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2017 | AIR | AIR
#Thank you very much, and welcome, everyone.
Good afternoon.
I hope everybody is having a good day, and thank you for joining us today to discuss our fourth quarter and year-end fiscal year 2017 results.
As you can tell by the release early today, we had another solid quarter as diluted earnings per share from continuing operations increased 29% from $0.34 in the prior year to $0.44 in the current period.
Our revenue was up 5.1% or $23.7 million for the quarter, primarily as a result of increased sales in our Aviation Services segment to commercial customers, partially offset by the wind-down of the KC-10 program, which Tim will talk a little bit further about in his comments, and our Lake Charles airframe maintenance facility, which we've discussed in the past.
We were especially pleased with the performance of our industry-leading integrated supply chain solutions and our aircraft and parts supply activity.
During the quarter, we announced significant new business wins, including the $909 million fixed-price contract from the U.S. Air Force for the Landing Gear Peformance-Based Logistics One program.
Under the contract, we will provide total supply chain management, including purchasing, remanufacturing, distribution and inventory control to support the Air Force requisitions received for all C-130, KC-135 and E-3 landing gears parts.
Our performance on the contract's on hold pending resolution of a protest filed by one of the competitors for the contract.
We were also awarded a multi-year component support contract with ASL Group, a growing European-based scheduled and chartered carrier.
The new contract for power-by-the-hour support for ASL Group's airlines includes component support and repair for approximately 100 passenger and cargo aircraft, including the ATR aircraft.
And we identify the ATR aircraft in this respect because we also acquired a small business from them to support ATR aircraft, and we're excited about the possibilities for that product line.
AAR will support the contract with inventory purchased from ASL's subsidiary, ACLAS Global, which will be incorporated into AAR's existing global supply chain network located in Belgium, Germany and Singapore.
We were also awarded a multi-iyear component support agreement with Viva Colombia and Viva Air Peru.
AAR will be providing full support to affiliate airlines within the Viva Latin America Group, including Viva Colombia, Colombia's new established low-cost carrier, and the newly established localized carrier, Viva Air in Peru.
AAR will make inventory available from its facilities in Miami and Chicago, as well as positioning stock in Bogota, Medellin and Lima.
We are very excited to expand our presence in Latin America with this new contract.
We're continuing to see growth in our integrated supply chain solutions and are now supporting approximately 1,400 aircraft and new aircraft platforms.
We're also continuing to expand geographically, most recently opening offices in India and New Zealand that position us closer to our customers.
We believe that our closer to the customer business model remains a strategic advantage for the company.
Before handing the call over to Tim, I would like to take a minute to provide an update on the INL/A contract awarded to AAR Airlift by the U.S. State Department back in September 2016.
We expect the decision by United States Court of Federal Claims by October 31 regarding the protest, and we remain favorably inclined as a result of our expectations for the outcome from this latest protest effort.
With that, I'd like to turn the call over to Tim to discuss these financials in a bit more detail.
I may have said October 30, I meant October 31, and so October 31, 2017.
So my apologies on that.
Thanks, <UNK>.
As <UNK> mentioned, we had a strong fourth quarter with sales of $492 million and earnings per share of $0.44 compared to $0.34 in the prior year.
Our sales in the quarter grew 5%, driven by growth in both segments, and this is despite higher sales of $32.8 million in the prior year quarter related to the wind-down of the KC-10 contract and the Lake Charles facility.
I'm going to give you the quarterly sales on the KC-10 contract that we had in fiscal '17 for your modeling, and sales in the first quarter were $38.6 million, $29.4 million in the second quarter ---+ $30 million ---+ $24.3 million in the third quarter and $18.3 million in the fourth quarter, for a total of $110.6 million in fiscal '17.
And in fiscal '18, we expect minimal kind KC-10 revenue.
Our gross profit increased $10.3 million for the quarter in the Aviation Services segment on increased sales volumes and margins and parts supply in commercial programs.
Our gross profit in the Expeditionary Services segment increased $3.9 million, with improved profitability across these businesses.
SG&A expenses increased in Q4, reflecting several special items, including increased legal fees related to INL, acquisition, diligence cost and compensation cost, including some severance.
These special costs were approximately $4 million in the quarter.
Consolidated net income was up $3.3 million in the quarter, and our results included a $2.2 million reduction in income tax expense related to the recognition of previously reserved income tax benefits.
This item helped to offset some of the increase in the SG&A expense that we experienced related to the special items.
Our CapEx in the quarter was $5.6 million, and depreciation and amortization was $13.9 million.
During the quarter, we paid dividends of $2.9 million or $0.075 cents per share, and we've repurchased 96,000 shares for $3.2 million in the quarter.
And for the year, we repurchased 767,000 shares for $19.8 million.
Our average diluted share count for the quarter was 34.3 million compared to 34.2 million in the fourth quarter last year.
And as <UNK> mentioned, yesterday, our Board of Directors authorized the repurchase of up to $250 million of our stock.
And just a couple of comments on the full fiscal year, earnings per share was $1.45 compared to $1.10 in fiscal 2016, so up a healthy 32% for the year.
Our sales grew 4% for the fiscal year to $1.767 billion, driven by sales growth in both segments.
And again, this reflects overcoming $80 million in higher sales in the prior year from KC-10 and Lake Charles.
Our gross profit increased $18.4 million in the fiscal year in Aviation Services segment and $22.2 million in Expeditionary Services segment.
Net debt increased $30.1 million for fiscal 2016 as we continued to make strategic investments in our business, including assets to support new multiyear supply chain management programs supporting our customers as well as for dividends and share repurchases.
So thanks again for your interest, and now I'll turn the call back over to <UNK>.
We completed our board meetings this morning.
We've had 2 days of productive board meetings, as you can see from some of our announcements.
I'm pleased to announce that John Holmes was elected a board member.
And you should know, John is off to a very strong start as our President and Chief Operating Officer.
We also announced the hiring of Mike Milligan to be our new Chief Financial Officer.
Mike will join the company on September 1.
He will have tough shoes to fill in with Tim's retirement, but Tim will hang around until the end of the calendar year to give ample time for him to share with Mike some of his knowledge and make the transition a little bit smoother.
So I would like, at this moment, to thank Tim for his 36 years of service to the company and his valued counsel.
I'm pleased to know that he will be with the company full-time through the end of the year, and then will stay on as a consultant into next year for the full calendar year.
So all in all, our company finished up with a very strong year.
We go into the new year with a fair amount of momentum.
I feel very good about some of the skill sets that we've developed this past year and feel good about the investments we made to fund our future growth.
And with that, I'd like to turn the call back to you folks to see if there's any questions you might have that we might be able to answer.
Yes, just one second.
See if we can get it real quick.
$41 million.
Yes, I think we can say what we've shared in the past.
I think 5% to 10% range is a range we're comfortable with.
Yes, by the end of this quarter.
Mobility is doing a little bit better.
Airlift, you're correct, we've lost some positions, but the Mobility business has seen a little bit more order flow.
So not where it's been, but still ---+ but that isn't where ---+ it's better than recent past.
Yes, yes.
Legal is 98%.
I mean, it's mostly related to the INL.
Yes, so we're technically an intervener in DynCorp's lawsuit against the U.S. government.
And we will continue to spend money in that role.
And hopefully, hopefully, the process will conclude by the October 31 date and we wouldn't expect much in the way of legal expense they have, unless DynCorp continues to protest.
No, I think we're ---+ the strategy is no different than it's been.
What we were looking to do was kind of replenish the authorization.
We had been at ---+ we had had a $250 million authorization back in 2014 and we once closed out 2000 ---+ maybe that was '15, but ---+ we went through '15 actually, but we went through $187 million of it.
So we were just, to give us the maximum flexibility, the board thought wise to go ahead and bring it back up to the old ---+ to the level it was before.
No change, though, in terms of motivation or outlook in this regard.
And obviously, we don't buy shares, and as a strategy, we buy shares opportunistically as we see fit.
Yes, we had the benefit from the taxes a little less than the after-tax impact of the kind of a special.
.
Yes, what I'd like ---+ first of all, fourth quarter is historically a strong quarter.
So you have airlines getting ready to service their customers for the summer months, so you have the ---+ shops are pretty full and the spare parts supply is pretty robust.
So that's been a trend for the last 15, maybe 20 years here at the company.
What I would like to do, Rob, is we have our Investor Day in October.
We'll be coming out with the date here pretty soon.
What I'd like to do is kind of give you ---+ share, at that point, a little bit more feel for how we see the trend, if you will, in the business.
Right now, we feel pretty bullish on things, but we just ---+ I just want to let a little time pass, let John get a little bit more ensconced in his position.
And then by around October, we should be able to give a little bit more color.
No, not [okay].
We released it ---+ when we released it, we were putting together our minutes from the board meeting.
And we just released it as part of our normal course of business.
So we got the authorization yesterday during the day.
It was some ---+ we meant to get it out last night, didn't get around to it, and we got it written up this morning during our session with the board and got it out today.
So we weren't thinking about the after hours or before hours.
Not that we see.
Not that it's ---+ nothing that is apparent.
But I guess, I would reserve my comments on that until after the actual execution.
But nothing that is apparent.
So let me share with you how we're thinking about the businesses because we're really thinking about the businesses as being integrated and having an integrated solution.
So we are ---+ as we think about our strategy, we think about these pieces and how they're connected to each other.
And as we think about growing the company, we think about growing them in this fashion.
So at this stage, I would prefer to focus more around thinking of these businesses as a collective group of businesses designed to give us a powerful value proposition for our customers.
And I believe that, that strategy is working.
And I don't think, at this stage, it would be wise to deviate from that.
So I'd prefer to speak in terms of the businesses in their totality.
Yes, right.
I'm saying the aggregate is 5% to 10%.
Yes, that's what I'm saying.
Yes, no.
So why don't we get ---+ we'll drill down a little bit further at the Investor Day.
So why don't we kind of wait on that until then and leave it at that.
We were ---+ the last date was August 9.
We then went out with a 8-K filing and laid out the dates between now and October 31.
So there was a delay in the process, and we articulated that through an 8-K filing.
Shut down.
No.
The ---+ we would be hopeful that we could get on schedule on the ramp.
We've had enough time to think about it, so.
.
We're pretty prepared.
And I think the customer is ---+ yes, I mean, we're pretty prepared.
We have reason to believe that a decision will be known before the month is out, so we're hopeful that we'll hear something on that before July 31.
So on the Mobility, we're seeing an increase in dialogue around opportunities with the customers, some new product development actually, as well as some of the traditional products.
On the airlift, we're ---+ we've won some, we've been named on some IDIQs, but we haven't won any [test] orders.
So we're a little bit ---+ we're short there in terms of positions, as we mentioned earlier in this call.
So again, I think we can get into a lot ---+ a more deeper dive at the October Investor Day.
No visibility.
We have no visibility on that.
Yes, yes.
So I think ---+ so I mean, Tim just laid out for you some of the headwinds that we faced with the KC-10 wind-down.
So.
.
That's right.
We'd expect the legal expenses to be lower.
We believe that there's room for improvement, yes.
So we believe, as we succeed more in providing integrated solutions, that it not just creates more value for our customer, but we also think it creates more value for our shareholders as well.
Yes, I think as it relates to next year, because of the items you mentioned ---+ the item you mentioned, I think we're expecting relatively flat.
Yes.
Yes.
So first of all, we ---+ and one of the ---+ as you've seen me indicate, we have different ---+ we look at the application in capital across a few different possibilities.
And one of the possibilities, of course, is investing in the business itself.
So if you look at the year that just ended, we spent money buying inventories to support some of these programs that we've recently won.
We will maintain a balanced approach based on the cash needed to fund the growth of the business and look at the cash that is available and the ratios that are available to us in terms of EBITDA to debt.
We'll keep surveilling that and make determinations based on the share price, based on other uses of our capital as to when the right times to be investing in the stock.
We do not expect to have a debt offering, or there's been no discussion at all about a debt offering to fund the purchases of the stock.
And I want to be careful in not signaling any changes from how we've been behaving to date, just that we're looking to refresh what we had previously authorized, and giving the company some flexibility as it relates to applications of capital.
So please don't be expecting anything unusual to take place.
Let me ---+ my recollection is that it's slightly ---+ 2 components for the KC-10, there's the flight hour piece, which is below ---+ you may recall, we're reporting it at 0 margin.
And then, there's the over and above, which have a pretty ---+ have a healthier margin.
So my sense is that the gross profit line is probably below our blended rate.
Cash flow from operations was $33 million in Q4.
Larry, did you get that.
Yes, what I'd like to do again here is I'd like to have a chance.
In this regard, I might have to be a little later than October.
I want to have a chance to see the impacts of the ramp of all these different contracts.
Because the pace of ingestion has been pretty rapid here.
And what we're ---+ the first step for us is to make sure we can satisfy the requirements that the customer has, and so we are making the investments we feel are necessary for that, and now we have to give these programs a chance to ramp and take a look what the ongoing costs are against the revenues that come in.
So I prefer, at this stage, to give ourselves a little bit more time to see how that evolves.
We have internal targets, but I prefer to see how we actually perform before commenting.
Okay.
Well, thank you.
Thank you for your participation today and your interest in our company.
Have a nice afternoon.
| 2017_AIR |
2016 | SYF | SYF
#Sure, so I would say that the bulk of sales are still done predominately in store.
But what I would say is that it's definitely shifting, and each quarter we see incremental growth on online and digital.
As we stated, our online sales were up 26% over last year, and that continues to grow every single quarter.
About a third of our applications occur digitally.
We have received about 12 million mobile applications since we've launched in 2012, and that's grown at about 80% year over year.
So that's a big growth channel for us that I think you're going to continue to see expanding.
And yes, we're seeing faster growth in the industry.
So I think the important part of digital and online is really our ability to continue to integrate with our partners.
And so one of the things we're really working hard on now, obviously, we've done Apple Pay and Samsung Pay and those things, we have digital cards on our own.
What we're seeing now is more and more retailers are creating their own apps, and we're really trying to work to be in that app so that it's a really seamless and frictionless process for the customer as they're shopping around on a mobile app of a particular retailer.
So I think you're going to see us focusing even more on that as the retailers come to us and ask us to really engage at a much higher level.
That's my point earlier.
I think there's been a little bit of a, I think, a shift in terms of how retailer are even thinking about mobile and putting a lot more emphasis and effort there.
And that's where we are very highly engaged right now across all three platforms really.
Then on your loyalty question, so, that's a trend that we've continued to see all year.
We've obviously introduced many new value propositions over the past year.
We introduced the Sam's Club 531, Amazon Prime 5%.
We've got new programs at Chevron and BP, new value proposition at Walmart, the 321.
So all of those are obviously influencing both the interchange and the loyalty lines that you see.
Generally, more loyalty is a good thing.
It means we are growing our receivables, we're generating finance charge revenue.
The lines also run back through the RSA, so there's an offset there.
And if you're looking at just the relationship between loyalty and interchange, the one thing I would just point out is this is very different than general-purpose card.
Given we have significant value propositions like Amazon where we don't charge interchange, but we still offer a very attractive value proposition, we'd expect to see loyalty increase as a percentage of interchange going forward.
That's ---+ we really don't look at those lines in isolation.
We really measure them in the context of the overall deal structure.
So look, if we have the opportunity to launch a better value proposition that's going to drive more usage on the card, generate strong receivables growth, that's a good thing for us, it's a good thing for our partners, and it really comes down to that shared economic model.
Yes, this has been a very strong year-to-date performance.
I think it's not just to temper expectations a bit, it is probably not a realistic expectation that we're going to grow revenues 12% and expenses 2%.
So we're very pleased with how we performed year to date.
We'll obviously, we can give you an outlook for 2017 when we do the call in January, but I think the important thing is we're very focused on driving operating leverage.
This is a scalable business.
Now that the infrastructure costs are in the run rate, we would expect to continue to generate positive operating leverage over the long run.
We're always working to get more efficient across the business.
We always start the year with a bunch of productivity initiatives, cutting out waste in the business, getting more efficient, moving more online, off of paper, and we use those savings that we generate there primarily to invest in long-term growth ideas, so things like mobile, data analytics, CRM.
But even taking those investments into account, we'd still ---+ our goal would be to continue to generate operating leverage going forward.
It's hard to get specific.
It will be ---+ we still expect a reduction, so more than 0 but less than 19.
It's about ---+ we're talking about basis points, it's a big estimate that we make at the end of the year, given the seasonal growth.
So I can't get more specific.
We do expect it to come down, but just not quite as much as it has in the last two years.
You have to remember, in the last two years, we were in an improving environment, so whatever we were recording in the fourth quarter was at least partially offset by improved performance.
And now it will be more reflective of growth and the normalization trends that we're seeing in the portfolio.
No, the online spend and the trends are the same.
I'd say the one area that we continue to ensure we're focused on is really ensuring the authentication of the customer.
So I think that's where approval rates might be slightly lower, just because you're dealing with an online channel versus and in-store experience.
That's a great area where we're spending a lot of time investing in new technology to really make sure we're best in class there.
So that would be the only, I think, fundamental difference.
Yes, I think we'll have that in our investor deck that will come out in a few days.
But there's really ---+ you'll see from that there's really nothing material contractually until the 2019/2020 timeframe.
Yes.
Thank you.
| 2016_SYF |
2016 | RTN | RTN
#Good morning, Rich.
Well, it's definitely at its infancy right now.
We are working with the army as also with some of our competitors to help them define what this program is moving forward.
Obviously we feel that a new missile can provide the best capability with the best cost, being able to integrate as much of the new technology that's out there as possible.
So that's really our position moving forward on it.
It's at its infancy and as we get more information relative to the army we'll be glad to share that with you over time.
This award is to go complete the engineering, manufacturing, and development phase of the program.
So the assets or the pods, 15 pods that are going to be developed, are essentially EDM assets or assets that will be used for qualification in terms of flight tests and also environmental tests that will be done on the pods to ensure that they meet the overall requirement needs of the United States Navy.
That's what that program is.
Following that program, there will be a transition to production, LRIP, and then a full on ---+ you asked about period of performance.
It's approximately four years for that $1 billion program.
Thank you.
Good morning, <UNK>.
That's correct.
<UNK>, I think that's a little tough to do to really define normalized, given the mix of development and production programs and the timing of completions and starts move around.
It's not consistent business by business.
What I can maybe give you a little bit of color on I will just go real quick by the businesses, is maybe give you an indication on how we see things playing out through the balance of this year.
So we talked about IDS and what happened in the quarter with the $36 million impact.
But we do see the margin improving through the year, partly driven by improvement in business mix as some of our larger international programs move through the production cycle.
And then you mentioned it a minute ago, we do have in the second half and the third quarter, the gain from the exit of the venture, which is $125 million to $150 million.
That's about 210 basis points to 250 basis points at the IDS level.
For IIS we're expecting total year 7.4% to 7.6%.
That would be roughly in line with 2015 after adjusting for the Q1 e-Borders settlement.
What we see happening compared to Q1 there is improved mix going forward within IIS, some improved productivity as we move through the year, and also some improvement coming from expected award fees for IIS.
From a missiles point of view, we talked about the impact in the first quarter with the $22 million adjustment.
But if we look forward for the balance of the year, we still see missiles getting to the 13% to 13.2% range with margins starting to improve or expand in Q2 and in the second half of the year, really driven by mix and the timing and the ramp up of programs and some expected efficiencies that we would see at missiles.
At SAS, they were down year-over-year in Q1 as we expected, really driven by some mix, but they were a little bit ahead of our expectations for the quarter.
And then when we think about SAS moving forward, again we're still in the 12.9% to 13.1% range.
And we do expect the margin to improve throughout the year, driven by more favorable mix and therefore the timing of some program improvements.
At Forcepoint real quick, margin improved in the quarter because of the addition of Websense, the acquisition last year.
Still on track for the total year, 11.5% to 12.5% range, really with a little bit more of a ramp or expansion in the second half of the year driven by two things; the completion of integration activities related to the Stonesoft acquisition, and also as the sales ramp up in the back half of the year.
So overall, we do see the cadence improving in Q2 as well as the second half, primarily as we progress through program life cycles on some of our more recent awards, and due to the timing of expected program improvements as well.
Mark, we have time for one more question.
You're absolutely correct on the jammer.
That's about a four-year period of performance.
The other big contract, the classified one, was another four-year period of performance.
So I would say it's going to have sustainable growth definitely over the next two years just based on the bookings that they've received here in the last quarter and then obviously last year in 2015.
So there's the potential for it to be recurring, <UNK>.
We have our shares that vest ---+ some of them vest in Q1 and some of them visit in Q2.
And the determination as to whether there would be an impact is driven by where the market price of the stock is on the date they vest compared to the price at issuance ---+ the strike price at issuance.
So there could be volatility, but it could be negative volatility as well if our stock price were to go down.
So we're going to have to assess that on an annual basis, based upon the market and what's happening out there.
So I wouldn't necessarily jump to the conclusion that the 100-basis-point adjustment is the right thing.
It would be really something we have to look at on a year-to-year basis.
Sure.
Okay.
Thank you for joining us this morning.
We look forward to speaking with you again on our second quarter conference call in July.
Mark.
| 2016_RTN |
2015 | BID | BID
#Thank you, Vince.
Good morning and thank you for joining us today.
With me here are Tad <UNK>, Sotheby's President and Chief Executive Officer; and Patrick <UNK>, Chief Financial Officer.
GAAP refers to generally accepted accounting principles in the United States of America.
In this earnings call financial measures are presented in accordance with GAAP and also on an adjusted non-GAAP basis.
An explanation of the non-GAAP financial measures used in this earnings call as well as reconciliations to the comparable GAAP amounts are provided as an appendix to the earnings release, which can be found on the Investor Relations section of the Company's website.
Also, during the course of this call, the Company may make projections or other forward-looking statements regarding future events or the future financial performance of the Company.
We wish to caution you that such projections and statements are only predictions and involve risks and uncertainties, resulting in the possibility that the actual events or performance will differ materially from such predictions.
We refer you to the documents the Company files periodically with the Securities and Exchange Commission, specifically the Company's most recently filed Form 10-Q and 10-K.
These documents identify important factors that could cause the actual results to differ materially from those contained in the projections or forward-looking statements.
Please see our investor webpage for a slide presentation which outlines Sotheby's first-quarter financial results.
With that, I will turn the call over to Tad.
Thank you, Jennifer.
Good morning.
Thank you also for joining us this morning and for your interest in Sotheby\
Thank you, Ted.
More often than not, the first quarter is a loss quarter for Sotheby's.
Thanks to the buyers' premium increase instituted earlier this year and some excellent deal execution, along with continued attention to cost, this quarter delivered a nice profit.
Turning to the detailed financial information on slide three of the presentation deck and beginning with our overall results: with a healthy global art market, increased sales worldwide, and improved commission margins, we achieved 127% increase in adjusted operating income in the first quarter of 2015.
First-quarter 2015 adjusted net income is $7.4 million and adjusted diluted EPS is $0.11 per share compared to adjusted net loss of $3 million and adjusted loss per share of $0.04 a year ago.
The adjusted operating and net income figures exclude restructuring and special charges as well as CEO separation and transition costs.
Now let's look at each of our main operating segments.
Starting with the agency segment on slide 4, we continue to see growing revenues on strong auction sales.
In the first quarter, agency gross profit increased $3.3 million or 3% to $112.8 million.
An $8.3 million or 8% increase in auction commission revenues resulted from an improvement in auction commission margins and an increase in net auction sales during the quarter.
Excluding the impact of foreign currency exchange rate changes, auction commission revenues increased $15.2 million or 15% over the prior quarter.
Auction commission margin increased from 14.3% to 15% in the quarter, primarily due to the increase in the buyers' premium rate structure, effective as of February 1, and a lower level of buyers' premium shared with consignors.
This is partially offset by sales mix, as a higher proportion of net auction sales in the first quarter occurred in the higher-priced bands of Sotheby's buyers' premium rate structure than in the prior period.
Offsetting the gains in auction commission revenues, private sale commissions decreased $1.6 million or 12% in the first quarter of 2015 as compared to the prior year, due to a lower volume of high-value transactions completed when compared to the first quarter of 2014.
The unfavorable variance in Sotheby's auction guarantee and inventory activities when compared to the prior period is primarily due to the higher level of inventory write-downs and a lower level of gains associated with guaranteed property offered at auction.
Agency direct costs increased $1.4 million or 13% in the quarter, primarily due to higher level of costs incurred to promote and conduct Sotheby's contemporary art sales in London, including the single-owner Bear Witness sale.
Turning to slide 5, you'll see a decrease in principal revenues and cost of principal revenues in the first quarter.
In the first quarter of 2014 we had sales of property acquired from a potential consignor in lieu of the agency segment providing an auction guarantee.
There was no comparable event in the current period.
Moving to slide 6, we are pleased with the growth of Sotheby's financial services and our ongoing process of debt funding this business.
The finance segment average loan portfolio balance for the first quarter of 2015 was $678 million, a 41% increase from the prior period.
Finance segment revenues increased $7 million or 78% in the quarter, reflecting the growth of the portfolio.
Finance segment gross profit, which is net of borrowing costs, increased $4.3 million or 53% in the quarter.
Finance segment results in the current period were also favorably impacted by a $1.3 million collateral withdrawal fee earned in the period.
Withdrawal fees are not common.
As previously announced, we have established a separate capital structure for the finance segment that provides for the debt funding of loans through a dedicated revolving credit facility.
Debt funding the loan portfolio reduces the finance segment's cost of capital and enhances returns.
Beginning this quarter, we are disclosing the finance segment's return on equity, which is 10.9% for the 12 months ending March 31, 2015.
As we define it, the finance segment's LTM return on equity is its net income over the last 12 months, excluding allocated corporate overhead costs in relation to the average equity in our loan portfolio during that period.
Assuming our current average leverage of 72%, to LTM return on equity would have been 13.6%.
Next, on slide 7, salaries and related costs decreased $2.8 million or 4% in the first quarter as compared to the first quarter a year ago.
Changes in foreign currency exchange rates reduced salaries and related costs by $3.3 million when compared to the prior period.
Excluding this impact, salaries and related costs increased $500,000 or 1% during the current period.
For the first quarter of 2015, full-time salaries decreased $1.1 million or 3%, principally due to changes in foreign currency exchange rates ---+ $1.9 million ---+ and savings resulting from the restructuring plan enacted in July of 2014, partially offset by base salary increases and headcount reinvestments.
Excluding the impact of foreign currency exchange rate changes, full-time salaries increased $800,000 or 2% during the current period.
Incentive compensation expense decreased $1.2 million or 40% due to lower private sale incentive costs, resulting from a decline in private selling activity.
Employee benefit costs increased $2.2 million or 33% in the first quarter, primarily due to a $900,000 increase in nonrestructuring-related severance costs as well as higher pension costs in the UK and US.
For the year ending December 31, 2015, the net cost associated with the UK defined benefit plan is expected to increase $2.3 million, primarily due to a decrease in the assumption for the weighted average expected long-term rate of return on client assets from 6.1% to 5.4% and an increase in the required amortization of prior-year actuarial losses.
Turning to slide 8, general and administrative expenses improved $2.6 million or 7% in the first quarter of 2015.
Changes in foreign currency exchange rates reduced G&A costs by $1.5 million when compared to the prior period.
Excluding this impact, general and administrative expenses decreased $1.1 million or 3% during the current period.
Professional fees improved $2 million or 15% in the quarter, largely attributable to lower legal and compliance expense, which is $800,000 of the decrease, and lower operations expenses ---+ $600,000 of the decrease ---+ primarily due to negotiated rate reductions related to certain outsourced functions such as catalog production and the client contact management center, as well as reduced usage of service providers in other areas.
For the first quarter Sotheby's effective income tax rate was approximately 50%.
The income tax rate for the current quarter is higher than the 2015 estimated annual effective income tax rate of 36%, due to a discrete tax expense of $1 million related to the expected results of income tax audits.
In the prior period, income tax expense of $300,000 was recorded on a pretax loss of $5.7 million, primarily as a result of a $3.1 million income tax charge recorded in the prior-year quarter related to the enactment of new legislation in New York State.
As Tad mentioned earlier in this call, we have initiated a broad strategic review of Sotheby's business.
As a result, management is reevaluating its expense projections for 2015 and is withdrawing expense guidance at this time.
On a final note, we just want to remind you that our Summer London Contemporary sales are being held on July 1 and 2 instead of at the end of June, as they have been historically.
Therefore, those will be third-quarter events this year instead of second-quarter events.
This concludes our comments on today's announcements.
And we would be happy to address your questions.
Too soon to say, <UNK>.
We are going through the peak portion of the spring right now, and I'm studying it carefully.
So it is a very good question, and one I am going to be very focused on.
I will say, though, that the animating focus I have is return on invested capital, for what it's worth.
Yes.
I think it's critically important when you look at an organization that essentially really has three activities going on inside of it.
One is a deep understanding of either art or jewelry ---+ whatever the substantive area, such as wine, might be ---+ and call them specialists or experts.
Secondly, you have effectively a sales force or business development team.
And third, you have the support functions around that.
And by the way, there are lots of hybrids between the first two groups, for what it's worth, because clearly the experts and specialists interact directly with clients; and, in fact, they often have clients.
But in every event like that, every single individual that organization, in our organization, needs to know precisely what it is that they are trying to accomplish, exactly what the goals are ---+ both measurable and also, frequently, qualitative.
They need to be concrete.
They need to understand exactly what their accountabilities are, and to whom, and what the levels of responsibilities are in order to effect that.
And in a complex and creative organization like this one, if there's any lack of clarity around any of those things, you can end up with a suboptimal result.
Moreover, the incentives themselves need to be highly aligned with the shareholders' needs.
Thinking that through creatively with a keen and also a very clear perspective on what the shareholders are looking for is a top priority for us.
I am optimistic.
Number comes from TFAB.
Jerry Kazdan found it for me.
And of course a significant portion of that is in the primary market, and you could debate whether we should be or could be in the primary market, even though with S|2 right now, with the Henry Hudson, we already have an example of where we are.
So the addressable portion of that, again, is subject to debate and will be further fleshed out in the strategy.
With respect to the second portion, in terms of alliances there, it's really too soon to say.
There are clearly interesting opportunities for us to think about partnering with various groups, because significant areas of part of the market are consolidating and turning ---+ you know, with large branded dealers around the world.
And it's an interesting question ---+ too soon to say, though.
<UNK>, it's Patrick.
I will take that one.
No, there's no change in how we think about underwriting the risk.
We can borrow ---+ a qualifying loan can be up to 60% loan-to-value in terms of our ability to fund that asset.
So typically, you will see our loans right around 50%, but they can go as high as 60%.
And there's really no change in terms of our process or our thoughts around underwriting the risk.
In terms of growth, we'll see.
We have obviously been growing the business rapidly over the last couple of years.
That has given us the flexibility to add some resources to the business in terms of client-facing people and transaction processors.
So we've got high expectations for the business.
As we've discussed on these calls, believe that the loan economics themselves are compelling.
And obviously it provides an engine of property for the auction side of the business.
So our goal is to continue the growth.
We are not really clear on what the ceiling could be for this business.
We never talk about percentages in terms of what drives the change in auction commission margin.
We always talked about the factors.
And things that matter are mix, and certainly mix was meaningful in this quarter.
We talked about how sharing of commissions has an impact on it.
And in this instance, yes, the increase in the buyers' premium certainly had an impact on it.
We don't really give specifics on that, but certainly all those factors mattered this quarter.
With respect to the management item, I would just say one of the things that I've observed here and also in similar organizations ---+ and I'll give you some examples in a minute ---+ is that when you have an extraordinarily talented and autonomous group of people interacting with clients, the more layers that they have to deal with in order to get client service effectuated between them and someone who can approve a particular transaction, often the more frustrating and the more complicated it can be.
So what I would like is an organization that is very flexible, very lean, and can make decisions quickly and also sensibly for the shareholders, and also, frankly, for the clients.
And that's one where I don't think it makes ---+ I think it's generally better that the top management here is very close to the clients, and there's not a significant number of process steps or layers in between, for what it's worth.
I want to clarify, <UNK>, before Tad answers ---+ when you say acquire inventory, you're really just talking about winning consignments, correct.
Again, too soon to say.
Certainly the 4Ds are where I see the opportunity now.
But I hinted, I think, in my remarks that we could think about taking a longer-term view on specific ---+ not necessarily consignments, but positions, and potentially with partners.
Sure, sure.
I don't think there's any trend that you could look to in terms of the inventory write-downs.
We go through a process where we look at all of our inventory, whether it's on the agency side or the principal side; think about what fair market value is.
We do put a lot of effort into making sure that we identify opportunities to sell property that's currently in inventory, either privately or identify upcoming auctions.
So we try to be very disciplined about that.
But there's nothing that I would point to as trendsetting from this first quarter.
It's a very good question.
I'll point out, <UNK>, we already do a substantial amount of middle-market business now under our current brand.
And it seems to have no deleterious effect.
However, to think about how to grow it dramatically, we need to think about precisely what is the service level we provide in those categories.
Where are we on the cost curve.
And what is their differentiator.
All of those are TBD.
Overwhelmingly, by the way, our clients say tremendous things about us.
They say that they clearly love our understanding of and appreciate our depth of understanding of both art and jewelry.
They think we have a great deal of expertise.
They think we also are very trustworthy.
They think we are confident.
They enjoy spending time with us.
There are tremendous positives.
In areas where they think we have improvement opportunities, it's things that are very encouraging in the sense that they are very fixable.
They are in things like turnaround time; they are in some client service hygiene things; they are in a bit of financial flexibility stuff.
It's process improvements and that stuff.
It's management opportunities that I'm very encouraged by, because what I hear is the clients and the collectors are saying very strong things about the stuff that's hard to fix; and they are saying please fix a few of the things that require effort, but they are very fixable.
Again, this one also, too soon to say; but I can give you a little bit of a framework to think about it.
If one thinks about where wealth is being created ---+ in various parts of Asia, in various parts of the Middle East, and essentially in various parts of the Americas south of our border ---+ and where we are arrayed, both in terms of collectors, and staff, and whether art or jewelry sales, my suggestion is that there is a bit of an imbalance.
We have significant areas of client development in areas where there is relatively slower growing, a la Europe and North America, and wealth creation over the next decade.
And my fond hope and, moreover, my commitment is to balance that out and find new markets to put more resources into.
I would be surprised if a year or two down the road, looking backward, we wouldn't have a more significant commitment to South Asia; to the Middle East; and to, potentially, the Americas, south of the border of the United States.
Yes, it's a great question.
When you look at our client system, what you see is that we have a robust technology platform and a lot of data in it on clients.
And it's reasonably facile to use, which is encouraging.
But I don't know, for example ---+ because I haven't seen an audit ---+ how accurate the stuff is in it.
And that would certainly be a first place.
And the second thing, where I think that we are a little bit softer, is in what I would call information on products or information on things that go through our auction houses rather than the clients who serve them.
And moreover, the third area would be how we connect the two of those would be an area of opportunity in my mind.
So that's where I think we would see some effort applied to make the system better.
Also, there's some fundamental usability things ---+ which, again, are in the category of technology hygiene ---+ making sure that when you use a system, it suggests things that you might have not thought of that are close to it.
It's little stuff like that.
But very encouraging on that, generally.
I just want to say, thank you all for joining the call.
Thank you to my colleagues who prepared the quarterly stuff, and Jennifer.
And you all have a great day.
| 2015_BID |
2016 | GTLS | GTLS
#Morning, <UNK>.
I'm sorry.
What was the first part of the question.
I got distracted.
In the US the attempts to be marine oriented majority of the applications for transport schemes to the Caribbean Islands or to South America displacing diesel fuel primarily for power gen that's a bit weaker more recently as LNG spot market prices in Europe have, even from relatively, to small quantities have come down do $4.00 per million Btus it makes it difficult to get people excited about investing in the US currently.
Your second question as to whether we think we're at the trough of backlog I think that we're probably reasonably confident we're on the bottom within the D&S business.
The E&C business can still come down further, but with a few orders would be on the upswing.
It's just ---+ there's not much upside for accuracy in calling the bottom or following the timing of an upturn.
Huge.
Too early to tell.
It looks to be very interesting.
If you look at the press and comments that are being made by some of the ---+ the very large industrial players like GE and Xiamen focusing on their data (inaudible) and connected businesses you can view us as fast followers who are doing this in smaller chunks and with more personalized attention to our customers.
So I think we're just exploring something that we think can be equal in size to our equipment manufacturing business but we frankly don't have any idea of how quickly that develops.
I would say that's not a short-term prospect.
It's something that we view as being a attractive growth opportunity over the next five to ten years.
Headcount we're down about 23% of where we were by the end of 2014 versus where we are today in the end of March.
Capacity wise.
Capacity wise in terms of bricks and mortar and production equipment we have significantly greater capacity than we had at that time.
Subject to bringing people back on, which we're capable of doing, we would have greater production capacity than we had he two years ago.
Currently with our (inaudible) it's lower.
Right now we can probably support $1.3 to $1.5 billion of revenue within a six month time frame, which is kind of the time that's required for us to respond to orders booked.
Remember if we take significant orders in E&C those projects are executed over 12 months to 24 months.
And so the labor ramp-up is ---+ can be for the ---+ can be going on through half of that project.
So I'm not really very concerned about our ability to ramp-up quickly.
In most parts of the world ---+ at this point in the cycle labors relatively available and I would anticipate that that situation would continue into a ---+ well into a recovery.
Simply because in most industries particularly around the energy industry deployment is still coming down.
.
Well, we certainly have deposits on contracts that were signed, that's a fact, I can't sit there and say, you know, ---+ it was your question, will those flow through if they were canceled.
I would classify that as competitively sensitive.
Generally solid, flat to up slightly on the basis that we have some very good products that tend to perform significantly better than competitors and we also have a very strong market presence as well as good alignment both with our customers and their end users in those markets.
We've done a lot of development work of tailoring products specifically to those applications and we have an attractive position.
The challenge with any E&C is that historically our ability to predict margins, which has never been outstanding, is helped by having significant projects in backlog and that gives us ---+ and that might account for 70%, 80% of revenue and margin in the forward quarter or quarters.
At a time when our backlog is low a greater percentage of our business is short cycle for emergency applications or things where the customer is willing to pay a premium because of outages or shutdowns.
And so depending on the level of actual sales there can be better margins but because those lead times are short we don't have a view, even as soon as the next three months, as to what part of the mix that will be.
In terms of the margin in backlog, again, as you get towards the exhausting, the longer project lead time backlog, and you're in a competitive environment, it tends to be lower so the margin in backlog, currently in backlog is generally lower than the margin we reported in the most recent quarter but adding on higher margin, short lead time projects can significantly impact that.
(Inaudible).
We just don't know.
That's good assumption.
In the startup phases, with respect to margins, potential margins, there's not a lot of established competition.
However, in the early phases it does require SG&A to develop that business.
I think that we've got a great balance and a great team working on this and we're handling the startup issues by allocating resources from other parts of our business and, I have to say, it's been done pretty creatively so we're very pleased with the results to date and the prospects.
<UNK>, it's a bit of all of the above.
Many of our customers who are operating plants that include our equipment have had retirements or cut backs in experienced personnel.
In many cases they are reacting to current lien times by saying we have to improve up time and efficiency or we can't stand to have the accidents or outages we've lived with in the past because so much was going on we couldn't deal with it.
And so it's a sale, we're making the sale based on improving the effectiveness of their plants, improving the reliability of their plants.
Or in the case of financial owners that have been brought about by LLC or (inaudible) limited liability partnerships where there has been less experienced people operating more plants we're finding there's a willingness to get involved in engaging our services for risk mitigation.
Yes, I guess to answer your first question around D&S/LNG, you know, basically last year, in 2015, D&S/LNG represented approximately 25% of orders and sales, would not anticipate that changing dramatically here in 2016 based on where we see opportunities and ---+ say for instance, again, the Clavados order in Lithuania was an LNG oriented order, the import terminal in India, that we announced, as well here.
So, you know, again, those are LNG oriented revenues so don't expect that mix to change much in 2016 and, actually, that's been a good trend for us so I wouldn't see a major change there.
Thank you.
We've certainly seen strong headwinds and talked about it for a long time.
We're not unique in our upstream energy equipment business and we don't see a dramatic change in the near term.
We do think we've reacted appropriately and our diverse bi-product portfolio will enable us to successfully navigate this downturn.
We expect to continue to generate positive operating cash flows through the year and we'll continue to focus on our cost structure without losing sight of our strategic goal of delivering long-term growth.
And, I remind everyone, in our business when confidence returns and people start to invest we tend to see our sales, our backlogged sales and operating leverage increased dramatically and we're determined to keep ourselves in the position to do that, prudently.
So thank you very much for listening today.
Goodbye.
| 2016_GTLS |
2015 | BC | BC
#Thank you.
As always we appreciate everybody's interest and the great questions.
We are really excited about our November 10 meeting coming up.
If you can't be there in person you certainly ought to be there by phone.
It's going to be a great meeting, and we have got some very exciting plans to talk about our great company between now and 2018.
So thanks for everything and we will be talking to you on the 10th.
| 2015_BC |
2016 | PSB | PSB
#Well Tony, this park is a unique location in Tysons.
In that, it already as right adjacent to it parks that we're building, jogging trails are in place, a natural stream, as well as being only a block away from the athletic fields.
So the new developments don't have that sort of accessibility for people that want an active lifestyle.
And we own a contiguous 45-acre accumulation of what is relatively flat and allows us to build these mid-rise apartment complexes versus the high rise requirement for those properties that are directly adjacent to the metro, they're very close to the metro.
And so at this point, as we're developing and as the neighborhood is evolving, we'd like to keep control of the land at this point.
Now, what we would do in the future two or three years from now, I don't want to speculate at this point.
Yes, Tony.
The sequential decline in G&A was largely tied to the management change that was effective July 1.
So that's the primary driver.
If you look at kind of the composition of the G&A for the quarter, there is really two components.
The non-cash relative component that we isolate is about $900,000 and the balance is kind of the cash G&A.
So that puts it somewhere in the $2.6 million all in range.
I think going forward, that's probably a good fair run rate.
Well, I think you know from our history, we've been very judicious about using equity as a currency and I think we would continue to do that.
That would be something ---+ from our perspective, that would be probably more effective use as we were expanding the portfolio through acquisitions.
The other thing that you have to consider if we were to issue some level of unsecured term debt, we're generating $45 million to $55 million of free cash a year.
So we've got significant cash flow that we can use to pay down that debt as well, if the acquisition market doesn't change here in the near future.
I think there may be a point where it would make sense, but I think just from a long-term standpoint and a dilution standpoint, it certainly would make more sense to us to use that currency for growth purposes versus refinancing purposes.
We've certainly gotten some indications of pricing.
I think that if we were to do something that was floating rate, we'd probably be in the range of plus or minus 100 basis points over LIBOR.
So it's pretty attractive pricing.
No one-time expense.
The one thing that you should know and if you look in our supplemental package, we have a graph that shows kind of the trend of the margins, and you see that typically our third quarter margin is a little bit lower and that's largely driven by utility costs.
So we typically see and anticipate a higher spike in utility costs over the summer months just based on that usage within the portfolio.
So that was the large driver of kind of the impact on NOI.
You're correct, <UNK>.
That is how we would expect to bring it in.
And that will start coming in really early in the second half of 2017 with leased up beginning in the springtime.
Yes, probably more towards the end.
This is a big project, almost 400 units.
And there are competitive products still coming to that market.
So you're looking at more of a two-year leased up phase.
Tony, just to clarify or to expand on <UNK>'s point, the construction of the entire 395-unit building will not be complete in the springtime, but the first phase of it will.
So that construction will continue through close to the end of 2017.
Thank you.
Thank you everyone for your time today and we look forward to talking to you in the near future.
Take care, bye now.
| 2016_PSB |
2016 | RJF | RJF
#No.
So first, these two weren't totally unrelated.
So one of the AML issues was related to the case.
And it was a specific case and a specific issue in the State of Vermont with a specific group of investors.
So we don't think those are happening all over.
Now, you ask if they're structural.
I think there is in our industry structural regulatory expenses.
And certainly a more aggressive stance by regulators.
Fines are up in the industry.
However, certainly not at this level.
I think hopefully they are unusual levels.
But there will be some fines.
And the 50 people in headcount and AML additions is just one example of the increasing regulatory costs, but those are in the numbers today.
There is a structural elevated cost in regulatory.
And for us they show up largely in compensation expense and systems.
The only thing that's showing up in this other expense, really, are external litigations and fines and things like that.
The structural element that's going to be ongoing is embedded in the comp and systems lines.
I think it's just asset based, both through recruiting and growth.
It's just a rise in the level of assets has caused the growth in that number for the quarter.
Not really much change from where it's been, <UNK>tian.
It's still hovering around $38 billion.
I think probably $32 billion of that is in the bank sweep program, but $13 billion of that $32 billion is going to our own Bank.
So there again, these numbers are not much different than they were a quarter ago.
Post the Deutsche Bank Alex Brown transaction we will have different numbers, as there's somewhere between $5 billion and $6 billion of cash balances that will be coming onto our books in that transaction.
And the spreads really haven't changed much either, by the way.
Yes, <UNK>.
I mean, it's too early to answer that.
I think what you ---+ my contention has always been is that you have fund families that want us to work with them.
We've got to make sure clients are charged appropriately.
And that over time there'd be some equitable redistribution that would impact, some may impact clients because it's regulatory.
We certainly don't want them to carry the burden.
Some of the broker-dealer may impact advisors in the fund family.
I would say we don't have an ask, so I don't think there's negotiation.
I do think there's a willingness and an understanding that they will contribute to this.
And I don't think there's a resistance to it.
It's just how and how do you structure it.
How you keep it level for the firm, the client, the advisor, to meet kind of the DOL requirements.
So it's complex.
I don't see resistance.
But I can't say we all have asked yet.
We got to know what we're going to do before we have a solid ask.
Part of it, there certain ---+ there's a number of elements to it.
So first, certainly equity syndicate being down is an impact.
So you almost have to move that as a separate piece.
There's also movement to fee-based accounts.
So that certainly takes it out.
But we're kind of digging into that number too and trying to figure out if this is systemic or market-oriented.
I think most individual clients have been afraid of the market.
And with all this volatility, it's hard to blame them.
And we teach long-term investment anyway.
So whether you could say there's a structural change or this is a market one, I don't know if it's been a long enough run.
But we're certainly, like everyone else in the industry, looking very hard at that right now.
Hey, <UNK>.
Good morning.
Yes, we would expect, at least over the last couple of quarters as we sit here today, for the spreads in our loan portfolio to be pretty stable.
And as <UNK> alluded to earlier, part of the contribution to the reduced provision expense relative to the gross loan increases was the loan mix and the fact that we really grew our private client banking assets, securities based lending and mortgage loan assets more rapidly than our corporate loans.
And we also net/net, you may have seen we had a reduced level of criticized loans in the quarter, which reduced reserves on those particular loans that were either payoffs, or in one case we did have one upgrade of a loan from criticized status, but the bulk of it was just paydowns in criticized loans that contributed to that reduction in that asset category.
Qualitative reserves, there were no - -
Yes.
The growth is, I think, if you look at the assets in general, market certainly helped.
We thought the number would be different than ---+ the last week certainly changed our outlook of the number in June.
If you remember the market then.
And recruiting.
And so we've had, as you can see by the results, very strong recruiting, a very strong pipeline, and you add those two together, they really drove the client asset number.
The independent channel has been the strongest this year.
And that comes and goes.
Certainly when you add Alex Brown and 3Macs to that it's going to catch up.
But they seem to go in fits and starts.
The recruiting in Raymond James Associates, employee is above last year, and that was a very good year.
But the independent channel particularly has had a very, very strong year.
So we're happy with both of them.
But the independent's stronger right now.
No real concentration of where they're coming from.
Kind of we're clearly in the middle of that dialogue and getting direction at various regulatory meetings that were in on the focus on commercial real estate.
Our balance sheet compositional, although we've grown our commercial real estate book, is a little bit different.
Some of the banks that have significant concentrations, their multiples of their commercial real estate exposure as it relates to their percentage of total loans relative to ours.
Ours is still pretty small.
And I think you know about half of our commercial real estate are loans to REITs that tend to be a lot more diversified.
And the regulators would acknowledge those have historically been less problematic than the project finance real estate.
So our real estate concentration and percentage of total assets and total loans is relatively low compared to other institutions.
There could be some opportunities, to your point that where ---+ as others are pulling back.
But we're going to continue to be very cautious and not change our underwriting standards on commercial real estate, so.
First, I think we've been very good about predicting our closing costs and net/net Alex Brown was just more complex.
The 3Macs, or the Morgan Keegan, we brought the broker-dealer and knew what we had, and controlled both ends of a transition.
And the Alex Brown business, both by part of the reason we're in it is for the ultra-high net worth access and the technology standpoint, the connections, the systems, were just more complicated.
And the agreements with Deutsche Bank are more complicated.
So that drove ---+ the agreements drove the legal costs.
And the sophistication and complexity drove the technology cost.
So yes, we underestimated it.
And Alex Brown was very strategic for us, and their growth.
But it wasn't 100% down the fairway, what you'd call Morgan Keegan and 3Macs.
It was a little stretch in some areas for us on purpose, and we were just a little shy.
So I think we've done a good job estimating generally conservatively on those costs.
And we weren't perfect on this one, but $10 million out of $500 million investment isn't going to sway our ROE analysis too much.
I don't ---+ we've always had a pretty high bar on those and always have been cautious.
If anything, with high commissions going way, way back.
And Tom's in the room and he beats that drum all the time.
So I don't think that's changed.
There's been continual growth to fee-based.
So that's part of it.
And again, you'd have to segment out the syndicate business, which has been almost dead, which certainly a part of it.
And part of is there's been less transactions.
So I don't think there's been a change in philosophy or a push to do something that's caused it.
I think the natural migration to fee-based along with the muted equity markets have just contributed to that.
Yes, I don't think we've written that up to provide it in some kind of format.
But there ---+ we have disclosed there are 70 advisors and they're about on our average $6 billion of assets in Canada.
Our Canadian margins have been near our Private Client Group margins in the US, and we'd expect the same thing.
That business has been lower margin, really because of back-office costs relative to the size.
And we think over time, in that first year that we'll be able to drive a lot of those costs and achieve the margin.
But again, we're very ---+ we're sensitive both to the people, the culture, making sure we get it right before we're just going to slash cost cutting there.
A little bit.
Maybe a little bit.
We told the advisors to wait for an answer.
I think that some people have come out of the box with a solution have had to backtrack.
And we're very ---+ I think the ---+ our message has been very clear to our advisors.
They know we're sincere about it.
We want a solution that's good for clients, keeps as much advisor flexibility as we can, and fair to the firm.
That's the way we've always approached everything.
Until we know what we're going to do, the worst thing you do is go to clients, tell them one thing and then you change it again.
And then you changed it again when the law is finalized or understood the product.
So there's plenty of time to make those changes.
In April (inaudible) is to go to your clients and change either commission accounts or fee-based.
There's plenty of time to do that.
So the key is to get it right.
Luckily I think we have a lot of trust with our advisors and clients.
And our long-term history has been to do the right thing.
So I think in the most part, they're nervous because they hear stuff but they realize that it's the right track.
So far it's been business as usual.
Well, the percentage of assets is very similar.
I can't tell you what the total assets were.
We don't ---+ we get ---+ we'll find out soon on the closing.
But we don't get weekly or monthly reports.
Somewhere between $45 billion and $50 billion for the 92%.
We've been very clear that we aren't going to have a separate robo-advisor that just intermediates our advisors.
We have never said that we were not going to enable technology that could let clients use that channel.
We have an investment central today that manages small accounts for advisors.
We've always had in the plans since our plan of the future to take what we already do in asset management and make it more of a direct portal to clients and make it an automated system.
The question for robo-advice was there any real advantage under the DOL rules to put another system in temporarily or intermittently to help with that.
I think that's probably no, but unclear.
But I'd say at first a lot of people ran to that because of it.
We will have a client FA-oriented solution, but it isn't a solution that takes it away from the advisor and is a competing channel.
So we're not saying no robo-advisor-like platform.
We're in the advisory business.
We will have technology that will help them gather and manage assets easier, as all of our technologies really associated with.
So it's really a nuance on robo-advisors.
When Scott Curtis spoke at his conference, he had two titles: Raymond James Considering Robo-Advisors.
The same story ---+ the same interview was, Raymond James Will Never Have A Robo-Advisor.
I think it's a ---+ it's caught up in the terminology.
We will, I believe, have the technology.
I just don't think it's going to be a robo direct away from the advisor type of technology.
We've had ---+ there so many alternatives.
Again, I know you guys want an answer.
I'd love to give you one.
I think it's unclear.
You can do anything within the BIC if you wanted to.
But I'm not sure that's smart or good.
And we're just looking at all the analysis.
I know people have looked at, can you standardize fees in mutual funds on fee-based platforms.
Can you standardize commissions.
Can you ---+ there are a lot of possible things.
But we're not at the point where ready to say what's the right solution for our clients, advisors and us yet.
We're just not ready.
So we're certainly in dialogue with the industry.
So we know generally the options of what people are thinking.
We're dialogue with our advisors, and we have a big group here that's working on it full time and analyzing the alternatives.
And we are systematically starting to make the basis of decisions, what I call them the macro decisions.
But we've got a long way before we nail it down or give you a detailed answer like that.
It's possible.
But we're not there.
Yes.
July is early.
We're in the middle of July.
We're not reporting on that.
I would say we see certainly muted activity this calendar year compared to historic norms.
I'm not sure we're ready to call that a structural change, but we're in the middle of analyzing it and make sure we understand the components.
And when people are slower into the market we can theorize all sorts of things.
We're trying to get as objective as we can on it.
So we see the trend.
We see it in the industry.
We're not immune from it.
And so we're looking at it.
But certainly the retail investor has been nervous in this market, and you can't blame them.
We've had a lot of ups and downs this last year.
There's a couple of dynamics.
First, last year we said was our second-best recruiting year ever.
So first, the employee channel's doing better than last year.
They are not having a bad year.
They are having a very good recruiting year.
The independent channel's just having an amazing year, and part of that is position of competitors.
So I think we're getting more than our fair share.
The report said that recruiting was down 40% in the industry.
We're certainly not seeing that.
I think we're just in the right place at the right time and the platform's right.
So the independent channel I think has been just a bigger share gain.
We're getting to see more and more joining.
But the employee channel's up over last year.
So even though it certainly isn't lackluster.
And we're I think at a pace that we can bring advisors on, and successfully.
And frankly if it got too much higher we might even have some concerns about onboarding.
But right now we're in good shape.
And you get these relative swings.
So I wouldn't ---+ and these swings may last couple years.
But it doesn't mean they last forever.
So we've watched it go back and forth for a long period of time.
Yes.
Actually, we're still analyzing that.
Obviously the rate environment has changed that dynamic a little bit.
<UNK> mentioned the cash balances, the total client cash balances, the bulk of which are at third-party banks.
Those are pretty stable right now, but he also mentioned that were getting ready to get this influx of cash from the Alex Brown clients.
So that analysis still continues.
We don't want to take a lot of duration risk.
We're not interested in really going out too far in the yield curve to just try to pick up more yield.
So anything we would do would be relatively short in duration.
But we do think that dynamic where we could move some additional cash to the Bank and have a little bit larger securities portfolio without taking any credit risk, we would do things that would be in the agency and very high-grade munis perhaps, but primarily agency-oriented mortgage-backed securities.
That analysis probably is still valid and we're still continuing to pursue that.
As you see, we haven't implemented that yet.
But we're continuing to analyze it.
And it would require nominal additional capital.
Yes.
Actually, it's really going to be based on the types of loans that we're growing.
When we add securities-based loans and residential mortgage loans, the provision expense and the associated loan loss allowance is lower than our corporate loans.
So each quarter that had that new asset composition and the new growth tends to be different.
Our corporate growth this last quarter was muted, which drove that reduced provision expense percentage.
When we have a quarter where corporate loan growth is higher than the other asset categories, then that mix will be different the next quarter, so.
And of course in any given quarter we could have credit issues in either direction and we could have qualitative reserve impacts.
So those are hard to predict, obviously going forward.
But on the growth side I think <UNK>'s comments are correct.
Okay, if there are no more ---+ go ahead.
Thank you, Raquel.
We appreciate you all joining the call.
I'm very proud of our results.
I think growing assets and revenue in this kind of market is really the long-term indicator of success.
We certainly had some unusual expense items, and certainly environment has ---+ between technology and regulatory, it's certainly a challenging environment from an expense standpoint.
But we're doing a good job of managing it.
With the acquisitions coming onboard this year, and I think our positioning.
I'm very confident that we will do well, given the market any market environment.
So I'm proud of the team.
We know we have to earn it every quarter.
And I appreciate you attending the call this morning.
So thank you.
| 2016_RJF |
2016 | WFC | WFC
#Sure.
So how that works is, we take total product holdings divided by total customers.
And we're actually seeing the denominator grow faster now than we've seen it in some time, and first-year customers don't have an average of six products.
They are more in the four range, so that has a bit of a dilutive impact on that.
And also, as you get to the higher value products, the sales cycle or solutions cycle tends to be a bit longer.
So this is actually a good problem I think, in that when you're growing net new primary checking accounts by 5.6%, the goal is not necessarily a ratio.
The goal is to have long-term mutually beneficial relationships with customers where we help them succeed financially.
So I'm happy with where we are in that.
But thank you for the question.
It's a good question.
So it depends on the existing and changing distribution between one-month, three-month LIBOR-based loans, prime-based loans, fixed loans, LIBOR loans that we swap to fixed rate, and there's a lot that goes into it.
So it's hard to isolate it.
I'd say that, when we think back to the way that we separated our interest rate sensitive categories for illustrative purposes at the last Investor Day, we would have said that 20%-ish ---+ and this is both asset and liability side, so it's a different answer than what you're asking ---+ but that we would've gotten, call it 20% of a change flowing through, and the range was 10% to 30%.
And I think we're probably at the low end of that range right now, but that's picking up both assets and liabilities.
I can tell you also that LIBOR resets seem to have occurred the way we would've expected them after the Fed moved in December.
So the asset side is behaving as we expected.
And it's ---+ a 25 basis point move is not a giant needle mover, in terms of dollars and cents for Wells Fargo.
On a net basis, you're talking about ---+ I don't know ---+ $100 million to $200 million a quarter or something like that.
So all things being equal, which they never are, but that's the order of magnitude.
Yes.
So I wouldn't describe anything as a disruption.
There is sort of two ways that on the sell side that we might be impacted.
One is, are we ---+ how do net long credit are we in our trading businesses.
And I think we managed that really, really well, and it wasn't really disruptive.
And then, there's the ---+ are the markets open, and are we representing clients, and helping them raise money in the high yield market.
And that's been harder to do, given the volatility that we've seen.
Our share is still about the same.
We're between 4% and 5% of US investment banking fees.
That's capital markets activity, advisory activity, et cetera, but it didn't have a big impact.
We were up in the fourth quarter over the third quarter in investment banking fees overall, which you'd expect.
The fourth quarter is seasonally, usually a busier time, M&A activity, et cetera.
But no disruption.
Hey, <UNK>.
Sure.
So criticized oil and gas assets ---+ I can tell you what they ---+ how they changed year-over-year.
They're at, call it [$6.6 billion] at the end of the quarter, up $[5.5 billion] from ---+ so substantially, all migrated during the course of 2015.
And in terms of second lien, it's a small number.
We have a small business called Energy Capital that does some ---+ they're deeper in the capital stack investing, and in our clients and in their properties.
And I want to say the total portfolio is in the hundreds of millions of dollars.
So it's modest.
Think of this is a senior lender, I mean ---+ (multiple speakers).
And the big E&P exposures are senior loan exposures.
I ---+ let me see.
It was 33% at the end of the third quarter, and 38% at the end of the fourth quarter.
So we have an ongoing analysis to look at it ---+ this is a related, but indirect response to that question.
We have an ongoing analysis of all of the MSAs where we've got more than 5% ---+ well, there's two versions of it, so the 3% to 5%, and then greater 5% employment in the energy industry, and we're looking at all of our consumer and commercial exposures in those geographical areas to measure impact, and to think about how we lend money, A, what our balance sheet exposure is and, B, what our new origination exposure looks like.
And it might surprise you that places like Houston, because of their relative diversity of their overall economy are actually performing relatively stronger than some counties in ---+ that represent other basins in the Dakotas, in the West, et cetera.
But we really haven't seen any second order big impact yet among any of them, in terms of our balance sheet exposure.
And we've got ---+ we're on the lookout.
The entire credit organization here is focused on how that might change, but it really hasn't yet.
And then, as <UNK> mentioned earlier, for most of our customers, 98% of our loans and most of our retail consumer customers and our wholesale customers, lower fuel costs mean lower transportation costs, mean lower heating costs, mean lower power costs.
It's not bad for their business.
They're impacted if their customers are employed in the business.
They're impacted if they're selling into the business.
But it's got a net stimulative effect.
And so, we haven't seen a big spillover yet.
Lowest on record at Wells Fargo, 33 basis points is as low ---+ we've looked in the ---+ (multiple speakers)
I've been here 34 years, I've never found it.
Never been lower.
Yes.
So we'll probably talk about this in some depth at our Investor Day, and there's a couple important things.
And one of them is the mix of the assets on our balance sheet today, compared to where it used to be.
So home equity is sort of a going away business, because we've got a portfolio that's been shrinking for a long time.
It's been improving in performance, and it just is not being added for a variety of reasons on a net basis.
And that's unlikely to change.
That was a big source of our absolute dollars of loss in the weighted average charge-off rate through the ---+ leading up to, and through the crisis.
When you think about the residential real estate portfolio here, what we are adding is all high-grade ---+ it's prime jumbo origination.
It's our ---+ they are very safe loans.
I think we've got 4 basis points of loss, something like that coming through that portfolio.
It feels very good.
And while I'm sure it'll change a little bit over time, it's not going to behave like balance sheet first mortgage loans did pre-crisis, because there was just a different appetite for the types of loans that banks might hold.
So I think that's important.
Also the percentage of our portfolio and card business.
We're trying to grow the credit card business.
We like it a lot.
It's obviously got a much more volatile charge-off profile to it, but at $30 billion, $40 billion, or even $50 billion worth of assets at Wells Fargo, it's going to have ---+ if you are comparing us against other banks for example, that's going to have an impact.
And I think those are a couple of the ---+ that contribution to mix is something that you need to have a sense for.
And I think what you'll hear from us when we revisit this at Investor Day, is that our current expectation for our normalized through the cycle loss rate will be lower than the last time that we talked about it.
But probably higher than 33 basis points, but lower than the 75 or whatever we signaled to you two years ago.
And <UNK>, I'll make one final comment.
We do ---+ virtually everything we do on the consumer side is prime.
I mean, we have some near prime, 10% or so or less in auto.
But ---+ and that's a bit of a difference from before.
We had a Wells Fargo Financial in the past for example.
Thank you.
Well, thank you for joining us.
I want to thank all of our team members who serve one in three customers across the United States, and so much appreciate all they do.
Thank you for joining us, and we'll see you in 90 days, three months from now.
Bye-bye.
| 2016_WFC |
2016 | CLGX | CLGX
#It's a couple of factors.
Expenses should trend down in the back half of the year, that's number one.
And number two, it's obviously we've got FNC, which is a higher margin area for more of the second quarter than the first quarter.
And then we have ---+ we have basically our cost management programs benefits as well kind of progress.
Those are the three areas.
No.
It runs through ---+ it still runs through the balance of the year.
It comes down in the fourth quarter, assuming everything goes to plan, and so far so good.
So, we still have ---+ there are still into integration-related costs, everything that's significant undertaking we are dealing with through our major partners there.
We have to also manage to their needs as well.
But everything is going really well.
I think we were, as <UNK> mentioned, we're focused on doing smart deals.
So, nothing major necessarily on the horizon at this point in time.
We are pretty busy right now integrating what we have.
But certainly, <UNK> has done a great job of expanding our powder and I think we have a tremendous capital structure now, so if something really synergistic or valuable appears, we might be able to capitalize on it.
But as of now we are in the integration mode.
If we look at anything, it will be probably product extensions and stuff.
I don't think we are, at this point at least, I don't want to say never or no to anything, but we don't have anything that's significant in our pipeline.
But just around our product offerings are product extensions.
Thanks <UNK>.
I'm sorry can you repeat that, <UNK>.
In terms of the saves themselves, we included the $30 million as part of the full year, we are progressing against that.
And the way I would look at a month of segments, it's pretty equally distributed between the two segments in corporate.
In terms of the investments, those are coming along as planned.
I think you can work with <UNK> on the details.
I think in terms of roughly just some of those as we articulated in the earnings release relate to areas like compliance and information and security, that apply broadly across the Company.
I would say the biggest chunk that would be specific would be the VSG-related, which is obviously all ---+ probably 40% of the total would be related to that.
I think the purchase market is starting to stabilize to some extent.
There's going to be always puts and takes, and the refi activity that's going to be determined by rates, and we don't think ---+ well, there's a lot of people saying that the Fed is not going to touch the rates, but there is also thinking that the Fed could make a rate change at the end of the year.
So, refis are going to be dependent upon that.
But we see solid footing on purchases that's going to only increase with new homes coming in and also single-family renters moving into homes.
I don't necessarily worry about it.
I think with the current underwriting criteria, it's pretty tight.
So, if there's anything, I don't think it's a question of affordability, it is probably going to be a question of how credit capacity is being viewed by the lenders and regulators.
So that's still ---+ has to settle down.
FNC has over 100 lender clients, and those tend to be ---+ there are some large clients, but they tend to be more clustered in the mid and what we call the mid-and-mass market.
That's an area that we've invested behind the last maybe three or four years to build out our footprint in.
It's very symbiotic from that standpoint.
I think where the opportunity lies for us is some of the mid-mass market clients that may or may not use some of our other data sets like flood or credit, we think we can package through the FNC platform more of our content, and that would be, again, a 2017 type ---+ because that requires some technology and some distribution enablement.
No.
I think that was just a ---+ I think you're referring to the FDC [consent agree] towards helping realty track and that seems going according to plan, and I don't think we've had any significant impacts from that.
It's a very minor part of our focus in the market.
Its by product.
What we talked about was the total addressable market that's the $4 billion out there, but we don't certainly cover everything.
But when it comes to AVMs, we have a pretty large share out there with our own product and also with white label products and private label products out there.
So, there is still opportunity in the [hot-to-go pockets], the front end of the appraisal market is a wide open market.
That's where everybody ---+ you can have solutions that control the appraiser's desktop and help them to funnel information into a entity like FNC to go into the lenders.
So, there are area pockets in the areas of growth where we could really address.
It's tough to put a market share out there.
We are trying to figure out all these things, and I think once the integration for VSG is done, we will have a better feel for what other big pieces of the market that we cover, what we want and what do we consider to be longer-term market share opportunities for us.
That's excluding FX.
Correct.
We've factored in a modest ---+ the fact of the matter is that the USD ---+ our viewpoint is that it's trending a little bit stronger.
I don't think it's a material change, but it's a little bit more of a drag than we thought.
As a settlement service provider, we have very strong connections with our lenders out there.
And if they switch software, usually we work with them and ---+ to write databases and data maps to include our products in their offerings out there.
But there's two areas that we work with.
One is with the lenders themselves would request it, if they're switching it from one port over another.
The other area is, we also work with the providers out there.
I think of credit, for example, it's kind of like the deep factor standard with any origination system that you would touch.
So, we do try to work with them on placing our products with good placement.
To the extent that it's incremental in terms of installation, yes.
But most of these things, if they're switching from one provider to another, we are already there.
I think what that meant was standards in the past couple of years were not established out there.
And now we are seeing a little bit, especially with TRID being behind us for a while and some of the other things that they have relationships with.
Whether it's CFAD or other regulatory agency.
They know what's expected of them.
Prior to this, lenders had to make their own guess, so as they do it, there was a lot of information to be gathered about knowing your customer, so to speak.
Now, they know clear standards have been established.
That was the shift a little bit.
I think in the long-term there will be tailwinds for us, because of all the regulatory impacts, because the kind of things that they have ---+ the lenders have to comply with, now it's a lot more than what they had before.
And a lot of those things are going to be served by providers such as us.
Yes.
I think <UNK> can parse out the ---+ there isn't lower pricing.
There could be some mix differences, because within our credit volumes we have auto and we have lenders.
There is some different mix, it could be a mix issue.
But we have not had a price change or price decline.
And just to add to <UNK>'s comments, we are going to have integration costs associated with FNC, but also we will still have some real estate costs as a result of our productivity program there as we are consolidating footprints that will hit in the second half of the year.
I don't think they are one-time costs, <UNK>.
I think the costs we talk about are things like compliance and InfoSec and I think those were in the same boat probably more so than our competitors because of our scale.
We have to invest in ongoing and compliance.
I think that's a strength as I think one of the discussions earlier was about compliance and a regulatory environment.
I think it's our strength and clearly we've benefited a lot the last couple of years, it's like the quality where people are looking at quality vendors and we are certainly one of them, so we have to invest in those areas.
I don't think those are one-time.
The integration stuff is lumpier in one-time, but the InfoSec, that kind of stuff is the cost of doing business.
It may be a quarter that's a little heavier than others, but that's an ongoing in my opinion.
We are focused significantly on raising that growth rate.
As I mentioned, we have a lot of levers to do it.
We are going to fight like nobody's business to get those growth rates up in the second half of the year.
And I think we had a pretty good selling season towards the back half of the second quarter.
Which gives us some confidence level, but it's a little bit uncertain (inaudible) the people are ---+ I think we lose track of the fact that a lot of our clients are spending hundred and millions of dollars on a regulatory environment, and that's sapping in their ability to look at proactive and other spending areas that traditionally they would've done so.
I think having said all that, we have a good product array coming out in the market, we have good traction on our new products and we think that growth rate should come up.
But we will prove that over the second half of the year.
Yes.
That's reasonable, it's about $0.04 or $0.05.
| 2016_CLGX |
2016 | BWA | BWA
#Obviously, the Remy performance second versus first quarter has improved almost 100 basis points, which is, quite frankly, was what we expected given the synergies we talked about when we did the acquisition.
Long story short, what I would say, <UNK>, we are pretty much on track on executing those synergies right now.
I would say, <UNK>, really no meaningful change.
I mean, not to belabor it, but price and environment is always competitive.
It's tough.
But we are not seeing any movement there.
I think I alluded earlier, <UNK>, and maybe you were not on ---+ in terms of quoting activity, we are not seeing that tail off or anything like that.
R&D reviews, technology programs, advanced engineering programs, all pretty much continuing on as is, so to speak.
Yes, we are not seeing any meaningful shift, to your question.
Thanks.
I will take M&A pipeline first, if you wish, and then <UNK> can make some comments relative to the stock buyback program.
M&A ---+ we talked about in recent calls, our primary focus is to do successful integration of Remy.
That is our priority one, and I think you heard from <UNK> and myself that that's playing out well and as expected, so that is moving along well.
We remain active and very interested in additional M&A activities.
I have alluded in earlier calls that our primary focus is around electronics, software power electronics type plays, and we have a number of things moving forward in that space.
Other areas of interest as we have talked in prior calls around valve train and we have also talked about boosting our thermal management capabilities.
We remain active, and if a deal is there for us, we would move forward.
Again, priority one is successful integration of Remy.
Relative to buybacks, <UNK> can give a quick ---+
Yes, buybacks, real quick ---+ our guidance for the year was $200 million to $300 million.
If you took a look at our year to date, which is about $180 million, obviously I would say we are to the high end of our guidance range right now where we are trending, in short.
All right, <UNK>.
I would like to thank you all again for joining us.
We expect to file our 10-Q before the end of the day, which will provide details of our results.
If you have any follow-up questions about our earnings release, the matters discussed during this call, or our 10-Q, please direct them to me.
<UNK>ty, please close out the call.
| 2016_BWA |
2017 | DIS | DIS
#Thanks, <UNK>, and good afternoon, everyone
Excluding certain items affecting comparability, earnings per share were $1.07 for the fourth quarter and $5.70 for the full year
Our fiscal 2017 results came in roughly in line with last year, which is consistent with the guidance we provided in early September, although they were adversely affected by three notable items; first, the impact of Hurricane Irma on our Parks business; second, the impact of canceling the animated film Gigantic; and third, the impact at <UNK>AMTech of a valuation adjustment to sports programming rights that were prepaid prior to the accusation
In aggregate, these three items reduced fourth quarter and full-year segment operating income by about $275 million or approximately $0.11 in earnings per share
At Parks and Resorts, operating income was up 7% in the quarter, due to an increase at our international operations, partially offset by lower operating income at our domestic operations
The impact of Hurricane Irma, which I'll discuss in more detail in a moment, adversely affected total segment operating income by 14 percentage points
Results at our international operations continued to improve, led by growth at Disneyland Paris and Shanghai Disney Resort
Disneyland Paris benefited from the resort's 25th anniversary celebration and a more favorable tourism environment, which drove higher attendance, guest spending and hotel occupancy
Shanghai Disney's operating income growth was due to higher attendance and, to a lesser extent, lower marketing costs compared to the fourth quarter last year
I'm pleased to note that Shanghai Disney Resort generated positive operating income during its first full fiscal year of operations, which comfortably surpassed our expectations of breakeven from its first year
At our domestic operations, operating income was 6% below prior year due to lower results at Walt Disney World, which were adversely impacted by Hurricane Irma, partially offset by growth at Disney Cruise Line, Disneyland Resort and Disney Vacation Club
Hurricane Irma disrupted our operations in Florida, forcing the closure of Walt Disney World Parks for two days and the cancelation of three Disney Cruise Line itineraries and the shortening of two others
We estimate the aggregate impact of the hurricane was about $100 million in operating income, or about a 16-percentage point adverse impact to year-over-year growth at our domestic operations
Operating margins at our domestic operations were down 170 basis points compared to Q4 last year, and we estimate they were adversely impacted by about 220 basis points due to the hurricane
Attendance at our domestic parks was up 2% in the quarter, reflecting favorable guest response to new attractions, particularly Avatar Flight of Passage at Disney's Animal Kingdom and Guardians of the Galaxy – Mission: <UNK>REAKOUT, at Disney California Adventure and the unfavorable impact of the hurricane on Walt Disney World (4:34)
We estimate the hurricane had an adverse impact on the year-over-year change in domestic parks' attendance of about 3 percentage points
Per capita spending was comparable to prior year
Per room spending at our domestic hotels was up 4%, and occupancy was down three percentage points to 84%
So far this quarter, domestic resort reservations are pacing down 1% compared to prior year and reflect reduced room inventory due to conversions and ongoing room refurbishments, while booked rates are up 9%
At Media Networks, lower operating income in the fourth quarter was a result of lower equity income and a decline of <UNK>roadcasting, while cable operating income was comparable to prior year
Equity income was lower in the quarter, due to higher losses from our investments in <UNK>AMTech and Hulu and lower income at A&E Television Networks
With the closing of our <UNK>AMTech acquisition on September 25, <UNK>AMTech's results will now be consolidated within our Cable Networks business
At <UNK>roadcasting, double-digit growth in affiliate revenue and lower programming expenses were more than offset by lower advertising revenue and a decrease in operating income from program sales
The year-over-year decline in advertising revenue reflects lower impressions at the A<UNK>C network, lower political advertising at our owned stations and the absence of the Emmy Awards, partially offset by higher network rates
Quarter-to-date, primetime's scatter pricing at the A<UNK>C network is running 34% above upfront levels
As I mentioned earlier, Q4 Cable results were roughly comparable to the prior year
At ESPN, growth in affiliate revenue was offset by higher programming costs and lower advertising revenue
Higher spending on programming was primarily driven by a contractual rate increase for the NFL
Ad revenue at ESPN was down low-single digits in the quarter, as higher rates were more than offset by a decrease in impressions
So far this quarter, ESPN's cash ad sales are pacing down, due in part to the timing of the college football semi-finals and the impact of more game windows on other linear television networks
Like last year, ESPN will air three of the New Year's Six bowl games during the first quarter
However, this year the two semi-final games will air during the second quarter whereas they aired during the first quarter last year
We remain very confident in the value of ESPN's programming, in particular, live must see exclusive events like college football playoffs and in ESPN's ability to reach key audiences that advertisers covet
Total Media Networks' affiliate revenue was up 4% in the quarter, due to growth at both Cable and <UNK>roadcasting
The increase in affiliate revenue was driven by 7 points of growth due to higher rates, partially offset by about a 3 point decline due to a decrease in subscribers
We completed the renewal of a distribution agreement with Altice, which demonstrates the tremendous value of our networks and positions us well as we head into future negotiations
<UNK>y the end of 2019, we expect to have new agreements in place covering about 50% of our subscriber base
At the studio, results in the fourth quarter reflect higher film cost impairments, lower operating income from television distribution, driven by the sale of Star Wars classic titles in Q4 last year and lower revenue share from Consumer Products
Operating income in our theatrical and home entertainment businesses was roughly comparable to the prior year
At Consumer Products & Interactive Media, segment operating income was lower in the quarter due to a decrease in our merchandise licensing business
While we saw nice growth in the sale of Cars and Spiderman merchandise during the fourth quarter, the growth was more than offset by strong sales of Star Wars, Frozen and Finding Dory merchandise in Q4 last year
During the fourth quarter, we repurchased 33.6 million shares for $3.4 billion and for the full year we repurchased 89.5 million shares for $9.4 billion
So far this quarter, we've repurchased 6.5 million shares for approximately $650 million
With fiscal 2017 now behind us, we are excited for the opportunities that lie ahead for our company, which <UNK>ob will discuss momentarily
As we look at fiscal 2018 specifically, our earnings growth will be suppressed somewhat by a couple of factors
First, the consolidation of <UNK>AMTech and its ongoing investment in the business will adversely impact cable operating income by about $130 million compared to last year
This will affect our Cable results for the first three quarters of the year with roughly half of this <UNK>AMTech related impact expected in Q1. We expect Cable expenses to be up high-single digits for the year driven by the consolidation of <UNK>AMTech
However, excluding the impact of <UNK>AMTech, we expect underlying Cable expenses to be up low-single digits
Second, we expect our share of losses from our equity investment in Hulu to increase by more than $100 million for the year, driven by Hulu's investment in its digital MVPD service and higher content spending
Given the timing of these investments, we expect about $70 million of that increase in equity losses in the first quarter
At Consumer Products, a timing issue related to the recognition of minimum guarantee shortfall revenue will cause about $60 million in operating income to shift from Q1 into Q2. The timing issue stems from the fact that these contracts are measured at month-end, and our fiscal first quarter ends on December 30 this year, whereas it ended on December 31 last year
And finally, we will continue to invest in our businesses in 2018, particularly at Parks and Resorts where we are building two Star Wars Lands
We expect these investments among others to drive fiscal 2018 consolidated CapEx higher by about $1 billion
We continue to see attractive opportunities to deploy capital in a balanced way, whether it's through investment in our Parks and Resorts business, in support of our direct-to-consumer strategy, or by returning capital to our shareholders
We have the flexibility because of our strong balance sheet
For fiscal 2018, we expect to repurchase $6 billion in stock, which is close to what we've repurchased on average over the past five years
And with that, I'll now turn the call over to <UNK>ob
<UNK>, we have not yet finalized what the content spend is going to be and the cadence of it
<UNK>ut as <UNK>ob mentioned, we will be providing more information on that as it develops over the next few months
<UNK>en, to answer your question on the 2018 spend, in my comments I mentioned the <UNK>AMTech investment that was going to impact Cable operating income by $130 million
That's <UNK>AMTech, but on the Disney D2C, we don't expect any significant items to impact spend in 2018.
<UNK>, on CapEx, you see for this year that we gave the comment that you can expect CapEx for 2018 to be about $1 billion above the 2017 level
And once again, a lot of that spend is going into the completion of the two Star Wars Lands and we're also completing Toy Story Land in Orlando and there's other initiatives that are in process around the globe
We've talked about the longer-term menu and I think at some of the meetings we've had, we've talked about the longer-term plans for our Parks and Resort business and developing out further on attractions and resorts
So I think it's fair to assume that we will continue to make investments in areas in which we see driving long-term value and long-term returns
So I would say this is a business that we feel very confident in and the business is working right now at a very high level and will continue to do so
So, <UNK>, on your question on Consumer Products specifically related to Cars
Cars is still a very strong franchise for us
So even though Cars 3, the theatrical release of the movie underperformed and the performance of Consumer Products in this calendar year was a little bit lighter than we would have liked it to be, it's still one of our strongest franchises
And when we talk about some of the franchises that are over $1 billion annually, Cars is in there
And just another thing about 2018, for Consumer Products, we feel really, really good about the lineup we have going into this year
We have Star Wars Episode 8: The Last Jedi
We deferred revenue in the fourth quarter into the first quarter like we did with Episode 7 for that
We also have a Han Solo movie coming out named Solo in the spring quarters
And we've got four Marvel movies including Avengers in the spring
We also have Mickey's 90 birthday
You should mark your calendar for this
It's November 18 of 2018. <UNK>ut Mickey's 90th is something that the entire company's going to get behind and that should also be good for our Consumer Products business
Steve, on the buyback, that $6 billion is a number that as I mentioned is the average over the last five years, roughly the average over the last five years
As you saw both in 2017 and 2016, we came in at a higher level than what we originally started out the year at
So if you want to view that as a conservative approach, we are early in the year, and we'll make adjustments as we go through the year based on the business environment
<UNK>ut once again, we have increased the last couple of years from what we originally started out at
We lost you
So, on the <UNK>AMTech valuation adjustment, that was an adjustment to programming rights that were prepaid prior to the acquisition
And we're not going be specific on it, but it does relate just to one rights deal
And we looked at it based on current performance and the duration of the contract and we didn't think we had enough time to recover the payment so the contract was mark-to-market
| 2017_DIS |
2017 | SNPS | SNPS
#Good afternoon.
I'm happy to report another excellent quarter and with it, another outstanding year for Synopsys.
In fiscal 2017, we delivered revenue of $2.725 billion, an increase of 12.5%; non-GAAP earnings per share of $3.42, 13% growth.
We generated $635 million in operating cash flow, our 3-year backlog grew by approximately $150 million to $3.7 billion, and we bought back $400 million of our stock.
These results extended our multiyear track record of strong growth with 3-year CAGRs of 10% for both revenue and non-GAAP earnings.
Accentuated by upside from hardware and IP, our business became stronger and stronger as we moved through the year, resulting in good revenue growth across all product groups and all geographies.
The fiscal '17 double-digit non-GAAP EPS growth was achieved through both revenue growth and increasing operating margin, even with acquisition-related dilution.
Simultaneously, we further scaled our software integrity solutions with good organic growth, the Cigital acquisition in Q1 and the planned Black Duck transaction announced earlier this month.
<UNK> will discuss the financials in more detail.
As we assess the business we've built over the past 30-plus years and look forward to the next 5 to 10 years, we're enthusiastic about our prospects.
The market opportunity is vast and increasing as we enter the age of Smart Everything.
Synopsys is well aligned to benefit from the emerging market dynamics, and lastly, our financial position and priorities amply support our aspirations.
Let me expand on these 3 elements of our value proposition.
First, the age of Smart Everything or digital intelligence is here.
Following the decades driven by computation and then mobility, digital intelligence is the third major wave of electronics impact.
Week by week, we can see its reach growing, be it through the Internet of Things, automotive, virtual reality, medical devices or industrial.
The need to manipulate massive amounts of data, apply AI through machine learning while guaranteeing security is unstoppable.
All of this is made possible by an insatiable hunger for next-generation advanced chips and complex software developed by our customers.
Second, Synopsys is uniquely positioned at the very intersection of silicon hardware and software.
Our design and fabrication tools are essential for the next generation of advanced chips and systems.
Our growing silicon-proven IP offering reduces risks and speeds time-to-market.
In addition, our software integrity portfolio prevents code flaws from becoming security disasters.
And third, we have maintained strong financial solidity while broadening our company TAM precisely for the opportunity at hand.
Our recurring revenue model lets us consistently invest in advanced product development and support.
We've managed our strong balance sheet and cash flow to enable both consistent stock buybacks and TAM broadening acquisitions.
And we're driving shareholder value through long-term, high single-digit non-GAAP earnings growth.
Elaborating on our market and technical position, let me provide some highlights, beginning with EDA.
With continued silicon and architectural sophistication, the success of next-generation chips is paramount in bringing about big data and machine learning opportunities.
Synopsys EDA continues to enable astounding levels of complexity, resulting in strong demand for state-of-the-art solutions across our product lines.
Even with strong competition and continued customer consolidation, we fared well with growth outpacing the others over the past several years.
We continue to strongly invest in our market-leading digital design platform.
Our solutions has been instrumental in enabling many firsts: the first-ever 10-nanometer production design, the first 7-nanometer tapeout, and now significant activity on early 5-nanometer designs.
The largest ever FinFET design was implemented with the Synopsys platform as was the largest networking processor in the world.
Our digital platform is consistently trusted on the most advanced project and is relied on for more than 95% of all FinFET designs.
Our success is particularly evident in applications such as mobile, automotive, CPUs, graphics and AI-specific processors.
And while we're seeing share gains with customers across industries ranging from networking to storage to sensors, automotive has been particularly strong with 9 of the top 10 automotive IC suppliers enabled through the Synopsys platform.
Notably, as a leading automotive IC supplier, we're growing and displacing the competition.
Meanwhile, the move to smaller geometries continues.
New manufacturing approaches, new materials and new innovative transistor structure require our 3D TCAD expertise to develop them.
In Q4, we announced the acquisition of QuantumWise, whose amazing atomic level simulation tools enhance our ability to model the most advanced next-generation devices.
In custom and analog mixed-signal design, our Custom Compiler and circuit simulation not only demonstrated excellent technical results but saw good revenue growth during the year.
Customers such as MediaTek, Renesas, Panasonic, ST and TDK-Micronas have reported very successful deployments and tapeouts using our Custom Compiler solution, which is targeted specifically at FinFET designs.
Now to verification, which continues to be an area of strength and growth for Synopsys.
We realized a number of years ago that as chips and systems became more and more complex, verification would increasingly be required at the intersection of hardware and software.
Over the last years, while collaborating with market-leading customers, we developed a comprehensive verification platform that excels at exactly that.
In fiscal 2017, our investments have resulted in another outstanding year of growth and share gains.
One example is Samsung SARC, which shows our Verification Continuum, including simulation, formal, emulation, debug and verification IP as the primary solution for the advanced mobile processor design.
Strong customer adoption of our hardware verification products drove another record year as well.
Among high-profile customers presenting at the Design Automation Conference in June, AMD highlighted its use of our ZeBu emulation for early software development and bring [out].
For software, emulation speed is critical, and ZeBu is the fastest solution in the market.
In Q4, we saw another example of the huge potential for our emulation.
A mobile giant faced with verification challenges inherent in software-rich mobile platforms adopted ZeBu, citing its performance superiority.
Turning to semiconductor IP.
We had another excellent year of double-digit growth.
Over the past 15-plus years, we built the broadest portfolio of IP titles and subsystems and have become a trusted partner and market leader.
Our foundry relationships and active drive in standards groups ensure that customers can buy leading-edge products in key technology processes at the earliest stages.
During 2017, we further expanded our portfolio with continued focus on automotive, IoT and security.
We expanded our IoT offering with our new ARC secure IP subsystem for endpoint security and our IoT development kit to accelerate software development for sensor fusion, voice recognition and face detection designs.
We announced the collaboration with Morpho, a leader in digital security and identity solutions, to accelerate deep learning, processing for embedded vision applications.
In Q4, we acquired Sidense, adding one-time programmable, non-volatile memory IP, which is used in automotive and IoT, among other markets.
Our IP group has been a beneficiary of customer consolidation, providing outsourcing options to companies who want to target their limited engineering resources more towards differentiating their project.
Let me next move to our Software Integrity Group, which provides products and services to build security and quality into the software development life cycle and across the entire cyber supply chain.
Customers for these solutions span semiconductor and systems companies, who are embedding considerable software content into their chips and devices all the way to developers of software in industries such as financial services, medical, automotive and high-impact industrial.
Over the past 3.5 years, we've become a clear leader in this emerging high-growth industry.
Since our initial entry with the acquisition of Coverity, we've invested both organically and through key acquisitions to develop a product platform and services to better serve companies deal with daunting software security problems.
As we gain scale and credibility, our brand recognition continues to strengthen.
Gartner ranks Synopsys now as a leader in its Magic Quadrant for application security testing.
During the year, we made good progress integrating the Cigital and Codiscope acquisitions and are now seeing a positive impact on demand.
Earlier this month, we announced the acquisition of Black Duck Software, the leader in testing open source software for known security vulnerabilities and license compliance.
With open source making up 60% or more of all applications, this capability is critical to deliver a robust platform.
Initial customer reaction has been great.
As they recognize the benefits of combining Black Duck's highly respected capabilities with the broader Synopsys offering.
The acquisition is scheduled to close shortly, subject to regulatory review and customary closing conditions.
Our vision and investments are resonating well with customers, and we're excited about the long-term potential of this product group.
Lastly, I've mentioned a number of vertical markets this afternoon.
One key vertical that is going through momentous change and is directly impacted by our end-to-end solutions is automotive.
Let me provide some highlights resulting from our multiyear automotive strategy.
Because safety is still critical, the automotive industry requires certification of products up and down their value chain.
We've significantly expanded our portfolio of products, certified for standards such as ISO 26262, including our functional safety test solution which was certified in Q4.
During this year, we've massively expanded our industry-leading automotive-grade IP offering, including a broad portfolio of interface blocks that meets stringent automotive temperature requirements for the 60-nanometer FinFET process.
In Q4, we extended a multiyear automotive Center of Excellence collaboration with NXP, enabling early software development for next-generation electronic systems.
We're also well recognized in the industry serving as a leader on the Society of Automotive Engineers' Cyber Security Task Force, focused on driving new standards for software security.
In summary, for Synopsys, fiscal 2017 was an excellent year, positioning us well going forward.
We achieved outstanding financial results with revenue strength across the board.
Our EDA and IP products are delivering top-notch results for customers building chips to bring about the digital intelligence, Smart Everything age.
And we're making significant progress in scaling our software security platform and market leadership position.
Let me now turn the call over to <UNK>.
Thanks, <UNK>.
Good afternoon, everyone.
To echo what <UNK> said, our strong finish in Q4 capped an outstanding 2017.
This year's success reflects our commitment to deliver solid financial results in the near term while simultaneously creating sustainable growth and profitability over the long term.
Over the last 3 years, we have continued to expand our leadership in EDA and IP while also broadening our portfolio with our software integrity solutions.
We are executing very well on our strategy, which is reflected not only in the broad-based strength of our financial results but also in the expansion of our Software Integrity business group with the announced planned acquisition of Black Duck.
Based on our recent performance, the strength of our portfolio and the backlog coverage heading into fiscal '18, we are optimistic about our ability to drive sustainable success in the coming years.
As I discuss the financial highlights, all comparisons will be year-over-year, unless I specify otherwise.
We delivered total revenue of $697 million in Q4 and $2.725 billion for the year, an annual growth rate of 12.5%.
Business was strong across all product groups, particularly hardware and IP.
In addition to another record year for hardware, our Q4 results included approximately $30 million of revenue from a large hardware shipment that was planned for 2018 that shifted into Q4.
Our 3-year backlog grew approximately $150 million to $3.7 billion, reflecting very good business growth and the timing of large contract renewals.
We again have a large proportion of 2018 revenue approximately 75% already in hand, providing stability and predictability not often seen in enterprise software companies.
Total GAAP costs and expenses were $605 million for the quarter and $2.4 billion for the year.
Total non-GAAP costs and expenses were $566 million for the quarter, and $2.1 billion for the year.
2017 expenses increased due primarily to the higher costs associated with acquisitions, employee compensation and cost of goods sold for hardware sales.
Non-GAAP operating margin increased to 23.8% for the year, even with the modest dilution from our Cigital and Codiscope acquisitions.
We posted GAAP earnings for the year of $0.88 per share, including a loss of $0.80 in the quarter, reflecting the one-time impact of our repatriation of offshore cash, which I'll talk more about in a moment.
Non-GAAP earnings per share were $0.69 for the quarter and $3.42 for the year, an annual growth rate of 13%.
As I mentioned earlier, Q4 had the benefit of a hardware-related shift, which was the primary driver of the $0.11 overachievement versus expectations.
Even excluding this upside, we delivered annual EPS growth of 10%, exceeding our original target.
We generated $185 million of operating cash flow in the quarter and $635 million for the year.
We significantly exceeded our original 2017 target due to strong collections and business levels throughout the year as well as $30 million received from ATopTech for litigation damages.
During the quarter, we initiated the repatriation of $825 million of offshore cash, taking advantage of our R&D tax credits and resulting in a cash tax rate of approximately 6%.
This resulted in a GAAP-only tax expense of $166 million in Q4 and will drive a one-time cash tax payment of approximately $40 million in early 2018.
Also affecting 2018 operating cash flow is a $65 million one-time payment to the Hungarian tax authority in connection with an ongoing tax dispute.
While we expect to prevail, we are required to make this payment as a condition for continuing our appeal.
We ended the year with cash and cash equivalents of $1 billion, with 53% onshore and total debt of $144 million.
In 2017, we used about 70% of our free cash flow for stock buybacks.
We repurchased $400 million this year and over the past 3 years, have repurchased close to $1.1 billion of our stock.
We have $400 million remaining on our current authorization.
Our current plan for 2018 is to use buybacks to keep share count roughly flat.
Before providing 2018 guidance, let me briefly comment on the Black Duck acquisition, which is subject to regulatory approval and closing conditions, but we expect will close in December.
When closed, we will pay approximately $548 million net of cash.
Due to a purchase accounting deferred revenue haircut of about $25 million to $30 million, Black Duck is expected to contribute roughly $55 million to $60 million of revenue in 2018.
We expect it to be approximately $0.12 dilutive to 2018 non-GAAP EPS, reach breakeven on a non-GAAP basis by the second half of 2019 and be accretive thereafter.
Now to guidance.
Due primarily to an extra week in fiscal Q1 and the profile of expenses, we expect first-half revenues and earnings to be greater than the second half.
Q1 targets are: revenue between $740 million and $765 million, which includes approximately $40 million from the extra week; total GAAP costs and expenses between $625 million and $641 million; total non-GAAP costs and expenses between $560 million and $570 million; other income and expenses between minus $1 million and $1 million; a non-GAAP normalized tax rate of 19%; outstanding shares between 153 million and 156 million; GAAP earnings of $0.62 to $0.70 per share; and non-GAAP earnings of $0.98 to $1.02 per share, including approximately $0.05 from the extra week.
For 2018, total revenue of $2.88 billion to $2.91 billion; a growth rate of 6% to 7%.
Excluding Black Duck, the total revenue target range is $2.82 billion to $2.855 billion.
Other income and expenses, between minus $6 million and minus $2 million; a non-GAAP normalized tax rate of 19%; outstanding shares between 153 million and 156 million; GAAP earnings of $2.24 to $2.38 per share, or $2.68 to $2.80 per share excluding Black Duck; non-GAAP earnings of $3.46 to $3.53 per share or $3.58 to $3.65 per share excluding Black Duck.
Capital expenditures of approximately $110 million; and cash flow from operations of $500 million to $550 million.
As I mentioned earlier, this reflects one-time cash payments totaling approximately $105 million.
In summary, we are executing very well on our goal to drive long-term shareholder value.
We reported outstanding results across the board in 2017 while delivering a high level of predictability with $3.7 billion of backlog and scaling our Software Integrity products with the acquisition of Black Duck.
With that, I'll turn it over to the operator for questions.
So let me start with your first question on SIG.
The numbers you described for SIG is pretty consistent with what we had guided at the beginning of the year.
And yes, we did achieve the goals that we'd outlined at the start of the year.
Second part is we're not calling out the numbers for Software Integrity specifically for next year, but it is consistent with about 20% growth on an ongoing basis.
And Black Duck, separately from that, as we mentioned, is in the range of $55 million to $60 million revenues for 2018.
With regards to 606, we will be implementing 606 starting in fiscal '19, so there is no ---+ that is not factored into the '18 guidance.
Well, RISC-V is sort of in its beginnings, but it is also one processor among many being built right now.
This is aimed, I think, at being a more general-purpose processor and maybe of high interest to some parties.
But many people are focusing right now on the development of AI-specific processors.
And so from our perspective as a EDA and IP provider, it\
Well, I think the answer is yes, yes, yes, because there's no question that the overall global economy has done well, mostly because all regions are reasonably solid.
And so having those in unison tends to help things.
Secondly, there's no question that semiconductor has had a very, very strong year.
And in all fairness, this is after a few years of not being particularly strong.
So these things tend to go up and down, but up feels better than down, no question about that.
And then lastly, and I think that, that is actually the factor that will matter most in the long term, is that this move into this next wave of electronics enabling the very notion that was pooh-poohed in the '90s of artificial intelligence, and now it comes under a set of other names, big data, machine learning, digital intelligence, I like to call it Smart Everything, that will drive a very broad consumption of semiconductors because the amounts of data generated by IoTs and various forms of sensors are growing by leaps and bounds and just think of any camera as being really billions of pixels being generated.
Secondly, this data needs to be manipulated through machine learning, which is extremely compute intense.
And then the machine learning, it in terms get interpreted in the utilization, let's say, inside of a car, for example.
And then on top of that, you need to add one more aspect, which is security.
And security, there's a very, very big component in that, in the software part of our business, but it also will impact hardware as a variety of security modules will get added.
So I think that semiconductor is really at the heart of enabling a whole new wave of impact and, therefore, would stay reasonably healthy just on that basis only.
<UNK> can comment on some of the financials, normally we don't give out specific growth rates on the acquisitions.
And frankly, our first job is to always make sure that the company really lands well and that we can quickly look at what are the upsides for them with Synopsys or for Synopsys with them, that goes in both directions.
Having said that though, I think what is exciting about Black Duck is that they really have grown up and have impact to the whole aspect of software referred to as open source.
And one of the biggest productivity increases, and this is true on chips with [IT], I think it is true on software by virtue of our use of software and open source software is, of course, the fact that you can use software from many sources and assemble it quickly.
There are quite a number of lurking dangers in that, and there's a large catalog of known vulnerabilities.
And when people integrate this open source code material and they don't pay attention to at least the vulnerabilities that are already known, I think that's grossly delinquent when thinking about building secure software.
And so it's just a natural for us as an extension of our focus on quality and security of software.
Rich, the guidance for revenue for Black Duck is about $55 million to $60 million for 2018 and then deferred haircut is about $25 million to $30 million.
As for ---+ <UNK> described the market, SIG, Software Integrity, we're expecting to grow in the 20% range.
And Black Duck has been doing very well.
And then the market demand, the secular trends in that space would drive growth similarly in that range.
My first question is on autos.
You talked about the growing opportunity in autos, and particularly as it relates to ISO 26262 and your role in the IP there.
So could you just talk about how much is the exposure that you have to the auto market.
And what is your opportunity there in both EDA and IP.
It's actually quite a difficult question because we touch many, many companies that are in the automotive space, and we ourselves find it a bit challenging to know exactly what is in the automotive part and what is in the regularly semiconductor deliveries.
Having said that though, the reason I like to highlight automotive is because it is such a poster child for what big changes are happening in an industry that traditionally was very slow in the adoption of any super advanced technology and so many semiconductor technology.
I highlighted specifically the fact that we had invested substantially in automotive-certified IP in FinFET 16 because 3 years ago, nobody in their right mind would have ever associated the word FinFET and automotive.
And today, all of the big providers in that value chain are focusing on that because they need more computation inside of the car.
And so the investments that we've made are not only to provide the tools that are suited for designing and modeling what goes into a car but as you mentioned, that also fulfill the existing standards that initially were all build up really for safety and only now are gradually being evolved towards security.
And those are words that we can certainly deal with very well.
So I think we're well equipped to be a good provider in that value chain.
Got it.
And then the second question is on the Software Integrity side.
I mean, once you integrate Black Duck, the total Software Integrated portion of the business will be larger than 10%.
Do you think, at some point, you will start giving us disclosures separately for the Software Integrity business.
<UNK>, that's a very good question.
That's something we will actively consider as we progress throughout the year.
Our focus in the near term clearly is to integrate that business to make sure that we can drive the growth that we've got planned for the year.
But as we progress, we will look very closely at the amount of disclosure we want to provide, balancing between keeping the information, avoiding competitive issues as well as, on the flip side, making sure the investors get enough insights in the business to evaluate the opportunity.
Got it.
And just one last question on the market share.
You're growing significantly higher than some of your industry peers this year.
Some of the strength obviously throughout the year, you've talked about hardware has been a big portion of the growth.
But when you look at your broader product portfolio, the core EDA and manufacturing, what are some of the areas that you're gaining market share this year.
Well, I'm always careful answering questions like that because often, the claims get out of hand quickly.
We have extremely competent competitors, Cadence and Mentor, of course, are the largest ones.
In some areas, Cadence has been growing a bit faster in digital design.
We have been growing faster in verification.
Things ebb and flow and go back and forth.
But in aggregate, as an industry, we are quite competitive because we have constantly developed technology that's at the leading edge.
And so I think I have nothing negative to say about any of the other companies.
We are all striving to be good providers in a market that right now is doing very well.
And so we've had the benefits of making a number of investments over the years that are paying off particularly well right now.
So <UNK>, actually, it doesn't drive ---+ the hardware would not drive the time-based products.
And keep in mind that we do look at that over time, and it could vary from quarter-to-quarter depending on the nature of the contracts.
Royalties can also fall into that as well.
So there's really no issues within the quarter, and that's not related to hardware at all.
Overall, the business was very strong.
When you look at the growth across the geographies, it crisscrossed different products.
Even across the number of top customers, we had very solid growth.
So there's many number of things that can drive it.
We did end the year on a very strong ---+ with very strong run rate growth, so the business is very healthy.
No.
It's really a function of hardware.
As hardware gets to be a larger part of our business, it changes that mix a little bit.
Excluding hardware, we're running generally in the same percentage as we have historically.
So there's no ---+ there's been no change to the business model with that regard.
A little bit everything you said is true, meaning that there's no question that when your customers do really well, they are little less hesitant in spending money, and semiconductors have been doing extremely well and are expected right now to continue for a bit.
At the same time, the ---+ our solution in the verification space ---+ the overall verification platform, which includes the emulation and the FPGA prototyping boards, has done very, very well.
And this is not completely a surprise but somewhat difficult to predict in timing because it follows what we have said, which is the center of gravity between hardware and software is going to increase in importance.
With more complex software, people want to run the software before they have the hardware, and therefore, they model the hardware, and that's the basis that we're in.
The third aspect I would mention is that our IP business has been very strong, and that is definitely partially the result of continual investment in the most advanced nodes, which is difficult IP to do.
And as you probably know, the advanced nodes keep rolling out at a rapid pace because the providers are very competitive with each other.
And last but not least, the Software Integrity platform so far, I think, is living up to our hope and expectations to be a good pillar for the company that is on one hand, completely adjacent to what we already do, both in terms of technology and complexity and, in many cases, in embedded situations.
On the other hand, it's clearly a fresh TAM for us as we're talking to customers that in the past we would never have dreamed of interacting with.
Jokingly, I sometimes say we now have customers from Samsung to Starbucks.
And the fact is it's actually true, and so that is a very big opportunity space.
This makes for a very long discussion because we are now very, very rich in technologies in this domain, and this is a domain that has been extremely fractured in the past.
And we're already starting to get, I would say, very strong positive feedback from a number of CIOs or people that are responsible for the security of software that being able to interact with a company that has a longevity and some mass gives them a better feeling of security that we're going to be around.
That's just another way of saying there's a lot of work ahead, and we are continually integrating capabilities, but it is after we really understand them well.
And so an integration is really a 2 to 3-year process at many different levels.
Having said that, Black Duck resonates very well with many of our customers, and they understand immediately that doing some automatic checks on software that comes in from a variety of not always understood sources is a good defense mechanism that they need.
And so I think that we will be well-equipped together with them to drive this area forward.
Okay, so let's start with the first one, which is easy, we won't give more detail on the hardware.
We'll leave it as hardware for now.
But we continue ---+ for the year, we actually did very well on both HAPS and emulation.
So as I said, it was very broadly ---+ the business was broadly strong.
As for IP, it's a combination of services and products.
Actually, if you actually did the full normalization, taking into account the fact that we had $30 million that was planned for '18 that shifted to Q4, if you do the math like you just did on Black Duck ---+ and Black Duck, we've got mid-single digit growth on revenues, and we're actually growing earnings per share on a high single-digit basis.
So I think as we've continued to describe, we're really running this business over a multiyear period.
And in this particular quarter, you're getting a very high sense of that because in 1 month, you're seeing a very significant shift in revenues.
And so it's best to look at our business on a multiyear basis.
And if you go back and look at the charts for revenue growth and earnings growth, we've done a pretty good job executing against that.
Well, for starters, we always start to look at this via a multiyear perspective because acquisitions like that, they take some time to integrate, they have haircuts, they have a number of complexities on the financial side that need to be understood on a longer-term perspective.
We have actually a fairly well-honed process of trying to understand the value of the acquisition based on the cash flow that comes out of it over many years.
We don't disclose the exact metrics, but we have a fairly good discipline for that.
We review this for many years after the acquisition with our board, always with some up and some down surprises, which is another word of saying it's always difficult to exactly predict.
But in aggregate, it has been part of how we continue to create value for the company.
And in that context, Black Duck is not an exception.
Our own sense is that this is a particularly valuable acquisition because of the strategic position it fills technically in the portfolio but also because of the very acute value it can create by reducing the risk profile for customers.
So that is the process that we follow.
Nothing is perfect, and I'm sure we can always do better.
But we do have a long-term experience that has worked out pretty well for us.
That's an excellent question because there's so many opportunities, and your commentary is partially correct in that when we did the Cigital acquisition, Cigital was particularly focused on the financial sector.
At the same time, my mentioning earlier of the automotive sector was interesting because those people are just as interested in the issues of security in software as anything else.
There are other areas that are also highly paranoid about what can happen.
Medical is a good example, and you've seen some really horrific hacks happening there.
And so I think over time, no area, no vertical is immune to the damages that can be done by essentially leaving the software doors wide open for hackers.
And so this is going to become more and more a must-do everywhere.
But clearly, the sectors that are most sensitive are also the ones that have been most attacked.
The financial sector, it quickly goes to the bottom line because the attack means trying to steal money, and that brings a very rapid reaction.
So we are prudent in investing in verticals because each vertical requires skills, it requires understanding the vocabularies.
It requires understanding who to interact with.
But I think our opportunity space will continue to grow.
And with this part of our company broadening, we will put some more efforts in understanding what are the best channels to do that.
But so far, I think we've been executing reasonably well.
Well, let me go backwards.
We continue, of course, to always look at opportunities.
At the same time, it's also important to make sure that we execute well on the integrations of the acquisitions that we've done so far.
And while we have a number of teams that are extremely skilled at this, every case is different, and so they take some time.
And what is also interesting is that as we bring new members to our team, they bring fresh perspective.
I'd like to call it fresh DNA that allows us to sharpen how we think about the field.
To be honest, on your TAM question, I sort of read the same reports that most people do, and I'm equally skeptical if the number reflects any reality because when you have a very rapidly developing market, where there are many, many different, very fractured companies, that typically indicates that there's a high need, and that the need is still not satisfied or still in development.
And those are actually all positive words because that's just coming opportunity.
But it also says that adding up whatever these companies have been able to do and then extrapolating is mostly a spreadsheet effort.
And I don't want to be negative when people are trying to forecast because it's important of course.
But from our perspective, right now, the size of the TAM is the least of our issues.
I think we have open space to run with, and our challenge is how quickly can we execute on this, not are there more customers to call on.
There are many more.
Yes.
The numbers that we had discussed for the Software Integrity business was tracking to both revenue and profitability for this year.
And then as far as the getting more updates on the Software Integrity business and the progress there, I think we'll start with the quarterly calls.
That's a good start.
And then throughout this year, as I said earlier, we'll evaluate how best to provide more insights to the analysts as well as our investors on that business.
So at this point in time, first, a big thank you for having reported on us and supporting us during the year.
Fiscal '17 turned out to be a very good year not only from results point of view but most importantly, from the perspective of preparing us for the next few years.
And by now, it already feels a little old, and so we are fully proceeding on working on 2018 and hope to talk to you soon.
As usual, we'll be available for individual calls in a few minutes.
Thank you very much.
| 2017_SNPS |
2016 | GHL | GHL
#Think you, <UNK>.
In the second quarter we achieved a revenue of $90.5 million which is 23% higher than last year's second quarter.
For the first half our revenue was $157 million, up 16% from last year.
Our compensation ratio came down significantly in the quarter resulting in a more normal ratio for the year-to-date even as the absolute level of compensation rose.
Our non-compensation costs were lower in absolute terms than last year's run rate as we had suggested they would be.
Together increased revenue combined with reduced cost levels resulted in a pretax profit margin of 33% for the quarter and 23% for the year-to-date.
As always with us those figures reflect all GAAP compensation and other costs with no pro forma exclusions.
Our effective tax rate was 34% reflecting the regional sources of our earnings.
Our earnings-per-share for the quarter were $0.62 and for the year-to-date were $0.75 reflecting increases of 104% and 36% respectively versus last year.
And our strong cash flow allowed us to retire a portion of our term debt, pay our dividend, repurchase a modest amount of stock and the quarter with an increased cash balance.
I will now provide some color on the market environment, our sources of revenue, and the revenue outlook, and <UNK> will then speak further to costs and balance sheet matters.
In terms of the market environment, it has certainly been an interesting year with extreme volatility and negativity in January and February.
Then essentially a complete rebound and then renewed volatility and negativity in late June around the Brexit decision which again was fairly quickly reversed.
As of yesterday, year-to-date M&A volume, annualized full year volume, and the run rate for number of deals $500 million or greater in size are each down about a quarter relative to last year.
Of course announced deal activity from last year did not turn out nearly as well as hoped given many major deals were blocked by regulators or otherwise aborted.
But notwithstanding those environmental challenges, for our firm everything is playing out as we suggested it would on the last couple of quarterly calls, and we are still on track for a year that we think will look good in absolute terms relative to last year and particularly in comparison to our major competitors.
We indicated in recent quarters that we expect that a strong first half given the background we entered the year with, and that has come to fruition even though completion of our largest 2015 announced transaction was further delayed beyond mid-year.
The comments we made with respect to our compensation ratio, our non-compensation costs, our tax rate, our balance sheet, and our dividend are all also consistent with what happened in the first half and what we continue to expect for the full year.
Speaking of the full year we continue to expect a much improved revenue result versus last year, and that should lead to both a significantly larger compensation pool for our people and an improved profit margin for the firm as well as sufficient cash flow for both our dividend and some share repurchases.
The key drivers of revenue for the year are a strong backlog of major transactions coming into the year, a continued good pace above transaction announcements and new assignments in the US M&A market, increasing restructuring advisory activity, and a continued strong performance by our capital advisory business.
In the capital advisory business, our secondary team at Greenhill Cogent had a fifth consecutive quarter of remarkably consistent strong performance, and we continue to do have high hopes for that business over the long-term.
Partially offsetting those areas of strength is the fact that the pace of new M&A activity has continued to be weaker in Europe, Australia, and elsewhere around the world than it has been in the US market.
Given our long history and strong presence in developed markets outside the US, this continues to be an area of significant potential upside for us when those markets recover.
But notwithstanding the current softness in M&A markets outside the US, our results continue to demonstrate the broad diversity of our revenue sources.
M&A, financing, restructuring and fund placement transactions have all been strong contributors to our revenue year-to-date, and we expect they will be for the full year.
And by industry sector, healthcare, industrials and technology and media and telecom have been particularly active with many other sectors also making meaningful contributions to revenue.
As has repeatedly been the case in recent years, no single transaction nor any single client will account for 10% of our revenue for the year.
I will now turn it over to <UNK>.
Thank you, <UNK>.
Starting with compensation costs, our compensation expense ratio for the quarter was 49%, lower than normal as we followed through on our commitment to bring the year-to-date ratio back to a more typical level.
For the year-to-date, the ratio is 56%.
For the full year, we continue to expect this ratio to be at a level slightly lower than last year while at the same time providing for significantly increased compensation for our key people assuming revenue for the year continues to develop as we expect.
Consistent with our historical approach, we include all GAAP compensation costs in these figures which means that, unlike many of our peers, we include all recruiting, severance, acquisition, and related personnel expenses when discussing our compensation ratio.
Moving to our non-compensation costs, our non-comp costs were $16.5 million for the quarter, similar to the first-quarter figure and again down slightly relative to last year.
We said last quarter that we expected our non-compensation expenses for 2016 in absolute terms to be similar to or slightly lower than last year, and we continue to expect that outcome.
In terms of our non-comp expense ratio, obviously the relatively fixed nature of our non-comp cost structure implies that this cost ratio should come down meaningfully at a higher revenue outcome than last year.
Touching briefly on tax rate, we said last quarter that we expected our effective tax rate to be meaningfully lower in 2016 relative to last year due to our outlook for increased revenue and associated earnings outside the US.
We continue to have that expectation, and the year-to-date figure of 34% is consistent with the range we've expressed as our expectation for the full year tax rate.
Looking at our capital management and balance sheet activity, our dividend this quarter was again $0.45 per share.
During the quarter we repurchased approximately 255,000 shares of common stock and common stock equivalents in settlement of tax liabilities upon vesting of restricted stock units.
The amount and timing of additional share repurchases will depend on how actual and expected revenue develops over the remainder the year.
As we have always said, our goal remains to repurchase all the shares issued in our acquisition of Cogent and thereby return to a flat share count relative to the time of our 2004 IPO.
We are not far from that already today.
