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2016 | HSC | HSC
#Those are the two biggest pieces, <UNK>, but we've also undertaken some internal initiatives to improve our working capital in all the businesses, and are starting to see the benefits of that.
So really what the rest of the year and that change in number is attributable largely to this initiative and seeing the full realization of those benefits, both within working capital and outside of working capital the remainder of the year.
We are probably on a net basis, taking into consideration some of these initiatives, down to the lower end of that.
I'll take that, <UNK>.
First of all, in terms of impact of lower steel prices, we really haven't seen much lift in production at our customers' sites.
Even though prices are firmed, and that of course is reducing the risk of further site closures, the LST was still down on a like basis I think 8% in the first quarter.
We expect it to be down about 3% for the full year.
So certainly improving over the course of the year, but that has been implicit in our guidance.
So no, we haven't.
We have seen nickel prices pop a little, and that is providing some bit of tailwind, but they are quite low and mostly consistent with our forecast.
With respect to high risk sites, we are spending an awful lot of time analyzing the sites from that perspective and understanding what options we may have to mitigate those risks.
If you look at the sum of the sites that we view as high risk, they would account for less than 10% of our earnings.
So while we are of course quite concerned about those sites, I think it is fair to say there wouldn't be a material impact on our sales and profits going forward if they were all to close, and we certainly don't expect that.
Sure.
So the Hammco acquisition has far exceeded the expectations that we had when we bought the business.
As you know, it's oriented more towards the downstream segment of the market, which has held up quite well.
And in particular, given our capacity expansion at our facility in Tulsa and moving the Hammco products into that facility, we now have the ability to produce much larger quantities of Hammco coolers, which is what the customer is looking for.
We believe we are taking market share in the downstream sector of the market with Hammco, and we expect revenues in Hammco to grow 30% to 50% this year.
This is <UNK>.
The margins that we're going to see are pretty much going to be slightly down for the rest of the year compared to the prior year basically attributable to the mix, but should improve in the latter quarters from what the first quarter experienced.
That is true, and in fact you'll recall this quarter last year we had some pretty good margin part kits aftermarket sales that affected the comp as well.
Yes, that's correct.
I think that we are still very much at the bottom.
You've seen the rig count continue to decline.
The rig count is now at an all-time low since they've been tracking that metric here in North America.
And as we look into our Qs three and four, we're not yet where we'd like to be with our order book, to be honest.
We are maintaining our view for the full year in Air-X-Changers, but there is risk.
There's just not a lot of activity in the upstream and midstream sectors of the market.
So we would expect there to be a healthy rebound in 2017.
I think that it is really all going to come down to that rig count beginning to move up again, and it certainly has not done that.
<UNK>, this is <UNK>.
We also told you on the last call that there was some inventory in the channel.
Even when the confidence is locked in in terms of the oil price and manifests in additional rig count, there may be a little bit of a lag before we start seeing that in our order book as well.
That's correct.
For the quarter the revenue impact was $24 million.
The total savings from Orion were about $60 million.
About two-thirds of that would be headcount related, the other one-third benefits from triage efforts and so forth.
Internally we view Orion as largely finished.
We've had three waves of significant cost reduction, the process changes that we've made are now embedded in the business, including the triage process.
So Orion as we laid it out two years ago on this call is largely complete.
But of course given that the changes were so dramatic in terms of process and structure, they of course remain part of the business.
In terms of additional cost reduction, we're focused very heavily on reducing our cost of sales through lower maintenance spend, more effective utilization of the equipment, and driving a number of metrics to show consistent performance in operational areas across the site.
We have not quantified those.
We are driving it very hard.
We have a global head of operations who is leading that as well as other initiatives.
It is not an amount that's let's say included in our guidance, but we continue to push very hard to reduce the cost of sales in M&M.
In terms of SG&A, we certainly continue to push on SG&A.
Part of the reason why the M&M results in Q1 were better than our projection was SG&A.
So I think we will hopefully continue to see favorable variances relative to our plan for the year in SG&A.
The asset sales that we're focused on are largely within M&M.
We have a number of idle assets and even perhaps some real estate that we are looking at, but really nothing of size and certainly not a business unit.
| 2016_HSC |
2017 | MAS | MAS
#Yes, <UNK>, so you may recall on our third-quarter call, we talked about the fact that we're going to slow down the rollout of the ERP.
So roughly, we spent approximately $15 million, roughly $3 million to $4 million a quarter that we've been spending on that.
We'll continue to roll out the ERP over the course of 2017 and we don't expect that $15 million to increase at all.
I think it will be a very similar spend level going into 2017 and beyond.
A couple of things, <UNK>, that should be driving.
One, obviously the big one is we incurred $31 million of warranty expense in 2016, which we don't think ---+ we know it won't recur in 2017.
So that's a big mover.
The other thing is, recall when we got into the issues in the second and third quarter, we were running a fair amount of labor inefficiencies.
There's one thing that Joe Gross is really good at doing is going into a facility and identifying those inefficiencies and streamlining processes to make them better.
So, while they won't go to zero, I think Joe and the team have got a really good view as to how to improve the underlying efficiency of the operation.
I think it's the way you characterize it as a balanced approach, that continues.
I would put mergers and acquisitions up a little bit in terms of how we're looking at it.
But we haven't changed our approach to those, to mergers and acquisitions, that being our focus is on bolt-ons and paint and plumbing.
And we are looking at other areas.
We have ---+ the pipeline is growing and our velocity through that pipeline is faster than it was a year ago.
So I like how the team is looking at it.
But we're going to be patient.
We're going to be careful that we don't overpay.
And our focus is on return on invested capital and we need to be able to bring value to a business that we buy and the business that we buy needs to fit in to our portfolio.
And for us, as I said, our focus is on bolt-on paint and plumbing as the center of the target of the bull's-eye, if you will.
But we're looking at other areas.
In terms of the relative size and if we would make a big one, we would, if it made sense.
That's not our focus.
But if we were able to find a bigger, call it, transformative deal that added shareholder value, that was a solid return for us above our cost of capital and where we had a real no kidding ability to add value to the business in terms of both top line and profitability, then we would look at it.
In term of the overall macros, as I said in my prepared remarks, we really do think that fundamentals are strong.
We're 80% plus ---+ 83%, I think, is accurate in terms of our R&R as a percent of our mix.
We think that's stable and growing.
On the new construction side, the demographics of those millennials as the average age gets up to 30 over the next five years is very positive with regards to the increase in families and the need for moving out of the basement and starting to form households, which then starts the move-up cycle.
So we think the macros are very solid.
While interest rates are going up and could maybe put a potential bit of a drag on new home construction, we still think it's going to grow in that 8% range.
That's our call on that.
And we see a pivot to a faster growth in single familiarly than multi-familiarly.
In single family, we have a greater take per home than in multi-family.
With regards to how we see exceeding our $1.80, mainly in margin expansion.
We're off, as you know, in our estimates in how we called the market, particularly in the coatings market.
We thought the coatings market would grow a little faster than it did.
We're taking share, we believe, call the market flat to down a little bit last year.
So we're off a little bit in that.
But we're making it up in better margin performance and better conversion costs.
With regard to specifically how much we think we're going to beat it by.
<UNK>, that's why you've got to come to New York in May and we'll talk about it.
Yes, <UNK>, I think that's right.
Because if you recall, when we set that $1.80 target, we assumed constant currency from May of 2015, which you know currency has moved against us pretty significantly.
So the fact that we're expressing the fact we're going to beat the $1.80 just goes to the confidence we have if the operations of our business.
Thank you.
Yes, I'll take the first part of that, <UNK>.
You're right, we did have a pretty tough comp in the fourth quarter of 2015.
In my prepared remarks, I said we grew 14% in the plumbing segment in Q4 of 2015.
So what we posted in Q4 of 2016 is a really good result coming against that tough comp.
You're right that we have a slightly easier comp going into Q1.
I think we were up 5% ex-currency in Q1 of last ---+ of 2016, so I think we do have a slightly easier comp than we did in the fourth quarter.
With respect to the second part of your question, I'll let <UNK> take that one.
Yes, our market expense particularly as we think about Hansgrohe, we think that will continue and we're going to drive leverage across Central Europe as we continue those investments.
So yes, I would anticipate that we're going to continue these kind of investments because they're working for us.
And these are strong brands and we have, as we've talked about in the past, particularly with Hansgrohe, we have outstanding coverage across the globe doing business in over 135 countries, but we have relatively thin market share in most of those countries but we're able to make money because of our strong gross margin.
So we have nice white space in those spaces.
So yes, I would anticipate that investment to continue.
With regards to state side here with Delta, there is some lumpiness to the spend, right.
So there's sometimes we have new product introductions or we have displays that we change, so quarter-to-quarter there will be some lumpiness.
But with regards to this overall plumbing platform and the business, I think it's a smart move to continue to invest it.
We're going to continue to grow this business and we're going to keep those margins up in the high teens.
One of the things, Steven, just to call out for Q1 of 2017 is we do have our large biannual trade show, ISH in Frankfurt, that there may be some incremental spend in Q1 in the plumbing segment on that one, several million dollars.
So just you might want to factor that into your thinking about Q1.
Promotions at retail that play a factor in the growth, no question about it.
And we do that because it works.
It drives profitable growth in our cabinet segment.
And when you have the advantage that we have of having fewer brands and stronger brands, this is the type of thing that happens.
The retailer comes to us and says they want to do exclusive promotions and we do that together with them.
So it makes good business sense to drive profitable growth in this fashion.
Think about it, we've got leading market share in both big boxes and when you think about the mix of retail in our cabinet business versus our competition and then you look at our overall margin, we're rights there.
So, the numbers don't lie.
That tells the story about us being able to leverage this competitive advantage with our brands and do it in a very profitable way.
And interestingly enough, we did it with the same calendar we've been using for the last 2,000 years.
We didn't change anything on our calendar and we're driving this business profitably.
| 2017_MAS |
2016 | AAP | AAP
#We're not going to comment too much on mix between DIY and commercial but I will just reiterate that commercial is going to be our primary sales driver.
So no question that it's slanted more toward an investment and the focus around our commercial business, while trying to maintain as much DIY as we can.
There is not an update.
The Board is diligently doing what they consider to be one of their primary roles which is the CEO search and it's going on.
And here at Advance, we're driving ahead with the business and there's no question about leadership.
Correct.
Thank you.
<UNK>, we made progress on the cost area for sure.
So if you want to look at the primary area that we've shown traction on, it's cost reduction, part of which was reflected in some of the Q4 results which we weren't happy with.
But we are making progress in our cost structure.
We have instruments in place on margin and we certainly intend to change the comp trajectory and that last part is absolutely job one.
Yes, the weakness in 2015 gives us a little bit more of a target.
That's just the fact of the matter.
So we have a little bit more work to do.
A little bit more wood to chop on it but the same principles remain, meaning it is taking aggressive cost out in the right places, accelerating our comp sales, and expanding our margins.
(multiple speakers) We've got a little bit more to do.
Yes, <UNK>, we will build throughout the course of the year.
With that said, our quarters aren't equal.
So obviously, if you look at a quarter like Q2, that is a critical quarter for us relative to Q4 which is less so.
Yes, you should.
It's part of the cost savings.
Not exactly.
I think, <UNK>, if you look at what we've said before, I think <UNK> said it earlier.
100 basis points of SG&A and roughly in that 50 basis points and then a little bit of leverage is what we said.
But we haven't given a specific on gross margin but we have given a specific on SG&A, which is a 100 basis points range.
Thank you, Cheryl.
Thanks for our audience for participating on our fourth quarter call.
That concludes our call.
Thank you.
| 2016_AAP |
2017 | HSY | HSY
#<UNK>, I'll give you a macro comment and then <UNK> can follow-up, if she wants.
I was at FMI last week and one of the things that seemed to be pretty broad based across a number of retailers, and as I was hearing comments across manufactures, is that people were optimistic in terms of their plans.
And I felt as though people were looking to really invest in their business from a merchandising standpoint and promotion.
I'm really speaking about retailers as they were talking to us as well as others.
So, I felt really good that people really wanted to go out and execute against good plans.
It didn't feel quite as conservative, I would say, as it did the previous year.
I just took that as a fairly optimistic tongue, that people see their destiny is in their hands and they are going to go execute against their business.
I don't know, <UNK>, if you want to add to that.
Yes, thanks.
You're right, we do have the amortization of barkTHINS.
We had some of it in 2016.
We'll have it in 2017.
Overall we're really pleased with the way that integration is going.
We've been particularly doing well with the synergy part of it, the supply chain savings that have come in greater than we expected.
So, we feel really good about that acquisition.
<UNK>, we'll talk to a lot of this on March 1, especially some more detail around what some of these IT investments are at the business level to ensure people are working most efficiently as possible, as well as at the corporate level.
So, I think you're going to see a little bit of both.
I don't want to get out ahead of ourselves on March 1 here, but there's a lot of things in the market changing very faster than they ever have before.
And we're trying to bring solutions to retailers and be where the customer is going.
So, I think you'll see more of this on March 1.
Yes.
We'll share some specific examples.
Okay, operator.
We'll end the call here.
We thank everybody for their participation.
And we'll be available for any follow-up calls that you may have.
Thank you.
| 2017_HSY |
2016 | CORE | CORE
#Sure.
So 7-Eleven, it is really a unique customer and there is a lot of IT interface between 7-Eleven and Core-<UNK> so we have been working diligently on that for the last six months.
We have in the past probably the past three or four weeks, we have been running test orders and actually delivering product to their stores to ensure all those interfaces are working correctly and happy to report they are.
We are having, we are changing the divisions that are not 6 day a week operations to six day a week operations in the next month so we will be prepared for that.
We have weekly calls among our ---+ internal calls among our Core-<UNK> personnel.
As we prepare we put staffing plans in place.
We have hiring, calendars when people have to be brought on board and hired and trained.
And then the other big piece of this is we are in process constructing the new building in Las Vegas so we anticipate that building to be operations in the June and fully operational by July which will be two to three months prior to 7-Eleven.
So and then of course buying the numerous trailers we need for the business we have already ---+ those are being built as we speak and will be ready.
So we have taken really the playbook that we used when we brought on Murphy we have taken that and been following that as we are with 7-Eleven definitely the complexity of the IT has caused us to really start much earlier in the process.
But we are excited.
Everything is going well.
7-Eleven is pleased by the performance we have conference calls with the 7-Eleven team as we did with the Murphy team and we think that is really critical to a successful onboarding.
I think that we really, we still I mean we do have a small market share and so even with acquisitions, we haven't captured the market where someone would say they own the market so that hasn't occurred.
I think that consolidation is going to continue to happen slowly and really there is a tipping point, decisions are made by different companies as to when is the right time to sell and it varies by company.
But I think there are more opportunities out there and I think that we don't have I don't think any customer or any wholesaler has a large enough market share combined with ours that there would be issues from an FTC perspective.
I think that Scott McPherson developed a relationship with the Pine State folks over the years.
I think that when they made an internal decision that maybe now is the right time, maybe they want us to sort of sell their convenience part of their business that Scott was there with them.
And I think in my discussions with the folks at Pine state that they saw us as the best partner and the way we go to market when we are acquire a company it is a standalone division.
All of the employees are hired.
The customers are kept and it really just continues to run as is except now under the Core-<UNK> family.
So I think that helped in their decision-making process on negotiating a deal with Core-<UNK>.
We have seen some pockets of regional aggressive, more aggressive than normal competition but really nothing yet that really would say wow, there is a war going on or there is really someone tried to go after our business.
We haven't seen that.
Not to say that it is not.
But so far it hasn't been as loud.
And I think the other thing too is I think we've done a really good job with our customers on renewing our contracts prior to the Murphy announcements so I think that sort of helps us from that perspective.
You mean on the cartons, the same-store carton sales.
I've got to believe it is still the economy is still strong, I think that if you talk to the folks at the tobacco companies, I think people are still willing to spend any extra money they have from tax savings or from the gasoline price savings, they are willing to buy cigarettes.
Maybe they are not using the e-cigarettes as much and so they are also trading up and buying the premium cigarettes versus the generic cigarettes.
So I think we are still seeing those two or three trends, macro trends, economic trends that are driving that.
But I also think that we worked really hard with our customers and we serve some best in class large chain retailers but I think that they attract more customers into their stores.
I like to say that some of our core strategies with the focus marketing initiative and vendor consolidation in fresh is helping our customers increase their foot traffic.
I don't have any empirical evidence but gut feel tells me that is happening.
We don't do a lot of business in Hawaii so I don't have good data from Hawaii.
I think that definitely in California it is way too early to tell.
I think in discussions and some observations from the tobacco companies I think a couple of things that they expect is one, is that the current smoking trends may not be impacted to a great extent.
So people that are smoking today are probably going to continue to smoke and if you are 18 you are probably going to continue to smoke.
You just have to find a different way to get your cigarettes.
I think what the real goal and the purpose of is to really get the younger smokers to not start smoking and I think that is going to be more of a long-term effect on the overall cigarette consumption.
Maybe at the end of the third quarter on our third-quarter call, we will have a little bit better indication from what the law is going to do, that will be three months in from the June 9 start date.
But it is really too early to tell and I don't think really anyone has an idea because again if you think about it, all the cigarette companies have been focused on adult smokers.
At the time adult was considered 18 but that has always been their focus and so I think we will just have to wait and see what the end is going to be.
You are talking about the parent company in Japan.
I don't think so.
I haven't heard any rumblings, I haven't seen any changes within the US at least the structure with Joe DiPinto still in in charge of the US operation.
Haven't seen, don't know.
| 2016_CORE |
2017 | RGR | RGR
#Let me take this one, <UNK>.
First off, Gander is a valued partner even though we don't sell them directly.
They've made a significant commitment to firearms, and I think it's ---+ you know, our sort of channel checks would indicate that they did well with firearms in the fourth quarter that perhaps it was other product lines that have slowed them down a bit.
And we certainly wish them the very best.
David Pratt and his team are a really good one, and we hope they pull through this well.
That being said, I doubt there are too many towns where Gander is the only gun store in the whole town.
And I think if one retailer slows down a little bit, the others pick up the slack in that community.
I think that's kind of a pretty harsh one to say that the levels will resort back to 2008.
You might be right.
My personal belief would be different because for the reasons I enumerated earlier.
Firearms ownership is much more socially acceptable; it's much wider than it was before.
There are more states that have adopted laws enabling concealed carry.
There's just a whole raft of reasons including many, many, many new shooters have come on in the last eight years that are now buying their 2nd or 3rd or their 10th gun.
And I think that the market really is substantially different than it was pre-Obama.
<UNK>, <UNK> here.
As you know, one of the primary focuses for our entire Company is on new product development coupled with the folks on new manufacturing and continuous improvement.
But when it comes to new product development, I mean, there's absolutely no let up.
As you saw from the prepared remarks and our release, our CapEx estimate for this year is about $40 million.
The bulk of that is focused on new product development.
And we've got some great teams of engineers working, and we've got some great new products teed up.
So we know that's going to be our future, and that's the strength of our Company.
So there's no let up there.
As things ---+ you asked before as things ---+ if there's a softening of demand.
You know, it also allows us, in addition of potentially moving product lines, it lets us repurpose some of that CapEx.
Some of the capital dollars we spend are specific to a product line, hard fixtures, tools, and gauges, but then other things are relatively generic.
CNC, equipment, they can be redeployed, and so that gives is some flexibility there on the shop floor.
And one of the things as you've been to some of our facilities, there's constant reorganization as we're moving machines from cell to cell to try to capitalize on where an uptick in demand might be, and where we might free up some machines as a certain product line slows down.
And that's what one of the strengths of being a full-line producer of products, covering so many categories, that's really one of the strengths we can leverage regardless of the market going forward.
I think since the last time you were down there, <UNK>, obviously, we ramped up some of those product lines.
We've got a couple more that are coming in, coming online later this year.
Not prepared to talk about yet, but they're doing a great job for us getting this new products up and running both brand-new product lines as well as things that we move in from either Prescott or Newport.
We've got great demand, as you likely know, on the Ruger Precision Rifle.
We added another SKU in January.
That was a 6 millimeter Creedmoor.
So very strong demand there.
Still trying to keep of there.
The other one was the LCP II made out in Prescott.
So we still have the LCP I at a lower price point.
The LCP II has been ---+ really done extremely well.
And then the whole line of the Mark IV Pistols is still unfolding.
We're still adding.
Every couple of months, we're adding to that mix of product and heavily back-ordered there as well.
<UNK>, it's significantly changed since then that most items are being made on single piece flow.
There more super cells than before.
You don't see the huge amount of ---+ with inventory throughout the plan.
But having said that, we actually think we've got a long way to go, a lot of opportunity ahead of us.
And should there be any lessening of demand if they've got ---+ working two shifts instead of three, that gives a real opportunity to double down on lean efforts that we all have during the crazy periods.
<UNK>, <UNK> here.
Those are up and running.
We're not planning to add a third one right now, but we've incorporated the lessons learned from those two mini foundries into our legacy foundry.
And that's paying dividends throughout Pine Tree right now.
But right now, not a plan to open a third one.
Well, <UNK>, that's a tough one to answer because we don't have any idea who's going to come up for sale or how the environment will change in the future.
We're always paying attention.
Because of our strong balance sheet and growth, I think anybody who's selling or looking for a partner, we get a look at it.
We just haven't chosen to bite on any of these and have managed to avoid destroying any shareholder value in the process.
But we always keep our eyes and ears open and are paying attention.
And should the right thing come along, even though it hasn't in the last 10 years, should the right thing come along, I'm sure we'll pay a lot of attention to it.
<UNK>, <UNK> here.
We've got 18 and, of course, some of those are multiple location operations.
So again, we don't plan ---+ things could change, but right now, no new additions on the horizon.
We've got good interest, as you know, on ---+ Ruger product lines for off-duty carry and backup guns remains extremely high within the law enforcement community, LCP, LCR, LC9, et cetera.
We're also seeing very good interest in the Precision Rifle, and we do have a small LE effort, law enforcement effort, that's focused on that.
So we see some opportunity with both the AR 556 Precision Rifle.
And now that the American Pistol Line is fleshed out with the compact models, we see that as an opportunity as well for the process of duty weapon business.
But again, that's a very small part of our business and not a real large focus.
