, as well as the progress of repositioning engineering technologies.
As you've seen, we continue to see momentum in engraving, electronics, and hydraulics.
While foreign exchange and oil and gas markets have been headwinds in recent quarters, our exposure to these areas into China is relatively low.
Moving forward, we will continue to exercise caution around currency expectations, oil and gas markets, and regional economic conditions.
Across the organization, we are focused on executing on the four pillars of the Standex value creation system to drive performance in the business.
These include the balanced performance plan process, the growth disciplines, operational excellence, and talent management.
This is a long-term journey, but we are reaping the rewards from these initiatives and look forward to continued success in these areas.
With that, <UNK> and I will be happy to take your questions.
Operator.
So on the ---+ I think we called out the major causes of the margin improvement.
The margin improvement in food service, we had ---+ I think last quarter we talked about a focus on strategic sourcing across food service.
We are getting good benefits from the sourcing improvement.
We are actually seeing ---+ we've seen gross margin improvement in the quarter largely driven by the operational excellence improvements.
So, we didn't bridge that.
Of course, there was some volume deleverage impact, but the underlying operational improvement and the materials improvement drove the margin rate improvement.
So, the bottom line, we are happy with what we are seeing at the gross margin level.
That is a sustainable operational improvement.
I am going to look at <UNK> on this, not that I don't know, but we just haven't typically given (multiple speakers)
Yes, we just generally don't give guidance.
And generally for, let's say, food service, you are going into a very slow quarter because a lot of our food service is tied to the construction industry.
So, we are (multiple speakers)
But here's how I would answer that.
I would point to industry indicators.
If you look at other players in the industry, you are seeing some softness in commercial refrigeration in other companies.
Our softness was concentrated in four customers.
If we take those four customers out, we grew across the board in the smaller customers and in dealers.
Our cooking business was affected by some export business, which is compromised by FX.
And we also rationalized some products out of there.
The market indicators for the cooking industries, from the market watchers, are ---+ you know, remain positive for the remainder of this year.
And so, I would just set expectations kind of along those lines that we we'll more or less track the market.
Yes, great question, and I have to say we were kind of surprised on the upside this quarter, which is better than being surprised on the downside.
But we also have better data now.
In the last year, the team has been working on collecting data to give us a little more visibility about upcoming product launches in not just North America, but around the world, as well as new product refreshes.
The data we have says ---+ as I mentioned in the call, we expect the strength we saw in the last couple quarters to continue.
Visibility falls off towards the end of the year.
We have a pretty good idea for the next couple quarters.
And as I've said before and I continue to say, beyond that a reasonable expectation would be to say that this business will follow the projection for auto unit sales, although we know it is driven by new models.
But over time, if you think of that 5% growth rate, that's probably safe.
Now to your question, second question, about growth, we've got very creative, innovative, and effective leaders in this business.
And we included the pictures of that promotion, the black swan dress, and if you look closely, the pictures ---+ the individual pieces on that dress came from our advanced, rapid prototyping, texturizing service in our design hub, which is what we use to work with the design teams in auto OEMs.
It was very well received, and you can see that team has got a real commercial sense and is very creative.
So, we see potential growth opportunities in nickel shell, if we are able to accelerate nickel shell sales in the future.
Laser engraving is a growth opportunity in that each laser pattern is going to be at a higher price than the chemical etch pattern it replaces.
And the team is also exploring some additional growth opportunities.
So, I think quarter to quarter we continue to communicate our progress in identifying ---+ in quantifying the best we can what these growth opportunities are.
Yes, you know, I'd like to take credit for being so clever, but that was just coincidence.
(laughter)
Yes, so, as you know, for the fourth month in a row, the ISM index showed contraction in North American manufacturing.
So we ---+ the electronics business in Standex serves the broadest range of end markets.
So the way we think of the last few quarters is there has been some destocking with our customers who have been maybe a little cautious as they watch the market.
The decline in ---+ the softness in North American manufacturing, as indicated in the index, is certainly having an impact.
And the NBO opportunities, the new business opportunities, which are there and we continue to be very encouraged by, are taking a little slower to ramp up.
Now our electronics team believes in the second half they have enough new business opportunities and new products, and we showed a picture of the capacitive sensor, which is a brand-new idea for us.
It is a non-magnetic sensor.
It's a first and is getting good response from customers.
So the growth initiatives are taking a little bit longer than the team had thought, but they remain optimistic about growing in the second half.
Yes, good points.
Well, first of all, the Northlake ---+ I don't think we call it the savings, do we, in the numbers.
It's not big enough to be material, but it's a contributor to the electronics numbers.
So with the Northlake acquisition, it is a high-reliability magnetic site.
And we had acquired a business years ago.
I think ---+ did Roger know or was it before Roger.
Before Roger.
Before Roger, outside Toronto, and so we saw an opportunity to leverage the equipment and the knowledge base of the operators in Northlake.
So we closed that facility and moved its production into Northlake.
Yes, so aviation is certainly continuing to ramp.
We'll definitely ---+ it will clearly be even stronger in Q4.
But aviation continues to ramp.
Oil and gas, I think in the bridge, we showed ---+ if you do the math there, that's about ---+ it was about a $6 million year on year hit in the comp quarter to quarter.
That will lessen the next couple quarters, you know, take it out to $4 million, $3 million, along those lines, with aviation continuing to ramp up.
So sequentially, you will see that.
It's a good question.
The story is a little different for each of them.
Two quarters ago, and last quarter, I believe, we talked about softness in our top customers and we listed customers ---+ Dairy Queen, Subway, Tim Horton's, McDonald's.
And McDonald's is starting to pick up.
So we've kind of taken McDonald's off that list and for reasons that you all know.
With Tim Horton's, their investment is more into other regions of the country where we don't support them.
Subway's expansion is more overseas.
There is less North America investment.
The Family Dollar/Dollar Tree merger has slowed down their ---+ the ramp-up of their new combined program.
So, because every business has a different explanation, coupled with the fact that the remainder of the business showed growth year on year, I do think it is more of a customer-specific issue.
However, we obviously are watching it very closely and other commercial refrigeration suppliers have shown some softness.
So that's ---+ so those are the data points we're looking at to try to guess where the (multiple speakers) is coming.
Drug chains, convenience stores have been good.
What translate.
We haven't seen that.
Well, with purchase accounting (multiple speakers)
Yes, it was $423,000 in purchase accounting.
No, just ---+ we reinstituted the R&D credit, so year on year, it will be ---+ it shouldn't have an impact because it was implemented.
All right, thank you.
First, let me thank the employees and leaders of Standex who I think are executing very well.
We are very pleased with the progress and the performance of the businesses.
And thank everybody on the call for their interest in Standex.
We look forward to updating you on our next quarter's performance.
Thank you.
| 2016_SXI |
2015 | CRVL | CRVL
#Thank you for joining us to review CorVel's September quarter.
Revenues for the September quarter were $124.5 million, up just slightly versus the revenue for the September 2014 quarter.
Earnings per share for the quarter ended September 30, 2015 were $0.41 a share, up 10% over the same quarter of 2014.
In the quarter, our Enterprise Comp TPA product continued to add accounts and to implement our next generation claims management platform.
The trend toward integrated programs in worker's compensation favors CorVel's proprietary service continuum.
As I indicated in the June quarter call, we're also steadily transitioning our operations to incorporate our workflow management processes.
We made progress on that in the quarter.
Turning now to our markets, the market for our worker's compensation services remains active and evolving.
As the labor market improves, worker's compensation expenses become more problematic, which in turn slowly improves our market.
The slow recovery from the great recession created an understandably soft worker's compensation market.
The worker's comp market lags the economy but should gradually improve as has the economy.
Private equity ownership in our industry has largely completed the phase where such firms can resell their properties to one another, and would seem to be entering the distribution phase of their involvement.
As we've discussed on previous calls, the leveraged financings for such firms create incentives to cut costs and to look for short-term sales gains.
CorVel had a lot of customer renewals over the last 12 months.
We retained a high percentage of them and yet we did lose one public entity, which impacted our revenue in the September quarter.
The private equity owned firms compete on price as they look for short-term gains, which can support a sale of their leveraged positions.
Our investments in technology are creating a steadily strengthening business model.
We have sought to match pricing in the softer markets and yet to maintain our pace of investment in further product development.
Over this time, our strategy has permitted CorVel to gradually improved our competitive position.
Over any short period of time, we can have either wins or losses that create some unevenness in our result.
The September quarter results demonstrate our organization's ability to adjust to soft spots.
I am particularly proud of the work our associates accomplished.
Our product development goals and related operating strategies require almost constant adjustments to our operations.
These in turn require a dedicated team prepared to deliver good service, while also implementing a steady stream of enhancements to the service process.
Our customers, as has been well documented, are dealing with a difficult period of hostile government actions and regulations.
This has caused companies to be less inclined to make investments, and to take additional business risks.
This includes not wanting to move their administrative programs between vendors, such as for example their worker's compensation programs.
A more friendly administration in Washington would definitely improve employers' willingness to invest for the future by making changes in their programs.
The broader healthcare market is increasingly important to CorVel's overall results.
The health market has the two substantial mergers going on among the top five group health insurers, and understandably, that has consumed a lot of their operating management's time.
Both large and small carriers continue to also adjust to the ripple effects of the implementation of the Affordable Care Act.
In addition, carriers are learning how to substantiate payments integrity when new forms of review are added to both network provider contracts and also out of network transactions.
The package of actions required to facilitate improved review of hospital bills is becoming more well defined, which improves the acceptance of CorVel's CERiS services.
CorVel's CERiS line of hospital bill review programs is also evolving as we learn more about the individual segments within healthcare.
I am referring here to the differences in the services required for Medicare, Medicaid, and the subsets of group health.
CERiS has implemented the appropriate product configurations for the private sector and thus management has extended its efforts into the Medicare segments of the total market.
One segment of the Medicare market is made up the MACs.
These are the Medicare Administrative Contractors that handle claims processing for CMS.
We are introducing our reviews to the Part A MACs.
Our service will first be piloted to establish its efficacy for these entities.
So the sales cycle in this segment is likely to be long.
During the quarter, we continued our expansion in the long-term care insurance market, another subset of the health market.
This segment values our case management and our medical evaluation services.
By adding these services to our offerings in the health insurance marketplace, we are expanding the foothold CERiS established with its hospital bill review services.
We should have a better sense of the opportunity in this segment by the middle of the coming year.
We had a good quarter, I'd say, in product development, the integration of our various managed care capabilities continues.
Effectively interfacing our integrated environment to the claims professionals operating on insurance company claims systems is one of the goals of our development program.
This will continue the improvement we've made in the past and the effectiveness of our outsourcing services in the insurance industry.
Components of this effort include the implementation of next generation servers, improvements to our wide area network, web service capabilities, ease of access tools, the conversion to ICD 9/10, our new backup data center in Nevada, and new clinical modeling tools.
During the quarter, we implemented the first two instances of our web service interface with carriers.
Web services, for those not familiar with this phrase, refers to a technology that streamlines the interface of outsourced information processes to the customer's internal systems.
Expanding the use of workflow software has been a multiyear project.
During the quarter, we expanded the development of our rules engine in the management of claims.
Moving from traditional claims management models to one employing workflow concepts is a large project.
Implementing such changes in our production environment also requires meaningful field resources and effort.
Progress continues.
This will be a multiyear effort, but incremental improvements are expected each quarter.
Technology is progressively reducing lags and inefficiencies in both the treatment of patients and in the related financial transactions.
Real-time interactivity between managed care and claims management is critical to this progress.
Workflow techniques allow us to integrate CorVel owned managed care activities in a more productive manner than can be accomplished by our competitors, who must interface to subcontractors and the variety of their different systems.
We are continuing to expand the features for our mobile app for claimants, as well as to the provider portal for healthcare professionals.
These are integral components of the CareMC ecosystem.
Each has practical current uses, but each will also require a lot of work to reach their ultimate roles in the interfacing of healthcare to insurance management.
Another implication of the steady expansion of our workflow management software is the increased use of call centers within our organization.
Local service has always been and remains a core tenet of CorVel's service philosophy.
Providing local branches and staff has allowed the Company to build longstanding partnerships with its clients.
As one customer has somewhat bluntly put it, they feel it's nice to have a throat to choke across the street.
We continue to seek local presence, and yet increasingly are able to provide components of our service from specialized service centers.
This combines local responsiveness and relationships with the power of sophisticated and specialized centers.
This is a transition in our internal organization structure that has been going on slowly over the last 10 years and which will continue well into the future.
While it has been enabled by our investments in technology, we believe it is also important to prepare us for the competitive environment likely in five to 10 years.
As our operating model has evolved, we have increased our use of operations metrics and are building the technical capabilities to provide service at greater scale.
Our operating management and development staff have been doing a nice job with each stage of implementation.
This is a bit like renovating a plane while still having to fly it.
Now, I'd like to discuss our product line results for the quarter.
Patient management continuing to evolve into what we might think of as patient engagement includes third party administration, that is TPA services, and traditional case management.
Revenue for the quarter was $68 million.
Gross profit increased 19% from the June quarter.
TPA services continue to be an important driver of overall Company results.
We've had some nice wins both during the quarter and subsequent to the end of the quarter.
As I mentioned earlier, we did not renew a large public entity account, causing a short-term reduction in our total volume.
We continue to implement new features in the software supporting this service as well as to evolve our service centers for claims management.
Our claims manager branding is increasingly recognized by the brokerage community, allowing us to be involved in more bidding opportunities.
However, brokerage relationships are longstanding in the insurance industry.
So we'll be building our position with them for some time to come.
Case management sales were up sequentially and annually, and gross margins were up more than 30% sequentially and 17% annually.
Nonetheless, results in this segment remain below the levels we believe we should produce.
During the quarter, we continued to expand case management service volumes in the group health market.
This had a favorable impact upon our margins.
Following this launch, we will seek other opportunities in the group health marketplace.
Network solutions revenue sold in the wholesale market ---+ that is, outside our TPA activities ---+ for the quarter was $56 million, flat annually and sequentially.
Gross margins were down 4% sequentially but were up 9% annually.
CERiS hospital bill review services were sold ---+ are sold primarily in the health market and are included in our network solutions totals.
CERiS prospects are active and we continue to expand the market segments into which we sell this product.
Now, I'd like to cover a couple of additional statistics.
The quarter ending cash balance was $25 million and our DSO, that is our days sales outstanding, in receivables was 43 days compared to 44 days a year ago.
Just under 300,000 shares were repurchased in the quarter for $9.7 million.
We have returned $379 million to shareholders in the last 18 years, repurchasing 33,550,000 shares.
Shares outstanding at the end of the quarter were 19,787,000.
Diluted EPS shares were 20,063,000 for the quarter.
Shares outstanding were reduced 4.7% this last year.
Now, I'd like to turn the call back over to our operator for the question and answer session.
Thank you.
Thank you, Tim and I'd like to thank everyone for joining us for the quarterly earnings call.
We'll look forward to speaking to you again after the current quarter.
Thank you.
| 2015_CRVL |
2016 | MTD | MTD
#So we use the term [inaudible] that we have found on weights, in field additions have been very project-oriented in the sense that we really drilled down on the different territories of that business line, where we see additional opportunities with good paybacks.
What we do is we monitor actually the progress of these, so we monitor, one has the implementation of this, recruiting, successfully onboarding, building up the pipeline in [inaudible].
We do kind of quarterly dashboard, then when it comes to the financial results, of course it is a little more difficult to isolate.
We have also a dashboard behind that where we look at successfully outgrowing a versatile average where we added resources and there is very nice correlation where we accelerate that growth.
So I really feel good about it.
Definitely I continue to reflect the results we will talk about services.
Services are where we did targeted additions of seeing it for sales of services.
We use for tele sales who dedicate salesmen to service and we get good results there.
Not really.
I think actually overall, the industrial business is not a super end market, but I don't see things get worse at all.
They could very gradually things get better.
And in Europe, overall, I expect the next few quarters will be reasonably good.
The whole Brexit effect, I am not saying it is positive, but it is also not particularly negative.
With one exception, theUK itself.
Put we need to put this in perspective, the UK is about 3% of our total revenue.
UK had already a certain softness before Brexit, I would associate some of the softness with the uncertainty.
Certainly after vote, it went even further, we will expect some further softness in UK.
Hey, I think it's sometimes difficult to point specifically to market share gains.
I think if we look in our lab and particularly within one quarter, <UNK> but if we look at how we're performing in lab and product inspection, I would say those are two categories we would view ourselves doing very well competitively, and very well specifically in Europe.
As a reminder, Europe is the place where we have the largest percentage of direct sales, and so many of our Spinnaker initiatives are often most fruitful there.
A couple of comments, so on an annualized basis, it will add about 1% to sales.
And then we're assuming it is going to close in the next couple of weeks.
It is at 1% on an annualized basis.
If we are off by a week or two, I think that won't make a material difference.
And then the nature of the business would be that the vast majority of it will be inside the lab business.
Regarding Switzerland, no.
Currencies actually didn't move particular that it would make a difference.
The Swiss measures is something we initiated with a multi year plan, and we are progressing very well on that plan.
I am very happy with the progress that we're making.
The currency move that took place is impacting our producing organization in the UK.
As you might know, for the product inspection, we have the metal detection and the X-ray production there.
This is in essence favorable for us, but will not change something to our global manufacturing strategy, or our footprint.
So I don't see that this will impact our strategy in any significant way.
In terms of hedging, no.
So maybe a little bit of clarification in terms of the incremental margin, I think at least the way we calculated it is 31% measured in actual dollars, but it is actually about 34% to 35% in constant currency, so probably close to maybe what you expected.
Then what was included in there was we did have to catch up, I made a reference to a payment in terms of our SG&A increase.
So we did trigger some re-evaluation of where we expected to finish the end of year, vis-a-vis bonus targets.
Maybe the last point would be along the lines of talking about for a while is that we do like the effectiveness to date of the Field Turbo program.
So there's certainly some up-front investment with regard to our Turbo program in the quarter, and you'll see a little bit of that going forward.
In terms of our incremental margins, I continue to think that numbers in mid, high 30s are very realistic, and frankly, absent the judgment and the comp in the current quarter, which won't impact full-year numbers in a material way, we would have been there this quarter.
So if I look at China in total, I think the second quarter was marginally better than the first.
That was largely driven by our lab business and in particular, process analytics in the lab business.
If we look at kind of where we are, we would expect a positive second half of the year, particularly vis-a-vis where our expectations were when we started the year, but probably a little less than what you saw in the most recent quarter.
I thinkwe grew our lab business in China by close to 20% in the second quarter.
And I think we don't expect that kind of growth, a little bit large order driven.
Particularly in the third quarter, we're probably sitting here today we would estimate that maybe the fourth quarter would be better.
It is probably a little too early to predict right now.
Thank you.
Yes, I think at this stage, mid single digit would be a pretty good guess.
Specifically in the second quarter.
We were at 9.5%, 10%.
And about 20% on the labs.
Maybe just to clarify at least for us, we're thinking this is the first comp from a sales reported number, the first weak number that's been pretty consistent.
It was 7% in the first quarter.
6% last year.
It's totally in backlog sales, actually the order entry in the quarter was high single digits.
And we were looking for a return to high single digit or better in the third quarter.
In the details of the why, if you kind of look at what happened in our product mix, you know it is one of the longer lead time products that we have in the portfolio.
And just the mix changed a bit in the quarter, where there were a lot more within that engineer to order, which is even an extra couple of weeks.
So we're very happy with how that business performed in terms of execution, and continue to think that the market dynamics are good in that business cycle.
Let me double check the details.
So maybe in the second half of the year, we think we'll have some growth.
I am double checking to see if there are any large P&L orders or something in the second half of last year, but I don't think so.
So some modest single digit growth.
I will take the first part of the question but let <UNK> start with the second part of your question.
So let me, so this is a case that fits perfectly now with franchise.
From a size perspective, it is really core to us.
IT is opportunities around.
Yes, we definitely go for them.
We have a radar of possible targets.
There are more, such companies.
You can't really time when they become available.
Often there are topics.
There are succession topics and so on.
So we really pursue them, and whenever they materialize, we are more than happy to close them.
We are looking at smaller ones too.
You shouldn't look that as a new strategy we're pursuing that we are instituting.
Yes, we did a couple of technology adjacencies, and this time we had a great opportunity to acquire actually a service business, and if that pops up again, we will do so.
And with regard to it should add a couple of pennies, maybe up to a nickel in a best-case scenario.
And that would include us making some investment in terms of different things on the growth side, for example, in terms of some international distribution of a product.
<UNK>, do you have any other questions.
We did compete, but while in Europe, we are market leader, in US Troemner was the market leader.
We had a relatively small weights and weight calibration business in US.
So it perfectly fits in our franchise.
Troemner has a fantastic brand and competence in the US, that they have built up over decades that always made it difficult for Mettler-Toledo to compete.
As in Europe, we have been the leader.
It was basically for Troemner to establish a presence in Europe.
They used all of the indirect channels, but Ohaus was not a partner of them.
And they have multiple brands that they are also leveraging at this current stage.
And we are going to maintain that.
In addition we want to leverage the Ohaus brand, or the Ohaus franchise to expand in particular in international markets, where Troemner wasn't particularly strong with their lab equipment business.
Correct.
Raised the pure organic number by 50 bips.
I understand the comment.
If you, I think the comment that we've been making now the last couple of quarters, Rick, is that given overcapacity, as well as let's call it credit risk in the Chinese market, that it's worth putting a little bit of a discount on that piece of it.
That would be kind of number one.
And number two would be in the details now, and I am not counting a lot of basis points, but that we see some tougher comps in a couple of different areas.
So if you look at our year-to-date number, we're plus-5% and we're saying by the end of the year, we should finish at 4.5% at the midpoint of the range, and I guess closer to 5% at the high end of the range.
So let's see how China and some of these comps play out.
Biopharma has been a strong market for a while.
I would like to think that there is upside to the numbers, but we'll see as the quarter and the second half plays out.
I would say yes to both what you said.
Yes that generally the lab is doing well, but I would also say yes, that the life science and biopharma is particularly strong in China.
So hey, maybe on the economic stuff, I am not sure if we're a better source than kind of what you guys read.
It is a bit of, a lot of economic data globally.
It is a bit of a mixed picture.
Maybe one interesting insight we might give you is that I know there's been some articles that some of the GDP growth has come from leveraging up further some of this data on enterprises and regional governments.
It was interesting for us to see when we sorted through the details of our numbers, that we saw really good growth of course in the government sector when it came to labs, but we also saw across the board very good growth with multi-nationalism.
And that's an interesting comment in the sense that if you look over the last three years, the percentage of our total sales in China going to multi-nationals has shrunk, but now we see a nice rebound in the first half of the year across product categories, and I think that's this famous comment we talked about of, for a multinational company, they can defer the replacement cycle for a while on our products, but eventually it bounces back.
I think we see that a little bit there.
Probably a little less on the project side, but much more of this return to the normal replacement cycle.
In terms of the order entry, order entry was similarly positive to what we saw on the sales side.
It was a solid number.
It is not that purely the order entry would make us cautious about the second half.
It is just the realities of that is still a market with instability in it.
I think us remaining cautious makes sense, but I actually felt what we shared with you about multi-nationals was one of the more positive readings that we had in our data coming out of China.
Sure.
So in terms of our price increases, our net realized price increases were 230 basis points up in the second quarter, and on a year-to-date basis, they're now up at 2%.
We did go and look just to put that in a little bit of context, some of that was us chasing some of the currency movements that kind of happened in the course of the earlier part of the end of the first quarter, early part of the second quarter.
And so we are trying to do something in terms of mid-year prices.
I would not expect the second half of the year to be worse than 2 at this point in time.
Hey <UNK>, tax rate we expect at 24%.
I realized I forgot to answer that part of your question.
| 2016_MTD |
2017 | MO | MO
#Thanks, Marty, and good morning, everyone
Let me start with the smokeable products segment
Adjusted OCI margins expanded by 2.9 percentage points in the first quarter to 51%, due primarily to higher net pricing and lower resolution expenses
Smokeable reported cigarette shipment volume declined 2.7% in the quarter
After adjusting for trade inventory movements and other factors, PM USA estimates that its cigarette volume declined approximately 3%, in line with PM USA's estimate for the industry decline rate
In addition, California's cigarette SET, which went into effect on April 1, will also affect shipment volumes in the short term
PM USA's first quarter retail share was 51%, down 0.1 share point; Marlboro's retail share declined by 0.2 share point to 43.6%
In smokeless, adjusted OCI margins decreased by 3.6 percentage points to 61.9%, driven principally by the Recall impact, partially offset by higher pricing
The Recall drove USSTC's shipment volume down 5% in the quarter
USSTC estimates that smokeless industry volume grew at approximately 2% over the past six months
It was a tough quarter for wine
Michelle's adjusted OCI of $21 million was 25% lower than last year and its margins contracted 4.6 percentage points to 15.4% due to lower volume and higher cost
Ste
Michelle's lower volume was driven by wholesalers reducing year-end inventory and the timing of the Easter holiday, which occurred in the first quarter of last year
Let's now turn to our beer investment
As a reminder, ABI's fourth quarter 2016 results are included in our first quarter results due to the reporting lag
In the quarter, Altria's reported equity earnings from our investment in ABI were $23 million
These results included net pre-tax charges of $73 million for ABI special items
As ABI noted in its fourth quarter earnings release, its underlying results were negatively impacted by a challenging environment in Brazil and mark-to-market losses related to ABI's hedging of its share-based compensation payment programs
We, of course, continue to focus on our shareholders
In the quarter, we returned a large amount of cash to them, paying nearly $1.2 billion in dividends and repurchasing over $550 million in shares
As of March 31, Altria had approximately $1.4 billion remaining in the current $3 billion share repurchase program
We continue to expect completing this program by the end of the second quarter of 2018. As Marty mentioned, we continue to expect that our 2017 adjusted diluted earnings growth will be higher in the second half
This is due primarily to the financial effect of USSTC's Recall this quarter and the benefit of reporting four full quarters of equity income from our ABI investment
Lastly, a quick word on IRI's retail market share reporting
As a result of IRI's most recent database restatement, cigarette and smokeless retail market shares had been restated
Share information for each quarter of 2016 is available in our press release
You remember that IRI uses a sample of retail stores and certain wholesale shipments to project market share and depict share trends
Historical trends of restated numbers are generally consistent with those under IRI's previously reported numbers
That wraps up our results
Marty and I are now happy to take your questions
While the calls are being compiled, I'll direct your attention to altria
com
Along with today's earnings release and our non-GAAP reconciliations, we've posted for your reference a usual list of quarterly metrics, including pricing, inventory and other housekeeping items
Operator, we're ready for the questions
Question-and-Answer Session
Yeah, <UNK>
I think that's the proper way to look at it, <UNK>
What we quantified was about 100 basis points, the impact of the recall and you're right, in the actuals, we were down 70 basis points
Yeah, as Marty mentioned, we are pretty much done replenishing the out-of-stocks that occurred because of the recall at retail, and we are seeing share recover
Now, remember, whenever you have that consumer purchasing other products in the marketplace, it takes a bit of time for us to recover the share, but we're seeing promising signs
Hi, <UNK>
As we answered that question at CAGNY, you'll recall, when we provide guidance, we run a range of scenarios that are included in the guidance, and so that'll take into account these types of events, and so we feel the same that we felt at CAGNY
We feel good about guidance and that's why we were able to reaffirm today
Thanks for the question
If you recall, when we look at the cigar category, you have it in basically three segments
You've got the tipped, where Black & Mild participates and has over about 90% of that segment
You have the un-tipped and then you have the non-cigarillo form
We participate in the tipped and we have basically a large market share there
And so that's why we're running for profitability
That's where most of the profitability is in the cigar category
In the un-tipped segment, there's basically a price we're going on where people are competing for volume, but at a very low profitability, and we're really not participating in that segment
So it hasn't been a change for us, but I think that describes the strategy and the approach we have in the cigar category
| 2017_MO |
2016 | AXE | AXE
#Thanks, <UNK>.
It would be accretive on an ROIC basis.
As I mentioned, it's somewhat dilutive at the operating profit line.
So the cadence on RFPs is probably about the same in the NSS business, as it has been for a while.
And we would suggest that's a good cadence, and the fact that it's the same as positive, it's not getting worse.
In the EES business, we're seeing improved cadence in North America and in EMEA.
And then in the UPS business, we're seeing improved cadence in RFPs, having a lot to do with the stepped-up sales efforts.
And I'm not sure what I caught what you were getting at with the second part of your question.
Yes, perfect, thank you.
That helps.
So yes, actually there's business we're pursuing, particularly the EES business that we would not have participated in the past.
And yes, we've talked before about how we had this kind of bar bell business, when we were focused on wire and cable.
We got a lot of day to day business, because we had inventory.
We've got large projects, where you could break the wire and cable out of the electrical package, because we had expertise in supply chain and product technology that would enable us to win those.
But we were missing the middle of the market, which, we described the middle kind of very generically, but it's the biggest chunk of the available market.
Since acquiring Power Solutions and adding the electrical products, and I'll define those kind of roughly as switch gear, transformers and lighting is kind of the biggest categories, you would identify since adding those products, we've seen significant improvement in our ability to participate in that mid market.
And frankly, if we didn't have those products in our mix, we'd have much more worse performance in EES this year.
Because we've been able to participate in what I would call less true industrial and more commercial construction kind of projects, the large-scale projects, the power part of data centers, for example, that we would not have participated in a meaningful way in the past.
So we're definitely seeing an incremental improvement in our business already from having completed that, and we've seen very good alignment from the core lighting, and then the switch gear and transformer suppliers who are new to us.
We had one of those suppliers actually terminate our agreement.
It was something that we were not surprised by, frankly anticipated.
And for us, it was a net positive, which may sound weird except for that they took our territory so to speak, gave it to a competing regional wholesaler.
That regional wholesaler had to drop one of their core lines to get that business, which we then were able to pick up, and build a broader relationship with a supplier that's much more strategic to us.
So there have been some puts and takes, certainly as we've gone through the past 12 months.
Some of which we expected to some degree, some of which we didn't.
But the end result is that we are absolutely participating in business, we would not have participated in, had we not done the acquisition.
It will be lighter than that, because of the holiday.
It is just the difference in the way that the holidays fall this year versus last year, which in all reality may only need half a day kind of equivalent of billing.
So yes, it'd probably closer to the $20 million range or so.
Correct.
On a per day basis, yes, on a per day basis, correct.
Yes, I think, <UNK>, what we thought we were going to experience when we came out of Q2, was acceleration that actually didn't happen.
So if you remember, you asked us a question in the Q2 call about our trend in the quarter, because many industrial distributors had declining trends in the quarter, and we commented that ours was actually an improving trend, particularly in our OEM and industrial businesses as we went through the quarter.
So it was kind of in April, May, June, each month better than the other, on a per day basis.
What happened when we got into July is, we actually saw softening across a number of our businesses in July, an uptick in August that was modest, and then improvement in September that was more significant.
And that ramp in September, coupled with the pipeline, coupled with backlog, is what gives us the feeling that we'll have the kind of outlook that we have.
We had a little bit of softness in the networks business in July, not in the utility business, but the NSS business stayed pretty consistent through the quarter.
Thanks.
So with that, we'll conclude our call.
Thanks for all your questions and listening for today's call.
If you have additional questions, please do not hesitate to reach out to <UNK> or <UNK>.
And as always thank you, for your interest in Anixter.
| 2016_AXE |
2017 | HES | HES
#Thanks, Greg
In my remarks today I will compare results from the first quarter of 2017 to the fourth quarter of 2016. In the first quarter of 2017, we reported a net loss of $324 million compared with an adjusted net loss of $305 million in the previous quarter
Turning to E&P, E&P incurred a net loss of $233 million in the first quarter of 2017, compared to an adjusted net loss of $256 million in the fourth quarter of 2016. The changes in the after-tax components of E&P results between the first quarter of 2017 and adjusted results for the fourth quarter of 2016 were as follows
Higher realized selling prices improved results by $34 million
Lower sales volumes reduced results by $14 million
Lower cash operating costs improved results by $44 million
Lower exploration expenses improved results by $19 million
Lower Midstream tariffs improved results by $15 million
Changes in effective tax rate reduced results by $89 million
All other items net improved results by $14 million for an overall improvement in first quarter results of $23 million
The E&P effective income tax rate was a benefit of 13% for the first quarter of 2017 compared with the benefit of 43% in the fourth quarter, excluding items affecting comparability and Libyan operations
The lower effective tax rate in the first quarter is due to not recognizing a deferred tax benefit on operating losses in the U.<UNK>
, Denmark and Malaysia as previously discussed when we provided 2017 guidance
For the first quarter, our E&P sales volumes were under-lifted compared with production by approximately 1.4 million barrels, which did not have a material impact on our results
Turning to Midstream
In April 2017, the Corporation and its partners successfully completed the IPO of <UNK> Midstream Partners and we received our net share of proceeds totaling $175 million
The IPO transaction had no impact on the Midstream segment first quarter results, but has been incorporated into our updated guidance for the remainder of the year
In addition, as we previously announced, commencing January 1, 2017, our Midstream segment now includes the Corporation's interest in a Permian Basin gas plant in West Texas and related CO2 assets, and our wholly-owned water handling assets in North Dakota
We have recast all prior period financial information to include these assets and the results as part of the Midstream segment
In our first quarter supplemental earnings information presentation located on the <UNK> website, we have provided quarterly consolidating income statements for 2016, recast to reflect the transfer of these assets from E&P to Midstream
In the first quarter of 2017, the Midstream segment had net income of $18 million compared to adjusted net income of $23 million in the fourth quarter of 2016, which included the recognition of a full year of deferred minimum volume deficiency payments earned at year-end 2016. EBITDA for the Midstream before the non-controlling interest amounted to $94 million in the first quarter of 2017 compared to $102 million in the fourth quarter of 2016. Turning to corporate, after-tax corporate and interest expenses were $109 million in the first quarter of 2017 compared to adjusted after-tax corporate and interest expenses of $72 million in the fourth quarter of 2016. The first quarter results reflect not recognizing a deferred tax benefit on operating losses
Turning to first quarter cash flow
Net cash provided by operating activities before changes in working capital was $443 million
The net decrease in cash resulting from changes in working capital was $94 million
Additions to property, plant and equipment were $390 million
Proceeds from asset sales were $100 million
Net repayments of debt were $21 million
Common and preferred stock dividends paid were $92 million
All other items resulted in an increase in cash of $8 million, resulting in a net decrease in cash and cash equivalents in the first of $46 million
The sale proceeds received in the quarter resulted from the sale of approximately 8,500 non-core net acres in the West Goliath area of the Bakken, which at the time was producing approximately 240 barrels of oil equivalent per day
Turning to cash and liquidity
Excluding the Midstream, we had cash and cash equivalents of $2.7 billion, total liquidity of $7.2 billion, including available committed credit facilities, and debt of $6.54 billion at March 31, 2017. Now turning to guidance
First for E&P
In the first quarter, our E&P cash costs were $14.15 per barrel, which beat guidance on strong production performance and cost management
For the second quarter, E&P cash costs are expected to be in the range of $15.50 to $16.50 per barrel, reflecting the lower second quarter production guidance and higher planned offshore facility maintenance costs, with full year guidance of $15 to $16 per barrel remaining unchanged
DD&A per barrel in the second quarter is forecast to be $25 to $26 with full-year guidance remaining unchanged at $24 to $25 per barrel
The resulting total E&P unit operating costs are projected to be $40.50 to $42.50 per barrel in the second quarter, and $39 to $41 per barrel for the full year
Exploration expenses excluding dry holes are expected to be in the range of $65 million to $75 million in the second quarter, with full-year guidance remaining unchanged at $250 million to $270 million
The Midstream tariff is projected to be in the range of $125 million to $135 million in the second quarter, and $520 million to $550 million for the full year, which is unchanged from prior guidance
The E&P effective tax rate, excluding Libya, is expected to be a benefit in the range of 10% to 14% for the second quarter
For the full year 2017, we now expect a benefit in the range of 12% to 16%, down from original guidance of 17% to 21% due to a change in mix of operating results
Turning to Midstream, we anticipate net income attributable to <UNK> from the Midstream segment to be in the range of $15 million to $25 million in the second quarter
Midstream net income attributable to <UNK> for the full year is projected to be $65 million to $85 million, which is down from original guidance of $70 million to $90 million
The change reflects the increased non-controlling interest from the MLP as a result of the IPO
Turning to corporate, for the second quarter of 2017, corporate expenses are estimated to be in the range of $35 million to $40 million, and interest expenses are estimated to be in the range of $75 million to $80 million
Full year guidance remains unchanged at $140 million to $150 million for corporate expenses, and $295 million to $305 million for interest expense
This concludes my remarks
We will be happy to answer any questions
I will now turn the call over to the operator
Question-and-Answer <UNK>ession
Doug, right now, we're forecasting our capital spending in Q2 through Q4 to be higher than what you're seeing in Q1 and there is a couple of reasons
I mean, as you know, we're going to be ramping up rigs in the Bakken from two rigs at the beginning of the year to six at year end
Now, we are also forecasting an increased spend mid-year as we get closer to the North Malay Basin startup in Q3. <UNK>o, as you've seen, cost and capital have been performing well here in the first quarter
<UNK>o we'll continue to monitor what we're doing through the year and as usual, we'll update our guidance in mid-year
But, right now, our guidance remains $2.25 billion
Doug, I'll start with your last question on the capital spend associated with the early production system and our flexibility to finance it
And I guess the first thing I should say is, we are working with the operator, and we are looking to sanction the early production system for Liza around midyear
<UNK>o at that point everybody can see the numbers associated with that early production system
Now, we expect the <UNK>ana development to be phased, so with the cost spread out over a number of years, and for initial phases of development to fund future phases as Greg talked about earlier
Now, as you said, at this point in our discussions with the operator, we are looking at leasing the FP<UNK>O which will reduce our upfront spend for the development
And then again going to our flexibility, these increase in expenditures in <UNK>ana coincide with the startup of North Malay Basin and <UNK>tampede, which become cash generator starting in 2018. And the last thing I would like to remind everybody, we are sitting with $2.7 billion of cash right now in our balance sheet and we have a high leveraged oil prices
<UNK>o, as you know, every $1 increase in oil price adds approximately $70 million of after-tax cash flow to our portfolio
<UNK>o we are poised to benefit from any increase in oil prices
<UNK>o, our flexibility is there to fund the <UNK>ana development
<UNK>o, it was $700 million last year, and I think, hang on, for this year for <UNK>tampede and for North Malay Basin, we had $275 million budgeted for North Malay Basin and $425 million
<UNK>o, yes, you are correct
That $700 million of capital associated with those two assets
<UNK>o, in 2018, the capital will go down for those assets combined, plus cash flow will go up
I'd say it's more – it's basically more of our practice right now
It's early in the year
We've had good cost performance and good production performance, so it was both of those combined on how we came in under our cash cost guidance
In the second quarter, as you said, we will have the higher maintenance cost and a higher cash cost
<UNK>o, as you move to the third quarter, yes, the cost reduction efforts that we have been – that had been ongoing, and we did some further cost reductions at the end of 2016, will come back into the portfolio
The other thing that will happen is that North Malay Basin starts up in the third quarter
And that from our portfolio will be very accretive to cash cost because that is a low cash cost asset
<UNK>o as North Malay Basin continues to ramp up in the third and then into the fourth quarter, that will help our cash costs as well
<UNK>o, what we'll see is by our next earnings call, right, we'll have gotten through the maintenance season, we'll see where North Malay Basin is from the startup standpoint on timing and then we'll update our cash cost guidance at that point
<UNK>o the cost reduction doesn't have anything to do with the under lift
In the fourth quarter when you're looking at those numbers, if you remember, we had some non-recurring special items and one of them was an inventory write-off, so on the international side we had approximately a $30 million pre-tax inventory write-off that's in those operating cost in the fourth quarter
<UNK>o you had that special
Then even with that you can see, even across our U.<UNK>
and international though we have reduced cost throughout the portfolio, and are continuing to focus on that
Obviously, good production performance helps, but we did go through a lot of cost reduction efforts through 2016 and it bore some fruit as you can see in the first quarter
Yes, correct, it's normal cost execution
It's just normal execution, good performance across the portfolio
<UNK>o, just to start with the Permian, so in the first quarter, it's still producing 8,000 barrels a day, so it's not an absolute material amount, but it's producing 8,000 barrels a day, and it's generating cash flow for the company
Now, what we have done is from an MLP standpoint, it's the gas plant and the CO2 where you don't take the E&P type commodity price exposure to put it in the Midstream
<UNK>o we are, as I talked about moving the Permian gas plant and the CO2 asset into our Midstream segment, and that happened on January 1, and we did recast the prior 2016. <UNK>o we have taken steps
Now, we still have that 100%
It has not been dropped into our joint venture with GIP, but it's something that's under discussion
<UNK>, so we'll give guidance obviously as we approach 2018. The reason I don't want to be more specific than that is because, remember, our completion design is in flux, right? <UNK>o what the future completion design will be, will be a large factor in saying what the growth rate at the Bakken will be with six rigs
What we do know right now is it takes about 3.25 rigs to hold the Bakken flat at this roughly 100,000 barrels a day, let's call it
<UNK>o, clearly, any rigs above that is going to be growth, but depending on the completion design, the rate of that growth might vary
<UNK>o we'll give guidance as we kind of complete these completion trials and determine what the completion design is on a go forward basis
| 2017_HES |
2015 | MOV | MOV
#Sure.
Well, on the first question of market growth, I think you've actually seen that it has been in combination with a slowing ---+ a slower-growth retail environment overall.
And I'm sure everybody here follows our retail customers.
Overall, comp stores have grown in a low single digits and I think that the watch category has mimicked that.
What we are pleased with is that a number of our brands, our largest brands have significantly surpassed that growth rate.
, but that still causes retailers to focus on inventory control and productivity overall.
We are not the only brands that they carry.
They carry multiple brands in multiple categories.
And I think you are seeing that in a slow growth retail environment, but it is continuing to grow.
So we are pleased with that.
So I think that kind of answers part one and part two of your question.
On the wearable front, as a company, we have always been a leader in embracing innovation to make beautiful products.
And so, when technology allows us to do that, we will embrace it and those are the projects that we are working on.
I think you have seen a lot of wearable products out there so far that are not beautiful products or commensurate with what a watch company would produce and much more commensurate with what a consumer electronics company would produce.
Those are the projects that we are working on and that is really probably all I'm going to say, other than the fact that we are partnering with several technology companies on that front.
And as soon as we have more news to announce about that, we will.
We believe that that is a continuing trend and we have modeled our business assuming that retailers will continue to focus on inventory growth.
I think you also have the combination combined with that of part of our retailers' sales moving into the e-commerce world.
And I think you hear that typically it's between 10% and 15%, so you need to carry less inventory in the e-commerce world as it's now one location, and in some cases, drop-ship locations doing significant amounts of business.
So I think that (multiple speakers).
Overall, we have looked at price increases, and they are selective, of approximately 5% to 8%.
We have chosen I think, and to use <UNK>'s words here, gross profit over volume.
So recognizing and building into our models that we will have some effect on overall volume.
We felt it was the prudent thing to do in this type of environment, where our costs have materially increased due to currency fluctuations.
I would like to add that there are many price points that remain untouched, so it was very selective.
It was not a flat percentage across the portfolio.
We were ---+ obviously, we are very good at controlling our expenses and we were forecasting to really invest everywhere around the globe.
By the end of the year what ended up happening was a lot of our international locations did come in slightly lower in some marketing expenses, so it was a little bit here and there around the world.
You know where we are a very complex organization.
But primarily international and primarily around some of those local marketing spend.
I will add to that that you also had the effect of, in some places, sales coming in lower, so because of that some of our commitments to our partners came in lower as well as currency.
So you had a strengthening US dollar, which changed some of those expenses as you translated them back into US dollars.
I will address that one, <UNK>.
That is in isolation; that is just the FX impact.
Had we not taken the price increase.
Yes, had we not taken the price increase and then offsetting that obviously is because we are seeing some growth in our overall forecast; would be the price increases.
And growth.
Yes, and then there will be some growth as well.
It's one of the ---+ it's the major component (technical difficulty) the FX.
Well, we see that trend to continue throughout this year.
Hopefully, sellthrough will accelerate towards the second half of the year and things will rebalance.
But right now we are seeing the trend to continue throughout the year.
We are very comfortable with where we are from an IT perspective, as well as from a facility perspective.
We are ---+ while we are saving approximately $5 million this year in our overall overhead, that is net of investments that we will make in growth in certain markets around the world where we believe we have opportunities.
So we will continue to invest in the Company, but that is built into our forecasts and our models for the year.
I think we still feel comfortable that long-term margins can go into the mid-teens, but I think we have to see FX basically stabilize for a while and then see volume growth.
Right now Movado has ---+ we just launched very recently in the UK.
That is one of our international markets of focus.
So we're not thinking of expanding to many different markets; there's markets we already have a position where we need to grow the business.
But we want to be very thoughtful.
It's not adding doors; it's building one door at a time.
We have a position in China now that ---+ there are certain concessions that we run which are performing really well.
So we want to be, again, very focused on how we built this.
Again, it's not every market.
Right now the main focuses are the UK, certainly China, and then Brazil we are also, as I mentioned in my remarks, seeing very good traction.
I just want to ---+ the performance-based pay was down for the quarter $2.1 million.
I think at the end of the third quarter we also announced that it was down for the whole year.
We don't give out specifically that number, but based on the performance of the company this year, we did not have any performance-based compensation.
I guess I will address a piece of that and then others can follow.
We don't disclose, obviously, what our grid is for the program, but you are correct, we do have a 10b5-1 program in place which we will adjust accordingly when the window is open.
It's still a strategy of ours to continue to invest back into the Company.
I think we announced that that plan is no longer valid at the end of <UNK>'s remarks, based on the current environment and currency rates.
And we have no plan at the current time to reissue a longer-term plan.
We will increase marketing spend this year and continue to invest in our brand-building efforts around the world, so that is a continued focus of ours.
Obviously, we will do it in line with our sales growth.
Thank you, <UNK>.
I've spent my time learning.
This is a new industry for me, so the majority of my time has been learning.
Learning internally from the leaders around the Company, but people at every level inside of the Company.
Traveling to the different markets, meeting with key customers, meeting with consumers, and getting a flavor of the strengths of our different brands around the globe.
It has been a process of learning, to summarize.
And also starting to learn the talent that we have and putting together strategies that restore us to growth, because growth is a very important thing for us.
So that has been the majority of my time.
As you know, if you read my bio, I spent 15 years at the Estee Lauder companies and that was a great training ground for me.
I worked with some amazing people, so I'm taking some of those learnings now to Movado Group.
And one of the main learnings is to put the consumer first and really understanding what consumers want.
And also executional excellence.
Execution is the only part of strategy the consumers see and that is one of the renewed focuses that we have in the Company.
I'm very pleased to see that our talent around the globe is really embracing this as a key strategy going forward.
Well, I will tell you that the most surprises ---+ there has been several good surprises.
I knew there was great talent in this company, but as I was able to spend more time not only here in our headquarters, but traveling throughout the different regions, I was pleasantly surprised to see we have great people in this organization.
I was very excited about that because talent is such a key driver for success for any organization.
My time ---+ I am spending time here in the US.
This is our core market.
But also making sure that the market, the priority international markets are visited and we work together.
So I'm spending a lot of time here, but also a lot of time on a plane.
Okay.
I would like to thank everyone for participating today, and we look forward to talking with you on our next conference call.
Again, thank you very much.
| 2015_MOV |
2017 | JCI | JCI
#Thanks, <UNK>, and good morning
Let’s start with our new segment structure within Building Technologies & Solutions on Slide 10. As you can see, Buildings has two main components: Building Solutions and Global products
Building Solutions, which has annual revenue of about $15 billion, is our field business and direct channel
We operate in a regional structure and report 3 segments: North America, EMEA/LA and Asia Pacific
Global products has $8 billion of annual revenue and will be reported as our fourth segment within Buildings
This is our indirect channel with its sales through distribution and storefronts
I will speak to the new segments as I go through the results for Buildings
Now let’s get into the details of the quarter on Slide 11. Total building sales in the quarter of $6 billion declined 1% year-over-year on a reported basis
However, excluding the impacts from FX and divestitures, sales grew 1% organically
The impact of the hurricanes, the earthquake in Mexico and some final sales-related purchase accounting adjustments impacted sales growth by approximately 60 basis points in the quarter
So let’s start by unpacking the 1% organic decline in Building Solutions, which again represents our project and service-based field business
In North America, our largest region, sales declined low single digits
Our fire and security field business, which comprises about half of the revenue in North America, is relatively flat year-over-year
HVAC and controls installation and service activity, which typically accounts for about 35% to 40% of sales in North America, grew low single digits
However, this growth was more than offset by a decline in large projects within our solutions business, which declined low double digits in the quarter
And I’d just point out that about half of that decline was driven by weaker sales to the U.S
federal government
Turning to EMEA/LA, we saw low single-digit growth in the quarter
Growth in Europe was led by solid project activity in fire and security
In the Middle East, sales inflected to positive growth in the quarter driven by HVAC
Latin America also grew low single digits with balanced growth across fire and security, HVAC and controls
In Asia Pacific, organic growth was flat in the quarter as strong growth in service was offset by lower project installation spend year-over-year, particularly in China
Turning to global products
Sales increased 3% organically year-over-year with growth across building management, HVAC and refrigeration equipment and specialty products
Building management, which is about 15% of global products revenue, includes controls, security and fire detection, and we saw a nice growth across all 3 of these product lines
HVAC and refrigeration products, which comprises about 65% of global products revenue, includes unitary and applied HVAC equipment and products, our Hitachi joint venture products, as well as industrial refrigeration and marine equipment
Within these businesses, resi and light commercial HVAC grew low single digits where a low single-digit decline in resi HVAC was more than offset by low teens growth in light commercial where we saw a significant growth in our national accounts business
I would point out that the resi HVAC decline was impacted by a tough prior year comparison with fiscal ‘16 Q4 growth north of 20% as well as lower cooling degree days
For the full year, our resi HVAC business grew high single digits organically, benefiting from new product launches in the spring of 2016. Our applied business grew in the mid-single digits range in the quarter with strong performance from North America and larger projects in the Middle East
Finally, we continue to see solid growth in our Hitachi joint venture as well as a pickup in our industrial refrigeration businesses led by the improving natural gas and food and beverage markets
The remaining 20% of revenue in global products is specialty products, which includes fire suppression and Scott Safety
This platform saw low single-digit growth in the quarter and, as you know, Scott Safety was sold to 3M in early October
So let’s turn to EBITA
Buildings grew 5% year-over-year in both the reported and adjusted basis to $904 million with margins expanding 80 basis points year-over-year to 15.1%
This growth was led by cost synergies and productivity savings, partially offset by price cost pressure as well as continued investments we’re making in new products in our channels
Over the course of 2017, we launched 14 new chiller products globally and expanded our factory direct distribution business by adding 17 new storefronts across North America
And I just point out that for the full year, Buildings EBITA margin expanded 50 basis points
So let’s turn to Slide 12. Orders grew 2% organically year-over-year, led by the 5% growth in our products business
Field orders were flat as high single-digit growth in Asia Pacific was offset by a low single-digit decline in North America and EMEA/LA
Backlog of 8.5 billion at year-end grew 4% year-over-year on an organic basis
So let’s move to Power Solutions
Sales of 2.1 billion increased 18% year-over-year on a reported basis, but this includes a significant tailwind from lead pass-through
Excluding lead and FX, sales grew 9% organically, led by strong shipments to the aftermarket channels across all regions
Global battery shipments increased 5% year-over-year with aftermarket unit growth of 8%, partially offset by a 5% decline in our lease shipments, which is consistent with the lower auto production in our two biggest markets, the U.S
China rebounded nicely versus last quarter with total shipment growth of nearly 40% with strength across both OE and aftermarket
Global shipments of Start-Stop units increased 30% led by strong growth in China and the Americas
EMEA Start-Stop units increased 7% due primarily to strong aftermarket growth, which is more than offset by a low single-digit decline in OE
Segment EBITA of 431 million increased 4% on a reported basis or 5% excluding the impact of FX and lead
Power’s margins declined 260 basis points year-over-year to 20.2% on a reported basis, but this includes 170 basis point headwind from lead
Excluding the impact of FX and lead, Power’s margins declined 80 basis points
In the quarter, leverage and higher volumes, favorable mix and productivity savings were more than offset by ongoing product investments, start-up and launch costs and increased logistics and distribution costs, including the disruptions related to the hurricane
For the full year, Power’s margin declined by 60 basis points to 19.5% on a reported basis, but this includes 150 basis point headwind for lead
Excluding the impact of lead and FX, Power’s margins expanded a strong 100 basis points for the year
Moving to Slide 14. Corporate expense was down 25% year-over-year to 107 million, benefiting from continued synergy and productivity savings as well as a lower compensation expense versus the prior year
For the full year, corporate expense was 465 million on an adjusted basis, better than the 480 million to 500 million guidance range we provided last December
I am pleased with the progress in reducing our overall corporate expense, and we expect to see continued improvement in fiscal ‘18. Now let’s turn to free cash flow on Slide 15. In the quarter, we generated $1 billion in reported cash flow
Excluding 100 million of transaction and integration costs in the quarter, adjusted free cash flow was 1.1 billion
This out-performance versus the 900 million Q4 target we provided in July resulted primarily from the strong Q4 volume growth in Power Solutions, which allowed us to work through a portion of the inventory build from the end of the third quarter, and we also saw a reduction in receivables across our businesses
As <UNK> mentioned, we are in the process of establishing internal cash management office
This team will be dedicated to improving our overall cash management and forecasting process and will report directly to me
This team will be comprised of individuals from corporate, treasury, our shared service center groups and the business units
This area is one of our top priorities for fiscal ‘18, and we remain committed to delivering adjusted free cash flow conversion of 80-plus percent, which excludes net onetime cash outflows of $800 million to $900 million related primarily to integration, restructuring and income tax payments
Let me stop there just for a second and give you the components of the onetime items
We’ve got restructuring and integration costs of roughly $500 million, which is probably $100 million higher as a result of us accelerating or pulling forward some of these actions to Q4 of ‘18 versus fiscal ‘19. Secondly, we’ve got about $100 million of executive severance and the [Indiscernible] unfavorable arbitration award that occurred in the fourth quarter
We’ve got the $50 million worth of Scott Safety tax payments
And then we’ve got about $350 million, which is broken into two buckets in the tax area
One would be $200 million outflow related to a Mexican tax law change regarding they’ll no longer accept consolidated filings in Mexico
There’s a deconsolidation that’s required, that will cause $200 million of cash outflows in the first quarter of fiscal ‘18, and there were some specific tax planning in the U.S which was $150 million outflow
So in aggregate, that’s about $1 billion
And as you may recall, 200 ---+ originally, we thought $300 million was going to be the tax refund in the first quarter of fiscal ‘18. That number is now $200 million, but the $600 million that we expected in 2019 has now increased to $700 million
So essentially, where we are now is we’ve got about $1 billion worth of cash outflows and $200 million related to the tax refund in the first quarter, which gets you that $800 million number
And again, I just point out that as we move into ‘19, we now expect $700 million of tax refunds related to the Adient tax that was paid in the first quarter of ‘17. Similar to recent years, we expect our adjusted free cash flow to be much more weighted to the second half of the year with an outflow in Q1 and our largest inflow in Q4. Moving to Slide 16. We ended the year with a net debt-to-cap of 39.3% versus 41.2% at June 30. During the quarter, we again took advantage of the low interest rate foreign debt environment and issued $310 million of yen-denominated five year notes and $175 million euro-denominated one year note
During the quarter, we used the strong cash flow generation as well as the debt issuances to repay $1 billion in commercial paper and $150 million bond maturity
Additionally, we repaid $165 million in TSARL debt with Tyco-related cash flows
As everyone knows, the Scott Safety sale to 3M closed in early October, and we repaid $1.9 billion of TSARL debt with the net proceeds from this transaction
These payments, along with the proceeds of the ADT South Africa sale in the second quarter of this year, reduced our original $4 billion in TSARL debt to a current balance of $1.8 billion
During the quarter, we repurchased $225 million in stock or about 5.5 million shares
For the year, we repurchased just under 16 million shares for $650 million
I’d also mention that we completed another $150 million of buybacks during the month of October
And as we move through fiscal ‘18, we will, at a minimum, buy back stock to offset the impact of option dilution
On Slide 17, we provided details in the appendix related to the Q4 special items, all of which have been excluded from our adjusted results
And as I mentioned earlier, the building segment change was effective in the fourth quarter, and we ---+ and the revised fiscal ‘17 quarters are provided in the appendix as well
And just finally, the House U.S
tax reform proposal was released last week, and the Senate proposal is expected shortly
Interest deductibility and repatriation taxes on foreign earnings will be headwinds for us, but we are in the early stages of reviewing the overall pluses and minuses [to Johnson Controls] as well as other available tax planning opportunities
So with that, let me turn the call back over to <UNK> to review our fiscal ‘18 guidance
So let me start with U.S
And I think the two areas that I commented on providing the most headwind are probably the limitations on interest deductibility as well as the repatriation taxes on foreign earnings
And we are in the early stages, Jeff, of taking a look at the implications of the proposal, and we’ll see what comes out from the Senate as well
But those two items certainly do put pressure on our effective rate in the mid-teens where it is today
But I’d also say that until we really sit back and study all the provisions of it, we really aren’t in a position today to comment on what the ultimate effect will be because I’m sure there’ll be tax planning opportunities that we’ll have in front of us as well
So I think this is one we’re going to probably just have to keep front and center with you and everyone on the call
And the more information we get and as ultimately the regulations come out, we’ll address it at that time
As far as your comment on Mexico, the calculations that were completed on the specifics around deconsolidation of Mexican returns, I mean the tax law changed, just to give you a little bit of color here, was that in Mexico, no longer can you file a consolidated return and get group tax relief, but you’ve got to file individual returns
And that payment is required to be made for us in our first quarter of fiscal ‘18, and we didn’t finish the calculations on what that net payment was going to be after unpacking all of these individual returns until just recently
And so the one thing I would point out there is that the payment that we’re going to make of $200 million, the way these regulations are working in Mexico, we will recoup that payment over a period of time of up to seven years
So it’s something we’ll get back over time, but it was a onetime payment that’s large enough that we called out in our commentary here
I would just comment on Buildings, that’s correct, <UNK>
And then when you look at Power Solutions given the spike up that we have seen in lead over the last few months here, there’s probably a bit of headwind as we look at just Q1 impact
But as we’ve kind of commented on before, when it spikes like that, we can have an individual quarter impact based upon the arrangements we’ve got with our customers to pass on those lead increases over the course of the year that tends to normalize, and we wouldn’t expect that to be a big number for the year
But there could be a little bit of an impact in Q1 from the spike in lead prices as well, Steve
On the AIPP side, that’s correct
On the long-term side, it could have some impact
But the short-term bonus here, it would be 1/3 on EBIT growth, 1/3 on organic revenue growth and 1/3 on free cash flow conversion
And then there could be some modifiers that might also address things like EBIT margin improvement to ensure that we aren’t just chasing revenue dollars, that we’re chasing profitable growth
Correct
So CapEx is going to be still in the range of about $1.3 billion ---+ up to $1.3 billion
The way to think about that is if you look at where we are this year and adjust for the items that we talked about in the third quarter, what happened in the fourth quarter here, we were able to flush through about $100 million or so of the inventory build that we saw at the end of the third quarter in Power Solutions, and we also saw about $100 million reduction in receivables
So if you recall at the end of the third quarter, we talked in terms of a couple of hundred million dollars in inventory we thought we could take out and $100 million worth of receivables
So $200 million to $300 million, we were able to take out in the fourth quarter here
So there’s really $100 million more that we expect in the inventory side
And then I would tell you that would get you up to that 80% plus range
And beyond that, it would be the additional effort that our cash management office team is going to put in place to continue to drive trade working capital improvements and look at payment terms and billing terms to our customers
So right now, we’re looking at around 80% plus
And I would just comment, I would just add to that, that we’ve got ---+ there is a lot of momentum that we’ve got in the back half of this year
So we aren’t seeing benefit in ‘17 from the revenue pull-through
But given the third and fourth quarter activity, we’ll get some benefit on the top line in ‘18.
So for Power Solutions next year, we’ve got 500 million in the plan, and that would include the construction of the facility that will be part of our Bohai Piston joint venture
The other facility that we’ve talked about in China will be starting late in ‘18, maybe even into ‘19. So the second facility in China will probably not have a big impact on the cash flows in fiscal ‘18.
No, I would say this is the peak
I mean, I could see depending upon levels of the Buildings investments, I would say that we’re probably looking at the 1.3 billion being a peak
I mean, it would have to be something very opportunistic for us to not have a peak at the 1.3 billion
Even at that level, we end up with the reinvestment ratio that’s 1.4, 1.5, something like that
So we’re working to get that down into the more 1.1, 1.2 range
I’d say we guided 250 million to 300 million last year
We ended up at the high end
I would tell you the 250 million is a number that’s pretty much what we’ve got road map for fiscal ‘18. I mean as we go through the year, could there be some upside? Maybe
But right now, we’ve got the teams focused on the 250 million, which is exactly what we’ve got in our trackers, and we’re working toward delivering that
So I think that’s where we are, Rich
2,100.
<UNK>, so on cash flow for ‘19, I mean it’s a bit early to talk about ‘19, but I guess I’ll give you my thoughts as we sit here today
That $600 million refund from the Adient tax payment is now $700 million that we’re going to get in ‘19. And I think we’ve talked in the past, we hope to get that in fiscal ‘19. Whether it’s fiscal ‘19 or calendar ‘19 really depends upon how quickly we can get it through a joint committee because, given the size of the refund, it’s got to go to joint committee
But obviously, we’re targeting to get it in fiscal ‘19. So that $700 million, when we look at the other onetime items that could be out there, it’d be restructuring and integration, and I would expect those to be well below that $700 million number as we move into fiscal ‘19, there’s probably a bit of a wildcard, right? Relative to tax reform and what that might mean
I guess we just need to sort through that
But I guess the short response is I would expect adjusted free cash flow or reported cash flow to exceed adjusted free cash flow in fiscal ‘19.
I don’t think that’s going to impact it in a big way
I guess the way to think about this right now is we’re looking at the Buildings business globally
Target’s about 85% free cash flow, and Power Solutions is around 70% today with the growth investments we’re making
I think as we work through some of the growth investments that we’ve talked about on this call at Power, I think moving toward the 90% target we’ve got in 2020, that’s still where we’re headed
But I don’t think the mix that you’re referring ---+ the geographic mix you’re referring to is going to be a ---+ is going to impact that in any significant way
| 2017_JCI |
2016 | WEX | WEX
#Yes.
<UNK> what I said on the call is that most of the fleet non-processing revenue 60% of that is related to EFS.
And I would say to you specifically on the other revenue line is materially higher than the 60% is related to the EFS transaction.
There were activity based fees, so we're charging customers for a variety of fees depending on what type of behavior they exhibit.
It's not one specific fee, there's a whole series of them that we've implemented, again, over the last couple of years.
Sure.
We are excited about it obviously.
It's a customer that's already been implemented and the partner is live and when I say implemented typically what happens is that these customers ramp over a series of years.
So it tends to start smaller and then build over a three-year period of time as they go through benefit cycles.