We ended the quarter with cash of $64 million and a revolver balance of $55 million, again our usual position of having a global cash balance in excess of our revolver balance.
Now let me turn it back to <UNK>.
In closing I'll briefly touch on two issues.
First on recruiting.
We have recruited four managing directors in the year-to-date.
We are excited about the relationships and skill set that each of them brings.
We may make further additions over the remainder of the year, and we already have a lot of good prospects for recruitment after the next bonus cycle in the form of individuals who are interested in continuing a dialogue on that topic.
Second I felt we should briefly touch on Britain's vote to exit the European union.
Given the focused nature of our business, it should not be surprising that we do not expect to be significantly affected the way firms involved in trading and investing activities might be.
There may be some legal impacts structuring or licensing changes we will need to make, and it is conceivable that the configuration of our headcount across Europe will evolve over time, but none of the potential requirements we can foresee today are likely would be cumbersome or expensive.
The largest potential impact probably relates impact of Brexit on transaction activity in the UK and Europe as I noted earlier, deal activity in Europe has been slower in the US ---+ than the US for some time.
But we have continued to find a reasonable number of good opportunities to serve clients despite that environment.
The quick rebound of stock markets after the initial negative reaction to the vote as well as continuing strong credit marketing conditions in Europe suggest that the impact of Brexit on transaction activity may be fairly minor and short lived.
With that let me close by saying I'm very sorry about the difficulties that our conference call provider had today in making this call work, and I think we are still getting problems right now.
We will post on our website the full script that we just read through for anybody who wants to have a chance to read it.
Why don't we now try to take questions and see if that works well.
I would say most, I'm sorry there's a bit of an echo.
I would say the uptick in energy prices has certainly not stopped the restructuring opportunities.
Many of these problems they companies are facing are pretty fundamental and are not going to be solved by an uptick short term in oil prices.
As to it spreading to other sectors, we do think that for weaker credits, credit market conditions have tightened, and we do expect it will spread beyond energy over time.
I think eventually it will get back to something very healthy.
If you look back over literally decades of data, the UK has probably always been the second most important market in the world for M&A behind the US.
Whether it's culturally or otherwise, companies there see M&A as an important part of the strategy maybe more so than companies in Japan or some other markets might see.
I have no doubt it will come back to health.
How quickly that happens, I would not predict.
I simply was saying that I don't think Brexit per se seems to be having a huge effect in the sense that activity was already slower than in the US leading up to that.
And you've seen with stock markets and credit markets that they've recovered a lot more quickly than any of the doomsayers had predicted before the Brexit vote came out.
I would comment on a few of those things.
I think the desire of many investment bankers, particularly at firms that may be some of the bigger banks, maybe European banks in particular that may be facing some challenge, I think the appetite of people in those places to think about a move is probably higher than ever.
These conversations always take a long time.
There were some that we are right in the thick of now.
It won't surprise me if we add more people to the four we've already recruited this year in coming weeks and months.
But there are also a lot of others where people say I'm intrigued, I'm interested.
Let's keep talking, but I'm inclined not to move at the moment.
Maybe let's think about it after the year end.
Sometimes that can be as simple as a banker may be working on a deal for one of his most important clients, and they don't want to leave that client in the lurch while they go off and do a three-month gardening leave before starting a new firm.
There are lot of factors that go into when a senior banker decides he wants to move firms.
I think the environment is good.
How many exactly we get next this year or next year I don't now.
But certainly we have had and we are in a lot of different dialogues.
I don't think anything as change from what I said before.
First of all it's hard for me to understand you because we are still having troubles with this call, bur I think I picked up the gist of what you said.
No, we're still expecting everything I talked about last time.
I said what I said about revenue expectations last quarter.
They moved up a little bit but certainly not very much.
Yes, we still are feeling quite good about the second half of the year, and nothing has change in that regard.
Hey, <UNK>.
How are you.
On the first question, I think I'd want to harken back to some of the points I made last year over the course of the various quarters.
The megadeals, $20 billion, $50 billion, $75 billion transactions are very, very hard to predict how many of those there will be, and I don't think frankly that's all that indicative of the health of the market or the revenue opportunity for us anyway.
When I think of transactions that I would put in sort of the large category, anything that is much north of $1 billion represents a very attractive opportunity for us.
It is often for a company that is a $10 billion or $20 billion doing a $1 billion or $2 billion or $3 billion deal.
Very often at that size you can be a sole advisor or certainly not more than one in two.
You also have a much better chance of getting regulatory approval almost by definition for deals of that size, and, therefore, you avoid some of the significant challenges that many of last year's megadeals ultimately faced.
For that kind of deal, for sort of the $1 billion, $2 billion, $3 billion, $4 billion deal I'd still think there is a lot of interest in those, obviously more of it is in the US than elsewhere.
A fair amount of it that is non-US tends to be transatlantic in one direction or another.
I still feel quite good about the dialogues we are having for those kinds of transactions.
Impact of the election I think it is a bit of a wildcard.
I think prognosticator's tend to read more sort of extreme reactions into things than ultimately ensue.
If you think back to many things that have happened in recent years, and Brexit is only the latest of those, where people thought well if this happens it is going to really be terrible in a lot of different ways.
Certainly I think everyone has been surprised by how quickly markets bounce back.
Obviously the British currency is down still a fair amount, but equity markets, credit markets, et cetera, calmed down pretty quickly.
I think probably life will go on in America regardless of who ends up winning in November, and Greenhill will be there to help its clients respond to whatever is appropriate to do after that.
I wouldn't want to back you into our revenue figure.
I think ---+ obviously I said what I said about revenue where we had what I think is a very solid first half.
We feel good about the second half.
We certainly have made lots of implicit statements in the script that we think revenue is headed in the right direction.
Unlike, frankly, some of the big banks' advisory revenue and that's clearly just going to lead to both more compensation for our people, which is important but also a slightly lower comp ratio for the benefit of our shareholders than the one we had last year.
We will leave it at that in terms of revenue predictions.
It's relatively ---+ I think from the point of view of a CEO, myself, or even from the point of our shareholders, think it is pretty small and technical stuff.
But I'm sure you've read about the so-called passporting rules in Europe where if you simplistically, if you have a full license to do what we do in one EU country, you're free to work across all of the EU countries.
Like most firms I think we tend to have that passport operate out of the UK.
I think the hopes for everybody in the UK is that will continue to be the case.
I saw Boris Johnson made the comment the other day that he thought that will continue to be the case.
But if it doesn't, you would simply shift your main license to a place like for us Frankfurt.
We have been in Frankfort for 16 years already.
We have several partners there.
It is pretty small and technical changes, which is why I said it's really not anything for shareholders to worry about in our case.
Certainly it is a factor we are pointing out to clients.
But I wouldn't want to draw from just a month any strong conclusions by that.
My observation just on currency moves overall and over the long course of my career is that they don't have a huge impact.
I think you could certainly see and maybe in one big deal out of Japan you did see somebody trying to take advantage of a falling currency.
I think equally I think what's happened in Europe may well lead more UK and European companies to feel like they would like to have more business in the US, and therefore despite the fact that our currency is now more expensive for them, they may live to do acquisitions here.
I think again currency doesn't have a big impact.
It kind of changes the pricing on various specific deals.
But I don't think it will of fundamentally shift the way M&A is working.
I kind of like the way we put it the beginning of the script, which is it's kind of nice to check all of the boxes and retire some of the debt and pay the dividend and buy back a bit of stock and still have a strong balance sheet in terms of cash balance.
I think we are going to continue to strike a balance among those.
We certainly don't have much by the way of scheduled debt repayments in the near-term, so we will continue to balance among those four things.
I think we've always struggled trying to figure out some of the data providers project our revenues.
Sometimes they seem to be somewhat close, and very often they seem to be far off.
I wouldn't look at our business as having had a huge change in mix.
As I said, restructuring had a number of recent years where credit markets were so strong there was very little of that.
And that is picking up.
It is not the kind of thing that explodes overnight, because restructurings tend to have a long time table where you just collect retainers along the way and you get your success [see] quite a ways down the road.
On the capital advisory side, I don't think there's been any meaningful changes.
That business has been quite steady for us over the last several quarters, certainly for the five since we acquired Cogent.
There may be some change in terms of mix of how many deals are ones where data providers can look at a public proxy or something in figure out what we did.
There's nothing we can see on the inside that would suggest why predicting our revenue would be harder or easier than it has been in the past.
I think there are some moving pieces in the guidance we gave.
We've certainly done a good job eliminating some redundant costs we had with the Cogent acquisition last year.
We obviously did not have the professional piece we had last year.
There's FX impacts that flow through and offsetting that, we have the accretion of the earnout as Cogent performs against the earnout criteria that flows through non-comp.
We tried to lay out in the press release.
I would say there are pluses and minuses, but we have been taking all of that into account.
We still come out slightly down relative to last year.
That is also not the kind of thing we are going to update guidance on a quarterly either.
Yes, we're down a couple million in non-comp expenses the first half, and we're not really implying anything about the second half.
We're just not being more specific about that.
As <UNK> said, it is kind of still the same guidance we gave a month ago.
Thank you.
Very well.
Thanks.
I think it's only been a month, so I wouldn't ---+ and we only talk to a limited member of companies about UK transactions at any given time, so I wouldn't put too much stock in what I have to say.
But I don't think things have fundamentally changed.
I think if somebody was about to start an auction of a business in the UK, it wouldn't surprise me if they decided to pause over the last few weeks just to see how markets, maybe particularly credit markets settled out.
On the other hand would be quite surprised if people said I'm going to wait to see how the entire negotiation, which could take two plus years to sort out before making whatever strategic move they have in mind.
You've seen one huge acquisition over there already out of Japan.
That acquisition certainly looked from the public statement like it was welcomed by the government.
I think somebody pausing on a deal at the end of June, beginning of July to see how things turn out would make a lot of sense to me.
Somebody saying I'm going to wait for two plus years to see how it plays out probably is not going to happen.
Being public has worked for as well over 12 years.
It's been I would say even a strategic asset at various times to have the currency to use.
We've done a couple of acquisitions with our stock.
We happen to pay our people with our stock.
Our people as their stock vests can have liquidity.
I think being public has worked quite well for us.
Thank you.
That's the last question.
I just want apologize one more time.
We really had for the first time in 12 years quite a lot of problems with the conference number, and I know it was distorted to some extent from our end also.
Hopefully it was clear on yours, but we will post the transcript or at least the script of our remarks at the beginning on our website for those who maybe weren't able to hear them properly.
Thanks very much and speak to you all in three months.
| 2016_GHL |
2015 | PHM | PHM
#Good morning.
Our comments ---+ this is <UNK>.
Our comments on spec are related to help us with regard to managing production cadence overall.
And it would be on a very limited amount.
We have gotten very, very comfortable and happy with our build to order model, so we're not trying to signal any kind of shift in priority.
We just wanted to let you know we may feather in some additional spec in select communities to give us an opportunity to help even out our production cadence.
I would suggest the margin impact of that would be very minimal.
We are not talking about any significant real change in spec policy.
Yes, so on a sequential basis, actually, our margins are up across all three of our brands as well as a little bit of a benefit from interest.
So no concentrated issue there, just better performance across the entire spectrum.
Hi <UNK>.
<UNK>, this is <UNK>.
I would say absolutely not.
We've tried to be as clear as we can that we run the business based on returns.
Frankly, whether margins go up from here or go down, if we get excellent returns on it, that's the name of the game for us.
Our land priorities are not margin specific.
They are return specific as we look at the 200 communities-plus we are going to open this year, it's all based on return.
I don't think gross margins have trapped us into anything.
We are happy with our gross margins.
We have done a good job with our gross margins.
We are proud of them.
I don't think it limits what we do going forward at all.
And I think you have to appreciate it for returns on what the Company's overall philosophy is.
For us it's related to our overall capital approach.
If we were as focused on land investment exclusively as we were 5 or10 years ago, we might have a little bit of a different to posture here.
But given the fact that we want to be involved in all aspects of capital allocation which we are very convinced over the housing cycle is going to be the best total shareholder return for shareholders has dictated our philosophy.
So, I wouldn't want to comment on what anyone else is doing.
I would just say that we think we are doing a good job quarter in and quarter out in balancing it, and over time we are very confident, it's going to yield the right result.
We have learned our lesson in the past of trying to overdo it on the land side, and we are really pleased with our balanced and prudent approach today.
So I hope that helps.
Just to close that out, <UNK>, it's Jim.
We have talked for a while now about not being so focused on just driving unit volumes and driving volumes for volumes sake and really being more focused on, to <UNK>'s point, about the returns.
And the consequence of the investments and everything to line up accordingly.
Thanks, everybody, for your time this morning.
We'll certainly be around for the remainder of the day.
If you have got any additional questions, we'll look forward to speaking with you on our next call.
| 2015_PHM |
2018 | ROL | ROL
#Yes.
Thank you, <UNK>, and good morning.
We appreciate all of you joining us for our first quarter 2018 conference call.
Eddie will read our forward-looking statement and disclaimer, and then we'll begin.
Our earnings release discusses our business outlook and contains certain forward-looking statements.
These particular forward-looking statements and all other statement that have been made on this call, excluding historical facts, are subject to a number of risks and uncertainties, and actual risks may differ materially from any statement we make today.
Please refer to today's press release and our SEC filings, including the Risk Factors section of our Form 10-K for the year ended December 31, 2017, for more information, and the risk factors that could cause actual results to differ.
Thank you, Eddie.
For the quarter, revenues grew 8.9% to $408.7 million, compared to $375.2 million for the same period last year.
Net income increased 20.5% to $48.5 million, or $0.22 per diluted share, compared to $40.3 million or $0.18 per diluted share for the same quarter last year.
Eddie will provide greater detail on the impact of our recently announced enhanced employee benefits, the tax rate changes and the other financial numbers in a few minutes.
All of our business lines experienced good growth in the quarter, with residential up 8.4%, commercial pest control grew 5.6% and termite and ancillary rose 16.2%.
We are continuing to expand our global footprint and are extremely pleased with the growing international presence for the Orkin brand.
We're accomplishing this through both company-owned acquisitions and our extensive and expanding franchise network.
During the quarter, we announced the addition of 4 international franchises in South America, Europe, the Middle East and Latin America.
All of these locations will offer commercial and residential pest control as well as termite service, where applicable.
The Orkin brand is now represented in 53 countries through 83 international franchises.
In the first quarter, we're also pleased to have acquired 2 additional fine companies in the United Kingdom, AMES Group and Kestrel Pest Control.
AMES, located in Birmingham, has a rich history of providing superior pest control, bird control and specialty services to the commercial customers throughout the Midlands as well as London.
Kestrel, located in the Eastleigh, Hampshire provides commercial pest control services to customers in Southampton and the surrounding areas of Southwest England.
Kestrel will ultimately merge with our Safeguard company.
Important to us is both of these companies share our commitment to continuous improvement in making an ongoing investment in training and employee development.
We're also pleased that the founders and the leaders of these 2 new companies will remain with AMES and Kestrel.
As we continue to expand globally, we look for external opportunities to promote our brand.
To that end, last month, we were privileged to be a gold sponsor of the Global Food Safety Initiatives, GFSI, at the Global Food Safety Conference in Tokyo.
This is a unique annual event and brings together the leading food safety specialists from over 50 countries dedicated to advance food safety practices.
The organization addresses the entire food chain from production to consumption, or as they like to say, from farm to fork.
This year's event had over 1,200 attendees, which was a record, and a number of our existing U.S. customers were represented with our international affiliates: Nestl\u0102\u0160, ADM and Land O'Lakes, to name a few.
We were representing 2 of our brands at the conference, Orkin and IFC, both leading providers of pest management services to the food industry.
We believe that customer engagement is paramount to our success, and this event provided a good opportunity in this regard.
Our presence in GFSI conference provided us with a great opportunity to strengthen relationships with existing customers and future prospects.
We believe that through participation in events such as this, we will continue to elevate our brand awareness around the globe.
Shifting our focus to the U.S. now, we are also pleased to have announced the acquisition of Louisville, Kentucky-based OPC Pest Services.
This leading pest control company was founded in 1972 by the late Lamon Blake and his sons, Donnie and Terry Blake.
I have known Donnie for a long time and have long admired the company he and his family have built.
As a result of their hard work, strong customer values and appreciation for every employee's contribution to their company, they are recognized as Kentucky's premier pest management company.
We're very excited to partner with them and look forward to working together to grow our business while sharing best practices.
We were especially pleased to announce last week, as a result of the U.S. tax legislation, <UNK> will be using part of these tax rate savings to improve our employee benefits.
<UNK> will review some of these details in a minute.
Additionally, we further strengthened our management team during the quarter with a promotion of 3 of our team members, who will be expanding their responsibilities with our company.
In January, Tom Luczynski was elevated to the position of President of Orkin Global Development and International Franchises as well as Assistant Corporate Secretary.
Since 2007, Tom has presided over the Orkin International Franchising Group and has led the company's expansion to over 53 countries.
In January, we also announced that Beth Chandler, <UNK>' General Counsel, has been appointed to the position of Corporate Secretary.
Beth joined <UNK> in 2013 as Vice President and General Counsel.
In 2016, she assumed responsibility for the Risk Management Group.
And last year, the internal audit group was added to Beth's responsibilities.
These moves will provide dynamics between risk, legal and internal audit.
In early March, we're pleased to announce that Julie Bimmerman was promoted to Vice President of Finance and Investor Relations.
Julie joined <UNK> in 2015 as Managing Director of <UNK>' Specialty Brands Accounting and was promoted in 2016 to manage the <UNK>' Finance Department.
Previously, she had worked at HomeTeam Pest Defense, where she served as Vice President of Finance and Corporate Controller.
In Julie's new role, she has added Investor Relations and the <UNK>' payroll group to her areas of responsibility.
Her ascension is a good example of <UNK>' benefiting talent-wise from these acquisitions.
Our congratulations and thanks go to these 3 individuals for the contributions they've made and will continue to make to our company.
I'll now turn the call over to <UNK> <UNK>.
Thank you, <UNK>.
Over the past few months, we have undertaken an extensive review of what actions other companies have taken as a result of the recent U.S. tax code changes.
Many companies chose to give employees onetime bonus ---+ bonuses or similar items that provide a onetime benefit to employees.
As a service company though, we have long recognized that our employees are our most important asset, and we wanted to do something that would have a longer-term effect for them and their families.
We believe our benefit improvements realize that goal.
Effective January 1, 2018, we improved the employee match to our 401(k) program.
Previously, we matched employee contributions 50%, on up to 6% of their contribution.
We now match 100% on the first 3% of their contribution and 50% for contributions above 3%, up to 6%.
As a result of benchmarking with other service companies as well as feedback from our employee survey process, we concluded that an improvement to our paid time off policies was warranted.
Adding one more floating holiday for our team members to use any way they wish was determined to be the best way to make improvements there.
<UNK> has always maintained a strong commitment to education.
And in that spirit, we are increasing the number of scholarship opportunities by 50% for our team members' children.
Each scholarship has a value of $12,000 over 4 years.
Last, we will reward our U.S.-based team members with a onetime stock grant of stock in <UNK>.
These grants recognized tenure and are being given on a tiered basis to employees of 2 to 10 years or more of service.
The stock is expected to be granted in May and will vest in 1 year.
During the quarter, we were also pleased to have announced that <UNK> and Northwest Pest Control were awarded the 2018 Top Workplaces honored by The Atlanta Journal-Constitution.
This was the second consecutive year that <UNK> has received this award and the seventh such award for Northwest.
This honor is based solely on employee satisfaction and engagement feedback gathered through a third-party survey.
The survey measures several aspects of workplace culture, including alignment, execution, leadership and connection.
At our core we are a customer service company, so our track record of success is a direct result of the efforts of the dedicated and caring people that work at <UNK>.
To quote Jerry Gahlhoff, VP of Human Resources and President of <UNK> Specialty Brands, this recognition challenges us to continually raise the bar.
We must strive to improve the work environment and reinforce our culture as we continue to build on our tradition of success.
We were also pleased for <UNK> to have been recognized by Training Magazine as a Top 125 Training Company.
For 12 years, <UNK> has been recognized ---+ excuse me, for 12 years, Orkin has been recognized with this honor.
This latest award recognizes all of the <UNK> Corporation for the quality, commitment and investment in training our people.
According to Training Magazine, the training top 125 ranking is based on a number of benchmarking statistics and is determined by assessing a range of qualitative and quantitative factors, including financial investment in employee development, the scope of development programs and how closely such development efforts are linked to the business goals and objectives.
Thank you, and I will now turn the call over to Eddie.
Thank you, <UNK>.
This is truly a transformational time for our company as we see technology continue to mature, achieve record revenue growth and, as <UNK> reviewed, we're making industry-leading investments in our employees through enhanced benefits as we recognize the difference they make each and every day.
The quarters' organic growth have been in line with our historical norm, but our overall revenue improvements have been strongly fueled by good quality acquisitions.
During the first quarter alone, we had 16 acquisitions for a total of over $40 million.
These acquisitions enable us to continue to become more efficient in our business model and will produce sustained growth for years to come.
There are only 2 other times in our company's history that we have seen M&A play such a critical part of our growth, the acquisition of Orkin in 1964 and the acquisition of HomeTeam in 2008.
I think we would all agree that these have been ---+ that these have worked out extremely well for <UNK>.
For the quarter, all of our service lines showed growth and highlights included: enhancements to our employee benefits program that <UNK> discussed, a significant increase in amortization as a result of multiple acquisitions and the strongest commercial revenue growth in the past 5 years.
Looking at the numbers, the first quarter revenues of $408.7 million was an increase of 8.9% over the prior year's first quarter revenue of $375.2 million.
Income before income taxes increased 3.4% to $59.2 million from $57.3 million in 2017.
Net income rose 20.5% to $48.5 million, and earnings per share increased 22.2% to $0.22 per diluted share, compared to $0.18 per diluted share in the first quarter of 2017.
There are 2 unusual items that impacted the profit numbers compared to the average quarter.
As we noted in our press release last week, the enhanced employee benefits impacted the first quarter by roughly $0.01 and was equated to about $2.3 million, and we would anticipate a similar impact in quarters to come for the remainder of the year.
This is a tremendous use of our portion of our tax savings.
As <UNK> stated, we invest in our greatest asset, our people.
Additionally, the significant number of recent acquisitions increased our amortization for intangible assets for the quarter by 40.8%, which is the highest percent increase since we purchased HomeTeam in 2008.
As a comparison, over the past 5 years, our average increase of amortization of intangible assets year-over-year has been about 5.1%.
Compared to last year, this significant increase also impacted the earnings per share by $0.01, or roughly $2 million after tax, and importantly, indicates a tremendous investment for our future.
If you exclude these 2 items that are unusual, our income before taxes would have been 10.9% improvement year-over-year and income after taxes would have risen 31.2%.
Let's take a look through the revenue by service line for the first quarter.
Our total revenue increase of 8.9% included 4.2% from several acquisitions, of which Northwest was the largest, and the remaining 4.7% was from pricing and organic growth.
In total, residential pest control, which made up 40% of our revenue, was up 8.4%; commercial pest control, which made up 40% of our revenue, was up 5.6%; and termite and ancillary services, which made up approximately 19% of our revenue, was up 16.2%.
Our commercial growth has trended higher over more than the last 5 years, but this first quarter displayed the fastest growth that has occurred during this recent time period.
Our commercial sales team continues to improve through a better selection process of people, enhanced training and continued improvements to our key technology, namely Biz Suite, our customer-facing presenting iPad presentation tool.
Our commercial operations are performing at the highest levels in the industry, and we see this through retention and new sales, especially in the areas ---+ the segment areas of hospitality, property management and restaurants.
We look forward to continued success in this area.
Again, total revenue less acquisitions was up 4.7%.
And from that, residential was up 4.2%, commercial increased 4.5% and termite improved 4.2%.
When you take a look at the quarter, taking out the impact of the foreign companies in currency, in total we grew 8.8%, residential grew 8.3%, commercial pest control was up 4.5% and termite and ancillary improved 16.8%.
In total, gross margin for the quarter was flat to last year at 49.6% for the quarter.
The costs related to the enhanced employee benefits impacted the first quarter by 1 percentage point.
Additionally, administrative expense was higher with the addition of our multiple acquisitions as well as increasing fleet expenses as gasoline costs were up an average of $0.25 per gallon compared to last year.
The quarter benefited from improved efficiencies and routing and scheduling technology, which reduced miles per vehicle by 5%, and also helped to lower service salaries as a percent of revenue.
Insurance and claims were lower than prior year as a percent of revenue as we reduced our litigated exposure.
Depreciation and amortization expenses for the first quarter increased $3.1 million to $16.9 million, an increase of 22.8%.
Depreciation increased $300,000 due to acquisitions and equipment purchases.
And as mentioned before, amortization of intangible assets increased $2.8 million related to customer contracts included in various acquisitions, which reduced our earnings per share by approximately $0.01 after taxes.
Sales, general and administrative expenses for the quarter increased $11.1 million or 9.8% to 30.9% of revenues, up 0.2 percentage point from 30.7% for the first quarter last year.
The increase in the percent of revenue is due to higher administrative salaries and personnel-related expenses due to acquisitions and fleet costs due to increased gasoline prices.
The increases were partially offset by lower insurance and claims expense due to reduced exposure in litigation.
As for our cash position.
For the quarter ended March 31, 2018, we spent $43.1 million on acquisitions, compared to $3 million for the same quarter last year and $30.6 million on dividends, an increase of 22%.
We had $6.1 million of capital expenditures, which was up 12.5% from 2017, primarily from planned IT upgrades and the Northwest acquisition.
We ended the quarter with $84.3 million in cash, down 48.1% from last year.
But as a reminder, we used all cash for our acquisition of both Northwest Exterminating and OPC.
As we mentioned on our Q4 call, we anticipate a significantly lower tax rate for 2018.
Our Q1 rate of 18% will be the lowest of the year, and we anticipate a rate in the mid-20s for the remainder of the year.
As a reminder, the Q1 rate is lower due to the impact of the stock-based compensation plan.
Last night, the Board of Directors declared a regular cash dividend of $0.14 per share that will be paid on June 11, 2018, to stockholders of record at the close of business, May 10, 2018.
This is a 22% increase over the prior year and marks the 17th consecutive year the board has increased our dividend by a minimum of 12%.
I will now turn the call back over to <UNK>.
Thank you, Eddie.
We're happy to take your questions at this time.
We were ---+ certainly, we were impacted primarily due to the snowfall.
The National Weather Service measures snowfall in the top 35 markets, and it was up over 30%.
So the snowfall and weather also affect demand, but they affect our ability to get around and service our customers.
So certainly, we're impacted.
Certainly, I can't say anything about the quarter ---+ the second quarter other than I've been in the business for 50 years and we always have a season [that can] drive you crazy when it starts off like this, but we have no doubt that the pest season will arrive.
This is Eddie.
So just to add on to that.
We try our best.
I mean, you're spot on as far as it impacting actually what's going on, but we try our best to take that away.
And <UNK> and team do a tremendous job continuing to hold the sales folks and the operations accountable to just find other ways to grow and to make sure you're retaining your customers and you're servicing them, even above and beyond the great service that they normally get, to make sure that we don't have ---+ and we reduce our turnover the best that we can to take that out of the picture.
But obviously, when the weather does get better, and it is going to get warm to <UNK>'s point, we hope to benefit from that as well.
So miles driven per vehicle is the measure that we reviewed.
So we've got the Orkin brands on our virtual route management tool, as I think that you know.
And this was part of an offset for our increase of the fleet expense overall.
By reducing our miles, we were able to reduce our gallons used and improve our time in front of the customer, for our technicians.
So we're seeing the maturity come to bear some good fruit for us.
Yes.
I'm not sure if we can use the previous quarter and this quarter and kind of extrapolate out from there.
I would just say that the maturity continues to pay dividends for us.
We've really concentrated on making sure that we're improving our on-time delivery, and part of that has been the use of the routing and scheduling and optimizing these routes.
And our operations have really done a tremendous job really, really almost throughout the entire U.S. I mean we've got ---+ we have over 500 branches and almost everyone is at the market we want to be at or significantly higher.
So we're reaping the benefits of that, and we know we've got more opportunities as this moves forward
One benefit that we have to look forward to is putting our routing and scheduling on all of our brands.
Currently, we don't have it in all of the brands.
And I guess Canada is the next one up, so we should be able to have similar benefits as we roll it out to other brands.
And Tim, the other byproduct that we see of this, as we continue to have a better on-time delivery of service as <UNK>'s group continues to do that, our customers are going to respond more positively to that.
So having the right technician on the right day at the right time at the customer's location because they're running this route correctly, saves us miles but also puts that right technician in the right spot, and we have a better customer experience because of that.
Well, I'll say that ---+ I'm sure <UNK> can talk about the operational side of that.
But from the sales side of that, the 3 keys that I talked about, the continual improvement of the individuals that we're bringing on from a sales perspective, having them use the technology almost without exception, is helping us in front of the customer.
And then the service that <UNK> and team are providing to the customer, they're not turning over, they're staying with us at a higher rate and it's giving something for our sales force to be able to sell better.
And as we talk about the industry in whole ---+ as a whole, unequivocally, we have, by far, the best commercial service that's out there.
And I think that some of our customers are seeing that, that may have had service with someone else that is out there, they're seeing the difference in the service that <UNK> and team are providing.
Yes.
<UNK>, thank you for the question.
The only thing I would add to what Eddie had to say would be that our national account sales team just had a terrific quarter with a 60% sales increase year-over-year.
And so the question is, will that sustain.
That's hard to keep doing quarter-over-quarter.
But I think with the added emphasis and focus those guys have on getting out and hunting up customers has helped tremendously.
So in addition to the field-based sales effort that Eddie referenced, our national account sales group did a great job, and a shout-out to them for that.
And <UNK>, <UNK> opened with talking about some of the international piece of our business, and we know today that's not a big part of our business that's growing.
But things like this Global Food Safety Conference, it puts us in a position to be able to have a wider or more global approach.
And as more customers come to us and they're looking for a global solution, we're in 53 countries and we have opportunities to be able to service from a global perspective.
So in some cases, from an RFP perspective, that's going to knock out a lot of others that don't have that global reach.
So as we continue to spend time and energy there, I think that's going to pay more positive dividends for us and give us more opportunity.
So I'll break that question down.
So when we talk about ---+ when we think about tuck-in acquisitions, we think about 10 to 12 to 15 technicians that we are able to take and put into an existing, say, Orkin brand or an existing HomeTeam brand, based on whatever and wherever they are.
And at that point in time, we were able to tremendously positively improve the efficiency, the density becomes better overnight.
So all of those things get better when we have a tuck-in acquisition.
For us in total, this quarter, with 16 total acquisitions, and I would say 12 to 13 of those were relatively tuck-in acquisitions.
However, the others, the names that you've mentioned there, such as a Northwest or an OPC, we run those as standalone brand.
We see the value in the company that we bought.
And we typically buy companies that are growing at a faster rate than our overall growth rate, which both Northwest and OPC are.
And frankly, they're doing a good job doing what they're doing.
So we're just going to share with them the benefits of opportunities and services, the buffet of opportunities and services that we have as an organization.
We want to learn from them.
We want to steal their good people like we've done with Julie, bringing her onto our team, such as we have with Jerry Gahlhoff, bringing him onto our team to do more.
So there's a lot of other things that happened with that.
But as far as density and efficiency and improvement of margin, the tuck-in acquisitions are going to continue to be able to provide that opportunity.
Did that answer your question.
Yes.
I think that's absolutely ---+ on the radar as we move forward in time.
And we'll go through each one of those.
We'll see what they have in place and see what makes sense as far as routing and scheduling in their individual ---+ company.
And if they have a product that is already working well for them, and then figure out what makes sense as far as the use of cash from there.
As <UNK> and <UNK> just mentioned, Orkin Canada is next for us and we've already started down that path with that, which is going to make a lot of sense for us, and we think we're going to have a good opportunity there.
But these other brands that you mentioned, we'll continue to assess those and we'll figure out where the best place is for us to spend our time and energy and see improvement.
Yes.
If there are no other questions, we'll go ahead and we'll wrap up.
I'm sorry.
We have one.
We have one more, okay.
Yes.
Well, I think that the ---+ if we just looked over our shoulder, the most recent ones, there's family dynamics that are involved.
Some of the family members want the money and some want to continue to work.
We've been very fortunate that we've been able to keep a lot of the principals and the leaders with the company ---+ their company.
Business has gotten more complicated as far as heavy investment in IT, a heavy investment in digital and the Internet.
And some of the companies are really kind of frightened by that.
As they become more sophisticated, you've got to rely more on technology.
And I think that's the turning point for them.
I think the values that they're getting today versus 2 years ago, they're getting more [multiples].
So that's been motivating some of the people that when they see the market improve as far as values are concerned, if they're on the fence, that's kind of the nudge that takes place to cause them to consider disposing of the business.
And we've got a wonderful reputation and that the people stay with us, and that's not the case in most of the other folks that we're competing with.
The retention of our people we acquired ---+ the promotions that the acquired are getting has really, I think, driven a lot of these great companies in our direction, and we're fortunate with that.
I would agree with your statement.
I think <UNK>'s point is, as companies hear about multiples that some other companies are paying, it's getting them think about, okay, maybe this is time, maybe this is something for us to think about.
And then as they learn more about do I go after that biggest check or do I go after an opportunity to be able to take my business and partner with somebody who has done this for a long time and lives up to their word, and that's when we win.
It's the latter one.
We're not going to necessarily be the one to write that biggest check, but we are going to live up to our word and we're going to keep people on that we say we're going to keep on and we're going to have them continue to run the business.
And <UNK> and ---+ Mr.
<UNK> have a track record of that for 50 years.
And I think that's the reason why people continue to come back to us over and over again and say you're the choice for us.
And for us, this quarter, 16 acquisitions, I think that's just a testament to exactly how companies look at that.
Okay.
Well, I'd like to thank you for joining us today.
We appreciate your interest in our company and look forward to updating you on our second quarter and our progress on the next call.
Thank you.
| 2018_ROL |
2018 | NATI | NATI
#Good afternoon.
During the course of this conference call, we shall make forward-looking statements, including statements regarding future growth and profitability, future restructuring charges, estimated tax rate and our guidance for revenue and earnings per share for the fourth quarter.
We wish to caution you that such statements are just predictions, and that actual events or results may differ materially.
We refer you to the documents the company files regularly with the Securities and Exchange Commission, including the company's annual report on Form 10-K filed February 16, 2017, and our quarterly report on Form 10-Q filed October 31, 2017.
These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements.
With that, I will now turn it over to the Chief Financial Officer of National Instruments Corporation, <UNK> <UNK>.
Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining our fourth quarter 2017 earnings conference call.
Today I will begin with an update on our financial performance.
Then <UNK> <UNK>, Executive Vice President of Global Sales and Marketing will share insights into our platform success, and Alex <UNK>, our President and CEO, will share his reflections on the business and outlook for 2018.
Our key messages today are record revenue, operating profit and cash flow from operations, highest quarterly non-GAAP operating margin in 20 years and significant progress toward our operating model.
I am really proud of our strong performance this quarter and for the year.
We believe, our record revenue and operating income are a testament to the value we offer our customers and the dedication we have to our business model.
For the full year 2017, GAAP revenue was a record $1.29 billion, up 5% over 2016.
Our 2017 non-GAAP gross margin was 75%.
For the full year, non-GAAP net income was $160 million, up 33% year-over-year with non-GAAP operating expenses nearly flat year-over-year at $193 million.
A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.
For Q4, revenue was $350 million, an all-time record.
In Q4, revenue grew 6.2% year-over-year.
Non-GAAP gross margin in Q4 was 76.2%, up 40 basis points year-over-year.
Our non-GAAP operating margin was 21%, increasing 280 basis points from a year ago.
Due to the new U.S. corporate tax laws, in Q4, we recorded a net income tax charge of $70 million.
As a result, our GAAP net loss was $24 million.
The adjustments related to the new tax laws are not included in our non-GAAP results.
Q4 non-GAAP net income was $56 million or $0.43 per share, which represent a 43% year-over-year increase.
Moving to the balance sheet and capital management.
We ended the quarter with cash and short-term investments of $412 million at December 31, 2017.
Our capital allocation strategy will remain the same.
During the quarter, we paid $27 million in dividends, and the NI Board of Directors have approved a dividend of $0.23 per share for Q1, an increase of 10% year-over-year.
Our effective non-GAAP corporate tax rate for 2017 was 21%.
And looking forward, based on our current understanding of the new tax laws, we estimate a 2018 tax rate of 17%, subject to the risk of adjustments.
The Global PMI continued to be strong through Q4, 2017, indicative of a supportive growth environment.
Industries such as semiconductor and automotive delivered strong growth, which also contributed to our results this past year.
Now looking at Q4 orders.
For Q4, the value of our total orders was up 5% year-over-year in US dollars.
Included in that total is $4.4 million in orders received from our largest customer, as compared to $2.4 million in Q4 of 2016.
Orders with a value below $20,000 grew 3% year-over-year in the fourth quarter.
As an indicator of the strength of our systems business, we saw all orders over $20,000 up 7% year-over-year.
Now I would like to make some forward-looking statements.
We are optimistic about 2018, based on our market position, the improved PMI and the current trend in exchange rates.
In Q1, we want to continue to deliver on our profit goals, and would also like to increase our backlog to improve efficiency and visibility.
As a result, we currently expect total revenue in Q1, 2018 to be in the range of $305 million to $335 million.
We expect GAAP fully diluted earnings per share will be in the range of $0.11 to $0.25 for Q1, with non-GAAP fully diluted earnings per share expected to be in the range of $0.19 to $0.33.
With these forward-looking statements, I must caution you that our actual revenues, expenses and earnings could be negatively affected by numerous factors, such as any weakness in global economies, fluctuations in revenue from our largest customer, foreign exchange fluctuations, expense overruns, manufacturing inefficiencies, adverse effect of price changes and effective tax rates.
In summary, I am proud of the progress we have made in improving our operating performance this year.
We delivered to our financial goals, and remain committed to further progress in 2018.
I want to thank our employees for executing on our key business strategies.
This focus has delivered significant benefit to our financial results.
Our employees drive the culture and the value of our brand, which has been and continues to be a major differentiator in our space.
Together, we will continue to focus on our growth and profitability goals into 2018.
We look forward to seeing you at the Morgan Stanley Technology Conference on February 26th in San Francisco.
And I would now turn it over to <UNK> <UNK>.
Thank you, <UNK>, and good afternoon.
In Q4, we were very pleased to end the year strong with record revenue and operating income.
Now, I'd like to provide some more commentary on our performance for the full year of 2017, starting with our products.
In 2017, we saw revenue growth across our platform.
PXI and modular instrumentation products had double-digit revenue growth and record revenue for a full year.
We believe our modular approach continues to position us well to capitalize on the tech needs from our customers' emerging challenges, particularly in semiconductor, automotive, aerospace and research industries.
As technology and financial pressures force reduced time-to-market, our open platform and the ecosystem that supports it, helps test teams in these industries meet their objectives with lower incremental cost.
Turning to software.
In 2017, we saw strong growth in new software seats and enterprise agreements, increases in software renewals and double-digit growth in online software sales.
In 2017, we released significant enhancements to our software platform, including the launch of LabVIEW NXG, and introductions of numerous complementary products, that provide a higher-level starting point to streamline our customers' jobs.
Through new software capability and the focus of our sales teams, we have been able to engage at more levels within our customers' organizations, from engineers improving product design and tests to executives driving cost and time-to-market goals.
For example, SystemLink, which we announced at NIWeek 2017, delivers value at an enterprise level, lowering system maintenance cost through remote software deployment, data management and the diagnostics of distributed systems.
In 2018, we will continue to expand the capabilities of LabVIEW and our entire software platform.
Just last week, we released a newest version of LabVIEW NXG, covering more of our automated test customers' needs, including additional support for NI hardware, new ways to visualize test systems and data and improved software distribution.
At NIWeek 2018, we will release new hardware and software to expand our platform, and we will demonstrate these new products through customer examples.
Now looking at regional results.
We saw 2017 revenue growth in all 3 regions and continued strong growth particularly in our Asia-Pacific region.
I want to recognize the efforts of our sales and support teams globally for the strong finish in 2017.
Through focused effort and delivering systems, you played a major role in contributing to our growth and profitability for the year.
Now shifting to industry performance.
I'll start with semiconductor.
Our business in semiconductor performed very well with very strong growth from our semiconductor test systems.
Disruptive technologies like 5G, the Internet of Things and autonomous vehicles are increasing the complexity and time-to-market pressures of semiconductor devices.
With trial 5G service rolling out this February at the Winter Olympics in Korea and initial commercial deployments in the U.S. in late 2018, we expect this pressure will accelerate.
As we continue to work with many of the leading companies making 5G a reality, our software-based modular approach enables us to add new capability to our platform, so our semiconductor customers can keep up with these trends.
For example, our latest PXI source measure unit increases channel density by 6x, increasing the number of parallel measurements using the same space and power.
For semiconductor manufacturers, this creates free capacity by an increasing throughput and helping them to lower their cost of test.
Turning to automotive.
We saw double-digit revenue growth in 2017.
Increased expectations of safety, efficiency and connectivity are driving new technology into vehicles.
NI customers like Audi, Valeo and ALTRANS are demonstrating how the NI platform can be used to validate and test new technologies that will enable advanced driver assistance systems and autonomous driving.
Sensor fusion, for example, will be used to help vehicles make decisions by bringing together inputs from multiple sensors like cameras, RADAR and LIDAR to better describe the operating environment.
By using the NI platform to simulate the real world input into these sensors, engineers can simulate and test multiple drive scenarios in the lab to get reliable and repeatable results.
This test data informs design decisions and helps catch errors before moving into more expensive and time-consuming physical testing.
With software controlling the powertrain, braking, acceleration, charging and hundreds of body and interior subsystems, being able to validate software control before production, is critical to meeting the deadlines and budgets of bringing new vehicles to market.
In 2017, our aerospace business was essentially flat in a market that was challenged from budget delays and uncertainty in U.S. government spending.
In areas like this where budgets are tight, the NI platform is increasingly differentiated.
Our high productivity software, combined with modular and flexible hardware, helps our aerospace customers meet critical budget and timeline goals.
Our success in each of these industries continues to be driven by the NI platform and the strong ecosystem of partners, suppliers and developers.
We are strengthening that ecosystem to enable adoption of our platform in these target areas.
By immersing ourselves in our customers' needs and focusing our efforts, we are providing unique value, leading to shared success with our customers.
I'll now turn it over to Alec <UNK>.
Thank you, <UNK> and <UNK>.
As I reflect on 2017, I am proud of what we accomplished.
Stated simply, we set goals to drive revenue growth and to make significant progress towards our operating model.
And through discipline and focus, we met those goals.
Practically, this meant dedication and hard work at all levels of the company.
And I want to thank our employees and our partners for embracing of this growth mindset.
Some of these changes have challenged us to think and behave differently, and we are seeing the payoff.
Based on the solid foundation within our organization, I believe we have a great opportunity to continue to drive both growth and improve profitability in 2018.
After 24 years at NI, it\
As we head into this new year and also into 2019, top line growth kind of comes as one of the most important asks of questions from our clients.
So I want to get your view on where do you see the most conviction in terms of new orders and new demand.
Perhaps, new spending budgets, so that, that helps us kind of model and calibrate all of the growth opportunities you have for this year.
Sure, <UNK>.
Thanks for your question.
Obviously, we are very pleased to deliver record revenue and see an acceleration of revenue growth in 2017.
And as you know, as a company, our objectives have always been to balance that value and need for organic revenue growth, with delivering industry-leading profitability.
So we're pleased with the progress we've made in 2017 on both those fronts.
Now looking forward, we obviously see some tailwinds that are benefits for our business as we look at the full year of 2018.
Certainly, we've seen a stronger overall industrial economy.
We've seen moves in currency markets that are in our favor.
We see strong operational results in the areas we focus our investments areas like semi, like 5G and like automotive.
So we're very optimistic about the outlook for 2018.
But as we look at Q1, our goal here will be to ensure we're hitting our profitability goals.
And that we're taking advantage of opportunity, perhaps, to raise some backlog and build some visibility for later in the quarter ---+ later in the year, excuse me.
Perfect.
Quick follow on for <UNK> would be on the margin targets.
Any updates and thought process on heading towards the margin goals for this year.
<UNK>, yes, we're not changing the operating model that we talked about in NIWeek in May of '17.
So continuing to focus on the leverage model that we laid out and driving those goals as we stated at that time.
So no change at this point.
We'll be happy to (inaudible) 2019 at NIWeek in May.
Alec, <UNK> and <UNK>.
I guess, first on housekeeping side, number of employees, actually in the quarter, and average order size.
<UNK>, we ended the year with about 7,400 people, 7,412 to be exact.
It's down almost 2% year-over-year.
And average order size in Q4 was $6,100, up 5% year-over-year.
Great.
And I guess, <UNK>, if I look at the midpoint of the revenue and EPS guidance from March quarter, it would seem that your forecasting OpEx increased sequentially, although lower than revenue.
And then I would guess a step down in gross margin sequentially, perhaps, on basis points or more.
So I guess, am I kind of reading the tea leaves correctly.
And then, while you address the OpEx trends in Q1, could you also, perhaps, speak to what you're budgeting to for headcount trends in 2018.
Sure, <UNK>.
As we're looking at the Q1 model, we've got a 7% growth built in at the midpoint of our guidance for Q1, which continues that growth trajectory that we saw coming out of Q4, 2017.
We're building in a headcount model that stays relatively flat for the year and aligning areas with the areas of growth for the company in 2018.
Okay.
And then, <UNK>, you spent quite a bit of time in the prepared remarks on software and progress that you've made in your platform, especially, with NXG launch last year.
Can you remind us the percentage of revenue contribution coming from software currently.
Yes, again, let me comment on our software business overall.
I mentioned it, as you said, in the prepared remarks.
Really pleased with a strong quarter and strong year for software.
If I look at key indicators like we've shared before like seat growth, it was the best growth we've had in software seats in over 5 years.
So really pleased with that.
NXG was both a successful for and also a reason for us to engage our customer base, both new customers that can come onto our software platform as well as existing customers and we can add value.
So we saw strength in areas like renewals and areas like enterprise agreements that indicate good adoption from our existing customer base as well.
So overall, a really good quarter and a good year for software for 2017.
And the percentage of revenue coming from software.
Overall, software, including the services that go along with it, is somewhere in that 20% range, <UNK>.
And that continues as we enter 2018.
Okay.
And then just last one, on 5G, we've had some competitors speak to near triple-digit order growth in the 2017 time frame off of a healthy but low base.
You spoke to increased pressure on semi customers and commercial rollouts that are on the horizon next in 2018.
So I'm curious if you could speak to whether you're seeing similar growth in orders for your 5G business.
And are these orders longer term in duration, and perhaps, contributing to your goal to raise backlog and visibility for later in the year.
Yes, let me, let me, let me comment on 5G, a little bit of color and come to your question.
So first of all, as you know, <UNK>, we've had a lot of success, and we continue to monetize the research and prototyping part of 5<UNK>
I believe that you'll be at Mobile World Congress in March.
You'll see a lot of examples of that prototyping and research area.
And that positioned us very well, for what will ultimately be the larger opportunity which is in test systems.
At this point in time, we're deeply engaged with lead users on these test systems.
There's a lot of unsolved technical challenges in how to test these 5G devices.
And so that Lead User work that we're doing with you is very, very important.
From a ---+ and by the way, I should say that we think our platform has lent itself very, very well for that.
The software content of our platform and the modularity of it, at this point in evolving standard, those are really important attributes and something that's changing pretty rapidly still at this point in time.
As we look forward in kind of characterizing the opportunity going forward, we think that 2018 would be a year where we start to see initial design wins in the testing of semiconductor devices.
And that the scale of that is going to be, when it comes to sort of volume, will be a few years off still, when that becomes a more significant part of our revenue opportunity.
And that's not a big ---+ you asked the question specifically about backlog, that's not a big factor in that particular area.
Okay, that's helpful.
Just last question would be on that ---+ with the first drop of the 3GPP standards [extend] a year, and we have the Release 15 coming up mid-year, have you changed ---+ or have you seen any change in order flow or an increase in order flow post some of these standards releases or I guess add to the bigger one later this year.
No, not at this time.
I think our outlook remains consistent with what we stated in the past.
Rick.
This is <UNK>.
There was significant growth in the orders over $100,000.
So kind of double-digit look there at 13%.
And so as we continue to shift towards a system solution and the customer focus that we have in the growth areas, we're seeing that payoff in that space.
Sure.
Rick, this is <UNK>.
Let me take a shot at that.
So certainly the over $100,000 is across a lot of different industries.
Certainly, our STS business does fall into that category, but so do a lot of complex automotive test systems and other areas of, our PXI modular instruments business, for example.
I will just comment a little bit on semiconductor, just to put a little more color on that, because we highlighted that as a big area of success.
And it's ---+ as we've stated before, [we're used] across the flows, so it goes from characterization and validation applications all the way through people using our platform to build their own production systems through STS.
And we saw growth across all of that.
Now to your question about $100,000, quite a few of those systems fall in that $100,000-bucket, even in the characterization laps of an RF component, that's certainly going to be a system that would fall into that category.
So it is becoming a more broad part of our, may be, call our systems business across different industries.
Sure, Rick.
If I look at Q4 '17, it was about $5 million.
And it was up from roughly $3.5 million a year ago.
As you know, we have a very good relationship with our customer in a broad set of applications.
It is always tricky at this time of the year to know exactly how the revenue stream from that customer will come forward.
It's much generally clearer in April than it is in January.
But broad scale expectations, I don't anticipate having a significant impact on our overall rate of growth in 2018.
Yes, <UNK>, certainly, you know, my standard answer to that question at this point is that everything we know is contained in guidance.
But when we look at factors that influence our outcome.
Those that are under our control we feel really good about our position, and those that are external are certainly tending towards the positive.
And so when we look at the midpoint of our guidance, it is for an improvement in revenue growth, obviously it went from Q3 to Q4 to Q1.
The midpoint of earnings is a 25% EPS increase or so year-over-year, which would continue to (inaudible) saw in last year.
So we're feeling pretty good about the business.
And I think, it's prudent at this point in time to potentially be planning to increase our visibility as we move later into 2018.
So we will be talking more about that in April.
Rick, I'll take that.
This is <UNK>.
The goal of the business is to continue focusing on the areas that drive our growth and profitability.
So we will always be looking at how to rebalance our resources throughout the year.
We look at factors like attrition, performance management, and if necessary some restructuring.
That's all baked into our Q1 guidance, and the savings that we are receiving from the actions that took place in 2017, are all built in to the operating model and will continue to execute that operating model as we laid that out in May of '17.
Correct.
Where we're rebalancing it all the time.
Certainly that operating model obviously for 2017 delivered significant operating leverage.
And it implies significant operating leverage at mid- to high-single digit revenue growth for 2018.
And we are [flat leveraged] to help our gap in our operating profitability.
And as we said our goal is to bridge the remainder of that gap in 2018.
Thank you, very much, for joining us today.
Just reiterate, an invitation to our Investor Conference at NIWeek in May.
We look forward to seeing you there.
Thank you.
| 2018_NATI |
2017 | CUZ | CUZ
#Clearly, we are trading below $10, which kind of puts that on the table.
We're not at $2 or $3 or $4, which would absolutely put it in front of the table, but that's a decision for the Board.
We talk about it, if that's something we decide to pursue, we will be transparent with you all going forward.
<UNK>, included in our 2017 guidance is a range of between $1 million and $3 million of additional lingering transaction costs that will run through our 2017 numbers.
I would say Atlanta continues to have strong demand.
We haven't seen any dip in terms of lease volume.
The total square footage leased in the city in 2016 is a little lower than it was in 2015.
But just like on the lease we just executed with WestRock, we continue to see good opportunities in the best buildings near transit to drive good results.
In terms of Avalon, usually when we do a building like this, our goal is to be sort of in the 40% to 50% leased range when the building opens, because particularly in a mixed-use environment like Avalon, a lot of it is letting people see it so they can understand the true value offering that we have there.
And I'm confident we will be in that range by the time we open it.
The pipeline looks really strong, and we're feeling pretty confident about where 8000 Avalon sits.
Good morning, it's <UNK>.
In terms of the taxability of those two asset sales, and whether they would require a special distribution on our part, the answer is currently, no.
We don't anticipate either of those sales generating the requirement for special distribution.
<UNK>, this is <UNK>.
We continue to see some build-to-suit opportunities.
Not anything that we can see on the very short-term horizon, but those things pop up, usually where you know a quarter or two in advance, and you're pursuing them, and you have a little bit better things.
We don't have any visibility on anything in our portfolio that I would put in that sort of short time frame.
In terms of the acquisition market, as we look both within our own portfolio in cities, as well as future cities we look at, it is the importance of our balance sheet strategy.
If when we start to see markets that meet our standards in terms of where we want to be, we also want to be patient and make sure we buy assets at the right time to get the kind of results that our portfolio demands, and that is the reason that we are, as <UNK> said, keeping our powder dry.
<UNK>, it is <UNK>.
A lot of the transaction costs went on Parkway's books at or before the time of the merger.
So, you won't see the full $85 million show up through our numbers, because it is a combination of our expenses and theirs.
But when you combine the two together, we believe that the total transaction costs are going to come in right around $85 million.
I think we're going to hit that number.
At exactly $0.06 a share per quarter.
We will relocate this summer to a Cousins-owned building.
3344 in Buckhead.
Raleigh-Durham market is one that we have looked at.
I wouldn't say it is on the top of our list going forward, for various reasons.
So, I would look at the Carolina Square as more of a one-off opportunity, although that always can change as cities change and demographics change.
But it would not be on the top of our list.
Thanks, <UNK>.
We, as always, appreciate your interest in our Company.
2016 was obviously a fantastic year, and we are optimistic as we look forward to 2017 and appreciate your continued interest.
If you have any questions, as always, the management team is available, and just feel free to reach out.
Thanks so much.
| 2017_CUZ |
2016 | UNFI | UNFI
#<UNK>, that is going to be ---+ there will be a reconciliation of that on the website that should give you the answers to your questions you're looking for.
Yes.
That is one that I just cannot win at, so we're going to stay away from that one.
We are pretty confident in that team, and we obviously get the benefit of new store openings.
But I wouldn't want to comment any more than that.
Our distribution program covers 365 and Whole Foods stores, yes.
No, we do their private label today.
Thanks, <UNK>.
I do not think we can answer that, unfortunately.
I think that we need obviously to get back onto a sales growth.
You look back at UNFI's last five years, 2015 included in our compounded annual growth rate was over 15% or right around there.
So we have got to get back on our historical growth rate.
Maybe it might not be that high, maybe it is that high, I am not sure yet.
But first and foremost, I think we have to get back on a growth trajectory.
Promotional spend tends to be lumpy, so sales fall off, maybe the promotional activity falls off.
there is always a timing difference between what happens in the promotional activity and what happens in the sales.
So at some point, somebody wakes up and says well hold on a second, we are not growing in channel X, we've got to get back to promotion and lo and behold we get promotional activity.
So I don't think we could give you any specific color on when and how, other than that activity tends to be, like I said, lumpy over the course of the year.
But first and foremost, we're focused on getting our sales trajectory back, and believe that based on the infrastructure, that we will do it.
I think we have a general idea of what that number is, but again, it is not something that we're going to want to publicly disclose.
And the other part of that is, that we have markets that have more capacity than others.
Sometimes you can't pick and choose.
But generally speaking, we get an opportunity, we're going to take it.
Thank you.
I don't see it as a sales issue, as much as it was a margin issue.
Because certainly, if you do the math and you back out a customer loss and some of the things that are happening within our current customers, the growth was while not quite at industry growth, it was still pretty strong.
It is really more of a margin issue associated with promotional activity, lack of inflation, Canadian FX, certainly competitive pressure at the retailers, and fuel.
I would say those are the primary drivers, and they all hit us at once and it is just a matter of working our way through them.
I do not think the competitive nature of distribution is changing a lot, it has been competitive for a long time and it will continue to be that way.
I think what hurt us was more the margin issues than anything else.
Again, this is opinion, not fact.
So but it is my view that manufacturers will go to where there is growth, and they will promote where there is growth.
So for example, the natural industry has been growing at a slower rate than let's say mass or conventional then perhaps they might make the decision to promote more heavily in those channels than they do in natural.
But and to the comment that I made earlier, some point, somebody's going to wake up and say, wait, we do not have any growth in natural.
Our challenge to be more further indexed across a wider range of channels than we are today.
That would make us less susceptible to these pretty significant shifts.
I think you have said that right.
It will have an impact on this year, but not enough for us to change our guidance, so we will not be doing that.
And as far as next year, and we have not provided guidance for next year yet, but certainly as we do, that will be included.
Yes, it was really a juxtaposition against Q2 where they were lower than we expected, so those comments were really about the operating income expansion in Q3 and Q4.
It is yes to all of the above.
It is the newly organized sales structure.
It is M&A, it is looking at new channels of growth for us where we historically haven't played.
So I think it is a variety of things, <UNK>.
I think when you look at fuel surcharge and FX, year over year, Q2 we had a headwind between the two of about 30 basis points.
If you look at it sequentially, it was probably about 12 basis points between the two of them.
As you look forward to the second half, if fuel stayed where it is at from a surcharge standpoint and FX stayed where it's at, you'd probably have about a 15 to 20 basis point headwind over last year for the second half on those two items.
I think it is ---+ Tony's is a business that is doing extremely well for us, great acquisition, a ton of terrific people.
As we have said earlier, we have moved the Tony's product categories into our Denver warehouse, and I referenced that in my prepared comments.
I'm very optimistic about what is taking place within that facility, and certainly now with what is going to take place in Florida.
Certainly, the reorganization will help us identify for example [protein] and related opportunities in more historical UNFI customers in the West, and the same thing for historical Tony's customers with natural organic in the West.
So I would say I have been doing this a long time, and Tony's certainly ranks up there as one of the better acquisitions we have ever done.
We are seeing deflation on the meat side, and that is certainly impacting the overall results.
But that business has been able to maintain its bottom line, despite the deflation headwinds that they have faced.
I am not sure I follow that question.
I think it is yes to both.
The idea of the acquisition certainly as it relates to Global is to move a much wider array of fresh into the Florida market, as well as give us the ability to attract other fresh customers throughout the Southeast.
In the case of Haddon House, it is adding a much more robust line of gourmet ethnic categories of products and brands that we can deploy into other markets and into existing UNFI customers.
I cannot comment on Whole Foods, I can just tell you that in our world, all of our things that do not touch the customer today are centralized.
Inbound logistics, the way we manage our fleet, and so on and so forth.
But what we are changing is the touch point to the customer and essentially bringing the customer closer to the decision maker.
So instead of the customer having to deal with four or five different entities within UNFI, in the new world, they will do with one or two.
That is a good point, that's an important point.
That our procurement and fulfillment is already centralized, and that is not changing.
We have got a lot of activity taking place, but we think it is a little bit of a strategic decision on our part not to disclose where it's going next.
Obviously, we are deploying into Florida, we have already talked about deploying into Denver, but we're not going to talk about where we're going to actually go next or be next until we are there.
It's hard to know.
We've got folks that are eagerly working on that, and certainly if it is material or we are in a position to announce it.
But we are optimistic, like <UNK> said earlier, we like the customer pipeline and we certainly like the M&A pipeline.
Today, we have a national financial suite, but there is a lot of work we could be doing in terms of shared services.
We've got plenty to keep us busy on the warehouse side from a technology standpoint.
So that is going to be at least, well I would not want to comment when it's going to take place but it certainly is some of the work we need to do.
It would be ---+ I cannot really comment on that.
We're looking at a wide variety of companies, I would tell you that most of them are not going to be the size of Haddon House.
Haddon House was one of the larger ones that was out there, Tony's was certainly larger, so anywhere from Haddon House down I would say.
Thank you everybody for joining us today.
Our long-term vision for UNFI remains unchanged.
Build out the store and provide our customers and exemplary experience centered around product offering, service, logistics, supply chain, scale and cost.
We look forward to sharing more detail around our outlook towards the end of our FY16.
Thank you for joining us this evening, and we look forward to seeing those of you attending Expo next week in Anaheim, California.
Thanks and have a great night.
| 2016_UNFI |
2016 | TXRH | TXRH
#<UNK>, this is <UNK>.
Most of our negative mix is related to really three areas.
Two of those are beverages ---+ soft beverage and alcohol ---+ and then on the appetizer side.
So, it's a little piece from each one.
That's pretty much the big driver of the mix.
Hard to say why.
Alcohol, is it because the prices continue to rise for alcohol relative to the cost of entrees.
Is it because of DUIs or people being more careful.
We don't know.
And same thing on soft beverage.
Is it because the prices continue to rise for those items.
Or negative news on soft drinks in general.
We really don't know the answer to that.
But, again, you are talking relatively small changes relative to the size.
Same thing with apps.
Apps are very small change in mix but all of those things added together make up that difference.
Yes, I think in-bev needs a little more money from us to pay for all their debts for their recent merger.
But that's my opinion.
I think those guys just volunteered, and they are a pretty close in market, at least geographically.
So, a combination of the two.
Easy for us to keep the guests, I guess you could say, contained, and who has got the app and who doesn't in that particular market.
And they were more than willing to help us test it because any time you test something like that there's inevitably some bumps along the road, along the way, so they were kind enough to let us work with them on that.
I thought they put a blindfold on <UNK> and he threw a dart at the map.
So, I'm now educated, as well.
I would tell you, <UNK> ---+ this is <UNK> ---+ I have no idea on the demographic makeup of our guests.
This is <UNK>.
I don't really see a huge difference in what I see in our restaurants as far as both young and older folks.
Older folks typically come in a little earlier in the evening, maybe take advantage of our early bird deals from 4 to 6.
And then you will see a little bit younger audience later in the night.
And the fact that our traffic and sales are up, I don't think we are losing either one.
I think we're over 6 million, I want to say, names in our email program.
And our restaurants can do individualize communications to the folks in their respective trade areas.
I wouldn't say it's a big driver of our sales.
I would tell you ---+ and it's always been this way since day one ---+ operations is our best marketing at Texas Roadhouse.
We are an operations driven company.
We focus as much on the guest getting a great experience, not getting cute with messing that up, and supporting that with very relationship-driven local store marketing.
That's one reason why we don't have a traditional loyalty program that involves discounting our food and so forth after a certain number of meals or whatever.
We think we give people a great deal every day they come visit our restaurant.
That's probably not going to happen in 2016 because we had a wage and hour settlement deal that hit our G&A line.
I think with without that we might have a chance to see a little bit of leverage on G&A.
But on a reported basis probably not.
This is <UNK>.
We actually currently have three different prototypes for Roadhouse.
So, we already choose A, B or C depending on the market.
And, like I said with Bubba's, we just experimented with a smaller prototype there.
So, we're actually already doing that.
This is <UNK>.
It's just short of 120% on the hourly basis, which we are absolutely not happy with.
And that's quite a bit higher, 20% higher than we were three or four years ago.
We can make all sorts of excuses ---+ tightening labor market, lower unemployment, so forth and so on ---+ but, at the end of the day, it's just unacceptable.
And we're definitely talking about it internally and challenging ourselves as being a great place and the best place to work amongst our restaurant peers, and looking at ourselves in the mirror.
So, we've got some work to do on that.
And with that kind of turnover change, absolutely positively that impacts our labor costs.
Just the number of employees we do have and the amount of time we spend in training, which is longer than many folks, that's a pretty big cost to us.
I can't recall from the last Olympics.
My guess is probably more people stay home to watch the Olympic games because it is once every four years.
And maybe because it's in Rio, more of the stuff is prime live, if you will ---+ you are seeing it live.
So, I don't know, but, fortunately the Olympics are only for a couple of weeks, if they do impact your sales, and it's only every four years and not every year.
So, I guess we can look at it that way.
And if it does we just get to lap it next year and get to tell you guys we had better comps because we lapped the Olympics.
This is <UNK>.
I will tell you, our sales were a bit stronger in July than they were in June, and the Democratic and Republican conventions were in July, so go figure.
This is <UNK>.
I like what you are saying and why not.
I will let <UNK> have a more serious answer.
I agree with that.
I think if folks do move away ---+ and there is a material difference in what moving away means from price point advertising and discounting ---+ absolutely I think it strengthens our value proposition overall.
Hey, <UNK>, this is <UNK>.
I would tell you I think it's easier for us when it's minimum wage related and that's impacting everybody in the same way.
We have typically taken a little bit more pricing.
It's a little tougher when it's commodities because those impact everybody differently.
Some years for some concepts they had very little inflation and we may have a ton of inflation if it's all beef related versus wheat or some other commodity item.
So, I think it just varies.
And then the Department of Labor reg stuff will vary depending upon what approach you take.
And you can definitely take approaches to absolutely minimize the impact.
There are different things that you can do.
Or you could take an approach and show a little bit more love to your folks and what-not.
I think if we're taking a little bit more love for our folks, we may not just use that as an excuse to take pricing because a lot of our competitors may not take the same approach, if you will.
So, to make a long answer a little bit shorter, minimum wage, probably a little easier to take pricing.
Commodity inflation, I would tell you a little bit tougher.
It could be based on the labor pressure that we have.
However, we will always take advantage of an environment if you've got food cost deflation because, again, people talk about pricing power.
We never assume we have per se pricing power because you just cannot take anything for granted.
And, as you know, from being on all the other calls, all the other competitors in the industry, nobody is standing still, and everybody is pulling different triggers and doing different things in their respective chains, whether it's reinvesting in their food quality, their labor standards, remodeling, and so forth.
So, you just can't take your competitive positioning for granted.
You've got to continue to act like you cannot take any individual guest for granted and treat your pricing actions as such.
I don't think our Department of Labor changes will influence our pricing decisions.
I think those will be more influenced by just other wage rate inflationary items, whether it's the overall strength of the market from the hourly perspective, that's where the bigger dollars are, and then specific state minimum wage actions is also where the bigger dollars are.
And depending upon how much of all of that is offset by food cost deflation, will have a greater impact on where we take menu pricing actions and what specific items we touch or don't touch.
And more happy faces.
Anyways, thanks.
| 2016_TXRH |
2016 | A | A
#Thanks.
Glad to address both of your questions.
On the NIH front, I think when we talked about the uptick and our improved confidence about the spends in academia and government in the US, I think we do think that the NIH stuff will start to flow through to our business.
Relative to some in our space, we don't have as high a percentage of our business tied to the NIH, but it will be a positive for us.
And I think, again, one more fact pattern, which points to continued view that this market will be solid for us as we move into 2017.
I think I'd have to agree with the comment, which is, I think it really is too soon to get overly excited about this from a US spending.
I've seen this before, where the legislation is announced, and there's a lot of fanfare about it, but we don't always see it backed up by investments.
We are seeing some ---+ looks like some maybe more friendly governmental allocations to this agency, unlike we've seen to the EPA.
So we're not expecting anything dramatic to occur differently in the market, because of this.
But if it would, that would be clearly good news for us.
Why don't you take this one, <UNK>.
It's a great question and the answer is yes, it's precisely what we had expected.
One of the obviously, from one quarter to the next, there could be some one time add-ins that adds a little bit of volatility.
For example, last year both ACG and DGG had very favorable hedging gains, which have gone away, for the whole Company, the hedging gain last year in Q2 was over $7 million, and this Q2 was about $1.5 million, something like that.
So it was mostly in ACG and DDG.
They are were other one time items including regarding the allocation of our shared services among the different businesses, which explain.
But both businesses are on their way to contribute to the operating margin expansion, and the 22% that we're committing to.
<UNK>, maybe I'd also ask <UNK> too.
We talked about this earlier this ---+ last week as well about the operational efficiency improvements that underlying what looks to be flat margins.
Peel back the onion, the hedging gains and other things, there's actually real operational stuff going on there.
Thanks, <UNK> and <UNK>.
As <UNK> had said, there were several things that were factored in last year, that didn't come into play this year.
We're working on a lot of things in terms of improvements.
The mix is somewhat favorable in the context of what we're selling.
But overall, when we look at our plans for the first half, we're up 70 basis points in the first half over last year.
So our ability to actually do the margin improvements, when you pull back and look at in the first half, regardless of all these things, is quite positive.
And it's our fastest-growing business, he's been picking up more of the corporate costs of shared services.
Hope that was helpful.
This is <UNK>.
Let me answer these questions.
First and foremost, this is not biopharma at all.
This is pharma and biopharma combined.
When I talk about 150,000 systems out there, it's the installed base of LC systems in all markets.
So it's not only in pharma, biopharma.
But we think the biggest push is actually right now coming from pharma and biopharma.
And I would still say we are in the midst of a replacement cycle.
We don't see that to be over in the next couple of quarters.
There's healthy demand, and we are in negotiation with a lot of our core customers on upcoming replacements, and how we place these systems, and how we plan it out for them, so it works for them.
<UNK>e, if I could add one other comment to <UNK>'s response.
We've been focused a lot in today's call on pharma, biopharma but keep in mind that the replacement cycle has been very, very subdued on the applied markets side, in liquid chromatography, so we have several ---+ we have tens of thousands of systems on that side of the house, as well.
Again, this is why we look out into 2017 and 2018, we think that our growth rates are sustainable.
Don't ask a German about a baseball analogy.
I'd say on the pharma side, you're probably inning five or six.
Two thirds of the way through, maybe two-thirds.
My point would be that I think the ballgame is just getting started.
We may be in the first inning, we hope to be in the first inning soon of that cycle, on the applied market side.
Thank you, everybody.
And I'd like to thank you all for joining us today on the call.
If you have any questions, of course, please give us a call in IR, and just would hope that we'll see you next week at our analyst day in New York City.
Thanks again.
Bye-bye.
| 2016_A |
2016 | ROST | ROST
#Sure, <UNK>.
In the quarter, distribution costs were 55 basis points higher than last year.
And that's split fairly evenly between anniversarying the opening of our distribution center in the second quarter of last year and also the timing of packaway-related costs.
As we get into the second quarter, the impact of that DC will be about half of what it was in the first quarter and we'll have it fully anniversaried when we get to the back half of the year.
In terms of timing of packaway, if you recall, last year we got a benefit in the first quarter, we got a benefit in the third quarter, and took a charge in the fourth quarter.
So, we're up against those this year.
We had about half of the 55 basis points was a drag in this first quarter.
In our upcoming second quarter, the guidance assumes packaway is relatively flat.
Sure, <UNK>.
Sales were relatively consistent throughout the quarter.
Comp sales for March and April combined, which removes the impact of the Easter calendar shift, were very similar to what we saw in February.
Let me start in terms of the transition of ladies'.
The only other flavor I would put to it is that, really, what we found is that we had wrong fabrications and colors.
They were not appropriate.
So, our assortment was, I would say, off course.
In terms of the starts to the second quarter, we obviously wouldn't comment on that in the quarter that we're in, in terms of the back half.
But we're working on it.
We're drilling in, figuring out what's wrong, working on it, trying to fix things as quickly as possible.
But it's hard to predict.
So, we've got it embedded in our guidance and we're hoping to do better.
No, we're comfortable with what we have in packaway.
We don't think the two issues relate.
<UNK>, on inventory levels, we came into the year, our expectation was after many years of inventory reductions, that our expectation, we're going to operate the business with slightly lower inventory this year and that expectation hasn't changed.
In terms of supply, the supply is very broad-based.
There's a lot of supply in the market.
Actually, our strength in shoes is broad-based, both in brown shoe and athletic.
As is our strength in home ---+ it's broad-based between decorative home and bed and bath.
Both businesses are pretty healthy across the board.
AUR trend at both Ross and dd's is pretty stable, pretty consistent with the prior year.
In terms of the cash balance, we look at it time to time.
We are in the middle of a two-year authorization.
We'll look at it next year, along with our longer-term plans, and make a decision at that point.
No, that was unrelated and that's how we operate the business.
That was our plan and still is.
Actually, our history would show that the supply will keep coming.
As the department store sector, even though they have pulled back, their business is way off, it's very difficult, I think, for a vendor to get ahead of that.
So, history would show there would be plentiful supply as we go forward.
No.
Actually we felt good about our home business, our shoe business, and we're pretty pleased with our junior business.
It really was ladies' apparel.
What I would say is that we're working to fix it as quickly as possible.
We are a 1,300-store chain.
It takes a little bit of time.
But we've done this before and so that's why we have it built in our guidance.
Yes, I would say that's a fair assessment.
You're saying just pure product to product.
Okay, <UNK>.
That's a few different things.
I would say as she's coming into the store, in Q1, if she wasn't buying ladies apparel, based on our performance in home and in shoes and in other areas of the Company, that she bought other products.
And in terms of accessories, our accessory business is still difficult, really, based on our handbag business in particular, which is pretty much an industry-wide issue.
In terms of UPT, <UNK>.
<UNK>, the UPT has grown for us for a while.
It helped drive our comp last year.
Our perspective is that the consumer is coming in and that we have great bargains in the store and they are buying more per transaction.
It's hard to delineate the pieces of that.
The AUR.
I would say the AUR, sweater for sweater might be the same.
The value might be better.
So, when there's a lot of supply in the market and you get closeouts on, say, better or branded product that you could put out at a lower retail, the AUR could be the same, but the value could be significantly better.
I would say that the vendor community is pretty much open to doing business with us everywhere.
<UNK>, on guidance, we only give one quarter at a time.
We'll talk about Q3 after the second quarter.
But the second-quarter guidance assumes some increase in merchandise margin for the quarter.
<UNK>, what I think we're saying is we expect to achieve our original guidance despite the ladies' issue.
Because that's what happened for the full year.
We raised our full-year guidance by the penny in the quarter.
We've looked at it and any impact at all would be non material and we're comfortable with our guidance as we go forward.
<UNK>, on the guidance, just to repeat what <UNK> said earlier, the issues are going to take some time to fix.
We're focused as an organization to try to get that done quickly.
Despite that, like in the first quarter, we obviously missed some opportunities, thought we could have done better, thought we could have beat our original guidance.
The guidance going forward is unchanged and we hope we can do better.
In terms of the execution issues in ladies, really, it's a mix issue.
We bought wrong product, in fabrications, in colors.
We just didn't transition into spring product appropriately.
That's correct.
I think, as I said before, I believe that when our assortments in ladies apparel aren't up to the standards the customer comes to expect, that probably makes us a less compelling place to shop, and that would affect our traffic trends.
Thank you for joining us today and your interest in Ross Stores.
Have a great day.
| 2016_ROST |
2016 | NNN | NNN
#Amazon.
Amazon is not going to be a great opportunity for us as we look at the outlook.
I think what you're probably going to see them doing is a lot of urban retail initially, given the number of stores that are being talked about.
One day there may be an opportunity for us, but it's certainly not on our target list as we look at companies to call on in 2016.
You might say we're not too ambitious enough.
Who knows, <UNK>.
That's correct, that's the group of tenants that you see the disclosure for, it covers those tenants, correct.
Yes, we don't give financials on our entire portfolio, so we don't ---+ that's one reason why we don't put that out there.
So we only give financial information about 70%, 75% of our portfolio.
<UNK>, I think it's a (inaudible)
Yes.
And this - so if we give financial information on 70, 75%, I think that our tenant restructuring is on 45% plus of our total rental is covering more than half of the data that we have.
We believe, yes, it's representative, correct.
<UNK>, thanks very much.
We appreciate all of your interest, all of us, <UNK>, <UNK> and myself.
We'll be manning our post if you have any additional questions, please call us.
Thank you very much for your interest and we wish you a great 2016.
Cheers.
| 2016_NNN |
2016 | CMS | CMS
#Thank you.
Good to hear your voice.
Good morning <UNK>.
It actually would work as a charge to the customer of the alternative energy supplier, not the energy supplier themselves.
So the MISO study that the state requested really has several components.
One is the feasibility of connecting the Upper Peninsula, which is not our service territory.
Zone 2 in the MISO zone to Sault Ste.
Marie and between Sault Ste.
Marie and Ontario.
Then looking at connecting the UP and the Lower Peninsula to an existing transmission project in Gaylord.
Or starting a large gas plant constructed up north somewhere up in the UP.
So it's a variety of studies and they are all pointing to one situation that's trying to be correct, and that is the resource adequacy issue.
Because of our regulatory construct in Michigan, there is this loophole up in the UP that has caused a major cost shift up there.
So they are trying to figure out a way to better serve the people of the Upper Peninsula.
We participate to the extent that we are energy experts and the governor relies on us for our input and insights, but the study that they requested from MISO really will help frame up the situation, I would say.
And when it is complete, we will certainly obviously take a look and see what the options are.
Great, thank you.
I don't know who you are talking about that's doing that.
But people are constantly looking at should we build here, build there.
When you are down in that general area, you might be talking about Illinois solutions.
And you are probably aware that, for instance, Covert, one of the larger IPPs that is left, is hooked up to PJM.
But they are in the process, potentially, of selling their plant.
So these things are dynamic but I don't have a lot of specifics on that particular question.
But I will tell you what I will do, I will double-check after I am off the call and if there is something of substance we know about, we will share that.
Thanks, <UNK>.
Great, thank you.
And thanks for listening to our call today, everybody.
We appreciate your interest and definitely appreciate your ownership.
<UNK> and I look forward to seeing many of you at EEI in just a couple weeks.
| 2016_CMS |
2015 | VZ | VZ
#Thanks, <UNK>.
On the Edge take rate, look, this is where the market has gone.
If you look at all the advertising in the market, it's around the access point and this is where we are at.
So I think that where we are going to end up here is you will never get to 100% overall because of corporate accounts and so forth.
They are not going to take an installment-type plan, so I don't think we ever get to, quote, 100% in our base.
But from a consumer standpoint, yes, I could see us getting to where we are more heavily, very heavily concentrated on the installment side of the house.
Quite honestly, as I said, from a frontline perspective it would be much easier for them to sell one product.
Simplicity is important to us.
You're going to see us as we gradually move through here; the market is moving us there so we are eventually going to get there.
From a churn perspective, as I said, I think with all the programs we have going we are making very good progress in our base.
Our customers are loyal.
You've seen us running our new ads and some of our customers are coming back to us because they were dissatisfied with where they went.
So I think that this all proves to again the basis of how Verizon Wireless has been successful and will continue to be successful is the quality of our network, the consistent performance that our network gives to our customers, and the breadth of that network across the United States.
So that's really what it comes to.
And as I have said before, the number one reason the customer leaves you is because of quality of the network.
Price is number two.
The quality of the network still is overwhelmingly more important than price.
Not to say that customers are not price sensitive, but we think that we can continue to be very competitive and protect our high-value base.
So, yes, I do think that we will continue on this track.
On the network side, as far as the incentive auction goes, yes, the FCC is now saying that they are going to hold the auction first quarter of 2016, probably at the end of the first quarter of 2016.
As you know, they had a meeting on July 16 where they were going to set the rules, but that actually got postponed.
So we will have to wait to look at what the auction rules are and decide whether we're going to participate at the appropriate time.
The only thing I would say is, based on the AWS-3 auction, hopefully we have some lessons learned on what we shouldn't do with multibillion dollar companies getting favorable treatment.
So we will have to see where these assessments come out.
As far as our strategy here, the need for low band spectrum for us is not a great need.
As you know, we built out our LTE on the 700 megahertz, which is contiguous across the United States, which is a competitive advantage for us.
We then launched our AWS-1 spectrum for capacity and now we're in the process of revamping our 1900 PCS.
So the key here is to keep in mind that, of our licensed portfolio, only 40% of our license portfolio supports LTE and 87% of the data traffic is now running through LTE.
So if you look at our 1900 megahertz, the yet-to-be-deployed AWS-3 which we bought and will be deployed over the next probably 2.5 years out, and then our build strategy which we came out of the auction with in Chicago and New York, we have plenty of capacity to deal with the ramping of what we believe will happen with our OTT product and the continued pursuit of volume in the industry.
Our build out is on track.
We do not necessarily need low band spectrum, but that doesn't mean that we would not participate in the incentive auction.
Again, we will have to wait for the rules to come out, but obviously we are continuing down the track we set on coming out of the AWS-3 auction.
At that point we will have to wait and see what happens with the FCC.
<UNK>, thank you.
Marley, we have time for one more question, if you could queue that up I would appreciate it.
Thanks, <UNK>.
I always say you never say never, right.
Look, we are open to any options, but as far as a leasing of spectrum goes, as I've said before, in order to protect the viability of our network and our planning and our capital allocation, this would have to be almost a lease in perpetuity so that you could never be held hostage by anybody.
Because once you deploy a spectrum in your network, if somebody turned around 10 years from now and said I think I'm not going to lease that you anymore, that would be detrimental to your business and you just can't let that happen.
So I guess under the right terms and conditions it would be something that we could look at, but I would tell you I think that's very, very difficult given the asset that you are leasing here.
So I think that's the perspective and we're concentrating on our build.
The one thing I didn't answer on <UNK>'s question was SDN and we're well into that.
Obviously LTE in itself is a software-developed network and it gives you the scalability of giving richer network experiences.
Our team is working on that and we have been working on that for quite some time.
There's a lot of things will bring efficiency to the network.
There is C-RAN out there.
We are in the initial ---+ obviously 5G is being talked about in the industry.
Of course, Asia is involved in 5G and of course we will start to get involved in the standard setting around 5G, so there's a lot happening in this industry for technology standpoint.
Spectrum is important.
It will always be important, but it's not the only tool we have in our toolbox.
From that perspective, we're concentrating on the strategy that we outlined coming out of the AWS-3 auction.
Marley, thank you.
But before we end the call I would like to turn the call back to <UNK> for some final comments.
Thanks, everybody.
Again, thank you for joining us this morning.
Just like to end, though, at ---+ through the first half of 2015 we continued to execute on the fundamentals, we position our business for the future, and we always return value to our shareholders.
On a comparable basis, first-half consolidated revenues were 3.5%.
Earnings grew 12.6%.
Cash flow from operations was up 11.9%.
Wireless revenues increased over $2.5 billion to just under $45 billion.
We positioned ourselves for future growth.
We acquired valuable mid-band spectrum in the FCC auction, invested $8 billion in capital year-to-date, and made a very strategic acquisition in AOL.
AOL acquisition greatly accelerates our digital media and advertising platform capabilities, which will become a critical element of our OTT strategy and our revenue growth for the future.
We returned $9 billion to our shareholders through the first half of this year, $4 billion in dividends and $5 billion in an ASR program.
We certainly look forward to a very positive second half of 2015 with confidence in our ability to execute our strategy and create value for our customers, our shareholders, and our employees.
Thank you again for joining us today and have a great day.
| 2015_VZ |
2015 | MDC | MDC
#Thank you.
Good morning, ladies and gentlemen, and welcome to M.
D.
C.
Holdings' 2015 first quarter earnings conference call.
On the call with me today I have <UNK> <UNK>, Chairman and Chief Executive Officer, and <UNK> <UNK>, Chief Financial Officer.
At this time, all participants are in a listen-only mode.
After finishing our prepared remarks, we will conduct a question-and-answer session, at which time we request that participants limit themselves to one question and one follow-up question.
Please note that this conference is being recorded and will be available for replay.
For information on how to access the replay, please visit our website, at mdcholdings.com.
Before turning to the call over to <UNK>, it should be noted that certain statements made during this conference call, including those related to M.
's business, financial condition, results of operation, cash flows, strategies, and prospects, and responses to questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements.
These and other factors that could impact the Company's actual performance are set forth in the Company's first quarter 2015 Form 10-Q, which is scheduled to be filed with the SEC today.
It should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures.
Any information required by Regulation G is posted on our website with our webcast slides.
And now, I will turn the call over to Mr.
<UNK> for his opening remarks.
<UNK>.
Thank you.
We were pleased to see a solid start in the Spring selling season in the first quarter of 2015.
We saw evidence of improving market conditions in our operating results, and as our net home orders increased 29% year-over-year.
Importantly, unlike the preceding three quarters, the increase was driven primary by a jump in the rate of orders per active subdivision, providing evidence of improved market demand to start the year.
The improvement appears to be supported by more consistently positive employment and consumer confidence data, which gives us some encouragement that the demand we have seen may be sustainable.
Thus far, we have not experienced a significant impact from issues we identified as potential headwinds on our last call, such as falling energy prices, global economic instability, or mortgage availability; however, we are also mindful of the potential for continued market volatility, given the unpredictable nature of the overall economy and the homebuilding market in recent years.
During the quarter, we generated net income of $8.4 million, or $0.17 per share, as was the case in 2014.
Increased land and construction costs negatively impacted our gross margin.
Additionally, our margins were adversely impacted by the elevated incentives used to decrease our inventory of aged specs.
However, largely by offering these additional incentives, we succeeded in reducing our spec inventory by almost 40% year-over-year, consistent with the spec reduction objective we outlined in prior quarters.
We believe that this action was an important step for us in driving future margin improvement.
We continued to generate operating leverage by managing our selling and overhead expenses and growing our top line results.
For the fourth consecutive quarter, our selling, general and administrative expense relative to home sales revenues decreased year-over-year, partially offset our decrease in gross margins.
This was largely a result of the 18% increase in our home sale revenues, which was our biggest year-over-year improvement since late 2013.
With the sales value of our backlog up 46% from a year ago, we have the opportunity for continued top line growth in 2015.
In addition, we have a strong supply of lots controlled, as well as a sizeable number of new projects under consideration in our pipeline, which can help us drive growth longer term.
At the end of the quarter, our financial position remains strong.
After making opportunistic adjustments to our capital structure in 2014, we continue to have one of the strongest balance sheets in the industry, with low leverage, a manageable lot supply and strong liquidity.
As the cycle evolves, we are eager to put these resources to use for the benefit of our shareholders.
Thank you for your interest and attention.
I will now turn the call over to <UNK> <UNK> for more specific financial highlights of 2015 first quarter.
Thank you, <UNK>.
We delivered 909 new homes during the quarter, versus 873 in the prior year.
The higher delivery level was driven primarily by a higher beginning backlog as compared to the prior year period.
Our spec deliveries for the first quarter were 58%; however, we expect our spec deliveries as a percentage of our total deliveries to transition down over the back half of the year, consistent with our strategy to reduce our speculative inventory levels.
Our first quarter backlog conversion rate came in at 60%, which was slightly higher than the guidance we provided last quarter.
Looking forward, we expect our second quarter backlog conversion rate to be in the low 50% range, as a result of the lower percentage of beginning backlog we had under construction to start the quarter, coupled with a lower level of available spec inventory.
This expected conversion rate is more in line with our historical long-term average and is influenced by our shift to a higher proportion of dirt sales.
Our first quarter home sale revenues were up 18% year-over-year, to $377 million, due to a 14% higher average selling price and a 4% increase in deliveries.
Our average home price was up nearly $50,000 per home, to $415,000, and was primarily the result of a mix shift to higher priced sub markets.
Year-over-year, all of our divisions experienced increases in our average home price, with the Mountain and West segments experiencing the most significant increases at 20% and 14%, respectively.
Our gross margin from home sales, excluding impairments, was 15.5%, down 100 basis points from the 2014 fourth quarter and down 300 basis points as compared to the 2014 first quarter.
The sequential decline in our gross margin was primarily driven by higher incentives utilized to reduce our speculative inventory, particularly our more aged units, combined with a higher proportion of specs delivered during the quarter as compared to the 2014 fourth quarter.
The year-over-year decline in gross margin was also impacted by the use of higher incentives to reduce our spec inventory, combined with higher land and construction costs.
Our estimated gross margin in backlog moved slightly higher on a sequential basis.
We believe that this slight improvement, along with the decrease in our spec inventory levels, are positive steps towards increasing our gross margins over time.
However, second quarter margins could be different from our backlog average, depending on the mix.
On the SG&A and operating leverage front, our homebuilding SG&A expense rate improved 180 basis points from the prior year, to 13.4%.
The year-over-year improvement in our SG&A rate was driven by an 18% increase in home sale revenues, coupled with lower compensation and legal expenses.
The year-over-year absolute decrease in G&A expenses was more than offset by increased marketing spend related to supporting a higher average active community count during the quarter and higher absolute commissions expense due to increased revenues.
As a percentage of home sale revenues, our commissions were down slightly to 3.3%, versus 3.4% in the prior year.
Our net new orders were up 29% over the prior year, which represented our fourth consecutive quarter of year-over-year order growth and our highest first quarter order level since 2007.
Our order growth was driven by stronger demand in most of our markets as compared to the prior year, which resulted in an 18% increase in our monthly sales absorption pace to 3.2 sales per community, versus 2.7 per community in the year-ago period.
Our unit growth was also aided by a 10% increase in our average active community count.
Our orders improved with each month throughout the quarter, and on a sequential basis, our net new orders were up 80%, which was more than the Company's 15-year historical average of 69%.
With respect to the dollar value of our orders, it was up 43% year-over-year, to $667 million, which was aided by the unit increase combined with an 11% increase in our average order price, to $418,000.
The higher average order home price was largely due to a mix shift to higher priced communities and sub markets and, to a lesser extent, price increases.
From a regional perspective, we experienced the most strength in our Nevada, Colorado and California operations, with monthly sales absorption rates of 5.3, 3.8 and 3.8, respectively, for the quarter.
These also were the divisions where we had the most pricing power during the quarter.
As a result of the higher order activity achieved over the last several quarters, our homes in backlog were up 36% on a unit basis, to 2,203 homes with a backlog value of $953 million, up 46% year-over-year.
We believe the higher community count and backlog levels position us well for improved results for the remainder of 2015.
With respect to our spec inventory, we have made significant progress in reducing our speculative homes over the last several quarters.
Our specs were down 479 units, or 39% year-over-year, to 745 units.
And on a per community basis, our specs were down 42% year-over-year, to 4.5 specs per community versus 7.8 a year ago.
We believe that carrying lower spec levels at each of our communities will assist us in improving our gross margins going forward, as spec homes currently produce lower gross margins than our dirt starts.
Our ending active community count was up 6% over the prior year, at 166 communities.
And while new community openings and project close outs can be somewhat volatile, we expect to see our year-end community count to be up somewhere in the range of 5% to 10% as compared to the end of 2014.
During the quarter, we acquired 867 lots and spent approximately $110 million on land and development costs.
At the end of the quarter, we owned or controlled approximately 14,600 lots, which represented about a 3.3 year supply in a trailing 12 month delivery basis.
And with respect to our liquidity and balance sheet, we ended the quarter with approximately $825 million in liquidity, which consisted primarily of $290 million in cash and marketable securities and approximately $525 million in availability under our revolving credit facility.
And our homebuilding net debt-to-capital ratio was 31.7%, one of the lowest in the industry, and it provides us with flexibility with respect to future land acquisition opportunities.
And at this time, we'd like to open up the call for questions.
Well, I think that what we're doing is subdivision market specific, taking our older inventory, kind of like the retail business, you've got to get rid of the old stuff to make room for the new stuff.
And the dirt starts have more gross profit potential than some of the older inventory, and so we're very focused in culling out seasoned product.
And as I said at the beginning, it's subdivision by subdivision and market by market.
In the markets that are more robust, like Colorado, Nevada, and California, we're taking advantage of that; and those that are less, such as Phoenix and the Mid Atlantic and Jacksonville and Utah, they give us more of an opportunity to work through a product with any seasoning.
So we've done it carefully, and that's your answer.
What it was, <UNK> ---+ I get it.
It's really relative to where we were last quarter.
End of the fourth quarter, our margins in backlog did move up and.
As we referenced last quarter, it was comparable to what we delivered in the fourth quarter last year, when we made that comment ---+ last quarter, I should say.
Does that make sense.
You're excluding interest, correct.
Without giving the number, which we really aren't going to do.
But what I did say last quarter was it was comparable, <UNK>, to what we delivered in the fourth quarter.
And what I've said this quarter is it's up sequentially slightly from where we ended the fourth quarter.
So again, I think with the clearing out of some of this spec inventory, it really has provided an opportunity for us to improve our margins as we move forward.
Now having said that, from a Q2 perspective, <UNK>, the mix, depending on the mix of what we deliver in Q2, including the number of specs we sell and close within the quarter, along with any geographic influences will ultimately impact what we realize on a more immediate term basis.
I said comparable.
Well, I think you're kind of heading down the right path.
I think one of the things that we have made some significant progress in clearing out some of these specs, but we still will have some of them flow through over the next couple of quarters.
One of the other things, too, is we expect the differential on the specs versus the dirt to kind of tighten up here, as we have reduced the number we have in each of our communities, because there's obviously fewer and fewer out at each community.
So again, over time we would expect our margins to improve relative to what we delivered in the first quarter.
Yes.
In the fourth quarter, it was about 51%, Mike.
And again, with the higher percentage of our orders more recently being dirts, we would expect that to migrate down over really the back half of the year.
I'd say Q3 and Q4 would be more pronounced.
I'm not sure it would be as elevated as Q1.
But again, it will take a little time to deliver some more of these specs that we did sell during the first quarter, as well.
Because on the orders front, about 64% of what we took in orders during the first quarter were dirts this year, versus like Q4 was 55%, Q3 was 49%, and Q2 of last year was 54%.
So it gives you an idea that we did obviously sell a lot more dirts.
So over time, as we transition through the specs, there's an opportunity to see that improve.
I think during the first quarter, we did get a little bit more leverage there.
Again, it's more market by market.
And obviously, the markets where we've had, as <UNK> alluded to, more demand and higher pace, we've had the ability to layer in some price increases to offset some of those higher land costs, as well as incremental construction cost increases.
But obviously, you look at certain markets where you've seen more demand, obviously there's going to be more pressure on labor and pricing, from that standpoint.
But we think that we've seen a little more leverage during the first quarter here, and we'll see as we move through the Spring and the Summer how that plays out.
Yes, <UNK>, you're correct.
It does come a little bit later in the year, Q3, Q4.
Obviously, we have a lot of communities that we control that we haven't quite started.
So it doesn't fall into this category as soon to be active, but it will be more back half in terms of the community count increases.
I would say first of all, our incentives on a sequential basis were up about 70 basis points.
And like we've mentioned a number of times on this call, they were utilized to move more of the older spec inventory.
So that was probably the biggest driver on a sequential basis.
On a year-over-year basis, we had higher land costs, as well as construction costs.
But I'd say the largest, it was probably split between incentives and direct and land costs equally on a year-over-year basis, <UNK>.
We haven't really changed our underwriting standards in terms of what we're doing.
I think it's just more opportunities.
Our divisions are obviously out there on a continuous basis looking at opportunities.
And we think we have a pretty nice pipeline of deals we're evaluating currently and we will continue to evaluate.
So nothing big changing on the underwriting front.
Sure.
For the quarter just ended, <UNK>, 64% dirt.
And if we go back to Q4 of 2014, it was 55%, Q3 was 49%, and Q2 of last year was 54%.
We're not building homes to cover overhead.
We're building homes to make a profit.
And the market, I'd think, is stable and we'll manage accordingly.
Hello, <UNK>.
It's <UNK>.
We did talk about what we spent during the quarter.
It was $110 million.
And we did not give a projection for the full year.
About $40 million of it's development and about $70 million of it's land.
I think we're getting a healthy mix of both.
The stronger markets have fewer finished lots.
But with the adequate liquidity we have in running a tight mix between land and sales, as you can see, we're staying in that 3 to 3.5 range, and we'll adjust, according to the sales rate, our land spend.
And that's how we operate and have for decades, and that's how we'll continue to operate.
Yes, Mike, this is <UNK>.
In the first quarter, it was probably about 75% of our communities, our active communities, were able to increase our prices.
And it was probably in the neighborhood of 2% range.
And obviously, as I indicated earlier, it was a lot of those markets, we talked about Colorado, Nevada and California, those were markets where we've seen more robust absorption pace and where we had opportunities to increase pricing.
Our last quarter was probably about a third, and maybe 1% on the increase on those third of those communities.
And I would say if you go back a year ago, it was probably in that same level, about a third of the communities, so we've clearly seen a little more demand as we started the year off.
You're welcome.
The biggest change is the market's better.
No, the end product market is better and the availability of land is still challenging.
For every quality piece of land, there's multiple buyers.
But we believe that over the years, our ability to make a profit off of building and selling the homes versus a land profit has been demonstrated.
And as the builders and some of them have announced that they're going to a shorter land strategy than a longer land, and as the land component equalizes, then the opportunity for execution, the construction and the marketing phase focuses a little bit more in our strengths versus land speculation, which we try not to do.
Well, I think normal in homebuilding is a definition that I'm not sure any of us know.
What we're trying to do is deal with the market as it exists today.
You know, it wasn't too long ago there was a period of time that you could sell a spec for more money than a dirt start.
And then it went back to you could get more for a dirt start than a standing spec.
And as the market turns, and if there's a continued improvement, then you will see the dirt and the specs maybe equalize.
And our guidelines really are market specific, subdivision specific.
And in markets that are robust, you can have more specs because you're able to price them in line or at a premium of a dirt start.
In markets that might continue to be weak, or certainly are underperforming as to other opportunities in the country, then your specs would diminish there, because you don't have an opportunity to get an appropriate gross profit margin.
I wish I could give you a magic number.
What is in the way we've run our business, we tried to change with changing times.
And the times have changed over the last, certainly, I look back to 10 years ago and it's been an interesting period of time.
But I think we're also entering a long period of time that there will be a degree of stability.
And as to how to best leverage our resources into the stability, the advantage of having strong liquidity is we're able to move really in multiple directions at the same time, which ultimately will bring to our shareholders the best results.
And that's what we're focused on.
Great.
Thank you very much.
We appreciate everyone being on the call today and we look forward to speaking with you again following our Q2 results.
| 2015_MDC |
2017 | ENTA | ENTA
#Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining us today.
I'm happy to report that at the end of our fourth fiscal year as a public company, Enanta has executed well on its planned goals and has achieved many financial and clinical milestones.
Enanta has ended the year with approximately $294 million in cash and marketable securities.
Our successful partnering strategy has provided Enanta with the funding necessary to support our business operations and to advance our internal pipeline.
Enanta is on track this quarter to earn the final regulatory milestone in our 11-year HCV collaboration with AbbVie, which would mean we have successfully earned all clinical and regulatory milestones under the collaboration.
Total cash from AbbVie under the collaboration through this fiscal year ended totaled approximately $500 million.
These resources have allowed us to discover and develop our wholly owned programs in NASH, PBC, RSV and HBV, and will allow us to continue to advance them and give us the latitude to look for new opportunities.
Among our wholly owned assets, most advanced is EDP-305, our FXR agonist for NASH and PBC.
EDP-305 is a highly selective and potent FXR agonist that successfully completed a Phase I a/b study recently.
The objective of this double-blind, placebo-controlled study in adult healthy volunteers and in subjects with presumed, non-alcoholic fatty liver disease was to evaluate the safety, tolerability and pharmacokinetics of single-ascending dose and multiple-ascending dose levels of EDP-305.
Pharmacodynamic markers of FXR activity, namely FGF19 and C4 and other parameters such as lipids, were measured in all of those groups.
Last month, we were pleased to announce positive results from this study, indicating EDP-305 was generally safe and well-tolerated over a broad range of single and multiple doses, with PK data supporting once daily oral dosing.
We look forward to presenting the detailed results from this study at a future scientific conference.
Given the favorable profile of EDP-305, Enanta plans to initiate a Phase II dose-ranging study in PBC patients by the end of 2017 and a Phase II dose-ranging study in NASH patients by early 2018, each utilizing doses selected from the 0.5 to 5 milligram range.
I should point out that doses in this range gave positive signals and biomarkers without causing pruritus and without affecting lipids.
Previously, EDP-305 was granted fast-track designation from the FDA for the treatment of NASH patients with liver fibrosis.
And today, we are pleased to announce that EDP-305 has also received FDA fast-track designation for the treatment of patients with PBC.
In addition to our clinical program with EDP-305, we are identifying new follow-on FXR agonist leads, and we are continuing our ongoing discovery work in a non-FXR mechanism for NASH.
Our next compound ready to advance into the clinic is EDP-938, our first clinical candidate for RSV.
RSV is a virus that infects the respiratory system and represents a serious unmet medical need in infants and children as well as in immune-compromised individuals and the elderly.
There's currently no recommended effective treatment for RSV.
EDP-938, our N-inhibitor candidate for RSV, works by blocking the replication machinery of the virus, and may have the potential of being more effective at later stages of infection than fusion inhibitors.
Enanta has presented promising in vitro and in vivo data at several scientific conferences, demonstrating that EDP-938 is a potent inhibitor of both RSV-A and RSV-B activity, and maintains antiviral activity post-infection while presenting a high barrier to resistance.
Further, encouraging in vivo data has demonstrated a greater than 4-log reduction in viral load in an animal model challenged with RSV.
Based on these results and the compound's preclinical profile, we are planning to begin a Phase I clinical study of EDP-938 before the end of 2017.
Upon completion of this study, we plan to move directly to a proof-of-concept challenge study in RSV-infected humans later in 2018.
In HBV, we continue our efforts to discover, characterize and secure patent protection for new core inhibitors, and we hope to announce our first HBV candidate in 2018.
The estimated 250 million HBV patients worldwide represent a significant medical need that we believe is still largely unmet.
Let's turn now to our licensed products that are funding our R&D activities.
We continue to be very optimistic about the commercial potential for AbbVie's new MAVIRET regimen, which includes glecaprevir, our collaboration's second protease inhibitor.
MAVIRET is the only once-a-day, pan-genotypic treatment that works in only 8 weeks for 80% of the HCV patients in the United States.
On AbbVie's recent financial results conference call, management stated that they are pleased with the initial launch of MAVIRET and remain confident that MAVIRET will allow AbbVie to grow HCV market share and, ultimately, deliver multibillion dollar peak-year sales.
Additionally, they stated that just 9 weeks after the launch, MAVIRET had achieved a market-share position in the United States of over 15%, predominantly driven by the public channel.
Internationally, AbbVie has also stated that it has seen strong uptick in markets where they have launched, including Germany, which achieved the market-leadership position with 40% market share 10 weeks after its launch.
Given these early indications, the potential for increased royalties to Enanta from this regimen are significant.
I remind you that Enanta is eligible to earn double-digit royalties on 50% of AbbVie's global net sales of MAVIRET.
As we look ahead, we continue to focus on advancing our wholly owned programs by using the funding provided by our partnership with AbbVie.
In closing, I'd like to point out that Enanta's wholly owned pipeline is broader and more advanced than it's ever been, and Enanta is in a stronger financial position than it has ever been.
I'll now turn the call over to <UNK> to discuss our financials for the quarter.
<UNK>.
Thank you, <UNK>.
I'd like to remind everyone that Enanta reports on a fiscal year schedule.
Our fiscal year end is September 30, and today, we are reporting results for our fourth fiscal quarter and year ended September 30, 2017.
Enanta ended the quarter with approximately $294 million in cash and marketable securities as compared to $242 million at our September 30, 2016, fiscal year-end.
We expect that these cash resources and our future royalties revenue stream from our AbbVie agreement will be sufficient to meet our anticipated cash requirements for the foreseeable future.
For the 3 months ended September 30, 2017, revenue was $75.9 million compared to $12.8 million for the same period in 2016.
The increase in revenue in the current quarter was primarily due to $65 million in milestone payments earned in the U.S. and EU approvals of MAVIRET.
Our revenue in the current quarter included $10.9 million in royalty revenue under our collaboration agreement with AbbVie.
Milestone and royalty revenues have varied significantly from period-to-period, and we expect that variability to continue in the future.
Moving on to our expenses.
For the 3 months ended September 30, 2017, research and development expenses were $16.5 million compared to $11.5 million for the same period in 2016.
The increase in research and development expense was primarily due to increased preclinical and clinical costs associated with the progression of our wholly owned R&D programs in NASH, PBC, RSV and HBV.
General and administrative expense was $5.1 million for the quarter ended September 30, 2017, and $4.4 million for the comparable quarter in 2016.
The increase in these expenses was primarily due to increases in compensation expense, driven by increased headcount.
Enanta recorded income tax expense for the 3 months ended September 30, 2017, of $18.4 million compared to an income tax benefit of $0.8 million for the same period in 27 ---+ 2016, primarily due to the net income in the 2017 quarter.
The company's effective tax rate for fiscal 2017 was approximately 34%.
Net income for the 3 months ended September 30, 2017, was $36.5 million or $1.86 per diluted common share compared to a net loss of $1.8 million or $0.09 per diluted common share for the same period in 2016.
As stated in our earnings release, our financial guidance for our fiscal year ended September 30, 2018, is as follows: we expect our research and development expenses to be between $90 million and $110 million, and our general and administrative expenses are expected to be between $22 million and $28 million.
Further financial details are available in our press release and will be available in our Form 10-K.
I'd now like to turn the call back to the operator and open the lines up for Q&A.
Operator.
<UNK>, it's <UNK>.
I would say that the bulk of the increase is tied in with the fact we'll be running 3 clinical trials in 2018.
One in NASH, one in PBC and one in RSV.
And that's really the driver.
That associated with the associated CMC cost that go along with those types of trials.
In terms of the breakdown, we don't really ---+ would have any comment on them ---+ on the splits between them at this point.
And it will be more heavily weighted.
This is <UNK>.
It will be more heavily weighted, obviously, to EDP-305, because 2 of those 3 studies are Phase IIs using EDP-305.
So they're necessarily going to be a little bulkier than the Phase I for RSV.
Well, this is <UNK>, again.
I think it's ---+ it really probably ---+ I'd say, the variation there has more to do with other things in our pipeline, some of the other pipeline programs and the rate at which they proceed.
HBV is hanging out there as one that we're really hoping to be bringing in forward pretty soon.
And depending upon the ramp of that when manufacturing gets involved with that when we start doing some of the IND-enabling studies, et cetera, et cetera.
Same with our follow-on FXR, throw that into that same bucket.
So it's things like that depending upon when they hit.
And that's a little bit more of the variable part of the equation because when you're still doing the science part of the R&D, it's just a little bit harder to legislate a specific date as to when certain things are going to happen.
So I think that's probably the bulk of the variance there.
Sure.
So yes, I think it will happen pretty quickly in the United States.
VIEKIRA is approved in over 60, 70 countries worldwide right now.
So you can imagine that the turnover to MAVIRET is not going to be instantaneous in all of those particular countries.
That said, several of the strong ones have come on in Europe and will continue to do so.
So I would expect that you would just see sort of an orderly changeover as all these various country approvals and pricing approvals take in.
Certainly, AbbVie is ready to roll.
So it's just a question of methodically stepping through all those other territories.
The good news is, in the meantime, VIEKIRA continues to sell.
And as you know, VIEKIRA has sold more ex-U.S. than in-U.S., so that will be a nice transition, I think.
Yes.
So those markers are 2 markers that were, I think, very nice and convenient and easy ones to look at in a Phase I study.
Obviously, we are only taking the temperature, if you will, of part of the disease.
So there's several other parameters to look at, things to think about.
But that said, looking at FGF19 and C4, we saw a reduction in C4 and an increase in FGF19 over a broad dose range.
I think the best way to think about it, or at least the way we're thinking about it, is there's probably a threshold level that you want to be above and you probably want to drive those markers, or at least blood levels that result in those markers being driven along with a lot of other things.
You probably want to pick a range where you don't either blow out FGF19 elevation or completely shut off C4 synthesis.
So the trick here is being above the threshold and below the point where you don't want to exceed.
And so I think there's a comfortable range in there, that's why we picked that 0.5 to 5 milligram range.
We do see good target engagement without seeing pruritus, again, which we saw a little bit of mild-to-moderate pruritus, but only at the 20 milligram high dose.
So ---+ and very little, if any, at 10.
So it really boils down to looking at pharmacodynamics, looking at safety, looking at the PK exposures and feeling like you've got good coverage.
That said, we are not prepared to distill it down to a single dose for our first Phase II study.
And so we'll be doing some finer tuning of that dose range in Phase II.
Yes.
So the N protein, the so-called nucleoprotein, is one of the targets in the replication machinery that you can use for RSV.
RSV, actually, has a very small viral genome.
So it's ---+ there is a set of interesting targets that you can approach.
But I think that we've gravitated toward the N protein based on the fact that the barrier to resistance, at least with the molecules that we've made targeting in this approach, the barrier to resistance is really, really quite high.
We also saw, in addition to the high barrier, since we're taking on a direct-acting antiviral approach where we're going directly into the viral replication machinery, where we're not doing what several other folks are doing, which is the fusion-inhibitor approach.
Not that, that's necessarily a bad approach, we just think there might be advantages of the N-inhibitor approach such that we might, at least, possibly be able to get away with a single agent and not have to do a combination.
At least, we're not as certain whether or not you will be able to do that if you have only a fusion inhibitor.
You may need some other things to back it up since fusions appear to have a fairly low barrier to resistance.
So we like - in all the mechanistic studies that we've done to date point to N.
And I think that the combination of the fact that we're going after the direct-acting antiviral approach as opposed to fusion, mechanistically, it may allow us to still intervene with the medicine at a later stage of infection.
And at least from the virology work we've done in-house, we've been able to do infections and intervene at a later time with our N inhibitor than with fusion inhibitors.
So that translates into the clinic.
That would actually be a really good advantage.
Regarding other N inhibitors out there, I think we're the only one at the development stage that I'm aware of.
There was an older one many years ago that was also a member of this mechanism, but we looked at it and it actually wasn't very potent.
So we've got men and worked hard to try to optimize ---+ create a pretty good molecule.
So again, 938's preclinically looks really good from a virology ---+ virologic perspective.
It looks exceedingly good in a primate ---+ nonhuman primate animal model of infection, and it's on track to be in our clinical study by the end of this year.
Sure.
So nothing fancy on the Phase I.
It's not like we did with 305 where we're looking at LPs and we're looking at subjects with presumed NAFLD or some other sort of population and looking at biomarkers at every dose and every parameter.
So we're ---+ it's much more of a straightforward Phase Ia and b SAD, MAD study.
We want to chip through that as quickly as we can so that we can move on to what should be a very interesting and derisking step, which is the ultimate test to ---+ in humans against the virus.
So the good news is, we know that quantifying virus is a great marker for an indication like this.
And we will be ---+ at first challenge study, will actually be in healthy volunteers who become infected with RSV and then are subsequently treated by EDP-938.
So our goal is to get over Phase I, figure out dose ranges and exposure and tolerability ranges as quickly as we can and then get into that challenge study later next year.
We'll have more to say about the timing and the design of that next year.
Sure.
So thanks, <UNK>, The LDL receptor is an interesting story.
We and others, obviously, have thought about FXR in the context of lipids, Intercept's LDL elevation in their study.
And so we wanted to understand whether or not that would be an observation we'd have to worry about and think about how to handle going forward.
So we looked at lipids.
We did a lot of interrogation preclinically, and then, ultimately, in our Phase I study.
Preclinically, animal models, they are a little bit tricky.
They all seem to deal with the lipid regulation in different ways or at least in some of these animal models that are ---+ it's hard to come up with perfect models in that regard.
That said, when we look down at expression levels, looking at RNA and protein, and then, ultimately, function, we did see that EDP-305 differentially versus OCA had an up regulation of LDL receptor preferentially by EDP-305.
So for those of you who don't know, LDL receptor is one of the proteins that's substantially responsible for reducing and circulating LDL levels.
So if you have LDL receptor expression go up, you see circulating LDL go down.
And that would be viewed as a good thing.
So when we saw, differentially, a ---+ an up regulation of LDL receptor by 305 versus OCA, we thought that was an interesting observation, but it certainly needed to be borne out clinically.
Under steatotic conditions, not to make it more confusing, but under steatotic conditions, we saw no change in LDL receptor levels, but we saw that OCA reduced LDL receptor levels.
So the relative differences were preserved.
So when we went into the clinic, we looked at lipids very carefully, not only in healthy volunteers across our entire dose range, but also in presumed NAFLD subjects, and we didn't see any dose-related increases in LDL at all, even at the highest dose of 20 milligrams, which we know gave better-than-linear pharmacokinetic.
So there was a very, very large exposure in those subjects at the 20-milligram dose.
So that's ---+ those were the observations we saw at least ---+ had a clinical [repair-up].
The clinical rationale that we found preclinically, and then, at least, in Phase I so far, the ---+ it's borne out.
I don't think so.
I mean, one of the things if you look into PCSK9 literature, PCSK9 inhibitors work by actually preserving LDL receptor from being degraded.
So you essentially have a similar net effect, which is elevation of LDL receptor versus what it would have been.
And that's, again, a proven mechanism for reducing LDL cholesterol that's, I think, fairly well-understood.
Sorry, timing on the other target.
Yes.
The target that we haven't yet disclosed, we'll probably remain in that status for a while longer.