As you know, our focus is on the commercial sporting side of the business, and so I don't see a big push on the LE and military side.
We have absolutely sold some of those products into law enforcement and tactical teams.
So again, a small part of our business, but we have several folks in our organization that are dedicated to that effort.
And again, while not a needle mover for us, we've got some of those products in some of those higher end tactical organizations.
It hasn't gone through yet to our knowledge.
Both Bass Pro and Cabela's are fantastic customers of ours.
We work very closely with their buying teams and their merchandising teams.
So we're optimistic that regardless of the outcome, that we're going to continue to have great success in those stores.
Because as consumers, we know we like visiting them, they do a great job for us, and they really represent the entire firearms category in a positive light.
Well, the shows that our distributors host for retailers are typically in January and February.
There are one or two that do them in the summer.
There are buying group shows that are done twice a year, typically in February and August, September.
We don't participate in those as we don't sell to those binders.
We sell only through the wholesalers.
So most of the retail ---+ the retailers attending a show are in the January, February time period, just finishing up now.
It wasn't as much of a show.
There were one or two distributors that had summer shows, but we did have a round of summer programs.
So we had the retailer programs that we typically do in January, February.
We have done those in the summer as well, and that started a few years ago.
So those may be what you're thinking about.
We did have those promotional programs offered to retailers outside of shows, but we did indeed do those typically in a May, June, July time period.
Yes.
Buy X, get one free, those type of packages and programs.
We're still looking at that and obviously it's a little forward-looking and we don't want to tip our hand from a competitive standpoint, but we're always looking at the tools we have in our arsenal to make sure we grow our market share.
Thank you.
In closing, I'd like to thank you for your continued interest in Ruger, and I'd like to thank our loyal customers and the 2,400 plus hard-working members of the Ruger team who design and manufacture wonderful firearm products everyday in our American factories.
I look forward to seeing many of you at our 2017 annual meeting on Tuesday, May 9, in Norwalk, Connecticut.
Thank you.
| 2017_RGR |
2015 | FISV | FISV
#I think, <UNK>, what we said is that historically, where we have been meaningfully outperforming our margin guidance, that to the extent that it makes sense for us and our shareholders and our clients, if there are ways that we can further invest and still ensure that we meet our financial commitments, we take a look at that.
I think <UNK> was also talking about some of the timing of expenses that we believe that will hit us in Q4.
But that said, one of the things that we have talked about over time is the combination of the revenue model that we are building and the benefit of the operational effectiveness program really gives us more capacity to invest and grow the business.
Or frankly, not invest and let it flow through to the bottom line.
So we're looking at that all the time, quarter on quarter, year on year, month on month, depending on what is going on.
Now, you know well that we don't make large ---+ it's hard for us to decide in a heartbeat to make a big capital investment.
Most of our investment is through our P&L.
It is length of labor, so you have to hire people.
So you can't make big decisions to change ---+ I can't make a big decision to change my expense trajectory next week.
But you can be sure that we have investments keyed up that we have an idea that where it makes sense, that maybe we should deploy money in a different way.
We have seen more activity in the larger end of the base in 2015 than we have probably in the last ---+ at a minimum, in the last five or six years.
There is more discussion and movement on the real-time core processing side of the house.
We are not seeing a lot more activity below that level.
We are seeing a lot of competition in that ---+ in the smaller ---+ in the $1 billion and below, in the below space, and so there is a lot of activity there.
But we are seeing processes, RFP processes, evaluation processes going on.
We have been pleased that we have been involved in that.
We have actually been down selected once or twice in pretty big evaluations, which is something that we would not have been able to do, frankly, had we not acquired DNA.
So we are seeing some activity there.
I think that will manifest over time.
One of the beauties to that is the institutions that are doing the evaluation tend to know us because maybe they are a Corillian client, they are very likely a bill pay client.
In that space, we've got a number of really important solutions, Pep Plus clients, so they are using our technologies and so we have a relationship with them.
Whether that will ultimately get us over the finish line, we will see.
But we do think it has them give us some more consideration than if we were one of the new kids on the block.
Thanks.
I would say, I will take it first, and then turn it over to <UNK>, <UNK>.
I think we are seeing a tick-up, clearly.
We didn't have this activity in the first half of the year, and clearly in the third quarter it's building as we anticipated.
So we did $10 million of EMV ---+ incremental EMV manufacturing in the third quarter, which was much more significant than the second.
We had to defer $9 million of that to future periods.
But as we laid out on Investor Day, as Mark laid out, this 2015 is going to be the low water point and it is building nicely as we look out into 2016 and 2017.
And so that's the way I would phrase that.
But <UNK>, I don't know if you wanted to add something else to that.
Yes, the way ---+ probably just a little bit more context.
So the $9 million that we ended up deferring, we ended up deferring it ---+ first of all, we had to defer it because it was the first time we had really meaningful EMV activity.
But if you think about the $10 million of production for the quarter, before the deferral, 10 times 4 is 40, that's $40 million in a year.
If you go back and look at what we laid out for Investor Day, that would have been the start of a very attractive run for us.
So the answer is yes, we saw a lot more production.
We ended up needing to defer the $9 million of the $10 million, and we believe that deferral will stay constant for a while.
And so if you look through that, we would expect to be able to recognize a more normal amount of revenue moving forward.
Yes.
It does.
Actually, I would say it does more than change the competitive landscape; I think it's quite a positive move for the landscape in general.
Early Warning is famous for having very high quality risk and analytics, and they do a great job.
We announced a partnership with them at our Investor Day.
We're doing some very interesting work on the real-time side.
They have not traditionally been in the real-time payment world.
They are in the real-time data exchange world, and they're going to build out some capabilities.
We are building a nice partnership with them, and we expect this to be quite positive for the industry.
Remember, clearXchange is really the back end of the process, where they are enabling some of the engines for those institutions.
Those institutions still need front-end applications.
A number of those institutions that are in clearXchange as well as another 2,000, more than 2,000 are on the system use our front end.
So I am hopeful and optimistic that this will move the industry closer to more ubiquity in allowing consumers to move money at the speed of their choice.
So we are quite excited about it.
We would expect to be live.
I would say at this stage, because it has taken a little bit longer to get this first contract signed, it is a little bit more difficult when you are building a business from scratch, subject to all the regulatory approvals and everything else.
But I would expect us to go live in the first half of next year with multiple clients.
So we're really excited about that.
Thanks, <UNK>.
Thank you.
I would say in the financial segment, as you are aware, the larger share of our revenue comes from the core processing areas.
So clearly, that is growing faster than our areas like check processing, which is in decline.
So that is correct.
I think the other areas that we have in there, lending has been growing nicely.
But we have been impacted, our international business is in there, so our currency has negatively impacted that segment.
And we should, over time, continue to see international contribute to that.
But to your point, item processing is a bit of a drag.
The core is the big piece of growth that is in that particular area, along with our lending area.
I would say, just for clarity, that we have both seen some good growth trends coming out of the lending businesses.
And that we would expect, over the next couple of years, to see lending, itself, be an important part of how financial institutions are obviously going to drive revenues.
So those trends we think will look better moving forward than they have historically, as people have not really been spending in that space.
Thanks, everyone, for joining us this afternoon.
We appreciate your attention and support.
If you have additional questions, feel free to contact our IR team.
Have a great day.
| 2015_FISV |
2015 | DIS | DIS
#Okay.
Thanks, <UNK>.
So let's talk about foreign exchange as we did give that information last quarter.
And as we mentioned at the time, we were fully hedged going into fiscal 2016.
So that estimate that we gave you of about $500 million impact year over year is still the right estimate looking forward to the year.
So there's no change on that, and the impact for fiscal 2015, it was a modest negative impact from what was originally given, but that's only because some of our businesses outperformed.
So, once again, we were fully hedged based on the estimates as we are going into a fiscal year.
On the table affiliate growth, we updated our three-year affiliate guidance on the last earnings call, and we don't intend to update it again.
We also aren't or we don't give annual guidance on affiliate revenue growth.
But I will remind you that the fiscal 2015 did benefit from the launch of the SEC network, and that is something that we will be comping against in fiscal 2016.
Okay.
Thanks, <UNK>.
Operator, next ,question please.
I'm not 100% sure, <UNK>, whether you are talking about making more or buying more.
Well, let's start, first of all, with I call it a making more of what we own already, meaning these great franchises and brands.
You know that you're making too much when either your quality is going down or the marketplace is telling you that there's fatigue or they've had enough.
We don't see that in any of the products that we are making or that you cited.
Pixar had one of its most successful releases ever with Inside Out and its most original this past year, and we're really excited about The Good Dinosaur, and of course, we have Finding Dory, the sequel to Nemo, next year as a for instance.
On Marvel, obviously Avengers 2: Age of Ultron did extremely well, did over $1.4 billion in global revenue, in global box office, and we've got Captain America 3: Civil War coming up this year and a pretty rich pipeline thereafter.
Of both sequels, things like Thor and Captain America, as I mentioned, and Ant-Man, but also original like Dr.
Strange for instance.
We like that balance.
Star Wars we're just getting into.
Obviously premature, but we are basically planning roughly a Star Wars release a year for the next six years.
Three of them part of the saga: VII, VIII and IX.
Three will be stand-alone films.
I think we have only announced two of those three.
Rogue One being the first, which comes out in December of 2016.
So we don't think we're oversaturated.
If anything, we think that we are very, very well balanced in terms of taking these products to market.
In terms of products that ---+ or franchises that we don't own, obviously I'm not going to comment on that.
Except I can say that with Disney, which has also never been stronger, by the way, just look at the Oscars that we've won for Frozen and Big Hero 6; the box office; the excitement about this movie Zootopia that is coming up, which I think is going to be a real sleeper hit, and that's coming up in actually first quarter, end of the first calendar quarter rather, of 2016.
I think with Disney and Pixar and Marvel and Lucas, Star Wars, we don't really have much of a need.
Our pipeline is pretty rich, the richest ever for us.
But we will be opportunistic.
If we see something that we feel is as attractive as the feathers have been, the leveragable cross markets across businesses over long periods of time, which is what we really consider a franchise, then we certainly have the capital structure to be able to take advantage of the opportunity.
Thanks, <UNK>.
Operator, next question, please.
Yes, thank you, <UNK>.
Yes, the margins, as you cited, were down at 16.9%.
That's actually 40 basis points, not 45, but who's counting.
But they were primarily due to the performance of Hong Kong Disneyland and also some preopening expenses at Shanghai Disneyland.
Domestically, talk about domestically, specifically, there were some year-over-year increases that impacted the margins, and one of those would have been the Magic Dry Dock, which is one of our cruise ships.
All right.
Thanks, <UNK>.
Operator, we have time for one more question.
Thank you, <UNK>, and thanks, again, everyone, for joining us today.
Note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website.
I'll also remind you that certain statements on this call may constitute forward-looking statements under the securities laws.
We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them, and we do not undertake any obligation to update these statements.
Forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors contained in our annual report on Form 10-K and in our other filings with the Securities and Exchange Commission.
Have a good afternoon, everyone.
| 2015_DIS |
2017 | ZBRA | ZBRA
#Q1 outlook is strong for all regions and all product families.
I think the strong momentum we had in Q4 is carrying into the first quarter here also.
The strengthening on a percentage year-over-year growth also has to do a little bit ---+ we had a weaker compare in Q1 of last year.
First, PartnerConnect, we launched PartnerConnect, a new channel program, in Q2 of last year.
It has now been basically working for nine months or so.
We are very pleased with how it has gone.
It has been well-received as a good structure, good program.
We were able to gain share wallet with our channel partners through 2016.
I am quite pleased with that, because going through all the complexities of our integration and be able to gain share at the same time, I think it's quite an achievement.
So the channel program is working very well.
Second part ---+ I forgot the second part of the question.
The inventory levels.
Inventory levels, yes.
We target about 50, 55 days of inventory with our channel partners.
We have stayed close to those targets for the year.
And we entered 2017 with an appropriate inventory position with our distribution partners across the world.
We feel that is healthy.
It is good.
That is correct.
$20 million [in lending cogs] is what would we believe we will realize.
We have a fair amount of line of sight of that number.
And in addition, as we implement our new ERP system, and we do that in the middle of this year, we believe we will have further opportunities to increase operational leverage in the <UNK>.
Our markets have always has been competitive.
That is not new.
I think we have mentioned we have had the same concept of some pockets of elevated promotional activities in earlier calls, also.
And our approach continues to be one where we are trying to respond in a very disciplined way.
We want to have flexibility to go after deals that we think are worth winning and that we need to win, but we do it with a strong focus on driving profitable share gains.
We gained share in the past year, but the one metric side that are really trying to maximize is to drive profitable growth and maximize the value of the enterprise over the long term.
So we want to make sure that we are prudent in how we pursue those things and disciplined in our approach.
Good morning.
Retail has always been a strong vertical for Zebra.
And I think we are very well-positioned to capitalize on the transformation that's currently going on, driven by e-commerce and omnichannel.
Our traditional brick and mortar customers are recognizing the need for them to invest more in our type of technologies to drive improvements and enable them to compete against e-commerce.
Investments to drive the greater customer experiences enable different delivering modalities, such as buy online and pick up in-store.
But also to drive against greater efficiencies to enable them to compete on price with others.
We also had several large retailers in the US publicly talk about their strategy of stepping up investments in technology to do just that.
We have also seen traditional e-commerce players investing meaningfully in our type of solutions to enable them to scale efficiently and also to be able to offer new cross-customer offerings.
So I think that bodes well for us.
And our portfolio to address retail, both brick and mortar and e-commerce, is very strong.
The TC50 fund, Mobile Computer, that we launched in Q4, that was the fastest ramping product in the history of the <UNK>.
It was a great success for us; and at NRF, we also showed a couple other products that you might have seen.
Like [MP]7000, the flatbed scanner that is very competitive that is coming out this year.
And the SmartSense solution that <UNK> also referred to here.
Also, I would say we feel good about being able to add additional customers through the years.
In 2016, we added a lot of new customer names, both traditional brick and mortar customers, as well as e-commerce customers.
And this all gives us confidence that momentum will continue into 2017.
I think I would say that we have ---+ we are essential for retailers.
If retailers want to implement an omnichannel type of strategy, I think that getting that increased visibility into their in-store visibility, being able to effectively guide people to do the pickup and the self checkouts in the store, are capabilities that are essential for them to have and we do offer that.
Now many things that retailers do are broader projects.
And we are not the only thing that is in it, so there are certainly other solutions that go into that too.
But I do believe that we are considered to be a strategic partner to many of our largest retail customers because they see the value in the essence of what we do.
Also, bear in mind that our go-to-market strategy inherently is one of partnering.
So you'll find us, in many cases, partnering with many of those solution providers that either provide checkout solutions or payment solutions.
And indeed, if you look at many of the most prominent solutions that were showcased at NRF, you will see there is either a Zebra inside or there is a Zebra partnership involved there.
That is deliberately part of our strategy.
No, for Q1, I think we tend to give you an outlook for the <UNK> and we give you some color for each of the regions.
I think we have gone through some of the regions here already this morning and for the products, but we don't really break it down by all its components.
Good morning, <UNK>.
We gave you two numbers on purpose.
One which is a gross margin number.
We believe that this gross margin number was slightly increased in 2017.
And we also gave you an EBITDA number of 18% to 19%, so you can predict what the OpEx is, And we did it this way for a reason.
We want to adjust the OpEx of the enterprise based upon the trajectory of the business.
That is why we model it this way.
However, the integration effort is actually well on its way.
We believe that we're going to hit our various commitments.
And in addition, the implementation of our new ERP system midyear will give us the opportunity to deliver additional operational leverage.
Let me answer indirectly to your question, <UNK>.
We don't know for sure what the new tax reform will include.
So we've spent, actually, a fair amount of time with our teams internally, with our business partners, with our various advisors.
And we believe that we have the ability to mitigate the impact of a new tetra form.
Looking at the way the supply chain is structured is one lever.
That is not the only lever.
We have not disclosed how exactly, on purpose.
It is obviously competitive information.
And we could restructure the supply chain in order to achieve our goals, which is to make a tax reform neutral.
There are a few things we can do.
We don't want to be definitive for obvious reasons.
We don't know really what the tax law is going to be.
But we have various scenarios, and all of them, we believe, will be a ---+ will lead to a neutral impact for the new tax reform.
To give you a little bit more color, maybe just a ---+ our supply chain is probably very similar, I suspect, to most electronics supply chains.
So we have a significant footprint of manufacturing assembly in Asia.
But we also have it in Mexico and we have all our converting and a lot of our services activities in the US.
But that only gives the current footprint.
There are certainly things that we can do to mitigate any impacts on any border adjustment taxes, but we still don't know what they look like or anything.
We are working on how would we respond to various scenarios.
So the TC51 ---+ we think of it as a midrange Android all-touch device.
It certainly met an unmet ---+ or satisfied an unmet need in the market, because otherwise we would not have had that kind of launch or that kind of ramp, right.
I think we got it right from a form factor, from a functionality perspective; we got the latest and greatest operating system drop with chipsets and so forth in there.
It was a very compelling product when it came out and we are still seeing very good feedback from customers about it.
We were down at HMS this past week, also, which is the healthcare show, and had a great interest from healthcare providers in that product and we are coming out with a special healthcare version of the TC51.
But the Q4 launch was primarily aimed at retailers.
So mostly, say, brick and mortar retailers who are working on omnichannel type of solutions and also to help them have a more compelling customer experience by arming their sales associates with better tools to engage with their customers.
I would add two things in terms of the pent-up demand opportunity, which I think TC51 squarely hit.
On the one hand, retail and the need to compete with e-commerce that this device enables in a number of different directions.
On the other hand, bear in mind this transition of operating systems which is still ongoing.
And many of our customers, whether they are in retail, healthcare, or other verticals are looking to make that transition and are waiting, or have been waiting, for the compelling opportunity to do that.
And TC51, I think, struck that nerve and hit that opportunity squarely, which is why it has been such a successful launch.
Maybe one more point to say.
There has been a lot of conversations or concern over the years around consumer encroachment.
And the TC51 certainly ---+ I think the first customer we had was a very large consumer device user, where we were able to basically win them to switch over to our devices.
So this is a great way for us to compete against the consumer devices, also.
Absolutely.
At the end of Q3, we were planning a tax rate for the year of 26%.
That was an estimate.
That was based upon a forecast, assuming a mix of profit by legal entities or tax jurisdictions.
When we closed the year based upon the mix of the profit, based upon additional work we did as part of the year-end process, the tax rate for the year moved from 26% to 23%, and we had to [book] the full impact in the Q4 quarter, which was about $0.16.
Now to answer to your second question, in terms of tax rate for 2017, we believe that low- to mid-20s will be a good planning assumption.
We still think 4% to 5% growth rate or a target is an appropriate target for us over a cycle.
If you look at our performance over the last two years, we have actually hit that level.
It did not come exactly the way we had expected.
So we had almost 10% in constant currency growth in 2015 and we were just a tad of growth in 2016.
So our business is a bit more cyclical than we might enjoy.
It tends to drive it towards a good number over time.
Again, we feel we have a good diversified business with many avenues and levers to pull in order to achieve our growth.
And we generated the kind of growth we did in the last two years while we were going through a very complex integration.
I think it's a testament to our execution, and we still feel that, that's an appropriate target for us.
And that's what we're going for.
I'll start.
And then <UNK> can help out here also, who talks to customers even more frequently.
I would say the momentum around the Android migration is continuing strongly or strengthening.
Remember, two years back when we first merged our businesses, at that point there was the largest most advanced customers that were doing it.
I think now we see, depending on the vertical, but retail; I would say all large deals in retail tend to be Android today.
Healthcare is very much moving in that direction.
So we are seeing greater traction in our channel with Android.
We always talked about how the largest, most advanced customers would be leading the charge.
And that smaller customers won't have necessarily the resources or the know-how to switch as quickly.
That is still the case.
If you go down into smaller companies, they are probably more likely to continue to buy what they have already have.
But we are putting together a different type of both educational material and other offers to make it as easy as possible for customers to switch.
If you go back to the TC8000 device that we launched for a warehouse application in the beginning of 2016, that was the first generation of Android device in that environment.
That means that our customers have to rewrite and [pour] some of their applications to run on that device.
So it is a little bit of a barrier to ---+ early adoption is a bit higher.
But once you start having ---+ move your applications over, now it's much easier to just continue to expand and have a greater ---+ we use a broader part of our portfolio in those areas.
Another viewpoint on the opportunity is, if you go back two years ago, we said there is about 15 million mobile computers out there that need to make the transition from legacy operating systems to either Android or an alternative.
And you can do the math of what has been sold in the meantime, but our synthesis would be that the majority of that opportunity is still out there.
And we think that there are at least two, but probably two critical things needed to unlock that opportunity.
One of which we think we have hit with products like the TC51.
We need a compelling offering in value proposition that gets customers over that hurdle.
And things like TC51, which is surrounded with the types of software and services that people expected from the legacy operating systems ---+ those are now in the market and present and giving customers the confidence to move that way.
The other one, though, that is important and that is the focus of our growth opportunity this year, is that our channel partners, which are the majority of the way that we sell, they need to embrace this solution as well.
And they need to either take their customers along, and in some cases take their applications, many of the applications that customers run come from those channel partners, and they need to move those over to Android.
That is the focus for us this year, and we see a lot of growth opportunity ahead of us from that.
I am not too sure we will speak about step function, but clearly the implementation of one ERP will allow us now to be really focused on optimizing the P&L further.
If you look at the kind of synergies we have generated to date, there were the obvious one ---+ adjudication in product road maps, supply chains.
But we believe as a Management Team that we could go to another level in the second half of the year, gradually, and then forward.
The vast majority will be, correct.
Yes.
So you are right.
We believe we should be going down by half a turn between the end of 2016 and the end of 2017.
Our target is to reach investment-grade rating as soon as possible.
We believe that we will achieve that rating once we have a ratio of debt-to-EBITDA ratio of about three.
Once we achieve that level we want to look at the best options to maximize return for our shareholders.
That can take various forms: repaying more debt or allocating excess cash to shareholders in other ways.
So we want to keep options open based upon what will be best for our shareholders.
Thank you all for participating on our call today.