So it will provide revenue contribution into next year which it is not small but it's not huge.
But over the next few years we think it will build into something that's pretty nice.
I'd say similar.
What they're really looking for with WEX Health is the underlying technology platform, the ability to white label in their name.
The ability to do multiple type of offerings on one existing platform.
It's really a similar value proposition that we have to other partners in the marketplace, just a build on the momentum that we already got within that business.
We are really just in the implementation phase in Latin America so we feel pretty good about the fact that they're signing partnerships but they are partnerships that are just in the making right now.
So there's really very little volume that's coming through from that business.
Competitively, they are competing against some of the bigger banks down there and in terms of positioning we feel really good about the positioning.
In part because our business in Brazil is unique within Brazil and the fact that we are a direct MasterCard issuer.
And so it allows them to go into the marketplace with a universal offering, and because we're processing on our own, doing it in a way that is also cost competitive and gives us flexibility in terms of the product set.
It's a marketplace that is relatively new.
Excited, I was going back and forth with our GM down there last night.
Argo is something ---+ he's excited about the potential but because it's so early, we just don't know how big that could be.
Yes so, just to be clear the 7% is not adjusted, it's just an organic growth rate.
If you were to adjust out all of the acquisitions, we would have a 12% growth rate including the fuel price adjustment.
7% just has the acquisitions if you add FX and fuel prices and FX wasn't that meaningful.
But fuel prices was, we would have 12% organic growth.
The number you used for EFS was the fleet component which is about 90% of the revenue.
There's also something a piece that's sitting in our corporate solution segment.
You have the numbers correct.
A piece of the numbers will be as we said before on the revenue side and another piece will be on the cost side.
Yes, so we have been focused over the last couple of years on making sure that we are meeting all of the partner needs.
So we talked about the Esso portfolio migrating in Asia and so we just completed the Asia migration onto our international platform.
And so next in sequence is to migrate the European platform onto our international platform and so we're in the process of completing the final tweaks and expect to start rolling that portfolio over in 2017.
I would say our focus in the healthcare business because we see that there is so much market opportunity, that we have been reinvesting pretty heavily within that business.
Some of that's reinvestment in the implementations of these large customers that are coming through.
Some of that is more in R&D.
We have been more focused with them on the top line and longer-term earnings growth than we have been trying to maximize short-term earnings.
And it's a conversation that we have on a regular basis which is just kind of play out the marketplace, but that's been our primary emphasis point.
I just want to say thank you for once again joining us this quarter and we look forward to speaking to you again next quarter.
| 2016_WEX |
2015 | PCH | PCH
#Thank you.
Thanks, <UNK>.
This is <UNK>.
We have $190 million coming due, is what <UNK> is referring to in 2019.
That's comprised of $150 million of high yield debt and $40 million of acquisition debt.
And I think when you look at that size of that or the amount of that debt coming due, most likely a good chunk of that will be refinanced.
That's current view right now.
All right.
Thank you, Sherilyn And thank you to all for your interest in Potlatch.
I'm going to be heading back to my desk shortly and look forward to your detailed questions.
| 2015_PCH |
2015 | BIG | BIG
#I think first off from an inventory standpoint and gross margin standpoint, as we mentioned, gross margin was right on our mark for the quarter.
We continue to see real strong and predictable performance from the merchants in terms of understanding what IMU looks like.
We continue to take markdowns where it\
Sure, <UNK>.
Thanks.
No, it's an exciting time for the Company and obviously, the three executives are thrilled with the opportunity to step up and take on bigger, broader responsibilities.
But specifically as to Lisa, as you well know, she has been with the Company I think 12 or 13 years, something like that and she's been running ---+ she built out the planning and allocation and replenishment systems in this Company and has had a broad range of responsibility, including stores and DCs.
I saw it as an opportunity to move us to the next level.
We've done a lot of blocking and tackling over the last two years and a lot of investment in disciplines and processes for our merchants and planning team to improve on how we buy and how we get product to Jennifer quicker.
But the whole idea here is to take it to the next level of a strategic approach over the next five years to merchandising, big ideas and product assortments that are next to none.
And where Lisa comes in from the standpoint of clearly understanding that, she gets it and more importantly, over the last two plus years as I've worked closely with her side-by-side, we are very much aligned and as many of you know, when you have a Chief Merchant that's the CEO of a company, it can be very challenging for folks to manage somebody who has a very strong point of view.
And in this situation, we are just going to be able to take it to the next level, and Lisa is going to be the key driver of that.
Her team is very excited underneath her to answer that question.
We have a very strong team of general merchandise managers, as I mentioned earlier.
Trey in Food and Consumables, Martha in Furniture and Home and Michelle in Accessories and Lawn and Garden and Seasonal.
All three of them are pros, and this just allows us to really sharpen the saw and take it to the next level.
And again, in Global Sourcing, we have a strong team there and Lisa, TJ, and I were over in Asia last month and spent a week over in Shanghai and learned that we've made tremendous progress.
So again, as I said in my prepared remarks, it's always advantageous to make changes that can take the Company to the next level when you are in a position of strength and we've got momentum, we've got strength, we've got a powerful team in place and this is just another way to take it to the next level.
I'll start and then ask <UNK> to chime in.
From a numbers standpoint, Halloween actually falls within our third quarter.
It's different by a day in terms of where it falls.
It falls on a Saturday versus Friday last year, I believe.
So no great shakes for the quarter.
There is a shift of Labor Day being a week later than last year, but obviously all within the quarter.
So when we think about and talk about third quarter and setting guidance, obviously we are looking at a number of different factors, but the most important one is what were our results in second quarter, what were our trends coming out of July and what were the results of the business really in the first three weeks of August.
And all of those pointed to the range of 2% to 3%.
So I think we feel very good about how the business is positioned, not just from an inventory standpoint, but from a trend standpoint as we head into the bulk of the quarter.
And I will defer to <UNK> on the merchandising pieces of that.
Yes, <UNK>, I would tell you that the exciting part ---+ and as always, I am pleased to hear that you are in the stores seeing what we are doing, by the way ---+ deliveries were similar to last year, but the difference is it is candidly QBFV and the quality in there and the tastefulness of the assortments and the reduction in some categories like Floral and increases in other more novelty items are actually early indications that both Harvest and Halloween on a comp store basis have been positive, and sellthroughs have improved significantly over last year.
And lastly, I would add to that, there's a couple of what I call novelty items where the price point, the guys had the courage to step up and increase the price point significantly over last year and Jennifer is voting, and we're actually probably going to sell out of that product probably 30 days prior to when we originally planned.
So excited about the content, the improved taste level and the sellthroughs are improved significantly.
Yes, I think, <UNK>, one thing that might be registering with you that makes it feel like it's new and different and/or earlier than last year is the presentation in stores, which has been greatly enhanced.
So <UNK> and Rebecca and the Marketing team, along with our merchants and Michelle and Steve, the presentation of that product is much different, a little more bold and as <UNK> said, the quality of brand, fashion, and value is elevated.
The customer is responding.
You are correct to pick up on that though, because again, this is a difference in the new Big Lots to prior years.
Halloween and Harvest have been a little more inconsistent as to what ---+ how the customer voted.
Early indications are positive this year and she's recognizing the changes we've made.
Let me start for the first part, <UNK>, and thank you for the good question.
We certainly are razor-focused on ensuring we hit the road to 6%.
But to your earlier question on the SPP and how do I feel about being halfway in it, I feel very good.
The team embraced this and as I\
Thanks, <UNK>.
<UNK>, I think about it this way, and I'm sure this is a question that others have as well.
If you look at the guidance and start playing with the numbers that we gave you, I think you'll quickly get to, at the high end of our guidance, we are going to be around about 5% operating profit rate this year and that compares to 4.3% last year, so 70 basis points of improvement year-over-year at the high end of our guidance for third and fourth quarter.
That's meaningful improvement on a low single digit comp.
What's left is 100 basis points from there or outperforming this year.
Tall task.
We believe we have a path to get there.
A lot of things have to go right for us.
We knew that when we started this and introduced it over a year ago.
The things that have to go right ---+ sales have to be towards the higher end of the range that we gave you and that was a 2% to 3% comp for 2016, so start there.
Sales need to be towards the higher end of the range.
Additionally, the initiatives that I talked about in that meeting a year ago from an operating efficiency standpoint where we have to save money, and it has to be transparent to Jennifer that we are saving money.
We would not want to impede the shopping experience or the great progress that they are making in the Store Revolution whatsoever by saving costs or cutting costs.
So the things that we talked about back in that meeting, <UNK>, you will recall were things like our protection initiatives in stores.
Those are proceeding as planned.
The asset protection team has done a great job working with our store partners and our IT group in terms of rolling out EAS.
That is now complete.
We have EAS capabilities in all stores.
We have other initiatives around store-level markdowns, returns, etc.
We have technology today that we've never had before and many probably don't have even today, so I feel very good about the progress and where we sit.
The results are ahead of us, and we don't have a crystal ball, but we know that they are going to add value to the bottom line.
I think secondarily we talked about the Store Revolution and the investments we are making this year.
2016 and 2017, as <UNK> said, are the, I will say, the harvest periods from a leverage standpoint.
The training will be done, particularly Furniture sales training, as well as backroom training and the labor scheduling piece, putting the people in the right time of day and days of week to drive not only sales, but a more efficient schedule, so that I feel very good about and is well underway.
From an inventory standpoint, as <UNK> mentioned, we have three very strong GMMs.
Everybody is focused on delivering results to their inventory plan and inventory turnover, looking forward, will be one of the key drivers of leverage.
We know that, the teams know that.
It's not just a cash flow metric.
It's going to make us more efficient in DCs and in stores.
And there's a number of other I'll say singles and doubles that do not drive as many dollars, but support the culture that we are trying to enhance around leverage point has to be low.
We can't sacrifice the customer experience in order to get there, so a little bit of color for you on what we are talking about and thinking and <UNK> is right, we talk about it as an executive team if not every week, every other week, on are we on the path to get there this quarter, this season, next year.
Very much a focus.
When we get to the end next year and assume that we get to our goal, 170 basis points of leverage in a two-year period on a $5 billion business is a monumental task.
It's going to take a monumental effort and it's something we are 100% focused on.
So, hopefully that helps everybody on the call think about how we are thinking.
The last thing I would say in this regard, and again, hopefully I'm addressing some of the questions yet to come, for us, and I'll speak from my perspective having been here almost 15 years now, the exciting part about where we are as a business and as a team is we did the hard work early and we set a strategy.
The strategy is working, which allows the leadership team to be more focused on the future and not on whether we are ---+ what sales were yesterday or what they are going to be tomorrow or how are things looking for the quarter.
We are confident in the direction we are going, the strategy is working, and we're thinking much further out than August or September.
Well, I think I wrote down three things there.
So let me try to start and <UNK> can certainly chime in.
From a traffic standpoint, I would just remind everybody that with completing the EAS rollout, we now have traffic by store.
We don't necessarily have traffic by store for last year, so we are really looking at it week to week, month to month and developing an understanding of where the opportunities might be, and as we look forward, how we might use that information to work with our stores and make sure that we are comfortable and happy with how we are converting customers to transactions and basket.
Transactions have been a challenge; we know that.
Candidly, from our perspective, we believe ---+ we do not believe we need positive transactions in the back half of the year to deliver our guidance.
I think that's real important for everyone to understand.
From our perspective, it's broader than a single metric and what I mean by that is, and <UNK> can expand on this, our business is changing, we know that.
Our mix is changing.
The amount of footage that we've allocated to certain categories has changed and will continue to change in the future.
That does produce a different level of basket, which is a positive and can potentially impact transactions, which might work against that basket.
But when we come up to 30,000 feet, and we talk to our customer, she likes what we are doing.
We've enhanced the consistency, and she's rewarding us for that.
We have enhanced the quality of our product, and she's rewarding us for that.
And some of the key winnable, ownable categories where we think we can clearly differentiate our strategy to the competition, she's recognizing that.
So we feel very confident about our ability to drive comps into the future.
Anything you want to add.
On that piece, I was going to wait until we got to the third question, which was Furniture and the Home comps versus Easy Leasing.
I think his second question was on Food and fFod percent transactions in the basket.
I don't have that number in front of me, TJ; I don't know if you do either.
But if we move past that because, <UNK>, I don't know ---+ I certainly think that we do measure that number on what percent of ---+ measure what's in the basket, but I don't have it in front of me, so maybe that's something that <UNK> can take off-line with you later.
But your third question, and I think TJ has probably got the numbers on what percent of Furniture sales are being driven by the Easy Leasing program, but it certainly isn't the entire comp, that's for sure.
So you might want to take that and then I'll talk to him a little bit about content and strategy in those Home areas and in Furniture.
Yes, I think, <UNK>, let me just circle back on Food.
The amount of transactions that have the cooler and freezer product in it, if I put a range around it, it's low single digits.
It might creep up in the mid-single digits.
I think the efforts around putting coolers and freezers into our stores were executed very well.
Our customer is responding.
We are now able to put it in our advertising, which is clearly a positive.
And maybe the best data point that we have to share is, in recent weeks, Trey and his team have been very focused on kind of breaking down that business and working with our supplier partners and in some of those key markets where we are now in year two, we are seeing positive comps in that program.
So markets that were early like California and Florida, as an example, we are seeing positive comps on top of positive comps.
So that is very important to understand.
That's probably the key ---+ biggest key metric that we look at when we think about Food and Consumables and particularly the coolers.
The Furniture piece in Easy Leasing, I think at a real high level, Easy Leasing is roughly low double-digits to mid-teens, so in that 13%, 14%, 15% range of our Furniture business, full stop, which means the other 85% plus of the business obviously has to be performing quite well also.
It's all about quality, brand, fashion, value, how that product ---+ how we differentiate to our competitors, which I know <UNK> loves to help people understand.
And then the last piece, on the Home product, <UNK>, it is a very small piece of our business, very small piece of our business today that is Home-related product in Easy Leasing.
When I say very small, I'm talking about low single digits, maybe.
It's still very new for us in offering Soft Home in particular on Easy Leasing.
It is absolutely not what is driving comps in Home.
Martha, Kevin, <UNK>, the whole team over there in Soft Home has done an excellent job improving the quality of our product, the fashion of the product, and they are creating it themselves with their vendor partners and not relying on closeouts.
So I hope that is clear to everybody.
It is a portion of the growth in Furniture and it is a much, much smaller portion of the growth in Home, but an opportunity.
So let me just finish with that, <UNK>.
When you think about the Home area, as I talked to you guys two plus years ago, and the taste level in there, and I said on a call, don't buy ugly.
Well, we don't buy ugly anymore, and the guys have done an incredible job of positioning us in those businesses and not only just in the Fashion Bedding has <UNK> done a great job, but the Utility side of the business and the Towel side, the textile side of the business.
Across the board, Kevin and the buying team, along with Martha's direction, have just improved the taste level and the value proposition, and she responded to it big time.
Typically, on a daily basis, you are seeing double-digit increases.
So again, in my 35 plus years in retail, I don't care what your credit card program is, if you don't have the right content, nothing else matters.
So from a content point of view, we have fixed that business and we will continue ---+ we are not perfect and that's the good news about my team is they know that complacency is not something in our DNA.
But, I'm going to take on the Furniture piece with you as well too because this is a powerful team, and we have a new hire in there that just joined us, Robert, as a divisional merchandise manager in there.
But more importantly, we have four seasoned buyers that know what the hell they are doing and what they needed from us along with the Allocation team in there is a commitment from the senior management team to give them what they needed to drive the business whether that was the receipts behind it, or the marketing behind it, or the distribution of the product and how quickly we could get it to the stores.
And then, of course, the execution on Nick's team to make it happen.
But, I would say one of the biggest changes in there is how we have orchestrated what I call top to top meetings with the big guns.
So when you think about it, every quarter, the CEO of Serta has been in my office, and we have a strategy, a three-year strategy in front of us to double down on that business, and we currently are working closely with the CEO of Ashley, as well as United, which is under the Simmons brand.
These are huge companies that strategically we never sat down and hammered out strategies together as partners on how do we get there.
They are investing heavily in Big Lots.
They believe in us.
They know where the opportunity is.
They get the buy it today, pick it up, take it home today strategy.
So, the comps that are coming out of there are not just driven by ---+ and I love the guys at Progressive, so don't get me wrong, but this is about content and us supporting the business and figuring out how to get that inventory into the stores.
And again, as we navigate and figure out in the back half of 2016 or whenever it lands to be, this area is going to be the biggest growth area in the Company from a buy online, pick up in store strategy.
We think we are going to get a lot of incremental volume in the next three years because of that.
Sure, <UNK>.
When we have certain legal activity or claims, this one happens to be merchandise-related, so product that was sold in our stores a handful of years ago where it was less-than-perfect, or there were some claims or settlements around a design defect in some of the original manufacturer's work on the product.
We've been working with our insurance companies back and forth for I'll say a number of quarters to try to resolve the issue.
So we clearly view it as one-time in nature and it relates to prior years.
When we have charges like that, we tend to carve them out for you and non-GAAP them, so to speak, because what we really want you to understand is what's going on in the current operations of the business so that you can have a good way of judging are we on task or on track or not.
So this is one-time in nature.
It relates to a product liability design from years ago on a product where there were some defective parts to it, and we thought it was appropriate to carve out in a separate item.
Thanks for recognizing the improvement in the quality and again, remember that QBFV, there's the quality, brand, fashion and the last word is value.
And not to beat a dead horse, but there's the famous saying out there of price is what you pay, value is what you get.
And in the surveys that we've done, she is more focused on value for her money than she is on what the price is.
And the old model of compare to or the high/low thing, she's a much savvier shopper in what she tells us and candidly, we still have a lot of work to do to dig deeper into talking to her.
We do spend a lot of time in <UNK>'s world and Marketing speaking to Jennifer and doing surveys, but she gives us a lot more credit for value.
Candidly, we still have to win back the Jennifers who walked away from us for quality, but the current Jennifer that we have, she's thrilled with the quality and the value versus the price because she wants to be able to know that she can come in and buy things whether it's in those four or five key businesses we talk about all the time.
And again, I don't want to beat a dead horse, but certainly price is important.
She wants to understand the value she's getting for her money and when you put quality product on the table in front of her and it's a good-looking product and you have a great value, she gives you huge credit for it.
No, it's totally the closeout piece.
So if you really look ---+ and again, we've talked very transparently about this.
The closeouts in Food and Consumables can fluctuate anywhere from 40% to 50% to 60% depending on the quarter or the month, the time of the year, but we have tremendous relationships with the big food companies.
I can't get into the details of how our food truck works, but we buy a lot of closeouts in there in canned goods, salty snacks, cereal, and our pricing is better than the bulk of the discounter on that product.
Now when you come into the NVO part of Food and Consumables more so probably in Food is we are not going to be as competitive as the big guys you are referring to because we don't buy it as big, but it is a convenience play and it's working, but we are not going to be priced below.
We might be at in some cases or slightly above and that is how we've designed that business and she has responded very well.
When you think about in Consumables ---+ and Consumables kind of a complicated area candidly when you look at it because you've got everything in there from Storage, to Pet, to HBC, so it's a lot of moving parts, Paper and Chemicals.
So when we make big buys with a P&G, as an example, you know the brand portfolio, and our pricing on those categories, is without a doubt, lower than the big guys because it just is the nature of how you buy it.
But on a day in and day out business, again in the Never Out program, <UNK>, we are not going to be below.
We will be at or slightly above.
<UNK>, I'm not sure we can put a pencil to lost sales, so to speak, for weather.
I'm sure the group in Planning and Allocation on Lisa's team would have a pretty good point of view.
I think from our perspective the way we think about it is it limited our upside to the quarter.
Having said that, Lawn and Garden and Summer both comped up low single digits during the second quarter, so there was opportunity missed there.
In performance by region, we monitor it actually closer than that.
We actually price and glide product by store in terms of understanding their inventory levels and their sellthrough rates.
That's not unusual for us.
So I don't know that we saw the same level of disparity, for instance, in Texas, which I know some people have talked about for different reasons than weather.
I don't know we saw that level of disparity in our business.
I think where we might have saw some variance by region would be more attributable to rollout of initiatives, so to speak.
So those stores that are in their first year of coolers and freezers, or those stores that in the quarter were still in their first year of Furniture financing, as an example.
That's a bigger driver of disparity in performance by store than probably trying to pick out the weather.
But I think at a real high level, the strength in those big winnable, ownable categories and the consistency of them allows us to absorb a little bit better when weather conditions aren't perfect.
So I think that's ---+ you know this from following the Company for a very long time ---+ when we have 80% or 85% of our business working and 10% or 15% comping down for more strategic reasons than if they are working or not, that's when we are at our best.
That's a good question.
I would tell you two things.
One is, you're right and you and I have talked about this and obviously TJ for the last couple of years about the prior strategy in here was like an all or nothing.
So our advertising strategy would be the entire print ad would be all in Lawn and Garden, and I remember that like it was yesterday because I got here right in front of a Memorial Day weekend and the entire ad was outdoor and we had horrible weather, tons of rain.
So I introduced what I call weatherproofing your marketing strategy.
So that is one significant change in how we manage the total Company is we don't go all or nothing and that's where TJ is talking about how ---+ let's be candid.
There's no question that everybody in the country had difficult outdoor furniture ---+ outdoor living categories were tough during May and June because of that and I'm sure, like he said, our planning department has that number to quantify it.
But more importantly it's how you manage the mix of your business.
And because of the razor- focus we have on categories like Home and Furniture, we were able to offset those negative sales drops, but at the same time how we flow that product early in the warm markets continued to comp positive while the markets that were having the unseasonable cold or wet weather comped negative.
But the strategy as far as questioning accelerating spring markdowns, there is no question that when you have the momentum we have and the positive comps, we were able to take some markdowns that we had planned to take in August we took them in July on some of the outdoor living categories, but nothing significant enough to have a major impact on the margin.
As you can see, the total margin rate was not impacted.
So really from a strategy point of view, to be honest with you, one of the biggest things that's happening in there and will continue to happen is Edit to Amplify.
As good as we are at Seasonal, we still over-assort and Randy and Steve and Michelle have done a great job of being open to listen and working hard with our partners in Asia to reduce the number of vendors and buy deeper and be in stock on the most wanted categories.
And quite honestly, <UNK>, when we were over there in Asia last month and spent time with the largest gazebo manufacturer in the U.S. who does business with every major retailer in the U.S., we have a 14% share in that business and even with difficult weather, people are buying those because it can actually allow them to be outside even in the rain.
It might sound crazy, but that business comped positive during that time period.
It's more the other Lawn and Garden areas that people don't get out and use.
So again, it's a very focused, well-balanced mix of product that makes a lot of sense and then again a healthy Food and Consumables, Home and Furniture business helps us offset that.
And if you look at our ads of years past, and I know you know this, we don't just put that on the cover.
So we may have Food and Consumables or Food on the cover, along with Furniture and Patio.
That's the strategy.
It is to not be one-dimensional and it's working.
I think just one last comment to put a bow on it.
Again, I'll remind ---+ Lawn and Garden and Summer both comped positive and actually for the spring season and the second quarter, their margin performance was actually better than last year.
So I think that speaks to our ability, enhanced ability, of all the GMMs and buyers and how they are managing their inventory levels and giving us the confidence, as <UNK> said, if we want to take a mark early on a certain classification or a product, we can do it and do it well within our plans and within our budget.
So a much, much improved process for us and clearly the stores and the customer benefit.
Let me just ---+ again, I know we are running long on the call, but these are all good questions.
I'll talk about three key metrics and guidance, not just the two you asked about.
From a sales perspective, a 1% to 2% comp, we expect the trends from second and third quarter to continue into fourth quarter with the exception of two key things.
First off, last year's fourth quarter comp was our highest comp performance of the year, at a 2.9%, so we are up against that.
Second and probably more important is acknowledging the fact that we believe it's going to be a very competitive holiday season and we will not be online selling product.
That was the plan; nothing has changed there.
But what we don't know from an external standpoint is what that environment is going to look like online, and since we won't be participating, we think it's appropriate to plan the business with that in mind.
Second, on the margin piece, I am comfortable with margins flat year-over-year in the fourth quarter regardless of the significant increase in the prior year.
I would just remind everyone that the significant increase in margin rate in Q4 of 2014 came off of the beginning of Edit to Amplify, which was a significant margin decrease in the fourth quarter of 2013.
So it was somewhat of an easy compare last year.
We delivered on it, and now we think that's a reasonable margin rate for the fourth quarter of fiscal 2015.
So I am very comfortable there as well.
From an expense standpoint, Matt, there were a couple unusual items in the fourth quarter last year and we detailed those out.
Obviously, we get to go up against those, but the bigger picture and the bigger driver is what I mentioned a little while ago when <UNK> asked the question on the long-term model.
We are seeing very good performance in our stores group as they will complete the Store Revolution activity in third quarter and they will be fully ramped up and eager to perform in fourth quarter with Labor Scheduling, Dock-to-Stock, Furniture Sales Training, Roles and Responsibilities all rolled out and understood.
That's step one.
Step two, from a distribution and transportation standpoint, you may recall last year we rolled out new warehouse management systems to three of our distribution centers.
Obviously, there was some rampup in some training that went along with that.
That impacted our performance from an expense and productivity standpoint in the back half and in the fourth quarter of last year.
Obviously, we are a year into it and we are much more productive.
From an advertising standpoint, we've been doing a lot of testing this year, and we think there's an opportunity to provide, albeit a smaller amount than stores in distribution, some opportunities to potentially leverage there.
And then from an insurance standpoint, when we think about healthcare, when we think about our participant count, when we think about workers' comp and general liability, there's been a very major focus on the part of the stores team and the asset protection team as we think about claims and safety in our stores and distribution centers.
We actually talked about that back at the investor conference well over a year ago, so nothing has changed.
This is us entering into the period in time in the strategic plan here.
You saw it in the second quarter and we are guiding to it in third and fourth quarter, that our operating margin dollars are growing, our operating margin rate is expanding and the leverage point will stay low.
That's been the plan all along, and we see nothing in the results that tells us that we are off track in those regards.
So we feel very good about the components going into the fall season.
You know what, I'll start on process, <UNK>, and then <UNK> can certainly explain merchandising and everything else that we are trying to do and strategically.
From a process standpoint, we have, gosh, I don't know 20, 30, 40, 50 people in the building working extremely hard, all disciplines in the business and Stew and <UNK> and Lisa are kind of leading that charge, and we've got a number of consultants externally who have been adding a lot of value to the process.
From a process standpoint, we are in the first cycle of testing in the site, and we are learning a lot about what we are doing really well and we are learning a lot about what we need to work on going forward and/or potentially change.
There will be two more cycles of testing that come after this, and then we will have a much clearer picture on specifics of timing of when we will actually start to sell product online.
I think reminding everybody from a financial standpoint there's roughly a nickel drag in the EPS guidance for 2015 related to expenses for e-commerce and by the time we are done with going online, our forecasting guidance would include roughly $40 million of CapEx between last year and this year.
So it's a significant investment for the business, very focused on it, excited about the opportunities.
And from a process standpoint, we continue to walk down our timeline and we are making progress.
From a testing standpoint, it's still early, but we are learning a lot about what our capabilities are and how we need to potentially adjust going forward.
Yes, <UNK>, the only thing I would add to that, to what TJ said is we are early in the cycle one of testing and we\
Sure, <UNK> and thanks for recognizing the improvements in the stores; I appreciate that callout.
Listen, as I said earlier in the prepared remarks, these type of decisions aren't taken lightly and you certainly just don't wake up in the morning and make that decision early on.
But candidly, there is never a good time in any type of high-level executive change in any business and as you guys know, in the space we are in, there's other big players out there, much bigger than us who are making lots of changes in the merchandising world.
This is truly really about strengthening our leadership team and taking the opportunity when you've done what I've been able to do with the team and get ourselves positioned and the team embracing.
I always talk to the guys about what great leaders do and it's to me, it's a very simple ---+ my answer to you is going to be leaders relentlessly upgrade their team and they use every opportunity to evaluate and coach.
So I saw the opportunity to do this and rather than wait and then have to talk to you guys about it later, I felt like this was the time to make the change and let you know that Lisa and Mike and TJ are very solid senior executives and you should have all the confidence in them, as well as the trust in me that this type of a decision is never taken lightly.
It's always well thought out and it's the right thing to do to move us forward.
And I think I used the word strategic and as we move forward now back to blocking and tackling and implementing structure and processes and disciplines is one thing, but being able to take the strategic thinking in where we are going to lead the Company from a merchandising point of view, Lisa and I are highly capable of doing that together with the support of TJ and the rest of the team.
<UNK>, one last thing I would add, and I'm not just trying to kiss up to my boss because he is sitting here, but the teams take a tremendous amount of direction from <UNK>.
They have and they will continue to.
If I were to put you in front of all three of the general merchandise managers or any of the divisional merchandise managers, they will tell you that over the last 2.5 years, they've learned a tremendous amount from him.
He set the strategy (inaudible) and those aspects of merchandising very early on before we had many of the merchants (inaudible).
He's highly, highly responsible for the strategic direction of the merchandising that you are seeing the results of in the stores.
So I think that's really important for everybody to understand.
<UNK>'s not just the CEO.
He's out there in stores and working with the merchant teams, maybe not as much as he would like, but they take a tremendous amount of direction from him and that's what you are seeing in the stores really resonate with the customer.
Thank you, everyone.
Chris, will you please close the call with replay instructions.
| 2015_BIG |
2017 | ORCL | ORCL
#Sure.
For us it's no big deal, actually.
It's really very much a non-event.
I do hear one of our competitors talking all sorts of stuff about it.
No effect for us di minimus.
Maybe they are trying to talk about something else, but in our case we're not actually early adopting but it doesn't make a difference, really.
Zero impact whatsoever on cash flows and no impact on what we disclose to you or any of the things that this other company is talking about.
For us it's really nothing.
Thank you, operator.
Thank you everybody, and thank you, Holly.
A telephonic replay of this conference call will be available for 24 hours.
Dial-in information can be found in the press release issued earlier today.
Please call the Investor Relations Department with any follow-up questions from this call.
We look forward to speaking with you.
With that, Holly, why don't I turn it back to you for closing.
| 2017_ORCL |
2015 | PNR | PNR
#Hey, Chris.
The action is taken, They are not reading out yet, right.
I mean, there ---+
Well, I'll hit Tech and Valves & Controls real quick.
First of all, we are committed to what we call the operating model transformation which is putting our Company, or our valves business headquartered in Switzerland, and benefiting from the global tax advantaged structure that we have.
And so, we'll continue doing that.
Obviously, we'll tweak a little bit to mirror the value streams that I mentioned, but we are ---+ three of those major ERP migrations behind us, and then will continue to right-size the factory structure.
But I think you should expect a little less capital spent in Valves & Controls, primarily because the volume is down.
ERICO, itself was not a capital-intensive purchase.
Matter of fact, very cash-rich and spent less than [$7 million] (multiple speakers)
(multiple speakers) ---+ except the purchase price.
Except the purchase price, but spent less than $10 million a year on capital.
So not a hugely capital intensive play.
Where we been spending the money in Technical Solutions is primarily automating our enclosure lines.
Obviously reducing labor and improving quality, reducing warranty, so we continue to do that because the payback and the IRR was quite high.
So again, mindful on capital, we always say creativity before capital.
Something <UNK> has taught the organization, we'll continue to implement that.
Hey, Josh.
Yes.
Yes, so I'll handle the first one, and I'll let <UNK> clarify it.
So right now, material in Valves & Controls is roughly 33% to 35% of sales.
So it gives you an indication, when you lose a dollar of revenue, what the impact is if you can't mobilize the cost out.
And after several cost out plans, you can assume that we have a fair amount of fixed costs for the business.
Yes, I would just say two things, Josh.
Number one, the level of complexity ---+ that we have made good strides particularly in the four wall lean reducing the complexity in the business, but in terms of the business complexity, it's still enormous.
And so, really <UNK> and the team have gotten, have gotten a really good focus on that.
So there's a lot more structure to take out.
But I would also ask you to ---+ I mean, I know I'm anxious to get to those answers too, and more fully and we'll be better prepared to give you more insights on November 6.
Most of what they sell is sold through distribution.
So it would be a classic, discount to a book list.
And then, they have a sales force ---+ very much like our full sales force, which even though our product goes through distribution, we have a sales force on the other side that helps sell it through, and sells through the applications.
There also is some project pricing.
But think of it more along ---+ more akin to like a Hoffman's structure.
We think we're maintaining.
Not growing, not losing, I think we're maintaining.
Particularly in the product lines we care most about.
Yes.
Yes, municipal, it's not just in the US.
It's more broadly than that.
I think it's a recovery of municipal spending.
Our backlog or ---+ excuse me, our order rate has been improving the last several quarters.
And as I mentioned, we figured we were going to turn to growth in Flow & Filtration in the fourth quarter, and we actually get growth in the third quarter.
So it's a little bit early.
Now we also put telecom in Infrastructure, and that's in Technical Solutions.
And that's we ---+ we talked about that, I mean, on the script.
Yes.
So we expect to finish this year 23% as we shared, and I think we believe this point of opportunity, be to the next several years.
Thanks.
The last question.
So it's on an adjusted basis, right, so it's ex amortization.
The ---+ things like it's rebranding, re-signing.
It's all the start of costs if you will, that we'd like to get them out of the way quickly, as opposed to less quickly.
I don't like that characterization.
It's expenses that might have been realized over ---+ within 2016 that we're going to get done and behind us in the fourth quarter.
On the first part, no, we don't see any of this causing disruption in our channels, certainly not at the moment.
And obviously, we'll be closely watching that as we enter into 2016, and how sustained this capital spending pause is.
As far as the other geographies, I mean as I mentioned North America was doing well, and then we saw the currency change, and we saw pull back in the overall North American model.
And now, we see just a global malaise I guess.
Well, I mean, [on fast ---+specifically fast growth], China and Brazil gets a lot of attention, but actually Southeast Asia is growing for us.
I'm talking about Pentair level.
Latin America ex-Brazil has grown for us, actually Middle East overall has grown for us.
So we still have opportunities and promise in those markets even as those larger countries struggle with that.
Thank you.
Thank you all.
All right.
Thank you everyone.
| 2015_PNR |
2015 | ROP | ROP
#Hey, good morning.
I think so.
I mean, (multiple speakers) it's cyclical, up and down in terms of projects.
It's not sort of cyclical with the economy.
But we're certainly not seeing any slowness out of Riyadh.
They are expanding the project.
So I was reading, somebody sent me a thing this morning, oh, my goodness, Saudi Arabia, they need to borrow money.
They won't have any cash.
They can't do anything.
I mean, wow, I know people do react to a lot of various things.
I do not think Saudi Arabia is going out of business in the next month and-a-half.
I don't think Riyadh is either.
So this is a multi-year contract.
And once you have the work deployed, people have to have the backroom operations.
They can't do it on their own.
So there's a lot of different things that happen.
Now this is mostly a traffic [trans fleet] project, with a lot of upfront opportunity that's more civil engineering.
And as that gets behind us, and actually margins will improve.
Look, we have ample opportunities to go through with TransCore, and the of rest of our businesses to see what the next 12 months, or the next three years looks like.
And we'll be able to share that totality of that picture after the fourth quarter, and when we initiate guidance for 2016.
So I mean, just picking out one piece, yes, we feel very good about that.
But wait for the whole picture.
So it, I mean, so far it has been modestly positive.
But I would say that we're not in those conversations.
We don't set prices.
We help our members negotiate the best pricing and the best supply chain solutions that they can obtain.
But so it's been modestly helpful.
But not by any stretch is it the largest piece of the MHA growth that we have experienced.
Thank you.
Good morning.
Well, here's the situation.
We just signed the agreement.
When we're filing a lot of material, like we do here with HSR, so that's all going into customary merger control reviews.
So we've agreed with the seller that we're not going to provide any information until after the deal closes.
So I can't tell you a lot about that.
But the end markets are quite similar to what happens in ---+ here in the United States.
The hospitals, while people think that there's universal healthcare in the UK, there's actually a wide variety of provincial providers inside that system, and CliniSys allows these people to have a uniform operating platform around all the things that go on with labs.
And we'll be able to make them be more efficient for the healthcare system, because they'll now get access to our Data Innovations technology, and they'll get access to some of the ways we do things at Sunquest.
So we think from an end user viewpoint, Fiona who has built this very good business in the UK, and recently acquired a business similar to it in Germany, will benefit from providing additional services and clarity to the people that [core] system to drive their laboratory.
So we're bullish about that.
But that's about as far as I can go, <UNK>.
It's probably about 50/50.
And so, as you see global industrial production whether that's around steel or automobiles, so that has generally been a little bit of a positive tailwind.
But you also have a lot of you new and upgraded products, and the expansion of the Struers global reach.
And so, it puts them in very good position to continue to take some share.
And they also have a very good line of other things, not just on the material analysis, their traditional area, but also some new things around hardness testing, and some things they're introducing there that has helped them.
So it's a little bit of both, a little bit of market, a little bit of self help.
Sure.
I, yes, I mean, it will help us out by a couple million, by a couple pennies.
You're welcome.
Okay.
Well, thank you all for joining us this morning, and we look forward to talking to you again in late January.
| 2015_ROP |
2017 | SXI | SXI
#Well, thank you, <UNK>, and good morning and thank you, everybody, for joining us this morning.
Our third quarter fiscal 2017 sales increased 4.1% to $184.7 million from a year ago, with organic sales increasing 2.9%.
We saw demand increase across most of our businesses while growth laneway initiatives in Electronics, Engraving and Engineering Technologies delivered top line sales increases.
As we anticipated, orders and backlog increased in Refrigeration.
Unfortunately, sales declined in that business as our Wisconsin plant experienced operational difficulties, changing over production to a new foam formulation.
GAAP operating income was down 33.4% while adjusted operating income was up 3.3% on the higher sales and adjusted EPS grew 6.8%.
We ended the third quarter with a net debt position of $127 million, reflecting the OKI Sensor Device acquisition, which we completed in the quarter.
We have renamed this business Standex Electronics Japan.
The integration is proceeding according to plan and we are excited by the potential of this business to accelerate our global growth plans in Electronics.
Our investment in growth laneways is beginning to deliver sales growth in Electronics, Engraving and Engineering Technologies.
As anticipated, Refrigeration demand increased as seen in the orders and backlog, which should deliver solid sales growth in Q4.
Finally, Horizon Scientific, acquired in October 2016, continues to outperform our expectations.
I'll touch more on our achievements in each business when I go through our segment review.
First, Tom will review our third quarter results.
Tom.
Good morning.
Slide 4 shows our historical trend of adjusted earnings per share and sales on a GAAP basis as well as an adjusted basis without the U.S. Roll, Plate and Machinery business or RPM business.
On a trailing 12-month adjusted basis, earnings per share were $4.42 through March 31, 2017 versus $4.58 in the 12 months ended March 31, 2016, which is a 3.5% decrease.
Looking at sales on a trailing 12-month basis, adjusted sales were $728 million versus $739 million in the prior year period.
Please turn to Slide 5, which details our revenue changes by segment.
Overall, organic growth was 2.9%.
The acquisition of Horizon Scientific contributed 4.3% to our sales growth while the divestiture of RPM and foreign exchange had negative impacts of 2.3% and 0.9%, respectively.
During the quarter, Engraving, Engineering Technologies and Electronics reported positive organic sales growth.
We anticipate these businesses to continue to grow in the fourth quarter.
Slide 6 summarizes our third quarter results on a GAAP and adjusted basis.
Sales growth was 4.1% on a GAAP and 6.5% on an adjusted basis.
Operating income was down 350 basis points and 30 basis points on a GAAP and non-GAAP basis, respectively.
GAAP income from operations was impacted by $6.5 million of acquisition-related and restructuring costs.
Earnings per share was down 34.1% on a GAAP basis and up 6.5% on a non-GAAP basis.
Please turn to Slide 7, which is a bridge that illustrates the impact of special items on net income from continuing operations.
Tax-affected special items included restructuring charges of $0.7 million and acquisition-related costs of $4.1 million.
On the slide, you can see the breakdown of pretax acquisition costs in the quarter.
The majority of the costs are related to Standex Electronics Japan acquisition, which was strategic and complex, requiring substantial in-country expertise to assist in due diligence.
GAAP net income was down 33.9% and adjusted net income was up 5.9%.
Turn to Slide 8.
Adjusted net working capital was $149 million at the end of the third quarter.
This compared to $141.3 million on an adjusted basis in the prior year.
Net working capital in both years have been adjusted for acquisition and disposition results.
In the quarter, results exclude $10.1 million related to the OKI acquisition.
In the prior year, we excluded $3.3 million of working capital related to RPM.
Working capital turns improved slightly, excluding the items previously mentioned, to 5 turns compared with 4.9 a year earlier.
Slide 9 illustrates our debt management.
We ended Q3 in a net debt position of approximately $127 million, reflecting the OKI acquisition, compared with the net cash position of approximately $7.4 million a year earlier.
We define net debt as funded debt less cash.
Our balance sheet leverage ratio of net debt to capital was 24.7% compared with a net debt to capital of a negative 2% a year ago.
We financed the OKI acquisition using approximately $63 million of foreign cash and $73 million from our existing credit facility.
Slide 10 summarizes our capital spending, depreciation and amortization trends.
We expect our capital spending to be between $6 million and $7 million in the fourth quarter.
Total capital spending for the year will be in the range of $24 million to $25 million.
Slide 11 details our reconciliation of operating cash to free cash flow.
Mix of business profitability, along with acquisition transaction costs and higher capital spending, resulted in lower free cash flow conversion this year.
We expect improvement in free cash flow conversion during our Q4.
With that, I'll turn the call back to <UNK>.
Thank you, Tom.
Please turn to Slide 13, and I'll begin our segment overview with the Food Service Equipment Group.
Sales increased 5.4% in the quarter, including a $7.7 million contribution from the Horizon Scientific acquisition.
As anticipated, we are seeing a strong increase in demand for Refrigeration products as national accounts begin to ramp up spending.
With the 24% increase in backlog during the quarter, we expect good sales growth in Refrigeration during Q4.
Despite the backlog increase, organic sales declined 3.2%, largely due to operational difficulties in our Wisconsin refrigeration plant as it introduced a new foam formulation into production.
We estimate that we experienced sales declines between $1.4 million and $3.8 million from that issue during the quarter.
The issue is behind us and, in April, we returned to normal production.
In addition to volume deleveraging, income from operations was affected by increased freight, lower productivity and higher material costs related to the delayed product introduction in Refrigeration as well as expenses associated with exhibiting at the biennial NAFEM trade show.
Horizon Scientific, acquired in October 2016, had a strong quarter with Standex and has, thus far, performed above our expectations.
The integration plan remains on track and we are leveraging synergies between Horizon and our Nor-Lake Scientific brand.
We expect this momentum to continue into the fourth quarter.
As I mentioned on last quarter's call, we brought in a new President to run our Refrigeration group in February.
Kevin Fink is off to a great start and has had an immediate impact on the business.
Moving on to Cooking Solutions.
Sales were down approximately 8.5%, primarily as a result of nonrecurring prior year rollouts, proactive rationalization of low margin products and slower sales to select major dealers.
Our operational performance in Nogales has stabilized in the past year.
However, we are learning that it is taking longer to win back business lost during the plant move from Cheyenne, Wyoming.
Even with the top line softness, gross margin was flat versus the prior year due to our continued focus on operational improvements.
We have seen early success and have received positive feedback about our new combi and mini oven and speed oven.
We remain encouraged by the growth in our Specialty Solutions business, which was up 4.9% year-over-year.
Our beverage pump business grew year-over-year for the fifth consecutive quarter as it builds momentum.
We remain excited by new pump products that will provide our customers with opportunities to offer innovative carbonated beverages, enhanced CO2 safety and lower maintenance costs.
Looking forward in Food Service, we anticipate improved sales and profitability in the fourth quarter as we convert on our Refrigeration backlog and recover from the production delays in our Wisconsin plant.
We will also be focused on growing sales with the large national chains and executing the ramp-up of new applications in our beverage pump business, specifically for Nitro Beverages.
Turning to Slide 14, Engraving.
Adjusted sales were up 5.5% organically, excluding RPM.
We saw an increase in mold texturizing demand in North America as new auto platform launches occurred as anticipated.
In addition, sales in Asia grew double digits due to increased automotive launches and a strong demand for nonautomotive services in Korea and China.
Europe was up modestly versus the prior year.
Our growth laneways, including architecture design centers and nickel shell and laser technologies, continued to be well-received, contributing $3 million to revenues in Q3.
We expect them to have an increasing contribution to revenues.
During the quarter, we were awarded contracts to develop the texturization of the interior molds for the iconic London taxicabs through an Asian manufacturer.
We also were awarded a contract for a major American automaker who is moving some tooling source into China to support an expedited program timeline.
Because of our global presence, capabilities and flexibility, Standex is the only company that could meet this automaker's changing needs by supporting them seamlessly in China and North America.
Looking ahead, we anticipate continued momentum into the fourth quarter with growth in new nonautomotive and automotive programs and increased demand for all technologies, including lasers, nickel shells, architecture, traditional chemical etching and weld and polishing.
Please turn to Slide 15, our Engineering Technologies Group.
We saw good growth across most of Engineering Technologies' end markets in the third quarter, including the continued ramp-up of long-term aviation deliveries.
Overall, sales increased 22.3%.
Sales in the space market increased by $2.2 million from the prior year quarter due to demand in the unmanned segment of the market.
Energy market sales increased by $2.8 million compared with the prior year quarter due to improved market conditions in both power generation and oil and gas.
Aviation sales increased by $0.8 million from the prior year due to higher sales for engine components and structural hardware.
Sales in the defense market were down $1.2 million due to project timing for deliverables in the nuclear market.
During the quarter, we announced the closure of our East Lake Enginetics plant, which was a redundant facility with low utilization.
This move will result in annualized savings between $2.5 million and $3 million.
And $0.5 million of the third quarter restructuring charge that Tom mentioned was from this closure.
The key growth laneway in this business is aviation, and our production ramp-up is on schedule to fulfill customer needs.
We remain on track to meet the increase in Airbus production by the end of calendar '17.
This is a growth platform for engine parts from Enginetics as well ---+ as well as for our lipskins from Spincraft.
Going forward, we are focusing on ramping up to deliver on long-term aviation programs for next-generation aircraft and completing facility consolidation and manufacturing layout redesign to improve efficiencies.
We also continued to drive operational excellence, increase throughput and margin enhancement programs.
We anticipate continued strong growth in the fourth quarter in both the space and aviation markets.
Please turn to Slide 16, Electronics.
We are driving excellent operating leverage from good sales growth in the Electronics segment.
Sales in North America increased 6.6%, driven by sensors and transformers.
In Europe, sales were up 10.7% due to automotive and electric utility applications.
And in Asia, sales increased 21.1% as a result of strong demand for home appliance sensors.
Operating margin was a strong 21% due to cost savings activities, operating efficiencies and the continued shift of our product mix to include higher-margin sensors.
Income from operations increased 23.5%, primarily due to the higher sales base, operational cost efficiencies and favorable earnings impact from foreign exchange.
As noted previously, we closed on the OKI Sensor Device acquisition, now named Standex Electronics Japan, at the end of March and the integration is proceeding well.
I was in Japan at the facility for the first week of operations to meet with our employees and customers and I'm happy to say that they are excited to be a part of the Standex team and are off to a great start.
Looking forward, we anticipate growth in the fourth quarter due to strong momentum in all geographic regions.
Investments in growth take time, but we are beginning to see the initial results of our growth laneways and expect continued success.
We remain focused on accelerating the integration of Standex Japan and expanding field engineers in Asia to drive specialized sensor sales.
We are quite optimistic about the prospects for growth out of that business and are making an investment to add 3 additional machines, which will increase capacity by 5%.
Please turn to Slide 17, Hydraulics.
The 10% sales decrease in Hydraulics is primarily the result of softness in the North American dump truck and dump trailer markets.
While the lower revenue had a deleveraging effect on operating income, we maintained a strong EBIT margin of 15.9% as a result of our operational excellence initiatives.
Looking ahead, we anticipate a pickup in the dump truck and dump trailer markets as we enter the spring construction season.
As plans for infrastructure investments become clear, we anticipate additional new demand.
In addition, our new pack eject cylinder product has been gaining traction with our customers and we expect this to contribute to sales growth in the refuse market.
Before we go to questions, let me give you a few key thoughts.
First, we are bullish on our recent acquisition of the OKI Sensor Device Corporation.
We have a team on the ground working diligently on the integration and capturing near-term synergies.
Secondly, we saw organic growth in Q3 in 3 of our 5 businesses, including Engraving, Electronics and Engineering Technologies.
And we expect continued momentum in the fourth quarter.
These 3 businesses have done an excellent job of using our growth discipline process to identify attractive growth opportunities and develop programs to capture them.
It takes time to ramp-up an organic growth engine and I am pleased to see these businesses now benefit from their hard work.
Third, demand is increasing for Refrigeration and we should see higher year-over-year Refrigeration sales in the fourth quarter as a result of increasing orders and backlog conversion in that business.
And finally, as we look at the future, our balance sheet is well-positioned to fund CapEx, organic growth and acquisitions as we continue to deploy the Standex value-creation system.
And with that, I'll be happy to take your questions.
Well, if you go back to press releases that we have released at some of the major [awards], we said we'd ramp up to full volume by the end of this calendar year with the pushouts of the gear turbofans, I think that moves into maybe middle '18.
But if you add up the numbers, we're talking about an annualized volume, $13 million to $15 million, in sales.
So we expect to be there in this time next year.
Of course, there will be amortization.
It's a distribution model so there is a lower step up.
So we don't ---+ the costs for the majority this quarter and you'll have some costs in the fourth quarter.
About $1.7 million I believe.
$1.7 million, yes.
$1.7 million, step up.
Well, if you take where we're at as a base line and look forward, we begin to get back some customers progressively through this year, that delivers some growth.
Retail rollouts, probably a couple of quarters away for grocery.
And then, new products, that's longer, that's 1.5 years or 2 years.
But I think based on the performance of the Cooking business, we ought to see some of that business come back and grow kind of in line with the market.
It was, you know the energy markets peaked between the offshore and the land-based turbines, peaked about $32 million annualized sales.
It dropped to a run rate ---+ a low run rate of $4 million to $5 million.
We did over $2 million last quarter.
So it was really ---+ it was a big quarter, but it's very choppy.
We don't expect that to be a consistent run rate.
We are still kind of setting our expectations and it remains at that kind of $5 million annualized level.
We're not that heavily exposed to energy.
So we don't ---+ we think the best position for us is to be kind of conservative about it.
However, we are ---+ we're well-positioned if the market comes back.
I think in a previous call, we mentioned that the manufacturer of the land-based turbines that we sold to out of our Wisconsin plants has moved production for some of those turbines to Europe.
Well, we are able to produce those products in our English plant.
So we're talking with that manufacturer.
If they ramp up production in Europe, we think we have a good shot at getting that business.
If the plants in North America come back, we're well-positioned to take that.
And the plants that produce those products are also producing aviation.
So from a plant loading standpoint, the cost position is still good.
So we still think we're competitive and well-positioned for it.
However, we have low expectations about its return.
That's ---+ for the fourth quarter, that will be the purchase accounting.
You got Horizon Scientific in there.
Yes, Horizon Scientific, is what <UNK> <UNK> said.
Yes.
All right.
I want to thank everybody for joining us.
Thank you for your interest in Standex.
Thank you, operator, for joining us this morning.
We look forward to updating you on our business next quarter.
Thank you.
| 2017_SXI |
2015 | LSTR | LSTR
#When we do oil and gas, we try and pick up anything related to the oil and gas industry, whether it be infrastructure or exploration or stuff like that.
In the first quarter, here, I believe it stayed at 2%.
If you just give me a second ---+ okay, yes, it looks like it's about 2% of revenue.
We also split out ---+ we look at that and then we look the other energy commodity groups, too.
But actually, it says it's 2% but we grew it about, it looks like maybe 4% over the last year's first quarter.
So it didn't directly impact us, but as Pat was talking before, the thing that might have impacted us is some of the flatbeds that were hauling some of this oil and gas stuff might have come into the industry, and so there's just a little more capacity available.
Directly, still, we don't think there is a big impact, but from capacity coming on the market I think is more of the impact.
I can't quantify it, but I would bet there are some flatbeds out there available that weren't previously available to haul some of the freight we have.
<UNK>, this is Pat.
It really depends on what they're doing.
If they're working in the oil fields and they're providing product in an expedited fashion, then typically that equipment is not really positioned to go over the road.
On the other hand, those people that were pulling cargo that was pipes and pumps and the like into the oilfield in servicing US Steel or some other account, then they're going to be not as in great a demand as they previously were.
So, the oilfield, the pure oilfield hauler, your thesis is correct.
They are not typically competing with carriers like us and others for over-the-road transportation.
There were several reasons why the special dividends popped.
One was the sale of the Southfield facilities in the end of 2013 generated a significant gain on sale and we distributed pretty ---+ I think it was $0.35 a share.
We had the ---+ was it prior to that with the ---+ we thought the tax ---+ with the taxes that were going to, and we delayed ---+ we were going to cancel the smaller dividend, so we did kind of a special dividend at the end of 2012, I believe.
$0.50, yes.
$0.50 at the end of 2012, and so there were specific reasons about that one, too.
And then, last year, what had happened last year, we ended up piling up cash on the balance sheet.
Because, if you watched our stock run up from about May to December, we weren't chasing the run up.
I want to say it went from like maybe mid-$50 up to $80 in the matter of three or four months.
We didn't chase that run up, and while it was happening we were piling cash up on balance sheet, so we made a decision to do a special dividend based on the cash that was on the balance sheet.
Generally, we do a special when we have something, when we end up in a position with either a lot of cash on the balance sheet or something changes in the environment where you could see it happening.
At this point, I would think we're not talking about a special dividend in the short term, but I'm sure we will be discussing one every December and make a decision on whether we're going to do one or not.
<UNK>, this is <UNK>.
When you say, gauge them, what do you mean by that.
We don't approve them in that fashion.
No, we really don't.
The only information that we calculate and provide to our agents is how many loads they have hauled for Landstar over a period of time.
But on the way in the door, other than a safety check and insurance check and getting the contract and so forth, there really isn't a lot of history that we go and grab.
<UNK>, I think those flatbed companies have a tendency to be smaller in nature, and therefore, they would use a company like Landstar as their sales force rather than going out and trying to knock on doors and generate business on their own.
A lot of them.
If we were to assume that the BCOs are going to stay at low utilization, yes, I would expect brokerage to exceed BCO going forward.
But, we are hoping that the BCOs will eventually get back and increase their utilization and get back to that 50% of the business.
Again, if we can keep growing brokerage, too, it is a battle to see who comes in first.
Right.
If it stays as is, I anticipate brokerage will continue to be bigger than BCOs, if utilization stays where it is.
This is <UNK>.
On the commissions, we actually as I stated in my prepared remarks, the rate paid to the truck brokerage carriers, the PT rate was actually down because of our shared arrangements with the agents.
That is what drove that full 18 basis point increase, really a mix of additional or more brokerage revenue than BCO revenue.
We have more van operators in the fleet today.
I would say probably 65/35, maybe even a little bit north of that.
And the influx of BCOs that we had last year, and so far this year, tend to be more van than flat as well.
That's a rough split.
Yes.
Thank you, Dori.
We are looking forward to moving into this second quarter, and again, volume is strong right now.
We're still seeing mid-single-digit growth rates.
It is a tougher revenue per load count moving into the quarter, but we feel pretty good about the performance of the first quarter, and we see it carrying into the second quarter.
I look forward to speaking with you again on our second-quarter, mid-quarter update call, currently scheduled for June 4.
Have a good day.
| 2015_LSTR |
2016 | APD | APD
#Sure.
I obviously cannot and should not comment on the profitability of the Jazan project.
For 2017 we do not have a significant amount of contribution, but there will be some contribution.
And quite honestly it will depend on the exact progress that we make on all of that.
But there will be some.
In 2016 we did not recognize ---+ although we were recognizing sales throughout the year, we did not recognize profit because we wanted to get some kind of a ---+ more of a sure footing that the project is moving forward.
As you know, there has been a lot of talk about shutting down projects in Saudi Arabia and all of that and we wanted to make sure that this project doesn't get canceled and then we would have to divest profit and all of that.
But then by the fourth quarter it became obvious that we have made enough progress that we should recognize some and that is what we did.
The size of that business order of magnitude is about $0.5 billion and we were up 11%.
So we are doing well there.
Well, the thing that as compared to ---+ and I mean we all operate in the same boat compared to our competitors.
I mean we are delivering double-digit growth while other people are showing negative growth.
So we are doing something right.
With respect to next year, we are ---+ there is a possibility that we will do better than what we have given you as a guidance depending on the economy and all of that.
But I just want to remind everybody that we are dealing with some significant worldwide events that we have to see how they will develop.
Now we have given you guidance on the basis that, barring any significant disruption, we will be able to deliver that and that is the way we operate.
Now the economic conditions can get better once the US election is over and people are not sitting on the fence then, yes, it is possible that we will do better than that.
But the one thing I can assure you is that we don't operate on the basis of just delivering the guidance, we do our best to deliver whatever we can.
That is kind of our goal.
Well, on that one unfortunately I can't give you a general answer because it will depend on the specific situations.
But what you said can apply, it can be a specific situation where there is significant synergies because we already have two plants there and an addition of another two or three plants will add value.
So sorry that I can't give you a general answer, but you can be rest assured that we will only do those if they are in line with our goal of getting return on our ---+ on the capital that we employ which is not less than 10%.
Well, we have said that those stranded costs could be in the order of magnitude of $20 million.
They have programs for eliminating those in the next year and a half.
And our guidance obviously reflects that those costs are still with us and we need to work to eliminate those.
I think the number is about $0.05, but the expert on this is <UNK>.
So, <UNK> ---+.
Yes that is a tall order.
Hi, <UNK>.
So just to remind everybody how we look at currency ---+ we don't try to speculate, we take the latest rates and we just project that forward.
So when we do that from where we are today into 2017 and then compare full-year 2017 against 2016 we would have a headwind of about $0.05 to $0.10.
That is for the full year.
And then on a quarter basis we do the same approach, just move things sideways.
We would have in the first quarter both sequentially as well as versus prior year in Q1 about a $0.01 to $0.02 headwind principally driven by the pound.
Well, we have a detailed chart on this thing on the slides that we have ---+ yes, slide 28.
So you can see ---+ and I am sure you know very well which ones are signed before and which ones were signed after.
They will not all be over in 2017 because some of them are delayed and it will drag on into 2018 also.
Sure, I think <UNK> can answer that very easily.
<UNK>.
Yes, thank you for the question.
So LOX/LIN, if we are going to look at that, which let's just say it is the most generic product, goes into the largest number of industries, it was probably the best sort of bellwether of everything.
Year on year that was flat for us.
However, sequentially we were up about 2%, so showing some positive momentum there.
Even in that year-on-year flat however, I would say that during the course of the year we did make some adjustments in our portfolio as part of our Take the Lead program.
We also had one situation, not exactly the same as Carrington that I talked about, but where we did shut down a liquifier and were able to shift load around, but it also involved shedding some customers.
So all in all, I think perhaps the best indication is just the sequential moving forward which gave us 2%.
And I see that as a net positive for us and I think a pretty good reflection of what is going on in North America.
No, I think the guidance that we have given you about $0.25 is based on what we see.
But there are things that can happen that can change that because a lot of these projects, we have won the projects, but the oil and gas companies have put a hold on them, as you know very well, because of the situation.
They can change ---+ if the oil prices significantly change they can change their mind, they can release those and therefore we [can] start working on them.
So the possibility of that I don't see being great, but it is possible, yes.
But the $0.25 is real and it is based on what we have.
So I am glad you brought that up because if you take that $0.25 into account, then we are actually giving you pretty good guidance in terms of growth next year.
But that is based on what we see right now.
Thank you.
Well, that is something that we are hoping that would be the case, but we have to wait and see.
But we are pushing toward more on-site because then you get a more stable revenue growth and a more stable profitability.
But we are paying attention to all parts of our business, whether it is large on-site, our merchant business and our packaged gases business in the areas of the world where we are strong.
So we are not neglecting any part of the business but the trend seems to be more towards the large on-sites.
And obviously if we win one of those projects it adds a lot to that part of the business.
Well, I can actually see bigger than that.
There are projects where you would ---+ like Jazan $2 billion, and there are projects that might require $4 billion.
So you are right, the trend is toward larger projects and that is why having the balance sheet that you can do those projects becomes very important.
And that has been our target because we saw that trend before and that is one of the reasons that we wanted to restructure and make sure that Air Products has a bulletproof, solid balance sheet that we can take on those megaprojects.
You are very right about that.
Okay with that I would like to thank everybody for being on the call.
Thanks for taking time from your busy schedule, especially today with all of the announcements, to listen to our presentation.
We appreciate your interest and we look forward to discussing our results with you again next quarter.
Have a very nice day and all the best.
Thank you.
| 2016_APD |
2016 | WYND | WYND
#It's really capturing an opportunity, <UNK>.
It's looking at the opportunity to grow more rapidly our new owners from about 30,000 a year to 35,000 a year and new owners tend to run a slightly lower VPG than upgrade sales.
So it's just ---+ it's almost a mix function, more than anything else.
Not a sign of weakness at all.
In fact, a sign of strength, because we see the opportunity exists to be able to go out and bring in more new owners to our system.
Now, those new owners to our system become upgrade owners in the next year, three years, five years.
Well, we constantly, <UNK>, are looking at our brands and part of the big push that we have going on is to increase the quality of those brands.
So <UNK> referred to the substandard properties that we're kicking out.
The other side of it is that the units that we're adding generally have a higher quality score, Trip Advisor score, our QA scores, than the average.
So the idea is to improve the overall quality.
Do I see us taking Days Inn from being a solid, or Super 8 a solid monster economy brand and moving its up to mid-scale.
No.
But we do see some terrific growth in our mid-scale and upper upscale properties of Wyndhams and Wingates and Wyndham Garden.
We are seeing growth in those areas.
But I don't see us taking one of our economy brands, and trying to reposition it to the select mid-scale.
If that was your question.
Okay, absolutely, sorry, didn't understand the question.
That definitely is happening.
We are working on new prototypes for each one of our brands.
We're working with the franchise advisory councils to get those rolled out.
Yes, I think ---+ but honestly, we're always doing that.
So that's nothing extraordinary.
We're probably going to have in 2016 and 2017 a fairly significant rollout of some of those prototypes.
But I wouldn't consider a repositioning, like Holiday Inn did.
I think they did a terrific job of resetting that brand, one of the best I've seen.
So they did a great job for a very, very large brand, and I applaud them on it.
I don't think we're going to go through that type of a massive change.
We're trying to make more of an evolutionary change, versus a revolutionary change.
<UNK>, we will see an increase in provision, and the reason is that in spite of the fact that our sales levels are growing, the more important factor is that we're financing a higher percentage of those sales.
And so just by the fact that we're extending more loans to people, means that we're going to provide at a higher level, as a percentage of sales.
So it's a mechanical thing.
But as <UNK> said earlier, in an answer to an earlier question, we have no intention to deviate from the credit-worthy standard that we've established over the past few years.
Thanks, <UNK>.
The question about consumer confidence, and I think we've mentioned it before, we don't see a lot of correlation between consumer confidence and the time share business.