I think we just want to run it out a little bit further where we've got the science and assays and chemical matter and patents and all kinds of stuff going on, but we're just not quite there yet in terms of being ready to disclose what we're doing.
| 2017_ENTA |
2017 | ROST | ROST
#Thank you, <UNK>
Let’s start with our second quarter results
Our 4% comparable store sales gain was driven by increases in both traffic and the size of the average basket
As mentioned earlier second quarter operating margin outperformed our projections increasing 50 basis points to 14.9% compared to 14.4% last year
Cost of goods sold for the second quarter improved 25 basis points driven by better than expected 35 basis point increase in merchandise margin, 20 basis points in lower occupancy costs and distribution expenses that were lower by 10 basis points
These gains were partially offset by a 25 basis point increase in freight costs along with 15 basis points of higher buying costs
Selling, general and administrative expenses during the period were lower by 25 basis points
This improvement includes a non-recurring benefit of approximately 20 basis points from legal related costs
During the quarter we repurchased 3.6 million shares of common stock for a total purchase price of $215 million
Year-to-date, we have bought back a total of 6.9 million shares for an aggregate price of $430 million
As planned we expect to buy back a total of $875 million in stock for the year under the 2-year $1.75 billion stock repurchase program approved by our Board of Directors in February of this year
Let’s turn now to our second half guidance
For the third quarter ending October 28, 2017, same-store sales are forecast to increase 1% to 2% on top of a robust 7% gain last year
With earnings per share projected to be in the range of $0.64 to $0.67 versus $0.62 in last year’s third quarter
For the fourth quarter ending February 3, 2018, we are also planning same-store sales to be up 1% to 2% on top of a solid 4% gain last year with earnings per share projected to be $0.88 to $0.92 compared to $0.77 last year
This includes an approximate benefit of $0.08 due to the 53rd week
Now I will provide some additional operating statement assumptions for the third quarter EPS target
Total sales are projected to grow 4% to 5%
We are planning to add 30 new Ross and 10 dd’s DISCOUNTS locations during the period
Operating margin is projected to be in the range of 12.4% to 12.6% versus 12.6% in the prior year
Net interest expense is estimated to be about $2.5 million
Our tax rate is planned at approximately 37% to 38% and we expect average diluted shares outstanding to be about 384 million
As noted in today’s press release based on our results for the first six months as well as our second half forecast, we now are projecting earnings per share for the full year on a 53 week basis to increase 12% to 14% to $3.16 to $3.23 on top of a 13% gain in fiscal 2016. Now I will turn the call back to <UNK> for closing comments
For the second quarter, as we mentioned merchandise margin was up 35 basis points
It was really driven by a combination of better buying, but also when we are able to exceed our initial sales plan, there is markdown leverage and it helps us move to drive the business with closeout
So, that was beneficial in the second quarter
As we think about the third quarter, our current guidance assumes that merchandise margins are slightly lower, but that’s because we are up against a 50 basis point increase from Q3 of last year
Mike, we track and analyze the performance in our stores based upon various different demographic factors and obviously that includes looking at Hispanic markets and the answer is no
We have not seen an issue in those markets
Sure, <UNK>
As we mentioned in our prepared remarks, the 4% comp was driven by higher traffic and an increase in the size of the average basket
Proportionally, traffic contributed more than the basket
The higher basket was driven by an increase in more units
AUR was down just slightly due to the mix of business
Yes, we wouldn’t – <UNK> on the breakout between Ross and dd’s we wouldn’t break that out separately
On a total basis, it’s upper 20% of the business is home for us, 25%
Yes, we will comment more at the end of the year on our specific plans for 2018, but I think for planning purposes, you can assume that our store openings will be much pretty much in line with where they have been the last couple of years, 80 to 90 new stores, approximately 20 to 25 of those being dd’s and the rest being Ross
I wouldn’t expect a significant change in that over the next couple of years
Sure, <UNK>
While we do face our most challenging prior year comparisons in Q3, it’s clear to us that the consumer continues to favor retailers that offer compelling value
And we think that bodes well for us going into the third quarter
<UNK>, on the inventory question, so we have gone through a period of 7, 8 years of inventory reduction, the total inventory is down over 40% over the last number of years
So, as we look at it going forward, we are comfortable operating at our current levels that those reductions obviously have contributed to significant margin improvements, but we are in the very late innings of those reductions and are comfortable at the current levels
In terms of the specific guidance in Q3 and Q4, the only guidance that we gave was my comment on merch margins and the comparison versus last year, so we wouldn’t get any further detail in that back half margin
And <UNK> on your question about these dd’s, as <UNK> mentioned in her remarks we were pleased with dd’s strong performance in terms of sales and operating profit in the second quarter
dd’s sort of basically continued as it has over the last several quarters its good results
In terms of what’s driving that, frankly it’s similar to many of the other things that we talked about on this call so far, in particular, for dd’s customer is responding well to the values that we are offering
Sure
On your question on credit, it’s about a third of our business <UNK>
And then on the SG&A leverage as we mentioned in the call, we had 25 basis points of leverage on a 4% comp, 20 of that 25 was related to a non-recurring legal matter
So, baseline 5 basis points of leverage
As I mentioned on wages in the back half, we should expect less leverage so at a 1% to 2% comp, there maybe some de-leverage, but at 3% we should get leverage
Sure
So as we have mentioned it in the past, the new store productivity has come down since we entered the Midwest in 2011. And also, our growth of the dd’s change has impacted overall productivity
I would say though in the last couple of years, it’s been very steady at or above our expectations
Overall, Ross new stores about 60% to 65% on the chain average and then tends to comp faster in the first couple of years
I will start with the last one, because that’s probably the easiest, <UNK>
On freight, we expect there to be a headwind for the rest the year
Contracts vary, we have pretty good viewpoint for the rest of the year and we expect it to continue to be a headwind and then going into next year we will talk more about that on the year end conference call
| 2017_ROST |
2016 | ANDE | ANDE
#Just to echo what <UNK> said, we really fully integrated Nutra-Flo.
We've had a good selling season.
We like the spread on our specialty products and our sales of specialty.
We are feeling quite good about where PN is positioned.
I don't think I'll use the term superior.
That's a big word.
But we'd like to see a return to if you want to call it normal because we had such a tough crop year last year.
It looks ---+ corn acres are up.
We are estimating 92.6 million, quite a size of [93.6] put out by the USDA a month ago.
But it's going to be very solid crop reduction.
So our handle and then drying and other margins we can earn at harvest time could be attractive.
So ---+ and outperformance is really based on volume at the time of harvest.
So we just want to see a return to good normal crop conditions in the East.
We could see that returning back into our normal historical range of space income we've talked about before.
That's somewhat true.
I think across the whole ag sector that's true.
I think in our case, again in the East, we do a lot of wheat blending, and that's one of our core capabilities.
We are also located right here in the delivery market for week.
So it's good opportunities for us in the Great Lakes, in our position in Canada as well as in Ohio and Michigan.
We are more positioned to do enter market trades during the summer.
So we are encouraged with we see so far in wheat, and probably it will be towards the end of the third quarter as the crop comes off, but more of it will be tilted to the fourth quarter.
Specific successes ---+ we had a really good volume of price [when at] risk management tools when we were out with farmers this year.
Obviously, growers coming off the high-price and high-income years, years ago, and now having more tougher economics with lower commodity prices are looking for help and looking for ways they can better manage their crops, manage crop insurance programs along with risk management tools.
So, we had a good selling season of our risk tools that will go into next year.
So we are excited about the position that we are at from a service standpoint.
We would like to do more.
And we look to 2017, and that's also going to link up with our technology and how we improve our access to the farmers through our technology portal, etc.
So that's a long-term investment of partnering with farmers.
I'll start off and then see if anybody else wants to finish up.
But I think in relation to some of the other players, and I can't speak for them, we are very fond of our ethanol business.
We believe that we are well-positioned both with the assets we have, their locations, both in the Corn Belt and also for the majority of the locations close to demand centers, the technology run and the great people we have running it and the partners that we have in those businesses.
So as we go through these cycles, even in the tough conditions we just came through, we saw the business deliver positive cash flow, positive margins at the cash level.
And that's what you what you see is the ability to go through a tough season and still throw out cash and then be there to earn money when the season comes back.
So we like those assets.
We like how we participate with our JV structure, with services we provide into the JV and the assets we run with our partners.
So, we are fairly positive on the business long term and the industry.
I'll just add I think we are, as you know, adding capacity at our Albion facility.
So I think that says a lot about our views of the long-term prospects for our ethanol business.
It's also ---+ you really can't ---+ it's hard to compare different players in the industry.
But you have to understand where our grain assets are in the Eastern Grain Belt.
And ethanol has had a huge impact in the Eastern Grain Belt.
So we like participating in that because it's a big portion of the grain flow in our region.
As <UNK> mentioned, we think Michigan is a particularly good truck market for fuel and it works well for us.
And that's why we are expanding our facility in Albion.
So there is cyclicality, no doubt about that.
You brought that up.
So we still feel good about our business model and stick to our knitting and keep our plants highly efficient and be really smart about how we merchandise our grain and coproducts.
Yes, appreciate the question and the thoughts.
And that's exactly the thought process we are taking.
And I formed a leadership group with <UNK> <UNK>, the CFO, as well as our business Presidents and myself as oversight.
And everyone is fully accountable.
<UNK> <UNK> here has got a GE Black belt background.
We have some of us who have experience from other companies of looking at process improvements and where we can drive productivity across the Company, whether it's in supply chain procurement, staffing and just working on all aspects of our business to make it cleaner and more efficient.
So that's a process we have kicked off.
We think we're off to a good start and we will keep you guys updated after we finish the year on how we are returning.
But it's more a state of mind and how we are moving forward for the Company to be competitive.
It's also have we're beginning to see the benefits of the investment we made in our IT system.
We are now pretty much fully integrated in our Grain business and starting to see those benefits as we begin to take that across the rest of the Company.
So it's ---+ like you said, it's a journey.
And you've got to keep working on it, keep pushing it.
So it's not a one-time dollar amount.
It's about how we can continue to improve the Company for the long term.
There is a slight drag related to some ongoing salaries, but it should be flushed through in the second quarter.
So it's not much.
I think it's relatively similar, maybe a slightly lower drag this year.
We have talked, <UNK>, about we are now starting to implementation relative to our Plant Nutrient Group.
So some of that effort will be capitalized rather than expensed.
And once we go into production, obviously then you start to depreciate the asset.
So I would say in general it will be relatively consistent.
Maybe just to build on that, I'd love to use the term investment rather than drag.
And feel good about where we are at in our Grain business now with the assets and want to get that all fully operating prior to going into the key harvest seasons.
So we feel good about where we are at and now we are just starting the planning and blueprinting for the fertilizer business.
And that's going to help us a lot in fertilizer as we go forward.
So we understand the investment and the timing and resources it takes.
We feel it's being managed well.
So as we have talked about it before, it really is about renewing our IT infrastructure and the need to get systems that allow us to be competitive.
So let me at least give you one specific example.
We recently rolled out some automated ticket processing functionality.
And I won't go into a lot of details, but we estimate that that functionality cuts time between 60% and 80%, relative to ticket processing, which is a pretty big deal for us.
So just one very specific example where we are really realizing benefits today.
And as we roll out to more locations, we will continue to see those benefits.
So over the last three years, we've averaged a loss relative to those assets of approximately $4 million of pretax income.
Average over the three years, yes, per year.
It has varied between $2 million and $7 million.
That is correct.
And when we say small gain, we mean small gain.
We just wanted to make sure that people understood that we are able to exit at a reasonable outcome for us.
And when you said long, long, you made me feel pretty old.
But I appreciate the butter-up comments.
But you hit the head on the nail in terms of the highly fragmented.
Right.
So you can never speak to what other companies are doing.
Long term, the US is continuing to be the bread basket for the world and is going to be an exporter of record, of note, for many years to come.
There's many assets that need to be upgraded and improved.
And there has been a lot of investments in the key export ports here in the last 10 years.
And in the years where it was quite good, then obviously a year like this past year, which weren't particularly that attractive.
You also mentioned or someone mentioned earlier about space that farmers have put in.
The whole ag supply chain continues to get more and more efficient.
And so, companies like ourselves and others are always looking at what best way you can add value and create advantage or make the supply chain better.
We are always looking at our assets, as we did in this case, and trimmed our portfolio with the Iowa assets.
But at other times we have one in construction in Tennessee, as we talked about, that's an attractive location for us.
So I was just at Champaign, Illinois in the last few days.
And those tanks were built in the late 1960s.
This was ---+ these are long-lived assets, as we talked about.
And some will have to be upgraded and improved, and everyone is looking at doing that in a smart way that impacts their markets.
We are very much focused on regional plays for us where we supply the Southeast from the Eastern Grain Belt or even ---+ we are still exporting beans up to the Lakes and other opportunities we have in our wheat market.
So I'll make it a long answer, it's ---+ bottom line, it's fragmented.
And people will make the right decisions for their companies that give them the best returns.
I'd say not, from the standpoint as when the farm economy is quite strong in farmers are very smart is and they make astute decisions, whether it's an equipment ---+ again, just been out in the country the last couple weeks [looking at] brand-new planters, people laying tile in a new precision ag implement, tools.
So they have invested in technology to help improve their earnings, which makes sense.
Some of them added commodity bins.
And it's a cycle, right.
As their wealth builds, which is now declining, there's going to be some pressure from new farmers who recently got into the business at a high and have more debt.
I visited some old farmer customers ---+ I shouldn't say old but long-careered farmers that we work with that are still making smart investments in technology.
Maybe they put in some smaller bins to grow specialty crops and they are looking at that as a way to improve income.
So I think this idea that there's a space build on the farm and that takes it right out of the merchandisers and exporters, I think, is really overblown.
Yes, appreciate your memory on that, <UNK>.
Again, these are long-term trends.
So you haven't had massive shift in ag production and what was a small niche a few years ago is becoming a little more mainstream.
I would say the market is still pretty fragmented on non-GMO, organic and even other specialty crops.
We've had a long history of doing some origination of specialty crops, especially beans, which are (inaudible); we have been involved in other food companies, getting contract acreage grown of specialty crops.
We think they can get bigger.
Will it be huge.
No, but we think it could be a meaningful segment that would have higher margins.
So it's going to come.
It's going to take a little time, say, because it's crop year to crop year.
Right.
So we will see it, we would like to position ourselves for the long term as a player in that space.
You won't see a move-the-needle, major P&L swing item next year because of that.
But we want to continue to build our position there.
I think we continue to see advances in that space, not just precision ag but I'll call it specialty ag.
You see lots of people playing in the biological and specialty nutrient businesses today.
Those have lower volumetric impacts on the fields and generally more targeted results.
So, I think your specific question is also about delivery, and we continue to see advances in delivery techniques where people are actually mapping spaces on their fields to make sure that specific nutrients go down in very small grids.
So we believe that we are positioning ourselves well for that trend and we think there's room to continue to grow there.
Also just to build on that, too, that I was out, again, in our farm centers with our agronomist, who was meeting with farmers.
And they have the satellite imagery maps of their fields and where they are planting at what population rates and then, specifically, what inputs they are putting down in what parts of the field, which I think you guys are aware of that.
The interesting part is people think, well, gee, when the commodity price is lower, maybe it will go away from that.
In fact, the farmers are looking to even utilize that more because they want to be really smart with their ---+ to demonstrate the return for those inputs.
So they really focus a lot on that.
What pressure that may have on prices in general is a different topic.
But the technology is, of course, not going away and only going to get more advanced.
Yes.
We talked the last crops, the last meeting we had in New York.
I didn't see a lot of switching to beans.
There's a little bit of switching to beans, just so the price actions happened late.
Still, we're talking about a 92.6 million acres is still a huge crop for corn.
And that's a solid number.
Other people, I'd say industry is probably in the similar kind of areas for the crop, 82.5 million for beans, those kind of numbers.
So it's not a dramatic shift.
And weather conditions are great.
We've had scattered rains across the entire growing areas in the country.
So, so far, so good.
And I think a lot of the decisions have been made.
Well, I guess it always remains to be seen.
We had this discussion before about La Nina events.
And so far, all crop conditions are outstanding.
There's always the potential to have heat come into the Grain Belt later in the summer.
That exists every year, maybe more so in a, quote, La Nina period.
The good news is crop was in early, especially in the West.
So if you look at the crop planting numbers are in ahead of schedule, especially in Illinois and even in Nebraska.
We are right on our five-year average here, but we are behind where the other parts of the Belt are.
But we are right on our average.
So as long as we get the crop in, in timely fashion, that's the key numbers to watch, this planting progress here the next few weeks.
And then, that's a big thing to be in solid beforehand.
Also, as we mentioned before, the technology of the kind of corn that's been planted and the new varieties of beans ---+ we have been a little bit more heat-tolerant.
So we ourselves can't do anything about the weather.
But our contingency planning for the latter half of the year just be to make sure we buy the right kind of crops that are tributary to our areas and position ourselves accordingly to foresee the price risk action of a drought-like condition.
Well, we are not an exporter.
So it's probably wrong for us to comment.
As I told you before, I lived in Brazil in the early 1990s.
The safrina production that has come into the interior of Brazil is quite amazing.
And as talking to people there and ---+ but it's going to be you said, a collapse.
I think that's a big word.
It could be easily done 2 million to 4 million tons, the numbers I've heard.
10 million would be a big number.
Brazil exports were big the last couple years, so if their exports come off the grid a little bit, that will price the US into some markets.
So that could be encouraging for exports.
It remains to be seen.
Probably more interesting to see what happens politically with the President and whether she gets taken out of office or not here, prior to the Olympics.
So it's going to be a busy time in Brazil this summer.
I think the price action has been ---+ some other ingredients have actually been soft during the season here.
So the supply chain has been hard to time.
Overall there hasn't been a steady appreciation of all inputs this season.
Nitrogen is a little bit up and down, moving with the energy markets.
We don't see a big runaway pricing increase happening.
What we need is a stable pricing period across our sales season right now, which looks to be the case.
I think, obviously, we've heard the same things you have.
I don't know that we've seen a lot of that.
And we really do try and keep an eye on all market trends and anticipate where they are going.
We talked a lot about and we have actually executed to position ourselves on the higher-margin side of the nutrient space.
I think it's ---+ so I think we think about it.
I don't know that we are losing sleep over it this point, to be honest with you.
It's not a major macro trend at all.
If anything, it would position us well to work with farmers on maximizing how they manage their crop in that business.
We did say was going to be about 33% for the year is what we are estimating now.
It's a combination of everything.
Right.
So it's kind of hard to say this is the case.
The big thing is, especially as we move to Nutra-Flo, that acquisition, it's really having specialized products that bring value add to the farmer.
That's more of a, if you want to call it, IP-protected kind of specialty solution for growers.
So that's, if you want to call that blending science, it's really a special product.
Some years there's good price appreciation in the markets allow for, if you want to call it fertilizer carry.
We don't comment that, but it's enhanced elevations.
In other years it's more moderate price action.
I would say this year is probably more moderate price action.
But the volumes are good.
So we like the second quarter in fertilizer and feel real strong about our start and like how Nutra-Flo is fitting into our portfolio.
Well, we want to thank you again for joining us this morning.
I also wanted to mention that, for those of you that are interested, this presentation with the appendix slide of additional supporting information will be made available on the Investor Relations section of our website at Andersons Inc.com.
Our next earnings call will be scheduled for Thursday, August 4, at 11 AM.
We look forward to talking with you then.
Have a good day.
| 2016_ANDE |
2016 | K | K
#Yes.
Good morning, <UNK>.
Thank you for giving the opportunity to clarify it.
That is a concern out there.
I feel very good about the progress we are making on the top line.
If you look back over the last three or four years, we've talked about the importance of stabilizing the large four core cereal businesses.
I'm happy to say that if you look at the US, Canada and Australia, you will get the measured data, you can see the categories are stable, and our share is stable across those three businesses.
The UK continually is a work in progress.
That's why we're not happy with this performance, but we expect to see improving results in the back half of the year in the UK.
So core cereal is looking better than what I would say a couple years ago.
Special K has been a major drag.
In fact, pretty much all the loss of sales the Company has had over the last few years has been Special K.
And what you're seeing in business end-markets like Canada and the US, particularly in cereal, that business has stabilized.
And we've still got some work to do in some snacks extensions of Special K, but we're feeling better there.
And so we do think that the growth from Pringles and so on will keep coming through.
And although while we are being cautious and saying flat sales again, is because, one, we are being, I think, prudent from a modeling perspective.
And clearly if we can get sales growth, it will give us even more flexibility in the P&L.
So one, I think we're trying to avoid overstating expectations ---+ over-cooking expectations.
So [good economics].
And secondly, as we do drive for more price realization, as we do de-emphasize some [royal] profit elements of the portfolio, we might see drag on the top line.
But it's a drag that I would not be concerned about, because we are building a stronger core business over time, with a better growth profile.
So I think we're just giving prudent guidance at this stage.
Yes, I would love to, <UNK>.
It is never productive to comment on competitors, but I will give you a perspective of how we are looking at the category.
For me, the category dynamics appear pretty rational.
If you look both across cookies and crackers, both categories are up in consumption, average price is up in both categories, both on a per pound basin, as well as a per unit basis.
Quality merchandising is flat, features and displays are up, displays are down.
So it is pretty rational of what you would expect.
It is more competitive, and I can tell you, as we look at this from a Kellogg's standpoint, our pricing is very similar to what we're seeing in the category.
Our price per pound and per unit, both in cookies and crackers, are up versus a year ago in the quarter.
But ultimately, in the long run, to win in this category, you have to do three things.
You've got to invest in your brands.
You've got to launch innovation consumers love.
And you have to drive in-store excitement.
And so we are going to continue down our playbook in terms of how to go win in this category, and you will see us do that, both in cookies on Keebler, as well as a couple of our regional brands, as well as the big three in crackers.
Good morning, <UNK>.
This is <UNK>, <UNK>.
When you look at Project K ---+ and we've discussed this before with analysts and investors ---+ it is very different than that billion-dollar challenge.
Where we took capacity out of our network, we were actually closing down facilities, that previous billion-dollar challenge, we were simply taking people out of the organization and asking the organization to do the same with less people.
That was a bit harder for them to accomplish.
So we feel good about Project K and the integrity of our infrastructure as a result of the actions we are taking there.
Zero-based budgeting, it's really just a refreshing way to look at our cost structure and ensure the investments that we have are prioritized and aligned with our strategy.
It is nothing more than that.
We are being very thoughtful on how we take costs out of our business and make sure that the investments we're making are aligned with our priorities and strategy.
Gary, I think we have time for one last question.
Good morning.
On Kashi, we feel very good about where we are from an investment perspective.
Now we have the entire portfolio GMO-free, if we can turn the marketing program on in the back half of the year.
We had a very strong slate of innovation go through here at the middle of the year.
So we expect to see Kashi return to growth in the back half of the year.
Now, there are some parts of the Kashi business and frozen pizza items and some other items that we've culled out of the portfolio, so that might continue to drag on the business.
But that was ultimately lower-margin segments of the portfolio anyway.
So we feel good right where we are in Kashi in terms of positioning it for long-term growth.
If I could just say, on K&A Other, because that is a part of the portfolio that did drag in the second quarter, so a few quick comments more broadly on that segment.
Three businesses in there.
One is frozen foods.
In frozen foods, Eggo is actually doing reasonably well when you add in non-measured channels.
MorningStar Farms has gone through a very difficult packaging transition that is now complete.
Turning on the marketing in the back half of the business ---+ back half of the year for that business.
And also, we did cull some SKUs on the Eggo business at the end of last year.
So when you add all that together, it's had a bit of a rough first half, but we do expect frozen foods to return to growth in the second half of the year.
Canada, we have had significant transactional foreign exchange issues in Canada.
We have increased our promotional price points.
That's going to lead to some disruption in the market as that sort of settles its way in.
So I think Canada has a tough year.
It's the right, low-term decision, but it's going to come with a little bit of short-term pain as we go through that.
And then Kashi, as I said, we do expect Kashi to return to growth in the back half of the year, and feel better about it.
So in the back half of the year, we have two of the three businesses within North America Other returning to grow, and we think that the same ---+ we'll look better in the back half than the front half.
No, we have not given that sort of guidance.
I think we'll will wait until each annual discussion, when we provide more color of why it is what it is.
But clearly within a flat sales guidance, you would expect volume to be down a little bit, and price mix to be providing some benefit.
And again, let me reiterate, internally we will chase better numbers than that, but we don't want to promise those numbers.
Clearly we want to deliver them, though, when the time comes.
Hey, Gary, that went faster.
We can do one more.
Hey, <UNK>.
Let me answer the sales question, and I will hand it over to <UNK> to answer the margin question.
On sales, I'd say the heavy lifting on margin expansion is going to be more in North America and Europe, just given the size of those businesses.
And I would expect those businesses to be slightly lower in growth than the portfolio average, with more growth coming from Latin America and Asia Pacific.
So I would say, again, flat is a range.
Flat is not 0.0%.
So I would hope that even those two big businesses can be in the flat ballpark in terms of top-line growth.
But I would not point out that I expect them to grow faster, say, than the portfolio average.
<UNK>, do you want to talk about the margin goal.
Yes, just the way I think about the margin growth, so it is off of a 2015 base, and I have been looking at it on an ex-Venezuela basis.
Venezuela is distorting mainly the 2016 results.
But I think about that growth on an ex-Venezuela basis.
All right, Gary, I think we are finally out of time.
Thanks, everyone.
We appreciate the time on the call, and <UNK> and I and the team are available for follow-up calls throughout the day.
Thank you.
| 2016_K |
2017 | PH | PH
#Okay, <UNK>
You are going to get more than you asked for here
But I think first, just following up on <UNK>, I think what’s encouraging is the organic growth moved largely in the direction we thought from the last call
And many of our markets are showing positive momentum towards year-over-year growth as I go around the world, and I shared that with you
Just on North American distribution, I would say, in general, the mood of our major distributors is fairly positive and this is after a solid order entry during the quarter
And that trend has continued in January, which has led us to the guidance that is reflected here today
I think what’s also encouraging is I checked many of our largest distributors have reported increase in their backlog, so again, bodes well
If I talk about oil and gas on the industrial side, land-based oil and gas is showing increasing signs of growth, which is real positive
There has been obviously and you track this too, an increase in rig counts, which has led to an increase in MRO and some first bid activity
And we are seeing very small signs of recovery with offshore drilling contractors
We do expect the offshore to lag behind the land-based, but there is activity taking place there
I think the best way to sum it up, too, I was talking to one of our key partners in oil and gas, and he said, <UNK>, 60, 90 days ago, I would have said we see sparks, and today I am starting to see smoke
And so there is just things happening out there, which are positive
Just talking about energy markets overall, the market for large frame turbines, was flat in Q2. Our overall business was slightly up due to some market content wins
And we do continue to see positive year-over-year growth in alternative energy such as wind turbines and Parker is benefiting mostly from significant content and customers trying to take advantage of some of the federal tax credit programs that still exist
Residential air-conditioning and refrigeration, <UNK> talked about, we continue to see strong year-over-year growth in commercial and residential air-conditioning and we expect that to continue going forward
On the mobile markets in North America, most key customers are still showing year-over-year decline in Q2. This includes off-highway construction, farm and ag equipment material handling
But we are getting many positive inputs and preparedness requests from many of our key OEM partners
So I think that bodes well going forward
So I would call that segment
It appears that we have really formed the bottom with some upside
Just turning to EMEA and I will be brief here
On distribution, it’s still slightly negative year-over-year
However, the distribution order entry is beginning to show signs of strengthening
The order entry rates definitely improved during the quarter on a year-over-year comparison
Oil and gas is probably the biggest impact still in Europe, but it’s flattened out and we definitely see signs of strength in distribution that focuses on core industrial end markets
So, that’s positive
Just in general, industrial, I would just say positive markets like North America, we have seen a real uptick in mining and related equipment
This would be hard rock mining for iron ore, etcetera and then semiconductor and telecom are very – both very strong
Oil and gas, I talked about, still very low year-over-year, but we – it does appear the bottom has formed with the activity taking place in the North Sea
And then in the mobile markets, we do see an increased activity in forestry and off-highway construction equipment markets
In Asia Pacific, I would say it’s a very positive story and it’s really continued from the story we told last quarter
So in distribution, we are very encouraged by our focus and progress on distribution
The order entry was a positive and we continue to add new distribution outlets
In the industrial markets, almost all industrial markets are positive year-over-year and order entry continues to be strong
Strongest markets include machine tools, mining again, semiconductor is very strong, life sciences and medical equipment
And then in the mobile equipment markets, that’s probably perhaps the strongest sequential and year-over-year growth and order entry came from those markets
And those strong end markets include off-highway construction equipment engines, cars and light trucks
And then just lastly, I will touch on Latin America
We continue to be encouraged by Q2 order entry
As you know, Brazil still has its share of issues, but there are some positive things taking place in Ag, construction equipment and then distribution, all obviously from a very low base
So bottom line, organic growth continues to move in a direction we talked about
And I think we are all encouraged by what we see in many of our end markets and regions right now
<UNK>, it’s <UNK>
First, from a cost price standpoint, we are still slightly positive on price
So it’s something, if you followed us long enough, we try to really stay ahead of that
It’s not a pricing environment we have seen in the past, but we are still slightly positive
And I would say, on the organic growth guide, we are just trying to be as realistic as possible
I mean, it’s early days right now
So, we have kind of done this bottoms-up and with our regions and some of our key customers and that’s what we are trying reflect here
Where we have got heavy content, usually, we have contracts in place with our end customers where the pricing is adjusted because of the raw material increase and it’s not a big portion of our business
But I think we all feel pretty comfortable about what we do internally to manage that
Yes, <UNK>, you are going to have to remind me on the distribution question again
But on the preparedness question, so just dealing with some of our customers that have been suppressed for some time, we are starting to have conversations with us now looking forward
And it’s mostly towards 2018 to be candid with you, just about being prepared because they do have an anticipation, there is going to be some growth here
So it seems to be – you will walk away with the sense that things have kind of plateaued, hit a bottom, and let’s just talk about what’s going to be happening going forward
Fairly broad
No, I would not characterize the channel as inventory heavy at all
And you know some of them that were tied to oil and gas did get stuck with some inventory
I would say, by and large, that’s not 100% gone, but it’s burned off quite a bit
So I don’t consider the channel heavy at all
Thanks, <UNK>
| 2017_PH |
2017 | CHE | CHE
#Thank you, <UNK>.
Good morning.
Welcome to Chemed Corporation's Second Quarter 2017 Conference Call.
I will begin with highlights for the quarter, and <UNK> and Nick will follow with additional operating detail.
I will then open the call up for questions.
As most of you are aware, in the quarter, Chemed recorded an after-tax charge of $55.8 million or $3.49 per share for potential litigation settlement relating to a U.S. Department of Justice complaint filed against the company in May of 2013.
We are required by U.S. Generally Accepted Accounting Principles to accrue for any contingent litigation claim when it is probable that a liability have been incurred and the amount can be reasonably estimated.
Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, I believe it is probable that this matter can be settled accordingly.
However, the achievement of final definitive settlement will require the parties to resolve several outstanding issues, and there can be no assurance that a final definitive settlement will be reached.
Now let's focus on what was an excellent quarter in terms of operational performance and financial results.
In the second quarter of 2017, Chemed generated $415 million of revenue, an increase of 6.3%.
Consolidated net income in the quarter, excluding potential litigation settlement and other discrete items, generated adjusted earnings per share ---+ diluted share of $2.15, an increase of 19.4%.
Both VITAS and Roto-Rooter performed well, exceeding the high end of our internal projections.
VITAS, after lapping the disruption triggered by the 2016 rebasing, generated on a Unit-for-Unit basis admissions growth in the quarter of 1.3%, an average daily census growth of 3.4%.
Roto-Rooter continues to show excellent results in our core Plumbing and Drain Cleaning service segments as well as strong growth in water restoration.
This resulted in Roto-Rooter having record revenue, adjusted EBITDA and adjusted ---+ and EBITDA and adjusted EBITDA margin in the quarter.
During the quarter, the company repurchased 150,000 shares of Chemed stock for $30.8 million, which equates to a cost per share of $205.34.
With that, I would like to turn this teleconference over to <UNK> <UNK>, our Chief Financial Officer.
Thanks, <UNK>.
Net revenue for VITAS was $285 million in the second quarter of 2017, which is an increase of 2.1% when compared to the prior year period.
This revenue increase is comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 1.7%, a 2.8% increase in average daily census, offset by acuity mix shift, which negatively impacted revenue 2.5% when compared to the prior year period.
VITAS recorded $247,000 in Medicare Cap billing limitations in the quarter, all of which related to prior years' Medicare Cap billing periods.
At June 30, 2017, VITAS had 30 Medicare provider numbers, none of which has an estimated 2017 Medicare Cap billing limitations.
Our average revenue per patient per day in the quarter was $190.96, which is 0.6% below the prior year period.
Routine home care reimbursement and high acuity care averaged $163.11 and $722.16, respectively.
During the quarter, high acuity days of care were 5.0% of total days of care, which is 85 basis points less than the prior year quarter.
The second quarter of 2017 gross margin, excluding Medicare Cap, was 22.9%, which is 133 basis point improvement when compared to the second quarter of 2016.
Our routine home care direct gross margin was 52.8% in the quarter, an increase of 90 basis points when compared to the second quarter of 2016.
Direct inpatient margin in the quarter was 3.7% and compares to 4.6% in the prior year period.
Occupancy of our 29 dedicated inpatient units averaged 68.8% in the quarter and compare to a 74.3% occupancy rate in the second quarter of 2016.
Continuous care had a direct gross margin of 18.0%, an increase of 420 basis points when compared to the prior year quarter.
Average hours billed per day of continuous care was 17.9 in the quarter, which is a slight decrease when compared to the 18.2 average hours billed for continuous care patient in the second quarter of 2016.
Now let's turn to the Roto-Rooter segment.
Roto-Rooter's Plumbing and Drain Cleaning business generated sales of $130 million for the second quarter of 2017, an increase of $18.7 million or 16.7% over the prior year quarter.
Commercial drain cleaning revenue increased 1.4% and commercial plumbing and excavation increased 10.6%.
Overall, commercial revenue increased 6.4%.
Residential plumbing and excavation increased 14.5%, and drain cleaning increased 6.7% and our aggregate residential sales increased 22.3%.
Revenue from water restoration totaled $20.9 million, an increase of 72.1% over the prior year.
We have also updated our guidance for 2017, which is as follows: revenue growth for VITAS in 2017 prior to Medicare Cap is estimated to be in the range of 2% to 3%.
Admissions and average daily census in 2017 are estimated to expand in the range of 3% to 5%, and full year adjusted EBITDA margin prior to Medicare Cap is estimated to be 15.0% to 15.5%.
We are currently estimating $2.5 million for Medicare Cap billing limitations in the second half of 2017.
Roto-Rooter is forecasted to achieve full year 2017 revenue growth of 12% to 13%.
This revenue estimate is based upon increased job pricing of approximately 2% and continued growth in water restoration services.
Roto-Rooter's adjusted EBITDA margin for 2017 is estimated in the range of 22.0% to 22.5%.
Based upon the above, our full year 2017 adjusted earnings per diluted share, excluding noncash expense for stock options, costs related to litigation and other discrete items, is estimated to be in the range of $8.10 to $8.20.
This compares to Chemed's 2016 reported adjusted earnings per diluted share of $7.24.
I'll now turn this call over to Nick <UNK>, Chief Executive Officer of VITAS.
Thanks, <UNK>.
VITAS had a solid quarter, financially and operationally.
On a Unit-for-Unit Average Daily Census in second quarter was ---+ of 2017 was 16,398 patients, an increase of 3.4% over the prior year.
Total Unit-for-Unit Admissions in the quarter were 16,311, an increase of 1.3%.
During the quarter, admissions generated from hospital referrals, which typically represent over 50% of our admissions, increased 1.6%.
Home-based admissions increased 2.8%.
Nursing home admissions decreased 2.2%, and assisted living facility admissions declined 0.6% in the quarter.
Our per patient per day ancillary costs, which include durable medical equipment, supplies and pharmaceutical costs, averaged $14.51 and are 8.9% favorable when compared to the $15.92, the cost of these items incurred in the prior year quarter.
Our inpatient care currently consists of 29 dedicated units as well as contract beds.
We evaluate inpatient capacity on a market-by-market basis to ensure these facilities are appropriately positioned to meet the needs of our patients in every community we serve.
This process involves reviewing all of our existing and potential future inpatient contractual arrangements, and where necessary, working with our partners to renew, restructure or exit the facility to best service the community.
Within continuous care, we have also enhanced our focus on the labor management of continuous care related to appropriate nursing to aide staffing assignments and the appropriate utilization of outside nursing agencies based upon the patient's location and the individual needs.
These efforts improved our continuous care margins 420 basis points when compared to the second quarter of 2016.
VITAS's average length of stay in the quarter was 85.2 days, which compares to 84.2 days in the prior year quarter.
Median length of stay was 16 days in the quarter and is equal to the prior year quarter.
Median length of stay is a key indicator of our penetration into the high acuity sector of the market.
With that, I'd like to turn this call back over to <UNK>.
Thank you, Nick.
I will now open this teleconference to questions.
Well, my only closing remarks is to thank our operating executives who are here for achieving another very good quarter.
And we've raised guidance and I'm ---+ I have a degree of confidence that, that is certainly achievable, and we'll do our best to do so.
But thank you for your kind attention, and we'll reconvene in about 3 months.
| 2017_CHE |
2018 | VSI | VSI
#Thank you, Alex, good morning, everyone, and thank you for joining us.
I appreciate Alex's comments and want to thank the board and the company for the opportunity to serve over the past 3 years.
Now on to the business at hand.
Looking back on Q4 and 2017, overall, we are seeing progress in our business recovery.
Throughout the year, we launched a series of initiatives focused on price value, customer acquisition and retention, which are having positive impact in our results.
We also improved our product margins by 50 basis points in the quarter.
Our overall transaction count increased in Q4, and we saw positive growth in new customer acquisition as well.
We also saw our comp declines further moderate to negative 3.2%, adjusted for holiday timing of the 53rd week.
Fourth quarter comps represented sequential improvement from our Q3 comps of negative 5.8%, excluding hurricane impact, and Q2 comps of negative 8.3%.
The initiatives we rolled out last summer, which focused on improving our performance in the area of digital commerce and the launch of our new Spark Auto Delivery program, are all performing well.
During the fourth quarter, we continued with our stepped-up marketing and promotional activities begun in Q3.
We increased digital marketing investments in both paid search and performance marketing.
In our stores, we continued to refine our incentives and grassroots marketing programs to help drive stronger traffic and customer acquisition.
All of these actions resulted in a positive growth in both new customers and overall transactions in Q4.
Our launch of our innovative Spark Auto Delivery platform has also exceeded expectations.
And I'm happy to say that the program, which was launched in August 2017, had almost 400,000 active subscriptions by year-end.
Importantly, the retention rate and incremental sales contributions are running ahead of our expectations as well.
With respect to our strategic pricing initiative, overall, we have seen improvement in unit volume and traffic trends, but margins are not yet where we want them to be.
As a result, we will continue to fine-tune our pricing strategy in order drive the best balance between traffic growth and overall profitability.
Our continued focus on private brands is driving increased penetration, up 95 basis points in fourth quarter 2017 and 110 basis points for the full year.
During the quarter, we relaunched our MyTrition line with new packaging and products.
And earlier in the year, we introduced new innovation across multiple brands.
We are seeing particular success with the plnt brand up 25% and the ProBioCare brand up 10% in 2017.
And I'm also pleased that we have made progress in broadening our vendor partnerships, and with the expansion of Performance, one of the fastest-growing brands in sport supplements.
Nutri-Force, our manufacturing business, was restructured over the past 9 months and has improved its overall performance and reliability, but still represents a drag on overall profitability.
As we developed our new 3-year plan for Vitamin Shoppe, we have done a thorough review of the future prospects of the Nutri-Force business and have decided to evaluate a range of strategic options for the operations of the business, including a possible change of ownership.
No matter what action we decide to pursue, it will be important for us to maintain the continuity of product supply from Nutri-Force to achieve our product brand growth and margin goals in the future.
I will now turn over the call to <UNK> to provide further details on our financial results for Q4 and full year 2017.
Thank you, <UNK>, and good morning, everyone.
On a GAAP basis, the loss per share in the fourth quarter was $0.75, impacted by a $15.3 million tax charge to revalue our net deferred tax asset base on the new tax reform legislation as well as $800,000 pretax in net expenses associated with the closure of the North Bergen facility.
This was partially offset with a net pretax $3.7 million reduction in previously recorded Nutri-Force restructuring costs.
Adjusting for these items, the per share loss in the quarter was $0.17.
As mentioned on our last call, we increased our level of investment in key parts of our business to accelerate improvement.
These actions helped to drive an improvement in our cost of sales.
During the fourth quarter, comps were a negative 4.6%, or a negative 3.2% adjusted for the timing of the Christmas holiday, as Christmas fell in our 53rd week in 2016.
Our store comps declined 7%.
This decline was partially driven by our customer shifting to Auto Delivery fulfillment.
Digital commerce, which includes vitaminshoppe.com and Auto Delivery, increased 15.3%.
Given the propensity of customers shopping on an omnichannel basis, coupled with our strategy to focus more on omnichannel, we believe the most accurate way to judge how our business is progressing is to look at total comps.
We will also continue to report digital commerce comps, as it is a major focus and area of investment going forward.
As we have been discussing over the past several quarters, we have restructured Nutri-Force to reduce complexity and improve overall profitability.
In the fourth quarter, Nutri-Force recorded operating income of $15.3 million (sic) [$5.3 million].
This includes the $3.7 million net reduction in restructuring costs, mainly relating to reductions in inventory obsolescence and accounts receivable reserves taken earlier in the year.
We finalized the streamlining of this business in the fourth quarter, resulting in better than previously estimated charges.
Excluding this $3.7 million benefit, Nutri-Force's operating income was $1.6 million, a significant improvement from losses reported in the prior quarters.
While we are pleased with that improvement in performance, the fourth quarter benefited from a stronger year-end business and gross margin adjustments and is not necessarily indicative of the performance we expect for 2018.
For 2018, we expect an improvement, but we'll still operate at a loss.
And as <UNK> discussed, we are also exploring strategic alternatives for this business.
Now on to gross margins.
Excluding the special adjustments for the North Bergen facility and Nutri-Force previously discussed, adjusted gross profit margins declined 180 basis points from the fourth quarter of 2016, mainly from deleverage in the business.
Components of the changes in gross profit rate include a product margin improvement of 50 basis points year-over-year, reflecting the benefits of lower cost from improved vendor partnerships and favorable product category mix shift, including the impact from the growth of private brands.
This was partially offset by our decision to increase promotional pricing activity as well as increased shipping costs with the strong growth of our digital business.
Supply chain and occupancy deleveraged by approximately 250 and 140 basis points, respectively, due to lower sales as well as some deleverage from supply chain, as we were operating 3 DCs through the end of the year.
North Bergen distribution operations have now all been transferred to our other 2 facilities in Virginia and <UNK>zona.
And we are now working on closing the facility, including moving office personnel to other New Jersey locations by the end of the lease time in August.
Lastly, gross margins benefited by 160 basis points from improvement in the Nutri-Force business.
Reported SG&A expenses were $87.1 million, and include a $0.4 million reduction in previously reported costs related to the Nutri-Force turnaround.
On an adjusted basis, SG&A as a percentage of sales delevered by approximately 500 basis points.
This deleveraging is mainly driven by store payroll, advertising, other store operating costs and corporate costs.
Corporate costs include one-off consulting cost of $1.3 million.
In addition, annual and long-term incentive costs were higher by $2.3 million, mainly driven by favorable accrual adjustments last year.
Advertising spend increased $2 million year-over-year, with incremental investments focused on customer acquisition.
As <UNK> discussed, trends improved during the quarter, increasing 0.3% in new customers, a solid improvement from the negative 17.4% in the first 3 quarters of the year.
Given this improving trend, we are continuing this higher rate of advertising investment in early 2018.
You may have noticed an increase in reported depreciation and amortization in Table 2 of our press release.
This is due to a change in classification we made on our statement of cash flows during the quarter.
This amount now includes depreciation and amortization associated with our supply chain assets, classified within cost of goods sold of approximately $1.7 million per quarter or $7 million for the year.
For the first 3 quarters of 2017, the amount in Table 2 and in our statement of cash flows specifically represented depreciation and amortization recorded in SG&A only.
We are now reporting the combined amount.
This only impacts 2017, as in prior years, this cost depreciation was classified within SG&A.
As such, full year amounts are comparative on the statement of cash flows.
One last point on expenses.
The fourth quarter 2017 includes $800,000 of store impairment charges as compared to $400,000 on an adjusted basis in 2016.
Our balance sheet at year-end remains healthy.
We ended the year with cash and cash equivalents of $2 million, convertible notes with a total face value of $144 million and $12 million drawn on our credit facility.
Our total credit facility [line] is $90 million, with the opportunity to increase to $150 million at the company's discretion, providing for strong liquidity to support operations, fund growth initiatives and other capital allocation alternatives.
Capital expenditures for the year were $55 million and included approximately $15 million for the new DC.
Additional funds were expended on the opening of 15 stores, cost associated with accelerating the closure of North Bergen facility, mainly building additional office space in Secaucus, and the BDS and [LMN3] models and IT investments.
For 2018, we are planning a significant reduction in the level of capital expenditures, which I will further discuss when I cover our top line guidance.
I will now turn the call back to <UNK> to provide an update on our new 3-year Base Plan.
Thanks, <UNK>.
So our 2017 performance was disappointing and made it clear that we have been lagging the rapid shift to omnichannel digital retailer.
As a result, over the past several months, working closely with our board and external consultants, including McKinsey and Digital Prophet Networks (sic) [Digital Prophets Network], we have developed our New Base Plan, that when fully executed, will give the Vitamin Shoppe the capabilities, functionality and characteristics that are the table stakes for modern retailers to be competitive.
While the successful implementation of our New Base Plan will improve customer engagement and profitability, I want to emphasis that it is not an end in itself.
Once completed, the plan will position the Vitamin Shoppe as a compelling health and wellness brand and will be the foundation for additional business growth through new category innovation, deeper customer personalization and unique business partnerships to help enrich the lives of our customers.
As we built our new plan, we started with a deep analysis of the wellness market and the wellness consumer.
The market for wellness continues to have very attractive attributes, including solid underlying growth projected by multiple sources to be high single digits, driven not only by Baby Boomers' obsession with quality of life, but also Millennials and Gen Z for spending even more than their parents on wellness, fitness and better-for-you products.
While innovation has slowed somewhat in our core supplement market, we are seeing growth through new products coming to market in the guise of more convenient food forms, such as chews, bars and ready-to-drink products.
We are also seeing new brands with rapid growth profiles bringing new excitement to the market, particularly in the areas of functional foods, sports nutrition and lifestyle categories, such as aromatherapy and natural beauty.
So while the wellness market itself continues to grow, what has changed is the way consumers navigate and shop this market.
The wellness customer, while still purchasing the majority of their products at traditional retail stores like ours, are rapidly shifting the way they discover, navigate, decide and ultimately ascribe loyalty, based on aggressive adoption of mobile, internet tools and social media.
Our strategic vision for the Vitamin Shoppe is to become the wellness authority for our customers, delivering a personalized experience and innovative products to support our customers' wellness goals.
Our New Base Plan is built around the customer decision journey and accomplished by the implementation of 5 of our strategic pillars that will follow this journey: Targeted acquisition, engaging omni experience, differentiated product offerings and personalized loyalty and replenishment.
Finally, operational excellence is the foundational pillar that helps drive fulfillment and profitability across the entire strategy.
You can see this entire picture on Page 7 of the presentation that is now on our website.
The approach is simple and powerful.
Our first pillar, customer acquisition, is driven by a stepped-up level of relevant contents and wellness expertise that help customers navigate both online and in-store during the discovery phase of their journey.
We are also increasing our marketing spending and support at 2 levels of the business.
In 2018, we expect a significant increase in acquisitions through paid search and paid social channels as well as the strong grassroots efforts we started in the back half of 2017, which will continue throughout 2018.
As we mentioned, we returned to customer acquisition growth in Q4, and we are seeing continued momentum in Q1 as well.
Our second pillar is improving customer conversion through upgrades to our omni customer experience.
Shopping for wellness solutions, particularly across broad supplement categories, is overwhelming for most customers.
And while our store Health Enthusiasts themselves have been benchmarked as best in the industry, through helping guide and coach our customers, we have a significant opportunity to upgrade our digital tools and online offerings to mirror the in-store experience.
Last week, we launched our new Vitamin Shoppe mobile app, which enhances our customer experience and ease of shopping significantly.
In addition in Q4, we introduced a more integrated calendar for omni promotional events.
These events are designed to provide excitement and entertainment to our customers, both in-store and online, including special contests, tasting and sampling events as well as celebrity visits in our stores that are also broadcast on our site and across platforms like Facebook Live.
In the past 4 months, on the weekends when we have hosted these events, we have seen double-digit spikes both in customer count and comp sales, which clearly indicates that we're onto something good.
Pillar 3 is about providing a unique and differentiated product solution set to better meet our customers' needs.
Over the past year, we've embarked on a substantial upgrade to our assortment.
We've been working in conjunction with some of our best vendor partners, including folks like Glanbia and Garden of life, to build fully integrated programs for their brands.
Additionally, in 2018, we will be introducing several unique product lines or exclusive flavors from top vendors to increase the level of innovation and differentiation of our assortment in a heavily competitive market.
A couple of good examples include unique flavors of the rapidly growing Bang ready-to-drink line and the recently launched Jay Cutler line of sports nutrition products, both of which are exclusive to the Vitamin Shoppe.
And finally, there continues to be a major role for our own private brands, which account now for 22% of our sales, but has significant growth potential going forward.
Leading this effort is Dave Mock, who recently joined the leadership team as Executive Vice President and Chief Marketing and Merchandising Officer.
Dave brings years of experience of leading retailers in Canada, including Loblaws, Canadian Tire and Zellers, and here in the States, leading the growth of Earth Fare in the Carolinas.
Dave is a seasoned veteran in building strong private brands, partnering with vendors in powerful ways and driving very strong business results.
Our fourth pillar is focused on customer loyalty and replenishment.
As you are aware, 75% of our customer visits to the Vitamin Shoppe are replenishment trips.
We start with a loyalty program, which is both a rich source of customer data, but once upgraded in 2018, can be a major driver of incremental revenue growth through the modernization of the program's structure and customer reward points.
Currently about 90% of our revenue comes from our Healthy Awards members, and as we finalize our new Healthy Awards loyalty program, we are designing it to provide tiered membership benefit levels for all our customers.
We will also use our new loyalty program as a vehicle to enhance our CRM approach via personalized e-mails, content and offers.
We will be in pilot for the program in Q2, with rollout expected later in 2018.
Additionally, Spark Auto Delivery continues to be a major source of incremental growth to our customer ---+ to our company, fueling our digital commerce push, as it brings a novel subscription solution to all of our customers.
In 2018, we will continue to enhance this platform by focusing on upgraded technology and offers geared toward driving stronger cross-selling and upselling to our customers.
The economics of Auto Delivery are compelling, with an average of over 50% incrementality for customers who are in the program after 5 months, which is the majority of sign-ups.
And as we forecast impact to customer lifetime value, our analytics show that customers that subscribe to Spark Auto Delivery see a $100 annual increase on overall spending with the Vitamin Shoppe, above and beyond their subscription purchases.
We are also getting great support from our vendor partners, who see the brand loyalty and incremental growth potential of Spark Auto Delivery and are helping provide support for the program through samples and trade funding offsets.
Our fifth and final strategy focuses on operational excellence, which includes a relentless focus on driving efficiencies, controlling our costs and increasing our overall margin at the Vitamin Shoppe every year.
Our operational excellence is guided by a heightened focus on free cash flow and includes a significant reduction in our CapEx going forward, as well as uses for our cash across a broad range of capital allocation options to return value to our shareholders.
Now a brief comment on our store network strategy.
We opened up 15 stores in 2017 and closed 5.
As part of our long-term strategy planning process, we also completed an evaluation of our store network strategy.
We know that having stores is a competitive advantage and our Health Enthusiasts provide information and knowledge that our customers value.
We will continue to find ways to share that knowledge, as we continue to enhance our omnichannel customer experience.
At the same time, we will be significantly cutting back on new store openings, with only 2 planned for 2018.
Although we are slowing new store openings, we remain committed to innovation at the store level.
In 2017, we introduced our kombucha bar on-tap and our fit freezer cooler sections to over 80 stores by year-end.
We are also starting to see an increase in both overall basket and frequency of visits in these locations.
Before I hand the call back to <UNK> to provide our guidance for the current year and a bit about how we see the business longer term, I want to reiterate that working with the board, the senior leadership team and external consultants, this plan is spawned from the need to adopt an aggressive turnaround mentality to get the business back to financial health.
The solid fundamentals underpinning the businesses ---+ the business does not change.
Work has already begun, and we are seeing solid quarter-over-quarter recovery across almost all areas that we are addressing.
We expect that these benefits from these initiatives will translate to healthy growth and more reliable profitability, as we establish a new platform for growth opportunities for the Vitamin Shoppe.
Now I'll turn it over to <UNK>.
Thank you.
Before I cover our thoughts on guidance, I would like to make a point of clarification on a number I stated earlier.
Reported Nutri-Force operating income is $5.3 million, not $15.3 million.
Now I will discuss our guidance for the current year and provide our thoughts on longer-term outlook for the business.
For 2018, we expect continued progress and steady improvements in sales comp trends, and we are targeting to have flat comps by the end of the year.
This expected improvement is driven mainly from continued growth of our Spark Auto Delivery program and improvements in customer acquisition trends, which work to offset the continued competitive headwinds.
Overall for the year, we expect comparable sales growth in the low to mid-negative-single-digit range.
This includes growth in digital commerce, including vitaminshoppe.com and Auto Delivery sales of over 20%, offset by a decline in store sales, as more customers shift to e-commerce.
Year-to-date 2018 trends support this guidance, with comps generally consistent with adjusted fourth quarter 2017 trends.
Overall, we expect the gross margin rate to be close to flat with the 2017 rate.
We expect an improvement in rate from the annualization of savings from our cost of goods sold reduction initiatives as well as improvements from Nutri-Force, offset by increased delivery expense and fixed cost deleverage.
We expect an increase in SG&A expenses of 2% to 2.5% over 2017.
This excludes expenses associated with the CEO change.
This increase includes an increase in advertising expense, which we are planning to be more heavily weighted earlier in the year.
For the first quarter, we expect an increase in SG&A of around 10%.
Total depreciation and amortization expense is estimated at approximately $40 million.
With the new tax legislation, we expect a combined federal, state and local tax rate of 28%.
This excludes taxes associated with permanent book-to-tax differences estimated at $0.5 million to $1 million.
Total capital expenditure is planned to decrease significantly to approximately $30 million, with further tightening in future years.
This decrease is driven by the completion of the new <UNK>zona DC in 2017 and a decrease of new stores to only 2 planned for 2018, partially offset by increases in digital investments, which is planned to be our largest area of investment.
We plan to close approximately 10 stores during the year.
With the reduction of capital expenditures, combined with continued favorability from cash generating activities, including inventory reductions, we expect positive free cash flow for the year.
We will continue to evaluate and discuss capital allocation alternatives with the board, including stock and debt buyback activity, while also maintaining adequate liquidity.
Longer term, we expect a continued significant growth from digital commerce, as customers shift their buying behaviors from bricks and mortar to digital, and project that digital commerce could represent over 25% of Vitamin Shoppe sales in 3 years, up from about 10% now.
With this expected significant channel shift, we will increase the sales in channels with higher variable costs, mainly shipping costs, but much lower fixed costs.
As such, it will be critical that we continue to evaluate our store network and seek opportunities to significantly reduce fixed costs by closing underperforming stores.
Our guidance assumes the closure of 10 stores in 2018.
However, this rate of closure could increase as we look to optimize our store network.
With this growth towards digital commerce, we expect operating margin improvement from improved sales and lower fixed costs, offset partially by an increase in variable costs.
This ends our prepared remarks.
We'd be happy to take your questions now.
Operator, please open the line to questions.
Sure, I'll take that call ---+ take that question, sorry.
So during the fourth quarter, we generally saw comps improving during the fourth quarter, with December being the strongest month.
In the ---+ as we look at the first 2 months of the first quarter, we are seeing, I would call it, gradual improvement.
We did have a softer early January, quite frankly.
There were some pretty significant storms that did impact the comp.
But overall, I would say it would be sort of a steady, gradual increase during the quarter.
I'll take that.
Yes, it's a good question.
We started last summer to run pilot programs that combined the benefit of driving spending on the digital level, both paid search and paid social.
Last summer was the first time we had spent ever on paid social as a company, and we combined that with strong grassroots activities.
So these would look like both in-store and around-store events that we would have our Health Enthusiasts populate.
In some cases, we'd actually sponsor some of those events in order to attract new customers coming into the Vitamin Shoppe.
All of those would be coupled with strong offers, either promotional offers on our third-party vendor business and/or on our private brand business.
We piloted that in third quarter, we saw good results, increased that for a few weeks during fourth quarter.
And now basically, our 2018 outlook looks to assume that we will be consistently supporting that throughout the year this year.
So it's really a combination of digital media support and really hard hustle at the store level that's helping us deliver those customer acquisition numbers.
Yes, as we think about 2018 and looking at current trends, we do expect the continued improvement in product margins, and that gives for many of the same reasons we saw the improvement in the fourth quarter.
So we have the benefit of mix shift, including the increase in private brands as well as the benefit that we're continuing to realize from improved vendor relationships and the lower cost of goods sold associated with that.
That is offset by increased promotion and pricing activity, which we're continuing to focus on, and quite frankly, we believe there is adjustments that we can make there, which will help gross margins going forward.
<UNK>, it's fair to say we got more ---+ we got sharper, both on pricing and promotion, middle of last year.
As we look back at that work, we see some opportunities for some very significant adjustments, not necessarily to lower overall promotion level, but to make it smarter, in terms of its impact on the business.
And we think overall, that's going to help our margin position as well as the year progresses.
No, it's been fairly consistent.
All the same types of trends that we saw in 2017 continue in 2018.
Yes, continues to be very promotional in 2018.
<UNK>, we're facing the same situation we have for most of 2017.
The vast majority, over 80% of our decline, sits in the sports and weight management business.
The actual ---+ the VMS side of the business continues to be fairly stable, as we move forward to the business.
We've been participating on a year-to-date basis in improvements in areas that are tied to the flu season and other areas.
But in general, I's say the mix is similar.
We're working closely with top vendors in the sports nutrition area.
We think that's going to help us to be able to address some of the softness we've seen on that side of the business in the last year or so.
And we're bullish about our opportunities in terms of both private brand growth and some of the new innovation that we're seeing on the VMS side of the business as well.
Sure, I'll take that.
So as you know, in the middle of 2017, we did change our approach to guidance.
We specifically backed off from giving specific EPS guidance, and instead, we are providing guidance around the drivers of the business.
And that, quite frankly, is given the environment that we're operating in, we have experienced much more volatility in the past 12 to 18 months than we did prior to that.
So by giving guidance this way, quite frankly, as you do the math, you will have quite a range of potential outcomes with respect to operating income and EPS.
So to specifically address your operating income point, if you were to take the lower end of the range on all of the components we provided, yes, you would get to operating income that would be flat to into the negative.
On the other end of it, if you were to take the higher end, you would be in the double-digit positive.
So it is quite a range, we acknowledge that, given the environment that we're in.
Great, just a quick one on the store footprint.
So you guys said that you might accelerate the closures above the 10 from this year.
Would you care to comment maybe on what you think of a longer-term footprint, where that could stand maybe over the next couple of years.
<UNK>, I don't think we're in a position right now to make a comment about the longer-term footprint, except for the fact that I would just say we continue be diligent.
We have a dedicated team that's looking at the performance of all of our real estate.
We are actively renegotiating leases where it makes sense in the marketplace.
And ultimately, as I said earlier in the call, there is a clear role for our stores in our network, but we are shifting towards a more omnichannel stance as a retailer.
And so we want to make sure we have the right balance between the fixed cost of our store network and what we're doing digitally for the business moving forward.
Okay, and then just a quick follow-up.
If I heard you correctly, did you say that you might have seen somewhat of a benefit from what's been a very bad flu season.
And if you did, how big was that.
I can't give specifics, <UNK>, except for the fact, like any retailer that has products that are in cough, cold, flu areas, everyone is seeing a bit of an improvement because of the seasonality.
So I'll take that, <UNK>.
So it ranges year-to-year, but in general, we have anywhere between 60 and 80 stores that are up for renewal each year.
And generally, those renewal periods are for 5 years.
And if we look at the average length between now and renewals, it's probably on average, 5 to 6 years.
I will say, as we go to renegotiate renewal periods, oftentimes, we look to build more flexibility and reduce the renewal periods to something less than 5 years.
Thanks, everybody, for attending the call.
We look forward to speaking with you on the next call of next quarter.
| 2018_VSI |
2015 | EBIX | EBIX
#Thank you.
Thanks everybody.
I think, we look forward to being again on the call and presenting our third quarter results.
Thanks again.
With that I will close the call.
Thank you.
| 2015_EBIX |
2016 | AVT | AVT
#<UNK>, this is <UNK>.
Our inventory was down 5.6% sequentially, so I think we're adjusting our inventory based on the market realities that present themselves.
Inventory was up 10% year over year, and that was really due to much less velocity.
As you said, we saw the velocity in the high-volume fulfillment engagements slow, particularly in December.
That created a different dynamic for us.
If you look at what drove the year-over-year difference, it was that, because, remember, last December quarter we had a high watermark in our high-volume fulfillment engagement and the velocity was quite high.
So, that's the main difference, if you look at our inventory on a year-over-year basis.
The balance of the inventory we have we believe is appropriate to support core demand.
And I would expect inventory to be flat to slightly down sequentially.
<UNK>, let me start with the difference between maybe what we're seeing in the market and the suppliers.
Again, if you remember a couple of quarters ago, a lot of our suppliers had negative outlooks and we had a more positive outlook.
And at that time, a lot of that was related to weakness in coms in automotive.
And now, if you look at what a lot of the suppliers who have been a little more bullish this quarter are talking about, they're talking about improved coms and improved automotive.
Those aren't big markets for us.
I think when it comes to core industrial, I think that's the big difference between why we're not as bullish as some of the suppliers who have come out this quarter are.
When it comes back to inventory, again, like I said, I think inventory ---+ we took inventory down 5.6% sequentially, and I think it's in line with where we see the business.
And we do believe that inventory will be flat to slightly down this quarter.
I think our inventory, as a lot of the suppliers have said, they're starting to see distributor inventory come back in line.
And if you take out our high-volume fulfillment business, that really from a velocity perspective came down this quarter.
I think that's the big difference when you look year over year.
As you say, we've had an ongoing process for ERP systems, so we've rolled them out in multiple businesses around the world up until now.
We are rolling out the ERP in our Americas business here.
Our plan is to roll that out, to kick that off in April.
So, we're on track at this point.
We don't perceive any issues with that.
We don't believe it will have any major impact on our business at this point.
And we look forward to getting on that new system to give us some efficiencies that we don't have based on our current outlook.
<UNK>.
Yes, <UNK>, this is <UNK>.
I would just reinforce, we have very robust change management plans in place.
Over the last three to four years, we successfully pulled this off with our computer business in the Americas, followed by our computer business in Europe, and now moving to the components business in the Americas.
We take nothing for granted, but it's been two years of planning and preparation.
User acceptance testing actually going on right now, and we're keeping a very close eye on it.
We do understand the potential impacts and got a top-notch team with some experience here that we have a high degree of confidence in.
So, all systems go and we'll keep you posted.
Thanks, <UNK>.
Actually, our gross margins year over year were up in the Americas and were up in our core Asia business if you take out the high-volume fulfillment engagement.
Year-over-year gross margins were down in our EMEA business.
And, again, we had talked about over sequential quarters of price increases that suppliers put on us that we're passing through to customers over time because we have contracts with them.
Sequentially, our gross margins in EMEA actually went up.
We see the improvement in those gross margins, and we'll continue on that march of improving gross margins in Europe over the balance of the fiscal year.
There are two ---+ in general, we are now very careful what type of deals we go after.
We are really carefully looking at what's the return, so what's the margin, and what's the return on working capital.
So, we are really paying attention to it.
The main business unit which has been impacted by that approach has been the component business.
The component business sales dramatically dropped.
The main reason ---+ you have some market conditions but you have also the selection from business which was not profitable.
So, yes, there is, I would say, at the moment we are paying a lot of attention to profitability to build a very sound base for future growth.
When it comes to storage, storage is roughly half of our hardware business.
Now, the split between legacy technology and new technology, I would say it's something around 75%/25%, 25% for the new generation, 75% for the old one.
I can tell you that in that space there is no reason to be selective.
You have market conditions and we want to play fully in that space.
It's really more a volume issue.
It is not linked to a strategy to be more selective.
The quarter end, that surprise was, as far as we are concerned, more market-related and timing-related because, in fact, we built backlog which is going to bill in the next quarter, but nothing linked to a strategy to the select business here.
There are some other areas of our core data center business where we have been deselecting.
Six months ago we did a strategic review of our portfolio.
And, yes, indeed, we decided to deselect some business.
Nothing material for sure that contributed to the profitability.
So, our component business, absolutely.
Our core data center business, we are selective, but in storage in particular, we play completely, we are full in.
Roughly 50%.
It was just under 50% for December quarter, <UNK>.
And I would just add, sorry, just add one thing ---+ the trend is very clear.
Hardware is going to become less and less of our total business.
And especially as the market is moving to cloud and hybrid cloud, it's very clear that software and services is going to continue to gain weight in our total sales, which will help us again in terms of margins and profitability.
Thank you for participating in our earnings call today.
Our second-quarter FY16 earnings press release and related CFO commentary can be accessed in downloadable PDF format at our website under the quarterly results section.
Thank you.
| 2016_AVT |
2016 | GRMN | GRMN
#Thank you.
| 2016_GRMN |
2017 | WRK | WRK
#Thanks, <UNK>
Good morning, everyone
Thank you for joining our call today
WestRock had a very good quarter
We generated $0.54 of adjusted earnings per share
We executed well
We delivered year-over-year productivity improvements of $103 million
Our productivity improvements were a highlight of the quarter and were the primary contributor helping us mostly offset the exceptional increase we experienced in input cost
While these higher input cost may persist favorable market trends and the relentless execution of our strategy by the WestRock team will drive improved results and increased value for our customers and stockholders' over the short and long-term
For a comprehensive portfolio of paper and packaging solutions is helping our customers meet their goals from quality paperboard to innovative and functional design to consumer packaging to corrugated packaging to displays
WestRock provides the full range of solutions to our customers
We are successful integrating our products and services to deliver value to our customers
Here are some examples of how we're doing this
We've already closed on more than $150 million an incremental annual sales from the breadth of our portfolio
Examples of these incremental sales include customers who already buy corrugated packaging from us and have decided to use WestRock to manufacture their folding cartons
This combination provides the opportunity for WestRock to work with these customers to reduce their total cost by optimizing the total fiber required to package and deliver their products
We have folding carton customers who have decided to use WestRock to design, manufacture and assemble displays and in the process this combination provides the opportunity for us to help integrate the best aspects of both products to help grow our customer's sales
Craft breweries are another excellent example
WestRock can provide craft brew customers with the beverage carrier, the corrugated box and the machinery to assemble the packaging, reducing their cost, supporting their growth, and reducing their supply chain risk as compared to relying on multiple suppliers
We are extending our solid track record of execution
At the end of the March quarter, we achieve an annual run rate of $675 million in synergies and performance improvements were two-thirds of the way to $1 billion goal
Since the completion of the merger, we've seen $632 million flow through our income statement
We have line of sight to achieve the $1 billion productivity goal by the end of the June quarter of 2018. This is one quarter sooner them initially planned and highlights the strong performance culture we are building at WestRock
We continue to execute our disciplined capital allocation strategy
We bought back $25 million of stock during the quarter
Since the merger, we've purchased 15.3 million shares at an average price of $49 per share
In total, we've returned $1.4 billion to stockholders since the merger through dividends and share repurchases
Since forming WestRock, we focused our portfolio on our core paper and packaging business
We excited the specialty chemicals business with the spin of Ingevity
We completed the sale with the Home, Health & Beauty business and monetized a significant portion of our land and development assets
Over the same time, we've improved our portfolio
We acquired SP Fiber and we acquired Cenveo Packaging
We further developed our position in Mexico with our joint venture with Grupo Gondi, and this quarter we acquired Star Pizza which has expanded our presence in the growing market for custom short-run pizza boxes
The announced acquisition of Multi Packaging Solutions will expand our presence in healthcare and high-end customer markets
The shareholders in Multi Packaging Solutions overwhelmingly approve the transaction and have both held earlier this month and we are progressing well in our integration planning
We anticipate that we will close this transaction in the June quarter
We are excited about the opportunities we are seeing to add new capabilities for short-run and premium products and services to our platform and to integrate in even broader portfolio of solutions across our exciting business
The work we've done today is confirming MPS was outstanding strategic fit in the WestRock portfolio
After we complete the Multi Packaging Solutions acquisition, our portfolio will be balanced between consumer and corrugated packaging
This balance will provide WestRock the access and the opportunity to participate in a wide range of end markets and the ability to partner with customers across our entire portfolio
More than 80% of our business will be in North America
About $800 million of our sales will be to Central and South American markets
Another $1.2 billion will be in the European markets and yet another $0.5 billion will be to the Asia Pacific markets
The scale in foreign markets has and will provide us additional opportunities to create efficient supply chains to support our customers' growth across these markets
Now, let's turn to the details of our second quarter performance
Sales for the quarter were $3.7 billion and adjusted EBITDA was $547 million for consolidated margin of 15%
Total commodity inflation was $125 million headwind year-over-year
This was the result of significant increases across most of our input costs including a $75 million or $66 per ton increase in the cost of recovered fiber and a $23 million or $1.23 per MMBtu increased in the cost of natural gas
On a percentage basis, our cost of recovered fiber increased by 81% and the cost of natural gas increased by 59%
The corrugated packaging team executed well in the quarter and included the benefits of the $40 per ton price increase published in October as well as increased volumes and productivity gains
These benefits were offset by the previous year's PPW published price reductions and significant inflation
North American corrugated second shipments were up 76,000 tons a total of 3.7% compared to the same quarter of last year
Box shipments per day increased 1.1% as compared to last year with strength in consumer, eCommerce, and select food markets
The corrugated segment continues to focus on our differentiated strategy and growth in the segments and markets where we can best position ourselves to drive value for our customers and for WestRock
Over the coming months, we will be integrating the 25,000 annual tons containerboard converted by Star Pizza
Last fall's $40 per ton domestic containerboard price increase that we communicated to our customers has been fully implemented, so we are now at a full run rate
Currently, we are in the process of implementing our $50 per ton domestic price increase that we announced to our customers in March and was recognized in Pulp & Paper Week this past Friday night
Healthy demand in our export markets continues in part driven by the strong South American growing season both sequentially and year-over-year
Export pricing in March was up significantly from our low point of last year with increases in effect in all of the markets
We fulfilled all backlog export orders from the fall in early winter
Remember, that Hurricane <UNK>hew disrupted our ability to fulfill export demand in the first quarter of fiscal 2017 effectively pushing that volume into the March quarter
We are currently shipping at a more nominal run rate of approximately 300,000 tons per quarter
North American adjusted EBITDA margins were 15.9%
Commodity inflation was $91 million
We achieved productivity improvements of $36 million as compared to the year-ago period
This prevalence is the direct result of our entire organizations focused on performance excellence that is supported by our continuing capital investments to improve our integrated corrugated packaging system
We managed our inventory as well with inventories declining by 148,000 tons from last year
We took 78,000 tons of maintenance downtime in the quarter in line with our expectations and we took no containerboard economic downtime
Our joint venture with Grupo Gondi is progressing very well
Gondi reported sales of $192 million and EBITDA margins in excess of 20%
The Mexican packaging markets remain attractive and the business is very well positioned
In fact, additional investments are in process that will enable Gondi to continue to meet the needs of its customers well into the future
Our Brazil team continued to perform well with 16.5% total growth in box shipments, up more than triple that of the industry
We have an outstanding business and team in Brazil and see the potential to make incremental investments in this area that can provide attractive growth in returns
During the quarter, we recorded $2.8 million of legal reserves, which unfavorably impacted our EBITDA margins at 270 basis points
Our corrugated customers are seeking to meet their growing demand for greater performance and more high-end packaging that appeals to today's consumers
We're partnering with our customers to innovate in the space, create packaging solutions that protect our products and enhanced our brands
We have and will continue to invest in our corrugated platform to meet our customers changing needs and improve our cost position
This work will enable us to generate strong cash flows and improve our margins in our corrugated segment
The Consumer Packaging team operated extremely well and generated excellent results
Adjusted EBITDA was $235 million or 15.1% of revenue, an increase of 100 basis points year-over-year
Shipments of paperboard and converted products increased 0.9%, driven by growth in foodservice, liquid packaging and folding carton
This was offset by weaker beverage volume
Revenue declined year-over-year as a result of lower pulp volume and last year's published PPW price reductions
We expect this pricing trend to slow and then reverse for us as we implement price increases across every grade
Our SBS backlogs improved in the quarter and are currently a healthy six weeks, driven by demand and foodservice and liquid packaging
CNK backlogs also improved in the quarter and are now at six weeks
CRB backlogs are now at two weeks, which is our normal operating level
Consumer Packaging generated outstanding productivity, $72 million in the March quarter
We operated extremely well by implementing a broad range of improvement projects across the segment, which include ongoing converting footprint optimization, sourcing and capital investments
We continue to benefit from the integration of the volume we brought into the system from the acquisition of the Carolina product line, the Cenveo Packaging acquisition and internalization of the volume from the merger
The merger has also provided WestRock the opportunity to market our innovative paperboard products through our existing folding carton network
These innovative products include a paperboard called EnShield
EnShield has been designed for applications, such as frozen food and foodservice where the customer needs an excellent grease barrier without the use of poly coatings
By eliminating the use of poly coatings the package is fully recyclable, which enables our customers to meet their sustainability objectives
Several of our customers are successfully using this product and we are growing interest in EnShield throughout our customer base
<UNK>, I'll turn it over to you
Thanks <UNK>
We've made substantial progress over the past two years focusing our portfolio and growing a leader in paper and packaging
We are well positioned to improve our margins, grow our cash and help our customers to achieve their goals for our comprehensive portfolio the paper and packaging solutions combined with our strong execution
We will use our consistent and growing cash flow to reimbursement our business and make acquisitions that improve our business
We expect to return capital to stockholders by increasing our dividend over time and repurchasing shares
I believe this is a formula that will provide significant opportunities for WestRock employees, customers and investors over the short-term and long-term
That concludes my prepared remarks
<UNK>, we are ready for questions
<UNK> I appreciate the question
Jeff <UNK> is close to that, so I'm going to let Jeff respond
<UNK>, I'm going to let Jeff handle the first question and let <UNK> handle the second part of the question
Our recycling business that the - I guess the primary goal to recycling business is to make sure we have high quality fiber to - for a mills
We do operate a couple dozen plants
We do have a very well developed brokerage operation and they operated extremely successful and they were able to fiber mills and I think to - they also market waste from our converting operations
So they just had a - I think they performed up standard way well during the quarter
Thanks, Chris
Good morning, Debbie
Let me Jim <UNK> leads our Brazil operations now, so now like Jim respond to that question
What we showed you was the EBITDA that remember when we recorded the held for sale we did not depreciate
We had lower depreciation in the quarter is normally the D&A in that business was about $3 to $3.5 million a month
So there was also the benefit in the in Q2 which we backed out of adjusted EPS held for sale impact on the lower D&A
So the sequential improvement from an EPS point of view would have reflected not only that we don't have the EBITDA contribution, but then you don't have that benefit that you have from the lower D&A
EPS is the net of the two
Good morning, <UNK>
Sure
Again the biggest individual driver that contributes to the acceleration of productivity on a year-over-year basis has been the internalization efforts that we've had since the merger
As we move into the second half of this fiscal year as Bob said, we are lapping those benefits
So it's the integration of the Carolina tons, the integration of the Legacy RockTenn folding carton tons, the integration of the Cenveo tons
Those are large contributors to the benefits
We've had procurement savings like we do across the whole system
And we also have footprint actions that we have been talking about both in our beverage business
We've actually took some footprint actions in our displays business as well, so it's a combination of all of those
I think on a year-over-year basis, as we look at this fiscal year, I would anticipate that this quarter would be the peak quarter in terms of productivity on a year-over-year basis because we do start to lap the benefits of the internalization efforts that really hit full speed as we went into the second half of fiscal 2016.
Thanks <UNK>
Good morning, <UNK>
Sure, I'm going to let Jeff to handle that
What I would look at is I would just refer you to their historical public filings and look at their unleveled free cash flow generation
We will have more details when we actually closed the transaction and then have a forecast of how it's embedded and along with our integration plans, but at this point I would point you to their historical public filings
Good morning, Chip
Chip, I just go on from there, when we - the idea of the merger was to build the paper and packaging leader and consumer and corrugated packaging
I go back and look at what we saw it periodically in the time we announce merger and we're just spot on what we intended to do
So we've got leadership positions in the businesses we operate
We've integrated to outstanding organizations
We're focused on customers who are larger more balanced in our Company
And we have I think a terrific slate of investment opportunities both internally and potentially be acquisition
But just kind of put us in a great position going forward
I just want to add that to your question, since you brought up the merger
We haven't put out this specific numbers on that
I think the purchase price here in the zone of what it was and I think we haven't announced a multiple, but it's a very attractive multiple for us particularly when you put in the 20,000 tons of annual containerboard integration
I'm sorry, what are changing? I didn't hear with you
Good morning
Good morning
| 2017_WRK |
2017 | LB | LB
#Yes, as it relates to the investment, <UNK>, in China and the near-term operating losses and kind of cutting to the thrust of your question, we would expect ---+ and we'll give more guidance, obviously, in February as it relates to 2018 ---+ but we would expect that the loss in China will be meaningfully lower in 2018 than we believe it'll be in '17.
And that there'll be a steady progression to a profitable business over time.
Obviously, you appreciate the opportunity there.
But again, I think to the thrust of your question, the amount of loss in '18 will be meaningfully lower than the amount in '17.
With respect to the U.K., as <UNK> has outlined for you, and he's with us here this morning, as we've outlined, there's a lot going on in the U.K. as it relates to the environment.
We certainly believe there are opportunities to improve the execution of our business, and <UNK> and team are focused on that.
And we believe that the U.K. is an important market for us and will be a healthy profit market for us over time.
So on the gross margin guide for the fourth quarter, I guess the first thing I would say is it's an estimate and it's our best view of an estimate.
But the reason I start with that is, at the end of the day, guys, what we're driving for is margin dollars, healthy sales growth, profitable sales growth.
And in the major parts of our business, as you've heard this morning from the team, we're not expecting to be more promotional at this point in the fourth quarter than we were a year ago.
So in terms of the promotional aspects that would have affect gross margin, not expecting meaningfully more promotion in 2017 than we had in the fourth quarter 2016.
And in some cases, we would expect to have less promotion.
But we'll see as we manage through the quarter, as Nick described in terms of how we run the business.
So ---+ and we enter the quarter with inventories in great shape.
And we believe that we've got good, compelling product ideas.
So the gross margin year-on-year change is not that significant.
And directionally, it's down slightly.
Some of that's affected a bit by the other segment some mix dynamic going on with the other segment.
But again, in the major businesses, pretty steady in terms of year-on-year promotion.
So I think we've seen nice trajectory in traffic recently as we've been able to get into very seasonally relevant products, and how we try to partner that with the right promotional activity has been working well for us.
I don't see that changing as we go into holiday, especially as the assortment continues to get more and more seasonal as we go through the season.
But once again, holidays is a very volatile period.
And we obviously reserve the right, to a certain degree, to sit back from that and see what ---+ just how is the customer behaving and is there something different, incremental or change that we want to do that could change the course of that traffic, if it was to go into a negative place.
But I see the trend we've got now.
I would like to hope that, that maintains itself as we go through holiday.
Sorry, could you ---+ what was the ---+ would you mind repeating the question for me, please.
Yes, how we manage across the 2 channels is probably the most important part, which is we really do want it to be a comparable product, comparable product pricing and promotional behavior so that no matter where the customer is interacting with a branch, she gets the same product at the same price, the same promotion.
And obviously, that has been working for us for the last number of years as we've been able to maintain growth in both bricks-and-mortar as well as growth in the online channel and very healthy growth in the online channel.
At the end of the day, the operating income is fundamentally the same.
We don't see a ---+ in terms of how we manage the business.
It just nets itself out, that they're very similar.
So there isn't a major difference between the 2 of them.
| 2017_LB |
2016 | DISH | DISH
#In terms of debt repayment, we set a wire for the $1.5 billion.
We did repay it with cash.
Repaid it with cash and it was cash on hand.
It was US dollars.
We tried to use bitcoin, but they wanted cash.
And just because of the auction we don't want to talk about financing, but obviously we have cash on hand to run our business today.
The market liquidity has tightened up a fair amount the last six months, and certainly we were pretty conservative and I think we were five times levered.
We are more like four times levered now.
That just feels like a more comfortable spot to be based on our existing business.
For Sling on the broadcast network, certainly I think there's an opportunity for both Sling in the broadcast networks, but it's a bit complicated, because there is O and O networks and then there's the affiliates, and they're still fighting through their rights between the O and O's and the affiliates.
And whether we would need to go to the affiliate and have an individual deal, or whether the network itself could speak for the affiliates is unclear to us at this point.
And I think affiliates and O and O's all have different opinions about that.
So they're working through that.
Although we do have a couple of networks from an O and O perspective that we do have the rights to today.
So I think that that's one of the things that's a challenge for OTT writers and Sling and could be a benefit to the networks and to the consumer, right, because they are watching networks, but they are expensive.
So that is the other piece of it.
Viacom renewal.
Look, I think we're taking a long-term view, so any time we talk with the content provider, we want to know what their thoughts are on OTT and whether there is a way ---+ because we think OTT is additive to the content provider.
We would scratch our head if the content provider ---+ excuse me.
I understood three years ago where people were maybe skeptical in the business.
But I think we have shown how it can work today to the benefit of the content provider.
And I think I'd scratch my head if the content provider didn't want to play.
But it has different values, depending on whether it's live TV or VOD or SVOD, or whether it's available on different platforms already.
So it gets a little tricky because some content providers sell some of their programming to one of the OTT providers like Hulu or Amazon or Netflix, and then we want to pay for it again, right.
If you are watching that particular show, consumers shouldn't pay twice for it, and so some of the programming is chopped up a lot and it makes it very difficult.
Again, some people will make great decisions and content and how they handle OTT and they'll will be more successful in growth and some people will make mistakes.
We are not the guys that get to make that decision.
It's hard to know.
CBS sales theirs direct today, so they probably are less inclined.
Other people would like to ---+ the O and O's and the affiliate agreements are complicated not primarily because of OTT, but because of reverse retrans and their own renewals, right.
With the affiliations, because the network has options on where to go and a particular marketplace if they don't get an agreement, so those are very complicated.
We're willing to work with either party, either the affiliate or the owned and operated.
We will work with either or both.
Is that fair, <UNK>.
I don't know.
Yes.
We look at a number of things in working with these content partners or potential content partners.
As <UNK> mentioned, one of the things is that content already available.
Obviously we look at is that content relevant for the target market we are going after, which is not the entire market.
And the final thing is is the programmer going to give us enough flexibility that we could actually package it in our products in the way that we would want to do it.
And so it's a little bit different for us than a traditional Pay-TV operator where they are trying to appeal to the broad segment of the market.
And there are a lot of content partners that have decided they want to go direct, which is fine.
That means from our standpoint it's a little let necessary for us to have them in a bundle, because the devices that we are on they are likely already on, and so our customers can go get that content if they want, or that they've made decisions to distribute their content through other SVOD services, which again are on the same devices that we are on.
So, again, it makes a little less necessary for us to bundle that content into our basic package.
Operator do you want to move to media.
Yes, I don't think I can comment on that one.
I don't think we can comment on that.
Just that the anti-collusion is ---+ we know what the rules are on anti-collusion, but we don't always know that people are going to go by the rules and not change them.
That was a rule yesterday, but the new rule is today and we just better to be safe.
I would say I think Sling is a potentially very powerful platform for all content owners, including broadcasters, and that they can grow their businesses by taking advantage of a new technology and a new generation of people who are not watching their content today.
The second part of it is to do advertising in a model that is not as obtrusive to the consumer in a way that the ad can be interactive and more meaningful to consumer and more powerful for them.
I don't think executives at broadcast networks have their head in the sand.
They are seeing a lot of advertising dollars go to Facebook and Google that used to go to them and that trend is continuing.
And there is a way for them to get a piece of that action and a big piece of that action and Sling has some solutions to that.
So I think the progressive executives are very interested in terms of what <UNK> 's team are doing.
I think it is a positive because they are not down.
So I think it is positive.
Because I think that the approach that we really look at is ---+ the problem you have when you take something down, you take something down and you put it up a month later, a week later or whatever it is, you've already lost to customers that see that as valuable.
So you almost penalize yourself twice.
So I think we've looked at things strategically to say for the most part on what I would term nonessential programming we will have to make a decision one way or the other.
And we will do ---+ my direction to people here is look for every ---+ I don't want to look why we're not going to do a deal.
I want to look why we're going to do a deal, look for every reason to do a deal.
And the benefit of the doubt goes to our programming partner, because they helped us build our business.
So again that's what we are doing, and Viacom is one of those long term, really long-term partners for us.
I mean they helped us build our business, so it would take a lot for us to not move forward.
On the other hand, people have to be realistic that the viewership of their channel relates to the value of the channel.
The availability of their content and other places to our consumers they shouldn't be forced to pay for it twice.
And, oh by the way, we have other ways for you to make money as well, monetize your product.
So when you add all those things together, you put creative people in a room you will probably figure it out.
This is <UNK>.
We are doing some dynamic ad insertion on some of the networks today, not currently as you pointed out on ESPN.
As <UNK> mentioned earlier on the call, the live OTT service is a bit of a science project, in that there is a lot of new technology, a lot of integration with third parties that has to go really, really well, and this is an example of the dynamic ad insertion where we have a number of third parties that all systems have to interact properly.
So we've been doing a lot of work to make sure that we do dynamic ad insertion.
It provides a benefit both to our programmers, but also to our subscribers, doesn't cause service issues on it.
I think we're close to having those issues solved (technical difficulty - audio distorted) come back on, but we are still in development phase for finalizing technology to be confident that we can redeployed without causing service problems.
I agree.
It is very frustrating to see the ESPN commercial break.
I think I would rather see something moving.
Part of ESPN is we have blackouts and things like that for ESPN that we don't have for other networks and that just adds complexity.
I will take the first one about sponsored content.
Where we have experimented is blending what they call traditional Pay-TV content, channels like AMC and ESPN and Food Network with nontraditional content that is available on Sling like content from [Baker] studios.
But really our focus in all of that is figuring out what our consumers in our target demographic really want to watch.
It's not so much on can we get someone to sponsor content in a way that we can make money from the content, that's not our focus.
Our focus is really on providing a service that the customers really want and content that they really want to watch.
So, I think you'll see us do more experimentation with nontraditional TV content.
But again with the singular focus on finding stuff that really works for our consumers and what they want to watch.
I don't have any advice for Sprint and (inaudible), other than I think they have good team in place for now and they are very focused.
When you get a good team and you are focused, good things can happen.
But it is a tougher environment because of liquidity out there, but we got our own.
My job is to worry about DISH.
This is <UNK>.
Obviously we've always expected to have competition in OTT.
I was a little surprised it has taken this long for (inaudible) to come in, but Sony is in today.
That's true.
My expectation really with OTT is its a new segment.
As long as we're performing well, right.
We need to perform well; we need to provide value to our consumers, that other entrants coming in will expand the market and even though we will lose market share, right.
Right now we have probably fairly material market share in it, but we will lose market share, but the market will grow faster and therefore we may grow faster.
So that is sort of ---+ if we look at new entrants and new markets that have developed that's historically what happens is it starts off slow ---+ development.
You get an S-curve adoption.
Others come in.
They grow the market faster, and then at some point you have a shakeup between the larger providers.
So we certainly expect competition.
We certainly expected at some point ESPN will launch with other providers.
I think the interesting dynamic will be the OTT players that come in that are outside that don't have material cost and infrastructure.
So even with Sony we don't have material cost and infrastructure.
They are going to have different motivations about content.
Amazon today makes no secret the fact that they sell ---+ they are trying to sell Amazon Prime and they use content as a way to sell shipping services and product, right.
For content that's a little scary because your product can get devalued because somebody wants to sell something else.
So if somebody wants to sell hardware, they might devalue ---+ and if they're outside the ---+ if they have no infrastructure then it devalues everybody who is invested in infrastructure, which is a slippery slope for our content provider to go.
And so I think that's the part that is most interesting to me to watch, will be who actually entered ---+ not only when and if somebody gets in, but who it is, and do they have infrastructure, or is there motivation to monetize something other than content.
Thanks.
Thanks, everybody.
Thank you, Operator.
| 2016_DISH |
2018 | LSTR | LSTR
#Thank you, Caroline.
Good morning, and welcome to Landstar's 2018 First Quarter Earnings Conference Call.
Before we begin, let me read the following statement.
The following is a safe harbor statement under the Private Securities Litigation Reform Act of 1995.
Statements made during this conference call that are not based on historical facts are forward-looking statements.
During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations.
Such information is, by nature, subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2017 fiscal year described in the section Risk Factors and other SEC filings from time to time.
These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated.
Investors should not place undue reliance on such forward-looking information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information.
Our 2018 first quarter financial performance was by far the best first quarter performance in last, our history.
First quarter revenue and diluted earnings per share were both first quarter records, while gross profit and operating income where all-time quarterly records.
During our year-end 2017 earnings conference call, we provided 2018 first quarter revenue guidance to be in the range of $925 million to $975 million and diluted earnings per share to be in a range of $1.22 to $1.27.
On April 3, 2018, in anticipation of a meeting with sell-side analysts that was held on April 4, in conjunction with our annual agent convention.
We updated that guidance in a Form 8-K filing with the Securities and Exchange Commission, providing for a first quarter range of revenue from $1,030,000,000 to $1,050,000,000 and diluted earnings per share in a range of $1.35 to $1.40.
Our initial guidance anticipated the number of loads hauled via truck product in the 2018 first quarter to exceed the 2017 first quarter in an upper single-digit percentage range and revenue per load on loads hauled via truck to exceed prior year in a mid-teen percentage range.
Our updated guidance and actual first quarter results were higher than initially anticipated as both the number of loads hauled and revenue per load on loads hauled via truck exceeded the high end of our original guidance.
Revenue in 2018 first quarter was $1,048,000,000 and diluted earnings per share was $1.37, both within the range of our recently updated guidance.
Loads hauled via truck in the 2018 first quarter increased 12% over the 2017 first quarter, while revenue per load on loads hauled via truck increased 21% over the 2017 first quarter.
We experienced consistent growth in truck volumes in each month of the quarter, with truck loadings increasing over the prior year month by 10%, 13% and 12% in January, February, and March, respectively.
The increase was broad-based amongst many customers and industries.
Revenue per load on loads hauled via truck remained elevated each month for the 2018 first quarter.
Revenue per load on loads hauled via truck increased over the prior year month by 21% in January and February and 20% in March.
The strength in pricing that began in September 2017 carried through the first quarter.
Seasonally, we typically experience a mid- to upper single-digit decrease in revenue per load on loads hauled via truck from December to January.
January revenue per load on loads hauled via truck decreased only 1.4% from our near record-high December revenue per load.
A clear indication of the continuation of the tight truck market that began in the latter part of 2017.
Sequentially, from January to February and February to March, we experience a more normal seasonal trend in changes in revenue per load on a month-to-month basis.
The number of loads hauled via rail, air and ocean carriers was 20% above the 2017 first quarter.
The increase in rail, air and ocean loads was driven by a 25% increase in rail loadings that was broad-based spread amongst many customers and a 10% increase in air and ocean loads, which is also generally broad-based.
We continue to attract qualified agent candidates to the model.
Revenue from new agents was $23.2 million in the 2018 first quarter, much improved over the $17.2 million in revenue from new agents in the 2017 first quarter.
The agent pipeline remains full.
We typically experience a net decrease in a number of trucks provided by BCOs during the first quarter of any year.
We ended the quarter with a record 9,868 trucks provided by business capacity owners, 172 trucks above our year-end 2017 count.
During the 2018 first quarter, we recruited a similar number of BCOs compared to the 2017 first quarter.
However, during the 2018 first quarter, we experienced fewer terminations as compared to prior year's first quarter.
Overall, the net increase in a number of BCO trucks in the 2018 first quarter speaks to the (technical difficulty) quality capacity in a tight truck capacity market.
Loads hauled via BCOs increased 7% in the 2018 first quarter over the 2017 first quarter on higher truck count and a 3% increase in BCO truck utilization defined as loads per BCO truck per quarter.
As expected, the ELD mandate had an insignificant impact on BCO productivity in the 2018 first quarter.
We had a record number of third-party broker carriers hauled freight on our behalf during the 2018 first quarter.
Our network is strong and continues to attract third-party truck capacity.
Gross profit increased 28% compared to the 2017 first quarter, our highest-ever quarter over prior year quarter percentage growth, excluding periods that included significant disaster relief.
Here's <UNK> with his review of other first quarter financial information.
Thanks, Jim.
Jim has covered certain information on our 2018 first quarter, so I will cover various other first quarter financial information included in the press release.
Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, increased 28% to $155.5 million and represented 14.8% of revenue in the 2018 first quarter compared to $121.6 million or 15.6% of revenue in 2017.
The cost of purchased transportation was 77.3% of revenue in the 2018 quarter versus 76.3% in 2017.
The rate paid to truck brokerage carriers in the 2018 first quarter was approximately a 140 basis points higher than the rate paid in the 2017 first quarter.
Commissions to agents as a percentage of revenue were 33 basis points lower in the 2018 quarter as compared to 2017 due to a decreased net revenue margin, revenue less the cost of purchased transportation on loads hauled by truck brokerage carriers.
Other operating costs were $7.6 million in the 2018 first quarter compared to $6.9 million in 2017.
This increase was primarily due to increased trailing equipment costs and increased contractor bad debt.
Insurance and claims costs were $17.4 million in the 2018 first quarter compared to $14.5 million in 2017.
Total insurance and claims costs for the 2018 quarter were 3.7% of BCO revenue compared to 4% in 2017.
The increase in insurance and claims compared to 2017 was attributable to increased net unfavorable development of prior year claims in the 2018 period.
Selling, general and administrative costs were $45.3 million in the 2018 first quarter compared to $38.3 million in 2017.
The increase in SG&A costs was mostly attributable to an increase in the provision for bonuses under the company's incentive compensation plans and increase in stock compensation expense and increased wages, mostly in the information technology group.
Stock compensation expense was $3.7 million and $1 million in the 2018 and 2017 first quarters, respectively.
The provision for an incentive compensation was $4.1 million in the 2018 first quarter compared to $2.9 million in the 2017 first quarter.
Quarterly SG&A expense as a percent of gross profit decreased from 31.5% in the prior year to 29.1% in 2018.
Depreciation and amortization was $11 million in the 2018 first quarter compared to $10 million in 2017.
This increase was primarily due to the increase in the number of company-owned trailers.
Operating income was $75.2 million or 48.3% of gross profit in the 2018 quarter versus $52.3 million or 43% of gross profit in 2017.
The increase in operating margin was driven by increased gross profit, partially offset by increased SG&A expense and increased insurance and claims costs.
Operating income increased 44% year-over-year.
The effective income tax rate was 22.7% in the 2018 first quarter compared to 36.8% in 2017.
The 2018 first quarter effective tax rate was favorably impacted by the Tax Cuts and Jobs Act of 2017.
The effective income tax rate was also impacted in both periods by tax benefits, resulting from disqualifying dispositions of the company's common stock and by excess tax benefits related to Accounting Standards Update 2016-09.
Looking at our balance sheet, we ended the quarter with cash and short-term investments of $260 million.
Cash flow from operations for 2018 were $72 million and cash capital expenditures were $4 million.
There are currently 2,986,000 shares available for purchase under the company's stock purchase program.
Back to you, Jim.
Thanks, <UNK>.
As it relates to our 2018 second quarter expectations, I anticipate that truck capacity will continue to be tight.
I expect gross profit margin to be in a range of 14.6% to 14.8% in the second quarter, assuming fuel prices remain stable and truck capacity remains tight.
Seasonally, revenue per load on loads hauled via truck in the first quarter is typically lower than the second, third and fourth quarters and generally increases in the low single-digit percentage range from the first quarter to the second quarter.
During March, we experienced a normal seasonal increase in revenue per load on loads hauled via truck.
In early April, we have been experiencing a continuation of the normal seasonal trend.
I expect those normal seasonal trends to continue in the 2018 second quarter, and therefore, expect revenue per load on loads hauled via truck to be higher than the 2017 second quarter in a range of 19% to 22%.
Generally, the number of loads hauled via truck from the first quarter to second quarter increases in an upper single-digit to low double-digit percentage range.
I expect a normal seasonal increase in the number of loads hauled via truck from the first quarter to the second quarter.
Therefore, I expect the number of loads hauled via truck in the 2018 second quarter to increase over the prior year second quarter in the low double-digit percentage range.
Based on the continuation of recent revenue trends, I currently anticipate 2018 second quarter revenue to be the range of $1,115,000,000 to $1,165,000,000.
Based on that range of revenue and assuming insurance and claims cost are approximately 3.5% of BCO revenue, I anticipate 2018 second quarter diluted earnings per share to be in a range of $1.48 to $1.54.
Overall, I am extremely pleased with the start to 2018.
2018 first quarter revenue increased approximately 34% compared to the 2017 first quarter on a 12% increase in the number of loads hauled and significant increases in revenue per load across all modes.
2018 first quarter revenue and diluted earnings per share were the highest first quarter results in the company's history.
More impressive was the fact that the 2018 first quarter gross profit and operating income were the highest ever achieved by Landstar in any quarter in the company's history.
In our view, the overall environment for Landstar is as strong as it has been in any point over the last 2 decades, and Landstar is firing on all cylinders.
We continue to focus on profitable load volume growth and increasing our available capacity to hold those loads.
We also remain focused on our strategic priority to continually provide an enhanced technology-based tools for the thousands of small business owners in our network.
2018 is setting up to be another historic year for Landstar as we look to celebrate the company's 30th anniversary by surpassing $4 billion in annual revenue for the first time in our history.
And with that, Caroline, we will take questions.
Well, <UNK>, in the short term, I don't see anything derailing it.
I mean, everybody knows the truck orders have been very ---+ relatively high over the last 6 months, which you still got to find drivers for those.
So I mean, you can bring all the trucks you want, but with employment about 4% ---+ unemployment about 4%, where the drivers come from so you can pump more assets into the system and apparently there's 6- or 7-months tail, so those orders might start hitting over the summer.
But I don't anticipate that in the short term, is going to impact much.
And then, you got the demand side.
And what's going to actually impact the demand side, right now, I think you've got high consumer confidence, high business confidence.
Your manufacturing seems to be doing very well now.
And again, don't anticipate that slowing down.
The only thing we buy against is that this environment started in about September, right.
So clearly, the fourth quarter from a comparable basis is going to be a little bit tougher than the first 3 quarters of the year.
But I don't see anything derailing us in the shorter term ---+ let's say, shorter term, 3 to 6 months.
And then, we'll see what it brings into the fourth quarter.
Yes, <UNK>.
They ---+ obviously, more net income is going to help there.
But the way we're looking at the tax, the changes in the tax, is probably going to add cash of $35 million to $40 million.
So our range on the free cash flow right now is $200 million to $250 million, somewhere in that range.
Sure.
Yes, <UNK>, this is Joe <UNK>.
In a time of rising prices, BCOs, we pay on a percentage basis, right.
So anytime the pricing goes up, the pay goes up and that's always been a very good opportunity for us to add BCOs to the network, and I think that's what you're seeing here is not only from an addition standpoint, where we've got a pretty good recruiting environment, but also from a retention environment, we're trying to put good information in the hands of the BCOs and let them make ---+ take advantage of the environment we're in.
We got a strong demand environment.
And again, just paying on percentage, if you look at our revenue per load in the first quarter was up 21% ---+ 20% on BCOs, but that's a pretty significant pay increase, and it's a good opportunity, and we recruit to that pretty strongly.
And I think we're just seeing the results of that.
I'm sorry.
No, no.
We're not anticipating any changes to our percentage programs.
No, I think if you look over the last 18 months of what the stock has done, and we didn't speculate on a significant tax reform in December, right.
When you're looking at valuation, you've been looking at market conditions over those 18-month period where we were in the market back from September of '16, I believe.
It was really more of ---+ we were going to speculative on what was going to happen on the economic ---+ or the market.
And it's just ---+ so we watched it for a while, and we end up doing a special dividend at the end of 2017 similar to what we did in 2014, is we weren't in the market.
So we gave back the shareholders through special.
Our philosophy is always its share buybacks, and we are going to continue our share buyback program.
And during the first quarter, it's ---+ we probably have more close window periods in the first quarter than we ever have, but our philosophy is still to focus on the buyback program.
And if we end up in the same position that we did, if you look at history.
In '14, we did a special.
In '17, we did a special.
But our expectation is for ---+ and our expectation is we hopefully get back into the market and continue on our buyback program.
Our focus is on volumes, right.
We live in a spot market world.
We don't have a lot of influence over pricing.
So our team is charged with adding volumes.
And I think and with the technology we rolled out over the summer to enhance our mobile apps and provide easier user-friendly experience for not just the capacity, but our agent family, I think that helps us drive the volumes better than we probably had in the past and keep more BCOs in our system.
So that's kind of what we look forward to in the ---+ over the next 6 to 12 months and looking to see how those new enhancements and upgrades are going to react in a ---+ I don't want to say when the comps get tougher, how's that toward the end of the year.
But again, our focus is on volumes.
You know ---+ and I always look back the most dire economic environment that ---+ since I've been at Landstar in 2009 to see the impact that we have.
That ---+ how the Landstar model reacts in an environment that has may be a significant downturn, the extreme downturn of 2009.
And you get that.
Our model kind of in a great environment like this, remember, 50% of our business on a fixed margin, right.
So our spreads are relatively fixed.
So the kind of model, it protects us in a downturn, but the true asset-light guys expand margin opportunity at the front end of those, right.
So that's what happens.
And I think everybody understands that cycle and understands the Landstar model and how it reacts in the environment from a ---+ in a comparative basis to the rest of the industry and our peers.
But I still think our goal is to focus just really pushing more volumes through our system through Pat O'Malley's team with the sales support, work with customers, work with agents, and Joe's team making sure, we have the proper capacity in the system to support the load volume growth.
And that's really your focus.
But from a model perspective and as it compares to the industry, we kind of have stable (technical difficulty) margins in the environment, but in any environment because of the 50% being our fixed margins and it's really just pushing volumes through the system.
Yes.
Sure.
Thanks, <UNK>.
As you said, the additions are being relatively flat year-over-year, good additions, good pace, lot of interest, but really the gain in BCOs has been on the turnover side.
Annualized turnover in the quarter is around 27%, which is very good for us.
Jim alluded to some technology that we put out to the capacity.
We think that's helping as well.
Just the model and the word pricing is, certainly helps all those factors in April.
Through the first part of April, we're up net about another 50-or-so trucks, so we like where the second quarter has started.
We like the pipeline.
And whether they are coming off their own authority or from other systems, they get a chance to look at our load board that they like what they see.
So we like that.
And I think as always been the case, our agents once we get capacity in the network, our agents take care of them pretty well, and I think we're seeing that perform very well now.
And I wouldn't expect that to change as we look into the rest of the quarter or the rest of the year.
Yes, <UNK>, the agent convention were hit in the second quarter.
The 2-line items, I called out in my prepared remarks, definitely, those are estimates for the ---+ we estimate for the full year, and then, cut it up into 4 equal pieces for the quarter.
So you should annualize those, if you will.
Right.
We do annual merit increases for the employees in July.
So that would be a small increase.
But generally speaking, yes, the agent convention is anywhere from ---+ between $2 million to $2.5 million and that will hit in the second quarter.
But other than that and the annual increases, I think we're pretty close to ---+ what you saw in the first quarter is pretty close.
Yes, Matt, this is Joe.
We haven't significantly changed the programs.
We continue to ---+ it's fuel, it's tires.
It's a lot of the significant costs, new equipment, and so forth that we offer.
And we'll continue to negotiate those on an ongoing basis, but we haven't had any major shifts or changes in the program.
It's a pretty mature program.
And it's just proven to be effective over time.
And we've got great relationship with the vendors in that program.
But to your question, really no significant changes, but we're always looking for opportunities when we see them.
We'll kind of get with our vendors and see if we can take advantage of them, but at this point there's not been anything significant.
We don't really ask ---+ we don't really ask them a survey on where they came from or why they're here.
It's typically a multitude of reasons.
And oftentimes, reasons that we'll ask them on an individual basis.
As they come onboard, they are assigned an adviser that helps them navigate the model, work with agents, find an agent relationships and understand the system.
But the reasons they are coming here and where they're coming from is extremely varied.
So we really don't have any concrete information there.
Other than to say, from where they are to Landstar, they think it's a good move and a move in the right direction.
And it's not for everybody, but for those that find the model attractive and are willing to make some decisions on their own.
It's proven to be a good move.
And I think where we've tried to improve is, putting good information in their hands more timely to make the right kind of decisions to make them successful.
And as we continue to do that, I think, that's where you've seen the improvement in our retention.
Yes.
How about all those.
Yes, no.
Seriously, I mean, with all visibility tools of the agents, they don't have to call trucks anymore and find out where they are.
Processing freight bill is as simple as you think that is.
It's not as simple it is, but you can ---+ where the TMS should improve our processing of getting information or invoices out to the customers.
Our pricing tools, we have more data and everybody knows, Big Data, right.
There is more Big Data available today than it was 5 years ago.
So your pricing tools get a little more ---+ you got a little more confidence in the pricing tools that you have today than you had 5 or 6 years ago with that data.
So everything is moving pretty rapidly in making our agent base more efficient.
And on the capacity side, being able to push quality data out to the BCOs on a phone is a lot more efficient this year than it was 5 years ago, when you're using tablets and laptops.
So things are moving fast.
But if you look at the last, our model, our role is to support small business and our owners who know it has been and one of the keys to that role was to be able to share information amongst not only the shipper, but among the agent family and the carriers.
So we didn't have to go far to enhance the tools we already had.
It's just ---+ we're moving them off of laptops and tablets on the phones and making mobile apps and mobile friendly.
But yes, I think that's ---+ these apps that are rolling out, in my opinion, you can build an app in about 6 months, but you can't build the scale and the support that Landstar has.
We have the apps already.
And we already have ---+ we have despite at any point in time, 7,000 or 8,000 loads available on our mobile app.
So that's kind of where we are.
I don't think that technology is a differentiator unless you let it become one, and we're just going to make sure we're right on top of all that.
All right, Caroline.
Thank you, and I look forward to speaking with you again on our 2018 second quarter earnings conference call currently scheduled for July 26.
Have a good day.
| 2018_LSTR |
2015 | UMPQ | UMPQ
#It's hard to say right now.
Looking at 2016, I'd say it will be game- time decisions and we'll talk about that on a quarterly basis next year.
But what we have right now, it is just one small piece in Q4 we're looking at and that's where we're at.
Thank you.
Let me clarify one thing, too.
You're talking about contractual balances and roughly two-thirds or three-quarters of that entire portfolio came to Umpqua through acquisitions which were fair valued at the time of acquisitions.
So the actual effective yields are lower on the books.
And if you look at our margin table, the all-in cost is in the mid to high 3's.
And, yes, they are moving.
They are transitioning from Tier1 to Tier 2.
There's roughly 25% left in Tier 1 this year.
100% will be in Tier 2 next year.
We view that as a very inexpensive form of Tier 2 capital at the holding company under Basel III.
We're very comfortable with our Tier 1, including the Tier 1 common at [11.4%].
So no plans at this point in time to replace those with what would be higher costing Tier 1 instruments.
We're in good position on that front.
They are at fair value and yields were fair valued on those as well at the date of acquisition.
So if there's a 10% coupon in terms of cash coupon, the effective yield on it might be in the 7%s, right, for example.
I don't have the specific numbers off the top of my head.
But all-in cost on that is 3.89% here for the third quarter in terms of the yield.
And we view that as a very low, inexpensive and tax deductible form of Tier 2 capital under Basel III.
So no plans to replace it with a higher costing Tier 1.
We're in great shape with the common.
No need to refinance anything out of Tier 1.
We're very strong on the Tier 1 side, and actually that would be a higher cost.
Correct, yes, no plans to do that whatsoever.
It would be diluted earnings per share forecast as you look forward on that front.
We're in good shape.
You bet, thank you.
Just as I talked about, I expect that just to be in the range of what you've seen in the last couple quarters.
If you look at it on the face of the balance sheet, of course, it reflects the acquisition accounting from the second quarter of last year.
And that's why we also, in our slide deck, show that pro forma ratio if you were to include the credit discount.
But today, if we're around 80 basis points loan loss reserve, that's been inching higher over time.
And I'd expect over the course of the next ---+ call it three, four, five years, on the face of the balance sheet, that will inch up towards somewhere in the low 1% range for the reserve while the credit discount comes off, assuming no massive downturn in the economy.
But that will just probably continue to inch higher as a percentage on the balance sheet.
Okay.
Appreciate it.
This is <UNK>.
I want to thank everyone for their interest in Umpqua Holdings and the attendance on the call today.
This will conclude the call.
Goodbye.
| 2015_UMPQ |
2016 | HIBB | HIBB
#Sure.
I guess, I'm not understanding the balance question.
Yes, we're still, we're much more optimal than we were, but we still have significant opportunity to shift in that direction.
And again, it's really just ensuring that we've got what the kids are looking for today.
And I think as ---+ we'll continue to move in that direction, but certainly ensure that we still have performance-based product for the consumer that's looking for that.
We're more in balance than we were, but we still have significant opportunity, primarily with regard to store growth in that category.
Yes, we absolutely do.
I think, what we are trying to look at ---+ the long-range performance of those categories over the last few seasons, has not been in line with what's happened with our footwear business.
So we're trying to be conservative there, with how we're planning those businesses.
But at the same time, know that if we see opportunities, we'll certainly try and capitalize on them.
We do feel like we're making significant improvement in those categories, but those categories overall are a little bit pressured, and we didn't realize the gains based off the weather.
There's probably ---+ on the merch margin or product margin side, there's probably a little more opportunity in the back half, just based on last year compares.
But when you talk about total gross margin, there will be some effect on the warehouse and occupancy expenses, as we build out the DC for that fulfillment capability.
So there will be some additional expense flowing into that line, probably in the back half, it may offset some of that product margin favorability.
Thanks.
Thank you for being on the call today.
We're extremely excited about the future at Hibbett Sports.
As we get some of these capabilities from omni-channel, and continue to have great customer service, we feel like we're positioned very well in the marketplace for many years to come.
Thank you.
| 2016_HIBB |
2016 | SPPI | SPPI
#Good day, ladies and gentlemen, and welcome to the Spectrum Pharmaceuticals, Incorporated fourth-quarter 2015 financial results conference call.
(Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to turn the conference over to our host for today, <UNK> <UNK>, Vice President of Strategic Planning and Investor Relations.
You may begin.
Thanks.
Good afternoon, and thank you for joining us today for Spectrum's fourth-quarter 2015 financial results conference call.
I am <UNK> <UNK>, Vice President of Strategic Planning and Investor Relations for Spectrum Pharmaceuticals.
With me today are Dr.
<UNK> <UNK>, Chairman and CEO; <UNK> <UNK>, President and Chief Operating Officer; <UNK> <UNK>, Chief Financial Officer; <UNK> <UNK>, Chief Commercial Officer; and other senior members of Spectrum's management team.
Here is an outline of today's call.
First, Dr.
<UNK> will provide you with the highlights of the [fourth] quarter and discuss our overall direction and strategy.
<UNK> will then provide you a summary of our [fourth-quarter] financial performance.
Following this, <UNK> will review the Company's operations and clinical update.
We will then open the call for questions.
Before I pass the call to Dr.
<UNK>, I would like to remind everyone that during this call, we will be making forward-looking statements regarding the future events of Spectrum Pharmaceuticals, including statements about product sales, profits and losses, the safety efficacy, development, timeline and clinical results of our drug products and drug candidates, that involve risks and uncertainties that could cause actual results to differ materially.
These risks are described in further detail in our reports filed with the Securities and Exchange Commission.
These forward-looking statements represent the Company's judgment as of the date of this conference call, March 9, 2016, and the Company disclaims any intent or obligation to update these forward-looking statements.
However, we may choose to update them, and if we do so, we will disseminate the updates to investing public.
For copies of today's press release, historical press releases, 10-Ks, 10-Qs, 8-Ks and other SEC filings, and other important information, please visit our website at www.sppirx.com.
I would now like to hand the call over to Dr.
<UNK>.
Thank you, Dr.
<UNK>, and good afternoon, everyone on the call today.
Let me begin with some color on our product sales.
Fourth-quarter product sales were $34.8 million and for several of our drugs was solid this quarter and resulted in strong quarter-over-quarter sales growth.
FUSILEV sales were $15.1 million, compared to $11.1 million in the prior quarter.
Our reported FUSILEV sales do not include $6.1 million in deferred revenue that we expect to recognize in 2016.
FUSILEV sales exceeded our expectations in the fourth quarter; however, we continue to expect significant declines in the future, due to additional competition and pricing pressure.
FOLOTYN and BELEODAQ sales were $13.3 million, compared to $11.3 million, and MARQIBO sales were $2.7 million, compared to $1.3 million in the prior quarter.
Also, ZEVALIN sales were $3.7 million, compared to $4.8 million in the prior quarter.
And remember we are no longer booking revenues from ZEVALIN in certain ex-US territories.
I also want to highlight a few points regarding our business development activities.
Earlier in 2015, we in-licensed our pan-HER drug, Poziotinib, from Hanmi Pharmaceuticals.
It was great to see that this product has already entered Phase 2 clinical trials.
One of the decisions we made last year was to try to monetize the value of certain assets in non-core geographies.
I am pleased with the recent deals that we've signed in China, Japan and Canada for various assets.
All of these deals extract value for these assets above and beyond what we could have realized on our own.
In addition to the licensing activity, we also signed a co-promotion agreement with Eagle Pharmaceuticals.
This agreement covers the expenses of the team working on Eagle products, with the potential to earn performance-based milestones based on sales.
So let me make some comments on our cash position.
I'm pleased to report that we ended the year with a cash balance of $140 million.