We look forward to speaking with you again soon.
| 2017_ZBRA |
2016 | GIS | GIS
#Yes, very pleased to say it's the latter.
Grain merch will have a quarterly impact year on year, but if you look at the overall business, the fundamental change in the margin is because of the business structure.
And the improvement you're seeing this year is primarily driven by the fact that we're seeing ---+ excuse me, 6% year-to-date growth on our focus six platforms, which all have higher-than-average margins, higher than segment average margins, higher than Company average margins as well.
And combine that with the cost savings initiatives Compass in ---+ or sorry, Catalyst and Century that we initiated last year, we had some benefit to C&F as well.
So very much a substantial and sustainable change in the margin structure for that business.
And this year similar, <UNK> talked about his business increasing margins by over 100 basis points.
We'll see the same thing in our C&F business this year.
No, I think that's a fair way to look at it.
I think that is a very fair way to look at it and we'll still see good margins because of the dairy pricing but maybe not as high as they are right now and we expect our growth to improve.
So we think about it, <UNK>, in the following terms.
We think that a sustainable business model needs to have both margin expansion and top line growth, so we're very ---+ as we've said many, many times, we're very focused on both.
Clearly, we acknowledge that the bar is higher now than it used to be on expectations for margin.
And we've ---+ we're addressing that very diligently through HMM, which we've had going for many years and the many other restructuring initiatives and other cost savings activities that you've seen us initiate over the last several years.
So we're very highly focused on the margin piece and you're seeing that this year with good gains and we expect that to continue as we go forward.
But the additional part for us is that you've got to have top line growth and so we're very focused on innovation and being responsive to the consumer by keeping our core brands relevant, advertising that works, and to drive growth.
And where we're getting that formula right, we're seeing good growth in our core categories.
So for us, it's finding that balance of both.
We think that's the key to sustainability in this environment and in particular, the focus on innovation and Consumer First, we think, is critically important in an environment where consumer attitudes and values about food, as you guys all know, are changing very, very rapidly.
So that's really how we approach it.
No.
Venezuela is 0.1% or 0.2% of our sales, so very small.
It will be immaterial.
Good morning.
Yes, it's the latter.
As we ---+ as the years unfolded, in the fourth quarter, we're still going to benefit, obviously, from strong HMM.
But the merch timing that we talked about and particularly, what we're lapping a lower merch period last year with higher this year.
The inflation which is actually the single biggest factor because last year, Q4 was our lowest inflation of the year.
This year, it's our highest inflation of the year.
Last year is really when, in the fourth quarter, is when dairy and grains came down and while they're still down, they're at decelerating more so we're lapping that.
And we have continued inflation in our manufacturing, logistics, sugar, nuts, fruit, eggs and obviously, I'd say more broadly just in the Latin American region, again, more broadly.
So it is very much an inflation story in the quarter.
The just phasing of it is different this year than last year with a low point last year and a high point this year.
I wouldn't read anything into it, as we look into FY17 and we'll share more full guidance with you for FY17 in a couple months.
But as we talked about at CAGNY, we are projecting 200 basis points of margin expansion by 2020 and we expect the majority of that [clout] to come through COGS and come through gross margin.
Okay, so ---+ well, let me, I'll answer the first one first and I can't really ---+ I understand the observation, <UNK>, and the concern that you might hear.
I can't speak for the industry.
I can only speak for us and clearly, we are very, very focused on product safety and product quality.
It's central to our mission and that's the kind of capability that we would maintain and actually build upon even in this environment because we just think that consumer trust is job one for us.
So ---+ but it goes to ---+ your question goes to the earlier question as well about what are we trying to do and we're trying to do two things.
We're very, very focused on margin expansion and we think we have a good line of sight.
And we've performed well there over the last couple of years.
We have a good line of sight on other things we can do to continue that good work but we're equally focused on maintaining the capabilities that we need in order to drive top-line growth.
And so we're preserving ---+ we've got a very strong marketing organization in CI, we've got excellent R&D and so those are very important things and our product quality organization has been maintained at a very high level so that's how we look at it.
I understand the question and I understand the concern but that is the sort of thing ---+ we would not compromise in that area.
To your comments on Yogurt, there's ---+ I don't have the numbers in front of me on how ---+ from what's come in and what's gone out over the last couple of years.
And <UNK> may have those and so there is a tremendous amount of new product activity in the Yogurt area.
Lots of them don't stick around for very long so it is ---+ there are a lot of them though and it's become a more competitive category but again, where we focus on the right innovation and the right renovation like expanding Annie's into the yogurt/dairy case and other yogurt innovation initiatives that we'll announce this Summer.
Where we have good ones, we're able to succeed because of the scale and the distribution power that we have, so we're confident that we can continue to grow there.
It's an exciting space and huge category globally.
We have very high capability and so we're just going to stay focused on the kind of innovation that will work in the category.
I can come back to you, <UNK>.
We can get some numbers maybe on how many have come in and how many have gone out but your observation that there's a lot more in Yogurt, I think, is correct.
I don't know if you want to add anything, <UNK>.
Hi, <UNK>.
<UNK>, this is <UNK>.
I think the mix that we talked about at the beginning of the year about reinvesting roughly half of our savings is still where we are at.
It is phasing a little bit differently.
As we said, I think advertising at some of the merchants are a little more back-loaded than we originally anticipated but for the full year, it will be in that same range.
And actually, obviously, we haven't completed our plan for next year so I can't give you an exact figure but you would expect that we are going to be continuing to reinvest some of those savings back.
And next year, we also expect to have a little bit more leverage from higher top-line growth to add to the margin expansion.
Yes, sure.
First off, our international business, in total, we feel good about where the top line has moved solid growth in developed markets really at that low single-digit level that will continue even if it's tempered a bit by some of the Yogurt pricing in Europe.
Encouraging acceleration in emerging markets that <UNK> took you through, which is both innovation, our execution and some pricing and as with other segments, we expect that to strengthen in the fourth quarter.
In terms of the margins, there's a couple things that are at play.
One is, obviously, Green Giant does impact our profit in international.
We sold the North American business, so Canada, you're seeing the impact of that and that's a low to mid-single-digit drag on the earnings for international.
The other you see, we mentioned this as a currency-driven inflation on certain products.
I mean, that's a long way of saying we have some transaction FX impact for businesses that we source across borders.
So for example, much of our Canadian product is sourced from the US so as the Canadian dollar weakens, that increases the cost in Canada.
We have the same thing across some borders in Europe and that has been a larger drag in the second half just due to currency movements and some hedge positions that we had and that's what you're seeing in the quarter.
It will continue into to the fourth quarter as well but if you strip out Green Giant and some of that transaction FX, the underlying growth, profit growth you're seeing in international is holding up quite well and that's what we would expect to continue to see as we move into 2017.
No, that does not include any transaction.
That's all translation FX.
Thank you for asking that to clarify.
The $0.08 is all translation.
| 2016_GIS |
2016 | IP | IP
#Hello, <UNK>.
It's <UNK>.
On the first question, the capacity, there's really no difference than what we said at the time we announced it.
We said it was going to be a 2016 - 2017 set of actions.
So I don't know if it's half, half.
But you'll see some of it come through this year and you'll see a little bit more come through in the first half of next year.
And then on maintenance, maintenance varies mill by mill and period to period.
So there's a plan.
There's a schedule that goes out years.
And you look at it, piece of equipment by piece of equipment and it just happens that you will hit periods when the things that need to be tended to in an annual outage costs more because of the nature of the work in a given period than in others.
And I would add to that, <UNK> ---+ this is <UNK> ---+ is while you do see the reduction from the last time we forecasted the second quarter down is we know as a Company that we've got headwinds, and so what we've been trying to do, of course, is you've got to find other levers to pull.
So we're, as <UNK> said, he's looking at his system very hard to make sure he's doing what he needs to do, and if there's an opportunity to trim some things up to get more money to the bottom line, that's what we're attempting to do.
And we'll continue to disclose that each quarter so you can follow and track those changes.
<UNK>, this is <UNK> <UNK>.
Just the question, the first question you asked, just to tie it back to an earlier question around how we run our system, that incremental capacity capability that's coming from these investments, as <UNK> mentioned, is really about making some products differently than we've made before, making our system more flexible, meaning we can make similar products at the same mill or a different mill, so we can improve our supply chain.
So the issue of capacity coming online is only when and if we need it for the demand environment.
It's really the driver is really making more of this and less of that for the boxes that we need to make going forward.
And as an outcome of improving those facilities, we have more capacity if we need more capacity.
So that's the way to think about that, as opposed to this is coming on at this date and this is coming on at that date.
It's coming on as a new product, a new basis weight, a new design.
And net capacity comes on if we have the orders for it and doesn't come on if we don't have the orders for it.
Thank you.
I think our forecast is that we could see some modest pressure in OCC pricing as we go through the second quarter.
We don't expect it, at this point, to be a major factor.
And yes, in the first quarter inputs were a bit of a tailwind for us, which we're operating in a certain environment and trying to take advantage of the environment that we have.
Well, I think part of what you've seen, just in what we've seen in terms of our supply chain network is rail and truck availability has improved dramatically in the last part of last year, early this year, compared to where we were, say, a year ago.
So that's obviously having an impact on the discussions you have with carriers about rate structures.
It's still a very challenged environment, in some cases, in terms of those discussions, but we think we are having some measure of traction as we have those discussions.
The bigger impact in the moment is just what it means to how we think about our stocking positions across 200-plus facilities, and it's meaning at the moment that we need less inventory and we can run a much more efficient supply chain.
So there's benefit in that.
I think what we worry about is how it changes over time and will there be a snap back of utilization rates around carriers later this year.
I don't know when it's going to happen or if it will happen.
I just know that things don't stay static.
People take actions.
And so we don't count on anything lasting.
I think it goes back to the power of the system.
We have tremendous flexibility, and we're trying to create more flexibility through these investments so that we can pull back when we need to and we can recover quickly when we need to.
Good morning, <UNK>.
Hello, <UNK>.
This is <UNK>.
No, I think what we're attempting to do there is cash flow is still front and center.
What we've got is that particular annual plan is focused on the majority of our employees who are running our operations, that's the level and type of job.
And we all talk in EBITDA in the Company.
That's what our plans are based on.
That's what people are measured on.
And we've had a little bit of slippage in our EBITDA progress over the last couple years.
So it's just an attempt to refocus.
In the overall scheme of things, obviously cash from ops starts with good, strong EBITDA and then you go to the cash flow, free cash flow.
And our capital allocation strategy's clearly understood commitment to the dividend.
So no message other than focusing the people who are actually on that plan to look at ways we can improve our EBITDA and break through the flat nature of it over the last couple of years.
So that's one plan for one year for a certain group of employees.
<UNK>, what I would say is we have no required pension contributions for 2016 and 2017.
How we go forward, we'll obviously navigate that as we move forward.
Hello, <UNK>, it's <UNK>.
We see in certain regions, in certain areas, there's either more or less competition from a certain type of product range.
I think the way we think about it is we're looking with our customers at best fit and best use for the packaging they need, and it includes a variety of substrates, some virgin, some recycled, fit for use.
But it also includes capability, geography, service levels.
And so we're selling them more than just is it recycled or is it virgin.
We're selling them a total product.
And we've got the breadth of products to do it like no other.
So there's always going to be competition.
It's a very competitive market, but we feel good about the value propositions we have.
Yes, I don't want to speculate on what we will do or won't do.
We've got low OCC input cost at the moment.
It's a moment in time.
We think there's probably a different trend over time and we'll make decisions.
It's like I talked about these capacity additions, we're not just adding generic tons.
We're adding products and grades and basis weights for where we see growth in our channels and the types of products that we need to support that growth.
And then we run it accordingly, as we've said, to what our demand is.
So we constantly look at what are those products, what do they need to be, where should we add them.
And it will be an ongoing evaluation.
Thanks, <UNK>.
I would say we run a very tight supply chain year round and we make adjustments as we go.
So no, I'm not going to break out tons or weeks of supply.
I'm just going to say that we're constantly looking out four, five months in advance, targeting where we think we need based on our demand signal, and then we make adjustments as we run the system.
So the downtime that we took in the fourth quarter and first quarter, a very large component of that goes back to supply chain efficiencies and just not needing as much inventory through our chain.
That could change over time.
And maybe we're taking a little bit of risk on the downside in terms of how it might change and what we might do to be able to do to respond it.
But we just like to run a very tight supply chain, and we'll continue to do so.
No, they're not flat.
And a lot of things go into targeting inventory levels.
We run hundreds and hundreds, if not thousands of grades, 200 locations.
And so we're looking product by product, basis weights, grades, locations and stocking levels across all of those, and then we're adjusting the system quarterly.
And if it just takes less time to get product from mills to box plant because the velocity has increased, then we obviously don't need as much inventory in the system.
So <UNK>, on the Ilim, I think, release that you're referencing, they put out a five-year plan and it was a capital plan to improve the business.
A big portion of that is inclusive of their normal maintenance and regulatory CapEx.
That's about $325 million annually.
So the incremental that was in that announcement over that five-year period was about $700 million.
And it's planned only as the projects are developed and as they have the right returns to improve the current business that they have and to improve the quality of the product and, if necessary, to make more product at a second facility.
And the plan for that would be to organize the funding the same way the prior development of Ilim was done, which is on the Ilim balance sheet, and we don't see any effect on the dividend changing or going down or anything like that.
So we think there's some good opportunities for improving Ilim.
And it goes to that comment I made on my closing statement around making products that are needed in the market, mainly into consumer-oriented end uses, and making them in the right place in the world for your advantage, fiber, cost structure, and workforce.
And this is a perfect example of that.
And <UNK>, I'll just add on.
We actually are going to get a dividend payment, I'm looking at my colleagues who are on the Board, is the Ilim joint venture last week approved the dividend payment for 2016.
So we'll receive between $50 million, $55 million this year and another recommitment to the dividend flow out of the business, given that it's generating significant cash.
And also if you look at their debt balance, their debt has actually come down, as well.
So the financial condition of that business is great and we're counting on dividends out of that business as part of the value creation equation for International Paper.
Thank you, <UNK>.
Good morning, <UNK>.
Yes, those are two discrete items that we called out.
So that would be the right way to look at it, <UNK>.
Yes, <UNK>, I think what I called out was $22 million on total outage expense from first to second.
So I'm not sure where the number that you said.
What we did call out is Riegelwood was a big driver, but if you add it all up, if you go all the way across the line there and add it all up, it's a $22 million improvement first to second.
The second part of your question ---+ I'm not sure I ---+ the second part of your question then still has application.
Yes, and you know, the second quarter's always a better operations quarter than the first.
It's not as cold.
Just have a lot behind you.
It's generally a good operational quarter, for lots of reasons.
And we anticipate that to happen.
No, the move in Madrid is really to complement what we do with craft liner.
And your assessment is accurate.
There's been lots of attempts to make products with mixed substrates in that field.
It really, really is driven by the supply chain.
There are probably some short supply chains that can bear different products.
But the humidity from the harvest all the way through the supply chain to the market is what drives the performance characteristics of fresh food packaging for needing craft liner or craft-like performance characteristics.
The industrial business, the high end industrial business that complements your mix and your plant ---+ because obviously, agriculture is seasonal and you want to run your plant and run a successful business over the year ---+ that's where the high performance, light weight recycled comes in.
And it allows us to perform better in some of the best industrial segments versus using board that is not that high performance, that you've got to use more of it and things of that nature.
You end up not being competitive in the industrial segments that you really want to be in.
Hello, <UNK>.
I'm assuming you're talking about container board.
We feel pretty good about the demand signal that we've gotten from the markets.
Margins take a hit.
Demand seems to be holding up, which says to us there's a need for the type of product that we're supplying to the export markets.
And we've been a strategic supplier to those markets for decades.
So we have long-term relationships that we stick with quarter to quarter, year in, year out.
We feel pretty good about our backlogs for the second quarter.
The market's very competitive.
I don't want to forecast price, but I'll just leave it that it's competitive and the types of erosion that we've seen probably continue into the quarter.
So we'll manage it accordingly.
But we still make decent money on export and we like it a lot, on average, through the cycle.
Well, I'm not going to forecast what we'll produce.
We've said that over time our goal is that we position ourselves with the right segments and with the right customers and we would expect to perform in line with market, as our choices around customer mix grow over time.
And we've seen a little bit of both here over the past year.
Last year, we were underperforming because of some of that exposure.
And in the first quarter of this year, we were right on top of it.
So to us, it's about customer choices and how we align ourselves in the right spots.
Thanks, everyone.
Sorry, Brandy.
I jumped the gun a little.
That's all the time we have today, folks.
Thanks for joining.
And as always, Michelle and I are available after the call.
Have a great day.