The time share business, it's a sold good.
It's not a sought good.
It really depends on how good our marketing and sales efforts are, that's what drives that business.
If you go back to 2007, 2008, and 2009, and you take out the fact that we took our sales down because we didn't know what the ABS market would look like, all of the metrics around our sales effort in time share were terrific.
VPG was up.
We were controlling tours perfectly.
We repositioned that business.
I tell you, it was one of the great repositionings of a business I've seen, and we made the business actually stronger.
So we did not see a lack of people interested in buying.
What we saw was our marketing efforts were bringing in buyers who probably were more prone to buy, because people traveling at that time when travel was down a bit were the more dedicated travelers, more inclined to buy.
So we actually exceeded sales during that time.
And that's true of our rental businesses as well.
We did extremely well.
So we have a model that is extremely resilient.
So do we look at consumer confidence.
Do we look at trends.
Do we look at the fact that gas is down, and whenever gas prices are up, people say oh, my gosh, people won't be going in their cars to go rent hotel rooms now.
Well, that doesn't happen.
And likewise, when prices are down, it doesn't mean they necessarily get in their car more to drive around, but they do have more disposable income in their pocket.
And I've seen several reports that have shown that a large percentage of the additional dollars people have, now that gas prices are down, is going into travel and entertainment.
So we feel we're extremely well positioned, and all of our tracking is looking very positive.
For the full year, <UNK>, Dolce cost us around almost 300 basis points of margin.
So net of the Dolce effect, we were positive.
Now, to be fair, the offset to that is the higher licensing fee that they received from our time share guys.
And so net-net on a full year basis, I would evaluate that their margin was basically flat against 2014.
There was a lot in that last question, which I'll tackle first.
We are not seeing any impact from the Zika virus.
We don't have a huge presence in Latin America.
We have a good presence but not a huge presence, and so we have not seen any change there.
As for travelers coming in to the US, there was a little bit of a downturn in Brazilian travelers to Florida.
They flow into Miami and Orlando in large numbers, and we do a lot of marketing for them.
We have a Portuguese sales line in Orlando.
Again, it wasn't large enough to impact the business at all.
So we don't think that the travel patterns are changing.
As for the oil producing markets, where the fracking has been occurring in the US is definitely down.
As <UNK> said, I think it's down 27% RevPAR in those particular markets, so they have been hit very, very hard.
I never thought I would I say that oil-producing markets in the US would have an impact on our results, but frankly they have.
We highlighted that and pointed that out to you.
As to the ---+ you asked about the age of the buyers of time share.
It has trended down.
It's gotten younger over the last several years.
I think right now, the ARDA report says that the average time share buyer is 51 years old.
That's the owner.
So the buyer is probably younger than that, I think it's in the early 40s.
Actually I'm looking at something here that says 39 years old.
And so they are younger.
The Gen Xers are attracted to time share.
The average household income is up fairly significantly.
I remember when it used to be $80,000, it's up to like $95,000 now.
Yes, there's a younger, more affluent person buying time share, than there was historically.
He asked about leisure trends, as well.
We see good momentum on the leisure side, yes.
We're largely a leisure business, so we're a pretty good barometer of the leisure traveler.
Thank you very much, Lindy, and thank you all for being on the call, and thank you for your support.
We'll look forward to talking to you next quarter.
| 2016_WYND |
2015 | SNH | SNH
#Sure, hi, <UNK>.
Yes one correction is that whatever was leased before in the CNL transaction, was just [fueled] by us, so we did not terminate any leases with the CNL transaction.
And in fact it was one manager that we terminated the management agreement and entered in to a longer term lease with.
And so the managers that we did terminate, all of those agreements matured within about 1.5 to 3 years and something needed to be done anyways.
So we were not willing to assume those contracts as they were currently structured.
There was very little, if any, termination costs to terminate those agreements.
So we approached each operator to encourage them to enter in to a long-term lease with us.
But we could not come to terms either ---+ usually because they wanted the rent to be set at such a discount from the current cash flows that it was no longer attractive to us to do that type of transaction.
So really it was a question of whether to try to structure a long-term management agreement with them or offer the opportunity to Five Star to manage.
Five Star agreements are at 3% of revenues with the larger incentive on the bottom line performance, whereas most of the other agreements historically have been at say 5% or so of revenues with a little bit of a bonus if they achieve certain results.
So we decided ---+ and in addition, another consideration for us was the fact that as a public Company we have to be worried about compliance with Sarbanes-Oxley rules and we had some concerns about whether some of these local managers would be able to comply, and we certainly would not want them to impede our ability to access capital markets.
So we came to conclusion that we wanted to engage Five Star to manage these properties.
And we believe that they can bring additional revenue to the properties by adding the services and expanding the physical plant of a number of these properties and continue to grow the revenue side.
And expense-wise we believe that they can achieve some savings on the expense side.
I think we may [even] incur some additional costs with healthcare benefits and things of that nature.
But net, net I think it should be a positive for us.
Sure well a good part of it is actually the rate increase.
If you want to do a quick back of the envelope calculation, the occupancy represents about 65 or so residents.
And the loss of income from those 65 residents is more than offset by just 1.8% rate increase across the board for everybody else so that nets to about a $600,000 or $700,000 revenue increase just on that alone.
Then expense-wise I think it was pretty well kept in check.
We really didn't ---+ I think that's a very sustainable run rate for expenses.
And last year there's a little bit of volatility during the quarter, so at the end of the year I think we were about 3.5% year-over-year growth.
I think 3% to 5% is what we would expect to be at least normal to sustain over the course of time.
And I think there's some from margin growth that we can achieve given these assets.
It'd be a different number of communities in both areas.
Occupancy for the fourth quarter last quarter was about on the same-store 87% ---+ 88.4%.
We've added a couple more communities.
Absolutely.
Well let's see roughly it's about two-thirds AL.
There is some skilled nursing that was picked up as part of the Sunrise Senior Living transaction a couple years ago.
So it's probably about I'd say 20% skilled nursing, another 40% or so, 45% assisted living and the rest is independent living.
What we saw was independent living continues to improve on an occupancy rate basis.
Assisted living has been kind of flat and skilled nursing I would say declined a little bit.
At my fingertips I don't have the specific numbers, but that's general trends.
Yes, we did have a handful of properties in our portfolio that were closed to new admissions during the first quarter, so that definitely affected our occupancy levels.
We did see the flu season continue on into April so and was really towards later April that we started to see the census pick up meaningful to get back to close to where it was before.
I do think that cap rates are still under a lot of pressure to shrink and I am very confident that everything we bought it would trade most likely for a lower cap rate today than what we agreed to even six months ago.
I consider the market very frothy right now.
And I think as a Company, I think we're going to exercise extreme discipline and pursue predominantly smaller transactions that are added to our existing portfolio to fill in some holes or to do some expansions at existing properties.
But I think we'll be very, very cautious about anything of size.
Well <UNK>, we had ---+ this is where a lot of our sales on the senior living are coming from too.
So we're taking those out of the triple net senior living.
The increases, we don't have set increases for the majority of our leases there, they're based on percentage rent increases.
And if you look at our percentage rent on the FFO page, the calculation is flat year over year and that's particularly from the ones that we have sold, they're not participating no longer.
So we hope that as 2015 goes on, that percentage rent will go with the existing leases.
But other than that going in other increases really relate to the capital improvements that we put in to the property.
That's really ---+ that's all happening on our triple net senior living side as capital improvements.
It was flat, it wasn't lower.
It's just flat year over year where usually you would see maybe 100 to 200,000 increases if we had all the properties still in there.
But we're selling off some of these properties that are no longer participating.
That's right.
Sure.
As Dave mentioned on the call there was a decline in occupancy of about 40 basis points and there was a modest increase in the expenses probably right around only about 125,000 that really both impacted the same-store MOB results for the quarter.
However, during the quarter we've seen positive leasing activity with average rent roll ups are about 8.9% which will take, as Dave said, it'll take effect during throughout the year 2015 but we saw that.
In addition, about 50% of the recent vacancy space has been re-leased at comparable or better rates.
Once again will also take effect probably in the third or fourth quarter until we see those.
But those are all the positives.
Yes and if you're looking at (inaudible) is in Q4 we tend to have more escalatable income.
And we have a little more clarity on some of the accruals and things like that.
So I think Q4 is probably the best quarter of the year for MOB results.
We continue to look at the portfolio and as far as of those assets that we just acquired, I don't envision really selling any of the new ones.
But I do expect that we will continue to evaluate the existing portfolio and there's a good chance that we will collect some assets to (inaudible).
Generally the portfolio is performing very well.
As far as a percentage of our portfolio, it's about 44% today.
There are ---+ it's interesting to view that asset class because they're very good assets typically, very stable and the industry as a whole is very fragmented.
So this creates a lot more opportunity to do one-offs, small portfolios and so on.
I think we'd be willing to buy more and bring it up closer to 50% of our portfolio, but it's not a line in the sand per se.
But we think the better growth opportunity, internal growth, is on the senior living side so we have to balance those two in our decisions.
I think from a single-tenant perspective, it's approximately about a third of the portfolio.
And by single-tenant, that doesn't necessarily mean triple net.
A lot of them are managed buildings but with one tenant in them.
Our portfolio, our MOBs themselves include biotech, healthcare facilities and some medical equipment manufacturers and so on.
So if you were to pull that apart, it's about 45% of the portfolio where it's either directly leased to a healthcare system like our Aurora Healthcare or where the healthcare system is the major tenant and draw to that building like the Cedars-Sinai buildings or the Baylor buildings we have in Texas or some of the other healthcare systems we have.
Our Childrens in Boston or Aurora.
All right, well thank you all for joining us today.
And we look forward to seeing many of you at NAREIT which is just around the corner in June.
Thank you, have a great day.
| 2015_SNH |
2017 | FWRD | FWRD
#Thank you.
Okay.
| 2017_FWRD |
2017 | GEF | GEF
#Sure.
So just to be clear, we don't give quarterly effective tax rate guidance, so we didn't like say that the fourth quarter would be where it was.
We give annual guidance.
And so ---+ but the other part is, at that point in time, given everything that I knew and even at the Q3 call, the prospects of getting all of this executed at that time did not appear very likely.
So I did not anticipate us being able to execute and get a lot of these things done.
Subsequent to that time, our tax group came to us and told me that they thought that if we got some extra external help and really rallied the troops internally together, all the information and work extremely hard and diligently to get things executed by year-end, that we could potentially accomplish it before year-end.
I'm extremely proud of the way our team came together and got these things done because the amount of legal entity, elimination, restructuring, intercompany arrangements, all of the stuff that had to be done on restructuring, internal boards, the massive amount that had to get done was really enormous.
So what they got accomplished, I couldn't be more pleased.
And my ---+ was I more than willing to spend $4.6 million this year on planning fees to generate the level of savings that we did, by the way, of which will continue to drive benefits every year from now on.
I'm thrilled.
And I can't ---+ I wish I would've had a better crystal ball to be able to tell everybody that in Q3.
But at the point in time we had that call, I did not think this could get done, and so we did.
I'm pleased we did.
And it obviously drove up our SG&A a little bit.
I'm more than happy to drive up our SG&A all the time if I can drive more value to the shareholders on the bottom line.
So that's the situation.
From where we anticipated it to be for '17 when we had the guidance for the Q3.
And I think it's roughly the same year-over-year improvement.
I'm sorry.
You said $3.50 to $3.70 on ---+ is that it.
Probably in that range, maybe a little low on EBITD<UNK>
That's right.
So the goodwill thing was primarily Brazil.
That was the vast, vast majority of everything.
Most of that SG&A onetime benefit in Latin America came in fourth.
Some of it ---+ a minor amount was in third quarter.
And then the OCC benefit in the fourth quarter.
.
About $2 million.
$2 million, yes.
Thank you, <UNK>.
I just wanted to make sure I understood 2 quick one-offs.
So you're saying that the tax benefit in Latin America that won't repeat next year, that was mostly in the fourth quarter, so that aided this just completed quarter's results.
Okay.
And then the charge that you're referring to in rigid that was not hurricane-related, could you just clarify what that was again and how large.
So we had a $3.6 million inventory write-down.
The majority of it related to inventories that were identified as we've looked to centralize and manage our supply chain more efficiently by centralizing warehousing in some of our businesses.
And oftentimes, when you're doing that, you look at, do I ---+ I've got inventory in all these different places.
Is it worth even the transport cost to go move it if I've got more than I need and conclude, no.
Okay, write it off.
We're not going to be able to use it.
But on the long term, we end up benefiting by the efficiencies gained.
Okay.
But that was removed from the adjusted results.
No.
Oh, that was in the adjusted results, okay.
Yes.
And then just one big picture question.
If I look at your volume guide for rigid, I guess, it seems to sort of aggregate to the 3% to 4% range.
Given the strategy to pursue value over volume, presumably, you're still sort of walking away from some business which would suggest without ---+ that walking away that your volume would be any ---+ be even higher than 3% to 4%.
Given sort of the top-down view of sort of global economies, that just seems like a very high volume goal for 2018.
I was just wondering if you could sort of maybe help me understand how it gels with sort of a top-down view of the world.
Yes.
So I'll give you, first, a quick overview of how we see the global economy, and then relate it to our volume assumption.
So there's obviously pretty positive global growth.
There's very low macroeconomic volatility, and access to credit is very favorable.
Our business in Rigid Industrial Packaging is very focused to the chemicals ---+ specialty chemical and those related end use markets.
Some of the big growth macroeconomically are really tied to construction, capital equipment purchases, transformation and infrastructure growth.
So as we see the potential for growth in our business, I think we see higher growth potential in the U.S. because of the macroeconomic factors for the chemical industry.
They're making significant investments in the Gulf Coast, and that will be in the next 2 to 3 years.
It also includes ---+ we have capital expansion that we have implemented this year and will be implementing next year by midyear, and so the IBC growth and some of the steel drum growth is indicative of that ---+ those capacity expansions.
And plastics growth, again, is layered into North America, which we think is a more favorable economy globally.
And in APAC, we have made capital investments in small plastics.
So it's driven by North American economy and targeted capital growth initiatives that we have either completed or will complete by mid-2018.
But just to remind you, we are not going to chase volume for volume's sake.
I also think some of this growth is relating to our customer service initiatives, which we are starting to see evidence of customer share improvement because of our performance in customer service.
And I think if you look at some of our business, for example, in FPS, there's a direct relation to their performance in customer service, where they've gone from a 60% rate to a 90% rate.
And you can see their improvement in profits track to that trend.
So ---+ but that's ---+ I hope that answers your questions, <UNK>.
If you have any other further issues you wanted to delve into, please let me know.
Okay.
Yes, just a quick follow-up.
I mean, do you know how much volume was impacted in rigids in the fourth quarter by the hurricane.
Because the step-up from sort of 1.8% in a strong sort of global IP environment to 3% to 4% still seems a little difficult to bridge.
Yes.
So if you look in North America and the Gulf Coast, the Gulf Coast is one of our biggest businesses in our rigid business in North America.
And so in the quarter, our steel drum volume was up 1.3%, which is a little low, and that was impacted by that hurricane.
And that hurricane had impact throughout the supply chain for more than just the downtime of our operations.
So if you look outside of APAC, which is a different story, both EMEA, North America and Latin America had fairly good growth strength in all of the substrates.
And again, I'll go back to I think we're winning customers through our initiatives in customer service.
But we feel very confident in what we're doing in the markets, and we are being very selective in how we target end use segments and customers.
And we are ---+ again, we're going to be very disciplined in how we price and manage our product mix in that business and actually feel very, very comfortable in the capabilities and discipline that we've put in that business in the last 2 years.
Well, we ---+ in Investor Day, we really said our concentration on growth is going to be in our rigid core business with a higher emphasis on plastic and IBC and with some steel opportunities in white spaces or regions we currently don't have operations.
That would be a combination of capital expansion and acquisitive growth.
In Paper Packaging, our focus is entirely on how do we increase the vertical integration of our integrated system.
I think that's more increasingly difficult to acquire businesses in that realm since we do not have box plants, and that is not our strategy.
Our strategy is corrugated sheet feeding and specialty products that can be put inside one of our sheet feeders.
So that might be more heavily weighted to capital expansion with committed customers, but it's a blend acquisitive and capital expansion.
We are not afraid of doing a big acquisition.
But it will ---+ if we do, it'll be inside our clearly defined core that we talked about in Investor Day.
And we are pursuing those initiatives, and we're pretty active in the process, and we'll let you know as we have things to report.
But again, we're in the early stages of this.
This is a long-term process.
We're going to have great discipline in how we approach it and again, stay within our core.
Yes.
And we've been talking about this.
I'll just sort of repeat what I've said.
At the point that we determine that we don't see other uses of our capital that are of higher priority, we will examine the best way to return capital to our shareholders.
And that is ultimately something that needs to be approved by our board, which we would review with them our recommendations.
I view that as a decision to be made based on the situation at the time you're making the decision to do a distribution.
So it could be a combination of something on our regular dividend if we decided to do something that way, but it could well be stock repurchase or special dividend.
We don't know at this point, and we'll examine it at the time we decide to make such a return of capital to shareholders.
Yes.
So your first question on the bulk packaging growth in our Louisville, Kentucky operations, as you know, we are doubling the capability of that facility, and that will come online in mid-2018.
We feel very, very confident that when that comes up on stream that we will meet our 3- to 4-year growth targets.
That's been a very good business for us, and I think we're positioned well based on customer service and speed to market and quality.
Very, very positive comments from prospective customers to fill that gap and capacity.
In regard to IBCs, because the 2 major other suppliers are privately held companies, you probably don't see a lot of data on growth curves.
But if you look at a global perspective, IBC is the highest growth potential for rigid packaging.
It shows 8% to 9% global growth rate.
The 2 largest markets ---+ the major markets are EMEA, North America and China.
We are making investments in both North America and in EMEA right now, and we feel confident that as we move forward, our broad offering to our chemical and chemical-related customers, this plays into their needs and demands from us that we are able to supply steel, plastic, fiber and IBC products to them.
And we feel good about the future in that, but we do have quite a bit of capacity coming online.
But it's in disparate regions.
And we are in the process ---+ 2018 will be an execution element to that growth.
Yes, it's all greenfield capacity.
It's either expanding in existing facilities or new facilities.
And you probably won't see acquisitive growth in IBCs for us because of our technology and our product.
It'll be more capital build-outs as it relates to our customers' needs and requirements.
Yes, <UNK>, so a couple things.
So when we did our budget and the guidance we have and the timing of the layered-in of inflationary prices in OCC was what Larry stated.
So the timing may be different, and I think we all agree.
We probably won't see an increase in OCC until maybe February.
But irregardless, the blended rate we have of $152 a ton and that step-off versus our 2017, we feel fairly comfortable, as comfortable as you can be in trying to forecast the commodity price 12 months in advance.
How that relates to upside for us in Paper Packaging.
If it stays low, it's obviously one of the potential upsides to our guidance.
How it relates to potential price increases.
We just don't comment on future price activity in any of our markets.
I mean, I think it's always a combination.
I think it starts with demand.
And actually, as you know, there's very healthy demand in the industry.
But our system is very, very busy right now.
It's projecting on the same path that we've seen for the last 2 quarters, so I think that's the first factor.
And then it relates to input costs as a secondary factor.
So I don't think you can have a linear equation of what drives market pricing.
I think it's a combination of 2.
But think demand is the biggest factor, in my opinion.
No, sure, <UNK>.
So I'll make a first statement, which is obvious, but I'll do it anyway to get on record again.
But our highest priority for all of our global operations has to do to ensure the health and safety of all of our colleagues around the world and to ensure we're good stewards of the environment in the communities we operate.
On a global basis, we've been recognized by third parties.
We have an excellent track record in both safety and environmental compliance.
And I think I said a couple quarters ago, with that said, we are not perfect, but we are addressing issues.
And I will provide you with the most current update that we know as of this week.
So just recently received ---+ we received notices from the U.S. EPA, and that has been a 9-month process since it originally came out.
And during that 9-month time frame, our company representatives have met on a voluntary basis with a number of federal and state environmental regulators to discuss the issues.
We got federal, state and local politicians and regulatory agencies.
Community residents have been invited to tour our facilities.
And some of the visitors have commented that the conditions in our facilities are very inconsistent with the negative conditions that are portrayed by the media, particularly the one local newspaper.
And in our view, I think it's become a situation that's become highly politicized, and I think that's a ---+ the result is a 9-month delay in when it started to when we got the notices.
So in regard to what we are doing with the notices, a significant portion of those notices apply to standards and process requirements that have not been previously applied to reconditioning facilities in the U.S. So what this means is they're changing existing regulations without following formal rulemaking process.
On the other points, we are working in conjunction with the appropriate regulatory agencies, and we're addressing those issues.
We're making improvements in the operations as we speak.
And I'll also state, as we said in our 8-K, that we are very, very confident that our current financial disclosures fully comply with all SEC requirements.
No, that's good.
Thanks, <UNK>.
So as we've talked about, this price-cost squeeze will recover in Q1.
We saw some recovery in the last month of our quarter 4.
But unless raw material markets remain as we project them to remain, we see recovery and more normalization of that 20-plus gross margin.
And when we look at our margins, not only in rigid but all of our businesses, it's a journey.
So if you look at our margins in 2015 to '16 to '17 to our guidance in '18, you see that trajectory of our strategy of value and margin over volume.
I think there'll be times when we have higher margins because of market conditions and rates of raw materials.
And I think there'll be conditions like we saw in the last 4 months, where we have margin squeeze.
And I'll tell you how we view our business, is we don't look quarter-to-quarter because when there is high volatility, especially in inflationary raw materials, you do see uneven margin results.
So we look more longer range, and we look more at the leading indicators and the processes we employ and how we are acting and how we are executing in our commercial regions.
And so that's how we look at it.
It's been challenging the last 4 months.
We haven't been happy, but I'm very happy with how our operators are executing in the field.
A big part of going forward is the raw material market.
What we see on steel is a more gradual inflationary period next year.
I think that relates to a lot of reasons what's happened in China and some of the ---+ more discipline in the steel industry on a global basis.
And we think in the resin environment, because of some of the capacity coming on stream in North America and some expected lower feedstock prices in certain regions around the world, we'll see less volatile resin prices for our business.
But I think you will see a more normalized margin view if what we project from a raw material standpoint comes true.
We also have some operating cost opportunities that will drive margin improvements.
So again, I think it's a combination of how we go to market and how we operate our businesses.
But I'll tell you, there's not many low-hanging fruit in our business now.
So this is a grind-it-out journey, win customers through excellence in customer service and compete in all the markets we face.
No, that's okay.
So we can't ---+ we're not going to disclose or make any comments on any of the allegations by the whistleblower.
We released that 8-K, and we stand by what we said.
That's public knowledge.
Some of the regulations you had indicated that have not been applied previously to reconditioning facilities and what that might mean, so it's important for everybody, the regulatories, the politicians and the business professionals that reconditioning industry performs a very, very valuable environmental service.
So cleaning, refurbishing empty containers for reuse, keep empty containers out of landfills, and those proposed regulatory changes sought by the U.S. EPA ---+ and that's not final.
But those regulatory changes could compromise the viability of that entire industry and could create some challenging sustainability issues in the supply chain going forward not just for us, but for our customers.
So we're at a point in time now where I said we're working together and cooperating with the regulatory agencies, and we have already made some decisions on actions we're doing.
But what I will tell you is any capital or costs that may or may not occur would not be significant to our overall company.
And again, we are very, very comfortable with the disclosures to SEC requirements.
Okay.
Thanks a lot, Kelly.
Thank you, everyone, for joining us this morning.
We appreciate your time, and have a good holiday season ahead.
| 2017_GEF |
2018 | ESE | ESE
#Thanks, <UNK>.
Good afternoon.
As noted in the release and as <UNK> will describe in more detail, I'm pleased with the way we started the year, as our Q1 adjusted EPS came in at the top half of our guidance range and our orders and cash flow were well above our November expectations.
As reflected in our Q1 results, ESCO realized significant benefits from the recently enacted tax bill.
We expect to see ongoing EPS and cash flow benefits driven by these lower rates.
Now I'll turn it over to <UNK> for his financial comments.
Thanks, Vic.
I'm also pleased with our Q1 results on both the GAAP and adjusted basis.
Given the large GAAP EPS impact of the onetime gain resulting from the true-up of our deferred tax liabilities netted against the GAAP P&L charges related to accumulated foreign earnings and cash repatriation charges, I will focus my commentary in Q1 and for the full year on an adjusted EPS and adjusted EBITDA basis.
These are more relevant measures of our operating performance when compared to expectations and to prior year.
Before I comment on the Q1 details, I'll recap the raising of our full year EPS outlook, as noted in the release, to help reconcile this to our November view.
At the start of the year and before anyone could estimate the impact of the then pending tax reform narrative, we set our original financial goals on a GAAP basis and centered our discussion of expected operating performance around EBITDA, which at the start of the year is expected to be in the range of $141 million to $143 million, reflecting an increase of 15% to 17% over prior year.
We also set our full year EPS guidance on a GAAP basis, reflecting a range of $2.30 to $2.40 a share, with Q1 expected to come in between $0.28 and $0.33 a share.
We also described the timing of several large project-related items that were impacting our first half results compared to prior year's first half, which were driving our back half weighting.
Given Q1's onetime tax reform benefit and the noncash items resulting from our recent M&A activities, coupled with the announced cost reduction actions we're taking in USG and Filtration to improve ongoing earnings and cash flow, our GAAP reporting for 2018 becomes a bit less comparable.
So we'll continue to focus on adjusted EBITDA and adjusted EPS operating results consistent with how we reported in fiscal '17.
As noted in the release, we are raising our GAAP EPS to $3.55 to $3.65 a share, and we're raising our adjusted EPS to $2.65 to $2.75 a share.
And we feel at this point, it's prudent to maintain our adjusted EBITDA expectations.
Now touching on a few of the financial highlights in Q1.
We reported an adjusted EPS of $0.33 is at the top end of our guidance.
This was led by stronger-than-expected performance in Filtration and USG, with Test and Technical Packaging reporting generally on plan.
Sales exceeded expectations by $8 million, with all 4 operating segments reflecting these gains.
With the clear leaders being Doble and Vanguard, compared to prior year, sales increased $27 million with $18 million of the increase coming from acquisitions and $9 million or 6% being organic.
We reported $24 million of EBITDA in the quarter, which drove this EPS to the high end of our range.
And cash flow from operating activities was $18 million, also well above expectations.
And this was driven by strong cash collections across the company.
This cash flow allowed us to pay down debt by $15 million and reinforced our view that our significant cash generating capabilities over the balance of the year as well as our credit capacity and available liquidity have us well positioned to continue to execute our strategy.
Additionally, while still being quantified, we're confident that our lower U.S. federal tax rates going forward will allow us to generate a meaningful amount of additional cash flows as a result of our lower tax liabilities.
We plan to repatriate a significant amount of the $30 million of foreign cash on hand at December 31 to pay down current debt.
That's realizing a favorable interest rate arbitrage and lowering our leverage ratio from the current 2.1.
And finally, entered orders were over $200 million in Q1, reflecting a book-to-bill of 1.5x, an increasing backlog by $27 million or 7% from the start of the year.
Test orders were $58 million, on top of last year's $200 million, which brought their backlog to $136 million at 12/31.
This provides us confidence in our ability to achieve the back half of the year financial commitments they've made.
Turning to our guidance for the balance of the year, the short answer is this.
We remain on track to meet our financial commitments for the balance of the year, and we feel that we have sufficient protection and contingencies to protect us from any unforeseen risks.
Additionally, I'm confident that our current backlog and program delivery profile supports this outlook.
I'll be happy to address any specific questions when we get to the Q&A.
And now, I'll turn it back over to Vic.
Thanks, <UNK>.
As we entered fiscal '18 and we spoke last, I was confident that all our businesses were in solid financial condition with solid growth opportunities.
Standing here today, I continue to feel the same confidence.
And seeing our Q1 performance, I feel we're well positioned to deliver our projected results.
While we're not immune to challenges, but with that said, I strongly believe the breadth and diversity of our end markets and the specific niches in which we operate in provide us with the protection to mitigate a lot of these pressures.
I like the position we're in across our various businesses and anticipate that we can achieve our longer-term stated growth rates.
As noted in the release, our second quarter EPS is lighter than anticipated, as a couple of large programs previously projected in Q2 will now be completed in the second half of the year.
These include a ship set Navy valves that had their customer acceptance date pushed to Q3 and a couple of large chamber projects in tests, which have a different delivery profile than originally planned.
Additionally, in USG, our fiscal Q2 ending March 31 represents the first quarter for the budget spending for a majority of our customers.
And therefore, historically, this calendar quarter tends to be the lowest spending quarter for utilities within the year.
I'll provide a few specific thoughts or comments on the individual businesses.
In Filtration, we continue to expect solid results in '18, and I remain comfortable with our outlook for 6% to 7% growth in adjusted EBITDA in the segment compared to prior year.
All of our served markets remain strong, as the Virginia Class sub program continues on track, commercial aerospace backlog continues to grow, Mayday's MRO market is showing early strength and our space programs led by SLS continue to progress nicely.
Our Technical Packaging group's future continues to improve as a result of our scale and leadership positions across several growth markets and geographies.
Our domestic performance and outlook are very strong as we recently extended our KAZ program through 2020 and have numerous multiyear programs now in backlog or soon to be entered.
In USG, we delivered solid performance in Q1 led by Doble and Vanguard.
We'll continue to see lower solid growth opportunities across the global platform, including hardware, software and services.
Our rep and distributor network rationalization is essentially complete.
And through this process, we've identified several meaningful operational and financial benefits where we can reduce USG's operating costs and expand future margins.
Through these cost reduction initiatives, we plan to take a charge in Q2 of approximately $2 million to $3 million.
Considering the annual cost savings from these actions are meaningful, the payback is essentially 1 year.
At Test, we beat our Q1 sales plan, hit our profit targets and remain committed to our 13% EBIT margin expectations for the year.
Q1 orders were a highlight of Test performance again, as we booked nearly $60 million in new business, have not seen a slowdown in Q2 and January was a very strong order month.
I'm also pleased to see the diversity of the end markets where we're winning this new business.
In Q1, for example, we booked large orders for satellite testing facilities, automotive related to antenna test facilities, electric vehicle motor testing chambers in China and several large projects related to the developing 5G market.
So in summary, I continue to feel good about the growth opportunities we have across all of our businesses and see tangible avenues for additional growth in future years.
Regarding M&A, the pipeline remains robust and we have several opportunities in process, which would supplement the Filtration and utility segments.
Acquisitions remain a key component of our ability to meet our longer-term growth targets.
We certainly have the balance sheet capacity to do more M&A, and we will remain disciplined in our approach.
Our focus remains constant, to continue to improve our operational performance and to execute on our growth opportunities both organically and through acquisitions.
I'll now be glad to answer any questions you have.
So looking at specific new products, I mean, the Doble universal controller, we call it DUCe, we continue to have a lot of success with that.
We had a big year with that last year, I think, momentum is remaining continuing this year.
We introduced a new kind of high-end tester last year than M7000.
And so that is getting good traction so far this year.
So those are the 2 primary ones, the Doble itself and then, of course, the other thing, which is really helping us with the growth this year is the addition of the new businesses with both Vanguard and then NRG.
They're providing good growth opportunities as well as Morgan Schaffer.
So we did have a bigger arsenal I guess, if you will, as well as making some significant investments at Doble, which are really paying the benefits.
And we'll continue to do that.
I mean, you're in that type of business, you never kind a get to declare victory.
It's just you're going to keep upgrading products as you have the opportunity.
And that's something we'll continue to do to make sure we stay ahead of the competition.
Yes, it was interesting.
I mean, like immediately after tax reform passed, people understood what was in there, the orders really picked back up.
So we don't think it's going to have a meaningful impact during the year.
There will be some ---+ but fortunately, the management team there said, okay, we're going to be a little short there, so we've got to do something about it.
So we did some cost trimming there to make sure that we're able to hold our margins.
So this is not a long-term issue.
It really and quite honestly kind of got us by surprise, because the first 2 months of the quarter were pretty strong from an order perspective.
And then we saw really the break set, and as we dug into it, figured out there were some real concerns by customers that some of the incentives were going to go away.
Once they didn't, the order activity picked right back up.
And <UNK>, to put some numbers around that profile that Vic was alluding to with the kind of January ---+ December slowdown there, did start picking back up in January.
But from a quarterly revenue profile as that lays out, obviously, you don't book an order and ship it the next week.
So in Q1, in the actuals, we did about $8.5 million of revenue at NRG and it goes up a little bit in Q2 to about $9 million, $9.2 million.
But then in Q3, that would jump to around $12 million.
And in Q4, it's up around $14 million.
So that profile that you see there is where you see the little pause in the order book in December, relaunches in January and then the products at about a 60- to 90-day delivery profile on the back end of that.
So going from $8.5 million to $14 million and the fourth quarter profile should give you a little bit of understanding of why the back half weighting is the way it is.
Yes, and it follows along with the revenue.
Obviously, when you get that kind of incremental revenue up there, you are covering the fixed cost pretty substantially.
So the $8.5 million, that's a $32 million, $33 million annualized profile.
And that's not how the company is built.
It's $40-something million.
And so when you put the back half ---+ I'm sorry.
Please (inaudible).
Okay.
(inaudible) Okay.
Now you know how the USG's profile (inaudible).
Okay.
so if you look across the platform within Filtration, it moves up as it has in the past, in the back half of the year, because we have the large shipments at VACCO relative to the Virginia Class and then at Westland.
We won that program on the SLT.
And you have the revenue shipping in the back there.
So Q4 will be very strong in Filtration.
The packaging business has a little bit of seasonality.
So it's going to be up in the back half.
KAZ, as it has over the last 5 or 6 years, it's biggest quarter will be Q4.
So if you look at the profiles from last Q4 to this, we'll be up a little bit in revenue, which will pull the profit through.
And then consistent with the energy conversation, the entire USG profile continues to support that weighting in the back half with again Q4 being the most dominant.
So there is a lot of generalities, but I think you can kind of get a flavor as to: a, why we have confidence in the back half; and because most of the things are in backlog, and as you look at the fixed cost, we are lowering them.
So as the revenue comes across at a higher level, you win even bigger than you have in the past.
I'd say Q3 to Q4, Q4 is about 10% higher than Q3 on revenue.
So if you profile it off of where we started at 120, I'm sorry, 173, you move up a little bit in Q2 and then substantially in Q3 and then 10% higher than Q3 as you migrate to Q4 for all those reasons I just indicated.
Well, we already assumed that in our forecast.
It's a frustrating thing to say the least, but we kind of assumed that, that was going to continue throughout the year.
So if they do get their act together and turn back on, we might be able to have a little acceleration, but we're certainly not counting on that.
I should also say ---+ I mean, really where that impacts is really just at Westland.
It really doesn't have an impact at VACCO for the most part, because those are going on submarines.
Those things have been scheduled for a long time.
So we've been delivering those even through this time period.
So really that risk that we have is at Westland, and we think we've captured that in the forecast we have out there.
Yes, I'd say there's not really any change from what we've seen over the past year or so.
The buying remains solid.
I mean, so much of that is in backlog that we really don't have a lot of impact there.
The only place we've seen anything is schedule moves around a little bit on our A350, but I think generally is playing out as proposed.
But the other thing is we are having some strength, as we mentioned either, I don't remember, is in that press release or the script here earlier, but the MRO market at Mayday is picking up some there.
So we're seeing some aftermarket growth there, which is obviously good.
And it's not something they were really involved in that much prior to our acquisition of them, but we're really seeing some good activity there.
Yes.
I think they're generally on track now.
I mean, it's been a little bit of a rocky road getting there.
But it looks like ---+ and the other thing I remember is they buy our product pretty far in advance with more long-lead item.
So we don't think there's been issue on that project, and it will be pretty conservative in this year in our forecast as well.
I think that we could ---+ on that, we split up into 2 conversations: 1 on the domestic side and 1 on the international side.
We're seeing a disproportionate share of strength in the domestic side.
As Vic mentioned, the KAZ program got renewed.
So that's really going well.
So that added a little bit to the contribution.
We won 4, 5 reasonably sizable for that business.
$1.5 million to $2.5 million is a good size contract.
So we've picked up some new business over the last 1.5 years that we had been in pursuit of for a year before that.
And so we're starting to see that coming through.
So I'd say, of that, the increase you see there, it's a little bit more heavily weighted domestically, so the legacy tech business.
And then within the European side of the business, at Plastique, which we bought 1.5 years, 2 years ago, we see nice strength there.
There is some additional medical stuff coming through.
We built a new clean room, very state-of-the-art in the U.K. We're seeing volumes increasing there.
And the investment we made in the plant expansion last year, we're seeing some of the volumes come through there.
So that's sort of that increase you see there, it's about 60%-40% domestic to international, so we're pleased to see that growth.
I think for this year, that's probably the right way to think about it, because if you remember, in the November conversation, where we had a razor company over there at Gillette, kind of internally or insourced their packaging to try to compete with the mail order folks and that sort of thing, the Internet folks.
And so we had a little headwind there, but we're still showing growth.
And that's why, I say, as you look forward on the medical side, I think our medical device and our medical and pharmaceutical kind of groupings are going to grow faster than GDP.
But this year, I'd hold it at GDP just as a little bit of headwind that we had, by the comparable downturn in the Gillette business this year that we talked about in November.
If you remember, when we bought that business, one of the primary reasons we did ---+ or really 2 primary reasons.
One was to get into Europe, because we didn't have a presence there.
And the other was to get in the medical business.
And then there's more profitable than our underlying business.
So it's one of those little chicken and the egg things.
That you know we're going to medical customers saying, we want your business and trust us we're going to build something so that we can build it, and so what we had to do was go ahead and put the facility in place, clean room in place to be able to support those customers.
And now that we've done that, we're starting to get a lot of interest.
And I think we won maybe 3 medical jobs there so far.
And we think that over time will accelerate and improve profitability in that business as well.
Well, I'd say, if you look back at our year-end 10-K or in the annual report there, we had a substantial deferred tax liability.
And so without getting into the accounting side of it, the liability gets revalued from roughly 35% down to 25%.
And the reason it's 25%, with us being a September 30 year-end, we have kind of a unique application of the effective rate, because it's 35% for Q1 and it's 21% for Q2, 3 and 4, and it's weighted by number of days.
And so our headline rate, if everything was equal, would be 24.5% this year, because of that Q1---+ because they signed it basically effective January 1.
So what's nice is that as you go into next year, you step that down to kind of a blended 21 statutory number is 21 and you got the pluses and minuses around that.
So we'll get one more little take of that, but we won't get the onetime item, it will become the effective rate going forward, because what we did in Q1 here on the true-up is mark that down or adjusted it down with a favorable benefit to the 21%.
So the big onetime item is done.
And then the go-forward way to think about it is, for the back half or back three-fourths you know at 24.5% with some other 1% or 2% around it.
And then as you go into next year, the effective rate as a going comparable concern there, moves closer to 21%.
So we'll get another favorable and that's cash and earnings favorability as we step into '19 as well.
Yes.
I mean, that would be ---+ that's just because we're going to have to take some costs out or have that ability as a result of some of the consolidation we'll have underway.
So that's in addition to what we're getting from synergies.
And to tie that off, if you remember, we announced exiting one of the industrial markets at PTI, one of the lower margin businesses we have.
Unfortunately, there's going to be some people that have to be severed there and have some equipment disposed of and things like that.
So that is really a function of exiting a lower-margin business that we announced in that segment of the business that we announced in November.
So it's cleaning up behind that.
We really have not seen anything there.
I think we see that that's going to be a little later in the year because of the restocking, because they buy these things pretty far in advance.
And so unfortunately, I don't think they've burned through them all yet, but that's something we may see in the next couple of months as they burn their inventory down.
I wouldn't count on it being quite that high every quarter, but they've had a really good run.
I mean, a lot of it has been where you see them above a 1.0 is usually onetime.
It's usually some of the larger jobs.
As I mentioned, we've got some real success over the past 15 months of landing some of these larger jobs.
There seems to be a lot of activity out there between defense contractors with the EV market in China is really strong, some of the automotive opportunities.
And so there's been a number, an EMP job.
We won EMP job earlier this year ---+ earlier this month, I should say.
So it's been nice and strong.
And 5G, of course, is the other one where a lot of people, because that impacts everybody from the chip manufacture to the device manufacturers to carriers.
And so as that rolls out over the next couple of years, we think we'll be very successful there.
Yes.
And let me add some of math around the optics of the ratio.
The orders are going to still be kind of strong, but now you start getting ---+ the denominator starts shipping.
And so all the stuff that we have in backlog, so you're going to see a pretty significant sales ramp.
So you're still going to see dollars of orders that look strong, but you're going to see ---+ in Q3 to Q4, you're going to see an inverse relationship, because you're shipping the stuff you have.
So your sales are going to be greater than your orders because of the back half profile.
So the math of the ratio will be below one in the back half, but the dollars to dollars will still be very attractive.
I think people don't understand.
It's a little more insight into how this stuff rolls out.
I mean, not only the second half of the year, but a lot of these larger jobs will actually be delivered in '19.
So I'm obviously happy about the impact it's going to have on '18.
But the real thing I'm happy about it, it gives us some protection going into '19.
And it's not like we're done entering orders.
So I think we'll have a good strong year this year, but a lot of these big projects that I kind of detailed earlier, the majority of that work ships in the next year.
Okay.
Well, thanks, everybody, for calling in today and I look forward to talking to you in the next call.
| 2018_ESE |
2018 | UCBI | UCBI
#Good morning, and thank you for joining our first quarter earnings call.
Let me start by saying that I am, once again, very pleased with our results in the first quarter.
In fact, it was a standout quarter by nearly every measurement.
It is a credit to our bankers who started out of the gates in 2018 producing strong results.
Our operating earnings per share for the quarter was $0.50, which was up $0.08 or 19% from last quarter.
This increase was due in part from tax reform benefits and from our new partnership with Navitas, which was included for 2 months in the quarter.
These results were achieved despite headwinds from expected seasonality and a special beginning provision for Navitas, which reduced our operating EPS by $0.02.
Our operating result of $0.50 per share was an increase of 28% from a year ago quarter.
The EPS growth was accomplished by an improvement in profitability as the operating return on assets moved to 1.33%, and the operating ROTCE moved up to 15.3%, putting us on pace to reach our 1.4% ROA and our 16% ROTCE goals in 2018.
All measurements moved in the right direction and we expect this positive momentum to continue for the remainder of 2018.
Continued expense discipline and a wider margin driven by Navitas and core margin expansion provided a meaningful lift during the quarter.
This quarter is also highlighted by pickup in loan growth despite continuing to intentionally runoff our indirect portfolio.
And an increase in core deposits with deposit betas remaining low in an increasing rate environment.
This has contributed to a higher loan-to-deposit ratio, although the strong deposit growth held the increase down a bit.
We have also reduced our securities portfolio.
Our measured growth and resulting margin expansion continues our progress toward our goals of achieving top quartile profitability.
During the quarter, we were also busy on the strategic front.
On February 1, we announced the completion of our acquisition of Navitas Credit Corp.
Navitas had $527 million of assets at the end of the first quarter, and they're meeting all performance targets that were determined during the acquisition process.
We're very pleased with how our partnership is progressing.
In a very short period of time, we are already experiencing the strategic fit and synergy between Navitas' small ticket equipment focus and our Commercial Banking Solutions unit.
The partnership is working and we are well on our way to achieving the $0.20 EPS accretion in the first full year we mentioned last quarter.
We also recently completed the operational conversion of Four Oaks Bank and Trust.
And so we now share all of the same systems and officially the United Community Bank name.
This, once again, gives us the opportunity to welcome the customers, employees and shareholders that have joined us.
All said, we are very pleased with our solid performance in the first quarter.
We're well positioned to grow, compete and perform in the foreseeable future.
Now, I'll ask <UNK> to share the details of the first quarter.
Thanks, <UNK>.
We are proud of both our results this quarter and the continuing strategic moves we're making to build our company.
If you want to follow along with me, I'll start on Page 8 of the investor deck.
There you'll know the significant increase in our margin, up 17 basis points linked quarter and 35 basis points from a year ago.
Navitas added 10 basis points for the linked-quarter increase with the remainder caused by increasing loan yields and an influence of a full quarter of the Four Oaks portfolio being included.
On Slide 9, the stability of our core deposit base remains a driver in our margin expansion.
Our cost of deposits in the first quarter was only 23 basis points, which was an increase of only 1 basis point on a linked-quarter basis.
Our core deposit base continue to grow, increasing $172 million or 8.7% annualized during the quarter.
This fully funded our loan growth during the quarter.
Our overall cost of funds increased 14 basis points versus last quarter, due largely to their sub-debt raise and also the securitization debt from Navitas coming on during the quarter.
Turning to loans on Page 10.
Our annualized core loan growth was 6%.
Our loan production in the quarter was $665 million, up 16% over the same period last year.
Total loans reached $8.2 billion in Q1, up from $7.7 billion in Q4.
As noted on Slide 11, my goal is to continue to strategically position United for quality, diversified loan growth in metropolitan areas with solid long-term prospects.
On Slide 12, seasonally, the first quarter is generally our weakest in fee revenue.
And while we're essentially flat with the same period a year ago, the year-ago period included the revenue we have now lost as a result of Durbin.
A notable new item this quarter is $800,000 of fee income from Navitas.
SBA fee income was down $200,000 from a year ago, but commitments this quarter were particularly strong at $26.4 million, 27% higher than the same period last year.
This continues to give me confidence in the continued growth of the business, which is among the top 20 nationally.
Mortgage also continues to do well despite a more challenging and uncertain interest rate environment.
Our originations were up 26% year-over-year, at $191 million.
Turning to Slide 13.
Expense control is a great story this quarter.
While operating expenses were up $2.3 million in the quarter.
If you exclude the impact of additional expenses from Four Oaks and Navitas, total expenses were actually down $1.2 million versus Q4.
Our operating efficiency ratio improved to 55.8%, which is an improvement from last quarter, and I believe strong performance relative to our peers.
On Slide 14, our rebalancing of the loan portfolio continues to pay dividends with very strong credit results.
Net charge-offs were 8 basis points, marking the seventh consecutive quarter of 11 basis points or better performance, and nonperforming assets came in at 24 basis points, essentially flat with the last 4 quarters.
Our $3.8 million in provision expense this quarter was impacted by a onetime initial provision for Navitas.
But Navitas portfolio was actually marked at 1.5% premium due to their high yield and strong credit characteristics, instead of the discount we normally see.
This premium equated to $5.6 million.
With the write-up in Navitas loans, our allowance model required us to set aside $2.3 million or about 50 basis points of the Navitas loans in an initial reserve, which accounted for approximately $0.02 of EPS this quarter.
The Navitas acquisition closed on February 1, and promises to be a great partnership.
We are on track toward the $0.20 cents EPS accretion and 9 to 10 basis points added to ROA in the first year, which we announced earlier.
So I'd like to close with a review of what our team achieved in the first quarter of 2018.
But the announcement and closing of the Navitas transaction, solid performance or improvement in nearly every financial measure, including credit quality, operating efficiency, margin, a significant increase in our dividend, growth in both core deposits and loans and a flawless conversion of Four Oaks bank to the United brand.
The first quarter was a great one for United.
And as I look forward to the remainder of the year, I'm highly optimistic about our continued high performance based on the strategies in place today, our high-growth markets, industry-leading customer service and the determined execution of our plan by our bankers, day-in and day-out.
And with that, <UNK>, I'd like to turn it back over to you.
Thanks, <UNK>.
Last quarter, we provided some clarity and direction on our expectation for profitability in 2018.
Given our earnings momentum, tax reform and Navitas, I mentioned that we believe we can achieve a 1.40% ROA and a 16% ROTCE for 2018.
We stand by those results today, and believe that we can achieve them for the year and possibly sooner during the second half of 2018.
I truly believe that United is in a tremendous position to continue the success we've had and more.
The bank is thriving, and we have one of the most capable teams in the industry.
On April 2, we announced that I was reducing my role to Executive Chairman of the Board, and that <UNK> will become the CEO of United on July 1.
It is absolutely the right time for this transition, and I'm looking forward to serving in my new role.
<UNK>'s leadership since joining the company in 2012 has been instrumental in getting us to where we are today and positioning our company for many future successes.
He has done an excellent job in the role as CEO of the bank, and I believe there is no one more capable to lead this company into its next chapter.
He is totally dedicated to this company, our culture, our business model, and most important, our people.
People, that's what this is and always has been about.
I'm truly grateful to the shareholders, our board and the 2,300 employees that make this company what it is today.
I'm so proud of you and what we've been able to accomplish together.
Now we will be glad to answer any questions.
<UNK>, do you want to.
Yes, I'll serve it down.
I think the biggest driver of us hitting this, will be the loan growth.
We had good loan growth this quarter.
We're seeing good demand through credit committees, but I think that is the biggest swing factor towards meeting or not.
I do think that this quarter was very good in getting us on the route to that 1.40% ROA.
So I think that we've made good progress, and we are set to achieve those goals.
So really, <UNK>, it doesn't change our strategy at all.
The markets that we have indicated in the past within the entire 4 state region in which we operate in, it's still at top of mind.
Certainly, there has been a lot of activity in Atlanta.
We like Atlanta a lot, 25% of our balance sheet is in the Atlanta MSA.
But we're going to remain very disciplined, which includes the pricing and identifying the cost saves that we certainly have total confidence that we're able to achieve integration.
And then, of course, the growth on a pro forma basis.
But there's a lot of markets that we have strong desires in ---+ within those 4 areas or 4 states.
And it could take the shape of a fill-in, it could take the shape of an overlap or it could take the shape of an entirely new market.
So we remain disciplined, and I think our history has proven that when we do make an acquisition that what we say, we do execute.
Yes, thanks.
This is <UNK>.
I'll start there.
We're really excited about this quarter with our loan growth almost more than double funded by DDA growth this quarter.
So the deposit growth was outstanding.
Now with our balance sheet mix, some of the things that we're going to do to help fund the bank this year is going to be ---+ we're going to be shrinking the securities portfolio a bit.
I would think about, call it, a $20 million a month or so.
We're on top of that, we have the indirect portfolio that's raked in about $42 million a quarter.
We have had a really good deposit growth.
We can't really count on that going forward as the pricing is getting more and more competitive out there.
So, I think, the combination of some of the liquidity produced by other pieces of our balance sheet, in combination with the growth that we have been getting, we think we can continue to compete out in the marketplace there and then we think that our loan growth will pick up from here.
Specifically, on the beta.
I do think the betas will increase with each rate hike from here, I do believe that we are still modestly asset sensitive for each rate hike that occurs from here.
It's Jeff, so I'll start with that one.
The ---+ we're expecting about $10 million to $12 million a month in Navitas growth.
This quarter we're a little higher than that at $44 million for the first 2 months.
But we still think that $10 million to $12 million number per month is a good number to think about.
And so for the remaining 9 months, that'd put you at $90 million, $95 million for the rest of the year.
There's no meaningful remix of what they have on their books.
We do think there might be an opportunity to move upstream over time, and maybe even increase that growth rate over time as we find new niches.
Yes, there's ---+ that Navitas securitization debt will just roll off naturally as those loans paid down or prepay.
So there's nothing that we can do to accelerate that.
It's a natural ---+ I mean they have a ---+ they are 4-year loans, so they're rolling off at a predictable, natural pace.
There's 2 securitizations left, one is getting relatively small.
By June or July, we'll be able to do a clean up call, we think on the smaller, older origination or securitization.
And then from there we'll just have one left that should go into next year.
Yes, this is <UNK> again.
I'll start you out with the $71 million base that we reported this quarter.
Then we have the full quarter of Navitas in Q2, that'll add an extra $1.1 million or $1.2 million for Navitas expenses.
So put that number as the Q2 base, and then we'll grow it from there at a natural rate.
And keep in mind too, we have ---+ this is our weakest seasonal quarter.
We expect stronger SBA, and possibly mortgage going into next quarter, which could also increase the expenses a bit.
But I would think of it as $72 million base with core growth on top of it.
Peter, this is <UNK>.
So typically, the first quarter is seasonally a low for us on loan growth.
And as we ---+ even intraquarter, January and February were very weak, March was very strong.
Our committee and pipeline activity in March was the strongest that we have seen in a long time.
So certainly on the near-term horizon, we feel really good about loan growth.
In terms of the individual pieces, it's kind of the same story.
Our new markets Riley, Horry County are picking up, Navitas is very strong, senior living is doing very, very well, renewable energy is getting some traction.
And then the other question ---+ the only question is kind of the broader economy and how that goes.
So those are some of the things that we're seeing.
Can we talk about the margin a little bit.
It felt like your core margin came up ---+ I guess almost ---+ it was modeled to where almost I thought it would be with a full quarter of Navitas, and so I think we still got a month of Navitas to help the margin as we move into next quarter.
So can you just kind of give us an updated outlook for where you see your core margin, I mean more for the back half of the year.
Yes, thanks, <UNK>.
So with the 17 basis points of increase this quarter, again, 10 of that was Navitas.
For 2 quarter impact ---+ for 2 months impact, and 7 was the core bank.
We do think Navitas will continue to impact the margins similarly given the 3-quarter piece.
If it's all things equal, that would tell you we have an up margin next quarter.
And the Navitas' impact should be roughly 5 basis points by itself.
Now within there, we have a very competitive deposit pricing environment.
We do have some remixing that is helping us.
We do think the loan-to-deposit ratio should be increasing over time.
We do have loans shrinking ---+ I'm sorry, securities shrinking and loans growing as a remix.
We have a remix slowly away from the Navitas securitizations as well.
So it's a tough environment out there, but I guess for guidance I would say, I think, our margin will be up next quarter from the 3.80%.
Okay.
So maybe ---+ so you're getting a 5 bps from full quarter of Navitas.
And then for every rate hike from here maybe a little bit less than that 7 bps you saw this past quarter, just given the combination on the loan side.
Yes, I would even say maybe the 7 basis points did include some core margin expansion from rate hikes.
It also had a slight benefit from Four Oaks being in for the whole quarter.
So for the rate hikes, I'd say less than half of that 7 for future rate hikes.
Got it, okay.
That's helpful.
And then back to the expenses.
Do we have any further cost savings from Four Oaks or is that fully in the run rate this quarter.
So we think we have about 75% to 80% of the Four Oaks expense savings in the run rate now.
We just ---+ we did just do the conversion in April, so we should start seeing the rest of those come through now or May and after.
Yes.
So in terms of charge-offs for Navitas, I'm thinking about that in terms of a 4 basis point add to us.
So if we ---+ sort of, for the year, I sort of budget a 10 basis point number, maybe it's 10 to 12 for the year.
And then 4 on top of that, kind of, gets me to the 14, 15 basis point charge-off range.
In terms of the allowance and how we run the model, it's a combination of really 3 things: asset quality, so we did cover our charge-offs on the core bank and would expect to continue to cover charge-offs to including Navitas; and then you would ---+ asset quality is a component, loan growth is a component.
So that would play a role in it.
And then of course, we continue to ---+ the portfolio mix is the third component.
We continue to reduce land, which is ---+ has a historically higher reserve than maybe some of the other products we're adding in.
And so that of course also plays a role.
This is why we're in this.
This is <UNK>.
So ---+ and we did set aside that $2.3 million of the onetime, sort of, provision.
In addition to that, we have $3.9 million that came in the mark of the PCI loans.
In combination, that's a $6.2 million of specific loss absorption and capability for Navitas loans going forward, which is about 1.7% of loans, which is about 2 years of losses set aside at the current loss rate.
Yes, and ---+ so it's hard to keep track of all this.
But if you're looking at the allowance of $61 million at quarter end, there's an additional 50 ---+ just shy of $54 million in credit marks.
So a fairly large number, which includes the $3.9 million that <UNK> just mentioned.
That's correct.
So this quarter we had $800,000 increase of Navitas fees, that was almost solely in the other line item.
So that number with a full quarter impact will increase ---+ should increase again next quarter.
Well, most of those fees there ---+ I guess the servicing fee would be a very ---+ a modest piece of this part of it.
The fee income would be fees they generally charge with loans that others may want to add in on there.
But the primary piece for that is the fees they charge in the normal everyday business.
The SBA servicing fees would be very small.
I can roll with that one.
So it's a great question, Chris, one we talk about quite a bit.
And we ---+ currently we're targeting a 90% loan-to-deposit ratio.
So we think we can slowly move this 82% towards 90% over time.
Possibly, an acquisition could help us move there like Navitas.
This quarter we ---+ last quarter when I was on the call, we were talking about the 79% ratio going to 84% or 80% going to 84%, all things equal.
This quarter we did make some progress going to 82%, but the deposit growth was very strong.
So there's several components in moving that loan-to-deposit ratio up, but we felt comfortable moving towards that 90%.
I don't know if ---+ we haven't talked about this a lot internally, I think we'd be comfortable going over that 90% more towards peers.
We're setting interim goals, and we hope to make progress on that loan-to-deposit ratio this year.
And that 90% too, Chris, just to square that, would be about $700 million of additional loans.
We would ---+ not at this time.
We would certainly ---+ like to be in Florida.
It's very difficult to do LPO in a market where you don't have a on-the-ground brand, and so I probably stay away from that at this point.
But if we had the right opportunity, again, we wouldn't turn it down.
But it's not been a focus and not a strategy at this point.
Thank you, operator, and thank all of you for being on the call this morning.
We sincerely appreciate your interest in our company.
Any additional follow-up questions, don't hesitate to reach out to any of us.
And to our teammates that are on this call, let me just once again say thank you and congratulations on another great quarter.
And with that, hope you all have a great day.
| 2018_UCBI |
2015 | HRB | HRB
#All right.
There is a lot there, <UNK>, so thank you for that.
Let me take the beginning part, and make sure that we're clear on what we are saying in terms of the bank update, and then <UNK>, I think if you want to take them in general, and I will pipe if there's something I want to add.
I don't think we want to indicate anything other than there is no information at this time.
And while we are frustrated by the pace of the project, we don't see any reason why this transaction would not be approved on its merits.
So there is no signaling, there is no nothing other than this seems to be taking long.
That is, from our perspective, and probably many people would view it the same way.
I'm not sure the regulator does, and for those of you who deal with other banks and this whole industry, things are taking a long time in terms of any kind of deals that are being approved.
I don't want to speak for the regulators, but I don't think they think this is ---+ I think they feel they are being thorough and complete, as they approach this transaction.
So while it's frustrating, while I would have thought we would have had an answer by now, there is nothing, and hopefully we have gotten this through, there is nothing to indicate that anything other that this will move forward.
However the timing is something that is still in the hands of the regulators, and I think from their perspective, and again I can't speak for them, and I don't think they will speak about this, I think the timing is consistent with some of the ways they look at other deals.
As for what the implications of that are, and again I think everyone of us, also, I want to be very clear, we are not going to change our mind, if you will.
We do not want to be regulated as a savings and loan holding company any further, and we are ---+ our intention is to exit on holding and owning our own bank.
In terms of share counts and things like that, we will get to that at the appropriate time, but our intent has never wavered on this.
This is a particular transaction, we believe it will be approved, but that is not going to waver.
As for the long-term growth let me turn that over to <UNK>.
The broader point you are making really is about the investment thesis, and what I would say is that we continue to believe very strongly that our investment thesis remains true, specifically the growth levers that we've got, international growth, our digital growth, our Tax Plus strategy, we believe is on a favorable tailwind in this business.
We've had a good story on pricing, we've had a good story on mix.
The unit count has been disappointing, but we're narrowing down the issue, and actually if you neutralize this past season for EITC and EZ, we actually grew, and that's exactly what we wanted to do.
Importantly, and something that we have talked about before is, and that's why it got in my prepared remarks, is that all units are not created equal.
In fact, if you look at a lifetime value, there's a major discrepancy between a more sophisticated tax return client and one that has a more simple return.
So as an example, our decision to get rid of EZ was the right decision then, and we continue to believe was the right decision.
We gave up a lot of units but the overall client experience for those client who are left are better.
We will have a deeper relationship with them, and they are higher-value clients from a financial perspective.
The EITC solution is one we are working on, there's multiple solutions that we are talking about.
We talked about a couple of them publicly, we've got a couple of other ideas there.
That's one that we will be addressing more formally as we get into the next tax season, but overall, we believe very much that the investment thesis around the growth company remains solid here.
Yes, so, important point number one, is what <UNK> said, is we're getting out of this business, right.
That's just something we've committed to, we will get it figured out, it's been frustrating but we believe that the transaction we entered into with BofI and talked about with all of you many times is the way to go.
As a hypothetical, in the event that doesn't work out, was the next backup, there is a way to separate the going forward bank support that this Company needs to continue to sell Tax Plus products, which we're very committed to, and the actual formalities involved with having a bank balance sheet.
So effectively, we still want to be in the business of offering bank products, and we need a partner bank to do that, so think of that as one transaction.
We do have a legacy bank.
We've got deposits, we've got liabilities, other liabilities, we've got assets, that require a bank charter.
So we need to find a home for those, so that would have to be a second step of that transaction.
And frankly, it's really the second part that's the hang-up in terms of getting that taken care of, because whoever buys those will need to get approval from the regulator.
But clearly if you keep it small and go to a much larger bank, it makes it a little bit easier, so these are considerations that we've got.
But to finish up my response to your question, the plan we have with BofI is the right plan, and we believe on its merits will be approved.
I'm not in the forecasting business.
I think what we share, and we continue to work very closely with BofI, we are committed to them, I think they are a terrific partner.
We think the deal is going to be approved but as for timing, we've been wrong a couple of times on this, that's why I'm out of the timing business.
You have to keep in mind that we can be optimistic, they could be optimistic, but we're not the ones making the decisions here.
It's up to the regulator, so our position on this is it's better not to comment.
<UNK> and the BofI guys can do what they want to do, but I don't think there's any difference of opinion overall, it's really just how we want to represent the decision that regulator has to make.
Yes, just to be clear, I talked about it as a hypothetical, I didn't say we're making plans to restructure by any means.
And I guess the specific answer to your question is, the best estimate I can give you is in line with what we currently understand, the $0.07 to $0.09, but it would clearly be a reflection if there was feedback from a regulator, a different party may have a different viewpoint, we may structure it differently, but I couldn't answer those questions specifically right now, so I'd say $0.07 to $0.09 is still the right number.
I think, <UNK>, we're obviously looking, starting our planning for 2016, and we'll take a look at that.
I do think the investment we made in training, in marketing, really established us, certainly from the research we have gotten back, as the people to turn to when it comes to this issue.
I think our people were very well-prepared, handled all of the simple and complex areas of this tax law change.
I think our feedback on our marketing efforts was very strong.
So it was an investment, I think that we've established that.
Therefore do we have to spend that same level.
Probably not, but we're not prepared at this point to get into specifics going forward.
You'll obviously hear more about that in December.
Just to be clear, that is not a reflection.
We continue to be very bullish about the ACA in our business.
Reduction in investment is a reflection of the one-year startup costs going away, theoretically.
And also I think, and also all the feedback we got, which I think showed that investment was worthwhile.
We think most of the impact of the decision has been worked through the system at this point, so it's going to be mostly a non-issue for us last year.
And just as a reminder, we ran this free EZ promotion for several years.
It had a life, we did a lot of financial assessment of the value those clients, retention of those clients, propensity to buy new products.
We believe that the program had run its life.