This is more cash than we started the year with.
We will continue to be mindful of our operating expenses and make sure we are funding only our highest priority programs.
Our plan is to have our operating performance and business development activities be our primary source of cash.
As we look forward to 2016, I want to provide some perspective on our operating expenses.
Our quarterly SG&A expenses have stabilized around $20 million, down from approximately $25 million a year ago.
We don't expect significant changes from the current levels going forward.
As we've previously stated, we continue to expect R&D expense to increase over the year, as we increase enrollment of our clinical studies.
The rate of this ramp will be a function of how quickly these studies enroll.
With that, let me now hand the call over to <UNK> to provide an operational update.
Thank you, <UNK>, <UNK>, and Dr.
<UNK>, and most of all, thank you for everyone on the call today and your interest in Spectrum.
I'm extremely proud of our team here at Spectrum and the goals that we accomplished in 2015.
Our commercial and operations team has done a great job with [undis] products, resulting in a strong operational performance in the fourth quarter.
What I really want to focus on today is our late-stage pipeline, a pipeline that is real and which is a rarity in the biotechnology industry.
In this industry, everybody is looking for drugs that can compete in blockbuster markets, drugs that can potentially be game-changers for the treatment of devastating oncology ailments.
We're fortunate to have several potential game-changers for our Company in our pipeline.
Let me tell you what makes me so enthusiastic.
I will start with our highest priority in the Company, SPI-2012.
This novel long-acting GCSF, a granulocyte-colony stimulating factor, targets a blockbuster market of more than $6 billion.
Our Phase 2 data demonstrated that SPI-2012 was not inferior to pegfilgrastim at the mid-dose tested, and superior in terms of duration of severe neutropenia at the highest dose tested.
We are excited to announce the agreement on our special protocol assessment with the FDA on the Phase 3 study in December, and within six weeks, we started to enroll the first patient into that registrational trial.
The trial is randomized, controlled, and it will evaluate SPI-2012 as a treatment for chemotherapy-induced neutropenia, with a target of 580 breast cancer patients.
We are currently recruiting patients in this trial, and patients are beginning to get dosed.
With this as our top development priority, it's important to remember that this registrational trial, unlike many oncology trials, has a relatively short registrational endpoint, assessed by blood testing of absolute neutrophil counts over the course of a couple of weeks.
Our plan is to rapidly enroll this important study within approximately 18 months, quickly analyze that data, and then expeditiously file the BLA.
I was recently present at a meeting with the investigators who will be participating in this trial and am pleased to inform you that the excitement for this drug remains very high.
Let's move on to another high priority in the Company, Poziotinib, our novel pan-HER inhibitor.
We believe Poziotinib has the potential to be a best-in-class product.
It has demonstrated strong Phase 1 clinical data in breast cancer patients, with a response rate of 60% in patients who had already failed other HER2-targeted treatments.
Our Korean partner, Hanmi, is studying this drug in several mid-stage studies in several tumor types, including breast cancer, non-small cell lung cancer, gastric cancer, in Korea.
We are focusing our efforts in breast cancer because of the exciting data we have seen from this compound.
Poziotinib will target a multi-billion dollar market, and we are working with the top KOLs worldwide to develop a clinical strategy so we can have a competitive drug in the market.
In December, we submitted a Phase 2 breast cancer protocol to the FDA as part of our IND, Investigational New Drug, application.
We're happy to report the IND was accepted, and just this week, we started the Phase 2 study in breast cancer.
The Phase 2 study is an open label study that will enroll approximately 70 patients with HER2-positive metastatic breast cancer who have failed at least two or more HER2-directed therapies.
We will keep you updated in the progress of this exciting drug.
Next, Evomela, after our meeting with the FDA in November, we resubmitted our IND application within days, and the FDA granted us a new PDUFA date of May 9, 2016.
We've received positive feedback from KOLs at the American Society of Bone Marrow Transplant annual meeting in February.
This market is very concentrated, with just over 100 accounts representing about 90% of that business.
We're only two months away from the PDUFA date today, and our commercial team is actively finalizing their launch preparations.
If approved, we will bring this drug to market with our existing sales force.
Now let me talk about EOquin, our potent tumor-activated drug for bladder cancer.
Just last month, we received communication from the FDA that they have accepted our NDA filing and provided us with a PDUFA date of December 11, 2016.
The FDA also indicated that it plans to hold an advisory committee meeting regarding this NDA.
Thank you for your time and interest in Spectrum.
I am going to turn the call back to Dr.
<UNK>.
Thank you, <UNK> and <UNK>.
I now want to thank you for all your interest in Spectrum.
We have multiple potential catalysts in 2016 and a promising late-stage pipeline.
In the next two months, Spectrum potentially could have six drugs on the market, while we keep aggressively progressing our high-priority programs.
With that, let's open the call for questions.
Operator.
<UNK>, first of all, thank you for your question.
Very important question for our most important product.
The protocol, as you know, was approved by the FDA under special protocol assessment.
Although study is a full four cycles ---+ multiple cycles, but the first cycle, which is a four-week cycle in which they will be assessing the activity of SPI-2012 in a randomized open label fashion.
In other words, the patients will be randomized to receive either the comparative drug pegfilgrastim or SPI-2012.
And the blood assessments will be done about 12 times during the cycle.
After the TC regimen finishes, they will start on the G-CSF, either our drug or the competitive drug, and the assessments for efficacy will be a duration of severe neutropenia, or DSN, during this first cycle only.
Let me repeat, this study is not double-blinded.
It is randomized but open label study.
I think that decision we will make with the help of our counsel (inaudible) and even with the FDA.
Keep in mind, this is a very important drug for us, very important study.
We would not want to do anything to jeopardize the approvability of this study.
Certainly this is a randomized and open-label trial, so you're right, we would ---+ it is possible that we would know the results on an ongoing basis.
However, whether we make this data public or not will depend on the FDA's and DSM's decision.
And we will keep you posted as we progress.
Right now, our goal is to have 100 to 150 sites in US and Canada participate in the trial.
This will be mostly an American study in 580 patients.
Our goal is to enroll these patients as quickly as possible, but in 18 months or less.
We plan to have this drug on the market in 2018.
This class of compounds typically have side effects related to diarrhea, rash, mucositis, those are the typical three side effects that you see with pan-HER inhibitors.
We have seen a little bit less incidence of diarrhea with this drug.
However, so far the number of patients studied is rather small.
This is why FDA requires you to do large trials to really assess the incidence of the disease.
We are planning to treat patients with loperamide as prophylactic for diarrhea.
Let me tell you, our partner, Hanmi, has treated now a lot of patients.
I don't have the exact count.
The number of patients far exceeds 100, I would think, in different tumor types.
There were six tumor types in the study.
Besides what <UNK> mentioned, the gastric cancer, lung cancer, head and neck cancer and breast cancer.
We decided to pick breast cancer because, number one, this is where we saw the most activity and it is the biggest market in the United States.
And, therefore, we have focused that Spectrum is going to focus primarily on the development of this drug in breast cancer.
However, our partner is rapidly enrolling patients, in fact, they are far ahead of us, they are in late stage of Phase 2 trials in Korea.
We are quite excited with what they're doing.
We believe that both SPI-2012 and Poziotinib could be transformative for the Company, even if one of them makes it.
We're hoping that both of these drugs are likely to make it, based on the clinical data that we have at this time.
They did not.
To best of my knowledge, in Phase 2 trials they did not use prophylactic.
In fact, the San Antonio, during the breast cancer symposium we had a meeting of about 12 experts in the United States and several experts from Korea and at that time we did have a lot of discussion on prophylactic use of this drug.
The American experts felt that we should use prophylactic use of these drugs just because these class of drugs are known to cause diarrhea.
But in Korea, they have not used it.
Let me repeat if I understand your question correctly.
You're saying what are the market opportunities for a drug like Poziotinib.
Let me just tell you that breast cancer is ---+ about 2,000 women are being diagnosed every month with this drug ---+ [40,000] women are being diagnosed literally every month with this terrible disease called breast cancer.
240,000 a year.
And 40,000 of them die each year in spite of all the advances we're making.
It is a huge market when you look at it.
Unfortunately, it is a huge market from patients' point of view.
I'm a physician and I always think of patients having a terrible disease like breast cancer.
Here it is, [conceptor] sales are $7.8 billion, as reported just last year.
Just one such drug.
There are many drugs in development at this stage; it's a highly competitive field.
We believe we have got perhaps a best-in-class pan-HER inhibitor based on the data we have seen so far.
Time will tell.
We are right now in second Phase 2 trials.
We plan to do a 70-patient study.
We plan to quickly enroll these patients and we will have more to say about as the time goes.
If I understand your question is about EOquin, apaziquone, a bladder cancer drug, but the FDA is likely to wait for the current trial, ongoing trial, to be completed.
That's a question I can't really answer.
As you know, we have submitted data based on three things.
Number one, we know that our drug is active, based on not only the marker legion of studies that are very impressive that you leave a tumor behind and the only thing you give to these patients is give a single dose of EOquin and 69% patients had complete responses.
And then the Phase 3 trials that we did, 611, 612, we saw the drug was extremely safe and for the technical reasons we have done reanalysis.
We have submitted to the FDA.
As you know, when we studied, each study was not positive.
P value was not less than 0.05.
However, when we combined the two trials, then the study data was highly significantly positive.
And this unmet medical need, no drug has been approved in this space and when we talked to experts, we believe that this unmet medical need, in fact, the only other drug that is used in Europe, for example, is Mitomycin and in some of the Centers.
And Mitomycin is, as you know, causes sloughing of the healthy tissues, so urologists are very afraid to give a drug like Mitomycin which is very toxic.
As compared with that, in our experience of treating, conducting two large studies with over 600 patients each, we found that there were drugs relatively safe and we feel good about it.
I know you're interested in Fusilev question.
We have actually moved on.
We don't talk much about Fusilev.
Fusilev is a drug that has given significant contribution to our sales revenue.
We know there is generic competition from Sandoz and now there is a second entrant, so it is really hard for us to predict at this time how these sales are going to be in the future, but we are expecting that the sales of Fusilev will continue to decline.
Yes.
Yes.
Sure.
That is in the licensing revenue line.
That's the revenue we recognized from selling off our Japanese entity.
It's a one-time sale of that entity.
Yes.
We actually will recognize revenue in the first quarter.
The way that this will happen is the sales force that is promoting this product, we get reimbursed on a quarterly basis for their time.
So you will see that show up in the licensing revenue line on a quarterly basis.
And it's about $8 million a year, so a couple million a quarter.
Let me have this question be answered by <UNK> and <UNK>.
<UNK>, you're exactly right.
I will start and <UNK> ---+ we were just talking about this this morning.
A couple of things and I will let <UNK> go into detail.
You're spot on, <UNK>.
It's number one.
We are a novel entity.
We are not a biosimilar.
Sometimes people are confused about that.
The way legislation is is we will be standing alone, we are not tethered to the innovative product, as you well know.
Now changing ---+ the only comment I will make and I'll let <UNK> comment in more detail.
Remember, the change in the ASP you're talking about, the potential that is only on Medicare patients only.
It's not on the private pay which is usually more than 50% of those patients.
That's important when people do their modeling, you understand that.
<UNK>, why don't you ---+ we talked about this this morning, why don't you give your explanations because you're the commercial guy.
That's exactly right.
The only thing I will add is any way you slice this, at the end of the day it becomes a game-changing event for us and we are in a position to compete.
<UNK>.
I think we will try to provide as much color as we can.
We try to provide some color here on the trends that we're seeing in the business with regards to the SG&A line staying rather constant and the growth that we expect in the R&D line, and so we will try to provide as many updates to you as we can throughout the year.
The only comments that we're going to make right now are really about our operating expenses and where we see those.
We're not prepared to make any comments today around our cash balance.
I will just say one more comment here that keep in mind that we have some assets that we're focused on developing them in the US.
We are looking to find a partner in Europe.
We haven't even started the process yet, but we have been thinking that for drugs like EOquin apaziquon, [SPI-2012], which have mature drugs in later stages, at this time we could entertain a partnership with somebody in Europe or elsewhere.
Certainly, as you have seen, that we are very active in [BD] space.
We acquired company like [Allos] and others and we have been acquiring drugs and we have made partnerships before and we are very open to make some additional partnerships.
You just saw that we brought in over $26 million last year by doing some strategic business development deals and we hope that we will be able to do this year and next year and so on and so forth.
Once again I would like to thank everyone on the call.
As we enter 2016, as you can see, we remain very focused and dedicated to patients in need of new treatment options.
We look forward to updating you in the near future on the progress that continues at Spectrum.
We are quite excited.
These are the exciting times at Spectrum.
Stay tuned.
| 2016_SPPI |
2018 | VRTV | VRTV
#Thanks, Tom.
Good morning, everyone.
And thank you for joining us today as we review our first quarter financial results, provide some thoughts on important drivers of our expected full year 2018 performance and discuss our guidance for the year.
Over the past 2 years, we've been pleased with our improved revenue trajectory, which has been driven by strong top line growth in our Packaging segment and improved performance from Facility Solutions.
This quarter, Publishing also achieved positive revenue growth, and the declines in Print were smaller than historical levels.
For the first quarter of 2018, reported net sales were $2.1 billion, up 5.3% when compared to prior year period.
Excluding the positive effect of foreign currency exchange rate, our core net sales increased 4.9% from the prior year.
Since the beginning of 2017, our year-over-year quarterly core net sales comparisons have been improving due in part to our investments in selling resources, resulting in significant growth in packaging and a positive trend for Facility Solutions' revenues.
The first quarter of 2018 is the third consecutive quarter in which our consolidated core net sales were positive year-over-year.
For the first quarter of 2018, we reported consolidated adjusted EBITDA of approximately $30 million, flat year-over-year and in line with our plan.
The incremental earnings from our revenue growth were offset by margin compression due to a number of factors, including customer mix and associated contract pricing as well as incremental bad debt.
Additionally, due to the integration-related activities, we experienced increased inventory charges and some short-term process inefficiencies, which impacted price management.
The planned improvement of processes as we move through the integration will enable us to better manage price increases by the end of 2018.
For the balance of the year, bad debt and inventory charges are not expected to be materially higher than in 2017.
In short, we expect our margins to largely recover by year-end as the factors negatively impacting the first quarter result diminish during 2018.
Shifting now to our segment results.
Packaging performed very well in the first quarter.
Core revenues increased more than 16% quarter-over-quarter with 8% due to the All American Containers acquisition and 8% of organic growth.
Approximately 6% of the organic growth came from volume and 2% from price.
The volume growth was driven by strength across most of our product categories.
Our packaging operations outside the United States also had a strong quarter.
For the balance of 2018 in Packaging, we expect to see solid revenue performance and an improvement in adjusted EBITDA when compared to 2017.
Overall, we continue to view Packaging as having growth rates higher than GDP, but not as strong as what we experienced in 2017 and in the first quarter because we are expecting to see less benefit from price increases and more modest growth from certain large customers.
Our Facility Solutions segment grew its core revenues 3.6% quarter-over-quarter.
Over the past 2 years, we've been pleased with the improving revenue trends for this segment.
After the growth rate dipped somewhat in the fourth quarter of 2017 due to challenges in retail, revenues rebounded in the first quarter.
This improvement was mostly driven by larger accounts in the building services and hospitality verticals.
For the balance of 2018, we currently believe that Facility Solutions revenues will grow at a rate of GDP, with the caveat that we plan to selectively prune some higher risk accounts, mostly in the retail sector.
Industry pressures continued to impact revenue with our Print segment, while our Publishing segment had a positive year-over-year revenue comparison.
Print core revenues declined 5.7% in the first quarter, driven by secular declines in both market volume and market price.
However, Print's rate of decline improved sequentially from the fourth quarter of 2017.
Industry prices have been moving up recently although still not above prior year levels.
The Print segment's earnings were negatively impacted this quarter by charges for bad debt, which were in line with our expectation, but higher than last year.
During the first quarter, we made significant changes to the Print business model, which I will speak to in a moment.
The Publishing segment's core revenues increased 1.4% although the industry continues to decline.
We benefited from our overall customer mix and our customers' spending patterns.
For the balance of 2018, we expect the secular industry trends to continue to negatively impact both our Print and Publishing segment revenues and earnings.
Shifting now to our operating system conversions.
Another significant multistate conversion was recently completed as planned.
For the remainder of 2018, we have 2 additional large-scale conversions schedule.
Overall, our operating system conversions will be substantially complete by the end of 2018.
We want you to be aware that 2018 is a complicated year due to the systems conversion, warehouse consolidation and warehouse management system installations.
As anticipated, these activities are putting short-term strains on our processes and our cost, but are critical to the long-term success of the company.
Before turning to guidance, I'd like to give you an update on the significant changes we made to our Print business model in the first quarter.
As you know, the past several years have been challenging for the paper industry.
Many of our customers are investing in new technologies or services that do not include paper.
The ongoing overcapacity in paper and the resulting pressures on prices have made it very difficult, not just for Veritiv, but for the entire industry.
Recently, the manufacturing base has been ---+ has more aggressively managed the supply and demand balance, resulting in less capacity, greater price stability and a smaller but stronger group of suppliers.
Veritiv is well positioned to take advantage of these industry dynamics, and as part of our optimization element of our long-term strategy, we restructured our Print business model and sales compensation plan to be more flexible to adapt to the secular declines in the industry.
The restructuring resulted in fewer resources supporting this segment.
The financial benefits of this restructuring will be realized in the second half of 2018 and in 2019.
The changes to the Print business model have been well received by our customers, suppliers and employees as they recognize we are taking the necessary steps to rightsize the Print segment to maintain our leadership position in a difficult environment.
Now I'd like to turn to our expectations for the balance of 2018.
In our March earnings call, we indicated that we expected adjusted EBITDA for 2018 of $180 million to $190 million.
This expectation is being driven by continued growth in Packaging and Facility Solutions, along with the full year of All American Containers, somewhat offset by continued declines in Print and Publishing, and the negative earnings impact of financing leases becoming operating leases.
Based on our first quarter 2018 results, which were in line with our plan and our expectations for the remainder of the year, we remain confident with our full year range of adjusted EBITD<UNK>
In addition, we are also reiterating our existing guidance for free cash flow for 2018 of at least $30 million.
Now I'll turn it over to Steve so he can take you through the details of the first quarter financial performance.
Thank you, <UNK>, and good morning, everyone.
Let's first look at the overall results for the quarter ending March 2018.
As <UNK> walked you through earlier, when we speak to core net sales, we are referencing the reported net sales performance, excluding the impact of foreign exchange and adjusting for any day count differences.
We had the same number of shipping days in the first quarter of 2018 compared to the first quarter of 2017.
I would note that in 2018, we will have 1 additional shipping day in our third quarter, with the other 3 quarters having the same number of days as 2017, resulting in 1 more shipping day in 2018 than in 2017.
For the first quarter of 2018, we had net sales of $2.1 billion, up 5.3% from the prior year period, while core net sales increased 4.9%.
As <UNK> mentioned, our sequential quarterly pattern in core net sales has been steadily improving over the past 2 years, and we are pleased to see a third quarter in a row of positive core net sales.
This trend line improvement is in part driven by the investments we are making in growth segment and is occurring despite a cost revenue environment for our Print and Publishing segments.
Our cost of product sold for the quarter was approximately $1.7 billion.
Net sales less cost of product sold was $372 million.
Net sales less cost of product sold as a percentage of net sales was 17.7%, down 60 basis points from the prior year period.
Adjusted EBITDA for the first quarter was $29.7 million, flat versus the prior year period.
Adjusted EBITDA as a percentage of net sales for the first quarter was 1.4%, down 10 basis points versus the prior year period.
The incremental earnings from our revenue growth were offset by margin compression due to a number of factors, including customer mix and associated contract pricing as well as incremental bad debt.
Additionally, due to the integration-related activities, we experienced increased inventory charges and some short-term process inefficiencies, which impacted price management.
Let's now move into the segment results for the quarter ended March 31, 2018.
In the first quarter, the Packaging segment grew its net sales 17.1%.
Core revenues increased 16.6% quarter-over-quarter, which is much better than the market performance.
Excluding the benefit of AAC revenues in the quarter, our organic revenue growth year-over-year was approximately 8%.
Of that 8%, approximately 6% of this organic growth came from volume and about 2% from price.
For the first quarter, Packaging contributed $53.6 million in adjusted EBITDA, up about 6% from the prior year period.
Adjusted EBITDA as a percentage of net sales was 6.3%, down 70 basis points from the prior year period.
In the first quarter, the adjusted EBITDA margins for Packaging was negatively impacted by customer mix and cost increases in resin and delivery.
In the first quarter, Facility Solutions net sales increased 4.5%, while core revenues increased 3.6%.
The higher growth categories this quarter were food, service, towel and tissue, can liners, and safety and personal protection supplies.
We also saw strength in Canada this quarter, which was principally driven by growth in select large corporate accounts.
Facility Solutions contributed $4.1 million in adjusted EBITDA, down about 18% from the prior year period.
Adjusted EBITDA as a percentage of net sales decreased 30 basis points in the quarter.
The adjusted EBITDA margin decline was primarily driven by a shift in customer mix as well as higher supply chain cost, some of which we expect to recover by the end of the year.
In the first quarter, the Print segment had a 5.4% decline in net sales, and core revenues were off 5.7%.
Secular declines in both market pricing and volumes continued to impact this segment sales.
Print's volumes declined 3.8% quarter-over-quarter, and price changes accounted for most of the rest of the decline.
For the first quarter, Print contributed $13.7 million in adjusted EBITDA, down 2.8% from the prior year period as the earnings impact of the sales decline was partially offset by a reduction in operating expenses.
In the first quarter, the Publishing segment had a 1.8% increase in net sales and a 1.4% increase in core revenues.
This increase in revenue was driven by an improved customer mix, slightly offset by a decline in price.
The volume increases were most pronounced with our customers in educational books and direct mail.
For the first quarter, Publishing contributed $6.8 million in adjusted EBITDA, up 11.5% from the prior year period.
The increase in earnings can be attributed to the mix of business and a reduction in operating expenses.
Shifting now to our balance sheet and cash flow.
At the end of March, we had drawn approximately $945 million against the asset-based lending facility and had available borrowing capacity of approximately $259 million.
As a reminder, the ABL facility is backed by the inventory and receivables of the business.
At the end of March, our net debt to adjusted EBITDA leverage ratio was 5.0x, including borrowings for the August 2017 AAC acquisition.
Our net leverage ratio had been 5.4x at the end of the third quarter of 2017, right after that AAC acquisition.
By year-end 2018, we expect our net leverage ratio to be approaching 4x, and our long-term strategic goal is a net leverage ratio of around 3x.
For the quarter ended March 31, 2018, our cash flow from operations was approximately negative $22 million.
Subtracting capital expenditures of about $10 million from cash flow from operations, we generated negative free cash flow of approximately $31 million.
If we add back just over $20 million of cash items from acquisition, integration and restructuring activities, adjusted free cash flow for the first quarter would have been approximately negative $11 million.
While negative, our first quarter free cash flow was improved from last year's first quarter.
Free cash flow was favorably impacted primarily by a reduction in our inventory balances in both Facility Solutions and Print segments.
We also experienced a small reduction in our accounts receivable versus year-end 2017 driven by our Print segment.
As a reminder, our working capital pattern can be seasonal.
Seasonality also plays a role in our overall adjusted EBITDA performance as our first quarter results are usually the lightest and our fourth quarter usually the strongest.
We would generally expect this year to pace at a similar pattern to 2017, but we would note that bad debt expense can have an impact that could distort our historic quarterly seasonality.
For your information, bad debt expense last year was about $16 million, and we expect a similar amount for 2018, but more evenly spaced throughout the year.
As <UNK> mentioned, we expect at least $30 million of free cash flow for 2018, defined as cash flow from operations less capital expenditures.
Part of this expectation is driven by our plans to improve our accounts receivable metrics for the remainder of the year.
We have 2 types of integration costs.
There are those costs that run through the income statement directly and those that are within capital expenditures.
Onetime integration and restructuring costs expected to run through the income statement for 2018 will be between $40 million and $50 million.
We expect capital expenditures related to integration and restructuring projects to be in the range of $10 million to $20 million, which will help enable efficiencies in 2018 and beyond.
Similar to prior years, this incremental capital spending is principally for information systems integration.
For 2018, our ordinary course capital expenditures are expected to be approximately $20 million to $30 million.
For comparison purposes, capital expenditures totaled $10 million for our first quarter.
Of that spending, there was about $6 million related to integration projects.
So that concludes our prepared remarks.
Michelle, we are now ready to take questions.
Sure.
So first of all, as it relates to the first question, <UNK>, we are ---+ as we work with our retail partners, we do not expect any incremental accounts receivable risk in our choices that would necessarily be applied and the exchanges we make.
Secondly, as it relates to the balance of the year, we have a number of integration-related activities particularly our system conversions for the integration where we moved massive amount of data and they migrated from one system to the next.
Unfortunately, at the same time, we had a number of price changes occurring within our business units.
And that pressure on our billing systems caused some inefficiencies.
That will improve as these integration activities fall away in the second half of this year and into '19 as well, and that will help improve our AR profile.
No, <UNK>.
I would say that you're reading the commentary probably not quite right.
We're about exactly where we thought we would be, recognizing the challenges we did have with the integration that heavily into but completing this year.
So we felt ---+ we continue to feel like we planned appropriately and are right where we expected to be.
Sure.
And so we had, as you saw, the 8% organic growth.
6% of that was volume, 2% was price.
We see a couple of things occurring between now and the balance of the year.
First of all, as compared to prior year, there's going to be less impact of price increases just as because we are rolling on to the price increases that went into place last year.
So it's more about year-over-year comps, and we're not anticipating the same level of price increase activity as we saw in 2/3 of last year.
So that, by its very nature, is going to reduce the growth.
We also are expecting less strength in our international business.
That business, <UNK>, is very project-driven, and we recognize what projects are in front of us and how they come on and tailor off.
And so we're expecting less growth there or more modest growth.
And then lastly, as we are, I guess, fine-tuning our account base as well as we ---+ as you know, we have had a tendency to focus more on growing our large accounts.
With that, that business comes very choppy, and we're expecting less of that large account growth coming into play into 2018 versus 2017.
So again, still growth but not quite as aggressive as what we've experienced in the last 4 quarters.
Well, <UNK>, thank you for your questions.
I feel like we're off to a great start in 2018 with our first quarter results coming in as planned.
Packaging and Facility Solutions continued to perform well, and a solid performance from Publishing also helped offset the secular declines in Print.
Based on our first quarter results and our outlook for the remainder of the year, we are reiterating our existing full year guidance for adjusted EBITDA and free cash flow.
With the integration expected to be substantially complete by the end of 2018, we have now begun the optimization element of our long-term strategy.
Key part of that optimization is the recent restructuring we made in our Print business to protect our leadership position and generate better return.
Overall, we are pleased with our progress.
Thank you again for joining us today, and we look forward to speaking with you in August when we share our second quarter 2018 results.
Have a great day.
| 2018_VRTV |
2018 | CHK | CHK
#Good morning, and thank you for joining our call today to discuss Chesapeake's financial and operational results for the 2017 fourth quarter and full year.
Hopefully, you've had a chance to review our press release and the updated investor presentation that we posted to our website this morning.
During this morning's call, we will be making forward-looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections and future performance and the assumptions underlying such statements.
Please note that there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our earnings release today and in other SEC filings.
Please recognize that, except as required by applicable law, we undertake no duty to update any forward-looking statements, and you should not place undue reliance on such statements.
We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers.
For any non-GAAP measures we use, a reconciliation to the nearest corresponding GAAP measure can be found on our website and in our earnings release.
With me on the call today are Doug <UNK>, Nick Dell'Osso, <UNK> <UNK> and <UNK> <UNK>.
Doug will begin the call, and then turn the call over to Nick for a review of our financial results before we turn the teleconference over for Q&A.
So with that, thank you, and I will now turn the teleconference over to Doug.
Thank you, <UNK>, and good morning.
2017 was another foundational year for Chesapeake as we continue to transform all aspects of our company.
We remain committed to building a strong value-generating enterprise that will be resilient to commodity price volatility and offer competitive returns for our investors.
Our business strategies of: one, financial discipline; two, profitable and efficient growth; three, exploration; and four, business development, have not changed.
Today, all 2,800 Chesapeake employees are focused and driven toward achieving our 3 top priorities: eliminating $2 billion to $3 billion of net debt from our balance sheet, enhancing our margins and achieving positive free cash flow.
We made important progress toward reaching all 3 priorities in 2017.
I'm proud of our accomplishments during this challenging pricing environment and strongly believe our transformational improvements are second to no other company.
We once again demonstrated the depth of our portfolio by closing on approximately $1.3 billion in asset sales that had minimal associated cash flow.
We also continue to simplify our capital structure by reducing our secured term debt by approximately $1.3 billion or 32%.
We enhanced our margins, growing overall production by approximately 3% and oil production by approximately 2% year-over-year adjusting for asset sales while importantly reducing our cost structure by more than $500 million on an annual basis or roughly $0.58 per barrel oil equivalent.
We continued to reduce our legal complexity, and our employees delivered record environmental health and safety performance in 2017.
We improved on our industry-leading operating performance across all plays with record lateral lengths in all assets and significant productivity gains through enhanced completions.
As a result of these achievements, 4 of our 6 major assets were cash flow positive in 2017.
And at current strip prices and with the divestitures announced a few weeks ago, Chesapeake is positioned to be cash flow positive in 2018.
While I'm proud of the progress we made, I assure you we are not done.
In 2018, we expect to grow our total production adjusted for asset sales by approximately 3% year-over-year, and our oil volumes will be approximately 5% compared to 2017 levels.
Our priorities will deliver further improvements in capital efficiency, greater cash generation and shareholder return through prudent investments in our highest-return projects.
We will continue to drive cost out of our operations, improve margins and utilize advancing technologies to create value across our portfolio.
Ultimately, we will deliver increased EBITDA in 2018 despite a meaningfully lower capital program and lower absolute production volumes.
As stated earlier, restoring the health of our balance sheet remains a top priority.
We are in active conversations regarding multiple large divestiture transactions.
And while our debt maturity schedule affords us the opportunity to be prudent in our approach, we are committed to making material progress towards our goal of $2 billion to $3 billion in debt reduction in 2018.
We have also transformed this company in ways many thought not possible a few short years ago.
We have reduced our total leverage by over 50% since year-end 2012.
We have achieved nearly a $7 billion reduction to our midstream and transportation commitments since 2014.
We have reduced our CapEx budget by 83% over the last 5 years while keeping our adjusted production relatively flat.
We have established ourselves as a cash cost leader in our industry by cutting our costs in half during this transformation.
And we have done all of this while making a 92% improvement across all key environmental, health and safety metrics.
I could not be more proud today of the effort, dedication and commitment to value and safety our employees have displayed and continue to display on a daily basis.
While we know we have important work ahead, the future of this company is bright.
And I believe we have the strategy, assets and most importantly, the people to deliver significant upside and value to our shareholders.
We are well positioned to deliver our strategic priorities in 2018.
In June, I'll record my fifth anniversary at Chesapeake Energy.
We have tackled many great obstacles the past few years, but the measurement of this great company will be what we deliver in the next 5 years.
I'm excited, encouraged, and I would not underestimate the grit and determination of the company that has made the most progress during this depressed commodity price environment.
One last comment from me.
Chesapeake has built a track record of continuous sequential improvement in our business.
We have delivered what we said we would deliver.
The substantial improvements in our company over the last 5 years have not accrued to the common shareholder due to commodity price and legacy burdensome debt commitments and obligations.
And as our legacy obligations have largely been removed, the common shareholder is in an excellent position from our significantly improved fundamental business model.
I'll now pass the call to Nick.
Thanks, Doug, and good morning, everyone.
As Doug stated, the transformative changes we have made at Chesapeake over the past 4 years have been significant, and this was again evident in 2017 as we improved our cost structure, generated approximately $1.3 billion from asset sales, reduced a meaningful amount of our secured debt, eliminated legal complexities and recorded the best environmental and safety performance in our company's history.
Despite our accomplishments, we view last year as simply a set-up year that has positioned us to create increased shareholder returns in 2018 and beyond.
2017 was about restoring our production profile, reducing legacy liabilities and improving profitability.
As seen in our outlook this morning, 2018 has us delivering greater value on less spending.
Our adjusted production will grow, while our cost and CapEx will decline.
As a result, we will generate more operating cash and free cash in 2018 as compared to 2017.
We are pleased with this outlook and its implied improvements in capital efficiency and operating profitability.
Further, we are pleased with the balance sheet improvements we continue to highlight through our recently announced asset sale agreements for properties in the Mid-Continent, including a sales agreement for our Mississippi Lime assets signed earlier this month.
Once closed, these transactions alone are projected to remove approximately $0.14 per barrel from our total LOE and GP&T expenses in 2018.
In addition, we recently sold approximately 4.3 million shares for net proceeds of $74 million from our legacy investment in FTS International, which completed its initial public offering earlier this month.
We continue to hold approximately 22 million additional shares in this publicly traded company.
All together, we expect approximately $575 million from signed or already closed asset sales and the partial sale of our FTS shares.
We expect that the proceeds from our asset divestitures and the FTSI investment will go toward producing or outstanding borrowings under our revolving credit facility while repurchasing high-coupon debt to reduce our annual interest expense.
If applied to our highest cost debt, the transactions signed in late 2017 and to date in 2018 have reduced our interest expense up to $50 million annually.
As Doug stated, we continue to pursue multiple larger transactions as we work toward our goal of removing an additional $2 billion to $3 billion of debt from our balance sheet.
The combination of our asset sales and our expected cash flow at today's strip prices will result in Chesapeake being free cash flow positive in 2018 after our planned capital spending and financing costs.
Our expected cash flow is largely protected by our strong hedge position in 2018.
We have approximately 68% of our projected 2018 gas production hedged at $3.10 per Mcf and approximately 79% of our crude oil production hedged at $52.41 per barrel.
Additionally on the basis front, our crude and gas pipeline commitments are providing support for competitive basis realizations through access to premium markets, as seen in our strong Q4 realizations.
We have also hedged approximately half of our exposure to the LLS oil pricing contract at $3.32 per barrel over WTI and half of our in-basin gas exposure at $0.77 less than NYMEX, a marked improvement to 2017 prices for this location.
We believe it is prudent to protect a portion of our cash flow through hedging and will continue to watch for opportunities to hedge both our gas and oil exposure for 2019.
On the operations front, we did experience some outages and delays due to cold weather across several of our operating areas in January.
However, despite this lower production, our earnings and cash flow have benefited greatly from the impact of higher commodity prices, primarily due to the cold early winter weather as well as the premium received on our oil sold under LLS contracts.
To close, we remain focused on growing cash flow rather than growing our volumes.
We are pleased to highlight further progress toward all of our goals with our 2018 guidance that we released this morning.
All of our operating cost items are projected to be lower in 2018 using midpoints.
This is all being done with production growth adjusted for asset sales of 1% to 5% on planned capital expenditures that are 12% lower than 2017.
We believe increasing cash flow while decreasing investment is a strong recipe for success.
The improvement in our cost structure, capital efficiency, oil production and margin growth are all generating more EBITDA at current NYMEX prices and free cash flow as well as increased financial returns from our assets.
As Doug noted, the significant profitability and cash flow improvements for the last several years have gone toward reducing legacy commitments and obligations.
We have direct line of sight today on these improvements delivering real shareholder returns in the coming periods.
Chesapeake is getting stronger.
And while we believe this is not being fully recognized in the marketplace, we are poised to create meaningful shareholder value in the months and years ahead.
That concludes my comments.
I will now turn the call over to the operator for questions.
Well, yes, <UNK>, thanks for the question.
Ideal leverage, that's a ---+ it really is a good question when you look at Chesapeake and the progress we've made in the past few years.
And we have put those targets out there that we target to be a 2x company.
We believe that's the appropriate place that we need to be.
And as we've highlighted the progress that we've made, we have not been able to deliver all of the proceeds and cash generation to further reduce that debt in the past few years like we'd like to as we cleaned up other legacy obligations.
And so if you ask straight out, the ideal place is we'd be at 2x.
Well, we're not at 2x, and we'll continue to work that direction over the next few years.
We'll do it as quickly as we possibly can.
Key in that is we're not going to dilute the value of the company, and we're not selling high-quality assets for $0.50 on the dollar.
And the way that our financial team, Nick and the financial group, have managed our debt obligations, the debt that we have retired, the ability to refinance, extend some maturities and all the while reducing complexity across our business, you can expect that to continue.
And so to say we have an ideal target, it's we'll get to 2x.
We've got $2 billion to $3 billion of targeted debt reduction from a major asset sale that we will conclude as fast as we possibly can.
Yes, <UNK>, this is <UNK> <UNK>, and I'll let <UNK> also chip in here.
We continually manage where we spend our capital every week.
We've talked about this before.
I think we have a capital allocation.
We're going to move rigs where the best value is for the corporation.
I would say that you're going to see us move to 4 rigs in the Powder, try to move to 5 as fast as we possibly can.
We're currently running 5 rigs in South Texas to get in front of a relatively big ranch area with an extra rig.
We'll probably drop that rig and go back to 4, but that will all be evaluated as we see the year unfold.
I don't see us actually adding any to the gas assets.
We will be doing some appraisal work in the Mid-Con.
If that were to take off, we could reallocate our rig there if we had success there.
<UNK>, you have anything there.
Not much to add.
It's an exciting time for us on the drilling completions and technology world as we test new completion designs.
And we've seen instances where overnight, we've doubled the productivity of a well.
So when we do things like that, it may change where we send the rig.
But it's a really exciting time for us as we look at how information can help optimize the way we drill and complete wells.
And the teams are very competitive.
When they lose a rig, they find a new way to make their wells better as well so we can kind of create some competition as well.
But it's a really fun and exciting time for Chesapeake and how we're approaching developing these fields.
My thoughts there, <UNK>, are probably exactly as you'd expect.
It's very heavily price-dependent.
We still see out there for large and small asset sales that the backward dated curves, the confidence in forward pricing is low, values associated with future development are minimal, and that makes it extremely challenging.
As we look at our portfolio, as we look at further opportunities to tightening core up in areas, there will be further smaller incremental asset sales that we will pursue.
We have a very large asset base, so those are options that we can always look to and always find strategics or smaller buyers, private equity that are looking for ---+ trying to build an asset position in an area where we may not get to that area for a long period of time.
So accelerating that value forward makes a lot of sense.
So you can expect that.
On the larger side, you still in the market do not see a lot of large transactions, and we do have significant interest in our asset base.
That interest comes from technology.
It comes from record performance and the capital efficiency that our teams have driven into this portfolio.
The clear line of sight and the improving returns that have been captured in those assets are of value to others.
And as we see that opportunity to divest, we'll do it, but we're going to do it at a prudent pace and at a price that is accretive to our balance sheet and to our shareholders.
So I think what you can expect is we'll be watching the market.
We'll be continuing to look for the opportunities and eager to act as quickly as possible, but always with a focus on returns and being accretive to our shareholders and our cash generation.
Yes, <UNK>, this is <UNK> <UNK> again.
What you're going to see in 2018 is basically a Turner-focused program in the Powder.
We are getting wells down faster and cheaper.
Every time we go out, we're tweaking the completion and getting those costs down so it's becoming more and more competitive every day.
We have 3 rigs running now.
And basically, all those will be focused on Turner going forward.
We'll bring the fourth rig in and put that on Turner as well.
When we bring the fifth rig in, we'll probably focus on Turner, but we could focus some time on the Sussex and the Nio.
The Nio, we already have a significant number of wells in the ground historically in the play.
What we know from what we've done in the last couple years, we can make those wells a lot more economic with a new completion design and longer wells.
That's the direction we will head.
It is not as competitive today as the Turner, so we're going to focus on where the greatest value is today.
I think Turner becomes very valuable to us in the not-too-distant future.
I believe that we have a significant number of Mowry, Parkman and other formations within that footprint that will evolve over time.
We will focus today, though, on the greatest value, and the greatest value in that asset is going to be Turner.
<UNK>, this is <UNK> again.
In South Texas, as we're doing with almost every single one of our assets, we're trying to align the number of rigs and activity with how productive we are.
We're actually knocking out wells faster, so we're getting a lot more productivity out of rigs, trying to align those rigs with completion crews.
What we found last year logistically, if you get in front of your completion crews, you build too big a DUC inventory.
If you don't have a standing DUC inventory or a working DUC inventory of sufficient size, you might have to drop a completion crew.
And that's very, very inefficient.
So what we're trying to do around all of our assets is align our rigs to where we can be as efficient as possible with the completion crews.
So we are going to run 5 rigs today in South Texas and probably drop to 4 and try to stay pretty consistent with the 3 crew ---+ completion crew count.
We may be able to drop to 2 at that point.
The wells are highly productive.
We have to align that activity pace with our ability to build out the larger facilities for the common facilities, so that's all basically running an efficient, highly effective logistics machine.
In the Gulf Coast, you see the same thing.
We can run 3 rigs and basically keep 1 crew, potentially up to 2 crews at times, full capacity.
In the Powder, one of the things we've struggled with in the last few months is 3 rigs can drill wells, but we're being so effective on our completions now we can't keep one crew busy.
So going to 4 rigs, I think, is going to align us really well with the completion crew.
So this is all about maximizing the value of every $1 we spend.
Yes, <UNK>, this is <UNK> again.
We came out of the fourth quarter off a really big completion ramp.
That has now stabilized out.
We're back in the field now going into the completion mode again in mid-January.
To be honest with you, we're doing well.
We don't have a lot of experience with some of the completion designs that we have, how the wells are going to behave.
They're behaving actually quite well, both on the gas and the oil side.
So what we're going to see is a little bit lower production coming into first quarter, which was totally anticipated.
We will ramp off of that and basically build kind of a steady build through the year.
And our plan is to try to keep that build going for years out.
I might just add.
<UNK>, this is Doug.
On top of that, the comments that <UNK> shared with you that as we pulled back our capital program in the past few years and maintained an adjusted for asset sales relatively flat production profile, it's also ---+ and also with our focus on that reduced capital program and the balance sheet, we have made up for capital dollars being spent through technology and capital efficiency.
And while we have the opportunity to spend more, we have focused on trying to reach that positive free cash flow as quickly as possible in the most efficient way possible.
And as a result of that, we have adjusted our capital program throughout the years, throughout 2016, throughout 2017, that resulted in some lumpiness in our quarter-by-quarter production.
And our goal is to eliminate or take some of that volatility amplitude out of our production profile while we continue to improve year-over-year but maintain a more steady approach.
And we're in a position in 2018 as we roll through the first quarter to do that and have a more predictable profile.
And I'm encouraged by the work that's been done on the teams to take out some of that volatility based on the capital investment pace and based on the capital efficiency and technology improvements we've recognized across the portfolio.
<UNK>, this is Nick.
I'll take that.
So our asset sale approach, our portfolio redefinition, if you will, is going to continue to be all about value.
As we look at how we create value in our program going forward, we are long gas today.
So we have focused on some of the opportunities to sell down our gas ---+ the gas portion of our portfolio.
We also see some really attractive return opportunities in areas like the Powder River.
And then as we're really redefining how we're going to create value in the Eagle Ford over the next couple of years, we see just a tremendous amount of opportunity there.
So as we think about what our best opportunities from a portfolio standpoint are, they have led us to gas.
That being said, we are value-agnostic, return-agnostic.
We want to drive for highest value, highest returns.
And if opportunities arise to sell out of an oil asset or down in an oil asset, those are things that we will continue to consider.
One thing that I would note for you is that there is some increasing interest around some gas assets from what I would think of as strategic and maybe nontraditional participants in the standard U.S. onshore A&D market, and it's a contrarian view.
Gas is extremely out of favor in the equity markets, as you all know, and extremely out of favor in many circles.
But the recognition of the fact that there is real financial return to be created in these assets and that there are some encouraging long-term supply-demand dynamics by some participants in the market, particularly those that might be connected to world markets, is real.
And so we have ongoing discussions across all of our portfolio around transactions that will materially improve our balance sheet.
And materially improving our balance sheet will allow us to increase the rate of return on everything else we own, and that's what our asset sale program will continue to be focused on.
That's how we'll look to deliver value.
So in closing, thank you, everyone, for your time.
We've had an outstanding year.
We look forward to a strong 2018.
Our record share is incremental, predictable improvement each year.
We'll continue upon that.
Chesapeake has always been focused on returns and value.
This company didn't get religion when pricing went south.
We're focused on returns and value, and the progress and the improvements we've made have not directly accrued to the common shareholder.
We are in a position for that to take place now as those legacy obligations have been substantially improved upon and eliminated from our business.
Thank you.
| 2018_CHK |
2016 | WCG | WCG
#That's a good question, and we really can't answer that until we see the totality of the rate picture.
Because there's, as you know, more than half a dozen pretty critical factors that go into the overall rate build up.
And so we'll have to look at that carefully, especially if it's merely a one-year moratorium in that rate.
And about $80 million to $85 million of our 2016 ACA fee would be attributable to the Medicare Advantage and PDP businesses.
The balance of that, to balance out to our midpoint of $228 million is Medicaid, which is effectively reimbursed by the states, grossed up for taxes.
Sure, <UNK>.
The change was really to bring more focus to our initiatives.
So we've got three medical directors, one of whom is spending literally all of his time focusing on our quality program and the initiatives that we have both at headquarters and then in all of our local markets.
So we're syncing that up, and it's a much tighter execution than we had previously.
We have another medical director that's focused on utilization management, and we've seen a real lift.
So to your question about when you expect to see, I would say we're already seeing some improvement.
And then our third is really going to be focused on the care management program that we implement and execute at both a national level and out in the local markets.
So it was really about improving the focus of our activity and leveraging some of the existing strength that we had with our current medical directors.
Yes.
Yes, we covered this a while ago, but it's a good question to reflect on 2015 and then think about 2016.
Obviously we don't give quarterly guidance, but in a similar progression, at least macro.
The first quarter and the fourth quarter should be lower than the average, given PDP in the first quarter and the ramping we all know in terms of the MBR.
And then a heavier SG&A load in the fourth quarter with the two quarters in the middle, Q2, Q3, as a whole above average.
And SG&A should ramp through the year and then as you saw in Q4, maybe not as severe depending on discretionary spending in 2016, but a step up in Q4 from that average as well.
But that should largely ramp as well.
Well, if you think about two of those items that were in the fourth quarter, they're singular event driven.
Both Iowa which those costs should taper down quickly into Q1 one way or the other, as well as the PBM conversion which is completed ---+ successfully completed.
And there's some cleanup of that, ongoing costs in Q1 of this year.
But some of it's ---+ it'll be what it'll be, so it's not quite estimable, but we should be through the lion's share of both the PBM costs as well as the culled out expenses for Iowa.
And then Sterling should be pretty immaterial.
It's just the ongoing transition to the buyer and any resulting wind down cost of expenses we're left with.
But that should trickle away as well.
Yes.
We're focused on net income percentages, because that ultimately is what becomes EPS and makes it to shareholder value.
Because the pretax and EBITDA percentages can be misleading, given the ACA fee and the lack of tax deductibility.
So we framed not just our targets, but also our compensation internally in terms of net income margins.
I would point you to the MBRs because that's the best indicator of progression as opposed to getting into the SG&L locations.
And the 87.2% in 2015, I mean effectively that needs to get to low- to mid-80%s in order to achieve a 2% after-tax margin.
And clearly we're making progress on that if we deliver on 2016 and then would expect that to continue into 2017 and beyond.
| 2016_WCG |
2016 | BBT | BBT
#<UNK>, this is <UNK>.
I'll answer that.
We really aren't giving a whole lot of guidance for 2017 right now.
We'll give much more or better clarity as we get into January and finish our planning process.
With <UNK>'s question, our base right now is $1.691 billion.
We expect that to be down a little bit this next quarter, call it around 1%.
What <UNK> said in 2017 is we're going to try to hold that expense rate flat to maybe down a little bit.
We're going to do our best with all the competing priorities to keep our expenses relatively flat for 2017.
But we will give you more color as things get finalized from our operating plan.
Good question, <UNK>.
We had $33 million in MSR valuation income.
$18 million was that valuation adjustment to the MSR.
Every now and then you have to update and tune your prepayment models.
Basically our asset valuation was lagging peers that we index and look against.
So we had to adjust our prepayment models, which allowed us to take that $18 million in as a valuation adjustment.
If you take that out, we had good hedge performance of $15 million.
And that was just good performance in the TBAs that we had that we're hedging.
Well, we had benefit in the basis impact.
Yes.
When we go through a planning process, we always have our business lines plan positive operating leverage.
We want them to stay within the risk appetite of what they're trying to accomplish.
So we're going to have a plan that puts together positive operating leverage.
So, hopefully we will be able to generate and get improvement on efficiency, but we really aren't guiding to any specific number.
It's really going to depend on the execution and what the market will allow us and what we can grow from a revenue perspective.
We can control expenses, as <UNK> said.
We will be very tough on expenses and do what we think is right for the long-term benefit of our Company and our shareholders.
<UNK>, I think Tarullo's speech was very consistent with what he's been saying, really, for the last two or three years.
He has been, I think, appropriately moving to adjust some of the initial Fed criteria around CCAR.
He clearly, I think, believes that the CCAR process needs to be much tougher on the large [G50s] versus the large regionals like BB&T.
So I think his speech simply to some degree codified his movement in that direction.
But from our point of view, frankly, it does not change a lot because we have a robust CCAR process.
We're not going to dismantle it just because we're under $250 billion today.
It wouldn't make any sense.
Number one, the way we are doing CCAR today, we actually benefit from it.
We think it's a healthy process.
So we would continue to base that as it is anyway, even if they had dropped the whole requirements.
Certainly we would not drop it and then have to pick it back up if we did a strategic deal to put us over $250 billion.
It was encouraging in that I think it signals that the intensity of change with regard to, really, banks under I think $500 billion is just not going to increase.
In fact, it's kind of stable.
As he said, the intensity of additional or increased scrutiny is on the [G50].
That relatively is good news for us.
<UNK>, we constantly look at our balance sheet and always try to optimize our balance sheet.
We are aware of what we have on our balance sheet on the long-term debt side.
Potentially it could be something that we would evaluate as we enter into 2017.
No decision has been made; nothing is final.
Obviously there is potential opportunity there to maybe improve run rate, and improve efficiency and returns.
Yes, <UNK>.
This is <UNK>.
I would say they'll continue to run down.
We will probably average our securities down another $2 billion, give or take, from where they were.
So they were down about $1 billion linked quarter second to third, and maybe down about $2 billion linked quarter from third to fourth.
The rate hike is so late in December, it's not going to have a big material impact.
You're getting the LIBOR benefit just crossing over at year end.
So I wouldn't view that as material.
We might be off 1 basis point, but you could be up 1 basis point in core margin.
So it's pretty much a non-issue for fourth quarter.
So, the energy portfolio is really just a very small portion of our strategy in Texas.
We view the energy portfolio as more of a national kind of a strategy.
I would expect it to continue to grow modestly as the overall industry continues to recover from the lower rates.
With regard to Texas in general, our acquisitions on the city branches, our de novo branches are going extremely well.
The Texas market overall is doing well.
We're beginning to see a little bit of softness in Houston around some multifamily and others, which you might expect.
Nothing dramatic, but you're beginning to see the effect of that a bit.
Nowhere else, really, across Texas.
So we're gaining momentum substantially.
We have about a $7 billion or $8 billion operation in Texas at this point, which is strong.
We're 14th in market share, up from 53rd in market share when we started in 2009.
So Texas is still growing about 1,000 people a day.
So we will continue to grow faster than market in Texas.
And continue to build out our franchise with de novo types of branch expansions.
We will certainly in the long term be in some acquisition, but that's not a part of our strategy today.
Our organic strategy is playing very well.
We love Texas, and Texas loves us.
So we're having a lot of fun in Texas.
Yes.
I would say our merger-related costs will probably be in the $20 million to $30 million.
It's pretty much phasing down.
This might be the last quarter of any substance.
You have some little dribbles and drabs in maybe the first part of 2017.
But I would say $20 million to $30 million, fourth quarter.
At least double.
Okay.
Thank you, Leann.
And thanks to everyone for joining us.
If you have further questions today, please don't hesitate to call Investor Relations.
This concludes our call.
We hope you have a good day.
| 2016_BBT |
2015 | OSIS | OSIS
#Thank you.
Sure, <UNK>.
This is <UNK>.
We believe the $25 million range, based on what we know today, is an appropriate range.
Typically, what would draw us to the higher end of that range and the lower end of that range would be revenues from our ---+ both our Security division and our Healthcare division.
The Opto tends to be a bit more predictable.
So it's difficult for us to say whether we will be at that high end of the range or the low end of the range.
But we feel very confident that we should be somewhere within that range.
Our Security in Q4 had an outstanding Q4 last year, as you know, providing a difficult comp.
So, we believe that a good portion of the revenue growth in Q4 of this year will be driven by our Healthcare division.
Yes.
So, each of those numbers, as you've described, are rounded numbers.
Our backlog ---+ our total backlog at the end of last quarter was about $660 million, and our total backlog at the end of this quarter is about $630 million.
So when you exclude turnkey and take rounding into consideration, the book-to-bill ratio is about 1.0.
So I think maybe that helps with your numbers a little bit.
The answer is yes, <UNK>.
But keep in mind that we have said that the big requirement, what I call Priority One, is Europe.
Because of the deadline of 2020, and the size of the airports, and the replacement cycle, we are saying that the number one priority for us ---+ and I am sure the competitors feel the same way ---+ is the European sector for the HBS replacement cycle.
The answer to your other question, yes, Middle East and Asia and even Latin America do have requirements.
And most of the focus that we want to make on and we want to emphasize is, though we have certification for the RTT 80 from the TSA, our feeling is that given the choice and the price difference being insignificant, the RTT 110 will be a preferred product than the RTT 80.
And also if our volume is more towards the RTT 110, we think that that product, in our opinion, is the one that we will capitalize on, compared to the RTT 80.
We are submitting the RTT 110 platform before this calendar year is over.
And, obviously, we have learned a lot and feel better for it.
And hopefully, you are one of the ones who have been asking for many, many quarters, this will be a faster than the RTT 80.
<UNK>, on the different base to answer it, let me understand it, what you're asking.
The ---+ just the European sector, the replacement for the HBS to the new requirement, are more than 1,000 machines.
And then you add on to the international, and the Latin America and Asia-Pacific, and the ex-Soviet bloc, you can add another 500, 600, 700 machines or more.
And by the time ---+ the way we all talk about it, the total market world was more than 3,000 machines.
So it's a huge market.
And then you're going to ---+ you can look at it, the replacement cycle is not going to happen at the same time all over the world.
But Europe is the focus that we are looking at it, because they have a finite deadline and a finite requirement of the ECAC-certified machines to be bought.
Well, we are feeling good after the big successful win at this large airport in Rome.
There are other large tenders out there, actively being pursued.
Anything more than that ---+ as you know, the Company policy, we won't say it ---+ but we think we are well-positioned.
And people like our product.
We have some unique improvements over it.
We burn less power.
Our footprint makes less noise and has no moving parts.
So we have some very positive things to offer to the customer.
Yes.
The revenue impact, <UNK>, for the quarter was approximately 2%; $4 million to $5 million from the FX in Q3.
On the bottom line, we actually had a slight benefit due to FX, as a lot of our costs are based in those same currencies.
Yes, it certainly changes a little bit based on today's mix, as you are mentioning.
But at the end of the day, when the dollar strengthens, we do benefit on the bottom line, and we have some headwinds on the top line.
In Q4, we are expecting an even further escalation on the topline, which is partly embedded in the new guidance, where our continued sales in ---+ particularly in the pound and the euro, but also in other currencies as well, where the dollar has strengthened against, had some adverse headwinds.
Well, as you know, that we don't break it down.
Basically what we are saying is, that as a percentage of the total revenue of Healthcare, we are quite confident that the Arkon product line is well ---+ just well-settled and people like it.
And it will continue to gain momentum.
I think the patient monitoring and the new product introduction, the AriaTele and some of the other products, and the Arkon, are the primary drivers.
And then we also feel that as we assimilate the AED product line into our international distribution channel, we should start seeing some more positive growth.
Ladies and gentlemen, thank you once again for attending our conference call.
We look forward to speaking with you all once again in August for our Q4 and year-end.
Thank you.
| 2015_OSIS |
2017 | INGN | INGN
#Thanks, <UNK>.
Good afternoon, and thank you for joining our first quarter 2017 conference call.
Looking at the first quarter of 2017, we build on our success in prior quarters, and we saw solid performance with revenues of $52.5 million.
This represented 22.1% growth over the same period last year, reflecting great results in our domestic business-to-business sales channel, strong results in our direct-to-consumer sales channel and solid increases in our international business-to-business sales channel.
And as we've seen in prior quarters, expected decline in rental revenue was more than offset by the increases in revenue from our business-to-business and direct-to-consumer sales channels.
In the first quarter of 2017, we delivered net income of $5.9 million and adjusted EBITDA of $10.9 million, which represents 135.3% and 34% growth, respectively, over the first quarter of 2016.
We are continuing to scale sales of our newest product, the Inogen One G4; invest in sales force additions; and implement our new customer relationship management or CRM software system while delivering solid bottom line results.
And we did this in spite of the rental reimbursement headwinds.
Looking at our revenue streams in more detail, we saw strong demand for our portfolio of innovative oxygen concentrators across all of our sales channels in the first quarter of 2017.
We are very pleased with our domestic business-to-business sales in the first quarter of 2017, which increased 84.2% over the first quarter of 2016.
Business-to-business sales was our largest revenue channel for the first time in the first quarter of 2017, and growth here was primarily due to purchases from traditional home medical equipment providers and strong private label demand.
We continue to see more traditional HME providers turning to portable oxygen concentrators to lower their operating costs in the face of reimbursement reductions, and they are turning to Inogen as the leader in the space.
Revenue from our private label partner and traditional HME providers combined represented more than half of the domestic business-to-business channels total sales revenue in the first quarter of 2017.
International business-to-business sales were also solid in the quarter, reflecting 14.6% growth over the same period last year.
We are pleased with this result, especially on the heels of a very strong 2016.
However, we are mindful that international sales can be lumpy over time due to the timing of tender contracts and customer buying patterns.
Pursuant to our plan to establish a physical presence in Europe in 2017, we acquired our former distributor, MedSupport Systems, in early May 2017.
We believe this acquisition will enable us to offer multilingual customer service, repair services and increased distribution with the goal of deepening our European customer relationships and increasing European market penetration and customer support at a lower cost.
This is also expected to allow us to capture their incremental distributor margin, which will increase our sales.
The acquisition was an all-cash transaction, and we believe that this may lead to a small positive impact on our revenue and earnings per share in 2017 and going forward.
We will continue to work with our other existing European distributors to ensure smooth ongoing service to them and their end customers.
We have also added an additional European sales representative in the first quarter of 2017 to increase our sales capacity and customer support activities.
Direct-to-consumer sales in the first quarter of 2017 increased 27.8% over the first quarter of 2016.
We added new insight sales representatives in the first quarter of 2017, and we are pleased with our team's success.
We are planning to hire additional sales employees throughout 2017 as this is still our largest bottleneck to growth in direct-to-consumer sales.
We believe that additional insight sales employees will help to achieve our plan for the remainder of the year.
We are making progress on our plan to secure an additional facility in the Cleveland, Ohio area to ensure adequate space to support our future sales and support team's growth.
The facility is expected to provide an ideal area for recruitment across all of northeastern Ohio, and we expect that the facility will be operational in the second half of this year.
As we said on the last earnings call, we are planning on adding additional headcount of approximately 240 people in the Cleveland area location over the next 3 years.
We look forward to having a sales and service support location based in the Eastern Time zone, which we think will allow us to better serve our customers.
While the Cleveland facility will require an investment and tenant improvements, we are expecting to receive tax credits and incentives from the state and local governments of up to $1.9 million over 3 years based on our forecasted headcount additions and facility tenant improvement costs.
Reiterating what we said on our last call, there are no changes planned to our other current facilities as they are functioning today.
We are continuing to roll out our new CRM system, which should be completed in the second quarter of 2017.
We believe this new system will help improve productivity of our sales, customer service and billing departments, especially as we look into 2018.
We do expect to see a short-term decline in productivity in these departments during the first few months, post implementation, as we invest in training and a new system.
We've seen steady gains in sales mix toward the Inogen One G4 since its introduction in May of 2016, and that trend continued this quarter.
As we've mentioned before, the Inogen One G4 is smaller, lighter and has a lower manufacturing cost than our Inogen One G2 and G3 products.
In the first quarter of 2017, we increased volume of the Inogen One G4 as a percent of our total oxygen concentrator volume in the direct-to-consumer sales channel to above 50% of the volume.
Remember that as part of our sales strategy, we are not currently making the Inogen One G4 available for rental, and we are using the upgraded Inogen One G3 product as the primary ambulatory solution deployed in our rental fleet at this time.
Our international sales channel also remains focused on the upgraded Inogen One G3.
There is no change to our expectation that international sales of the Inogen One G4 will begin by mid-2017 and ramp up in the second half of 2017 depending on the timing of product regulatory and reimbursement approvals.
Coming out of my first quarter as Chief Executive Officer, I am pleased that we've maintained our growth momentum as we provide the best-in-class and patient-preferred products, which drove solid increases in adoption within the oxygen therapy market.
And I'm pleased that ongoing successful execution of our sales strategy across multiple revenue streams is resulting in increased traction that we are seeing in the oxygen therapy market.
With that, I will now turn the call over to Ali.
Ali.
Okay.
Thanks, <UNK>, and good afternoon, everyone.
During my prepared remarks, I will review the details of our first quarter of 2017 financial performance, and then I will review our guidance for 2017.
As <UNK> noted, total revenue for the first quarter of 2017 was $52.5 million, representing 22.1% growth over the first quarter of 2016.
Looking at each of our revenue streams and turning first to our sales revenue.
Total sales revenue of $46 million represented 87.6% of total revenue in the first quarter of 2017 and reflected 40.1% growth over the same quarter of the prior year.
Total units sold increased to 25,600 in the first quarter of 2017, up 50.6% from 17,000 in the first quarter of 2016.
Strong domestic business-to-business sales of $17.5 million in the first quarter of 2017 reflected 84.2% growth over the first quarter of 2016, with strong demand from our traditional HME providers and our private label partner.
We also demonstrated solid international business-to-business sales of $11.4 million in the first quarter of 2017, primarily driven by demand from our European and South Korean partners.
Sales in Europe represented the majority of international sales at 73.2% in the first quarter of 2017, which was down from 90.8% in the first quarter of 2016, primarily due to the addition of South Korea and increasing sales in Canada.
With strong business-to-business sales again in the first quarter of 2017, average business-to-business selling prices declined over the same period in the prior year, primarily due to the shift in sales towards traditional home medical equipment providers and private label sales and additional discounts associated with increased sales volumes worldwide.
Direct-to-consumer sales for the first quarter of 2017 were $17.1 million, representing 27.8% growth over the first quarter of 2016, primarily due to increasing consumer awareness from our ongoing sales and marketing efforts.
Rental revenue represented 12.4% of total revenue in the first quarter of 2017 versus 23.7% in the first quarter of 2016.
We saw the expected trend of rental revenues declining in the first quarter of 2017 versus the first quarter of 2016, primarily due to the known reimbursement changes.
Rental revenue in the first quarter of 2017 was $6.5 million, representing a decline of 35.8% from the same period in the prior year.
Turning to gross margin.
For the first quarter of 2017, total gross margin was 49% compared to 49.5% in the first quarter of 2016.
We saw a slight decline in our overall gross margin primarily due to the rental reimbursement declines and a shift in sales revenue towards our business-to-business channel, partially offset by lower cost to manufacture our Inogen One concentrators.
Our sales gross margin was 52.3% in the first quarter of 2017 versus 49.7% in the first quarter of 2016.
Sales gross margin percentage improved, primarily associated with lower cost of goods per unit, mostly due to lower material cost, partially offset by higher sales mix of domestic business-to-business sales, which have lower average selling prices.
Rental gross margin was 25.9% in the first quarter of 2017 versus 48.9% in the first quarter of 2016.
The decline in rental gross margin was primarily due to lower net revenue per rental patient, which was primarily driven by the reimbursement rate reduction, and partially offset by lower cost of rental revenues, which was primarily associated with lower depreciation cost per patient.
As for operating expense, total operating expense increased to $20.2 million in the first quarter of 2017 or 38.4% of revenue versus $18 million or 41.9% of revenue in the first quarter of 2016.
Total operating expense decreased as a percent of revenue from the comparative period in the prior year even with strategic investments in additional personnel and increased patent defense legal costs.
The first quarter of 2016 included $1 million incurred for a litigation settlement expense that did not recur in the first quarter of 2017.
Research and development expense was $1.3 million in the first quarter of 2017 compared with $1.2 million recorded in the first quarter of 2016.
Sales and marketing expense was $10.5 million in the first quarter of 2017 versus $9 million in the comparative period in 2016, primarily due to increased sales force personnel-related expenses and increased marketing expense.
General and administrative expense was $8.3 million in the first quarter of 2017 versus $7.9 million in the first quarter of 2016, primarily due to increased personnel-related expenses and patent defense legal costs, and partially offset by a litigation settlement expense of $1 million incurred in the first quarter of 2016.
In the first quarter of 2017, our effective tax rate was negative 0.9% compared to 25.9% in the first quarter of 2016.
We saw a lower-than-expected tax rate this quarter due to a $2.2 million decrease in provision for income taxes related to excess tax benefits recognized from stock-based compensation associated with Accounting Standards Update or ASU 2016-09 in the first quarter of 2017 compared to $0.2 million in the first quarter of 2016.
The decrease in provision for income taxes associated with ASU 2016-09 lowered our effective tax rate by 37.6% in the first quarter of 2017 and by 4.5% in the first quarter of 2016 as compared to the U.S. statutory rate.
Our net income in the first quarter of 2017 was $5.9 million compared to $2.5 million in the first quarter of 2016, an increase of 135.3% versus the comparative period in the prior year, and a return on revenue of 11.3%.
Earnings per diluted common share were $0.27 in the first quarter of 2017 versus $0.12 in the first quarter of 2016, an increase of 125%.
Adjusted EBITDA for the first quarter of 2017 was $10.9 million, which was a 20.7% return on revenue.
Adjusted EBITDA increased 34% in the first quarter of 2017 versus the first quarter of 2016, where adjusted EBITDA was $8.1 million or an 18.9% return on revenue.
Cash, cash equivalents and marketable securities were $128.2 million, an increase of $14.4 million compared to $113.9 million as of December 31, 2016.
We continue to expect Medicare to reprocess claims associated with the 21st Century Cures Act beginning in May of 2017.
Turning to guidance.
We are maintaining our 2017 revenue guidance of a range of $233 million to $239 million, which represents year-over-year growth of 14.9% to 17.8%.
In spite of the strong growth reported in our business-to-business sales channel in the first quarter of 2017, we expect to direct-to-consumer to be our fastest-growing channel and domestic business-to-business sales to have a solid growth rate and international business sales to have a moderate growth rate.
With the near-term strategy, we'll continue to be heavily focused on the European market.
We expect rental revenues to decline in 2017 compared to 2016 by approximately 25% to 30% based on lower average rental revenue per patient and a focus on sales versus rental.
We expect different revenue cadence in the remainder of 2017 from prior years for several reasons.
In the direct-to-consumer channel, the factors that we believe will impact this are the result of hiring few new direct-to-consumer sales reps in the fourth quarter of 2016, the timing of sales rep additions expected in 2017 once we get our new Cleveland facility operational and the expected short-term decline in productivity from our new CRM system implementation.
As HME providers adopt portable oxygen concentrators, this could change our historical sales seasonality in the domestic business-to-business channel as well, which was previously mostly influenced by consumer buying patterns.
Given these changes, we expect our strongest sales to be in the third and fourth quarters in 2017 in contrast to our historical pattern of the second quarter being the strongest.
We are increasing our 2017 net income and adjusted net income estimate to $22 million to $24 million, representing 7.2% to 17% growth over 2016 full year actuals.
This compares to the previous guidance range of $21 million to $23 million.
We estimate that the adoption of ASU 2016-09 will lead to a decrease in provision for income taxes by approximately $6 million in 2017 based on the forecasted stock activity compared to $5 million previously expected.
Excluding the $6 million decrease and our provision for income taxes for stock compensation deductions expected in 2017, we estimate an effective tax rate of approximately 37%.
We expect our effective tax rate, including stock compensation deductions, to vary quarter-to-quarter depending on the amount of pretax net income and on the timing and size of stock option exercises.
We are maintaining our guidance range for the full year 2017 adjusted EBITDA of $46 million to $50 million, representing 6% to 15.2% growth over 2016 full year adjusted EBITDA.
As we outlined before, we expect patent defense legal costs within general and administrative expense to significantly increase in 2017 over 2016 associated with the 2 pending lawsuits.
In addition, we are investing in our new Cleveland facility, European facility and the CRM system in 2017.
We are confirming our expectation for net positive cash flow for 2017, with no additional equity capital required to meet our current operating plan.
With that, assuming our phone systems work, <UNK> and I will be happy to take your questions.
<UNK>, we're not sure we caught the full question.
Yes, I don't know if ---+ oh, she's back.
Yes.
So I think we kind of called out in the B2B bucket, at least in this call, the growth was driven by the traditional HME providers that by ---+ directly from Inogen as well as our private label partner that sells to other home care providers.
The growth, I'll say, was robust in both of those buckets.
Now we don't generally break those out individually, but the 2 of them combined were more than half of the total sales in our HME bucket.
The other third leg of that stool being the Internet resellers.
So those 2 were more than half.
The growth was robust in both of those buckets.
And I think it's fair to say at this point, now that we have a little bit more time under our belt here as far as HME's trialing, experimenting, trying to understand where POCs could fit into their business in the face of reimbursement decline, we're seeing pretty steady progress in those trials, in that transition, and it supports our long-term belief the POCs will eventually become the standard of care for oxygen therapy.
So I mean, there's nothing changed in our expectation.
I will caution you, <UNK>, and everyone, to really repeat what I've said in the past.
I think this transition will be a process, not an event.
I know we get a lot of questions about: Do you think we're at the hockey stick.
And is this the tipping point.
I'm not sure there is such a point.
I think it's going to be a process, where you're going to see a curve that, certainly, if you look in the rearview mirror over the last 18 to 24 months, that's what we've seen.
We expect that to continue.
Sure.
So we thank everybody for the time.
We will be available for follow-up calls given that we couldn't take Q&A in this session, so please feel free to reach out as needed for additional follow-up questions.
Thank you for your time.
Thank you.
| 2017_INGN |
2017 | FIS | FIS
#I'll begin on slide 10. In the second quarter, revenue increased to $2.3 billion, or 2.3% on an organic basis, and adjusted EBITDA grew to $746 million, a 7.2% increase compared to the prior-year quarter
Adjusted EBITDA margin expanded 240 basis points to 31.8%
Adjusted net earnings from continuing operations was $342 million, and adjusted earnings per share increased 13.3% to $1.02 per share compared to $0.90 per share in the prior-year quarter
For the first half of the year, revenue increased 2% on an organic basis, and adjusted EBITDA grew to $1.4 billion, a 7.1% increase compared to the prior-year period
Adjusted EBITDA margin expanded 220 basis points to 31%
Adjusted earnings per share grew 11.2% to $1.88 per share
Consistent with last quarter, a detailed bridge of revenue growth from GAAP to organic is included in the appendix material
Moving to slide 11. In the second quarter, Integrated Financial Solutions organic revenue grew 2.6% to $1.2 billion
Adjusted EBITDA increased to $469 million, an increase of 4.8% compared to the prior year
EBITDA margins improved 90 basis points to 39.7%, driven primarily by favorable revenue mix and continued cost management
Excluding the consulting divestiture from both periods, which includes a small consulting group within IFS, this segment would've grown 4.3% on a pro forma basis, and EBITDA margins expanded 110 basis points to 40% for the second quarter
For the first half of the year, revenue increased 2.1% on an organic basis and adjusted EBITDA grew to $911 million, a 4.6% increase compared to the prior year period
Turning to slide 12, Banking and Wealth grew 2.5%, in line with our expectations
Payments grew 1.1% for the quarter, reflecting difficult EMV card production comparables that we have previously discussed
Corporate and Digital grew 6.1%, driven primarily by new client signings for our small business solution, coupled with increasing transaction volumes from existing users and consistent demand for our digital solutions
Turning to slide 13, in the second quarter, Global Financial Solutions organic revenue grew 3.9% to $1.1 billion
Adjusted EBITDA increased to $331 million, an increase of 15.5% compared to the prior year
EBITDA margins improved 340 basis points to 30.8%
Excluding the consulting divestiture from both periods, GFS would've grown 3.5% on a pro forma basis, and EBITDA margins would've expanded 420 basis points to 34.3%
These results are consistent with prior commentary on our strategy of growing higher-margin IP-led solutions and ongoing synergy efforts
For the first half of the year, revenue increased 3.5% organically
Adjusted EBITDA grew to $614 million, a 14.2% increase compared to the prior-year period
This represents 290 basis points of margin expansion
Moving to slide 14, our Institutional and Wholesale business increased 1.4%, driven primarily by our derivatives utility
Growth was partially offset by the timing of implementation work
We remain confident in our second-half growth expectations for this business
Banking and Payments grew 6.2%, driven primarily by steady performance in processing volumes in Asia-Pacific and Brazil, while Consulting grew 6.7%
Moving to slide 15, the revenue from our non-strategic assets in Corporate and Other declined 17.8% on an organic basis, consistent with our previous guidance
Corporate expenses were $75 million, a 4.5% decline from the prior year, driven by continued focus on cost management initiatives
Moving to slide 16, for the quarter, free cash flow was $275 million and $637 million for the first half of the year
For the first six months of the year, cash conversion was 102%
We expect cash flow conversion to be between 105% and 115% for the full year
As of June 30, our debt outstanding was $9.7 billion
In the second quarter, we returned $97 million to shareholders through dividends and have returned $192 million in dividends year-to-date
We ended the quarter with weighted average shares outstanding of 334 million on a fully diluted basis
Our non-GAAP effective tax rate decreased to 29.5% for the quarter, resulting in a $0.03 benefit for the second-quarter earnings compared to original expectations
The decrease in our effective tax rate is primarily driven by a year-to-date combination of tax benefits related to stock-based compensation and from higher international profits
We now expect our full-year rate to be about 30% to 31%, versus our original guidance of 32%
Moving to slide 17, since our last call, we executed two significant transactions that create long-term benefits to shareholders
On May 23, we announced the sale of a majority stake in our consulting assets, which consisted of Capco and a small consulting group from the IFS segment
The transaction closed on July 31 and produced $469 million of upfront cash proceeds, or $441 million net of taxes and deal-related expenses, and included a retention of a 40% equity interest in the business
The transaction initially values our retained equity interest at about $175 million
In 2017, these businesses were expected to contribute $630 million of revenue, $75 million of EBITDA and approximately $0.15 to $0.17 of earnings per share for the full year
The majority of the earnings per share contribution, $0.11 to $0.12, was expected to come in the second half of the year
We expect $0.01 to $0.02 of earnings per share contribution from the ongoing minority interest in the interest, resulting in net dilution of $0.10 per share in 2017. On June 26, we successfully priced our inaugural European debt offering of €1 billion and £300 million at a weighted average coupon of approximately 1%
Simultaneously, we launched a tender offering on $2 billion of outstanding debt, with a weighted average coupon of approximately 4%
The tender was funded on July 25 with proceeds from the European bond issuance and borrowings from our revolving credit facility
On July 31, all the proceeds from the divestiture of the consulting assets were used to pay the revolving credit facility
This transaction highlights additional value from our global footprint, by utilizing our assets and cash flows in Europe to optimize our capital structure, allowing us to issue debt in favorable market conditions
We're able to designate this new debt as a net investment hedge against the equity in our European operations, eliminating currency risk
This transaction is a continued evolution of our capital structure to align with global operations and gives us access to a broader investor base and new sources of capital
These refinancing activities will reduce our interest expense by approximately $25 million for the remainder of the year and about $60 million in 2018. Overall, this transaction will provide $400 million of total interest expense savings over the next eight years
Finally, our weighted average interest rate declined 60 basis points from approximately 3.9% to 3.3%
Turning to slide 18, for 2017, we are reiterating our organic revenue growth rates and revising consolidated and segment revenue dollar ranges due to the divestiture
Full-year consolidated organic revenue growth is expected to be 2% to 3%, resulting in a range of $9.1 billion to $9.2 billion
IFS organic revenue growth is expected to be 3% to 4%, resulting in a range of $4.62 billion to $4.67 billion
And GFS organic revenue growth is expected to be 4% to 5%, resulting in a range of $4.15 billion to $4.2 billion
Despite our relatively slow start to the year on a top-line basis, which we expected, we remain confident in the full-year growth rates we provided at the beginning of the year and the underlying strength of the core operating segments
Turning to slide 19, based on the results of these transactions, operating performance and our lower tax rate, we are increasing our full-year adjusted EPS guidance
Our increased range includes $0.10 of dilution from divestitures, which is more than offset by a combination of a $0.05 benefit from the impact of the debt refinance and a $0.07 to $0.12 benefit from year-to-date performance, outlook for the remainder of the year and a lower tax rate
The net impact to full-year 2017 adjusted earnings per share guidance is an increase to $4.22 to $4.32 per share or 10% to 13% growth compared to prior-year period
I also wanted to give some insight into our expectations of the quarterly earnings spread for the second half of the year to help with modeling
In light of the timing of these changes noted above, we expect our third quarter earnings results to be between $1.04 to $1.06 per share
Adjusted for the timing of the consulting and public sector divestitures, and the refinancing activity this summer, normalized EPS growth would be approximately 10% in the third quarter
Finally, we are announcing the authorization of a $4 billion share repurchase program, which will expire at the end of 2020. While we remain focused on deleveraging our balance sheet, we are anticipating generating excess cash flow in the fourth quarter and throughout 2018. Our revised 2017 EPS guidance does not anticipate any share repurchase impact
We are pleased with the execution in the first half of the year, which allows us to increase our full-year EPS guidance, even with the divestitures
We continue to focus on consistently improving cash flow generation, deleveraging our balance sheet, investing for growth, and returning cash to shareholders
That concludes our prepared remarks
Operator, you may now open the line for questions
Question-and-Answer Session
Morning, <UNK>
I'll start and let <UNK> add some color
With regard to the leverage itself, we had talked about being in the 2.6, 2.7 range by the end of 2017, targeting getting back to around 2.5 times
That said, based on the refinancing activity we've done, we'll repay all our pre-payable or maturing debt by the fourth quarter, so we'll have some excess cash then
We certainly anticipate having some excess cash flow, significant excess cash flow, in 2018 that we could apply across a number of different ways, but we wanted to make sure we had some flexibility to do share repurchase
I think we're always looking to add strategic capabilities and expand our market capabilities, but we always do that in a disciplined way, looking at financial strategic value and relative valuation
Right now, we think on a relative basis, we're a very good buy
So we wanted to make sure we had access to buy some of our shares back
Thanks, Dave
Yeah, I'll hit your FX first
As you know, our organic calculation excludes FX and it excludes the impact of acquisitions or divestitures
With regard to FX, you're right
We had a very minor impact in the second quarter
And right now, based on FX rates, we are modeling a very insignificant impact for the full year
Neither one of those would impact organic growth in the way we calculate it
With regard to Capco, we are removing Capco from the organic base and the consulting businesses from the organic base, so they would be out of the number
But the 4% to 5%, again, removes any divestitures and removes any FX
<UNK>, with regard to your first one, we've done some calcs, and we tried to give some color in the prepared remarks around what organic growth would look without the consulting business
We haven't pulled out what the impact of, specifically, of the risk-based project and some of the compares are, particularly on the EMV, because that's just ordinary business, difficult compares, and we've got to grow through it
But it'll certainly help both IFS and, we believe, GFS for full year in terms of organic growth
Probably, more importantly, it helps both their margin profiles
IFS would be up to about a 40% margin with it and GFS would be in the 34%-type, which is a significant improvement from a few years ago from a structural improvement
So it'll definitely help organic revenue growth
It'll help margins, but we haven't specifically carved out all the moving pieces there that you just mentioned
Well, we certainly think once you move compares out, the original guides that we had, which was around 3% to 6% on IFS and 3% to 8% on GFS, still hold together
You certainly should see some improvement in acceleration in the back half of the year, particularly in the strategic segments
As you know, we were looking at about a 1 point consolidated headwind from Corporate and Other, but feel very good about the strategic segments, about the growth rates we outline, and about where they can go long-term in those sustained rates we mentioned back in May of 2016.
Yeah, I think you've seen us do exactly that in the past
We feel very comfortable at an aggregate 2.5 times leverage
That says we grow, right? You could even take on some debt to continue to keep that leverage at that level
But you've seen us default to share buyback versus trying to just reduce debt lower than that
So you've seen us do that a number of years, then we did the SunGard acquisition
We're getting our debt and our balance sheet back to where it needs to be, and you could certainly see us moving back into that from a default position while continuing to look at continued (32:29) opportunities
Thanks, <UNK>
Thanks, <UNK>
Yeah, I think it is just working capital movements
You've seen some timing around cash tax payments and some of the divestiture activity that we've had
Q2 is always our lowest cash flow generation item over the last four or five years
So what we try to do is not look as much on the quarter-by-quarter cash flow generation, but look at what the total year's going to do
Through the first six months, we're at 102% and I think again we're going to be at 105% to 115%
Some of that comes through heavier cash flow at the end of the year, with renewals and license maintenance that we've always seen in the past
So feel good about it, have good visibility into it, <UNK>, so
I would tell you we feel very good about what we've laid out to the market, continue to take a conservative stance on the guide to make sure we are delivering our expectations, if not exceeding those expectations
So it seems like every time I put a guide together, some of the broader groups tend to get a little higher than I do in terms of picking a midpoint
But that said, I feel very good about where we're at, what we've guided to and have continued to keep a conservative stance on it
Those are the two biggest chunks
We had a convergency in Q3 of last year that we called out last year
I want to say it was around $15 million, but that's outlined in our view this year, but those are the big chunks, <UNK>
Thanks, George
I'll answer your second question first with regard to it not being $0.04, only being $0.01 to $0.02. The new owners put a little bit more leverage on there in terms of what we would do, and they'll continue to invest heavier as they try to grow that top line within the consulting business
So you're not going to see the same amount of net income that will ultimately pick up our 40% share
That's the biggest delta between just picking up 40% of what we operated it at from a margin profile
The second would be around the discussion point around the revenue growth profile and what it looks like
So, ultimately, we think it'll flow
It'll flow like that
Yeah, I think the tax rate itself, I think this is probably about where it needs to be, George
We had a bit of a catch-up in Q2, which is around a higher stock-based comp, higher international profits
I'll caveat that with as we continue to see margin expansion outside the U.S
in those lowers rate jurisdictions, we'll continue to see a lower relative tax rate than maybe some others in the business
But 30% to 31% is a pretty low effective tax rate
That's really the only thing in the third quarter of last year
What you've got to think about is between the consulting sale and the PS&E sale earlier this year, that's about $0.07 that was in last years' that won't be in this years'
That's partially offset by about $0.02 of debt refi, so you've got about a $0.05 delta just through divestitures this year and the timing associated with those divestitures
That's the biggest issue
As you did mention, last year, we had about $0.03 in the quarter related to a conversion fee in the GFS group
Thank you
Yeah, on that, if you go back prior to the SunGard acquisition, we were in the low 20s in terms of margin profile there
We had outlined that we anticipated our international business continue to grow and gain scale and we would expand margins through that, over time, anyway
You couple that with SunGard and the consulting exit clearly is driving incremental heavier margins
But I would tell you we probably got 300 to 400 basis points of underlying margin improvement before you added synergies and before you got the impact from the SunGard sale
As <UNK> mentioned, that group is up about 1,100 basis points from that timeframe, and that is a blend between synergies, the absence of consulting longer-term, and then just ongoing scale in the existing businesses that we had, even pre-SunGard
Well, I think part of it would be around the structural improvement we've talked about
We're going to see some margin improvement because the consulting business has lower incremental margins
With the removal of that, I would anticipate seeing better margin
And ultimately, that drives better cash flows
So we're not updating our guide around that, feel good about the 105% to 115%, but certainly anticipate EBITDA margins to continue to improve
And if we do what we need to, that should improve cash flows as well Unknown Speaker And, Chris, it's Bill
(50:58) The operating teams have done a very nice job of getting very focused to help lower the DSO as well, right? So we continue to want to make sure that we're collecting our cash and as timely as possible
So I don't know that that's a different aggressive stance
I just think, to Woody's point, as you see the transformation that's occurred and the continued execution on our IP-led businesses, you're naturally seeing our DSO come down
You're seeing our free cash flow conversion trend up, and so we feel good about it
It's probably in the $0.05 range
As you saw, the second quarter true-up was about a $0.03 benefit, so we're actually seeing that slightly lower in the back half, so about $0.05 is a good estimate there
| 2017_FIS |
2017 | AMD | AMD
#Thank you, <UNK>, and good afternoon everyone
I am pleased with our performance for the third quarter of 2017. We increased revenue 26% year-over-year, expanded gross margin and achieved both operating and net income with net income of $110 million and diluted earnings of $0.10 per share
We are executing well with our strongest portfolio of products in many years including our Ryzen, EPYC and Radeon Vega offerings
Let me provide some specifics for the third quarter
Revenue of $1.64 billion grew 26% year-over-year and 34% sequentially
This is our highest quarterly revenue since the fourth quarter of 2011. Year-over-year growth was primarily due to our Computing and Graphics segment, while sequential growth was driven by the Enterprise, Embedded and Semi-Custom segment revenue seasonality, as well as higher Computing and Graphics segment revenue
We also took another step in our IP monetization efforts by closing a patent licensing agreement that had a positive impact on both our segments
Gross margin was 35%, up 4 percentage points year-over-year, primarily driven by the benefit of IP-related revenue and a richer mix from the Computing and Graphics segment, which were partially offset by costs associated with our global foundries wafer supply agreement for wafers purchased at another foundry
We continue to make good progress on the ramp of our new high-performance products, which had a positive impact on our gross margins
Operating expenses of $419 million compared to $353 million a year ago
The increase was primarily due to higher R&D-related investments and expenses related to annual employee incentive programs, driven by our better financial performance
Operating income was $155 million in the third quarter of 2017, a solid improvement on $70 million a year ago
Third quarter net interest expense, taxes and other was $45 million, up slightly from $43 million a year ago
Lower interest expense from a year ago was largely offset by withholding taxes for licensing revenue
Net income was $110 million or diluted earnings of $0.10 per share as compared to $27 million, or $0.03 per share a year ago
The diluted earnings per share calculation for the third quarter of 2017 was based on 1.143 million shares, which includes 100.6 million shares related to our 2026 convertible notes
Adjusted EBITDA was $191 million compared to $103 million a year ago
Now turning to the business segments
Computing and Graphics segment revenue was $890 million, up 74% year-over-year, primarily due to strong sales of our Radeon graphics and Ryzen desktop processors
Computing and Graphics segment operating income was $70 million compared to a loss of $66 million a year ago
The solid improvement was primarily due to higher revenue
Enterprise, Embedded and Semi-Custom revenue was $824 million, approximately flat year-over-year due to lower semi-custom SoC sales, partially offset by IP-related revenue
Additionally, server revenue increased from a year ago, driven by the increased sales of EPYC products
As you heard earlier from <UNK>, customer interest and deployment plans are strong
Operating income was $84 million, down $52 million from $136 million a year ago, primarily due to higher costs
Turning to the balance sheet
Our cash, cash equivalents and marketable securities total $879 million at the end of the quarter, up from $844 million in the prior quarter, primarily due to higher revenue
Inventory at the end of the quarter was $794 million, down 5% from $833 million in the prior quarter
Long-term debt on the balance sheet was $1.36 billion
Total principal debt, including our secured revolving line of credit, was $1.74 billion
In the third quarter, we used $28 million from our lower interest secured revolving line of credit to pay down long-term debt, which has a higher interest rate
Free cash flow was $32 million compared to $20 million in the year-ago period
Before turning to our outlook for the fourth quarter of 2017, which is a 13-week quarter, let me remind you, for comparative purposes, that the fourth quarter of 2016 was a 14-week quarter
For the fourth quarter of 2017, we expect revenue to decrease approximately 15% sequentially, plus or minus 3%
At the midpoint, this equates to revenue growth of approximately 26% year-over-year
Non-GAAP gross margin to be approximately 35%, non-GAAP operating expenses to be approximately $410 million, non-GAAP interest expense, taxes, and other to be approximately $30 million, and inventory to be down sequentially
We now expect 2017 annual revenue to increase by greater than 20% over 2016 compared to the prior guidance of mid to high-teens percentage growth
We do not anticipate significant changes to the diluted share count in the fourth quarter and you can find additional information regarding the share count in the CFO commentary, which is posted online
In closing, the third quarter was a strong quarter and we are pleased with the momentum of our new premium products
We are making solid progress towards our growth and margin expansion objectives; and as our financial performance improves, we remain committed to investing in our multi-generational road maps and achieving our long-term financial targets
With that, I'll turn it back to <UNK> for Q&A session
<UNK>?
Yeah, so, <UNK>, just to remind you, in line – you've heard us talk about our IP monetization efforts, and this is very much in line with that
And as <UNK> said, the benefit is spread over both the segments
Hi, <UNK>
If I can just add, if you look at the margin trend compared to 2016, 2016 we had 31% gross margin
And we expect to be at 34% this year
And that's primarily based on the strength of the new product that <UNK> referenced
And from a long-term model standpoint, we are on track with what we laid out in the financial Analyst Day of going from 31% to 34%, and then expecting to be greater than 36% in 2018 on the strength of the new premium products that are ramping into 2018.
I think the way I look at that is if you look at Q3 from a volume standpoint and the volume is pretty high, and that's why it's highlighted from a viewpoint of the calls, but the way you want to look at it going forward Q4 and beyond is all of the costs related with the WSA that's referenced in the scripts is contemplated in our guidance and our long-term models
I think the first thing I'll say is we do want to invest in the business, especially with the growth opportunities we have and primarily targeting the OpEx investments towards R&D
They are, in the current moment, with a lot of products ramping, just in the last few months, you heard about the Ryzen ramp, you heard about EPYC, we talk about Vega, and obviously, their go-to-market cost will ramp up new products
But as far as 2017 guidance is concerned, I had said previously 31% as the potential of revenue, but I think right now, where the numbers are coming out especially with the strength on the revenue side of the equation, we think we end up at about 30% on an expense to revenue ratio in 2017, which, as you probably recall, is at the upper end of what we had said our long-term target model which is 26% to 30%
So actually, I'm pretty pleased because if everything works out in the Q4 guidance that we gave, and in 2016 would have been a 32% of revenue; in 2017, approximately 30%; and then obviously, we'll see where we get into 2018. We're very pleased from a viewpoint of being able to make the investments in the business to support the product road map, the go-to-market cost for the ramp of new products, and at the same time, bring down the percentage of OpEx over revenue
Yeah
I think if you look at it from an overall standpoint, if you look at the cost impact, it's all within our guidance
I think if you look at IP from that standpoint, we have several IP deals in the pipeline for Q3. Basically, we thought it was likely that we would be able to close on IP-related deal in the quarter, and that's how it turned out
And you see the benefit across both the segments
And from a go-forward standpoint, despite the cost of being there, we look at it overall from a viewpoint of the trend of the margin
Major provider of the gross margin uplift is the premium new products that we are launching
And then, obviously, there's opportunities from an IP standpoint to benefit the P&L if we go ahead and put that in the equation
| 2017_AMD |
2017 | MYL | MYL
#Good day, ladies and gentlemen, and welcome to the Mylan First Quarter Earnings Call.
(Operator Instructions) As a reminder, this conference is being recorded.
I would like to introduce your host for today's conference, <UNK> <UNK>, Head of Global Investor Relations.
Ma'am, you may begin.
Thank you, Gareth.
Good morning, everyone.
Welcome to Mylan's First Quarter 2017 Earnings conference Call.
Joining me for today's call are Mylan's Chief Executive Officer, <UNK> <UNK>; President, <UNK> <UNK>; Chief Commercial Officer, Tony <UNK>; and Chief Financial Officer, Ken <UNK>.
During today's call, we will be making forward-looking statements on a number of matters, including our financial outlook and 2017 guidance.
These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections.
Please refer to the earnings release we submitted to the SEC on Form 8-K earlier this morning, which is also posted on our website, for a fuller explanation of those risks and uncertainties and the limits applicable to the forward-looking statements.
In addition, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures.
We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance.
Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP.
The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available in our first quarter earnings release, which I just mentioned and which can be found at our website at newsroom.
mylan.com.
Let me also remind you that the information discussed during this call, with the exception of the participant questions, is the property of Mylan and cannot be recorded or rebroadcast without Mylan's expressed written permission.
An archived copy of today's call will be available on our website and will remain available for a limited time.
With that, I'd like to turn the call over to <UNK>.
Thanks, <UNK>, and good morning, everyone.
Thank you for joining today's call.
Mylan's first quarter results mark the start of what we believe will be another great year of performance for our company.
On the top line, we generated total revenues of more than $2.7 billion, a year-over-year increase of 24%.
And on the bottom line, we delivered adjusted net earnings of $500 million or $0.93 per adjusted diluted share, a year-over-year increase of 22%.
Not only is this a strong performance as the quarter goes, it also once again demonstrates the resiliency of the global platform we've built and our ability to absorb both our industry's natural volatility as well as additional headwinds related to particular products and/or markets.
Over the past few years, our strategic acquisitions and ability to truly integrate Mylan have allowed us to transform ourselves into a highly differentiated and diversified organization, as evidenced by our geographical reach, our broad portfolio, our extensive pipeline and our ability to expand the world's access to high-quality products.
This organization enables our unique go-to-market approach in country, optimizing our brand, branded generic, generic and OTC products.
In fact, it's precisely this unique profile and approach of how ---+ to how we now run and drive our businesses that led us to change our reporting from product-focused segments to geography-focused segments.
For these reasons, we remain confident in our ability to meet our full year adjusted EPS guidance range of $5.15 to $5.55, which is not dependent on any one product.
Our strong first quarter results are set against the backdrop of a global debate regarding health care, and to a degree, unprecedented here in the U.<UNK> The current debate continues to focus both on how health care is delivered as well as its price.
And we're encouraged by the recent multiple actions of players across multiple industries to help reduce the burden to patients.
As a leading generics company, Mylan has a 55-year history of providing access and serving as part of the backbone of health care systems around the world to help supply affordable medicine, and we fully intend to keep doing our part to deliver health for a better world.
I'd like to take this opportunity on behalf of Mylan's board and our entire leadership team to thank all of our employees around the world for their outstanding teamwork and execution during the quarter and for their continued commitment to serving all of our stakeholders around the world.
In addition, we continue to build our bench strength, and I'd like to welcome Dan <UNK>lagher, who joined Mylan last month as our Chief Legal Officer.
His extensive experience in regulatory matters, financial markets and corporate legal affairs and governance makes him an excellent addition to our senior leadership team and further depth to our already strong legal organization.
He will prove invaluable as we maximize our many opportunities.
With that, I'll now turn the call over to <UNK>.
Thank you, <UNK>, and good morning, everyone.
As <UNK> noted, we have continued to see growth across all of our regions, with very strong double-digit growth in Europe and Rest of World and solid performance in North America.
We also continue to see growth from our global key brands around the world.
As in previous recent quarters, the pricing environment remains a topic of much discussion throughout our industry.
We are pleased that as a result of our diversity from a product, channel and geographic perspective, our expectations for the global pricing environment are unchanged, and we are still predicting mid-single-digit price erosion globally for the year.
This quarter, we actually saw price erosion in the low single digits on a global basis while price erosion in our U.<UNK> generics business was in the mid-single digits.
Looking ahead in the U.<UNK>, we have several meaningful first-to-market products that launched in 2016 that have come off their exclusivity periods, which will cause fluctuations and skew year-over-year comparisons in the coming quarters.
This being said, excluding these products from our future outlook, we expect that our U.<UNK>-based business will continue to maintain annualized erosion in the mid-single digits.
Let me reiterate again that we continue to believe we will see mid-single-digit price erosion for our global business for the remainder of the year, including all products.
With respect to EpiPen, the authorized generic continues to gain traction and now represents almost 40% of the epinephrine auto-injector market.
Additionally, we have seen market growth pick up to more than 10% year-over-year for the category.
The AG also continues to have the lowest wholesale acquisition cost of any epinephrine auto-injector on the market.
That said, competitive activity in this space continues to be robust, and our overall shares declined from last year.
You are aware of the worldwide recall of 20-plus lots of EpiPen by the manufacturer, Pfizer's Meridian Medical Technologies.
We quickly implemented a voucher program for patients to replace any impacted product and successfully been executing on this program.
We, in partnership with our customers, continue to communicate to impacted patients and replace their product as efficiently as possible while ensuring these patients have no additional out-of-pocket costs.
We also note that Meridian Medical Technologies is contractually responsible for the recall cost.
We continue to be very pleased with the contribution from the assets we have acquired, which have even further strengthened our broad portfolio offering for our customers.
For example, during the first quarter, we completed our acquisition of Cold-EEZE as we continue to expand our OTC business.
Cold-EEZE is now Mylan's largest U.<UNK> consumer health care brand, and we look forward to serving this loyal customer base and supporting this well-known brand.
With that, I will turn the call over to Ken.
Thanks, Tony, and good morning, everyone.
Let me add a little more detail on our financial results.
First quarter revenues grew to $2.7 billion, and that's an increase of 24% over the first quarter of last year.
This increase included growth in third-party net sales of 5% in our North America segment, 53% in our Europe segment and 34% in our Rest of World segment.
The key drivers to these increases were net sales from the acquisitions of Meda and the Renaissance Topicals Business, which totaled approximately $607 million in the quarter.
These increases were partially offset by an $86 million net decrease in the combination of sales, driven by the impact of new product launches and lower volume and pricing on existing products.
For the quarter, we continue to experience global generic price deflation in the low single digits.
As <UNK> mentioned, net sales from our North America segment reached $1.2 billion and grew by 5%, up approximately 20% excluding EpiPen Auto-Injector.
Net sales from acquisitions contributed approximately $182 million of the sales growth, and partially offsetting this increase was a net decrease in sales from the combination of new product launches and lower volume and pricing on existing products.
In addition, segment profitability increased 3%.
Net sales in our Europe segment increased by approximately $308 million or 53%.
The acquisition of Meda contributed approximately $338 million of the sales growth, and this increase was partially offset by a net decrease in sales from the combination of new product launches and lower volume and pricing on existing products as well as the unfavorable impact of foreign currency translation of approximately 4%.
Segment profitability in Europe increased approximately 88% year-over-year.
Net sales from our Rest of World segment increased by approximately $146 million or 34%.
This increase was driven largely by an acquisition of Meda, which totaled approximately $87 million.
In addition, higher volume from existing products, primarily in our antiretroviral franchise, plus an increase in new products more than offset ongoing pricing headwinds.
Net sales in this segment were favorably impacted by approximately 3% due to the impact of foreign currency translation.
Segment profitability in Rest of World increased approximately 159% in the quarter.
Adjusted gross margins for the first quarter of 2017 were 53%.
That's down less than 60 basis points from the prior year, primarily due to the impact from the launch of the EpiPen Auto-Injector authorized generic, as well as additional competition and partially offset by the contributions from prior year acquisitions.
Moving on to our operating expenses.
On an adjusted basis, R&D declined to $151 million, equating to approximately 6% of revenues, which was in line with our expectations.
SG&A expense, also on an adjusted basis, increased to $592 million, primarily as the result of selling and marketing costs from the acquired businesses.
However, SG&A expense as a percentage of revenues declined by 1.3 percentage points to approximately 22% of sales as increased revenues from the acquired businesses and benefits of Mylan integration were realized in the quarter.
Our adjusted tax rate was 17.5% for the first quarter of 2017, which was also in line with our expectations.
Adjusted net earnings increased by $114 million to $500 million in the quarter, and adjusted diluted EPS was $0.93 compared to $0.76 in the prior year quarter.
Turning to cash flow and liquidity.
Adjusted cash provided by operating activities was strong at $536 million for the first 3 months of the year compared to $202 million for the prior year.
The increase in the current quarter was mostly driven by favorable timing of working capital, including receivables, due to the December launch of the EpiPen authorized generic.
We have no amounts outstanding on our accounts receivables securitization or revolving credit facility.
At the end of Q1 2017, our debt to adjusted EBITDA leverage ratio declined to approximately 3.7x as compared to 3.8x at the end of 2016.
On a net debt to adjusted EBITDA basis, we were at 3.5x at the end of the first quarter.
We're fully committed to our investment-grade rating and to reducing our debt, as evidenced by our voluntary prepayment of $550 million on our 2016 term loans during the first quarter.
We have no significant near-term debt maturities and remain committed to moving towards our long-term average target leverage ratio of approximately 3x EBITDA.
We have the financial flexibility to achieve this goal while still deploying capital for strategic acquisitions.
As you can see, we started off the year strong, and we're very pleased with our operational and financial results for the first 3 months of the year.
We remain committed to our previously communicated full year 2017 adjusted EPS guidance range of $5.15 to $5.55, which keeps us on track to realizing our $6 adjusted EPS goal in 2018.
In terms of phasing, we continue to see the relative percentage contribution from the first half of 2017 to be consistent with the percentage contribution of the first half of 2016.
With that, we'll now open the call for questions.
Okay, <UNK>.
Thanks.
I'll start off, and then <UNK> or Tony can chime in.
<UNK>t, I think this is no different than the consolidation we've seen over the last several years.
When you look at our customer base, the consolidation, especially on a global ---+ from a global perspective, what we've said then and remains true today is that consolidation is really a benefit to a company like ours at Mylan.
Given our portfolio, our breadth and our geographical reach, our ability to not only supply the level of demand that is needed but to be able to do so on a global basis.
And I think what we've seen is the continued strength as these customers have consolidated our ability to really leverage our entire portfolio as well as our pipeline.
We've got some important products coming, and what I would say is I can appreciate some of the players that are in one country or geographically landlocked or from a product perspective, not being able to meet some of the supply and demand needed on a global basis.
So I think this further underscores Mylan's differentiated and diversified platform and is allowing us to meet and exceed, quite honestly, what we have done in the past with some of these players as they're looking at a different business model.
Thanks, <UNK>.
And <UNK>, yes, historically, we've seen consolidation, and the consolidation of businesses and aggregating these models together have some affect on erosion.
What we continue to see though is that we have this differentiated platform with a diverse portfolio of products, best-in-class service levels and the inclusion of new products into this mix in terms of always adding to what we've had.
So we're excited to service McKesson, Walmart and all our customers, and we want to be more to them in the future.
So I think that scale, along with our geographic overlap, plays a very important role into our success in that business.
And I would just add that we have taken into consideration this alliance into our projections.
And I just ---+ that reminded me, <UNK>t.
I don't think we can underscore this enough.
We mentioned this at Investor Day but the continuity of our management team.
I mean, we've been together over a decade, working with these customers and bringing that leadership.
And I think as we look at all what's happening externally and the environment around us, that's continued to play a critical role in our ability to leverage our business.
So let me take the easy one first, which is Copaxone, and just talk about our readiness.
Yes, you will expect us to be in a state of readiness from the manufacturing point of view ---+ from commercial manufacturing point of view, in anticipation of these target action dates.
Regarding generic Advair, so let me reiterate that this submission was done in complete accordance to the products that we've guided and pre-agreed protocols, and we have not been asked to do any additional clinical endpoint or device-related studies at this juncture.
What we have been asked is now that some of the studies, especially the device-related studies, we have now been asked to analyze and report our findings of our study against a newly issued industry draft guidance for (inaudible) human factor studies, draft guidance.
So that's what we want to go back and discuss with the FDA and we can get this meeting any day.
We have been waiting for this meeting, and it can happen any moment or any day, and we can only comment upon the potential impact of this CRL once we have these discussions behind us.
So that's what we are waiting for before we comment upon any impact on timing.
All right.
Well, Jami, I first have to jump in and just to say thank you for the acknowledgment on transparency.
As we've said, I know we've ---+ many of us have had many discussions and we told you ---+ I personally said that, look, I want to continue to try to give the right visibility into this business so that's what we're here to do.
We've got a lot of moving pieces and parts.
We're trying to be reflective of how we're running and driving this business, which is completely leveraging all of these channels from generics brands and branded generics and OTCs and how we're leveraging those in countries.
So I really appreciate your recognition of that, and we're going to continue to do so.
And the one thing I'll just say on EpiPen and I'll let Ken get into some of the financials is that as we said on Investor Day, Jami, we anticipated a big change in EpiPen, and we knew that it would continue to be a mix of ---+ between the AG and the brand, and we continue to see that conversion.
But the reality is people had a very strong loyalty to the brand EpiPen and it's continued to be an education to let them know that it's the same product.
But what I will say about EpiPen is it's what we expected, and obviously, that continues to be in to the guidance that we reiterated this morning.
Yes, I'll also say thank you for the comment because we are truly ---+ the way we put the release together and including providing you a number for North America, excluding EpiPen, would still allow you to have that visibility into what's going on with the EpiPen product.
With that number, you've done the math, you can model it.
You're kind of right in the ballpark.
As far as projecting out the year, we don't give any quarterly kind of run rate on EpiPen.
But as <UNK> said, what happened in the quarter was very consistent with what we expected.
The recall did occur.
We disclosed both in the Q and in our commentary that the cost of the recall is recoverable.
That has driven a little bit of change in trend in some of the sales number but nothing of significance.
But to reiterate, we said at Investor Day that year-over-year EpiPen profitability at the operating profit level will be down $400 million year-over-year, a huge number.
$500 million at the gross profit level, offset by some reduction in spending in sales and marketing.
And that's exactly where we're moving through right now.
So you've done the math, you're right in the right ballpark, and everything is exactly how we expected it.
As far as new products, we said we'd have about $850 million contribution this year year-over-year for new products, and at this point in time, we're working towards that road map.
It's a long list of products and whether it be at the low end, the mid, we're generating those new product launches in order to drive the $850 million.
All right, Gregg.
Thanks.
I'll start and I'll let <UNK> take on the product.
I guess, Gregg, what I would say, I'm not sure how somebody gives guidance without talking about capital deployment, whether that's a business development opportunity.
So I think we were very clear and transparent at Investor Day of what we said for our assumptions leading to that $6 target that we continue to walk through over the last 5 years.
And that deployment of cash while maintaining our balance sheet, being able to bolt on important product acquisitions as we've done already this year and will continue to do so.
So look, we continue to be executing towards the road map that we laid out in <UNK>h, and we'll continue to update as appropriately.
But what we laid out on Investor Day is what we're executing against.
Yes, Gregg, on Advair, I mean, there is nothing in my watch you should hear that we don't feel comfortable about interpreting our data to the new guidance.
But we have a difference of opinion at a policy level that agency is applying a draft guidance as against a preapproved or pre-agreed protocol.
So that's what we are trying to discuss and negotiate with them because it's all as to the timing and the classification of the CRL.
Second, on Lantus, we are very much on track and you should expect to hear from us anytime now about our regulatory filing in U.<UNK>A.
It's too early for us.
We had sought a meeting, and we had been told that FDA is working on to grant us a meeting and very soon we'll hear from them.
And I want to ---+ I don't want to comment anything beyond that.
We should be able to, in a good position, to talk about it once we have this meeting behind us.
The Nashik is not limited to antiretrovirals.
Nashik is a global site and does produce some U.<UNK> products and some of the U.<UNK> launches.
Some of the U.<UNK> launches will be potentially impacted by that.
But as I confirm, they are not material to our overall Mylan's business.
There's no discussions in this complete response letter or a plan being made about this being not 505(j) or being about 505(b)(2).
And we don't see because it is exactly ---+ the product is exactly as per the guidance issued by the FDA.
It has been accepted as 505(j).
So I don't want to even think and comment about that because it's not real.
So I don't want to speculate on that.
Okay.
All right.
I would say we've exceeded on all fronts.
When we acquired the Abbott EPD Business, they were showing kind of a trajectory of a flat to declining business, and we said it's not about what the business is doing on a standalone but what we believe we can do with that business.
And I think we were able to show last year that we turned that to a flat to increasing in business.
And then as we look at bringing on Meda and Renaissance, we've continued to see our ability to leverage now the infrastructure around these countries that are allowing us to maximize the product that each of these acquisitions brought us, the Mylan legacy, the Abbott as well as now with Meda.
And so we continue to see our ability to get more out of that asset than they were doing on a standalone basis in conjunction with our existing businesses.
So yes, we couldn't be more pleased and I think we will continue to bear fruit the results and are really integrating Mylan and leveraging this platform we'll continue to show in our results.
And <UNK>, thank you for the question.
I actually should have answered that because it was in Jami's queue of questions a little bit earlier.
Yes, the componentry of the revenue guidance, we're reaffirming as well.
And <UNK>, our Vytorin launch has been impacted by the Nashik warning letter.
Okay, <UNK>.
I'll maybe take some at a high level and then others can chime in.
I'll start with the acquisitions.
Look, as we've done for this quarter and we will do this year is break out acquisitions and that contribution.
I think I'm not sure where your numbers ---+ or if those are old numbers, but what I will tell you again, it's what we're doing with the asset in combination.
So while we're breaking out for 1 year post acquisitions because that visibility on our legacy business to try to start now dissecting between the acquisitions, I don't think would be useful because it's really what we're being able to drive out of this asset in totality that is driving the results that you're seeing.
As far as Biocon, I don't believe we've given the contractual relationship.
What I can tell you, obviously, we have a very important partnership with Biocon and continue to be very happy with the performance, both in the products that are already approved and marketing and those that are in the pipeline.
So that continues to be a very important partnership.
And as far as price decline, I think Tony laid it out.
I don't know if there's any other visibility.
But I think that's why we try to give the dynamics around the fact that where you have a first-to-market opportunity and you're the only plan to market and then there's 5 or 6 players in the market overnight, that certainly can drive a little bit of anomaly and volatility as you look at a year or comparisons year-over-year, which is the point we were trying to make.
However, all products then and looking at everything across our globe, we're still saying our generic price erosion is in mid to single digits, without excluding anything.
Yes.
I mean, <UNK>, I think you said it very well.
<UNK>, our U.<UNK> price erosion methodology really is about like to like from a year-over-year perspective.
And the one thing we were noting, yes, we feel very strongly about mid-single digits globally.
And in the U.<UNK> in 2016, we had several meaningful first-to-market launches that certainly don't have the same valuation in the corresponding period for 2017.
So we want to know what that base business corrosion would be without those in it.
Yes, so I'll just start.
I would say that, <UNK>, this is one of the areas where I think you really see the strategic acquisitions really paying dividends.
When you look at the Mylan legacy business now with Abbott and Meda and those assets, both from a geographic portfolio perspective that we've been able to pull together and as I mentioned in my commentary, really gives us the unique go-to-market in these countries strategies.
You've seen us continue to bolster our #1 position in France.
And I would say Italy is closely closing in on, and we currently are #1 in Italy.
You've seen us really strengthen the strong positions we've had.
And in addition to that, some of these up-and-coming markets that Meda brought us to really bring critical mass, we've got ---+ we see nothing but opportunity from places like U.K. and some of these areas where we have a very robust product portfolio and a really strong sales infrastructure to maximize.
So I don't know, Tony and <UNK>, any other countries but I just couldn't be more pleased myself with what these assets coming together and what our team has been able to yield.
Yes.
And I think that one of the question was, do we see any more government-instituted price cuts and all that.
No, <UNK>.
We don't see at this time what we saw a few years back.
And this Meda acquisition and Abbott acquisition has so well positioned us to leverage anything we drop in and add on that platform now.
And maybe just to close.
We do feel very good about the growth we've seen in our leadership markets in France and Italy as well as some of the up-and-coming like <UNK> said, U.K., Germany, Poland and Nordics, all done very well.
Okay.
So Ronny, let me try.
I'm not sure I quite understand your seasonality of the first question.
I mean, you look at our global business today, over half of which is coming from outside the United States and the fact that we've got over 2,000 products on the market, there's not real seasonality.
With that being said, I think Ken at Investor Day kind of laid out what we saw corresponding quarters and proportionality from '16 to '17 that would help for modeling purposes if you look at the percentage of the businesses.
So again, I think what we couldn't be more excited about is the resiliency of this platform and the fact that the seasonality for any product or given market, we're able to now really absorb that and show this contribution continuing to grow in a meaningful way and not being so much subjected to seasonality.
And then ---+ and so if you think about that, because I know what you're trying to get to, which is as we move through the year, how do you look at gross margins.
What we told you about the first quarter was gross margins were down 50 basis points ---+ 60 basis points year-over-year.
And that is consistent with what we projected and gave you an outlook for, for the full year.
So even though seasonality may move around a bit and you followed us long enough to know that the second half is a bigger half than the first half is, we don't see a significant amount of variation in that.
We saw in the first quarter what we have an outlook for, for the year.
Specifically, as far as new product introductions, new product launches this year we indicated will be heavier, obviously, in the second half.
Last year, I would say if you're looking at fourth quarter to first quarter, not significantly different because they were lighter new product launch quarters.
And I guess, going on your point about unprofitable business, I would say ---+ I tried to state in my opening remarks, we've had a long history of being committed to a very broad portfolio.
And as we've said, we have over just, even here in the United States, over 630 products at an average selling base of $0.25.
So there's a lot that goes into that mix, and we've continued to be committed to mean the most to our customers and we'll continue to look at that.
But I will tell you that meaning the most to our customers and having a robust portfolio is important, but that's not to say that we don't evaluate if something doesn't make sense at a certain period of time.