| 2016_IP |
2017 | AVY | AVY
#Thanks Mitch, I appreciate that, and I’m really excited to be in the role and I’m looking forward to continue in partnering with you and the rest of our leadership as well
And hello to everybody in the call, and with that let we jump into the quarter
As Mitch mentioned, we delivered another solid quarter with earnings coming in ahead of our expectations
We grew sales by 7%, excluding currency and 3% on an organic basis and we delivered a 20% increase in adjusted earnings per share
Strong operating performance and a lower tax rate both contributed to the year-on-year change
Currency translation reduced reported sales by about 1% in the second quarter, was an approximately $0.02 negative impact to EPS
Our adjusted operating margin in the second quarter of 10.8% was up slightly versus the prior-year, as productivity and higher volumes more than offset higher employee related costs and a modest headwind from the net impact of pricing and raw material costs
Productivity gains this quarter included approximately $15 million of net restructuring savings, most of which benefited the RBS segment
Our adjusted tax rate was 26% in the quarter, down from 30% in the first quarter and reflective of our revised expectation of 28% for the full year
The reduction to the full-year tax rate is driven by continued favorable geographic income mix and a net favorability from discrete items
We now expect our sustainable tax rate to be in the upper 20s large reflecting that continued favorable geographic mix
Year-to-date we’ve generated free cash flow of $93 million, $59 million less than the same period last year as 2016 included a significant improvement in our working capital ratio
While we’ve largely sustained last year’s working capital efficiency gain, the cash flow benefit from that improvement doesn’t repeat
Higher capital spending also contributed to lower free cash flow relative to prior year, and we continue to expect free cash flow conversion for the year of nearly 100% of GAAP net income
Our balance sheet remains strong
We have ample capacity to invest in the business including funding our M&A strategy, as well as continuing to return cash to shareholders in a disciplined manner
Our net note in late April released our quarterly dividend rate by 10%, and received authorization from our board to repurchase an additional $650 million of stock
In the quarter, we repurchased approximately 400,000 shares at an aggregate cost of $36 million, and our share count declined modestly
We also paid $40 million in dividends in the quarter
On the acquisition front, we closed the previously announced Yongle deal in June, and the integration of that business is underway
While we expect this acquisition to have an immaterial impact on EPS for the full year, one-time transition cost will have a meaningful impact on margins in the IHM segment in the third quarter
As Mitch mentioned, we also acquired Finesse Medical, an Ireland based wound care manufacture with approximately €15 million in annual revenue
And we continue to expect that Mactac will contribute close to $0.10 of EPS improvement in 2017. And we expect the newly completed deals to contribute more than $0.10 to EPS next year
Following the acquisitions, our net debt-to-EBITDA ratio temporarily increased, and is now closer to the high end of our target range
With that said, we have ample capacity to continue pursuing our disciplined capital allocation strategy
So let me turn to the segment results for the quarter
Label and Graphic Material sales were up 7% excluding currency, bolstered by the Mactac and Hanita acquisitions
Organic sales growth was 2% in the quarter, with high-value categories up mid-single digits and modest growth in base categories
As Mitch indicated, this represented a moderation of our performance over the last few quarters, largely reflecting timing effects, including the Q1 benefit from the pull forward of sales to the price increase in China, which we discussed last quarter, as well as the timing of various holidays between quarters and inventory destocking related to implementation of the new goods and services tax in India
And looking at the regions, in North America, we grew in low single digits, which we believe was due to modest pickup in demand and some share gain
This represents an improvement of our trend from previous quarters
Growth in emerging markets moderated to a low single-digit rate in the quarter as well, largely reflecting the timing issues that I outlined as well as the challenging prior-year comparison for Eastern Europe
So while we did see some softening of our growth rate and pockets of our business in Q2, we are confident in the return to roughly 4% organic growth for this segment in the third quarter
LGM’s adjusted operating margin of 13.6% was unchanged from a relatively high level we saw last year, as the benefits from productivity and higher volume offset higher employee-related cost in a modest negative net impact from price and raw material costs
As we anticipated, aggregate commodity costs increased sequentially than ease towards the end of the quarter on a global basis
Of course, we see raw material costs trend to differ across regions and individual commodities, and we continue to monitor these movements within each market and adjust our prices as necessary
So let me shift to retail Branding and Information Solutions
RBS sales were up 6% organically, driven largely by the performance athletic in Premium Fashion segments within the base business, as well as strong growth of RFID with RFID products up more than 20% in the quarter
We continue to see volume growth outpace apparel unit imports and at the same time the headwind from strategic price actions we started implementing over a year ago, which was designed to improve competitiveness in our base business are largely behind us
RBS' operating margin improvement reflected the benefits of productivity initiatives and higher volume, which are partly offset by higher employee-related costs
We anticipate continued margin expansion in the back half of the year as the team continues to execute the business model transformation, and we benefit from the reduction and amortization that we’ve previously discussed
Sales in our Industrial and Healthcare Materials segment were up 10% excluding currency
While sales were flat on an organic basis, they actually came in better than expected, due largely to the strength in industrial categories, which were up low double digits for the quarter
Our operating margin declined in this business largely as expected due primarily to the decline in healthcare categories, including the impact of certain contractual payments we received last year that did not repeat
Acquisition integration costs in a modest negative effect in the net impact of price from raw material cost consistent with what we’re seeing in LGM also contributed to the decline
As I mentioned earlier, acquisition related costs such as inventory step up, amortization and other transition cost related to the Yongle acquisition will temporarily reduce IHM margins in the back half of this year
We’re focused on improving our profitability in this segment, while investing to support growth and expect to see operating margin expand to LGM’s level or better over the long term
So let me now turn to the balance for the outlook of the year
We have raised the midpoint of our guidance for adjusted earnings per share by $0.25 to an updated range of $475 million to $490 million
Roughly $0.10 of this increase reflects stronger operating results and $0.15 comes from the combination of a lower tax rate and a modest net benefit from currency and share count
We outlined some of the key contributing factors to our EPS guidance on slide 9 of our supplemental presentation materials
Focusing on the factors that have changed from our previous outlook, we now expect reported sales growth of 7% to 8% for the full year, reflecting the impact of Yongle and Finesse acquisitions and a smaller currency headwind
At recent foreign exchange rates, we estimate the currency translation will reduce net sales by less than 0.5%, and reduce pre-tax earnings by roughly $4 million
We now also expect incremental restructuring savings from $45 million to $50 million at the high-end of the previously communicated range
And as discussed, we’re now expecting a tax rate of approximately 28% compared to our previous assumption of 30%, again reflecting our new anticipated annual run rate
And we expect average shares outstanding, assuming dilution of approximately 89.5 million to 90 million shares
Our other key assumptions remain unchanged from what shared last quarter
So to wrap up, we’re pleased to report another solid quarter of continued progress against our long-term strategic and financial objectives
And with that, we’ll now open the call for your questions
Question-and-Answer Session
Yes, during the quarter, as Mitch mentioned overall Europe also picked up as we move through the quarter, overall our growth rate in Europe was in the low single-digit range similar to North America
But Europe was impacted a little bit more by the holidays with the Easter timing as well as, as Mitch mentioned some of the Muslim holidays at the end of the period as well
So we do expect to see that return a little bit closer to where we have been previously as well
Yes, so overall, our guidance increased to $0.25, roughly $0.10 of that is due to operations, and the other $0.15 again is the net impact of tax currency and share count
Overall, I think it is a little bit of mix improvement, and a little bit of productivity improvement
We did range or did raise the outlook on restructuring, as we continue to execute very well on the restructuring initiatives, particularly within RBIS
We continue to drive productivity as we always do in the LGM business as well
So overall, we feel good about the margin outlook and the trends that we’ve been seeing
We're not really seeing any real material moves in across different - across the overall in our commodities
As we mentioned a quarter ago, we were seeing some increases in chemicals going into Q2 that we expected to be somewhat short-lived, and it looks like those will be somewhat short-lived
We do see some increases in paper and pulp as we go into the back half, and there’s a couple of areas or regions where we see that, and in those areas we'll be increasing prices accordingly, but overall relatively immaterial impact across the different commodity categories
As far as on the RBS side, I think that rule of thumb is a good one
It may shift down a little bit as the mix of business shifts more to RFID, those have high gross profit dollars per unit, but the variable margins, especially at the pace that we’re investing in business development that the variable margin might be somewhat lower, the absolute margins are higher than the average, but that would be one subtle shift over time, and I’m talking about over coming years
As far as what we’re seeing within the business, within the margin profile that incentive comp element is a - would make up the difference for what you’re looking for year-over-year <UNK>
Yes, I think the geographic mix is driven largely by the growth in emerging markets as well as the good growth that we’ve seen in Europe over the last number of quarters
And as we continue to do acquisitions, much of that is based outside of the U.S
at this point, with a lot of it being in Europe and some of it being in Asia as well, which typically have lower overall corporate tax rates as well
So, some of that all contributes to the favorable geographic mix that we’ve seen so far this year and that we expect to continue to see going forward
I think year-to-date - I mean, our margin performance continues to be driven by a number of things
Some of which Mitch mentioned is well around the growth in higher value categories
So, we have higher single-digit growth in specialty and durables, which typically - as we’ve said, with our higher value product categories have typically higher margin for us as well
So, that continued mix benefit we saw in the first or in the second quarter, and that’s part of where we expect to continue driving growth and improvement in our margins overall in the LGM side as well
As we said, we had a little bit of a net headwind from pricing raw material cost in Q2, but overall, relatively modest and relatively modest going forward at the back half of this year
But I think, longer-term, it’s really driven by the strategy around focusing on higher value categories as well continue to get more disciplined in the base and continue to drive productivity in our base business
Both of those things in combination and what - continue driving our margins in LGM
Overall, relatively flat in balance of the year sequentially
As we said, we saw a little bit of pickup in chemical costs in the second quarter
We expect that to moderate a bit at the kind of tail end of the Q2 and into Q3. And we are seeing a little bit of a paper increase and really dependent on the region
In Europe, we’re seeing a little bit more of an increase in paper than maybe some of the other regions
But overall, relatively flat in total
But again, chemicals are coming down a little bit, paper going up a little bit
Overall, I guess, I will start
We continue to have with where we are in our debt ratio as I mentioned ample capacity to continue to fund M&A and to continue returning cash to our shareholders
On the M&A front, as we said on capital allocation, we do look at the pool of funds for M&A and share buybacks somewhat fungible, and we had a little bit more M&A in the quarter than we obviously did in the previous couple of quarters
But overall, we did continue buying shares back in Q2 and we’ll continue doing so in a disciplined manner
Overall, I think, our approach isn’t changing, our strategy isn’t changing there
We’re going to continue both being disciplined on the M&A front as well as on the share buyback front
But our strategy is not changing towards continuing to return cash to shareholders overall
Overall relatively flat to low-single digits year-over-year
Generally no and our impact in Q2 is relatively modest sequentially Q1 to Q2 largely driven by the chemical inflation we started to see in the back half of the first quarter
But again most of that we expect to have been moderated
We are seeing some pockets as I mentioned before in paper in particular, but we’ll look to manage that through productivity and/or pricing where necessary
I think there is also variation by region as we’ve talked about before as well
Some of the chemical costs are part of what led us to the price increase in China in the first quarter and to a lesser extent some increases in North America for chemicals weren’t is a bigger factor, it’s small overall anyway but not a bigger factor in Europe, where Europe we’re seeing paper go up
So it is different by region and by commodity across the regions as well
So I think, comment I made earlier was more about where we had ended the year before - year-to-date last year, our levels of working capital are relatively similar
And in Q2, we’re relatively similar to where we’ve been over most of the last year or two
It’s just the starting point for this year
At the end of last year it was a little bit lower than it had been the year before, which led to a different free cash flow impact year-over-year
I think overall when we continue to look at working capital, we do have some pressure some of the acquisitions we’ve made typically have higher working capital ratios than what we have
Such part of the improvements, we’ll be looking to drive from some of the acquisitions as well as we go through the back half of this year and into next year also
But overall, not much - I wouldn’t expect much significant change one way or another in terms of our overall working capital ratios as we go across the next number of quarters
Yes, I think, we’ll start out at a little bit higher level, and then over the course of a few quarters, we’ll be continuing to working to bring those levels back down towards what more like what our average would be
It really depends on the business as well
Certain businesses have different levels of inventory, depending on the type of business, but overall, we’re continuing to drive inventory in other working capital components more towards our average
So two questions there <UNK>, so within LGM specifically, I think, what you’re asking is broader trends specifically and as things moved to e-commerce, was that having effect on labels? And we’ve talked about one of the big advantages of our products are the shelf appeal
But if you think about household and personal care and so forth, one of things just pure e-commerce companies are looking for, to still have that moment of truth and people having some type of attachment to the brands that they’re buying
And so the physical decoration of the product is still an important aspect and we’re actually working with some of the e-commerce companies for how to further improve that moment of truth, so it’s not just a dirty poly bag being thrown on your porch, when you’re buying something that - a brand that you’re trying to connect with
So, those are works in progress, but overall we’re not seeing a big shift or impact on the branding side of labels, variable information labels, we see this is a tailwind and will continue to be a growth driver for us as we we're talking about earlier
Then industrial and healthcare materials, like many of our business is competitive, the difference is within that segment, it’s large, we're Tier 2 player and it’s growing well ahead of GDP, and it tends to be specified category
So, when you get specked in, you’re specified on your own or you’re one of two that are qualified for a particular program
And that - I wouldn’t say there is, it’s a competitive environment as every industry that we’re in is, but I wouldn’t specifically call that, I’m seeing some large competitive response
This is a type of industry where we still see lots of niche players even as an industry is growing like this, these ones are that we’re going after, you tend to still have new entrants and a number of companies, but there is plenty room for everybody to win, so that’s more how it characterize that broader space
| 2017_AVY |
2017 | DVN | DVN
#Again we are looking to further quantify just how rich our inventory is.
We know it is rich, but we would like to get more information on the spacing in the various intervals that we are testing, both in the STACK play and the Delaware Basin.
Also, just how many of these different intervals are working.
So we would like to further detail that, to know for sure.
It has certainly been true historically that the slope in the Delaware Basin does not appear to compete as well, although I will note there has been some pretty big purchases there recently, by some other companies, but I think historically it has not competed as well.
And the Barnett, although you can get returns well above the cost of capital, have not competed in our portfolio.
But again, we are currently testing some innovations in the refrac technology side, to significantly lower that cost, and we are trying some new wells out there with modern drilling and completion.
So we would like to understand that potential before ---+ both in terms of just how deep our inventory is, and also what is the real upside better from these other plays before we make a final decision.
We understand the question very well.
It's not lost on us.
We understand, and like I say, we have not hesitated historically when the time is right to make these strategic decisions.
But that's what were working through, before we make a decision.
Ron, this is <UNK>, and last quarter we did roll out our first extended reach type curve for what we consider the over pressure [oil] window within the STACK.
And the EURs on that are approaching two million barrels per well on an equivalent basis, and depending upon the streams of casing, whether it's two or three, the cost of the ---+ D&C cost can range from $7.5 million to $9 million.
And from an IP-rate perspective, these are pretty prolific wells as well.
It's well north of 2,000 barrels equivalent per day on a 30-day rate.
So that's our initial type curve, and I think <UNK> can talk about maybe what we're seeing at the earlier results on that, and how it's trending.
When we were out a few months ago talking about that, we said we expected high single-digit inflation across all aspects of the business.
We have revised that upwards a little bit now.
We're saying now in the 10% to 15% across all aspects of business.
If you look at ---+ and we have accounted for that in the capital guidance we have provided to you.
We were originally talking about a capital program around $2 billion, a couple three months ago.
Now with a $2 billion to $2.3 billion, we probably upped the midpoint about $150 million of that.
About $100 million of that is due to just moving up the timing of some rig activity, particularly in the Delaware Basin, and about the other $50 million or so is due to additional cost inflation now.
At the same time, we think we can largely mitigate about 75% of this cost inflation, that we anticipate to see this year.
You're seeing examples of us across our portfolio, where we are lowering the drill times associated with these wells.
We have our 24/7/365 drilling control room is really helping out a great deal with the efficiency, and nearly 100% in zone on these wells.
Yes, it does appear the inflation has picked up somewhat from a few months ago, but we think we can largely offset that.
This is <UNK>.
First off, from a corporate standpoint, given the strength of our balance sheet and our financial strength, we are comfortable right now spending approximately at cash flow, in any given year.
We want to stay a strong investment-grade credit company, and we believe with our net debt position at this point, that the spending within cash flow is approximately where we should be.
Now we recognize, depending on who's price deck you use there, that there may be the potential to ---+ that we may have a little bit of free cash flow this year.
I think frankly we would probably have to subtract off the dividend off the numbers in our book there, and you will probably see we are really at cash flow neutral.
But if there is the potential where we have a little bit stronger cash flow than we anticipate, we certainly have the program, and we are very confident we can deliver on good returns on that program, for a little bit higher capital spend.
So that, we are not doing, we're not announcing we're doing that obviously right now, but that potential is there.
We have some of the highest best positions in onshore North America, and we have focused on delivering outstanding returns on that, and we could ratchet up to some degree our capital spending and be confident that we could maintain those returns.
As far as the 2017, or excuse me, the 2018 capital program, basically what we're ---+ we're not going to give you a specific numbers there, but do feel comfortable stating that we're roughly planning to once again spend within cash flow and deliver on our growth targets that we have outlined there.
Another thing to keep in mind on that, the 2018 capital spend really has a bigger impact on 2019 production than it does 2018 production.
Really the bulk of the 2018 production, given the time delay between when you spend the money and you have first production, is largely determined by the 2017 capital spend.
That is a decision that we will visit the second half of 2017.
We are very confident that Pike is going to be like Jackfish, in the sense that it's going to be a top-10%-type project in the SAGD.
Geologically, it looks just as good if not better than the Jackfish project, and obviously, we've shown the ability to execute on the construction side at Jackfish as well as anybody, and we have the graphs in our operations reports that just show the efficiency with which we're able to manage that production to, in terms of steam-oil ratios, and also goes back as well to just the quality of the reservoir.
So we like the project a great deal.
Now obviously, the question is not what prices are going to be in 2017, but what we anticipate prices will be when first production happens, which would probably be around 2021 or so.
So, we are hoping to get at some greater clarity on that question.
There are other variables that obviously factor into it beyond price, and also just the capital costs.
We do not necessarily see the proposed border adjustment tax as a negative to Canadian prices.
We do see where it could be positive overall for our portfolio, in that the bulk of our oil is in the US, and we think it would cause WTI prices to go up.
It may cause the differentials to increase a little bit, but not necessarily lower the price is coming out of Canada, because that heavy oil is needed by the refineries here in the US, that's what they are tooled to handle.
And with the decrease in Mayan crude particularly too, we think the draw on Canadian crude will still be there largely.
So we don't see that as a negative on our Canadian operations at all.
You might even benefit from a positive FX as well, impact to it.
We will visit that question the second half of the year.
We like the project a lot, but obviously does take a ---+ it's a little bit lower return than our well oriented programs here in the US, but the way I describe it is more the bond in our portfolio.
It is a lower risk, we know how to do it, and generate good returns with it.
So we will make a call with our partner, BP, later on in the year on this.
<UNK> is dying to tell you about it <UNK>, that is what we call our [Maveta] area down there, so I'll let <UNK> talk about it a while.
<UNK> would like to do this one, also.
<UNK> I'm not sure exactly where you're going with that, but what I would say is that we obviously are driven by returns in all of our capital allocation decisions.
Those returns were largely driven by what our anticipating prices are for both oil and natural gas.
Given right now the reality of strength of oil compared to natural gas, that does mean that the bulk of our capital program is going to those plays that have a higher proportion of oil versus our dry-gas-type opportunities.
We still have some of those in the portfolio, and the Barnett would be the big one, and some areas even in a deeper part of [Cana], for instance, that we are not having a lot of activity going.
So that will drive our capital allocation decisions.
Just our belief in what the relative strength of the commodities will be.
And obviously that not only does it from our capital allocation, but we take that into account when we are making strategic decisions, as to where we think the portfolio should be positioned.
We are spending money there not to maintain production.
We are 100% dedicated to putting our capital where we believe the highest returns are.
In the case of the Barnett, and <UNK> can detail it, we are spending a little bit of capital there this year, not a large amount, because we are investigating the how well a new refrac design, which may be around $700,000 versus previously was around $1 million to $1.2 million cost to refrac those wells, how well that is going to work.
And if that is successful, it could have returns that are very competitive within our portfolio.
There's also the potential that with a modern drilling and completion design, that you could also have returns that are competitive within our portfolio.
Remember, we haven't had an active drilling program there for several years, and there has been tremendous advancements on both the drilling and completion side since then.
So we are not putting a lot of capital into that, but the only reason we are is because we believe that could lead to a program that could be competitive within our portfolio, or any body else's portfolio, if we choose to make a strategic decision around that.
<UNK>, real quick this is <UNK>, just to add on a little bit to the end of that, just to provide a percentage.
About three-quarters of our activity will be development drilling, and that is one of the reasons why we are so confident with our production outlook with the Delaware Basin.
If you look at our Operations Report, you are going to see greater than 20% growth from Q4 to Q4 on a 2017 to 2016 basis.
Obviously, we expect to stabilize production in the first quarter, and even more important I think is just how excited we are about the momentum that carries into 2018.
So this is absolutely going to be a strong growth asset with some of the best returns in North America.
I am not going to announce anything today, so I'm not sure I can really answer that question fully.
But I would say we're working both sides to really understand what the potential is in a more complete manner in our core plays, both in the STACK and the Delaware Basin, as well as trying to make sure we understand the true value of other assets that may be considered for monetization.
You never have complete knowledge, we understand that.
There is not a set point in time where you fully understand, and you make this call.
But it's our judgment right now that we would like to learn more, rather than make that decision today.
But again, it is not lost on us that there is a ---+ at some point, that call will have to be made one way or the other.
We certainly, as I keep saying, have not shown any reluctance to do that historically, when we think the time is right to do that.
We fully understand the values that are being paid in the Delaware Basin.
We understand all of the variables.
I don't need to lay them all out on the table here, I don't think.
But we just feel it would be helpful to have some increased knowledge at this point of the continued appraisal in both the STACK and Delaware Basin, before we make that final call.
I would say that is probably on balance, probably the more likely scenario, that we would go that direction.
Yes, I would agree with that.
<UNK>, this is <UNK>.
With regards to the inventory, probably two-thirds is going to be in the basin, which we consider is superior returns to the slope.
And as far as the acreage, you are probably looking at 55% of our acreage from a surface perspective is going to be located in the basin as well, so we're certainly levered to the basin.
<UNK>, your question, you broke up a little bit, your question is what landing zones for the Bone Springs at those particular wells.
And I will hand it over to <UNK>, but essentially those are in two very different areas, than where we have drilled historically.
It was the Thistle area obviously was one of those areas where we drilled at Bone Spring, and I believe it is the <UNK> area is where we drilled our other Bone Spring.
<UNK>, feel free to jump in, but obviously I believe it is a second Bone Spring is what the <UNK> area would be targeting, and when you think about the Thistle, it may be more shallow member of the Bone Spring.
But <UNK>, just to provide a more global thought, when you think about our overarching inventory in that play for the Bone Spring we have inventory across the first, second and third members of the Bone Spring, and it just depends on where you are at within the basin, it can be very localized.
But certainly we are more heavily levered toward that second Bone Spring opportunity, which we believe delivers the best returns.
<UNK>, one thing to add with that, it is really ---+ we have been asked a lot about the upside with the STACK play, and one example that is lost on a lot of people but not you would be that with the offsetting well actually not showing degradation, and a lot of that comes down to landing zone.
We're still optimizing landing zones in this early stage play, so as we continue to better understand landing zones and we extend these laterals out further, that's where we expect well productivity and capital efficiency to continue to ratchet up in this play.
The forecast is based on our type curve, <UNK>.
We will be happy to, <UNK>.
I tell you when you look at the results we are seeing, it is extremely early.
The results have been above-type curve, and the wells are cleaning up.
But if you remember, we are about, we are probably about halfway through on a real-time basis on the completion of these wells, and so the flowback is pretty early.
I believe the questions <UNK>, were not around the sale of any of our core assets.
The core of the Delaware Basin or the core of the STACK or anything, more directed around some assets that we can still have some capital programs, that are probably well above the cost of capital, but they are not going compete in our portfolio, and not going to receive capital.
And so the question is, I believe people are asking is, at what point will you make that decision that is not going to be an area that you will allocate significant capital to, and might consider for rationalization.
But certainly, there is no consideration on our point of selling any of the core assets in our portfolio.
We're glad we have them, and we think we are some of the best, and we will execute on them incredibly well.
I think that is probably the questionable area.
I am showing we are at the top of the hour and there are still a lot of people left in the queue, so we apologize for everyone that we are not getting to, but please don't hesitate to reach out to the Investor Relations Team at any point, which consists of myself or Chris Carr, and have a good day, and we do appreciate your interest in Devon.
Thank you.
| 2017_DVN |
2015 | CPF | CPF
#Good afternoon, ladies and gentlemen.
Thank you for standing by and welcome to the Central Pacific Financial Corp.
's second-quarter 2015 conference call.
(Operator Instructions) This call is being recorded and will be available for replay shortly after its completion on the Company's website at www.CentralPacificBank.com.
At this time I would like to turn the conference over to <UNK> <UNK>, Executive Vice President and CFO.
Please go ahead.
Thank you, Laura, and thank you all for joining us as we review our financial results for the second quarter of 2015.
With me this morning are <UNK> <UNK>, President and Chief Executive Officer; <UNK> <UNK>, President and Chief Banking Officer; and <UNK> <UNK>, Executive Vice President and Chief Risk Officer.
During the course of today's call, management may make forward-looking statements.
While we believe these statements are based on reasonable assumptions, they involve risks that may cause actual results to differ materially from those projected.
For a complete discussion of the risks related to forward-looking statements, please refer to our recent filings with the SEC.
And now I'll turn the call over to <UNK>.
Thank you, <UNK>.
Net income for the second-quarter 2015 was $12.3 million or $0.39 per diluted share, compared to net income of $10.4 million or $0.29 per diluted share reported last quarter.
We will provide color on a few nonrecurring items that impacted our second-quarter results.
Return on average assets in the second quarter was 1%, and return on average equity was 9.93%.
Net interest income increased by $1.1 million or 2.9% sequential quarter, as average interest-earning assets and average loan yields both increased.
The sequential quarter increase in loan yield was primarily driven by a $400,000 increase in loan fees and a $200,000 increase in loan prepayment penalties.
Net interest margin increased to 3.32% from 3.28% last quarter.
And again, this was positively impacted by the increases in loan fees and prepayment penalties.
In the second quarter we executed an investment portfolio restructuring, where we sold roughly $120 million of available-for-sale securities yielding 1.35% and reinvested the proceeds in a like amount of new securities yielding roughly 2.70%.
The repositioning will increase net interest income by roughly $135,000 a month going forward.
At June 30, 2015, the investment portfolio weighted average life was 5.5 years.
The overall balance sheet remains neutral to slightly asset sensitive.
Net interest income decreased by $3.1 million or 27.4% sequential quarter.
The decrease was primarily driven by the $1.9 million pretax loss on investment security sales related to the investment portfolio repositioning, and a net $0.7 million decrease in unrealized gains/losses on loans held-for-sale and interest rate locks.
Noninterest expense decreased by $1.6 million or 4.6% sequential quarter.
The decrease was primarily attributable to a one-time $2.4 million reversal of an accrual for a former executive's retirement benefits that will not be paid; lower legal and professional services fees of $0.6 million; and lower amortization of mortgage servicing rates of $0.5 million.
These decreases in expense were partially offset by a $2 million contribution to the CPB Foundation.