We terminated the product, of course there was that one year benefit, because we started charging for it again, but we lost a lot of units.
There was a bit of an echo effect this year, but to be clear, our research and our belief is that a lot of those clients that left us are extremely price-sensitive, and all they will do is continue to shop around.
They are not loyal to any particular company, so any company declaring victory over capturing a bunch of those units I think is a little bit misguided as to what the real value of those clients are, unless they keep their prices at the low end.
I will take the first part, and <UNK>, you should add your perspective.
I do think it is.
I think it's a combination of not only the documentation requirements that will enhance next year, but also the sheer number of people who are going to be enrolled in the exchanges, coupled with, I think, a greater awareness that this is something you have to comply with.
Go ahead, <UNK>.
I think the Supreme Court ruling notwithstanding, that if you look at the drivers of volume going forward, <UNK> already mentioned them, compliance is a big factor.
We think that explained one of the big areas of the shortfall this year, but the doubling of enrollment, and the continuing climbs in enrollment, if you look at the CBO estimates, eventually climbing close to 20 million, will have a significant impact on the number of people impacted by ACA.
So we absolutely believe over the long run that it will be in the 20% to 25% range.
And again if you go back to our statements, we believed all along, we kept hedging on the first year, we weren't sure where it was going to land, so now we have, if you will, a baseline.
So we have felt all along that this would take a few years to really unfold, and we will see if that's true, but we do believe it will be.
What I would say, and then <UNK> correct me to augment this.
There was, the impact was about the same between both assisted and DIY.
There was not much of a shift either way, I think primarily because, as people walked into using their filing methods, and many, many people, a high, high percentage in this industry stay within their filing method.
There is some degree of switching, but I think that contributed to that.
There was not a material shift.
And the impact was about the same, whether you sought assistance or did it yourself.
I think just slightly higher in the assisted side, <UNK>, because of the client mix there, but I agree, we did not see any significant evidence of shifting going forward.
That doesn't mean that as complexity increases with more people having to go through the reconciliation process, and really facing the refund impacts of that, that we aren't going to see the potential for some shifting going forward.
What we have learned this year is when people do see refund impacts, and we do see delays in issuing of forms and corrected forms, that does have the potential to alter both filing behavior, timing and method, but we didn't see substantial impacts this year.
Do you want to take that.
We were actually very pleased with our retention rates overall on the assisted side, they crept up, it wasn't quite a point, but a little bit shy of that.
So all things being equal, which included by the way, the issues we talked about, so that's actually a very good result.
And <UNK>, why don't you talk about DIY.
On the online side, although I still think we have a lot of room for growth, in online we were up about 200 basis points, and in desktop software, we were up about 160 basis points.
Thanks, Anj.
Happy to.
Upon receipt of regulatory approval, what would happen is at that point, we would have what I would call mechanical close process with both the steps themselves that are really administrative in nature, we don't have for example financing contingencies and things like that.
The amount of time, there's like client notices, there's like Articles of Incorporation you have to exchange, there is some bid transfers that have to go through, and just very mechanical things.
That would be somewhere between 30 to 45 days.
Our preference is typically to try to close a transaction at the end of a month, it just makes all the accounting easier.
So that might have to factor in, but the 30 to 45 days would take to close the transaction, and then we would take effectively, effectively means not precisely, but effectively at the same point we would then no longer be deemed a savings and loan holding company, so call that concurrent as it were.
And at that point, we would wash our hands.
BofI would then be responsible for our tax products going forward that are bank related, and we'd look forward to a successful tax season with them really running the engine for us.
That would be how the process works.
There's obvious considerations, we have historical blackout periods and things like that, but these are things that we well understand.
And our intent would be of course, just given the time line we have already gone through, to be fairly quick and expeditious in getting information back to you, the shareholder base, about what our plans and thinking would be.
So I'd say it's fairly much when we close, until we start talking to people more publicly what our plans and thinking are.
We are stating, as the holding company, at the parent company level, and we're actually regulated by the Federal Reserve Bank, that's the parent company regulated, the bank itself is regulated by the OCC.
So we follow the parent company under all the capital requirements and the things that bank holding companies typically are.
We have been in a period now for two years effectively, where we've been building capital to meet those requirements.
We don't believe there's any issues with the pace at which we're doing that.
So that's one thing I just want to set aside.
And of course, when the bank transaction completes, at that point, we would start with the $1 billion number we mentioned earlier, and any potential incremental debt we may want to raise, and of course, it also has impact on go forward capital policy at that point.
<UNK>, that's a great question that obviously we're contemplating right now.
We were surprised this year that the unit count was under 1%, so we are studying that, and I'm not trying to kick the can down the road, but I guess I am, to December.
We will look at that.
There is no obvious reason why it wouldn't.
It's been pretty consistent for 50-plus years, and pretty much in line with non-farm employment but we have to study when we get the full information, which frankly from the IRS perspective, we really don't get until the fall, that we can really understand why it was short this year.
More to come, but I think your supposition is not a bad one.
But we were surprised this year with the growth in the employment and everything that it didn't ---+ even to some extent, go towards the higher end of the 1% to 2% range.
We can certainly get a more detailed conversation off-line, but in general, I would say that at this point, we've had great success in the tax rate.
This year, we had 34.5%, in line with last year.
A lot of reasons for that were special one-off type things.
We had a couple good years there, and we're pretty happy with that.
What we said is the core-based tax rate for the Company continues to be 38% to 39% range.
At some point in the near future, we will give you a better indicator what we think that will be long-term, but for now I would keep it there.
And as we have said consistently, we think the right CapEx level for this Company is between 3% and 4% of revenues.
It's been a little higher than that, or trended towards the high-end, really as we made up a few years several years ago that were under spent.
We think we revert back to the 3% to 4%; that is the best guidance I can give you.
Nothing like we have seen this year would be my position.
We will continue on that path, as <UNK> said, in terms of ---+ we're in discussions right now.
That usually occurs after the tax season, it takes a while, so we really don't have anything to report except we will probably proceed in that manner again.
But as <UNK> said, not to the level that we did this past year.
Well, it's an interesting question, Mike.
I'd be anxious to hear <UNK>'s comment, would the balance due impact.
I can't see a reason why would impact do-it-yourself versus assisted, but maybe I'm missing the point there, because I think it's a matter of, no matter how you file, the balance due was higher this year for a variety of reasons.
In terms of the specific cost, we're not going to break out specifically what it cost.
Obviously, you can see in some of our numbers, we did increase marketing, we did increase training, we felt it was an important investment, we think it was a good investment.
But we are not going to break out anything specific
I can break the cost in three buckets for you, and <UNK> mentioned a couple of them.
The marketing cost for sure, which include merchandising, in-store merchandising, signs, and things like that.
That may be a season to season type of thing, it may not go up, it may not go down, because we continue to be very bullish about ACA.
The second bucket is really all the changes we had to make to our systems, programming changes that required a fair amount of hours, and those cost money.
Those for the most part are one-time in nature, we're not going to have that same level this coming season and beyond.
And then third is really the training, and there was, as you can imagine, a big blitz up front to get people up to speed on the law itself, the changes, but that's fairly durable now.
So most of that will go away next year.
We're not going to, as <UNK> said, quantify specifically, but these are not immaterial amounts of money that are in the non-recurring buckets.
<UNK>, do you want to give a perspective on that.
I think when we talk about complexity change, complexity is perceived.
If I have a balance due change, and ultimately I feel like because of that, I am now more complex than that's something that, I think getting back to your original question, <UNK>, that is something that I can stand, or I can understand.
But as far as how we approach the CPAs and the independents, not just on balance due, but in every aspect, we think about this as how do we create a superior experience, and that's something that we're certainly designing for as we look forward to next year and beyond.
I will say that, we mentioned it briefly, but I'll repeat it.
The 50% off promotion worked out really well from our perspective, and it was probably somewhat because of the balance due clients.
People saw that and felt that it may be a good chance to come talk to us, and so we were ---+ saw those intersection points quite clearly.
Okay, we would like to thank everyone for joining us, and this will conclude today's call.
| 2015_HRB |
2017 | AAN | AAN
#Thank you, and good morning, everyone.
Welcome to our conference call to discuss Aaron's second quarter results, which were released today.
All related material, including Form 8-K, are available on the company's Investor Relations website, investor.
aarons.com, and this webcast will be archived for replay there as well.
Before the results are discussed, I'll remind investors about the safe harbor statement.
Except for historical information, the matters discussed today are forward-looking statements.
As such, they involve several risks and uncertainties, and could cause actual results to differ materially from those predicted in Aaron's forward-looking statements.
Please see our SEC filings for certain risk inherent in a business that may cause actual results to differ.
Forward-looking statements that may be discussed today include Aaron's and Progressive's projected results for future periods; the update to our outlook for 2017; the benefits we expect from our acquisition of the store operations of our largest franchisee, SEI; Aaron's strategy; and other matters, including those listed in the forward-looking statement disclaimer in our earnings press release published today.
Listeners are cautioned not to place undue emphasis on forward-looking statements, and we undertake no obligation to update any such statements.
During this call, we will also be referring to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net earnings and non-GAAP EPS, which have been adjusted for certain items, which may affect the comparability of our performance with other companies.
These non-GAAP measures are detailed in the reconciliation tables included with our earnings release.
I will now turn the call over to Aaron's CEO, <UNK> <UNK>.
Thanks, Kelly.
Thank you for joining us this morning.
We're very pleased with our performance in the second quarter.
Non-GAAP earnings per share increased 15% on a gain in total revenues and total customer count rose 3%.
We've raised our full year guidance to account for solid performance across the business, and we continue to invest to strengthen our leadership position in the lease-to-own industry.
Progressive continued its strong momentum in the second quarter.
Invoice volume rose at the fastest pace in 2 years.
Growth is being driven by diverse mix of retail partners, and the lease portfolio continues to generate strong performance.
I couldn't be more proud of the team for achieving these outstanding results.
We're encouraged about the progress we're making in the Aaron's Business.
The team has done an outstanding job to lift overall execution, and we believe there are multiple opportunities for further improvement.
In fact, we're accelerating investment in several of the initiatives we discussed on our last call.
These include investments expected to improve the customer experience, drive operational excellence and optimize our product and service offerings.
As announced this morning, we've acquired one of our most successful franchisees, SEI.
The franchisee operates in attractive markets, primarily in the northeast.
It has a talented team of multiunit and store level operators with a long track record of success.
The business has consistently been a top-tier performer in our entire system.
And the team has developed best practices that we believe can be rolled out to the broader base.
This acquisition, along with the investments, underscore our confidence in the direct-to-consumer model.
I would personally like to thank SEI founder, Charles Smithgall; and CEO, Chas Smithgall for their many contributions to Aaron's over the past 22 years.
The Smithgalls brought tremendous energy and insight to the company over the years.
Along with Dave Edwards, they built a fantastic team and business, which we are excited to operate into the future.
So thank you, Charles and Chas, very much for your partnership.
We wish you the best of luck in the future.
Overall, we're really pleased with performance in both businesses in the quarter.
We've assembled an outstanding team and believe we have the financial capacity to continue to pursue our strategy.
With that, I'll turn it over to Ryan to discuss Progressive.
Thanks, <UNK>.
Progressive had an excellent quarter, with record results driven by a diverse mix of verticals and strong lease portfolio performance.
Total revenue increased 25% to $373 million.
Invoice volume rose 32%, driven by strength in new doors.
Furniture, mobile and jewelry experienced particularly strong growth, and we had solid gains across regional and national partners.
Active doors increased 37%, bringing the total number of doors that completed a lease with Progressive during the quarter to just over 19,000.
Invoice per active door declined 4.3%.
Declines in invoice per active door moderated in the quarter due to strong performance from new and existing doors.
EBITDA grew 20% and reached 13.4% of revenue.
Financial performance reflected strong invoice growth and increased operating efficiency even as we continue to invest in people and systems to support current and future growth.
The lease portfolio is performing extremely well.
Bad debt expense was roughly flat with year ago levels and write-offs were 5.5% of revenue.
Both bad debt and write-offs are on the lower end of the ranges we target, and we continue to have excellent visibility into the performance of the lease portfolio.
We've raised our full year outlook to reflect strong lease performance and the conversion of the pipeline ahead of expectations.
New retailer relationships represent significant opportunity for future growth and underscore the strength of the lease-to-own value proposition for both customers and retailers.
We remain excited about the large uncertain market and optimistic about our ability to continue to convert those opportunities.
I'll now turn it over to Douglas for an update on the Aaron's Business.
Thanks, Ryan.
The second quarter reflected further progress on initiatives to improve operating efficiency and increased profitability.
Adjusted EBITDA increased as a percentage of revenue by 100 basis points to 10.8%.
Cost control, improved lease margin and better customer retention rates all contributed to the result.
Total revenues were down 10.7% and were impacted by a lower store count for the quarter.
We closed 62 company-operated stores in the period and ended the second quarter with 10.5% fewer company-operated stores than a year ago.
Same-store revenues were negative 8.1%, and same-store customer accounts decreased 4.8%.
As in the first quarter, churn in the portfolio, delivery activity and average ticket price were better-than-expected.
We've completed a significant amount of organizational work to effectively support our direct-to-consumer strategy, and the investments we are making are starting to pay off.
The second quarter benefited from lower store and store support center costs and greater efficiency in our inventory supply chain.
Lease margins improved as we optimized promotional activity, and the ongoing focus on collections process resulted in year-over-year improvement in merchandise write-offs.
Improved operating discipline and a more systematic focus on analytics is enabling the team to better attack opportunities in the business.
As we outlined in the earnings release, our increased outlook includes some additional investment in people and technology to enhance our customer experience.
Lastly, I'd like to reiterate how excited I'm about the SEI acquisition, in particular the opportunity to work with Dave Edwards and his team.
Dave has one of the best track records in the industry of operating a large-scale, multiunit lease-to-own business.
Adding a team of this caliber will be a huge asset for the Aaron's Business.
I'll now turn it over to Steve to discuss the financials.
Thanks, Douglas.
Now I'll turn to the financial details for the quarter.
Revenue for the second quarter of 2017 were $815.6 million, an increase of 3.3% over the same period a year ago.
Net earnings for the quarter declined 5.6% to $36.3 million versus $38.5 million a year ago.
Net earnings for the second quarter on a non-GAAP basis were up 12% to $48.5 million compared with $43.3 million for the same period in 2016.
Earnings per share, assuming dilution for the 3 months ended June 30, were $0.51 compared with $0.53 for the same period in '16.
Diluted EPS on a non-GAAP basis for the quarter increased 15.3% to $0.68 in 2017 versus $0.59 in 2016.
Adjusted EBITDA for the company was $95.7 million for the second quarter of this year compared to $88.2 million for the same period last year.
At June 30, 2017, the company had $260.3 million of cash on hand compared with $308.6 million of cash at the end of 2016.
Cash generated from operating activities was $115.6 million through the first 6 months of 2017 compared with $325.5 million in 2016.
The difference was driven primarily by $181 million change in cash taxes paid between the 2 periods.
Through normally scheduled amortization payments, we reduced our total debt by $97 million since year-end.
The company has no further scheduled debt repayments through the balance of the year.
At the end of June, we had a net debt-to-capitalization ratio of 7.2% and no outstanding balance on our $225 million revolving credit facility.
Regarding the acquisition announced earlier this morning, as we stated, we used cash on hand to fund the approximately $140 million purchase price.
Including one-time transition and integration-related expenses, we expect the purchase to contribute approximately $0.05 on a non-GAAP EPS basis in 2017.
As stated in our updated outlook, this positive impact will be offset by additional investments in strategic initiatives within the Aaron's Business.
We remain conservatively capitalized following the acquisition with a pro forma net debt-to-capitalization of approximately 14.5%.
The tax rate in the quarter was 36.2% versus 37% in the year ago quarter.
The company did not repurchase any shares during the quarter, and we currently have authorization to purchase an additional 7.9 million shares.
Consolidated customer count increased 3% to 1,622,000 at June 30, 2017, up from 1,571,000 a year ago.
The company has updated its outlook for 2017 as follows.
On a consolidated basis, we expect revenue of approximately $3.33 billion to $3.44 billion compared with the previous outlook of $3.1 billion to $3.31 billion; adjusted EBITDA of $355 million to $378 million compared with the previous outlook of $320 million to $353 million; GAAP diluted earnings per share in the range of $2.10 to $2.30 compared with the previous outlook of $1.85 to $2.10; and non-GAAP diluted earnings per share in the range of $2.45 to $2.65 compared with the previous outlook of $2.15 to $2.40.
Note that the increased outlook includes higher revenues and adjusted EBITDA for both the Aaron's and Progressive businesses.
I'll now turn it back to <UNK> before we move on to Q&<UNK>
Thank you, Steve.
Thank you for your interest in Aaron's.
We're pleased with our results for the second quarter and excited about continuing to innovate our business to provide more customers access to quality products for their homes and families.
That concludes our prepared comments.
I'll now turn the call back to the operator to open the lines for Q&<UNK>
Thanks for the question.
As you know, I think from the timing of those press releases, both the larger accounts that were made public, Conn's and Signet, were weighted toward the end of that quarter.
I think we barely started that rollout with Signet at the very, very end of the quarter.
So the results in Q2 would not reflect much in the way of door growth there.
But certainly, pleased to have those on board and happy with the way they're ramping.
I think, it ---+ I wouldn't say there is any material change from where we've been in previous quarters.
It tends to be segmented as it has been in the past among different behavior at the regional level versus the national level.
And I'm certainly happy with the success we've had to date.
Great strong door growth in the quarter.
Super proud of the team for making that happen.
Really happy with the folks, the retailers we are working with today and really excited about the pipeline.
<UNK>, yes, this is Steve.
And we're very active in Woodhaven.
We've got the ability to ---+ they are very nimble and flexible down there, but we're also diversifying that base by selling to some outside retailers and that's growing very nicely for us.
So we continue to believe Woodhaven is a strategic asset for us, and we'll obviously pay attention to it and be mindful of it, but it's still a big part of our future plans.
<UNK>, it's <UNK>.
Thanks for the question.
Yes, in terms of the timing, I think it was opportunistic for both sides.
Honestly, SEI is a business we wanted to own for some time for a lot of the reasons we discussed in the press release and I can talk about as well.
And I think the Smithgalls, it was a tough decision for them.
They've been at it 20-plus years, but they believed it was the right time for their team members, their customers and themselves.
So I think it was just kind of an opportunistic situation from both sides.
Kind of from a strategic standpoint, that deal there ---+ it's a unique business.
So SEI is unique in its scale, unique in the fact that it occupies a single large region for us in the northeast, where we have a limited presence prior to the acquisition.
And given ---+ kind of we think about it strategically in 2 big buckets.
One is there is a big market opportunity out there for our lease-to-own products generally, so our omni-channel offering.
We think 25% to 30% of the U.S. consumer population are our potential customers.
And owning all of the assets in the right market, whether it's stores, virtual offering, e-com, mobile, supply chain that gives us more control operationally, and it gives us the flexibility to innovate our business model in whatever way the market dictates over time.
And as we've talked about, we believe the market is large, it's underpenetrated, and we need to continue to innovate to serve more customers.
So we believe owning all the assets in those markets will give us the best chance to do that.
And then from a SEI perspective, they are unique in a sense that they occupy a single large footprint.
And they're a really profitable business.
If you look at that business, it's about 100 stores ---+ little over 100 stores, which is the same size as our 10 operating divisions, they're all about 100 stores.
And interestingly ---+ and they typically occupy 1 region.
So we're basically bolting on a new division.
The good part about this is SEI as our newest division will be on a LTM basis our most profitable division.
So they are more profitable than any of our other 10 divisions.
And the exciting part about it is we're getting that plus we're getting the team.
So we're getting Dave Edwards who has been doing this a really, really long time, one of the best operators in the industry and the team of multiunit and store level managers that he put together.
So we feel like they're going to be fantastic for operating this newest division for us, but also pollinating into other parts of our business, where we could use some of their magic dust that they've sprinkled over the northeast.
So we're looking forward to bringing them in and couldn't be more excited about it.
And the Smithgalls are incredible people, have been great partners and will remain great friends of ours and the company.
Sure.
I think generally, as we think about the direct-to-consumer business, which we consider to be our stores and our e-com platform, I mean, we're really bullish about the business.
We're servicing a huge market.
And the way we see the market it's about 30% of the U.S. consumer base and ---+ that's both banked, underbanked and unbanked.
And we spend a lot of time listening to our customer over the last quarter or so.
We've been investing a lot of time in research.
And we think we've got a lot of opportunities there.
So we've begun the journey of investing in both people and technology to build a better platform for our new customer experience and this is a omnichannel platform.
The main focus of it is really around a couple aspects.
One is speed of service.
So we think there's a big opportunity in our underwriting and our approval process to approve more customers.
Second, we really think there's an opportunity in expanding our product selection.
So we're investing in platform so we can offer more opportunities to our customer, both online and in our stores.
And probably one of the biggest opportunities we have is our e-com channel.
And we're really thinking about e-com as a platform where we can leverage the millennial customer that we're underserving right now and really getting more access to the customer base in this 30% that we're not touching right now.
We know that our customer is aging, and we think there is an opportunity to go after that customer more aggressively.
And we're investing in that right now.
And I think putting a wrapper around it, lower cost to serve.
If we can serve this customer base at a lower cost in a more efficient way, where they can self-serve and we can leverage our back-end logistics and collections processes, we think we win.
So we're working on all those things.
We're kind of in parallel paths and we're investing in that and that's the investment that you're seeing in the second half of our guidance.
Yes, <UNK>, this is Steve.
Yes, we're not really disclosing any other ---+ of the terms of the deal.
There will be disclosure in the subsequent Qs, but at this time, it's a $140 million purchase price approximately and that's where we're leaving it.
Well, what I would say there is, there is some puts and takes because, as you know, we've got nonretail sales that are derived from our franchisees and ---+ with 100 stores and that's recognized on the face of the income statement versus an intercompany transfer when it's a company-owned store.
So that revenue, which is low margin for us, but that revenue would go away and then the royalty revenue would go away, offset by obviously the full storefront revenue.
So there is an impact in the back half on the revenue for those 5 months, but ---+ and it's included in the increased revenue guidance, but we're not saying exactly what it is.
Well, I can ---+ this is <UNK>, <UNK> ---+ I can address it; and Douglas, feel free to jump in.
I think there is limited overlap.
This is a market where they are primarily ---+ SEI is primarily in the northeast, and there is not a tremendous overlap with company-owned stores.
Having said that, we will put the ---+ we will use the same process of kind of evaluating stores on a go-forward basis and rationalizing stores and markets at SEI as we've done at the company stores in the past.
So we'll expect that process to start once we get this deal closed.
So that would be the answer to the first question.
And in terms of store count, I don't think we've ---+ I don't know if you've provided any more guidance on that.
We're going to continue to look at the ---+ every quarter, we really look at our footprint and broadly and just we're trying to be smart.
Look at spots where leases are coming due.
Or if not, where it makes sense to close the store early or move the store.
And we are just going to continue that process going forward, but I don't think we've given any more guidance on that.
It's great to see that it's coming from both areas of the business.
Existing doors are performing extremely well.
There has been great growth out of doors that were existing on the platform previous to the quarter as well as great expected growth coming from those new businesses.
We're seeing new doors mature into increasing levels of productivity, perhaps even ahead of the pace we expected, which is great.
There's obviously a lot of hard work being done by the teams on both sides, our teams and the teams at those retailers on ramping those doors, but they've done an excellent job.
And what we see in the quarter that accelerating invoice growth is really the function of onboarding a lot of new doors as well as making sure those doors are increasingly productive and that's what we're seeing.
The pipeline remains robust.
I'd say the revised outlook is a function of the accounts we have and know of today rather than expecting significant contribution from unknown accounts in the remainder of the year, but we're very happy with where we sit today.
Yes, sure.
And Ryan, feel free to jump in.
I mean, as you know, we have 20-plus kind of hubs around the country, where we are ---+ it's Progressive employees that are returning product from customers and pushing, QA-ing it, bringing it back to our Aaron's stores.
Certainly, with the acquisition, it improves our supply chain infrastructure from that perspective, it's a reverse logistics infrastructure I should say in the northeast, that's an opportunity for us up there.
In general, I would say it's been kind of consistent.
We've gotten good performance out of it.
It continues to grow and I think there's more opportunities down the road.
But it's not been, I wouldn't say, a focal point for the Progressive business.
I think they've done a great job while managing lease portfolios without it and it's been kind of an added plus in addition to the great analytics work we've done there.
I don't know Ryan, what comments you have on that.
We kind of see that as opportunity down the road, I think.
Yes, sure thing.
So I think we had mentioned that we onboarded a lot of new doors in Q3 of last year and we had door growth, obviously, in Q2 as well, but significant increase in Q3.
So we haven't quite started to lap those yet.
But what has happened is that those doors that were onboarded have had time to mature and we're just seeing increasing levels of productivity from those doors, which is a great sign.
So obviously, with that increase in productivity, once we actually start to lap the count in Q3, we expect to see continued improvement in that metric.
What's also helping is that existing doors are performing well also.
So we're seeing increasing levels of productivity from increasing doors, which is helping to support that metric.
Yes.
Yes, this is [vague].
It's Douglas.
We've seen a firming up of our ---+ I would say a lessening of our decline in deliveries, which is good.
So coming out of the end of the second quarter, there has been some strength there.
And then I mentioned before lower churn rate that's also given us a more positive outlook and our collection rates are obviously improving as well.
So as we look at comps going forward, we're seeing improving comps throughout the remainder of the year and I would say sequentially improving comps from the third to the fourth quarter.
Now in terms of the broader market, I think we're just seeing what you're seeing in the paper.
Our customer hasn't changed.
We just think that we're collecting better on the customer and there seemed to be a little firming on deliveries.
Yes, I don't think ---+ <UNK>, I don't know from a macro standpoint that we have any great insight.
I mean, it feels like there is still a lot of credit availability out there in general.
But I think other than just kind of on the ---+ we don't see that specific; Progressive probably sees it a little bit more than Aaron's directly given that they are in the stack along the other finance providers.
But I think in general, that's been the case for a while.
So I don't think we have seen a significant change there.
I think just referencing the response we discussed earlier, I think what Progressive has seen is very much in line with expectations and that sort of falls nicely within the ranges that we would expect to see in lease pool performance.
The 5.5% write-offs, which is sort of a credit quality metric or lease portfolio performance metric we share is if anything maybe a little low, but we're happy with what we're seeing.
Sure.
I mean, in terms of kind of capital allocation, capital structure, we're not changing our thoughts on capital allocation.
If you look over the past 3 years, we've taken a pretty balanced approach to our uses of capital.
We've made acquisitions, we've invested in our business and we've returned capital through dividends and share buybacks.
And going forward, we expect to maintain a balanced approach.
We do want to maintain our conservative balance sheet.
It's been a weapon ---+ strategic weapon for us in terms of giving us the flexibility to be opportunistic and as was the case this most recent acquisition.
So following this acquisition, we're going to continue to be conservatively capitalized.
Our net-debt-to-cap kind of pro forma for the deal is less than 15% and the businesses continue to generate cash.
So we feel like we're in a good spot ---+ we continue to be in a good spot from a financial flexibility standpoint and feel good about being there longer term.
Thank you.
Thank you so much for your interest in Aaron's.
We appreciate your participation on the call and look forward to updating you on our next call.
| 2017_AAN |
2016 | DAL | DAL
#That's going to wrap up the analyst portion of the call, and I will now turn it over to <UNK> <UNK>, our Chief Communications Officer for the media portion.
<UNK>, we're not going to speculate on future pricing trends.
Right now we feel we've got a good product in the market and we'll see what happens.
I think we have to look at our entire service offering and ensure that we are supplying what the market wants to buy.
I think what we know is Delta has a very, very strong brand and much stronger than some of the ULCCs, and that people would prefer to fly with us than they would on some of the unknown non-brand names.
But in many cases we don't have similar configuration, mixes, product offerings, and I think that's where we're going to be looking.
You don't need to create an airline within airline, you just need to adjust to what people want to buy in the marketplace.
And the closer we can get to what our customers want to buy in every sector, the more successful we're going to be, and Transatlantic is no exception to the rule.
It includes all kinds of fare products, it includes cabins we don't have today, and I think that's the exercise we're going through is to see what do people really want to buy and what are they paying for it, and how do we capitalize on moving, not providing something that Delta wants to provide, but providing something customers want to buy.
Well <UNK>, it is a challenge but I don't want it to be blown out of proportion either.
We've had a very few single digit number of incidents occur.
We're certainly reminding our passengers of the requirements, we're educating our crews, we're putting some additional safety elements on board the cabin to help mitigate a smoke situation.
But it's not fundamentally different than challenges that we've had for some time.
We're aware of the concerns around lithium batteries, and we are very mindful of that, safety is always our most important concern.
The additional safety ---+ <UNK>'s here ---+
So what we've done is of course really the target training with our flight crews along with equipment.
There are some other modifications that we are adding with containment bags as an example, that with any device that did experience a lithium battery fire you can put it in a containment bag that would certainly contain any possible scenario.
But there's already equipment on board and has been that's capable with dealing with any of these situations.
<UNK>, I'm not going to speculate for Richard other than to say this was all consistent with the plan that we have talked to.
I mentioned earlier today that he's given myself as the new CEO and Frank Blake as the new lead Director about six months of transition to make certain everything on the succession was going well.
We do think everything is going well and he concluded it was his time to retire, so this was fully anticipated.
I was talking of pricing trends that we've seen this year.
Demand has been strong, but it's related to weak pricing.
We have reason to believe the State Department is making progress.
We're not going to get in front of the State Department by telling them what they need to do specifically, but freezing and/or eliminating fifths would be a great start.
I'm not going any further than that.
(Multiple speakers) Five flying.
Sorry, five flying.
| 2016_DAL |
2016 | AEP | AEP
#Thank you.
| 2016_AEP |
2018 | MON | MON
#Thanks, <UNK>.
Happy new year, and good morning to everybody who's joining us today.
Our teams have continued to remain focused on our top 2 priorities, namely, delivering our business goals while working towards closure on the deal to combine with Bayer.
These business goals include advancing our pipeline, a pipeline that not only leads the industry, but serves the industry through our broad licensing strategy, and progress in our sustainability commitments, as noted in our report from just a few weeks ago.
Let's begin with an update of the status of the Bayer merger, as shown on Slide 5.
With Bayer leading the regulatory process, we continue to cooperate with regulators, and we see progress, as expected.
The antitrust approvals continue to increase, and we've now received about half of them.
In addition, the U.S. Committee on Foreign Investment, or CFIUS, has completed its review, and there are no unresolved national security concerns.
Overall, we continue to remain optimistic about our collective ability to secure the required approvals for the deal in the early part of 2018.
And even as we progress closer to the expected closure of the combination, our teams have maintained their focus on the business.
We delivered solid first quarter results with strong growth, driven by Intacta soybeans in South America and improved pricing in glyphosate.
Our commercial teams have done a great job in delivering today's products to our customers, while our technology teams continue to advance the products of tomorrow, as shown on Slide 6.
In fact, 2017 delivered a record number of pipeline advancements.
Our common products and our flagship seed brands, DEKALB, ASGROW and Deltapine, once again set yield advantages in corn, soy and cotton, while our newest platform, Climate FieldView, delivered a remarkable 17 advancements, expanded geographically and added new partners and licensees, ultimately offering more options to more farmers around the globe.
The outlook for our latest technologies remains strong in the year ahead, as the order mix and sales to date further validate the acre expectations that we laid out for Roundup Ready 2 Xtend soybeans, Bollgard II XtendFlex Cotton and Intacta soybeans.
Finally, we're pleased with regulators' continued affirmation of glyphosate safety.
In November, we received the reregistration of glyphosate in Europe for 5 years, which while less than the 15 years that the science supported, still ensures this much-needed tool remains available for growers.
More recently, in December, the EPA issued a draft human health risk assessment concluding that glyphosate is not likely to be carcinogenic to humans, which is the most favorable classification for a chemistry.
Their conclusions are consistent with all the other regulatory science reviews from the past 40 years, as well as the 2017 Ag Health Study conducted by the National Institute of Health.
Once again, IARC continues to be the lone outlier in their assessment of glyphosate, drawing conclusions contrary to the overwhelming consensus of regulatory authorities and experts around the world.
As we look to the balance of this year, we continue to expect strong adoption of our newest technologies and improved pricing for glyphosate to be tempered by challenging global corn and soybean prices even as demand for both continues to grow, as shown on Slide 7.
Beyond that, we will refrain from further specifics as we continue to anticipate closing on the combination with Bayer in the early part of 2018.
Until then, we look forward to the possibilities our combined teams have the potential to create and make broadly available for growers around the globe as shown on Slide 8.
So with that brief introduction, let me pass it to <UNK> to share our operational priorities for the rest of fiscal year '18.
<UNK>.
Thanks, <UNK>, and good morning to everyone on the line.
We've just closed out a great first quarter in South America.
Here in the U.S., we're taking orders and moving corn and soybean seed into place for planting, albeit at a slower pace than typical due to the late harvest and anticipated corn acres being lower than we originally planned.
For soybeans, as shown on Slide 9, we're off to a great start as we delivered 30% growth in global soybean gross profit year-on-year in quarter 1, coupled with impressive margin improvement.
Let's start with Intacta on Slide 10.
The adoption of this trait continues its dramatic ascent, as we're on pace to reach 60 million acres in South America, while the second generation of the technology is not far behind.
In addition, the team delivered improved prices in local currency in the first quarter as we expected, helping to recover some of the value lost to currency over the past few years.
Finally, in Argentina, the point of delivery royalty capture system was renewed for another year, and the system continues to gain integrity.
Moving to Roundup Ready 2 Xtend on Slide 11.
Despite some headlines to the contrary, the weed control yield performance and adoption of this technology has been simply outstanding.
The Roundup Ready Xtend system yield results from our trials are in, and the 2017 performance further reinforces the expected demand with a 5.7 bushel per acre yield advantage compared to the Liberty Link system.
Further, for soybean growers who were surveyed and applied Xtendimax Herbicide with VaporGrip technology this past season, 97% reported weed control satisfaction.
And finally, our branded order book mix for soybeans indicates that 80% of our demand is for Roundup Ready 2 Xtend, which bolsters our confidence in reaching an estimated 40 million acres in fiscal year 2018.
We've received 32 of the 34 state labels we were seeking for Xtendimax Herbicide with VaporGrip technology, and we remain dedicated to improving our customers' experience with the technology through grower education efforts, tools and training.
Let's move next to corn, as shown on Slide 12, where we now expect corn acres for the U.S. and the second season of Brazil to be relatively flat with the prior year, contrary to the markets and our own earlier expectations.
Our overall gross profit declined in the first quarter, mostly due to lower volumes.
A significant portion of this was in the U.S. and is expected to be recovered later in the year, as some was related to lower corn acres in Brazil as anticipated.
In our outlook for the rest of the fiscal year, we expect to continue to launch new premium price hybrids globally and drive genetic share gains based on yield advantages of our hybrids ---+ that our hybrids convey.
We also expect to expand the footprint of our newest offerings in the U.S., which includes the DEKALB Disease Shield hybrids and Trecepta corn as our next generation of aboveground insect control, which is launching in select states.
Moving to our complementary crops, as shown on Slide 13.
Cotton gross profit is essentially flat in the first quarter.
We saw truly remarkable adoption of Bollgard 3 Cotton in Australia, as virtually the entire market transitioned in 2 short seasons, and the premium from this new technology offset the declines in planted acres there.
In the U.S., we now expect more than 6 million acres of Bollgard II XtendFlex Cotton, which is expected to be coupled with continued brand share gains following the significant gains from 2016 and 2017.
Moving beyond seed technologies, the Climate FieldView platform continues to see major advancements, as outlined on Slides 14 and 15.
It continues to expand globally, with our recent announcement of our prelaunch in Germany, France and the Ukraine adding to our existing business in Brazil, Canada and the United States.
In addition, we added yet another digital imaging partner to the platform in the U.S. and 3 new partners in Brazil while we continued discussions with several other potential partners in this space.
Finally, our target for paid acres for the year remains at more than 50 million acres, more than a 40% increase over 2017.
Let's close with Ag productivity.
We realized price increases over the prior year in the first quarter, as the generic pricing for glyphosate continues to improve, and we now expect improved prices to continue for the rest of the fiscal year, consistent with our strategy.
In addition, volumes sold of Xtendimax with VaporGrip technology are expected to continue to grow with the expanding Roundup Ready 2 Xtend soybean acres.
Overall, our teams continue to remain engaged and dedicated to our 2 priorities, with an emphasis on continuing to deliver the products and services our customers need and value to effectively compete in this challenging market.
With that, I'll turn it over to <UNK> for the financial review.
<UNK>.
Thanks, <UNK>, and good morning to everyone.
In the first quarter, our teams did an excellent job converting new technology expansion, improved glyphosate pricing and asset sales gains into earnings per share growth.
For the quarter, we delivered $0.38 of as reporting earnings per share and $0.41 of ongoing earnings per share compared to, respectively, $0.07 of as reporting earnings per share and $0.21 of ongoing earnings per share in the prior year.
Our free cash flow for the quarter was $874 million, a decline versus the prior year when we delivered $1.1 billion.
This decrease in free cash flow was primarily due to increased outflows from accruals, market funding and incentive payments stemming from the growth in the business in the prior year, as well as an increase in CapEx as we ramp up our dicamba plant investments as planned.
Shifting back to earnings per share.
Despite the slow start in the U.S. season, we delivered solid earnings growth in the quarter, driven by pricing and volume growth in Intacta in South America, complemented by improved pricing in glyphosate and by the more than $85 million in gains from the sale of assets, the most significant of which was from the sale of the Precision Planting business to AGCO.
SG&A and R&D increased, mostly due to higher commissions, POD cost and bad debt expense associated with the growth in South America, as well as from inflationary increases and increased spend on R&<UNK>
Meanwhile, the tax rate decreased to a more normalized level due to the reduction in the valuation and allowance in Argentina, as well as from a favorable shift in the discrete items.
Consistent with our prior quarterly earnings call, I once again share some qualitative highlights on the outlook for the year, but will not provide specific financial guidance given the pending combination with Bayer.
The growth drivers for our business for this year are expected to be derived from continued improvement in pricing for glyphosate, plus the adoption of new technologies in seeds and genomic, specifically the nutrition and pricing from Intacta, continued penetration of Roundup Ready 2 Xtend soybeans and share gains from Bollgard II XtendFlex Cotton, as well as reductions in related launch costs and share gains from the introduction of new corn hybrids globally, particularly from the expansion of Disease Shield and the launch of Trecepta in the United States.
We anticipate completing our restructuring and cost savings initiatives, beginning fiscal year '15 as outlined on Slide 16, and expect our SG&A R&D to be down to slightly ---+ down slightly year-over-year despite the increase in the first quarter.
Meanwhile, the asset sales gains and licensing contribution from strategic portfolio management are expected to be about 30% below the roughly $350 million pretax average annual contribution we've seen for the last 3 years.
We were pleased to see the recent passage of the U.S. tax reform legislation and expect it to have a positive impact on our effective tax rate beginning in fiscal year 2019.
For the current fiscal year, we are still completing our full assessment, but our early estimates indicate that our effective tax rate should not exceed 30% and has the potential to be materially lower.
Overall, with a strong start in the first quarter, combined with the puts and takes I've just outlined for the full year, we continue to expect nice growth in our pretax income for fiscal year '18 and will remain disciplined as we monitor the evolution of U.S. corn and soybean plantings through the spring.
With that, I will now pass it to Robb to share the update on the pipeline.
Robb.
Thanks, <UNK>, and good morning to everybody on the phone.
This year, we advanced a record number of projects, spanning all platforms, and allowing us to continue to fuel innovation for the industry through our broad licensing approach.
Our pipeline is stronger than it's ever been, as evidenced by Slide 3 in our pipeline update slides.
In fact, not only is this the fifth consecutive year of more than 20 pipeline advancements, but even with the launches of the Roundup Ready Xtend crop system and products like Trecepta corn, we still expect up to $25 billion in peak revenues from the core pipeline alone, and newer platforms like Climate FieldView, digital ag and biologicals are all upsides.
Let's begin with what farmers are experiencing today, as shown on Slide 4.
DEKALB is outperforming competitive corn products for the 12th consecutive year, while Asgrow soybeans and Deltapine cotton have done the same for 8 years.
What's even more exciting is we're starting to see the first wave of seed products developed with artificial intelligence and advanced marker technologies reaching customer fields.
Over 50% of the new 2017 U.S. corn deployment class were developed with these technologies.
And in our breeding trials, we saw a 30% increase in the yield advantages of this deployment class versus our key competitor's hybrids.
Performance of these products has been excellent, and it reinforces the impact that new precision breeding technologies can have on our ability to accelerate the rate of gain across our corn row crops.
Moving to the next generations of biotech solutions for weed and insect control, the coming decade looks bright, as shown on Slide 5 and 6.
It begins with Trecepta corn, which is launching this year.
This is a product targeted for certain areas of the U.S. where aboveground caterpillar pests are particularly acute, but belowground insect pressure isn't necessarily a threat.
And coming right behind is the fourth and fifth generations of aboveground insect control for corn that just advanced.
And for those areas with rootworm challenges, SmartStax PRO corn continues to make strides within Phase 4 of our pipeline, and we have already initiated early licensing discussions with several companies.
This product is designed to offer growers a unique RNAi approach to manage insect resistance and expand control to supplement what is currently available in SmartStax.
Switching from corn to soybeans on Slide 7 and 8, the next generation soybean trait upgrades are on the horizon.
In addition to the great weed control farmers are experiencing with Roundup Ready 2 Xtend soybeans, the next generation adds glufosinate tolerance to the package.
And with the tremendous success of Intacta, it's encouraging to see both the second and third generations close behind with additional modes of action and expanded spectrum.
Equally as exciting as the new traits are the new herbicide formulations that have advanced in several phases of the pipeline.
This includes our new PPO herbicide formulation through our collaboration with Sumitomo, who developed the herbicide.
This new formulation is expected to be paired with our fifth generation of herbicide tolerance technology, also in Phase 1, and tools like these give growers new options to maintain effective weed resistance management.
Cotton, as showed on Slide 9, had numerous advancements.
Lygus and thrips control cotton, an industry-first, based on an innovative biotech solution for controlling piercing, sucking insects, advanced to Phase 4, and we expect to commercialize this technology in the next 2 to 3 years.
And to supplement the Bollgard franchise, Bollgard 4 now moves to Phase 2, which ensures the continued efficacy of the platform for growers in the United States and Australia.
We've had several advancements in seed applied solutions, as shown in Slide 10, which included 4 advancements from the BioAg Alliance with Novozymes.
In addition, NemaStrike Technology, a novel nematicide, with a fit across 125 million acres of corn, soybeans and cotton, advanced to launch.
We currently anticipate our second round of ground breaker trials this spring and remain excited about the yield advantage of the product.
Look for an update on our commercialization plans later in the second quarter.
Let's move next to Climate FieldView platform on Slide 11, which is advancing rapidly.
In fact, we had 17 advancements over the course of the year, and this underscores the difference in the pace of advancement between software and data development versus that of traditional chemistry and biology.
Two of these advancements included very promising launches for the coming season: manual fertility scripting and additional zone sources from imagery that improve our planting scripts.
One of the areas I'm most excited about is the subfield management of nitrogen, which allows growers to further optimize the rates and placements of their most expensive input.
I'm also very encouraged by the advancement of the corn disease diagnostic tool.
This tool has the potential to leverage the latest in machine learning to diagnose a corn disease using a simple cellphone camera scan of an affected leaf.
This allows a grower to take quick action to protect yield.
As we close out the annual review of our technologies, I'd like to end with an update on our advances in gene editing on Slide 12, which we are viewing as a true innovation in plant breeding.
Over the course of the last year, we inked numerous agreements in this space, which we think can accelerate our opportunity to drive genetic gain and R&D efficiency.
Gene editing is a key tool that can accelerate the delivery of breeding traits and gene stacks, reduce cost and potentially open up new markets, all while building upon the industry-leading breeding and testing capabilities that we have today.
Looking ahead on Slide 13, the combination with Bayer will allow our 2 companies to accelerate the pace of innovation through our complementary skills and shared vision.
Our R&D team is excited and energized by the new areas of scientific advancement we expect to unlock by combining with Bayer, which will allow us to bring more new products to farmers faster.
Thank you.
And with that, I'll pass it on to <UNK> for Q&A.
Maybe, <UNK>, a quick word on the market demand.
And then Robb, specifically on the progress we've made in formulations.
Thanks, <UNK>, and good morning, Don.
Good to hear from you.
As I think about Xtend, as I said in the prepared remarks, I'm really, really pleased with what we were able to accomplish last year, as you noted.
It was a very successful launch on 20-plus million acres of soybeans.
I think the news that continues to come out of that continues to make it even more favorable now that we have the summary on the yields were 5.7 bushel a yield benefit.
We got the data back from the farmers that used Xtendimax with VaporGrip technology, 97% satisfaction on weed control.
And that points to what we're seeing now in our order book, where 80% of our brand of business is Roundup Ready 2 Xtend soybeans.
So it's really clear that farmers have a lot of confidence in this product too, and it delivered what was expected.
To your point, there were some challenges last year with applications, no doubt about that.
And we've worked extensively with everyone in the industry to help farmers with additional training.
And Robb, I'll let you speak a little bit more to some of those actions, and some of the work with others in the industry.
Sure.
As <UNK> said, we're excited with this year.
I mean to have a product launch on over 25 million acres is pretty remarkable.
I think our goal now is to make sure that all farmers have a great experience going into 2018.
I think we're well-positioned.
I mean, I think the changes have been made with the EPA label, which has now been approved by 32 out of 34 states, and I think Minnesota will join that group within a few days.
It's really encouraging.
We bolstered that with very strong training programs.
But I think to the heart of your question, Don, I mean, we took the time and the effort to visit with every farmer who filed a concern with us.
And the good news in all of that evaluation was in the vast majority, over 90% of the situations we reviewed, the solution set is easily addressed with the proper use of the field boundaries and buffers and more training on appropriate formulations and use of nozzles.
We're very confident in our review of both the farmer results and in the thousands of tests that we've done on the reduced volatility Xtendimax product that the product can be used effectively and safely, and we're excited as we go into this year to ensure that farmers have that great experience.
And to <UNK>'s point, I mean, the growers are excited.
We're seeing strong demand for the product, and to touch 40 million acres in the second year is a pretty remarkable story.
Good morning, <UNK>, so good to hear from you.
Happy New Year.
As we look at Intacta, as I mentioned and we mentioned in the last call, we had a full expectation to raise our price based on the value that Intacta continued to deliver in the marketplace.
Along with that, there was some, as you mentioned, some adjustments put in place with the transition from Roundup Ready 1 to Intacta in South America, and some of those ran out.
Some of those transition payments ran out last year.
And we just went silent on those.
So they just went away, and that in turn, increased the price.
But yes, <UNK>, we continue to look at the value that the product was delivering into farmers and continued to price to that value, so there were ---+ we took all of that and then some, as we went into pricing.
On the patent front, we've been challenged multiple times in Brazil around the patents.
This is another challenge of our patent estate.
We have ---+ I remind you, we have multiple patents in place across Brazil addressing our technology down there, and we're confident that our position is strong and we'll prevail in this, but we'll continue to address it with those that are challenging us.
But at this point in time, I feel good about our position.
Probably as confident as we've ever felt.
So P.
J.
, good morning.
So regarding the investments we've made in digital ag, I mean, I think the way to think about it is something fairly similar to what we've invested over the last couple of years.
And I mean, we've done a couple of reallocation of resources and we feel this is a business that's well-funded and continuing to build a platform, as you mentioned, and that's really what we are trying to do in the U.S. and outside of the U.S. as well.
Regarding what we charge on a per acre basis, I mean, if you remember, the way we've done that, I mean, it's really variable.
And at this point in time, our focus is on building the platform, and some of our offering to the farmers is really based on the farm itself rather than the pure per acre basis.
So the average by itself, as of today, may not be as relevant as what we wanted it to be in the future.
And regarding the breakeven point of that business, we've always told that by the end of our LRP, we're expecting this business to break even, and that's still the time horizon we are shooting for.
Really, what's important in 2018 for us, as it was in 2017, is really to build this platform and expand this platform.
Thanks, <UNK>, good question.
The gains that we're seeing right now are really based on the use of the advanced marker technology, and also the machine learning.
We've developed the computer algorithms based on our decade of marker experience to predict better combinations.
And then the other piece that plays into that is all the work we've done on the breeding automation and the seed chippers.
The use of markers is so effective today that we can analyze those crosses in those kernels coming right out of the greenhouse, which allows us to dramatically expand our testing capability.
So that's what's driving the gain in the new releases.
And but to your point, we see gene editing in the future as a major component of our breeding program.
We've invested heavily this year in the technology and are fully deploying it across our breeding in both core crops and vegetables.
Good morning, Bob.
Happy New Year.
Corn is really an interesting crop when I think about it today.
Who would have ever guessed if somebody would have told us last year that we would see the kind of production we had this year that we would still be looking at potentially 90 million acres of corn in the U.S., and while acres are going to be down in South America and probably in the U.S., it's a huge crop.
It's a really important crop, and the demand around the world is still growing 1 billion bushels a year, as we seen again this year.
So it speaks to we have to stay focused on corn, driving productivity gains, as Robb is talking about with yields, et cetera, because the world's demand is going to continue to grow and we got to meet it.
We're living in a backdrop of where we've had 4 years now of that kind of production, which isn't normal.
And then you add that on to this year, where we, to your point of why is it slower, is a rough harvest in the U.S. Farmers really struggled.
They get slow start for some of the northern ones because the market was slow to develop up there.
We didn't have the heat and the growing degree days, so it's a slow harvest.
The weather was not very cooperative in the Central Corn Belt, particularly in the eastern part of the Corn Belt really slowed it down.
And that just delays farmers' decision-making process, fall applications of fertilizers.
So I feel good about where we sit right now.
Pricing, we knew it was going to be a very challenging environment going into it.
We didn't have great expectations for significant price increases.
We did increase prices on our new products as we always do, but when you use the value of less than $3.50 for corn, you don't get as much value for the increased yield, but you still get value, and we priced into that.
Many of our products were flat as we talked about, the previous hybrids that were already out there.
So I don't have great hope for significant price improvement in the marketplace this year.
But I would tell you, at this point, the competition, it's as robust as ever.
It is a tough year, so everybody is fighting for the last acre.
So we're going to see some of that continue.
But at the end of the day, here's how I think about it, Bob, I don't know what the acres are going to be.
I don't think they're going to be what we thought they were going to be in September.
It's cold and snowy outside, and farmers trying to make their final decision.
But here's what I'm really confident about, when it all shakes out and we get to August of next year, we're going to feel really good about where our share is in the U.S. corn market.
That's what I feel really good about.
We have the best products, the best market position.
We're well-positioned in competing in the marketplace.
Our share is going to do just fine.
We're going to get our proportionate share of the corn market.
<UNK>, you're right.
That was the conversation in the fields when you were there, and we've got a lot more data under our belt in this last season that's proven out well.
Robb, maybe a few words on how the trials look this year.
Yes.
I mean, I think to your point, the infield variable nitrogen advisers have been well received by growers.
It's added another dimension.
I think it's built on the same type of range of gains.
We see a subset of growers who are saving nitrogen applications.
We're seeing another set who are using that nitrogen reallocating across the field and driving yield.
And I think the other exciting news on the nutrient front is we've now ---+ we've expanded it to P&K, which will be another key tool for farmers to both optimize their inputs and optimize yields across their fields.
So we're very excited about the variable rate nitrogen and adding the P&K advisors.
Thanks for your questions, Jeff, but I think I'll see what Doc <UNK> says.
But I think the cold snap, it's too early to tell on.
Bug populations are pretty resourceful.
Yes.
I mean, when you think about it, I mean, we've got 2 classes of insects.
We've got root worms and caterpillars.
The root worms are more influenced by the moisture levels in the spring.
And caterpillars, the flights come in often from Mexico, so temperatures in the Midwest really have no impact on what the likely patterns will be.
<UNK>, I know you're closer to what's going on from Roundup pricing, so I'll let you follow-up with that second part.
Relocation of plants in China and environmental controls, <UNK>.
Yes, I think, Jeff, thanks for the question on that.
I think your overarching statement is true.
We definitely see China with a significantly higher emphasis on environmental and chemistry in general, and in particular, crop chemistry.
So plants are closing.
They're being relocated to industrial sites, et cetera, and that ---+ in those industrial sites, they're being required to put containment systems in place and treat the waste, et cetera.
And that all drives a bit of cost, and as they do that, I think that's what we're seeing reflected in the asset prices coming out of China.
And of course, as the generics come out of China, we're staying true to our strategy of pricing just over the generics coming out of China.
That's what's allowed us to continue to raise our price, so I think a big piece of it is that, and as well as some cost of goods, and we think that some of the raw materials going in from China are also adding a bit to it.
So it's beneficial for us from an overall pricing standpoint.
And quite frankly, it's good for the industry to see China taking those bold steps around the environment.
Yes.
We've been talking about it for years, but we've actually started doing it now.
So first, we're really pleased with the adoption of the tax reform legislation.
And I mean, all the work we've done shows that it should result in a positive outcome starting in 2019.
And obviously, the adoption of territorial system also has some benefits from a cash management perspective, so those are really important points.
Regarding 2018, well, it's still early, and our teams are evaluating the different components of tax reform.
Overall, as I mentioned, we're looking at an ETR, and we try to put a cap to what the ETR could be.
That shouldn't be any worse than 30%, and the variation that we could be seeing, I mean, result from ---+ we're working on the valuation of our deferred tax positions, including offering tax credits and looking at those may have some significant impact on the final rate impact of the deemed repatriation tax, and all of those are related.
And obviously, the rate reduction on the U.S. income, so we wanted to give some kind of guidance at this point in time to help you think about it.
And some of the data, you can find in our 10-K should also help you regarding the tax rate, but that's where we are overall.
As I mentioned, we try to put a cap on what the effective tax rates could be in 2018, knowing that it could be materially lower than that.
Have we given guidance regarding CapEx.
I mean, we have ---+ we've had a flow of CapEx over the last couple of years, and from a directional perspective, I think that's a good way to think about it, knowing that we are implementing the building of our plant in Luling regarding dicamba facility.
So on the BioAg Alliance products, we've advanced several of the new microbial products.
The ---+ we're particularly excited about the BioYield 2, which will become Acceleron 360 once we get the final regulatory approvals.
The key active ingredient here is an LCO molecule, a lipochito-oligosaccharide, which stimulates root growth and nutrient uptake.
And so in our testing in corn, we've seen 4 to 7 bushels per acre yield increases with the technology.
And we expect on most of the acres, it will be combined with our B-300 product.
So this will be a situation where we'll have multiple microbial products on the seed treatment for corn.
In terms of your question on Trecepta on pricing, first of all, the Trecepta product will be targeted for those extreme areas with high levels of caterpillar pressure, particularly army worm and others, typically in the Southern U.S. corn production belt.
And what's exciting is not only are we launching Trecepta this year, but based on the advancement of new insect control leads, we already have the next 2 generations of products advancing in the pipeline.
And that's going to ensure that growers in both North and South America have a continuity of products that are effective, both for caterpillar control and for resistance management.
Thank you for the question.
So we'll respect your time this morning.
In conclusion, as we close out today, it's ---+ I'm sure it's clear to all of you that the months ahead will be pivotal for Monsanto.
And as a team, we're clearly focused on driving the deal to completion and staying focused on delivering our year.
So on behalf of my team and myself, thanks for the continued support of Monsanto, and thanks again for joining us on the call this morning, and all the very best to you and your family in the New Year.
Thank you very much.
| 2018_MON |
2016 | ARW | ARW
#Take the Avago Broadcom, we really didn't really have a line in the US and in Europe.
And what we did have was relatively small.
So there wasn't a relationship.
Where we did have the relationship was in China.
That remains intact, and Korea, that remains intact.
So while they did what they did, that didn't really have an impact on us, and we have other competitive lines that we actually sell and do well with.
If you take Microsemi, on the other hand, we were a huge winner in the transition of that and the new products that they have to sell, and we believe that's going to bring big upside for them and a big upside for us.
Overall, I don't think this is anything that you guys should be losing any sleep over because it's really not anything we are losing sleep over at this point.
And I think you could speculate all day long, but the bottom line is, whether you like it or not, Avnet's got a set number of accounts out there, we've got a set number of accounts out there, and suppliers want all of them.
They don't only want a portion of them.
So I don't see a huge change.
We don't obviously put out full-year targets, but I would say that the fact that we are delivering 110% of GAAP net income versus our target of 70% speaks to the fact that really I think we are on trend and there's going to be slight movement around that average.
But overall, we don't expect to see any significant change in that trendline.
I would say we don't see that particular transaction as something to affect us.
In fact, I think it's something that really shows that there is a delta in strategy between the two companies that we've been talking for a long time, because we looked at this about a year ago, and the truth is half of that company is industrial distribution, the other half is electronics, and about half of the half goes through a digital presence.
And for us, that was just too much heavy lifting to go for having about 25% of the business actually be digital.
So it wasn't something that we saw as a threat and/or as a benefit to our business, which is why we built our online capabilities the way that we did.
We spent time now, we are out in publications educating customers how to do designs in IoT, how to tie the sensors all the way to storage, and bring those two worlds together, which brings our computer business and our components business together, in some cases as a selling motion.
We're going to stick to the guns that we have.
We have, already have a big, robust digital business.
We are happy with it.
We expect it to continue to grow.
It's already growing at great leaps, but for us, it's about staying external to the market.
And we just didn't see that as something that would do that.
And the other thing is we just have no interest of moving into the industrial distribution space, so that's a clear differentiator now between the two companies.
Yes, it was really nothing.
You had some things that you could define as IoT, but it really wasn't something we measured.
Today, as you know, that is something that is measured and I think it's a pretty big surprise that it's growing to that in our business at sort of the rates that it is.
It shows that the market is embracing bigger, stronger cloud computing and more data transferring from what would be an end customer to a manufacturer for service possibilities.
This is going to be something that is going to continue to grow and I think it will ultimately drive the market.
I mean just think of anything IoT when you ---+ I mean you can take it as simple as the door lock on your front door or somebody knocks on your door and you've got a camera on them and you can talk through your cell phone to tell them you don't want anything of what they are selling and send them on their way and have a picture of them.
This is our world and this is where it's going.
And I wouldn't doubt that it wouldn't be 40%, 50% of the business down the road over the next five years.
Sure.
Actually, I'm going to let <UNK> take the digital piece of that.
From our standpoint, we have our customers that are basically trading with both parts of our channels to market.
We have customers that are doing online design activity and then as that project becomes more tangible and more real, then we are deploying more of our traditional sort of hard resources in the field to take that through to production and out the other side.
So rather than being in conflict with each other, we see them as being complementary to the way that we support our customers.
They choose how to interface with us.
We need to provide them with the necessary capabilities to do so.
So we continue to see customers trading with us increasingly through both channels to market rather than just purely switching from one to the other.
So in essence, that's really been our strategy from the beginning, trying to be as customer focused as we are, we are not forcing anything down a customer.
But when you think about the new inventors that are coming up, things that you've seen around crowdfunding, Indiegogo in specifics, that's a direct tie with our Internet.
And then on Indiegogo, a lot of the designs that are coming up are basically now Arrow-approved designs, which tell people that the product can be built for the prices they say it can, and we will also say that we sort of validated the engineering and the product should be pretty good.
So that's going to be sort of a good housekeeping label that you will see on those products for new startups and companies that are going that will be able to use our engineering online to help them sell their products in a crowdfunding way.
So, what we are really doing is we're going to what used to be the lowest and earliest level of a product's inception all the way up to the largest customers out there and finding more efficient ways to deal with them at their supply chain.
That's our strategy, has been our strategy, is going to continue to be our strategy.
<UNK>, do you want to answer the federal government piece.
Yes, sure.
As I was telling <UNK>, we've had immix on board now for over a full year, and in that, time we've been able to kind of take the best of our ECS core business in North America alongside the best of the capabilities that immix brings to the table and kind of create a one plus one equals three.
So, we are helping add to their line card.
We are helping them expand their customer base.
And as you know, September is the end of the US federal budget season, and so there's always a pretty good uptick in Q3, and specifically in September.
And the immix acquisition from a line card perspective was very consistent with our overall strategy focused on software-based solutions, including security.
Security is a pretty significant piece of their mix.
And obviously the market is strong in that area as well.
So your first question, the only thing that we had a little bit of surprise was sort of Brexit coming into the quarter.
Everything really went off of plan.
We sort of disclosed how we saw that push out, affect our business.
My guess is that is the only difference between you guys calling this quarter a home run and sort of being ho-hum about it, which for us, we set records in all three categories, so it's kind of exciting.
But in the end, that's sort of a difference, and we saw that.
I guess ---+ I've become accustomed now that there is becoming more and more of those types of surprises than we ever saw before, although I don't have any of that in our planning for the second half.
The planning in the second half for the computer business is still about us getting the new products up to speed as fast as we can, faster than sort of the decline of storage and the new cloud server stuff really off and running at a rate that can offset for us what is and has been a normal storage decline.
It's nothing new for you guys, but that was something we had to overcome in our business, and I think we've done a pretty credible job of doing that and growing the business.
It's kind of funny.
If we didn't have those headwinds, we would be sitting here with unbelievable records.
But the fact is that is the nature of the business.
The business is always going to change.
We're going to have to adapt.
We are going to have more investment in cloud.
We are going to have more investment in digital.
We're going to have more investment in IoT.
And I would expect that those things are going to be upsides for us in the second half past what we've thought of.
So hopefully that answers your question.
But we are not going into the second half with a bad attitude.
We're going into the second half thinking that we are going to do a pretty good job in the market.
I think there is a difference of strategy now that probably is highlighting itself in a more acute way that shows there's really differences in the companies, and it's something I've been touting for five years now where we've been headed.
I think it's starting to show up.
And come on in, the water is warm.
You bet.
Yes, from a high level, one of the reasons that we are not coming out with new targets for the computer business is that the hardware will catch up again and grow, especially in the storage range, and what you have is that market disruption right now.
What you have are high growth rates for us in infrastructure, high growth rates in security, high growth rates in solid-state storage.
And there will be some crossover point to where we are not artificially diluted by the rotating storage piece.
And once that crossover point comes, you will have growth again in hardware, which is typically a little less profitable than our services and software piece that we actually do some work on and help customers get that integrated.
So that's what we are struggling with.
It looks good now.
You could just say why don't you guys just drive the heck out of software and services for the rest of your life and forget about the rest of it.
But the truth is we offer customers solutions to their problems, and if we don't carry everything, we are not going to have the solution, which is what we are known for, and that's what we're going to continue to drive.
But that's sort of the macro problem that ---+ or actually it's more of a micro problem that we are dealing with now.
But we fully expect for that to be self-correcting over the next few quarters.
I better answer first because I'm getting older and I might forget the question before you get to <UNK>.
The Brexit issue is ---+ a good portion of that has closed.
There's a portion of it we are still working on.
We don't expect any hiccups in the close of it over the quarter, but that's where we stand right now on it.
And as I said, we believe things will sort of flow back to normal.
We believe it was a hiccup.