But certainly, I think by the sheer number of what we've got in the market, it should suggest that we're very committed to continuing to offer a broad range of products.
Yes.
No, <UNK>, thank you.
And thank you for your questions.
I think what we've continued to say and what we continue to see is it absolutely is driving a different conversation.
And as the external environment has been in, I'll call it, chaos, we've seen these cycles before over the last couple of decades, that it really provides an opportunity for people to really do work about a company, their portfolio, their platform.
And all generic companies aren't created equally.
All branded companies aren't created equally, and all hybrid companies aren't created equally.
And I think what we've continued to show is that the assets that we've pulled together on a global basis have allowed us to drive not only a different conversation but a reliable supply chain.
Our commitment to generics over the past 55 years and certainly the investment we've made in important complex generics like generic Advair and our biosimilars was one of the largest pipelines in the industry.
So not only do our customers see us as valuable to be able to have a global partnership, but certainly our pipeline drives much of that conversation and relationship and the importance that we are to each other.
So I absolutely can't underscore enough about how the platform and our differentiation is absolutely allowing us to have very different conversations than if we were just in one country with a niche portfolio.
And <UNK>, regarding business development, we are executing to the plan, which we shared with you on our Investor Day.
We have a very exciting and active and rich pipeline, which we are trying to close certain deals and bring products home.
So we see many tuck-in opportunities out there.
All right.
Thank you, Chris.
I'll start.
This is yes, our EPS guidance range that we reiterated this morning and I put in my commentary, is not dependent on approval of any one product.
To your point, approvals are important.
They're an important part of our business, and we have a lot of moving pieces and parts in our guidance.
But wanted to certainly point out it's not ---+ that range is not reliant on any one approval.
So I think that's the point of having the range and us being able to come out and reiterate that we're committed to this guidance range.
And Chris, as I already have mentioned, it will be prudent for us to wait for this dialogue before we comment on the potential impacts on any timing as their launch.
And regarding your question on Neulasta, you can expect us to have this product end up ---+ end of ---+ towards the end of '18 or early '19.
All right.
Thanks, everyone.
Thank you.
| 2017_MYL |
2018 | ADI | ADI
#Thanks, Mike, and good morning, everyone.
Well, the second quarter of fiscal '18 was remarkable for ADI.
We posted non-GAAP diluted earnings per share above the high end of our guidance and set a new high-water mark in free cash flow generation, and I'm pleased to share some perspective on our results with you now.
So revenue in the second quarter came in just above the high end of our guidance as strength across our B2B markets, especially in the industrial and communication sectors, offset the expected decline in Consumer.
Our results were also supported by our Linear Tech franchise, which posted a record revenue quarter.
Gross and operating margin expanded substantially compared to the year ago quarter, driving a more than 40% increase year-over-year in our non-GAAP diluted earnings per share.
This execution resulted in record free cash flow in the quarter, and our combined company adjusted free cash flow margins over the trailing 12 months continue to place us in the highest tier of the S&P 500.
Now before we go deeper into our financial performance, I'd like to take this opportunity to provide investors with a deeper perspective on some of our key technology and market trends and ADI's strategy relative to them.
I've spoken before about the dawn of the third wave of information and communications technology or ICT, which is characterized by ubiquitous sensing, hyperscale and edge computing and pervasive connectivity.
In this world, digital systems increasingly rely on real-world information to make mission-critical decisions, and the accuracy and the integrity of this information is becoming more and more important.
Simultaneously, the actual challenge of identifying and extracting signals in the presence of increasing levels of noise is becoming harder.
Now I believe that this is creating an inflection in the analog industry, and it's enabling ADI to play a critical role in generating and communicating high-quality information to leverage our cutting-edge innovation and solutions to tackle our customers' hardest problems from sensor to cloud, microwave to bits and nanowatts to kilowatts.
It's our ability to sense, measure, interpret, power and connect these 2 worlds that is helping to enable autonomous machines, natural human to machine interaction and future important technologies, such as virtual and augmented reality and so on.
Today, though, I'd like to talk more specifically about connectivity and 5G, which has been the subject of much news coverage lately and which represents the next big investment phase in wireless infrastructure and how we view its evolution and timing.
In fact, an entirely new wireless and wireline network architecture will ultimately be needed to meet the demands for orders of magnitude increases in bandwidth-hungry areas such as high-definition video streaming.
Although 5G will provide revolutionary capabilities, the transition to 5G will be evolutionary.
We see the first phase of this evolution being the addition of massive MIMO, which will provide a significant increase to the capacity of the current 4G wireless network.
The use case and benefits of massive MIMO to the carriers are real.
A massive MIMO system can deliver a greater than 3x data capacity increase in the same spectrum as a current 4G base station.
And this helps to solve 2 large challenges for carriers: capacity and cost.
ADI is enabling these massive MIMO implementations today through our highly integrated software-defined transceiver platform.
This solution reduces the radio card area by a factor of 10 and overall remote radio head footprint by 50% while simultaneously reducing power consumption.
These are critical success factors with massive MIMO systems since they use, on average, 8x the number of radios compared to today's systems.
Equally important, these transceivers have the flexibility to operate from 300 megahertz to 6 gigahertz as they are software programmable, giving our customers a single platform-based design that can quickly be modified to operate in any of the many different cellular bands that exist around the world.
These radios can also scale from small cells to macro base stations to massive MIMO radios, and they offer a flexible architecture capable of rightsizing the analog and digital performance needed by a customer's product family.
However, to realize the longer-term 5G ambition, further network change is needed.
In order to further expand the network bandwidth, millimeter wave solutions will come into play in order to provide multi-gigabit per second wireless connectivity using phased-array solutions.
In that arena, ADI is leveraging the capabilities from our Hittite acquisition.
We have a very unique market position of having deep competency from antenna to bits up through millimeter waves, and our solutions and technologies are well positioned in the current millimeter wave trials around the world.
This will expand ADI's sun as it emerges.
In addition to adding massive MIMO and millimeter waves, 5G will require a complete re-architecting of the core wireless and wireline network, including a move toward network virtualization and more edge computing.
This backbone network will be required to meet the 5G vision of greater than 1 gigabit per second download speeds, low latency and high reliability demanded by mission-critical applications such as digital health care, autonomous vehicles, fully autonomous factory floors and augmented reality systems.
This network expansion will drive a significant upgrade of the backhaul system, opening a new stream of opportunity for ADI's optical and point-to-point microwave solutions.
5G represents an enormous opportunity for ADI as we are uniquely positioned to provide the enabling technology through our comprehensive portfolio of high-performance mixed signal, RF and microwave and power management technologies.
The combination and integration of these innovative capabilities will allow us to create even more comprehensive and compelling signal chain solutions for our customers and the opportunity to capture up to 3x the [baum] when compared to our 4G solutions.
Now while we're obviously excited about the remarkable potential of 5G, the greater volume of our communications business in the next couple of years will still be 4G.
And here, our business is strong and has been growing at a high single-digit rate over the trailing 12 months.
Our growth has significantly outpaced industry CapEx spend as we have seen share gains in traditional 4G macro products, thanks to new RF offerings resulting from the combined strength of our ADI and Hittite engineering teams.
Those results have been augmented by strong adoption of our integrated software-defined transceivers across macro, small cells and massive MIMO trials.
So in summary, we feel very confident and energized by our communications market success, which is built upon close partnerships with our customers, our domain knowhow, our unwavering desire to solve the toughest engineering challenges and strategic investments in research and development, along, of course, with our acquisitions of Hittite and Linear Technology.
So looking forward, we expect to continue to outperform in the communications market and accelerate our growth as we fully address our customers' needs well into the 5G future.
Of course, 5G is just one of the many areas ADI is taking advantage of in the era of digitalization.
In this ubiquitously sensed and connected world, there are many exciting new opportunities, areas such as industrial 4.0, autonomous and electric transportation and cloud computing.
And in future earnings calls, I'll continue to speak to these opportunities with you and look forward to sharing how we are creating long-term value for our customers and for our shareholders.
And so with that, I'd like to hand over to <UNK>.
Thank you, Vince.
Good morning, everyone, and let me add my welcome to our fiscal 2018 second quarter earnings call.
With the exception of non-op expenses, my comments on the P&L line items will be on a non-GAAP or adjusted basis, which excludes special items outlined in today's press release.
Revenue for the quarter was just over $1.51 billion, above the high end of our guidance and increasing 25% year-over-year and up 7% sequentially on a 13-week basis.
Now before I move on to the rest of the P&L, let me give you some commentary around our market performance in the quarter.
Looking at the combined company, our B2B revenue increased 14% year-over-year led by double-digit growth in the industrial and communications markets.
The industrial end market represented 52% of sales in the quarter.
Growth in this market was once again broad based, with nearly all applications and geographies increasing double digits compared to the year-ago quarter.
Momentum continues as our targeted R&D investments aimed at the underlying sector trends of automation, instrumentation and health care continue to drive outperformance.
Turning to the comms market, which represented 19% of sales in the second quarter.
Sales into both wireless and wired applications increased compared to the same period last year.
Furthermore, our wireless business has increased at a high single-digit rate over the trailing 12 months.
Our growth is due to share gains related to our complete portfolio of high performance mixed signal RF and microwave as well as the strong demand for our integrated transceiver and our position on virtually all of the 5G and massive MIMO trials.
As Vince mentioned, we expect to grow our comms revenue at a mid-single-digit rate in the backdrop of a flat CapEx environment ahead of 5G rollout, and 5G represents an enormous opportunity for ADI as we are positioned to provide the enabling technology with our comprehensive portfolio.
Our auto business represented 16% of sales in the quarter.
After a better than seasonal first quarter, second quarter sales increased at a low single-digit rate compared to the year-ago quarter, with growth led by the infotainment and powertrain applications.
And finally, our Consumer business represented 13% of sales in the second quarter, and as previously communicated, decreased compared to our year ago quarter.
Let me now move to the rest of the P&L.
Gross margins of 71.3% came in around the midpoint of guidance and increased slightly compared to the first quarter on a more favorable mix.
OpEx in the second quarter was $442 million or approximately 29% of revenue.
Strong revenue growth combined with operational execution delivered operating margins above 42% and at the upper end of our guidance.
Non-op expenses in the second quarter were $62.5 million.
We expect our non-op expenses to be approximately $58 million in our third quarter and to decline by $2 million to $3 million in our fourth quarter of fiscal '18.
Our second quarter non-GAAP tax rate was 5% as we adjusted the tax rate for the full year to 6%.
Looking to the third and fourth quarters, we expect our non-GAAP tax rate will remain between 5% to 7%.
There is no change to our expectation for fiscal 2019, and we continue to expect our long-term tax rate to be approximately 12%.
Non-GAAP diluted earnings per share for the second quarter came in above the high end of guidance at $1.45, increasing over 40% year-over-year.
Now I'll cover the balance sheet.
As we planned, inventory decreased 2% sequentially and days were 116 in the quarter, down from 124 days in the first quarter.
Distribution inventory was approximately 7.5 weeks, which is flat sequentially and up slightly compared to the year-ago quarter.
We generated record free cash flow of approximately $665 million in the quarter, with associated free cash flow margins of 44%.
And in the trailing 12 months, adjusted free cash flow for the combined enterprise was $1.9 billion.
During the quarter, we paid down $450 million of debt, which helped reduce our net debt-to-EBITDA ratio to 2.2x, down from the 2.4x in the prior quarter.
We expect to achieve our 2x leverage ratio within the next 2 quarters.
Capital additions in the second quarter were $54 million, and we expect CapEx for fiscal '18 to run at our model of approximately 4% of sales.
And during the quarter, we paid $178 million in dividends, with an associated quarterly cash dividend of $0.48, representing an annual dividend payment of $1.92 per outstanding share of common stock.
So let's now turn to our outlook and expectations for the third quarter of fiscal '18, which with the exception of revenue are also on a non-GAAP basis and exclude items outlined in today's release.
At a high level, we're expecting third quarter to look a lot like second quarter.
We're planning for revenue in the third quarter to be in the range of $1.47 billion to $1.55 billion.
At the midpoint of guidance, we expect our B2B markets of industrial, auto and comms in the aggregate to increase approximately 10% year-over-year.
We're planning for gross margins to increase approximately 50 to 150 basis points compared to the year-ago quarter.
And we expect our operating expenses to be flat to up $10 million year-over-year.
At the midpoint of guidance, this implies OpEx as a percentage of sales of approximately 29%.
Based on these inputs, we expect operating margins in the third quarter of 2018 to be in the range of 41% to 43% and for diluted earnings per share, excluding special items, to be in the range of $1.38 to $1.52.
So to wrap it up, this was another terrific quarter for ADI, and we set a few records along the way.
Our B2B business increased double digits year-over-year, and our strong operational execution drove gross and operating margins higher, which resulted in a record free cash flow in the quarter.
And with that, I'll turn it over to Mike for our Q&A session.
Yes, thanks, <UNK>.
Well, as I said in the prepared remarks, there are really kind of 2 phases to 5G, at least from an ADI perspective.
There is the pre-millimeter phase and the millimeter phase.
And the pre-millimeter phase is really dominated by this massive MIMO expansion, which is really an overlay on 4G.
So our software-defined transceivers are absolutely everywhere in the systems that are being brought to market this year and next year.
In fact, it's one of the fastest-growing product sectors inside ADI.
So that's been a very strong contributor to our communications business and, in fact, beyond.
These transceiver technologies, because they're so flexible, are usable as well in places beyond communications.
Also, the combination of Hittite and ADI from RF to bits and microwave to bits is enabling us to capture new content in kind of pre-5G systems.
But it's the combination of our massive MIMO, our Hittite ADI microwave and millimeter wave to bits technology that is enabling us to be participating in virtually all these field trials across the globe.
My sense, <UNK>, is that U.S. and China will be in the kind of '19, '20 time frame.
We'll be at least trialing some particular applications.
China will get faster to mass market, I think, with what they call 5G, which is really to me, 4.5G plus massive MIMO.
So I hope that explains what it is we're doing.
And in the run up to what will be pure 5G in the 2024, 2025 time frame where the core network gets changed with virtualization, edge computing and pure millimeter wave-type technologies, spanning multiple different frequency levels.
Sure.
Well, <UNK>, remember that we have now completed the implementation of all of our synergies related to the acquisition of Linear.
So we now have built into our run rate the cost synergies that we committed to at the time of the acquisition.
So that is contributing as well to the gross margin strength.
And then I would also say that with volumes where they are, we're getting the benefit of strong utilization at our internal fabs.
Yes, <UNK>.
You're a little faint, but good morning.
Yes, thanks, <UNK>.
So look, our business right now, our long-term goal is to grow at the high end of kind of 2 to 3 SAAR.
And our objective, obviously, is to get the combined company onto that trajectory.
So obviously, we're performing below my expectations, and we're not happy as a management team right now as to where we are.
But let me try and unpack this story a bit for you and bring you through where we are right now and what the pathway ahead is going to be.
So we were clear in our last call that the profiles for ADI and LTC are quite different in the automotive sector today.
ADI, we ---+ the ADI legacy business increased at the kind of level of 2 to 3 SAAR in '17.
And it looks like we're on track again this year to achieve that kind of level.
Whereas the LTC growth level has been in the low single digits or closer to kind of 1 SAAR.
So ---+ but what I will tell you is that we're making a lot of progress in improving LTC's growth rates, and we've uncovered a lot of revenue synergy opportunities.
And we've also changed the business logic within LTC and tilted more towards growth.
Profitability has always been important, will always be important, but we're also tilting more aggressively towards growth.
But as you know, in this market, it just takes time to materialize the design wins that we've got in place.
And my sense is those design wins won't materially impact the revenue, will not materially impact the revenue for a couple of years.
What I'd like to do is just turn my attention now to giving you a sense for what momentum we have in our business and what we're doing to get our revenue towards ---+ to get the growth levels to the higher end of the 2 to 3 SAAR.
And as you know, we've talked before, we have 3 primary application areas in our business: infotainment, autonomous driving and electrification.
I'm going to talk to those in a little bit of detail and try to unpack the story a bit for you.
So in infotainment, we've won a lot of premium audio sockets.
That's a great heritage for ADI across all geos, and that's really the foundation of the infotainment business.
And the good news there is we're now beginning to attach LTC power to the clusters of ADI, DSP and mixed-signal technologies.
We've talked before as well about our A2B technologies, and we're really getting a lot of momentum there.
And what I can tell you is that about a dozen OEMs are planning to deploy that technology in the next few years across the globe in many, many geos.
Now that is also ---+ everything I talk about here is an opportunity for LTC power attachment.
If I turn to autonomous vehicles.
We haven't really talked much before about our LIDAR solution, but we're gaining design ins today in long and short-range LIDAR systems, with both the ADI mixed-signal technologies and the LT portfolios and even getting some sockets for Hittite in the very, very high-frequency areas.
These components complement the more advanced capability that we're working on now to produce a solid-state beam steering and photodetector technology.
And that will dramatically drive the size, the cost, the power, and we believe enable, over the longer term, the kind of mid- to long-term 3, 4, 5 years, mass deployment of LIDAR.
And we got that new technology in terms of that more integrated system capability through the acquisition of Vescent sometime last year.
Also in autonomous vehicles, we have several design ins in place with our inertial management units, our IMUs, as we call them.
And we're engaged today on almost every self driving platform that is in development today, both with what we would call traditional OEMs and some disruptors out there as well.
So that technology, which we've been using, we've gained traction in mission-critical aerospace areas, for example.
It's a really ideal fit to the emerging autonomous vehicle requirements and it's used as a failsafe function in the event of a radar system failure.
And I will turn to the electrification side of things and our BMS business, which we got from our LTC acquisition.
We've been winning back business that we might have lost or have lost and by changing, again, our business logic, as I talked a little earlier about, to tilting towards growth, defending our sockets aggressively and also leveraging the scale and flexibility of the ADI manufacturing system to change the kind of the cost profile of the products.
And we're broadening LTC's customer base, bringing that technology into the strong relationships that legacy ADI has in North America and with European OEMs.
Also, our next-generation BMS will improve on our already leading performance levels by delivering, again, more miles per charge and bringing all the robustness and safety features to play as well.
And one other aspect of the electrification business is the momentum that we have, in our isolation we have a franchise of very unique isolation technologies that tend to get used anytime that there's a high-voltage and low-voltage connection.
So these technologies are very important in electrical vehicles, so I think we're doing well there.
And not to mention the broad-based revenue synergies that we've got on the power side of things.
My sense is that in a reasonable period of time, we should be able to add a point or two of overall growth to the automotive business, given the design cycles that we've got and the strength of the power portfolio.
So I think we're very focused on bending the growth curve.
I believe we're focused on the right apps, the right customers.
We have a terrific technology story.
And with the complementary customer bases and geo footprint coverage, I feel very optimistic about the future and our ability to get that growth curve to where we have publicly said it should be and will be.
So I know that's a long answer, <UNK>, but I thought it was important to give the story in terms of where we are today and talk a little bit about the future as well.
Yes, thanks for the question.
So the way we view it in the short term, there's a certain amount of fixed CapEx in place to upgrade the various networks across the globe and particularly in China.
So my sense is that there are many other competitors in play who will fill the demand for building out the networks across the globe.
We have factored into our numbers a potential continued embargo with regard to ZTE, so it's built into our numbers.
It was a small amount of headwind for the company last quarter.
So I think, overall, most geos are up in communications for ADI, we're gaining share.
You know, my sense is as well, just we're obviously staying close to the situation as best we can tell, the negotiation outcomes that are taking place.
But I will tell you, clearly, U.S. and China need each other.
And I think trade between both is very, very critical.
My sense is that sense will prevail and the need for free trade, unencumbered trade will prevail.
And we're expecting political leaders to figure this out.
So my sense is at the end of the day, there's demand there for more and more connectivity.
Carriers are determined to keep building their networks out, to capture the opportunity to build their revenue and profit streams.
And that demand is going to be fulfilled one way or the other.
A question on Consumer.
You appear to be navigating the falloff at your largest customer.
So just from kind of a high level, if you can just talk about the puts and takes from some of the drop-off there versus other opportunities and areas where you're actually growing within Consumer.
Yes, so as you know, <UNK>, our Consumer business is a tale of 2 ---+ we've got 2 different stories there.
One is our prosumer, which looks a lot like our B2B market, with lots of customers, products and different applications globally.
And that business has been strengthened as well with the addition of the LTC revenue and applications.
And that's in the $300 million-plus area, so it's a significant portion of Consumer for ADI.
We're expecting, looking into our ---+ somewhere in the back end of third quarter and fourth quarter, we're expecting what is normally a seasonally strong quarter to be so.
We've stated previously that Consumer will be down 20% to 30% for the year, and this is how the year appears to be trending now.
So our strategy remains the same, to focus ---+ or to leverage our technologies into areas of very, very high differentiation where we can get a higher return on investment.
And we continue to execute against that strategy.
I do.
Just a question on free cash flow and kind of capital allocation for <UNK>.
So encouraging to see the big step-up in free cash flow in the quarter.
As you're on the doorstep of that 2 turns target for net leverage, can you remind us in terms of just priorities, be it acquisitions versus returning cash and how you think about that.
Sure.
Thanks for the question, <UNK>.
So yes, it was a great quarter for us in free cash flow, but I do want to remind folks that our cash flow can be lumpy quarter-to-quarter.
So the right way to measure us is on a trailing 12 month, and we finished this quarter with trailing 12 month of $1.9 billion.
So we recognize that this franchise throws off a considerable amount of cash and, therefore, we want to be very thoughtful on how we deploy that excess cash once we achieve our 2x leverage ratio, which we would expect to do in the next 2 quarters.
We're very mindful of the debt that we took on as a result of the Linear acquisition as well as the opportunities that we have in front of us with the share repurchase dividend and potentially some other uses as well.
So it's something that we spend some quite a bit of time internally debating.
And I think you'll hear from us in a coming earnings release that we're ready to talk more about our capital allocation strategy once we clear that important 2x threshold.
Yes, great.
Thanks for the questions, C.
J.
So the industrial business has been doing extraordinarily well, as you mentioned.
We continued to be driving this with the technology investments that we've made.
It is across the board, C.
It is all geographies, it is all products.
So this is really a combination of the strength of a global expanding environment, and you know the PMI continues to be in an expansionary phase.
And that's compounded by the technology investments that have been made over the last several years, which have now come together at a time where you can really see the driver in automation, you can see the driver in our instrumentation business.
So it's really across the board, and it's hard to point to any one particular segment because it is so broad based and it's a reflection of the investments that have been made over the last several years.
From where we sit today, and you can see it reflected in our guidance for the coming quarter, we feel very strong about the coming quarter.
The outlook is solid.
Our book-to-bill is greater than 1.
Information from the channels, the information Vince gets from his customer visits are all continuing to tell us that we're going to see this run for a bit longer.
Yes, thanks for the question.
So first, as a reminder, we have not moved to ASC 606, so remember that our revenue is recognized on sell-through from the channel.
So we really do provide our investors a reflection of what is the actual activity happening at the customer level.
The inventory that we're seeing in our channel now, roughly 7.5 weeks, that's relatively consistent with where we have been.
And we would expect, just through the normal course of business and over the course of the rest of the fiscal year, we'd expect to see that come down a bit.
The inventory that we have in-house is at 116 days.
That's an improvement of about 8 days from where we were in the first quarter.
We are comfortable kind of in that 115 to 120, so I think that's where you'll see us for the balance of the period.
Our sales organization does work very closely with channel partners to monitor that order activity to ensure that we're being mindful of the order lead times and ensuring that, that behavior is appropriate.
But again, the biggest metric for us is ---+ the revenue we're reporting is on sell-through, so it's really not impacted by any noise in the channel, whether they're building or subtracting from inventory.
Yes, just another bit of color on that.
All the macro dynamics that we talked about that I used in the ---+ I talked about at the start of my prepared remarks there benefit the industrial sector.
So my sense is, from talking to customers globally, as has been the case at least for the last couple of years, they're pragmatically optimistic about the future that we're in a longer-term secular growth trend across the various applications in industrial.
And I think the optimism is even across automation, instrumentation and the aerospace and defense areas.
So I think our customers are feeling good.
And I'm also feeling very, very good about where we are and where the market is.
Good question, <UNK>.
Thank you.
Well, today, with the acquisition of LT, our business now is about 50-50 between wireless and wireline.
The wireless business, my sense is that can grow in the high single digits for quite a while to come.
That's my long-term growth objective in that business.
Wired is somewhere in the kind of mid-single digits as it has been growing, and I think that's a reasonable way to balance the growth expectations across that business.
Yes, I think the areas where we believe that we'll see the growth uptake in the shorter term, kind of over the next 2 years, that will be in the probably communications as well as automotive areas.
We have sockets already in place now that we should see the uptake on.
And it's going to take ---+ to get to what I would consider to be the objective to put a couple points more of total growth on the company's top line, it will take in the kind of 3 ---+ 2- to 4-year kind of area.
And if Hittite is any indication, given that the technologies play in similar markets, we're virtually 4 years into the closure of the Hittite acquisition.
And over that period of time, we have managed to double the growth rates of Hittite in that period of time.
So given, <UNK>, that we expect for every dollar of ADI revenue, which is largely mixed-signal base, we expect $1 of power.
That's the kind of opportunity spread we're looking at, but it's going to take us 2 to 4 years, I think, to see any meaningful change to the top line.
Good question, <UNK>.
And if you consider 5G to be the initial introduction of 5G to be adding massive MIMO to 4G core network, I think we'll see meaningful revenue in the 2020 time frame.
And I still think that 4G, without massive MIMO, will be a significant portion of revenue into the kind of 2022 timeframe.
So somewhere between 2022 and 2025, we'll start to see what we will consider to be 5G become a more dominant part of our wireless communications infrastructure revenue.
So at this point, <UNK>, it's a bit of a guess based on trying to triangulate on all the various conversations we have with carriers and customers.
But I think, clearly, we're starting to see the uptick in 4.5G, or as it's called in China, 5G, massive MIMO based on 4G infrastructure at this point.
So hopefully, that helps to give a bit of clarity to you.
| 2018_ADI |
2017 | INTU | INTU
#Thanks, <UNK>, and thanks all of you for joining us
Our second fiscal quarter once again reflected strong momentum across the business
QuickBooks Online subscribers and online ecosystem revenue demonstrated continuing acceleration from prior periods
As a result, we now expect third quarter QBO subscribers to be roughly 2 million, which had been the low-end of our original guidance for the full fiscal year
Looking beyond Q3, we now expect to exit the fiscal year with 2.2 million subscribers, which had been the high-end of that range
I'll talk more about what's driving these results in a minute, but given its tax season, let's focus there first
Despite the slow start to tax season, we remain confident it's simply a shift in timing, with the do-it-yourself software category and TurboTax performing well season-to-date
This timing shift did lead us to update our outlook for the quarter while reaffirming our full-year guidance
Each tax year is different
This one's no exception
The IRS data released this morning showed total e-filed returns are down 13% with self-prepared e-files down 11% and assisted e-files down 16%
When you compare these results to the data that we released today, the conclusion we reach is that do-it-yourself category is performing better than assisted and we are performing well within the do-it-yourself category
So it's helpful to put our season-to-date results into this context
Now, let me take a minute and remind you the four main drivers for the consumer tax business
The first is a total number of returns filed with the IRS
The second is the percentage of those returns filed using do-it-yourself software
The third is our share within the do-it-yourself software category, and the fourth is the average revenue per return
Total returns filed with the IRS have grown on average 1% per year over the last five years
Now, we've grown quite a bit faster than that by focusing on growing the do-it-yourself software category and then growing our share within that category
So despite the slow start to this season, do-it-yourself software is once again growing faster than other methods and our volumes suggest that we are performing well within the category
Now, the question on everybody's mind is what's behind the slow start to the filing season? There could be several reasons
The IRS suggested in its release that the PATH Act has led some to delay their tax filings
Now, as a reminder, the PATH Act is new legislation in service to fighting tax fraud that delayed refund processing to February 15th or later for anyone who is filing for the earned income or additional child tax credit
Now, regardless of the root cause, we remain laser-focused on making sure we have the best offerings and an awesome end-to-end experience for our customers
Now there's no question this is a fiercely competitive tax season with new entrants joining the completely free category
Free offerings are not new to the category and they're not new to us, and our strategy to win with free remains unchanged
We are firm believers that not all free products are the same
Having the best free offer and a delightful end-to-end experience is what sets us apart
With Absolute Zero, we continue to believe that we have that winning experience
It's an alternative that is innovative for than 60 million people who file a simple return and may be overpaying for this service somewhere else
In fact, roughly 30 million of these 60 million Americans visit a tax store or a tax professional simply because they have a nagging question
In the end, they pay hundreds of dollars to file their taxes
This is where SmartLook comes in, providing access to an expert at the touch of a screen for a much lower cost
Now this is simply one of the many innovations that our tax team delivered this season
Other innovations include improving data import through taking a picture on a smartphone, while continuing to expand available W-2 and 1099 forms for direct download
We've also been applying machine learning and artificially intelligent algorithms to the data to get maximum deductions in less time
We're transforming TurboTax from an application to a platform, with our first partner, providing the ability for customers to refinance their student loan at a much lower rate
And we're delivering a free credit score to all TurboTax customers
On top of these innovations, we also introduced TurboTax Self-Employed this season
This offering includes a 12-month subscription to our QuickBooks Self-Employed accounting solution, connecting our market-leading QuickBooks platform to TurboTax
So to put a bow around the tax season to date, we remain confident about the plans we have in place
When it's all said and done, we know taxpayers will still need to file by April 18, so we're focused on executing with excellence
On the ProConnect side, we continue to focus on winning with multi-service accountants who do both books and tax
We're off to a strong start, and our important accountant relationships are helping to drive QuickBooks growth opportunities
Shifting to Small Business, we continue to be pleased with the growth in our QuickBooks Online ecosystem
Subscriber growth is accelerating, driven by product and platform innovation, improved product market fit outside of the United States, and a further expansion of our addressable market by targeting the self-employed segment
Total QuickBooks Online subscribers grew 49% in the quarter, up from 41% growth in the first quarter, and now shows more than 1.8 million subs
Outside the United States, our subscriber base grew 61% year over year to approximately 370,000 paying subscribers, which is up from 50% growth in Q1. We saw a notable pickup in markets where our product market fit meets our test of readiness, including the UK, Australia, and Canada
In fact, both the UK and Canada surpassed 100,000 subscribers in Q2. We introduced several innovations on the QuickBooks Online platform this quarter, including a complete re-imagination of QuickBooks
com and the QuickBooks Online first-time use experience; all in an effort to increase awareness, trials, and conversion
This is complemented by a new matchmaking service that connects small businesses with an accountant
In addition, we're also building momentum behind QuickBooks Self-Employed
Roughly 180,000 of our QuickBooks Online subscribers are using QuickBooks Self-Employed, up from 110,000 subs last quarter and 50,000 subscribers just one year ago
In the quarter, we expanded QuickBooks Self-Employed to Canada, adding another major geography to the current distribution that we have in the United States, the UK, and Australia
Finally, we launched a new QuickBooks Self-Employed and TurboTax experience as well
While it's early days for all of these innovations, the accelerating growth gives us confidence that our strategy is working
In fact, online ecosystem revenue posted 30% growth in the quarter, up from 26% in Q1. To continue this momentum, we're investing, investing to improve the experience for customers and partners while getting the message out to more potential customers through events like QuickBooks Connect
Our first QuickBooks Connect conference outside the United States will be held in the UK in March, with Australia and Canada soon to follow
So with that overview, I'm going to hand it over to <UNK> to walk you through the financial details
Thanks, <UNK>
To recap, we're pleased with our performance in the first half of fiscal 2017. We're in the heat of another competitive tax season but there's a lot of time left on the season but there's a lot of left on the clock
We remain confident in our ability to compete and win, driven by our laser focus on a delightful product experience that puts more money in our customers' pockets
We're continuing to gain momentum in our QuickBooks Online franchise as well, with strong growth in the U.S
and select markets around the world, driving acceleration in subscriber growth and in online ecosystem revenue
We're also expanding the category with QuickBooks Self-Employed and our new TurboTax Self-Employed offering connects our TurboTax and QuickBooks platforms, providing further runway for growth across our ecosystem
That's the halftime report
And with that, let's open it up to you to hear what's on your mind
Latif? Question-and-Answer Session
<UNK>, this is <UNK>
I just want to add a couple of points for you
As we've talked about these emerging markets, one of the key indicators is lifetime value to cost to acquire a customer, LTV to CAC
As you know the FASB standard is anything north of 3 to continue to invest
Right now in the United States, our QBO LTV to CAC is 5.5. If you add in desktop it's 6.9, and if you actually do a worldwide blended number, it's 4.5. So we feel good that we have a proxy and know that we're driving towards good profitable growth
And the second thing is <UNK> and I worked with the businesses and we have a guideline for the Small Business Group that's keeping that business unit contribution while we're in this investment phase around 40%
It may go up or down a point or two based upon choices we make, but that's a very good healthy margin for a business that's in good growth but also continuing to deliver the kind of rigor we want on the bottom line
So I just wanted to add that to the two pieces that <UNK> just put out there as well
Thank you, <UNK>
I'm going to have <UNK> and the team here reconcile it with the table
But as you know, one of the things we try to do is translate our unit growth into e-files sent
And you know the noise here
You followed the business for a lot of years
A desktop unit has an average of two e-files each, and then a TurboTax unit is one-for-one
So what we try to do is since the IRS reports the number of e-files received, we try to then tell you how many have we actually processed
And what you saw with the IRS data released this morning is that self-prepared e-files were down about 11% year over year through February 17. Our data shows that we're down about 10% through February 18. And so the net-net on that is we're basically holding to slightly up in terms of our share in the category
Now, looking at the table, is there something in the table that we need to clarify?
Yes, so, <UNK>, right now what the headline is units are down 5%
Our e-files, if you translate that into e-files, are down 10%
And then the IRS on an apples-to-apples is down roughly 11% for the self-prepared category, which basically says what Dan's quote is, we feel good about how we're performing thus far season to date
No, thanks for the question, <UNK>
Actually we have reconciled against the IRS, and the answer is it does not change materially the outcome that we just described, which is we're performing slightly better than the DIY category and certainly better than the overall IRS returns and much better than assisted
So no real material difference there in that 1-day difference
Thanks for the question, <UNK>
The answer is we're seeing strength across the board
What's really driving is the U.S
is up about 36%, outside the U.S
, you just mentioned the acceleration from 50% last quarter to 61%
And then you add on top of that QuickBooks Self-Employed, which in the quarter added about 70,000 active users and that's more than all of last year's 60,000. But the real driver behind it is product market fit
As you know, we have a test of readiness, which is in every market, are we able to deliver the benefit the customer says is most important and is our ability to deliver that benefit better than the best alternatives in the market? And once we see that light go green, then we lean in to the accountant channel and we'll start to make more increased investments in advertising
So the product is really driving the acceleration of velocity and then we put topspin on it by putting more marketing into those markets because we feel good about the product market fit
And that is currently in Canada, the UK, and Australia
And we've mentioned to you, we haven't taken our eye off of the ball in India, France, and Brazil
And we see a springtime window for those to go green and then we'll start to lean in there as well
So overall, it is accelerating velocity
So retention continues to look healthy for us even with this influx of new users, we're still looking at that first year cohort of around 70%
As they anniversary off that first year, it's pushed out of that high 70s and now it's tickling the 80% range
So it continues to get healthier
ARPU for us is no different than what <UNK> shared at Investor Day
We continue to see the cohorts of QBO or non-U.S
QBO or Self-Employed continue to remain healthy
When you put them in the mix, it looks like ARPU is coming down a little bit
That's why we say this is more about staying focused on the ecosystem revenue growth, which went from 26% up to 30% and we think that's the best indicator of the long-term health of this business
Thank you, <UNK>
I think, <UNK>, the first is, this is a competitive season but it was not unanticipated
I mean, many of us were talking in the off-season and we knew that everyone was going to be coming after the market aggressive
But as I shared in my opening comments, free offerings are not new to the category and certainly not new to us
It comes down to who has the best end-to-end experience and product experience and we feel good about our position right now
The other thing that we talked about going into the season, and Dan Wernikoff did a wonderful job at Investor Day, is we're looking to add more value to our product lineup to attract higher value customers into the category and ultimately into TurboTax's franchise
So SmartLook right now is focused on those customers who've historically paid hundreds of dollars to go to an assisted method and we're bringing them into our category
The other thing is TurboTax Self-Employed right now is at an $89 price point
And by hooking that up with QuickBooks Self-Employed, we're getting more of those kinds of customers as well
So I think you're going to see price realization continue to be a little healthier, if we continue to bring these higher value customers into the category while we remain competitive on free on the low end
So at the end of the season, we'll have a better read on that
But that's our strategy going in is winning more share of dollars, while also continuing to extend our lead in share of units and that's our multi-pronged approach
Actually, I am excited to say that that team has really leaned in to the product experience
In fact, they prioritized really making the first-time use experience from new-to-the-franchise customers amazing
They've had goals they put in place to get to a first P&L in five minutes or less; the ability to send an invoice quickly
They've spent a lot of time looking at what the best indicators are to someone who'll turn into an active user
And that's really what's driven the growth, not only in the U.S
but around the globe
It has not been increased promotions or anything else
It really has been the product
Thank you
Yeah, actually, <UNK>, we have a relationship with Uber already in the United States and we simply expanded it into Canada
We have been working with Uber over the tax season last year and then more aggressively in the post season to try to make sure that we're helping them with their drivers, be able to separate their personal from their business expense, to be able to keep a mileage log that was up-to-date and active and have the ability for them to file their taxes
And on average, they're saving about $4,300 in tax savings by using our product
The other thing is the benefit for Uber is many times last year, the number one call they got from those who were driving for their service was hey, how do I – what do I owe for taxes? So the partnership is a win for them, it's a win for the driver and it's certainly a win for us
And the relationship has been in place in the U.S
and obviously, you mentioned the one in Canada as well
And we look to continue to expand that and many other relationships as we focus on the Self-Employed segment
<UNK>topher <UNK> - Credit Suisse Securities (USA) LLC Great, that's helpful
Just to clarify also, a quick follow-up maybe on the SE number
Is there any chance you could split that out between U.S
and international, just to get a cleaner sort of QBO U.S
Take care
<UNK>, it's across the board
I think everyone continues to lean in and put their best game on the field and that's good for the category
If you go back and look over three decades, any time a lot of players either get more competitive, they're already in the game or new entrants come in, everyone leans into the advertising and marketing muscle and that gets more people to raise their head and say, hey, I'm paying hundreds of dollars to go to this service, why don't I try that instead? I think this is going to be net-net good for the category
It's going to get more people into the do-it-yourself category, and then it comes down to who has the best offering
But right now, of course, you've seen H&R Block, a really worthy competitor, someone we have respect for out there, and they've been aggressive this year
You've got new entrants coming in
and of course, we've been out there banging the drum as well
So I think net – we're getting a lot of people excited about the do-it-yourself category, which is good news for the long term
We may have shared – we'll have to go back and see
I'm trying to go from memory, if we actually sized that in our Investor Day materials
I can't remember off the top of my head how many of the 400,000 firms are multi-service firms
I'm thinking it's somewhere in the two hundred and some thousand, but did we size that?
I'm going to be guessing, <UNK>
Let's get that answer and then we'll make sure we get that out to everybody
But I thought in Cece's section that she had sized it in the ProConnect update
Okay, sorry about that
It's a good number
It's a healthy number
All right, thank you
<UNK>, we've had a pretty consistent set of guiding principles out there, and then I'll add the asterisks onto this year, as we shared at Investor Day
So the principles are the four main drivers are the number of units or the number of returns filed with the IRS and then what percent of those are actually going into the do-it-yourself category
Underneath that, we fight for share and then ultimately we try to get a good revenue per return
As we were going into this year, we always say we like to see units grow faster than revenue and we like to see the category grow faster than the alternative method because that sets up a good lifeline for future monetization
Now, what we did this year in addition to that – so nothing has changed in our strategy
What we've done in addition to that is we've leaned into higher value opportunities
So SmartLook is trying to get these higher paying customers out of the assisted method, and we've also leaned in TurboTax Self-Employed
So we'll see what that does to return at the end of the year and ultimately what that does to revenue, but we're still striving to have healthy unit growth
And in a good situation, we'd like to have units outpace revenue
I'd say, <UNK>, it's early days this year
We're getting a lot of good learning, and this is the first of a platform strategy you saw play out in QuickBooks that we're now bringing to TurboTax
So I think it's going to be fairly immaterial this year, but I think we're going to leave here with a wiser set of ideas and thoughts as we enter into next season, and we're playing that one for the long game
So I'd say it'll be relatively immaterial this year
You're welcome, <UNK>
Hey, <UNK>
I appreciate the questions as always
Let me start first with we have a lot of respect for all of our competition
As I mentioned a few minutes ago, everyone out there is being aggressive
Let me talk specifically to IBM Watson that you referred to
We've been talking about machine learning and artificial intelligence for some time
In fact, it's not new, and we've been leaning into it aggressively since 2010. To give you a couple of stats, we have over 100 patents pending right now on machine learning and artificial intelligence technologies
We have 30 already in the market
These are algorithms
These are machine learning capabilities that do things like helping somebody in TurboTax understand quickly whether they should just go with the standardized deduction or do itemized deductions
And that could save as much as 40% of the time it takes to do the return
In QuickBooks, we have this thing called Smart Sort, which is the ability to automatically categorize whether something is a personal or a business expense, which allows you to basically make the right kinds of decisions when you file a Schedule C
And there's a whole host of other things that we're doing with artificial intelligence
So we are excited about the capabilities, we're always leaning into the future
And for us, this isn't a new announcement, we've been talking about it for some time
And it's been showing up, we believe, in not only our product scores, but also in our market share gains
The second is on the website
Right now, we haven't broken down our funnel metrics
We'll do that and we always do that pretty transparently at Investor Day
We don't tend to do it midseason
But you heard us reaffirm our confidence for the full year
So that gives you some insight into how we're feeling about her funnel metrics, which include conversion and retention
I think beyond that, at this point, we need to see how the full season plays out
<UNK>, thank you for that question
I think the solace that we all take some comfort in is that everyone has till April 18 to file
So whether they've jump in right now and it's coming back at the pace we hope, or they're going to wait until April 13, April 14, April 15 and dive across the finish line
We're prepared for any of those scenarios
We're out there, as <UNK> said, making sure that our message is out there today as they're making decisions
But we're going to stay in the game all the way to April 18. I think there's a lot of pace that's going to have to pick up between where we sit today and April 18. But that deadline is coming and so I think it's just a matter of when
No, you're welcome, <UNK>
I didn't mean to interrupt you
I was going to say we came in anticipating pretty aggressive season and we knew that there were going to be players that were going to mirror our Absolute Zero
And so we haven't had to tweak anything from a product perspective
As <UNK> did suggest though, we did start to make some adjustments to how we get our marketing message out there since the season got started a little later than we had anticipate
But we've been able to reallocate resources and kind of self-fund that, so that's really been the adjustment
Now, you might imagine we have a lot of contingency plans in place, if-then scenarios and those are sort of still on our back pocket
And we'll just keep an eye on the competition and we'll make the right kinds of decisions as things move
Okay
I did have one – I realized, <UNK>, I did not mean to not answer one of your questions
This is for <UNK> <UNK>
You had asked about RAs, the refund advances
I think that we talked about this in the past that we exited that refund advance or refund anticipation loan business about a decade ago
We didn't feel that that was the right approach for families who were looking to get money in their pocket
And so ultimately, we haven't had that offering for some time and during that period of time, the do-it-yourself category has grown and we've gained market share
So we don't feel we're at a disadvantage this year any different than we have been for the last decade
We think the category is still going to grow and we're still going to gain share
Yeah, I'll be happy to do that
First of all, we want to thank everybody for your questions today
Obviously, we're still on the midst of this peak season and we do like the momentum, we're continuing to build in Small Business and you heard us reiterate our confidence in the game plan for tax
We all know there's a lot of time left on the clock and your questions suggest there's still a lot of time for people to get their tax filing in
We know that's going to have to happen between now and April 18. So we're looking forward to staying laser-focused and executing and we'll catch up with you on the after calls as well as talk again at the end of tax season
So thanks, everybody and have a good weekend
| 2017_INTU |
2016 | EGHT | EGHT
#Yes, so around October-ish timeframe we're starting to beta it.
But yes, we're loving it.
If you ever ---+ I don't know if ---+ we've not shown you the demo, because we're just ---+ but if you have a chance, we'll show it to you.
It is seriously cool, because in the sense, you can literally go in and you have the ability to have a tight integration with the CRM system.
You can have very detailed drill-downs out of every telephone call you made, who you made it to, when did you made it to them, did you make it in time, did the customer respond, did you enter the information into your CRM, how long did you take to enter the information into the CRM.
And I've said, the way we're using it, which is always ---+ we have a philosophy of, you, you know, drink your own champagne, I guess, is the best politically correct way to say it.
We are starting to use it for monitoring our own sales force.
And it has been fun.
I think our sales managers particularly love it, and they have had good feedback on it.
No, I think from my end, thank you all for listening in on today's call.
We are ---+ we look forward to providing continued updates on our progress at our upcoming investor conferences and meetings.
Thank you again.
Thank you.
| 2016_EGHT |
2016 | ETR | ETR
#<UNK>, this is <UNK>.
I think your last comment probably fits.
I think it is tough to extrapolate from just the last couple of quarters.
I mean clearly as we have talked about on other calls, as other utilities also, we see the effects of energy efficiency both at a state level and through different federal guidelines having impacts.
And we see our usage per customer has been in a decline again I think consistent with what we have seen in the industry.
We started to see some flattening out relative to that.
And I think also you have the macroeconomic impacts from a demand perspective.
I think as we go forward, the macroeconomic impacts clearly would be the first that you would point to in terms of positives as you could change that.
If you look through our region and you look at our real estate product forecast, we see that, we saw kind of a downward trend over the past year or so.
We see that starting to pick back up and clearly if that does materialize, you could see some positive impact as it relates to that.
But we will continue to see impacts around energy efficiency as we go forward and as we get further through the year especially the third quarter because that is one of our largest quarters from a sales perspective, I think we will have a better perspective and point of view around where we think the longer-term trend will take us.
Yes, <UNK>, this is <UNK>.
That investigation continues, really have nothing new to report.
We have fully cooperated with the state but I am not aware of any specific milestones associated with that investigation.
Certainly there is no push for something like this in Massachusetts at the moment.
As far as it relates to what is going on with Indian Point, as we understand it, the way the proposal has shifted, it went from excluding Indian Point to potentially including it.
It meets certain criteria within the next couple of years so we view that as positive, we don't think that clean air should be discriminatory about where it shows up in the state so certainly that could down the road cut off the bad tails as it might be in terms of pricing related to Indian Point given the criteria that the plant be financially challenged, etc.
to qualify for the program.
But other than that, it is really too early to say what it might mean for Indian Point and again there is really no push for something similar in Massachusetts that I am aware of.
Yes, <UNK>, there is certainly not everything that we will likely identify associated with the Integrated Entergy Network.
There is probably more out there associated with that.
I think we referenced toward the backend or beyond the time horizon we have been talking at Analyst Day.
We mentioned the $6 billion to $8 billion number at that point in time but that obviously goes out beyond the period we are talking here now.
Also in the world of gas price volatility, etc.
, where there is nothing in there for anything we might due to hedge that volatility if it were to include investments and the like and the potential for where we come out on some of the renewable RFPs, etc.
So when you get to the backend and certainly beyond it, there is a significant amount of other things that we are investigating that could be part of the capital program in addition to what we need.
And again as we have mentioned before, we've got a pretty solid generation and transmission capital program and we are doing that from a position as we have mentioned before of being short generation across the system.
And we would continue to anticipate that, that we would be short across the system as we go forward and these capital investments create a significant amount of benefits to our customers as it relates to reduced congestion, lower production costs, lower emissions, you name it, particularly given the age of our fleet these things are really, really beneficial to our customers.
Our rule of thumb is $0.06 for every 25 basis points for Entergy overall.
And so it is I guess $0.12 for 50 basis points.
Then about three-quarters of that is utility, the other quarter is EWC.
As you might guess right now, that is between us and Exelon.
I appreciate the question.
There is just no way I can comment.
Well, we have always viewed that we are on a path towards relicensing of the plant.
I think with what we have seen in New York, we had mentioned what the CES does if that goes through as planned is it certainly provides a backstop against lower prices during the course of that program.
So it is not really necessarily what the life of it issue is as much as maybe probability of distribution of prices that it would receive.
From a strategic standpoint, we are still as I mentioned in my remarks and we mentioned at Analyst Day and we have been mentioning for several years now, our view is that the businesses should be separate.
And we have been proceeding down that path for the last several years.
The only thing that changes from time to time is the methodology we would use.
So for example we look at New England and something like Vermont Yankee for example.
Separation came about because prices didn't support the economics of the plant and we were forced into shutting it down.
To the extent that something becomes transactable as part of that separation, certainly that is a preferable route as it was with the Rhode Island State Energy Center when we sold that and if we are successful to be able to sell Fitzpatrick.
So what I will tell you is again, it does impact I guess the probability distribution of prices it might receive.
We still believe that we are going to get the plant relicensed so that would indicate a long life of the plant.
And then the other aspect that has always been part of transacting which was part of the spin was regulatory approvals that we would require to get something done.
All of those are the same, we are incrementally changing the dynamic as we proceed down the licensing path to be successful or if something like this occurs where again it changes the downside price risk.
Those will be part of the mix when we look at what we are going to do but again we are going to save more detail until we get there.
Thanks to all for participating this morning.
Before we close, we remind you to refer to our release and website for Safe Harbor and Regulation G compliance statements.
Our quarterly report on Form 10-Q is due to the SEC on August 9 and provides more details and disclosures about our financial statements.
Please note that the events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statements in accordance with Generally Accepted Accounting Principles.
The call was recorded and can be accessed on our website by dialing 855-859-2056; confirmation ID 85416349 and the telephone replay will be available until August 9 and this concludes our call.
Thank you.
| 2016_ETR |
2015 | ENDP | ENDP
#So in terms of the changes in the business going into 2016, this is really not out about cost reduction.
It's really about optimizing and expanding to support the launch of BELBUCA, so we really are in growth mode in our branded business from that standpoint.
With respect to the smaller transactions, what I would say is that each of these transactions need to be viewed in the context of the circumstances under which they were done, and what the facts are today.
So for example, we see at the time where we have a lot of excess capacity in our pain sales force, it's a nice tuck in, and I would say in terms the contribution that's made, it is in line with what we would expect.
Are we thrilled about this performance and is it going to be a huge growth driver going forward.
Absolutely not, but at the time we did it, it filled a very important need for us.
NATESTO is a novel delivery system and at a point in time when we thought that the gel market would recover quickly.
It seemed to be a good opportunity, and it might still be a great product.
However what I would say is that for us to maintain a retail urology field force just to support NATESTO is not viable.
It would have been viable only if STENDRA also was performing well, which is why we are taking action on NATESTO, so really it's not a reflection on our view on that product itself.
It's really more about the viability of maintaining a field force just for that product.
Thanks, <UNK>.
So I will repeat the answer I gave on the share repurchase, which is that it is within the various levels that we have.
We have an active and ongoing discussion with our Board in terms of how we allocate capital, so I'm not necessarily ruling out share repurchase, all I'm stating is that in a market like this, we need to keep our head on straight, and we have a lot of resources at hand and assets that are growing.
And we also need to be mindful that we want to keep paying down on debt.
Right.
And that there are many targets around us, but it's the smaller ones that are becoming much more within range, and I think that leads to my answer to your question, which is that in the very near term, we are going to continue to be focused on smaller transactions that we can do on an all-cash basis.
Obviously at this level, we've been very prudent about how we think about using our equity.
At the same time, we are also open to the concept of doing larger, more transformative transactions where it is not so much the value of the equity, but rather the relative valuation that might actually come into play, right.
So it's in that sense ---+ we continue to see opportunities.
We're also going to be patient in terms of how we evaluate opportunities, but you can be certain that we are very active ongoing dialogue with our Board about how we allocate our capital.
<UNK>.
Sure.
It's a hard question to answer because the majority of our portfolio are Paragraph IV, so we're tied into the 30 month stay, and if you go to an appeal process, you're out 4 to 5 years.
I would say when I look at the real answer to the question are we getting our timelines, when we have our earliest entry, I would say yes.
So I'm not seeing, generally speaking, a backlog on the Par portfolio.
So with that, the Paragraph IV timeline is what allows us to catch up when we are in a situation.
I've got ---+ I'm not going to say that's across the board on every product, but we have a small percentage of products to get backlog, but the vast majority, we hit our timelines based upon a 30 month stay.
So just to be clear <UNK>, we will continue to invest in the long-acting testosterone space which is TESTOPEL and AVEED.
And AVEED is finally kicking in, in terms of its launch trajectory, and TESTOPEL, we believe is going to recover.
So we do think that there is a nice runway for the long-acting testosterones.
In terms of oral therapies, it's entirely possible that there would be a change in this marketplace one day, when there's a viable oral therapy.
The question is, will there be one and when.
Maybe, <UNK>, you can comment on that.
I really don't have anything to add.
I think it comes down to product differentiation and as <UNK>iv says, if there's a truly differentiated product that has an acceptable safety and efficacy profile, it has the potential to perform well, but again, you have to look at the gel market, which has been declining significantly over the last couple of years and that's led us to refocus into the area that we think gives the most compelling opportunity for growth, and we will continue to support those products very strongly, both of which are in our specialty business.
And as we've said, we will be stepping up our investment overall in that business.
Yes so on the question on specialty pharmacy, I really can't comment on other companies' use of specialty pharmacy.
All I can say is they are a very valuable channel for us, in terms of reaching the physicians that we need to with our physician-administered products in particular, and it's a very important role for patients who rely on those physicians.
I would also say there's a big and growing portion of our business that is buy and bill, which is largely speaking, a service by specialty distributors, who are of course different than specialty pharmacies.
And again, we think it's a very important channel for us to be able to serve the needs of the physicians who rely on the buy and bill channel.
So from that standpoint we continue to think that they're an appropriate vehicle for our products that they are more complex, have a more complicated supply chain, and are physician administered.
In terms of your question on the reprioritization and how we think about those assets, it's important to know on both STENDRA as well as NATESTO, we are partners, so you can imagine that we are in active discussions and will be in active discussions with those partners, in terms of finding the appropriate promotional setting for the products, and if that means the product needs to be in someone else's hands, we are very open to that, as well.
Operator, I think we have time for maybe one more question.
<UNK>, do you have perspective on that.
Sure.
So yes, I mean with OPANA ER, the agency, as I think we've spoken about before, did ask us to do some abuse liability trials, which were in vivo and in patients.
On BELBUCA in terms of ADF, we currently are not contemplating that, although we will watch ---+ remember buprenorphine in its own as a molecule is inherently less prone to abuse because of the lack of euphoria, and we see this across the existing products.
And that, coupled with the dosage formulation, we think gives it a differentiation based on that, but we don't plant to actively promote on that.
We think that the efficacy and safety profile differentiates the product very well.
Thank you, operator, and thank you all for joining us for today's call.
| 2015_ENDP |
2018 | FSP | FSP
#Good morning, and welcome to the Franklin Street Properties First Quarter 2018 Earnings Call.
With me this morning are <UNK> <UNK>, our Chief Executive Officer; <UNK> <UNK>, our Chief Financial Officer; Jeff <UNK>, our President and Chief Investment Officer; and <UNK> <UNK>, President of FSP Property Management.
Also with me this morning are Toby Daley, Senior Vice President and Regional Director of Atlanta and Houston; Will Friend, Senior Vice President and Regional Director of Denver and Minneapolis; and Patty McMullen, Senior Vice President and Regional Director of Dallas.
Before I turn the call over to <UNK> <UNK>, please note that various remarks that we may make about future expectations, plans and prospects for the company may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, including those discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2017, which is on file with the SE<UNK>
In addition, these forward looking statements represent the company's expectations only as of today, May 2, 2018.
While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so.
Any forward-looking statement should not be relied upon as representing the company's estimates or views as of any date subsequent to today.
At times during this call, we may refer to funds from operations or FFO.
A reconciliation of FFO to GAAP net income is contained in yesterday's press release, which is available in the Investor Relations section of our website at www.fspreit.com.
Now I'll turn the call over to <UNK> <UNK>, <UNK>.
Thank you, <UNK>, and good morning, everybody.
On today's call, I'll begin with a brief overview of our first quarter results and afterwards, our CEO <UNK> <UNK> will discuss our performance in more detail and provide some of his remarks.
<UNK> <UNK>, our President of asset management will then discuss recent leasing activities and Jeff <UNK>, our President and CIO, will discuss our investment and disposition activities.
After that, we'll be happy to take your questions.
As a reminder, our comments today will refer to our earnings release, supplemental package and the 10-Q, which were filed with the SEC last night, and as <UNK> mentioned, can be found on our website.
We reported funds from operations or FFO of $26.4 million or $0.25 per share for the first quarter of 2018.
On our balance sheet at March 31, '18, we had about $1.1 billion of unsecured debt outstanding and our debt service coverage ratio was about 3.7x.
From a liquidity standpoint, we have $502 million available on our revolver and $14.4 million in cash on our balance sheet for our total liquidity of $516.4 million at quarter end.
In the fourth quarter last year, we completed debt transactions that turned out our debt and significantly increased the proportion of fixed-rate debt to variable.
At March 31, '18, we have 77% of our debt at fixed rates.
With our debt stack more termed out and our rates mostly fixed we believe we've aligned our capital structure with a more long-term value add properties that we have in our 5 core markets.
With that, I'll turn the call over to <UNK>, <UNK>.
Thank you <UNK>, good morning, everyone.
As <UNK> said, for the first quarter of 2018 FSP's funds from operations or FFO totaled approximately $26.4 million or $0.25 per share.
Adjusted funds from operations or AFFO for the same period totaled approximately $16.9 million or $0.16 per share.
Dividends declared for the first quarter of 2018 were $9.7 million or $0.9 per share.
I think there are 3 main meaningful takeaways from the first quarter of 2018 and moving into the second quarter they may not be easily seen in the numbers, and the first one is that, that we are continuing to experience significant leasing activity within our property portfolio.
That activity was very strong in quarters 3 and 4 of 2017 and it has continued in the first quarter of 2018.
While executed leases in the first quarter of 2018 were modest, the potential activity from existing and new tenants has and continues to be very, very robust actually significantly better than in 2017.
And we anticipate higher leased percentages of the portfolio as 2018 continues.
<UNK> <UNK> will give some more color to this in just a minute.
Tipping point is that the energy markets of Houston and Denver have now, not only, stabilized but are beginning to show real increases in potential tenant activity.
That the headwinds from this markets that we have experienced over the several last year's appear to be in the early stages of becoming a tailwind.
Key, obviously, will be oil prices continuing to stay stable, typically above the $50 per barrel market mark as they have for the last year and more recently above that $60-barrel mark.
Toby Daley and Will Friend, our asset managers in Houston and Denver are on this call and available to provide some perspective on the ground in those markets if you are interested.
And lastly, I would say that we have been getting many, many early lease renewal requests from our larger tenants.
We are actively working on these opportunities and expect to be able to announce several of these larger deals or renewals early ---+ early renewals as the year progresses.
And we believe this activity is happening because of the increased quality of our property portfolio, that's more land-constrained urban infill environment.
With that, let me now turn the call over to <UNK> <UNK>, President of our property management company, <UNK>.
Thank you, <UNK>, good morning, everyone.
At the end of the first quarter the FSP portfolio was 88.5% leased.
We expect leased occupancy to increase over the next several quarters based on the healthy amount of current leasing activity across the entire portfolio.
During the first quarter, we leased approximately 109,000 square feet.
The modest total of leases finalized during the first quarter were primarily due to decreased number of commitments from prospects through January and February, during which corporate America appeared to hit the pause button on decisions.
However, overall activity has been strong and now there are approximately 500,000 to 600,000 square feet of potential leases and amendments out for execution, which borrowing any surprises or delays may bring our midyear total to approximately 700,000 square feet.
As a comparison, in the first half of calendar 2017, we had total leasing achieved of 476,000 square feet.
At 801 Marquette, we are pleased to announce that we have executed a lease with an 18000-square-foot tenant for the first floor.
The economics are in line with our pro forma and the tenant anticipates taking occupancy in December.
We also execute lease with operator for a full-service caf\u0102\u0160 located in the Atrium with anticipated operations commencing this summer.
Starting with building occupancy on off with the tenant locating on the first floor is an ideal situation that leaves us with the premium upper floors remaining for lease.
We continue to have terrific touring activity and after discussions for prospects to lease the balance of the building and expect the 801 Marquette to be substantially leased by year-end.
There is ample upside remaining in our core portfolio.
Especially in Houston, Atlanta and Minneapolis.
If the activity translates the leases in all 5 of core markets execute and are performing well in calendar 2018, then we believe the portfolio will reach 90% lease during the year.
As we look out farther for the next 2 years in calendar 2018 and 2019, we expect more net absorption from a higher percentage of new leasing, which is expected to drive total portfolio occupancy to 92% and above.
With that, I'll turn it over to Jeff <UNK>.
Thanks, <UNK>.
Good morning, everyone.
Our focus at a FSP continues to be on Class-A properties in urban and infill locations, primarily within our core Sunbelt and Mountain West markets and on generating long-term property NOI growth through value creation.
As we look forward, our primary efforts will continue to be focused on leasing and tapping into potential upside in our vacancies and with renewals.
On the disposition in asset recycling front, FSP continues to monitor office property sales across the country and within our markets.
FSP is committed to disposing off and recycling the proceeds of our noncore assets and for that matter, any property in our portfolio, whether advantageous to do so.
Presently, when we look across our noncore portfolio, we see the potential for enhancing value in a number of these properties for tenant, market and/or property-specific reasons and so we do not anticipate significant dispositions from within this group at this moment.
This will evolve and we will keep the market posted.
We do, however, anticipate the potential for dispositions in our managed portfolio and we will keep the market informed.
Additionally, in our view we have made significant progress since 2014 in focusing our portfolio and have already accomplished much of our transition, with almost 80% of our square footage now located within our targeted core markets, following dispositions and or mortgage repayments of approximately $230 million during that timeframe.
Our expectation is to use any potential disposition proceeds received at this time to pay down debt.
On the new investment front at this time FSP does not anticipate making new acquisitions but we continue to monitor and track opportunities within our markets.
And with that, thank you for listening to our earnings conference call today.
And at this time we'd like to open up the call for any questions.
Operator.
Just to clarify for everyone the comment was that we believe that we can get to 90% leased this calendar year, looking out over the next 2 years 92% and above.
But to answer your question, the commencement dates of these leases, many of which we had executed last year and going into year in the second quarter that we anticipate, those commencement dates are spread out over the coming 12 months.
So there won't be a surge here over the next couple of quarters, it'll be fairly evenly spread out over the next 12 months.
Well it's not, thank you, Dick, well it's not a pause ---+ this is Jeff <UNK>, we're committed to disposing up and recycling the proceeds of our noncore assets and as I said, really for that matter, any property in our portfolio once it's advantageous to do so.
But we do see the potential for upside and enhancing the value in a number of these properties for both tenant market and even property-specific reasons.
And so it's a pause as you call it, but not in our mind, as we've always said to sell and dispose of assets at the right time to do so.
I'll give you a couple of examples.
For example, our building in Miami and Burger King we have a lot of interest in that property from potential buyers, but now it's not the time to sell it in our minds, we really think that we can enhance the value ourselves through stabilization of that property following the tenant departure.
Northern Virginia is another example.
We've been in that market for many cycles since 2001 and we've seen many different cycles and we believe the potential exist in that market for improving conditions both in terms of investor demand and potentially tenant demand as the ---+ at least the potential for increased dependent spending can change the dynamic on the ground at that market.
We've got a property in Evanston, Illinois at 909 Davis.
It's a terrific infill property in downtown Evanston, where we've got a lot of leasing momentum and a strong property and we think we can add value in that property, so really the decision is not about anything but the right time to transact when we feel like we've maximized value at the asset level.
Dick, it's <UNK> again.
Co-working certainly has come up as a prospective use at the property over the past 12 to 18 months and for a myriad of reasons it didn't work out for us.
We continue to see activity across all sectors; including co- working, technology services, professional services and information services as well.
We think without the building step they are going to be multi-tenanted, we're just eager to build on the momentum and we don't have any predictions right now of which industry will occupy.
But it's really broad-based and it's such a unique space and a unique opportunity with sort of edge city space Brick and Timber, if you will, located in the heart of the city that's receiving a lot of interest.
Yes, Rob, it\xe2\x80\x99s <UNK> <UNK>.
Wow, that's a tough question to answer.
On a square-foot basis, we've seen the numbers in sharp especially due to the urban increase in our portfolio, whereas in previous years the costs were approximately $4 to $450 per square foot per year.
We saw those trend up closer to $5 and now inching over $5.
So to the extent that the majority of our leasing is in our high quality assets in urban locations, I would say those costs are going to be between $ 5 to $6 per square foot and then in our suburban locations, in noncore portfolio, those numbers might be significantly lower.
As of ---+ if we do a million square feet or 2 million square feet you just do the simple math there.
Hard to say exactly how much of that will be spent this year and then also there's always a lag, the commissions hit right away and then to the extent that you do large deals, the tenants may not request those TIs for a year or more.
So really hard to pin down what that capital hit will be in 2018 or 2019 but we hope it happens sooner.
The Blue Lagoon building that currently houses Burger King was originally constructed to be multi-tenanted.
So we don't expect a large amount of money to be spent on the capital side ---+ base building side to bring it up to speed to be multi-tenanted, which we do expect to be multi-tenanted, although, we have both multi-tenant prospects and single building tenant prospects.
So it's not a large number as we've talked about in prior quarters.
Not a material number that would be worthy of mentioning.
This is <UNK> <UNK>.
Happy to answer that question, right now, we're looking at our net debt-to-EBITDA ratio and it's been about $7 and our goal is to get it below $7.0.
And we're going to use our petty cash and application of proceeds from dispositions or loan repayments to do that.
To the repurchase stock at this point will increase leverage and it doesn't make sense for us to do that with our leverage where it is today.
<UNK>, this is <UNK>.
We are not, at this point, wanting to talk about that for mostly competitive reasons.
It has just been listed in the market and we also are a partial equity owner there as you know along with other shareholders and at this time to give that kind of information out, we think it's not appropriate.
We certainly will talk about it and report it if and when a property sale occurs.
Correct.
I think there are a number of the single asset REITs to manage properties that could would be listed and that we either have equity interests in or along to and again at this point if any of those properties are in fact listed and sold, we will anticipate applying any proceeds with the directly loan proceeds to pay down our debt.
Sure, <UNK>, its <UNK> <UNK>.
So I think, I would start off by saying that we're really not that far off of 90% at 88.5% leased.
I think ---+ well ---+ yes, the activity has been strong, negotiations have taken a long time and the progress has not been linear.
It was slow in the first half of '17 and furious and a lot of the progress in the second half of '17 and a slight step backwards here in Q1 of '18 and we expect a large step forward in Q2 of '18 hopefully.
You know the ---+ we need all 5 core markets to be working in unison and that appears to be happening.
Houston, in particular appears to have troughed and stabilized and we have 3 quarters in a row that have been stable and a slight step forward here in Q1.
And we have leases that are being negotiated right now that could bring us to 80% in Houston in Q2 or slightly thereafter.
So that's big for us.
And then collectively that the core 5 markets, we have no reason to believe that they'll take a step backwards here over the next 6 months.
So we are bullish that we're going to get that 90% here over the next 6 months, borrowing any surprises in timing, also as <UNK> touched on, we've talked about it and maybe a couple of times, as our portfolio has improved in quality over the last couple of years, we've been seeing a trend of renewals, the big anchor tenants at a higher percentage.
Where those percentages were in the 50% range a few years ago and into 2016, in 2017 and 2018, we expect those large anchor tenants to review at a higher percentage, a better retention ratio.
And So that's what we're seeing, that's what we're hearing.
We're in negotiations with a handful of them now.
So we're bullish on getting to that 90% this year and see where it goes in 2019.
Just like to thank everyone for listening to our first quarter 2018 earnings call.
Hope to see many of you after a week in New York soon.
Thank you.
| 2018_FSP |
2017 | PWR | PWR
#Yes, I think we would say that our goals and targets for both segments are still to be at or near the double-digit range.
The biggest thing driving electric power is the headwinds relative to the Canadian market.
If you were to look a 2016 and remove the effects of the power plant in Canada, the rest of the electric operations are operating solidly in the double-digit range.
The headwinds right now are still the softness in the Canadian market.
The larger transmission opportunities that we see here coming into 2017 in Canada, obviously, give us some potential for the upside.
With the remaining portion of the business, you're still dealing with some degree of headwinds, and we try to factor that into the overall range ---+ to factor in a degree of prudency to the overall execution.
But, again, it's pretty important, I think, to recognize that the rest of the business is operating strongly in the double-digit range.
For the oil and gas segment, it's the complement and the mix of work.
We've talked extensively over the last few years about how the degree of mainline opportunities and how they flow into the year will heavily influence our ability to be at a stronger margin profile.
Our original commentary over the years has also ---+ before we ran into some of the headwinds associated with the broader energy market.
As oil prices declined, the remaining portion of our business is still yet functioning in an oppressed oil price environment to an extent, and that is putting pressure on some of the other areas of our business.
Working against some of the complements or upside potential we see on the mainline side.
So, as the mainline gets a complement of work that happens to be more spread through the given year rather than just being front-end or back-end loaded, as well as the mix of work and energy dynamic changing, we still believe that we can see upward momentum to those margins in the long term.
Yes, the spread capacity, <UNK> ---+ we are not at capacity on either side so the way those spreads come on and off projects it is very difficult to give you numbers.
But, in either case, we were not at capacity and certainly have room in the first quarter here and onward to book work.
As far as ---+ .
It's legal costs.
As it relates to how [it goes in] 2017, I wouldn't anticipate right now anything truly abnormal.
This was more from the fourth quarter accelerated timing.
But, as we go into 2017, we haven't factored into any substantial uptick or downtick in that regard.
Yes.
I would say that as we stand here today with the potential for the fourth quarter to have a lack of an uncommitted filling as an example.
The fourth quarter is probably where you'd see the biggest portion of the pressure from the margins.
So, I don't know if I necessarily see it relative to the entire back half the year, but the third quarter has a tendency for us to have the highest overall margin profile because of the good seasonality.
But, yes, there could be specific softness in the fourth quarter if we are not able to fill it with other larger diameter work
On the first part, for the margins and the remaining portion of work, we haven't factored in any sizable uptick in our margins there despite what we are seeing.
Potential on the rig count-type dynamic, I think in our mind, it's a bit too soon to have an expectation of 2017 immediate benefit, but we do look at that as potential for a positive upside.
<UNK>, also in general, on the pipe margins and the seasonality.
There's normal seasonality in the business, and so I think as you see us fill up work and execute, the margin has the potential to move upward.
We will be cautious about how we guide again.
As far as FERC, our forecast ---+ we don't need any large pipe to meet the midpoint of the range so we are confident in our year-end guidance on the gas side.
Yes, storm came in at around $35 million for the quarter.
Maybe just slightly above what we had otherwise forecasted in our original thoughts for the year.
But, from a margin perspective, there wasn't any substantial difference.
Realistically, if you recall in our previous commentary, we had said that the number of customers that we were working for were customers that we dealt with on a regular basis.
And, from a strategic perspective, you don't see maybe quite as much upside from a margin perspective.
So, very much in line with our original expectations.
Overall, for the quarter itself, just having some degree of seasonality which we had already factored in and expected to somewhat offset that margin expansion.
T he second part of your question was the timing.
We did come in at the lower end of our overall revenue guidance, and most of that came out of the oil and gas segment.
There was a degree of some level of push of that revenue from 2016 into 2017.
Some of which would have been attributable to some of the heavier rainfall.
On the oil and gas side ---+ excuse me, on the oil and gas side, it did impact some of those spreads, and we were delayed some time there.
So, you had some revenue impact there.
In the southeast where the storm hit, we have a large concentration of day-to-day, MSA-type work, and that work was delayed along with it.
So, there's some offset in the storm.
We see our customers expanding their capital budgets in multi-year fashion next three to five years.
You start to see visibility in those capital programs.
So, as that happens, we will continue to grow that base business.
The recurring revenue-type MSA work will continue to grow with our customers' capital budgets.
As far as the larger projects, as we see Canada ---+ as we see Wolf-Mac go in.
Some other larger projects that are out there.
Certainly, the opportunity to win and execute on those, I do think the electric segment is in a multi-year cycle, an upward cycle, and we're optimistic in the environment that we are in.
Yes.
No, there's nothing that's unique or specific.
I think what we've done is we've not factored in a marked improvement in the Canadian environment.
We know ---+ as we've talked through 2016 we saw a degree of stabilization, but I think it's too soon in the year to factor in some sort of distinctive improvement in the non-larger transmission side of the equation.
We do have those larger projects that are coming in.
Specifically, Fort McMurray.
But, that's going to be backend loaded into the year, and so the first half of the year I think you still see with seasonality the aspect of being able to have some degree of margin pressure in the broader Canadian side of the equation.
But, we think we've got the ability to go through and potentially see some degree of upside to the extent that you'd be looking at, but I think it's just too soon in the year to factor that in.
Yes, the base business on the gas side continues to improve.
The LDC market, local distribution market with the [FEMSA] rules and rules that are in place to repair infrastructure, we're in a good environment to continue to see CapEx in those markets.
I think we will continue to expand, albeit off a smaller base, but that will continue to grow.
As far as telecom, we have our Latin America and Canadian construction going.
We are ---+ they are good markets.
We have about $150 million to $200 million in our forecast that ---+ with those along with the lower 48 here getting started.
We will be cautious about how we talk about large pipe.
The book environment and the amount of regulatory process that's involved in those projects ---+ they're distinct.
And, we need to make sure that we have them, we are moving, and we are mobilize before we communicate on them.
I do like the end markets in 2018.
It's a in robust market.
I do think we will fill up early and be able to talk more about that.
If we get some ease on regulation through FERC through the administration, we will continue to talk to the Street about as we get more positive and move into construction.
Those things slip three months ---+ it is just a big impact to us, and we will be cautious about how we talk to you.
I think the midstream business ---+ it is a good business.
We need to take away that capacity to go to the end markets.
As you start to see larger pipe get built, you will see the midstream pick up, and the rig counts ---+ obviously, there's take away.
We are starting to see more rigs so you will start to see all those things happen.
We're optimistic on that as well.
Good morning
As I said in my prepared comments, we can see the margins rising into the third quarter.
Part of that will be a contribution of the work associated with Fort McMurray, but at the same time I think it's just broader to the seasonality of our business.
I think I'd still factor in a degree of decline potentially in fourth quarter.
Again, just driven largely by seasonality.
One individual project is not going to offset the broader overall segment seasonality is what I'd expect at this stage.
We are continuing to work on those items.
We had not anticipated those items to be soft in the latter part of 2016.
We've not factored in any recovery of that into 2017.
The work is ongoing.
We are in the process of quantifying and having those discussions with the customer, but as of today, we are not in a position to quantify.
Hey, good morning.
Yes, we never got out of the telecom business to be clear.
We were always in the telecom business.
We had certain things under the non-compete we could not do, and basically the primary drivers where we were the telecom contractor or general contractor in the lower 48, we have the ability to do that today.
So, as we move forward, you will see us in that market on the general side of this and not just the electric make-ready work.
So, we're optimistic.
The market is good.
It's a robust market.
We built our Canadian operations and our Latin American operations so we will participate both in North America as well as Latin America.
We like the markets ---+ we've stated all along, and I'll talk more about strategy as we move forward.
I'll leave it at that.
Yes, it's both.
In Latin America, I would say 70% wire line, 30% wireless.
Canada is primarily wire line, and the business has been growing double digits-plus year-over-year.
Yes, I think, in general, it does rely on some Canadian work to fill the back half.
But, again, I think that the markets are there.
The lower 48 could fill as well and bring the back half up.
So, the opportunity on both sides of the border are there in the back half.
We are building our base business nicely.
The opportunities are there.
You get people constrained at some point and so you have to be careful about where you're at in the world geographically.
Mountainous terrain, the qualified personnel that we have in the field, and we will be cautious about how we move forward in those markets due to the constraints on some of the people in the field.
We train people every day.
We are hiring every day.
So, as we get people trained, we will put them to market and how fast we can do that will dictate how our revenues go in the future.
Yes, I'd like to thank you for participating in the fourth-quarter 2016 conference call.
We appreciate your questions and ongoing interesting in Quanta Services.
Thank you.
This concludes our call.
| 2017_PWR |
2016 | TOL | TOL
#This quarter, we spent $50 million on new land that is not reflective of less appetite.
It's not even reflective of less land action.
It's just when the checks were written so it's when the land closed.
In many cases, that could be land that was contracted for six months, a year in New Jersey, maybe three or four years ago.
Over the next few quarters, we anticipate more money spent on land closings because of the timing of when some larger deals will close.
We're seeing good deal flow nationwide.
City Living, our pencil is certainly a little bit sharper, but we like the market.
We, as we always talk about, we price to today's market.
We demand a minimum of 10 point gross margin higher return because of the risk associated with the business, but there's still decent deal flow in New York.
But we are certainly being a little bit more careful.
No, I don't think so.
So the venture we announced with Gibraltar was a commitment by <UNK> Brothers to invest $100 million in an institutional investor, to invest $300 million in land banking and land development opportunities that Gibraltar was identifying.
And this is an outgrowth of Gibraltar's, I'll say, previous business of buying distressed acquisition development and construction loans, foreclosing on that land, and essentially functioning as a land developer or land banker for smaller builders.
So we are encouraged by the deal flow they're seeing, and hope to have good news to report in terms of results over time as that commitment is invested and returned.
Thanks, <UNK>.
So most of the units we will sell during this year deliver very late this year or in 2017.
So they are not significantly factored into the guidance that we gave at the beginning of the year.
Most of the guidance given at the beginning of the year is based on backlog at the beginning of the year, so we'll have more to say on margins for 2017 in six months.
With respect to cost increases, we mentioned $4,300 a home, 40% of that was labor, what was 25% was lumber and the rest was a combination of different things.
What was the other part of your question, <UNK>.
On broker commissions, the percentage is not changing and the number of our buyers, who are represented by a broker, is not changing.
It varies by market.
New York City, most deals I would guess 80%, our clients are represented by a broker.
That's what happens in New York.
We fully budget for that, and we expect that.
When you have relo markets, Seattle is an example, you tend to have more outside brokers representing the client because they are new to the area and they want the comfort of a local expert working with them.
When you have local move-up markets like a Philadelphia, like a New Jersey, as examples; like for the most part in Northern Virginia, you tend to have less of the buyers represented by brokers, 50% or even less because they're local, they know the market and they know <UNK> Brothers and they come in on their own.
So that's the long of it, but the short of it is nothing has really changed.
Welcome.
<UNK>, I don't think there's anything temporarily propping the number up.
We've had a good four weeks.
And about 57% of our deposits convert to contract historically, so deposits are obviously a pretty good indicator of a current market.
You've got traffic and then you've got deposits and then you've got agreements, and we're very happy with the action of the last month.
It is generally across the board, and we're having a good late April through the first three weeks of May.
And that gives us reason to be optimistic and to feel pretty good about the business right now.
It's driven more by the more recent openings than the standing inventory.
And the number one building for us is in Hoboken, where we have sold ---+ bear with me ---+ it's a big number.
114 units we have sold in Hoboken in the last nine months.
So that is the number one driver, but our other buildings in Manhattan that are still under construction have, which are as you referenced, are the buildings that don't have standing inventory are also doing as we expected.
Thank you.
We don't even look at it that way.
But I think roughly speaking, we probably have around 3,500 lots at Shapell unsold, probably another couple hundred in backlog.
We continue to look to expand City Living.
As I mentioned on my prepared remarks, right now Philadelphia is basically out of inventory.
We're looking for new opportunities in Philadelphia.
We had two for sale condo buildings in Bethesda, Maryland, looking for more in DC proper and Arlington, <UNK>andria and Bethesda.
We continue to look in Boston, we continue to look in San Francisco.
We're going to begin to look again in Seattle.
We're going to look for in fill locations in Southern Cal, not necessarily downtown LA but there's many sub markets of Newport Beach, and Pasadena, and Santa Monica, and Beverly Hills, as examples, that certainly are perfect for City Living.
So I'm still hopeful that we're able to expand it beyond where it now is in just New York, Philadelphia, and Washington.
You're talking about land sales to other builders.
We have not seen it.
In fact, we're producing lots at the $400,000 price point of a home as quick as we can get rid of them.
If we could produce more, we could sell more.
North of $600,000, it's a little bit slower and so we're pivoting a little bit in some of our master plan communities to try and get more lots at the $400,000 and lower price and fewer at the $600,000 and up price.
You're welcome.
Thank, <UNK>.
I think for the balance of the year, we would expect on balance sheet City Living deliveries to be about 4% of total revenues in both Q3 and Q4.
And then as I gave guidance on JV income being back-end weighted to the fourth quarter, that represents a couple of our buildings owned in joint venture in City Living.
For 2017, we're going to avoid any guidance right now here, but we do produce some information in our corporate profile that you might find helpful and that should be available later today or tomorrow.
Yes, what's the second question while Greg is turning the page.
Well, we'll give guidance on that in 2017 in December.
You'll see that if you look back from ---+ I'm sorry, December 16 for 2017.
If you look back, from time to time, we have a gain on refinancing of an apartment building, we may have gain on sale of an apartment building or a sale of ancillary commercial real estate, or in the customer list of our security business.
So we've given perspective that it's recurring and it's meaningful, and we have some opportunities to deploy if we need to generate income to make it meaningful and recurring.
The development spend is $124 million for the quarter.
So for the balance of the year, the two leading markets for community count growth will be Southern California, as we've discussed, and Pennsylvania.
And again, that's not land we're buying now.
That is just when communities are ready to come on line and open, so that is not indicative of a current strategy.
We like both markets a lot, but that is a bit coincidental with when prior land buys are fully entitled and roads are in and models can open and off we go.
Beyond that, it's spread pretty well across the country and you will continue to see that.
These markets we continue to highlight nationwide that are doing well are obviously the markets that we continue to highlight for land acquisition, and therefore community count growth.
You're very welcome.
Jack, thank you very much.
Thanks, everyone, we appreciate all the support and have a great summer.
| 2016_TOL |
2016 | SBUX | SBUX
#Yes, thanks, <UNK>.
We're not trying to signal any trends that we are seeing early in the quarter or post-launch, and in fact, as <UNK> referenced, we have seen an increase in account activity and customer acceptance post-launch.
All we are trying to say is this is a big change.
It is a very positive change.
We're bullish on it in the long term, but it's a big change in customers.
We have got a number of plans in place to leverage the new program and we will keep an eye on things as the quarter moves on, but you notice we haven't changed our guidance for the year and we're not trying to signal anything about intra-quarter trends.
Right.
What I would say, <UNK>, is we expect to continue to make those partner and digital investments as we move through time.
We know that they are driving comps.
We have talked before about the tie between the changes we made about a year ago in pay for our US store partners and the increase in comps that started at the same time, and in fact, what we see is at the stores that have the lowest turnover, they have the highest comp, and we have seen turnover tick down since we have made those changes, so it is all tied together.
It is highly accretive and highly profitable.
So we will continue to make those investments, and as we go into each year, we will talk a little bit about the size of those investments, the impact on leverage, but there are other places in the P&L that we can go to continue to grow EPS at 15% to 20%, which is our long-term range, G&A and COGS just being two of them.
And then (technical difficulty) and the team have done a nice job driving productivity in the stores.
And Mobile Order & Pay has been a key aspect of that to help us with throughput at peak, and as <UNK> said, peak was once again our fastest-growing daypart in this quarter.
Last quarter, it was our fastest-growing daypart in over five years.
And as you know, last quarter is the first quarter we had Mobile Order & Pay fully rolled out, and what we are seeing, based upon the numbers that <UNK> showed, is in those busiest stores at peak Mobile Order & Pay is driving significant productivity and throughput.
So those are all places elsewhere in the P&L we can go to fund the investments we need to drive growth.
Yes, <UNK>, this is <UNK>.
First off, obviously from a CAP perspective, the composition of comp has changed dramatically over the past year with the weighting of Japan coming in.
If you go back a year ago sequentially, Japan was not included in the comp base at all in 2015 and it was only partially included in Q1, and now we have it fully included in Q2.
When you look at the total comp growth for the region, we came in at a rounding basis of 3%.
2% of that was transactions and 2% was ticket.
More importantly, when you go into China and you dig underneath China, we delivered a 5% transaction growth rate across the country.
And when you dig even deeper into that, in our tier 1 and tier 2 cities, where we have over 65% of our stores, we outpaced that 5% transaction growth rate significantly.
So for us, we have great optimism around the opportunity that exists for us in China, as well as in Japan.
We continue to see very strong new-store performance, as <UNK> highlighted, in both China and Japan with record revenues and record sales results and significant return on investment.
So for us, we remain very bullish on the opportunity that exists not only in China, but then also across the entire segment.
And I would add in those larger cities, that's where we have most of our new-store growth targeted, and so that's why you see revenue growth at 18% in the overall CAP segment continuing to drive the profitability and revenue growth that we expect.
Yes, <UNK>, this is <UNK>.
Let me take the first part of the question, then I will turn the second piece over to <UNK>.
Clearly, channel development continues to perform very, very strong for us as a company with the 8% revenue and 17% income growth in the quarter.
We are gaining share across all categories that we operate in, whether it's the roast and ground category, premium coffee, or K-Cups.
This was our 17th consecutive quarter of share growth in the channel development business across all categories.
And in the quarter, we grew 5 times the category average and our shares increased over 100 basis points.
Roast and ground, we now have a 25.3% share growth, and K-Cups share now, as it sits, at 16.3%.
And when you look at the success that we are having in channels, a couple of things are driving it.
First, it is the execution that we are seeing in the stores and the merchandising that we're doing and the fact that we are winning down the aisle.
It is the fact that we are increasing our points of distribution.
We have seen significant success with the larger pack size that we've introduced, and clearly that has been driving our share gains across all our major categories.
In addition, we have taken the My Starbucks Rewards program and introduced that down the aisle as well, where in the quarter we saw an 18% increase in the number of codes that were redeemed, and today we have over 20 million codes entered by over 2 million MSR customers in the CPG segment.
So for us, we are very encouraged by the results that we are seeing in the category and in the segment and we are very bullish on continuing to deliver that double-digit growth for the entire year as we look to finish out the year strong.
Yes, and <UNK>, on your second question, what I would say is in the near term the new Green Mountain agreement doesn't go into place until later this quarter, so not ---+ a little bit more than a quarter impact in this year's earnings.
Over the long term, there could be upside to the range that we gave back at investor day, and I think one of the key pieces to that is all of the international opportunities that <UNK> and <UNK> laid out.
And so, I think as you look at international CPG growth, particularly over the medium term, out a couple, three years once the partnerships get up and running and we get product rolling off the lines, if those things go as well as we expect it, there could be some upside there.
Yes, <UNK>, and just one other thing I would just add on the K-Cup opportunity.
When you look at K-Cups, we grew more than 3 times the rate of the category this past quarter, and the new Keurig agreement gives us an opportunity to extend the agreement, number one, on very favorable terms.
We have improved economics coming in, as <UNK> highlighted, but more importantly we have greater operating flexibility in terms of being able to drive more innovation into the K-Cup category, additional SKUs and new packaging.
And we also have the opportunity to now sell the K-Cups directly into office, into food service, college and universities, hotels, and c-stores.
So, we are on track this year to do about 1.5 billion K-Cups and we expect this category to push near the 20% growth rate for the entire year for us, so very optimistic on the opportunity that K-Cups has.
Thanks, <UNK>.
I have to say I am really pleased with the traffic we are seeing.
The 3% on traffic and the 5% on ticket, as you say, rounding to a 7%.
It is our 25th consecutive quarter of 5% or better comp growth in the Americas.
At the same time, we are seeing very, very strong growth in our new stores and they are adding in total 4% to our revenue growth.
So, things are very, very healthy and we are seeing great progress there.
Mobile Order & Pay just gets better and better as it becomes a normal part of doing our business, and as you heard earlier, the strength in the higher volume stores at peak gives us confidence we can keep growing our capacity and our comp through the stores.
I think the other thing just to add is daypart.
We are seeing growth across all dayparts being led by the morning, so we are very, very pleased with it.
And the EMV or the Chip and PIN is negligible at the moment.
We are in the early phases of rolling it out and we're just working through the ways that that will be implemented across the system, and we are planning for it not to have any impact on transaction speed overall.
And <UNK>, what don't you talk a little bit more about Mobile Order & Pay and what we are seeing.
Yes, thanks, this is <UNK>.
So, first of all, as we mentioned in the remarks earlier, overall average number of [trinitive] transactions for Mobile Order & Pay is 4% across all stores, all dayparts, all store types in the US.
But that's just the beginning of the story with Mobile Order & Pay.
First of all, as <UNK> mentioned in his remarks, over 10% of all orders at our busiest 300 stores are mobile orders, and if you noted, we are seeing mobile orders comprise 7% of all orders at our busiest 1,200 stores.
So when you really look at our busiest stores, Mobile Order & Pay is very important.
And drilling into that further, when you look at the busiest (technical difficulty) peak for those 300 busiest stores, for example, mobile orders are already approaching 20% of transactions at those peak hours.
So, you are really seeing our Mobile Order & Pay benefiting all customers.
It is benefiting the overall store performance in all these stores because of the incrementality of throughput unlock.
Of course, Mobile Order & Pay is allowing customers convenience so they can have that incremental visit, an incremental occasion they wouldn't normally have time for, but it is also driving huge capacity unlock because of the program.
You take 20% of transactions at peak out of the line, out of POS, and you see it benefit all stores and allow customers to benefit from less people in line.
It'll allow partners and customers to benefit from the fact that now our partners can concentrate more of their energy on making food and beverage, on connecting with customers, and that's a big capacity and throughput unlock.
And as a result, we are seeing Mobile Order & Pay meet or beat all of our expectations and grow, as we mentioned, in a way that is very pleasing to us.
And <UNK>, I would just also remind you that <UNK>'s business has nearly 9,000 stores.
It is going to approach $15 billion in revenue this year and it is rounding down this quarter to 7% comps with 3% transactions.
Those are really significant numbers and I'd just remind everyone of that.
Thank you, <UNK>.
This is <UNK>.
It is still very early on delivery, so the headline is that we are continuing to learn.
Yes, the orders are in the morning, like we are seeing in other examples, but, frankly, we are continuing to learn how does this integrate with our technology.
What is the customer behavior.
What is working well.
And so, we are not prepared to talk too much about delivery yet while we are still in the learning phase, but stay tuned for more in the future.
<UNK>, I think what I would say is we continued to grow volume significantly independent of price.
I will say that both in K-Cups and roast and ground, it is competitive.
We continue to gain share in that competitive environment.
We continue to outgrow in food service by many times the industry, so we are able to work through that pricing, but we are seeing volume growth somewhat above revenue growth.
So I think that lines up with your overall pricing comment.
Yes, <UNK>, this is <UNK>.
I would agree with what <UNK> said.
The volumes ---+ when you take pricing out and you just look at total pounds sold, our pounds are outpacing as well.
So, we feel very confident that the business again is very healthy down the aisle, that we continue to take share, and that we are priced appropriately for the consumer.
And we're not only taking it from other premium retailers, but you are seeing the mainstream customers also trading up into the premium segment and trading into Starbucks, frankly.
Any impact from Easter, <UNK>.
No sequential impact to Easter.
We did have a very good Easter holiday, as we did last year.
I'm not sure, <UNK>, whether you were commenting on Easter as it refers to the retail business, but here in the US, early Easter did not have a material impact.
It obviously does change spring breaks, but all in all, it is not significant to the quarter.
I think I'm going to have <UNK> start with the Mobile Order question, I will talk about US comp guidance, and <UNK> can jump in on the operational things we have going.
Yes, <UNK>, this is <UNK>.
So just in terms of the growth in Mobile Order & Pay, let me touch on a couple of things.
One is that you are right, so we had 8 million Mobile Order & Pay transactions per month run rate on this quarter, up from the 6 million the previous quarter.
And so, you get the 40% sequential growth that <UNK> mentioned.
You also have the fact that we are seeing a huge number of new capabilities that we're going to be adding to this, which will continue to grow that momentum and accelerate it.
So one of them is that we added the ability for customers to redeem their Rewards in the Mobile Order & Pay flow just 10 days ago.
We're seeing a great customer excitement about that.
And as I said before, we're going to continue to add a large number of new features for Mobile Order & Pay, including favorite stores, favorite orders, and recommendations in the flow, all of which will contribute to the growing acceleration of Mobile Order & Pay as we move over time.
And then on guidance, what (technical difficulty), <UNK>, is we're still saying somewhat about mid-single digits for the year.
That obviously relies on good performance in the US business and I will let <UNK> talk to some of the things we have lined up for the back half of the year.
It expects good performance in CAP as we look at the back six months and some recovery in EMEA.
But as we look forward, we have a number of things in each of those geographies as the summer comes up to drive additional transaction, additional comps, and additional profitability, and I will let <UNK> speak to the (multiple speakers)
Yes, thanks, <UNK>.
It really does [start] Mobile Order & Pay.
We have got our new Starbucks Rewards, and we're really excited by the early sign-up and contribution that is going to come from that.
We have a fantastic season ahead of us, building on the strength of last year, whether it is Frappuccino or later on in the summer with our cold brewed coffees, our iced coffees, and our recent introduction of Nitro into select stores, and we are in the early phase of that.
And I think our Teavana iced teas are set for a fantastic season.
And all of that is going to be complemented by the continued growth we are seeing in our food in the US now, where we're up to 20% contribution coming from food and that's the first time we have seen it there, and we continue to see growth in our cold beverages, so we have got a great season ahead.
<UNK>, maybe talk a little bit about the new Rewards program.
Sure, and let me comment, first of all, that we're a little over a week out from launch here, so these are very early days, but they are very encouraging nonetheless.
In addition to the sign-ups we are seeing, the new people raising their hands to join, we are seeing a couple other very encouraging things.
Spend per member is up across the board, and I know somebody is going to ask this question, so let me try to get ahead of it here.
We do obviously track all cohorts of people in our Rewards program and they are the people who are going to be better off by the new rules.
They are going to be the majority of people who are more or less the same and a small minority of people who will earn Rewards a little bit slower.
All three of those cohorts are up in terms of spend so far, and we see absolutely no difference in the percentage among those three cohorts.
So we are not seeing any of the noise that has been speculated on coming to bear.
So very encouraging news there, and we will be keeping a very close eye on it and obviously there's a lot of unlocked that comes with the new Rewards program as well, too.
It is enabling the stars as currency initiatives because of the lowering of the denomination of the star.
We have a lot of runway ahead with this and we are very excited about what it will do in the long term.
Sure, it is a multiple part question.
Let me see if I can remember all of them and get through it.
With the program, the timetable for the actual product facing forward to customers will be late this year.
The product, obviously, will work just like the current product works, except it will bear the Visa mark on it and it will be a general-purpose stored-value card that works everywhere.
We will be announcing all the details about how to sign up and the exact value proposition as we get closer and have a way for customers to sign up, but we are on track to do it this year.
With regard to whether or not that was the primary motivation, the answer is no.
There are a number of different things we're going to be ---+ able to do as a result of lowering the denomination of a star.
So you can expect this to be the first of a number of partnerships that you will see down the road in the future.
Yes, I just want to remind.
We launched it a week ago, and so the first-week metrics that <UNK> talked about are encouraging.
But there is obviously a lot of customer spending and behavior that will happen over the coming weeks, and given the importance of the MSR program and the significance of the changes, we think broadly beneficial, but to some customers, they may not feel so benefited, we want to just make sure we communicate to you guys that there could be some noise.
We are not seeing it yet.
We will see how the quarter plays out.
So, nothing in the early results, but this is a big deal for us and we want to make sure we get it right.
<UNK>, can I add something from South Africa about that.
Yes.
First of all, I have been very quiet on the phone because you guys are doing such a great job, but it is very odd sitting here in South Africa listening to this.
But I think the answer to the question is with great transparency we just want to make sure that everyone understands this is a complicated change for our customers, lots of training for our people, and I think the better part of valor is just to say to you up front that there could be some noise in the quarter.
We're not signaling anything, but as <UNK> said, we're building something so significant over the long term that I wouldn't be so concerned about noise in the quarter, if there is some, because what is happening here is we're building something so enduring and so unique that I think it is going to be one of the most significant changes to the equity of the brand, customer experience.
And as <UNK> said earlier, the opportunity for Stars Everywhere in terms of the ubiquity of people using that debit card and the only way they can bring back stars and get Rewards to Starbucks is going to be a significant flywheel effect on our overall business.
So, I think we just wanted to be open with you about the complication and the degree of this significant change, but the long-term is so beneficial to our customers and obviously to our shareholders.
Thanks, <UNK>.
I will take the first part of the question.
I think you can expect to see margin expansion in that same range that you saw in the first half, which is obviously very strong at 250 basis points.
I guess it's just the definition of moderate.
We continue to see revenue growth opportunities, we continue to take share, and we continue to do that at highly profitable overall margins.
And so, we see that continuing throughout the rest of this year.
And although the Green Mountain change doesn't impact us too much this year, just because of the timing of it, that has a chance to help us as we look forward into next year.
And I will let <UNK> answer the manufacturing question, correct.
<UNK>, I am not going to disclose who we are working with from a manufacturing standpoint, only to say that we are in a position now to launch the Nespresso-compatible pods in both our retail stores, as well as through the CPG channels across the UK and France later this year.
We are focusing first and foremost on Europe because there is 25 million machines of Nespresso machines that are installed there.
It is a very similar size right now in comparison to the number of installed base on Keurig here in the US, and we feel there is a significant opportunity to build this capsule business similar to the way we've built the K-Cup business here in the US.
And as <UNK> highlighted on his comments, single serve represents 40% of the coffee consumed in home in Europe and nearly 50% of our Starbucks customers have Nespresso machines in their homes.
And so, we see this as being a big opportunity.
Beyond Europe, the big size of the prize is going to be in CAP and more importantly in China.
And we are going to continue to look at how we expand the single-serve opportunity as the only truly leading global premium coffee brand in Asia across our store footprint and really go after this opportunity as well.
So, looking forward to the growth opportunities that exist both in Europe, as well as in Asia, around the single-serve opportunity.
Sure, <UNK> <UNK> here.
We're in the process of rolling that out and you will see that across the remainder of this year.
What we are talking about doing is basically stepping up our game with regard to how we communicate with customers and there are a couple of key components to it right now.
To date, we have really communicated in a targeted way via email, and as we progress through the year, you're going to begin to see the targeted communication emerge within our digital platforms, specifically our app, with recommendations.
So, we don't catch people in the moment right now.
We will be catching people in the moment as time goes on, so that's a very important piece.
We also are going to be able to use triggers and to target much more individually than we currently do.
We have limitations because of the technology right now in how many different messages we can put out.
Those limitations go away with the investments in technology that we have already made.
So you will see from a customer perspective more relevance, more targeted messages, some of which will be offers, and that will allow us to basically manage those more economically in the future.
Thanks, <UNK>.
No, there is no big upfront investment from a technology standpoint or from any customer standpoint.
What I will say is we are obviously investing in marketing and in-store training for partners and messaging for customers, just to make sure everyone is crystal clear on the program.
And then as we talked about in our February call, we have a number of contingency plans and things that we can do with some of the personalization capabilities that <UNK> just talked about to target any cohorts of customers that may be displaying lower frequency or different types of behavior.
But those won't be expensive.
They won't be a big impact in the quarter.
I think the only reason we said over time is obviously we expect the momentum to build with this program.
Customers will become familiar with it.
They will get used earning more stars.
We'll layer in the Chase opportunity and some of the other Stars Everywhere opportunities and those will really build.
But it will be profitable immediately and build over time.
If I could add to that.
One of the things when you sign up new members, you don't necessarily see all the value in the first few weeks or even first few months of somebody signing up.
It is something that lasts over time.
So as you build the membership of Starbucks Rewards, that is a benefit that keeps on showing up in the results for not just months, but years, to come.
We said that breakfast sandwiches were up nearly 30% in the quarter year on year.
Food overall was up 16%.
Lunch contributed an 18% growth, so you are absolutely right we're getting some uplift on ticket, plus better attach from food, but by no means is that accounting for all of our growth.
We continue to focus on price giving us between 1% and 2%, and the rest is from either the swift movement to a higher ticket product or increased attach, and we are seeing a mix of all three of those.
And <UNK>, I would just add in the morning daypart, the breakfast sandwich is a meaningful contributor, but really it is all three of those items that <UNK> outlined, a bit of price, premiumization or upleveling, and attach at morning and at lunch both very strong.
Yes, thanks, R.
J.
This is <UNK>.
<UNK>, can I just ---+
<UNK>, can I lead with that and just give it right back to you.
Sure.
I think <UNK> should answer the question specifically, but the thing that I would mention is throughout Asia and specifically Japan and China we have a very, very large strategic advantage in that distribution in terms of educating the consumer, demonstrating the product, and really, I think, leveraging our ability to educate the customer the way we have just with regard to our basic coffee business.
We're in a unique position to leverage the national footprint we have in Japan, in Korea, and obviously in China.
And it will be very difficult for the single-serve companies who are in the machine business to really create national distribution.
So, our ability to leverage the equity of the brand, the in-store experience, puts us in a lead position, and I think that, as <UNK> said in his comments, there is no global superpremium brand of coffee specifically that doesn't exist at all in Asia, other than Starbucks.
So we're in a very unique position as we have to train the customer, educate them on all things coffee, and as the category evolves, and it certainly will, the biggest prize for single serve ultimately is going to be China.
And our store base is going to give us a tremendous advantage, not if, but when that market emerges.
<UNK>, go ahead.
Yes, and the only thing I would add, <UNK>, to that is the fact that the single-serve business is really ---+ does not exist in China, nor in Asia, to any significant degree.
So this is all white space.
And as <UNK> said, we are truly the only global premium coffee brand both in Japan, Korea, China, or the rest of Asia that is going to be able to leverage a retail footprint and an awareness and a trust level with our consumers on educating them about in-home consumption of single-serve coffee.
So, we are building plans as it relates to going after this opportunity and we will follow up with you on what those plans are going to look like in future calls.
Before we end the call (multiple speakers)
It wasn't too long ago that the ---+ go ahead.
I am sorry.
I'm sorry.
I was just going to say it wasn't that many years ago where people would not walk in the street holding a Starbucks cup, because they might lose face in Asia.
Now, obviously, throughout Asia, specifically Japan and China, that is exactly what is going on.
It wasn't that many years ago where their morning ritual did not exist in many of those countries, and other than China, that now exists and we're beginning to see it in China.
So single serve is going to be a major business throughout the region and we're going to be in the winning position to take advantage of it.
<UNK>, I thought before we ended the call we'd just turn it back to you to see if you had any final comments.
I would just say now that we have opened here in South Africa, this is our 71st country and market, I just wish that the people listening to the call could witness firsthand what we have seen now throughout the world.
And that is the universal acceptance of Starbucks Coffee Company and what we are doing in store, the relationship we have with our partners, the relationship we have with our customers, and I have said for many, many years these are still the early days of the growth and development of the Company, and despite with 24,000 stores globally, I have never been more enthused, especially sitting here so far away from our home in Seattle and seeing exactly what we started in the early years, and that is Starbucks being the third place between home and work and delivering an extraordinary cup of coffee.
And it is just a wonderful opportunity for us once again to open up a new market, especially here in South Africa.
Thank you.
| 2016_SBUX |
2015 | ETR | ETR
#Sure, <UNK>.
With the growth in investment and rate base and resulting earnings growth at utility parent and other as we have been mentioning for some time, it is our objective to provide a glide path into a consistent more predictable dividend path.
As we have mentioned in the past, we have taken more of I guess a lumpy approach to it where we raise it 29% one year and then we take a few years off and then we raise it $0.10 or something like that.
So as we look out into the future consistent with our expectations around the growth in the utility, parent and other segment of the business, we are kind of on a glide path so we would hope to provide a consistent growth that will work its way into that payout ratio over the next few years.
Correct, correct.
At any given time we might be over or even under depending on how we are growing the business and then obviously it takes into consideration the reinvestment that we have and the opportunity in the Utility for all of the items that I outlined that we have put in the disclosures.
First, <UNK>, we take the operations of the fleet obviously the safe, secure, reliable operations of the fleet very seriously.
We did have a couple of issues that compounded on each other at both facilities to get us into Column 4.
We would anticipate that this is not going to happen anywhere else and that we will work our way out of these judiciously and expeditiously with the NRC over the coming couple of years.
No.
I can't really comment on that, <UNK>.
We did work to try and come up with some way to extend the life of Fitzpatrick and we weren't able to do that.
It is in everybody's best interest but it just wasn't possible.
But the state officials worked just as hard as we did as I mentioned in my script to come to a solution.
Some things are just difficult as you saw from the disclosures, there is a lot of money lost at the facility and that is certainly a difficult thing to overcome.
We certainly aren't out looking for any kind of political issues.
Thank you.
This is <UNK>, <UNK>.
From a cash flow perspective, we are going to be cash flow positive over the next few years consistent with the disclosure there of to $225 million to $275 million and so that is the biggest piece.
I think that comes from the fact that we are basically operating at a loss there and we are also ---+ would be incurring costs associated with capital and refueling going forward.
So I think those are the biggest things from a cash perspective.
From a net income perspective, there is a lot going on.
Because of the impairments you are going to see the costs associated with the refueling outages and the fuel and expense that we have, those are going to be reduced considerably obviously.
The depreciation is going to come way down.
The one thing that is a little different for Fitzpatrick is the decommissioning costs, the decommissioning expense, that is currently the fund is still sitting over with NIPA and so we won't see any changes there until a point where we actually get the fund and the liability over to us.
So that is a little different than Vermont Yankee and Pilgrim going forward.
So those are some of the main drivers that you will see I think as we are thinking about the income statement for that business.
I think $225 million to $275 million is ---+ that is materially accretive to me in terms of cash.
The earnings piece is going to be accretive but it is not going to be hugely accretive up front.
There will be some accretion in 2016 and then in 2017 we will start incurring the decommissioning costs and stuff like that.
We are going to provide some better transparency around what we think the drivers are at the EEI Conference next week.
<UNK>, this is <UNK>.
You mentioned the 5% we were guiding to.
I think we started the year at about 4.4% for 2015 and what we have seen is our new and expansions have come online, they have come online as we said a little slower.
Some have been delayed.
The ramp ups have been slower than anticipated but what we have also seen in the first two quarters of 2015 was we saw some volumes, lower volumes with our existing customers and as you recall in the first couple of quarters, that was really had a big impact on the lower than expectations in terms of the industrial sales.
As <UNK> mentioned in his script, we saw a comeback relative to that in the third quarter especially in the petroleum refinery area and from that perspective in that particular segment, we expect to see that returning to the levels we somewhat expected as we go forward.
He also mentioned in the fourth quarter we have both an existing probably in the chlor-alkali sector that is going through some outages and we won't see ---+ likely not to see the volumetric changes in the fourth quarter that we saw in the third quarter but again, those are outage related.
And as <UNK> also mentioned you generally don't see a relative relationship in terms of revenue change, relative to volume change when that happens with existing customers.
In terms of the drivers, I think we are seeing some things that others are experiencing, stronger dollar, kind of weaker commodity prices and it is challenging our expectations.
As we said before, what we see happening primarily is delays in some cases and as I said earlier, ramp ups not happening as soon as we had thought but we will provide more color around that at EEI in terms of really diving more into what we expect to see in 2016 and going forward.
This is <UNK> again.
I will start and <UNK> may also have comments relative to this.
But if the two are related, the growth as we all know in this business is really driven by rate base at the end of the day and from our perspective our investment thesis is still intact and we see the opportunity as we've laid out in the past to continue to make the investments that we have talked about.
And it is not so much dependent upon the level of sales.
Sales is an opportunity for us to mitigate the impacts of those rate base growth changes and clearly with our sales volumes, we have the opportunity to mitigate that probably much better than maybe some others that you see that don't have the level of robustness as it relates to sales growth.
Again, the volumes do help in terms of getting to ROEs and as we have shown in slides before it is really a combination of the two to some extent.
But again, the growth is really tied to the investment thesis and that thesis from our perspective is still well intact.
Yes, this is <UNK>.
I will just add that the big drivers are going to be getting the union deals done and then the regulatory actions in Arkansas and in Texas and getting those resolved primarily to get the investments that <UNK> is talking about and to rates.
And then the sales growth is going to be helpful but it is an element of lag reduction as we see it.
And there are some O&M benefits out there, we have talked about earlier ANO rolling off hopefully by the end of next year and then we continue to see our pension expenses coming down and we do see some higher operating costs this year because of some of the nuclear compliance cost and other things that we have seen.
So we expect that to moderate a bit going forward as well.
So those are the main drivers, they shift a little bit of as you go from 2015 to 2016 and then to 2016 to 2017 but they are pretty much the same.
Yes, the goal is to get out of Column 4 and reduce the compliance costs associated with being in that regulatory situation.
<UNK>, this is <UNK>.
As we have talked on previous calls and I think like most other utilities, we are seeing energy efficiency impacts, Federal programs as well as programs that we have specific to our states.
We have generally talked in terms of organic residential growth in the 1% area and we see that somewhat being challenged through this year and we saw it somewhat last year as well.
In terms of third-quarter, we had two years where we had fairly moderate weather last year and fairly positive weather this year and when you see those swings like that year-over-year, sometimes the adjustment in terms of weather for periods like that gets a little challenged.
And so we continue to watch and monitor the residential sales volumes.
I will note also we saw 1.2% growth in commercial in the quarter as well.
But it is something we pay a lot of attention to and continue to look at.
I don't know from our perspective, we don't see a kind of flat to negative as a trend but it is something for us to continue to monitor as it relates to our view of our organic residential growth.
This is <UNK> The safe store option is the one that gives you the most time to allow the fund to grow to meet your decommissioning needs so that seems like a likely candidate but I don't know if <UNK> <UNK> wants to add anything in.
Yes, so again we will have to go through and calculate our costs.
We've got $728 million in the fund and we will go through the same process of looking and forecasting when the fund would grow to have an adequate amount to begin decommissioning.
According to the NRC you have to have it fully funded before you can start.
So it will be some form of safe store, probably won't go to the end of six years but depending on that cost estimate, it will be out in the future some.
No, nothing that we are aware of at this time.
We are not really going to get into any of that.
We can explain the RMR issue, we are not going to obviously discuss any details of our discussion.
But we previously had the New York ISO so do some analysis regarding the Fitzpatrick plant as to whether or not it qualifies as a reliability must run and that most recent analysis indicates that it does not.
So we have submitted our notification, shutdown notifications to the PSC and the New York ISO as of today.
They will have to update that study but we certainly do not expect that answer to change.
As <UNK> suggested, all of our discussions with New York are really confidential and not appropriate for us to comment on any details.
Thanks to all for participating this morning.
Before we close, we remind you to refer to our release and website for Safe Harbor and Regulation G compliant statements.
We will file our quarterly report on Form 10-Q with the SEC later this week.
The Form 10-Q provides more details and disclosures about our financial statements.
Please note that events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the time the date of the balance sheet, would be reflected in accordance with generally accepted accounting principles.
The call was recorded and can be accessed on our website or by dialing 855-859-2056.
Replay code 60315863.
The telephone replay will be available through Monday, November 9, 2015.
This concludes our call.
Thank you.
| 2015_ETR |
2016 | VRTV | VRTV
#Thanks <UNK>.
Good morning everyone and thank you for joining us today as we review our first quarter financial results and full year outlook.
We will also provide an update on our ongoing integration initiatives.
We had a good start to 2016 and reported first-quarter consolidated adjusted EBITDA of $35 million, more than a 20% increase year over year.
This increase was primarily driven by ongoing strategic management of our customers, suppliers, and product mix, continued improvements in our cost structure and a benefit from fuel.
As a result we are reaffirming our full year 2016 guidance of $185 million to $195 million in adjusted EBITDA.
Our reported net sales for the first quarter were $2 billion, down approximately 6% compared to the prior-year period.
Our first-quarter revenue was impacted by three main elements; foreign currency, the calendar structure and our core net sales performance.
We reported a net sales decline of 5.5% in the quarter, which includes the negative effect of foreign currency and the positive effect of two more shipping days in the first quarter of 2016 compared to the prior-year period.
Excluding the effects of foreign currency and day count differences, our core net sales declined 7.6% from the prior year.
This core decline was largely driven by economic softness, continued structural decline in the paper industry and strategic customer choices.
I would like to call attention to the impact of the strategic customer choices, as they amounted to 1.6% of the 7.6% core net sales decline.
These proactive choices were made earlier in the integration with the intent to improve adjusted EBITDA as a percentage of net sales for Veritiv as a whole.
Most these choices were made in the first half of 2015, and it will take a full year's time to completely lap the decreased volume associated with these proactive choices.
As such, we expect the impact of these choices to tail off by the end of the second quarter.
As I shared with you during our March earnings call, the revenue softness in the first couple of months was posing a challenging start to 2016.
Despite these top line pressures, we maintained our focus on executing the integration initiatives which kept us on track with both our commitments for 2016 as well as our multi-year plan.
Our integration work during the first quarter continued to focus on integrating foundational processes to prepare for the conversion to our common operating system.
As a reminder, this more complex phase of integration work requires a significant investment of resources and time and as such, the pacing of synergy capture during this phase of integration will be more modest than that of previous quarters.