The efficiency ratio for the quarter declined slightly to 71.47% compared to 71.73% in the previous quarter.
The efficiency ratio in the second quarter was negatively impacted by the nonrecurring loss on investment security sales and CPB Foundation contribution, partially offset by the nonrecurring salary and employee benefit accrual reversal.
Our effective tax rate in the second quarter was 39.2% versus 35.7% in the first-quarter 2015.
In the current quarter, our effective tax rate was inflated by an additional $0.6 million in nonrecurring income tax expense related to a reduction of our deferred tax liabilities for FHLB, Federal Home Loan Bank, stock dividends.
We would expect our normalized effective tax rate to approximate 35% to 37% going forward.
During the quarter, we recorded a credit to the provision for loan and lease losses of $7.3 million, compared to a credit of $2.7 million recorded in the prior quarter.
The credit for the provision for loan and lease losses was primarily attributable to improving trends in credit quality during the quarter.
Nonperforming assets declined by $8.7 million or 21.2% sequential quarter.
And we also recorded net recoveries of $2.8 million during the second quarter.
As mentioned by <UNK>, during the second quarter we repurchased roughly 3.48 million shares of common stock at a total cost of roughly $80 million.
The average cost was $0.2301 per share repurchased.
At June 30, 2015, the remaining buyback authority under the share repurchase program was approximately $24.2 million.
That completes the financial summary, and now I'll turn the call over to <UNK>.
Thank you, <UNK>, and good morning, everyone.
Overall, we remained on track with our business development initiatives and continued to benefit from the improving market and economic conditions in Hawaii.
As of June 30, 2015, compared to the end of the previous quarter, total loans increased by $38.3 million or by 1.3%.
The sequential quarter growth was driven by the consumer segment, with consumer loan balances increasing by $23.2 million or 6.6%, and residential mortgages increasing by $51.7 million or 4%.
While the production of commercial and business loans were on track with our projections, net loan growth was impacted by the timing of payoffs, with the larger payoffs related to construction projects.
Commercial and industrial loan balances as well as commercial mortgages remained relatively flat.
Construction loan balances declined by $29.2 million or by 25.9%, and we project that our construction loan balances will be relatively stable throughout the remainder of the year.
Loan growth was also impacted by the timing of some loans that we anticipated would close during the second quarter that will now close during the third quarter.
Total deposits on a quarter-over-quarter basis remained relatively flat, declining slightly by 0.2%.
However, we realized a significant shift from time deposits to core deposits, primarily driven by our efforts to expand core relationships with our customers.
Noninterest demand account balances increased by $37.6 million or by 3.6%.
Interest-bearing demand increased slightly by $1.3 million or by 0.2%.
Savings and money market account balances increased by $13.9 million or 1.1%.
These increases were offset by a reduction in time deposit balances, $59.2 million or 5.4%.
On a year-over-year basis, total deposits were up by $179.7 million or by 4.5%.
Core deposits increased by $208.8 million or 7.1%, and time deposits declined by $29 million or 2.7%.
From a service delivery perspective, we are making good progress in expanding and integrating our channels.
Enhanced online bill payment features were launched on June 1, which included same-day bill payment and an expedited person-to-person, or P2P, payment function.
CardValet, a customer-controlled security monitoring application for debit card users, was introduced on July 1.
We are also scheduled to begin reissuing EMV chip embedded debit cards to our customers in August, as well as to go live with Apple Pay for our mobile banking customers.
That completes my summary on our business development activity, and I will now turn the call back to <UNK> for her closing remarks.
<UNK>.
Since the recapitalization of our Company in 2011, we have continued to make great progress as reflected in 18 consecutive quarters of profitability, the successful execution of our stock repurchase program, and the reestablishment of our market presence in Hawaii.
I am personally grateful for having had the opportunity to participate in the Company's turnaround under the leadership of <UNK> Dean, who is continuing to support our endeavor to become a high-performing bank as Exec Chair and Board Chair of both our Bank and Holding Company.
As the newly appointed CEO of our Company, I am focused on continuing our mission of building a quality institution around our customers and to continue supporting the businesses and residents of our community through quality relationships.
I would like to take this opportunity to thank our shareholders, customers, and employees for their continued support and confidence as we work toward achieving our goals.
At this time we'll be happy to address any questions you may have.
Good morning, <UNK>; this is <UNK> <UNK>.
I think the larger recoveries are the residual of our more challenging times in the past.
We would expect to see those diminish as we move into the future.
In general with the provision, I think we've enjoyed a fairly sustained period of continued credit quality improvement.
That's been reflected in the declining reserve ratio, which has provided for credit releases.
So all things being equal, I would think that trend would likely continue, and we would probably continue to move closer in the direction of our peer group.
Hey, <UNK>; this is <UNK>.
I'm cautiously optimistic about the third quarter, because it's hard to project out for the next six months.
But I think in the near future, again we're optimistic that our growth will be pretty robust.
As I look at the pipeline going into the third quarter, we do have a number of loans that should be closing.
As I mentioned earlier we had some loans that for timing reasons didn't close in the second quarter that will close and fund in the third quarter.
And these are commercial real estate related, not construction; more income property related type product, as well as some C&I loans that we expect to close.
So again, I'm pretty optimistic about the third quarter.
Let me turn the question over to <UNK>.
<UNK>.
Hey, Aaron.
We're seeing a little bit of slowdown in the applications, but I think our production has been pretty stable.
On the HELOC side, were pretty encouraged by the number of referrals we're getting from our branches and other lines of business.
So when you put together the residential mortgage and the HELOC production, I'm pretty optimistic going forward that we'll have some good production.
Yes, so, the thinking is we will continue on our pace with dividends.
So dividends will continue to be in what I think of it as a peer range, so a payout ratio in the 40% range, and yield 2% to 2.5%.
Then on top of that, we do plan on an ongoing repurchase program to eliminate the incremental annualized retained earnings.
But I don't think you will see the kind of repurchases that you say in Q1/Q2 of 2014 and then earlier this quarter, so those more significant repurchases.
I don't ---+ we don't currently plan for those kinds of repurchases as opposed to an ongoing repurchase program to eliminate retained earnings.
Sure, thanks for not letting me off the hook.
But over the last year, from an asset liability standpoint, we have been focused on trying to add to the loan portfolio a little more asset sensitivity.
So we did see a ---+ we have seen a pickup in home equity loan originations.
We signed to portfolio a greater percentage of adjustable-rate mortgages in the residential mortgage area.
We have seen a pickup in construction and business lending.
And then, finally, we obviously have a small allocation to Shared National Credits.
All of those loan categories are variable categories.
So we have been increasing our asset sensitivity, and what we saw in the second quarter was an opportunity to enhance profitability with a small repositioning of the investment portfolio.
So $120 million, roughly 2% of the assets, we did extend duration on that portion of the balance sheet.
It's going to add roughly $130,000, $135,000 per month going forward.
The earnback is about 14 months.
Good question, <UNK>.
If I recall correctly, I think it took place in late April.
So we have had it in the quarter for two or three months.
In the second quarter, <UNK>, it was on the lower end.
Again, there was some focus on the adjustable, variable-rate loan originations.
So the weighted average new loan origination yield was roughly 3.60% in the second quarter.
It might be slightly higher.
I can start on the OpEx run rate.
The guidance there is pretty similar to what it has been.
We are targeting a range of $32 million to $34 million per quarter on OpEx.
And in regards to just specifically on the tech initiative, so the one we spoke about last quarter, the Encore system, which is our front-end branch teller platform and also supporting our back-office, the pilot is underway.
We actually commenced with the second pilot last week, and things are looking very good, so we do currently expect a full rollout before the end of the year.
Then on the other significant project that we've talked about in earlier calls, the enterprise data warehouse, we continue to make significant progress on that and expect to see deployment of data porting to the new warehouse, key information, before the end of the year.
But in the meanwhile ---+ and I believe we've talked about this in earlier calls ---+ we've already started applying our analytics to our existing warehouse, and we are seeing lift from the analytics work on our loan and deposit portfolio.
<UNK>.
Yes, hey, <UNK>.
That was ---+ some of it was on the government, the municipal deposit side.
So those deposits tend to be a little more volatile.
And actually ---+ so we did see that run off right at quarter end, and some of those large CD balances have already returned.
So it was more just a little bit of volatility in the large CD area.
It wasn't part of any type of asset liability strategy.
Let me turn the question over to <UNK>.
Good morning, <UNK>.
There was one large loan that we were fortunate enough to exit.
So the bulk of it was a single asset.
Sure, let me turn that question over to <UNK>.
Good morning, <UNK>.
Of the remaining $32 million, all of it is in Hawaii.
About $10 million is in the residential mortgage business which is ---+ it ebbs and flows.
And then the balance is just more traditional community bank C&I type business, so more what I would consider our normal activity in the NPA bucket.
Yes, I think most of the ---+ it's fair to say that the legacy credits have largely worked through the system, and that we still see some opportunity for improvement but we're getting close to a normal run rate.
Thank you.
We do.
What happens ---+ it's hard for us to control the timing of fundings and paydowns.
Again, while we anticipate some activity on the construction side, there are some chances that we might see some paydowns on some existing projects.
So net-net we may not see growth in that construction area.
And we're more focused on income property type lending, so I think we're more optimistic and want to focus on both the C&I and commercial or income property front.
Part of it was HELOC production.
The other part was a campaign that we did on the preapproved consumer terminal campaign that we've done over the past few years.
And then we did take advantage of an opportunity to purchase an auto loan portfolio.
Yes, it was about $28 million.
Okay, <UNK>.
Thank you very much for participating in our earnings call for the second quarter of 2015.
We look forward to future opportunities to update you on our progress.
| 2015_CPF |
2017 | TIVO | TIVO
#Good afternoon, everyone, and thank you for joining our call.
I am <UNK> <UNK>, Head of TiVo's Investor Relations.
With me today are Tom <UNK> and <UNK> <UNK> as well as Samir Armaly for Q&A.
We just distributed a press release and filed an 8-K detailing our third quarter 2017 financial results.
In addition, we posted a downloadable model on our IR website showing our historical financial results and non-GAAP to GAAP reconciliations.
After this call, you will be able to access a recording of this call on our website at tivo.com.
Our prepared remarks will last about 15 to 20 minutes, followed by a question-and-answer session.
For the purposes of this call, when we refer to TiVo Inc.
, we are referring to legacy TiVo Inc.
entity and its business that was renamed TiVo Solutions after the acquisition by Rovi.
Otherwise, references to TiVo mean the combined company operations of TiVo Corporation.
Our discussions include forward-looking statements about TiVo's future business, licensing, product and growth strategies.
We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from these forward-looking statements as described in our risk factors and our reports filed with the SE<UNK>
Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them, except as required by law.
With that, I will now turn over the call to our CEO, Tom <UNK>.
Tom.
Thank you, <UNK>, and good afternoon.
TiVo continued its strong execution in the third quarter, delivering solid financial results and making progress in all areas of our business.
We drove strong operating cash flows and declared a Q4 dividend of $0.18 per share, bringing our total expected dividend payments for 2017 to $0.72 a share or roughly $87 million.
Before getting into those specifics of the quarter, I wanted to take a couple of minutes to remind investors of what TiVo is today.
TiVo has moved well beyond a hardware company, and is now an innovative, entertainment technology company.
To that point, 95% of our revenues this quarter came from software, services, advertising and licensing.
Today, our business falls into 3 categories: first, Platform Solutions, where we offer end-to-end user experience software solutions for pay-TV operators in both developed and emerging markets.
These products focus on bringing OTT offerings into the pay-TV experience, and helping operators provide great multi-device experiences; the second area is Software and Services, where we offer components of the entertainment experience, ranging from metadata to advanced search and recommendations, including voice search, advertising and data solutions.
In this area, our customers include pay-TV operators, CE Manufacturers, ad-tech companies, content providers and even streaming music providers; and finally, IP Licensing, aimed at those who wish to build their own solutions.
They can license our world-class intellectual property in order to provide a robust entertainment discovery solution.
Our customers include 9 of the top 10 U.S. pay-TV providers, some of the leading virtual pay-TV operators, the largest international pay-TV operator, mobile device manufacturers, OTT players and other CE providers.
All of these businesses have been built on innovative and compelling entertainment technology.
Over the last decade, TiVo, including both Rovi and TiVo Incorporated, has spent almost $2 billion in R&D, making the consumption of entertainment better.
And we're continuing to put significant resources towards this goal.
Now getting into the specifics of our third quarter.
Starting with our product efforts.
We recently launched conversation in our next-generation retail product, which is important, as voice is becoming a critical element of the entertainment experience.
TiVo strives to set itself apart from other voice solutions in 3 key ways: focusing solely on the entertainment domain, facilitating natural language interactions by leveraging our Knowledge Graph, and providing an increasingly personalized experience.
Also, began deploying our new, visually-rich user experience, both in our retail channel and with operators, and officially launched our next-generation operator platform with Millicom in Columbia.
This is a positive milestone as Millicom is one of the largest pay-TV and mobile operators in Latin America.
And we believe success there can help us drive footprint expansion in Latin America and other international markets.
Finally, we've made a significant amount of progress with several of our product-growth initiatives.
And while not yet visible, we expect these efforts to start showing results next year and beyond.
One example of this is IPTV, where there is a significant opportunity to accelerate upgrades from current customers and to meaningfully grow our footprint.
Our IPTV product will enable pay-TV operators to deliver a great user experience with multiscreen and OTT functionality, but with much lower operational and deployment costs.
We anticipate this product being available in the first half of 2018.
Looking forward, we expect IPTV, upgrade to classic guides and international expansion to be important drivers of our Platform Solutions business.
Another area we're very excited about is data and advertising.
Data is an important enabler for TiVo to bring many new capabilities, including advanced advertising and media personalization.
Today, TiVo processes TV-viewership data for over 25 million U.S. households.
We have obtained rights to millions of TV households for anonymous, de-identified third-party use, and we're seeing strong demand for our TV data platform offering.
We expect this offering to continue to grow as we onboard more households.
We will also be rolling out an innovative, new interactive advertising service.
This solution will be available to customers that use the TiVo user experience or our search and recommendation product, to allow more targeted and personalized promotions.
Our continued advancements in data, advertising and search and recommendations are key areas of innovation, which we believe will drive future growth for our Software and Services business.
Shifting to our IP business.
We had a very good quarter.
We signed a 3-year extension with AT&T, extending the license through 2025.
This extension with the largest pay-TV operator in the U.S. highlights the long-term value and relevance of our intellectual property to U.S. pay-TV providers.
Together with previously announced long-term agreements with other leading U.S. pay-TV operators, this provides a strong foundation and corresponding annuity-like revenue stream well into the middle of the next decade.
We also renewed and expanded our IP-licensing relationship with Liberty Global, the largest pay-TV operator outside the U.S., bringing their entire footprint under license.
And we announced a multiyear renewal with Sony, that licenses all of their relevant entertainment products, including OTT and virtual pay-TV.
Looking forward, bringing Comcast under license remains one of our top priorities.
While we are pleased with the success we have had bringing the rest of the U.S. pay-TV market under license, as we have cautioned before, litigation can be a long process.
However, we are committed to taking the necessary steps and actions through the courts and other venues to ensure that our valuable intellectual property is properly respected by Comcast.
With respect to the pending ITC action, we expect the final determination will be issued on November 9.
We remain hopeful that the ITC will affirm the key aspects from the initial determination, including the exclusion order barring Comcast from importing infringing products.
Beyond the upside from a potential licensing agreement with Comcast, we believe there are multiple significant opportunities for our IP Licensing business where we can grow recurring revenue.
This includes making further progress with international pay-TV operators, especially in Canada, signing additional deals in the mobile and OTT spaces and opening some new adjacent verticals.
We will discuss these opportunities in more detail in future quarters as we continue to make progress in signing new licensees.
With that, I will turn it over to <UNK> to cover our Q3 financial results before returning for some brief closing remarks.
<UNK>.
Thank you, Tom.
To reiterate what Tom said, we delivered solid financial results in the third quarter.
Revenues were $197.9 million, up 29% from the third quarter of 2016.
This increase was largely driven by the acquisition of TiVo Inc.
Third quarter revenue include $23.6 million of legacy TiVo time warp-related IP revenue, $9.9 million of hardware revenue and $600,000 of other revenue, almost entirely ACP.
Excluding these items, our core business generated $163.8 million in revenue.
Product revenues were $103.6 million, up $33.6 million from Q3 2016.
It is worth highlighting our advanced user experience products, including both higher-end and emerging-market offerings, continue to grow and are helping to offset headwinds from our legacy guide products.
IP Licensing revenues were $94.3 million, up $11.2 million from Q3 2016.
There was approximately $7 million of catch-up IP revenue in the quarter, bringing the year-to-date total to $28 million.
On a sequential basis, our revenues include $9 million less in catch-up IP revenues when compared to the second quarter.
Turning to cost.
We exited the third quarter taking synergy actions that will result in annualized savings of almost $90 million, well in excess of our 1-year target.
Additionally, this puts us very close to our in-state target of $100 million in annualized synergy savings.
Getting into the details, GAAP total operating costs were $199.5 million in Q3.
Q3 GAAP operating costs include $41.7 million relating to the amortization of intangibles, $13 million related to stock-based compensation and $8.9 million of cost related to restructuring, transition and integration efforts and several smaller items.
On a non-GAAP basis, non-GAAP total COGS and operating expenses, including hardware and depreciation, were $135.8 million, up $2.9 million from last quarter.
The increase was primarily driven by the timing of litigation spend, which can be lumpy.
On a GAAP basis, we reduced our net loss before taxes to $12.6 million in the third quarter from a net loss before taxes of $29 million in the third quarter of 2016.
On a non-GAAP basis, non-GAAP pretax income of $54.1 million was up from the $45.6 million in the third quarter of 2016.
Estimated cash taxes for the quarter were approximately $5 million.
GAAP and non-GAAP diluted weighted average shares outstanding for the quarter were 121 million and 122 million shares, respectively.
For those interested in calculating our non-GAAP EPS, take our non-GAAP pretax income, subtract our cash taxes and divide by non-GAAP weighted average shares outstanding.
Finally, we generated strong operating cash flow in the quarter.
That said, our cash position was basically flat sequentially due to our dividend payment, the timing of some IP Licensing collections and the final licensing payment to a third party.
Turning to our estimates for 2017.
We provide estimates as to our revenues and pretax income.
In addition, to allow investors who want to calculate certain non-GAAP metrics, such as non-GAAP net income and non-GAAP EPS, which we don't provide in accordance with the SEC's guidance from last year, we provide estimates of non-GAAP pretax income, expected cash taxes and non-GAAP diluted weighted average shares outstanding.
We continue to expect full year 2017 revenues of $810 million to $830 million.
On the cost front, we are maintaining our 2017 non-GAAP pretax income expectations of $218 million to $232 million.
In terms of adjusted EBITDA, we're maintaining our expectation of $276 million to $290 million.
Recall that we increased these ranges last quarter, as we are running ahead of our plan on cost reductions.
Additionally, for those looking to calculate our non-GAAP EPS expectations, we expect to have cash taxes of $20 million to $22 million, and approximately 122 million non-GAAP diluted weighted average shares outstanding for 2017.
Our expectations at the midpoint continue to include approximately $35 million of hardware revenues and approximately $45 million of non-GAAP hardware COGS.
Finally, we can either expect to exit 2017 with annualized Q4 non-GAAP total COGS and OpEx cost of approximately $540 million.
The one COG you have on the run rate, exiting the year remains the timing and extent of litigation spend.
To wrap up, we delivered another strong quarter.
We remain intently focused on continuing our operational and financial execution as we end 2017 and look to next year.
With that, let me turn the call over to Tom for some closing remarks.
Tom.
Thank you, <UNK>.
Before opening the call for questions, I wanted to comment on our CEO search.
As we disclosed several weeks ago, we're making progress and expect to have the process wrapped up shortly.
In closing, we had a strong first 9 months of this year, where we've not only delivered solid financial results, but put ourselves in a great position to create both near- and long-term shareholder value through continued strong execution.
I am proud to see several of our efforts poised to begin driving the results as we look to next year and beyond.
With that, let's take questions.
Operator.
That would be correct, <UNK>.
Yes, it does.
It includes the Sony PlayStation Vue.
Probably need a little help on that one.
<UNK>, you were breaking up a little bit.
So I was having a hard time in hearing the question.
Well, that was ---+ the discussion was centered around the IP deals, that we were trying to negotiate.
And that they were taking longer to do because basically we wanted to locate ---+ we want to license directly with the service provider, and not through the box manufacturer in order to cover all of their households.
Because not all the households are totally covered by one-box manufacturer.
And in the past, we've done some deals going directly with box manufacturers.
And that's what was elongating the deals.
Millicom is really more of a product deal that we've been talking about in terms of getting our product deployed.
Yes.
So <UNK>, this is Tom.
The basic approach is still very much try to go to the operator and license them on a recurring-revenue basis, on a per-sub-for-month basis.
So that's the game plan here in North American and also in Latin America.
Yes, it's great question.
And so we ---+ we actually have a variety of products to go down there.
I think if you, kind of, go back to the legacy Rovi days our a Passport product, it is always been a pretty active product in Latin America and continues to be.
We certainly think the full suite of the TiVo products are also our product down there.
You'll also see some of our Cubiware product, depending on the particular country, going to the certain parts of Latin America.
So for us, it's a bigger market.
The ARPUs aren't as high as what you would get in North America, but certainly a good market for us historically, and we think going forward, too, particularly with the combination of the Passport Guide, the TiVo Guide and Cubiware.
And the territory there, over the past we've announced a couple of deals.
So it is the area that where we're very favorably exposed to.
Okay, guys.
Thank you very much.
I appreciate you guys joining the call.
I know it's a busy day with lots of earnings announcements going on, and we certainly look forward to talking to some of you in the call in the next 24 hours or so.
So thanks very much for joining the call.
| 2017_TIVO |
2015 | JBL | JBL
#Thank you very much.
Hey, <UNK>, it's <UNK>.
Yes, I think last year it was probably closer to $65 million ---+ $65 million, $68 million, something like that.
I'd consider this year to be more than that just because if you kind of look at the scale of DMS and the size of the business, so ---+ maybe you could ratio that a little bit by revenue.