It was inevitable when you have that kind of a hiccup that somebody is going to say oh, wait a minute, but then at the end of the day, they still need that computing power in their data center, so they are going to spend the money whether they like it or not.
And I think that's the situation here also.
I'll turn the second piece over to <UNK>.
On the cash flow, again, overall, we are very confident that we will continue on the trajectory that we've been on.
I think, for the third quarter in a row, the cash conversion cycle did improve.
I think what we are seeing internally and externally is a little bit of distortion around the quarter cut off.
This year we closed on July 2, whereas last year we closed before the end of June.
And I think with the calendar timing, it certainly did have an impact on DPOs and DSOs, and it's something we noticed.
But overall, I have no concerns over where we are in cash flow and I think the trends will continue in terms of what we've been able to deliver.
| 2016_ARW |
2017 | POWL | POWL
#Thank you, operator, and good morning, everyone.
We appreciate you joining us for Powell Industries conference call today to review fiscal year 2017 second quarter results.
With me on the call are <UNK> <UNK>, Powell's Chief Executive Officer; and <UNK> <UNK>, Chief Financial Officer.
Before I turn the call over to management, I have the usual details to run through.
If you didn't receive an e-mail of the news release issued yesterday and would like one, please call our offices at <UNK>-Lascar, and we will get that right out to you.
Our number is (713) 529-6600.
Also, if you'd like to be on the e-mail distribution list for Powell, please let us know.
There will be a replay of today's call.
It'll be available via webcast by going to the company's website, powellind.com, or a recorded replay will be available until May 10.
And the information on how to access the replay feature was provided in yesterday's earnings release.
Please note that information reported on this call speaks only as of today, May 3, 2017.
And therefore, you're advised that any time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading.
As you know, this conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements.
These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to economic ---+ general economic and industry conditions; international, political and economic risks; availability and price of raw materials; and execution of business strategies.
For more information, please refer to the company's filings with the Securities and Exchange Commission.
And now with that behind me, I'd like to turn the call over to <UNK>.
Thank you, <UNK>, and good morning, everyone.
Thank you for joining us today to review our 2017 second quarter results.
I'll make a few comments, and then I will turn the call over to <UNK> for more financial commentary and our outlook before we take your questions.
Our second quarter revenue was $105 million, slightly down from our first quarter of $110 million.
However, our second quarter gross margin was 15%, an improvement of 1.4 points over the first quarter.
The improvement in gross margin was largely driven by operational efficiencies, where we have had an increased focus over the last 18 months.
A significant portion of our second quarter performance was contributed by our Houston operations.
Our operational teams across Powell executed very well in the second quarter.
Our on-time performance in meeting or beating project milestones has improved across the company.
Strong execution in our fabrication and assembly operations over the last several quarters has further improved our speed of execution without sacrificing quality or safety performance.
One of the strengths of our brand is the trust our customers have in our ability to meet critical dates.
We have worked very hard to return predictability in meeting scheduled commitments over the last 18 months.
Our efforts are producing positive results.
Our second quarter experienced the continued deterioration of our backlog amid soft market conditions.
Reported backlog was $228 million compared to $271 million in the first quarter, resulting from reduced customer activity that has been severely impacted by uncertainties in the oil, gas and petrochemicals markets.
New orders in the quarter were a disappointing $62 million compared to $91 million in our first quarter of 2017.
We attribute our lower bookings rate to a combination of timing of awards and continued competitive market pressures that we have been experiencing for available industrial projects.
Inquiry activity has remained steady across the company, especially for the utility market, including distribution, and to a lesser extent, the power generation segment.
In our core oil, gas and petrochemical markets, we've yet to see any signs of significant increases in our customers' spending behavior.
However, we continue to see incremental improvements in market sentiment.
We have seen a slight increase in activity during the second quarter for a few offshore projects.
I want to caution, however, that this segment has been very low for the last several years, and this increase in activity is limited and not a return to pre-2014 levels.
We do not see any short-term fundamental changes in market pricing or timing of awards that would significantly benefit our 2017 performance.
We will continue to closely review our cost structure, making prudent adjustments when necessary.
During our second quarter, we did take additional restructuring actions to further adjust to the prolonged slowdown of industrial projects.
I would like to personally express my appreciation to each of the employees impacted by this decision for their dedicated service at Powell.
As a large proportion of our businesses is long-cycle project activity, we need and have shown to be pragmatic in trying to balance our need to cut costs and boost operational efficiencies, while targeting new markets and investing in research and development.
We have also strategically shifted resources and projects to the facilities that best serve the customer in order to better leverage our resources and optimize our performance.
These combined initiatives have helped us to this point, but we expect third quarter revenues to decline due to lower booking levels as well as customer delays that are pushing projects into the fourth fiscal quarter and into our fiscal 2018.
Despite these current trends and concerns, we believe that the combination of solid, long-term business fundamentals, a sustained commitment to R&D innovation and effective management of cycle timing will enable our business to capitalize on opportunities that will come with a sustained economic recovery and result in shareholder value creation.
With that, I'll turn the call over to <UNK>.
Thank you, <UNK>.
Revenues decreased by 31% or $48 million to $105 million in the second quarter of fiscal '17 compared to the second quarter of fiscal '16.
Here are some comparisons to last year's second quarter.
Domestic revenues decreased by $31 million to $76 million and international revenues also decreased by $16 million to $29 million.
These decreases are the results of the decline in our project backlog as we completed existing projects and continue to see lower demand from our customers in our core oil, gas and petrochemical markets.
Gross profit as a percentage of revenues decreased to 15% in the second quarter of fiscal '17 compared to 20% in the second quarter of '16.
Gross profit decreased by $14 million to $16 million.
Our Canadian operations continue to see positive improvement in gross profit that was offset by a decline in gross profit in our domestic operations.
Selling, general and administrative expenses decreased by 16% or $3 million to $16 million in the second quarter of fiscal '17.
However, SG&A as a percentage of revenues increased slightly to 15% due to lower revenues.
In the second quarter of fiscal '17, we incurred $840,000 in separation cost, as we took actions to further adjust our cost structure.
In the second quarter of fiscal '16, we incurred approximately $3.3 million of separation cost due to the restructuring of our senior management team and reductions in our workforce.
We recorded a benefit for income taxes of $1.3 million in the second quarter.
In the second quarter of fiscal '17, we recorded a loss of $829,000 or $0.07 per share compared to income of $5.6 million or $0.49 per share in the second quarter of fiscal '16.
Excluding restructuring and separation cost, we recorded a net loss for the second quarter of fiscal '17 of $283,000 or $0.02 per share.
New orders placed during the second quarter of fiscal '17 were $62 million, resulting in a backlog of $228 million compared to a backlog of $271 million at the end of the first quarter and $357 million a year ago.
For the 6 months ended March 31, 2017, revenues decreased 29% or $87 million to $215 million compared to the same period a year ago.
Gross profit as a percentage of revenues decreased to 14% compared to 18% in the first 6 months of '16.
Our Canadian operations experienced an increase in gross profit, which was offset by a decline in gross profit from our domestic operations.
Domestic margins were negatively impacted by reduced volumes as a result of weak oil, gas and petrochemical market conditions, competitive pricing pressures and an increase in transit project volume, which typically have lower margins.
Compared to the first 6 months of fiscal '16, selling, general and administrative expenses decreased by $7 million to $32 million.
SG&A expenses as a percentage of revenues increased to 15% due to lower revenues.
We recorded an income tax benefit of $2.8 million for the first 6 months of fiscal '17.
For the 6 months ended March 31, 2017, we reported a loss of $1.1 million or $0.10 per share.
Excluding restructuring and separation charges, we incurred a loss of $582,000 or $0.05 per share for the first half fiscal '17.
For the 6 months ended March 31, 2017, cash provided from operating activities was $20 million.
Investments in property, plant and equipment totaled $1.7 million.
At March 31, 2017, we have cash and short-term investments of $108 million compared to $98 million at September 30, 2016.
Long-term debt, including current maturities, was $2 million.
Looking forward, we expect to report a net loss for fiscal '17.
We continue to be adversely affected by soft market conditions.
However, conditions appear to have stabilized and no further erosion in our overall market is anticipated.
We expect our third quarter orders will return to or exceed first quarter levels.
And third quarter revenues are expected to decline due to prior low booking levels as well as customer delays that are pushing orders into our fourth quarter or into fiscal '18.
At this point, we'll be happy to answer your questions.
When you are looking at over the balance of our backlog, which is a little over $200 million, there is a downward pressure on margins based on prices.
We are going to start seeing that more as a greater percentage of our mix beginning in the latter part of the third quarter and continuing on to the fourth and first quarter next year.
We're constantly looking at where we can trim cost and maintain our cost structure relative to our production volume.
So there's always another way that we can try to trim and we'll continue to manage that as we go forward.
Relative to increases, the biggest challenge will be ---+ or the biggest increase would be the variable costs related to the sales transaction.
Manufacturers reps would be the biggest variable in the near term relative to increases.
The overall funnel, Jon, that we've been tracking pretty closely quarter-over-quarter since hitting the challenge here mid-'14, it's held pretty constant.
We track that pretty granular.
As to the status of the order, when it's going to close, we have kind of alluded during the past calls about the shifting in the timing has become more difficult, we definitely experienced that in the second quarter.
And then just general competitive pressures, there are certainly some jobs that we're tracking the margins very closely, those that we were disappointed to lose in the quarter and some that we're continuing to exercise prudent discipline as to when to say no.
But when you look at the overall funnel, no real big change.
Just definitely some timing effects in Q2 and a couple of competitive ones that didn't materialize for us.
I feel like it's held steady.
It hasn't improved.
But the grind on pricing has sort of maintained for the last 2 quarters.
I didn't see any change this past quarter as we didn't see any change from the last call.
We're monitoring it very closely.
There has been some ---+ the offshore yard is one of the areas that we've been exploring some new markets, trying to leverage some of the assets out there.
We talked about some of the [blast] buildings that we've worked on.
Some of the more traditional module, the thicker [bolder] plate construction that we find in the offshore market has returned.
Again, not a lot, but a couple of projects.
Looking out, we are tracking all of the work that we traditionally do work in the Gulf of Mexico, offshore Africa, parts of the Med.
There is some percolating activity, but it's still very cautious.
There's just a lot of comments out there by the Tier 1, Tier 2 companies about their reserves and are they going to start bidding projects to the engineering houses.
And we're trying to track all of those developments very closely.
So it's ---+ I don't think we'll see it this fiscal year, it's safe to say, but still a little murky for '18.
It may drift into the latter half of '18, the best guess right now, but it's still not clear.
At this point in time, the backlog in the Canadian facility is actually beginning to be very weak.
Our overall backlog at $200 million is still more domestic U.S.-based than it is in Canada or in the U.K. And the reductions in volume will definitely be impacting our Canadian operations the second half of the year.
<UNK>, at this point in time, we closed the quarter with $108 million in cash.
We anticipate we will continue to maintain and grow ---+ or grow our cash position between now and the end of the fiscal year that we will see some pressure from earnings, but we'll basically see the benefits of reduced working capital.
I do not see any risk in our dividend program at this point in time.
It's one of the markets, <UNK> ---+ <UNK>, sorry.
When we hit the downturn, it was one of the markets that just dried up completely.
All of the work by the majors, Anadarko, Exxon, Chevron, Shell, it just stopped.
There are a couple of projects that have come back.
They are not Gulf of Mexico oriented and the ones that we referred to in Q2, they're more further parts away from the Gulf.
There is some conversation coming back in the Gulf.
Couple of projects from ---+ you can follow in the press.
BP has a couple ---+ some conversation out there, will Anadarko continue.
(inaudible) another one, but they're not as far along as some of the other ones that we compete in off Brazil.
And off of Israel, there's a couple of jobs going on.
So it's ---+ I don't think it's going to be anytime soon.
As I kind of mentioned earlier in the question from <UNK> was it's a guess, latter half of '18, but it doesn't look ---+ it's not gangbusters anytime soon.
We've won a fair share of the LNG facilities, which we're still executing on.
There's a number of projects that are ongoing in construction phase and now entering commissioning.
We are tracking and involved in pre-fee, pre-engineering discussions on the others that are progressing their permitting.
I think we have a good handle on a lot of those projects.
They're competitive.
A lot of them are also being led by, what I'll call, nontraditional money.
There are some majors out entering in the market, funding some of the jobs.
But if you even look at the current LNG jobs, there's a lot of new participants that are driving those projects.
So I feel good that we're tracking them.
We're engaged with the engineering companies that are competing for those business and making sure they understand our value proposition and what we can do here, especially with our Gulf ---+ with our offshore facility being able to build the large modules that those facilities require.
It kind of reduces the amount of splits that some of our competitors offer because we can build the larger module and ship it right to their site.
Thank you, operator, and thank you, <UNK>.
We continue to confront current market challenges by optimizing our costs, securing what new business is available and strengthening our balance sheet.
In the meantime, we will carefully watch the timing of new order awards and their impact on Powell's future performance.
I want to thank Powell's employees who have responded admirably in response to this historically difficult business environment.
Our teams across the company have worked hard to align our operating cost with market conditions, and at the same time, help prepare Powell for future opportunities.
In conclusion, I continue to see positive overall market sentiment and believe that Powell has positioned itself well for an eventual market recovery.
And although it's not imminent, our customers' capital expenditure budgets going into 2018 will offer better visibility into future project activity.
In the meantime, we remain focused on leveraging our successful internal initiatives, including the delivery of superior customer service and the expansion of our product lines to meet customer demand.
Thank you, again, for your interest in Powell.
And we look forward to speaking with everyone next quarter.
| 2017_POWL |
2017 | STC | STC
#Thank you <UNK>.
We appreciate everyone joining us today.
I know some of you are, may be in the snow this morning, so we appreciate the time.
This morning, we reported solid fourth-quarter 2016 results with pre-tax income improving $20 million over the fourth quarter of 2015.
Total fourth-quarter 2016 revenues increased 6% to $526 million, while operating revenues improved by $31 million over fourth-quarter 2015, primarily due to increased revenues from our core title operations.
We reported net income of $17 million or $0.71 per diluted share for the fourth-quarter 2016 compared to net income of $3 million or $0.11 per diluted share for the prior-year quarter.
Total title revenues increased $37 million or 8% due to higher revenues in our independent agency, core retail and commercial channels which led to an improved title segment margin of 7.4% this quarter, up from 4.9% in the prior-year quarter.
Purchase transactions grew nicely year-over-year and domestic commercial revenues were actually the highest we've seen in the last 16 quarters.
We were able to hold segment employee cost flat while increasing operating revenues by 8%.
Although industry-wide refinancing transactions are forecasted to decline significantly in the coming year, we still expect expanding margins, given our transaction mix is more heavily weighted to purchase transactions.
We do anticipate a slowing but sustainable transaction volume with price increases in existing and new home sales, driven largely by demographics and the emerging millennial homebuyer, in addition to favorable macro trends we are even more encouraged by positive growth in key markets as a result of our new sales initiatives.
We do continue to benefit from the cost management initiatives as well as enhanced financial discipline within our core operations, resulting in total employee and other operating expense decreasing 3% for the quarter, while total operating revenue increased 6%.
In addition, we are encouraged by programs currently being deployed, which will further reduce our cost per file and improve margins.
<UNK> is going to be reviewing these savings projections further in his comments.
Our adjusted EBITDA improved 100% over the prior-year quarter on a 6% revenue increase, validating the changes we have made in our transformed operating model.
Overall, our fourth quarter marked a solid finish to a very important year for Stewart.
We completed our journey to a best-practices governance structure with the elimination of the dual class stock and the addition of new Board members, including two very experienced insurance CEOs in Fred Eppinger and <UNK> Bradley.
Both of these new Directors led their respective companies to produce strong growth and excellent shareholder returns.
I'm pleased to report that all of our new Board members are actively engaged and are already making significant contributions.
Also in the year, we enhanced the capability and capacity of our team with the addition of Tim Okrie, our Chief Operating Officer, to focus on delivering our growth and bottom-line performance objectives.
We did generate encouraging revenue growth in our core markets, while continuing our plans to improve the efficiency in our operating model, and we took actions to significantly improve the results of our ancillary services operations and focus on our core business.
We are confident that these actions, along with our commitment to improving our customers.
experience and our growth plans in targeted markets positions us for continued earnings growth and sustainable margin improvement.
We remain positive on our prospects going forward for both our Company and the overall macroeconomic environment.
So, I'll now turn it over to <UNK> for more detail on our financial results.
Thank you, <UNK>, and good morning everyone.
The title segment generated pretax income of $38 million or a 7.4% margin compared to fourth-quarter 2015 pretax income of $23 million or a 4.9% margin.
Our title segment revenues were $512 million for fourth-quarter 2016, an increase of 8% from fourth-quarter 2015.
With respect to our direct title operations, overall revenues increased 4% from fourth-quarter 2015 as a result of revenue increases in our core retail, domestic commercial and international operations.
Somewhat offsetting these revenue increases were declines in default-related centralized title transactions.
Total commercial revenues for the quarter were comparable to prior-year quarter, while domestic commercial revenues increased 2% to $53 million which, as we noted a moment ago, was the highest quarterly revenue generated in the past four years.
Domestic residential fee per file in the quarter was approximately $1,900, a 2% decline from fourth-quarter 2015.
Domestic commercial fee per file was $6,700 compared to $6,200 in the prior-year quarter or a 7% increase.
Fourth-quarter 2016 total international revenues increased 9% due to increased volumes on a local currency basis, principally in Canada, partially offset by the impact of a weaker British pound against the US dollar.
On a full-year basis, our Canadian operations achieved record premium revenues on a local currency basis.
Revenues from independent agency operations increased 11% or $28 million in the fourth-quarter 2016.
Net of retention, revenues increased $3 million or 6%, generally in line with the increase of our direct retail locations.
Quarterly fluctuations in the average remittance rate are not unusual, and on a full-year basis, which is more indicative of our ongoing expectation, the average remittance rate is 18.2% in 2016 versus 18.3% in 2015.
We anticipate our ongoing average annual remittance ratio to be in the low-to-mid 18% range.
Title losses as a percentage of title revenues were 4.8% in the fourth-quarter 2016 as compared to 5.9% in the prior-year fourth quarter.
On a year-to-date basis, the title loss ratio was 4.8% in 2016 versus 5.6% in 2015.
The fourth quarter's overall loss ratio was slightly influenced by favorable true-up adjustments to large loss estimates, while the full-year loss ratio was further influenced by the second-quarter policy loss reserve release.
We anticipate maintaining loss accrual rate of approximately 5% in 2017.
Our total balance sheet policy loss reserves were $463 million at year-end and remained above the actuarial midpoint of total estimated policy loss reserves.
Looking at our ancillary and services and corporate segment, revenues for the segment decreased 42% to $14 million compared to the year-ago quarter, primarily due to our strategic decision in 2015 to exit the delinquent loan servicing operations, which we completed in first quarter of 2016.
Excluding the 2016 and 2015 non-operating and non-recurring charges I'll describe in a moment, the segment's pretax loss including the cost of parent Company and corporate operations for fourth-quarter 2016 was $10 million versus $14 million in 2015.
During the fourth-quarter 2016, we sold the government services and loan file review and audit lines of businesses within the ancillary services operations and recorded realized losses on the sales totaling $3 million.
Operating losses attributable to the sold operations were approximately $4 million in the quarter.
Unrelated to the sales, we also recorded approximately $2 million of early lease termination charges related to ancillary services operations as we consolidated our footprint to lower occupancy cost going forward.
Going forward, our ancillary services operations will consist almost exclusively of search and valuation services, which we expect to generate positive cash flow, but be approximately breakeven in 2017 on a GAAP basis, which includes purchase price amortization.
We anticipate the run rate costs of our parent and corporate operations to approximately $7 million per quarter, resulting in an overall pre-tax loss for the segment.
With respect to operating expenses, as I'm reviewing, remember that the fourth-quarter 2015 included a number of non-operating and non-recurring charges that were detailed in the expenses section of the earnings release and which totaled approximately $5 million.
The discussion that follows excludes those charges.
Employee costs for fourth-quarter 2016 decreased approximately 7% from fourth-quarter 2015 while average employee counts decreased approximately 9% due to our cost management program, reductions in employee counts tied to volume declines, and the exit of the delinquent loan servicing operations, as mentioned earlier.
Fourth-quarter 2016 employee expenses include approximately $1.3 million of severance.
As we enter 2017, we anticipate further adjustments to overall employee expenses in the first quarter in response to the usual seasonal slowdown in transactional activity, as well as ongoing margin enhancement initiatives.
As a percentage of total operating revenues, employee costs for the fourth-quarter 2016 were 27.9%, an improvement of 430 basis points compared to 32.2% in the prior-year quarter.
Other operating expenses for fourth-quarter 2016 increased 2%.
As a percentage of total operating revenues, other operating expenses decreased by 80 basis points to 18% in the fourth-quarter 2016.
Given the proportion of other operating expenses represented by relatively fixed costs and our overall shift to more utilization of third-parties rather than internal employees for certain production needs, we anticipate annualized other operating expenses to generally average 18% to 20% of total operating revenues over the near term.
This ratio should gradually decline as our growth plans yield higher revenues relative to the fixed cost.
Lastly, a couple of comments on other matters; the effective tax rate for fourth-quarter 2016 was 15% and was lower than normal due to recording benefits from unrecognized research and development tax credits, while the fourth-quarter 2015 effective tax rate of a negative 400% was due to return to provision adjustments and low pretax income after non-controlling interests.
Cash provided by operations was $59 million in the fourth quarter of 2016 compared to $15 million for the same period in 2015.
The increase in cash provided by operations was primarily due to the higher net income and lower payment of claims and accounts payable during the fourth quarter of 2016.
As of year-end, $3 million of cash was held at the parent holding Company.
As we've discussed on these calls before, our plans to improve margins include; further outsourcing, additional automation of manual processes, and continued consolidation of our various systems and production operations.
We are also in the early stages of an initiative that will lower unit cost production in our retail branches, thus further improving margins.
Throughout 2016, we invested in the technology and people necessary for this initiative, piloted new title and escrow production technology in two smaller markets and have just recently begun a pilot in a larger market state.
While this is a multi-year effort, the early results of the pilots have been encouraging.
We expect to ramp-up orders processed through the new system on a market-by-market basis during 2017 and 2018.
Although the cost of maintaining duplicate staff through the transition periods will limit savings realized in 2017 on an absolute dollar basis, we expect to achieve run rate savings of over $10 million on an annualized basis by the end of this year and an additional $10 million the following year, based on current transaction volume and mix.
Thanks <UNK>.
Before we turn it over for questions, this is <UNK> <UNK> again.
I did just want to recognize and as was stated in the press release that <UNK> <UNK> has announced his plans to retire from the Company after being with us since 2008.
<UNK> is going to remain with the Company through the transition and I just wanted to publicly express our appreciation to <UNK> for all that he's done in the more than eight years as CFO for Stewart.
We've been through a significant transformation and <UNK> has done a yeoman's job in pulling our finance and accounting organizations together for our new operating model and we appreciate his years of service.
So, a formal search for a new CFO will start immediately, but just wanted to recognize <UNK> for his consistent contribution.
So thank you <UNK>.
Thank you.
Thank you very much.
And now, we can turn it over to the operator.
Well, thank you.
Thank you, <UNK>.
Yes <UNK>, it's <UNK>.
I think as we mentioned in prior quarters, the 10% pretax margin target was set when the default loan services business was still providing significantly accretive margins to our title operations, which more than offset all of our corporate expenses, and after exiting the default loan servicing business, we didn't back away from that 10% but we have discussed that it would require additional reductions on our cost per file and higher revenue to offset those lost profits.
So, as discussed in this quarter, and as <UNK> mentioned, over the next several years, continued plans in place and programs in place that we've already seen some benefit that says we're on the right track toward improving profitability long-term and target those specific growth opportunities.
Yes, and I think ---+ again, commercial does change quarter-to-quarter and year-over-year and we would expect relatively flat going forward.
From commercial, we look at Q4, we had several energy deals helping out.
The Houston office saw good volume on both costs.
That's not specifically relevant to New York.
So overall, we feel good about 2017.
We have a good pipeline to start the year.
We're seeing some opportunity just with some uncertainty in the commercial markets and, as you know, we are more driven by those transactions happening and there does seem to be different thoughts on where the commercial volume will go and some portfolio rebalancing which we think is beneficial for 2017 and can uphold that commercial strength.
I think it's probably just kind of a rush to get some of those deals closed by year-end.
I don't know that there was anything special about the types of orders.
They were just kind of the usual odds and ends and that just ---+ needed to get them closed by year-end.
I can't point to anything specific that probably drove that.
And <UNK>, obviously in a lower refinance ---+ when refinance lines are going down, refinance has normally a lower closing ratio.
So you'll probably see that across the industry as refinances decrease, that closing ratio should increase.
Yes, I think <UNK> ---+ I think the important thing for us is to make sure that we're staying focused on reducing that unit cost per file, which is the initiative I spoke of earlier as well as just making sure we're focused on the basic blocking and tackling in terms of trying to generate that top-line revenue growth and maintaining an increasing leverage on some of the fixed cost base.
So I think the important thing for us is going to be; number one, the production cost; number two, revenue growth; and number three, just that continuing focus on efficiency in the back office operations.
And <UNK>, this is <UNK>.
Just to reemphasize on the volume question.
Again, as we look at it refinance, down 45%-plus probably.
But the purchase being up 5%, we think is beneficial for us.
We're looking at strong job growth.
So, we do expect the industry premiums may be down 2% or 3% next year, but given where we are seeing our growth for the markets we've targeted and given our percentage of that purchase business, we still see the revenue line being able to improve those margins.
Yes.
I think when you're thinking about what's left in that segment, it's really just the valuation and search services, and roughly a third of the revenue in the segment for this fourth quarter was associated with the businesses we sold.
So, with what's left and the run rate of that revenue, we think that on .
it will generate nice positive cash flow for us, but after you factor in purchase price amortization, it's slightly breakeven on a GAAP basis.
So, when you factor in the cost of the corporate parent Company and corporate operations, that ends up with a loss in the quarter and the year.
Well, I mean, if we're at roughly operating breakeven on a GAAP basis in the search and valuation services and we're expecting kind of a $7 million-ish quarterly run rate on the parent company operations, I mean, so that would be roughly the loss.
Yes, of course, we're going to look to improve margins.
I would say, kind of the same thing we said mid-2015, is that we always keep our options open.
So, we're not going to just accept kind of a breakeven outcome for that operation on an ongoing basis and I'll just kind of leave it at that.
Well, the sold operations probably didn't perform as well as we would have liked in the back half of the year, which is part of the reason that we sold them.
But, as I said, we're going to keep our options open and make that determination sooner rather than later on what's left.
Right.
So the initiative is around lowering the cost of your core retail title order in our branch operations.
The $10 million is kind of the math that we do, when we look at some of the pilot results and say if we just assume kind of the same volume that we're seeing today and the same rough mix that we're seeing today through those retail operations, you get to a roughly $10 million run rate savings by the time that you roll these out.
So it's a phased rollout and that's why you don't see the $20 million all at once, it rolls through the states one by one.
I indicated, we'd done the pilots in the smaller markets and now we're doing a pilot in a larger market to kind of prove the results of the smaller market testing and we're very optimistic about it.
I mean, it's been very encouraging so far, and we feel good about putting out that $10 million in year one and $10 million in year two, so we feel pretty good about achieving that.
Now, there is some overlap in cost, right, because this is a transitional program.
You're going to have staff ramping up in the new system, while the staff is still doing their work in the old system.
So there is some overlap of costs there.
Yes.
So Geoff, just to reiterate, we probably won't then see any cost reductions until closer to the end of this year, in 2017, just because those duplicative cost are sitting in the market.
But again, on a run rate basis, pretty comfortable and confident in our ---+ hitting that target by the end of 2017 and an additional $10 million by the end of 2018.
I think that on the search and valuation work, it is triggered more or less simultaneously with the title order opening.
So if anything, it probably is in advance of recognition of revenue on a title order closing.
So, if you want to think about it that way, I think that's probably a reasonable way to think about how the seasonality flows through that business.
I don't know that it will be terribly chunky.
I don't recall the roll-off schedule right off the top of my head, but it's obviously tied to how we're rolling it out in market by market.
Obviously, we're going to target the bigger market states first to get the bigger bang for the buck.
I just ---+ right of the top of my head, I don't remember the exact schedule.
Yes.
We think that there probably was, just due to interest rates increasing, the election effects.
You obviously had people making some decisions that they feel like needed to be made.
So, I do think that's a true statement.
It's interesting, in commercial, we saw a little bit of both, to be honest with you.
We did see some increased activity from rate sensitive deals closing in the quarter of things that were locked.
On the other side, a lot of this is anecdotal on commercial transactions, but due to kind of expectations for tax rates in 2018, et cetera, you had several deals that all of the sudden weren't as anxious to close by the end of the year.
So again, I think, depending on what type of entity was buying and selling, you had some people that were rushing to close and some people that got more patient.
That concludes our quarter's conference call.
Thank you for joining us today and your interest in Stewart.
We look forward to seeing you next time.
Take care.
| 2017_STC |
2016 | RBC | RBC
#I would say the big change for us was the further step-down in oil and gas demand.
That was ---+ it dropped further than we had thought as we went into the quarter.
That was probably the single biggest change, power gen being right there with it.
So my first comment on that would be, from my experience in selling in this space, is that it's probably too soon to call the heating season.
Usually, I start thinking about it when we get to Memorial Day.
The cooling ---+ I'm sorry, the cooling season.
So ---+ but we're seeing ---+ in the climate space, we're seeing normal sequential build that we ---+ seasonal build we'd see at this time of the year.
That's doing what we would normally see it do, in terms of our sales.
So we'll see an improvement in our revenues, as a result of the seasonal build.
In the commercial and industrial, ex oil and gas and ex power gen, I'd say the order rates have stabilized.
So ---+ and we do expect to see, as we enter into the back half of the year, a slight improvement as a result of destocking.
<UNK> mentioned that there would ---+ from the programs that we're executing on right now, there was going to be a roughly $13 million benefit on an annual basis.
And we believe that will start to kick in the second half of the year.
So <UNK>, our business sells into natural gas water heaters.
We do not sell into the electric gas water heater space.
So if I'm not mistaken, I believe the natural gas water heater business in the first quarter was down in the mid-single-digits number.
So we were affected by the decline in the demand.
So we sell primarily into infrastructure and industrial type markets in China, and so that business was down for us.
And I'd say, again, it had been down in the past.
So when we sized our total industrial exposure between the US and China, I think we sized it at $40 million across the Company.
And certainly, China was a sizable chunk of that.
Yes, I would say it's the same scenario.
We have customers, with their revenues are down rather substantially, so they're adjusting their inventories, as well.
This is <UNK>.
Yes, it certainly had somewhat of an impact, as it usually does in the first quarter, with lower production.
But we have all of that baked into our guidance.
The slowing of production, as we work down inventory, is somewhat offset, too, by the benefits of our simplification projects and our cost savings projects.
But all of that is in our guidance for the year.
I'll give you all the data by segment here in a second.
But I would say that we did ---+ when you take into consideration everything we mentioned relative to oil and gas, and excluding the oil and gas, you can see that we offset a substantial amount of decremental through the existing simplification programs and if ---+ so there was certainly some positive news there, relative to our execution and our ability to offset those decrementals.
So if you think about the climate business, you ought to think about 25% to 30% decrementals.
If you think about the C&I business, you ought to think about 30% to 35% decrementals.
And if you think about PTS, you ought to think about 35% to 40% decrementals.
| 2016_RBC |
2016 | MRO | MRO
#Thank you, <UNK>, and good morning to everyone.
I'll make a few brief comments and open the call for questions.
Our second-quarter headlines: strong well results, continued cost reductions, successful portfolio management.
Our Oklahoma asset team delivered two outstanding STACK Meramec wells with oil cuts above 70%, while continuing to balance leasehold demands with acreage delineation.
This same team also closed our PayRock acquisition on Monday, just six weeks after announcing the deal, and are rapidly integrating that asset into our Oklahoma business.
The team actually had a countdown calendar in the office as they marched toward the accelerated close date.
Needless to say, they are excited and their focused efforts will ensure no loss of momentum.
We had an exceptional quarter in the Bakken, delivering a record well on our West Myrmidon acreage through a combination of great reservoir quality and enhanced completion designs.
The Bakken asset team has truly embraced this time of lower activity to prepare for what is next.
They dropped their production costs materially and upped their game on well returns to place West Myrmidon in the mix for 2017 capital allocation.
The Eagle Ford continued seeing uplift from tighter stage spacing, while feeling the effects of a planned step down in activity and challenging base production declines.
And despite their move to higher intensity completions, their completed well costs are down significantly year over year.
Winning the production cost battle is hard work, and typically measured in numerous but smaller victories.
Rest assured that cost management remains front and center with all of our asset teams.
North America E&P production costs are down almost 30% from a year ago.
And we have dropped their full-year guidance by $1 per oil equivalent barrel.
We've also reduced 2016 unit production expense guidance for international by $0.50 per oil equivalent barrel.
Through a combination of capital discipline and efficiency gains across all of our businesses, we will deliver a 2016 capital program that's $100 million below our original budget, all while funding the incremental 2016 activity associated with our STACK acquisition, including the additional rig we will add there this quarter.
Oklahoma is getting busy; with the acquisition we will be doubling our activity in the STACK to four rigs in total.
Not to be outdone by North America's success, in our international business we achieved first gas from the B3 compression project in EG in July, on schedule and within budget.
The project is fulfilling its mission to extend the Alba Field's production plateau by two years and the asset's life out beyond 2030.
As our capital investment in the compression project falls away, EG will contribute significant free cash flow that we can reinvest in our deep inventory of high return opportunities here in the US resource plays.
On the portfolio management side, our non-core asset sales program has now achieved over $1 billion year to date.
Though we exceeded our initial target, we aren't done.
Expect non-core asset sales to be ongoing as we continue optimizing our capital allocation to the lowest cost highest margin opportunities.
On the other side of portfolio management, the 61,000 net acres we acquired in the STACK Meramec oil window ticks all the boxes.
Quality, scale, value, and with further upside not assumed in the purchase price.
Through this volatile and uncertain commodity price environment, we have been resolute in executing against our playbook, strengthening our balance sheet, resetting our cost structure, simplifying our portfolio.
All with the goal of profitable growth within cash flows when sustainably higher prices give us the confidence to ramp activity.
With that, I will hand it back to <UNK> to begin the Q&A.
Good morning, <UNK>.
We are still committed to that, <UNK>.
As we look out at the macro today, though we are sitting at $40 today, but as we look out to 2017 and see that more constructive pricing, we feel very confident in our ability to begin that growth sequentially again, and do it within cash flows in that low to mid-$50s kind of price range.
A lot of that will also hinge on our ability to ensure that we have operational momentum coming out of 2016 as well.
Absolutely, <UNK>.
We've talked about nominally a $1.4 billion program in 2017 that would get us back on that sequential growth track within the resource plays.
And within that is, the way I would ask you to think about it, <UNK>, is embedded basically almost doubling of the rig count from where we are today to when we would exit in 2017.
And that would support both that capital program as well as that volumes profile.
<UNK>, this is J.
R.
As we've talked I think on previous calls even though we are focused here on ultimately being able to get that capital program up to a level to where we can resume the growth path, the balance sheet is still going to be important.
I think we've got some maturities coming up here in October of 2017 and again in March of 2018.
Sitting here today would appear to be the right allocation to capital might be just a wait to be able to pay off those maturities when they are due.
That's one reason why I think we are maintaining the cash balance that we are today, to give us that option.
But we will continue to look at other opportunities to be able to reduce overall gross debt, but right now I think we're leaning toward repaying those maturities when they are due.
<UNK>, good morning.
Oklahoma STACK is going to be our absolute first priority, <UNK>.
Once we have met our leasehold requirements and our strategic objectives in the STACK, then we're going to look at optimizing across the remaining basins to maximize economic return.
I think the good news there for us is that when we look at that multi-basin optimization we've got a very competitive and diverse Tier 1 inventory that really now features everything from Eagle Ford oil and condensate to Bakken West Myrmidon to SCOOP.
It's a great portfolio, but that first incremental capital is absolutely going to Oklahoma STACK.
In fact, as we state in our release material last evening, we'll be looking to add that second rig into the STACK acquisition acreage later in the third quarter, bringing us to a total of four rigs in Oklahoma.
I'm very happy with our footprint in the STACK as well as the SCOOP, certainly with the bolt on of the STACK acquisition, the PayRock acquisition, it enhanced our position materially in the STACK.
But as I look across it from an overall resource standpoint, and you think about the fact that we now have in excess of about $1 billion 2P resource in the STACK as well as another $1 billion or so in the SCOOP, that is a very, very material position going forward in Oklahoma.
Just over a couple hundred thousand net surface acres in the STACK, we feel very good about our position.
We would never forego accretive small bolt on positions or greenfield leasing, but we're quite pleased with where we stand right now in Oklahoma.
Let me maybe kick that one off and then I'll turn it over to <UNK> to maybe provide a bit more color.
We just closed on the STACK acquisition on Monday and took over operations after lunch on Monday, so integration is still a work in progress though the team is well advanced.
As you mentioned, we're going to be putting a second rig to work there.
The two rigs are going to be initially focused on protecting that valuable leasehold, but also looking toward continuing strategic I will say delineation around the play as well.
But in terms of economics and where those wells fall in our set of opportunities, there is no doubt that the STACK oil opportunities compete at the very top of our Tier 1 inventory.
And that's even been confirmed yet again with the three additional wells that have been brought to sales within the acquisition between ---+ up to close.
Maybe I will let <UNK> fill in a few more details on how the integration is going.
Sure, thanks, <UNK>.
We took over the operations Monday.
It's been very seamless to date.
Obviously we look at the acquired acres.
They are on the oil buy side; we think it balances the portfolio across the breadth of the STACK basin very nicely for us.
We're going to have the ongoing obligations there to defend the lease position in our heritage Marathon acreage and STACK as well as ongoing in the acquired acres.
We do have a bit of excess capacity there.
I think one of the things that you would recognize in our activities to date, so for example in the results we reported this quarter we have been transitioning to XL wells in our over-pressured area to look at the value there.
Those well results have been very compelling, and we're very excited about those.
We also purchased this acquisition on the oil buy side based on the fact that they had among the very best productivity on a lateral adjusted foot basis with very low capital costs, which together create a great value opportunity for us.
And so we're going to continue on that basis.
I think we also recognize the opportunity with about half of the acres in the acquired package suitable for XL that we're going to move to also test the XL in that area to see what the best long-term result for Marathon is.
I think in general about half of that is conducive to long laterals, perhaps a bit more as we continue to consolidate and unitize in there.
But that's where we stand today.
<UNK>, thanks for the follow-up question.
First of all I want to be very clear, the $1.4 billion I am talking about, <UNK>, is for the resource play element only.
That would not include other capital requirements and the conventional elements of our business, although we would expect similar to what we did this year that the bulk of our capital investment in 2017 will in fact be allocated to the resource plays.
In that low $50 to mid-$50 window, we would absolutely expect to cover that capital demand within operating cash flows.
Does not mean that we're not still pursuing non-core asset divestitures, but we are certainly not saying we're going to be reliant upon those.
They give us optionality, but we don't feel that we need to rely on those if we are in that price band.
Absolutely.
I think first and foremost you said it well, we've got this great opportunity set that very much competes for capital and the price band.
A lot of that I would say growth aspiration though will be highly dependent upon the pricing that we see.
Being a very oil levered company, we have a very strong response in operating cash flows as we see improvement to the oil price.
So to the extent that we need to modulate between growth as well as generating free cash flows, we are prepared to do that.
The potential that we've got in the three resource plays definitely provides us an avenue for moving to a very competitive growth metric in the future.
Without getting into specifics there, we have that potential.
Sure, <UNK>, this is <UNK>.
I will start in the order you asked them perhaps, but overall it's clearly early in the STACK still.
We are delineating the whole acreage, us and peers, those well results we reported this quarter, the Irven John and the Olive June, are excellent well results.
Their XL wells are performing above that type curve, they are also only about 40 or 50 days into their total production.
So I think we're going to need to let those run a while.
I think we are excited that they are above that curve, and so those certainly an opportunity for resource upgrade.
We will also have, as you might recall, a number of other XL wells in the third quarter and fourth quarter in that same Blaine County area from our heritage acreage we'll get to talk about.
So when we get the breadth of those and they have matured a bit would be a more appropriate time for that.
Turning to the Bakken, I think the well results we reported there are really remarkable this quarter, all off of the same pad.
The three best ---+ among the three best wells put in the basin in the last three years that really demonstrates what technology application, the right landings on the right combination, is and we have the inventory like that.
Similarly we would like to see those mature, but there are other wells in that area that also perform well, which is why we were aggressive in that area.
I think we need to let those mature, but I just echo your point there is clearly opportunity for resource upgrade there driven by that.
Lastly Eagle Ford, we continue to be really pleased with the results of tighter stage spacing, particularly in the oil areas in the Upper and Lower Eagle Ford.
It's responding very well.
We've got a breadth of wells there now, almost 75 wells in that group, so it's maturing which gives us more confidence.
And I think we recognize there will be a need to do a resource update in the not too distant future.
Yes, <UNK>.
I think we went last year from unconstrained Austin Chalk very quickly to 40 acre spacing in the Austin Chalk to try to find the bounds of productivity in that reservoir.
What we've discovered over the last few quarters is that the 40-acre spacing when we've had groups, really our first groups of Austin Chalk well together that are constrained, that the reservoir quality is very high.
It's got a lot of natural fracturing, which we suspected but we're not certain of.
Those wells are communicating laterally a bit, and then overall we're going to get the best capital efficiency in the Austin Chalk at wider spacing.
In that same timeframe, we have also been testing the Upper Eagle Ford, really doubled the amount of our delineated acreage over that time in the Upper Eagle Ford and recognize we can backfill some of those Austin Chalk locations with Upper Eagle Ford, but both at wider spacing.
They just interact better.
Ultimately we're looking for the highest recovery of hydrocarbon out of that unit as the lowest capital input.
So we're trying to optimize the returns at the drilling unit level.
Sure.
I think you have to take a view on price in any of this, and I would reflect that we started this density testing at north of $90 a barrel.
It probably looks different at $40, so the higher commodity price I think the more you'd want to look at that ultimate density, because that just drives the returns from that unit.
We think where we are today evolving, making these adjustments, is appropriate for today's commodity market.
Certainly in the first half of the year, <UNK>, there was a bit of a bias because we had a couple of long cycle projects that were running their course that are now of course both started up, which are the EG compression project as well as the non-operated Gunflint project.
So there was probably a bit more mod bias to the conventional portfolio in the first half of the year.
As we look forward to the second half of the year, that's going to largely be paced by the resource plays themselves.
That will really set that exit velocity that we achieved from a capital program standpoint as we move out of the year.
We do anticipate, based on the activity we've described including the additional rig in Oklahoma as well as some additional completion work in the Eagle Ford, that we will exit the fourth quarter with some pretty strong momentum going into 2017.
To your point on the rest of the portfolio looking forward to 2017, you should expect us to continue to minimize the capital allocation to the conventional program, very similar to what we endeavor to do this cycle in 2016.
<UNK>, our conventional business is absolutely geared toward generating free cash flow that can then be redeployed.
That is the model, that is what Mitch drives the team toward.
We will look at some selective investments there; a great example is the EG compression project, albeit a long cycle project it's very accretive.
It's delivering very strong economics and performance in the portfolio, and it simply going to add to the ability of Equatorial Guinea to add to our cash flows.
I think a separate question though is more of the non-core asset question.
We continue to scrutinize our portfolio and ensure that it's fully optimized.
As I said in my opening remarks, we have achieved $1 billion year to date of non-core asset divestitures, but we believe there is more work to be done there.
We don't think they will be to the scale of say a Wyoming, but we still believe there is some good solid portfolio work, particularly here in North America, that we continue to drive.
And again, it's all focused on that simplification and concentration of the portfolio toward the highest risk-adjusted returns.
<UNK>, I appreciate your transparency.
I will maybe take those two bookends that you just talked about, the $40 and the $60.
Obviously I think at $40, similar to what we've experienced this year, we'd be looking to protect our balance sheet, to ensure that though we continue to drive those leasehold and strategic objectives in the portfolio, and then look with great discipline at some of those discretionary economic opportunities within the portfolio.
We would still be bearing down on cost, we would still be bearing down on non-core asset sales, so those would be the behaviors and the objectives as we ---+ if we saw an environment moving into 2017 that is more in the four-handle range.
I think conversely if we see more constructive pricing moving in to 2017, that $60 as we have talked about, a $10 move in pricing for us is a big impact on our operating cash flows.
And we would be looking to redeploy those pretty strongly back here into the US resource play to not only get back on sequential growth, but get back on that growth quite strongly if we saw that level of price support.
We've protected the organization in such a way that we have the capacity to move to much higher activity levels, and if we saw that $60 we'd move toward that as quickly as we could.
I think as you look at our portfolio, <UNK>, you look at our business model, we have made the shift.
We made the shift in the dividend last year.
Of course it was helpful from an operating cash flow standpoint, but it was also much more consistent with where we were headed in this very short cycle investment resource play intensive business that we are in, and we think from a competitive standpoint given our opportunity outlook for growth and reinvestment, that's the right place for us to place our shareholder money.
<UNK>, I think that's an insightful question.
I think what we would focus on at today's activities, which we are, or at higher activity in the future, would be in our Tier 1 inventory.
As we have taken those technical advances and we have lifted up the returns of some of our portfolio, we have such a breadth of it now that we are going to focus within that Tier 1 first and we will take a portion of our activity to try to test some Tier 2 and lift it up to meet that thing.
We need to stay disciplined in any price environment to make sure we're bringing our best opportunities forward, but also taking the view that we're going to bet on technology, we're going to bet on the innovation and the creativity of our people to keep bringing our portfolio up accretively over that time.
Sure.
As we spun down our activity, we recognized that we have a cadre of early career talented people and we don't necessarily have the direct activity to put them into, so we have taken them out to special projects across the Company.
They are out doing site supervision, work on rigs and frac crews, production supervisors.
So we are retaining them in very valuable functions, maturing their leadership and technical skills and their business acumen, and then as we grow activity we can recall them into other petro-technical focused roles, and they're going to be even better prepared to take those on.
Early activity ramp, those people are here for us.
This is <UNK>.
Just for clarity, at the top of our batting order is going to be STACK oil.
That clearly has the superior returns, whether we look at a $40 environment or even a $50 environment.
I think then the lead table gets pretty interesting because of all the good work the asset teams have been doing.
We actually have more diversity within our Tier 1 kind of inventory that will compete for capital.
The ones that we would see really rising to the top, we're going to continue to see Eagle Ford, High GOR oil, we're going to continue to see Bakken, West Myrmidon specifically come into the mix, and also then also the SCOOP condensate area is going to be a strong performer which will also maybe amplified in the event we see stronger gas support as well.
That is really the lead table as we see it today.
That is an element of it, but there is also an element of course of just base decline in other elements of our business, specifically Eagle Ford which we have already talked about.
I will take maybe the question around the back half of the year on resource plays, and then maybe pitch it over to <UNK> to take on if there is any knock on effect of the completion discussion.
You have seen the releases that have come out over the last few days.
There is clearly more optimism in the market, particularly I think as you stretch into 2017.
I think the sector in general is struggling with striking the correct balance between wanting to be prepared if they get a strong and sustainable price signal versus getting too far ahead of their headlights and losing the discipline that has been required during this downturn.
Speaking from a Marathon Oil perspective, we do expect to build some momentum going into the fourth quarter, which we think would position us quite favorably in the event we do see more constructive pricing.
And I would say that there is probably many others within our space that are looking to do the same.
There of course will always be an element that may have to be more in a balance sheet repair mode as opposed to being on their front foot and looking to drive toward incremental activity, but I don't see a dramatic adjustment just because the declines have been pretty challenging this year, and it's going to be hard of course to offset that completely with late-year activity.
And maybe, <UNK>, if you want to chime in on the question around the knock on and the completion effect.
Sure.
So specifically focused on the Eagle Ford, I think as <UNK> referenced, our guidance takes into our account our view on all that.
So it's there in it.
We have made some adjustments to the development plan, you'll see those reflected in the Eagle Ford second half of the year shift to focus on more ---+ two-thirds of that activity is in the high GOR oil area, which are our highest value type curves at current pricing.
And we have widened out that Austin Chalk from 40 acre to 80 acre spacing to mitigate those influences and three and four zone high density pads are really ---+ we're foregoing those for the rest of this year, and so that will help mitigate those concerns.
Otherwise we've put into our guidance what we think the base decline from 2015 is going to look like.
There will certainly be a ramp associated with that.
That would not be a step-change if you will.
There would be a ramp across the year.
I was trying to just project out where we thought we might exit out of 2017 based on that kind of nominal $1.4 billion type investment, but there will absolutely be a ramp.
And I think too you have to bear in mind that the rigs today are doing a lot more than the rigs did a year ago.
We absolutely are taking advantage of that efficiency.
In fact, in the Eagle Ford we have actually gone down a rig since second quarter, from five to four rigs, recognizing just the sheer efficiency of our drilling operations and the ability of our teams to continue to set very strong pace on the drilling side of the business.
Thank you.
I would just like to thank everyone on the call for their questions and certainly their interest in Marathon Oil.
It's been a busy and productive quarter for the Company.
I think the headlines speak for themselves.
I won't go back through those, but we are preparing for that sustainable price environment where we can profitably grow our business within cash flows.
In 2017, we can get our business back to sequential growth and live within our means, with WTI in the low to mid-$50s.
And as I've stated during the call, we have the potential for even higher growth at higher pricing with an industry-leading leverage to oil.
So thank you again for the time on the call.
I appreciate it and have a great day.
| 2016_MRO |
2017 | PGR | PGR
#I'll go ahead and let <UNK> take that one.
He is on the phone.
That's a good question.
Some of it is obviously the new business penalty we talked about in October, both on the commission side; and oftentimes new business, we don't know the customers well and losses will be a little bit higher.
As you know, we don't talk about our particular goals for combined ratio on each of our segments or on anything under the aggregate of 96%, but yes, you should expect as a company that we will try to be at or below a 96% with all of our products combined.
So we feel very positive about where we're at with agency, and we feel positive about, more importantly, having an ever-evolving preferred product model for them to be able to sell, to give agents what they needed to get us that customer that we had not had in the past.
And we believe the lifetime value of customers that have more products and are more preferred and stay with us because our rates are competitive ends up having more value to Progressive.
We absolutely differentiate on what we think the customer, each customer, the value it could bring.
So looking at a bundled customer we would look at differently than a monoline home or a monoline auto, but always getting to that 96% or lower.
We have not decided and, <UNK>, do you want to give any more color on that.
I really don't.
We are charged with letting our owners, if we choose to redeem in June, know by mid-May, and we will obviously do that, but we have made no decision as to this point.
Yes, when I was looking through some of the documents, we talked about tripling the number of agents, so you will read that in the letter, and then our plan is to more than double that.
So that's where we are at with Platinum agents to continue to make sure we have enough agents across the country as we continue to expand our coverage.
Yes, that was <UNK>'s ---+ yes.
| 2017_PGR |
2016 | CME | CME
#Hi, Rob, this is <UNK>.
Our view on M&A hasn't changed.
We will be looking at all potential M&A to create shareholder value and grow in our strategic point of view.
We'll evaluate all opportunities.
With regard to why we changed to ---+ on amortization, all of our other US exchange peers have taken amortization out of their ---+ out of their earnings.
BATS came out last quarter excluding it, CBOE removed it from their results.
We thought it was important from a comparison purposes to exclude it so that the investing community can have an apples-to-apples comparison with the other exchanges.
Okay, thanks.
Good morning, <UNK>.
Yes, sure, thank you.
Just a couple of things to point out as it relates to CapEx.
On a year-over-year basis CapEx was down, but that was primarily driven by our New York City staff space build-out after the sale of the NYMEX building.
If you exclude all the real estate, our technology spend for the first quarter is slightly higher than the second quarter last year, and about $4 million higher than the first half of last year.
We're continuing to invest in our technology footprint.
I think the second half, we are making investments and continue to make investments in our technology platform for the items that you had referred to ---+ things like repo, things like improving our capacity.
If you take a look at our slide 8 in our deck, you can see that the day after the Brexit vote, we had the highest message ---+ highest message traffic in our history.
It was ---+ it did not impact our speed whatsoever.
I think keeping our platform robust, and keeping our platform improving the technology, improving the functionality, so that's the items that we'll be investing in the second half of the year as we continue the trend.
All right, thanks.
<UNK>, there is opportunity.
As you know, Europe is a very large part of our franchise on a global basis.
The short answer to your question is yes there are, and yes, we are ---+ there are opportunities, and we are in full engagement mode with our client base regarding deeper participation into our market place.
Some of the opportunities that present themselves fit very nicely with what we are seeing to be changing or evolving client demands and client needs.
One of the things we referred to in the earnings call in my formal remarks was precisely that opportunity that lays ahead of us.
<UNK>, <UNK>, <UNK>, and their respective staffs are talking very intently to our clients, and to understand what their needs are.
As you point out, the certainty of US regulation is a very large driver there, too.
Sure.
| 2016_CME |
2016 | RMD | RMD
#Thanks, <UNK>.
Yes, <UNK>, got you loud and clear.
Yes.
Hi, <UNK>.
Yes, the Q4 came pretty much in the middle there.
It was 80 basis points that it contributed.
And then going forward, I think I would stick with that range around that 70 to 100 basis points.
<UNK>, I apologize.
I missed the first half of that question.
Yes I mean that plays ---+ I think we talked about that a little earlier on just because ---+ it does obviously a weakened euro or weaker pound or whatever it might be does impact us there.
If I looked at it just at least in the sort of near term into Q1, with that sort of strengthening and probably some weakening in some of the European currencies, I think (inaudible) probably at my estimates probably a 50 basis point headwind for us going into Q1.
You know it's just a question.
I guess that then would be ---+ currency stay where they are from there on in and you wouldn't see any further impact on a sequential basis.
We might see a little bit on a year-on-year basis.
But pretty volatile at the moment.
So it is hard to say on that.
But near term I would say it is about 50 basis points and, of course, that can change depending on what currencies do.
But at the moment I put it around that kind of number.
Yes, <UNK>, the interest rate for us would be around is a rough number around that 2% mark in terms of the finding cost on the interest if you use that.
At Brightree basically the acquisition is running close to the beginning of the quarter and I think we finished with kind of the net interest expense for the quarter around $2.4 million but it is probably a reasonable go-forward number going into FY 2017.
Sure.
Yes.
On the outlook there on gross margin, I guess as you know it is a lot of moving parts on that.
We have mentioned on FX if I look at certainly from a product mix perspective, it is definitely that sort of unfavorable mix and certainly moderated for us and it is far more consistent.
But to the extent <UNK> mentioned earlier in terms of new mask introduction and so on, you could probably expect that will be supported on a product mix front as we get through FY 2017.
We have done ---+ the team has been doing some really good work around the manufacturing procurement and so on.
We have seen some of that come through so I am quite positive on that.
And then you have got obviously the Brightree is now kind of built into that Q4 margin but that will continue to be supportive as well.
I mean you have the usual ASP declines and things like that coming through.
But overall in the mix, I think some of the big unfavorable items are certainly moderating and potentially could have as masks are introduced and so on that should be beneficial.
So overall we have got probably -a near term and currency headwind is a bit unhelpful.
But overall with that pretty comfortable with that 57% to 60% range and we are kind of more or less just about right in the midpoint of that range at the moment.
That is kind of how I would characterize the moving pieces.
Thanks for the question, <UNK>.
Thanks for the question, <UNK>.
That allows us to talk to our sort of third horizon portfolio if you like.
And, yes, we are absolutely dedicated to cardio respiratory care which is almost ---+ I am not sure it is a medical term out there in the formal literature.
It is something that we are really leading the market on and I define it as sleep disorder breathing amongst atrial fibrillation, sleep disorder breathing amongst heart failure with preserved ejection fraction and I would also include some play in hypertension, some other cardiovascular diseases.
But clearly the data from CAT-HF were incredibly exciting.
I don't know if you had a look at the detail that was presented there at ESC or the Heart Failure Congress at ESC but as you start to look at those clinical data and the level of clinical and statistical significance from a relatively small group of patients it certainly indicates to us ---+ and if you talk to <UNK> O'Connor who is the primary investigator that was formerly at Duke and is still the P.
I.
on the trial, clearly our investigators in all the hospitals and all the clinicians involved want to do follow on work in the heart failure with preserved ejection fraction space.
So it certainly gives me more excitement in the space.
The clinicians are very excited it, the nurses, the doctors, and we would like to continue to invest in the space and so we won't go into details about what an investment will look like, large multiyear clinical trials or a lot of market development work or some combination of the above.
But you will hear a lot more from us regarding that horizon through growth opportunity including the CAT-HF trial and follow-up in the coming quarters.
So the data are not strong enough for an indication for use or IFU to start marketing to cardiologists.
so no.
It would require a lot further work on that front.
What you might see is some work with ---+ you know we talked about the trial with Kaiser Permanente where we did some work on U Sleep.
We might work with payer providers who are looking at these clinical data saying ---+ that is exciting.
We would like to work on that ---+ in some sort of [IRB] or other controlled environment.
But, yes, dont want to go into sort of real details here on the final question of our Q&A about what that part of horizon three will look like at this point.
But what I will say, <UNK>, is you will hear more from us over the coming quarters as to what we are doing in the cardio respiratory care space.
But it is a pretty exciting date for CAT-HF.
I am glad you noticed that.
Thanks, <UNK>.
Maybe one last question today.
So I will hand to Rob <UNK>, our President and COO, to talk about EMEA and APAC.
Yes, <UNK>.
Thanks for that question.
As you saw, we reported pretty good results through there.
We are not going to break it out by country but we saw good continued take up of the AirSense platform.
We have had previously talked about the value proposition really came on very strong but it seemed a little more work to get the value proposition going with some of the other countries and we are very pleased with the progress going through there.
And so we are really seeing good take up across the board so it has really been a good result.
Thanks a lot for your question, <UNK>.
So in closing, I would like to thank the now more than 5,000 strong ResMed team from around the world to their commitment to changing the lives of millions of patients with every breath.
I'm really proud of what the team accomplished not just here in Q4 but throughout the whole fiscal 2016.
To establish ResMed really is the world's leading tech-driven medical device company.
Through the clinical research, new features that expand our products and solutions and our acquisitions, we are transforming how healthcare is delivered and shaping a new frontier in connected care in respiratory medicine.
We remain focused on our long-term goal of improving 20 million lives by 2020.
Thanks for your time and we will talk to you again in 90 days.
I will hand it back to <UNK>.
| 2016_RMD |
2017 | BWA | BWA
#Hey, <UNK>.
Correct.
No.
I see what you're getting at, <UNK>.
Let me just take a moment maybe and give a little bit more color around this instead of just answering it quickly.
So basically, over the last several years, Management has done some strategic initiatives on the defense side of this and put some stringent litigators in place.
That resulted in a very predictable environment for us on that side of it.
That, coupled with a very stabilized tort system, came together at the same time so that we were able to take a look at some actuaries, people come in, some other professionals, and have a very predictable stable environment where now we're comfortable in actually making a 50-year estimate.
In the past we didn't have that type of environment.
So it's a convergence of several things coming together that's mostly predictable.
That's the most important word that I'm going to say here: it's predictable now.
It wasn't predictable before.
Yes, I can ---+ I'll try and take a shot at it for Q4, <UNK>.
So as I ---+ I think earlier, if you caught the earlier question, so from a China perspective, let me start there, <UNK> said that we grew at 30% in the quarter, year over year, which was pretty amazing.
Obviously if you look at what the production numbers were in China, that represents obviously very significant outperformance from us.
We grew just about double digit in North America, which again represents pretty solid outperformance.
Europe, I would say we were below the market, light vehicle market, in Europe, but that's a little bit distorted where we have commercial vehicle and aftermarket revenue a lot in Europe.
So that's a quick characterization.
We can ---+ Pat and I or <UNK> can give you a bit more of a full-year view if you want, off-line, <UNK>, or in a follow-up call.
I just don't have good visibility on that in front of me.
But that gives you a little bit of a sense for the quarter.
Strong outgrowth in North America and China; in Europe, about in line, slightly down, would be a way to think of it.
Yes, I can spend a couple of minutes on that, <UNK>.
So just a real quick recap.
Obviously, we talked about the three architectures: combustion, hybrid, and electric.
What we basically said around combustion back at Investor Day was, combustion is a flat market, basically.
There's about 88 million vehicles in 2016, and it stays about that, slightly down.
BorgWarner's revenue growth is about 5% over that same period, 2016 through 2023.
And we get there two ways.
We get there through increased penetration rates, and we also ramp up a little bit on our content per vehicle.
So combustion goes from 185 to 215.
So if you bear with me, and if I do that same kind of approach on hybrid, <UNK>, we have a compound annual growth rate of about 50%-something over that period, 2016 through 2023.
Again, that's delivered through significant vehicle penetration, where we go from about 20% up to 40%-something, and, again, content per vehicle climbs significantly.
Similar story on electrics, where we continue to see significant growth.
Content per vehicle evolves there as well.
The upshot of all of that, <UNK>, if I was to say where are we sitting here today in February versus where we were when we were in Investor Day, I would say we're on track, if anything slightly better or slightly ahead of where we thought we were back in September.
And slightly ahead means, what I'm actually seeing us get over the line in bookings in hybrids and electrics and combustion.
So we feel probably slightly more comfortable than what we even did back in September based on the evidence over the last four or five months of booking in all three areas, <UNK> ---+ that's the key, all three.
Thanks, <UNK>.
Let me take a shot if I can, <UNK>.
We're about a year into this, and so, real briefly, I would say fundamentally it's performed pretty much as we had expected.
Top line is pretty much there, other than a little bit of endmarket weakness.
Operating-wise, it performed pretty much as expected.
I would say the technology strength and depth, we've been pleased with, in terms of the breadth and the strength of the product portfolio.
I think the one incremental area that I would say is a little better than what we thought from when we went in is, we're seeing the opportunity to combine the Remy product with the traditional BorgWarner product to differentiate ourselves with our customers on technology solutions.
We saw that with the electric drive module, would be a great example very recently.
So I would say that's how I would characterize that.
I think the other element that we feel very good about was the divestiture of the non-core light vehicle aftermarket business.
I think that was a really important move for us in a number of fronts.
So we feel good about that.
So now, as we go into this year, the focus, <UNK>, just to give you a number: in the three-year backlog we characterized the rotating electric portion of our backlog was about 12%, which was up significantly from a year ago.
And that's coming from two aspects: One is what I alluded to earlier, which is the combining of the Remy core technology with the BorgWarner technology to offer system solutions for our customers.
Then the second area is finding ways to gain share with the more legacy products out of Remy.
So basically selling more starters and alternators.
Now we have the leverage of BorgWarner than Remy did in its former life.
So net-net, all around, <UNK>, we're feeling good about it.
It's contributing from a top line perspective in a good way.
We're starting to get some traction on the margin improvements.
Remember, we started this business, it was a 4% operating margin business.
We will get some incremental uplift this year without having the non-core aftermarket business.
We're comfortable we can expand margins on the core Remy business.
Hopefully, if that gives you a little bit of color <UNK> to help.