This change of pace was expected and is part of our original multi-year integration time line.
To add context to the body of work that is underway, there are two system updates that I would like to highlight.
First, we moved the majority of the warehouse business to a single replenishment system.
The remaining portion of the business migration will be complete in the second quarter.
This single replenishment system will be a key enabler as we began optimizing inventory throughout the supply chain, and position our distribution network for the more complex system and supplier transitions to come.
Second, we completed our planned conversion of two major accounts receivable systems into one.
This activity harmonized credit exposure on to one tool, which will enable efficiencies and allow us to have a consolidated view of our customers for credit-based decisions.
These initiatives required significant bodies of work, and both went smoothly with minimal disruption to our customers.
By keeping operational excellence as a core value in everything we do, we have been able to prioritize the needs of today and take the steps necessary to create the industry leader of tomorrow.
As a result, we remain on plan for our ongoing systems integration projects, and are well on our way to begin the core operating system integration starting later this year.
Looking to the balance of the year, we feel confident about our adjusted EBITDA projections, but recognize that market dynamics will continue to challenge our top line.
Similar to 2015 and the first quarter of 2016 we expect economic softness, industry pressures, and currency headwinds to continue throughout the year.
We are also sensitive to fluctuations in commodity prices, particularly in paper and resin.
While external factors will play a role in our revenue performance, it is also important to note that the impact of our strategic account choices I highlighted earlier will tail off by the end of the second quarter.
All else being equal, the reduced impact from these choices on our net sales will improve revenue comparisons versus the prior year for our print, publishing, and facility solutions business.
We believe our facility solutions segment is headed in the right direction from a revenue perspective, and we remain optimistic about the long-term success of this segment.
Now I'll turn it over to <UNK> who can take you through the details of the first-quarter financial performance.
Thank you <UNK>, good morning everyone.
Let's start with the overall results for the first quarter ended March 2016 compared to the prior-year period.
As <UNK> walked you through earlier, when we speak to core net sales we are referencing reported net sales performance excluding the impact of foreign exchange, and adjusting for any day count differences.
As it relates to day count differences, it is important to note we had two extra shipping days in the first quarter of 2016.
We will also have one less shipping day in our fourth quarter, resulting in one more shipping day for the full year relative to 2015.
For our first quarter 2016, we had net sales of $2 billion, down 5.5% from the prior-year period.
Excluding the effect of foreign currency and adjusting for day count differences, core net sales declined 7.6%.
Peeling back the layers of our core net sales, strategic customer choices and accounting conformity amounted to 2.2% of the core net sales decline.
Said differently, removing the strategic account choices and accounting conformity from our core net sales, our revenue decline was 5.4% for the quarter.
As a reminder, we made a decision in the fourth quarter of 2015 to harmonize our shipping terms across the organization.
This accounting conformity will affect our year-over-year comparisons in the first, second and third quarters of 2016 until we lap the fourth quarter 2015 decision.
Our cost of products sold for the quarter was approximately $1.7 billion.
Net sales less cost of products sold was $365 million.
Net sales less cost of products sold as a percentage of net sales was 18%, up approximately 50 basis points from the prior-year period.
Adjusted EBITDA for the first quarter was $34.9 million, an increase of approximately 23% from the prior-year period.
Adjusted EBITDA as a percentage of net sales for the first quarter increased to 1.7%, up 40 basis points from the prior-year period.
As <UNK> mentioned, the ongoing strategic management of our customers, suppliers and product mix, along with the continued improvements in our cost structure and a $2 million benefit from lower fuel expenses enabled our overall margin improvement in the quarter.
Let's now move into the segment results for the quarter ended March 31.
As a reminder, when we speak to core net sales we are referencing the reported net sales performance excluding the impact of foreign exchange and adjusting for day count differences.
In the first quarter, the print segment experienced a 7.5% decline in net sales and our core net sales were off 9.8%.
It is important to note that 3% of the 9.8% core net sales decline in this segment was a result of strategic customer choices made by Veritiv during 2015.
We expect the majority of the revenue impact from these strategic choices to tail off by the end of the first half of 2016.
In spite of this decline, adjusted EBITDA for the print segment increased about 3% year over year to $16 million, resulting in an increase in adjusted EBITDA as a percentage of net sales of 22 basis points.
Strong execution of sourcing initiatives, better customer and product mix, and reduced operating and selling expenses more than offset the volume pressures and continue to increase the adjusted EBITDA.
In the first quarter, the publishing segment had a 15.3% decline in net sales and a 17.8% decline in core net sales.
This outcome was particularly affected by declines in market prices and reduced volumes, largely in magazine and insert advertisements, as customers adjusted the promotional mix.
Strategic customer account choices and accounting conformity were 3.5% of the core net sales decline.
The publishing segment contributed $4 million of adjusted EBITDA in the quarter, with adjusted EBITDA as a percentage of net sales coming in at 1.5%.
In the first quarter our facility solutions group's net sales decreased 2.6%.
Adjusting for the negative impact of foreign currency and the positive effect of two more shipping days in the first quarter of 2016, core net sales were off 3.8%.
Strategic customer choices were about 1% of the core decline.
Removing the effect of strategic customer choices from core net sales, the sales decline was nearly identical to the reported 2.6% decrease in the quarter.
For the first quarter the facility solutions segment contributed $7.4 million in adjusted EBITDA an 8.8% improvement compared to prior year.
The facility solutions business had an increase of 26 basis points in this adjusted EBITDA as a percentage of net sales.
As expected, facility solutions will continue to benefit from the tail off strategic account choices in the second quarter.
In the first quarter, the packaging segment's reported revenue performance was roughly flat.
The segment faced market pressures from declining resin prices, and softer volumes in the manufacturing and food packaging industries that carried into 2016.
However, we saw growth in our corrugated sales business, and continue to see strength in our fulfillment sector.
Adjusting for currency and day count, core net sales decreased 2.4%.
Accounting conformity was 1% of this core decline.
I would also like to highlight the impact of falling commodity prices on this segment's core net sales, specifically, resin.
Declines in resin market prices amounted to 1.1% of the core decline.
Said differently, removing the effects of accounting conformity and the volatile resin pricing, packaging's core net sales were relatively flat year over year, which was in line with the market.
Packaging contributed $46.7 million in adjusted EBITDA for the first quarter, a 2.2% increase from the prior-year period.
Adjusted EBITDA as a percentage of net sales increased to 7%, up 19 basis points from the prior-year period.
The adjusted EBITDA improvement in this segment was driven by sourcing initiatives and better product mix.
Switching now from our segment analysis, let's take a look at our synergy timeline, balance sheet, cash flow and expectations for the allocation of capital.
As a reminder, our forecasted synergy capture for 2016 is approximately 60% to 70% of the ultimate goal, $150 million to $225 million over the five years post-merger.
At the end of March, we had drawn $745 million of the asset-based loan facility, and had available liquidity of approximately $445 million.
As a reminder, the ABL facility is backed by the inventory and receivables of the business.
Our net leverage ratio ---+ that is, the ratio of last 12 months of adjusted EBITDA to our ABL net of cash on the balance sheet ---+ was 3.7 times, down from 4.1 times at the end of last year.
We intend to continue debt reduction throughout the year as we prioritize deleveraging our balance sheet.
During the first quarter of 2016, our cash flow from operations was approximately $75 million.
If you subtract capital expenditures from our cash flow from operations for the first quarter, we generated free cash flow of approximately $66 million.
If you add back the free cash flow, the negative cash impact of restructuring and other integration-related items, adjusted free cash flow for the first quarter would have been $83 million.
We continue to believe that this healthy level of cash flow from operations will allow us to accomplish three priorities.
Our first priority is to continue investing in the company.
This investment has two elements: one-time integration costs and capital expenditures.
We have two types of integration costs.
There are those costs that run through the income statement directly, and those that are capital expenditures.
One-time integration costs expected to run through the income statement for 2016 will likely be near the low end of a $40 million to $50 million range.
We expect capital expenditures related to integration projects to be in the range of $10 million to $20 million, which will help enable the synergy capture in 2016 and beyond.
Similar to 2015, this incremental capital spending is principally for information systems integration.
For 2016 our ordinary course capital expenditures are expected to be approximately $20 million to $30 million.
For comparison purposes, first-quarter 2016 capital expenditures totaled nearly $9 million.
Of that figure, there were about $5 million related to integration projects.
Our second priority for the use of cash is to pay down debt.
As I just mentioned, we have made meaningful and steady progress against this priority since the merger two years ago.
And our third priority for the use of excess capital is to return value to our shareholders.
In summary, our improved earnings were primarily driven by a combination of ongoing strategic management of our customers, suppliers and product mix, along with continued improvements in our cost structure.
Kirk, we are now ready to take questions.
Good morning, <UNK>.
I'm going to ask <UNK> to take that on, <UNK>.
Okay, <UNK>.
<UNK>, we've given the guidance that we expect to spend in the neighborhood of $225 million over the forecast horizon, which we're about halfway through.
And through last year end, we've spent a total of $114 million of one-timers at that point.
The way it will play out is, we had said that $55 million of the $225 million was going to be in the form of capital expenditures associated with the synergy capture.
That's the rough mix ---+ roughly $50 million out of $225 million.
And that's been borne out so far.
And this most recent quarter, as we mentioned in the script, we had the one-time costs of $13 million, of which the integration-related costs were just about $6 million.
About $1.7 million you see on our income statement was restructuring, and then about $5 million hit CapEx.
So in this particular quarter it was around a third.
But it will be a third to a quarter of the total spend each of the periods.
It fluctuates.
Yes, that's roughly correct.
It does decay rapidly, as <UNK> has mentioned a couple of times.
The systems work that we are doing now will enable benefits in later years, so the costs that go with those programs does decay.
It falls away in the next couple of years.
That's right, <UNK>; I will comment there.
If you look at last year, we generated $83 million of free cash flow in the first quarter.
And then in the balance of the year, we had an outflow of $14 million to get to our final point of $69 million for the year.
This year, in the last nine months of the year, we anticipate doing slightly better, on management of that working capital bucket.
As we've said and reiterated, we expect $70 million of ---+ at least $70 million of free cash flow.
And if last year we had an outflow of $14 million in the last nine months, that would have to mean ---+ and we had $66 million in this year's first quarter ---+ we would have to be positive in the last nine months of this year in order to hit that target.
And that would mean positive versus a negative $14 million.
Yes, the math would be, this year, at least $70 million of free cash flow.
And this year we've given guidance that we have integration costs of $40 million to $50 million, so the math would actually be $110 million to $120 million of free cash flow.
There is, and this year we will be a cash tax payer, to answer your other question.
You're correct; the effective tax rate in the quarter was 56%.
For the year, we have suggested that we're going to end in the range of 40% to 45% as an effective tax rate, if things play out as we anticipate.
The biggest impact ---+ two biggest factors in that 40% to 45% rate are our low level of pretax and some non-deductible items that occur in our financials last year and this year.
But as those go away, which they will, we should turn to, over multiple years, meaning the next 2 to 3, to more of a normal effective tax rate in the upper 30%s.
<UNK>, so, yes, again, we're upholding our guidance as we announced earlier this year.
We made some assumptions that we ---+ as we came into the year, we still had a drag on the business as a result of choices made in prior year, and expected that the trajectory of revenue would continue to improve as we came out of the first quarter and into the second quarter, and build even stronger as we exited out of the second quarter.
So I guess I'd summarize it as an improving trend over the course of the year.
Not able to discuss it ---+ what I will say is that we started out the quarter, the first quarter, with January being quite a disappointment, quite frankly, and we continued to see that improve over the course of the quarter, and continues into the second.
In closing, I just want to share a perspective.
We are very pleased with our first-quarter results.
We recognized that 2016 would be a challenging year with the increasing complexity of our integration, and an unpredictable macroeconomic environment.
However, I have confidence in our team to continue to execute on our full-year commitments, keep us on track with our multi-year plan, and deliver value to our shareholders.
So we appreciate your support, and again, thank you for joining us today.
| 2016_VRTV |
2015 | EXPO | EXPO
#Thank you for joining us today for our discussion of Exponent's first quarter.
For the quarter, net revenues increased 4% to $76.1 million from one year ago.
Net income for the quarter increased 13% to $10.3 million, or $0.75 per share.
For the first quarter, we delivered solid revenue growth, improved utilization, and strong profitability.
For the quarter, we had a notable performances from our materials science, mechanical engineering, polymer science, human factors, structural engineering, and construction consulting practices, as well as from our environmental groups.
We are pleased that clients continue to call upon us to assist them with their most significant litigation matters and product recalls, as well as to help them with risk management and new product development.
As we have discussed with you in prior quarters, our defense work has declined as expected year over year related to the drawdown of troops from Afghanistan.
However, we have started to leverage our experience in technology development to serve commercial clients in oil and gas and consumer electronics.
During the quarter, we continued to repurchase shares although at a slower pace than previously.
We have announced our intention to complete a 2-for-1 stock split, which is subject to shareholder approval at the annual meeting on May 28.
Should that be approved, our quarterly dividend will change from $0.30 per share to $0.15 per share to account for the split.
For the remainder of 2015, we expect underlying growth to be in the high-single digits, offset by the significant decline in defense work and the step down in a major project in the second half of the year.
As a result, our guidance remains unchanged as we continue to expect growth in net revenues to be in the low to mid-single digits and margins to be approximately flat with 2014.
Now <UNK> will provide a more detailed review of our financial performance.
Thanks, <UNK>.
For the first quarter of 2015, revenues before reimbursements, or net revenues, as I will refer to them from here on, were $76.1 million, up 4% from $73 million in the same period one year ago.
Total revenues for the first quarter of 2015 were $80.3 million or 6% over $76 million a year ago.
Net income for the first quarter increased 13% to $10.3 million, or $0.75 per share as compared to $9.2 million or $0.66 per share in the same quarter of 2014.
EBITDA for the first quarter increased 11% to $18.4 million versus $16.6 million in the same period of last year.
In the first quarter of 2015, net revenues from defense technology development were approximately $1.2 million, as compared to $3.2 million in the same quarter one year ago.
I'm sorry, we need to hear from a operator if we're live or not.
Operator.
This is <UNK> <UNK>.
I'm going to start back over at the beginning where I was.
I'm going to start at the beginning of my piece.
Again, sorry for repeating some of this, but to ensure that everybody heard it, again, I'm going to start over.
For the first quarter of 2015, revenues before reimbursements, or net revenues, as I will refer to them from here on, or $76.1 million, up 4% from $73 million in the same period one year ago.
Total revenues for the first quarter of 2015 were $80.3 million, up 6% over $76 million one year ago.
Net income for the first quarter increased 13% to $10.3 million, or $0.75 per share as compared to $9.2 million, or $0.66 per share in the same quarter of 2015.
EBITDA for the first quarter increased 11% to $18.4 million versus $16.6 million in the same period of last year.
In the first quarter of 2015, net revenues for defense technology development were approximately $1.2 million as compared to $3.2 million in the same quarter one year ago.
We expect revenues from defense technology development to be in the range of $500,000 to $1 million per quarter for the remainder of 2015, which will impact growth by approximately 3% year over year.
Billable hours increased 6% to 292,000 as compared to 274,000 in the first quarter of 2014.
Utilization in the first quarter rose to 75% from 72% one year ago.
For the full year 2015, we expect our utilization to be approximately the same as 2014, at 71.8%.
As a reminder, we have less work days in the second quarter than in the first quarter due to one more holiday and additional vacation days taken, which will result in utilization being approximately 3% lower than in the first quarter.
In the first quarter, we had a realized bill rate increase of approximately 1%, which was lower than usual due to an increase in billable hours from lower level staff.
This rate increase was offset by 0.08% for translating foreign currency for consolidated financial statements.
In the first quarter of 2014, we had an unusually high amount of write-ups on fixed-price projects in the amount of $1.4 million as compared to $200,000 in the first quarter of 2015.
And this impacted year-over-year growth by approximately 2%.
For the first quarter, technical full-time equivalent employees were up 2% to 745 as compared to the same quarter in 2014.
For the remainder of 2015, we expect year-over-year headcount growth to be approximately 2%.
EBITDA margin for the first quarter of 2015 increased 24.2% ---+ increased to 24.2% of net revenue as compared to 22.8% in the same period of 2014.
For the first quarter of 2015, compensation expense, after adjusting for gains and losses in deferred compensation, increased 3.3%.
Included in total compensation expense is a gain in deferred compensation of $1.4 million as compared to $730,000 in the same quarter of 2014.
Gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line.
Stock-based compensation expense in the first quarter of 2015 was $5.2 million.
For the remainder of 2015, we expect stock-based compensation to be approximately $2.8 million per quarter.
Other operating expenses in the first quarter increased 3% to $6.5 million.
Included in other operating expenses is $1.4 million of depreciation.
For the remainder of 2015, other operating expenses are expected to be $6.7 million to $7.3 million per quarter.
G&A expense in the first quarter decreased 6% to $3.5 million.
For the remainder of 2015, G&A expenses are expected to be $3.7 million to $4.3 million per quarter.
Our income tax rate in the quarter was 39.5% as compared to 40.4% in the first quarter of 2014.
For the full year of 2015, we expect our tax rate to be approximately 40%.
For the first quarter, operating cash flow was $1.7 million.
In the quarter, we repurchased $3.5 million of our stock.
We still have $31.6 million authorized and available for repurchases under the current repurchase program.
Additionally, during the quarter we distributed $4 million to shareholders through dividends.
We ended the quarter with $145 million of cash and short-term investments after repurchases, dividends, and paying out annual bonuses.
Capital expenditures were $630,000 in the first quarter.
For the full year of 2015, we continue to expect growth in revenues before reimbursements to be in the low to mid-single digits and the EBITDA margin to be approximately flat with the 25% we achieved in 2014.
Our underlying growth remains in the high-single digits, as <UNK> discussed earlier.
I will now turn the call back to <UNK> for closing remarks.
Thank you, <UNK>.
We remain focused on further expanding our unique market position and assessing the reliability, safety, human health, and environmental issues of increasingly complex technologies, products, and processes.
Our long-term financial goals are to produce strong organic revenue growth and improve profitability, which are expected to generate significant cash flow and allow us to continue to repurchase stock and pay dividends.
Operator, we are now ready for questions.
Yes.
First of all, what we saw last year in the first and a little bit in the second quarter, we had about $1.4 million in the first quarter and about $750,000 in the second quarter of 2014.
Those levels ---+ that would be unusual.
Typical for us is fixed-price projects tend to come in about equivalent to our TNM and as such don't really have a material difference.
It just ---+ so I would say that that was unusual for us.
What we would expect in the future and have seen in the past is really something that would be in this anywhere from $0 to maybe $100,000 or $200,000 in a quarter would be something that would be more typical for us.
And that's the level we saw in the fourth quarter and first quarter of this year in what we've done.
As far as what the flowthrough is, look at the end of the day write-up, if you have a write-up there, it's really offset by our bonus pool, which generates 33% of the pre-tax, pre-bonus profits.
And the remaining 67% of that level would flow through to the EBITDA margin and then obviously be tax affected and flow into the net income.
I think, <UNK>, what we've really done here is to ---+ we did end up over the period of the previous year of last year sort of reorientating and resizing the technology development practice that we had.
So from what I will call from a headcount standpoint and so forth, we're talking about a group that's roughly half the size of what it was a year ago.
We made that adjustment.
We believe that that adjustment was appropriate to where we saw the opportunities in the commercial marketplace.
And we've been moving forward with that.
It had proved out to worked well for us.
In other words, we're looking at a technology development practice that doesn't have ---+ is not sitting idle and doesn't have a low utilization level and so forth because the adjustments have been made.
And we're optimistic that that can continue and we hope that that would start to grow as we move forward in that mode.
So we're not looking at another step function either up or down from that standpoint.
Yes, we are.
There is no question that in the oil and gas sector there has been clearly some significant belt tightening going on.
Obviously, we see it the news with various kinds of layoffs in that industry and so forth.
We're not affected that directly but the reality is that we think that some of the opportunities we had looking forward are having budgets trimmed a little bit.
We think that in the near term there'll be some challenges there.
But we're still very bullish overall in the longer term about the role that we can play in that industry.
So yes, we're going through kind of a belt tightening time now but we don't think that should affect us from a long-term standpoint.
I'm not looking at it as a headwind per se, and the reason for that is the majority of our revenues in this sector are still in the reactive mode, follow up from some event that happened.
We're working in that area and as we've seen before, on the more reactive work tends to be not very much affected by the general economy or what's going on in that particular sector per se.
So from that standpoint I would say given the level of reactive work in that area, we don't think it should have a big influence.
It will have an influence on the proactive work, but we were seeing the proactive work as a strong growth opportunity for us and it's just not going to grow as quickly in the short term as we had hoped.
Overall, I think something closer to flat is probably reasonable in that sector.
So the FTE was 745.
Yes.
First of all, I think last year's G&A in the first quarter was a little bit higher.
We're through a number of different things had some sort of professional services that we were buying on an overhead basis around legal, accounting, system implementation and some things that were higher in the quarter and we were able to be at a more moderated level here in the first quarter of this year.
I still think that as we look at the remainder of the year, we will see that be a little bit up quarter over quarter, or year over year as we go through that, but I think that what you're looking at is it's something that's going to grow on a year-over-year basis when you look at each quarter at more of the call it 4% or 5% level versus the prior-year.
I would say that the stronger areas have actually ---+ it's been a sort of a little pattern here in recent times on this.
But the stronger areas for us would be some of these growth areas we have from an industry standpoint in consumer electronics and for the medical device arena.
We are still looking to grow our staff there sort of above average for what we're looking at for the Company as a whole.
I think the same thing would be true in food and chemicals area.
Those would be areas, the polymer science areas.
There are certain areas that we're looking to grow geographically also in Asia.
We need more people there.
So those are the areas that I think we see as being a stronger growth areas from a headcount standpoint.
Yes.
As I mentioned in my comments, from a bill rate standpoint, we had been realizing in the past year or two sort of around 2% to 2.5% realized bill rate increase.
That in it itself has been lower than maybe when the economy has been more robust and higher inflation where we've maybe gotten 3% to4%.
This year being a little bit lower came from a ---+ it really is reflecting some change in mix of the ---+ where the billable hours are coming from.
As we have improved the utilization, some of that is come from the staff, the lower level staff.
Our principles and senior managers tend to be quite well utilized and the real gains have come by both hiring as well as improving utilization of the younger staff.
We've also seen that we've had some good growth in our mix relative to work happening in Europe and Asia and in our construction consulting group and others where the average rate is a little bit lower than our average so that had some dampening as well and contributed to the mix.
I think we started to see some of this occur as our utilizations improved in the back half of 2015, and have seen that here in the first quarter.
I think we will likely as we go through 2015 see that stay in this range of more like 1% to 2% than be maybe up where we would have hoped in the 2% to 3% range.
But I think the real good news is that that had come both late last year as well as early this year with a strong utilization, which delivered good leverage and is widely bottom line has been able to grow in the double digits here in the first quarter.
So those are a few of the comments.
I think long term, we still see that we're able to get pricing increases.
We're able to look at the current staff we have and increase raises for those people in the 3.5%-4% range as we bring in new staff.
We've talked before that that gets blended down some by what happens around turnover.
That will draw it down into the 2% to 3% range, but that's what I would expect for us long term is that we will still be able to continue to realize long term, a pricing realization that's in that 2% to 3%-plus range.
There's a couple of different things.
I think there are two different effects here.
If I could pick out say the food and chemicals practice and the construction consulting practices as examples where on average the bill rates are not as high as in the regular health and engineering consulting rates.
Those just ---+ we've still have good margins and the profitability is good but those rates are typically a little bit lower across the board.
In other words, from the more junior staff to the more senior staff, they on average lower rates than in some of the engineering practices, for example.
However, you've that effect there.
If I look at polymer science, as an example or if I look at biomedical or some of these other areas that are growing faster than consumer electronics area, those rates are not low.
Those rates are generally at or above the average for the Company.
However, the growth has been happening by greater leverage so the growth has been happening by hiring a lot more of the more entry level junior staff.
And so that's the reason why we're seeing it there.
Senior people in those areas have bill rates that are very high and the junior people are high compared to other junior people perhaps but they are still junior people.
And so that spread out that leverage we're getting is causing that effect.
Let me address that first then <UNK> will get you the numbers.
We absolutely believe that over time we are ---+ the proportion of our work that is in more proactive space is going up.
Where we are today, we view that reactive work is about 60%, proactive about 35%, and about 5% government.
So that's where we ---+ some of the government is defense but it's by no means all defense.
That's how we view it today.
We think that mix is going to continue to change largely through growth.
We think both sides will grow but we think the proactive will grow faster.
Difficult to say exactly how soon will be before the proactive gets from 35% to 40% or 45%.
But it's a direction we're going and it probably increases, I don't know, this is a bit of a guesstimate.
Probably increases by maybe 1% or 2% proportionally per year, something of that order.
So over five years you increased by 5% or maybe 10%, something in that range.
I do think that's something that's going to happen over ---+ continue to happen for the next five years and beyond that we will have more proactive work.
I also think that proactive work in general creates, we think, better opportunities for leverage than reactive work.
It's not that there aren't some reactive matters that have great leverage, but in general I think the reactive space has more opportunity for leverage.
And I think that as a result of that, you may see some ongoing trend.
How much is very difficult to say but you may see some ongoing trend that affects this bill rate issue.
But I think to the extent it does, it will have a slight negative effect on top-line revenue growth and a positive effect on bottom-line profit growth because it just fills that page, as you might expect.
If you've got a lower bill rate increase then obviously it affects the top line but that lower bill rate increase is coming because you have more of the junior people doing the work, we obviously from a compensation standpoint and so forth, we get more leverage out of the younger staff then our principles, for example.
And so as a result on average, that's going to be a little bit more profitable.
I think those trends can happen over time.
I don't think there are big jumps.
The biggest one we've really sort of seen was what we've kind of described this quarter where we saw a little more than we might usually see.
So to give you the numbers that you were asking for, the total revenues, so gross revenues for our environmental and health segment were $20.5 million and the revenues for the other scientific were $59.8 million.
On a net revenue basis, or revenue before reimbursements, the environmental and health was $20.2 million and the other scientific was $55.9 million.
Not really.
I think ---+ first of all, what I would say is that in terms of what we've talked about as major assignments that we've talked about before, the ones that were more 4% to 5% of revenue as opposed to our typical large ones of 2% to 3%.
We haven't had another one of those.
And as we've previously indicated, two of the three larger ones have already stepped down and the final one we expect to step down later this year.
We certainly have some other engagements that I would put in our category of typical large projects.
But nothing that is at this time we would be in a position to describe.
Yes.
As a reminder, our international operations are about 7% of our business.
That means of off revenues generated in offices outside the United States, and then with the other revenues let's say a couple of percent that we do work in other countries from the US, that work is all done at US dollars.
So we're really primarily affected by currency exchange rates relative to our operations in the UK and a little bit in Germany.
The impact to the first quarter was 8/10% to the revenue, and we would expect that a similar percentage impact to the second quarter, and obviously a little less than that assuming rates stay where they are as we move through the year and catch up with where the big step downs were.
I think our range is going to be from this 8/10% down to let's say 5/10% by the end of the year.
| 2015_EXPO |
2015 | MASI | MASI
#Sure.
Yes, we saw an 18% increase in rainbow revenues without this Middle East large order and that strength came from both hemoglobin sales around the world as well as carbon monoxide and methemoglobin sales through two of our OEMs both in the US and Europe.
Well, the recurring revenue side is there, and where also .
for the increase that you see is from both recurring revenues, from customers we had before, as well as new customers that are coming online.
Thank you, <UNK>.
Yes, <UNK>.
First of all, I think US and Europe probably are most close together in terms of cost-containment measures and cost worries.
So for these two regions, despite very successful hemoglobin evaluations clinically, where the clinicians saw great differences in their ability to do the care that they give, they've been having difficult time getting administrations buy-in to do large-scale implementations.
You have certain regions of the world like the Middle East where the cost-containment pressures are not there.
So what we are seeing in certain parts of the world where you don't have the same cost pressures, the technology seems to be going from clinical evaluation wins to purchase, as you would expect, and sort of the constant delays we have been getting in both US and Europe.
Well, I can't obviously get too deep into the legal stuff because now we are in the middle of one.
But what I can say to you, I have good reasons to believe that nothing is going to change immediately.
By the February earnings call that we have, we should be prepared to give you better color on the future.
We do believe that the filings are not well thought through, given that once the patents in the case that they have filed inter partes re-exam have ---+ were in front of the Patent Office and Patent Board twice and in front of an appellate court twice.
This is a patent that we had filed interference against Medtronic, which used to be Covidien/Nellcor, and Medtronic had fought hard to win this patent.
So now for them to come out and say that the patent's no good, they should be stopped from doing that.
And I think also there is a little bit of a wishful thinking on the part of new people in this giant Goliath that has not met David yet not thinking through what our actions might be.
So stay tuned; in February we will give you more color.
Thank you.
Thanks, <UNK>.
Well, typically when we get the order it takes about three months for the deployment into the field and consumption of sensors and then the rate of sensor consumption has a lot to do with census.
So if there is an increase in census, whether it's due to the flu season or people taking advantage of their deductibles and co-pays and so forth before the year-end, we might see a bigger boost.
And if there isn't, then we might not see as big of a boost.
So I think within Q4 we should start seeing the impact of what happened for us as far as driver shipments in Q3.
But just to remind you, I think this is now the ninth quarter that we have shipped over 40,000 oximeters, excluding the handheld devices.
And we see that trend continuing.
Yes.
I think rainbow, because of the size of where we are revenue-wise and installed base-wise, will remain lumpy.
I think that hopefully will get less and less as they move forward.
The good news is with this large Middle East order, it's not supposed to be a one-time order.
So we do expect it to continue hopefully for years and it might end up being just half of what ultimately it will be.
And this is just one of several large businesses we're after with our technologies, including rainbow.
Sure, <UNK>.
In general when we started this year we had provided GAAP revenue rainbow guidance about $57 million or so.
I think based upon the strength that we saw in the third quarter, right now we're predicting that number to be in about the $60 million range for the full year.
So we'll see about $3 million higher partly due to the Middle East order that <UNK> was just alluding.
So about $60 million is the range of where we expect our full-year rainbow revenues to come in at.
Thank you.
I think we have one more question.
I think they just added one other.
Okay.
All right.
Next question, please.
Sure, <UNK>.
We expect that the next phase of trial, which will be additional patent litigation as well as anti-trust and patent misuse litigation, to happen in Q1 2017.
We recently had a hearing that we felt that went well.
We should get a ruling from that soon.
And based on some of the things that are going on at both the Supreme Court and other items that we may have to go the long course or we may not.
But next thing is Q1 2017.
Yes, unless there is some settlement between now and then, yes, because until we go through the next phase, both the jury verdict and the judge's ruling is not considered final, so we can't go to the Court of Appeals nor can they I guess; we would not have much to appeal.
But they would not go to Court of Appeals until the final ruling, which is expected to happen after the Q1 2017 trial.
Thank you, <UNK>.
I think we are done.
So I want to thank you all for joining us for this call.
And we hope you enjoy the rest of your year and look forward to our call in February.
Thank you, bye-bye.
| 2015_MASI |
2016 | AHH | AHH
#Thank you.
They will make it.
Yes.
<UNK>, I'm going to turn that over to <UNK> to answer more specifically, but I can answer it from a 33-year perspective.
Over those decades, we've been through four recessions, we've been through booms, we've been through busts in the Mid-Atlantic and I can tell you consistently what always survives and thrives is commodity retail, particularly well-located, grocery anchored high-volume retail.
Those are lessons that were hard-won over a long period of time.
And so we are sticking with that axiom.
<UNK>.
It's no, yes and no.
So, <UNK>, we start by reiterating for ---+.
I appreciate the question, <UNK>.
I want to make sure that we reiterate this properly.
For the first 11 years of the existence of Town Center, we effectively had ---+ did not have any space to lease.
We had been at 99% occupancy on the office side for going on a decade and basically had to say no to every 5,000 foot tenant or expansion opportunity that came along.
When we built 4525 Main, the idea was to oversize it and have some flexibility for some time to come.
We frankly had expected that some time to come would have come a little faster than it has, but we're very comfortable having that space to lease.
The second part of <UNK>'s question, is it too pricey for the market.
That's a nuanced question.
It is intended to be the most expensive address in the region, a region of 1.8 million people.
And so therefore naturally some 80%, 85% of the tenants in the market are not coming to Town Center.
It takes those tenants that are willing to pay that premium in order to have that address, be it for recruitment, or clients or what have you.
So it's by design not going to be filled with the natural growth in the market.
And thirdly, the other no to that piece of the puzzle is that there is not a competing product in the region.
There are products that offer 20%, 30% cheaper rent.
We can't compete with that, nor are we interested in.
But that's about it.
Yes, good morning, <UNK>, it's a combination of a couple items.
One is, yes, holding on to those three properties through year-end.
The other is the addition of the Southshores acquisition.
And on top of that with you know, our NOI has performed ---+ or I'm saying, our properties have performed really well in the first six months, has added to that as well.
And we've also upped guidance on the construction company as well.
Yes, we had some nice cash pickups last year.
Part of it had to do with the re-tenanting here at Town Center.
We had the big law firm there, if you remember, that took to 15 year space and all that we had some free rent and moving periods and all that had the straight-line rent adjustment.
So we really started picking up some cash there in the retail re-tenanting that we did here.
We are not out giving guidance on same-store NOI, but we certainly hope to see it back at that level.
Again, for those of you on the phone, Mike and I have been telling people for a very long time, again, having that 33-year window of what goes on in our portfolio.
Our long-term, same-store growth is in the 2% range.
We've enjoyed significantly higher gains than that over the last couple of years.
But we would expect that that would return to the center line over the long haul.
Now again, of course, what's been added to that is, there are lease-up opportunities now within the portfolio that would augment that, but that's traditionally what happens in our markets.
It's an interesting questions.
It does open up more opportunities to acquire higher quality products.
But we are really reticent to change our strategy for a short-term ---+ what could be short-term.
The development pipeline is going to continue to be our main engine.
I think where you would see what you're speaking of manifest itself more, as Mike alluded to, was using that ATM even more robustly to allow for further development opportunities.
We're still getting rent increases, but we are seeing a lot more supply come on.
And that's not just at Town Center, as you suggested <UNK>, we're seeing it in our markets in the Carolinas, as well as that Baltimore-Washington Corridor, so obviously location becomes more and more important.
So we're still eking up here.
Again, just to reiterate, the A locations are going to stand the test of time and weather any storms that might be coming.
The rate of increase might slow, but I feel that they will ---+ and this is for here, for the Baltimore's Inner Harbor, for the Fort Meade area in Washington where we are, I think they are going to continue to grow albeit at a slower pace until that new supply gets absorbed.
But at Town Center, again, just this morning coming in to work listening on the radio, heard an advertisement for yet another apartment project that is one mile east of Town Center.
And my guess is it's a couple hundred bucks a month cheaper than being in Town Center.
That's going to continue to happen and probably accelerate, but we don't really feel a whole lot of that pressure.
Yes, on the retail side, again, we look for that 20% spread between wholesale and retail.
And obviously that's different for retail than it is for apartments and that's continuing ---+ it's going to continue to hold true here.
Thank you for your time this morning.
And thank you for your interest in Armada Hoffler.
We look forward to updating you again soon.
Have a good day.
| 2016_AHH |
2016 | TJX | TJX
#So I'll talk just from a statistical point of view.
In the first quarter, clearly the above-plan comps helped us to improve our mark-downs better than what we would have thought.
So one of the things that you ---+ not always, but tend to have is a good flow-through on mark-downs, especially at the comp levels that we saw.
Our Canadian division has done an exceptional job of ---+ we still had that significant increase in the first quarter.
Having said that, we still had a large impact to the merchandise margin in Canada, but they mitigated a significant amount.
I think that has been a story for the last couple quarters.
But it does get harder and harder as every year you go when the dollar is ---+ the Canadian dollar is down.
I think those are two things we're certainly very pleased about.
I would say also, <UNK>, that as I talked before about the way we balance the mix with more good-better-best, that's been very effective at helping us make improvements on mark-downs as well.
It's helped the turns and it helps our profitability because we're more eclectic, which is what our business is healthier when we do that.
So that's been positive.
And the flow, certainly all divisions have really done an excellent job on maintaining the open-to-buy, as we said on an earlier question, amidst this environment.
When you were asking is there anything related to the buying helping the margins, I think that's certainly a positive, the way we're positioned going forward.
And to be clear, the biggest over-plan flow-through is in the total gross margin line, similar to the fourth quarter where we were up 50 basis points in gross margin, as we were in the first quarter, has been flowing through on the above-plan comps, on the buying and occupancy leverage we get.
So it's a combination of ---+
Good question, <UNK>.
First of all, for Sierra, what we're doing now is obviously opening stores.
The more bullish we get, I think I mentioned this in the script, we feel like there could be some upside for this to be more of a major player in the outdoor space.
What do we need.
We just need some more TJX-izing of the business which we're continuing to do.
We are really getting more involved there with how we're educating that team and we're making some moves to really take it to the next level.
I think the beneficiary in terms of the merchandise from things like businesses that are going out, isn't just also ---+ there's a benefit on real estate, yes.
There's a benefit on merchandise, yes, probably.
But that won't be just for Sierra Trading Post, that will actually be also for potentially Marmaxx sites or HomeGoods sites, because you never know, based on some of those markets.
So our real estate team is very flexible in assessing each situation, no matter what store situation is creating opportunities real estate-wise.
But clearly you could see how the Sports Authority and Sierra thing could relate, I get that.
But no, we're pretty bullish on the Sierra Trading Post business longer term.
We just want to get it into more of our philosophy of business to be less promotional.
I think we've talked about that before.
We're trying to get out of the wild promotional up and down swings because that is not the way we like to retail goods.
We've been focused on buying off-price behind the scenes, buying in an off-price methodology.
But the retail and the right now, I'd say, is halfway on the journey.
Because it's still a little promotional on the website.
The stores are less promotional by the way, if you went to the stores.
So our key there is really we're going to be strengthening the merchandising team and Sierra Trading Post further.
And as well as the planning team, to keep up with the seeds of the potential store growth that we're hoping to have there.
Thank you.
So, <UNK>, let's deal with the first one.
The second one I think <UNK> and I have a question on your second part of your question.
But on the first part, the Trade, we're very pleased with how Trade Secret is beginning the TJX-izing process, I guess you would describe it as, which is I think what you were asking about.
We are putting in a lot of processes and systems, talent from here, from back here.
Again, we've had a handful of people move over there and our head merchant relocated from Canada back a while ago.
So she is making terrific progress.
The division ---+ and she reports to <UNK> McMillan who travels over there frequently and makes sure that we are trying to do the core execution priorities in the business that are important to them.
So we're dealing with stores.
We're dealing with distribution, supply chain.
We're dealing with merchants.
We're dealing with marketing.
We're dealing with HR organizational structure issues to get it set.
Again, not a big business yet.
It is, I would tell you, one of the most exciting environments.
We find Australia to be extremely tailor-made for a TJX prototype and the customers really will gravitate to them.
When we have the right goods, our turns there are much, much improved.
We just right now are trying to get to the point where we can flow the right goods consistently because that's what they're still on the learning curve of.
We've started to look at remodels and we will be opening a logistics center in the near future, because they used to, believe it or not, drop ship their merchandise.
So all good things, though.
All things we knew going in and we're excited about it.
The second part of your question is on the integrate ---+ did you believe that you heard something about Trade Secret or the Home business coming here.
That might have been just the way we said something in the script.
Because there is no plan ---+ no, there is no plan for that.
That is something that we're looking at, is a potential home business only there.
So that's something that we're actually toying with as we speak.
To your point, <UNK>, it's also a natural for there.
Thank you.
Okay, I think we have answered all our questions.
We thank you all for your time today and thank you all for joining us on the call.
| 2016_TJX |
2017 | VRA | VRA
#<UNK>, thank you for the question.
In terms of significant major uplift in e-commerce business in the markets that we've rebranded the stores, we're not seeing a dramatic change in the e-commerce business.
In terms of as we're closing stores, we are working to definitely migrate our consumer into our other locations.
We're starting that with Phipps in Atlanta, to really make sure that we're managing customer by customer, and whether that's moving them to another one of our full-line stores, whether it's moving them to our e-commerce business or one of our specialty or department store partners, we're working through that process and we know that will be important.
As we look at closing the 15 stores over the next two years, we're obviously working through that process.
We expect that the majority of that closing will happen more towards the end of this year, going into next year, just to put that in perspective.
Thank you.
We know we still have a lot of work to do, but feel confident we are on the right path and have the financial strength to transform Vera Bradley into a stronger Company.
We will continue to work diligently to improve our performance and enhance shareholder value.
Thank you for joining us today.
We look forward to speaking to you on our first-quarter call on May 31.
| 2017_VRA |
2016 | EVR | EVR
#Good morning and thank you for joining us today for Evercore's first quarter 2016 financial results conference call.
I'm <UNK> <UNK>, Evercore's Chief Financial Officer, and joining me on the call today is <UNK> <UNK>, our President and Chief Executive Officer, and <UNK> <UNK>, our Chairman.
After our prepared remarks, we will open up the call for questions.
Earlier today we issued a press release announcing Evercore's First Quarter 2016 Financial Results.
The Company's presentation today is complementary to that press release, which is available on our website at evercore.com.
This conference call is being webcast live on the Investor Relations section of the website and an archive of it will be available beginning approximately one hour after the conclusion of this call for 30 days.
I want to point out that during the course of this conference call, we may make a number of forward-looking statements.
These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements.
These factors include, but are not limited to those discussed in Evercore's filings with the Securities and Exchange Commission including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K.
I want to remind you that the Company assumes no duty to update any forward-looking statements.
In our presentation today, unless otherwise indicated, we will be discussing adjusted pro forma or non-GAAP financial measures, which we believe are meaningful when evaluating the Company's performance.
Of note, when we reference comparative results during the call, we will be evaluating 2015 results as if our investment in Atalanta Sosnoff was reported using the equity method of accounting rather than on a consolidated basis.
For detailed disclosures on these measures and their GAAP reconciliations, you should refer to the financial data contained within our press release, which as previously mentioned, is posted on our website.
We continue to believe that it is important to evaluate Evercore's performance on an annual basis.
As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings.
I'll now turn the call over to <UNK>.
Thank you, <UNK> and good morning everyone.
We're generally pleased with our first quarter results.
As all of you are aware, the first quarter typically is a seasonally lower than other quarters, but this was the best first quarter in our firm's history with revenues up 11% year-over-year on a comparable basis.
As we mentioned in our fourth quarter conference call, some of the trends that were emerging in late 2015 are in fact carrying over into 2016.
We are experiencing an increase in distressed M&A and restructuring activity in select sectors such as energy and other commodity related areas, while at the same time sustaining M&A activity in other sectors including healthcare, tech, media telecom and financial services.
We continue to believe that 2016 could be one of those unique years in which we see reasonably strong M&A activity coupled with a pick-up in restructuring activity.
Our equities business benefited from volatile equity markets and increased equity trading activity in the beginning of the quarter, contributing to an 8% year-over-year increase in secondary revenues, which is distinct from many of our larger competitors.
Conversely, ECM activity was weak in the quarter due to the volatility in equity markets in the first two months.
However, ECM activity has picked up at the end of the quarter and that momentum carried over into the second quarter as we are into our largest ECM fee to-date in the first three weeks of April.
Recruiting is off to a solid start with the addition of four Senior Managing Directors in Investment Banking, three in Advisory and one in Equity Research.
We continue to have discussions with candidates, though at this point in the recruiting cycle we anticipate that our hiring class will be in our historical range of 47 Advisory Senior Managing Directors, but below the record 10 Advisory SMDs that we hired last year.
Based on the announced earnings from our peers this quarter, we anticipate that our market share among all publicly traded investment banking firms of advisory revenues will grow, as will our market share among the publicly traded independent firms.
We have consistently demonstrated our ability to grow market share when M&A markets are strong and when they are a little less strong, as they were in the first quarter of this year.
In Investment Management, we continue to focus on our wealth management and trust business and our money management business in Mexico.
In February, we enhanced our capabilities with the opening of Evercore Trust Company in Delaware; we also completed the acquisition of the remaining minority interest in our money management business in Mexico in January and are making progress on our cost reduction programs in that business.
We successfully issued $170 million of fixed rate senior notes at an average interest cost of 5.25% during the quarter through a private placement and used a portion of those proceeds to repay the $120 million variable rate senior notes that we borrowed from Mizuho.
Very importantly, we returned $123.1 million of capital to our shareholders during the quarter, including repurchasing 2.3 million shares at an average price of $46.61, substantially offsetting the dilution from shares were bonus equity awards in 2015.
Let me briefly go over our financial performance.
First quarter net revenues were $257.2 million, up 11% versus the same period last year, on a comparable basis, which is pro forma as <UNK> mentioned or the deconsolidation of Atalanta Sosnoff due to the restructuring of that investment.
Net income was $32.8 million for the quarter, with earnings per share of $0.63.
These results are up 10% and 13% respectively versus the first quarter of last year.
Earnings per share was up by a greater percentage than net income due to our aggressive share repurchase program.
Operating margins were 21.3% for the quarter, up marginally from the first quarter of last year.
Our compensation ratio was 57.6% for the quarter, which is reflective of our current full year expectations.
Non-compensation costs were $54.4 million, up from the first quarter of last year due to headcount growth, but down in comparison with the fourth quarter of 2015.
Non-compensation costs represented 21.1% of our revenues compared to 21.5% in the first quarter last year.
Let me now turn the call over to <UNK> to comment on our Investment Banking performance and the M&A environment generally.
Thanks, <UNK>.
Our equities business contributed revenues of $58.3 million in the quarter, up over 5% from the first quarter in 2015, including $1.2 million attributable to underwriting.
Secondary revenue, as I mentioned earlier, was up 8% over last year as a result of both the greater volatility and higher volumes in the first quarter.
And also our continued improvement in the esteem and accord that we are held by the largest institutional investors around the world.
Overall, the business produced operating margins of 19.7% in the quarter, compared to 15.2% in the first quarter of last year, despite the softness in ECM.
This is a function of both the strong secondary revenues and the success of our cost reduction activities.
We remain focused in this business on controlling costs, while making measure investments to drive the future growth of our business.
In Investment Management, for the first quarter Investment Management reported net revenues and operating income of $20.2 million and $6 million respectively, and produced an operating margin of 29.8%.
These results reflect the contributions from our wealth management and trust businesses, which continued to perform well now and now have in the case of wealth management $6.5 billion of client assets.
And in Mexico, assets under management were MXP31.5 billion at the end of the quarter, flat versus the first quarter of 2015.
<UNK> will now provide further comments on some of these actions, our non-compensation costs and other financial matters.
Thank you, <UNK>.
Let me begin with a bit more detail on two points that were previously mentioned.
First, with respect to the acquisition of the 28% minority interest in Evercore Casa de Bolsa that occurred in January and we invested approximately MXP120 million at the time, converting ECB to a wholly-owned entity.
Just for context, ECB is our Mexico entity, providing Investment Management services, it is also the subsidiary we used to participate in underwriting transactions in Mexico.
As we previously indicated, the investment facilitate cost reduction initiatives, which are currently underway.
Secondly, with respect to the financing that <UNK> mentioned, we placed $170 million of fixed rate term debt with six insurance companies and retired the $120 million variable-rate loan with Mizuho.
The notes have a weighted average maturity of about 8 years, ranging from 5 years to 12 years and a weighted average interest rate of 5.257%.
In conjunction with the placement of the notes, we have a commitment to reduce our line of credit to $30 million.
Following the restructuring of the line of credit, we will have debt financing of approximately $200 million, essentially consistent with our position in 2015 before Mizuho exercised the warrants they held.
Turning to our adjusted results, they are presented on the basis that is consistent with prior periods for the quarter and exclude certain costs that are directly related to our equities business and other acquisitions.
Most significantly, we have adjusted for costs associated with the vesting of equity granted in conjunction with the ISI acquisition.
In the first quarter we expensed approximately $32 million consistent with the continued positive performance of Evercore ISI.
As a reminder, our adjusted pro forma presentation includes all of the shares we expect to issue for the equities business and the EPS denominator, our forecasts that drive the number of shares expected to be issued did not change materially in the quarter.
As you know, our primary gauge of non-compensation costs is cost per employee.
We continue to make progress on this metric with firm-wide operating cost per employee of $36,400 for the quarter, which is 5% lower than Q4 and 3% lower than Q1 of last year.
Turning to the equities business, the adjusted operating margins which govern the ultimate payout of the G and H units for the equities business was 16.2% with the first quarter up modestly from the fourth quarter of 2015.
During the quarter, approximately 371,000 Class G units were exchanged for Class E units as Evercore ISI is satisfied with the performance threshold with these units for 2015.
Focusing on taxes, our adjusted the pro forma tax rate for the first quarter was 37.5%, a slight increase from the first quarter of 2015.
As we've previously discussed, our effective tax rate changes principally due to the level of earnings in businesses with minority owners and earnings generated outside of the US.
The elimination of minority interest balances for ECB and Atalanta Sosnoff drove an increase in the rate, which was offset by growth in the expected profitability of other non-wholly owned businesses.
Our share count for adjusted pro forma earnings per share was 52 million shares, a decrease of approximately 950,000 shares from Q4 2015, this decrease principally reflects share repurchase transactions, which as <UNK> mentioned, we repurchased 2.3 million shares for the quarter.
In addition, our Board of Directors has refreshed our share repurchase authorization such that we now have authority to repurchase $450 million in shares or 7.5 million shares.
And finally, our cash position remains strong as we hold $338.4 million of cash and marketable securities at March 31, 2016 with current assets exceeding current liabilities by approximately $327 billion.
With that operator, we can open the line for questions.
Well, <UNK>, as you know, on an adjusted basis, we have put in all of the shares into the share count that we expect to issue and we are taking out the compensation expense.
So, as we have said consistently, our view was that the business should be in a position on the basis of our cost reduction strategies to realize the G units.
They achieved the 2015 tranche, <UNK> has consistently called those the bread crumbs on the ground, and sort of showed them the past to running a successful business.
And as you saw, the results for the first quarter of 2016 are also consistent with ---+ are well above the level needed to earn those units.
So, the question remains, how will the business perform over the 5-year term.
We built 5-year forecasts to estimate how many of the Hs would come into ---+ would ultimately turn into shares that were issued and the business is performing pretty much on that plan.
And <UNK>, I mean, my observation would be for those that have reported, actually our year-over-year revenue results in advisory are ---+ were comparable or better.
Well, Steve, our private capital, our private funds business, those are inherently more back-loaded, but if you look at the independent, virtually all of them have that business today.
We framed it over a two-year to three-year horizon, which is the same framing that we used in the prior authorization, which was 7 million shares.
So we've pumped it to 7.5 million shares.
Yes, for the time horizon, it will work.
It's actually more reverting to what we've done historically.
Last year was an extraordinary year, I think we've said as long as long as I've been here and probably as long as we've been public that we hope to hire four to seven Advisory SMDs a year that's been the practice every year.
We've also said that if circumstances evolved in a way that we had an opportunity to hire more high quality SMDs that we would seize that opportunity.
Last year we did that both because we had the opportunity to hire a little bit more in the industry practices and also, let's not forget that we were ramping up our ECM activities, two of the ten that we hired last year were in ECM, which was not a hiring area in the past.
So it's really driven more by the reversion to our historical practice and last year was the anomaly.
Dan, the other point, that you would have seen in the press release is, we're also adding talent in research, Tom Gallagher, has committed to join us, covering insurance and we see a lot of supply there to build out that business over time as well.
I think our practice will be the same as it's been for the last several years, which is we think carefully about our expectations at the beginning of the year, which is much reflected here.
And we'll adjust the comp ratio as the year plays out as you point out particularly as revenues are realized, but this is our best thinking today.
And the reason it's been a smaller piece of the restructuring pie is there wasn't a lot of restructuring activity in energy and the largest restructuring EFH, we're the lead restructuring advisor.
So, I think we are ---+ as the activity has picked up in the energy sector, the restructuring activity, the fact that we have both a strong energy banking relationships and a very strong restructuring practice has obviously benefited us.
We ended last year with 79.
Two have joined and one of our SMDs at the end of the year has moved to [Senior Advisor].
Operator, can you hear us.
Operator, can you fix this busy signal.
Hello.
Operator (multiple speakers)
Do we have another question.
I guess, I would differ a little bit with your premise that we've grown where others have pulled back.
I think we've been very consistent in, first of all, staying only in the advisory fee-based business.
So every business that we're in is a business where we compete solely on the basis of our ideas, our intellectual capital and our relationships and where the only source of revenue is fee.
So, for example, the big banks are pulling back from FICC businesses, fixed income, commodities and credit.
And we have absolutely no intention of ever entering those businesses.
What we have always done is sought to find uniquely talented people who can produce high revenues, and we have the highest per partner revenues in the industry, as <UNK> alluded to.
And we are consistently looking for senior professionals who can do that on an intellectual capital-based and relationship-based business like we have.
And to be honest with you, wherever we can find those people and in whatever businesses they are, we're going to open a discussion with them.
We're never going to be finished with efficiency initiatives.
Well, we accomplished a 2015 program that focused on information services, it focused on travel, it focused on technology.
And as <UNK> said, we're never done this year, so we're heavily focused on our trading platform, our trading costs, our clearing infrastructure, but at the same time we'll make some investments to improve on the operating platform a bit, particularly focused on trading, so there'll be some puts and takes [in efficiency].
Look, there was a burst of activity, obviously tied to the decline in energy and other commodities, which has been highly focused in energy and materials related and commodities related businesses.
And the question that you're asking is, have we seen spill over into other sectors.
And the answer is, there is clearly restructuring activity in other sectors, but there hasn't been a pick-up in that level of activity and there is always a level of activity related to companies that have high amounts of leverage and particularly in a slow growth economy that are growing their topline and bottom line at a pace that would support that leverage.
But in terms of a March pick-up in activity, that's really isolated today in the energy and materials and commodities related sectors.
No, the answer is no.
I mean, we don't live in quite as the antiquated roles such that investors and you guys and everybody else can differentiate between what's an inversion and what is it.
So the answer is no.
The answer is, first of all we have no idea whether it continues over the next 6 months, 12 months, 24 months, because so much of that is driven by public policy within China, which changes not infrequently and which obviously has a material effect on what you just discussed.
We have a sufficient position in China to serve our clients, highly professionally and whatever they want to do in China.
We have not sent an army of people to Beijing and Shanghai to scour for additional M&A transaction.
Great.
Thanks everybody for your time and attention and we'll look forward to talking to you next quarter.
| 2016_EVR |
2015 | WWW | WWW
#I kind of qualified it as I was saying that.
In my head I filtered, I think really for the back half of the year we expect earnings growth.
So, I don't want to ---+ I want to clarify.
I'm not saying Q3 and Q4 each, but for the back half of the year, for sure, based on the earnings guidance that we've reaffirmed today.
Thank you for the opportunity to clarify that.
If you're talking in particular about the women's casual category, I would say we'll begin to see some progress in the fall season a little bit with our late fall introductions, and into spring of next year.
We're, frankly, trying to accelerate that timetable.
So ---+ but I'm just giving you our current view.
Yes.
Sorry.
Before you ask the next question, what I'll say is that with the challenges we've had in the active lifestyle part of the business and the declines, candidly, we've had in the outside athletic part of the business, the performance outdoor ---+ with seven consecutive quarters of strong growth in performance outdoor now represents over 60% of Merrell's overall business, with about 30% being the lifestyle product and then far less than 10% being outside athletic.
So, as we continue to deliver growth and performance outdoors, can have an increasingly positive impact on the brand's overall results.
But what I will say ---+ full stop on that point ---+ the next point is, for the brand to get back to the level of growth that we have experienced in the past and that we intend to get the brand back to, which is the consistent high single-digit to low double-digit growth, that trend of performance outdoor ---+ being a bigger and bigger part of the business for Merrell ---+ needs to reverse and the lifestyle part of the business needs to regain footing ---+ no pun intended ---+ which is kind of what <UNK> said.
So, that is the goal going forward, and we are working really hard at making sure the lifestyle product is singing to both retailers and consumers.
Yes, we continue to see great performance on the men's side in boat.
That never really slowed down that much.
It was more of a stable business.
It's certainly refreshing to see women's boat pick up and deliver some growth.
We are seeing the new women's boat product and there's a bigger pipeline coming for fresh new product in the women's boat category, so we feel very good about the boat category.
We also feel especially good about vulcanized, which had a significant uptick in Q1 and a number of other areas, including boots.
So, I would say Sperry's ---+ one of the reasons why we have confidence looking into the back half is the fact that the response we've had back from retailers and consumer panels on category extensions for Sperry has been very, very positive, especially in the boot arena.
And, <UNK>, I know you rely heavily on SportScan data, and we use more MPD.
The March MPD data for Sperry turned positive mid-single digits, which was very encouraging to see after several quarters in a row of negative results from MPD for Sperry on the sell-through.
So, we're seeing a turnaround in the brand's performance at retail, not just what we're shipping in but actually what is being purchased by consumers.
Thanks.
I would say ---+ you're talking specifically about a couple of retailers in the family channel, <UNK>.
I would say it was ---+ in Q1, it was helped but it would be, overall from North American sales, low single digits, maybe 3% or 4% range.
I don't have the exact figure ---+
I'm sorry, it was a few million dollars.
The brand still would have grown double digits, <UNK>, even without that expansion of distribution.
<UNK>, as we've discussed before, historically, Sperry's had a very good business in the family channel but, quite frankly, before the acquisition is shortly thereafter they didn't probably have adequate discipline or product segmentation.
That required us, really, to take a couple of steps back and then, as we're reentering now a couple of those retailers, we're doing so on the understanding they are going to be less promotional.
But, most importantly, there's going to be a strict product segmentation strategy that we put into place.
Yes, we usually don't comment on that, <UNK>, obviously.
We've got a pretty disciplined approach to reviewing our brand portfolio.
As you know, over the years, we've shed a few businesses and a few smaller brands, and we look at that on a routine basis.
But, certainly, with respect to the four newest brands that we acquired, we're very comfortable with their performance and potential.
Yes, as you know, it's always a bit hard to measure precisely the impact on marketing spend and other investments behind the brand.
I would say, with respect to Sperry, which is our primary focus ---+ one of our primary focuses in 2015, a good chunk of the mid-teens reported and constant-currency growth for the brand in Q1 relate to the new brand platform.
It's hard to measure that precisely, but I don't think we would have been there without our investment behind the brand and a focus on the brand.
I think the new brand platform and the Odysseys Await ---+ executions under that platform have been very well received by retailers.
That kind of acted to reenergize the brand and the entire boat silhouette category.
And so, we believe we're getting a very good return right now.
It's just difficult to measure it with any kind of precision.
What I will say, <UNK> ---+ I think we've had this conversation but if not, if it wasn't you it was someone else ---+ but, when we were evaluating the decision to invest incrementally behind the Sperry brand, we looked at where the brand was and where we all agree the brand would trend ---+ how it would trend if we did not change the brand platform and the brand message.
And then we looked at what the brand team was willing to sign up for in terms of revenue growth and profit growth, if we invested the incremental investment dollars.
And it was clear that it was a positive net present value investment opportunity if we could deliver on what the brand team thought they could deliver.
And, so far, they're tracking at or above what the commitment was nine months ago.
So we feel good about where we are.
Could I say exactly where the brand would be if we weren't making any incremental investment.
No, we can't say it with precision, but we feel confident that we're getting a return on the investment dollars.
Sure.
Yes, <UNK>, I really separate that into two buckets ---+ the US market and the world.
As you know, most of the world buys their shoes in US dollars, and we've seen a very strong appreciation of the US dollar over the last year.
So, we're seeing our ability to pass on price increases domestically ---+ I won't say easier, but easier to understand, especially when it's coupled with the marketing expense and new exciting product.
Internationally, it's a little bit of a different situation, especially in those countries that have had a significant weakening of their currency.
So, our international distributors are hedging a little bit more.
They're focused on some lower price point products, maybe more in the good, better categories as opposed to the best categories.
They're also passing on some price increases, and we're working with several of our partners on local sourcing, which helps mitigate the currency situation.
So it's really the US market that has a different set of criteria versus the rest of the world right now.
And I will add to that, <UNK>, just quickly that, from my perspective as CFO ---+ and we're all mindful of the power of revenue growth that comes via price increases, particularly if you're not selling any [shoe repairs] because of the price increase, because that flows right down the P&L with very little incremental cost to go against it.
But revenue performance, at the end of the day, is a combination of unit volume growth and what you're doing on the pricing side.
But, I prefer revenue growth to come from additional sales price increases because that's more powerful impact to the bottom line.
But the reality is, it comes from both.
And so, a brand like Sperry, in FY15, will deliver us revenue growth via both significant price increases, supported by the marketing program, as well as unit volume increases.
Good morning, <UNK>.
Yes.
To answer your last question first, the most pressure will be on Q2.
Our outlook for the full fiscal year hasn't really changed.
We probably had a little bit better gross margin performance in Q1 than we had expected.
I think gross margin will be down, as I said, in Q2.
But, for the full fiscal year, we expect gross margin to be about where we thought it was going to be when we gave our initial guidance back in February.
Yes, I would think, <UNK> that, one, we expect our cancellation rate to be down this entire year.
Our inventories were down almost 10% in Q1.
We have been very disciplined there.
We think inventories are balanced at retail.
And so we think our cancellation rate, one, is going to be down.
On the other hand, we've had some significant shifts in order windows, which probably accounted for a bit of a spike up in our order backlog when the 10-K was filed, especially in the boot and rubber arenas across a number of our brands.
It was just, frankly, we were required to take a view and place earlier, as were our retailers.
So, that's accounted for some of the spikes you're probably seeing in our 10-K filing.
And I will say, as we expected, post-filing of the 10-K, our backlog has moderated, as we expected, because that was not indicative of what we thought our full-year revenue growth was going to be.
So, it has moderated, but we still feel we're in a good spot as it relates to the back-half revenue growth that's reflected in our revenue guidance.
I think, given the timing of the future orders, at-once business ---+ it would be reasonable to expect it to be a little down, that's what we're forecasting versus prior year, because a lot of the orders have come in earlier and so it might be less.
Obviously, a big portion of at-once business in Q2 and Q4 is going to be a function of sell-through as well you get the fill-in orders that come through.
So, similar to prior year, but maybe given the order book going into the last three quarters of the fiscal year, maybe net-net a little down.
I would say, I hate to mention weather, but I would say after we finally got a spring here on the East Coast and in the Midwest and in a good chunk of the country, we have seen a pickup in business and certainly at-once [a pair of] spring offerings.
Yes, I think as I said the Sperry stores were, on a comp basis, probably our best performing segment across our fleet.
So, in that respect, it was good, but any mall-based operation and, as you know, with the weather the outlet arena has been ---+ it was really suffering in Q1 and a bit into Q2 here.
So, we would have preferred a positive comp-store increase for Sperry in Q1.
It was down low-single digits, which is pretty good, but the performance was actually pretty good especially when you consider the traffic was off substantially more than that.
The brand had a very solid, if not very strong Q1, <UNK>, with boat shoe up double digits, vulcanized product up over 20%.
The boot business, obviously in the first part of the quarter more so than the latter part of the quarter, up very strong double digit continuing the results that the brand delivered in Q4.
But I will say that you're talking about the divergence between our overall brand revenue, which is primarily wholesale driven versus our comp-store sales performance, I would say as someone noted earlier in a question, we did have an easier comp in Q1.
Retail inventories were quite high going into Q1 last year as we had a really tough Q4.
So there were far more order cancellations in Q1 last year and fewer outgoing shipments that we were comping against this year, which helped drive that mid-teens quarterly revenue growth.
And that would be probably the primary difference or point I would make in terms of trying to explain the difference between the overall revenue growth and the comp store performance.
I understand.
I think it was primarily a traffic issue in Q1.
Thanks, <UNK>.
I will tell you we're in a pretty benign sourcing environment right now.
Certainly petroleum-based components, the prices on those components have eased.
Leather is still high by historical standards but has also eased a little bit in the 5% to 8% range here over the last couple of months.
So, most of the increases we're seeing now are labor increases ---+ labor and overhead increases.
And, although we, for the year, expect to see some overall price increases across our hundred million pair of sourced product, it's a reasonable benign environment, I would say right now, with the labor increases kind of offsetting some of the savings in the component side.
And I will say, <UNK>, that we work very hard to mitigate the impact of cost increases.
But I tend to not look at cost increases in a vacuum, or look at selling price increases in a vacuum, but look at those two in tandem.
And, in the quarter, the gross margin benefit from selling price increases across the brands in our portfolio was more than double the negative impact of product cost increases.
So, that was a big contributor to the overall gross margin performance in the quarter.
It's pretty difficult to quantify.
We've got a number of agreements, a number of countries, a number of regions in the works across our four newest brands, and I would say the international rollout here has met our expectations and we believe it's going to continue to meet our expectations.
But it's almost impossible to identify when specific agreements are going to be signed and the marketing process begins.
But I would suggest that the revenue benefit in 2016 internationally for the Boston-based brands will come more from the agreements that we have signed in 2013, 2014 and to a lesser extent 2015, and less from any new agreements we might sign over the balance of this year or the first part of 2016.
Yes, I would say for Caterpillar remains very strong in Asia Pacific, but we've also seen some large businesses build fairly quickly on Keds and Saucony.
And so, as a region ---+ I know we keep reading articles that there's a slowdown in Asia Pacific, and China's only posting an anemic 7% GDP growth rate, and this and that, but for our brands certainly Asia Pacific is a sweet spot right now and we expect that to continue.
Yes, as I said before, we probably only had $10 million of the impact on the revenue side in Q1.
For us, I would say the situation is back to normal.
I'm told the situation is going to be completely back to normal for Long Beach and other ports in the next several weeks.
Of course, now we've got some picketing going on by truckers on ---+ with a disagreement over their status whether they're independent contractors or shouldn't be considered employees, but we're monitoring that very carefully, we'll keep an eye on that, but right now we don't think that's going to have any kind of material impact on our performance.
I would say, <UNK>, about half of the inventory decline might be related to the port situation, with the remainder of the inventory decline driven by the retail stores that we closed at the end of last year.
And just overall aggressive inventory management, just moving out the inventory that is classified as close out.
If you look at our balance sheet you also see our accounts payable are down year over year, and that relates to just the delay in the receipt of inventory which, at the end of the quarter, would have actually, obviously, caused inventory to go up and cause accounts payable to go up.
So we receipted that in the first part of Q2.
D&A, about 50 million plus or minus; the tax rate would be similar to the guidance we provided last quarter, 27.5%; and CapEx, in the $45 million range plus or minus ---+ and what was the last, other point.
Share count.
Share count of 101.6 million will be our guidance for the full year, weighted-average shares outstanding.
On behalf of Wolverine World Wide, I'd like to thank you for joining us today.
As a reminder, our conference call replay is available on our website at wolverineworldwide.com.
The replay will be available until May 27, 2015.
Thank you and good day.
| 2015_WWW |
2017 | INCY | INCY
#Thank you, Diego.
Good morning, and welcome to Incyte's First Quarter 2017 Earnings Conference Call and Webcast.
The slides used today are available for download on the Investor Section of incyte.com.
I'm joined on the call today by <UNK>, <UNK>, <UNK>, Dave and <UNK>.
We'd like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for 2017 guidance, the commercialization of our products and our development plans for the compounds in our pipeline as well as the development plans of our collaboration partners.
These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially, including those described in our 10-K for the year ended December 31, 2016, and from time to time, in our other SEC documents.
I'd now like to pass the call to <UNK> for his introductory remarks.
Thank you, Mike, and good morning, everyone.
So, obviously, we've had a very busy beginning to 2017, which included both a number of very exciting development and one rather disappointing one.
I'll now walk you through some high-level comments on each of these in the next few minutes.
Firstly and very importantly, sales of Jakafi for the first quarter was 37% higher than in the first quarter of 2016, and the primary driver of this strong growth is a growing number of patients on therapy.
Also on the positive side, our product-related revenue, which includes Jakafi and Iclusig sales by Incyte, and royalties we received from Jakafi and Olumiant, showed robust growth of 43% year-on-year.
Let me now turn to the recent baricitinib updates.
In February, the European Commission approved baricitinib as Olumiant for the treatment of patient with moderate to severe rheumatoid arthritis.
It has since been launched by Lilly in Europe with what we consider to be a strong label.
And in Q1, we recognized the first royalties on European sales.
Last month, and with Lilly, we announced some not-so-bright news when the FDA issued a complete response letter for baricitinib for the treatment of patients with rheumatoid arthritis.
This will delay any potential U.S. approval of baricitinib versus our original assumption, which was for approval on the April PDUFA date.
The CRL indicated that additional clinical data are needed to determine the most appropriate doses and to further characterize safety concern across treatment arms.
We expect that Lilly will now engage with the FDA to discuss the agency's concern and determine the potential path forward.
We remain confident in the benefit/risk of baricitinib as a new potential treatment option for adults with RA, and in terms of the development of baricitinib with Lilly in RA and subsequent indication.
Dave will provide more color on the financial impact of the delay to any potential U.S. approval of baricitinib is expected to bring, including a most conservative outlook for the timing of any future milestone payments from Lilly.
The CRL for baricitinib in the U.S. is obviously a disappointment, but we do not believe it changes the fundamental momentum and direction at Incyte, which has been driven by strong growth in product-related revenue as well as a significant expansion of our clinical activities across many parts of our development portfolio.
A month or so ago, we were excited to announce our plans to expand our clinical collaborations with Merck and Bristol-Myers Squibb for epacadostat and their respective PD-1 inhibitors.
With Merck, we intend to open pivotal programs in 4 additional tumor types and with BMS, we intend to open pivotal programs in 2 tumor types.
We look forward to sharing some of the data driving these go-forward decisions with you next month at ASCO in Chicago and to our planned opening of these studies later in 2017.
Within our targeted portfolio, we shared first human data from our FGFR1/2/3 inhibitor 828 at AACR in April.
Recall that this compound is currently in 3 Phase II trials for bladder cancer, cholangiocarcinoma and 8p11 MPNs.
Also, we recently dosed our first patient in CITADEL-202, which will evaluate our PI3K-delta inhibitor '465 in patients with relapsed or refractory DLBCL this year.
Additional trials in the CITADEL program evaluating '465 in other non-Hodgkin lymphomas as planned.
And lastly, the pivotal program of ruxolitinib in patients with essential thrombocythemia is expected to begin soon, and itacitinib, our selective JAK1 inhibitor as the pivotal programs for treatment-naive GVHD is on track to begin later in 2017.
Slide 6 provides a further additional opportunity to review the progress we have made and the preparations we are already making for our long-term success at Incyte.
In February, it was announced that Incyte would be joining the S&P 500 Index, which is widely regarded as the best single gauge of large-cap U.S. equities.
I believe that our inclusion in the S&P 500 is an excellent illustration of the significant recent growth across many parts of our business.
During the first quarter, we also closed 3 transactions, investing over $200 million in upfront and milestone payments to secure new or amended collaborations with Merus, Calithera and Agenus, which we believe will be very important for the long-term success of Incyte.
With that, I'll pass the call to <UNK> for an update on Jakafi.
Thank you, <UNK>, and good morning, everyone.
We have seen strong growth in demand for Jakafi over the past few years.
We exited the first quarter with approximately 10,000 patients being treated with Jakafi.
A number that has grown annually by almost 40% since the first quarter of 2014.
After more than 5 years since the initial FDA approval, we are pleased to see continued robust growth in total patient numbers.
Sales of Jakafi continue to perform well.
Jakafi revenue for the first quarter of 2017 was $251 million, a 37% increase over the first quarter of 2016, and a 6% increase over the fourth quarter of 2016.
Performance in the first quarter was driven primarily by strong demand growth of 6% over Q4.
As expected, we experienced a typical and seasonal increase in gross to net of the first quarter, and Q1 also saw a normalization of inventory levels.
We exited 2016 at the lower end of the normal range and have exited Q1 at the higher end of the normal range - with about 3 weeks of Jakafi in inventory.
We are proud of the clinical benefits that Jakafi provides to patients with myelofibrosis and polycythemia vera, and we are continuing to invest in the clinical development of ruxolitinib.
The pivotal program of ruxolitinib in patients with steroid-refractory acute GVHD is already underway.
If the REACH1 trial is successful, we plan to submit an sNDA seeking accelerated approval of ruxolitinib for the treatment of patients with steroid-refractory acute GVHD during 2018.
We also intend to open a pivotal program studying ruxolitinib for the second-line treatment of patients with essential thrombocythemia.
While most patients are treated in the first-line setting with hydroxyurea, we believe that ruxolitinib may benefit patients with ET after treatment with hydroxyurea.
The prevalence of ET in the U.S. is approximately 80,000 patients, and approximately 8,000 patients may be eligible for second-line therapy.
With that, I'll pass the call on to <UNK> for a clinical update.
Thanks, <UNK>, and good morning.
Our ECHO clinical development program evaluating epacadostat continues to advance as well as to expand.
We initiated the ECHO-301 Phase III trial of epacadostat in combination with pembro in patients with unresectable or advanced melanoma a little less than a year ago, and the trial has been recruiting very well.
The collaborative effort with Merck has been very successful, and enrollment target numbers for ECHO-301 have recently been reached at most investigator sites.
Sites in Japan remain open for recruitment in that portion of the study.
During the last year, we predicted that towards the end of 2016 we would be in a position to make go/no-go-decisions on new Phase III programs for epacadostat and with the maturation of the data, we are now moving ahead in multiple new pivotal programs.
As previously announced, we expect to initiate 6 pivotal studies in 4 tumor types with Merck and we expect to initiate 2 pivotal programs with BMS.
Pending regulatory feedback, we hope to initiate these programs by the end of this calendar year.
Next month, we look forward to the presentation of multiple cohorts of Phase II epacadostat data at ASCO in Chicago.
The datasets from the ECHO-202 trial of epacadostat in combination with pembro contain approximately 30 to 40 patients per tumor type.
And of these, the bladder and head and neck cancer cohorts will be oral presentations, and the non-small-cell lung cancer and renal cancer cohorts will be highlighted in poster discussions.
The pooled safety data from across the ECHO-202 study will also be a poster discussion.
The ECHO-204 trial of epacadostat in combination with nivo will also be in oral presentation and will include efficacy data from several, but not all, of the tumor types being studied in ECHO-204.
Other presentations of Incyte compounds at ASCO will include CITADEL-101, which is evaluating our PI3-kinase delta inhibitor '50465 in relapsed or refractory B-cell malignancies as well as early clinical data from '1158, our recently in-licensed arginase inhibitor.
We've made good clinical development progress so far in 2017, and Slide 14 shows the full portfolio.
Two pivotal trials REACH1 and REACH2 for ruxolitinib in acute graft-versus-host disease are already underway, and another REACH3 in chronic graft-versus-host disease is expected to begin later this year.
We also expect to start the pivotal studies of ruxolitinib in essential thrombocythemia and of itacitinib in treatment-naive acute graft-versus-host disease in the coming months.
Beyond the ECHO-301 trial in melanoma, we expect to start at least 8 new pivotal trials of epacadostat plus PD-1 inhibitors across 4 different tumor types.
This generates a total of at least 14 pivotal trials either in progress or planned for the coming months.
One additional update to the portfolio is that, following 24 weeks of treatment with our topical formulation of ruxolitinib, we have determined that data from the recently completed randomized Phase II trial in patients with alopecia areata do not justify progression of the program into pivotal studies.
These data are expected to be prepared for and submitted to a future medical meeting.
Our Phase II trial of topical ruxolitinib continues in patients with atopic dermatitis, and we expect to initiate a Phase II trial of topical ruxolitinib in patients with vitiligo in the coming weeks.
I will now finish my section on our expected news flow.
On Slide 15, you can see the progress we expect to make in our portfolio in the next 12 months.
In addition to those programs we've already touched on, we expect data presentations from both our BRD inhibitors and our PIM inhibitor by year-end and we hope to be in a position to provide initial date from our immuno-oncology doublet paired biopsy trials later in 2017.
Within our partnered programs, we expect data from the study of capmatinib in combination with EGFR inhibitor later this year, and we'll provide updates as appropriate regarding the clinical development of baricitinib.
With that, I'll pass the call today to Dave for the financials.
Thanks, <UNK>, and good morning, everyone.
In the first quarter, we recorded $384 million of total revenue.
This was comprised of $294 million in net product-related revenue and $90 million in contract revenue.
Product related revenue of $294 million represents 43% growth over the same period last year as comprised of $251 million in Jakafi net product revenue, $14 million in Iclusig net product revenue, $29 million in Jakafi royalties from Novartis and $400,000 in Olumiant royalties from Lilly.
Our commercial operations in Europe continued to perform well, and I'm pleased to confirm that Takeda has notified us they will not be exercising the buyback option related to Iclusig product rights in Europe.
The $90 million in contract revenue consists of a milestone paid to us by Novartis related to a Phase III study for ruxolitinib and GVHD and a milestone paid to us by Lilly for the European approval of Olumiant.
The first quarter Jakafi royalties of $29 million represents 32% growth over the same period last year, but is slightly lower than the fourth quarter of 2016 because the royalty tiers resets each calendar year, and we are in the lower tier in the first part of each year.
In addition, Olumiant royalties of $400,000 reflects the product approval and launch by Lilly late in the first quarter.
Based on the recent news of the baricitinib complete response letter in the U.S., we have decided to take a very conservative approach around milestone guidance for the remainder of 2017 and we are removing remaining baricitinib approval in development milestones from our 2017 financial guidance.
Our revised milestone guidance is now up to $130 million for the full-year 2017, of which, we have already recognized $90 million in the first quarter.
We believe that this is a very fluid situation and we look forward to updating you at any material changes to our milestone guidance at the appropriate times once we get more clarity.
Our gross net adjustment for the first quarter was approximately 15%.
This was driven primarily by Jakafi, and as with similar oral oncology products, our gross net adjustment is higher in the first quarter of the year than the rest of the year, primarily because our share of the donut hole for Medicare Part D patients.
We expect our gross to net adjustment for full-year of 2017 will be approximately 13%.
Our cost of product revenue for the quarter was $15 million.
This includes the cost of goods sold for Jakafi and Iclusig, the payment of royalties to Novartis on U.S. Jakafi net sales, and the amortization of the acquired product rights related to the Iclusig product acquisition in Europe.
Our R&D expense for the quarter was $408 million, including $22 million in noncash stock compensation and $209 million in upfront and milestone expense related to the amended Agenus collaboration and the new Merus and Calithera collaborations.
Given the recently announced expansion regarding our development collaboration agreement with Merck, and also now with BMS, for the initiation of Phase III studies of epacadostat, we're updating our current R&D guidance to a range of $1 billion to $1.1 billion.
This includes the $209 million in upfront and milestone expenses related to our collaborations previously mentioned.
Our SG&A expense for the quarter was $87 million including $9 million in non-cash stock compensation.
We recorded $7 million in expense related to the change in the fair market value of the contingent consideration for the Iclusig royalty liability in the first quarter.
Moving on to non-operating expenses, we recorded $6 million of unrealized loss on our long-term investments in Merus and the Agenus.
Net interest expense of $5 million and one-time debt exchange expense of $54 million related to senior note conversions.
During the quarter, we significantly de-levered our balance sheet in a cost-effective manner by entering into agreements with some of the holders of our 2018 and 2020 notes to exchange a total of $703 million in aggregate principal amount for 13.5 million shares of our common stock.
We recorded $54 million in expense related to the senior note conversions.
These transactions resulted in reduction of debt in the balance sheet and an increase of our outstanding share count, and at the end of the quarter, the value of our remaining senior notes has decreased to $42 million and our outstanding share count has increased to 204.6 million shares.
Accordingly, interest expense will be lower in subsequent quarters of the year.
We recorded a tax benefit of $11 million on the pretax loss in the first quarter.
This tax benefit will reverse over the remaining quarters of the year based on net income projections for the full year in certain states.
We anticipate recording an insignificant consolidated tax expense for the full year in 2017.
For the first quarter, we recorded a net loss of $187 million.
The net loss was primarily driven by the upfront and milestone expenses related to the Merus, Calithera and Agenus collaborations of $209 million, and the one-time expense related to the senior note conversion of $54 million.
Subtracting these items, net income would have been $60 million.
Looking at the balance sheet, we ended the first quarter with $512 million in cash and marketable securities and expect to end the year with over $600 million in cash and marketable securities.
Incorporating the changes the guidance previously discussed, we now expect to have a net loss for the full year of approximately $150 million to $170 million.
Subtracting the previously detailed $209 million upfront and milestone expenses and $54 million note conversion expenses, forecasted net income for the full year would be approximately $90 million to $120 million.
To summarize, Jakafi delivered strong revenue growth for the first quarter.
We entered into collaborations, we've expanded our product pipeline and we continue to make significant advancements in our clinical development programs as evidenced by our announcement to enter into multiple additional Phase III studies with epacadostat.
Incyte is well-positioned from a revenue and cash perspective to fund our development programs, and we are confident we will deliver significant long-term shareholder value.
Operator, that concludes our prepared remarks, please give your instructions and open up the call for Q&<UNK>
Thank you.
Just wondering if you could help us frame, for the epacadostat Phase II data that we're going to see at ASCO, how we should think about the efficacy and safety thresholds that played a role in you moving the programs forward versus the IO drugs in the space.
<UNK>, it's <UNK> answering your question.
As we stated all through last year, there were 3 ways we framed the datasets: That we wanted to see response rates for the doublet, we wanted to see evidence of duration of response as well as an idea of progression-free survival, because these would be the likely endpoints in a regulatory directed study.
And lastly, we wanted to at least get some hypotheses from the biomarker data sets.
So in terms of the meat of your question, for all the data we will show, you will have, based on contemporary historical data, an idea of both response rate and progression-free survival.
And for us, you will see why we made the go-forward Phase III decisions based on what we think are appreciable deltas in the response rate and then the likelihood of needing to get to the required progression-free survival rates based on our durability of response demonstrated through spider plots.
Quantitatively, it's really histology-by-histology, but we wanted to see what we think are appreciable deltas in response rate that would indicate the benefit for the doublet, and then long-term durability of response.
And each of the presentations, you will see that data portrayed for you.
Great.
And then just following up on that, we are going to get first in human data from the BRD and PIM programs by year-end.
Can you just remind us, is it going to be both of the BRD programs.
And then ---+ the design of these studies as well.
Sure, it's <UNK> again answering your question.
Yes, it will be for both of the BRD compounds.
These are standard dose escalation studies done to standard criteria, largely along safety.
And then for PIM, it's similar design as well.
There is an intent within both of them once we establish a safe dose and schedule to move the combinations for which <UNK>'s group has already presented at prior AACR as very interesting combination data.
So we wanted to move the escalations along (with a safety focus) relatively briskly to get there and the intent is to present both.
The last thing I will add is obviously, at some point in time, during this calendar year, we'll be opening up further studies for one of the BRD compounds rather than the other based on an overall assessment of both, which will include pharmacokinetic criteria, pharmacodynamic criteria and maybe some early efficacy data.
So as we go forward, it'll end up being one of the BRD compounds.
Yes, <UNK>, this is <UNK>.
And thanks for the question.
First, on inventory.
So as you know we had strong demand growth, we said it was 6%.
We exited 2016 ---+ the fourth quarter of 2016 at the low end of inventory at about 2.5 weeks.
We moved up to about 3 weeks.
So you can see that inventory on hand.
In terms of the guidance, we had the strong demand growth and we had some inventory build back up to about 3 weeks.
So we just want to see some more data in the second quarter before we do anything with Jakafi guidance.
<UNK>, it's <UNK>.
If you step back, the strategic thought process is around the fact that we are not married to the need for chemotherapy or not.
We feel that it's one other mode of action that can be used in the immuno-oncology setting to enhance response.
And there are various theoretical reasons why chemotherapy may do that - including the exposure of neo-antigens, et cetera, and others have already generated data using their PD-1 or PD-L1 inhibitors with chemotherapy showing that.
In addition if you just look at the lung space, you can see that there is both a role for I/O, I/O doublets as well as I/O chemotherapies.
So given all of the above, we felt that we need to get combination safety data in various histologies with chemotherapy and with dominant regimens used in those various settings.
We also wanted to test the hypothesis both in so-called hot tumors as well as potentially colder areas to see if we can further enhance efficacy signals there.
And lastly, I'll just add, some of that may be enabling for future use in other studies including future Phase III studies.
Tony, it's <UNK> again.
I will do your first question, and I'll ask <UNK> <UNK> to address your second question about LSD1 and sickle cell.
In terms of the REACH studies in general and the use of glucocorticoid as a standard initial therapy, the most common one used is Methylprednisolone.
It's usually used at a dose of 2 milligrams per kilogram in divided doses.
And the standard accepted definition is that patients who demonstrate either progression of the graph-versus-host disease by day 5 or nonresponsive by day 7 are traditionally considered to have corticosteroid resistance and need to go on to other therapies.
In terms of the criteria, your second part of your question to evaluate what a response is or what indeed a complete response is.
There are well-established criteria that we're using for our Day-28 response rate, that assess disease in skin, the GI tract and liver.
For a complete response, you would need in a manifestations that were there before to have disappeared in those organ systems, and we'll be using traditional response criteria there.
I'll ask <UNK> to address your second part.
Yes.
So in terms of the 872 program in sickle cell disease, the team here has conducted a number of pre-clinical studies to understand the impact of LSD1 inhibition on sickle cell disease, parameters and rodent models.
And those data, I think, have been presented now and are quite compelling both in terms of the breadth of activity but also in terms of the safety that one sees.
Building on that safety experience, of course, I'll point out that we have completed rodent and non-rodent toxicology studies and also have emerging data from the Phase I oncology dose escalation program that all helped to support the emerging safety profile of the compound.
Of course, any effects in sickle cell disease, directly related to hemoglobin and other disease parameters will come from the first in patient study in that patient group, and we'll have to see the data emerge before we can comment any further.
But right now, we feel very confident with the preclinical efficacy and safety profile of the mechanism.
<UNK>, it's <UNK>.
I think it's both.
And let me explain myself.
So if you look in terms of obtaining regulatory approval and your designs against PD-1 alone, obviously, that benchmark would be established by prior studies or indeed a label if it was approved.
However, you know better than most, the field is moving very quickly.
And during the time, of the conduct of the study, further data sets could come out with different benchmarks, which would then be clinical benchmarks until those regimens were approved.
I think this is maybe best illustrated by the melanoma area where, obviously, our design in ECHO-301 is pembro plus epacadostat versus pembro.
The pembro monotherapy PFS rate is around 5.5 to 6 months.
However, the ipi-nivo regimen in that same setting gives you a progression-free survival rate of around 11.5 months.
So to win from a regulatory point of view in that study, we would have to beat the pembro mono arm, but the efficacy territory that the community may expect would potentially be more in the doublet area in that particular setting.
That's on the efficacy side.
From a safety point of view, tolerability being really important, I think once you're in that efficacy territory, then you would start looking at the tolerability of your doublet.
And with now ---+ with published now with more than 1 year of exposure data for pembro plus epacadostat, updated at ESMO last year, and we were very confident in the tolerability profile of our doublet.
So a long answer to your question, but it's both ---+ but you segment them in what you need to get regulatory approval and then what you'd need for our clinical-commercial standard.
Thanks, <UNK>.
Again, it's <UNK>.
I'll go first.
You know if you just step back, I think given the review process and regulatory outcome in Europe last year and the approval this year, we were both surprised and disappointed that this was the outcome of the FDA review.
We remain confident in the benefit/risk of baricitinib as a new treatment option for adults with rheumatoid arthritis.
And obviously, we look forward to working with Lilly in the development of baricitinib and rheumatoid arthritis and beyond.
I appreciate your question around the potential impact on other indications, and you mentioned atopic dermatitis and psoriatic arthritis.
And these programs, I'll just remind everyone on this call, obviously run by Lilly and driven by them without appropriate input, and they have guided to the fact that these continue to proceed forward.
In terms of the CRL itself, just to address that, we won't be providing on this call any additional color beyond what Lilly's already stated on their quarterly call, which is that they will be meeting with the FDA to discuss the CRL within the next 60 days and to discuss the FDA's concern and the next steps.
And that may impact the programs you mentioned, but at this junction in time, we can't comment further.
<UNK>, it's <UNK>.
I'll start off on your PD-1 question in terms of 1210, our PD-1 from Hengrui.
That program is active.
Patients are on study still but we're maintaining a recruitment hold and we continue to assess the overall portion of safety and efficacy of that particular compound before making further decisions on whether or not to go forward with that compound.
I'll ask <UNK> to address the need for a backup at this stage but as I've just said, we're still in review of the Hengrui compound.
Yes, so depending on how we are moving with these compounds, there is obviously 2 scenario, if we move forward, it's very simple.
If we don't, I think we will be in a position where we may be looking at alternatives, but we don't know that yet.
So it's really pending a review of the existing program.
And <UNK>, for your second question related to Jakafi, it really is about greater penetration into the prevalent patient population in PV and MF.
I think we've said before and it's true today that the prevalence of MF that we estimated is about 15,000 patients.
We have penetrated more than 30% of that prevalent population, but we still have a ways to go.
And in PV, while we continue to grow even faster than MF and adding new patients, the population that we said that are refractory to hydroxyurea is about 25,000 patients and we've penetrated a little more than 10% of that patient population.
So it's really about getting new patients and we continue to grow and add new patients.
And those patients to stay on for a long period of time.
We have lots of patients who have been on for 3 years on Jakafi for myelofibrosis, especially.
<UNK>, it's <UNK>.
In terms of our topical ruxolitinib program, in general, we've had one public presentation of data in mid-November last year, which was the initial open phase of our alopecia areata dataset.
And you're right.
There are minor grade 1 and 2, what I would describe as irritant skin reactions early on.
But nothing that we or our investigators have found at all worrying that should impact at this juncture, studying topical ruxolitinib in either vitiligo or atopic dermatitis.
Yes, sure.
It's <UNK>, again.
It is driven primarily by the lack of a sufficient efficacy signal to proceed to pivotal programs.
It was a study that was conducted over 24 weeks.
That was in the closed phase of the one I just referenced when randomized against placebo and there wasn't enough of a difference in the topical ruxolitinib formulation versus the placebo formulation to warrant going ahead in the pivotal program in alopecia areata.
We're busy investigating the reasons for that.
It may be related to scalp penetration being different from other areas of the skin for example.
It's all hypothetical at this juncture.
And are largely driven looking at the pharmacokinetic and pharmacodynamic data that we get from that study as we investigate further.
It's <UNK> again.
No, it's early data of monotherapy across B-cell malignancies.
It does not have combination data in yet.
Yes.
Thanks, Geoff.
This is <UNK>.
So we have 2 FGFR programs now in the clinic.
So one is the 1/2/3 inhibitor or 54828 and the other program, which will be entering Phase I here soon as the FGFR4 inhibitor.
Just to cover that one, the FGFR4 program really is going to be focusing on hepatocellular carcinoma and specifically patients that have pathway activation of the FGF19/FGFR4 axis.
There could be some other opportunities to explore outside of that, but those are not going to be central to the early part of the development program.
A little bit different story for 54828 and FGFR1/2/3 inhibition.
There are underlying tumor genetic cells of those 3 enzymes in a number of solid tumor settings and liquid tumor settings.
We have remaining opportunistic in terms of where we take that compound and certainly the initial developmental program in bladder cancer, cholangiocarcinoma and a very rare myeloproliferative neoplasm called 8p11 are all driven in a large part because of the emerging data that we generated within our Phase I dose escalation trial.
We will continue to explore other areas where those genetics may be important, and there are a number of other solid tumors that are on our radar screen.
And I think, more generally, the field's radar screen.
But for right now, the core focus is in bladder, cholangio and 8p11.
Thanks for the question.
I think, I would say, epacadostat is not typical, because it's a mechanism that applies to potentially a very large number of tumor types as you can see.
So I would not expect every program to go into 8 or 9 different Phase IIIs as we are seeing with epacadostat.
We just discussed FGFR as an example.
There are some very precise indications where we want to test the molecule and it may stay more narrow.
So you would have a mix of narrowly applied product and some with broad applications.
So that's really what we are expecting.
In terms of licensing out in case the portfolio is becoming so large that it's totally unmanageable.
First, we are very far from that, so it's not the case today.
And we can discuss the way the organization is growing at the same pace or ahead of the portfolio itself.
But obviously, I mean, there are different options that we have.
What we tend to do, and you can see that with what we just discussed about the topical formulation of ruxolitinib, is that we would like to move the programs further, establish their value and then there is a question about commercialization, we can always open that very much later in the process and that would be our preferred choice.
And there could be exceptions to that because when ---+ there could be situations where, as we have seen in ---+ it was a different world at the time of the baricitinib partnership, but there are also cases and indications where we could consider that having a partner is better than doing it ourselves.
So we are fairly open but in general, we'll be looking at building the value internally as far as we can go.
<UNK>, it's <UNK>.
In terms of your first question, as I said in the script, it's approximately in the range of 30 to 40 patients per histology that we show.
We were lucky enough at ASCO and obviously our data warranted it to give multiple presentations as related to upfront.
So there's multiple orals as well as poster discussions.
Quantitatively, you're dealing with patients in the hundreds, total, but I'll just point you towards each tumor type on its own, and we're roughly at 30 to 40 per tumor type in ECHO-202 and ECHO-204.
In terms topical rux for atopic dermatitis, that is unrelated to any oral program with Eli Lilly, if I understand your question correctly.
And then I'll hand it over to <UNK> for the second part of your question.
So your question is about BD appetite.
I think the way we have been thinking about business development is really based on the portfolio, the dynamic of the portfolio.
We spoke about PD-1 a little bit earlier.
You can see in Q1, that it was, for some reason, it ended up ---+ many of them ended up coming in Q1.
It was very busy.
You can see for each of them that we are looking at the long-term growth of the organization, so we speak about some Merus partnership, we speak about the Calithera partnership where we have also in terms of portfolio, optionality, a lot of new options now coming from that partnership.
So we would continue to look at that.
I don't think that baricitinib events or the delay we have there is changing the big picture, which is that we have a very rich internal portfolio and it's still the core of what Incyte is delivering is coming from our own research, with our own molecules that we are moving forward.
But where ---+ if we see opportunities that make sense long-term for the shareholders and as the use of capital, we will continue to look at it, knowing that there is no acute need for that.
So it's really a balance where we are able to look around and we are able to choose when we see some things that we believe is a creating value for the organization.
So no real change in the direction there.
<UNK>, it's <UNK>.
Not at all in terms of the first question.
It's unrelated to the efficacy signal in each.
I think it's just related to the denominators in each of those settings in terms of what submitted versus what selected, and I can't speak to the program committee chairs who chose them.
But from our point of view, there's no relation to the strength of the efficacy signal and the things being chosen for orals versus poster discussions.
In terms of exclusivity, just to be clear, with BMS, there is none.
With Merck, there is a 15-month exclusivity around the ability to test the same clinical question but a different clinical question that will be tested with Merck can be done in other studies going forward with either partner should that occur.
Yes, <UNK>, thanks for the question.
This is <UNK>.
So still early days with the arginase as a mechanism right now.
We have some clinical hypotheses that will drive the early phases of the clinical development program and those include a belief that the mechanism is likely to be most active when it's used in combination regimens and specifically in I/O doublet combination regimens and ---+ so there as you might expect, a combination with PD-1 axis blockade is particularly attractive and could be a first step for the program.
Given what we're learning about the potential for epacadostat to add efficacy without untoward safety when used with PD-1 axis blockade, then you can imagine a triplet regimen being of interest.
But of course, we've got a little bit more wood to chop before we can get to that point.
Beyond that, there's an active preclinical research effort that we have now ongoing subsequent to the in-licensing of the compound from Calithera and we're looking at the number of other I/O components and even chemo regimens.
And we'll understand that biology as we go forward in the clinic and we'll make decisions based on both the emerging clinical data as well as the emerging preclinical research.
<UNK>, it's <UNK>.
I think, to the extent that they both address different distinct mechanisms within the tumor microenvironment, it's an interesting thing to explore.
There are some recently published data that speak to the potential role for arginase and IDO1 activity in dendritic cells.
And you can imagine those are the sorts of things that we will explore pretty carefully pre-clinically.
And any decision to move that into clinical development would base on some pretty solid scientific rationale from the animal model work.
Ian, it's <UNK>.
The data that we're showing at ASCO in Chicago in a month is with PD-1 inhibitors, with pembro with the ECHO-202 with Merck and with nivo with the ECHO-204 with BMS.
So you won't see at the upcoming meeting PD-L1 data with us at this juncture.
In terms of segmentation in different areas and how things play out in terms of demographics and disease populations as well as biomarkers, it's too early to comment because the designs aren't public yet.
But I think it's safe to say, in lung cancer, there's definitely a role for PD-L1 staining enrichment in different populations.
And I won't make other segmentation comments beyond, the others will be more around lines of therapy first-, second-line, et cetera.
<UNK>, this is <UNK>.
So we learned a little bit more about the competitive landscape at this past AACR meeting in April.
We had 2 disclosures, one from Bristol-Myers Squibb with the inhibitor that they in-licensed from Flexus as well as a disclosure on indoximod in combination with PD-1 blockade in melanoma.
I think, just in general, both disclosures, I think, helped to underscore the interest that field has in IDO1 inhibition either directly at the enzyme level or the pathway level in the immuno-oncology space.
As expected, the BMS compound is a potent and selective inhibitor.
We knew that from earlier preclinical disclosures and is being dosed to high inhibitory multiples similar to what we have done over the past years with epacadostat.
I think it's far too early to develop any kind of an opinion on efficacy or safety and they're going to need more follow up before we can make those sorts of statements.
In terms of the Roche data, we haven't seen too much from them.
Obviously, we look forward to the data that they disclose at ASCO.
I will say that epacadostat's profile to date has been ---+ we've been very pleased with that profile.
And we have now over 1,000 patients dosed with that drug, without any clear liability that I think offers a competitor a path to differentiate on that mechanism.
And our focus has been and continues to be expanding the competitive gap we have versus those competitors.
And I think the ---+ up to 9-plus pivotal trials we have to initiate with Bristol and Merck and the ongoing work in the earlier phases of the ECHO program helped to underscore just how broad the epacadostat effort is right now and will be over the near future, and hopefully that will continue to drive the most important differentiation in the space, which is bringing the therapy to the appropriate patients in a pivotal or even a commercial setting.
So, <UNK>, I'll do your first two questions, but the second part ---+ your second one, I'll let somebody else address in terms of its potential commercial value.
But from ---+ the PI3-kinase delta program, in a nutshell, the way we view is it's a second-generation inhibitor and all the data we have to date, by removing one of the chemical moieties that are in that first-generation compounds like idelalisib and duvelisib.
We've been able to, for the most part, get rid of any liver signals.
So we're not seeing transaminitis to date in the program, and we think it's because of that adjustment to the chemistry.
But beyond that, these are, as a class, very, very active compounds as monotherapy.
The real issue becomes long-term tolerability.
Particularly as you get out beyond 140, 150 days and that's where our challenge is now.
We know we have an active compound.
We presented data at ASH last year across B-cell malignancies, with very high efficacy.
What we need now is working internally and then with the investigators and ultimately with the agency to come up with the dose and/or schedule modifications that will help retain the efficacy but then give you long-term tolerability.
And that's in the monotherapy setting.
Now I think in combination, we've been cautious and going slowly.
We have numerous combinations ongoing in terms of safety enabling, but we have to be very focused on toxicity and appropriate prophylaxis.
So it's a little early to comment on combination with standard therapies in B-cell malignancies.
With the delta program in general, there are numerous internal combinations of interest that we are investigating internally with various doublets that I don't have the time to go into now.
Essential thrombocythemia, as <UNK> said in the upfront remarks, we are looking at a post-HYDREA population where there is an unmet need.
There's an approved drug and in anagrelide.
We have a Phase II that's published in 39 patients with rux in that setting that shows ---+ are really showing in a Phase II setting, we can lower platelet count, we can lower white cell count and in a few patients who have a large spleen, 3 or 4 of them had a reduction in that splenomegaly.
So the design of our pivotal study here is using a composite endpoint around the hematologic parameters, for which we have data that implicates that we have a good chance of success because we have proof of concept there.
In terms of the commercial opportunity, I'll let either <UNK> or <UNK> address it.
This is <UNK>.
So <UNK> really addressed it.
There's a real need in the second-line population in ET for patients who progress or fail on hydroxyurea, about 8,000 patients we estimate are available.
We'll see about the duration of therapy, but we know that ruxolitinib is likely to be an effective drug in that setting.
We'll wait for the endpoints when we finish the study to see how long patients stay on therapy.
Okay, thank you for your time today and for your questions.
We look forward to seeing some of you at ASCO I guess, or some other medical conferences, but now, just like to thank you for your participation in the call today.
So thank you and goodbye.
| 2017_INCY |
2017 | CDNS | CDNS
#Thanks, <UNK> and good afternoon everyone
Consistent execution drove excellent financial results for the second quarter, highlighted by revenue near the high end of our guidance range and operating margin, EPS and operating cash flow, all exceeding expectations
Specifically, here are some key results for the quarter; total revenue of $479 million; non-GAAP operating margin was 27%; GAAP net income per share was $0.25; non-GAAP net income per share was $0.34; and operating cash flow was $162 million
Also, please note that the recurring revenue mix was approximately 90%; DSOs were 31 days, down six days from Q1 on strong collections
Our DSO target remains approximately 35 days
For geographies and products, Asia continued as our fastest growing region, with revenue up 18% year-over-year
As <UNK> mentioned, digital and sign-off revenue was up 14% year-over-year, as we benefit from proliferation with market shaping customers and IP continued to rebound from 2016, with revenue up 15%
Functional verification revenue was down from last year, as overall hardware revenue was less than anticipated for the first half
However, we expect hardware revenue to be a little stronger for the second half
Now let's turn to our outlook
We are increasing our revenue and EPS outlook
For fiscal 2017, we now expect revenue in the range of $1.91 billion to $1.95 billion; non-GAAP operating margin of approximately 27%; GAAP EPS in the range of $0.98 to $1.04; non-GAAP EPS of $1.36 to $1.42; and operating cash flow in the range of $430 million to $470 million
For Q3, we expect revenue in the range of $475 million to $485 million; non-GAAP operating margin of 26% to 27%; GAAP EPS in the range of $0.24 to $0.26; and non-GAAP EPS in the range of $0.33 to $0.35. Approximately 90% of revenue is expected to come from beginning backlog
You will find guidance for additional items in the CFO commentary
Next, I will take a moment to review our capital allocation priorities
As we have said before, the company regularly reviews its capital structure, balancing our needs for investment, the appropriate level of risk for our business model and operating environment; maintaining adequate liquidity and the opportunity to return cash to shareholders
In January of this year, the board authorized the repurchase of $525 million of our common stock
We did not repurchase shares in the first half of the year, but we do expect to repurchase some shares in Q3. I also want to provide a few additional comments before we take questions
As a reminder, hardware and IP have become a larger portion of our business, which may lead to more variability in our results from quarter-to-quarter
Only about 5% of our revenue is in currencies other than the U.S
dollar, primarily the Japanese yen
But about 30% of our costs are in currencies other than the dollar
So weakening dollar would generally be a headwind to operating profits, and conversely, a strengthening dollar would be a tailwind
The dollar further weakened in Q2, but so far, we have been able to manage through this challenge
As you know, we have been reviewing the new revenue recognition standard that we will implement for 2018, and we are confident that we will substantially maintain recurring revenue or revenue over time treatment
To conclude, we are pleased with our second quarter results, including strong financial performance, software and IP growth, and growing proliferation of our digital and sign-off solutions with market shaping customers
Looking forward, we are excited about the new opportunities resulting from our system-design enablement strategy, and we are confident that we will continue to drive strong financial and operating results
And with that operator, we will now take questions
Question-and-Answer Session
And <UNK>, this is <UNK> <UNK> here
I'd just like to add that and remind you that, Q2 2016 was a record year for hardware, and that we continue to see a secular trend, and increasing customer need for emulation and acceleration products
But just want to point out
So <UNK>, this is <UNK>, I will take that first question on the cash flow
I'd just point you to the DSOs, that we had a six day decrease in DSO from Q1. A number of large payments came in after the end of the first quarter, driving a more favorable comparison between the quarters
So Q2 ended up being a very strong quarter for us, for collections
But so you will see a little bit more, a shift to the first half for cash collections
But our guidance reflects our confidence in the business, and takes into account everything we know at this time
So we reiterated the cash flow guidance
And Krish, this is <UNK> here
I just want to add that, we have great products in the hardware space
And note, that we delivered excellent financial results for Q2, software and IP were both strong, and we increased our outlook for the year
So software and hardware in the first half is only part of what is a really good story
Yeah <UNK>, this is <UNK>
I'd just like to add that, the R&D investment that we are making now is for future years
But our strategic priority is to develop innovative products and help our customers be successful, capture market segment share, and bring our solutions to market shaping customers
But we are continuing to build on our innovation and take action to drive growth and deliver results for our customers, all of which should enable us to deliver value to shareholders
Geoff, I don't know if you want to add anything?
Yes
As we said, we'd like to maintain more flexibility with the most recent authorization
The company regularly reviews its capital structure, balancing our needs for investments
The appropriate level of risk for our business model and operating environment, maintaining adequate liquidity, and the opportunity to return cash to shareholders
Board and management make their decisions through the lens of shareholder value
We purchased shares in the first half, but we do obviously expect to repurchase shares in Q3.
| 2017_CDNS |
2017 | SEE | SEE
#Good morning, everyone
As you can see from our results, free cash flow and earnings per share performance were the highlights for the quarter and the year
We generated $631 million in free cash flow in 2016, and this was net of $276 million in CapEx and $66 million in restructuring
The significant upside relative to our guidance was primarily driven by our continuous strong focus on working capital
We also delivered $0.76 in adjusted EPS in the fourth quarter and $2.66 per share in 2016 after repurchasing only 5 million shares in the first nine months of the year
In the fourth quarter, both Food Care and Diversey Care delivered organic sales growth of approximately 3% and adjusted EPS growth of 16%
In Food Care, protein packaging volumes in North America increased more than 6%
Our hygiene business increased by 5% in constant dollars and we delivered favorable price mix on a global basis
Diversey Care's growth was primarily driven by favorable price mix of over 2% and volume increases of 7% and 3% in Asia-Pacific and North America, respectively
Where we felt short in the quarter was our top-line constant dollar growth in Product Care, which weighed on our adjusted EBITDA performance
We knew December would be a critical month for us with most of our global growth depending on our e-Commerce business, and we were happy with our e-Commerce volume growth of 15% in the quarter, but this was offset by weakness in global industrial GDP and our product rationalization efforts
And despite the shortfall in sales, adjusted EBITDA margins increased 80 basis points over the last year to 22.3%
So as I'm sure you all know, I am not happy with our overall organic growth of 1.3% in 2016. We underestimated the impact of the economic and geopolitical environment in Latin America and the Middle East, the depth of the downcycle in the Australian beef market and the weakness in the industrial world
But at the same time, I'm very pleased with the agility of our organization, its ability to deliver bottom line results and properly prioritize
I'm also extremely pleased with the innovation pipelines and the number of new disruptive products that we are gradually introducing and launching across the three divisions
Our total net sales outlook for 2017 of 2.5% constant dollar growth reflects approximately 3% of growth for Food Care and Product Care, and 1% for Diversey Care, which accounts for the short-term impact of the expiration of the brand licensing agreement with SC Johnson
Internally, the actions that we're taking to drive growth in 2017 are purposeful
We will leverage our strong global presence in Food Care and continue growing at a faster pace than the protein packaging markets
We will capitalize on the e-Commerce opportunity with our disruptive technologies
And the underlying constant dollar sales growth for Diversey Care, excluding SCJ, is expected to be at an all-time high in 2017 and our plans to rebuild our consumer brands business is very well underway
We recognize that 2017 will prove to be a critical year for Sealed Air, particularly, as we proceed with our plans for the separation of New Diversey
As you know, we disclosed back in October that we are pursuing a tax-free spin-off
And today, we announced that we are also exploring all the strategic alternatives including the potential sale of New Diversey, and we're confident that the separation is the appropriate next step in our company's transformation, and will enable us to unlock meaningful value for customers and shareholders
At this point, we are very limited on what we can share about the separation process, and thank you in advance for respecting our need to significantly limit our comments
So now let me turn back on the full quarter and year-end performance
On slide 5 and 6 of our presentation, you can see our performance by region for the fourth quarter and the full year
In Q4, organic sales growth was 2% with positive trends across all regions
Organic growth in North America was driven by an increase of approximately 4% in volume
Constant dollar growth in Latin America was a result of our pricing efforts to offset currency devaluations
And in EMEA, positive trends in Food Care and Diversey Care were partially offset by declines in Product Care
And performance in Asia was very strong in Diversey Care at 7% constant dollar growth, but the total company's results were impacted by a 10% decline in Australia due to the beef market downcycle
Australia accounted for approximately 7% of Food Care net sales in the fourth quarter
And for the full year 2016, net sales increased 1.3% as compared to 2015 on an organic basis
Constant dollar growth in Latin America was 9% and organic growth in EMEA was 2%
North America and Asia Pacific were essentially unchanged as compared to last year
Turning to slide 7, which highlights volume and price mix trends by division and by region
You can see that from this slide that on a global basis, volume trends were flat to up 2% throughout the year
Let me highlight that our volume in North America has accelerated throughout the year, with 4.2% growth in the fourth quarter on the heel of 3.8% in the third quarter
We delivered favorable price mix in each quarter throughout 2016 as a result of positive trends in Food Care and Diversey Care
Now, let me to turn to slight 8 and review Food Care results
Positive volume trends in North America and EMEA, favorable price mix, and disciplined cost management were key contributors to our fourth quarter organic sales growth of 3%, and adjusted EBITDA margin of 21%, an increase of 250 basis points over last year
We're seeing the benefit of higher beef volume and market share gains through the continued global adoption of our new products
Similar to the third quarter, these positive trends were offset by volume declines in Australia and Latin America
For the full year 2016, Food Care delivered $3.2 billion in net sales or 2% organic sales growth
Packaging solutions were $2.6 billion, and hygiene solutions were $600 million
In adjusted EBITDA, Food Care reported $661 million or 20.5% of net sales
Packaging solutions delivered adjusted EBITDA of $593 million or 22.7% of net sales and hygiene delivered the remaining $68 million of EBITDA or 11.3% of net sales
I'd like to highlight that the hygiene business has improved its margins by over 400 basis points on an as-reported basis since 2013 and has a very bright future as part of New Diversey by providing market-leading solutions and technology advancements enhanced by acquisitions of Dry Lube and Ciptec
For the full 2017, Food Care sales are forecasted to increase approximately 3% in constant dollars
Our core business is expected to continue growing faster than the market with more contribution from our Change the Game initiatives, particularly OptiDure and Darfresh
Latin America is starting to stabilize and Australia will continue to be impacted by declines in the beef market, also to a lesser degree as compared to 2016. Adjusted EBITDA is expected to increase at a faster pace than sales and similar to 2016, we expect the Q1 to be our low point for sales and EBITDA
Turning to Diversey Care's results on slide 9, you can see that net sales were up 3% in constant dollars in the fourth quarter and up 2% for the full year
Adjusted EBITDA margins of 13% increased 180 basis points in the quarter and for the full year, margins increased 120 basis points to 12.8%
Sales growth in the quarter and throughout the year was driven by increased sales from existing and new customers in North America, Europe and Asia-Pacific
In Western Europe, most of our largest countries experienced positive constant sales growth
And in Asia-Pacific, growth was led by strength in China, India and Southeast Asia
Towards the Middle East and parts of Europe, the hospitality sectors struggled in the second half, as a result of declines in tourism and occupancy rates, due to terrorist attacks
In 2017, Diversey sales are expected to increase approximately 1% on a constant dollar basis, with adjusted EBITDA margins in line with 2016 results
And as I noted earlier, our plans are well underway to mitigate the impact of SCJ; and sales from the core business, excluding SCJ, is growing on an accelerated pace
This growth is a direct result of the investments that we have made in our product portfolio, go-to-market strategy and sales organization
Slide 10 highlights the results from our Product Care division
In the fourth quarter and full year, Product Care net sales on a constant dollar basis were essentially unchanged as compared with 2015. Adjusted EBITDA margins increased 80 basis points to 22.3% in the quarter and 90 basis points to 21.8% in 2016. In the fourth quarter, Product Care delivered strong volume trends in North America, which were partially offset by declines in Europe
Adjusting for product rationalization, North America volumes were up approximately 5%, driven by strength in our e-Commerce segment
And similar to the third quarter, our performance in Europe was negatively impacted by the industrial environment
And in the latter half of 2016, we have been introducing an unprecedented number of new technologies and solutions, and as a result, we are experiencing significant interest from our customers, which mainly you saw firsthand at Pack Expo – many of you saw at Pack Expo in early November
Sales for these products including I-Pack, FloWrap, StealthWrap, Inflatable, Bubble and also mailers are expected to ramp up in 2017 and contribute to both our top and bottom line growth
We will continue to invest heavily in the business to support new product launches and global growth opportunities
But for our industrial based business, we are planning for sales to be relatively in line with 2016. And also keep in mind that our rationalization efforts are behind us, so that you will not see a true apples-to-apples constant dollar sales growth rate until the second half of 2017. For the full year 2017, we anticipate year-over-year constant dollar sales to increase approximately 3%, and similar to Food Care, adjusted EBITDA is expected to increase at a faster pace than sales
And now, let me pass the call to <UNK> to review our net sales and adjusted EBITDA, free cash flow and more details on our outlook for 2017. <UNK>?