I'd kind of think of it that way and I would think of it ---+ it's a [expletive]shoot on how it lays in.
It will lay in Q3, Q4 but what percentages for what.
It's hard to tell because it's a lot of work on a lot of different programs and a lot of moving parts, so kind of take your guess.
Maybe ---+ I don't know, maybe a 60/40 split Q3 to Q4, something like that, but it's anyone's guess, <UNK>.
I guess it depends.
It depends on what programs we win and what opportunities we have, and if we have the good fortune to make these types of investments if we can continue to grow earnings.
So it depends.
It's a combination of all kinds of different engineering, process, automation, et cetera, et cetera.
So let me understand the question.
Can you ask the question again about ---+ are you talking about Q2.
Yes, I understand your question.
I think for the sake of modeling, EMS is going to be a bit softer in Q2, so I wouldn't hold it flat.
I think EMS will be more ---+ I don't know ---+ 2.5% range, 2.7%.
Something like that.
And that should adjust your DMS model.
Yes, you as well.
Sure, <UNK>.
It's <UNK> again.
I think I hit on it a little bit this earlier if you're talking about ---+ if you're talking specific to healthcare.
We have a bullish outlook on it.
But I'd caution you, everybody's ---+ not everybody ---+ there's a lot of people racing to that space.
It's a space that's being disrupted in a lot of different ways.
It's being disrupted at a hospital level.
It's being disrupted with data, it's being disrupted from a digitization and a mobility perspective.
It's being disrupted as far as industry consolidation, if you just look at the megamergers that have taken place.
So if we're thoughtful about it, that disruption can be good for us.
And then what I mentioned earlier is, you take all that and add wellness to that, and the lines, I think, over time may get blurred between what's wellness and what's truly healthcare.
If the demarcation line is kind of FDA type of stuff, I don't know that anybody knows exactly where that will end up, but it's a market with a kind of a lot of lather around it right now and disruption, and we're very interested in it and if we got the right solutions, I think it'll be good for us for the next two, three, four years.
Have a great holiday.
Okay.
Thank you very much, operator, and thank you, everyone, for joining us on the call today.
We will be here for the rest of this week.
I will remind you that we do shutter for the holidays here in our corporate offices, and so if you want to talk to us, get in this week.
All right.
Thank you.
Happy Holidays.
| 2015_JBL |
2016 | NTCT | NTCT
#We can't hear you now.
We lost you on that, <UNK>, can you repeat the question.
It's on a proforma basis, so it would be off of a 21% base for fiscal year 2016.
Yeah, so I think just maybe repeating or expanding on what I said, <UNK>, earlier, so competitive environment is not changed or actually better for us as people are seeing the power of the combination of TekComm and NetScout on the carrier side.
Also, in terms of better conditions, there is some competition from (inaudible) and we think our emerging big data strategy is actually going to convert them to partner.
So given those things, our competitive environment is really improving.
Yet, we see challenges approach versus last year then moving forward, so in the short term we are doing several things.
And some of the visits I had is generating some interest.
But the impact of that is not really going to see, it not going to be seen until next year.
And next year, even if the environment is the same, we think our total addressable market will technically improve because of all the product integration which will become aligned before the end of the fiscal year.
So that's where we see the market mix.
The M&A we were talking about was that in the enterprise sector, because we are one of the unique companies in service assurance which has decent, big business built on the enterprise sector and on the service provider side.
On the enterprise side, the bigger difference has been end to end monitoring.
That means we can tell you when there is a problem, is it the network or is it the server.
That has not been true on the service provider side because those servers are owned by the content providers.
So sometimes there is still finger pointing when you have for example bad quality of service.
Is it the network or the server.
So we feel that we owning the service provider now getting into the content business, will create yet another differentiator for NetScout because we are the only one who can provide the end to end service assurance.
And in the process, customer satisfaction, which in turn will result in more investment in NetScout products.
Yeah, so maybe let me take the second question first.
So pipeline is still building out.
As you probably know that, we announced the software based solution only last month.
We made the announcement of availability.
In fact, probably this month.
And so the pipeline I think will gravitate toward the software solution over the next year.
But this year we don't see the impact, much impact.
Most of the pipeline is still traditional product.
And some of the pipeline which actually will result in product sales next year is actually moving toward the software set.
So pipeline is moving towards software, but the revenue is not necessarily going to be significant for the software this year.
And I think to your first question, I think we already mentioned that we saw very good growth on the enterprise sector and on the security part.
So if you look at our business as security, enterprise service assurance, and service provider service assurance.
So the first two areas, which is Arbor and traditional enterprise where NetScout is doing quite well, we are seeing some growth in that area.
But service provider service assurance is biggest portion of the business and we continue to see challenges which offset some of the growth on the other two areas.
Yes, it's everywhere.
But because the number of big providers in US is just a few, and that's a bigger portion of NetScout's business, percentage-wise the impact is more dominant in the US.
But yeah, it's across the board and I just gave, we gave two reasons.
They appear to have made a big investment in LTE and because of 4G explosion they have not been able to monetize it.
And a virtualization initiative has started, some of the decision making, where people say, why should I invest in this right now which is going to change in a year or so.
And those two in combination is creating the situation environment of lengthening sales cycles or renewing, negotiating fixed service contracts, or slower spending budgets.
Well I think maybe you are mentioning the Tektronix services solution versus NetScout services solution.
Because the packet flow switch solution was identical with both, and that's not necessarily a comparative.
Maybe you are mentioning that.
So when we look at spending, we are selling, we have a common platform now and on which we put Tektronix software or NetScout software as we go to the customer.
So we are able to service the demand of Tek customer or NetScout customer with a common platform.
So the spending issues and challenges are independent of whether it's a Tek customer or a NetScout customer.
Yeah, just to step back and just summarize our view on the service provider market, as we've said before, there are general trends, but everything is specific to each particular service provider.
As a general trend, the 4G here in the second half, where they are monetizing their networks, trying to get an investment, so we have had wins in VoLTE and we have wins as <UNK> has mentioned and will continue when it comes to On Demand.
We do not see it as a competitive issue whatsoever.
In fact, as other geographic areas including India, Asia and EMEA, are rolling out their 4G, they have turned to NetScout.
And this is why we have a software only solution.
They have bought that to be able to standardize on 4G and build out their areas.
So it is an evolution where there is a fourth half, the second half, I'm sorry, of their 4G and they are scrutinizing their investment.
And they're also looking at and designing and contemplating their 5G environment.
So we do not see it as a competitive issue.
We're in fact very happy after <UNK>'s travels around the globe with all the customers, that we feel secure in our differentiation with our scale, our real-time abilities, and our ability to go from the end of the ramp to their data centers.
But we just see it as a general trend as to where they go from implementing their 4G to 5G.
That's right.
Obviously, you'll see a bigger difference because Tektronix portion of the revenue was higher than the NetScout portion.
So in terms of scale, you'll see that.
But the same challenges apply to both, in both areas.
It should be relatively consistent on an absolute dollar basis from Q2 into Q3.
So what we've done over the last year, the last 12 to 15 months, is we've looked at the businesses, we understand the business models much better.
We understand where the market has been moving.
And we have been over the past year investing in the areas that are good growth areas as well as strategically looking at the headcount and some resources in some other areas that are not good growers.
So just going back to an earlier point, FY15 had proforma operating margins of 18% and then we improved them by 2 percentage points in FY16 to 21%.
And then our guidance as you know now, at the low end would imply 23%.
So what we're doing at this juncture, after understanding the market, any shifts in the market from when we bought the Danaher business, communications business, it's just looking at what assets we think make the most sense to continue to invest in.
And which other assets we should probably pause and see what makes sense to happen with those.
I think we talked about for Arbor double digit growth.
And for packet flow switch, we don't carve it out because we are again, <UNK>, different than all other packet flow switch vendors because our (inaudible) is the combined probe plus the (inaudible).
So that's why we don't carve it out like that.
But overall we have been winning competitive deals.
We look at PFS as an accessory to our probe business, so that's all bundled into our numbers.
And on the enterprise side we are seeing better growth rates because our overall business is growing there.
On the service provider, we see lesser growth rate for PFS because it's all a tag along with the probe business.
Sure, so the first point I would make is that one of our large tier ones has already explained to us their purchasing patterns, their requirements for what they would like from our product and their timing.
So that's why we understand that Q3 of last year, they had purchased significantly more in that quarter than they are planning to purchase in Q3.
They've actually told us they plan to purchase more in our Q4.
So that's the main reason for the shift in the timing of orders from Q3 of last year to Q3 of this year.
This year for service revenue, we might see an overall decline.
One, Arbor has been moving some of their traditional product revenue to more of a flex subscription, so that's got a significant impact.
And then as we have said, we're in the final stages of closing some large installed base customers' renewals.
And in the current environment where operating expenses are very important to them to constrain, we'll have to see how those negotiations go.
Thanks, <UNK>.
So yeah, when you look over the next 3, 4 years, long term vision, I think the majority of the products will move to the software area.
And we already enjoyed prior to the acquisition very high gross margins of 80% plus.
And I think this will become even higher.
And you're right, the price of the software is going to be about 30% to 50% cheaper per unit, but it will allow us to be deployed in more places where they were going with cheaper solutions or going with other technologies like Netflow and Competent Management.
So we believe overall impact, what we are hearing from customers, is people really don't buy our (inaudible).
They actually have budgets to buy whatever we have.
So we think that budgets for the customers are not going to decrease because they buy cheaper solutions or a cheaper unit.
They are going to fill it in more places and that will make us more pervasive.
And I think we have seen this trend in the past 10 years in the enterprise and I think we're going to see that again.
Yeah, so we are looking at that not this year, because we don't want to disrupt the current model.
We will look into that, into that area.
But the bigger opportunity of cooperation between the NetScout sales team and the Arbor sales team is in the advanced area which is practically zero revenue right now.
So Arbor basically had a DDoS product which is bulk of the business, and a product Spectrum which was announced earlier in the year.
And that will be consuming ASI technology before the end of the year.
And that's going to create great synergies on top of whatever cooperation we can do with the DDoS sales team in the future.
And that's why, just to add on to <UNK>'s question, that's why we're very happy with the Arbor asset.
Currently they are the market leader in DDoS and they've been growing very strongly.
But what we see is their next evolution and their next growth path is clearly a linkage with NetScout with the differentiation that NetScout's product and Arbor's product technology together can bring to the marketplace.
Sure.
Thank you, <UNK>.
So, as you know, we generate significant free cash flow.
And our first priority for deployment is to invest back in the business as we did this quarter with the acquired technology assets from Avvasi.
Following that then, our next deployment priority is to patriate excess cash to our shareholders and we've done that in the form of share repurchase.
We should be done with our 20 million share authorization in mid-July, and based on our continued anticipated success, we will continue to generate significant share, significant cash flow, to which end we probably will continue with the same deployment priority.
So that means we probably will go back to, or continue, I'm sorry, with share repurchase.
NetScout as a standalone basis before the Danaher TekComm communication had about 42 million shares outstanding.
And right now we have about 92 million, down from about a little less than 105 million.
So clearly there is a sweet spot somewhere between 42 million and 90-ish million that we will probably end up targeting with our next share repurchase program in FY18.
I'm sorry, <UNK>, you broke up.
I guess if you wanted to use the past as an example, we bought back 20 million shares over a two-year period, so in FY18, if we did that again, I think I heard you saying that we could be down to close to 70 million shares, which is not unrealistic.
Thank you very much, Operator.
And thank you, everybody who joined us for today's call.
Appreciate you taking the time to spent with us this morning.
We look forward to our next call when we announce our third quarter results.
And obviously, if we are on the road, we hope to see you in person.
Thank you very much.
| 2016_NTCT |
2015 | IT | IT
#There are assets in the US and there are assets outside the US as well.
And we are looking in both markets.
So you shouldn't take it as ---+ we are focused on one or the other.
We are focused on both and there's great opportunities on both.
So, Gartner is ---+ we are a leader in the technology industry.
It is a very cool industry to be in.
We are by any metric, if you look at glassdoor, et cetera, a great place to work and we have a great reputation in the marketplace.
Because of this tremendous reputation we have and also because we have a world-class recruiting organization, we don't have trouble hiring people.
In fact, as you saw this quarter, actually our sales hiring accelerated this quarter.
In addition to that, we don't just track numbers of people.
We actually have track metrics that indicate the fit of the people we hire.
One might call it quality.
We think about it as the fit of the quality we hire.
Not only did our growth rate accelerate but the actual forward-looking metrics on the fit of the people we're hiring now that just brought in, at this accelerated pace, are the best ever.
That keeps getting better over time.
So, because Gartner is such a great place to work, we are in a great industry, it's a great recruiting organization, we are able to attract great people at an accelerated rate.
In terms of attrition, our attrition is in the normal range in the range it has been in in the past.
Yes, that is correct.
We live in a very competitive marketplace.
There are lots of competitors, there are new innovators all the time.
That has been true forever.
We don't stand idly by.
We track competitors.
We've also talked many times in the past ---+ part of the core element in our strategy is continuous improvement and continuous innovation.
We every year introduce new products.
We don't rest on our Laurels.
We basically ---+ because innovation is central to our strategy, we are constantly improving getting better, stronger, faster every year with new products that are appealing to the most important things in the marketplace today.
So while we have today a very competitive marketplace with a lot of innovators, and we always have, and we have always done very well because we are aware of this.
We have respect for them.
We innovate to stay ahead and we're committed to continue to do that.
On the managing partners front, so we are very pleased that we have reached 100.
That's actually not the long-term target for us.
As our consulting business continues to grow, we will continue to bring on more managing partners to support and drive that business.
And so you shouldn't think of 100 as the finish line by any stretch of the imagination.
We will continue to grow the managing partner business to continue to support and drive growth on a long-term basis.
With regard to the second part of your question, in our consulting business we have the same strategy of continuous improvement and continuous innovation as we do across the entire business.
That business, the service lines we have, evolve continuously to reflect the changes in the marketplace.
And one of the things that we do in consulting is they build their service lines based on what's most important for our research organization.
So, by knowing what's most important to clients on things like digital best practices, the consultants can then apply that in the consulting space.
So, you shouldn't think that we are just adding more managing partners.
Actually our service lines are quite dynamic and innovate over time.
And that's what is driving the success of that business.
It is <UNK>.
So the two things that drive contract value are our sales productivity and the number of sales people we have.
And as I have talked before, in terms of sales productivity, we have a number of programs in place and we continue to innovate on those programs and others to drive sales productivity.
And in fact, as <UNK> mentioned, we are seeing sales productivity improve and that's because it that's the first thing that drives contract-value growth.
The second one is the actual size of our sales force.
As I mentioned before, as <UNK> mentioned, we have actually accelerated the growth rate in our sales force as well.
So both of those two things are the kind of forward-looking metrics you would expect to indicate that we can continue to grow our sales force over time.
We can continue to grow our contracts over time, in fact, at an ever-increasing rate.
And Joe, if you go back no our investor day materials, there is actually a slide that lays out the way we think about it in simple terms which is modest improvements in sales productivity coupled with 15% or 15% plus headcount growth, what that equates to in terms of contract value growth.
And so, that's why we have said long term our target is 15% to 20% from a research contract value growth perspective.
Again it is that combination of growing sales headcount and continued improvement to sales productivity.
So, Joe, there's, in terms of sales productivity, we have many programs, too numerous to name right here and some have been rolled out, some are in pilot and some are being developed.
And they all fall into the three categories I talked about ---+ either improved recruiting, meaning our ability to target the people that have the skills to be most successful at Gartner and the highest productivity.
We are getting better at that time all the time.
The second thing you mentioned is training.
In fact, we had a major improvement to our training which we are in the process, we're not quite finished rolling it around the world.
Or, I'm sorry, we just finished rolling it around the world, so you wouldn't actually have seen the full impact of that.
Of course because that's rolled out, we have other improvements in training behind that and we will have training improvements behind that as well.
Thirdly, again, we are continually improving our tool-sets as well.
And, again, we have a major new improvement for sales tools, particularly for new sales people that we're at the beginning of the roll-out for as an example.
We will continue with.
Again, when that's rolled out, we will have another thing behind that.
One way to think about it is we have version two, version three, version four, version five.
We don't ever say ---+ well, we got to version two and we are done.
And that's how we want to drive sales productivity over time.
Thanks, Joe.
What we are really, really laser-focused on is accelerating our growth rate in research which is our most profitable business, has the best flow through and really drives significant improvements to gross contribution margins.
And so we are 100% laser-focused on, as we just talked about, improving and accelerating research contract-value growth which then translates into research revenue growth and total company revenue growth.
As we accelerate and drive research contract value into the 16%, 17%, potentially 18%, 19% range, there is absolutely margin potential and upside there.
But we are very focused on making sure that the investments we put into the business ---+ whether it is new sales people, new tools, better recruiting, better training are actually supporting and driving long-term sustainable real accelerated growth in research contract value.
So no real disconnect, <UNK>.
We have improved our sales productivity and we are at roughly 15% contract-value growth.
As we have talked about in the past, the margin unlocks or there's more margin potential unlocking as we accelerate research contract value at an even greater rate.
So that's number one.
Number two there's always going to be a lag in terms of the productivity and research contract value actually converting into revenue and profit on a roll-forward basis.
I think it is the combination of those two things.
When we think about the business again, we reiterated, reaffirmed our guidance for the full year.
There's a margin expectation built into that guidance.
That is what we are managing to and that is where we are on a year-to-date basis.
But again as I mentioned to Joe on the last question, we are really laser-focused on how do we continue to accelerate sales productivity so that we can accelerate research contract value growth.
So <UNK>, we're obviously talking about 2015.
We have talked about guidance for 2015.
We are not at a point where we are discussing 2016 yet.
If you took it out an extra decimal point, there is acceleration.
So, on a year-to-date basis, we have repurchased $441 million of our shares this year.
Last quarter when we announced that $1.2 billion authorization, what we said was we expect that to last us 2.5 to 3 years.
That's basically the guidance around share repurchases.
So <UNK>, what I would say is we are not changing the statement around 2.5 to 3 years on the $1.2 billion authorization.
As always, business conditions may dictate slower, faster, what have you, but what we are basically reiterating is that $1.2 billion authorization should last us, roughly 2.5 to 3 years.
Hi, it is <UNK>.
So, we would clearly rather be at the high end of that range than at the low end of that range.
We set the range because, as we talked about, the pace of hiring depends on the readiness we have of our first-level managers to be able to absorb all the new people.
And so, we would much rather be at the high end of that range.
That's certainly our objective.
That's accurate, yes.
We had software advice for the full quarter last year and the full quarter this year.
The comp is actually accurate, so no benefit from M&A.
So <UNK>, what I would tell you is things move around from quarter to quarter on a year-over-year basis.
I would focus in on the full year where, if you take different ranges of the guidance, you can see roughly flat margins on the full-year basis is what our guidance roughly implies.
Again, things are going to move around from quarter to quarter.
The expectation for Q3, there's obviously more stuff going on than just two events moving or three events moving out of Q2 and into Q3.
But I would focus in on that full-year margin number.
So <UNK>, the contract optimization wouldn't be baked into that number.
FX will have a pretty significant impact on that number as our consulting business is very global with a significant portion of its revenues being generated in currencies outside the US dollar.
The other piece there is there was a 2 point dip in utilization rate, which we talked about, which would obviously also impact that annualized revenue for billable head count.
That number would have been slightly down on an FX-neutral basis.
You got it.
So these are small businesses.
They're great businesses but they're small businesses.
We don't see it as having a big impact now.
And, <UNK>, if you want to talk about it.
We are in this business and we have bought these businesses because we think they can be meaningful businesses.
But as <UNK> just mentioned, very small right now.
Makes sense, if you will.
But we will be focused on growing them.
The key for us, as <UNK> I think mentioned earlier, is we still have this enormous market opportunity on the organic business.
So even if we grow these new businesses at an accelerated rate, it is our absolute expectation that the core business will also continue to grow at an accelerated rate.
And so, maybe it becomes a slightly bigger piece but of a much larger pie over the long term.
So again we think there's tens of millions of small businesses.
We want to serve those businesses just like we do the larger businesses.
We are going to grow it at the rate that makes sense to grow it, to serve that marketplace.
Thanks to all of you for joining us today.
Let me summarize some of the key points of the call.
First, we are doing great as a company.
We are where we would expect to be at this point of the year and all of our underlying metrics are strong.
We continue to invest and improve recruiting capability training tools that drive sales productivity.
Our FX-neutral CD growth accelerated modestly.
We remain committed to enhancing shareholder value through investing in our business, strategic acquisitions and share repurchases.
And we are getting better, stronger, faster all the time.
I expect to see robust growth for years to come.
We look forward to updating you again at our next quarterly earnings call.
Thank you.
| 2015_IT |
2016 | RDC | RDC
#Yes <UNK>.
That's one of the reasons we moved them there out of Southeast Asia.
We were seeing a lot of pressure in the market in Southeast Asia, particularly with Petrobras forcing operators to use their rigs that are under contract first and then use local rigs.
So we made a business decision to move those rigs into the Middle East.
We believe that from that position we're seeing a lot of demand coming there for jack-ups in the UAE and Qatar ---+ Saudi Aramco still up in the air where they're going to shake out with their fleet.
But they have about eight jack-ups rolling over this year and they are always looking to high-grade their fleet.
So we've been in discussions with them on those rigs.
As I mentioned earlier, demand in <UNK> Africa, those rigs are perfect to work in that region of the world and certainly in South America and Mexico.
Sure.
We've had numerous discussions with Repsol regarding blend and extend of the Renaissance.
It is on standby right now in the US Gulf of Mexico.
They're looking at projects in different areas of the world themselves to keep the rig working.
We have talked to them about doing blend and extend, utilizing jack-ups, and their acquisition of Talisman in the North Sea with us having the Stavanger and the Norway idle.
Those are options that are on the table.
We have met with them both in Madrid and Houston.
<UNK> and I were just there a few weeks ago, and the status is right now they are looking at where they think they can respond, but until that point ---+ we've given them numerous scenarios to try to work something out, but so far it's ---+ the ball's in their court as to where they're going to head with that.
If there was enough demand certainly, short-term, that we would warrant moving it, of course, absolutely we would.