Yes, so just from a turbo perspective in its general sense, the core story there really is, we're seeing obviously significant penetration uplifts in North America and China.
That's where the growth story is playing out.
Europe is obviously pretty much a saturated space in terms of turbo charger penetration.
And I would say to you that's playing out as we expected.
We're seeing rapid adoption rates in China and in North America.
Pat could give you some detailed numbers off-line if it's helpful, <UNK>.
We're seeing that play out.
From our BorgWarner perspective, our market share expectations are playing out exactly as we thought.
We're winning wring we thought we would win, and we're doing well from a share perspective.
So I would say that's encouraging, too.
And eBooster, we continue to get more and more traction there.
We have a couple of production awards, or in production, I should say, in 2017 with a couple of key customer programs.
We see continued pull and demand for eBooster programs that we're quoting on them, doing very well with.
So we see that trend continuing from a technology point of view.
And we're getting our share and doing quite well in winning that business.
So hopefully that gives you a sense.
Good morning, <UNK>.
Hey, <UNK>.
I can take a shot at that, <UNK>, at least start on that for you.
I would say, first, your assumption is right, where the lead space, if I can call it that, for electric, is in China.
So we are seeing more focus, more drive around pure electrics in China regionally than other parts of the world.
But we are obviously seeing electric adoption rates in Europe and North America also.
I would say all three regions somewhat equally are looking to optimize combustion technologies.
So we're seeing that.
I would say that's pretty uniform around the world in terms of refinement optimization on combustion.
Hybrid, also I would say regionally there's a pull, probably an equal pull of ---+ for hybrids in the different regions of the world.
<UNK>, what I would say to you on hybrids, where there's not a lot of difference regionally, you are getting different customer strategies around hybrids.
That's where Borg's playing a really key role.
They're looking at different hybrid architectures, different ways of getting there.
That's where we're playing a strong role in helping them.
A little bit of regional variation, but ultimately, <UNK>, the critical 30,000 point for us is, we're seeing all the OEMs needing a balance of the three architectures, and we're there to help them with that balance of that three.
That's the really critical part.
Thanks, <UNK>.
I will go to buyback.
I said on the buyback, it's all going to depend on our M&A activity, <UNK>.
We have some things that we're looking at right now.
If they look like they're not going to materialize until the end of the year or next year we would move it up.
In terms, <UNK>, of the new wins, so to speak, it is pretty balanced regionally.
I put those four examples up.
I think that's a good characterization or a good representation of actually how it is playing out.
You've got a really advanced electric vehicle system that's out of China.
You've got the latest and greatest turbocharger technology that's in Asia and China.
Suzuki, as you see, Alfa Romeo is a European.
But I wouldn't be surprised when I show you in the next call, another four.
They could be North America, or whatever.
It is pretty balanced, both regionally, <UNK>, but also across the combustion, hybrid, and electric propulsion space.
It's pretty balanced.
Yes, <UNK> this is <UNK>.
I would say that's a pretty good description you gave.
And I would give you a little bit of color of why I think that is.
Because I think it's ---+ if I can say it this way, it's an incremental evolution to the end game.
And I think you have seen this yourself.
It's not a light switch where we're turning off combustion and turning on electric.
It's kind of a journey, and it's an evolution.
The reason that's important, that does a couple of things: that allows us to be thoughtful and balanced in terms of making our investments and evolving the portfolio, as opposed to throw a third of it away and bring a brand-new third on that we've never done before.
That's why we have the comfort and the confidence in the evolution, because it's not a light switch type event.
The other quick comment I would make, <UNK>, that gives us incremental confidence is, as I have alluded to through last year, we are in production with hybrid technology.
We're in production with electric vehicle technology.
And we have been doing that over the last three or four years and still delivering the incrementals over that period of time.
And what we're also seeing is the financial performance of those electric and hybrid vehicles is very good.
So I don't want to characterize, <UNK>, that this is easy.
I don't want to tell you that, but I would tell you we feel comfortable that this is more of an evolution than an event, and we're comfortable we can manage through it and deliver what we say we're going to do.
Thanks for bringing that up, <UNK>.
I think your note characterized it pretty well, frankly.
[Brash Marlow] is, rough numbers is 4% or 5% market share, and I think what it really confirmed is that barriers to entry in that turbo space are pretty hard.
It's pretty tough.
And I think you alluded to that, and we would confirm that.
A lot of technology, a lot of IP, a lot of manufacturing capabilities, et cetera.
It's an investment business.
Yes, we defend that very, very strongly.
And I think you see that it's a tough space for them to do.
In terms of how it plays out, I think we'll have to see, candidly, we will see what plays out in terms of what happens with that asset.
We do feel extremely positive about our position, frankly speaking, in turbo.
We have about a third share.
We talked about that.
Win rates are good, our booking rates are good, our technology leadership we feel really good about.
And so we're feeling good about is the quick answer, <UNK>.
But in terms of the specifics of how it plays out, we'll have to give that a little bit of time.
Thanks.
Correct.
All we really did is, we ---+ there's two types of liabilities out there.
One of them, when people file claims, we had to do an estimate of what we expected those settlements to be, which we've always had out there.
We had an asset and a liability.
What we did is, we trued that up; but more importantly, we took a look at the universe of what we call IB&R, incurred but not reported yet.
What we did is, we took a look at that as well.
And what we did is, we took a look at for 50 years, put that on the balance sheet.
Our insurance receivables are still out there.
I encourage you really to take a look at the K that we filed today.
It gives more clarity around it and also gives you more of what the asset values and liabilities are on the balance sheet.
I don't want to spend a lot of time on the call going through all those details, but there's a lot of clarity, I think, in the K that we're going to put out around this issue.
Great.
Thank you very much.
Much appreciated.
And I'll look at the K.
Thanks, guys.
Good morning.
I would say, <UNK>, if you think of what we did in the three-year backlog, where we broke out the products, actually by discrete products, but also you can clearly see what's engine and what's drivetrain.
My sense is, I would see that's probably a pretty good barometer for on an annual basis, is a good way to think of it.
So we provided the detailed breakdown there by product and by segment for you in the three-year view.
I don't think will you go too far wrong if you view the one-year view somewhat similar to the three-year view, if that's helpful for you.
No, I don't think there's ---+ no, it would be my quick answer.
And in terms of margins, the quick answer, from an engine point of view, we're pretty high up there.
So we're kind of keeping pace at an incremental basis and absolute are pretty much there.
We talked on the drivetrain side.
We've always said there's a little room for incremental uplift there, and we continue to drive that for sure.
Thank you.
With that, we're going to end our call.
I would like to thank you all for participating today, and thank you for your helpful questions.
Denise, you can close the call.
| 2017_BWA |
2017 | PWR | PWR
#Thanks, <UNK>
Good morning everyone and welcome to the Quanta Services second quarter 2017 earnings conference call
On the call, I will provide operational and strategic commentary before turning it over to <UNK> <UNK>, Quanta's Chief Financial Officer, who will provide a detailed review of our second quarter results
Following <UNK>'s comments, we welcome your questions
We remain on track to achieve our full year guidance and multiyear outlook
We continue to execute on our core business and strategic initiatives and continue to believe that our end markets are strengthening
As a result, we believe 2018 and 2019 are firming up to be solid years for both our electric power and oil and gas segments and that Quanta is in a renewed multiyear up-cycle
While the timing of when project contracts are signed and reflected in our backlog can be challenging to predict, we have good visibility into the overall CAPEX and OPEX spends of our end markets and remain in active discussions with our customers for billions of dollars of work
I will note that the timing for larger projects is currently more difficult to predict due to the lack of commissioner quorum at FERC
Despite these challenges, we believe it is not a matter of if larger projects move forward, but when
We continue to believe end market drivers remain firmly in place and that we have the opportunity to achieve record backlog levels over the next few quarters
Turning to the electric power segment, we are generally pleased with our performance during the quarter as mentioned earlier
We continue to invest in the workforce for our electric distribution business, which created short-term margin pressure in the second quarter, but it is necessary to support future growth
Nevertheless, we are on track to achieving our margin expectations for this year and continue to believe we have the opportunity to improve operating margins to double-digits as these investments pay off and our Canadian operations strengthen with the start of field construction of the Fort McMurray West Transmission Project
Our customers are actively executing on existing capital programs
Small and medium transmission projects as well as distribution work remain active, and we continue to have discussions with customers about the solutions we can deploy for new large multiyear capital programs
These programs include both larger and smaller electric power infrastructure projects that are designed to upgrade and modernize the grid
On prior calls, we have talked about and anticipated an increase in larger transmission project awards
<UNK>ier this week, we announced that Quanta was selected by American Electric Power, or AEP to provide EPC solutions for the Wind Catcher Generation Tie Line Project
The anticipated contract value for this project makes it the largest award in Quanta's history
The Wind Catcher Tie Line consists of approximately 350 miles of a single circuit 765 kilovolt power line and two new EPC substations in Oklahoma
We will provide turnkey EPC services for the entire project
Once completed, the line will deliver energy from the Wind Catcher wind farm in Western Oklahoma to customers in Arkansas, Louisiana, Oklahoma, and Texas
We are providing early phase project services to AEP
And subject to AEP obtaining regulatory approvals, we expect construction to begin in the later part of 2018 with the completion expected in late 2020. We have yet to determine whether the project will be included in the third quarter 2017 backlog
Quanta has built more high-voltage electric transmission infrastructure in North America than any other specialty contractor
With industry-leading experience constructing 765 kilovolt lines, Quanta brings significant scope, scale and financial resources as well as a track record of safely executing large complex projects
We are also able to provide cost certainty to these projects like the Wind Catcher Tie Line, all of which, we believe, are competitive advantages
We have agreements for and continue to discuss additional large transmission project opportunities with numerous utilities and merchant transmission companies in North America
Several of these projects are making progress through the permitting and regulatory approval process, with announcements possible in the medium-term
Further, our ongoing investment in training through Quanta's world-class training facility, college and trade affiliations, and other regional activities, and our commitment to meeting the long-term needs of our customers sets us apart in the marketplace and will continue to pay dividends
We have added to that effort by helping form a non-profit line school
Although in the early stages, we believe this school will help to develop quality line workers to supplement our growing resource needs
Our oil and gas segment had a good second quarter as we executed well on several mainline projects and other work, which resulted in solid operating income margins
Further, backlog held up well in the second quarter, especially considering segment revenues increased strongly over the same quarter last year
As a reminder, oil and gas segment backlog can vary ---+ variable due to its faster book and burn nature and the timing of larger pipeline project awards
In July, Quanta was awarded two spreads of the Canadian section of Enbridge's Line 3 Replacement Project
Quanta's scope of the work includes the construction and installation of approximately 168 miles of new 36 inch diameter crude oil mainline pipe, which will begin in Hardisty, <UNK>a and continue into the province of Saskatchewan, Canada
Construction is expected to begin this month and is anticipated to continue through 2019. This project supports our prior commentary regarding improved expectations to booked pipeline work for the second half of this year
As I commented earlier, FERC currently lacks a commissioner quorum, which is required to provide final approval for major projects, including pipelines
Due to this uncertainty, customers have been reluctant to sign project contracts
A recent Bloomberg article estimated that there is $50 billion of energy projects that are held up and waiting FERC approval
The Trump administration has nominated candidates to fill all currently vacant FERC commissioner seats and we believe a quorum will be achieved over the coming months as commissioners proceed through the confirmation process
The majority of the pipeline projects waiting for FERC approval are planned to begin construction in 2018. Quanta remains in late-stage discussions and negotiations on multiple larger pipeline projects, and we continue to believe that 2018 and 2019 will be active years
We believe a number of them will be awarded pending their receipt of FERC approval or perhaps earlier and should break ground over the next 24 months
A couple of weeks ago, we announced the acquisition of Stronghold, a leading specialized services company that provides high pressure and critical path solutions to the downstream and midstream energy markets
Stronghold is a strategic acquisition that will allow us to capture a greater portion of the industry operating and capital spends
With positive industry dynamics, visible cross-selling opportunities, and Quanta's support, we believe there is a multiyear opportunity for Stronghold's operations to achieve double-digit growth
Stronghold's recurring revenues, accretive operating income margin profile, and strong free cash flow generation align well with our strategic imperatives for long-term profitable growth
Since announcing the acquisition, a number of Stronghold's customers have responded very favorably and we have received inquiries from several customers that would like to learn more about the comprehensive solutions, a combined Quanta and Stronghold can provide them
The growth of our communications infrastructure services operations continues and our outlook remains positive
market expansion efforts are going well and continue to be very well-received by current and potential customers and we are actively pursuing opportunities with various U.S
telecom and cable MSOs
During the second quarter, we booked approximately $150 million of new project awards in North America, the majority of which were in the United States
We are in discussions with providers across North America and in certain countries in Latin America for projects worth several hundred million dollars in the aggregate, which, if we are successful in signing, would be performed over the next few years
Additionally, during the second quarter, we completed the strategic acquisition of an established communications contractor that serves the Southeast and other regions of the United States with strong customer relationships
Now as a part of Quanta, we are growing the business and have strong support from its key customers
We remain focused on organically growing our communications services offerings
However, we will evaluate select acquisitions that bring strategic value to Quanta and allow us to provide differentiated solutions and that can accelerate our expansion efforts
In summary, we remain on track to achieve our full year outlook, continue to have a positive multiyear view of the end markets we serve, and believe we are entering a renewed multiyear up-cycle for electric power, oil and gas, and communications infrastructure services operations
We are confident that Quanta is well positioned to provide unique solutions to our customers and capitalize on favorable end market trends
Our small and medium-sized base business work continues to grow nicely and we are seeing larger electric transmission and pipeline projects move forward as evidenced by the Wind Catcher Tie Line and Line 3 Replacement Program projects
We are making progress with our U.S
communication services expansion efforts and see meaningful growth opportunities for our operations in North America and Latin America
We are focused on operating a business for the long-term and continue to distinguish ourselves through safe execution and best-in-class field leadership
We will pursue opportunities to enhance Quanta's core businesses and leadership position in the industry and provide innovative solutions to our customers
We believe Quanta's unique operating model and entrepreneurial mind-set will continue to provide us the foundation to generate long-term value for all stakeholders
With that, I will now turn the call over to <UNK> <UNK>, our CFO, for his review of our second quarter results
<UNK>?
Yes, good question
From our standpoint, what we're hearing from customers and how we're looking at schedules, we believe that everything that we're hearing that there will be a quorum, number one
I think yesterday or day before yesterday, some of them moved through committee, so that's a good thing and a good sign
We're not here to predict when that's going to happen
has been ---+ every day is something new
So we don't know, but our customers are optimistic and so are we
As far as when we need to get it, it depends on the regulations and what area you're in and how much they relax those as well
What we're hearing is good things about some of the relaxed ---+ relaxing some of the regulations on us as far as clearing and things of that nature will ease the construction and so you could get later in the year
But as we see it right now, we're optimistic that the quorum will happen and we'll get approvals on some of these larger projects
So in general, the industrial service business, we've been in it a long time, and we performed very well on our high-voltage side down
So we understand the market and we understood the others that have ---+ came out with announcements and where they were at as well when we made this acquisition
We fully understand
So that being said, what we do is we're critical path on both sides of that
And it's necessary ---+ our services are necessary in any turnaround and also in any cost structure that you would have in a turnaround
So if you wanted to expedite a turnaround, we believe that what we do is critical from our handling capabilities on the catalyst side to our high voltage side as well
So those two things are extremely important as well as all your ancillary services around that
That being said, the company that we bought has a five year track record plus a double-digit growth as well as a margin profile that's industry-leading, and we're confident in our guidance and what we bought
We're happier today or as happy today as we were when we purchased the company and believe the company itself fits in well
And everything that we've seen has been great as far as the management team and we're extremely happy and they fit in well as far as that goes
As far as cross-selling, we've been able to cross-sell already and have good client conversations about how the two put together and we can do unique things on the turnaround side
My comments were pre-Wind Catcher
And I also want to reiterate on the quarter, I think we had an exceptional quarter
We're right on track
We think that, from what we see, the markets and also our guidance is intact and we're affirming as well as increasing as far as I'm concerned
Yes, <UNK> I think you know we've been consistent in talking about our base business, which is particularly about 85% of what we do on any given day is our base business
The larger projects are a small piece, 15% of the business
So we're around the edges on them all
We talk to our customers all the time
We're involved in many, many projects, some as big as Wind Catcher, some not
But in general, we understand the markets
We understand the end markets and then we're able to get in front of that and provide solutions
We've said all along, we need to be solution-based
We need to able to program manage
We got out in front of some engineering capabilities, and it's consistent with what we've said for the previous years and where we're going with the company as far as the solution base
And our relationships with the clients and our execution capabilities are exceptional
Our guys in the field are just exceptional
Yes, <UNK>
I think, in general, what we'd say ---+ let me go backwards on the communications side as we've kind of commented on the $150 million to $200 million
We think we're on upside of that, the $200 million, as we sit today
And we're proud of where we stand there and what we've been able to do so far, primarily with organic growth there, almost holistically, organic growth
So we're happy with where we sit as far as the communications go
I'll comment a little bit and turn it over to <UNK> on what we said from a comment
When we gave the commentary on the $10 billion and what we said, we said we could see it
We never gave a time frame
We stand by that
We can see it
And so we see it; it's attainable
We wouldn't say it if we couldn't see it and I'll leave it there
I'll turn it to <UNK> on the numbers
Thanks <UNK>, I think, in general, that we basically work with Enbridge on the rest of the project
There's another portion that will come out later that we'll bid as well
They're great clients
We continue to work with them, a collaborative effort across both Canada and the Lower 48. We're not ---+ I don't want to get into a bunch of comments on where we're at on specific projects for competitive reasons, but in general, great, great client and we look forward to work with them ---+ working with them on this piece of work
Yes
<UNK>, it was a small acquisition
And it brought, actually, no backlog to us in the Southeast, but great client relationships and such
So we're able to leverage their client relationships across a broad spectrum and add our solution capabilities and some of the people that we had already
And we pulled them out of Canada and such and then really boosted our telecom operations and get a kick start in the Southeast
If we're able to do that in multiple areas, we'd do it, but it was a very small acquisition
I do not think we have a kind of a program as such as far as an acquisition profile in any way, shape or form going forward
We said we'd organically grow and I think that's the intent, but we're not going to pass up good opportunities
Yes, a little commentary as well
When you compare it to 4Q of 2016, we are on multiple large spreads in the South and so that's not in our backlog as we see it today
So that's part of our comparable issue as well
Yes, I'll take the electric side of it
In general, I think what we saw in the quarter, we added 500 or so people
We've added 1,500 as we look at the year so far just without the acquisition
So when you're doing that, in the distribution business especially, it does create some inefficiencies
It was ---+ what we see in baseload work and how we're ramping on that certainly caused some unique issues as well as we are ramping on our telecom business
And so in the segment, it caused some unique variables
And I think that's not what you see going forward
When you look at this business as we do and give guidance over a period of time, our ability with utilizations and such that just goes away
But that was a unique kind of quarter where you saw some pressure
It was not that much
And as <UNK> said, we were still in the double-digits in the Lower 48, but we thought we should at least comment to it
Chad, in general in Canada on the electric side, we see on the larger side ---+ large transmission side, we still see opportunities there
We've been disciplined about how we bid this work
We're starting West Fort McMurray now in the field and we're happy with where we sit there
We'll be ---+ we'll continue to be disciplined up there
We know our costs
We know where we're at, and we see it strengthening from a large project standpoint with non-core Nalcor as well as starting West Fort McMurray
And even when we come off Nalcor, we feel comfortable that we'll start to see that market strengthen due to that ---+ those projects as well as some of the base business coming back on your Eastern side of Canada as well as on your Western side of Canada
But in general, the overall economy is depressed due to the energy markets
We've been [indiscernible] that will help on the gas pipeline
So we are seeing opportunities there as well
But more importantly, I think our discipline on large projects and how we price work at states that size and we don't have any projects that we are off the rails or any issues, which I think says a lot about our execution capabilities as well as our bidding discipline as we move forward
I mean, I think, in general, the process within FERC has moved forward
The work underneath is ongoing, right of ways and things like that are getting bought, easements, all the necessary things within the state levels are getting done
We're optimistic on the ones that we're looking at or working or collaborating with our customers that we're moving forward
And as we stated before 2018 and 2019 we believe will be a robust environment
And so when we see that, again, it's mainly just waiting on the FERC quorum and final approvals, in my mind, to see us into 2018 and 2019.
We've been ---+ we've performed EPC work for 50 years, primarily on the transmission side of the business, substations
So we're very familiar with EPC and the risk profile
I'm confident in our capabilities internally to perform that work on leaner construction
And again, we had the power plant that was a problem, but that was something completely different, something that we stated that we're not in today
So that being said, we do understand the risk profile, having had ---+ of that project, on something that we didn't understand as well
So I think, in general, what you see and what you see in our backlog and our ability to perform on EPC, on electric side or the gas side, we do it very well
We're excited about the opportunities
We looked at that
I think, in general, what ---+ we can stay in our historical margins with the mix of EPC that we have today
If that changes, we'll come out and say so, but what we see today, we're very comfortable
And I'll let <UNK> comment on some of that, but in my mind, I'm happy with where we're at
I think we can stay in historical margins
We're not there yet, but probably we'll be there and even with EPC, but I'll let <UNK> comment
Yes, and I think we have consistently commented on this that we believe we'll be booked in 2018 and 2019 in the Lower 48. We stand by those comments
I just did
We're going to stand by our books
We believe we have a robust environment
It's difficult for us to comment on what that is going to look like
And certainly, in 2018 to 2019, we're not going to give multiyear kind of quantification on it other than to say it's a robust environment and our spreads, we believe, will be booked in 2018 and 2019.
Yes, I mean, again, as you start to see utilizations go up and project mix go up when you see bigger projects and the big transmissions start to move back in, as we've said before, the margin profile and ---+ at the risk profile and margin profile, we believe we can execute through
Certainly, it drives your margins up, but again, our base load work and what's going on in there as well, it's not necessary, but it should enhance margins
Yes, I mean, I think, as far as we see it, the labor environment and the amount of labor and qualified supervision that's in the market out there today, we talked about in the past that we've been a little heavy in supervision in certain areas a year ago or a year and a half ago because we saw some of this coming
We're in a really good spot from a labor standpoint as well as working with our line programs and things like that
We saw some costs roll through there
We got in front of the build
We consistently talk to our customers about what's going on and preplan and get involved with them on a collaborative effort
And that being said, it allows us to look at things like Wind Catcher and a multitude of projects, both on the merchant side and with our customers that ---+ most of over 50 years with us
So we stay involved with them and I think we're in a good spot and we really like the market going forward as I said before
Yes, <UNK>
I think, in general, from a weather standpoint, I mean, we bid kind of a weather pattern in our work and certainly there was probably something across ---+ the Northeast, I believe, was pretty wet
Again, we looked at it
We looked at the weather patterns, we have historical, and we worked through it
And basically, some of our design is that we're in West, East, wherever it's at and we were able to execute through any kind of weather issues
And I think if you look at the business from a mainline and base work, and this and that, again, about 75% to 80% of gas pipe is base load work, not mainline, so ---+ magnitude
Yes
I'd like to thank you for participating in our quarter ---+ 2017 conference call
I'd also like to thank the 32,000 plus employees in the field for safely executing through the quarter
We appreciate you, and thanks for your interest in Quanta Services
| 2017_PWR |
2016 | SIVB | SIVB
#Hi Aaron.
Aaron, this is <UNK>.
I'll start.
So we don't give guidance on it, but let me give you a couple ---+ few pieces of color.
One is you said that we have a good visibility to up rounds and down rounds.
Again, what we saw through the fourth quarter was no, I'll call meaningful, and I honestly can't think of any or many down rounds that we saw.
Do we think that is going to change.
Sure, that's going to change.
But, when you look at it, the market, these companies continue to still perform, this is a broad statement, perform at a very high level, number one.
And number two, going back to what <UNK> said, they are refocusing their efforts on going and becoming cash flow positive.
We think those are good signs.
And there is the availability of capital.
So we don't believe it's going to be a complete shrinking of capital in 2016 so that down rounds are going to be the norm.
But of course, it will happen.
So do we expect it to be lower than last year.
Absolutely.
But, we're still feeling okay about the outlook.
And the last point I would make is, one thing I'd pay attention to is when you look at our filings and look at the number of warrants that we actually have, we continue to take warrants actually at a faster pace, and it has been that way the last few years.
That gives you a sign, and it may not be for this year, because that is what is difficult to predict.
But the trend is that we continue to take warrants and if there are down rounds, that's going to be a good opportunity for us to price rounds at warrants at a lower level.
Maybe perhaps if I may, the one thing ---+ or a couple things I would add, Aaron, as you know, probably, is generally you have to monitor and follow what is the state of the IPO activity or M&A activity.
If those two things are ---+ continue to be strong going into 2017, particularly M&A, then you could likely see some nice gains there.
Obviously, continue to watch the stock markets and evaluations thereof as well too.
Look for tech spending as well too.
But sometimes, unfortunately, we get some bad press or headlines, well IPO activity slow down or ended.
But the reality is a lot of the exits from, whether it's warrants or the investment gains, really comes from M&A.
And again, that has demonstrated over the past year that it's pretty healthy, and it is likely probably to continue at least a healthy clip.
And maybe just to add on to that.
The last part is on M&A.
Is it goes back to one of my comments that thinking about the activity levels of these technology companies that are the larger, more mature companies, I believe you're going to see a greater activity level of acquisitions in M&A then we even saw in the last few years because of their focus on having to fill their R&D pipelines.
They have to figure out how to grow and differentiate themselves.
That's happening with technology companies, innovation companies in that early and mid-stage level.
So you may see a little bit of change here and there, and you may see a slowdown, but I think it will pick back up, if it does, very quickly.
Yes, I'll just give you some general color, and I think you might be able to discern it from some of our comments.
We did talk about that we had a strong run-up in capital call lines in the private equity.
And we mentioned in the notes and the comments that look, you could see something similar to what happened last year, which is we may hold through the first and maybe go into the second quarter and then you may see some pay downs.
But going into 2016, as we said, the balances look strong and at this point in time and seem ---+ are holding.
And we'd probably be expected to hold fairly well, but again, there is always the risk of the pullback, as you're alluding to.
Thank you.
Yes, I don't know if I'd describe it as cushion, per se.
But as you know, we carried at a fair value and the way we value the warrants is using a Black-Scholes model, which has a few inputs certainly, which you can certainly look up to.
But it's certainly at fair value.
One of the larger drivers is whether there is an up or down round, aka, the stock price component of a Black-Scholes model.
There's certainly the risk-free rate.
There's the time value of money.
There's a volatility factor as well too, and then obviously the fifth factor in the Black-Scholes model is dividends, which obviously none of these pay.
So really it's just a fair value we market each quarter.
Hey <UNK>, this is <UNK>.
One of the things you may be thinking about is in the investment securities portfolio.
So we do have, there two different parts.
One is held at fair market value and then there is others that are held at cost, and it's basically the structure of the investment.
If you look back over the last quarter, there was roughly between $80 million and $100 million of value difference between the cost, which is what we are carrying it at, and the fair market value.
And it's in the financial statement, so if you are talking about some cushion, that's one place where you may see it.
So this is <UNK>, <UNK>, I'll start.
I just think when you look at new client additions, the last couple of years have been very strong, and so they have obviously contributed to it.
So I don't think there has really been a change materially from new client contributions versus existing client contributions.
This is Mike.
I will actually be brief.
We don't really see, I would say, a characterization of seasonal flow of deposits for us.
As you have seen, it has pretty much been consistent growth for the last several years in deposits.
So at this juncture, at this point, we really don't anticipate any major change in that.
Now again, as we alluded to, we talked about how maybe perhaps the higher interest rates might be able to help us move some clients' deposits products or off-balance sheet.
But in general, as <UNK> was also talking about, the Company formations continue to be healthy and some of the funding rounds were healthy, even getting towards the end of December as well too.
So we don't really see any pattern at the moment in terms of deposit outflows related to any seasonal items.
No, as we commented about that as well.
We actually think, it may happen similar to what happened last year where the loans actually held fairly well going into Q2 last year.
So we possibly could see a similar experience.
The categoric answer is we really have not seen any major runoff so far this quarter.
As you may have guessed, we really don't break it down between PE and VC, but I will just say generally, a lot of the strength and the growth over the last couple quarters has been driven primarily by some of the PE.
There's just much more larger dollars and more funds and firms there in order to grow.
So that's where we've seen the predominant amount of the growth.
There's certainly still some growth in the VC area, but it's largely driven by the PE area.
Hi, <UNK>.
Let's just wait till we come out with the 10-K to show you the general.
But you can refer in our past in the 10-Q about the impact of the rate increases.
They will be directly consistent, yes.
Sure, this is <UNK>.
So you are going to see greater numbers, bigger numbers from private equity.
Secondarily, you will see it in the private bank.
You'll see it in global.
And those are the sequencing and a prioritization of where the growth is coming from.
And below that you are going to see growth consistent across the other industries, niches, so life sciences, technology, later stage, early stage.
That's a good breakdown of what we see happening from a growth perspective.
Geoff, this is <UNK>.
So when we look at ---+ so we've done stress testing for a while, and although we are not required to do stress testing and what I'll call idiosyncratic.
So this isn't one of the guidances that the Fed gives you; they don't talk about a tech impact.
We obviously do that.
And from the standpoint of how we're looking at it, we feel good about it.
And here's an important point: when we see the stress in the portfolio, we keep referencing back, and I will reiterate that 8% of the portfolio is the early stage.
That is where you see the stress.
That's when you would see a big impact.
But if you look at that and even if you had a 10% loss in that, you are looking at 80 basis points across the overall portfolio.
Now you'd see it in other parts of the portfolio as well, but it mainly early stage.
That's one way to think about stress overall, but we obviously don't publish the details of that.
They are just part of our risk management.
We haven't come out and commented exactly how much we're spending.
Part of the challenge is we obviously have been growing extremely fast and our expense growth rate have obviously been growing as well, as we invest in our business.
So we have not broken that out to give you any indication of that.
But having said that, we are continuing to invest and spend money, but it's not as if something you're going to really notice any pick up in our expense run rates at the current rate.
We have been investing for a number of years, so it's in our run rate, and we will incrementally continue to add.
But again, once again, it's just not going to raise it's head for you to see necessarily any major changes in our expense growth rates.
Average across the portfolio.
Yes, I'm not sure we have it for the fourth quarter in isolation, but it's in the plus or minus 4% across the portfolio.
This is <UNK>.
There's two aspects of it.
One is that the last two years in venture capital activity, although we've had a robust growth in venture capital activity in the US, the growth in venture capital numbers actually was even stronger on a percentage growth in 2014 and 2015.
As we look at that market, we do expect a pullback there, potentially even greater than what we see in the US.
That being said, in the innovation economy in China continues to be on an uptick.
And you think about it, what's happening in China actually ends up not being a negative for the innovation economy.
Right.
So China has got two different markets, right, they have the innovation economy and the old economy.
Old economy is the one that is struggling.
And they have got to figure out how to balance that, which means that more than likely, they are going to reemphasize or increase their emphasis on the innovation economy, which from our standpoint, bodes well.
And actually, we may overtime accelerate that.
So we feel good about what we're looking at in China, about the outlook.
But remember, as we said on the last call, this is a long-term strategy.
So you're not going to see very much change in the next 12 months, 18 months with our financials from any real impact on China.
Great.
I want to just thank everyone for joining us today.
We had a record year in 2015, which I'm extremely proud of.
But what I am even more proud of is how our team, and that means all 2,000-plus SVBers, executed on our strategy and took great care of our clients.
Our outlook for 2016 is strong, despite this early volatility that we've seen.
We tried to give you as much color as we could and have seen on that, and we remain committed to long-term smart growth.
So I want to thank all our employees for doing such a great job in 2015 and getting excited about 2016, and to our clients for putting their trust in us and hopefully trust for many years to come.
With that, have a great 2016.
Thanks, everyone.
| 2016_SIVB |
2016 | RIG | RIG
#We are seeing increasing interest in activity.
I think the interest has always been there since it's such a prolific basin.
So our customers are actively engaged with Petrobras, looking at their opportunities.
We know there's a lot of interest from, certainly, the majors and the independents.
We expect that there will be more opportunities for them in the future.
How quickly that will translate into more rig activity, it's difficult to say because the independents, the majors already have some form of portfolio there.
So as soon as we see some significant stability, not significant, but some stability in the oil price, I think that we'll start seeing some activity within the next 18 to 24 months.
It's difficult to say at this point in time.
My guess is, the answer is no, that we may not, at least for a couple.
It is going to be based on the customer, it is going to be based on the application and what we see as the future for that particular rig and with that particular customer.
I will say that we're also currently exploring the possibility of looking at some of the rigs we've cold stacked, or at least one, and kind of seeing if there is a hybrid over time where maybe we can get that rig ready to go but now is not the time.
We're going to have to see some improvement in the marketplace first and then kind of pursue how can we get some of these cold stacked rigs back and running even more quickly and cost effectively than we have historically.
But again, we need to see some light on the horizon before entering into such a process.
Yes.
Thanks.
There's not.
<UNK>, let me take a shot at that.
I think the way to look at this that we have to beat the competing rigs on a daily basis therefore to win the work.
But as <UNK> mentioned previously, we're not willing [rent] the rigs at below cash breakeven.
So we look at making sure we cover our cash costs, firstly, and then our up side in some cases where it is beneficial to us and to the customer to drill the well in that time period, we will take our up side in the form of performance bonuses.
Bear in mind, we have a database of wells which we've drilled around the world which is extensive.
It is by far the biggest in the industry, in fact probably bigger than anybody they else put together.
So we have this information available to us which we can extrapolate in order to make sure that we minimize our risk when taking these performance bonus opportunities.
Bear in mind, <UNK>, if you go back over time the transaction was involved in a significant event, the Macondo event.
So there is a lot of uncertainty is and risk around that.
So at that time, too much cash was not a concept which you had at Transocean.
You wanted as much as possible.
So coming out of that the Company was focused on having a much bigger cash balance.
Obviously also operate a much bigger fleet.
As you are well aware now, our number of operating rigs are coming down dramatically.
So as a result, the amount of cash we need to support that comes down dramatically as well.
So I'm very comfortable in saying in the 2018 time frame, even in the 2017 time frame, we'll be able to drop cash balances down to the mid, call it the $500 million area, and perhaps lower than that.
I would try to indicate that the whole $1.5 billion cash is no longer a goal of Transocean.
Oh, it's not much at all.
I can get you the exact number but I don't think it's much at all.
Certainly well less than $10 million.
Thank you.
Yes, I would like to thank everyone for your participation and questions today on our call.
If you have any further questions, please feel free to contact me.
We will look forward to talking to you again when we report our third quarter 2016 results.
Have a good day.
| 2016_RIG |
2015 | MOH | MOH
#We can say that year-to-date number is pretty solid.
Focus on the year-to-date, not the quarter.
This is <UNK>.
I don't know if we have too many of the co-ops closing in the states we're doing in the marketplace.
We price our products at a point where we thought they would be competitive and yet remain profitable.
And I would also want to make sure that people understand it's not just the premium, it's also things like co-pays, deductibles, et cetera that really roll in to what a competitive financial package is.
We think we're well positioned for the marketplace going in to next year.
This is <UNK>.
I think that clearly incumbents in a state like Georgia have an advantage.
You're operating there.
You've got your networks in place.
You're well know both to the state and to the providers.
That clearly played in to it.
I don't want to comment on Iowa.
We are happy with the results in Michigan.
I wouldn't read a whole lot in to it.
There were three RFPs in three different states with a lot of different criteria, so it's hard to draw conclusions across them.
Well, we didn't do the acquisition because of the RFPs.
We did it because we believed there's an overall trend in the Medicaid program to integrate and coordinate behavioral health with the medical benefits, and that's a long-term trend.
At the same time in many states where we're being asked to manage those benefits, we felt it was prudent for us to have a stronger presence in the behavioral health area and also to have providers that we can draw on.
So Providence is largely a provider organization, providing care to Medicaid beneficiaries.
It matches very well with our business and our strategy.
Ana, we haven't changed our thinking in terms of where we want to be in 2017.
Well, this is <UNK>.
We've not provided any guidance on what we think our 2016 marketplace is going to look like.
It's really hard to tell.
We've put together what we think are competitive rates.
We remain in operations in all the states where we had operations last year.
We have slightly expanded our footprint by adding a few new counties.
But remember too that the primary goal of our entering in to the marketplace was to provide continuity of care for people that had been on Medicaid and maybe no longer qualified and have become uninsured as a result, and that continues to be the strategy.
If you look at our marketplace enrollment, it's largely people below 250% of poverty.
This is <UNK>.
You're working way too hard if you start this by saying good morning.
(Laughter) We don't have the granular detail in terms of why people roll off the marketplace during the third quarter.
There is no indication on our part.
I don't believe that they give us reasons why people drop off, whether it's ---+ whatever you [assign it] to.
The answer is no.
It's the launch in the MMP in Texas, <UNK>, that's picking up speed.
So we will run the [MCR] (multiple-speakers) initial stages.
Correct.
This is <UNK>.
It's hard to say at this point, because we haven't closed the acquisition.
The first thing we've got to do is close.
And then we can get in there and begin talking to them about how we can make better use of their services, but that is our goal.
I just can't give you any idea on the timing.
Certainly.
That's a big portion of it.
Yes.
We thought we'd have it by the end of the third quarter.
<UNK>, we're hoping we'll have it by the end of the year.
I recall for last time it was about 15 months before we got clarity.
So if they can get it to us by the end of the year it will be a step in the right direction.
All right.
Thank you, everyone.
We appreciate you joining the call.
It was a good quarter and we look forward to talking to you at the next earnings release.
| 2015_MOH |
2017 | FARO | FARO
#So let me answer that.
So I think there is a ---+ we are completing a couple of different numbers, first of all.
The number that you recall of $1 million, $1.5 million was typical on what an account manager on their own felt.
But the FTE is the entire sales force, which is our pyramid of our complete sales structure, which includes the account managers, the internal sales specialists, the regional managers, the country managers, and the regional managers.
So the ---+ that headcount includes the entire underlying sales structure.
So those numbers can't be compared.
The only thing excluded from the sales FTE headcount are the two global horizontals for sales operation and sales marketing, global horizontal.
So the headcount of those two horizontals is not included in that number.
So it is the entire ---+ just to repeat myself, it's the entire full-time experience headcount starting from the account managers up to the regionals through the [IFSs], through the regionals, and through the country and so on.
And ---+ so that's the full direct sales headcount.
And that number then represents not just the efficiency of a particular account manager, but it represents the efficiency of the entire structure.
We were working through a couple of other large companies and their distribution partners rather and their distribution networks, which represent hundreds and hundreds of potential sales people around the world.
So, as we transition from there and we were forcibly transitioned from there back to the direct sales force, we ---+ it takes a reasonable ---+ I'm actually quite surprised how quickly we caught up from the direct sales force model because we literally had to, over the period of a year and a half, replace the sales efforts of hundreds of salespeople and distribution organizations around the world.
So we're getting there.
I think we will continue to head in that direction as we build up the sales force.
Well, trying to avoid any strategic revelations about our structure.
It has now been enveloped ---+ it included the [MPR] process.
That includes qualification of the lead, preparation before demos, follow-up interactions, and we are even moving it into the service environment to assist in sales and application engineering.
So it is becoming really a necessary communication tool throughout every process of our sales organization.
The idea, though, is to improve the qualification, reduce the number of unnecessary demos, and improve our relationships with the customers directly.
In terms of the sales and demonstration equipment, we were very consistent in Q4 with our prior quarter where we talked about $9 million in sales.
That was about a 25% increase year over year for us on a quarter basis.
So our full-year increase was around 50%.
We sold about an additional $10 million in premium sales equipment.
In terms of the headcount of both selling and marketing, what we were ---+ we're focused on is our sales headcount, and that's what we will be disclosing going forward.
Because that's really where we feel, though, that our investors and analysts can get the most out of information.
I won't speak to any of the operating margin.
Obviously I have indicated our intention to keep all the horizontals flat while driving the top-line sales.
So you can make some assumptions about the expenses relating to those horizontal expense components of the sheet.
I have been, though, and we have been quite clear about trying to return to what was a very consistent 59% to 60% gross margins in the past, and that would represent a realistic target for us.
I think we're well on the way.
Our goal is to be ---+ by midyear to be substantively back to technological leadership so that we can get back to pricing ---+ competitive price performance positioning in the market that we have had in the past, and that will take a continuous effort.
But I would say we will be substantively there by midyear.
Obviously we have introduced the very latest scanner products which are market-leading.
Our new tracker products are also ---+ will be dominant in the market at its current pricing and performance with more to come.
And then, of course, we have the other primary product lines which will all evolve as necessary, but the largest changes will have occurred all by midyear.
<UNK>, just one additional comment is, generally speaking, we have talked in the past about when we roll out new products.
It takes time to take that and move it to our sales column.
So there could be a little bit of time until midyear, later half of the year.
Traditionally we have not ---+ our (inaudible) practice is not to provide guidance on any single number on our P&L.
What I can say is what has grown service revenue has been a dedicated effort to sell warranty.
So that is a great effort by our CCO and his group.
The other side has been from our COO.
She has driven the process on the customer service side, increased turnaround time, service.
We have come off a very strong 2014.
Those units have come off the embedded warranties.
So what I would say is certainly we have to sell the products in order to continue to sell the warranties, but we're going to be as aggressive as we have been in the future to drive that line item on our P&L.
And just add to that, I would say that the 3D service and support vertical which we intend to have in place financially by midyear, we will have added to it a number of higher-margin 3D service products that we intend to have ---+ to increase the overall service margin for that vertical.
So I would expect to see growth with the addition of these new services.
In terms of tax rate, we have not provided guidance because, as you see, year over year our tax rate has been certainly differing year to year based on our geographical distribution.
I especially did not provide guidance as we move forward with the different administration in the US, as well as best across the world and how the treatment will be.
So what I would say is I won't provide guidance at this time.
Yes, the recent introduction of the Vantage series product line for the tractor, we have really broken into a new price performance area for trackers historically.
We expect that this will significantly open up the market, and our intention is to continue to move price performance in that direction as we have always done with all our products.
The other most exciting one is one I did mention in the prepared remarks, which is the VectorRI, which is the laser ---+ scanning laser radar, which will have a dramatic impact on factory environments for high-speed long-distance measurements contact-free measurement.
It represents a whole new (multiple speakers)
I'm sorry.
I don't know what happened.
So I expect that that will be an important contributor.
In addition, the Cobalt Imager which was introduced last year is now starting to take form in very specific applications as it relates to our 3D solutions group.
And so we're also excited about the potential growth in the metrology area from those configurable solutions.
So I would say broadly we are excited in many areas of the business for the new product set introductions.
<UNK>, are you on the line.
<UNK>by.
Okay.
All right.
Well, thank you, everybody, for your attentions today, and we look forward to describing the progress as we go this year.
| 2017_FARO |
2016 | AGCO | AGCO
#Thank you, <UNK>.
Have a nice day.
(laughter) Maybe we should invite some of the analysts to a trip to Venezuela.
(laughter)
We stay here, <UNK>.
Yes, before <UNK> talks about France, I would like to make a general observation.
To me, it looks like as if Europe, somewhat, is close to have bottomed out.
And Europe seems to be, in general, a little bit more stable than the other markets.
Of course, this varies a lot by countries, and we have the big upside that if the EU would come to terms regarding the sanctions for Russia, which could basically generate a counter-effect that the Russians would give up their sanctions, which mainly hit our customers in major markets in Europe, that Europe has a potential to improve.
So, I think the idea of sanctions, which to me is a very, very old-fashioned way of doing business in politics, needs to be reviewed.
And I think the very negative side effects for the EU have not been taken into consideration by the European leaders.
So, business, so far, doesn't talk so much about it, because we don't want to run our own diplomacy here.
But I think this needs to be changed, and I think discussions now are a little bit more constructive than they have been in the past, because also at the same time, some of the leaders weaken due to other reasons.
And with this, <UNK> can talk about France.
Hey, <UNK>.
The French market, as you recall, throughout 2015 was one of the worst performing markets, until we got late in the year.
And in the fourth quarter, the French market was up about 20% versus a year ago.
There is a government-sponsored incentive program, an accelerated or additional depreciation measure that you can take in France, and that stimulated demand in the fourth quarter.
And that made the French market be just slightly up for the full year.
Some of the other markets were also modestly up in the fourth quarter, and I think that leads to some of the comments <UNK> made about where that market is right now.
As we look forward into 2016, we are looking for some mixed results ---+ down likely in Germany, but stable or up in some of the other markets.
And again, our forecast is that 0% to 5% down.
The French incentive expires right now at the end of March.
And we are obviously hoping that that gets continued on, but there is no certainty around that at this point.
Sure, yes.
As you point out, the fourth-quarter margins were down.
In terms of the lower income levels there, we took a fairly big hit on currency, from a translation standpoint.
Then we had production down very significantly as well, during the fourth quarter.
And then obviously, just the sales down, because of the margin ---+ because of the market decline.
The one unusual item that I think also needs to be factored in is, if you recall, in fourth quarter of 2014, we had some big combine deals that we completed.
And that benefited us in the fourth quarter of 2014.
And obviously, we didn't get that again in 2015.
Those were in markets outside of Brazil.
So, I would say that, in terms of margin, it was split between production issues, being the lower production levels, and the mix, because of that big combine deal that had pretty good margins on it.
As we look forward into 2016, we are looking for the margins to be fairly similar to 2015 on a full-year basis.
Yes, we are not assuming that they are extended in our plan, and in our presentation.
If they would be extended, we normally would expect some additional business.
I think it was a steady development.
And you only see, basically, most of the numbers after the harvest.
You see it early in the year, because of the pre-season deals, and then you basically see it confirmed after the harvest.
And so, this is ---+ I think the European combine, or the German combine market, in special, was pretty stable for many years.
And now, automatically, this market is hit as well.
Pretty much in line.
We're working on new technologies, so that means, as soon as the market comes back, I think we will be in with better products, which is a good growth opportunity in the future.
So, our new combines will be launched around 2018, and so that means we want to grow market share, also, in that market.
One, I want to mention, when we talk about CapEx, this was not a coincidence.
So, we planned for lower CapEx for already quite some years, and so we could execute 2015.
So, the increase ---+.
Yes, the increase is mainly around product programs.
We are getting launched ---+ getting ready for our tier 3 product launches in South America, and then some other new products around our global series in China, and then various products around the world.
So, our flow of new products continues.
And just based on the scheduling and the timing, we think that we may need to spend a little more CapEx than we did this year.
In general, this is also a nice buffer, so I would not be surprised if [we reduce] this area to do slightly better.
Yes, when it comes to the Massey Ferguson global tractor ---+ you called it Centurion, which was the project name ---+ this project is pretty much completed when it comes to engineering, and to the factory layout and so on ---+ purchasing, and the whole process, as such.
When it comes to the execution in sales, this is, of course, an area where I see plenty of opportunity.
So, that means market introduction in major markets will be in 2016, and then we want to ramp up sales.
We have a certain windfall, which we did not put into the plan, because it's a ---+ not very stable situation anyhow.
But in our project plan, we had assumed the Chinese currency going up over time.
Now we see the opposite.
And when you talk to experts, it seems to be, let's say, the case, not ---+ there seems to be more, for a longer period of time.
So, that would create an additional sales opportunity.
So, it looks like as if our product from China might be much more competitive than we thought.
Yes, the next generation of our ---+ yes, the next potential, as we talked about in our December analyst meeting, is that we're working on platforms primarily on the high horsepower tractor side, that middle range.
It's somewhere between 150 and 250 horsepower.
So, we are trying to get that.
We're working on that from an engineering development standpoint.
Those products will be ready by probably 2018 or 2019, in accordance with the tier 5 implementation.
And then, as <UNK> mentioned, some new combines that we are working on also have an element of product platform, as well.
And so we are looking for those to be major margin improvement opportunities for the Company.
Steve, I think it would be, most probably, a good idea if we brought our expert to Wall Street in December to have a presentation on our platform projects, because I think this is very exciting for investors to know.
Good morning, <UNK>.
Yes, in terms of share gains in North America, where our focus is on some of the new products that we're introducing this year ---+ as <UNK> mentioned, we have our new global series, which is the new line of low horsepower tractors that we will be launching very soon in North America.
And so, we think that will be a big opportunity for us.
Other than that, we are looking for share opportunities on the professional producer segment, which is the high horsepower segment.
And that is around new products, but also the development of our distribution network, which we think is developing very well, and will give us some opportunities for growth in the future.
To be honest, I am not satisfied with the development.
So, we talk about share gains in North America for many years, but I don't think that we were really very successful, and that we saw a breakthrough.
And that is why I asked management to come to me with a strategy, and I want to see that being done faster.
Because in these difficult times, we need to focus not only on cost control and headcount reduction; you also need to look for growth opportunities.
And I think the share situation in North America is not to my satisfaction, and it's also the lowest, when you look into our global markets.
So, why do we have 40%, 50% in Brazil, and in some of the European markets, and around 10% or something in North America.
I don't accept that, and I want to see that being addressed.
No, the grain capacity ---+ as I said, there's a lot of old grain elevators around the country, so we have plenty of opportunities.
I think it is more the lack of liquidity, or the fact that farmers handle their business a little bit more careful right now.
And GSI grain drying technology is by far advanced, compared to any competitor globally.
No, I think the question is whether there is a difference between ---+ or let's say what the farm equipment growth only is, without GSI.
But that's a guess.
The outlook that we give on the sales being down 10% to 15% is on that market.
And overall, we are expecting our revenues to be down about 10% on [North America results] (multiple speakers).
And one could say it's somewhat equally spread between GSI and farm equipment, or is GSI doing slightly better.
GSI is flatter than the protein production.
Yes, I think that's what we said, also, at the beginning of the call.
| 2016_AGCO |
2015 | SANM | SANM
#Well, <UNK>, first of all, again, let me take the first part.
Number one, I personally believe that as we continue to improve the mix that we can ---+ even at this revenue, I think there's a potential to improve the margin, some of the things that we are doing.
We do also have a fair amount of new opportunities, customers that we won, the projects that we won, that will help us as these go out.
And number three, I think we have a very good pipeline of opportunities that we are going to be working on, in the last year, that I believe is going to benefit us in the second half, especially second half of the calendar year.
At the same time as I mentioned earlier, we think overall we do expect a better demand, especially from communication network side, in the second half of the calendar year.
So adding all those two together, should give us a better opportunity to improve the financial results (multiple speakers).
Yes, I really don't know.
I don't have much to add.
I mean, we get forecasts in from our customers, and they're never exactly right.
But I think directionally they're typically pretty good, and it looks like the second half will be better.
Yes, you heard it on the new program opportunities that we have, that's correct.
And let me make sure that I ---+ that make sure that I say it correctly, when it comes to the net communication network.
Based on our customer forecasts, we expect the market to stabilize and improve in the second half of the calendar year.
That is true.
But again, it's a customer-driven scenario.
I just want to make sure that ---+ but with all the other stuff, we still think we can make some improvements, and we make an improvements to help us to deliver better results.
So as you ---+ put all these things in a bucket, I think opportunity is there.
Thanks, <UNK>.
Hello, <UNK>.
Well, I think in the short-term, we think it's the ---+ as I've talked to some of my customers they say, <UNK>, we're not losing market share, it's just that we ---+ it's a more normal environment, and we have some inventory to work out.
So I believe it's inventory-driven, and some of the slower ---+ how do I say, softer demand from some of our customers.
When I talk about the new programs, I think of our existing customers or the new customers, we are participating in new programs that will help to drive their future demand, and expanding the customers into telecom industry that we didn't have it before.
Well, we did forecast year-over-year growth at the beginning of the year on this segment, and we work very close with our customers on this.
And there is unfortunately, right now we see more softness than what we saw let's say, 90 days ago, and we'll see how things shake out.
In the next 30 days to 90 days, I think we'll have a lot better picture, <UNK>, at that time.
But again, we are well-positioned in this market.
I think we are ---+ providing the right value, and we are involved in a new program.
So based on that, we are still optimistic on this segment.
Well, first of all, I think you really kind of need to see, <UNK>, what I just said.
I said, based on our customer forecasts, and based on what they're telling us, the second half of the calendar year is, they're more optimistic on their demand.
And that's all we can tell you.
That's basically what we share, and we don't control what they're going to take.
But I can tell that you that we are well-positioned with these key customers.
And, of course, in this type of business, you've got to execute every day, and we've been executing well.
I think it's all demand-driven.
<UNK>, just to put it in some context, on a year-to-date basis, com is only down 2%.
So it's disappointing.
We're disappointed that it's down.
But again, the indication is that things will get better.
Thanks, <UNK>.
Okay.
First of all, <UNK>, December ---+ I should say January, March, and February was definitely slower in communication networks than what we anticipated, let's say what it was going to be 90 days ago, when we reported it for this number.
That softness continued into April, May, and June now.
So we expect, based on what we're hearing from our customers, that we're going to have a better second calendar year, which will be a September and December quarter.
But if you strictly compare to, how do I say, fiscal year, year-over-year as <UNK> mentioned, if you look at the first six months, we're down a little bit, and we'll see how things shake up this quarter and next quarter.
But overall, what we're hearing from our customers, we're not losing ---+ how do I say ---+ orders.
It's basically some inventory correction, and we're going back to the normalized demand.
And I'm talking mainly on the wireless side of the business, <UNK>.
It's hard to predict, I mean, what is ---+ how things are going to shake out.
I mean, we're going to take one quarter at a time.
But I would say today, if I compare a second half of the calendar year now going forward, I think we'll be a little bit better than the first half.
Yes, <UNK>, we've been really focused on growth.
Let me just ---+ our biggest issue today if you will look at Sanmina, we fixed a lot of things in the last couple of years.
Now it's all about getting more growth, and we have been talking about quality of the growth.
It's easy to get the growth, but what type of quality of the growth were you going to get.
We believe that we have some good opportunities that will help this year.
We added ---+ we've been investing a lot in driving the new technology, the business development people.
We added a fair amount there.
We got some good opportunities in the pipeline.
So organically, I think we're well-positioned.
At the same strategically, we're looking at the different deals that would make business sense for us to do this.
But definitely, our main focus right now is profitable growth.
Thanks, <UNK>.
Hello, <UNK>.
No, I ---+ well, you don't ---+ first of all, you don't plan on an order that you didn't win.
I think we ---+ first of all, we have some good programs, as I mentioned earlier, industrial, medical, and defense that we're able to diversify the customer base in the last 12 months.
So we have some of those programs to help us.
Same thing in embedded computing and storage.
We've got some new customers that we got qualified, and that's really what we are counting on.
Now, at the same time, we are positioned to win some programs, but we are not putting those at the forecast at this time.
<UNK>, could you repeat the last question.
Okay, okay (multiple speakers).
We grew that business nicely last year, as you know.
I mean, if you compare it year-over-year, or you should say year-to-date nicely, we have a strong customer base in both ---+ in all these three programs, especially in the industrial.
The only weak area that we are, the industrial side that we're experiencing that we had high hopes was the oil and gas.
And oil and gas contributed to us a fair amount in the last 12 months.
It's the area ---+ it's not going to be contributing a lot, at least for the next few quarters.
Just the nature of the business.
But we still believe in that customer base.
We still believe in the industry long-term.
So we're not giving up on it.
We continue to find a way to expand the customer base.
But in the short-term forecast on that are very low.
The rest of the customers we expect that to grow, because of our expansion in that side of the customer base.
As you can see, that their percentage is going to go up, grow to 39%, and we expect the percentage to continue to move in the right direction.
Hello, <UNK>.
Yes, <UNK>, I think ---+ you know how this goes.
For us, to be able to predict the market 100% is impossible.
We've gathered the data from our customers, which is very detailed data, and they share a lot of information with us that we can't talk about.
But we see it.
So assuming that those forecasts are correct, we believe the second half of the calendar year 2015 will be better than what we saw ---+ or what we're seeing right now in the first half of this calendar year.
So that's really what we based on it.
At the same time, we're looking at what programs are involved, what the future of these new programs.
So I'm more optimistic, first of all, our customer base today in the com is smaller.
But it's healthier than let's say, in the lifecycle.
So I feel the more ---+ and the market is completely different.
So I think the market is stable.
Yes, there is some ups and downs, but overall I think this market will be fine.
Well, no, we did some acquisitions like that in the last couple of years.
I think it all depends on the opportunity.
Does that opportunity fit to us, does it make business sense.
We still have a few customers, they are doing some internal manufacturing.
Yes, and some of those we are interested in.
Thanks, <UNK>.
Thanks.
Well, ladies and gentlemen, that's all we have for today.
If there is any more questions, please give us a call.
Otherwise, thank you very much, and we'll be talking in the next 90 days.
Yes.
Thanks, everyone.
Bye-bye.
| 2015_SANM |
2016 | AXL | AXL
#That's correct.
Yes, and <UNK> again, what we've said all along is that when we are running high capacity utilization and we're in a favorable material environment, we can generate some strong profitability and you're seeing that right now.
Yes, <UNK>, you're spot on, the fact that some of the roll-off business will commence in that 2018 period of time, but it's going to take three years for some of the T1XX impact to fully impact us.
At the same time, the new non-GM business that we're bringing in that period of time overlaps very close to that.
I wouldn't say it's identical, but it's fairly close in that same period of 2018 to 2020 period of time.
So again, we're highly confident that we can offset the business, and we're comfortable with where we are with respect to the timing of that replacement business.
For the full year.
How much relates to metal.
It was a year-over-year piece.
It was minor.
Can you repeat that, Joe.
We're having a hard time hearing you, Joe.
You're breaking up on us.
Okay.
So as it relates to the metal indices, think we pass-through again either net price increases or price decreases, approximately 80% of that.
And mechanically it works and it resets either monthly or quarterly, depends on the customer, based on a variety of index, whether it be the scrap index, aluminum index, things of those nature that are into our products.
A slight lag from the actual spot rate I would think about, but generally speaking, 80% or so is passed on to the customer.
All I'd say is that we're having an outstanding performance, and of all of our launches globally around the world from an operational standpoint, and we're seeing good margins that are going with that business.
At the same time, remember, we're also realizing strong margins with our base core business, too.
Yes.
Tying it back to the tax rate, clearly we've been performing very strong in our North American market, as I mentioned in my prepared remarks, especially as it relates to translation to our effective tax rate.
So you are seeing this programs, such as the full-sized truck programs here in North America, and when they run well, we generate high profits in this region, and we pay a higher tax rate associated with that.
So there is some level of cadence associate with those platforms, as it relates to our geographic profitability and the tax rate connection.
If you follow our effective tax rate, it started to pick up midpoint of last year, running closer towards that 20% range basis.
So you start to see this now transition over the last four quarters.
Our focus continues to be to reduce our interest rate, and as you know, we take an action in the fourth quarter of last year to take off some of our term loan.
Right now, our primary drivers of our interest expense are our four principal bonds we have outstanding, two of which are callable.
And I would tell you we continue to monitor the market activity and assess those bonds on a go-forward basis.
But over a period of time, our objective would be to reduce that fixed cost structure in our business.
Two of them are callable now, one is not callable, and one starts callable next year.
So we're in a period of time in the near future that we'll just continue to monitor market activity.
We'll see.
<UNK>, this is <UNK>.
Everything is going to be in balance.
As we have said before, there's a four critical areas, the organic growth will continue to support the debt management side, and then this year, we brought into effect the whole shareholder activity, as well as we indicated, the desire and interest in regards to strategic activity.
So we'll keep things in balance, and we'll set the priorities based on how things present themselves.
| 2016_AXL |
2017 | PLT | PLT
#Thanks very much, Carina.
Welcome to Plantronics' Fourth Quarter and Fiscal Year 2017 Financial Results Conference Call.
Joining me today are Joe <UNK>, Plantronics' President and CEO; and Pam <UNK>, Plantronics' Senior Vice President and CFO.
The information presented and discussed today includes forward-looking statements, which are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The risks and uncertainties related to such statements are detailed in our most recent 10-Q, 10-K and today's press release.
The complete set of prepared remarks of today's conference call are available on the Investor Relations section of our website.
For the remainder of today's call, we will be providing only non-GAAP metrics related to gross margin, operating expenses, operating income, net income and earnings per share.
We have reconciled these measures in our earnings press release and in our earnings quarterly analyst metric sheet, both of which are available on the Investor Relations page of our website.
After the conclusion of today's call, the recording of the call will be available with information on our website.
Plantronics' fourth quarter fiscal year 2017 net revenues were $209 million.
Our GAAP diluted earnings per share were $0.59 compared with $0.39 in the prior year.
Our non-GAAP diluted earnings per share were $0.81 compared with $0.64 in the prior year.
The difference between GAAP and non-GAAP earnings per share for the fourth quarter consists of charges for stock-based compensation, restructuring and purchase accounting amortization, all net of the associated tax impact and tax benefits from the release of tax reserves.
Please refer to the full GAAP to non-GAAP reconciliation in our earnings release.
With that, I'd like to open the call for questions.
Sure.
So on the Enterprise side, you asked about guidance for Q1 and year-over-year.
What we're forecasting is roughly single-digit growth in Enterprise overall.
We do expect Enterprise growth for to ---+- the year to be a little bit above that, but that's our forecast for Q1.
And Dave, we should probably point out, there were some anomalies in the first quarter of last year where we had ---+ this year, we have a continued FX effect of approximately $3 million.
There was ---+ there's a one-time royalty we had in the prior year, and the guidance is lower mainly because of Consumer revenues in mono primarily.
Yes.
This is Joe jumping in.
So I think we've talked about it in the past.
On the stereo side, we have much more of a targeted approach.
In other words, we play in niches of the stereo market that performance audio and our ability to actually transact a terrific phone call are actually valued.
We continue to do well in the niches that we participate in.
As you say, the real drop was in the continued drop-off in the mono market where we take share in that declining market, but we're continuing to see the drop-off that we've seen for the last couple of years there.
Yes.
A couple of pieces there, Dave.
First of all, we continue to feel like we have a very attractive product pipeline shipping over the next year in all major categories, including, of course, consumer stereo that you cite in this case.
So we do think there's a nice pipeline of products coming.
Plantronics is very much a channel-fulfilled company both on the Enterprise and the Consumer side.
We see e-commerce as being increasingly important but not direct e-commerce that you talked about.
We'll continue to work through the major channels that you expect ---+ that you know of on the online side.
And while any kind of a shift from brick and mortar to e-commerce might show little dips here and there, we do think the product finds its way to market pretty efficiently.
That's great.
I was going to add that ---+ you'd asked about share.
And in mono Bluetooth, it remains at a record high 66% in U.S. retail, and that continued through the March quarter.
So we've been gaining share in a declining market.
On the stereo side, we don't track that data, but it's ---+ we believe it's probably in the low single digits.
Joe mentioned the stereo products.
We won several awards on those products.
The BackBeat FIT ---+- BackBeat PRO 2, for example, won a major award.
So we're very careful and deliberate about what we introduce on the stereo side.
And we're also aiming for higher profitability there with these products as we bring them to the market.
We're very excited about some new gaming products we have coming out later in the year.
And gaming, as we pointed out in our prepared remarks, we're ---+- the revenue was up about 100% year-to-year.
Yes.
So in ---+ so first of all, we're incredibly excited about both of them, Dave.
I mean, our software-as-a-service with both headset management and data insights to help people actually run their business more efficiently are being received extraordinarily well.