Good morning, <UNK>
So, good question
And no, I don't think that is going to be – the growth is going to be 50-50. I think that the growth is going to – actually the way we're seeing the growth is definitely more towards volume growth than price mix
That's mainly how we see it happen
We are dealing with the resin price which is flattish, it's coming up in the first quarter and so – but we believe that those are going to come down during the year
So, it really is volume growth that we're looking at
Good question again
And no, I am not happy
I am not happy with the growth that we had, and I am disappointed
Why? Because we didn't have a very strong – we didn't have much growth in the first half, a little bit in the third quarter, it's improving somewhat in the fourth quarter, but it is not at the levels that I was expecting, and yes, indeed we have been surprised by a few things
Number one is the global GDP, you go to Bloomberg on February 2016 and you see that global GDP was forecasted at 2.4%, and it ended up – global ended up at 1.9% with the U.S
at 2.4% also, which ended up also at 1.9%, and Europe, which was forecasted at 1.9% and it is at 1.6%
And for 2017, the trend seems to be the same
Last year 2017 was seen to have a global GDP forecast, for 2017, a year ago, at 2.6%, and today's projection is 2.3%
So, we can't ignore those kind of things and what has disappointed me is the lack of industrial GDP growth
In a world economy, which had 1.9% global GDP growth, this is probably one of the worst years that we have experienced in many years actually
And it's always next year which is supposed to be better, but you know what? We're not counting on it
And in our forecast at this point in time, we are considering that the industrial world is not going to be better, and if it comes as a good surprise, well be it, we'd love that
Back in June of 2015, during Analyst Day, almost two years ago now, or 18 months ago, we were seeing a macro world which was going to be better
The reality is that in 2016, LatAm has been much worse than we thought it was going to be
And again, industrial market has been much softer
So that's how we plan
What am I happy with? Very frankly, we have invested a lot of money in new products and in R&D and marketing, to position new products
At Pack Expo late October, we have shown and we have announced quite a few innovations, which are disruptive and are going to make an impact
But what you had seen at that time, for several of those equipments, our products which – it was the first production, so we launched at that time and now in 2017 we have to ramp up those things
The thing that we all need to understand is that we're doing very different things that we were doing a few years ago
A few years ago, we were launching just simple products
Today, we're launching solutions, we're launching equipment, razor/razor blade, those are higher margin products, but the issue of this is that it takes a little bit of – the sales cycle is a little bit longer
When you work with meat processors and retail chains, in Europe, in North America, to establish Darfresh on Tray are those kinds of extraordinary solutions, which have a very, very clear mega trend, it just takes time, and we have talked about that
We have talked that with some of those retailers, the cycle between the first time we talk about that – about such a product or a solution and the production or the goal that's produced after ordering the equipment, this is two years
And it's the same on Product Care
One thing was to sell a little inflatable machine, and another thing is to do operational excellence with our e-commerce partners and improve all the organization and show them how much value they can create out of StealthWrap, FloWrap and I-Pack, and those kind of things
So I'm disappointed with the overall world economy support
I'm extraordinarily excited, which is why during the year 2016, we have invested so much money in R&D and in marketing to position those new solutions, because I really believe that this is disruptive, and our expected growth is probably delayed just – has probably been delayed by a few quarters, but I'll conclude, because this is very key, that we've seen an acceleration of the volume growth in Sealed Air in the fourth quarter
We had the highest volume growth in Food Care of each – of all the quarters in 20 – in the fourth quarter, same for Diversey
And almost the same, we had a very strong third quarter in Product Care, but same – almost the same in Product Care
So it's absolutely not doom and gloom, but we have to be realistic, and 2017 is going to be mostly about volume
And talking about Diversey, let me remind you what I said earlier, it is going to be our fastest growth business, fastest growth year, if you exclude the short-term impact of the SCJ
And we told you why this agreement did not get renewed is that it was not fitting either company
We wanted access to wider markets, to consumer markets, to all kind of, do-it-yourself type of market, and SCJ didn't want that
And therefore, we agreed to disagree
Yes, it does have a short-term impact, but this was really the right thing to do for the company
We have lots of great plans in place, and you're going to see outside of this SCJ business, we're going to have the highest growth that we ever had in Diversey here
Good morning, <UNK>
Well, the way you should think about this is that we're going to be counting properly and that we're going to do what is the best for our shareholders
And, I'm not announcing a sale, well, I am saying that we are pursuing to do it right here
So the market is choppy, you've seen that, that there's been increases in September, which were given back two months later
You see that the $0.05 in February is going through
We'll have to see whether the $0.06 (34:56) is going through, you'll have ethylene prices which are high, you have turnarounds, which are fabulously orchestrated
And at the very same time, you'll have some high capacity, or lots of capacity which is coming later in the year
So our view on the full year is that our – that prices are going to be flattish, and formula prices have a little bit of lag, is this going to impact the first half? A little bit with those price increases announced, yes, but for the whole year, we are counting on flat sales, which is why, by the way, we are not going to – we are not having a lot of price in our growth forecast, we have price mix, but we don't have very much of that
What you have to know is that we're very diligent
We have announced the pricing increase effective March 1 in our Product Care business, we're looking at systematic price product line by line, it's not going to apply across the board, because it's going to apply to polyethylene based products and we don't have only polyethylene based products in Product Care
We're looking at similar things where we don't have formulas in other – in other divisions, and by definition, we're not in the business of absorbing those cost increases
Good morning
So, well, we have never given and we're not going to be giving the specific detail on this contract, but I have – I have said that we are expecting 1% sales growth and flattish EBITDA in 2017 out of Diversey Care as a result of this
Given that we are having under non-Diversey Care – non-SC Johnson business we're having higher growth than what we had in total in 2017 – in 2016.
So what you're having here is in 2017, we have included basically $50 million of negative, and it's $40 million from currency, and it is $10 million – actually it's more, it's $13 million on the interest income
So you have $53 million right there
And then next to that, you'll have a very transparent explanation of a flat Diversey Care in terms of EBITDA for the simple reason in constant currency – flat EBITDA, for the simple reason that we have a temporary situation with these consumer goods contracts
And this compares to a double-digit EBITDA growth in constant currency every single year in the last four years in Diversey Care
So that's what's going on
And should currency be better than the $40 million impact? We're going to be obviously happy about this
It is pretty choppy, remember, the euro was at $1.03 four weeks ago, three-and-a-half weeks, it is at $1.07, and those kind of things
You have quite a few movements of currency at this point in time
But you have $53 million of negatives right away as I just compared those two things on interest income, and currency
If you just give a little bit of more color to the question, specific question? Mix, what kind of mix are you referring to?
So, we're not giving those kind of details of price mix for existing products or new product, et cetera
Generally speaking, what you have to consider is that our solution based offering is having higher margins because as we are creating, with some of our solutions, extraordinary value for our customers, we are in a mode of sharing those
And we have glowing examples of those and when you take products like OptiDure where you have less flickers at the production level, where you have more additional sales because of the shine of the product and tightness in the vacuum
When you have Darfresh on Tray, which reduces dramatically the shrink at the retailer level, and it improves the shelf life and therefore, the supply chain
When you have products like FloWrap and StealthWrap, whose number one benefit are – and I-Pack, number one benefit are to reduce the shipping costs, because they generate less Cube, which is by the way in e-commerce, the number one cost
When you take the whole packaging operation, the number one cost is freight, is shipping cost
So when you can improve all of those kind of things, you are in a position to obviously enjoy better margins if you can demonstrate those value
So that's how we're going
But having said that, we're not giving details on the margins of existing products versus the new products, although during our Investor Day in September, we'll be able to give an update of how we're progressing and with our Change the Game offering
Good morning, <UNK>
Yes, you're correct that the volume growth in Product Care total year has been 1.4% in 2016 versus 1% in Food Care
It's not like this in the fourth quarter because it was Food Care, which had the highest growth
Having said that, the price/mix has also been different, and the price/mix has been more unfavorable every single quarter during 2016. And this is because we don't have price formula
So depending on the mix and also depending on the type of products or resin prices, we have to adapt our pricing in a very different way because those are very different businesses with our customers there
Okay
So what Product Care has clearly suffered from is from the mix between industrial and e-commerce and 3PL
Let me address the second part of your question first, which is the Index
Yes, in general speaking, we can see some ratios, which are hanging in there
The reality is that we have the bulk of our business, about 85% of our business, is in North America and is in Europe
And when you look at those two parts of the world and when you talk with our customers, and very frankly on the industrial part, their exports and their business is suffering, and it's just sluggish
When you have the U.S
with a GDP of 1.9%, all driven by consumers, you can call this an industrial GDP boom or these kind of things
And as I said, the bulk of our Product Care business is in North America and in Europe
So that's the way it is
Unfortunately, we have a large part of our Product Care business in there
Fortunately, we're growing very fast in the 3PL and e-commerce business, and the solutions that we have are absolutely second to none, disruptive, and revolutionary
Thus every time we are engaged with new customers, we are going through a whole process of new value being created and working on how we can go and get the kind of things done
And now addressing your first question, which was related to the margins of e-commerce versus industrial
Yes, indeed with our current portfolio, they are slightly lower
But with the solutions that we have shown at Pack Expo, they are going to be definitely improving and not lagging our industrial business
It seems that your question started with Food Care and so
So in Food Care, we're seeing continually strong growth out of North America
We had negative volume in Latin America, actually very negative in Brazil, positive in some other parts of Latin America, but for a total being negative
We believe that this is going to be stabilized
When we look at the herd and type of the cattle cycle, we are seeing that, specifically in Brazil, we're seeing that it has hit the trough in 2016. We believe that the first half of the year is going to be somewhat flattish, and that it is going to start to improve in the second half of 2017. When you look at Australia, 2017 is going to be lower than 2016. Again, we are following very closely their herd size
The herd size is being rebuilt in 2017. It has dramatically come down in 2016 for all the reasons that we talked about
And when you think about the herds in 2014, it was 29 million head, and in 2016 it was about 26.2 million
And this has been a huge reduction and the slaughter rate has dramatically decreased
We believe that it is going to continue in 2017 at lower a pace but it's going to continue, and definitely as the herd is being rebuilt from 2016 in 2017 and onwards, towards 2021, we believe that the business in Australia, the slaughter rate is going to increase, and as you know, it's a positive from 2018. So what we see is that from 2018, we're going to have the three big parts of the world which are exporting, et cetera, which are Latin America, Australia, and North America be on an up cycle, and that's going to be definitely very positive of that
To be noted also is that the exports out of Brazil are improving, but you have to remember that about 88% of the Brazilian beef exports are frozen and 12% are fresh
The good news is that fresh is expanding with the approval to export to the U.S
and will open to Asian markets as well
So on Product Care, we think we have a huge momentum on 3PL and e-commerce
We're going to be showing more of the partnership agreements that we have in the second quarter with very important ones
And so we're doing great things
It is going great and we are going to be showing, we believe, nice growth in the 3PL, e-commerce in North America
The European business has been negative in the fourth quarter
Disappointing, definitely led by our industrial business in Europe
The whole question is how do we mitigate with e-commerce and 3PL the flattish trends in industrial
And our view is that we shouldn't count on industrial increase in 2017, and preserve our position there at the very same time, continue to aggressively grow the businesses which have momentum and in which we're very disruptive
| 2017_SEE |
2018 | LMAT | LMAT
#Thank you, Skylar.
Good afternoon, and thank you, for joining us on our Q1 2018 conference call.
With me on today's call is our Chairman and CEO, <UNK> <UNK>.
Our President, Dave Roberts, is traveling overseas on business and will not be on the phone call.
Before we begin, I will read our Safe Harbor statement.
Today, we will make some forward-looking statements, the accuracy of which is subject to risks and uncertainties.
Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast and similar expressions.
Our forward-looking statements are based on our estimates and assumptions as of today, April 25, 2018 and should not be relied upon as representing our estimates or views on any subsequent date.
Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and subsequent SEC filings, including disclosure of the factors that could cause results to differ materially from those expressed or implied.
During this call, we will discuss non-GAAP financial measures, which include organic sales and growth numbers.
A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the Investor Relations section of our website at www.lemaitre.com.
I'll now turn the call over to <UNK> <UNK>.
Thanks, JJ.
The highlight of Q1 was the increasing acceptance by the North American sales force of the RestoreFlow acquisition.
Allograft sales hit a record in Q1, up 48% over the prior year, and we see more growth ahead.
These clot-preserve saphenous veins are a close substitute to the in situ saphenous veins prepared by the <UNK> Valvulotome.
These 2 products really are two peas in a pod.
Now I'd like to remind you of several initiatives we've recently undertaken to more tightly focus our company on vascular surgery and in particular, our higher-margin and biologic product lines.
The recent Reddick divestiture was a pruning of the portfolio, eliminating our 2 nonvascular product lines.
This $7.4 million divestiture also expands our war chest beyond the $45 million of cash on the March 31 balance sheet.
In the past, we've used our cash to acquire companies and pay dividends.
This remains our intention.
Also, coming into the year, we modified our sales commission plan and our intracompany price list to further incentivize our sales reps towards higher margin devices.
Specifically, we found in Europe, our grafts and catheters were sometimes being sold below cost.
This has been fixed.
In China, we've also made changes recently.
In Q1, we cut out a lay of our ---+ we cut out a layer of master importers in order to sell the hospitals through just a single layer of distributors.
At the same time, we continue to see ample virgin territory for our sales force and have begun to ramp up hiring.
We added 4 sales reps in Q1, exiting the quarter with 94 on the payroll, and we now plan to accelerate to approximately 98 to 105 by year-end.
This state of hiring is generally in North America and Europe.
And to help manage European growth, we were excited to welcome our new President of Europe, Frank Guenther, on March 1.
Before turning the call over to JJ, I'd like to remind everyone of our financial goals.
We aspire to 10% annual reported sales growth and 20% annual operating income growth.
Thanks, <UNK>.
Our Q1 2018 gross margin was 71.1% versus 71.9% in Q1 2017.
The decrease was driven largely by manufacturing inefficiencies and increased RestoreFlow sales, which were partially offset by the effects of the weakening dollar.
Operating expenses in Q1 2018 were $13.6 million, up only 3% versus the prior-year period.
This cost control allowed us to post Q1 2018 operating income of $4.9 million, up 16% versus the prior year and representing a 19% operating margin.
Our effective tax rate in Q1 2018 was 22%.
As lower U.S. tax rates, stock option exercises and Australian NOLs drove the rate down, we expect our full year 2018 effective tax rate to be approximately 25%.
We finished Q1 2018 with a record $45.4 million in cash, an increase of $3.7 million from Q4 2017.
Cash increases in the quarter were driven by cash from operations of $3.8 million and stock option exercises of approximately $300,000.
The Reddick divestiture added another $7.4 million to cash in April.
Turning to guidance.
We expect Q2 2018 sales to be $26.6 million to $27.4 million, a reported and organic increase of 5% at the midpoint.
We also expect a gross margin of 69% in the quarter and operating income of $11.1 million to $11.7 million, growth of 106% at the midpoint.
We are also guiding EPS of $0.41 to $0.43, growth of 83% at the midpoint.
Included in our operating income guidance is an estimated $5.8 million gain from the Reddick divestiture.
This amount may change as the accounting settles.
For the full year 2018, we have updated our sales guidance to $106 million to $109 million, a reported growth rate of 7% at the midpoint and an organic growth rate of 6%.
Our full year gross margin guidance is 71%, and our operating income guidance is $27.9 million to $30 million, growth of 37% at the midpoint.
Our annual EPS guidance is $1.05 to $1.13 per share, growth of 27% at the midpoint.
With that, I will turn the call over back to Skylar for questions.
Sure.
I appreciate that.
Yes, so we're $300,000 off our midpoint of guidance, making just barely our bottom end of the range.
I would say the big issues here, which we probably didn't understand as well, going into quarters we should have, was we ran a fairly good-sized contest in Q4, and maybe that pulled some of the revenues out of Q1 and into Q4.
As it relates to, you mentioned China, China continues to be sort of a bad guy here in terms of what's happened in the past.
Although, we feel real good about what's about to happen.
And the China issue of not having revenues effectively ---+ we had $27,000 of revenues.
The China issue pulled down Clips as well as TRIVEX.
So it affected those 2 product lines.
We also had, sort of, unexpected softness in Germany proper and Switzerland, both that were down, sort of, 7% and 11%, organically.
I don't think these are lingering long-term issues, but it didn't help out in the quarter.
Yes, so the growth for the full year, we started off with the Q1 number where we're at.
So that puts us a little bit behind the 8 ball, right.
And so then for Q2, we're coming out with 5% growth.
So H1s definitely sort of a little bit of challenge for us, Drew, but then I think we see some pretty good recovery in H2.
We've got some easier comps going on in H2.
I bet China starts to recover more robustly in H2.
That Germany topic that <UNK> was just talking about, that's probably going to recover in Q2 through, more robustly, in Q3 and Q4.
The divestiture of the Reddick should help, oddly, as well on the [CCC] on an organic basis because we won't have that drag-on growth that the Reddick was giving us.
And then, we're also going to hire more reps throughout the year.
And we'll probably get some surge there from the reps as we move from 94 currently to maybe the higher 90s towards 100 by the end of the year.
So all in all, I think what you're looking at generally is, sort of, H1 a little bit light and then H2.
So nice recovery, easier comps.
Good answers in China, Germany and with your sales reps.
Drew, maybe I can also take a high-level shot at that, which is the guidance has been brought down for the year by 3.35%, and the Reddick catheters sold 3.3% last year.
And so you're pointing out correctly, gosh, this is the first time we haven't had this 7%, this reported number going to meet our 10% barrier.
But I think it's pretty rare that we sell a product that big.
So ---+ and I'd also say, the year is long, and there's plenty of stuff to do, and the war chest is as big as it's ever been.
So maybe at some point, we add along to that.
But you don't know, and we're not predicting anything like that.
Right.
I wouldn\
Sure.
So I can tell you, headlining XenoSure up, Valvulotome is up, all 3 of XenoSure, RestoreFlow and Valvulotomes have record quarters, and their growth rates were 12%, 48% and 10%, respectively, and shunts were also strong, up 12%.
I actually am not prepared on the biologics side.
I don't know if ---+ JJ, you have the biologic ---+ full biologic thing.
I do not.
We'll get back to you on that.
Okay.
We'll get back to you on that, Drew.
Sorry about that, I should have been more prepared.
Okay.
That's a good question, <UNK>.
Thank you very much for asking.
Okay, so we mentioned in the script, Frank started March 1.
He's the replacement for Peter, who retired September 30.
So I have now given those 7 reports back over to Europe, and Frank's taking care of all that, and Frank reports to me.
We're thrilled about that.
Inside of the European portfolio, in a good way, we've also had a couple retirements, interns and things like that that have been in the coming as Peter was retiring.
So we're real excited about some of the new ---+ a couple of the new managers over there.
In the U.S., I'm still searching for a VP of Sales, but in the meantime, it's just fantastic to have the direct touch from me with the RSMs in the U.S. I think some of the ---+ and that's transition.
Your question about growing the sales force, I'm sorry, I'll answer the turnover one, that's an easy one.
For the first 4 months of the year, we've only had 2 worldwide rep voluntary resignations.
And I think, if you remember last year, we had a pretty strong year as well.
I feel as though there's something that we're doing with these comp plans that's keeping the reps around because we do know external PulmoMate, it's been a fairly high turnover environment, particularly in the U.S. And again, 2 out of 94, maybe that's 2.5% turnover, and that's dramatically lower than what we would have expected it to be.
But although that's only ---+ it's only 4 months, so maybe you triple that, but still a lot lower than the old days.
As far as what keeps driving us to grow the sales force, one of the things is, when you have a little bit more money to play with, which we do with the Reddick divestiture, the first thing you say is, well, what are the great opportunities that you can access.
And I would say, not having a rep in Portland and Jackson, Mississippi and a second one in Chicago, places like that, you look at these, and you're like you miss an opportunity because you're not going to sell too much to Portland vascular surgeons if you don't have the sales rep there.
So there seem to be some pretty juicy cities to fill in, and that's ---+ we're taking advantage of that.
Right, okay.
And so to reiterate, we had a record quarter in Q1.
We were up 10%.
It was on top of a record quarter in Q4.
It was up 24%.
Those 2 numbers, you might kind of see as recoveries to a certain extent for some rough quarters back in late '16, I think and early '17.
The Valvulotome issue, for us, was a internal quality issue, and we fixed it, and now we're running it ---+ complaint rates of about 15 or 20 devices a year, and last year in 2017, we logged 60 complaints from surgeons about our products.
The complaint trending and tracking process is really very serious.
And so those are hard numbers, which is, we cut the complaint rate by 75%.
And I think that's what's driving our Valvulotome business as well as the expanding sales force.
We're saying it's up 12%.
Right, okay.
So that\
Well, my long-term career plans are be to Chairman, not even a CEO, so no, I hope I don't have to keep doing this forever.
Though I will say, I got 7 fantastic regional managers, and I've turned over 2 of them since I've been in this seat, and I feel great about the 2 new ones that we put on out of the 7.
So a lot of good, I found, happens when you have the CEO, kind of, stick his hands into a business because I can make things happen fairly quickly.
A little bit of <UNK>'s questions about why the reps now is a little bit tied to that as well, which is, I'm closer to the action, I'm able to pick out quick, smart hires, whereas previously, it kind of had to go through layers to get to me.
And so no, I don't plan on staying there forever.
I've been searching for 9 months, and it just ---+ I don't want to delegate it to someone that we're not totally enthused about.
One of the things slowing the process down has been ---+ we insisted on, when we hired Frank over in Europe, that he be a Frankfurt ---+ a citizen of the Frankfurt area, and we're insisting here that the person be a Bostonian, if you will, or that they move to Boston.
And a lot of sales RSMs in this world want to work from their house in, for instance, San Antonio or Georgia or wherever.
They don't want to move to Boston.
And so we struggle a little bit with that.
It's a little bit unique to us that we're insisting the person be in the building and working on the operational issues.
I'd say that's been a slower down, but honestly, while it's been going on, I think we've been making amazing strides with the comp program.
I had my hands all over that comp program, turning over into the year.
And also, as I mentioned, sort of, reprofiling the RSM squad.
Yes, so China is a story that you've heard from us probably 3 or 4 quarters consecutively, and it's been a bad story.
Q3, Q4, and Q1, effectively no revenues, I think, maybe $25,000 in 1 or 2 of those quarters.
As we shut down our old distributor who was missing targets, and we, sort of, at the end, they had such a tough contract, they had to hit such targets, we finally said ---+ and it was in the contract, we can leave you when we want.
We sent them a letter to cure in January.
They couldn't cure.
We terminated them officially in March.
And now ---+ that's a TRIVEX master distributor.
They were also selling through a layer of sub-distributors throughout Europe ---+ excuse me, throughout China.
We're now getting our own set of sub-distributors, and we're starting to sell through.
So whereas China has been a bad topic for 3 straight quarters, it's about to start becoming a good topic after Q4 is over.
We have a tough Chinese comp next quarter.
But in Q3 and beyond, we have effectively zero comps.
And it feels to me like it's going to start being a $200,000 a quarter business because of our ability to sell TRIVEX at the higher ---+ close to the retail price to our group of subdistributors rather than us selling it to the master importer, who then sells it down to their distributors and then to the hospital.
Of course.
So to your first question, we grew organically 3% and reported 8%.
So 5% of the growth is FX, 3% is price and 0% is unit.
And usually, as you know, when we have a normal quarter, sort of, 50-50 unit and price and FX doesn't really matter, usually.
But this very different quarter.
As for where the reps are, right now, at the end of Q1, 47 in the Americas, 37 in Europe and 10 in Asia Pac Rim should give you 94.
Of course, that will be great.
And so one thing to know about all this all the time is that our reps around the world are all compensated on gross profit dollars and the growth thereof.
So knowing that, one of the things we have done to try to get sales for our AlboGraft and also our Single lumen catheters, we have been trying to get volume there to feed our factory.
And so 5 years ago or so, the Head of Europe has said, "Let\
Yes.
So Joe, we spent about $5 million last year, as you know, building out 2 clean rooms.
One, essentially, a biologics dedicated clean room and then we expanded part of our main clean room.
That's probably an immediate headwind on the gross margin by 0.5% or so.
But I think there's improved processes as a result of the more efficient layout.
So you just ---+ you're laying out people better, you're moving fluids and products better from one location to another.
Just general improvements in process in a lot of areas.
That takes a little time, I think, to come through, Joe, but probably not that much time.
So maybe in the latter half of this year, maybe that biologics clean room starts to, sort of, combat that increase in the depreciation cost from the build out.
So you'll probably see that pretty quickly.
And then, in the main clean room, maybe a little bit longer than that.
So you should see some improvements underneath that, sort of, fixed cost bad guy that's coming at you from the build outs over the next few quarters.
| 2018_LMAT |
2016 | EXPR | EXPR
#To answer the first question around the overall metrics, as I mentioned earlier, what we saw is a significant decline in the traffic; and then from a conversion standpoint that was up; and therefore our transactions overall were down.
From an AUR, what we saw in Q1 is the AUR was close to flat and slightly up.
And as far as Q2, looking forward into Q2, we're expecting those trends to remain obviously, as I said, similar, given the guidance that we provided.
Going into your question, <UNK>, for me, in terms of the retail inventory and the position going into Q2, what I was pleased about was at the end of Q1 we finished with retail inventory down 3.4%.
So in terms of the spread versus the comp I was pretty happy in terms of how that finished.
Total inventory was up because of the Outlet inventory, the Express Factory Outlet inventory, and the new stores that we'd opened.
Giving guidance on inventory further into Q2, I can't do that.
But overall at the beginning of the quarter, I'm pleased at where we stood.
Talking about July, I think what I'm most excited about is a relaunch of One Eleven, which we will be doing with both men's and women's.
This will be the first introduction of the launch of One Eleven in men's, and I think we have a great assortment lined up in the way that we're looking at it in women's.
I think in terms of some of the trends that we're seeing overall, we've seen continued strength in denim in both men's and women's, so happy about going into the back-to-school time frame with a position of strength in denim.
But some of the trends that we've seen really successful results with are the 1990s trend, so looking at mid- and high-rise.
We've done very well with bralettes and bodysuits, and we're starting to see some really great results with bombers.
We're looking at romantic tops ---+ and feminine but less boho, continuing with off-the-shoulder.
And then details continue to be important in women's.
So overall I feel good about the trends that we have going into the back half of Q2 with and also going into the fall season.
Okay, <UNK>.
In terms of your first question, on open-to-buy for Q3, one of our focuses has been in terms of shortening our lead-times and ensuring that we are keeping our open-to-buy dollars open even longer.
We have done great work around that, and looking at the numbers, we are significantly open into Q3.
In terms of the levels of demand that we expect, I think based on the amount that we have open I think we're in a position to respond very, very quickly to the demand of the customers and ensure that we have the right levels in Q3 and in Q4.
This is <UNK>; I'll follow-up on that as well.
<UNK> mentioned that we will be clean heading into the fall season.
We planned for obviously low-single-digit comp and came in at a negative low-single-digit comp, with a lot of that happening back half of March and into April.
So it was more of a sudden drop for us and therefore there will be some liquidation.
But we're committed to going into the fall season very clean, while at the same time protecting the newness as we head into fall to make sure that we can generate some momentum.
As it relates to the question from the regional performance, what we saw in Q1 is better performance in the Northeast and mid-Atlantic and Midwest compared to the rest of the country.
Sure.
From a monthly comp standpoint, we do not report monthly comps.
But what we said in the prepared remarks was we saw strong performance in the first half of the quarter; and then right around the mid-March time frame, we saw drop-off in the traffic and therefore an impact in our comp performance for the quarter.
I think in terms of preparation for the back half, it's not a matter of if we don't see the traffic improve.
We are actively focused on ensuring that we are driving the traffic that we can get into our stores.
As I said to <UNK>'s question earlier, we are focused on our product and our value proposition, elevating our brand, and ensuring that we are acquiring customers and retaining customers.
As I said, in terms of the open-to-buy liquidity, the great news is that we are very open in terms of our inventory.
So as we go into Q3 and into Q4, we will plan the business accordingly.
Okay.
I'm just writing down your final one.
Okay.
In terms of the environment, we saw that we were doing very well in February and at the beginning of March, okay.
And then, it literally just dropped off.
So I think a significant amount of it is the macroeconomic environment.
Having said that, we're focused on controlling what we can control and ensuring that we are doing the best job possible that we can do.
I am extremely proud of the team here in terms of the work that I'm seeing day in and day out.
I think it's as good if not better than anything that we have done here at Express in the past.
So I feel very positive about the way that we look into it.
In terms of the competitive promotional environment and what we've seen, yes, clearly people are trying to move through inventory and liquidate inventory.
Our focus is in ensuring that we're going after a balanced approach and that we're not going after one of the three levers; we're going after all three levers, and we're going to continue down that path.
E-commerce results was your second question.
Directionally what we have seen, as I said on the call, on the prepared remarks, directionally we have seen a significant improvement in our e-commerce performance since we transitioned to the new distribution center.
So I'm very pleased with the results that we've seen there.
Yes, I think that it is directional in terms of what we're seeing.
But again I'll go back to what I said: We're focused on driving the traffic that we need to drive into the stores, but we are focused above all else on the total Express brand.
Then finally in terms of Karlie Kloss, you will really see the work ramp up on that in August.
You will see her appearing in all of our work around the back-to-school time frame.
So from the $14 million standpoint that we've mentioned on the prepared remarks, as I said earlier, we look at the financial architecture constantly and look for ways to improve our overall financial architecture and be more efficient and effective.
As such, we have identified through our expenses that we have a $14 million opportunity that is across all channels of the business, across all the departments.
So we're going to start implementing that in the back half of Q2, with expectation that by the beginning of Q3 and the back half of the year we are going to see about $7 million of expense savings.
Most of these saves will be materialized from an SG&A standpoint and not B&O.
Some of it will be in the B&O, but most of this will be in the SG&A area; I would say it is more like a 90/10 ratio.
As far as the SG&A expenses and the expectations for the balance of the year, I would say that at this point we're expecting our overall SG&A expense to be relatively flat to up from an absolute dollars standpoint, slightly up to last year's absolute dollars.
Then on the last part of your question, from an inventory standpoint, we do not provide guidance on forward-looking inventory.
But what I will tell you is that we constantly strive to ensure that our inventory levels as we are going into the August BOM and any forward-looking BOM is not ahead of the expectations from a sales standpoint.
Therefore, we're going to continue to manage our open-to-buy and inventory levels to ensure that we don't find ourselves in a position that the inventory is significantly higher than expectations of the business.
Okay.
In terms of the store traffic, it's very similar to what we have seen, and we're seeing that continue.
In terms of trends by department, I really don't want to go into too much detail for competitive reasons.
We continue to see strength in denim; we see strength in knit tops.
But overall I don't want to go into a lot of detail against those.
The guidance that we provided is in light of what we have seen in the back half of Q1 and our belief of what the trends will continue to be in the balance of the year.
The guidance does not in any way, shape, or form include any softness in specific categories of the business.
It's really largely predicated on the traffic declines that we've seen and the results that have been associated with that.
And as <UNK> mentioned, there clearly are some macroeconomic issues at play here.
But we are turning over every stone in this business to make sure we're executing as well as we possibly can and looking at those three facets in particular that he talked about around product/value proposition, the brand building, and the customer acquisition and retention.
That's critical, and we're all actively working on each of those every day to make sure we're putting our best foot forward.
Absolutely.
What we're trying, is to pull the levers that we can pull to see the response in the business.
As <UNK> just said, we are actively looking at everything in terms of driving the business and in terms of driving the traffic into the stores.
We are constantly testing and experimenting in terms of the approaches that we should take to drive the traffic and to drive the transactions.
So, yes, expect to see that continuing.
Yes, they did start off decently.
I don't think that we've seen that continue.
You look across the market; you look at the levels of promotion on shorts.
I would say that everybody is having a hard time.
We're focused on what we need to be doing in terms of our short business to drive that forward.
The denim shorts continue to be good, but we're hoping to see this weekend with Memorial Day and with warmer weather across the country that we will see that business pick up.
Sorry, can you repeat your question, <UNK>.
We can't hear you clearly.
Okay, in terms of the key item strength, we've seen the decline in the sales of key items very similar to the decline in total that we've seen.
So it's not a matter of collection versus key item, key item versus collection; it is very similar across the board.
What we have seen in terms of the slight difference in terms of the trends of the categories is a greater strength on the casual side of the business than we've seen on the wear-to-work side of the business.
We are constantly adjusting.
With the open-to-buy liquidity that we have, we are constantly adjusting that and we're doing it weekly.
No, I feel very good about our trends and the way in which we've covered our trends over the quarter.
<UNK>, do you want to answer the ---+.
<UNK>, you asked in the back half of the year if we're expecting merchandise margin to contract by more than what we're expecting in Q2; is that correct.
Actually in the back half of the year, and that is Q3 and Q4, given the fact that we're planning on clearing through the spring merchandise in Q2 and be in a clean position for the fall season, our expectation of the merchandise margin is by no means being worse than Q2 expectations.
Actually, at this point we're expecting them to be flat to slightly up.
We expect on the back half overall some contraction and deleverage in merchandise margin and ---+ sorry, in B&O and SG&A, given the sales expectation.
On the first part of your question, we do not disclose specific A versus B store mall performance.
But we've seen fairly consistent performance across the board.
In terms of your second question on brand equity versus product and lowering ticket, look, we are constantly looking at every single department and the approach that we're taking to ensure that we are driving our business.
You will have noticed some lower tickets in One Eleven, in our One Eleven line this season.
We've seen some success from those items.
We're constantly assessing it and we're balancing it between the level of brand equity, promotion, and product.
Really, we want to ensure that we are offering our customers the best price-value proposition that he and she can get in the mall.
We will not compromise on quality, but we are constantly looking at our sources of supply.
But we have very good partnerships out there, and we work very, very well with our supply base.
This concludes our call for today.
Thank you for joining us this morning and for your ongoing interest in Express.
| 2016_EXPR |
2016 | PSA | PSA
#Yes, we pulled that package and have changed strategy in terms of what we're going to do in those markets.
I can't comment on that now because we're in the middle of trying to do a couple of things, but I would just say we pulled that transaction.
We don't have any properties on the market for sale right now.
Maybe next quarter or the quarter after, I'll be able to tell you ---+ explain what happened.
I'm not sure I understand that question.
Change in consumer behavior.
Well, I think we've touched on the differences in some of the markets where the demand issue is more of a problem, maybe there's an uptick in supply there, certainly in markets like Austin.
So that's having an impact on demand and rental rates.
As I touched on earlier, we have not seen any degradation in the churn rate and actually have seen an improvement in length of stay this year versus last year, which would lead you to believe that customer stickiness and our ability to have pricing power with our existing tenant base is still quite good.
Does that answer your question.
Okay.
<UNK>, this is <UNK>.
The reason why we didn't is because stabilization isn't just about occupancy.
I could fill up a property in a year by giving it away for free and then throw it into the same store the next year and revenues would then just go skyrocketing.
We view stabilization as not only stabilized occupancy, but also the stabilization of the rental rates that the existing customers are paying.
So for those properties that we acquired in 2013 that we did not put in the same stores, even though the occupancies were mid-90%s, the rental rates that were being charged to the existing tenant base was still far below what we think a stabilized number should be.
So those properties we didn't put in.
They're still growing at a much more rapid year-over-year change than the same store properties that are operating in those same markets.
So clearly they're not stabilized and so we didn't put them in.
<UNK>, to add some color to that ---+ what <UNK> just said, on the 2013 acquisitions, our occupancies year-over-year were flat 94.6%, but the contract rents were up 7.4%.
And NOI growth on those was up for the quarter about 12%.
As <UNK> said, it would look ---+ make the numbers look nicer or stronger if we put them in, from an objective reality in terms of are they really stabilized or not, they're not.
So we've kept them out.
<UNK>, I'm not quite sure I understand.
Are you implying or indicating that we should allocate more or less.
I'm not quite following your question, I'm sorry.
Well, a couple things.
Houston's a great market.
We think it's long-term.
I view it as the oil capital of the world.
It's a great dynamic market.
There's a lot of submarkets within Houston where we have little to no product and some markets where we do have some product, but we could penetrate those submarkets more.
Same applies to Dallas.
And there's a number of markets around the country, but those two markets in particular are very vibrant and this does not change our program going forward.
Now, what may impact our program is, as rates roll down, it may adjust our ability to develop because it may not make sense in terms of what we can get land for and construction costs and the returns that we want on development to build as much in Houston as I would otherwise like.
But long term, we're committed to those markets.
Our development pipeline itself, I think we've delivered through June about $320 million or so, and so there's a fair amount of embedded growth on that.
We're targeting stabilized yields, 8% to 10% on the development and I think in the second quarter we generated about $2 million on that $320 million of investment.
So you can ---+ going forward as you kind of go out 2017, 2018, 2019, those development deals will provide a substantial source of growth for us.
Right now they're a bit of a headwind.
Our 2016 deliveries for the first six months lost about $500,000.
So, net-net, we think it's a great investment long term, as I touched on, they're filling up ahead of plan, but it's a bit of a headwind on earnings today, but a great source of future growth.
Does that address your question.
First off, <UNK>, it's a different market mix than the same store pool, so it's hard to compare the two.
It's a little apples and oranges, but I would say that in terms of potential future growth in this, I think that we're probably another 12 months to 18 months away for another rate increase to existing tenants before we start getting to that level of them reaching that stabilization point.
All other things being equal, if they were in the same markets, they should get there.
But my point is that they're in different markets, a different market mix and I'm not sure what they are.
For example, if they were all in Houston, could they get to the same market mix ---+ same rate as our same stores, probably not because Los Angeles and San Francisco dominate our same store pool and they have much higher occupancies right now than Houston does.
And higher rental rates.
Correct.
So you're asking me to compare apples and oranges.
All I'm telling you is that they're not stabilized and I expect that their growth will continue to outpace the existing same store growth, not only the growth of the overall same store portfolio, but those properties that are in the same markets, they will continue to outpace them just because of still filling up or stabilizing on the rental rates.
Thanks, <UNK>.
Thank you for participating on our call this afternoon and we'll talk to you next quarter.
Have a good afternoon.
Thank you.
| 2016_PSA |
2016 | DE | DE
#<UNK>, this is <UNK>.
You look at every new product development program, so every wave of that typically has more issues that come up with it and then it subsides.
If you look at what we have seen in our transitions from tier 3 and into IT 4 and to tier 4, we are very comfortable with what we are seeing in terms of the products that have warranties in our name with this wave of new product development programs.
| 2016_DE |
2017 | ADS | ADS
#Let's flip over to page four
If we look at the results, it was a little bit of a noisy fourth quarter for LoyaltyOne and Alliance Data due to expiry
Not only do we have more AIR MILES redeemed and expected due to heavy media attention to the issue, but also had a new law and act in Ontario of Canada which forced a one-time charge
Removed the noise though and it was a terrific 2016. Let's start with pro forma revenue of $7.4 billion, up 15% from 2015. We estimate that elevated redemption activity in Q4 added about $175 million or 3% growth to 2016. Essentially, AIR MILES that would have redeemed in 2017 were instead redeemed in 2016 ahead of the expiry, creating a pull forward of revenue recognition to 2016. Adjusted for that, revenue was approximately $7.2 billion, up 12% and consistent with the guidance
Core EPS was $16.92, up 12% from 2015 and $0.02 better than guidance
In calculating core EPS, we added back the $242 million related to elimination expiry, but not the full breakage reset
Let's turn over and talk about LoyaltyOne
Adjusting the breakage reset and revenue pull forward added the number, we estimate that revenue and adjusted EBITDA for LoyaltyOne both increased about 4% for 2016. Let's begin with BrandLoyalty which had a terrific year with high single-digit growth in both revenue and adjusted EBITDA
Expansion efforts in Canada continued to exceed expectations and U.S
market could be a growth driver in 2017 based upon early successes
For AIR MILES it was tumultuous year with all the publicity surrounding the upcoming miles expiration date, AIR MILES issued increased 1% for 2016, below our expectations for about 3% as sponsor promotions dropped in Q4 as there was simply too much noise in Canada to be effective
We believe issuance growth will return to 3% range in 2017. In addition, we reduced the breakage rate for the AIR MILES Dream [ph] program for 26% to 20% at the end of 2016. The first 1.5 point reset resulted from higher than expected Q4 redemption activity
This is a normal change in accounted estimate and is reflected in our operating results
However, the second 4.5 point reset is different and that it was driven by the enactment of a new law and one-time event, thus we headed it back for adjusted EBITDA and core EPS purposes
Flipping over to Epsilon
It was a disappointing year for Epsilon as revenue increased 1% while adjusted EBITDA decreased 6%, both substantially less than our 5% growth expectations for '16. Breaking down revenue by key offering, let's start with the good – collectively auto, CRM, affiliates and data grew revenue, double digits compares to 2015. In addition, after a slow start to 2016, due to the pull back of a large client, agencies growth rate turn positive in the back after the year
Let's now shift to the problem childs; technology platform growth turn negative mid-year due to some flying attrition
In addition to non-core offering, essentially the old-value click business was a consistent issue all year as we endeavor to pivot it towards a more of a data-driven solution
This offering alone was a 3-point drag to Epsilon's revenue growth
Turning to adjusted EBITDA, we start off the year in a big hole, down 22% in Q1. By significantly lowering our expense base, we cut that to a modest 9% in Q2, turn to flat in Q3 and then up 30% in Q4. We believe that our lower expense base will enable us to be more price-competitive on certain product offerings going forward
Let's now flip over to card services on page seven
It was another stellar year for card services with 24% growth in revenue and 14% growth in adjusted EBITDA net despite over $200 million built and allowance for loan losses
Credit sales increase 16% for the fourth quarter and 18% for the year
Growth in core credit sales which are pre-2013 programs were slight for Q4 and up 4% for the year, driven by tender share gains of about 150 basis points
Growth in the core weekends as the year progressed is comparable sales growth turn negative at several of our large apparel-focused clients
Gross yields after being down in Q1 through Q3 due to cardholder changes made to the program in 2015 stabilized and increased slightly in the fourth quarter of 2016. We believe that these changes have fully burned in at this point
We continue to receive operating leverage, operate expenses up 21%, compared to revenue growth at 24% for 2016. As a percentage of average card receivables, operating expenses decreased 50 basis points compared to 2015. Average receivables growth remained robust at 24% for 2016. Growth slowed over the course of 2016, due to softness in core spending as discussed before, resulting at ending card receivables growth of about 20%
The principal loss rate was 5.1% for 2016, just slightly higher than original guidance, primarily due to this low and receivables growth rate
This creates what we call the denominator effect
Importantly, losses continue to track in line with our delinquency expectations for 2017 as we show on the wedge
With that, I will it over to <UNK>
I'm right there with you
I do
I think yields should be stable
There could be a little bit of positivity to it based upon the trends we're seeing, but I basically think what has happened, <UNK>, some of the changes we made in '15, where we could start a cardholder friendly had burned in and I would expect them to be stable, to maybe slightly increasing going forward
M&A is something we always consider
I'll tell you right now, we don't really see anything that's pressing for us in '17. What that means is we have $500 million authorized share repurchase plan
That will be our top priority
As <UNK> talked about before, it could be best used early in 2017, which we think will happen
As the year progresses, if we don't see any further M&A opportunity, we could increase the buy back and be even more active
What I would say, <UNK>, from a free cash flow standpoint, expect it to be up 7% to 10% in '17 over '16. Again, we'll have money we're keeping back at the banks, but it's a little bit of slow in growth than they are
That will diminish a little bit
What that means is free cash flow at the [indiscernible] will be up a little bit year-over-year
That enables us to be more active with the buy back
We consider the $500 million in terms of guidance
I think having been in it for 25 years, we were pretty good at looking at vintages and seeing what flows there
So what we do every year or throughout the year is we will go client by client, which is 155 different portfolios and within those clients, vintage by vintage and we will look at every single vintage and see how they are performing
Again, what has happened is you have a certain band of credit that you cater to and coming out of the great recession, we had people who were signing up for the card, who are at the very high end as the recovery continued and the people repaired their credit
We had more and more people come into the allowable band and that's sort of what causes that normalization
Again as I tell a lot of folks, we are returning to a level that is comfortable for us
It's not like things are getting worse
The consumers are fine, it's just we're normalizing out at a level that will help us optimize our earnings in tender share going forward
It's a bottom's up, vintage-by-vintage, portfolio-by-portfolio, client-by-client look
A year ago we had a strong conviction that this would be sort of a year and-a-half, two-year cycle to normalize
We're past the first 12 months
Now we can see it in terms of what the delinquency flows
We can see it, the stuff normalizing as we look out six months
Now, the guest work is out of it and now it's just a question of 'let's get the next six months out of the way' and we're fully normalized
I think that's very possible, <UNK>
| 2017_ADS |
2015 | EFII | EFII
#Sure, in terms of a run rate, I think you did the math on the Q3 run rate, <UNK>.
And we did try to communicate through our comments that we are not yet recognizing all the revenue at the full run rate or not anticipating in Q3 to be able to recognize all the revenue at the full run rate for the companies, because we have to convert their contracts to be able to be recognized under US GAAP.
We are not prepared to give full-year guidance or full-year run rate until we've really had a quarter under our belts and see how successful we can be at doing this conversion and being able to recognize the revenue as we sell it, like we do with our other deals.
Again, I think at the end of the quarter and for our investor day, we should be better prepared to be able to talk about those long-term trends.
Same thing, obviously, applies to operating margins, since the two are very closely tied together.
We think that after the quarter, we will have a much better sense as to what their revenues and what their expenses and gross margin looks like under US GAAP.
Since of course, being an Israeli and an Italian company, they've never reported an income statement under US GAAP before.
We, of course, always ---+ whenever we acquire a company, we are always expecting we can bring more synergy and bring improvement to the operation of the company after we acquire it.
I don't ---+ obviously, as we've said in the past, we are not going to buy companies that are going to be losing money or break even.
We always expect to be ---+ the companies to be accretive to our earnings.
And so beyond that, I think we really ---+ are best to wait until after the quarter till we have ---+ till we can give you a good picture of what the real long-term effects will be on the operating margin and gross margin.
Just to add to that, <UNK>, obviously, if you look at the Reggiani deal and you take aside the money we paid for the debt the company had, half of the rest of the money is based on earnout, and earnout for the next 30 months.
This earnout is tied to top-line performance and profitability performance.
I think both the seller and EFI believe that we can deliver on that and going to work very hard to deliver.
We clearly have a plan to go deliver or continue to improve the growth and profitability of the business.
It's an exciting business to begin with.
<UNK>, to your first part of the question, again, we will talk more about the model for use of capital going forward in the investor day.
But I can tell you the bottom line.
The strategy of adding to organic growth and growth by synergetic, accretive growth acquisitions will remain.
Obviously, in the inkjet segment right now, we have a lot of integration to do, but at some point, even in that segment, we would be open to do more.
And we have a couple of other segments we can do, so the pipeline was full to begin with.
The two best acquisitions we thought that we executed on them.
Very happy, very excited about that, and there is more to go.
Definitely, it's part of the strategy going forward.
Now, as far as you mentioned, maybe using some money to structure or invest in the inkjet.
That's definitely a possibility, with inkjet being over 50% [next year] of a $1 billion business, clearly, if there is a way to spend money so the business grows faster and/or generates more profits, that is definitely something we will take a serious look at.
I think, <UNK>, with your extensive accounting background, you know that the key thing there is really the revenue piece of the equation.
That there are significant differences in how revenue is recognized under Italian GAAP or ---+ and even some under Israeli GAAP, as well, versus US GAAP.
So that's really the piece of the equation that is variable here, that we don't know how many of the contracts we're going to be able to get converted right away, to a place where we can recognize the revenue in Q3, Q4.
Certainly, both businesses are not ---+ we are not breakeven when we bought them; they were better than breakeven.
We've said that all along that we were not going to buy companies that were losing money or breakeven; we were going to buy companies making a profit.
How ---+ when that profit gets reflected under EFI, is the thing we have to work through with making sure that we can get all the revenue recognized that can contribute to that margin.
Again, I think by the end of the quarter, we'll have a much better view of that as we determine which of the contracts we can recognize and which new contracts we can convert to our standard EFI terms that allow immediate revenue recognition.
We're thinking the 8% to 10% range, at the middle of that range, we are basically breakeven.
If we end up at the 10% part of the revenue range, it will be slightly accretive.
At the bottom of the revenue range, it will be slightly dilutive.
Even at the top end of the range, we still ---+ because it's a fairly small range, we are not anticipating to be able to recognize all of the contracts that are out there today.
Yes.
We are hard at work already.
Obviously, without disruption of the momentum and the business that they have today, we have integration teams, we have many teams that are looking at different part of the business.
And we have plans for the first 100 days and beyond that.
So, and actually, both CEOs or both head of the businesses are in EFI, the headquarters [Tucumcari] this week to talk about exactly that in focus.
We are working hard on that.
We will give some progress report when we meet.
Definitely in 12 months, we should be ---+ look very organic part of EFI and our goal is, of course, to show very nice organic growth (inaudible) when we get to July of next year.
Absolutely, those two acquisitions bridge the gap to what we need.
Assuming good execution on our team, which we like to assume, we will deliver the $1 billion next year with the profitability we talked about of earnings per share.
So, we don't need any more acquisitions to get there.
Of course, we will look for growth accretive good acquisition to continue to do as part of the business model.
But we're there in our perspective and with the outlook we see for next year, we definitely have what we need.
Thank you, <UNK>.
As you mentioned, a large portion of the gross margin decline was due to the currency effect.
The balance of it, though, the primary cause of that was the continued ramp that we have at Creta of the launch of the C4 and the ceramic inks there.
As they're both new products, they're not at their ---+ let's say at their steady run rate gross margins.
And so we ---+ you did see an improvement from a sequential improvement from Q1 to Q2.
And I expect, as well, a strong sequential improvement in that core part of our inkjet business from Q2 to Q3.
No.
I think, again, we think that the inkjet, the core inkjet group, we didn't give specific, separate guidance for that, obviously.
You do the math and take all the different pieces and parts together there with what the new companies can contribute versus the base company.
But we think that in Q3, we'll continue to see the strong growth that we experienced in Q2 in the core business, and we were very happy to see that 9% ex-currency growth in the ---+ our industrial inkjet business in Q2.
Actually, I know there's a lot of moving parts.
But, I think if you do the last calculation of the segment we (inaudible) said about the acquisition, this is double digit plus ---+ 10% plus ex-currency for the quarter.
We are actually introducing new products in the VUTEk category during the second half.
Actually, we're pretty pleased with the opportunity to deliver even better growth in the second half.
And the other thing to keep in mind is that now, when we have an extended portfolio, we're going to position it a little differently.
We don't necessarily need to fight on price war against Matan in the market.
We are comfortable with customer buying in Matan.
When they have a limited budget, they're willing to take the Matan capabilities.
And also, in VUTEk customer is viewing an opportunity with soft signage ahead of opportunity (inaudible) will help them to buy it.
The economics are pretty compelling.
I think it's going to be a lot of moving parts.
But I think overall in inkjet both [cold] and organic, we're expecting a pretty good second half.
I think <UNK> and I both, as we ---+ as we're out visiting clients or at trade shows talking to our VUTEk client base in advance of the Reggiani acquisition, they were ---+ we were constantly getting questions about, what do you have for soft signage.
What is your offering going to be for soft signage.
Obviously, we couldn't tell them at that point in advance of the acquisition, but we think there is a very strong demand for soft signage in our existing VUTEk client base.
I think Fiery looks very strong now in our market.
The partners are doing really well in production inkjet.
We've been growing faster than the market in the last 18 months because we jumped in our attachment rate quite dramatically in the last 18 months and that is a result of the investment innovation.
Our partners realizing they take better care of their customers when the customers buy Fiery and they introduce it to the full capacity.
And customers making better decision on buying Fiery.
I would not expect this kind of jump in attach rate.
In some of the segments it's mathematically impossible, because we are at north of 90% attachment rate in some segments or in some categories ---+ some products with our partners.
So I don't think that it's reasonable to assume that kind of a growth rate, but I would assume that will ---+ the good, positive outcome of Fiery will continue based on what I know today.
No problem, <UNK>.
Good talking to you.
Very good.
Hi, <UNK>.
Welcome to the call.
Yes.
<UNK>, definitely we are going to see more products on the inkjet side.
I think on the Cretaprint with the C4, we will have some incremental improvements in ink; it's going to be driving the momentum.
But with VUTEk, we have a couple of significant announcements later in the year still on track, very exciting about that.
Obviously, now with a much stronger lineup in inkjet, we will make a lot more noise in the industry and we'll reach a lot more new customers.
Actually, I think that the ---+ we are still experiencing the lengthy deployment process.
It's just we now are experiencing the thing we talked about in Q4, which is that as the revenue deferrals start, eventually you pull that revenue out of deferred revenue.
And so, we are getting the benefit now that there's been a couple of quarters that we've been selling these deals.
And so, as we continue to sell them, we are pulling out as much as we are putting in.
So, you are getting the benefit of that now.
Even if we continue to have those complex projects, because the projects are still ongoing, it's basically at a fairly steady run rate now.
We won't ---+ we should be okay going forward, in terms of the effect of those large projects on our revenue.
HP is always a very formidable competitor in display graphics.
We've always been competing with them, and we have a lot of respect for them and I don't think anything changed on that front.
They are not in really industrial textile or ceramic tiles, and I'm not aware of their interest in getting that.
There's going to be actually an interesting shaping up battle between EFI and HP and other people in packaging.
Since packaging is gigantic for us with multiple segments in the future and we will expand more about that when we meet in November.
But that is certainly one of the key competitors in packaging is HP.
We don't take them lightly, and hopefully they don't take us lightly.
I think the end result is customers are benefiting from this competition.
I don't think we've seen any worsening, but I don't think we've seen any improvement either.
It's been at the same state over the last year or so, which is not a great one certainly.
But I don't think we've seen a material decline in the state of the industry, from our perspective.
Thank you, <UNK>.
Thank you.
As always, I would like to think the EFI team for their passion and dedication and our customers for their loyalty.
Of course, I would like to thank our shareholders for their confidence and support.
I'm looking forward to speaking to you in a few months and seeing many of you at our investor day in early November.
| 2015_EFII |
2016 | ETH | ETH
#Yes.
We continue to watch our expenses well, considering the fact that we have been investing in new design centers, and keeping in view that all these new design centers have generally higher expense relative to sales, which we have been absorbing also.
It is reflected in our operating earnings.
We also continue to watch what we spend in our marketing.
And our expenses that did go up, they were all directly related to the increase in sales.
So overall, we are a vertically integrated Company, so we have to watch our expenses even though ---+ as we continue to see some greater increase in the medical costs.
And that is what we're absorbing as well.
But overall, very, very good control by all of our teams at the various parts of the business.
Yes, well, these are challenges.
We do have very strong programs.
We have a strong marketing program in April, which is this month.
A very strong one in May.
And then in June, we will be introducing again a fairly strong marketing program of introducing Buckhead, that's our new program.
We have ---+ also, there's one thing you've got to note that last year we did benefit in the month of June from a price increase that we took in early July.
This year, that is not the case.
We were considering that, but we are not going to take a price increase on July 1 as we did last year.
But that might have some impact on our written business towards the end of June.
But overall, we feel comfortable.
We are positive with all the initiatives that we have in place that we should ---+ we have an opportunity of continuing to increase our business.
Yes, <UNK>, and that's a very important issue, a big challenge.
This quarter, we also introduced the custom quick ship.
This is an important program.
This reflects our upholstery programs, selected product programs and selected fabrics where we are now delivering them within less than 30 days custom all across the United States.
Well-received because not only is it faster delivery on custom, but we intentionally could offer them at very attractive pricing, which has attracted us not only our current customer base.
But we are starting to see new customers, especially as you can ---+ especially younger people, the Millennials.
So we are starting to make that impact.
And I think that our new product program ---+ especially the Buckhead, Santa Monica and Brooklyn ---+ are more geared towards ---+ on our total customer base but certainly towards what you might say the younger customers as even more so than we did in the last year.
Because what we introduced last year were more of the classic product lines, whether what we call the Georgetown or the European classics.
And then finally, of course, the Ethan Allen Disney has a great opportunity of getting us children and their parents.
Yes.
As <UNK> mentioned that while on the wholesale side we did have lower shipments because of the fact that they had placed some fairly large orders during the last year's this quarter.
We do know ---+ we did get information that on the retail side, their business was up.
Considering, of course, all the issues that one is hearing in China, they are holding up.
We have spent a great deal of time with our Chinese partner in renovating and even helping them relocate some of their key design centers in places like Beijing and Shanghai.
So, well-positioned in China.
We have also continued to make progress in some of our design centers and in the Middle East.
And we have also a stronger program in Germany, where they are small locations, but we expect seven or eight of them to be opened up in the next six or seven months.
And also we are opening one in Taipei, a new one, and also in Mexico City.
So, making progress.
But, of course, our biggest opportunity still remains right here in North America.
No, my voice is ---+ it doesn't hurt me.
It just is hoarse; that's all.
Thanks, <UNK>.
Yes, <UNK>, good questions.
Our retail network operated by the Company is going through a number of changes.
Two important ones are that on one hand, we are consolidating.
And on the other hand, we are opening new ones.
For instance, within this last quarter we consolidated a design center in Colorado Springs.
A few years back, we had opened up a major ---+ really a flagship design center in a place called Centennial, which is also in the metro Denver area.
Now, because of the fact of our marketing today and our interior design focus, rather than a commodity selling, we believe that the Centennial can take and is out taking the business that was being done in Colorado Springs.
In fact, we sold that property for approximately $4 million.
I think it just closed about a week or so back.
So on one hand, what's going on is the consolidation to take advantage of our important design centers.
Because the costs of operating in, let's say, those two markets is not very efficient.
We are talking our real estate costs, the management costs, people costs ---+ having one great design center is important.
For instance, also recently we consolidated one in the Toronto market in an area called Burlington.
We consolidated it because we have three other strong design centers that are starting to take that business.
So that's the reason sometimes you'll see that our numbers are getting lower.
But overall, it's important for us.
So that's on one hand.
On the other hand, we are going to go ---+ getting back into markets, which I mentioned earlier, 40 or 50 of them that we used to be there.
Like, for instance, this last year we opened in Wichita, Kansas.
We opened in Toledo.
We are just in the process of building one in Savannah.
All markets that we were not in and we're going to go back in.
So when you take a look at our number is 302 now and our Company design centers, while it's remained at the end of the period at 141, the fact is the composition is much better.
So you going to see the 141 being stronger.
We're going to continue where it makes sense to consolidate and open new ones.
But when we consolidate, the opportunity of taking business to existing ones is an important one.
So that's what you are going to see.
Yes, overall, from 302, it's going to go up.
But the strength of our design center does not just reflect in the numbers.
<UNK>, you can talk, too, but I think our capital expenditures will more or less be similar to last year.
Oh.
The expense was more last year because last year we were really repositioning all the floors.
Oh I see, (multiple speakers) expense.
Putting new flooring in, painting, lighting.
So it's less this year on the remodeling.
On the new locations, though, with the relocations, some of that does flow through to P&L before the design center is even open, and that's reflected just in our operating expenses.
Yes.
Like ---+ okay, like we are just opening one in Manhattan.
And our retail division, management was a bit surprised even though we have a free rent for, I don't know, six or seven months.
But they started seeing hitting it hit right away.
And Manhattan costs, as you know, it's pretty high.
So we are already expensing it.
And we are expensing in a number of these relocations.
The new ones, we do expense them like three or four or five that we are going in.
We don't ---+ we are not showing them separately because, <UNK>, we did it last year, too.
So we don't want to show these numbers separately because it is an ongoing process.
It's hard to say.
But based on the past history, you're talking about on an annual basis about $40 million, $50 million.
And so now it depends how many folks they give it to.
That's right.
They will do it at least two.
<UNK>, our e-commerce is up substantially, but from a very small base.
So we are still just getting started.
What we are doing, what we are seeing is that ---+ and as you can see, some of our advertising ---+ like, for instance, right now, this month we say that you can come in, you can start something beautiful.
Come into a design center and get 25% savings on two items.
Not on e-commerce; they've got to come to the design center.
Now, this is an intentional marketing thing that we have done to bring people into our design centers.
Because when they interact with our designers, who also make home calls, we have larger business and a client rather than a transaction.
Having said this, you are going to see us also improve our e-commerce.
For instance, we had, again, from a very small base a reasonably strong sales on the custom quick ship.
Because it's easier to buy, and it's limited fabrics, fast delivery.
And I would say that we are right now in the process ---+ again ---+ are taking our website to the next level.
And perhaps <UNK>, you just started on this.
You may want to tell them what we are doing.
Yes, we are right in the process of upgrading our website to the new site genesis, which will be the latest features that the demandware platform offers.
It's a nice uplift.
And that will also be the basis for our Ethan Allen Disney home line, which will be the separate site that will be a different look, different experience, much more geared for the magic of Disney.
And we are very excited to get that launching this fall to coincide with the launch of the new product programs.
Well, as you know, we are ---+ we continue to use our capital well.
We have increased our dividends.
We have also continued to buy about $20 million of stock.
Last year, we were thinking of raising debt but the markets were not good.
We'll keep an eye open for that.
But I think our objective is to make sure that we continue to strategically buy our shares as we move forward.
So you're going to see us to continue to look at buying our shares as we have been doing.
Now, keep in mind, we have bought over 41% of our Company back.
Thanks very much.
Yes, it was a great event for them.
They raised a fair amount of money there, <UNK>.
<UNK>, there are different elements of our business.
Quick ship in upholstery is, at this stage, limited to a limited number of frames and fabrics.
The final product is made in our Maiden plants.
We've got three upholstery plants there.
And I think on an average they are shipping in less than 10 days custom products.
That's very important.
Then on the other hand, as you know, almost still 70% of our business is custom.
Even this custom quick ship is custom.
So, we have reduced the timeframe, even considering the fact that our manufacturing has to cope with a lot of new products.
We have taken a certain amount of our case goods and made them quick-ship, especially the ones that come from offshore.
So at this stage, most, I would say close to 80% of our product is shipped within four to six weeks, the custom product from our North American manufacturing.
Well, in April, we took about, I would say, 40%, under 50% of our products, which we called iconics, our great products.
And we said that those product lines will be able to have a savings of up to 20%.
Then in addition to that in April, we offered a family, one customer the opportunity to buy any two of these iconics at a savings of 25%.
That's the main offering.
We, of course, have other offerings, like we do have good financing programs.
Now, I cannot tell you what we're going to do in May.
But in May, we'll have a strong program.
And then in June, we will be introducing Buckhead in somewhat of a more prominent way.
And you'll see that as we go into ---+ we want to make sure people see the difference.
It's a beautiful product line, well-designed, very well received.
And I think you saw it, too, when you were here.
And it's finally getting into our design centers and in June, we'll be marketing it.
So that's a strong program right through the fall of this year.
Yes, <UNK>.
What you are seeing is you are right.
In March, we were impacted by Easter in the last week of the month.
Those customers decided to wait, and for lots of reasons.
And, of course, we also have the spring break at that time.
In April, we have had a much higher traffic.
People are working hard, but in the next five days will determine as unfortunately or fortunately, it ends up the five days, we get about 40% of the business.
So in the next five days, 30% to 40% of the business is done in the last four or five days.
It looks promising.
But until we get it, you know, I cannot tell you that it is here.
All right, <UNK>.
That's a good question, <UNK>.
I think that ---+ <UNK>, you may want to take a look at it.
But all I know, our discounting this quarter is higher than the quarter last year.
And on the other hand ---+ in addition to that, <UNK>, we still are clearing a lot of products from our floors because all these new products coming in that have come in the last six months, we have to sell still a lot of products.
So while our gross margins overall were positive, they increased.
And as <UNK> said, part of it was the fact, higher proportion of retail to total business, better gross margins and efficiencies in our manufacturing.
On the other hand, our retail had lower gross margins because of this clearance of products.
That's going to continue.
You're going to see us have lower margins on clearance but higher margins on efficiencies of manufacturing and logistics.
I don't have all of the tickets.
More or less as an average ticket of about close to $1,800, stayed about even.
Traffic actually was higher between 5% and 10% higher.
So it really was realizing more from the people who came in.
Yes, it was about a $500,000 gain on the sale.
In Pittsburgh.
In Pittsburgh, yes.
And, again, we closed sort of an old freestanding location and then opened up the one I just referred to, which is in a lifestyle center, a leased property.
All right, Valerie, thank you.
And thank you to everybody on the call.
And any questions and comments, please let us know.
Thanks very much.
| 2016_ETH |
2016 | HI | HI
#Sure.
I think we talked about it in the first quarter, if you will recall.
We felt like demand was pretty good, and we closed a number of larger projects.
We saw oil prices rebound.
As you know, a lot of our larger customers for these big projects are in the energy space as well as the petrochemicals and plastics space.
And I think since the last quarter or so, we've seen a decline in oil prices.
If you can think about some of those larger customers, you just saw what their latest earnings were, and a lot of those large companies are having significant profitability challenges right now.
Now, I would say that I think the plastics part to their business are doing pretty well.
Demand is pretty good, and I've read in some of the press releases that those are some of the more profitable parts of the business.
But what we are really seeing is sort of that elongation of approval for capital spend.
We felt this a little bit last year.
I think we are seeing it again.
As I mentioned in the prepared remarks, we're not seeing projects canceled.
Typically by the time we are involved, the project is pretty far along and they've already invested quite a bit of money.
So it's unusual for the project to cancel, except the projects push out.
We have ---+ with that said, we have ---+ we are talking to the customers every day or every week and we are really in close communication.
And while it's certainly hard for us to predict exactly when the projects will close, we feel reasonably good that this is not ---+ these are not going to push out forever, that it's a matter of months or a quarter or two that they push out rather than years that they push out.
So, while we can't predict exactly what's going to happen, again, we are still doing engineering work for these projects.
We are talking to customers on a regular basis, and we still expect these projects to close over the next couple of quarters.
Well, certainly we have to deliver and execute during the quarter.
So, as we look into the fourth quarter ---+ you know, we are partway into the fourth quarter.
Most of what we have to get done in the fourth quarter is in the backlog, and we need to execute it and ship it.
There can be some customer delays, but largely it's us executing and shipping.
We do expect to close some projects during the quarter, but it's not going to be a big driver of revenue or profitability in the fourth quarter.
So, we have pretty decent visibility into the quarter and feel pretty good about the fourth quarter ---+ achieving our expected results in the fourth quarter.
Yes, let me answer that question sort of at a Hillenbrand level first and then go down a little bit into the segments.
I think we've had a really strong year ---+ a margin year at Batesville Casket.
I think the team has done ---+ Chris Trainer and his team have done a very nice job in terms of efficiencies and running the business in a more simplified manner that we can effectively serve our customers.
And so we've had a tough top-line year, though, on the Batesville side.
If you'll remember, last year we had a strong flu season, and so we had a pretty depressed top line so far this year on the Batesville side.
You can't really predict the future with deaths, but if you have a down year, you are more likely to have a little bit better year, at least a flat year in the coming year.
So on the Batesville side, we feel really well-positioned regardless of what the market does.
We wouldn't anticipate a decline like we saw this year in the market.
The business is running well.
Margins are good.
So, we feel pretty good about the Batesville business having a better comparable at the top line as we head into 2017.
Then when we talk about the process equipment group, I think there's really sort of the three parts to the business that we talk about.
We've really focused a lot on spare parts and service.
We feel good about the trends in parts and service.
In fact, we think we continue to grow that business faster than the market in many of our segments.
So we feel pretty good about that going into 2017.
And then there's the smaller projects.
This year we had some considerable headwinds in some key markets where the equipment that we make is really profitable and we sell a lot of spare parts ---+ frack sand equipment, coal-powered mining equipment, equipment used for fertilizer including potash.
So, right now, those commodities have sort of stabilized in terms of pricing for the most part, but at a very low level.
So we haven't yet seen an increase in demand for equipment in those areas, and so that will be an important piece for us going into 2017.
We don't see that coming in the sort of the next couple of quarters, but we expect that to come at some point.
So that's kind of ---+ the comparables get easier as you go into the first quarter of next year.
Those are cyclical markets.
We would expect them to come back at some point, though it's hard to time.
And then finally, the large projects.
As I said earlier, we have ---+ we feel pretty good about what's happening in the plastics industry right now.
Demand remains pretty good.
Projects are out there; they are just elongating.
So, if we can get some of those projects closed and we see sort of a normal timeline on those projects, 2017, particularly the second half of 2017 ---+ could be a stronger second half of 2017.
So, I think next year, it's really a ---+ it's those three categories of ---+ I think it's really going to be the big drivers which ---+ Batesville business, if we get volume there.
And then some of the key end-markets coming back both for equipment, smaller projects and then, of course, the larger projects.
Does that help.
That was a long answer.
I apologize, but did that makes sense.
I think the petrochemicals and plastics markets are pretty good right now.
We are seeing okay demand across those markets.
I think it's really a question of, particularly in the plastics market, those large project coming to fruition and how quickly that happens.
Related to the other markets, as I said, I think we've got some stability in terms of pricing for those commodities.
But we're not seeing demand come back and don't have any indications of demand coming back right now in frac sand, for example.
So, I hope that ---+ does that make sense.
I guess I would say that we would expect reasonable demand on the plastics and petrochemicals side and those large projects.
And then we don't have really good visibility to the other markets in terms of when they will come back right now.
And so, I think on the Batesville side ---+ we expect to have a pretty decent year next year on the Batesville side given that we had a pretty tough top-line year this year on the Batesville side.
And we've done some ---+ taken some nice actions on the Batesville side to make sure that whatever revenue comes through, we'll be able to turn it into profitability and cash flow.
Let me ask <UNK> to handle that question.
<UNK>, when we think about the quarter, year-over-year improvement, again, as you mentioned, PEG had a really good quarter.
About ---+ of that 500 or so basis points improvement, about 100-basis-points improvement, frankly, was from the Abel and Red Valve acquisitions.
So they have a higher gross margin profile than our process equipment group as a total.
Then, we did get some improvement on price and productivity.
So, I think when we think about the gross margins in the third quarter of the 39%, as I said in my prepared remarks, a fair amount of that was mix that was driving that favorability.
So, when I say kind of going back to a normal gross margin next quarter, I would say that's going to be similar to what we delivered in first and second quarter.
This is <UNK>.
They are performing in line with expectations.
I think you nailed it.
We are seeing pretty good demand on the municipal side of the business, particularly in North America.
So, that's been positive.
And that's mostly on the valve side.
On the pump side, we've seen strong demand, good demand in Europe for pumps.
We've also had some success in mining.
We have a really great story on total cost of ownership.
So, we help mines reduce their cost, which is a big focus right now in a number of the commodities markets.
And so we've had some success there.
So, we feel pretty good about the performance of those businesses right now and the markets they serve.
Particularly, the municipal market and the water market is pretty good.
And then even though, for example, mining is down, our value proposition is pretty strong.
We are actually taking advantage of mining being down.
We are just trying to get more efficient and able to sell our value proposition to sell more pumps into that end-market.
You know, we had the number two and number three competitors come together a while ago, so it's really changed the dynamics a little bit in the marketplace.
We haven't really seen the impact, quite frankly, on pricing or big shifts in the mix of product being sold.
So, despite that, which is a big deal in the number two and three getting together, we've seen a pretty sort of steady marketplace.
There's certainly price competition, but I don't ---+ wouldn't characterize that there's anything out of the ordinary.
It's always more challenging in a down year as some of the smaller competitors are trying to move in inventory to generate cash.
But we are sort of through that period, and we are seeing a pretty stable environment right now on the burial casket side.
Sure.
And I won't go into a ton of detail, just for competitive reasons.
But you know, we use our operating model and in particular to use 80-20, and we really try to focus on the more profitable parts of the business.
Which, of course, it's true that the most profitable parts of the business ---+ those are the places where we actually have the best value proposition and we create the most value for our customers.
So, Chris Trainer and his team at Batesville have been focused on those areas where we serve our customers best and where we can make more profitability.
So, we've taken some cost out of the Batesville business, but we've taken it out in areas that we think we were either overstaffed or we didn't have as strong a value proposition and weren't as profitable.
And we've refocused some of those resources and reinvested those resources in areas where ---+ right in our core.
So, largely it's in the burial casket section ---+ in certain segments of the burial casket to go achieve growth.
As you know, it's a high-fixed-cost business.
And so volume is important for us on the burial casket side.
So, we have reinvested to grow on the burial casket side of the business with certain customer segments.
So, I think the point I'm trying to make is we are not just taking costs out of that business.
We are certainly sizing the business for the size of the market and to maintain profitability.
But we are also reallocating resources within the business and trying to focus those resources on the most profitable parts of our business where we can continue to extend our leadership position and continue to increase our value proposition to our customers.
That's a great question.
And, you know, in the last conference call, we talked about our debt-to-EBITDA ratio being at about 2.7, which is the high end of our guardrails for debt.
So we've really been focused on paying debt down.
We did a really good job, I think, of paying debt down this quarter; took a significant amount of debt off the books by paying debt down.
So as we said last quarter, we don't expect to close any significant transactions during this fiscal year.
We remain active in terms of looking at potential acquisitions, including in the flow control space.
But you shouldn't expect anything major from us certainly in the next quarter and maybe a little bit longer given that we are still focused on paying debt down over the next few quarters.
Yes, sure.
We've been focused on trying to improve our strategic pricing capabilities for a while now.
We are starting to see the benefits of some of that.
And it's not a simple ---+ as you know, it's not a simple, hey, just take price up across the board.
It's really trying to understand which product lines and which customers will we create more value, have the opportunity to improve price realization.
And so I think we've gotten certainly better at that over the last number of quarters.
We are starting to see that flow through.
We still ---+ we continue to think that there is more opportunity going forward, and it's a significant part of our Hillenbrand operating model.
So we are really working with each of our divisions to work through understanding clearly what their customer and product profitability situation is and how price can optimize profit.
Sometimes that means taking price up, sometimes that means taking price down to actually improve volumes.
So we are getting better at that, and we expect there to be continued opportunity for the foreseeable future related to price.
Dan, we don't really guide to cash flow.
What we have typically said is that cash flow would be greater than net income.
You know, if you look at this quarter, we did have really strong cash flow so far this year, including this quarter.
And a good chunk of that has to do with the mix of business that ---+ and putting together sort of pre-payments and all those sorts of things that come in.
We expect as we go forward the mix of business, at least in the near term, will see not as strong a cash flow, as we expect to have some uses of cash as we go into the fourth quarter.
But, again, overall for the year we feel pretty good about where we are with cash flow.
But we will see that slip a little bit in the fourth quarter, given the nature of the projects that we have in-house and sort of what we expect to close as well.
Dan, I'm not sure I can answer that question.
I can tell you that we do expect to realize the full amount of the restructuring to hit during the year that we had expected.
And <UNK> ---+ I apologize.
<UNK> is not feeling well, so she just stepped out of the conference room here for a second.
But (multiple speakers) ---+
Yes, Dan, we expect to have the $4 million this year ---+ to achieve the $4 million this year.
I just don't know how it breaks out by quarter.
And, again, it's $10 million on an annualized basis.
But we can get back to you on how that breaks out by quarter.
Thank you very much, operator.
And once again, I want to thank everyone for participating in the call today.
We look forward to speaking with you again in November when we report our fourth-quarter and full fiscal year 2016 results.
Have a good day.
| 2016_HI |
2015 | RMBS | RMBS
#We continued that.
Thank you all for your continued interest and support.
We will be hosting our annual meeting of shareholders this Thursday, April 23 at 9 AM Pacific time.
The meeting will be held online like we did last year.
We look forward to sharing highlights with you and our shareholders then.
Thank you.
| 2015_RMBS |
2017 | RGS | RGS
#Thanks, Greg.
Good morning, everyone, and thank you for joining us today.
With me are <UNK> <UNK>, our Interim Chief Financial Officer and a professional at Huron Business Advisory; Eric Bakken, our Executive Vice President and Chief Administrative Officer; and Mark Fosland, our Senior Vice President of Finance.
Our strength of our franchise business was demonstrated in a challenging second quarter retail environment as our franchisees once again posted positive same-store sales results.
Our franchisees have now posted positive annual same-store sales growth for 10 consecutive fiscal years and our royalty revenue increased 4.3% in the quarter.
We have made a serious commitment to transform our business operationally and strategically to drive improved shareholder value.
We intend to operate our salons successfully, sell certain salons to franchisee and continue to close underperforming salons.
As I mentioned on our last call, we are committed to a thoughtful well-planned strategic transformation that increases the scale of our franchise business.
To accelerate our goal of improved performance across the broader base of our salons, we announced last quarter we had formally engaged Huron Business Advisory to assist in the analysis and development of the best means of delivering an accelerated and expanded franchise business model.
While still in the early stages, we are pleased by our progress to date working in collaboration with Huron.
We expect our initial focus will be on franchising our underperformed Company-owned SmartStyle Salons located in Wal-Mart.
We believe this represents an opportunity for our existing and new franchisees as these locations have built-in Wal-Mart guest traffic, which can be coupled with franchise operators who have proven capabilities to react nimbly to local conditions and the market knowledge to implement necessary changes to operations, stylist labor, wages and pricing to improve front line salon performance.
In December, we issued our franchise disclosure document for SmartStyle Salons in Wal-Mart.
This enables us to actively market and franchise this concept, and the initial response from our franchisees and new perspective franchisees for this concept has been positive.
After adjusting for the Christmas calendar shift, same-store sales for our Company-owned salons declined 2.4% in the second quarter.
Adjusted same-store sales for our non-mall brands were down 1.2% and continued to outperform our mall business, which posted adjusted same-store sales declines of 5.8% in the second quarter.
Despite these volume challenges, second quarter adjusted EBITDA of $17.4 million increased slightly over last year.
On a year-to-date basis adjusted EBITDA increased to $41.5 million versus the $40.3 million reported for the first six months of FY16.
We believe these results demonstrate our organization's focus and commitment to controlling operating costs and non-essential G&A expense.
Many of our Company-owned salons continue to perform well.
In fact, their results are being driven by the investments we have made in strong field leaders who execute in a manner similar to our most successful franchise operators and are driving improvement by using the tools, processes and metrics we provide.
That said, consolidated results are not yet meeting our expectations and further support our evolving strategy to accelerate and expand our franchise model, close our non-performing salons and maximize operating performance.
Before I discuss second-quarter business updates, let me share some additional thoughts related to our retail business and our franchise revenue growth.
I'll start with our retail product business.
For the quarter, same-store sales declined 6.7%, or on an adjusted basis 5.5%.
Much of this is driven by performance of both value and premium brand salons that are located in malls, which on an adjusted basis were down 10.7% during the second quarter.
We continue to execute on our combo sales initiative and year-to-date combos are now at 9.6%.
SmartStyle, as a division, has topped a 10% combo rate for the year, which is great to see and a result of the focus on stylist execution.
Our franchise revenues in the second quarter declined slightly verses last year.
We do not believe this decline is indicative of the positive momentum we are gaining in our franchise business.
Instead it is simply a shift in the timing of new franchise salon openings.
Last year franchise growth and the associated beat with new franchisee openings was skewed to the first half of the year.
This year, we added 41 new franchise locations in the quarter, compared to 67 last year.
We are expecting new franchise openings to be strong in the second half and unit growth for the year should ultimately be similar to last year.
The best indicator of our franchise progress is royalty revenues.
As I mentioned at the outset of the call royalty revenues increased 4.3% in the quarter and our franchisees have produced 10 consecutive years of positive same-store sale increases.
Now let me shift our discussion to second quarter business updates.
We continue to drive guest engagement with innovation in our digital environment, online check-ins through Supercuts.com and the Supercuts app have doubled in the last year.
Over 2.3 million check-ins occurred across the system in calendar 2016.
This is significant because digital check-in guests have stronger repeat visit rates than their walk-in counterparts.
Our marketing and operation teams have collaborated to drive these results and will continue to partner to develop new tools to elevate guest awareness of online check-in and the overall quality of the guest experience.
It is important to note this good work benefits our franchise and corporate Supercuts salons.
In the second quarter, we delivered on our investment and leadership and stylist development due to the completion of several development conferences and interactive in-salon training.
In fact, we completed a leadership training class for our regional directors this week, focused on stylist retention and optimizing stylist performance.
In support of our efforts to improve stylist recruiting and to provide upgraded tools for our team, a significant priority for us this quarter was preparing for the implementation of our new hiring and on-boarding system.
Our new system will improve the overall candidate and leader experience by shortening the application process, providing mobile and social media capabilities and a one-stop dash board for our leaders.
On the stylist development side, we continue to experience strong enrollment in our on-boarding program for stylists with over 6,300 new stylists enrolled in the second quarter.
Through this new system, we also have the opportunity to capture immediate feedback from our new stylists.
These learnings support our commitment to the development of our stylists show the importance of creating a strong Regis culture and a positive work environment are key components of stylist attraction or retention.
This concludes my business update.
Before I turn the call over to <UNK>, let me close with a few additional comments regarding the evolution of our Company.
We have made a serious commitment to transform our business operationally and strategically in an attempt to improve shareholder value.
Regarding the transformation of our operations, we are continuing to increase our expectations for satisfactory salon operating performance and we will take ongoing steps to properly control our expenses to ensure that we remain highly competitive in our Company-owned salon business.
As to the strategic transformation already underway, our team remains committed to closing non-performing, non-strategic salon locations where we have determined we cannot generate an acceptable return for our shareholders.
In fact, since the start of FY12 we have exited nearly 1,900 underperforming salons.
During this time, we have also grown our franchise business successfully by adding over 500 salons.
As I discussed earlier, this program will continue as we take steps to franchise certain underperforming SmartStyle locations.
We are committed to a thoughtful well-planned strategic transformation that increases the scales of our franchise operations, while at the same time exiting underperforming Company-owned salons.
Further as we previously discussed, we have made careful investments in the technology, stylist education and the overall experience of our guest.
We continue to act with a sense of urgency to accelerate our progress and improve our results.
The plan is to continue an aggressive expansion of our franchise model and going forward this will be a significant component of Regis' future unit growth.
Over time, expanding our franchise models should enable improved capital efficiency by focusing and simplifying our business, allowing our best operators to manage fewer salons more effectively, and simultaneously providing the opportunity for our salons to meet and exceed the expectations of our stylists and our guests.
Although we are in the early stages of our work with Huron, we are moving forward with a sense of urgency.
At this point it is not yet possible to provide further details on the pace of franchise conversions or the potential financial impact on our results.
in future quarters as our plans are solidified and we gain greater visibility, we expect to provide additional clarity as to the pace and potential impact of our franchise expansion along with enhanced disclosures on the overall profitability and performance of our franchise business.
Thank you and I will now turn the call over to <UNK>.
Thank you, <UNK>, and good morning.
I will limit my comments today since I just began my roles as the Regis Interim CFO and <UNK> has already recapped our unaudited performance for the quarter, including the highlights of the Company's year-to-date results, further our press release and 10-Q include detailed explanations for our major P&L items.
As a result, my update relates to financial housekeeping items and the Company's current view of liquidity.
There are three financial housekeeping items of which I would like to share.
First, included in today's press release as well as on our corporation website, is Management's reconciliation bridging reported results to earnings as adjusted for the impact of discrete items for the second quarter of the current and prior years.
Second, I want to remind you that the valuation allowance in place against most of our deferred tax assets makes it very difficult to compare after-tax results to prior periods.
For the six months ended December 31, 2016, we recorded tax expense of $3.5 million.
However $3.3 million of that was non-cash and related to tax benefits we claimed for goodwill amortization, but cannot currently recognize for GAAP purposes.
The non-cash tax expense related to this issue will approach $7.8 million for the full year and we expect that this will continue on an annual basis going forward in decreasing amounts, as long as we have the deferred tax asset evaluation in place.
As Management has discussed in the past, this non-cash charge or benefit could fluctuate significantly from quarter to quarter as a result of how the effective tax rate is determined at interim periods.
Third, during last quarter's call, Management mentioned that our first quarter G&A expense was impacted by timing and certain one-time benefits, but that we are still estimating G&A for the full year to be around $177 million.
With half of the year complete, we are now estimating G&A expense for the full year to be in the range of $170 million due to additional timing, one-time benefits as well as purposeful efforts to reduce Company's G&A cost.
The one-time benefits were driven by lower warehouse labor, field travel and compensation expense, primarily resulting from lower sales volumes in the quarter.
Additionally in the quarter, we saw a timing benefit related to professional fees in our annual franchise convention.
While we are experiencing some non-occurring favorability with G&A, we continue to take a very disciplined approach managing our overall G&A.
This has enabled us to reduce overall G&A while funding strategic investments in an attempt to drive revenue.
On the liquidity front, our business generated $27.6 million of operating cash flow during the first half of our fiscal year despite the top line headwinds <UNK> had mentioned earlier.
This was largely offset by $17.3 million use of cash for investing activities, a $1.1 million use for financing activities and $900,000 negative impact from exchange rates.
Overall, our cash balance increased roughly $8.3 million compared to the end of last year, which was in line with our prior expectations.
In keeping with our capital policy we did not repurchase any shares during the quarter.
As a reminder, a core tenet of this policy is to preserve a strong balance sheet.
At the end of the second quarter, $60 million remained outstanding under the approved stock repurchase program.
Going forward, we will continue to adhere to our capital allocation policy and will remain disciplined with the use of our capital.
Finally, we finished the quarter with $156 million of cash, $123 million of total debt and no outstanding borrowings under our $200 million revolving credit facility.
In closing, <UNK> has asked that I focus with the rest of the team on driving improved performance across all aspects of the business.
I am delighted to join the Regis Management Team and really look forward to speaking with you in the days ahead.
This concludes the financial portion of the call and we will open up the call for your questions.
Operator, can you please provide instructions for the Q&A portion of the call.
Sure, I'm happy to expand on that, <UNK>, thank you.
I'm going to go at this in a couple of different ways.
I'll start with Huron and then I'll start with what we're doing to sell our salons into franchise.
So Huron has come in to help us evaluate our business as a whole and look for ways to increase our franchise opportunities and look at different business models that will drive the most shareholder value.
And we have found them to be very helpful.
They are very thoughtful folks.
As you saw, we actually rated Huron and we brought <UNK> in to be a part of our team.
So <UNK> is already adding a lot of value here and I think the fact we've got <UNK> here from Huron and we've got Huron in here, will really help us be very thoughtful about how the Company is structured as a franchise and a corporate salon company going forward in the best possible way.
In terms of selling into franchise, that process is now in full swing.
As I mentioned, we have the finance ---+ the franchise disclosure document is completed, we have that in the hands of our ---+ in our franchise team.
And we went after this in three phases, pretty much concurrently.
The first phase was, we went to some of our biggest franchisees today and we presented it to them.
We showed them what the opportunity is and we got good interest there.
Then we took it out to the rest of our franchise base and we've gotten a very good interest from them.
And then we went to the market in general with our franchise sales team and the interest is ---+ we've been very pleased with the interest that we've had so far.
We actually have our first discovery day, when people come in that would be new to a franchise opportunity with us, at end of February.
Takes a little while to get the message out and recruit these people, but we are very happy.
It will be one of the largest groups we have ever had come in and we are anxious to get in front of them and talk to them about the opportunity.
But I can tell you where it is early, early days, <UNK>, but we are pleased with the interest we have seen so far.
Well, at this point in time it's kind of early.
But it's really just to support the overall team with the franchising initiative.
Simply put, as <UNK> had mentioned, Huron is in helping with that.
My background, while it varies in different industries, can also help out on that front.
You know the business down the road being more franchise heavy will look different.
And so I hope to help <UNK> and his team accomplish that.
So good question.
So when I referred to the mobile app, I'm referring to our Supercuts brand only.
And we saw, you know where we saw our toughest traffic was in the malls, in our premium salons and in MasterCuts.
We saw a challenging ---+ it was a challenging retail environment in the quarter in general, but it's important to note that the mobile app is only in Supercuts.
And Supercuts is performing better than the rest of our brands.
The one thing that ---+ and it's the reason that we made the decision to shift strategically and become more of a franchise company is we've seen what strong operators our franchisees are.
And our franchisees delivered in what is a very tough retail ---+ was a very tough retail environment in the fourth quarter.
They delivered same-store comp sales increases, which made for ten consecutive years.
We have a number of our best performing leaders who also delivered very strong same-store sales and traffic growth.
So I really believe that the focus we have on shifting to franchise and selling our underperforming salons into franchise will help us in a number of ways.
Obviously those salons that aren't performing well will get into the hands of good franchisees.
They will operate them better.
They will also take down the number of salons that our best operators have to manage and that will focus them on salons that are doing well today and they can make them even better.
So we have a holistic approach to improving the company by shifting towards a franchise business.
So obviously it helps within the franchise but we believe it will also help us on the corporate side.
Thank you.
Okay.
And I'll just say, thank you, everybody.
We look forward to talking to you again next quarter and updating you on our progress as we move to become more of a franchise company.
Thank you and have a good weekend.
| 2017_RGS |
2016 | GLT | GLT
#Yes.
So the machine is being designed to produce high-value, lower basis weight products and will focus predominantly on the broader specialty wipes category.
Right.
So we will have a much larger platform so we will be able to establish centers of excellence between the Gatineau, Canada facility and the southern US facility.
I wouldn't say shifting ---+ I'd say growing.
So this is a platform that is serving markets that are growing at 5% per year both in hygiene as well as wipes.
In North America the Airlaid substrate is a form factor of choice for the growing specialty wipes category, and we have strong working relationships with some of the key market makers.
And so as we looked at opportunities to invest in organic growth, we saw this as a good opportunity and very timely.
And it's consistent with what we've described in the past in terms of how we envision continuing to grow Glatfelter.
Well, certainly the uncertainty and volatility in Russia and Ukraine is top of mind.
And the Dresden facility is a low-cost producing facility.
It's run exceptionally well.
We have gathered a team together to focus on areas where we can create even more cost-competitive cost structure and look at ways to round out the product portfolio to have fit-for-purpose offerings for certain regions of the world when you've got economies and recession and very volatile and weakened currencies.
So the product category itself, big picture, we still see the markets rolling globally.
Over time we like our leading share position, which is just under 50% market share.
And in terms of its profitability profile, although substantially impacted over these turns of events over the last, say, six quarters or so, it still is a contributor to CFBU and fits our profile.
<UNK>, I think it's a little bit more of an open question.
As we have done with our other timberlands, we will continue to stay abreast of the conditions in the market and look for opportunities to get what we think is appropriate value.
And when we can do that, we'll sell them.
The properties we have remaining, the 8,000 acres ---+ about half of that are eased lots that have restrictions on commercial and residential development.
So the market for those is a little bit more restricted.
But we will continue to do what we've been doing, which is try to make sure we get appropriate value.
And when we see the opportunity to do that, we will sell it.
And as you know, our balance sheet is in very good shape.
So we can take the appropriate amount of time and make sure we get the appropriate value.
Sure.
So since our last call in early November, there has really only been one significant development, and that is that the trial date for the case was moved to January 2017.
It had previously been scheduled for July of 2016.
So there has been about a six-month delay, and that's just driven by the time required for discovery and depositions in what is a fairly complex case.
As far as 2016 remediation, our view really hasn't changed.
We made an accrual last year of $10 million.
We believe that our contribution to the 2017 remediation will be no more than $10 million ---+ I'm sorry, 2016 remediation will be no more than $10 million and could possibly be less.
So, we haven't really changed our view on that.
Well, as you may be aware, there have been anti-dumping and countervailing duties levied against certain countries that were importing into the US markets.
I would say generally speaking it has had a positive effect on slowing down the rate of imported papers and creating a little bit more stability in the floor where some of these commodity white papers are trading.
It was really focused on cut sheet papers, where we have a very small market share.
And there are other plays that have much bigger, but we chose to get involved because we thought fundamentally it was the right thing to do.
So, we see it as a positive.
But we still have the broader issue of declining demand and excess capacity, which, as you know, has retarded selling prices in general.
Yes, <UNK>.
From a comparable standpoint, I would say this started primarily about a year ago, fourth quarter.
So fourth-quarter 2014, maybe a little impact in the third quarter of 2014.
So we've been through about a full year, and so the comps obviously will get a little bit easier in 2016 compared to last year.
It remains a pretty volatile situation if you look at what has happened with the ruble.
The value has continued to decline and reaching some pretty difficult levels compared to the Euro at about RUB90.
So, we don't really see much of a change.
It's a little bit hard to predict when it might change because it's really driven by some of the political issues between Russia and Ukraine, as well as oil prices that are affecting the ruble and then affecting the broader economy.
So, it's a little bit difficult to have a clear crystal ball as to where this is heading.
But certainly the comps will get easier starting the first quarter of this year.
We do have hedges in place, although the strike price of those hedges is consistent with where the trading value is today, so right around that 112 range is where our hedging is.
So we don't expect any impact from those hedges this quarter.
Yes, so happy to comment on that.
As you know, acquisitions are an important component of our growth strategy.
We do have an ongoing process that identifies and assesses targets.
As you might appreciate, we can't really get into any specifics about what the pipeline looks like.
Most likely targets will be businesses that enhance our existing engineered materials business or adjacencies that expand our portfolio and help us build additional growth platforms.
And we have been and will continue to be very disciplined with our process.
And we've got balance sheet capacity that gives us the latitude to execute when we find the right opportunity.
And we're committed to growing our Company but we're not going to compromise our standards or make a bad deal.
As it pertains to uses of cash, if you think about our cash flow profile and expected cash needs over the near term, we've got to finish our Boiler MACT environmental compliance.
As <UNK> said, there will be $40 million to $45 million spent this year.
We announced capacity expansion for the Airlaid business.
We had been signaling this for some time and now we are in the process of executing that.
That's an $80 million project.
That $40 million to $45 million will be spent this year as well.
So we want to support our dividend.
And although we believe that we have very strong defenses for the ongoing Fox River liability, we have to be mindful of any short-term funding dynamics.
So, I think these are all things that we and the Board take into consideration.
And of course the Board always has the prerogative to update the priorities as circumstances change.
Yes.
I don't have the specific currency number for wallcover.
For the year our volumes were down 20%.
We also had some price erosion, of course, the FX impact.
But I don't have that specific breakdown.
I can follow up with you after the call on that.
Yes.
I think, as you might be able to appreciate, we have confidentiality arrangements with our customers.
So I can't get deep into the contract at all but I can tell you it's more than a year.
But I can't really go further than that.
You are speaking to our Specialty Papers business.
Sure.
So we do not take any downtime in the fourth quarter in our Specialty Papers business and we don't expect to take any downtime in the first quarter.
We have generally been ---+ I think, as I mentioned, we grew ---+ in the fourth quarter we saw book publishing products was up and our non-carbonless forms products grew, and that offset declines in our other product lines.
So we are currently essentially running at capacity.
And we have been able to, as I described, generate some growth in certain product lines to offset the overall decline.
So we haven't had any downtime in Q4 and we don't expect any in Q1.
Sure.
So I think, as you mentioned, the run rate or what we achieved in the fourth quarter was $10 million.
And the guidance we provided from Q4 to Q1 ---+ was from Q4 to Q1.
So we generated $41 million in total, so it was a little bit backend-loaded.
But I think the $10 million number for Q4 is what we'd expect to sustain as we go forward.
As far as a breakdown by business, again, I do not have that in front of me.
But I can certainly follow up with you, <UNK>, to give you a sense for that.
But it's embedded in the guidance we provided for Q1.
Sure, yes.
No, no.
Generally speaking, it's a breakeven type project from a cost perspective.
So we have some cost benefits, but it's offset by higher fuel costs.
So essentially it's about a neutral going forward.
We obviously will have some depreciation expense from those investments, but from an operating cost perspective, it's a neutral.
Correct.
Yes.
I think that ---+ obviously, we only gave guidance for Q1 but our guidance was ---+ it will lead you to the fact that we expect volumes in Q1 to be in line with Q4, and pricing should be in line.
So we expect it's sustainable.
Yes, the spending is in both of our North American facilities, Pennsylvania and Ohio.
We have adjusted the estimates based on what our actual spend is.
So in 2015 we spent $27 million, where I think we had been guiding more like $35 million to $40 million.
So we spent less there and we have made adjustments.
We will largely finish these projects in 2016.
Certainly Ohio will get started up.
Pennsylvania will certainly get tested and maybe started up before the end of the year.
The spending in 2017 is really just the final cash flow from work that will be completed largely by the end of 2016.
So the total project cost estimate has not changed; it's still $85 million to $90 million.
But how we are incurring that cash flow has changed a little bit.
Yes, so that's ---+ the $2 million in 2016 and $4 million in 2017 is driven primarily by the need to hire and train a workforce at the new facility and then the actual start-up process.
So that's why there are some costs in 2016.
We will need to begin that hiring and training process as we go through the second half of 2016 so that we can meet the start-up timeframe and get folks trained on the operation of the equipment.
<UNK>, I would say that certainly the wallcover market we saw price erosion and then we also saw erosion in some of the food and beverage, due to some competitive situations.
But I would say that in Q4 compared to Q3 we were largely flat on pricing.
So we believe that much of the price erosion or all that price erosion is largely behind us and that we ought to see better stability as we go through 2016.
<UNK> will give us the exact data.
But what I can tell you is that we have seen a bit of a leveling out as to which parts of the book industry have moved to ground and which are staying on permanent freesheet papers.
In some cases there have been categories of titles and publications that initially switched to ground but then moved back to permanent papers.
So I think there has been a bit of a settling out and we do not see a conversion rate that we had experienced in previous years.
So I think the market has settled down a bit.
I don't know, <UNK>, do you have the exact ---+ .
I don't have it just specific to trade book.
So I'll need to follow up with that.
It is, yes.
Big picture, most of these product segments are still declining 3.5% to 4%.
You do get some quarter-to-quarter and year-over-year variation.
Those are the operating assumptions that we are using for these businesses.
But for certain we've seen a slowdown in e-books and a slowdown in the cannibalization of freesheet by ground wood papers and in some cases a reversal of moving away from ground wood papers back to freesheet.
Sure, happy to give you some commentary.
So single-serve coffee is an important segment for us and we have a leading global share position that we estimate in the 70% range or so.
I think the category is still growing and we expect that to continue.
The growth rates have slowed down as the base continues to get bigger.
So, right now we are estimating single-serve coffee to grow around 4% a year or so.
The announced acquisition of Keurig ---+ the holding company that's acquiring them is a business ---+ they own other businesses that we do businesses with, so we know them and have constructive working relationships with them.
So we intend to continue to be the global leading supplier in single-serve coffee and we don't envision there being any real difficulties or challenges getting acquainted with Keurig's new owner.
Yes, so we still see the teabag market growing at about 3% per year globally.
Our market share is a little over 50% worldwide.
And we continue to do well in that particular business, both on the heat seal and non heat seal.
And we expect that market to continue to grow.
And as I commented earlier, our food and beverage sales, up 5%, are a good recent example of that, notwithstanding all the geopolitical and foreign currency volatility that we experienced in 2015.
All right.
Thank you for joining our call today and we look forward to speaking with you again next quarter.
Have a good day.
| 2016_GLT |
2017 | EBAY | EBAY
#Thanks, <UNK>
Let’s begin with Q2 performance, starting on Slide 4 of the earnings presentation
In Q2, we generated $2.3 billion of total revenue, $0.45 of non-GAAP EPS and $517 million of free cash flow
We repurchased $507 million of our stock and this week our Board of Directors approved an additional $3 billion share repurchase authorization
Moving to active buyers
In the quarter, we increased our total active buyer base to 171 million while trailing 12-month growth was stable at 4%
Underlying the overall trends, we saw stable retention and continued positive momentum in new user acquisition with particular strength coming from the U.S
and Korea
On Slide 6, in Q2, we enabled $21.5 billion of total GMV, up 5%
By geography, the U.S
generated $8.8 billion of GMV, up 30%, while international delivered $12.7 billion of GMV, up 7% year-over-year
Moving to revenue, we generated total net revenues of $2.3 billion up 7% on an FX neutral basis and up 6% organically, both stable versus the prior quarter
We delivered $1.8 billion of transaction revenue, up 6%, and $511 million of marketing services and other revenue, up 9%
Turning to Slide 8. Our <UNK>etplace platform grew GMV by 6% in Q2, one point acceleration versus the prior quarter
GMV accelerated one point quarter over quarter to 5% and international GMV grew at 6%, stable versus the prior quarter
Underlying those trends, our B2C growth rate was 6% year-over-year and C2C growth was 3%, both slightly improving versus the prior quarter
Total <UNK>etplace revenue was $1.9 billion up 7% year-over-year, two point acceleration versus the prior quarter
Transaction revenue also grew 7% and accelerated two points versus Q1, one point faster than GMV as the pricing changes we announced in Q1, which are enabling increased investments to drive velocity for our sellers went into effect
<UNK>eting services and other revenue grew 4%, a deceleration of two points versus the prior quarter
The deceleration was driven by the elimination of certain third party ads on our site in addition to lapping significant Q1 growth from our co-branded credit card revenue, which is recognized annually in the first quarter
As we continue to shift our advertising strategy away from third party and towards first party advertising, this will favor transaction revenue putting ongoing pressure on MS&O revenue growth
Moving to Slide 9. StubHub GMV declined 5% year-over-year decelerating 11 points from Q1 while revenue grew 5%, a deceleration of 14 points versus the prior quarter
This quarter we lapped the strongest growth rates from all of last year in addition to facing into a weaker events landscape as <UNK> discussed earlier
While we will continue to face comps tough comps through most of Q3, we believe Q2 will be the low point of growth for this year
Moving to Slide 10. In Q2, Classifieds grew revenue 11%, one point acceleration versus Q1. We’re seeing strong growth across our key markets driven by improved user traffic and engagement, partially offset by ongoing monetization headwinds as traffic shifts to our mobile app platforms
Turning to Slide 11 and major cost drivers
In Q2, we delivered non-GAAP operating margin of 27.3%, which is down 180 basis points versus last year, 80 basis points of which was driven by a stronger U.S
dollar impacting all spend categories
I will focus my remaining comments on the operational dynamics of our expenses
Cost of revenue increased year-over-year driven by our Ticketbis acquisition, our first party inventory program in Korea and incremental investments in eBay customer support
Q2 sales and marketing expenses decreased as a percentage of revenue as productivity and marketing channels and reallocations across platforms more than offset increased <UNK>etplace brand advertising
In June, we launched a new multichannel brand campaign in the U.S
which will rollout across our key international markets throughout the remainder of the year
Product development costs were relatively flat as a percentage of revenue as we are now lapping increased product investments from the second quarter of last year
We continue to drive operating leverage to fund ongoing investments in key areas such as the expansion of structured data and the product experience enhancements across our platforms
G&A expenses were up year-over-year driven by the addition of Ticketbis operating expenses and investments in data, security and employee benefits and services
Turning to EPS on Slide 12. In Q2, we delivered $0.45 of non-GAAP EPS, up 5% versus prior year with FX negatively impacting EPS growth by five points
EPS growth was driven by revenue growth and the net benefit of share repurchases partially offset by the cost dynamics described earlier
GAAP EPS for the quarter was $0.02 down $0.36 versus last year
Our GAAP results were negatively impacted this quarter by a non-cash income tax charge of $311 million caused by the foreign exchange remeasurement of a deferred tax asset related to the ongoing realignment of our legal structure
As always you can find the detail of reconciliation of GAAP to non-GAAP financial measures on our press release and earnings presentation
On Slide 13 in Q2 we generated $517 million of free cash flow, which was down 16% on a year-over-year basis primarily driven by timing differences of cash tax payments
CapEx was 8% of revenue in Q2 and we continue to expect to be in the range of 7% to 9% of revenue for the year
Turning to Slide 14. We ended the quarter with cash, cash equivalents and non-equity investments of $13.6 billion of which $4.9 billion is in the U.S
Our capital allocation strategy is designed to manage the capital structure in a way that optimizes our financial flexibility, access to debt and our cost of capital to enable capital return and drive long-term shareholder value
In Q2, we raised $2.5 billion of debt, which we plan to use for general corporate purposes, repayment of our near-term debt obligations, share repurchases and M&A activity
Additionally, we repurchased 15 million shares at an average price of $33.79 per share amounting to $507 million in total
We ended the quarter with $479 million of share repurchase authorization remaining and as I previously mentioned our Board of Directors approved an additional $3 billion authorization this week
We remain committed to capital return at a minimum of 50% of free cash flow for the full year and we will continue to be in the market opportunistically at levels above that
Before discussing our Q3 guidance, I’d like to remind you that we will start to utilize hedge accounting to better protect revenue from currency movements in the second half of 2017. As I mentioned on our January earnings call, we implemented a new hedging program that is intended to reduce volatility of our top-line from foreign exchange
Going forward are hedging results will be recorded in our net revenue line and not our interest and other line
With that let’s turn to our Q3 guidance on Slide 15. We are projecting revenue between $2.35 billion and $2.39 billion representing organic FX neutral growth of 6% to 8% year-over-year
Our guidance assumes continued improvement in marketplace volume and revenue growth
We expect non-GAAP EPS of $0.46 to $0.48 per share representing year-over-year growth of 3% to 7% on an as reported basis
EPS growth will be driven by revenue growth and the net benefit of our share repurchase program offset by continued investments to drive improved user experience and to market our brand
Additionally, we expect FX to impact us by approximately five points of growth on a year-over-year basis
For Q3, we expect GAAP EPS in the range of $0.30 to $0.32. For the full year, we continue to expect revenue in the range of $9.3 billion to $9.5 billion, organic FX and revenue growth of 6% to 8%, non-GAAP operating margin in the range of 29% to 31%, non-GAAP EPS in the range of $1.98 to $2.03 per share and free cash flow of $2.2 billion to $2.4 billion
Assuming foreign exchange rates remain where they are today, we would expect revenue dollars to be slightly above the high-end of our guidance range
We are updating our full-year GAAP EPS guidance to $1.65 to $1.75 per share reflecting the impact of the previously mentioned non-cash income tax charge recorded in Q2. As our legal structure realignment process continues throughout this year, it may result in further non-cash adjustments that are not currently factored into our GAAP guidance
In summary, we are seeing positive momentum and we expect to launch an increasing number of product enhancements throughout the remainder of this year in addition to increasing our brand advertising to drive improved consideration in traffic
As we significantly changed the eBay user experience, the improvement in our results may not always be linear
However, we believe we are investing in the right initiatives to meet our commitment to accelerate growth
We are on the right track and execution will be key for the second half of this year as we continue to set the business up for longer term success
Now, we’d be happy to answer your questions
Operator? Question-and-Answer Session
No, you covered it
Yeah, let me work backwards real quick, first off on active buyers
As <UNK> called out excluding India we grew active buyers by 5%, which accelerated nearly a point quarter-over-quarter with particular strength in the U.S
and we’d call that also augmented by Korea
Three dynamics under there, some of which we’ve talked about, some of which I’ll just expand upon
First is retention
We continue to see that stable as we exposed more users to our new experiences
New buyers, we see new buyers coming particularly from our new SEO landing pages based on the structured data pages that that underlie that
And we’re starting to activate the brand much more at scale than we have and we expect that to supplement new buyer growth with increased consideration
This is in early phases, but we’re happy with the early start
If I go back to your first couple questions, first maybe start with guidance
You know as I called out the Q3 organic revenue as well as the total year organic revenue of between 6% and 8% is really going to be based on the acceleration that we expect to see in marketplaces GMV and revenue
The pricing change that we made will continue to favor transaction revenue and much of that as I call that my remarks will be reinvested to try and accelerate the pace that we see in our growth
What was the other one? Active buyers…
Yeah, let me double click real quick on <UNK>etplaces GMV
If you back up here, we’ve accelerated <UNK>etplaces GMV from 4-ish to 5% to 6% over the course of the last year, and this has been driven by the U.S
, which has accelerated roughly one point per quarter over that same time period, while international has been relatively stable
So we’ve made the most improvement, as <UNK> called out, to our foundation and as well as changes to the <UNK>etplaces ecosystem in the U.S
and we’re in the – and we’re further along in the brand activation, as <UNK> called out, in the U.S
And those improvements, the changes in the ecosystem, the brand are in the process of rolling out across our platform and our properties internationally
And so in a global ecosystem, it’s highly dependent on many factors
But as I said, things won’t always be linear, but we believe we’re making the right investments and we’re making balanced trade-offs to drive that growth, and our outlook and guidance assumes that
Yeah, I mean, we talk about Classifieds and eBay as two different platforms because they’re two different sites
But the fact of the matter is we go after the same segment, consumer segment, as <UNK> talked about
And so increasingly, what you’re seeing in each of the – in some of the major markets is a blending of that inventory to try and make sure that we’re addressing customer needs across to do different sites and platforms
And I think it’s been very successful and it’s always been a go-to-market strategy together in their respective markets
And if you go back to some of the conversations we’ve had in the last few quarters, we’ve invested a lot in structured data and we’ve invested a lot in new experiences
And I think you’re seeing that pay off in our parts and accessories experience, which is also where we’re seeing nice growth in very differentiated based on the experiences that we’ve developed
As I mentioned in my prepared remarks, if FX rates remain where they are today, then all I was calling out was that the revenue dollars that we report at the end of the year would be at or above, really above the high end of the range
That said the organic FX neutral growth rate of 6% to 8% remains and that’s driven by the dynamics we just talked about
| 2017_EBAY |
2015 | SPPI | SPPI
#Thanks.
Good afternoon and thank you everyone for joining us today for Spectrum's third quarter 2015 financial results conference call.
I'm <UNK> <UNK>, Vice President of Strategic Planning and Investor Relations for Spectrum Pharmaceuticals.
With me today are Dr.
<UNK> <UNK>, Chairman and CEO; <UNK> <UNK>, President and COO; <UNK> <UNK>, CFO; Dr.
<UNK> <UNK>, Chief Medical Officer; <UNK> <UNK>, Chief Commercial Officer; and other senior members of Spectrum's management team.
Here's an outline of today's call.
First, Dr.
<UNK> will provide you with the highlights of the third quarter and discuss our overall direction and strategy.
<UNK> will then provide a summary of our third quarter financial performance.
Following this, <UNK> will review the company's operations, and Dr.
<UNK> will review the pipeline.
We will then open the call to questions.
Before I pass the call to Dr.
<UNK>, I would like to remind everyone that during this call we will be making forward-looking statements regarding future events of Spectrum Pharmaceuticals, including statements about the product sales; profits and losses; the safety, efficacy, development, timeline and clinical results of our drug products; and drug candidates that involves risks and uncertainties that could cause actual results to differ materially.
These risks are described in further detail in our reports filed with the Securities and Exchange Commission.
These forward-looking statements represent the company's judgement as of the date of this conference call, November 4, 2015, and the company disclaims any intent or obligation to update these forward-looking statements.
However, we may choose to update them, and if we do so, we will disseminate the updates to investing public.
For copies of today's press release, historical press releases, 10-Ks, 10-Qs and 8-Ks and other SEC filings, and other important information, please visit our website at www.sppirx.com.
I'd now like to hand the call over to Dr.
<UNK>.
Thank you, <UNK>.
And thank you everyone for joining this afternoon.
Spectrum is in a great position to advance our late stage pipeline.
We have two drugs in clinical development with blockbuster potential.
One of these is ready to enter Phase 3 development soon.
With one other drug, we are ready to file an NDA by this yearend.
Unlike many of our peers, we have a commercial presence with five approved anti-cancer drugs and a sixth drug is under active review with the FDA.
The sales revenue helps us advance our pipeline.
Our portfolio of late stage drugs has never been as rich as it is today.
In the next several months we expect to make meaningful progress on multiple fronts.
As you have seen from our press release this afternoon, I'm very pleased to announce our co-promotion agreement with Eagle Pharmaceuticals.
With this deal, Spectrum has strengthened our position with key stakeholders.
<UNK> will go into more detail about how this co-promotion will help build a bridge to achieving our vision to grow the company in the coming years.
Now let's talk about SPI-2012, which is the highest priority at Spectrum.
This novel long-acting G-CSF, a granulocyte-colony stimulating factor, targets a blockbuster market and has the potential to change the face of our company.
It has shown strong efficacy in Phase 2 studies.
We are taking several steps to help ensure the success of this drug in the long term.
To ensure alignment with the FDA, we are pursuing a special protocol assessment, or SPA, before initiating the Phase 3 trial.
Following a very productive meeting with the FDA last week on this subject, we now plan to initiate the pivotal program soon, as soon as the agreement on this SPA is reached with the FDA.
Moving on to apaziquone, our drug for non-muscle invasive bladder cancer, we recently gained agreement with the FDA on an additional Phase 3 trial for apaziquone under the SPA.
Last week we announced that we initiated this trial and have treated the first patient.
We are looking forward to filing the apaziquone NDA before the end of this year, based on previously completed Phase 3 studies.
Regarding our novel formulation of melphalan, Evomela, we received a complete response letter recently.
We asked for a type A meeting with the FDA, and are pleased with the swift scheduling of the meeting for this Friday, November the 6th.
We remain committed and confident to bring Evomela to the market for patients and plan to work closely with the FDA to accomplish that goal.
Now on poziotinib, which we believe has the potential to be the best in class pan-HER inhibitors.
We expect to file an IND with FDA later this month, and are set to start the Phase 2 trial assessing poziotinib's potential in breast cancer.
In addition, our partner Hanmi, is conducting several Phase 2 trials in various indications.
We expect to see interim data from our partner's breast cancer study at the San Antonio Breast Cancer Symposium next month.
I'm pleased with our continued commitment to fiscal discipline at Spectrum, and we're expecting to end this year with a stronger cash position than our prior expectations.
<UNK> will talk more about our operations, and <UNK> will provide you more details about our financials, and Dr.
<UNK> will provide a clinical update.