But we're looking at a potential in the US Gulf of Mexico with an operator that's got up to a year's worth of work.
We're also looking at Mexico as I mentioned earlier, and to mobilize the rig to <UNK> Africa from the US Gulf is going to be about the same as from the Middle East.
So we think it's in a good spot, we're just trying to ---+ we are hopeful that some of these jobs would have materialized earlier.
Unfortunately some of them have been pushed back a little bit, but that's the current plan for the rig right now.
Thank you.
All right.
We'd like to thank everyone for your interest in Rowan and joining us on today's call.
If you have any additional questions, Carrie Prati and I will be available to take your calls.
We look forward to speaking with you again next quarter.
<UNK>, thank you for coordinating the call, and good day everyone.
| 2016_RDC |
2016 | GPN | GPN
#Yes, <UNK>, it's <UNK>.
I'll just jump in quickly.
So purchase price-wise, it's small.
It's sort of $50 million-ish US.
So it's not a particularly large asset.
But it's a very nice ---+ I think of it as a product add to our existing position in Ezidebit business in Australia.
It obviously enhances our omni solution ---+ omni-channel solution strategy that we spoke at great length about in October at our Investor Day.
I think bringing that asset to our portfolio into Australia really positions us to accelerate our omni-channel solutions' capability in market.
We really looked at it very simply as a buy versus build opportunity.
We're delighted with Realex and what its been able to bring to our portfolio.
As we noted in our prepared comments, we launched the bundle in the Fall in the UK.
We're bringing it to Spain in the not too distant future.
But as it related to Australia, this was a very unique opportunity to buy the market leader from an eCom point of view, couple it with our existing presence with Ezidebit, which we've been thrilled with their performance, to create the leading technology-enabled distribution platform in the Asia-Pacific region.
So it was a fantastic opportunity.
One of the side benefits of structuring the Heartland transaction the way we did is, we've maintained the financial capacity to be able to do these types of things.
We're obviously delighted to have eWAY as part of the family.
Sure.
<UNK>, it's <UNK>, I'll respond to that.
So obviously the announced product extension today with eWAY ---+ as we said in December, at the time of the Heartland announcement, we continue to have term sheets out in a bunch of regions, primarily in Asia and in Europe.
Of course, we're pretty full up here in the United States and in North America with the pending close of the Heartland transaction.
So I think as you look at eWAY and as you look at Erste, which we expect to close by the end of this fiscal year, I think to <UNK>'s point, those are pretty good examples of the types of transactions that we have sheets out on today, which is to say while toward the lower end of what we've invested in transactions nonetheless very meaningful from a strategic and new market point of view.
I would look to see some more of those as well, as <UNK> mentioned in his remarks, a return to the normal cadence of capital allocation that we've been doing as a Company over the last 3.5 years.
Thanks, <UNK>.
Sure, <UNK>, it's <UNK>, I'll start.
So one of the things that we point out in our prepared remarks is that we've been very successful in Asia-Pacific by adding new markets and by increasing our presence in markets that have been performing well.
So we talked a lot about Australia.
We just responded <UNK> talking about eWAY and Ezidebit.
Of course we have our joint venture with the Bank of the Phillipine Islands, which we are also performing in line with our expectations.
We are in that market before the JV.
We increased our size to the second largest presence in that market thereafter.
As a result, we've been able to grow ---+ to answer your question, we've been able to grow the Asia-Pacific business 9% on a constant currency basis this quarter.
So I'd say, we started getting very good growth in Greater China, which I define as Mainland China, Hong Kong, Taiwan and Macau, as a percentage of the business in Asia-Pacific has been reduced from probably a number of years ago to probably around half of it to maybe around 30% currently.
That's largely as a result of targeted additions in other markets like Australia, New Zealand and the Philippines.
We also continue to grow very well in markets like Singapore, beyond the two or three that I just listed.
So I would say there's been a fair amount of revenue growth.
I see about two-thirds of Asia-Pacific, <UNK>, coming from markets other than ---+ as a percentage of revenue, other than Greater China, providing in the case of Ezidebit 20% plus growth.
It's not really going to have all that dramatic an impact on the revenue growth in any one quarter ---+ Greater China that is.
So I think a lot of it's coming from the mix of business, particularly that Ezidebit is at a much higher margin than the overall Company, as well as Asia by itself.
That's how I think about it.
<UNK>, you can comment maybe a little bit on the expense side.
Sure.
I'll just start maybe, <UNK>, on Ezi.
So I would note first and foremost, we're a year plus beyond the acquisition.
We've now I think, in our minds fully integrated Ezidebit, so that is creating an environment where incremental margins at EZI are improving.
Obviously, it's already higher than our Asia average margins.
So it's increasing from there.
It's all ready from there.
So I think that's contributing to it, but as it relates to the expense side, I think what we really tried to do is look at our core business in Asia-Pacific outside of Australia and to some degree the Philippines, where we have the joint venture with BPI and really try to rationalize the size of the expense base relative to the outlook for that market over the next 12 to 18 months.
The reality is we do expect a continued weakness in China.
Hopefully we've seen the four, but we don't expect it to rebound dramatically in the near term.
So we really try to reposition the business to ride out what we expect to be a soft spot in the cycle in the Greater China markets and position the business for continued success.
I think you're seeing results of that play through in margins in this quarter.
Yes, I think I'll start by saying we're delighted with the performance of our Canadian team this year.
Their ability to forecast, predict and manage their business to produce results in line with our expectations in light of what is obviously a continued soft macroeconomic environment has been fantastic.
So I'll start there.
I think we continue to see ---+ sort of our code for stable fundamentals is a combination of stable low single-digit transaction volume growth and relatively stable spreads.
So when we talk about fundamentals for Canada, our expectation is the combination of transaction volume growth and stable spreads is going to produce low single-digit growth in local currency in that market.
We've been consistently doing that now for probably 8 to 10 quarters, I would say and I remained very pleased with how that team has performed in light of the broader macro issues.
Tien-Tsin, this is <UNK>, a little commercial for Canada.
We're ahead on sales.
So when you lay on top of that sales growth and new product introductions, things like Alpha Blue that we can rollout on a global basis, you've got that little bit extra to help make you feel more confident in managing the stable conditions and the stable metrics that <UNK> was describing.
Thanks, <UNK>.
Yes, <UNK>, it's <UNK>.
I think that's a really pressing question in that where Spain sits right now is flat to slightly up in terms of revenue growth, which is really remarkable when you think about annualizing that interchange benefit.
It's of course, driven by the amazing sales we get out of the branches and the resulting volume and transaction growth in the mid teens.
So you're exactly right.
As we look ahead and can think through fully annualizing spread changes, et cetera, as we head toward September, it is accelerating as we speak in terms of market share and penetration.
It will be a piece of the European growth story that <UNK> was describing earlier as we go forward, no question about it.
<UNK>, it's <UNK>.
The only thing I'll add to <UNK>'s point more specifically, we annualized the annualization of the interchange reductions in September.
So when you're growing transaction and volumes at the rate we're growing, once you get beyond that date obviously you should see top line growing at similar levels, which creates a nice tail wind growing into the back half of FY17 in Europe as we start to annualize the interchange reductions in the UK.
Well I think your point on Q1 is a good one.
As we said in October, when we had our first-quarter call, Q1 was an exceptional quarter this year.
Not one that we expect to duplicate notwithstanding that there seemed to be sort of a view that we would duplicate it in Q2.
Despite having a very good quarter, it wasn't quite as good as Q1.
So I do think that's a fair point as you think about setting your model up for FY17.
Outside of that, it's just again ---+ I talked to many of you guys about this.
It's sort of assessing the FX impacts on results and trying to figure out how to overlay those on top of annualization of acquisitions that we've made and how all that plays through the financials.
Obviously, happy to talk more off line, as to how I think about that.
But obviously, the volatility around FX and the amount of headwind we've seen from FX does make it a little bit difficult from time to time to try to get reported results forecasted correctly quarter-over-quarter, year-over-year.
I would say <UNK> though, it's <UNK>, that's exactly right.
I would say that the Company as you know from our descriptions before is going to go from about half the revenue being in the United States and half outside being dollar denominated into two-thirds post Heartland dollar denominated.
So while <UNK> is exactly right, of course, we still have our three regions.
So if we do it regionally, I would hope ---+ I'm looking at <UNK>'s statements, I would hope it would be easier to model coming out just given the mix of 50% dollar denominated for the overall Company going to two-thirds.
So my hope is while those things are exactly right that in terms of the impact as a whole on overall Company revenue and overall Company earnings, <UNK>, I'm hopeful that it's a little more straightforward.
But as <UNK> said, the devil is in the details; I'm sure we'll get that.
Thanks, <UNK>.
Yes, <UNK>, this is <UNK>, a couple of lessons learned.
We're finding very strong demand for the bundled solution in the UK.
The place where we're working the hardest is probably on the joint sales proposition and being able to take what you might think of as a traditional sale and marry to it a more technology-enabled piece of the sale.
So the gateway married to the acquiring, married to the reporting, married to the fraud and credit management you have to be able to provide.
All those tools are there.
Probably the place where we've learned the most lessons has been on making those joint sales calls and enabling and equipping traditional sales folks to be able to sell either the early stages of eCommerce enablement to a small to medium merchant or sell the entire bundle.
The good news is with the demand we've had and the level of execution we've seen, it has not affected our sales trajectories.
In fact, we're very pleased with the sales coming on the back of the demand.
But it is a more technical sale.
So being able to equip your salespeople on a global basis to sell more technology-enabled transaction processing is a challenge of its own.
We feel like we've learned a lot in that early integration between the UK and Ireland that will serve us well in Spain particularly.
It's allowed us, <UNK>, to think more specifically about how you target a market.
How you focus a piece of the sales force on the micro payments themselves on micro merchants, a piece of the sales force on small to medium.
Then joint calling of experts maybe from Ireland in addition to Spain on large to national merchants and certainly joint calling between all of your regions as well as your technical experts in a place like Ireland where Realex is based; on to multi-regional or multi-marketer regional accounts.
So really, how you go to market has been where you've learned lessons.
Again, we're fortunate enough to be learning them in a situation where the sales are right at target or above in many cases.
So we feel good about those pieces.
If you step back a little bit and think about this, the second and third piece of this is really partners and software developers.
As you enter new markets, you want to continue the momentum you have with channel partners, so ISVs, cart providers, folks like that.
You also want to develop and foster your relationship with developers, the PrestaShop's of this world, whom you see in the press even from other providers in the eCommerce world.
So in specific markets, you've got certain ISVs, card providers as well as software providers.
You're also taking your regional partners with you.
So being able to go to market and manage the direct sales as I described earlier in a specific region, the face-to-face married to the technology, as well as local channel partners, local software providers and with that an overlay of the regional folks and in many cases the global software providers.
It's a little tricky.
It comes down again to market segmentation and how you compensate and drive the direct sales force to certain behaviors you want to target the segments, make sure they don't trip over each other, and make sure that you can drive joint sales.
That's all a bit in its infancy in global but we're really, really pleased with the pieces.
So pleased that we went ahead and deployed $50 million of more capital in Australia to continue executing the same strategy, where we can take this bundle with Ezidebit and eWAY to market and drive even deeper penetration with what's already the leading provider of small to medium sized retail eCommerce in Australia.
So, a long-winded answer, I realize, but its actually been a great deal of learning, a great deal of really excellent execution by our teams in Ireland and in the UK and now about to be in Spain, that's lead us to sort of feel really good about the execution levels we're seeing relative to something we spent a lot of time describing at the Investor Day in October, omni-channel global capabilities that we think we are uniquely positioned to sell
Thanks, <UNK>.
It's a great question, <UNK>.
I would say, we're still seeing some weakness in certain markets, particularly the pound.
Today is another example, I would point to, to say not only is the US dollar sort of secularly strong, the volatility in some of these major currencies is astounding.
I see the pound moving 1.5 or 2 points intraday.
For example, obviously makes it very difficult to forecast FX with any sort of certainty as we think and look forward.
I think we are as we get into FY17 particularly as we get into the back half of FY17, hope we're going to be in an environment where we're starting to anniversary some of the stronger headwinds.
But I certainly don't think that we're approaching any time soon an environment where the US dollar is going to weaken relative to most of the major currencies around the world to which we have an exposure.
I think we are in a sort of secular bull market for the US dollar.
I expect that to continue for some time.
There's just not a lot that would cause me to believe the dollar is going to weaken.
But as we continue to anniversary some of these bigger moves ---+ for example, we anniversaried the strong euro move in Q3 of this year.
Unfortunately, that was more than offset by an equally strong move downward in the pound at relatively the same time.
So we have a good exposure to a fair number of currencies.
To <UNK>'s earlier point, part of the benefit of the Heartland transaction is it does de-risk currency exposure to the Company.
On a macro basis, we'll be two-thirds US dollar denominated business going forward.
That obviously will diminish some of the FX exposure that we have globally.
But I'm hopeful to get into an environment wherein 2017 we're leasing most of the strong headwinds begin to diminish to some degree.
Thanks, <UNK>.
<UNK>, it's <UNK>.
I think the thinking is very similar to what we described to you in December.
That's a large part of why we're so attractive to the Heartland acquisition.
That sales force, its trajectory has been remarkable for the last couple of years.
The deeper we've gone into our homework on integration, the happier we are with what we found.
So our plans are really very similar to what they were in December.
We don't want to screw this up, so we're going to keep the performance plans consistent.
We're going to keep the Bills of Rights with which you're familiar.
Keep using those to drive organic growth.
As a management matter, we're very impressed with the team.
We spent a lot more time with them.
So I think not a lot of changes at all, as you might imagine going forward.
Their trajectory right now is really impressive.
So it's more a matter of making sure we can figure out how to accelerate that with more product, maybe a different way to think about enhancing the traditional distribution with again additional product out of Heartland commerce and the other business units that are already in place there.
So really pleased with the pieces, really pleased with the sales force and the trajectory and no plans to change anything we described to you in December.
The only thing I would add, <UNK>, it's <UNK>, when you think about our entire approach to integration, it's really behind the sales force, behind the customer, such that the objective is to not disrupt anything that's happening from a sales and sales momentum point of view, nor to create conflict at the customer level that's going to distract the sales professionals from continuing to grow and expand the business.
Our objective is to accelerate growth through that channel, as we've been able to do with many of the previous acquisitions we've done.
The integration that we're going to do will be behind the scenes such that it won't impact the momentum that we're expecting to be able to achieve from an organic sales point of view.
Yes, <UNK>, it's <UNK>, again, I'll start and let these guys chime in with anything I miss.
So, we continue to be very pleased with OpenEdge.
It still grows in the mid to high teens.
The revenue production is really, really impressive.
That's all at increasing margins that are higher than the Company's margin.
So back to several of the other questions earlier today.
In terms of existing verticals, we remain very, very low penetrated.
I realize that's not perfect grammar.
But really, I don't think we have a vertical that's more than 20% penetrated anywhere in any of our key verticals.
So if you think of vets and dentists, we talk about those a lot, pharma.
We think about parking garages, all those very low levels.
We've got a sales force that's focused on driving deeper penetration into those verticals.
At the same time that we're looking for other places to grow.
So we mentioned the Heartland description before where we don't have an education vertical in OpenEdge.
We don't do restaurants and hospitality.
The opportunity to drive deeper penetration in those verticals by OpenEdge to compliment the direct sales force about which you asked in your first question is there.
It's real.
We continue to work on that in integration planning.
The other couple things we have is we literally entered a new vertical in the United States that we weren't in before, just in the last couple of weeks.
We entered the unattended payments vertical in United States, with a brand new partner, large ISV, who plays in that space, you're talking about car washes, more parking, vending, things like that.
That's new and unique for OpenEdge.
So a brand new vertical effectively we're at 0% penetration in that vertical as we sit here today.
But we know how to manage the ecosystem of partners, merchants, leads and marketing to drive that.
Then maybe happiest news of all, in terms of how we think about growing that OpenEdge beyond just the United States.
The global opportunity is real.
We're really pleased to announce we actually have opened up OpenEdge and launched in the UK this quarter.
So we have a staff there, dedicated sales folks, dedicated product folks.
Remember back to October in the Investor Day, one of our key pillars of accelerating global growth was the global expansion of integrated payments, OpenEdge driving into Canada driving into the United Kingdom.
So we've now launched our business in the UK.
We can bring that dedicated and product and ecosystem to the United Kingdom to work with ISVs, to drive the benefits of technology integration that don't exist in the UK, as they exist in the US today.
Best still, we can drive existing partners into the United Kingdom.
So US-based ISVs and software providers provide near-term sales opportunities.
In fact, we're going to bring a few customers live in the UK in just the next few months coming from US-based ISVs where we are extending their franchise, extending the integrated payments benefit out to the UK for them.
So more to come on this, but really OpenEdge is poised for more global growth but still continued excellent execution in United States as we go forward.
Thank you.
Thanks, <UNK>.
On behalf of Global Payments, thank you very much for joining us this morning and for your continuing interest in Global.
| 2016_GPN |
2016 | MNTA | MNTA
#Well, that is something that is Sandoz's decision and we are not commenting on it, but what I will comment on is this this is a very different situation than the other patents.
We look at this one and think there could be some very definitive ruling in the Court, so Sandoz is an experienced generics company.
They will evaluate that at the time, but we are pretty confident about this set of patents that we can get some un-ambiguous rulings here.
Sure.
Thanks.
Sure.
Thanks.
I will take those in order.
First, our confidence on the approval ---+ I can not talk about specific regulatory(inaudible), but our confidence on the approval is pretty straightforward.
What took the time last time was the approval of the API, all right, showing that we actually had material.
There is not even a review this time.
We are actually referencing our drug master file for the 20-mig product.
It is exactly the same API, but this is basically a review of a reformulation so it is a much simpler review.
It is a standard formulation, which is something that the FDA looks at in many, many products; so we do not anticipate anywhere near the challenges we had in the earlier program, and as the only one with an approved API we figure that give us a pretty good edge in terms of 40-mig.
So we remain very confident on that approval.
In terms of the draft guidance, there was really nothing unanticipated there.
I think what we saw is the FDA is giving guidance in terms of the kind of things that need to be looked at.
but they are continuing to respect the confidentiality (inaudible) of details of the approaches that we took to answer those questions.
And that to us was our expectation, and that is we did see in the guidance.
In terms of the read-through on Synthon, I think that the message that Synthon got was that if they want to use J pathway they have to show their analytic payments as well as clinical trials.
So they have chosen to the J pathway I think they are still going to be held to the same analytic standard as we have as they are trying to get approval for the J so.
Sure.
Thank you.
Thanks everybody.
Thanks for accommodating our earlier time slot, and I look forward to updating you next quarter.
So thanks again for joining us.
| 2016_MNTA |
2016 | KSU | KSU
#I would say, the most important piece about Lazaro is that the facility will operationally be ready in Q4.
They plan to open operations in Q1 of 2017.
So the facility is ready to go.
There is continued volume that comes in there that we move on a daily basis.
I wouldn't say that there is congestion there right now.
I would just say that it's continued operations.
It's the surge time of the year.
It's the holiday and high retail time of the year, so there's a lot of freight moving into that right now.
But that is the area that we talked about the Lazaro inter-Mexico and Lazaro cross-border piece of the business that has been off this year primarily due to the decision of one of our customers to move that freight completely by vessel up into the Houston area, and so that volume is not moving at all through the port.
So if it were to move back, obviously, that would be beneficial to us, but again, they will decide that in the coming months and years, how they want to move that freight on an overall long-term basis.
But right now, the concession is done.
The operations will be ready to move in Q4, and we expect to move volume out of the new APMT terminal in Q1 of 2017.
Yes.
That's a view at this point.
If there are no further disruptions.
(Laughter)
The Port of Veracruz is ---+ we believe that all of the construction and the bypasses will be completed by the end of 2017.
So we are seeing more and more business into Veracruz.
We are selling specifically into the automotive space.
And we feel very comfortable that we have a good product there right now.
We have to hand that over to a partner railroad as we get closer to the port, very close inside the port.
But we feel that once that bypass is completed at the end of 2017, we will have a great product for our customers to move into the Atlantic as well.
So very comfortable with the way that's proceeding right now, and right now, all signs are that will be completed in December 2017.
Yes.
I think that's a fair assessment there on a flattish dollar perspective.
We've got Sasol continuing.
You've got PTC, as I mentioned there, one more heavy year, and then it will start winding down a bit after that.
So I think the flattish is a good expectation.
<UNK>, that was pretty slick how you sneaked in three questions there.
(Laughter)
I think you will continue to see the auto the volumes move as they have been, as we laid it out.
Obviously, the Kia facility will be coming on full swing at the end of the year, so they are already producing, but those will continue to ramp up.
And then we will see another facility come on in November.
Obviously, that's a slow ramp up, but we've described the other facilities.
But right now, we feel like our automotive business is doing very well.
We are very comfortable that we have the security and the right type of fluidity and capacity to support them.
As <UNK> mentioned, we're going to continue to invest in that space.
But not only Q4, but into 2017 and over the next few years, we feel very good about the way the automotive volume is coming forward.
This is <UNK>.
No.
You shouldn't see any carryover impact on either those events.
Those are behind us.
I think we gave some guidance around fourth quarter that you should expect to see about a $7-million increase over what we had in 4Q of 2015.
And again, we were accrued at 50% levels in third quarter and fourth quarter a year ago, and obviously, stepped those accruals up this year.
We're not giving any EPS guidance, so I think we'll stick with the commentary we gave about fourth quarter.
I'd just go back to looking at the year-to-date results as opposed to the quarter because the quarter did include some things, some catch-up things, some unusual things that going back to your comment about normal seasonality, that you wouldn't expect to see in a normal third quarter.
No.
We're not going to really get into all those details, and we'll leave the commentary as we provided it on the slides.
Wow.
Snuck that one in there.
He's just seeing if we're paying attention here.
(Laughter)
It is really going to depend on when we see volume recover.
We keep thinking that we are lapping and going through the cycle on some of the coal and crude oil movements and they should start to look better, and that just hasn't happened.
But I think we are not going to give guidance about timing of when we expect volume growth to return, but we think it's going to happen.
When you see the investment, new plants, the market share opportunity that we have an intermodal, the new terminal at Lazaro, the petrochemicals, autos, all the things you have heard us talk about, we will see volume growth return.