What we're incredibly excited about, it is still early days.
We're rolling out quite a few customers worldwide.
From a contribution in FY '18, we think that it still will not be material this year, although we think that will ramp over time.
Similarly, on the Soundscaping initiative, we've said that we expect to actually take that to market as an official product midyear, kind of the July, August time frame.
And while early returns from our beta customers is very, very strong, we don't expect that to be a material contributor to revenue this year.
Yes.
I don't think we're disclosing a precise number of customers this quarter, although it continues to ramp considerably.
We said we had over a hundred enterprises last quarter, I believe, that continues to ramp at a very nice clip going forward.
To the modules, the initial version that we released last May was headset management, which allowed people to understand where all the headsets were in their enterprise, versions of firmware, change settings, understand last time, all the headsets were used and so forth.
With the release of our Plantronics Manager Pro 3.9 here just a couple of months ago, we added additional modules onto that to help people actually run their business.
So conversation analysis where they could actually understand the interactions in a conversation between an agent and a customer, along with usage analysis to give them deeper insights.
The actual pricing, I don't know off the top of my head.
I don't know if you have it, <UNK>.
Maybe we should get back on that.
Yes.
We describe it as market-opening potential for us in terms of pricing.
There's trial periods at the beginning for a lot of customers to try it out.
The responses have been extraordinary, and we have some good case studies in the prepared remarks on channel partners, customers, distributors who have found it to be quite significant, just the version 3.9 that we introduced last quarter.
Importantly, you'd asked about metrics around software.
We will be introducing more metrics over time.
We do ---+ the executive incentive plan does have metrics related to both Soundscaping and software tied to performance compensation.
So that is an increasing focus of the board and the management team on meeting certain milestones over the next year.
We continue to believe it's a very significant, longer-term revenue opportunity, but in the next year or 2, it's unlikely to be material.
Yes.
So we actually sell it in bands, but broadly speaking, I think you should be thinking, on a monthly basis, high seats 2 dollar-ish as opposed to pennies or tens of dollars.
We don't actually break that down, <UNK>.
As you might imagine, mono continues to decline a bit as a percent because the whole market is going down.
As <UNK> <UNK> mentioned, we're gaining share in a declining market, but at 66% plus in North America, there's not a lot of share to gain.
Stereo continues to be a nice story for us.
It is gaining ground relative to mono.
And we had just phenomenal growth with our gaming portfolio, and we expect that to continue.
Although it's, unfortunately, of course, growing off of a fairly small base for us.
Yes.
In the Consumer category overall, I'd say the margins are roughly supporting a gross margin of low 30s, high 20s within the individual categories, so it really depends on ---+ by product.
The longer a product is in the market, we can usually get some material cost savings out of that, which leads to higher margins over a longer term.
Also, a higher-volume product will have higher margins generally.
So yes, I would say it's difficult to draw a line between stereo versus mono versus gaming at this point.
But as a portfolio, low 30s is about where we're at in gross margins.
Yes.
Much like the other products at Plantronics, we will have fulfillment being completely through our channel, although we will have an enterprise sales force that is very involved in stimulating demand.
From a channel perspective, it tends to be the same distributors we already have great relationships with.
The actual installers of the Soundscaping solution tend to be the AV resellers, the kind of people that put in audio-visual products into a high-end conference room, paging systems or other speakers and microphones into an open work environment.
So we're very engaged with both resellers that are already Plantronics partners that also offer that service, along with some new channels to make sure we have good geographic coverage for them to actually do the installation.
No, none whatsoever.
Well, once again, I believe we've been pointing towards low to mid-single digit this year, so maybe a couple of points off the long-term plan at best.
Once again, we think as Unified Communications deployments take a larger percentage of the market over the next couple of years, there tends to be a higher attach rate.
So for every desktop of Unified Communications, you get a higher attach rate of headsets than you do in a legacy telephony environment.
So as Unified Communications continues to build out going forward, and we're seeing signs that it is beginning to, that attach rate goes up, and the growth indeed accelerates.
No update at this time, <UNK>.
We ---+- as we mentioned in our comments, we continue to think the charges are without merit, and we're very confident of a good outcome.
So that margin expansion would exclude legal expenses from GN.
We are expecting them to be a little bit higher than they were last year, so our forecast excludes those.
So to be clear, so we're expecting our non-GAAP operating margins to increase this year by another 50 or 60 basis points.
And excluding the litigation, it would be higher than that.
Yes.
To the improved growth rate, it's certainly a part of that.
As we've stated before, when there's a shift from a deployment being a legacy desk phone deployment where of course, Plantronics has great market share, but worldwide attach rate tends to be maybe in the 8% range of headsets to desk phones.
When you move to a soft-phone deployment, be that a soft phone in a Unified Communications open office or a soft phone in a next-generation contact center, in either of those, the attach rate tends to go substantially up.
So it's several times the attach rate that you tend to have from ---+ to legacy desk phones.
Clearly, we do see Unified Communications deployments a bit on the rise, and I think you mentioned cloud-based Unified Communications, of course, being a bit of a catalyst of those deployments accelerating a little bit.
So that's still in the early days of the unified communications market, but nevertheless, as that ticks up a little bit, it ticks the growth rate a little bit.
Too early to say, but one of the pieces that's great about Plantronics is, of course, we have a broad, broad interoperability story with all of the major players in the market.
So we tend to work ---+ if you name a unified communications or a contact center system, Plantronics tends to have good relationships, deep compatibility.
So as one vendor's a little up and the other vendor's a little down, we tend to surf over the top of that quite nicely.
But no, we have seen no material effect from either one of those.
I'll let Pam take it, but ---+ whether we have a specific number there, but it's getting increasingly difficult to actually split the Unified Communications from the core legacy business.
More and more companies tend to be buying a future-proof solution.
They have a combination of legacy desk phones and soft clients.
They tend to be buying more and more products that can float across either one of those and help with their transition.
So I think you'll hear us talking less and less about the difference between core and UC, frankly, because it's harder to separate it out.
And <UNK>, I just wanted to come back to the non-GAAP question.
So we will be providing legal expenses, but we don't exclude them from our non-GAAP guidance.
They are ---+ it ranges from quarter-to-quarter.
We do expect that they'll be increasing this fiscal year as the case goes to trial.
But we will let you know what the legal fees are if you choose to exclude them.
Yes.
A couple of quick things on that.
First of all, over the last couple of years, we've really been building out a portfolio around the console gaming business.
So building performance audio headsets with a phenomenal industrial design really targeted at the PlayStation 4, the Xbox One and a few other things, but that part of the market.
Last year, we had a very solid portfolio out, and we had just phenomenal growth.
We intend to continue building on that with both more products this year plus just the momentum of having had success last year.
We have every confidence that will continue to be a very solid grower for us over the next couple of years.
You talked about into the distant future, the gaming business is always an interesting one as consoles get refreshed.
We're certainly not providing 10 years of guidance around gaming, but for the next couple, we see this as a growth area for us.
We're actually really, really pleased with gaming, meaning geographically, we seem to be strong in all major developed markets.
So we do quite well in North America, in Europe and developed parts of Asia where gaming products are selling.
Well, we wish it were that rosy.
Indeed, it is nice to be the market leader in mono.
There are still fierce competitors out there in the ---+ that haven't fully exited that category.
So while we do feel like we get a premium for our exceptionally good products, we don't exactly have a clear playing field either.
Thanks, everyone, for joining us.
If you have any follow-up questions, we'll be available afterwards.
| 2017_PLT |
2016 | HOG | HOG
#Thanks, <UNK>.
We would look at the securitization that we recently did about a month ago, there were two changes in that securitization from normal securitizations that we execute.
---+ (technical difficulty) pointed out is that they were made up of 100% of prime receivables and the second one is we sold the residual interest that allowed us to classify it off balance sheet.
Your question centers around the prime aspect of it so historically we've sold securitizations that resemble our originations, about 80% prime and 20% subprime.
I've heard all kinds of speculation as to why we did 100% prime.
So let me clear that up.
Some of that speculation has been is we can't sell subprime into the market, and that is absolute untruth nonsense.
For over a decade, we have been selling a mix of prime and subprime into a very robust demand in the marketplace, and that has not changed at all.
What has changed over the last couple of securitizations is that our spreads have widened on the securitization to our benchmark.
Our benchmark is prime auto.
And there is no one else that does a mixture of securitizations like we do so we benchmark to prime auto.
What we have noticed over the last couple of securitizations ---+ (technical difficulty) widening out a little bit, and so the best way to tether them back was to get a comparable securitization to our benchmark, and with that we saw extreme tightening of those margins or of those spreads to prime auto.
As we look forward, whether we decide to do all prime or subprime and prime, kind of the tethering of the investment community to that spread against prime has been very important to us, and we will pay dividends as we move into the future.
That is why we move forward with the prime securitization.
Your second question is with regards to Brexit.
At this point, there is not enough information or not enough time has gone by to understand the impact of Brexit.
I think what we are very certain of is that Brexit does not provide any benefit to retail sales or consumer confidence in Europe, and I think this is what <UNK> talked about a little ---+ (technical difficulty) is I would put it into a broader bucket instead of just Brexit as overall consumer comments driven by geopolitical concerns or macroeconomic concerns.
We are very excited about the momentum that we have in our European business.
As you can see for the quarter, it was up quite significantly.
We will keep a close eye on Brexit but we are going to focus on what we can control and continue to drive a great customer experience for our customers around the world.
All right.
First question, <UNK>, is with regards to Europe.
Again, we couldn't be more pleased.
I think <UNK> mentioned it in his up-front remarks is the focus of our European team on getting people on our motorcycles.
The demos that they are doing has driven a tremendous amount of volume in that market.
Also our product offering, you've got to remember that Europe has got a bigger mix of Cruisers to Touring than we have in the United States.
The product is just as well received in Europe as it is here in the United States.
That is certainly helping to drive some of the performance, and we expect that the team there to continue to focus on getting people exposed to our motorcycles.
And we couldn't again be more pleased with where we are at in growing market share.
Again, and just as a competitive market as the United States, not driven by price ---+ (technical difficulty) Europe, by tremendous addition of the lower displacement motorcycles, and again we are doing well and gaining share in a robustly growing market in Europe.
The second comment is with regards to market rumors surrounding our stock and a potential private equity investor, we don't comment on any stock market rumors.
That would consume our entire life if we did that.
Thanks, <UNK>.
When you look at the second quarter, we did ship a little bit over the high end of guidance, and at the same time during the quarter, we were cutting production quite dramatically and our retail sales were down.
You were saying is, can you help me understand this.
Basically, as we got toward the end of the quarter, we had all of the product made and that was either in retail or in our Company-owned inventory, and typically we have a bit of Company-owned inventory in the United States that facilitates the flow and the orderly shipment of motorcycles.
We made the decision to ship it all out prior ---+ (technical difficulty) the period.
The reason we did that is in the very outside chance that we had any issues with the ERP system.
If they are in our system, we may have trouble getting them shipped, so it was a just a simple after de-risking of the overall ERP implementation.
I couldn't be more pleased to say that the team did a fantastic job.
Everything came up as expected.
The ramp plans are on plan and everything is moving forward.
But <UNK>, it was simply that is we could take a little more risk out of it.
Having said that, overall inventories as I mentioned I think to <UNK>, overall inventories didn't change.
But we had Company-owned inventories lower on a year-over-year basis, and we put a little bit more into the field.
So overall inventories are where we would have expected them despite the lower unexpected sales based on our production reductions and lower Company-owned inventory.
The second question that you asked is with regards to our revised guidance, which is down 1% to up 1%.
We go through a robust process looking at all factors and everything we know in the marketplace, which is centered around new dealerships coming up in the international markets.
We will have more dealers in the back half ---+ new dealers in the back half than the front half.
We look at the performance of outreach in the United States; that's performing extremely well.
We look at the investments that we made in the demand driving activities, what we expect to come out of those.
And certainly and most importantly, we look at the new models we're going to be launching here in three to four weeks and we couldn't be more excited about that.
You take all those together, <UNK>, we are very confident that we are going to ship from 264,000 to 269,000 motorcycles for 2016.
Yes, with regards to inventory retail sales, we talked a little bit about that.
We feel that we are at the right spot given our forward look at retail sales given where we expect inventories to be.
If we haven't shown our resolve to manage this Company for the long-term value of our shareholders in the actions that we've taken to keep the marketplace, aggressively manage supply in line with demand, or to hold to ---+ we're not going to discount our way out of this soft spot that we are expecting.
People aren't looking.
We have got tremendous resolve, and we will manage the inventory at appropriate levels.
With regards to pricing, I'm not going to speak a lot about that because in three weeks, you will see the new models and you'll see the pricing and you can answer that question for yourself, <UNK>.
Again, we feel very comfortable where we are at with regards to the market, and we will continue to manage it very tightly.
I'm glad you asked about share gains in the United States.
I couldn't be more thrilled to answer this question.
A year ago we sat here, <UNK> and I, and <UNK>'s first conference call, and we said that we had an issue giving the shift in world currencies and the incredible competitiveness that came out of it, in particular in discounting, and we said that we were not going to discount our way out of it.
We were not going to drain the industry of profits and chase this thing, and it was going to take us some time but we were going to spend more time understanding what we need to do and how we can compete in the world of expanded price gaps without cheapening our brand.
And now dial forward a couple quarters, we are there, and we delivered 2 points of market share gains, so let me talk a second about those.
The gains were very strong and wide.
Number one, they came in all of our segments, our touring segment, our cruisers, and our street Sportster segment size of motorcycle.
They came in the seven sales regions that we have in the United States.
We gained share in each and every one of them.
Our gains were over double the nearest competitor.
When you look broadly at those share gains, what we saw is the biggest loser were in aggregate Japanese competitors.
We also saw while we had mentioned in the preamble that overall discounting was higher on a year-over-year basis, we did see the Japanese discounting be down a little bit versus a year ago and it seems to be reflecting in their market share.
With that, we saw rotation in the brand discounting from the Japanese to the American brands in the second quarter, and we are seeing some of the share gains in there.
Overall, European's market share was down a little bit but we had some big winners and big losers in the segment.
Hopefully that helps, <UNK>.
Thanks, <UNK>.
I appreciate the question, and actually we are incredibly pleased with the model year 2016 products and how they drove the market globally.
This is a lot of the S models that we launched a year ago basically as well as the products we introduced during the model year.
Clearly, there are a lot of constraints in this competitive environment that we are in but our product drives customer passion, customer loyalty, and sales and market share.
We saw that with the shift in sales to large cruisers, which helped us gain share.
Those large cruisers are a little lower margin than our touring motorcycles so that is part of the gross margin deterioration that we just spoke about on the call today.
But product is a very key lever for us, one of our four focus areas to increase both the cadence and the impact of the product, and 2016 is a good example of both.
High impact product at an increased cadence and 2017 is going to be no different.
It is a formula working for us, and we have invested more heavily, both capital and expense as part of the demand driving shift to make sure that the product that we deliver makes a difference in the marketplace and that we do it well and we do it more rapidly.
So that's a new pattern for us that we can expect rolling forward in 2017, 2018, and beyond.
Thanks, <UNK>.
Good question.
In the 8-K that we put out, we talked about this overall transaction is neutral when you look at the present value of earnings per share so it is a great question.
Basically, here's what's happened ---+ what happens is in a securitization, we sell off a bunch of bonds to investors and it goes into a trust and all the residual earnings that we get off of that, we keep because we keep the risk and we keep that reward.
What we ---+ (technical difficulty) into a slightly different market and we found an investor to buy that.
What they did is they paid us a bunch of upfront cash to buy that residual interest in the trust or those trailing earnings.
We believe that the opportunity cost of the transaction that we did is about $7 million of those trailing earnings.
So to do broad math, we took a $9 million gain, gave up about $7 million of opportunity costs, so they would've earned about $16 million.
We took $9 million today.
If you take and you discount over the next seven years that $7 million that would've come in, bring it to the present value and net impact on EPS, along with the fact that because it is off balance sheet, we have freed up equity at HDFS to maintain the same debt to equity.
We have now got more equity, so HDFS wrote a check that works out to be $43 million and we bought shares back with that.
If you take that impact on EPS, they are about neutral.
The question is, is well why did we do it if it's neutral.
Number one is once you get into market, you don't know how the market is going to exactly respond but there are two reasons that we did this.
Number one is it's an additional source of liquidity so we are always looking for opportunities, more investors, more liquidity, and this is a great opportunity.
The other thing, with the additional liquidity opportunity, we also learned that we can monetize the assets on our balance sheet to some extent, and that is very important to know.
That's number one reason.
Number two and the more important reason is, is we talk about it at every conference call, a top priority of ours is to return value to our shareholders in the form of rising dividends and share repurchases, and we will look at every opportunity to do that with the caveat that were not going to do anything to damage the long-term value of the brand or the Company.
This transaction fits squarely in there.
There is absolutely no extra ---+ (technical difficulty) the Company or anything like that.
What it did is it liberated $43 million of excess cash.
That excess cash was used to buy share repurchases.
And even though again, from a present value basis, we're neutral on EPS, we believe that our long-term shareholders would prefer to have at this moment in time, more equity in our Company given the historically low PEs that we are trading at.
And so they get the ownership today versus waiting over that period of time for the opportunity cost of that money.
Sure, <UNK>.
Internationally, we do expect to grow modestly as well.
We'll be adding a lot of dealerships this ---+ (technical difficulty) year, and they are growing markets and we would expect to add a little bit of inventory internationally.
Your second question is on oil dependent areas.
Again, we talked about this last quarter.
It is certainly a headwind to the industry and what we saw about a year ago, first quarter 2015, we first noticed that those areas were declining more than other areas in the United States, obviously driven by the depression in the oil prices.
We saw that increase from a modest amount in the first quarter.
It increased through the second and third quarter and it hit about a 10% rate in the fourth quarter.
We've seen that hold at 10% in the fourth quarter of last year, the first quarter of this year, and on the second quarter was also a 10.
And as we look forward, we're going to start to lap on more significant rises on a year-over-year basis.
Hopefully, we will start to see it temper a little bit but at this point, it is not getting worse but it is not getting better either.
Thanks, <UNK>.
Great question.
Again, going back to a year ago, we tried some things in the second and third quarter.
Some worked, some didn't.
We kind of regrouped, looked at what was working, what wasn't, and we sized the overall opportunity.
We came back as a Company and said we needed $70 million to really address the widened price gaps, which is a headwind to us, and compete without lowering price or discounting.
We got into the marketplace early in the first quarter, ---+ (technical difficulty) $70 million and again, we are very pleased with what we're seeing in terms of new people coming in and being trained through our Rider Academy.
The motorcycles that they are buying with that, the demos that are going on, Live Your Legend campaign, again, Heroes Ride Free, that promotion that we're getting, people that identify very closely with our brand, getting them free training to get on motorcycles.
All of that is working well and you are seeing that manifest itself in our competitiveness with expanded price gaps in the second quarter.
In terms of where we go with the $70 million, that is something that we evaluate on an ongoing basis.
Not only the overall dollar amount of the $70 million, we will look at and change when need be whether that be more or less.
We are also looking at what is working and what is not and trying to become very nimble on how we redirect the money in the right spots, whether that be within a market or between markets or within a promotion or between promotions.
There is nothing but single-minded focus here on driving demand.
| 2016_HOG |
2017 | DHI | DHI
#Thanks for taking my questions and all the color so far, voice is a bit raspy
Wanted to ask about your owned option mix and you've been one of the few builders that's successfully pushed pretty meaningfully back towards option
And this quarter seems stabilized a bit recognize that it's not going to be so linear
But over time, you can continue to mix that higher
Curious to hear if there's anything reasonably you can speak to in terms of either incremental successes or challenges that you found and striking your option deals? <UNK> <UNK> <UNK>, we're still not to our goal of 50-50 balance in our total portfolio of option and controls
Very happy with the relationships we've been able to expand upon with developers across the country
Key trade partners for us frankly in supplying the first raw material input to our business is land or lots
And we're very pleased with the increase of finished lots we've been able to tie up and partner with others to develop for us
That's probably driving a bit of our lot costs increase, as a percentage of revenue, or per square foot that we're seeing in our current deliveries
It’s a reflection of our strategy to try to have more lots provided for the Company finish, rather than us self developing as much
And we’re seeing a big benefit of that in our focus on our improved returns, and we're seeing that return to come up as a result of that
So there is no magic bullet to that
It’s building relationships, partnering with the right people, market-by-market, having the experience with them, and the confidence to get projects on the ground and work through them together
And as part of the lower investment in the west, a function of just really still being more of a cash market and given your focus on shifting towards this balance, it's kind of an intentional mix away from the west?
One housekeeping then as a follow up, on the warranty and litigation this quarter
Is there any color you can provide, just as function of just as you've expanded in markets just normal course of business? Or is there anything regional or more one-time in nature?
| 2017_DHI |
2017 | ACIW | ACIW
#Thanks, Heidi, and good morning, everybody.
Today's call, like all of our events, is subject to both safe harbor and forward-looking statements.
You can find the full text of both statements on the first and final pages of our presentation deck today, a copy of which is available on our website as well as with the SEC.
On this morning's call is Phil <UNK>, our CEO; and <UNK> <UNK>, our CFO.
With that, I'll turn the call over to Phil.
Thank you, <UNK>, and good morning, everyone.
I'm pleased to report our second quarter results.
Q2 was another strong quarter for ACI and continued affirmation of our Universal Payments strategy.
And second quarter New Bookings were up 11% over last year.
Second quarter revenue of $241 million was up 10% over last year.
We also generated $44 million in EBITDA, which was a 105% increase over last year.
In the quarter ---+ in second quarter we continued to sign some important contracts across a range of solutions and geography and made substantial progress with Large and transformational Universal Payments opportunities.
In our fast growing e-commerce platform, we continue to expand our end points in global connectivity with new partnerships, including Alipay, the world's largest online and mobile payment platform.
We also signed a large on-demand contract for another top European retailer for our UP retail payments offering.
In our bill payment platform segment, we signed several contracts, including a large U.S.-based online loan originator for our UP payment ---+ bill payment solution.
Lastly, we continued to sign new Immediate Payment contracts with both domestic and international financial institutions.
One notable contract was signed with a large financial institution in Asia for both ACI's Immediate Payment solution as well as our Universal Online Banker Cash Management solution.
This customer will use ACI's Universal Payments to orchestrate their overall payments business.
Looking ahead, our pipeline is substantial.
The number of customers interested in leveraging the power of UP continues to grow.
In summary, 2017 has been strong.
We are well-prepared to achieve our financial targets for the year, we remain committed to our longer-term growth goals.
With that, let me turn it over to <UNK>, who'll provide you with much more detail as for the second quarter of 2017.
Thank you.
Well, thanks, Phil, and good morning, everyone.
I first plan to go through the highlights of the second quarter and then provide a reminder of our outlook for 2017.
We'll then open the line for questions.
I'll be starting my comments on Slide 6, with key takeaways from the quarter.
As Phil said, Q2 was another strong quarter for us, with new bookings up 11% over the prior year quarter.
These strong bookings contributed to solid growth in our backlog with 12-month and 60-month backlog growing $18 million and $24 million, respectively, during the quarter.
Q2 revenue was $241 million, up 10% over the prior year quarter.
This strong growth, combined with our relatively fixed cost structure, helped us deliver very strong 105% growth in adjusted EBITDA.
We ended the quarter with $95 million in cash and a debt balance of $705 million, which is down from $753 million at year-end.
And we have $78 million remaining on our share buyback authorization.
Turning next to Slide 7.
With our full-year outlook, we are reaffirming our full-year guidance.
For the full year 2017, we continue to expect revenue to be in the range of $1 billion to $1.025 billion.
We continue to expect adjusted EBITDA to be in the range of $250 million to $255 million, and we expect New Bookings growth to be in the high-single digits.
And for Q3, we expect revenue to be in the range of $210 million to $225 million.
So overall, we're very pleased with the Q2 performance, with strong growth in New Bookings revenue and EBITDA.
This follows a strong Q1 performance, allowing us to reaffirm our full-year guidance.
So that concludes my prepared remarks.
Operator, we are ready to open the line for questions at this time.
Well, we can discuss the pipeline for a long time because we have the retailer segment, we have the Bill Payers segment, which we don't talk that ---+ we don't talk as much about those as we do the core banking, the bank segments.
But they are growing very well.
More and more, as e-commerce becomes more global and these guys have platforms that deliver real-time product around the world, they're finding it more and more difficult to have 15, 18 different relationships in order to execute their payments.
So they're kind of getting out in front of the marketplace and figuring out how to, in effect, build a layer on top of those 18 layers to control their destiny.
And that's going very, very well and you couple that with ---+ I talked about Alipay and whatnot, that people, in terms of wanting global reach, they do it through global connectivity right now.
And our PAY.
ON product, which is being built into that UP platform as a multipurpose solution not just a connectivity solution, is being very well received around the world.
We're having some very good conversations.
And at that point it starts melding, it starts crossing over because this ---+ the financial institutions, the financial intermediaries, they have the same kinds of needs as the retailers do at that point as each one is trying to figure out how to globalize their solution and, quite honestly, make how you pay ubiquitous versus access to payment ubiquitous.
So they want as many different payment methods as make sense and the more and more that are real time, the more that match their business model, the more they want to take in.
So we're landing up having conversation all around the world, which is very good and some are very large, and many of them are more medium to large.
And they're just progressing, they're just progressing very well because I think everyone has consultants and as they're ---+ everyone's getting consulted towards solutions, we're been looked on in a rather favorable light, and we're very proud of that at this point.
I don't know if that answers your questions, I can't get specific about the customers or anything like that, that would be disingenuous, but that's the best attempt I can make to answer that question.
Well, we feel good about it but we view media payments as a global ---+ as a global phenomenon, it's amazing how much of the word is involved in it.
We're working Immediate Payments on every continent that has payments to speak.
So it's good to see the U.S. catching up, because the U.S. has actually been way behind, and I think for a lot of reasons.
But they've been way behind in terms of this, and I think that's very positive because the U.S. represents a really important market, both inbound and outbound as it relates to the Immediate Payment offerings.
Well, I mean, if you at ---+ if you look relative to the last year, obviously, we had a disproportionate amount of our revenue that sat in the fourth quarter, our margin set in the fourth quarter.
So you look at it on a year-over-year basis, yes, we had a very strong first half, but it essentially derisks what we have to do to deliver on the second half of the year.
So a lot of opportunities gives us options, but we're comfortable with where we're at in the guidance that we have out there.
Yes.
I mean, I'll take that and Phil, if you any color.
I mean, I wouldn't say there's a way that customers are adopting and implementing UP.
I mean, there's certainly a lot of the UP upside is going to come from adding volumes, and so certain customers, that will impact us as those volumes come and as they consume that incremental capacity.
Others, on the other hand, can be sold and we can begin recognizing that revenue right away, especially if it's in on-prem deal, if we deliver the software and they're going to install it themselves and they purchase the capacity.
So I wouldn't say that there is a way.
A lot of the upside in the UP strategy is ultimately going to be in their increased consumption, their increased use and their higher transactions.
And so the real value is when they get it installed and they begin to put, whether it's consolidating volumes onto their switching, or they put alternative payment type volumes through UP.
So that's really where the power of it comes to us.
Once installed, it's really the incremental volume growth.
So let me add a little tiny bit onto that.
Our RPS program, which is basically our renewal program, where we're giving the option to the customers to pick up both classic and using UP technology, bridging the new high-speed EPS switch onto it, which allows them to migrate versus convert, says that when we first do these deals, where they're going to commit for ---+ to a certain incremental volume and we'll see some of the value in terms of that incremental volume, what we're really doing is giving them the ability over that next 5-year period to both move existing volume from one side to the other and then we're giving them the ability to take other real-time payments and not try to force them into an old closed system that classic was.
And I will tell you that this year we have almost 90 ---+ we have a 90-some percent adoption rate of RPS versus just a pure renewal, so that part is going very well.
Most of the opportunity for us ---+ we get a little bit at contract signing all over the increased level of yield over the next 5 years, but then our big opportunity comes as they start to not so much converting but putting on other ---+ it becomes very efficient for them to put other programs on.
And one way, if I was a third party and I would want to see how well that was doing is, it correlates ---+ it'll correlate directly with ---+ as Linux servers become more and more and more the mainstay, there are other more expensive servers that you're going to see volumes going down, because in the old world we were probably 20% of the total cost, hardware, middleware and software.
Other software was 80%.
In the new environment, it's much more of a software play, giving them the ability to save 50%, 60% of those other 3 categories.
So the yield is very large for our customers, which I think they'll go after that yield.
And then the incremental volume comes as a natural consequence of it being the payments platform.
Is that overly confusing.
We are presenting Alipay as a global end point for whoever wants to use it.
I can't say any more, right, I can't say any more than that.
Well, yes.
It was another ---+ it's now a globally available end point for those people using our UP solutions.
Very important for them.
They have 135 million people, not a big piece of that population, less than 10% or whatever but they have 135 million people that are traveling around the world and they need access to their payment devices ---+ their payment methods.
We are in the EBPP business.
We are not in the classic Bill Pay business, where you go have your monthly journal and you do your bills, that's not our business, our business is connecting ---+ again, it's payments, it's connecting people who need to satisfy a payment with the end points that they need to take place.
We've actually gotten very, very good feedback, and we've built quite a book of business around ---+ with financial intermediates there that are in the loan type businesses that really need flexibility and looking more ---+ they're looking more and more at the value of direct connections.
And whereas they're already fairly well-connected with the financial institutions in terms of the origination and maintenance of the loans, satisfaction of the payments is something that they're looking for more agility and more options and whatnot, and that's working out very well for us.
We have put ---+ I think we've worked 4 years now on improving the platforms that we purchased ,and we have a little bit ---+ probably another 1.5 years or so to go before we would think about going ---+ we want to really build what we have as best of class and then we will think about internationalizing it.
What a lot of people don't think about is, I think EBPP may land up being one of main payment types.
We think of Bill Payment as a gateway.
The combination of immediate payments and Bill Pay, Bill Pay may land up actually being the payment type that emanates out of the growth of immediate payments.
Generally, yes.
I mean, that was taken to the State Supreme Court, and that judgment is final.
And we will make that cash payment here in the third quarter.
I would it necessarily say what we would be looking at but I think we're always generally looking at being opportunistic.
But yes, we haven't made an acquisition now for, it's going on now almost 2 years.
But again, we're ---+ we'd be opportunistic probably in 2 areas.
I wouldn't say there's necessarily any holes or gaps in our capabilities but certainly areas where we could get scale.
We'd be able to provide scale on top of our global infrastructure, those would be situations but not as much holes in our capabilities.
Well, yes, and we had said this after our Q1 because we had seen G&A spike up a little bit but I had said at the time I expected it to drop and level out through the rest of the year and that's really what we're seeing.
So I don't see anything in particular within the G&A area for the rest of the year that's ---+ it should, again, be lower and level out throughout the rest of the year.
I wouldn't say anything in particular that would drive it move to up.
Yes, we made ---+ we have invested pretty heavily in our product capabilities over the last couple of years but we've also ---+ we also move resources.
Those same technical resources can be used for implementation work, platform build, things like that.
So it's not necessarily that we have the bridge (inaudible) reduced our overall investment in R&D, it's that some of those same technical resources are doing other things.
So ---+ but nothing that would indicate that we would see some unusual spike at a later date.
I don't ---+ it's ---+ I don't want to sit here and say it's going to be a risk for the time line because then I'm kind of commenting about other people's (inaudible).
I think it's ---+ like any change, I think there is confusion and there's certain level of questioning, right.
Which can be ---+ I don't understand or it's hard to understand can mean several things if you're trying to participate in the mandate or you're trying to manage its outcome.
We're comfortable.
We're not uncomfortable with the dates, I guess put it that way.
And we're seeing this around the rest of the ---+ we're seeing this as an interesting issue around the rest of the world.
It's actually something that's making us feel very good about our business.
Our NFRs, our Nonfunctional Requirements have always been about scalability, availability and throughput.
We don't build things for small or medium volumes.
We build things for high volumes.
And as we see a lot of these mandates going through the rest of the world now and Immediate Payments and other things, we're finding that scaling is becoming difficult for a lot of ---+ in a lot of these implementations, and that very nicely plays into our space because we're often the solution, right, in terms of scaling it up.
But I don't want to really enter the fray in terms of the realism in the time lines or not.
Hope you can appreciate that.
Well, <UNK>, it would depend what we were ---+ on the front side, we have lots of competitors, I don't think that, that's really ---+ I don't think that marketplace is really settled ---+ has settled itself down to ---+ we may be in the top 3 or 4 but there is probably 15 or 18 viable players in terms of that.
On the Bill Pay side, we're ---+ we certainly have formidable competitors and we're kind of niched on the EBPP side and so we ---+ but we see plenty of competition ---+ we see plenty of competition there.
On the retail side ---+ on the retailers' side, I think the transformation that's going to take place there is going ---+ either people's businesses are going to become obsolete or they're going to have a figure out how to try to work their way towards being more competitive with what we do.
So I expect some level of competition there.
But in terms of our core capabilities, I still think our biggest competitor would be someone deciding, well for whatever reason, they want to build that capability themselves and they're willing to put the 3 to 5 or 4 to 6 years into what it would take to do it for themselves and there have to be some ---+ I think there has to be some overarching strategic reason why that makes sense in the plumbing of the industry, but that's the best answer I can give you.
Well, thanks, everybody.
We look forward to chatting in the coming weeks.
| 2017_ACIW |
2016 | EXPO | EXPO
#Thank you.
Thank you for joining us today for our discussion of Exponent's fourth-quarter and fiscal-year 2015 results.
For the quarter, net revenues increased slightly to $69.8 million from the same quarter in 2014.
Net income for the quarter increased 7% to $9.9 million, or $0.36 per diluted share.
For the fiscal year, net revenues were $295.7 million, a 2% increase from fiscal 2014.
Net income increased 7% to $43.6 million, or $1.60 per diluted share.
We were pleased to have closed out 2015 with strong earnings and cash flow in the fourth quarter.
We were able to expand our margins in 2015 as a result of a slight increase in utilization and low expense growth.
These results were especially good considering the impact of a major project wrapping up in the third quarter and a decline in defense technology development during the year, both of which we have discussed previously.
For the year, our underlying organic growth of net revenues was in the high-single digits.
During the year we had notable performances from our materials, polymer science, and biomedical practices, as well as our infrastructure group.
In materials and polymer science we experienced strong demand from the consumer electronics industry as they broaden their product offerings and need assistance with the use of new materials.
In biomedical we continue to assist clients with regulatory approvals and assessing field performance of their products.
Our infrastructure group benefited from increased commercial construction and infrastructure spending.
We maintained our diligent cash management focus, as well as stock repurchases and quarterly dividend payments, and closed the year with a very strong balance sheet.
In 2015 we generated over $60.5 million in cash from operating activities, and ended with $171.6 million in cash.
In 2015 we repurchased $23.3 million in common stock and paid $15.6 million in dividends.
Today we announced an increase in our quarterly dividend, from $0.15 to $0.18 per share, and reiterated our intent to continue paying dividends going forward.
We believe that the combination of stock repurchases and dividend payments reflects our commitment to delivering shareholder value and our confidence in the strength and long-term financial health of the Company.
While we had a challenging year-over-year comparison in the fourth quarter and we'll need to clear the first half of 2016 before we return to more normal year-over-year comparisons, we are optimistic about our growth opportunities and are confident in our ability to generate long-term shareholder value.
Now I will turn the call over to Rich for a more detailed review of our financial performance and business outlook.
Thanks, <UNK>.
For the fourth quarter of 2015, revenues before reimbursements, or net revenues as I will refer to them from here on, were $69.8 million, up nominally from $69.6 million in the fourth quarter of 2014.
Total revenues for 2015 (sic - see press release) were $73.7 million, up slightly as compared to one year ago.
Net income for the fourth quarter increased 7% to $9.9 million, or $0.36 per diluted share, as compared to $9.2 million, or $0.34 per share, in the same quarter of 2014.
EBITDA for the fourth quarter was $17.4 million versus $17.2 million in the same period of 2014.
For fiscal year 2015 net revenues were $295.7 million, up 2% from $289.2 million in the prior year.
Total revenues for 2015 were $312.8 million as compared to $304.7 million one year ago.
Net income for the year increased 7% to $43.6 million as compared to $40.7 million in 2014.
Earnings per share increased 9% to $1.60 as compared to $1.47 in the prior year.
EBITDA increased 4% to $76.4 million versus $73.2 million one year ago.
For the full year our underlying revenue growth was in the high-single digits, but was offset by the impact of a major project which was approximately 5% of revenues ending in the third quarter of 2015 and a significant decline in defense technology development as a result of the withdrawal of troops from Afghanistan in the fourth quarter of 2014.
In the fourth quarter of 2015 net revenues for defense technology development were $700,000 as compared to $1.4 million in the same quarter last year.
For the full year net revenues for defense were $3.3 million as compared to $10.9 million a year ago.
For the fourth quarter billable hours declined 4% to 260,000 as compared to the same period last year.
For the year, billable hours increased 2% to 1,125,000.
Utilization in the fourth quarter and full year were consistent with our expectations of 66% and 72%, respectively.
The fourth quarter was down from the unusually high utilization we saw in the same period last year as a result of the factors discussed earlier and that our underlying business was very strong in the fourth quarter of 2014.
Utilization for the full year increased slightly to 72% as compared to 71.8% in the prior year.
For 2016 we expect utilization to be down 0.5% to 1% as compared to 2015, which is attributable to the major project stepping down during the third quarter of 2015.
Technical full-time-equivalent employees in the fourth quarter were 760, which is an increase of 1% as compared to last year.
For the full year FTEs were up 1.4% at 751.
We ended the year with approximately 755 FTEs.
For 2016 we expect quarterly sequential headcount growth to be approximately 1%.
In 2015 the realized rate was approximately 1.5%, but was partially offset by 0.5% from translating foreign currency for consolidated financial statements.
For 2016 we expect to return to more normal range and realize a rate increase of approximately 2% to 3%.
Despite the nominally flat revenues and decreased utilization in the fourth quarter, EBITDA margin for the quarter increased to 24.9% of net revenue as compared to 24.7% in the same period last year.
For the full year EBITDA margin increased 50 basis points to 25.8% as compared to 25.3% in 2014.
For the fourth quarter compensation expense, after adjusting for gains and losses and deferred compensation, was approximately flat.
Included in total compensation expense is a gain in deferred compensation of $1.1 million as compared to $1.2 million in the same quarter one year ago.
As a reminder, gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line.
For fiscal 2015 adjusted compensation expense increased 1.6% after adjusting for a loss in deferred compensation of $300,000 as compared to a gain of $2.5 million in the prior year.
Stock-based compensation expense was $2.4 million in the fourth quarter of 2015 and $13 million in fiscal 2015.
For 2016 we expect stock-based compensation expense to be approximately $13.5 million, with $5.5 million being expensed in the first quarter and $2.7 million in each of the remaining quarters.
Other operating expenses increased 2.8% to $7 million in the fourth quarter and 2.6% to $27 million for the full year.
Included in other operating expenses is depreciation expense of $1.4 million in the fourth quarter and $5.5 million for the full year.
For 2016 other operating expenses are expected to be $7 million to $7.5 million per quarter.
G&A expenses decreased by 6.8% to $3.8 million in the fourth quarter and 3.5% to $15.3 million for the full year.
The decrease was primarily the result of us having a smaller principals meeting in 2015 than the managers meeting we had in 2014, as well as lower professional service fees.
For 2016 G&A expenses are expected to be $3.9 million to $4.4 million per quarter.
Our fourth-quarter tax rate was 38.4%, down from 41.6% during the same period last year.
Our full-year 2015 tax rate was 38.7%, down from 40.1% during the prior year.
Our 2015 income tax rate came down due to restructuring of foreign entities that we completed in 2015.
For 2016 we expect our tax rate to be approximately 38.7%, in line with 2015.
For the fourth quarter, operating cash flow was $26.2 million.
Fiscal year 2015 operating cash flow was $60.5 million.
Capital expenditures were $630,000 in the fourth quarter and $5.4 million for the year.
In 2015 we repurchased $23.3 million of our stock for a total of 530,000 shares at an average price of $43.96.
We still have $46.8 million authorized and available for repurchases under our current repurchase program.
During the year we distributed $15.6 million to shareholders through dividend payments and today announced an increase in our quarterly dividend payment to $0.18 for the first quarter of 2016.
We closed 2015 with $171.6 million of cash and short-term investments.
Looking forward to fiscal 2016 we expect growth in revenues before reimbursements to be in the mid-single digits.
We believe our underlying growth will be in the high-single digits, but will be partially offset by the completion of a major project during the third quarter of 2015 which we have previously discussed.
We expect that 2016 EBITDA margin will decline approximately 50 to 100 basis points as compared to 2015 as a result of slightly lower utilization.
I will now turn the call back to <UNK> for closing remarks.
Thank you, Rich.
As we look into 2016 we are focused on further expanding our unique market position in assessing reliability, safety, human health effects, and environmental impacts of increasing complex technologies, products, and processes.
We will leverage our experience and reputation in reactive services to continue the development of our proactive services, such as design evaluations, risk management and regulatory consulting.
While the various factors we discussed in the last few calls created headwinds for the top-line growth in 2015 and the first half of 2016, we believe our strong bottom-line results and healthy capital structure demonstrate the resilience of our model.
Our long-term financial goals remain the same: Produce organic revenue growth; improve profitability; and maintain a solid balance sheet to deliver long-term shareholder value through our ongoing stock repurchases and dividend payments.
Operator, we are now ready for questions.
Yes.
As we indicated the last time we talked about Volkswagen, I indicated it was the kind of thing we would get involved in, but I wouldn't be able to comment unless such time we had a client who wanted us to comment on that.
But let me just say overall that in the auto area there is a significant amount of ongoing activity.
I mean, the reality is if you just go out there and look at the various news items, while Volkswagen may have eclipsed some other things recently, there's still a lot of discussion about airbags.
There's still some discussion about some of GM's former issues and some unintended acceleration cases and so forth going forward.
So I would say that that part of our business continues to be pretty robust.
Yes.
So, I mean, first of all I want to make sure that my comments don\
Yes.
So, look, I think from our standpoint we can look at a number of factors.
We've increased our rates every year, as we describe.
In January we increase our rates.
In terms of how much flows down to the rates we realize, there's a lot of different factors involved in that, including essentially the mix for us, how much of it is senior people versus more junior people and so forth.
And we've been going through a period where we've had a bit more leverage and more of the work is being done in some of the practices that would use up, on average, lower bill rate people.
That has made the realization rate appear low relative to some other years.
And we don't think that trend is going to continue in the same way that it has.
And so I think we feel that this year we should realize more out of our rate increases than we have in recent years.
Yes.
On a net revenue basis, for the fourth quarter our net revenues from environmental and health were $15.5 million and our net revenues from the engineering and other were $54.3 million.
On a total revenue basis environmental and health were $15.9 million and engineering was $57.8 million.
So those are the fourth-quarter two revenue numbers.
Yes.
I mean I think that we've generally thought that was sort of four to five year type process.
I think the reality is that there are moving parts to that.
The stock price moved up rather significantly in 2015.
And I think when the stock price is hitting new highs we tend to be lighter on our buybacks than we are if there's a little bit of a pullback in the stock.
So I think in a year like 2015 I think we bought back, what, about $23 million or so in stock but probably less than we would have had the stock price not moved up quite as much as it had.
So I think that's why it's sort of difficult to predict exactly.
We don't come out and say we're going to do a certain dollar volume automatically in a kind of an auto-trade kind of a situation.
We believe that on pullbacks we should be much more aggressive and when it reaches new highs we're going to be softer.
But we're always going to buy back, regardless of price, the amount of stock that we put out in our stock programs each year.
So that's kind of where it is.
And then on top of that, of course, we've made a 20% increase here in the dividend.
We want the dividend to play a little larger role.
And we've I think previously announced that we expect the dividend to grow for a period of time here at a rate faster than the growth in earnings.
Sure, <UNK>.
I mean, I think they'll be recruiting I think across the board in practices.
But there are clearly some that are very strong right now, and they're really the ones we talked about that were particularly strong in 2015, so our materials science, our polymer science practices, both of those, in addition to our biomedical and some of the areas in the infrastructure practices.
Those are the areas that showed the most growth and I think are the strongest.
But we certainly don't see limiting the hiring to those groups.
Well, yes and no, <UNK>.
I mean, the way I would say that is, I think it's important for us to keep in mind that the most common people we hire are some of the entry-level folks.
And those people are coming out of PhD programs.
And in order to get the best talent, we want to sign up for those six, nine months in advance.
So it's not a matter, okay, we've got a project, we've got to find somebody to support the project.
You have to think a little bit longer term.
But I think, having said that, there's lots of tools to work that into place.
I think that the practices that are strong usually stay strong for quite a period of time.
And that I think fits very well.
And then there's also a way to deal with if practices are really struggling.
There's probably some people who are underperforming there and one can cancel out some stuff there.
So there are various tools that we have.
But I wouldn't want you to think that we can kind of immediately turn it on and turn it off.
Yes.
Well, I think there's a give and take in both of those.
I mean, look, over the last two years we've had two areas that were challenging for us.
You know, we announced at the end of the third quarter that because of the end of the large project in the Gulf that there was clearly going to be an impact to our environmental group.
And as a part of that we did adjust down some headcount.
We did a similar thing the year before with the end of combat troops in Iraq and Afghanistan.
So, when we get those kinds of events you do make some adjustments.
But overall I think it generally moves a little bit slower than that.
But having said that, the areas that are hot stay hot for quite a while.
And we've got quite a lot of demand out there for bringing in new talent in our stronger practices.
No, <UNK>, not at this time.
We haven't what I'll call defined sort of a payout ratio or something like that.
Obviously as the dividend continues to rise here as a percentage of the profits in the Company, at some stage we'll need to define that.
But I think at this stage we don't feel like we ---+ we haven't defined that.
Well, first of all, acquisitions are not off the table.
It really is a matter of finding one that makes sense.
And it's really quite unpredictable because it just depends on what's out there in the marketplace and whether we think it fits a niche that we're looking for.
So it's really quite ---+ it's difficult for us to predict.
Most years we end up getting to a point where we make an offer on one or more companies.
And we did that last year.
But we didn't get to the point that we had a deal.
And we're not going to overpay.
And it'd have to be the right fit.
So they're not off the table.
We still have some areas we're looking in.
We've talked about them before as sort of the pharmaceutical, health area.
We've talked about in sort of the computer science and data analytics area.
These are areas we're still interested in.
So it's still my hope that one of these years I'll surprise you and we'll actually get something done.
So that's what I would say that that's not off the table.
Up until now we've not wanted to do a special dividend.
We don't think that that's the best way to go.
I understand as the cash reaches new heights here that that might be something we might have a discussion with our board about.
But it hasn't been something that's been support for in the past.
Yes.
I think some of it's stronger and some of it's weaker, so let me comment on that a little bit.
I think the weaker part is probably obvious.
There's no question that energy is tougher now.
That client base is hurting big time, and so it's more difficult.
And that doesn't come at a particularly good time for us, because we've historically done a lot of work for the energy sector in the reactive side and we expect to continue to do that as incidents happen.
But on the proactive side we've really only just been getting going on that.
And so I think that that's a little bit of a challenge for us.
But I would flip that around and there are some positive things I think going on for us.
We feel the medical device and consumer electronics world continues to be extremely strong and we think we're growing in that area.
Certain of the infrastructure practices, some of that's reactive work but there's a fair amount of that that's proactive work ---+ in the utility space, new projects, new development, and so forth.
And I think that that's positive.
I think our regulatory business in the UK continues to grow well.
It's been a little challenging for us this past year because obviously we've had a change in ---+ you know the dollar has strengthened relative to the pound and euro, so it's been a little bit of a challenge for us, not in terms of profitability but just in terms of demonstrating the growth that we are actually seeing over there.
So I think there's a bit of a mixed bag, but there are plenty of growth opportunities, just as some are not very good right now.
| 2016_EXPO |
2017 | UTHR | UTHR
#Thank you, operator.
Good morning, everyone.
Welcome to United Therapeutics First Quarter 2017 Earnings Call.
My name is <UNK> <UNK>, I\
<UNK>, the guidance we give is that the ---+ that we have a group of products that we call in the nearer term guidelines, in the nearer term pipeline.
And the only guidance that we're providing are that, these products which are in the near-term pipeline will be launched in the 4-year period 2018, '19, '20 and '21.
I don't have the whole list of them, but certainly, FREEDOM EV, which we go by the product name, Oreni Plus, because it's a Orenitram plus background therapy, that's the study design.
That's something that will be launched in the 2018 to 2021 pipeline.
And it's just too arbitrary to be able to parse the particular launch timeframe within a quarter or even within the break of an annual year.
So with regard to the launch of Oreni Plus, that would be near term, sometime between 2018 and 2021.
Yes, <UNK>.
We're not content.
We, at United Therapeutics, look at ourselves as like a restless engine, and we are always on the prowl for new opportunities.
In fact, we find a lot of companies want to work with us and even would like to be acquired by us, because the culture and the atmosphere at UT is so awesome.
I know you're like a big statistics guy, like 1-stats figure, is that the voluntary turnover at United Therapeutics is way less than it is at other biotech companies and pharma companies in our peer group.
So people definitely want to be acquired, and we're interested in acquiring new technologies, new therapies.
We're interested in both early stage assets such as those that are active in the thromboxane, serotonin pathways, we're interested in more advanced methods of current pathways.
During the past quarter, we closed a deal with a terrific company named Respira, who once referred to us by one of the leading pulmonary hypertension physicians, Dr.
Adaani Frost, down in Houston, and we're really excited about this [Ibard] therapy, as I mentioned it in my prepared remarks.
In addition, we are ---+ I think we're liked a lot by all of the major banks, including your's, Goldman Sachs.
And as a result, the investment banking side of those firms bring to us these beautiful binders, they are like, at least an inch thick.
And in them are pages upon pages of different companies that would they think could be good opportunities for us to acquire them.
And we are in a very nice situation because we have the best and brightest minds from Goldman and JP Morgan and Wells Fargo and Citibank or what have you, have the best and brightest minds bringing us all of their cool ideas for acquiring companies that would range anywhere from the smaller ones, like I've mentioned, Respira, up to companies that would require, say, an acquisition price in the $1 billion to $2 billion range.
All of these are fair and interesting gains for us.
And I see that we are now active in 5 therapeutic areas, we're active in pulmonology, of course.
Also now with SOUTHPAW IN cardiology, also now with your IRONS study within the field of hematology.
And as well, you can see, with the 3D SYSTEMS deal that we announced, we also have some very good activity in transplant science.
So all of these different areas are ---+ have valuations which are, generally, a little bit more modest than those that you would see in the fifth area, which we're also very keen about, which is oncology.
But as I know, you folks know at Goldman, valuations right now are sky-high in oncology, that's not to say that we wouldn't make the right oncology acquisition.
And it would, I think, be a beautiful thing to add to United Therapeutics family of companies, a large acquisition, whether it was revenue generating in the hundreds of millions, or just on the cusp, maybe late-stage, Phase III, promising.
Nevertheless, something that could justify a very large valuation.
All of that is very much for our gain and within the of scope of are M&A dashboard that we operator right now.
Next question.
Yes.
It's a step-by-step process.
And what I like about it is that it's now an engineering process.
It isn't something that any longer requires fundamental breakthroughs in physics, something that doesn't require new inventions, it requires a step-by-step improvement of the engineering of our current technology.
So for example, today, we have literally, an assembly line of porcine lung decellularized scaffold.
And when I say an assembly line, we are decellerizing over 500 scaffolds a year.
So that would be, once cellularize that, that would increase the supply of lung transplant to 25% in the entire country right now.
We also have a parallel assembly line in another lab where we recellularize these scaffolds with allogeneic cells, that is with human cells.
So when the final organ is completed, it looks to the patient recipient just like a human lung even though at its collagen skeleton, if you will, it's ---+ these are proteins that were originated in the ---+ by instructions from a pig's DN<UNK>
Over time, they will get completely replaced by human DNA, directed, collagen will be a completely human lung.
So these same technologies of scaffold management and recellularization of these scaffolds are exactly the same technology that will apply to the 3D-printed scaffold.
Of course, the great benefit of the 3D-printed scaffold is that we can make these in any size and shape that is necessary for different patient's chest size.
And another great benefit is that we can scale up the number of scaffolds far greater than we can do with the porcine decellularization process.
And finally, it looks to us, like it would be much less expensive as well.
So the process is to begin printing the scaffolds with our partners at 3D Systems.
Basically, branch by branch, there are, roughly speaking, 15 to 20 branches of vessels and airways in the human lung.
So we print these branch-by-branch, they go down to finer-and-finer resolutions.
As we are printing them in parallel, we are cellularizing them.
And when we cellularize the reprinted branches, just as when we recellularize the decellularized scaffolds, we test for gas exchange.
And in fact, it's a magical thing, <UNK>, to watch, we hook up the scaffolds to basically, a kind of an ecmo machine, and the scaffolds themselves breathe in the cells that they are being recellularized with.
Until finally, in this little bioreactor, the lungs are able to breathe on their own.
And it's virtually an embryonic type of process.
So it is the ---+ the stuff is going through the xeno process with the decell/recell, while the 3D folks are building up their 3D printing, and then mapping over our recellularization technology from the decell/resell onto the 3D printing.
Finally, on yet a third parallel track, there's some remarkable work being done with successfully teasing out precise cell lines from IPF cells.
And the types of cell lines that we're most interested in, differ by organ for the lung, there are different types of epithelial cells and a general family of endothelial cells to the predominant cell lines.
We, at UT, have mastered the technology to expand these cells now into the tens of billions of cells, and which is by the way the amount that you need to recellularize an organ.
So the IPF cell development activity at UT will ultimately be mapped onto the 3D systems printed scaffold.
So that rather than having a scaffold recellularized with allogeneic cells, as we're doing today and as we would do at the interim step, the 3D scaffold will be cellularized by the intended patient's own cells.
And that means, of course, that, that patient will not be obligated to take any immunosuppressants, which is the major factor keeping most people off of transplant list.
It will be a huge benefit to the patients and to the healthcare system as well.
Now there will always be people who cannot wait to have a 3D-printed lung, cannot wait to have their IPS cells expanded and regenerated.
We have a lot of interest from, for example, people who are in first responder type of situations, militaries type of situations, acute lung injury type of situations, where what you need is a very rapid transplant.
And in those situations, the work in our xenotransplantation group is a perfect solution.
We plan to move organ transplantation from a paradigm of scarcity, where it is right now with a viciously managed transplant list that keep 99% of the people in need of an organ off the list to a paradigm of abundance, in which organs can be constantly produced and available for people who need them as a result of car accidents, or fire, or other traumas, as well as having those custom-designed for patients that can wait 2 or 3 months for their transplant.
Because I believe, that there is enough demand, <UNK>, for all of these different organ transplantation technologies we're developing.
And I really look forward in the 2020s to our biological products being a harbinger of a paradigm of abundance in the field of a transplantation science.
Sure.
I'm glad to.
And this will be the last question, operator.
So the ---+ it's not a kind of a thing that you could be super precise about because we're in the realm of human affairs, and there's thousands of patients on these AMBITION therapies.
But what can be said, largely because we're dealing with relatively large numbers of people, is that about 15%, say, 1 out of every 7 patients or so, who are on combination therapies, experience some morbidity or mortality event each year.
Now that does not ipso facto automatically mean that, that patient is going to be immediately moved on to an advanced therapy.
I think in the best case, at the largest treatment hospitals, that would ordinarily be what one would do because it definitely is a bad sign to be suffering these morbidity events, which are things like requiring hospitalization, dropping in New York Heart Association functional class, significant decrement in fixing a block distance, or are significant deterioration in cardio hemodynamics.
But there are thousands of patients with PA, they're seen all over the country, and many people live in rural areas, not everybody can like get switched to a new therapy right away.
So in real life, sometimes the rate of patients moving on to the more advanced therapies may be a little bit slower.
On the other hand, in clinical trials, patients submitted are monitored very intensively and are basically under a kind of, I would say, a subliminal encouragement to remain on therapy.
Whereas what's usually the case in the real world is patients do worse on therapies than they do in clinical trials.
So that's a factor kind of tending to move patients more to our therapies more rapidly.
I have a chart that was prepared for me, it's really interesting, it showed that from the launch of Uptravi, the number of patients on United Therapeutics, declined gradually, small, slow but declining.
Until the fourth quarter last year when it flattened.
And then the first quarter of this year, it's an upward slope.
So obviously, as a CEO of a company, I'm happy to see that more patients are clearly coming on to our therapies, and that what has been a temporary decline in the history of our company since the launch of Uptravi, has now pretty clearly been reversed.
Now, I've heard there was just a big International Society of Heart and Lung meeting in San Diego, and staff came back and told me that the reports from physicians are that, Uptravi is not working as well as they thought.
Well, as I mentioned, it's usually the case that in the real world, things don't perform as well as they do in a clinical trial.
Some people were referring to it as prostacyclin lite, like L-I-T-E.
I mean, that could be just ---+ that could be a good and a bad thing.
Because, prostacyclin does have side effects and perhaps, it's good to have something with lighter side effects.
But if you need prostacyclin therapy, it's maybe not the time to have the lite one, it's the one ---+ time to have the real one.
And so I think these are the kind of factors that are underlying this bottoming out and then upturn in the number of patients on our therapies.
Whether the revenues will reflect that within 1 quarter or 2 quarters' lag, it's really, really hard to predict, Remodulin and Orenitram, in particular, patients start at low doses because of the side effects profile, I mentioned, and ramp up gradually.
So you're always going to see a several-month lag between patients and revenue, a patient growth and revenue growth uptick.
For Tyvaso, there is less of a lag.
There is some argument that the patients are basically holding on to the orals too long, and then they need to go directly to Remodulin.
And we're really agnostic.
We ---+ all of our sales reps know that their job is to educate physicians on Orenitram, Tyvaso and Remodulin.
Once patients are on their therapeutically ideal dose, we are really revenue-agnostic in terms of whether they are on Orenitram, Tyvaso, Remodulin.
All 3 of those drugs were designed to be pretty much priced equivalent to each other because they all have the same active pharmaceutical ingredient.
So the bottom line is that the prospects for UT are super good.
There's never been a larger backlog of patients who require our therapies and therefore, the prospects for continued growth and significant revenue growth across all 3 of our therapies have never been better.
Thank you very much.
Operator, you can conclude the call now.
| 2017_UTHR |
2016 | ATO | ATO
#Thank you, Tim, and good morning, everyone.
Thank you all for joining us.
This call is being webcast live on the Internet.
Our earnings release, conference call slide deck, and the Form 10-Q are all available on our website at atmosenergy.com.
As we review these financial results and discuss 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.
Our forward-looking statements and projections could differ materially from actual results.
The factors that could cause such differences are outlined on slide 22, and more fully described in our SEC filings.
Additionally, we will refer to non-GAAP financial measures.
Slides 2, 3 and 17 provide information regarding these financial measures.
Our first speaker is <UNK> <UNK>, Senior Vice President and CFO of Atmos Energy.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
We appreciate you joining us and your interest in Atmos Energy.
We had a strong quarter from both a financial and operational perspective, which has positioned us well to achieve our earnings guidance of $3.25 to $3.35 per diluted share.
Slides 2 and 3 summarize our net income and diluted earnings per share.
As you can see, diluted earnings per share, excluding mark-to-market gains, increased to $0.67 during the quarter and to $2.98 for the current nine months.
Positive rate outcomes in our regulated businesses continue to drive our growth for the three- and nine-month periods, and offset the negative effect of weather that was 25% warmer than last year's winter heating season.
Rate relief for our regulated distribution of pipeline operations combined generated about $18 million of incremental margin in the quarter and about $66 million for the current nine months.
Additionally, over the last 12 months we experienced customer growth, primarily in our Colorado, Louisiana, north Texas, and Tennessee service areas.
Our average customer count has increased about 0.75% during this period, which contributed incremental margin of about $1.5 million for the three months and $4.9 million for the nine months ended June 30, 2016.
As I mentioned, weather was 25% warmer than the prior nine-month period, and negatively impacted each segment of our Business.
In the distribution segment, sales volumes decreased 19% period over period.
However, our weather normalization mechanisms, which cover about 97% of utility margins, worked as designed to limit the negative impact of lower consumption due to the warmer weather and gross profits at just $3.6 million.
Year to date, our regulated intrastate pipeline experienced a period-over-period decrease in through-system volume, and lower storage and blending fees due to the warmer weather, which negatively impacted gross profit by about $4 million.
And year to date in our non-regulated segment we experienced larger settlement losses [on] net long financial position, primarily in our second quarter, as prices fell due to the lower demand driven by warmer weather.
However, we saw this trend reverse in the third quarter, as this segment realized gains on net short position.
Focusing now on our spending, consolidated O&M rose about $5 million in the quarter and $11 million in the current nine months, primarily due to increased pipeline maintenance spending related to safety, and the timing of spending period over period.
Capital spending increased by about $129 million in the first nine months compared to one year ago, primarily due to planned increases of spending in both of our regulated segments.
About two-thirds of this increase was incurred in our regulated pipeline segment, but we continue to enhance and fortify our Bethel and Tri-City storage facilities, and to improve our ability to reliably deliver gas to the Mid-Tex division and APT's other LDC customers.
We now expect FY16 CapEx to be at the top end of our previously announced range, approximating $1.1 billion.
Moving now to our earnings guidance for FY16, we continue to expect FY16 earnings per diluted share to range between $3.25 and $3.35, excluding net unrealized margins at September 30, as shown on slide 17.
The expected contribution from our operating segments, as well as estimates for selected expenses for the year, are also highlighted on slide 17.
Planned O&M spending lagged during the third quarter, as a result of wet weather experienced in our Texas jurisdictions.
However, we expect to catch up with our planned maintenance work in the fourth quarter, and to put us back on track to our forecasted O&M range of $550 million to $565 million for the full fiscal year.
I would like to finish with an update on our at-the-market equity program, which was introduced last November as an integral part of our financing plans through 2020.
We issued about 1.4 million shares under the program during the current quarter, and received $98.7 million in net proceeds.
The proceeds will help fund our robust capital spending needs.
Thank you for your time, and now I will hand the call back to our CEO, <UNK> <UNK>, for closing remarks.
<UNK>.
Thank you very, very much, <UNK>, excellent report, and good morning to everybody.
As you've heard, we recorded another strong quarter, and we remain on very solid footing as we approach the end of our FY16 year.
The successful execution of our rate strategy during this fiscal year has generated an increased operating income of about $119 million.
And during the fourth quarter, we expect some very limited regulatory activity with filings which remain pending, or that we expect to file, but we have successfully achieved our commitment to generate annual operating income increases in the $100 million to $125 million range for FY16.
And during the quarter, S&P did cite the time we [recover] our invested capital is the primary reason to upgrade our senior unsecured debt rating to A from A- with a stable outlook.
And with our annual investment of $1 billion to $1.4 billion through FY20, we continue to demonstrate our commitment to safety and reliability.
So we remain very steadfast to deliver the execution of our financial and operational plans, and our results do validate our commitment of growing earnings per share by 6% to 8% and providing a total return in the 9% to 11% range.
We've had a great quarter.
We thank you for your time, and we will open it up for questions now, Tim.