Now let me hand over the call to our Chief Financial Officer, Mr.
<UNK> <UNK>.
<UNK>.
Thank you, Raj.
And good afternoon everyone on the call today.
I want to just highlight a few items in our financial results.
Third quarter product sales were $28.5 million.
As expected, sales of Fusilev continue to be impacted by generic competition.
During the quarter we recognized the $7 million of Fusilev sales that had previously been deferred in the first quarter.
Separately, we recorded $10 million in additional deferred revenue for product shipped in the third quarter that didn't meet our revenue recognition criteria.
The deferral is due to the difficulty of estimating rebates that we will be offering to compete with the generic products.
We currently estimate that we will be able to recognize those shipments as sales later in the fourth quarter and in the first quarter of 2016.
One additional item to note is that our cost of goods sold as a percent of sales is higher than usual for two reasons.
First of all we purchased a strategic supply of ZEVALIN, which required additional stability testing.
And second, we recognized the cost of goods sold for the Fusilev deferred revenue.
So although we had to defer the revenue for a portion of the Fusilev units that were shipped in the third quarter, we are required to recognize the cost of goods sold because we've shipped the product to the wholesaler and title has passed.
Additionally, based on our most recent projections, we are raising our guidance and now expect to exit 2015 with cash of more than $125 million.
This is up from our previous guidance of $110 million that we provided last quarter.
This guidance excludes any impact from business development deal, and as a reminder, the Eagle contract has no impact on cash in 2015.
Now let me hand the call over to <UNK> to provide an operational update.
Thank you, <UNK>.
Thank you, Dr.
Raj and <UNK>, and most of all thanks for everybody's interest who is on the call.
As we move into the last few months of 2015, we remain energized and focused, and we have many key milestones upon us.
Let me start with our highest priority in the company, SPI-2012, our long-acting G-CSF that's novel.
There has been additional clarity about this marketplace with the launch of a biosimilar for the short-acting G-CSF.
Now having further clarity on pricing trends and reimbursement pathways, we feel even more confident that we can successfully compete with a novel agent in a market with revenue that was above $6 billion in 2015.
This is an important endeavor for us, and want to make sure everything goes well.
As we shared in the last earnings call, we are currently pursuing a special protocol assessment for our Phase 3 program.
It's important to remember that this study, unlike many clinical oncology trials, has a very short-term registrational endpoint addressed by blood testing of absolute neutrophil counts over the course of a couple of weeks.
Our goal is to rapidly enroll this important study, quickly analyze the data, and then expeditiously file the NDA.
Moving over to Evomela.
We were surprised to receive a complete response letter, though we continue to be confident on final approval.
We were encouraged that the issues were non-clinical in nature.
We requested and have already received a type A meeting with the FDA this Friday, and we look forward to resolving their issues very rapidly.
In addition, the team is currently working on filing the NDA for apaziquone, our potent tumor activated prodrug for bladder cancer.
We're happy to announce our first patient was enrolled in our Phase 3 trial at the end of October under and SPA agreement with the FDA.
Dr.
<UNK> will provide more details around the trial shortly.
The overall cost of treatment of bladder cancer in the US is a staggering $3.4 billion annually, and most of this cost is related to direct treatment of the disease.
We're hopeful that we can get this drug to market as soon as possible to meet the significant unmet medical need.
Last but certainly not least, we are excited to advance poziotinib in a US-based Phase 2 program in breast cancer.
Despite the availability of several HER-2 targeting molecules, breast cancer patients continue to need additional therapeutic options.
Based on early data, this asset has the potential to be a best in class product, competing in a multi-billion dollar market.
As this asset advances through the development process, our strategy is to have two potential blockbuster products geared towards solid tumors.
We are moving forward and I love the potential to meet this important unmet medical need.
These are exciting times.
The development of our potential blockbuster assets are progressing and their potential benefit to cancer patients are on the horizon.
In the near term, you heard <UNK> mention the decline in our product sales mainly driven by the decrease of Fusilev due to generic competition.
While this was an expected reality, we now find ourselves with a talented sales team that has excess capacity with the loss of Fusilev.
It's for these reasons that the timing of the Eagle co-promotion couldn't be better.
The co-promotion agreement will be executed by our 32-person corporate account sales team, plus commercial infrastructure that's currently promoting Fusilev.
The remaining sales people will be focused on our PTCL, [ALL] and follicular NHL focused brands.
The co-promotion agreement comes with an initial term of 18 months, beginning on January 1, 2016.
It includes a $13 million base fee, and up to $9 million in identified milestones over the 18-month period.
The agreement includes the commercialization of up to six of Eagle's products, including current pipeline development assets, as well as those that may be licensed in over time.
Our co-promotion with Eagle fills several gaps in the near term.
Most importantly, it enables our team to launch exciting assets into this space that we know so well.
It will allow us to further demonstrate our commercial fortitude while bringing important medicines to patients.
Next, this agreement will provide an opportunity to cover our expenses while generating revenue and additional cash over the term of the contract.
Last, as our development pipeline matures in the near term, this co-promotion agreement with Eagle will engage our people, enhance shareholder value, and will help to build a bridge to achieving our vision to grow the company in the coming years.
<UNK> <UNK> who will provide you more detailed information about our development activities.
Thank you, Dr.
<UNK>.
To conclude, I would express my enthusiasm about how well positioned our company is.
We have a strong pipeline with several catalysts in the near term.
In addition, we have the commercial business which has now been fortified by the prospect of near term product launches through the Eagle deal.
With that, let's open the call for questions.
Operator.
So, Ad, thank you for your question.
As we have stated before, the goal of our study is non-inferiority.
However, the study is powered to show superiority, powered at 80% to show superiority, and over 90% to show non-inferiority.
So the objective of this study has not changed.
And as Dr.
<UNK> stated, we are awaiting final word from the FDA, which we expect to come shortly.
So, with that question, I would like to ask <UNK> or <UNK> to comment on this.
Yes, I'll comment and have <UNK> comment too.
You know, I'm more excited now because, you know, we were all speculating, right.
We've all been sitting back watching, okay what's going to happen when biosimilars actually come.
What's going to happen through legislation.
How is it going to be paid for.
And I'm excited the way it's done, <UNK>, because the way it's done now is the innovative product is why ASP will be developed through their pricing strategies and their decisions.
All biosimilars will be tethered to that innovative product.
And because of that, for example when you look at the short acting drug that's out there today, the new product that came out is about 15% less than the current product, the innovative product.
So now the innovative product has to think about what kind of price action do I take because the ASP is linked to there and you're paying less for the other.
I hope that makes sense to you.
So, what I like about our prospects is we are a novel product.
And the way things are today, a novel product would be on its own.
We wouldn't be tethered to the innovative product, putting us in a position to control our own destiny, make the decisions we have to, (inaudible) can be very flexible on what we do with our pricing strategy.
So I really like that position.
<UNK>, do you want to comment.
<UNK>.
So, <UNK>, thank you for your question.
We had actually, as you know, we had completed two trials before and nearly 90 sites were involved in US and Canada.
So all of these sites have been working with us.
We are in the process ---+ we have finalized at least 30 plus sites as we speak.
And the first patient, as I said, as Dr.
<UNK> said, has already been started.
Several patients are in screen.
And at least 20 to 30 sites are active as of today.
However, we have about 80 to 90 sites that have agreed to participate in the protocol.
So as the time progresses, more and more sites will be adding patients to the study.
Dr.
<UNK>.
Thank you.
As you can see, we are going to be very, very busy over the next several months.
Our plate is full.
We have many regulatory clinical and commercial milestones in the near term.
And we look forward to updating you [of our days] in the near future.
Thank you for being on the call with us today.
Goodbye.
| 2015_SPPI |
2016 | DCI | DCI
#Hi, <UNK>.
Right now, it's definitely commodity based, as of course the mining companies can get more for the raw materials they will continue to improve vehicle utilization.
But the consumption does have a role in the long run.
They aren't just going to continue to stock all of that.
As we saw with an abundant coal supply for example, in China that really put pressure all the way down through Australia and Indonesia in this downward cycle.
It needs a little bit more of a pick-up of a global GDP, if you will, to get the comprehensive mining sector really moving forward.
It's a bit more structural than just simply if commodity prices rise, things will all of a sudden turn for us.
We see it more incremental going forward as that whole market recovers.
I think you'll see that in Caterpillar's guidance, for example, as well, where they're calling for a more modest calendar year of 2017, for example.
We don't believe it does, because we have a strong brand in the number-one market, which is the Middle East.
We also now with our Northern Technical acquisition have a strong presence in the Middle East and so therefore we're much closer to our end-user customers than we have been before.
This gives us a stronger position to really continue to capture, have a higher capture rate in the aftermarket.
We also expanded our product family within the aftermarket within that Northern Technical acquisition and so we're now ---+ we actually have a much broader market opportunity within GTS to address within aftermarket.
We're very comfortable in this typical a little bit more pressured cycle with projects from a ---+ clearly GTS is pressured from pricing on the project side, but also the quantity of projects out there is less and so we need to be very selective.
This market goes through these types of cycles.
You have to be prudent and responsible while in that and that's what we are doing with this particular strategy.
Sure.
Good morning.
What we had last year, of course, is a lot of headwind in the fourth quarter.
We had a bit more of a pick-up in this year's fourth quarter.
If you look at ---+ I mentioned in my prepared comments that we have a bit more erratic ordering patterns.
Our aftermarket sales time fence, if you will, is much more compressed than it ever has been.
We're talking maybe just a couple weeks of visibility in some of these areas in some of the geographies.
I believe we did see the seasonality, but we did not see people take back all of the stock that they're used to normally carrying and so there was a little bit of a balance.
Notice that I said there's some of the geographies that have been destocking just a little bit and so they've compressed on the destock but also compressed their ordering patterns.
They kind of offset each other to really mute a little bit of what we would have hoped would be mid-single-digit growth to become low---+single-digit growth.
More destocking for sure across Asia, across our distribution channels, yes.
When a gas turbine is sold, no matter what the technology, in F&H or whatever technology from GE, Siemens or Mitsubishi, they are all projects.
What you have to have is the technology that really reaches across, if you will, that product family of gas turbines for that particular customer to be qualified.
Are we qualified with the H engine.
Absolutely.
With Donaldson technology, we are, but you still win those on a project.
You don't win, for example, like you do in an engine where you can win all of the 10-liter engines.
In this, you still got one particular project where that H engine is going to be implemented worldwide.
But we are qualified.
We do sell to the H engine and we'll continue to do so, however in that selective fashion as we mentioned in our strategy.
I'm saying a more stable volume situation.
Yes, it does.
All those things are considered.
That is correct.
Thanks.
I think that it's general cost containment, cost improvement across the board.
I wouldn't think there's any one particular specific area.
We had some restructuring to improve our cost structure, continued cost discipline, and that spreads across pretty much all the product lines.
You actually have that reversed.
Disk drive headwind, which will likely be high-single digits, is being offset by the other pieces of special applications with things which we expect to grow, like integrated venting solutions.
There's not a specific piece of that strategy that you mentioned that we would target.
The way we do this is each business unit has a particular organic growth strategy.
Within that strategy, if we see a way to accelerate that organic growth plan through an acquisition, as you saw us do with our recent Partmo acquisition, we knew eventually we had to manufacture product in Latin America, down in South America, because we had already expanded our distribution, expanded our product line and now we had to get closer to the customer to give them a quicker response.
That's just a normal strategic step for us and so we acquired.
It could be a channel, it could be a product expansion, it could be all of those, but it starts with that organic strategy that we have within a business segment.
Good morning, <UNK>.
I use the word encouraged because it's been a tough slog for the last 18 months and it's been a walk down that has been tough to get through.
I think as I look forward, the range of possible outcomes has certainly narrowed significantly for our Company, and so the encouragement is that while I'm not ready to call bottom, I am encouraged by the fact that we're a little bit more predictable than we have been at any time in the last 18 months.
The disk drive business specifically.
We're not calling out a time frame as to when we would see Special Apps be able to offset the headwinds we expect looking forward in the disk drive.
It's just that, as you called out, it's a natural secular decline that we'll see, so we've not laid that line in the sand, if you will.
Thank you.
Hi, <UNK>.
<UNK>, we haven't specifically guided to that but the FX loss that we've talked about and some of the variability from the OI&E line does flow through corporate and unallocated, so that gives you a sense that, that's where some of the improvement will come from, or show up.
What <UNK> talked about in his OI&E guide.
Good morning, <UNK>.
The overall atmosphere of winning any kind of project in H and F or whatever the turbine may be, GE is always a disciplined buyer and the value proposition that Donaldson Company brings forward is we, essentially, 20 years ago started this particular market.
We are number one in the gas turbine market and it's because of a technology that we have which in this particular market we call Spider-Web.
If you think about it, we have nano fibers, which are roughly about 0.1 the diameter of a human hair that we put within on our medias, which then filter out the particulate ambient air better than anyone else in the marketplace, which then allows you to have a cleaner turbine and produce more energy out the back side.
That's our value proposition as well as our strong customer projects execution, which we have a long, strong track record and that's how we win.
We'll build a gas turbine project anywhere in the world.
It's not uncommon for these complicated projects to have one line item purchase order to be worth millions of dollars, have 50 to 60 semi-trucks that are manufactured in four different countries and they all come together on a site.
It takes special coordination and a special team to be able to do that and Donaldson has that.
This is <UNK>.
I'll start with the restructuring answer and then toss it over to <UNK> to finish off.
Within restructuring, we currently do not have any additional restructuring plans in the Company.
However, we continue to look at aligning our Company overall with end markets, with the end-market demand.
Should there be a demand shift, surely we would look deeply among ourselves and adjust accordingly.
To be honest with you at Donaldson that's standard work.
That's what we do every day and we'll continue to act in that fashion.
| 2016_DCI |
2016 | FSS | FSS
#But like you, we're not counting on oil and gas coming back in 2016.
I think part of what you're seeing, <UNK>, is the second half of 2015, oil kept going down.
So, the pressure on the markets got worse.
And then in addition to that, you have the inventory effect, if you will, of the rental market, and the other equipment coming out of the oil and gas patch, and diluting ---+ just creating a glut of equipment, frankly.
It competes with our new equipment.
So, there has been a headwind.
Those numbers tend to fluctuate, depending on large fleet orders.
For example, in 2014, we had a number of large fleet orders, and those tend to be every couple of years, depending on the cycle.
And rental rates.
And there is a little bit of extra headwind in 2016.
So, I think we would expect the volume side to pull back as we move forward.
I think you also have to look at the mix issue.
Municipal margins are typically less than the industrial margins.
We are focused on both from an acquisition perspective and organic growth perspective, on growing that industrial business.
We have a number of initiatives to diversify our product offerings, particularly out of oil and gas.
So, I think that this is an unusually low year, and we're encouraged by where we are investing, and we think we're well positioned to grow.
Also, depending on what happens in oil and gas in 2017 and 2018, we think we are very well positioned to supply any demand there also.
That sounds about right, <UNK>
We expect ---+ it has generally run between $10 million and $15 million.
We expect 2016 to be in a similar range.
G&A is around $12 million.
The first thing I want to talk about ---+ this is not a distribution roll-up strategy.
We believe that the acquisition of Joe Johnson, in fact, helps us enhance our current municipal dealers.
We have had an opportunity this morning ---+ I've talked to three so far, of our major dealers, and they have really embraced the idea that they are going to have a rental fleet available to re-rent to their municipal customers.
So, we look at this as giving them another tool in their toolbox moving forward.
And we have limited conflicts between dealers.
So, one of the things, when you look at acquiring a dealer, they have a geography, and certainly on the municipal side, that's more contained.
And specifically, it gives us a distribution channel that allows us to grow our industrial market share through our Guzzler, Westech and Jetstream products.
JJE will operate within a division of ESG, and we typically don't talk about the division result, or break those out.
They had revenues last year of CAD154 million, so $112 million or so.
We'll have some offset to that, in that we sell to them.
So, we don't get to count that twice.
And then we expect them to grow at a pretty healthy pace, especially in some of their service businesses and their municipal businesses remain strong.
(Multiple speakers)
In the high single-digit range, yes.
I think that is a fair assumption at this point.
For 2016, we've assumed a modest adoption rate.
So, there is upside there.
We remain very committed to our new product development that requires R&D investment.
And just to give you some color, our R&D spend in 2015 was about $14 million, which was up 7% versus 2014.
We have the innovation team that is continuing to go out and study markets, and identify new product opportunities.
They work closely with our engineering group.
The feedback will be in full production on one of our purpose-built utility trucks by the beginning of the third quarter.
And the initial interest has been extremely high.
We've also introduced our Jetter product to our distribution network, and again, the interest is high.
And then, we think the patent recycling product that we are offering for our vacuum trucks presents significant growth opportunity.
We're not going to stop investing in new product development, and 2016 reflects that.
Yes, some of the contractors that utilize this equipment also use them for the construction markets.
We are assuming it's fairly flat, with the exception of hearing loss expense, which we are anticipating will probably be higher in 2016, based on the number of trials that we foresee at this point in time.
The trials are currently scheduled in the second half of the year.
Depending on whether they move forward or not, we would update our guidance accordingly.
Sure.
We entered the year with the low backlog.
We've talked about the mix; and the mix is less favorable.
Our municipal business remains strong.
We expect the first half of the year to be lower.
And the second half of the year, candidly, is a wait-and-see game.
We are seeing traction on our new product development and the adoption rate.
But we need to see more orders in order to give you a better picture in terms of what the second half of the year.
The hearing loss expense, as <UNK> previously mentioned, is also an issue.
We continue to be positive about both our municipal markets and some of the diversification we're doing on the industrial side.
So, it is a wait-and-see game for the second half.
Basically we don't know how long it will take for the overhang to work its way through.
We're anticipating in the second half that that has not really occurred yet.
To the extent that it does, we will feel better about it.
At this point in time, we just don't have good visibility for the second half.
Thanks, <UNK>.
There is seasonality in that business; they primarily sell to municipalities and government entities.
So, a lot of it depends on their buying cycles.
So, the summer months tend to be higher.
Are you talking about for Joe Johnson.
It's about 75/25 split between Canada and the US.
New equipment sales is the primary driver.
The parts and service has been growing impressively over the last couple of years, and we expect that to continue at relatively high margins.
The rental business is a smaller portion of that.
Smaller, but growing.
And it's primarily municipal.
Over 80% of their business right now is municipal markets.
So, they have very limited exposure to oil and gas.
So, it could be confusing.
They are primarily municipal today.
But one of the things we like about them is the opportunity that we can use to leverage them in the industrial markets.
It has not been in the past.
The rental business, if it grows, will be more capital-intensive, to a certain extent.
They also have some cyclicality to it; they tend to build up on their working capital and their inventory through the winter months, and then bring it down as they have higher sales in the summer periods.
At this point, <UNK>, that is a great question and a hard one to answer.
I think at this point, we are assuming we would be using our balance sheet, and we're evaluating opportunities to make sure they have good returns and provide a solid opportunity for us.
It's harder to go outside and do financing of those things in today's world.
Right now, we believe they currently have a rental fleet of about [$50 million]; we think that is generally sufficient to meet the current market needs.
We do plan on supplementing that rental fleet with some industrial products, particularly our Guzzler, our Jetstream and our Westech brands.
So, we estimate that to be somewhere between $15 million and $20 million in 2016, if, in fact, the market supports it.
We continue to be committed to, or close to, our core, in terms of where can we leverage our existing capabilities, either in adjacent markets and new geographies, within the margin targets that we've set.
And we have a ---+ right now ---+ we have been working diligently on that.
We have a good pipeline of opportunities that we'll continue to pursue in a disciplined way.
Thank you.
So, the sale proceeds are about $88 million, and we'll get most of that this quarter.
There is a post-closing adjustment that might increase or decrease that number a little bit.
And then we will end up paying taxes on the gain.
So, there is a little bit of a reduction for that.
It's a fairly good-sized tax piece, but the proceeds will still be north of ---+ easily north of $60 million.
We have $69 million remaining on the authorization.
And our Board would be flexible on that, so I wouldn't view that as a cap or a limit or anything.
We will look at that.
And Joe Johnson acquisition is a good return on our money; our stock would be a good return on our money right now, too, I think.
In closing, I want to thank <UNK> for his significant contribution to the Company over the last five years.
I am fortunate to have him both as a mentor and a friend.
We look forward to working together in our new roles.
I also want to emphasize that we remain committed to growing our Business and leveraging our profitability.
Our strong fourth-quarter and annual results are a product of the hard work of our employees, the dedication of our distributors and dealers, and the depth of our relationship with customers.
Thank you.
We remain optimistic about the long-term prospects for our businesses, and we'll look forward to talking with you again after the first quarter.
| 2016_FSS |
2017 | CY | CY
#I'll just say that the 2017, 17% is ---+ I'm very comfortable with that today, and obviously as we move through the year, and we see how the end sell through will happen, we'll talk about different trajectory, if any.
Overall, in the channel, it's fully deployed.
I would say that IoT products and solutions were fully deployed, before we even closed the acquisition.
We had our complete sales force was trained, our distribution channel ---+ regional and every branch were all trained.
Our technical experts were up to speed on WICED.
We hit the ground running, and that's the reason we are able to really quickly take those products and solutions broadly.
Like I said, we're seeing the results of that.
Maybe, I will just add one other thing on the channel side.
A number of our channel partners now have already implemented and hired specialized, centralized training to help take this broad.
So, they're making a big investment in the IoT space, as well, with us.
There was some auto business that has historically been reported into the PSD, a small portion of it.
It just got cleaned up, and moved over into the memory side.
That's a great question.
It's actually a combination of the two.
It's the second half of 2016, we said would be breakeven for the IoT acquisition, after you burden it with the interest expense.
We were actually slightly accretive in that business coming out of 2016.
As we go into 2017, obviously there is accretion that we talked about, but there is opportunity for us to reallocate some of the dollars through our restructuring plan that we implemented in Q4, to move those dollars into that IoT group to capitalize and spend more on R&D, to capitalize on that fast-moving market.
It's really a combination of the two.
I don't think you're going to see a dollar for dollar fall through because of that incremental spend on R&D, but you are going to see leverage as that grows, falling through to the bottom line.
<UNK> if you remember, I've always focused on market and we are going to play to win.
If there's an opportunity, and there is, for us to play to win in IoT, we are not going to let it pass us by.
We will invest, and we will win, and we will dominate or maintain our dominance in that market.
We are, obviously, doing cross-selling already, since we closed the acquisition.
If you look at the industrial segment, the design rate, as far as our design latency from design into revenue ---+ think of it as being 18 months to 24 months, the comment I made earlier.
That's going to put some revenue from cross-selling towards the end of 2017, but primarily, it will hit in 2018 as we convert the funnel into revenue.
That's typical design-in and we have good visibility on that activity moving forward.
The same as in automotive.
Just a few years earlier.
It's an emphasis for the company.
We've actually been reducing our burn rate on the share count, and obviously, it takes a while for that to catch up through the stock-based comp, the way that's calculated from an accounting perspective.
If you think about the share count, we plan a 2% to 2.5% normal dilution per year, and that's what you should be thinking about for 2017.
Obviously, we would love to be buying that back and offsetting that.
For 2017, right now, the focus is the debt pay down, but we are not planning out a lot of a lot of delusion.
We are managing it very tightly, and you will see that slowly start to catch up through the stock-based comp charge that comes through.
There are a few questions in that.
I'll target first the position for USB-C in the market.
We have a leadership position, today, but if I compare Type C today from USB 2.0 today, it's the fragmentation that you have not seen in the USB-C, yet.
To illustrate it, standard USB ---+ there are very segmented end market employers.
The number one and number two player are ---+ let's say 11% or 12% each.
We are number two in that market, and then you go to 7%, and then it tails decimal point percent market share.
That's the market in USB 2 that happened over time.
Type C today, you have a handful of players that matter, but as that market expands and as that market matures, I expect the same segmentation or fragmentation to happen at the supplier base, also.
We are focusing on the integration and programmability side of it.
As the commoditization of type C will happen at the low end, which I expect the cables to be the first, then we will just not participate in that, and we will focus on where we believe the gross margin dollars and innovation is going to happen.
We already started that focus with our HDMI first to market approach, where we integrated HDMI and a single chip.
So that's the behavior you are going to see us do and keep in the future.
Then, your next question is do I expect USB type C to proliferate beyond consumer.
Yes.
The answer is yes.
It will start catching up in the ecosystem as the connector of choice becomes USB Type C for all of the video, audio, and specifically power.
You are going to start seeing the ecosystem catching up, while they go through their design cycle.
You are not going to have a USB adapter in your car, that is the old USB connector that you want to plug your USB type C phone into it, given that the phone needs a reciprocating connector on it.
Those will start happening.
There is some design activity happening there, and those will follow their own latency from design into revenue.
So, you're talking about three to four years in auto, the two years I talked about in industrial, but that activity is happening.
It not going to be just on consumer.
Yes.
It's <UNK>.
I mentioned the memory, right, over a multi-year period, I think that is going to be declining.
You can think about that declining low to mid-single digits.
There's going to be puts and takes each quarter, each year.
Over a multi-year period, that's what you should plan.
On the MCD division, which is the auto, the IoT, the MCU connectivity, you are going to see higher than market growth there.
When I think about a combination for that, it should be high single digits.
Some markets are going to grow faster, some of the sub segments in auto are going to grow faster than that.
I think when you think about that division, it's going to be high single digits.
That should put us in a position to outgrow the market, that's really what we are shooting for.
Thank you all for joining us today.
We're pleased to once again report results that were in line with our expectations.
In 2017, we're focused on growing faster than the overall semiconductor market, driven by automotive, connectivity and USB-C.
We look forward to providing more detail at our Analyst Day on March 28.
We have an exciting day planned.
Let's just say you are not going to recognize this company when you walk in the door.
We hope to see many of you there.
Thank you.
| 2017_CY |
2016 | IDXX | IDXX
#Thank you for the question.
I think you are probably referring to the instrument and consumables utilization there.
We're seeing really nice consumable growth that is coming out of that augmented rate of placements.
So the accounts outside of the US are smaller than the US, generally speaking.
So the utilization per account is lower.
There is still a very significant install base of tests that we are upgrading, although we continue ---+ none of those numbers include a VetTest placements.
We continue to place VetTests in some markets too, expanding our overall chemistry base, which is now over 40,000 active customers globally.
But the rate of placements is really quite good in what are generally speaking haven't always been smaller accounts.
I think Catalyst One is just a phenomenal instrument because of all of the things it brings.
Complete menu, unique menu with things like T4 integrated, ease-of-use.
Using whole blood with no issues, the footprint, the integration.
the VetConnect PLUS.
These are all unique aspects of Catalyst ONE that may get very attractive for these smaller practices outside the US, let alone practices in the US where if they need the capacity it' s very economical to add another Catalyst One to the same IDEXX VetLab station.
It is a very flexible analyzer that works in big practices and the types of practices that we see internationally, combined with a phenomenal and experienced commercial organization.
We have a very experienced set of country managers.
Many of our ---+ some of our country managers have been in their roles over a decade.
They have grown with IDEXX.
They know their markets inside out.
We are fully direct in most developed countries now.
It is been a systematic process that we have been putting in place over the last several years.
And I think we're seeing the benefits of that.
And then when you talk about utilization, the thing is that things like preventive care, or just things that are actually doing a full panel on a sick pet, it's surprising how little that is done today.
So part of what we are doing is we're growing the market.
We are expanding the market through education and providing them the tools with things like Catalyst One and reference lab to be able to do that.
So a lot of this is market development.
I really don't see any end in sight in the opportunity to develop the market in these ---+ in what some people refer to as mature developed economies.
Well, they are not mature and developed to us, let alone the kind of growth we're seeing in markets like Brazil and China.
First of all, it is a very attractive market.
And I think that you can see that from our visit data and same-store sales practice data that <UNK> quarter of 9.2% in the first quarter.
That was a very, very strong underlying market that we were seeing.
We can really speak to what we are seeing.
But the other thing we're seeing is volume growth in existing customers that is not just things like existing panels but adoption of our advanced menu.
Things like fecal or molecular diagnostics, or some of our other specialty test categories.
So what we have seen is a growing utilization of things that only the reference lab can provide.
But we're still seeing strong growth in the in-house modalities in chemistry in-house.
I think testing begets testing.
I don't think there's any kind of fundamental shift happening between one and the other.
They just have their own growth dynamics.
Thank you.
Mentioned that the constant currency change year on year was 70 basis points down.
So taking out the currency hedge gain impacts, and it was really two dynamics.
It was the ---+ part of this was the compare to ---+ we had some favorable capitalized variances last year in terms of, particularly in our LPD business that just had a high volume rates that flowed into lower product costs.
And we had a ---+ you can see that in our reporting last year that we highlighted.
And that was a key part of it.
And the other piece of this is the instrument revenues and the instrument mix.
Say that comparable margins in our business are quite good.
We are improving gross margin in labs.
Our margins in our core instrument businesses and things like that are doing quite well.
So net/net we think we're right on track relative to where our gross margin goals.
We knew we had some of the compare issues and FX heading into the year.
But we are reinforcing the operating margin outlook, which was (inaudible) sustained gross margins this year, constant currency and some OpEx leverage.
And we're right on track for that.
I also, Nick, want to reinforce that we see the opportunity over time, over the next several years for gross margin expansion driven by our reference lab business around the world, as well as the instrument and consumable business and also to a smaller degree, because it is a smaller business, our information management business as we shift to the cloud.
So these are all long-term trends we think that will support our overall margin expansion strategy.
There are a couple of factors in Q1 that we did highlight.
I think the extra day was about 1 point and it is tough to parse weather, but clearly we had some favorable US weather compares.
And so let's say that was about 1 point.
It's again, hard to estimate.
But net/net that is in line with what we said we were going to do this year, net of those effects.
We feel very good about the trends in the business.
We have obviously raised our guidance reflecting that.
So we're not projecting ---+ it is not reflective of an expected deceleration in the business.
It is more reflecting a couple of the unique factors to Q1.
I think <UNK> did appropriate call-outs some special factors in Q1, which is embedded in our guidance.
Certainly we don't see a deceleration.
Our crystal ball isn't any better than anybody else's with regard to the general economy.
But what I will say is that what happens is over time as consumer confidence remains okay, maybe not fabulous but okay, then they add pets to their household and then they need to take care of them.
I think the fundamental underlying environment that we have been in, that's built up over the last couple of years of consumers feeling okay or reasonably confident, or having moved further away from the financial crisis, really means that the trends in pet healthcare growth are pretty solid.
It takes a lot to change those trends, because people love their pets and they are going to make sure that their pets are taken care of, even if they get pressed in other areas of their wallet.
They may not always replace their pet if they face a Great Recession like they did in 2019 (sic), and that moderated the growth for a couple of years, 2010, 2011.
But now we're kind of come back out of that.
And I think we have seen generally a very, very good market.
And of course the level of care that can be provided now by veterinarians is ever-expanding.
We are blessed by serving an important, growing secular growth markets.
Thank you.
I just want to thank everybody for signing on the call.
We are also just want my huge congratulations to the work that has been done by IDEXX around the globe, across all of the functions.
We have done a lot of work to reposition the Company over the last couple of years and I think now we're in a place where we can perfect our new model.
We're not making any big model changes like we have had in the past.
And it is very, very gratifying that we can see the result of the hard work, including innovation and customer contact and supporting organizations.
So I just want to really thank our organization for that.
We recognize that we are here to create shareholder value and that is part of our job, part of our model, part of our purpose.
And we are very focused on continuing to grow the Company in a way which will generate, and continue to generate attractive returns on invested capital.
So with that, we will conclude the call.
| 2016_IDXX |
2015 | LLL | LLL
#I expect it to end comfortably where we maintain all of our existing investment grade credit ratings.
Each of the rating agencies calculate leverage ratios slightly differently because of the way they attribute certain items to debt and leverage.
But I expect that we're going to be down ---+ we'll be at around three times leverage.
On the way the ---+
Well, there's certainly no surprises there in the range, which was, I would say, representative range based on multiples and transactions we've seen before.
I don't want to go beyond that and get ahead of ourselves here because we are at that stage in the process where we're getting down to the end and I think less is better in terms of what we say in terms of pricing right now.
We're at a very sensitive point in the process.
In fact, with more confidence than I expect it to be concluded by the end of the year.
Good morning.
Yes.
Well, first of all, in terms of the incentives, yes, since we are trying to encourage that behavior of margin expansion and cost control, we are baking that into some of the measures that we have going forward.
Even though you might say that, well, their EPS or TSR centric, they'll still include those elements.
But if you look at the ---+ what the plan will be that is going through the basis for an incentive agreement, built into that plan will be a reasonable level of margin expansion.
So in that sense, yes, it's in there.
And it's always been in there, by the way, to some degree.
Each successive plan has had some level of margin expansion.
It's just it's becoming more of a focal point going forward.
And then in terms of L-3 structurally, I've been very mindful and careful not to take some of the very things that have made the Company successful in the past and throw that away.
The decentralized structure in many regards works well.
We do think that a little bit more control in a centralized sense could make ---+ could be appropriate at this point in the life of the Company.
That we do want to make sure we have the strongest oversight in place that we can have over our business units and that's done in conjunction with our group presidents.
But the answer is, no, we still intend to have a significant level of autonomy at our business unit level.
We believe that, that decision making is made best when it's done closest to the customer.
But as long as it's done within the parameters that we lay out for our people.
And with that in mind, I think adding Chris and his experience to the team will kind of enhance that whole process.
No.
The cost is an element of it, meaning consolidations, if that's what you're getting at.
That will be part of it is looking at our cost structure and seeing where there are opportunities to take cost out that we take advantage of that.
You're welcome.
Hi, Rich.
How are you doing.
Hi.
I would ---+ it's very new, Rich.
I expect that the task orders, you'll start to see them next year.
It would move the needle if we won several of them at the same time for sure, but there are multiple winners here and I think when you get to this place, it becomes a cost shootout, as they say, because you have a bunch of capable winners on the program.
So, I mean, we can give updates as we get into next year on it, but it's certainly not going to move the needle this year at all no matter what they do from a ---+ from a project basis, if you will, or a task order basis.
Even if there are task orders awarded this year, there's not enough runway left to really make much of a difference.
It will have to be things we see awarded early next year.
Well, I mean, by virtue of their lower margins, they're already pressuring the whole ---+ the overall margin profile.
But we don't expect margins to go any lower from that 2% that I talked about.
In fact, we do expect that we'll be able to modestly improve them through cost takeout activities, et cetera, but it's doubtful that can ever get to where we want to move the entire Company margin-wise.
With respect to the LPTA, there's certainly a lot of talk about the pendulum swinging away from it, but all we're seeing is talk right now.
In the actual RFPs and the award selection criteria, LPTA is still the main criteria on a lot of these competitions.
I think it's a function of the fact that even though the budgets for the US Defense Department are going to turn upward now, we're still in a constrained situation.
So there's definitely room for more budget and we hear a lot of our elected leaders talking about that.
Hopefully they can bring that to fruition the next couple of years.
Great.
<UNK>, I hope you'll join us at the Investor Day.
Chris will be joining us as well.
You can certainly rekindle that relationship and sit down and have a cup of coffee or something.
That's great.
Sure.
I can do more than roughly size it.
I can give you some more precision there, <UNK>.
<UNK>.
I mean <UNK>.
Well, you're both very good looking.
I'm say that.
(Laughter) So next year, I say that we expect aerospace system segment sales to decline about 4%.
That would put the segment sales in the $3.9 billion to $4 billion range and the way that spreads across three sectors is almost $2.1 billion in ISR systems, aircraft systems would be just under $700 million and logistic solutions just under $1.2 billion.
Is that rough enough, <UNK>.
The answer is it depends, <UNK>.
It depends on our ability to win new business, particularly in the Platform Integration division at Waco to replace those Head of State sales and also to replace the P3 sales that have been declining for a while.
Someone earlier talked about ---+ or asked about Compass Call, and that's also a Waco program where we're doing about $80 million a year now, and that's down from about $140 million a year ---+ a few years ago and that's because of what's been happening with respect to reducing the fleet size there.
To the extent that we can bring new business in and we'll definitely be able to improve those margins.
That's something that we're focused on as well in terms of new business development.
That's the threshold question there.
That's right, <UNK>.
There is a big range.
It's not just going to be the margins, it's going to be the outlook for the business going forward.
Without giving the wrong direction, if you think logistics, which keeps coming up, yes, the margins have been lower.
It's been hurt by competitive issues as well as the overall downward pressure on margins.
However, if you look at where the US service people are operating, it's all over the world and logistics happens to be a discriminator that makes that possible.
It's a key enabler for our military is having a very robust logistics environment around them.
So it's something that I think may get renewed focus by the DoD.
But, again, we here are focused on doing whatever it is we need to do to drive value.
It's the whole package, whether it's margin, top-line growth, a combination of the two.
It's all on the table.
We will take those actions, <UNK>.
Thank you.
Okay.
Just in concluding, moving forward, we plan ---+ we believe the actions that we've taken and the plans we put in place reflect our customers' priorities and give us a clear path to significantly improve our revenue and earnings performance over time.
At its core, our strategy for this win growth is simple and straightforward.
We're repositioning our portfolio and investing in our businesses, our people and our technologies, as well as levering our cash flow generation to maintain market leadership in our core businesses and return cash to our shareholders.
We're focused on higher-return businesses and markets where we maintain leading positions.
We're excited about L-3's progress and prospects for enhancing and expanding our defense electronics, ISR and communications businesses, areas where we have market-leading positions and that represent the core of L-3.
We're committed to long-term strategic growth and performance and we'll continue to deliver value for all shareholders.
As I've mentioned a couple of times now, we plan on hosting an Investor Day in New York on December 8th.
We will provide additional color and detail on our strategy, our ongoing business transformation and our key initiatives for 2016 and I look forward to seeing you all there and continuing this dialogue.
Our Board will be there.
Many of the members of the Board will be present as well.
So thanks again for joining us this morning and on the call.
We look forward to speaking to you in a couple of weeks.
Thank you.
| 2015_LLL |
2016 | RTN | RTN
#Yes, sure.
I'll address, <UNK>, the TRS one.
There are a few moving pieces with the remaining venture going forward that impact both IDS operating income and at the Raytheon level net income, but they essentially offset each other and are not significant to our results so we shouldn't see an impact one way the other going forward.
And on the Forcepoint, you're absolutely correct, <UNK>.
You know, commercial cyber is a dynamic and rapidly evolving environment, and you did mention competitive landscape, and it's going to continue to shift, Raytheon continues to invest in R&D to ensure that we have the best products and capabilities for customers, and that's where we're getting the feedback from our customers on.
I would add one thing is that you probably saw that the multiples and valuations for Blue Coat acquisition do reflect the premium value and growth potential that this commercial cyber market currently has.
Just a quick status on Forcepoint, we have integrated Websense in with our Raytheon cyber products group.
It's substantially complete.
It was a seamless transition to the new organization, and now we are working to complete the transition of the Stonesoft acquisition into the overall Company, and we see considerable upside potential as we move forward based on this business we have put together.
Hey, <UNK>.
<UNK>, you know the nature of our business.
The majority of these big awards have about a three-year or five-year cycle, in that range.
So traditionally, I mean, we lighten up the first year.
If it's three year, we lighten up the first year little bit, lighten up the last year, and the middle year is the main.
But normally it's about a three-year duration in terms of revenue generation out of the majority of the bookings.
IIS does have some quick term, one-year type turn business, but majority of the business, and a majority of these major awards that we brought in, are three- to five-year type revenue generators.
And I would just add, you know, obviously we're not giving guidance for 2017, but from when you convert that strong pipeline to a financial perspective, the backlog we had entering the year on the heels of a 1.09% book-to-bill, strong book-to-bill through the first six months, strong four-quarter trailing book-to-bill, as <UNK> mentioned in his comment, a pipeline that we haven't seen of this magnitude for quite some time.
We expect to continue to grow that top line, taking all that into account into 2017 and drive margin expansion as well.
Let me hit that, <UNK>, real quick.
It breaks into three buckets.
The first bucket, and I actually mentioned in my prior comments, was the counter-terrorism.
And that's driving the sales on the precision weapons across-the-board at missiles.
The other bucket is deterrence, and that's essentially driving a lot of the work relative to our Patriot missiles and our Patriot systems, and then the last large bucket is, I would call it, and these were the third offset strategy or the future in terms of upgrades to new missiles and capabilities.
In the middle bucket on the deterrence, there is a large ---+ when you saw that in terms of awards on our standard missile product line.
The bottom line is, is that missile company is getting significant uptick in each of those three major areas, and we should see that going out for a sustained period of time, at least over the next five years.
And <UNK>, I would just a little bit more nearer term, if I take that op tempo bucket around our consumables and then the rest of the business that the other two buckets that <UNK> described, think of it this way: for the growth this year is split roughly half-and-half between, you know, driven by the op tempo and consumables, and the other half through the rest of the business, and as <UNK> said, based upon the demand we are seeing across the board there, we would expect all aspects of the missiles' business to contribute to growth over the next 12 to 18 months.
Let me address the $500 million.
The $500 million is multiple opportunities for bookings for the rest of the year.
So we're not just hanging our hat on one big award to be able to bring that on board.
Relative to next-generation jammer, that program is moving ahead excellently, it's on schedule, and we're very happy about the performance of that program.
Obviously our customer, the Navy, is also very happy with the performance.
We are working with the Navy in terms of the next, I call it next-generation jammer II or another implementation of a next-generation jammer.
And we are well on our track I believe to have a solid offering for the Navy on that program.
I think just to add to <UNK>'s point about the $500 million increase, <UNK>, you know across multiple programs as <UNK> said, a lot of the, you know, bookings, the favorable bookings we've seen so far is timing, but within SAS is where we see a lot of those opportunities playing out.
They've had a real strong first half of the year between the international classified booking in Q1, JPSS and next-gen jammer that we mentioned, so across multiple opportunities.
But the growth would mostly be in the SAS business.
Yes <UNK>, so at this point it is too soon to predict where we think things will go between now and the end of the year.
You know, we will give everyone an updated outlook as we typically do on the third-quarter call.
That said, let me give you a little bit of insight to a few things.
Year to date our asset return is about 4 1/2%, and due to asset smoothing any type of actual return would have to be significantly different than expected at year end in order to have a meaningful impact on 2017 THAAD CAS and/or net cash.
That said, assuming all other assumptions remain the same, every 25 basis points change in our discount rate has about an $80 million impact on 2017 THAAD CAS, and net cash would be unchanged because it continues to be based upon a 25-year average discount rate.
So a few variables there that you all can use and model but again, with half the year left to go, a little too early to predict what exactly next year may look like and we'll update you hear at the end of October on our third-quarter call.
So first of all, Small Diameter Bomb II, it's definitely going on the F-35s.
So that's going to ---+ all the F-35s, both the domestic and international, have an opportunity to be able to use that very sophisticated precision weapon.
So I think that's the main aircraft now.
It also goes on F-15s and F-16s, and it's up pretty simple system to integrate on to an aircraft, so we will be working to put that on any aircraft that we're allowed to go put it on.
But the bottom line is, is that forecast assumes just the F-35, F-16s and F-15s.
A majority of it being domestic, so we have still significant upside from that number on the international marketplace
Thank you, <UNK>.
Yes, so let me take that and then if <UNK> wants to add any color he can, and I'll start, <UNK>, with IDS, right.
So we've been talking about IDS for a while, but we obviously continue to see opportunities to expand margin further in the second half of the year.
You know we did raise our margin guidance based upon the results through the first half of the year, up by about 40 basis points, half of that was because of a little bit higher of gain on the TRS transaction, and the other half was from productivity we are seeing because of the leverage of the volume going through our factory, the investments in factory automation equipment upgrades, as we mentioned before.
And, you know, I talk about our third-quarter guidance and how it was from a timing point of view impacted by TRS moving into Q2, but we did offset ---+ that was worth about $0.50 ---+ we did offset about $0.12 of that, primarily driven by further opportunities for net program efficiencies to drive more margin.
Those are moving in from Q4 to Q3, not just at IDS but at other businesses.
So we feel real good about where we are headed going forward from a margin perspective.
We would expect to continue as we've been saying both at the Company level and specifically at IDS, to continue to expand margins going forward beyond 2016 into 2017 as well.
From an IIS perspective on the sales, they had a good quarter.
Their sales were up to 3%, driven by cyber security and special-mission programs.
For the second half, we see their sales in line with last year's second half despite having four fewer workdays, and we still expect growth for the year at IIS in the low single digits.
I'll just cap that off, <UNK>, with the fact that both our Andover plant and IDS and also our Tucson plant, there is ---+ and on the Tucson plant we tripled production on several of the missiles there without having a significant need to (inaudible) capital expenditures to be able to do that, and also at the IDS plant, because I know you've been at before, the parking lot is overflowing, which means there's ---+ and that's not just a one shift, that's on multiple shifts.
So both of those factories are chugging along at very high capacity rates that obviously [gives] a strong signal and strong support for high margins moving forward.
Good morning,
Let me hit on the international side right off the bat here, is that we have 2017, I did mention the Pit Bull and Patriot opportunity, and we also have the THAAD TPY-II radar opportunity in 2017 also, 2017/2018.
But that's kind of two big ones for 2017, but there are a also significant number of orders for precision munitions that will be coming in, in 2017 and some other areas in terms of missionized aircraft that we believe will be coming in 2017 also.
So we believe at bottom line that a strong pipeline of international awards in the 2017 timeframes.
And I think, you know, you mentioned Brexit, and I'll make more of a general comment rather than specific to your question about international.
You know, we don't see any significant impact at all from Brexit.
Just to put it in perspective, the British pound is the functional currency for only about 2% of our sales, so not a major impact at all to the Company and to the business.
And I think on the Middle East, you know we mentioned the order for Kuwait Patriot upgrade for about $0.5 billion here in the quarter.
I think <UNK> also mentioned in one of his prior comments back in Q1 we had another significant order for about $650 million for an international classified customer, and we've been pretty consistent over the last couple years, you know, with our customers, our nations that produce oil, that they have a demand for our products because they're looking to protect their citizens and their sovereignty, and we're seen no change to that sitting here today.
<UNK>, we'll split the question here.
As we talked about earlier, we had a major award in the first quarter, and that was at SAS for an international product which set them up for a good year in terms of conversion of that revenue in essentially 2016, 2017 and 2018.
They've also done quite well in the classified domain in terms of new awards and of converting those new awards into revenue.
They also are working in completing up on the next-generation jammer P&D program, which is in full swing, another significant revenue generator for the overall business.
And I can tell you they're operating on all cylinders relative to all the other programs that they have in there, and it's a good healthy mix.
I would call it new programs coming onboard, programs that are I would call it in their mature stage, and then programs that are starting to fall off.
So they have a very good, I would call it a very healthy mix of programs that should be good revenue generators here for the next five years.
And as far as your question on the, you know, the sales in back half of the year, so sales were up 9% in the quarter and 8% year to date, driven by classified programs at SAS.
The second half will be driven by both domestic and international classified programs.
Obviously they're off to a good start, and we see ourselves ending the year closer to the higher end of their sales range.
What may be distorting it a little bit here for you is, you know, we give it to you in one of the attachments, our workdays are a little different this year where the back half of the year in Q4 in particular has four fewer workdays than we saw in 2015.
If you normalize for that, they would be showing some growth in the low single digits in the second half.
Morning, <UNK>.
Sure.
So let me start with the CIP.
You're right, we have seen a build up in our CIP balance.
This increase was in line with what we're expecting.
It was primarily driven by our sales growth, along with the timing of program milestones and collections, including the ramp-up on some of the more recent awards that we've had last year and into the early part of this year.
It's also, you know, important and I would note that our expected cadence is similar this year to prior years, with the buildup of CIP in the first half and then a decrease in the second half, really driven primarily by the timing of certain milestones and collections.
If you look forward to the end of the year, and I think we talked about this back in Q1, we would expect our CIP balance to be up compared to 2015 but more in line with what our balance was at the end of Q1 of 2016, and this is in-line with our growth profile and again driven by the timing of program milestones.
As we move to the back half of 2016 and into 2017, we will continue to focus on driving working capital improvements and cash flow generation across the business.
You know, we obviously saw strong cash flow here in the quarter.
Some of it was timing, <UNK>, right.
But some of it was permanent improvement for the year, which is why we raised the outlook for the year by $100 million to the new range of $2.8 billion to $3.1 billion.
As far as cash taxes go, I think that was your second question, no change from a total year point of view from what we were previously expecting there.
We still think cash taxes will be paid a little bit over $900 million for the year.
The net of refunds, a little over $750 million for the year as well.
I think your third question was around the cash impact in 2017 from the required funding of the pension, you know, so look as we've said previously there, when we hold all the assumptions constant, we see our CAS increasing, going from 2016 to 2017 as we transition fully to harmonization, and then remaining relatively flat beyond that.
In 2016, the pension cash flow is a bit of an anomaly.
It's up from 2015, but then again after 2016, the cash flow from pension, it's still expected to be positive but more as we've said at a normalized rate, plus or minus $700 million, net positive.
We do see improved cash flow in our business as programs continue to progress through their life cycles and achieve significant program milestones that will improve the cash position, and our continued focus on working capital including cycle time and payment-term reductions with our customers will also drive some cash flow, which could and will offset part of that increase.
You know, as reminder that increase is really driven by the plans coming out of full funding from a PPA point of view, and again primarily having to fund the annual-service cost.
As we always do, kind of last point here, you know we'll continue to monitor all aspects of the pension, and you know, we will consider making it, if it makes economic sense to the Company, to the shareholders, we'll consider making discretionary contributions, you know, before the year's over that could potentially have a further impact on the cash flow profile in 2017 and beyond.
Morning, Rob.
That's an excellent question.
There's actually two pursuits or two programs that polling is pursuing.
One is a system that the Patriot system satisfies, and as you probably have seen in the press, the minister of defense is moving forward with the Poland acquisition.
And so it's working government-to-government and also Raytheon is heavily involved in that procurement.
Then there's another program which is being competed, and it's a shorter range system that ties directly in with the capabilities of our NASAM system, the system that protects our nation's capital.
It's also the system that we sold to Oman and about four other countries outside the United States.
So that's the two.
We are obviously positioned on Poland Patriot, and we are working to make sure that we're in a good position on the short-range system, too.
Yes, so from a revenue point of view, for the total year, we see IDS sales, you know, roughly in line with 2015, with as you said the cadence improving as we move through Q3 and Q4.
And that's due primarily to the start up of some new awards this year, as well as the continued ramp-up on some of our international Patriot programs as they move through their normal lifecycle.
You know, from a margin point of view, as I said earlier, we still see opportunities for margin expansion.
We were pleased with the results in the second quarter.
The 15.5% margin that IDS delivered, excluding the TRS gain.
As I mentioned, part of that was from accelerating net program efficiencies, profit improvements, from the back half of the year into the second quarter.
We see a little bit more of that in the third quarter.
We upped the margin guidance by the 40 basis points, half of which was attributable to operating performance, the other half to the gain.
And we would expect to continue to see margin improvement at IDS beyond 2016's rate normalized for the TRS gain, we'd expect to see improvement continuing into 2017.
Yes, so the $0.20, and maybe it's just the definition of the buckets here, so you got the $0.03, right.
On the gain, right.
That's about $0.03 higher, a $0.05 on tax, about $0.09 from the business operating margins, okay.
And then there was, I mentioned interest was a little better, that's about $0.01, and then we had some corporate operating items that was another $0.02.
So you can bucket it a lot of ways, but around $0.12 out of that $0.20 from operations, and about $0.08 from non-operating items.
Miles, what was the second program you were asking about.
Okay, let me hit the first one here on T-X competition, and a little bit about our approach to the competition.
We're treating the program as more than just an airplane, flying an airplane.
It's really about preparing the pilots for the mission success in advance, and we're looking at for their ability to deal with multi-faceted and increasingly complex battle space, and so what we are bringing to the table is our industry-leading capabilities in training and also next-generation mission systems, and believe we're well-positioned to provide the Air Force a comprehensive solution to their training needs here.
Our offering is the Alenia M-346 in any configuration, and it's already training fourth- and fifth-generation pilots from Israel, Singapore, Italy and Poland.
It is a complete system, and the classroom to simulators to the aircraft, it is operationally proven.
It does provide high degrees of confidence in both schedules cost and performance based on its proven capability.
Our T-100 solution incorporates also our team's expertise in live virtual constructive training, and again that's to drive efficiency and enhance affordability.
In terms of timing, it is our understanding that the Air Force does plan to release an RFP by the end of this year and to award a contract by the end of next year.
So we are working this very heavily.
It's an important program to Raytheon.
It's also an important program to the Air Force, and we believe we have the best solution on that.
Okay, we're going that leave it there for the day.
Thank you for joining us this morning.
We look forward to speaking with you again on our third-quarter conference call in October.
Tawanda.
| 2016_RTN |
2016 | OA | OA
#Thanks, <UNK>.
The Company did receive a fourth extension mission under the original CRS-1 contract back in the first quarter.
And in addition, in the quarter, we were selected for the CRS-2 contract that will pick up missions in 2019, once the current contract has run its course in late 2018.
So that the outlook there is good, both near term and well into the middle part of the next decade.
We are pleased with the performance of that program from NASA to date, and are optimistic about its continued growth for a number of years to come.
<UNK> <UNK>, good to hear your voice.
Our unbilled receivables do reflect progress in completion of contracts through milestones, as I said on the call.
We expect to hit milestones on these contracts.
Certainly, the CRS area is one that will contribute significantly to cash flow and our other contracts that are in backlog.
What you see is in the first quarter is, in our business, not atypical.
We're not concerned.
We forecasted out our free cash flow for each quarter, and we expect that, as I said on the call, to improve, particularly in the second half.
We are very focused on that, and there's nothing customer-wise or structurally that's a problem.
It's just simply a matter of executing the backlog, and the cash flows should come through.
Let me give you the bigger picture.
Purchase accounting, as you know, when you merge or a company is acquired, you have 12 months to finalize it.
This happens to be the last quarter, and we did some finalization on that, in the purchase accounting area.
One of the areas in the purchase accounting area has to do with fair-valuing contracts, and you push that through your numbers, and you discount that back, and it is amortized through the number.
So it's non-cash, and I would bound that for the year about $10 million that will go through.
It's not necessarily linear on a quarter.
So there's nothing ---+ it's just a matter of finalizing the purchase accounting, and it came through in this quarter.
Unfortunately, the line item we have on the financials is for interest.
It includes ---+ by the way, interest expense includes debt amortization expenses and interest expense.
We would like to keep this as a separate line item, but it's not large enough, so we've included in interest expense, and simply underline that it's non-cash, non-debt-related, purely purchase accounting.
It will amortize out over time, yes.
It will be in the next couple of years, but it will amortize out.
You are welcome.
Just on that point, <UNK>, I might add that in the first quarter, the net impact of the lower tax rate, which was a positive impact, and the non-cash interest expense that you asked about, which was a negative item, came out at about $0.02 per share.
And for the full year, the net of those two probably will be about $0.05.
Sure, Mike, good morning.
Yes, sure.
There were no really major developments in the first quarter on that program.
We did ---+ as I mentioned back a couple of months ago, Orbital ATK and the Air Force started at the beginning of the year the first phase of what could be about a four year, jointly funded development program that would be aimed at creating a new, all US-based intermediate- and large-class space launch vehicle.
Our objective in pursuing this, if it goes through the full development cycle, would be to introduce a modular vehicle capable of launching not only defense-related satellites in the larger class, but also scientific and commercial satellites.
And it would be competitive, both domestically and internationally.
Our investments this year, and those of the Air Force, will cover the initial phase of design and early development work, and the decision in the first half of next year will be made concerning whether the remaining activity to complete development, to produce and introduce this new vehicle, will proceed.
There will be ---+ it represents a relative ---+ not an insignificant, but a relatively modest investment over the next couple quarters, which, if the market indicators and the product performance continue to move in a favorable direction, could lead to a decision sometime about this time next year or a little later relating to the remaining work to actually build and test the vehicle.
In the first quarter, the margins in those two segments were up nicely compared to last year, and were both a bit ahead of our plan.
Partly it reflected the addition of the CRS-1 extension missions.
And also the flow-through ---+ really, for the first time it materialized in a significant way, of some of the cost efficiencies that we achieved last year and in the early part of this year.
I think that latter factor will continue, and we may see a little bit of upside for the balance of the year as a result before any other potential adjustments are factored in.
This is <UNK>.
It's about $200 million on CRS, and about $400 million or so on the A350.
Thanks, Mike.
Sure.
I think it was really the first quarter comparison to the same time last year resulted from really two somewhat independent factors.
First, the March quarter last year was a particularly strong quarter.
Defense generated about $500 million in revenue in that quarter last year because of a surge in product deliveries both to domestic and international customers that happened to fall into the February and March period of 2015.
That created a fairly tough comparable for us.
Secondly, we did see some slowdowns in the timing of awards of some new defense orders in the Middle East in the latter part of 2015.
We've had some catch-up in that so far this year; a few more are still expected.
And so that's pushed out anticipated revenue from the first half of the year to the second half in the Defense Segment.
It's really a combination of a tough comp compared to last year, and some first half/second half timing adjustments for this year.
No, there was not.
I know there had been an article in the press a month or so back on that.
We did have some supply chain slowdowns, but it turned out we had a sufficient work- in-process inventory of the particular component in question, that it really didn't slow down deliveries.
In fact, AARGM had a good first quarter, both from a flight-test standpoint and production-delivery perspective; and the outlook of that program continues to be very favorable.
As an example, the US government budget request that came out back in February for FY17 has about almost a 65% increase in funding targeted for AARGM in 2017 compared to 2016, and 2016 itself was up a bit compared to 2015.
You may have also noticed that the US Navy, our principal customer for AARGM to date, has extended the production run to now 2,400 missiles out through the early years of the next decade.
AARGM is doing fine now, and I think it's going to be a real bright spot in terms of defense growth.
A little bit of that coming through this year, but a lot more coming through in 2017 and 2018 such that over about a three-year period, we expect to basically double AARGM revenue between 2015 and 2018.
Yes, you bet.
Hello, Joe.
Yes, hello, Joe.
I would say, it's just early in the year.
We'd rather wait and see how a few things pan out.
We do have the next CRS cargo mission coming up, probably early July.
That will be a significant event.
We expected it to go very well.
Assuming it does, there's some opportunity there for improvements.
We will be watching it over the next quarter or two.
And when and if the circumstances are right, we will provide an update there.
At this point, coming out of the first quarter, we just felt we ought to stick with the current outlook.
Okay, good question, Joe.
First of all ---+ <UNK> alluded to this in his comments ---+ we've got, I think, three big events relating to Antares this year.
The first one will occur later this month.
In fact, next week, we will roll out to the launch pad, the first re-engined Antares in preparation for buyer testing of the first stage and its new engines, which will occur later this month.
That's the first milestone.
Assuming things go smoothly there, then probably on the order of six weeks later ---+ so that would put us around just after the fourth of July ---+ we expect to be ready to launch the first of two re-engined Antares rockets on a space station cargo mission, which we call OA-5.
And then we will turn around about three or four months later, probably sometime in November, for a second Antares launch on another space station cargo run.
So those are the three big events this year.
All of the hardware necessary for the engine test, as well as the first two launches of the re-engined rocket, is at the Wallops Island launch base now.
And so we are getting close to being back to flight-ready status.
Beyond this year, with the new extension mission added, and with the new CRS-2 contract coming on line, the base level of demand, really through the middle of the next decade, for Antares should run at two or three launches per year.
And that gives us a solid foundation on which we can increase market reach of the vehicle, and flight rates as well.
We designed Antares, like we do most of our launch vehicles, to represent good businesses for our customers in terms of schedule and reliability, and good businesses for us in terms of profit margin, at fairly modest launch rates.
And we do that by commonality across a broad range of target vehicles, missile defense interceptors, small space launch vehicles, and now with Antares medium-class vehicles, we use a lot of interchangeable parts and subsystems.
We use the same engineering and manufacturing teams and facilities, and so as we go from two or three launches a year to five or six launches a year, there's a lot of operating leverage for us in that.
Once we get back to flight status and put a couple of good launches behind us, then I think we will start to see some real traction in the broader market, beyond just NASA cargo delivery.
Okay, thank you.
Yes, <UNK>.
(laughter)
It was mostly international defense.
Yes, I think that's the essence of it.
It was probably a few tens of millions of dollars in the quarter.
I'm not sure I have that number handy.
I can tell you another way of looking at it is, if we just compare last year ---+ which was a pretty good year for our international business, in general, and our defense export sales, in particular ---+ across the whole Company last year, about 20% of our total new business, and roughly 22% of our revenue came from international sales.
The first quarter of this year, we booked about $275 million of international orders.
It was down to 8% or 9% of total bookings.
And I think that's just mostly a reflection of some lumpiness, some ---+ plus, it was the total new business was quite robust in the quarter.
I think that will smooth out as the year goes on, but we did see some slowdowns, both in the second half of last year, and so far in the first quarter of this year in the award, or the ramp-up once awards have been made, of defense orders mostly coming out of our customers in the Middle East.
In round terms ---+ I won't get into too much in the way of detail ---+ it was between $100 million and $125 million last year.
Yes, sure, <UNK>.
The original target which we set out ---+ was even before, I think even before 2015 started, and we used throughout last year for the three-year period 2015, 2016, and 2017 ---+ was on the order of, or slightly above, $1 billion.
And I think we are still pretty comfortable with that.
The new growth initiatives will have some impact, all else equal.
But the rest of the business is doing a little better than expected.
I think that three-year target of about $1 billion is still a target the Company feels ---+ we are comfortable with.
Yes, that's correct.
Thanks, <UNK>.
Hello, <UNK>.
Yes, the buyback authorization that we have today through the end of 2016 could allow us to go somewhat higher than the range that we show on page 6, where we are talking about our capital deployment.
And for this year, with stock repurchases in a range from $125 million to $150 million, the authorization would let us go up to $175 million, and we may well do that.
I think right now, our sense is, our best guess is, it would probably be in the range presented here.
But we will see how it goes, and we may well go a little higher than that range.
And on capital expenditures, we spent $22 million in the first quarter, <UNK>.
I think our initial guidance was about $215,000,000.
As you will see in the current guidance, we pulled that down a little bit.
That's very typical.
Businesses, I think, as you do your planning, as you start out, is a little bit slow.
There will be some ramp-up.
You did touch on that, it also affects the cash flows.
Yes.
There are a couple of programs that, six months ago when we were putting the capital budget in place for this year, had some reasonable capital expenditure requests we approved.
We are now four months into the year, and some of that's just not turned out to be necessary quite as soon as we thought.
Or we found other ways of increasing capacity without making those capital investments.
So we've reduced the CapEx outlook on the order of 10%, compared to where we started the year.
Yes, we've really ---+ in production programs, we have four major, maybe even five ---+ let's call it four major production programs.
The A350, where we work both for Airbus and for Rolls-Royce ---+ Airbus on the fuselage structures and Rolls-Royce on the engine structures.
The Boeing 787; a F35 joint strike fighter; and A400 military transport.
Of those, the A400 is by far the smallest program.
We are running at pretty modest production rates on that, roughly one a month.
And that's ---+ we didn't anticipate that, that would be much different this year.
I don't have the number off of the top of my head, but I would guess that's 5% or less of our aerostructures business.
The other larger programs, relative to early expectations, I would say, 787s may be up a little bit.
Joint strike fighter is about on track; and A350 ---+ we are doing really well in terms of ramping up our production rate.
I think any areas or any concerns that we might have had about our ability to achieve their necessary rate has pretty much been put behind us now.
We're fully prepared to meet both near-term and mid- and long-term rate commitments there.
We are currently producing about seven a month on the A350.
Okay, thank you, <UNK>.
Hello, Matt; good morning.
Sure.
The outlook in the small caliber ammo business is pretty good this year.
Certainly, stronger overall than last year.
Last year was actually ---+ within the commercial ammo production for Vista, was quite good.
We think it will continue to be strong this year.
What we are seeing in 2016, though, is a significant bounce back in demand on the part of the Army.
As <UNK> mentioned, we produced about 400 million rounds of ammo in the first quarter.
Just based on a round count, that was dominated by small-caliber production at Lake City.
Our outlook for the full year is total production of small-caliber ammo in the neighborhood of 1.5 billion rounds, plus or minus maybe 50 million.
That would be an increase of 25%, maybe even pushing 30%, compared to last year.
Overall ammo revenue should increase modestly this year.
The higher domestic production at Lake City is anticipated to be partly offset by lower nonstandard ---+ non-NATO-standard ---+ ammo sales.
Nevertheless, when you put it all together, we do see a reasonable increase in total small cal ammo sales this year.
That's also likely to continue next year, since the leading indicators with US government budgets also are reflecting increases from 2016 to 2017.
As you probably know, that's one of our shortest cycle businesses between order and delivery.
The half-life of a small-caliber ammo contract or order is measured in months, so we turn those orders into revenue pretty quickly.
I believe it will.
We haven't guided to that, but I think we've signaled that, that it will be stronger in 2017.
So that's the answer ---+ yes, we think we will be stronger.
Welcome.
Thank you, Matt.
With that, I think we will bring the call to a close.
Thank you for joining us today, and we look forward to speaking with you again, when we report our second quarter 2016 financial results.
That concludes today's call.
Thank you for joining us.
| 2016_OA |
2016 | ADM | ADM
#Yes.
So some of the legacy businesses, one of the businesses is, for example, hydrocolloids.
Hydrocolloids go like about half of it to food applications and that continues to go very well, but about half of it goes to drilling fluids, and as you can read, the industry has basically reduced significantly the drilling in the U.S., so that market has been significantly impacted.
So nothing to do with our food strategy, if you will, but it happens that we will report it in that segment.
The second is related to fibers.
The fibers market has a little bit of overcapacity so prices have been soft there and we have some more competition.
And one of the businesses that we acquired, SCI, have had some issues with inventory that we needed to write off or sell it at a discount because they may not have been in the greatest of condition.
So all those three things basically impacted the WFSI business.
On the other hand, Wild Flavors is growing significantly and is going to post growth of about 20% year-over-year basically on innovation that has happening at the customer level.
So when we talked about the revenue synergies being a little bit slow, it's because obviously, first of all, you need to think about how to combine all these products into a new solution and then you create the prototypes, and then you present those to the customer and the customers create a marketing campaign and also look at the potential for that product and look at the stability of those products.
So that approval process takes a little bit longer, especially in some of the companies that are very much focusing nowadays on cost and productivity and they may not have that many people to take care of these products.
So that's why we tried to ramp up a little bit more the cost synergies to make sure we don't fall behind in our promises.
But, as I said, the Wild Flavors business is going strong and having again probably a 20% increase in profits versus already a record year like it was 2015.
So we are extremely proud of the business.
Yes, <UNK>, I wouldn't like to describe a number or talk about the number for 2017, but certainly the dynamics at this point in time in the industry calls for a little bit of a continuation of the supply/demand fundamentals we are seeing now.
Certainly exports to Mexico have been better than expected.
Certainly there has been a flattening of the secular decline of the U.S. domestic market, if you will.
And what we continue to do, which we like and it bodes well for the future of the business is we continue to introduce new products, and some of these products are more at the developmental stage, if you will, but some you can see in the press releases that we continue to launch these products.
At this point in time, I cannot give you top of my head something that you can look at to track the progression of that portfolio, but traditionally ---+ five years ago, we looked at trying to replace 10% of the grind, if you will, just in case high fructose corn syrup were going to decline 2% per year, which it hasn't happened, so we haven't needed to bring all those products, but we have all those developments.
And as we are trying to sell up our capacity and bring products at higher margins, we continue to introduce some of that.
So probably we will get together with our businesses and we will try to come up with some kind of indication that at least you can track on the progress of that initiative.
We haven't done it, as I said, because of the strength of sweeteners and starches; we didn't feel that we needed to communicate anything for that.
One thing too though, <UNK>, is we have purchased the remaining interest in Eaststarch.
That is something different and that is an increment compared to where we were before, so that clearly is a positive.
And as we indicated in prior calls, the Eaststarch acquisition was about $0.04 per share accretive to our overall earnings going forward.
Thank you.
Thank you for joining us today.
Slide 15 shows some of the upcoming investor events where we will be participating.
As always, please feel free to follow up with <UNK> if you have any other questions.
Have a good day and thanks for your time and interest in ADM.
| 2016_ADM |
2017 | POOL | POOL
#Sure.
Overall for the year, I would expect very simi<UNK>r gross margins, 2017 versus 2016.
So I would say the likelihood range of variation would be probably plus or minus 10 BIPS.
A lot of that has to do with product mix first.
Vendor mix, second.
In terms of prebuy activity, really what happened there is that we had a little better than we expected fourth quarter.
So with that, that ate a little bit into our inventory year-on-year.
So therefore had we had our numbers come in as expected from a sales standpoint, our inventories would have been a shade higher.
But nothing material to report in terms of early buy activity, or anything along those lines.
Sure.
There's two factors there.
One factor is when you look at equipment, certain commodities that are heavily weighted towards energy, like for example p<UNK>stic pipe, there are certainly some inf<UNK>tion pressures there.
But on the other hand, you look at other product categories which are over supplied in the marketp<UNK>ce, like chemicals, which is our <UNK>rgest individual product category, and accessories, which is also very significant overall, and there is virtually no inf<UNK>tion there.
So I think overall ---+ and I would think at this juncture it will be 1% to 2% in terms of overall inf<UNK>tion, with perhaps it being 2% to 3% on items like equipment, for example.
Overall, although there's some equipment items that may go up more than that and some may go up less than that.
But overall probably overall increment 2% to 3%.
Some commodities probably a little higher.
Chemicals and accessories, f<UNK>t.
So probably on a weighted basis 1% to 2% which is consistent with our long-term average.
Last year I would say was probably closer to 1% than to 2%.
Well, certainly, as you've probably noticed from history, we don't buy shares on a consistent basis month to month and quarter to quarter.
We do that somewhat opportunistically.
But over the long-term we know it's very ---+ a beneficial way to return cash to shareholders through share repurchases.
So as we look at our cash flow and priorities for use of cash, that remains a significant use of cash for us in our priorities.
And we will continue to invest in shares on, again, an opportunistic basis.
So in terms of how you model that in, that's kind of up to you.
But I would expect to use in the range of $100 million, $150 million in cash for share repurchases in 2017.
Sure.
The blue business was up 6%, and the green business was modestly down.
This is base business.
And then for the year, the blue business was up 7% and the green business was a little less than that.
But not much less.
Tough to say.
Let me put it this way; We didn't do as well as we should have.
And there were certainly some execution issues.
Thank you, sir.
Good morning.
Just to make sure ---+ it's plus or minus 10 BIPS.
And that would be correct.
Number one factor there is product mix, and number two factor within product mix is vendor mix.
So there are products I'll use generically, low dol<UNK>r, harder to handle items where the cost to serve is higher.
You typically try to recapture that with higher margins.
On the other hand, higher value items that are re<UNK>tively small cube, that proportionate to sales, or sales dol<UNK>rs, are lower cost to serve.
And those generally are sold at lower selling margins, percents.
So that's the product mix component.
So we sell a number of items that are plus 40% margin that have a cost to serve that sometimes makes it marginally profitable, if profitably at all, even though you have a high gross margin, examples being products like sand and salt.
And although we're not at 40% on either sand or salt, the cost to serve there is very high as a percentage of the sales price.
On the other hand, there are some higher value products that are re<UNK>tively small cube, which are proportionately lower cost to serve, where we may be having margins that are less than half our company overall gross margins.
And in those cases, again, a much lower cost to serve, and even though they may be at half of our company overall gross margins, are still profitable.
No, not significantly so.
When you look at blue versus green overall, gross margins are very simi<UNK>r.
The mix ---+ within the green business there's the same mix dynamic as there is in the blue, as would be in just about every trade distribution sector.
And my perception also, industrial distribution sectors as well.
But no, no noteworthy differences between the two.
Sure.
So first part is we are a service business.
So our first bias is to make sure we provide the right level of service to our customers and fundamental to that is having the right inventory in the right p<UNK>ce.
So if we're going to error, we're going to error on the side of a little higher inventory to provide better customer service.
Now, having said that, could we improve our internal disciplines in terms of inventory replenishment.
Could we work better with manufacturers to make sure that we are communicating effectively and have the right parameters set in our system for replenishment.
Could we do a better job of managing the system prompts in terms of line items beyond order point and things of that nature.
The overriding answer is yes.
So while certainly first and foremost the bias is on the service to our customer, we can certainly make process and execution improvements to further improve our inventory turns, and therefore our gross profit return on inventory.
And those are drivers that's top of mind throughout the organization.
Thank you.
Thank you, William.
And thank you all for listening.
Our next conference call is scheduled for April 20th, when we will discuss our first quarter 2017 results.
Thank you and have a great day.
| 2017_POOL |
2015 | FRAN | FRAN
#Yes, thank you so much for the question.
Speed to market is something that's really important to us.
In fact, that will be one of the key initiatives that support the strategic pillar of invigorate merchandising on a go-forward basis.
We have talked a whole lot about how we can improve all of our supply chain initiatives, speed being a very key element of that.
I think that not only will we continue to focus on that but, yes, we did focus on that in this back half of the year.
As we saw opportunities, in wovens for instance, in our fashion tops, the wovens, the plaids, the checks, they have done so well.
And we did chase back into some of those categories.
I talked about some of our jackets, like our vests have done extremely well.
There have been a lot of areas where our team, our planning and allocation team, have really done a pretty spectacular job this back half of the year, of helping us not only plan the right inventories.
But also as we saw accelerated sales in certain areas, they have taken the challenge and have had the ability to chase back into some of those.
That's one reason why our sales continue to accelerate off of a very good third quarter.
Okay.
I'm going to try to remember all of those.
In fact, I'm going to answer some parts of other questions that were asked.
You guys ask so many multiple questions it's hard for me to remember all of them to give you the answers.
In terms of outlet stores, let's talk about that a little bit.
We're really excited about where our outlet stores opportunity lies and exists for us.
We are still in the early stages of figuring out how best to optimize that, but we have a lot of great plans.
As I mentioned, that is one of the key six strategies is to optimize and drive our outlet business.
So we will do that.
It will be a mixture of merchandise.
It will rely on a lot of clearance merchandise.
It will also have a great mix of season-right fresh, new merchandise in there because, really, outlets are just another distribution channel.
They're not just there to clear your merchandise.
They are a big help with that and I'm glad we have them for that.
But also there's the opportunity to sell great new fresh merchandise to the many people that travel to outlets and even make them an occasion to visit an outlet mall.
Because many of them are located outside of city centers, a half hour to an hour drive away.
So I think there's a big opportunity for us to drive clearance business as well as new fresh merchandise in our outlet stores going forward.
As far as the economics of the outlets, it's kind of interesting.
I've worked with outlets in both of my prior companies before here as well.
And what it tends to end up being is that your merch margins tend to be lower because you do have a larger mix of clearance and off-price merchandise in the outlet, because that is a big reason for their existence.
But at the same time, generally you offset that by driving higher sales volumes in an average outlet store.
They tend to be a little bit larger in size.
Quite frankly, because many of them are operated far outside of major city centers, the occupancy is usually a little bit less.
The net, net, net of all of this is that once optimized, outlets should drive approximately the same type of profit opportunity as any other of our boutiques.
So that's the overall economics on that.
I think you did ---+ you were asking also about what kind of investments and capital expenditures, et cetera, we would have partly in driving our long-term Vision 2020 strategic plan.
We will get into that much more in the future.
We are still in the process of firming up our 2016 annual budget and how that fits into our long-term strategic plan process and looking at our five-year plan as well.
So we'll get into that as appropriate.
We'll start that discussion when we give FY16 guidance at our year-end call after the end of the year for 2015.
Thank you.
Sure, thanks.
When we look at where our apparel business is going and what kind of things that we have moving forward, it's really more of a casual everyday feel.
As I mentioned, it's very stylish, it's very fashionable but it's not overly trendy.
So it's not here today gone tomorrow and I think that will help us to drive into the chase.
Because quite frankly, in apparel there's a lot that we can do to evolve the strategy into the next season, as opposed to, well, that's done, get rid of it and what's new, and gosh, I hope that works.
So I think that there's a bit more consistency that we can drive season to season with where our customer is today and how she is thinking about her wardrobing needs.
There's big opportunities in that.
I feel very good that the trends that we have can continue forward and that we do have a pretty good handle on it and that we can continue to chase effectively and really be ready for whatever hits us.
As I mentioned, the team did a great job chasing.
Clearly we had a strong Q3 performance and an acceleration and a strong start to Q4.
The team's done a great job chasing so far.
We still feel we're well prepared for the rest of the holiday season with these big weeks that are in front of us.
We're excited about that and that should bode well also for any clearance activities that we have to do post-holiday.
Good timing at this point for that to come together.
In terms of the SG&A and investments, again, we will go a lot more into that when we lay out our 2016 budget guidance.
It's something that we really don't want to cross over into now.
We feel like we're well positioned, that we are balancing the proper investments that we will, and need to, make against the performance of our business.
I'm really glad to see that our business has picked up and is performing extremely well, especially the back half.
And that allows us to be able to continue making additional investments alongside those that we've already made this year which are driving part of that performance.
It becomes a really important balancing act, to balance the investments, to find the right team members, to locate the best executives as I feel we've done in many areas.
Alongside Laurie, our Chief Merchant, and Eric, our Senior VP of Direct and Marketing, we've also brought in, as we've mentioned on prior calls, a new Senior VP in the IT department.
That is going to help us build the infrastructure to support all of the strategic initiatives.
It doesn't happen without having the right processes and the right infrastructure in place.
We've recently also added a new VP into our real estate area that I believe brings a lot of wonderful ideas in terms of ways that we can continue to drive our brick and mortar strategy and push it forward for the future and make sure the next three or four years are great years in terms of finding the best real estate and optimizing it.
So that's where we're at on that.
Thank you, Lisa.
Thanks to all of you for joining us for our Q3 results and our Q4 and full-year guidance conference call today.
We look forward to speaking with you again after the close of the year for our full-year 2015 results and 2016 guidance initiation call.
I'd also like to take this opportunity to wish you all a wonderful and happy holiday season.
Thank you.
| 2015_FRAN |
2016 | SBH | SBH
#Thank you.
Well, first of all, I'd just like to thank everyone for joining us today.
To sum up for the quarter, our consolidated results were solid, with 3.1% sales growth, gross margin expansion of 30 basis points, and earnings per share growth of 18%.
In addition, we completed several key initiatives in both segments that will position us for long-term success, and we think we can establish very simple agendas going forward that will drive sales growth.
Thank you, and I look forward to seeing many of you in the coming months.
| 2016_SBH |
2016 | NAVG | NAVG
#Good day, ladies and gentlemen, and welcome to the Q2 2016 Navigators Group Inc earnings conference call.
(Operator Instructions) We remind everyone that today's call includes forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
These statements concern future business condition, expectations and the outlook for the Company based on currently available information that involves risk and uncertainties.
The Company's actual results could differ materially from those anticipated in the forward-looking statements.
We refer you to the Company's most recent forms 10-K and 10-Q for the description of the important factors that may affect the Company's business.
The forward-looking statements made on this call and any transcript of this call are only made as of this date, and the Company undertakes no obligation to publicly update the forward-looking statements to reflect subsequent events or circumstances, except as required by law.
I would now like to introduce your host for today's conference <UNK> <UNK>, President and and Chief Executive Officer.
Please go ahead.
Thanks, Dan.
Good day, everyone.
Our second-quarter net income of $16.2 million, or $1.08 per share reported yesterday after the market closed includes net operating earnings after tax of $12.2 million, or $0.81 a share, net realized gains after tax of $1.3 million, or 0.09 per share, less after tax OTTI of just $97,000, or minus $0.01 cent a share, and after tax foreign exchange transaction gains of $2.8 million, or $0.19 per share.
The second-quarter's combined ratio of 99.6% includes a reported loss and LAE ratio of 62.4% and an and all-in expense ratio of 37.2% comprised of net commission expenses of 15.2% and other operating expenses of 22%.
Our quarterly consolidated results include $1.1 million of underwriting profit with $10.8 million of that profit coming from the US insurance segment, $300,000 of profit from the Global Reinsurance segment, offset by $10.1 million of loss from the International Insurance segment, as <UNK> just shared with you.
The quarterly results were impacted by $18.3 million of natural catastrophe events, including $16.4 million of net catastrophe losses and $1.9 million of reinsurance reinstatement premiums, mostly related to the Alberta wildfires, and to a lesser extent the Ecuador earthquake.
Net investment income of $19.9 million increased $3.3 million, or 19.8% as compared to the same period last year.
The increase in investment income was primarily driven by growth in the overall portfolio, with an increased allocation to higher-yielding preferred stock and an increase in tax-exempt municipals.
Net realized gains of $2 million pretax, or $1.3 million after-tax, were the result of normal active portfolio management.
In our overall investment portfolios unrealized gain position increase in the quarter by $37.7 million pretax, or $24.5 million after-tax due to the increase of interest rates and a rally in equity market.
The investment portfolio value as of June 30, 2016 increased by $151.7 million to $3.23 billion with a book yield of 2.6%, down 6 basis points from 2.66% in the first quarter, but up 21 basis points from 2.39% for the same period last year.
Total return on a trailing 12-month basis was 4.92%, up 245 basis points from 2.47% in the first quarter and up 335 basis points from 1.57% to the same period last year.
Importantly our investment portfolio has maintained its AA-minus average quality with a duration of 3.9 years.
Looking at our overall balance sheet, our GAAP shareholders equity at June 30, 2016 was $1.182 billion, up from $1.144 billion at March 31, or 3.3%, and up from $1.096 billion at December 31, 2015, an increase of 7.8%.
On a year-over-year basis, book value has increased 12.1%.
Book value per share was $81.24 compared to $78.72 at March and $75.96 at December.
Our annualized ROE is 7.1%.
And net cash flow from operations was a positive $78 million in the quarter and $115 million for the year.
With that, we'll turn it over to the operator for calls.
Questions.
(Operator Instructions) <UNK> <UNK>, William Blair.
Hello.
Good morning, everyone.
Good morning.
The professional liability book in both the US and internationally obviously looks a lot better, but the combined ---+ compared to recent years, but the combined still up around pretty close to 100%.
Do have a sense on where you think the combined ratio can go in both the US and internationally there.
Let me just say this.
I think when we look at the economic returns generated by both the professional liability business in the US segment and in the International segment, we see a marked improvement in the most recent three underwriting years compared to, say, five years or so on.
In other words, we went through a path of improving the performance of that book.
And we are very encouraged by the most recent three underwriting years, which would be 2015, 2014, 2013 going backwards.
At the same time, I think it's important to not prematurely declare a victory.
It's a claims made business.
But it takes a while for even reported claims to develop.
So maintaining a prudent reserving philosophy, particularly in the area of IBNR is pretty critical to us.
So we like the business.
We like our teams.
We like where we've got the portfolio position.
There's always a desire to bob and weave and grow one sector of the business, and maybe reduce or even exit other little micro niches of E&O or a geography.
But a reasonably healthy business.
And we are very optimistic for improved underwriting results.
One thing that will help that is that, as we were transitioning that portfolio over the last couple of years in the US, we had purchased a quota share reinsurance program.
And the elimination of that program I think will give some benefit on the expense ratio side of that business in coming years, as the new premium earns through on a different basis than the current previously written business.
So, yes.
I think the prognosis looks pretty good for that business.
But we don't really throw out future combined ratios for our competitors.
Okay.
And that makes sense with the quarter share going away.
Because it looks retention's moved up quite a bit there, around 75% in both the US and internationally for professional liability.
Is that the right sort of run rate going forward.
Yes.
That was a little hard to talk about sitting here in our London boardroom without our reinsurance data and stuff like that in front of us.
But what I would say in general is that we would expect to see that portfolio probably look like a ---+ maybe actually an improved operating expense number.
The commission number could actually move up because you have less ceding commission, but more premium to offset the operating expenses ---+ the noncommissioned operating expenses.
So clearly it's going to have a favorable impact on the business, not the least of which is more net premiums sticking to your ribs on a portfolio that you believe to be profitable.
And, frankly, it's in line with our capital size.
And we think it is rightsized to the organization of today.
<UNK> [<UNK>], KBW.
Hello, good morning.
Thank you for taking my questions.
Morning.
There's some premium growth this quarter in marine and International P&C, lines that appear to be priced ---+ to have pricing pressures from commentary that we've heard and from trade publications that we've read about.
Is this more of an anomaly, or what kind of opportunities are you seeing here.
Go ahead, <UNK>.
I didn't hear the question.
Neither one of us actually clearly heard your question.
It was about an international component of our business, but I'm afraid we're not sure what your comment was.
<UNK>, could you repeat it, please.
Yes.
There was premium growth this quarter in the marines and the International P&C side.
And these are lines that appear to have pricing pressures from commentary that we've heard from the past and from trade publications.
Is this more of an anomaly or what kind of opportunities are you seeing here.
Well, I think if you look back on what we've told you on prior earnings calls, and you may recall that in 2015 in particular, we said we have two exciting new products in the London market: property and casualty.
And we might be the only company in the world that could have said that because, as a specialty company, our London business, and particularly our Lloyd's business, was built around marine, energy, and professional liability/D&O.
So I think it's very natural for us to expect to grow an international property business that we entered into last year.
As an underwriting guy for the last 35 years of my life, if I saw a mature business growing at a rate of 110%, I'd be sending in my underwriting auditors to look at it.
But in a startup you're able to achieve these things.
So $20 million worth of premium production in an $8 billion market is very much in line with the expectations we made when we entered that business.
Now, like anything, what you underwrite, how you price your business, where you attach on it, how much capacity you allocate to it, and how you buy your reinsurance all affects net underwriting result.
So, we spent a fair amount of time with our teams.
We have a high degree of confidence in the capability of our underwriters to achieve an underwriting profit across the cycle.
Can't add anything to that.
We have made investments in businesses.
And we are seeing the benefit of it in the premium.
So it's very well-controlled growth.
And the last thing I would add, <UNK>, is simply that we are a specialty insurance company, inside and out.
And I think what you see here is ---+ what you hear in general terms when you read trade press may, in fact, may not be the full story when you are a niche-oriented specialist, underwriting-focused company.
But just to reiterate for you, newer initiatives in our London and in our International Insurance segment in terms of products include both the International property, political violence and terrorism, and a trio of casualty products including, as we underwrite in the US segment, environmental business, life science business, and excess casualty.
So these are significant markets on a global basis.
Today we see most of that in London.
But you'll also remember that we are only two years into our three newer Continental European offices in Rotterdam, Milan, and Paris, all of which contribute growth.
So we embarked on a journey to expand our International business, certainly cognizant of market conditions.
And I think you know our culture is not one where we beat people up for premium growth.
We encourage them to make prudent decisions and to walk away from under-priced business, always focused on the bottom line.
And if we are a little short of what our premium expectations are, we are much happier to explain an expense ratio that's higher than you might have expected than any kind of loss problems in the portfolio.
Great.
Thanks.
That's helpful.
And, sorry, I may have missed this one.
I was hoping you can make it clear.
But going back to the expense ratio that was up 2.5% year over year.
And it looks like most of it was coming from commissions all across the board.
What's driving the higher expenses and what are you seeing ---+ are you seeing more pressure on ceding commissions.
Yes, it's a combination of factors, <UNK>.
At the very high level, what we have is a change in mix of business.
So that's first.
We have an introduction of property that's been listed before.
That certainly adds something to the equation.
And then, you also would've heard that on the last question from our analyst at William Blair basically asking about the way the portfolio's positioned in terms of net retention.
So I think, as we retain more business, obviously we have lower ceding commissions offsetting some of the commissions.
So it's a combination of higher net retention, so lower ceding commissions, and generally mix of business.
And those two factors combined are, we think, are the prime drivers.
Great, thanks.
I will return back to the queue.
Well, that's a difficult question.
As you know, over the last 15 years, we have significantly expanded the office network of this Company.
And we have significantly expanded the product breadth of the Company from a company that was 95% marine to today, which is much more of a broader specialty insurance offering.
And all of that has been done with organic growth, not through acquisition.
When we bring a new business on, we don't expect them to be accretive in year one.
But we certainly expect them to be accretive by year three.
So I think there's a balance of how you measure the performance of that unit.
In a modestly mature business, meaning something we've been in, in that three-, five-, six-year category, certainly we expect that business to achieve a double-digit return on allocated capital.
Now, again, then it [gets back] to our job to make sure we manage the amount of capital.
And if you carry excess capital, that might not translate to a double-digit bottom-line number.
But we try to think about getting those businesses there over time.
But in a true start-up product line, to assess them that way I think would potentially lead to some false assumptions.
You just don't turn on the light switch.
You want them to do it in a thoughtful, deliberative, and profitable manner.
<UNK>, let me start with that one.
A couple of things going on there, right.
So, on the pure noncommissioned expenses, the true operating expenses, I think I shared this with the audience on last quarter's call.
Operating expenses are actually leveling ---+ the second quarter, pure OpEx is approximately $59 million; in the first quarter it was almost $61 million; in the fourth quarter it was $59 million ---+ as we talked about making investments in the teams over time.
So there's a normalization that's already happening.
One of the things that amplifies the expense ratio, certainly in a quarter where there are probably five natural cat events, are reinstatement reinsurance premiums, which obviously increase ---+ decrease your net earned premium as you have to pay for those reinstatements.
And while they weren't usually sizable, there's 1.5 points of expense that <UNK> mentioned in his prepared remarks.
So there's 1.5%.
And that's a commission-driven item.
So there's one component of it.
I think as the year normalizes you will start to see both the commission come more in line.
And one of the big drivers of the improvement will be, as the premium growth that you're seeing on the gross and net premium lines start to earn through on the net earned premium.
Because our growth in net earned premium for the group is approximately 10%.
And our net written premium growth is somewhere closer to 15%.
As the earn-through of the premium comes through the rest of the year, that will give it a natural normalization.
Plus there are certain expense initiatives that we have undertaken over the last year or two to make sure that our operating expenses remain within tolerance of our expectations.
Yes, I just want to add just a quick comment to that, <UNK>.
I think our US insurance segment, led by Vince Tizzio, has done a super job on that.
It's never easy.
And I believe their expense ratio for the quarter, inclusive of commissions, is 31.6% and year to date, 31.7%.
And that number got pushed up, remember, because of the reduction in the amount of quota share.
So I think that is a very strong performance.
And their cost management has been superb.
The level of net written premium that we have in the Company is at a level that is very, very strong and much above historical levels.
So that's a lot of ceding commission that benefited our expense ratio that's gone out the door.
And we're happy for that.
But the optics of it, it does put pressure on pushing up the commission ratio.
Is it the right answer.
Of course it is.
But I would particular give credit to our US segment, who I think have done a super job on it.
The largest plus, <UNK> ---+ and thank you for asking about OPUS.
Just as a refresher, OPUS is an acronym that we've used in the organization.
It stands for Outstanding People, Underwriting and Service.
And really reflects our desire to create an excellent customer experience for our policyholders and our brokers.
The short-term impact ---+ and we conducted lot of OPUS training during the second quarter on customer service excellence, which is just not issuing a policy on time, it's about every touch that one has with a customer.
The greatest impact has been on the morale of our team, who I'm just so pleased with the way they have embraced it.
We see it in e-mails they share with their colleagues, we see it in our trip reports of documentations of their meetings with brokers and policyholders, of really creating a value-added transaction in every exchange they have with customers.
So, the most immediate impact is one of ---+ not to use an odd term, but consciousness, to raise awareness and to the enthusiasm that's associated with it.
And I've got to tell you, on that it's been a 10 plus on a 1-to-10 scale.
Now, embedding that into our culture and creating more things in terms of touch points, that's the journey over the next two or three years.
But, absolutely, we are excited with the way our team has embraced it.
And it's a bottom-up strategy.
And that's always been one of the strengths of this Company, is our people in the field.
Thank you.
Well, we very much appreciate you joining the call today.
Thanks for your interest and support of the Company.
Have a great weekend.
Thank you.
| 2016_NAVG |
2015 | SRCL | SRCL
#Correct, <UNK>.
Thanks.
Hello, <UNK>.
Let me take you through that.
So the Street estimates was at $1.10.
We did have $0.08 of favorable result in the quarter, with our continued tax optimization strategy.
What that did is that really offset the lower recall volume, the FX headwinds that we experienced and the majority of the impact from the weather.
This was, no doubt, a very tough quarter.
I'm very pleased with the team.
They did a magnificent job of pulling together and executing on our optimization strategy.
But if you think about it, a lot of the areas where we adjusted down, we fully expect that to be rebound into the next quarter.
And that's why what you've seen is our guidance has remained unchanged from an EPS standpoint.
So the weather and the seasonality, really the extreme weather was about $0.03.
The recall was about $0.04.
We really anticipate both of those to rebound very nicely.
And then there's $0.01 in FX.
That was all offset and so the seasonality and weather combined to be about $0.05.
We called for FX, one, and we really expect the seasonality, the weather and the recall to rebound and really offset the impact of FX.
It's excluding FX.
It's local currency.
Thanks, Dave.
Hello, <UNK>.
And as you know, <UNK>, we break out Europe and other international.
So LatAm is in obviously part of that other international.
It's a big part of that other international business, because the other parts of that are the Asian market, which are much smaller.
I know as you sit in out California, <UNK>, you don't appreciate some of the weather for the folks in the East Coast.
Thanks, <UNK>.
Hello, <UNK>.
<UNK>, I think that's a good question around is there a seasonality component now to healthcare.
It's tough when you're dealing with all the things that <UNK> just talked about on weather, and how much truly is a weather impact and how much is it that there is a feeling out there that there could be some seasonality in healthcare and a growing seasonality component to healthcare.
I think it's a little too early for us to say if there is seasonality and does it impact our business.
Certainly on the SQ side, where we have fixed fees on some of the contracts, seasonality doesn't play into it.
But when you're talking about large IDNs, large customers, you're certainly, you want to look at that.
I think it's a little difficult, given the quarter we just had on weather, to say it is definitely some more seasonality.
I think seasonality for us, when we talk about seasonality, it impacts a little bit more on the E-Sol business.
We previously discussed E-Sol and the experiences that we have in seasonality in Q1.
It's important to understand that seasonality is a function in Environmental Solutions on both volume and weather.
And with the severe weather we had in Q1, it resulted in a larger than anticipated reduction in volume.
And to <UNK>'s point around the bridge and what we think is going to happen in the future, we fully anticipate, based on historical knowledge that we have in that space, that a majority of that will rebound in 2015.
And I think you see our overall confidence in the business for the year, we feel really good about the year.
And that's what we want to leave, that we are feeling good about the rebound in the business on both the weather and the seasonality.
I think if you look at the strategy in Asia with the three small tuck-in acquisitions in South Korea, this also marks the one-year anniversary of our deal in South Korea.
That integration is on track.
We feel really good, at this point, to add in some of those acquisitions.
From an investment standpoint, it does make sense to look at the markets that we're in today, because that brings on a better IRR versus the local hurdle rate.
And then overall, we continue to look at new markets.
As you know, we're disciplined and opportunistic when looking at those, and occasionally, we'll add on a new country.
But really the focus is on the countries that we're currently in.
And I think to your point, a good example of that is the 11 international acquisitions we closed in countries that we're in in the last quarter.
We had a really strong acquisition quarter.
We're proud of the team, the M&A team and the integration team, what they pulled off in Q1.
Thanks, <UNK>.
<UNK>, this is <UNK>.
It really doesn't.
There is so much overlap in our business, both from a routing standpoint, the back office support we have.
We share customers in both.
It would be virtually impossible for us to be able to break that out to the level that would be able to give you any kind of credible information to make any kind of analysis on your part.
Thanks, <UNK>.
I can take you through that.
For Q2, I think we expect gross margins to be in the range of about 43.2% to 43.3%.
And I think that would put you at a full year in the range of 43.4% to 43.5%.
You're welcome.
I think when you look at SQ, LQ, <UNK>, the estimate is around 60% SQ and 40% LQ.
No, I think if you look at the growth engines on the SQ side of the business, SteriSafe still provides a majority of the growth on the SQ business, and then Com Sol, Communication Solutions and Environmental Solutions adds some additional growth there.
On the LQ side of the business, again, a majority of the growth is coming from our sharps management program and our pharmaceutical waste program.
We think over time there's a lot of overlap with pharmaceutical waste, where it lends us to get more hazardous waste out of the hospital business.
But that's something that obviously we needed the infrastructure first before we can really take advantage of that opportunity across the country.
Thanks, <UNK>.
I think as you know, the Beryl Health acquisition, probably over two years now, really got us into more of the hospital or the LQ space in Communication Solutions.
Prior to that, the platform that we had bought was NotifyMD, it was more of an SQ play.
We've seen some good growth on Beryl.
It's now really combined.
So we don't look at it as LQ, SQ anymore.
We look at it together.
And the reason for that, <UNK>, is really some of the services, like appointment reminders, are applicable to both the LQ and the SQ space.
Those services can be sold to doctors' offices.
They can be sold to medical practices that are associated with hospitals.
They can be sold to hospitals.
We look at them combined now, but the Beryl acquisition was an important acquisition for us a couple years ago, and it's done well for us.
It varies depending on the service.
For instance, on an after hour answering service, a typical contract would be set up as a flat monthly fee per physician per month, and for that, they'd get so many minutes and if they go over that minutes, there's overcharges they'd get for time that was over what was included in the standard contract.
For a same service, let's call it a service like an appointment reminder service, there might be a flat monthly fee, again, per physician per month, and we make so many outbound calls, texts or e-mails.
And again, there's so much that are allotted to that monthly fee.
Any overage would be charged extra at the end of the month.
So it's a combination of a flat fee and a fee for volume.
I kind of talked about it a little bit on an earlier question.
I think it's tough to figure out how much is seasonality and how much is weather.
So if we think back to the previous call when we were talking about PSC and now our Environmental Solutions business, we had discussed that the Environmental Solution business does experience seasonality in Q1.
And seasonality is a function of volume and weather.
But because there was severe weather in Q1, it resulted in a larger than anticipated reduction in volume in Environmental Solutions.
We fully anticipate that will come back.
To give you a little color there, just on the Environmental Solutions side, there was some of our operating locations that we lost one to two days of business per week for two months straight, where we were just nonproductive.
So we had in our estimate, in our guidance, we thought there would be some seasonality.
The severe weather made seasonality worse, but that's why we're saying so much is weather, so much might be seasonality.
We think the two are integrated and are connected.
And that's why I think to look at that is $0.05.
We think all of that's going to come back, obviously, as the weather improves throughout the year.
Thanks, <UNK>.
Hello, <UNK>.
How are you.
Great question.
So Q1, we had a record number of new customers and a near record number of events.
The revenue, as you see, was up a little bit.
It has to do with the acquisition we made.
And that's more call center volume, so that does come in at a little lower margin.
But I've got to tell you, we're only three weeks into the second quarter, but we're doing really good.
We're off to a great start there.
And that's why we're confident to leave that guidance at 95 to 120.
So we feel really good about the start to Q2.
Yes, <UNK>.
I think we've always felt very comfortable in the range of 2 to 2.5.
We certainly aren't going to spend money just for the sake of spending money.
We continue to be very disciplined around our acquisitions.
We have a very robust pipeline.
And I wouldn't look at these from a quarter to quarter basis.
Really, you've got to look at the acquisitions that we do more on an annual basis.
These things tend to come in surges.
So we're good in the range there, and we feel very good about both our acquisition and our capital structure.
Thank you, Amy.
We appreciate everyone taking time to participate on today's call.
I want to remind everyone that this is Administrative Assistants Week, so if you've not already recognized those individuals that work so hard for you, often time behind the scenes, don't forget them.
For the executive team at Stericycle, we want to thank Kelly for everything she does to make us better.
Have a great night.
We look forward to seeing you out on the road in the next couple of months.
Take care, guys.
| 2015_SRCL |
2018 | CUB | CUB
#Hello, everyone, and thank you for joining us today.
Today, after the market closed, we reported our second quarter fiscal 2018 results.
I'm joined by Brad <UNK>, Chairman, President and Chief Executive Officer; and <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
I'll remind everyone that statements made on today's call that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law.
You can find factors that could cause the company's actual results to differ materially from our expectations listed in today's presentation, press release and our most recent SEC filing.
In addition, we have included some non-GAAP financial measures in our discussion.
Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix of today's presentation.
With that, I'd like to turn the call over to Brad.
Thank you, <UNK>.
Thank you, everyone, for joining us today.
On today's call, I will start by discussing our second quarter and first half results for fiscal year 2018, then I'll hand the call over to our CFO, <UNK> <UNK>, who will cover the financial results in more detail.
Starting with Slide 3, you will find an overview of our financial results from continuing operations as we recently announced the sale of our non-original Manufacturer Training Services business.
Sales for the second quarter were $278.6 million, a 12% increase compared to the second quarter last year.
Sales for the first half were $527 million, a 7% increase compared to last year.
Adjusted EBITDA for Q2 was $15.8 million, a 35% increase compared to the second quarter of last year, with $27.3 million from the first half, a decline of 7% compared to last year due to $4.3 million increased R&D investments in Mission Solutions and innovative training technologies.
With the financial close of the Boston contract in March, our backlog is over $3.4 billion, the highest in Cubic's history.
In the second quarter, we also received a limited notice to proceed from the Washington Metropolitan Area Transit Authority in D.
C.
to launch a Near Field Communications mobile solution for their riders.
With this win, the top 5 U.S. transit agencies have now selected Cubic for their mobile solution.
During Q3, we will be releasing the first iteration of the new Cubic mobile platform, Cubic Traveler application.
When the Chicago Transit Authority operates its Ventra mobile app, the Cubic traveler application will build upon the success of the current vendor app that has logged more than 2 million downloads since launch.
On April 19, we announced an agreement to sell our Defense Services business to Valiant Integrated Services.
This transaction marks a significant milestone for Cubic as we continue to sharpen our focus on delivering market-leading innovative technologies that create superior value for our customers.
It enables us to better concentrate our resources on markets with strong growth and high margins and further increases our financial flexibility to pursue profitable growth options that enhance shareholder returns.
I would like to again thank our Defense Services teammates for their faithful service and contributions to Cubic over the past 24 years.
Turning to Slide 4.
We are pleased with the passage of the omnibus appropriations bill that includes a $700 billion defense spending bill, with $56.4 million in increases for our T2C2, SLATE ATD, LCS training courseware and its 2 programs compared to the President's budget.
Less directly, our transportation business will also benefit from an additional $10 billion in transportation funding, which may provide a source of federal grant funding.
Moving to Slide 5.
We continue to make progress with our Winning the Customer initiative.
In Q2, we were honored to be named Supplier of the Year at the London Transport Awards in recognition of our long-standing partnership with Transport for London.
We're extremely confident that our OneAccount platform leads the market's demand for technologically advanced back-office systems, and we remain well positioned for several other opportunities in large cities.
In Mission Solutions, we've made targeted investments that enhance our technology significantly.
We have completed our acquisition of MotionDSP, a Silicon Valley-based company specializing in real-time video enhancement and computer vision analytics.
We will now be able to detect and track entities in real time, augmenting our existing full-motion video dissemination capability.
Additionally, following the close of the quarter, we invested in Beatty and Company Computing to enhance our access to secure cloud operating systems technology for our customers.
In Defense Systems, our Advanced Technology Demonstration for the Secure LVC Advanced Training Environment with the United States Air Force Research Lab passed systems verification, and our encryption tool, a key component from a data and cybersecurity perspective, passed certification with the National Security Agency.
Also known as SLATE ATD, it represents the future of multilevel encrypted, live, virtual, constructive air combat maneuvering instrumentation, and will be important to the future of combat training within the Department of Defense.
Turning to Slide 6.
We are pleased with the mobilization of both New York and Boston.
In the case of New York, we successfully moved through conceptual design review per plan, and our progress is evidenced by the receipt of our payment of $25 million for mobilization, as well as CDR and our initial base plans on April 3.
In Boston, within weeks of financial close, we were able to submit our first batch of documentation for the design review scheduled for May.
We have received positive feedback from our bid in Brisbane and continue to be confident of an award this fiscal year.
Given the mid-market demand for affordable electronic fare collection, we are investing in cloud and digital platforms to extend our solutions to these mid-market transit agencies.
Since FY '17, we have invested over $6 million in R&D for our fully rebuilt NextBus 2.0 solution.
Public transport authorities, including those serving smaller cities, are under pressure to deliver more sophisticated and efficient services due to increased urbanization and rising customer expectations.
NextBus 2.0 is being designed to address the needs of these agencies.
In growing C4ISR, we have been awarded the United States Air Force Theater Deployable Communications for $12.9 million.
Under the TDC contract, Cubic provides inflatable satellite terminals and secure networking kits, enabling the Air Force elements to rapidly establish critical communications, securely transmitting voice, data and video.
Our Mission Solutions business also received a T2C2 LRIP 2 award for $6 million, which follows the full material release and full-rate production decision that our GATR team received in January.
In addition, our secure networking business won a Tactical Local Area Network CERP award for $5.5 million.
In Defense Services, we reached a settlement with Lockheed Martin on the F-35 for LRIP 2-4/11 and an agreement to negotiate a contract for a combined buy of 500 units for LRIP 12/14.
In ground systems, we received long-lead funding for the next phase of the Canadian Urban Operations Training System and expect an additional $28 million in the near term.
We continue to build our NextTraining capability to provide performance-based training for the United States and allied nation militaries.
We received $16 million in new Littoral Combat Ship courseware orders associated with combat systems, engineering revisions and learning management.
And our Navy customer continues to be very pleased with this new innovative training architecture.
Finally, moving to Slide 7.
We continue to make significant progress on our Living OneCubic initiative.
We finished our major ERP back-office implementation, and we are now working on optimizing all global processes and workloads.
We're also implementing Product Lifecycle Management to standardize our engineering tools and workflows through fiscal year 2019.
The Asia Pacific region continues to be a market of opportunity across our 3 business divisions at Cubic, and we are expanding our operations in Hyderabad, India, to support the company's growth objectives.
We continue to share engineering talent and technology across all portions of our business.
Next, I'll ask <UNK> to describe our financial results in more detail.
Thank you, Brad.
Please turn to Slide 8 to cover a few of the highlights for the quarter.
As Brad discussed, we announced the agreement to sell the non-OEM Defense Services business subject to customary closing conditions and regulatory approvals.
This decision is a reflection of our disciplined capital allocation priorities and provides us with additional financial flexibility to pursue profitable growth opportunities.
The financial results for the Defense Services business are now reflected as discontinued operations, and the previous period financial results have been reclassified for comparative purposes.
Our financial results for the second quarter reflect continued strong execution.
In March, we completed the financial close of the Boston fare collection contract.
Adjusted EBITDA from continuing operations of $15.8 million was up $4 million versus the second quarter of 2017.
Had the Defense Services business been included in the results, adjusted EBITDA would have been $22.5 million, in line with our expectations as well as consensus prior to the announced divestiture.
Free cash flow also improved in the second quarter.
Lastly, we are maintaining full year 2018 guidance, adjusted for the divestiture.
Turning to Slide 9 for our consolidated financial results from continuing operations.
Our backlog is at another all-time high of $3.4 billion with the MBTA booking.
Second quarter sales increased 9% on a constant currency basis, and adjusted EBITDA increased 24% on a constant currency basis, led by strong performance in our transportation business.
Earnings per share from continuing operations was a loss of $0.12 per share and includes costs associated with our ERP and supply chain initiatives of $5.7 million.
EPS from discontinued operations reflects the second quarter financial result of the Defense Services business as well as a noncash charge of $6.9 million or $0.23 per share.
Free cash flow from continuing operations for the second quarter were $7 million.
The services business, which is now reported in discontinued operations, delivered strong free cash flow in the second quarter of $20 million.
On Slide 10, we have outlined the second quarter impact of the divestiture, bridging to our reported results from continuing operations.
Turning to Slide 11.
Cubic Transportation Systems delivered solid performance.
Sales increased approximately 15% in the second quarter on a constant currency basis, driven by systems engineering work on the New York project.
Adjusted EBITDA and margin increased significantly as a result of higher sales, lower year-on-year R&D spend and operational improvement.
On March 21, we announced that Cubic and John Laing reached financial close and executed the agreement with the Massachusetts Bay Transportation Authority.
This was structured as a public-private partnership, with a base contract award of $510 million.
Given the timing of the booking late in the quarter, there was no material impact from the Boston contract in our second quarter results.
We continue to evaluate whether or not Cubic will need to consolidate the special purpose entity in which Cubic has a 10% equity interest.
Moving to Slide 12.
Mission Solutions is performing in line with our expectations.
The increase in bookings in Q2 reflects our T2C2 LRIP order at GATR and an early order for Theater Deployable Communications.
Sales increased 26%, driven by higher secured networking deliveries.
As we discussed last quarter, we expect T2C2 full-rate production to enable year-on-year performance improvement for CMS.
Also, as we have communicated in the past, the majority of our adjusted EBITDA in the segment is generated in Q4.
Last fiscal year, CMS delivered $11.8 million in Q4 versus a full year adjusted EBITDA of $14.8 million.
We expect similar year-end concentration in fiscal year 2018.
Turning to Slide 13.
In Defense Systems, all key metrics improved sequentially from Q1.
Bookings were down year-on-year, reflecting delayed orders, which we expect to recover in the second half of this fiscal year.
Sales were down $4.3 million year-on-year, reflecting lower shipments in Air Ranges.
Adjusted EBITDA was in line with the prior year.
Moving to Slide 14.
We have provided a full year 2018 guidance adjusted for the divestiture.
Excluding the transaction, our guidance has now changed.
For 2018, we had assumed that CGD Services would generate sales of $375 million and adjusted EBITDA of approximately $11 million, net of corporate overhead allocations of $8 million.
The midpoint of our guidance represents pro forma Cubic sales growth of approximately 5% and adjusted EBITDA growth of approximately 18%.
Our confidence in the full year guidance is driven by strong year-to-date order activity and the expectation for strong Q4 shipments for Mission Solutions.
As indicated during the last earnings call, we anticipate that adjusted EBITDA seasonality for fiscal year 2018 will be similar to 2017.
Third quarter adjusted EBITDA is expected to reflect a gradual sequential improvement over the second quarter, and we continue to expect a strong fourth quarter.
Now I will turn the call back over to Brad to wrap things up.
Thank you, <UNK>.
Turning to Slide 15.
In summary, we are very pleased with our first half performance, and we expect growth to accelerate in the second half with the major transportation wins and Mission Solutions' recent T2C2 full rate production decision.
We have made great progress on our strategy by strengthening our portfolio with the divestiture of the non-OEM Services business and the recent investments in full motion video and secure cloud computing.
Finally, with our ERP back-office systems in place, we have a solid and scalable foundation for first-class processes and efficiency to support the company's expected growth.
In closing, I'd like to thank my Cubic teammates for their strong performance and commitment to driving long-term value for our customers and shareholders.
Now, let's proceed to the Q&A session.
Thanks, Ken.
So I'll start off with the last part of your question in terms of profitability in the third quarter.
For stand-alone third quarter, we expect it should start getting to profitable.
<UNK>in, it depends on ---+ we've had appropriations, the money started flowing.
It should get to the contracting officers, and then we should start seeing bookings starting to roll out in the near term.
So it depends on the timing of the bookings coming in.
But we expect it should get above breakeven for the quarter, and then, again, it'll have a strong Q4 based on when the orders start coming in.
So we know that the appropriations bill was passed the 23 of March, and it takes a number of weeks for the money to flow to contracting officers who place things on order.
As of this morning, we understand that the Department of Defense has its money and has started allocating it to the military services.
We're starting to see precontract kinds of activities out of contracting officers, and so we expect the orders to flow.
Our team is ready, and we've been working ahead to ensure we can make substantive deliveries by the end of the year.
That's right.
So Ken, we had about a couple million dollar reduction in R&D year-on-year.
The rest was driven through growth in the business and also operational improvement.
When you look at our services margins, they're up.
We've talked a lot about the improvement measures that we've implemented in the business, which Brad mentioned briefly: our engineering center in India; we have an engineering center in Perth that's low cost; when you look at what we're doing around service delivery with our Stockton service center.
So all of those are starting to play in and lead to improved results.
So it's a blend of those 2 in there.
And we're very happy with how CTS is doing, Ken.
We'll see a little bit this fiscal year, but we'll see the majority next fiscal year.
Sure, <UNK>.
So what I said for Q3, adjusted EBITDA will improve sequentially gradually over Q2.
So we do expect Q2 ---+ Q3 adjusted EBITDA to be higher than Q2.
No.
It's ---+ again, if you heard the last part of Ken's question on CMS, it's the timing of the orders.
So we're forecasting it will be gradually better than Q2, but we haven't given specific guidance for the quarter.
We still ---+ for the full year, we feel comfortable with our guidance.
There could be some movement between Q3 and Q4 based on the timing of the orders from CMS.
Well, we've finished implementing SAP, but what we're going to be working on for the remainder of the fiscal year is improving the efficiency of SAP, so making sure the number of screens, number of clicks for the employees is reduced.
Any of the implementation bugs are worked out, and we can start driving our cost-out synergies that we've talked about in the past.
So our full year guidance for ERP spend was $25 million.
That still remains.
We also, as Brad indicated, are working on our PLM solution, where we're going to one PLM solution for our engineers across the business.
So that kind of ramps up a little bit, but the full year, $25 million still stands.
And we expect next fiscal year to have a drop in investment.
And when we issue guidance later this year for next year, we'll delineate that, but it will be lower.
A little bit, yes.
Our ERP spend won't be at the same level, but it should come down a little bit, but it won't be dramatically down year-on-year ---+ or from Q2 to Q3.
Thank you for joining us today.
Cubic had a solid quarter, and we remain very optimistic about the future.
We look forward to joining us on the next call.
Thanks so very much.
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