<UNK> <UNK>, very good.
How are you doing.
Great.
Good to hear from you.
Yes, the overall landscape for acquisitions or ---+ the acquisition of ---+
The overall landscape.
Well, I think ---+ we have been talking about Oncor and NextEra and the activity in Texas for some time, and it wasn't a surprise to most people that NextEra had moved in after the Hunt proposal got hung up in the regulatory arena on the REIT proposal that they had.
So I think that NextEra is going to be pretty successful in their attempts to bring that to a successful close.
I think the activity seems to have slowed down somewhat.
There are fewer and fewer companies to choose from.
I still think that the electrics are looking to add gas platforms to their strategy, and it seems to be something that has been well received by the market.
If you look at the performance of those that have picked up gas utilities and where they were trading, what they paid, and now where their stock price is, so it's anybody's guess.
Money is cheap.
We'll have to see as we talk, <UNK> ---+ many times what happens with this election year and who successfully comes out as the President and who is running the legislature, as well.
But I hate upon on the question but I don't know ---+ I don't have a specific answer on what kind of activity is going to continue in that space, or in our space.
Thank you, <UNK> <UNK>.
It is good to hear from you.
We look forward to seeing you.
Good morning, <UNK>.
To you want me to take that one question.
<UNK>, this is <UNK>.
How are you doing today.
Good.
Yes, the big driver falls in a couple of categories.
We have new infrastructure mechanism in Colorado, so we are spending some money there to start replacing that higher-risk infrastructure.
The other big driver is really our growth in Texas and Louisiana, and also public improvement projects.
Lastly, I would say we've got a start on some projects, and we're getting a start on some projects, this year that we need to complete in the first quarter of next year, so that is really what is driving the incremental or the ---+ coming in at the top end of that range.
I think we will continue to support the $1 billion to $1.4 billion, continuing to drive it at 9% to 10% rate base growth.
Well, you know, of the $119 million implemented year to date that are in the book that we put out there, so much of that now is driven by annual mechanisms or infrastructure mechanisms that don't require a full case.
We've got the Kentucky PRP filing that went earlier this month on file.
Those rates should go into effect in the first quarter of the next fiscal year.
And then, we will have a couple of more filings coming in Mississippi with the stable growth rider and the stable rate filing.
Both of those will go before the end of this fiscal year, and expected outcomes in the first quarter of next fiscal year.
So we remain on track.
As <UNK> said, we anticipated $100 million to $125 million.
We came in and implemented at the higher end of that range, and the level of investment that we are talking about and the continued increase in capital spending we anticipate will continue to support that level of increases.
What remains pending really, <UNK>, is some very limited filings that are those that we do expect to file as well, and if you look at the information that was provided for this presentation, there's a pretty good summary of what is out there and what remains.
But the big-ticket items have been already settled and in the books, and so we are really focusing on FY17 filings right now and beyond.
Yes.
We have had growth in Dallas, in the mountain towns of Colorado near ---+ you know in our Olathe area in Kansas, as well as in Tennessee, south of Nashville, and even in Louisiana.
We are looking at an estimate of about 12% year-over-year growth in new customers.
We have had, trailing 12 months, about 23,000 new customers added across the system at a growth of about 0.75%.
That is new growth ---+ not net, it's not net, it is new customers, and that is a year-over-year increase, so that is not 12% of all customers.
I just want to remind you all that a recording of this call is available for replay on our website through November 8.
We appreciate your interest in Atmos Energy, and thank you for joining us this morning.
| 2016_ATO |
2016 | INDB | INDB
#Great.
Good morning.
Thank you Nicole.
Thank you, everyone, for joining this morning.
With me as usual is <UNK> <UNK>, our Chief Financial Officer, who will take you through our financial results following my comments.
Our second quarter can be best described as the one where all the stars were perfectly aligned in our favor to produce one heck of a quarter.
Core earnings in the second quarter came in at $20.5 million, or $0.78 per share, well above both prior quarter and prior year.
Everything came together this quarter in virtually across-the-board fashion.
Healthy growth in the commercial loan portfolio in each major business sector, including small business.
Competitive conditions, as we've talked about, remain tough, but we are very much in the deal flow in our region and loan pipelines remain in good shape.
Home equity activity also continues to be fairly robust.
Core deposits have more than kept up with another quarter of strong growth.
Our relationship focus here is really paying off.
And new household formation remains solid.
Every category of fee income was up this quarter with higher volumes across the range of deposit, interchange, mortgage and commercial loan level swaps.
And our investment management unit is now responsible for assets that rose to $2.8 billion.
Credit quality continues in excellent shape.
Every quarter, we caution that trends will inevitably return to cyclical norms, but not just yet with another quarter of net recoveries and benign nonperforming trends.
Expense levels remains well contained with a further lowering of our efficiency ratio, and all this led to an ROI of over 1.1% and an ROE above 10%.
And of course, capital continues to build, affording us strong capital ratios and a platform for future growth.
Tangible book value per share continued its steady ascent, having grown over 11% in the past year.
So like I indicated, it was a full sunshine quarter.
So, turning to some other topics, the integration planning for our New England Bancorp acquisition and its Bank of Cape Cod affiliate is well underway.
As you know, we have a well oiled integration process and fully expect this one to go as well as all prior ones.
As a reminder, Bank of Cape Cod has about $260 million in assets.
It will improve our market position in Cape Cod, a reason it possesses attractive demographics.
It's a great commercial fit with our franchise and there's lots of advanced planning going on to hit the ground running on day one.
We have developed a marketing strategy across both banks to retain customers and bring Bank of Cape Cod customers into the Rockland Trust plan.
We will be retaining our branch in the town of Osterville, which provides a terrific opportunity for our investment management business, and we still expect this acquisition to close in the fourth quarter and be accretive to earnings.
We do get asked about M&A quite a bit by many of you.
Our posture here is unchanged.
We remain disciplined, opportunistic acquirers.
And we always want a seat at a table for any such discussions, but I always remind folks that banks are sold and not bought.
In instances where we are successful, we do find that the Rockland Trust franchise and currency are proving very attractive to those looking to combine.
We also continue to pursue our disciplined growth strategy with selective initiatives designed to meet the needs and preferences of our expanding customer base.
Let me give you a few examples.
We opened a new branch in North Quincy where there is a robust and growing Asian community.
It has a modern design in keeping with the changing customer service preferences and it's staffed with multilingual individuals.
If you in just a few short months, it's reached $10 million in deposits and is still climbing.
Last month, we launched a new equipment leasing service that offers flexible financing, a flexible financing alternative to our commercial and small business client base.
As we did a few years ago with asset-based lending financing, we continue to grow our products to meet the needs of our clients.
We've also added more seasoned professionals to our investment management business to capitalize on opportunities, especially in the newly acquired markets.
As for the macro environment, not much new to add here.
Speculation about the next Fed rate increase continues unabated.
The recent Brexit vote and all uncertainty of its effect has surely kept the pundits busy.
And of course we have the Republican and Democratic conventions this month, which keeps the political uncertainty at the forefront.
While each of these are important, we simply focus on the things we can control.
Local economic growth has picked up for the first quarter of 2016 after it slowed a bit in the second half 2015.
Employment and wages have grown at strong levels this year.
This is evidenced in the low 4.6% state unemployment rate.
Most notably, the unemployment rate in the Boston/Cambridge/Quincy area is a low 3.5%.
The best benchmark's leading economic index suggest that state economy will continue to grow at about a 3.1% pace in the second quarter, outpacing the national rate.
So, 2016 is proving to be a pretty good year for us thus far.
We take nothing for granted and know we have to work as hard as ever to sustain our success in this highly competitive arena.
There's no question the Rockland Trust brand is resonating throughout our footprint with a growing reputation for reliability and service excellence.
And we are also fortunate to have focused, hard-working, motivated, skilled, caring and respectful colleagues that really deserve all of the credit for our many accomplishments.
That's all I have.
<UNK>.
Thank you <UNK>.
Good morning.
As <UNK> just described, things came together especially well for us in the second quarter.
Versus the first quarter of 2016, GAAP net income and diluted earnings per share increased 10% and 8% respectively to $20.4 million and $0.77.
Operating diluted earnings per share, which excludes the non-core items referenced in the press release, was $0.78 in the second quarter, an increase of 8% versus last quarter and 15% versus the same period a year ago.
Performance ratios for the quarter were quite strong.
On an operating basis, the return on average assets was 1.14%, the return on average equity was 10.31%, and the return on average tangible equity was 14.02% for the quarter.
Strong earnings results continue to drive growth in tangible book value per share, which increased to $22.52 at June 30, a $0.62 or 3% increase from the prior quarter end.
In addition, despite strong balance sheet growth, tangible capital and tangible assets remain consistent with the prior quarter at 8.22%.
Total annualized loan growth for the quarter was 6.1%, reflecting good growth across all commercial categories as well as a solid increase in the home equity portfolio which was partially driven by better direct-mail response rates.
Relatively high payoffs during the quarter were offset by excellent closing volumes.
The influence of competition in the extremely low rate environment, however, has led to further large commercial loan payoffs in the first few weeks of the third quarter.
As of June 30, all loan pipelines were at multi-quarter highs.
The approved commercial pipeline ended the quarter at $214 million compared to $150 million in the prior quarter with a meaningful portion of our new business coming from our existing commercial client base.
Deposit growth was also impressive for the quarter with all core categories up by double-digit annualized rates.
Core deposits now represent 90% of total deposits, and as a result, the cost of deposits was down another basis point to 18 basis points in the second quarter.
The size of our core deposit base is a reflection of our intense focus on relationships and the growing recognition of the RTC brand across our geography.
A reduction in the cost of deposits has partially contributed to the 8 basis point expansion in the net interest margin versus the first quarter to 3.47%.
The margin also benefited from a 5 basis point increase related to loan and securities prepayments as well as 2 basis points from purchase accounting adjustments.
As described on our first-quarter call, these two items were particularly low in the first quarter.
For the remainder of the year, we would expect both items to normalize, resulting in a full-year margin in the low 3.40s% range, consistent with our original guidance.
Asset quality continues to be excellent.
With the third consecutive quarter of net recoveries, a $600,000 loan loss provision was primarily needed to support the strong loan growth in the quarter.
A single large commercial recovery led to the relatively high level of total recoveries in the quarter.
In addition, nonperforming assets remained at post-financial crisis lows, representing only 37 basis points of total assets as of June 30.
Although somewhat anticipated due to seasonality, total noninterest income increased by an impressive 10% compared to the first quarter and represented 27% of total revenue.
Included in this increase are strong interchange and ATM fees driven by continued growth of core checking accounts, robust mortgage banking activity supported by low rates and a full complement of loan officers, higher investment management income related to seasonal tax preparation fees and growth in assets under management, and record fee income from our loan level swap program.
Regarding the latter, it is important to note that, even with our strong commercial pipeline and success of the swap program over the last two quarters, loan level swap income is highly sensitive to customer expectations of future interest rates.
Noninterest expense, when excluding non-core items, increased 2.7% when compared to the first quarter.
The biggest driver of the increase is the Bank's reserve for unfunded commitments, which rose by $469,000 quarter-over-quarter as a result of the increase in our loan pipelines.
We also experienced small increases in various expenses such as consulting, mortgage operations and card issuance fees.
The increase in card issuance fees is associated with our transition of debit card customers to EMV chip cards.
Good expense control has further dropped the efficiency ratio in the second quarter to 60.5% on an operating basis.
The Company does anticipate higher costs associated with the new marketing campaign, branch transformations and customer experience enhancements in the coming quarters.
As for the New England Bancorp acquisition, our financial expectations remain very much intact.
That is to say we continue to expect the transaction to be neutral to tangible book value per share and accretive to 2007 earnings by approximately $0.05.
Now, shifting to 2016 guidance, during our last conference call, we reaffirmed our 2016 operating diluted earnings per share guidance of between $2.90 and $3.00.
And now the first-half operating earnings per share having reached $1.50, we are prepared to increase that range.
We now expect full-year operating earnings per share to be between $3.00 and $3.05.
That concludes my comments.
<UNK>.
Great.
Okay, Nicole, we are ready for questions.
We expect full-year expenses to still be in the range that we indicated, which was 3% to 5% growth over 2015.
I would anticipate that we would be in the lower end of that range, actually, based upon first couple quarters of performance.
But I would expect about $1 million, round numbers, of increase in total operating noninterest expense in the third quarter versus the second quarter.
Yes, actually no de novo branches.
When I mentioned branch transformation, we are in the process of converting a number of branches from the traditional teller layout to pod style formats, so we have three in process at the moment, all of which we expect ---+ actually one I think just completed, the other two we expect to complete in the third and fourth quarters.
So the cost of making those transformations will start to impact our expense items, particularly occupancy and equipment expense.
We are not concerned about the regulatory focus, we have been a CRE lender since our inception.
We have been close to our regulators in terms of our processes, and our risk management practices, and they are very comfortable with continued growth in that portfolio.
However, we have begun to run up against some of our internal concentration limits, specifically multi-family, so we have slowed that as a result of reaching internal limits.
In terms of the market, we are concerned.
We have been concerned about the valuations in the greater Boston market.
Our commercial real estate and construction production is diversified across our footprint.
I was looking at a report yesterday about production in second quarter, Collateral was in 78 different cities and towns across the state, so well-diversified.
But we do continue to think that we have an opportunity to grow within the Boston market, just maybe not at such a rapid pace.
Competition is certainly very aggressive.
That continues to be the case.
I did mention in my comments that, in the first few weeks of the third quarter here, we've had a number of large commercial payoffs (technical difficulty) be replicated here in the third quarter.
However, we are seeing lots of activity.
Also, as I mentioned, the pipelines are very strong and not just in commercial but our mortgage pipeline, our home equity pipeline, our small business banking pipeline, all at multi-quarter highs.
So we think we will have a good closing quarter in the third quarter, but it just won't result in the same level of growth that we experienced in the second quarter because of some accelerated payoffs.
Certainly not an anomaly.
I would expect that to grow as we head into the third quarter and continue to acquire core checking customers.
Investment management income, remember, we have tax prep fees here in the second quarter.
That was about $400,000 of the increase.
So if you were to strip that out, we would expect the remainder to continue to grow because we got nice growth in assets under management and a good pipeline and a new business there.
And then as I said, the swap income is unpredictable.
With the commercial pipeline the way it is, we should have a pretty good third quarter, but second quarter was just a standout.
New loan pricing is off a little bit frankly because where the yield curve is.
So the yield curve moves down, and without necessarily having any sort of spread compression, the absolute rate drops.
So I do expect new loan yield, and we saw a little bit of it here in the second quarter, new loan yields to come down a bit, and so that will certainly impact the margin.
If you average the first two quarters, we are at 3.43%.
I would expect us to be slightly less than that in the third quarter, and probably a little bit lower than that again in the fourth quarter.
But my guidance was the low 3.40s% for the year.
So it might be a little north of 3.40%.
Thank you very much, everybody, for joining us.
Have an enjoyable rest of the summer and we will talk to you in October.
Thank you.
| 2016_INDB |
2017 | FCF | FCF
#Thanks, Brian.
As a reminder, a copy of today's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page.
We've also included a slide presentation on our Investor Relations page with supplemental information that may be referenced throughout today's call.
With me in the room today are Mike <UNK>, President and CEO of First Commonwealth Financial Corporation; and Jim <UNK>, Executive Vice President and Chief Financial Officer.
After brief comments from management, we will open the phone call to your questions.
For that portion of the call, we'll be joined by Brian Karrip, our Chief Credit Officer; and Mark Lopushansky, our Chief Treasury Officer.
Before we begin, I'd like to caution listeners that this conference call will contain forward-looking statements about First Commonwealth, its businesses, strategies and prospects.
Please refer to our forward-looking statements disclaimer on Page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.
And now, I would like to turn the call over to Mike <UNK>.
Okay, thanks, <UNK>, and welcome, everyone.
In early April, we legally closed the acquisition of Delaware County Bank in the Columbus, Ohio MSA.
And in the latter part of May, we've successfully integrated our 2 companies.
This added $384 million in loans and $484 million in deposits in the beginning of the second quarter.
We now have an Ohio banking franchise with $1.3 billion in deposits and $1.1 billion in loans after 3 successful acquisitions in less than 2 years.
Notwithstanding our merger-related expenses of $9.9 million in the second quarter, core net income of $20.4 million produced core earnings per share of $0.21 and a core return on assets of 1 point.
Primary drivers of second quarter performance included solid loan growth, a negative provision of $1.6 million and a buoyant net interest margin.
Second quarter organic loan growth of $84 million, or 6.8% annualized, was led by strong activity in commercial real estate and direct C&I lending.
In our 2.5 year old mortgage division, second quarter loan closings were the best we've experienced in our short history in this business, with roughly half of the originations coming from our new Ohio markets.
Negative provision expense of $1.6 million was aided by low charge-offs and some $3.1 million of recoveries from 2 larger credits.
Nonperforming loans decreased $9.7 million from March 31 to $40.2 million and a 0.75% of total loans, the lowest figure in years.
Also, the allowance for loan losses as a percentage of originated loans at 0.97% stayed comfortably in line with our expectations.
As I shared earlier, our bank acquisitions in Ohio have had sticky deposits with no net runoff, enabling the repayment of high-priced Federal Home Loan Bank borrowings.
Coupled with solid loan growth and pricing discipline on new loans in current deposits, the net interest margin improved to 3.54% for the second quarter.
Importantly, and as expected, with the myriad of investments and strategic initiatives, the earnings capacity of our company is increasing.
Second quarter net interest income of $58.9 million and noninterest income of $18.9 million are among the highest figures ever for First Commonwealth.
Consistent growth and higher yield in commercial loans over the last several years, coupled with new households in Northern and Central Ohio, are the key enablers.
Our sizable debit card interchange business increased to $4.8 million in the second quarter, up appreciably from $4.2 million in the first quarter.
Prior to recent acquisitions, the previous high for this business was $3.8 million in the second quarter of 2016.
Other bright spots in fee income included trust revenue, insurance commissions and deposit service charges.
And these businesses are getting appreciably better.
We feel this earnings progression is evident over the last 4 quarters as the trailing ROA over that period is now 1.08%, also up appreciably from prior years.
With that, I'll turn it over to Jim <UNK>, our CFO.
Thanks, Mike.
As Mike mentioned, core earnings per share, that is excluding merger expense, came in at $0.21, up $0.03 from last quarter.
Core ROA was 1.11%, up from 0.98% last quarter.
The core efficiency ratio was 60.19%.
But as anticipated, our expense base included some noise from the DCB acquisition and conversion in the second quarter.
We expect core efficiency to trend below 60% in the second half.
Onetime transaction costs for DCB were in line with expectations at $9.9 million in the second quarter and $10.5 million for the first half of the year.
We typically focus on linked-quarter comparisons in reviewing quarterly results.
But they are all, of course, impacted by the closing of the DCB transaction in the second quarter.
Loan and deposit balances as well as spread and fee income all improved from last quarter, as one would expect with an acquisition.
It's important to note, however, that the improvement in our performance was driven not only by the acquisition but by organic growth as well.
Mike mentioned that our organic loan growth, without DCB, was at an annualized rate of 6.8%.
But our organic deposit growth, not including DCB, was at a 6.4% annualized rate in the second quarter as well.
Similarly, fee income, excluding securities gains, was up by $2.7 million from last quarter with approximately $800,000 of that improvement coming from acquired DCB operations and the rest coming from organic growth.
Expenses, of course, were also up from last quarter, in part due to the acquisition.
There were, however, a few expense items that are worth clarifying.
First, approximately $1.1 million of the increase in expense was due to losses on the write-downs of 3 properties we were holding as real estate owned, or REO, that had nothing to with DCB.
The remaining REO on the balance sheet is only $6 million.
Second, the expense associated with the reserves against unfunded commitments, which runs through other operating expense, was up by $900,000 over last quarter.
And finally, we had noncash expense of about $800,000 from core deposit intangible amortization in the second quarter, up from $600,000 last quarter.
CEI expense is expected to be $1.4 million in the second half of 2017.
DCB's deposit balances are up since we struck the deal.
And they are more valuable now as well due to the Fed's rate hikes.
The CDI amortization is over 10 years, but is on an accelerated basis, and therefore, should fade out over the next few years.
On a final note, our effective tax rate was 30.04%.
And with that, we'll take any questions you may have.
Well, thanks, operator.
That's a surprise.
I thought we were going to have a question or 2.
You know where to reach us, covering analysts, and we're glad to field your questions and be helpful in any way that we can.
We appreciate your interest in First Commonwealth and look forward to seeing many of you between now and the end of the year.
Thank you.
| 2017_FCF |
2017 | ECOL | ECOL
#Yes.
So <UNK>, the challenging part of doing large acquisitions, especially when you're measuring return on capitals, we're not buying these assets for a 2 to 3-year return, so this is a lifetime return for these assets, and we are still confident that we're going to be able to glow that to a double-digit.
I still think that we're probably three to five years out, and it's probably on the tail end of that.
To get those up.
And it's really driving the operating leverage in the business, and putting additional assets to work, and doing, further integrating our systems, and doing all of the items on our strategic roadmap that gets us there.
And it's going to take time, it's going to take commitment.
We're well underway.
This softness since the acquisition hasn't helped that effort, but as we're starting to see, if we truly believe we're at, whether it's a trough or the start of an expansion on the industrial cycle, we think we're poised to start capturing that going forward.
To be honest with you, we don't anticipate much impact from NAFTA.
I think that hearing and reading probably what others are reading, is our trading relationship right now as a nation with Canada is very strong both directions, and I don't think that that's under the radar screen of what the current administration's looking at.
It's more going south, and we don't do a tremendous amount of business down in Mexico.
And so what we're seeing here, we are continuing to monitor it, we don't know ultimately what will happen, no one does.
But where we're sitting today, is we don't see much impact there.
Thank you.
I want to thank all of those that participated in the call today, and we look forward to updating you as we progress through 2017.
Have a wonderful weekend.
Thank you.
| 2017_ECOL |
2017 | HPQ | HPQ
#I'm <UNK> <UNK>, Head of Treasury for HP, Inc
, and I’d like to welcome you to the fiscal 2017 second quarter earnings conference call with <UNK> <UNK>, HP's President and Chief Executive Officer, and Cathie <UNK>, HP's Chief Financial Officer
Before handing the call over to <UNK>, let me remind you that this call is being webcast
A replay of the webcast will be made available shortly after the call for approximately one year
We posted the earnings release and the accompanying slide presentation on our investor relations webpage at www
com
As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today
For more detailed information, please see disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties and assumptions
For a discussion of some of these risks, uncertainties and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K
HP assumes no obligation and does not intend to update any such forward-looking statements
We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amount ultimately reported in HP's Form 10-Q for the fiscal quarter ended April 30, 2017 and HP's other SEC filings
For financial information that has been expressed on a non-GAAP basis, we’ve included reconciliations to comparable GAAP information
Please refer to the tables and slide presentation accompanying today's earnings release
And now, I will hand it over to <UNK>
Thank you, <UNK>
Good afternoon, everyone, and thank you for joining us today
I'm very pleased with our quarterly performance
It was a breakthrough quarter where we delivered year-over-year growth in both Personal Systems and Print
As a company, we’re performing across our portfolio, our regions and our key financial metrics
Over the last six quarters, we've been building momentum, improving our business fundamentals and delivering on what we said we would do
We’re taking profitable share, out-executing our competitors and delivering some of the best innovation, design and execution in HP's history
Our goal is to consistently deliver on our financial commitments every quarter, while setting the company up for long-term success
We are strengthening our core business and delivering our milestones in our growth and future initiatives
I'm proud of the results this quarter
Let me talk through a few of the highlights
We delivered non-GAAP diluted net earnings per share of $0.40, at the high end of our outlook range
We grew net revenue by 7% year-over-year to $12.4 billion, driven by growth in Personal Systems and Print – the first time we’ve delivered growth in both segments during the same quarter since Q4 2010. We delivered free cash flow of approximately $400 million for the quarter and $1.1 billion for the first half of the fiscal year
Through the same year-to-date time period, we’ve returned approximately $1.1 billion to shareholders through share repurchases and dividends
Looking at the business segment performance, Personal Systems continued to deliver and demonstrate how playing our game drives strong results
The team once again drove revenue growth year-over-year and market share expansion
We saw a small increase in operating profit dollar year-over-year at a time when significant component costs headwinds have pervasive across the industry
This is a great example of how segmenting market opportunities, innovating and executing can yield amazing results
For the second consecutive quarter, Personal Systems revenue grew by 10% year-over-year
And importantly, once again, this is broad-based growth across all three regions, both consumer and commercial audiences and in notebook and workstation categories
In calendar quarter one, we beat the year-over-year PC market unit growth by 12 points, once again outperforming all key competitors and the market as a whole
We achieved 21.7% global market share and regained the number one PC market position globally
Remember, the market share leadership is an outcome, not an objective
Our ability to gain profitable share is one of the true measures of success
Today, security is top of mind for consumers and the boardroom alike
Just look at the cybersecurity events over the past couple of weeks
With this backdrop, we continue to deliver the most secure and manageable PCs in the world, with powerful new commercial notebooks and desktops, including EliteBook x360 with HP Sure View and HP Sure Click
As part of our world-class security stack, Sure View defends customers from visual hacking, with a built-in electronic privacy screen
HP Sure Click protects customers and organizations from Web-based security threats, including malware and other viruses that we are all seeing daily in the news
We also announced HP Sure Start, the world’s only integrated browsing solution, which protects our devices from malware
In addition to security, mobility is a top priority for our customers and a differentiator for HP
At Mobile World Congress, we introduced the latest HP Pro x2 with the design, security and productivity features tailored for today's mobile workforce
This discerning audience took notice, honoring the Pro x2 with several important awards, including a Category Best of Show, Top Pick and Top Innovation
While the PC market has been healthier than expected during the past few quarters, the market remains highly competitive and volatile
Regardless of market conditions, I remain confident in our team's ability to deliver consistent results through a relentless focus on innovation, market segmentation and cost management
And whether it's a Virtual Reality Backpack, an OMEN gaming system, a DreamColor display or a premium PC, we are winning hearts and minds with the sleekest and most desirable products we have ever created
I'm truly proud of what we've achieved in Personal Systems and energized by the focus, energy and talent of our people who know how to combine innovation with incredible execution
Shifting to Printing, Enrique and his team had a breakthrough quarter, with strong performance across multiple dimensions – total revenue, supplies revenue, units, market share and operating profit
Printing revenue grew 2% year-over-year, with both hardware and supplies revenue growing in the same quarter for the first time since Q2 of 2011. Units also grew year-over-year as did our market share, while delivering operating profit expansion
It's been a long time since we've been able to say that, especially in a single quarter, and we’re excited to be igniting a real renaissance in Printing
With solid progress on our productivity initiatives, which lowers our overall cost structure, we remain better positioned to competitively price and place more units with a positive NPV
Due in part to our continued operational progress, hardware units were up 4% in Q2, our third consecutive quarter of year-over-year unit growth
The overall print hardware market was up slightly in calendar quarter one, a bit better than expected
We continue to grow faster than the market with year-over-year profitable share gains in both our home and office businesses
I'm pleased that our supplies performance strengthened this quarter, with revenue up 2% year-over-year
We continue to pull the levers within the four box model; and when combined with our operational progress, both are having a favorable impact on the business
In addition to improvements in our core Printing business, we have built momentum in strategic growth areas
Our Graphics business delivered another strong performance with year-over-year revenue growth in constant currency for the 15th consecutive quarter
We saw balanced hardware revenue growth across the portfolio as well as in graphic supplies and services
Similarly, we saw growth in contractual printing with continued increases in new total contract value for management services
We also grew consumer enrollment in Instant Ink and continue to expand into new geographies
At the end of Q2, we began shipping our disruptive portfolio of A3 multifunction printers
In contrast to the established copier players, our A3 portfolio is expected to transform the popular experience for customers and service professionals
Our differentiation includes a lower total cost of ownership, improves serviceability and the most advanced security and device uptime
Our journey is just beginning and we are aggressively on-boarding new partners and attacking new opportunities in the $55 billion A3 copier market
The acquisition of Samsung's printing business will further accelerate our A3 portfolio
We expect the transaction to close in the second half of 2017, subject to regulatory approval and other customary closing conditions
Turning to 3D printing, this was our second quarter of product shipments and the feedback from our customers and partners is very encouraging
Across the board, we’re building momentum and advancing the entire ecosystem
This month, at Rapid, the largest 3D printing conference in the world, we announced a series of important milestones, including a reseller program with more than 30 partners, more than a dozen 3D reference and experience centers across North America and Europe, a growing roster of manufacturing service bureaus and product development customers implementing HP jet fusion 3D printing systems for production and new applications, and we expanded our Open Materials platform to include new partners like Henkel, a global leader in high-performance adhesive technologies
Also, just this past weekend, at the inaugural 3D printing industry awards, HP's Multi Jet Fusion technology was recognized as the innovation of the year
Disrupting the $12 trillion manufacturing sector and transforming industries is a long-term vision and one that we are making concrete strategic progress on today
This is a multi-year journey and I'm confident in this team's ability to bring disruptive innovation to market, create and empower an ecosystem and redefine the economics of production manufacturing
To summarize, Q2 was a breakthrough quarter for us, with strong year-over-year performance across our segments and regions
We’re executing, meeting our commitments and capitalizing on our momentum
We’re also making the right investment decisions for the long-term
However, our work never ends
Every single day, we must continue to amaze our customers and partners with the most competitive and disruptive portfolio in our industry and provide them with meaningful value and opportunity
Change is a constant in our business
And to us, change equals opportunity
We know how to operate up and down markets that we will continue to face and are prepared to tackle the opportunities and challenges that lie ahead
By embracing change, we have an opportunity to accelerate, to innovate, to improve and, ultimately, to reinvent for our customers, partners, employees and shareholders
I’ll now turn the call over to Cathie to provide more details and our financial outlook
| 2017_HPQ |
2017 | SKYW | SKYW
#Thanks, Anita, and thanks, everyone, for joining us on the call today.
As the operator indicated, this is Rob <UNK>, SkyWest's Chief Financial Officer.
On the call with me today are Chip <UNK>, President and Chief Executive Officer; <UNK> <UNK>, Chief Commercial Officer; <UNK> <UNK>, Chief Accounting Officer; Mike Thompson, SkyWest Airlines' Chief Operating Officer; and Terry Vais, ExpressJet Airlines' Chief Operating Officer.
I'd like to start today by asking <UNK> to read the safe harbor.
Then I will turn the time over to Chip for some comments.
Following Chip, I will take us through the financial results.
Then <UNK> will discuss the fleet and related flying arrangements.
Following <UNK>, we will have the customary Q&A session with our sell-side analysts.
<UNK>.
Thank you, Rob and <UNK>.
First quarter almost always brings most challenging weather patterns of the year, which is something we always plan for.
However, our people handled the weather challenges extremely well this winter, which resulted in better-than-planned performance across our entities.
In the competitive landscape that we're in today, this level of performance continues to set our airlines apart in the industry and with our partners.
We continue to have great relationships with our 4 partners and we're in a solid position to expand our relationships with each of them.
Operational performance for our airlines during the first quarter was as follows.
SkyWest Airlines delivered a solid 99.9% adjusted completion for the quarter, during which time, they received 7 new E175 aircraft and transitioned several more CRJ700s within the fleet.
ExpressJet delivered 99.6% adjusted completion for the quarter as they transitioned 10 CRJ700s into their American fleet.
Both of our airlines are delivering top performance within our partners' portfolios.
Once again, after the first quarter, one or both airlines have been the top-performing carrier in United's network for more than 2 years now.
Together our 2 entities operated nearly 270,000 flights in the quarter and, as I mentioned, they handled the quarter's challenges very well.
I want to say that the work that our people do on the frontlines is far from easy.
And they have done, and continue to do, an outstanding job providing exceptional service.
In a time when every move is evaluated, we will continue to ensure our people have the right support, tools and resources to make smart decisions that maintain our values of safety, service and reliability each day.
I want to thank our more than 19,000 aviation professionals for their commitment to these values during the first quarter and beyond.
During the first quarter, we continued progress on our fleet plan with positive results.
We added 7 new E175s, redeployed several CRJ700 aircraft from our United operation to our American and Delta operations and removed an additional 27 50-seat aircraft.
During the first quarter, ExpressJet successfully launched 10 CRJ700s, executing on our plan to grow their dual-class fleet.
As we've discussed previously, this transition is an important part of ExpressJet's progress.
Staffing across our industry remains a challenge and, as we stated before, we're not immune to those challenges.
But both of our airlines attract top professionals.
SkyWest Airlines is recruiting pilots at record numbers while ExpressJet is experiencing slightly higher pilot attrition.
Our strategy to stabilize ExpressJet as a smaller, more efficient and successful entity is moving forward.
We're currently working with our partners for profitable contract extensions for ExpressJet and anticipate that ongoing process will produce positive results.
We remain committed to ExpressJet's long-term stability and success.
Overall, we continue to see strong demand for our product.
Our objective is to ensure we are best positioned to meet very strong industry demand and improving our overall fleet mix while delivering strong performance continues to meet that objective.
I want to again thank our more than 19,000 professionals for their excellent work during the quarter and every day across our operations.
Rob.
Today we reported net income of $35 million, or $0.65 per share for the first quarter of 2017, up from net income of $27 million or $0.52 from Q1 2016.
Our pretax income increased 18% year-over-year to $52 million.
Revenue was $765 million in Q1 2017, up $3 million from Q1 2016.
With fewer aircraft in service, the moderate increase in revenue included the net impact of 45 additional E175 aircraft, less the removal of 61 50-seat jets and 8 CRJ700s from service.
We expect to put 11 more E175s into service during the remainder of 2017 to bring our total fleet of E175s to 104.
Let me provide some color on a few items included in our quarterly results.
The $0.13 improvement in our EPS over Q1 last year included a discrete tax benefit associated with equity compensation deductions of approximately $0.05 per share under the new equity compensation accounting standard update we adopted January 1.
Our provision rate for the quarter was 34%.
The timing and amount of future related tax impacts on our provision rate will vary based on stock option exercises, restricted share vesting, stock price performance and other factors.
Generally, we anticipate a future effective rate of between 38% to 39% Q2 through Q4 and between 37% to 38% for all of 2017.
Also, as part of adopting this accounting standard, our diluted shares increased by 350,000 in Q1, which we anticipate will continue for run rate purposes.
Our total fuel cost per gallon averaged $1.97 during the first quarter, up from $1.49 per gallon in Q1 2016.
The increased fuel cost per gallon cost us $4 million or a $0.05 reduction in our earnings per share from a year ago under our prorate business model.
With the tax benefit offsetting the impact of higher fuel costs during the quarter, the remaining $0.13 improvement year-over-year in earnings per share was primarily attributed to the execution of our fleet transition since Q1 2016, including the addition of 45 E175 aircraft and removal of unprofitable 50-seat aircraft.
Last quarter, we articulated the expectation that our results this quarter could be fairly similar to the $0.52 we posted Q1 a year ago.
The outperformance from that guidance for Q1 was primarily attributed to the $0.05 discrete tax benefit I previously described, $0.05 from our team's handling of the Q1 weather events better than anticipated, and strong production in March from executing on partner requests for schedule increases.
You can see in the release, our depreciation expenses up $2 million from Q1 2016.
This increase includes additional depreciation from 45 E175 aircraft we acquired, partially offset by the reduction in 50-seat aircraft-related depreciation.
The $70 million depreciation expense in Q1 could be viewed as our run rate depreciation going forward subject to future E175 deliveries and other owned aircraft removals.
Let me say a couple of things about our balance sheet.
We ended the quarter with cash of $586 million, up from $565 million at year-end and $442 million last year at this time.
We issued $158 million in new long-term debt during Q1 2017 to finance the 7 new E175s delivered during the quarter, with total debt increasing by $69 million, net of debt service.
Total debt as of March 31, 2017, was $2.6 billion, up from $2.5 billion at year-end.
SkyWest also used $26 million in Q1 2017 for other capital investments.
We ended the quarter with $380 million of prepaid aircraft rents under our long-term lease agreements.
We anticipate this asset will amortize over the next several years as a noncash rent expense that will contribute to our operating cash flows and will enhance the cash flow quality of our earnings.
And finally, during Q1, we repurchased $10 million of stock under our $100 million stock repurchase authorization announced last quarter.
<UNK>.
Okay, Anita, we are ready for Q&A now.
<UNK>, this is the Chip.
Appreciate your question.
I can tell you relative to all of our partners, including United, we have an extremely active dialogue, I can say that.
We've worked with United for several years.
I can also confirm that as we continue to work, we're very impressed with the momentum that we have currently with them to resolve what are some tough issues with the ExpressJet side of our house, as well as some opportunities for them, and on the SkyWest side.
So we feel very comfortable with the pace and the momentum of which our current commercial conversations are having.
Certainly.
And so last quarter, we made the comment that we expected low double-digit growth for all of 2017 and that hasn't changed.
Yes, Savi.
So thanks for the question.
On the 50 seaters, we talked about 22 CRJ200s with American and 9 CRJ200s with Delta under contracts.
The 22 with American is a combination of extensions that have happened in Q1.
Then there is also mixed in ---+ So there is also some extensions that we're working on and that are happening in the fourth quarter as well.
And Delta's are some additional extensions that have happened during the Q1 and Q2 time frames.
And then as far as the rates, they're pretty consistent with what we've had in the past.
Yes.
Thanks, Savi.
So for the way that the contracts are set today, both contracts at ExpressJet, both the CRJ side and the ERJ side, that extension expires at the end of 2017.
And on the SkyWest side, the last agreement we had with them goes until, I believe, June of 2018.
So from that perspective, we're ---+ it is typically within our culture that we continue to have active dialogues whether we're in contract or not.
We fundamentally believe it's inherent within our business model to evolve, evolve quickly.
We're in a position as a regional carrier with the things that we have in front of us that we want to make sure that we're set up for the long haul and the long-term stability, but yet also evolve with our partners' needs.
So as you can imagine, we're always in active dialogue about certain elements of the contracts and I can say as of today, we are having conversations with all 3 of the pilot groups.
Yes, I think, it's certainly a trend that we have seen for a bit as we've done some things with the fleet at ExpressJet.
I will say certainly this year we've seen as of the recent months that it certainly has ticked up.
But that's not necessarily too surprising to us because of what we announced in Q4, where we're taking away like 94 50-seat aircraft in order to continue to modify that model, more long-term sustainable and competitive.
So to a certain extent, the attrition is somewhat necessary given what we're doing with the fleet.
But remember that the decision we made in Q4 was because of those portions of our fleet were also unprofitable.
So some of this attrition is actually tied to certainly those fleet decisions and is what we've actually planned on.
What we think we need to do to, though, I mean it's imperative as we say that we're going to continue to focus on the long-term viability of ExpressJet, we fundamentally believe that we're going to be providing more visibility with the professionals at ExpressJet as we continue to evolve some of the legacy contracts within their business model.
And our feedback is that that's the #1 thing that they are looking forward to and it's our #1 priority to make sure that we stabilize that entity right now.
Well, so I think, <UNK>, you're right on point in many respects there.
I think that we have seen specifically with American, a strategic move, that they are certainly very hungry for lift.
You obviously see what happened with Air Wisconsin.
But I think as a general term today, <UNK>, that a lot of our partners, if not all or most of them, are very interested in 50-seat lift.
So we don't fundamentally believe that the Air Wisconsin announcement had an impact on our existing 50-seat flying with United.
But you are right in that there certainly is some opportunities for 50-seat lift with American and we're always in some good strong dynamic conversations relative to those specifically.
But in general, as Rob mentioned, part of the uptick in the back half of the first quarter is, I mean, some of that increased profitability that we experienced more than we anticipated was in additional 50-seat flying that we were able to recover and evolve in mid-quarter.
So from that perspective, it's a really good 50-seat story all the around right now.
No, look, <UNK>, you're asking the right questions that we certainly do evaluate.
And for your first question, I can confirm.
The 190, us flying the 190, does violate at least one that I've seen and maybe even more of the current flying contracts that we have today.
And to the extent that other partners besides our 4 have the opportunity for lift, I fundamentally agree with you on some of those business models.
I mean, in our (inaudible), we're going to sit here on the call and talk about anywhere from 70, 60-seat aircraft clear down to 50-seat aircraft and say there is strong demand for all of it.
And there is probably strong demand outside of our 4 partners.
What I will say from a strategic point is that today we have enough on our plate to make sure we absolutely deliver for the 4 partners that we have today.
And as I said in my script, we think there is still good opportunity with the people that we're working with today and technically we haven't ---+ certainly had any material calls from anybody else, but there is enough great stuff that we're looking at with some outstanding partners today, that, that's our primary focus.
That's going to be a wrap for us.
So we will turn the time over to Chip for some closing remarks.
I mean, I just want to express thanks for your interest in SkyWest.
We continue our evolution of progress.
I think that we're ---+ this is the quarter whereby we've outlined a strategic plan several months ago.
It's a quarter where we just want to continue to execute on our base principles of making sure we're delivering what our partners want and meeting the needs of our passengers and we're fortunate to do it with the best professionals I think in the entire industry.
And with that, we'll talk to you next quarter.
| 2017_SKYW |
2016 | ICE | ICE
#Thank you.
I think at the end of the day, we have no idea.
So it's an easy answer to give you.
It's their challenge to demonstrate why they should be allowed to merge, and we'll be a passive audience, in appreciating what they do.
Sure.
Well, first of all, I'd note that we've been growing our interest rate futures business in Europe ---+ I think it was up 34% year-over-year.
So that's a franchise that we continue to invest in, and have had great results with.
We compete with other people that have already offered the solution that you just described.
And so, we are already competing against that kind of offering.
Stepping back, if you say how many people in the world are there, that have OTC interest rate swaps, that are fully or largely offset with futures contracts.
In other words, that they've completely hedged out their risk.
The people that do that are not end users.
The people that do that are dealers.
People that are offering something to one party then immediately hedging it out, so that they take out risk.
That dealer community is under pressure, as you I'm sure know.
It's been shrinking, if you look at announcements that are going on.
And so, it is unclear that the paradigms of the past necessarily are going to be the paradigms of the future.
And so, we're trying to build out our franchise.
We've launched a lot of new products to serve our customers, as we anticipate continual changes in the way that these financial businesses operate.
But other than that, we're competing in that world today, and we're doing really well.
Sure.
Well, we've been living with the ---+ the whole industry has been living with the prospect of these rules being implemented now for many, many years.
So we continue to get our businesses ready to be responsive to those rules.
I think the way it impacts the entire market, is that there is a goal to create more competition, which to you and I, means more fragmentation of markets.
We also think that it will be very, very difficult and hard, and very little incentive for any third-party to start a major clearing house, when the existing clearing houses have open access.
So in an odd way, while it's meant to stimulate competition it, at the end of the day probably entrenches the incumbents including ICE, who has a large clearing presence in Europe.
So we continue to build out our capabilities inside that clearing house, to get ready for access.
And we've continued to make sure that the ancillary services that we provide around the trading venues, where we do believe there will be fragmentation, offer a lot of capabilities to our end-users.
So you've seen us take on the ability to create more indices, improve our data offerings, improve the kind of consultative compliance services that we offer to our customers.
We've worked hard on improving our delivery mechanisms for physical products and all those kinds of things, which will all largely become unbundled as the market fragments, and create opportunities for us.
Sure.
We had best quarter in our history.
So yes, there is competition, but clearly in terms of our ability to deliver financial results, we're doing very, very well.
We sit with record open interest in Brent as I mentioned.
And so, we have very high prospects for that franchise going forward.
There are always going to be entrants to this business.
As I think I've mentioned in other kinds of businesses, people have this figured out ways of expanding the market.
That expansion, while it benefits them, also has side benefits oftentimes that benefit us, and I think you're seeing that in the numbers.
Fragmented markets, in my mind are bad for end-users, they're very good for intermediaries.
They create much more arbitrage capability, that brings a new kind of arbitrageur to the market that wants to [lag] in all of the various different venues, which drives volume.
And so, ICE really doesn't care about market share.
We really want to have people that want to value our services, and pay us to provide them.
And so that's the market we focus on, which is a subset of what you're talking about.
And we're doing really, really well in the market for people that want to pay for services, and that's why we continue to grow.
Yes, what we said on the last call was that by the end of 2018, that we would be largely through the remaining $220 million of synergies that we had to go.
That was the $150 million of IDC and the $70 million of NYSE.
I will note again what I said then, which is what is IDC, and what is ICE, and what is NYSE, it continues to blur.
So we're really focused on delivering on that $220 million expense reduction, again largely accomplished by the end of 2018.
We had mentioned last call, $75 million of that would come out this year.
We increased that now to $85 million to $90 million.
And so, our expectation to raise there.
We announced that Ben Jackson has taken over as the Chief Commercial Officer, and he and the teams have been in with IDC 24/7 over the last two or three months once we've closed the deal, and continue to make progress in identifying the specific actions to deliver the synergies this year.
And they're working on building the 2017 execution plan as well.
So as we move through this year, as we get better visibility, we'll talk to you about that.
What I would simply conclude is, of the $220 million, by the end of 2018, we're going to get $85 million to $90 million this year.
And we're very confident that we will deliver on that objective over time.
We have not.
We continued to make those investments, and it's one of the reasons why we're confident in our ability to grow our data business 6% to 7% this year.
Because as we reduce expenses through synergies, it in no way impedes our ability to invest in future growth.
That's a really good question, and we've been involved in extensive dialogues with the ratings agencies over the past few months, on exactly your point.
Which is the business model that ICE had, and the financial structure and capital structure that ICE had, when we did the NYSE deal back in 2013, versus where we sit today in 2016 is very different.
Pre-NYSE, 80% to 90% of our revenues were volume-based.
Post NYSE, it was still 70 % to 75%.
We're now at a point where annuity light businesses are about half our revenues, which introduces significant stability into the financial model.
You saw the very strong cash flows in the first quarter.
While you can't multiply that times 4, because it's got our annual listings billing in it.
We clearly, are on track to a number that's going to be around $2 billion of operating cash flow for the year, which you'll note is significantly above where we were the prior year.
Our CapEx needs have grown slightly, and so even netting that out, our free cash flows are very significant.
You saw in the quarter alone, we were able to knock 3/10 of 1 point of leverage out in the first quarter.
And so I think all of that summed up, is why I mentioned in my prepared remarks, that we're now comfortable once we get below 2 times leverage, which we think we can do late this year, or certainly early next year.
We believe that will support our overall rating, and that rating is important to us.
And so, we're going to do things that are necessary to support it.
But as you mentioned, I don't think 1.5 times is that bogey any more, given what we've done.
I think we could comfortably operate around 1.75, 1.80, and again below 2 times.
I think we're back active, looking at ways to return additional capital to our shareholders, and we're looking forward to doing that.
Yes, I mean, I loved it, in the financial sense, in that on a year-over-year basis, that business contributed well in the quarter.
We had seen good growth, as we moved through the back half of last year, and the first quarter results were solid as well.
It is still largely around the LIBOR business.
But as we continue to build out ICE swap and the gold fix and other of those products, we would expect the contributions from that business to continue to improve, as we move through this year.
Well, first of all, I wanted to point out to the form and substance of the way we put that release out was really a relatively standardized form.
And the four points that you've outlined are really available to all participants generally, in any UK takeover situation.
So there's nothing ---+ you shouldn't read anything into the fact that we've mentioned those four, in terms ---+ of trying to get in our heads, on contemplating where we go from here.
Those are all available to us, and to anyone else in our position in other deals.
And we'll just have to see how life progresses.
But don't read anything beyond the written words there, into our actions.
Yes, so each of those ---+ the acquisition of the business from S& P that you noted is ---+ I think we discussed earlier, is right now going through an anticipated competition review.
We suspect it will work its way through this year, and remain confident that we get to closing around that timing.
As we get closer to the end of the year, and the close of that deal, we'll be back to you to say a little bit more about what its contributions will be to our financial statements, and how ultimately we'll fund it.
You will likely have noted when we announced the deal, that we noted that we had the flexibility to pay in either cash or stock at the time of the closing.
Obviously, which we choose will depend on when the closing happens, and what else happens between now and then.
Sure.
First of all, there are tremendous synergies across the range of businesses that we've acquired recently, and that's really what our plans call for us doing, is unlocking those synergies, the revenue synergy opportunities across them.
But just by way of example, we launched these new treasury indices at IDC, but we were able to develop those, using a very strong team that we have at the NYSE, that has a very intimate relationships with large ETP and ETF providers.
So we're able to very quickly have a dialogue with a unique customer base over their new products sets, their ideas on how they're going to grow that market, and what capabilities we may have to support them, that neither Company as a standalone had on their own.
And it was amazing that we were able to pull that together within the first month or so of ownership, and it's paying dividends.
Obviously, we announced very quickly that BlackRock was moving some large ETP products onto those indices.
And now, our team is out working with a lot of other providers and users of indices, to advance and accelerate those products.
I would just make the point to you, that much of this data revenue that we're talking about is subscription-based, which gives <UNK> the ability to have great confidence, when he tells you that it's going to grow at 6% to7% this year, because many of those contracts are being signed, or have already been signed.
And so, we have tremendous visibility into them.
Those tend to recur, so that's the nice thing about that model.
So looking forward, we would hope that we're doing a good job with those customers, and that they will continue to re-sign with us.
And meanwhile, we take the products that we developed out on the road, and find new customers for them, so that we can have growth on growth.
And just adding slightly to that, and touching on the end of your question, the thing that excites me about this is the 6% to 7% this year is really based on the strong performance of the individual parts.
All the effort to come together and to integrate and work together, as <UNK> just talked about, we'll get some that yield in the year.
But it's really ---+ that's about what's going to enable us and grow in 2017 and 2018 and beyond.
So it's why we've got the confidence, not just in the near-term, where the businesses are doing well this year.
But in the longer term, where we think as the companies come together, the opportunities for growth will only expand.
Well, that kind of intense competition has been in the market for a while, and you can see the results that we posted, which is we're doing phenomenally well.
When you step back and look at payment for order flow, while it became accepted within the intermediary community around the equities market, giving equity kickbacks to large institutions that have very strong brands, and are trying to appeal to retail customers, in an era where the SEC and the Labor Department and others are very concerned, that retail investors be given good guidance as to how their money is being handled, it's a real reputational brand risk for somebody to step into that quagmire.
It would beg the question, did somebody create a product simply to generate churn inside of it, and get these equity kickbacks, or was that really the best listing venue.
What I will tell you, is that all of us in financial services are under pressure by new regulation, and also just best practices, to make sure that we have no single point of failure in our businesses.
And the big institutional investment firms are subject to those same kind of reviews and pressure.
So if we expect that in that ETP, ETF market that people will, for diversity purposes list across of range of venues.
But it's not really economically driven, it's really diversity driven.
We have such a strong offering with 92% of AUM at NYSE.
And you could see with ---+ in the face of the pressure you talked about, 82% of the AUM that was listing in the first quarter came to us.
The reason that is such a strong venue is that we have very, very deep liquidity on the exchange, our exchange, the NYSE [ARP] exchange where we list these platforms, market makers infrastructures are a rule set that really enables these innovative and fabulous listings to come to us, and know that they have every opportunity for growth and success.
NYSE is a brand that is known around the world, and we have been passported into most countries.
And so, the platform that we can offer somebody, in terms of distribution is really unparalleled.
And it's those things that are driving the listings.
I don't believe that payment for order flow is going to have a material impact on this business, nor should it.
And I also, as you probably know, think it's a corrosive mechanism that actually ultimately hurts markets.
And so, hopefully I'm right, and we won't see that corrode these really neat, innovative ETPs that are coming out.
Thank you, Rocco.
Appreciate your help on the call, and thank you all for joining us today.
We're going to look forward to updating you on our progress, as we move through the balance of the year.
Have a good day.
| 2016_ICE |
2015 | PES | PES
#Morning.
Well, <UNK>, I would say that the impact from the start-up of the rigs and really, let me back up for a minute.
In July we were mostly demobing rigs that were coming off term, and then August no activity, and then September we were mobing some rigs to get them on day rate at the beginning of this quarter.
So in both cases you get hit a little bit, I would say the impact of all that on the margin level was probably a little more than $1 million.
Well, recognizing that it is extremely fluid right now, and we're still working on budgets, so I just want to tell you there is a lot of fluidity to that number.
Obviously, we have pulled out as much as we can as fast as we can.
So that the pace and the magnitude of reduction in that number is going to slow down considerably.
There are still some opportunities and costs that we've probably taken out in the third, that will roll and help us in the fourth, and some costs we're taking out in the fourth in operations and G&A, but that pace is going to slow way down, and as <UNK> said earlier, we're focused on right-sizing our businesses to match the demand levels, and so part of it is dependent on how things do play out.
He also asked about kind of margins down in Colombia relative to the US, and they should be comparable, or even slightly greater than the average margins of the re-priced AC rigs here in the US, there are healthy day rates in Colombia.
We need a little run time to verify that, but they should be in that range of where we're kind of repricing these AC rigs in the US.
If that gives you a little more color.
Okay.
Great.
Well, we appreciate people joining the call this morning, and know that it's a busy day out there.
A lot of calls, and anyway, we'll look forward to visiting with you on the Q4 call.
Thank you very much.
| 2015_PES |
2016 | UFPI | UFPI
#Thank you, <UNK>, and good morning, ladies and gentlemen.
Thank you very much for joining us on our call.
At the risk of plagiarizing myself, I don't think you can have too many superlatives to describe the performance of the employees of the family of Universal.
We set another record in the second quarter for earnings, which is also an all-time record for earnings in a quarter during our entire 61-year history.
And we do believe in the adage that records are meant to be broken.
Now, we don't take these terrific results for granted, and we are not taking selfies and saying, look at me.
We are keeping our head down to focus on finding new ways to add value and to keep our momentum going.
We remain confident in our people and our plans and believe that with good execution, we can continue to grow both sales and profits at our target rates.
Now I would like to highlight our focus areas.
Sales for the quarter were up 4%.
Retail was up 7.5% due to strong repair and remodel demand.
Industrial was down 2.9% due to lower volumes from our existing customers, which they attribute in part to the stronger dollar which hurts their export business.
Construction was up 6.5% as housing starts increased.
While we know we can immediately add more commodity sales to grow the top-line number, we are more focused on adding value.
To achieve sales growth and add value, we continue to pursue both our acquisition growth and our organic growth plans.
Our recently announced acquisitions will drive sales and increase our market penetration.
We also expect to have several new facility expansions as well as a new greenfield operation in Oklahoma completed in Q4.
We continue to build the pipeline of other acquisition targets in order to meet our strategic goals in 2017 and beyond.
Gross profit remained strong and increased over Q2 2015 by 170 basis points.
Net earnings for the quarter, as I mentioned, were an all-time record $33.4 million, and the EPS was $1.64 a share, well above 2015's EPS of $1.29.
Our year-to-date EBITDA is $108 million.
Accounts receivable were $318.5 million, and that is in line with our sales growth.
Our percent current remains near the 93% mark.
Inventories were at $298 million, which is about 10% below 2015's level.
So, overall, our inventories are in very good shape relative to our current sales level.
The lumber market itself on the SYP Southern yellow pine market rose during April and May and declined in June, finishing the quarter near where it started.
The STF market, on the other hand, rose slowly throughout the quarter.
The next area we want to talk about is new products.
We are very excited about our new products and our new product growth.
New product sales through Q2 are $160 million versus $135 million in 2015.
The versicolor-treated products and the Deckorators products, including the Vault decking, continue to grow.
The feedback from consumers on the vault decking products has been very positive, and we look to continue to grow sales there.
Our investment in product development efforts is expanding, and we remain on track to open our design, testing and research facility in Q3.
We need to be faster to market and to increase our throughput on new products.
This facility will help accelerate prototyping and application testing and help us streamline the new product vetting process.
International manufacturing growth via acquisition remains a challenge.
We are having a difficult time finding acceptable companies and an investment value which permits our ROI model to work.
However, we keep trying and we keep pursuing new targets.
In the meantime, we plan to dedicate more resources to our international sales and purchasing efforts to build on our existing business.
Now I would like to turn it over to <UNK> <UNK> for more detail on the financial performance.
Thanks, <UNK>.
Before reviewing the financials, I should briefly address the impact of the lumber market this quarter.
Overall, year-over-year lumber prices were up 8% and Southern yellow pine prices, which represent our highest volume of purchases, were up 4%.
As a reminder, commodity lumber prices impact not only our cost of inventory but also our selling prices and working capital.
I will start the financial overview with highlights from our income statement.
Our overall sales for the quarter increased 4%, resulting from a 3% increase in unit sales and a 1% increase in selling prices.
Reviewing by market, sales to the retail market increased 8%, driven by a unit increase of 5% and an increase in selling prices of 3%.
Our unit sales growth rate this quarter was lower than Q1, which we believe was due to a shift in demand due to favorable weather earlier this year.
Our sales to the industrial market increased ---+ or decreased 3%, driven by a decline in unit sales.
We believe this decline is due to a general softening of demand and our operations being more selective in the business that we take, focusing on higher-margin opportunities.
On a positive note, we believe we continue to take share, and added almost $6 million in sales to new accounts and [formulated] new product sales this quarter.
Our overall sales to the construction market increased 6% due to a 5% increase in unit sales.
Within this category, our unit sales to residential construction increased 10%, commercial construction grew by 3% and manufactured housing increased by 4%.
Moving down the income statement, we are very pleased to report our record second-quarter gross profit increased by 17% and 170 basis points as a percentage of sales.
The increase on our profitability and margins this quarter was driven by a handful of factors including favorable improvements on our sales mix to higher-margin products, particularly on sales to our retail and industrial markets, organic unit sales growth to our retail and construction markets and leveraging fixed costs, and effective position buying for inventory.
SG&A expenses increased year over year for the quarter by $9.6 million, or 14%.
Accrued bonus expense comprised about $14 million of our SG&A this quarter and was up about $3 million due to our improved profitability and return on invested capital.
Excluding bonus expense, our core SG&A was about $64 million and increased $6 million, or 11% compared to last year.
The increase in our core SG&A was primarily due to higher compensation costs and increases in sales and other incentive compensation and certain employee benefit costs.
Overall, we are very pleased to report an increase in our operating profit of $9.5 million, while our bottom-line earnings increased by almost $7.5 million.
Moving on to our cash flow statement for the year, our cash flow from operating activities improved to $40 million this year and was comprised of $54.5 million of net earnings and almost $21 million of non-cash expenses, offset by an increase in working capital since the beginning of the year of almost $36 million.
We are very pleased with our working capital management this quarter, particularly our inventories which were less than 109% of June sales versus over 125% last year.
Investing activities included capital expenditures of $24 million this quarter, with expansionary CapEx of over $8 million.
As a reminder, we plan to spend about $70 million in total CapEx for the year.
With respect to our balance sheet, continues to be strong with almost $88 million in surplus cash and almost $86 million in debt, leaving us with plenty of unused debt capacity available to fund future growth and dividends.
Finally, our trailing 12-month return on invested capital has increased almost 14%, substantially driven by an increase in our EBITDA margins of 6.9% from 5.5% last year.
That's all I have on the financials, <UNK>.
Thank you very much, <UNK>.
Now I would like to open it up for any questions.
Well, I think from the construction side, we have ---+ there's a number of different areas that we serve within that market.
We have the commercial construction, we have the manufactured housing and we have the traditional site-build housing within that market.
The multi-family growth remains strong.
We are seeing a lot there.
We are adding new products within that space.
So, that is part of it.
And as you know, we don't have a total national footprint on the site-build side.
It's primarily a geographic play.
And so that may be driving some of the changes in the national numbers versus the regional ones.
Yes, I think, as we've talked about before, we want to, again, increase our geographic footprint in the areas where we aren't.
We also want to increase our market penetration in our existing markets.
And we continue to look for new opportunities to add adjacent markets and adjacent product lines to our mix.
So ---+ and that is not just in the US, but also internationally.
We are keeping our eye ---+ the BRIC countries are things that we've talked about before, but they have their share of issues at the moment.
So, what we're trying to do is find opportunities where we have good partners, where our multinational customers are located or they want us to be and also where there is opportunities with existing partners to grow business.
So, we haven't limited the scope at this point, but we are looking at all reasonable opportunities.
That is certainly something that is a good idea to look at and think about, and that's something I'm sure that our Board will be talking about.
I don't think we have the color on that, <UNK>, to give you a fair answer.
I couldn't really identify it that way.
I think as we look at it, our big concern is we want to continue to grow our market share based on the number of new customers that we added during the quarter.
We are confident that we continue to add new share.
It's just that sales with existing customers are less than they projected.
So we feel confident with that that we're within the range of the market growth or, in this case, this case market decline.
No, I don't have that off the top of my head, <UNK>, but it's something we can get.
Yes, that's real tough, <UNK>.
I called out the higher-margin value-added products as being a factor.
Retail and construction growth, organic growth and leveraging operating costs.
And position bond.
And I can see all those things coming through in our data, but to be able to give you a precise number on each one of those factors is really difficult with as many products and customers we serve.
So, I would see that they all were substantial contributors to the quarter.
Yes, they are two very different businesses.
One serves primarily the retail market, and it will enable us to expand our penetration into that market and a lot of independent retailers and other things that they service.
So, we are looking forward to that and adding some of our new products into that mix.
It will be very helpful for them and for us.
The other acquisition tends to be more in the manufactured housing space.
We will use that as a consolidation opportunity to combine our industrial facility.
And we think that the synergy there will be very, very dynamic in that market.
So, two very different markets that we serve, but in both cases they are going to drive our sales, and they will enable us to, in our belief, hit our EBITDA margin targets.
Yes, I think in Q1 I thought a core SG&A as $60 million to $62 million, depending on the quarter, was probably pretty reasonable.
When I look at the core SG&A at $64 million, it is ---+ there's some things in there that I think that are employee benefit cost wise that will probably repeat.
So I think $62 million is probably a better target, I guess, going forward.
I'm assuming that was a statement, Stephen, not really a question.
Sure.
No, I understand.
Again, I'm trying not to give guidance.
So, what I can do is I can tell you that the lumber market is trending still kind of in a stable mode.
The economy overall seems to be in somewhat of a stable mode now.
So, given those factors, I would expect this to be a typical type year.
Yes, I think we have a pretty balanced business between multi-family and single-family.
So, I think as long as both of them continue to remain stable or growing, that is good for that part of our business.
I don't (multiple speakers) shift in between multi- and single-family is not a negative from our perspective.
Yes, I think, <UNK>, if we split up our customer base, there's some that fall into the camp where the strong dollar is going to have an ongoing impact, as it has here recently.
For other customers, it's as you said.
Those are nondiscretionary, and it's stuff that will just kind of continue along.
From our standpoint, what we are trying to do is, again, focus more on our design-engineering capabilities, come up with a better product and packaging solutions for our customers, and try to make sure that we are providing more value-add to them.
That has been our focus and that's where we are trying to get closer to the customer in that regard.
Well, I would like to say thank you again.
I am very proud of our family of companies and the great employees, many of whom are shareholders who are making us successful.
Like Olympic athletes, our people train each day to strengthen our Company and stay ahead of the competition.
Unlike the real Summer Olympics, which happen every four years, we compete every day, and we measure wins by whether we provide good returns to our stakeholders.
I hope that we continue to win, just like we hope for lots of medals for our athletes and a safe Olympic Games in Rio.
Thank you again for your support, and have a great day.
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