And when that happens, I think you'll see the benefit of the cost and efficiency work that we are doing right now.
But is that going to happen in 2017.
I don't know.
Not a very satisfying answer, but that's our answer.
This is <UNK>, <UNK>.
I think the most important piece when you think about the competitive dynamics of Manzanillo and Lazaro, Lazaro was the only port that has a direct rail connection into the US and into the rest of North America.
So the addition of the APMT terminal is going to be pretty significant.
If you look at what the government has said, they are looking to double the initial size of the facility.
They want to double the capacity of the port.
We feel very, very comfortable that port is going to continue to grow.
Now, when you think about competitiveness into the inter-Mexico area, that's where we see the competition right now, the truckers and the low price.
When you think about the difference between rail and truck, there's about 60% of the volume goes truck, about 40% goes rail.
We're hoping that continues to improve as people look at the security of the rail, the number of places we can get to on the fluidity.
Obviously, <UNK> talked about the big investments that we are making.
It is important when you have an intermodal product to be fluid and consistent.
And that's where we as a Management Team are spending all of our time because we realize that the growth opportunity there is significant, not only out of Lazaro, but into the US.
So from a competitive perspective, we know the value that we bring.
We understand how to price it.
We believe that it's going to continue to ---+ tailwinds are going to go our way as we continue to improve our fluidity.
But right now, we feel like we are very, very competitive in the space that we are at.
But there is also this dynamic of the vessel operators that we are still dealing with.
And it's a global issue.
It's not just Mexico; it's not just North America.
And so as the vessel operators sort out probably over the next 12 to 18 months, I think we will continue to see that port grow at Lazaro.
You're welcome.
Hi, <UNK>.
You're absolutely right, <UNK>.
Land acquisition was the key.
There was a particular piece of property, but we knew that this would probably be a question that would be asked, and so we did some research just prior to the call over the last week and a half just to make sure we understood how it is progressing, and we continue to feel very comfortable that will be completed and we will have access to that line at the end of next year.
So you know everything that we know.
But we feel very comfortable that the land acquisition issue that was there on that last four kilometers has been cured.
Yes, I would agree with that.
What I would tell you is the steel industry continues to be under a global pressure.
There is inventory in a number of areas, not only within Mexico, but also in the US and the rest of North America.
We do see one ray of light is that the amount of high-grade steel necessary in Mexico and the plants able to support that could potentially help us maybe into the last part of next year.
But again, people are looking at that industry, and it is extremely competitive, and we just haven't seen the fallout that you would potentially expect seeing all the court cases that are out there.
But I think we're going to hold our own.
Our customers seem to be investing, and so we think it's going to end up being a very positive space.
But right now we just don't see any relief over the next little while.
Potentially, and also potentially coming inside of Mexico.
So both sides.
Good morning.
It's certainly a great opportunity.
As <UNK> mentioned in his comments, we are in the design phase of that facility.
Those small cars are good for us.
We are able to move them both south and north because they export them not only into the US and Canada, but also around the globe.
So you will see those cars go both into the Atlantic Pacific.
We feel that is a very positively are heavily engaged in that facility and its construction there in San Luis Potosi.
No.
We are just continuing to see other opportunities for ourselves and our customers out of Mexico, and also into Mexico, primarily driven by the manufacturing and the retail environment in Mexico, which seems to be doing very well.
So we feel very comfortable with both north and south and out of the Port of Lazaro that we're going to continue to see growth, and we're looking at providing different services for those customers.
But they would be normal intermodal services, nothing exceptional.
Thank you, <UNK>, for the question.
We do not believe that the impact of those particular facilities ---+ we don't services facilities right now, so we don't think it's going to have an impact on us.
But we do see Ford as a continuing customer over the next few years, as I just said, that they will continue to grow.
As to whether the volumes from a North America perspective are going to stay where they are at or if we're going to see some of the other automotive companies tail off production in Mexico, we use the publicly available data and the data that our customers give to us, and right now we feel very comfortable that we are still on the [projected] trajectory that we laid out over the last couple of quarters.
And by the end of 2020 ---+ we see the facilities coming on next year in (inaudible), the facilities coming on next year with Ford, and BMW the next year, so right now, we continue to see all of those facilities coming on at the same pace that they have said ---+that they have announced.
And we are spending our capital dollars and preparing for that as we've said in the past.
That was an ongoing environmental remediation cleanup that we had ---+ we continue to work on and have over the past few years.
With the work we've done, we discovered a little incremental remediation work needed.
So we're booking to that anticipated remediation charge.
Just a couple of quick comments.
I realize this is a bit of a noisy quarter, but you guys will write the headlines, but I think the headline that we have in mind is this fuel excise tax situation is a good thing for us.
It accelerates the benefits of deregulation, and it makes us I think more competitive long term with truck particularly in intermodal.
The focus on cost control and efficiency is ---+ we are very, very pleased with that, and that is producing real productivity improvements that we're seeing today, and when volume growth returns, I think that will put us in great position.
And have to close with the long-term growth drivers are still very much intact.
And finally, I know Tony Hatch is out there.
I really like Jake Arrieta against Rich Hill tonight, so we will close with go Cubs.
We will talk to you in 90 days.
| 2016_KSU |
2016 | GTY | GTY
#Thank you.
I would like to thank you all for joining us for Getty Realty's quarterly earnings conference call.
Yesterday afternoon the Company released its financial results for the quarter ended June 30, 2016.
Form 8-K and earnings release are available in the investor relations section of our website at GettyRealty.com.
Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.
These statements are based on Management's current expectations and beliefs and are subject to trends, events and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Examples of forward-looking statements include our 2016 guidance, and may also include statements made by management in their remarks and in response to questions including regarding lease restructurings, future Company operations, future financial performance and the Company's acquisition or redevelopment plans and opportunities.
We caution you that such statements reflect our best judgment based on factors currently known to us and that actual results or events could differ materially.
I refer you to the Company's annual report on form 10-K for the fiscal year ended December 31, 2015 as well as our quarterly reports on form 10-Q and our other filings with the SEC.
For a more detailed discussion of the risks and other factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.
You should not place undue reliance on forward-looking statements which reflect our view only as of the date hereof.
The Company undertakes no duty to update any forward-looking statements that may be made in the course of this call.
Also please refer to our earnings release for a discussion of our use of non-GAAP financial measures including FFO and AFFO and our reconciliation of those measures to net earnings.
With that let me turn the call over to <UNK> <UNK>, our Chief Executive Officer.
Thank you, Josh.
Good morning, everyone, and welcome to our call for the second quarter of 2016.
With Josh and me, on the call today are <UNK> <UNK>, our Chief Operating Officer, and <UNK> <UNK>, our Chief Financial Officer.
I will begin today's call by reviewing our performance for the second quarter of 2016 and then pass the call to <UNK> to discuss our portfolio in more detail, and after <UNK>, <UNK> will was discuss our financial results.
The second quarter of 2016 continued a trend of strong and steady performance for the company which once again was largely driven by a core net leased portfolio.
These results demonstrate the steady progress we continue to make on repositioning our portfolio to higher-quality, higher productivity sites including the institutional quality United Oil properties which we acquired in June of last year.
We delivered quarterly AFFO of $0.42 per share which represents very strong growth over the prior year's quarter when adjusted for certain notable items which we do not expect to recur on a consistent basis.
When we exclude those items, our normalized FFO per share was $0.40 for the quarter ended June 2016 and $0.33 per share for the quarter ended June 2015 representing growth of more than 20% year-over-year.
The key drivers for our performance stem from 9% quarterly revenue growth driven primarily from our 2015 mid-year acquisition and a $1 million reduction in our overhead costs, which in large, measure reflects many of the internal changes we made to our operations at the beginning of the year.
I am pleased that this out performance to date coupled with our stronger outlook for the remainder of the year has allowed us to raise our guidance for 2016, and while we remain focused on producing stable earnings growth from our existing portfolio, we are also diligently working on our strategic plan to position Getty for strong performance and growth in the quarters and years to come.
During the quarter we sold one property and since quarter end we have sold three additional properties which are all part of our effort to remove assets from our portfolio that no longer fit with our long term growth criteria.
We are also seeking to enhance our portfolio through selective acquisitions and redevelopments.
We have been doing a significant amount of work to build our acquisition pipeline, to evaluate prospects to determine if they fit within our underwriting criteria and to analyze our portfolio for redevelopment opportunities.
This is an in-depth and comprehensive process that will take time to execute.
However, we are confident that our investment strategy will contribute to our growth and performance as we move ahead.
We have also been active in enhancing our financial flexibility as we previously announced during the quarter we implemented a $125 million aftermarket equity issuance program.
We believe the ATM program provides an efficient capital raising platform that fits our redevelopment and acquisition strategy where we could match-fund our growth opportunities.
Lastly we continue to make steady progress on reducing our overall environmental liability.
We began the year at $84.3 million and ended the second quarter at $81.1 million.
The reported $3.2 million net reduction belies an even greater productivity by our Company and reduction of our overall environmental liability when one considers that the GAAP adjustments we make create upward pressure on the reported figure.
As we look to the second half of the year we are energized and encouraged by the results from our net lease portfolio and our emerging pipeline of investment opportunities.
With that I will turn the call over to <UNK> <UNK> to discuss our portfolio and investments.
Thank you, <UNK>.
Turning to our results.
As Chris mentioned we had a another steady and strong quarter of financial results.
For the quarter, our total revenues from continuing operations and revenues from rental properties, which exclude tenant expense reimbursements and interest income, both increased by 9% to $28.6 million from $24.1 million respectively.
Rental income growth for the quarter was primarily driven by the impact of our midyear, 2015 acquisitions.
On the expense front, property costs excluding tenant expense reimbursements decreased by 4.5% from $2.2 million to $2.1 million.
This reduction can be attributed to declines in rent and maintenance expenses.
Our environmental expense decreased by $0.9 million for the quarter relative to the same period last year.
The reduction was primarily due to $1.6 million decreases in environmental remediation costs, offset by a $0.7 million environmental litigation loss reserve.
It is worth noting that there are several non-cash items flowing through this line which caused the reported amounts to vary from quarter to quarter.
For the quarter, G&A was down by approximately $1 million.
The decrease was primarily due to decreases in legal and professional fees offset by employee related expenses.
As Chris mentioned earlier, our results for the quarters ended June 30, 2016 and 2015 were impacted by several notable items which cause our reported amounts to differ from recurring operations.
Results for the quarter ended June 30, 2016 included $0.5 million of environmental insurance reimbursements, $0.7 million of recoveries of uncollectible amounts and $0.3 million of other income, offset by a $0.7 million environmental litigation reserve which resulted in a net benefit to the Company of $0.8 million or $0.02 per share in the aggregate.
Results for the quarter ended June 30, 2015 included $7.4 million or $0.22 per share of income received from the marketing estate.
Our reported FFO per the quarter was $16 million or $0.47 per share as compared to $18.5 million or $0.55 per share for the same period last year.
After taking the notable items into account, our normalized FFO for the quarter was $15.2 million or $0.45 per share as compared to $11.1 million or $0.33 per share representing an increase of 36%.
Our reported AFFO for the quarter was $14.5 million or $0.42 per share as compared to $18.5 million or $0.55 per share for the same period last year.
After taking the notable items into account, our normalized AFFO for the quarter was $13.7 million or $0.40 per share as compared to $11.1 million or $0.33 per share representing an increase of 21%.
Turning to the balance sheet.
We ended the quarter with $304 million of borrowings, $129 million on our credit agreement and $175 million of long-term unsecured fixed rate debt.
The $19 million reduction in outstanding indebtedness during the quarter was due primarily to the receipt of funds from the payoff of a mortgage from a company financed sale of properties to a former tenant.
Our debt to total capitalization currently stands at approximately 29%, and our net debt to EBITDA ratio is defined in our loan agreements with 4.2 times at quarter end.
Our weighted average borrowing cost was 4.6% at quarter end, and the weighted average maturity of our debt is approximately 4.4 years with 58% of our debt being fixed rate.
Our environmental liability ended the quarter at $81.1 million down $3.2 million so far this year.
For the quarter ended June 30, 2016 the Company's net environmental remediation spending was approximately $3 million.
It is important to note that the net number on our balance sheet is also impacted by additions to the principal amount of the liability and accretion since GAAP requires us to book the liability on a present value basis.
Finally, as a result of the notable items I previously discussed and our strong first half operating performance, we are raising our 2016 AFFO per share guidance to a range of $1.50 to $1.55 per share.
Note that our guidance does not assume any acquisitions or capital markets activity although it does reflect our expectation that we will continue to execute on our leasing and disposition activities.
That concludes our prepared remarks.
So, let me ask the operator to open the call for questions.
Pretty comfortable with where the balance sheet is right now.
We like the ATM program a lot.
We think that depending on the size of the opportunities and the amount of capital we are putting into the development program, we will fund it with a combination of debt and debt and equity, to try to keep the capital structure somewhere near where it is today.
Excellent well thank you very much for joining us.
We look forward to speaking to everyone next quarter.
And thank you for your interest in the Company.
| 2016_GTY |
2015 | BEN | BEN
#Good morning and welcome to Franklin Resources earnings conference call for the quarter ended March 31, 2015.
Statements made in this conference call regarding Franklin Resources Incorporated which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements.
These and other risks, uncertainties, and other important factors are described in more detail in Franklin's recent filing with the Securities and Exchange Commission, including in the risk factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.
(Operator Instructions) Now I would like to turn the call over to Franklin Resources CEO, Mr.
<UNK> <UNK>.
Mr.
<UNK>, you may begin.
Hello and thank you for joining <UNK> <UNK>, our CFO, and I today to discuss second-quarter results.
Overall, there was a number of positive developments in the quarter; however, much of that was overshadowed by redemption pressure on global bond funds.
Importantly, overall relative investment performance remains strong and we are encouraged by the continued strength of our institutional and high net worth businesses, as well as improved flows in several key areas.
I would now like to open the line for your questions.
(Operator Instructions ) <UNK> <UNK>, JPMorgan.
I think it really reflects the effort that we started years ago and made it a corporate priority where we felt like the retail side was well represented across the world and really institutional.
We didn't have the penetration that we felt we should have.
And as we've said in prior quarters, most of that has been outside of the United States.
We spent a lot of time developing relationships with sovereign wealth funds.
A lot of others have opened up insurance companies in other areas in certain markets that were not open to ---+ outside managers have opened up and with our strong presence in many of those markets, I think that's resulted in sales as well.
The area continues to be more fixed income.
Templeton still has a strong relationships, and we saw some significant Templeton wins in this past quarter.
But really a lot of it has been around the fixed income side and global ag and emerging markets debt, and that continues to be where we see the strongest pipeline.
Well it ---+ I don't know what the exact numbers ---+ I'm sure we can get that for you.
But for us, we've always felt that the defined contribution, especially investment-only open architecture will work in our favor.
It's been relatively closed market for record keepers, and the trend in pressure towards open architecture just opens up more opportunities for us.
And if you take, even within the segment, the opportunity around target date funds, it's very hard to sell your own target date fund if you're not ---+ if you don't own the record-keeping.
But the more recent trend of even opening up target date funds to outside managers within their proprietary product, I think is a near-term opportunity and be a near-term focus for us.
So you look across the product line, I think we are well represented on the equity side, and certainly with Templeton and global bonds is a relatively new area in the investment only.
But the majority of the opportunities are always going to be around the equity side and global equity side in the DCIO market.
<UNK> <UNK>, Bank of America.
Thank you, guys.
<UNK>, you mentioned on the global bond you are just seeing the redemptions pick up, and I think you mentioned that most of that was being driven outside of the US.
Just curious, during the quarter, obviously there was a lot of volatility in the markets, but was there anything that you had put your finger on in terms of what was driving it.
I know in the fourth quarter there was cap gains and stuff that was driving it.
And then from a marketing standpoint, what are the wholesalers doing to try to, I don't know if it's educate or try to get clients to understand what the product is.
And when you go through this volatility, how to try to maybe steady some of those redemptions.
I think it is challenging, and part of the challenge is that it is a relatively new category and one that we have such a dominant share in, it is hard to really see how you are doing against peers and what are the expectations of investors.
I think, we said last quarter that the redemption spiked for the US fund, and that actually improved significantly quarter over quarter.
The big spike was in Europe, and really it's even harder sometimes to get a handle on what the end shareholder is thinking about when much of that is sold through platforms and gatekeepers.
And if we drill down further, we can see specifically the markets where we had very fast and strong growth are the ones that are having higher redemptions.
And if we talked ---+ I have talked to our distribution, they feel that there are a couple of factors working there.
One, there was such a high level of fear in markets like Italy of where the euro was heading, where that market was heading, and a lot of the clients' portfolio got put into global bonds.
So they think a lot of this is a reallocation now and a more normalized environment where the euro looks stable.
European equities are always going to be the dominant share of any Europeans portfolio.
That really is the trade right now, so a lot of money moving back into European equity.
So we can ---+ it is specific, really the high level of redemptions that we're seeing to those specific markets in Europe that probably had the highest level of concern over where the euro was heading.
And we got those quick large sales is where we're seeing the greatest pressure.
And it's, I think somewhat challenging from an education standpoint for those that feel that they want to get back into equities that's really what they're going to do with a portion of that portfolio.
And from our perspective, a couple of things.
I think that fund in that market will do better when it's a risk-off environment in some ways and certainly when it comes to the euro and European equities.
And then if rates rise at some point, because it is positioned for that as well.
I think those are the two key areas in turning around the more near-term flows.
Okay, thank you.
And then as a follow-up, can you ---+ you gave some expense guidance on the prerecorded call.
I just want to make sure the G&A, I think this level, you're saying comfortable with.
IT I think you were saying 1% to 2% for the year.
And then occupancy, I didn't know if there was anything there or on comp, whether it was in the quarter that was unusual or the go-forward.
I think the ---+ maybe one of the unusual events in the quarter that affected all of those line items was FX.
That alone, while it did not have a significant impact on operating income on the expense side, it did have a decent ---+ favorable impact on comps, so that's maybe an order of magnitude of $6 million or so.
And then you probably have another maybe $3 million or $4 million in the other expense lines related to FX, so that's one reason we expect expenses to go up.
I think if you look at the comp line, I'm expecting that to go up a little bit, maybe 1% occupancy; I'm expecting that to go a little bit as well.
And then just to be clear on the information systems and technology line, that guidance is projected 2015 versus projected 2014.
So that would imply a pretty big increase next quarter.
Michael <UNK>, Sandler O'Neill.
Yes.
I don't think it's going to have a big impact on our business, just because, again we are more of the content provider.
We are not the point-of-sale person in that.
And I think regardless of what happens, they are still going to need DCIO plans.
I don't think that fiduciary standard would have a big impact for us one way or another.
It's somewhere in between, I would say, and we're talking about initiatives, on the, if you will, the easy-to-cut expenses, things are already in motion to slow that down.
Slow down hiring a little bit.
So that's been communicated throughout the organization, and we are seeing some of that come through the income statement, and we will see that too.
But it does take time now, and there is always a little bit of lag to these things.
And I guess I am guiding up on expenses a little bit from decisions that were made in the past, and that will probably come through the next couple of quarters.
Today we are definitely taking a little bit closer look at expenses and putting a little bit more pressure on cost savings.
I think they can come to market pretty quickly within probably three months or so.
And I think the hard part is really getting the first one out there on platforms, and I think that's really where we've made key inroads is having, I think 72 platforms now, that that is represented on.
So that will make it easier for us to bring the next.
And it really now is starting to get momentum here in the last few months where we're seeing larger trades and more interest.
And now I think it's up to, I think $840 million between the two funds.
So it's always the first few years on a new product are always tough to get going, but this one I think we are all very optimistic that we can expand that and really start to make a meaningful contribution to flows.
That's interesting.
And, <UNK>, just to clarify, I thought I heard in the prerecorded call that G&A would look like last quarter, not this particular quarter but fiscal first quarter as we look out to the next quarter.
Is that right or wrong.
And then just stepping back, when you think about the comp dynamics, I think you called out that there was a little bit of a decline from variable compensation due to lower sales.
So if sales pick up, is there still operating leverage that can be driven off the comp line looking ahead.
I think there is a little ---+ yes, I would agree with that.
On the variable comp side, there's ---+ we have some room there.
Regarding the G&A expense, I am talking about the quarter that ended December, so more like that level versus ---+
So $90 million, if I recall correctly.
Something in that ballpark.
Yes.
Somewhere in the ballpark.
<UNK> <UNK>, Autonomous.
I wouldn't say one for one; I think there was a positive impact on operating income but I just wasn't material relative to operating income.
It definitely impacted revenue and expenses but they offset somewhat.
Not entirely though.
Yes.
I think that in this quarter was the euro dollar [which was up] to be 13% or something like that.
And so in this particular example, we did have a subsidiary that has a functional currency other than the US dollar that holds US dollars.
So it's just kind of an oddity of the accounting rules.
It does get offset in other comprehensive income, but it does add to the volatility in the income statement.
After that it was the euro to dollar.
<UNK> <UNK>, KBW.
The question I have is going back to flows.
So if I look at the board franchise, one of the attributes of you guys is you have a lot of big franchises, whether it is global bonds or equity income or some of the Templeton equity strategies, mutual shares.
And I guess one of the challenges you have is some of ---+ multiples of those are suffering through some not even really high rates of redemptions, but enough to put them in outflows.
So if you look across those, are there any one or two that you can look at where right now you are having some flow issues.
Maybe it's the Franklin income products where you feel like you are starting to feel like maybe it is settling down or you feel more optimistic about the ability to kind of get those franchises flowing in the right direction again.
Yes.
I think it generally will relate to where your shorter-term performance, what is driving that on whether you are going to be optimistic around a turnaround.
I think the good news for Mutual Series, which historically has always had a exposure to Europe and always benchmarked against the S&P, that's been a real drag, and they hedge, Templeton doesn't.
So their more recent numbers are looking much better on the mutual side.
And certainly global discovery is doing well in the global equities side, and I think that will continue to be a near-term driver of flows that we're pretty optimistic about right now.
And then I think the silver lining with Templeton that because of Templeton's historical philosophy of not hedging the dollar, that's been a significant drag on relative performance, as well as on just assets for us.
And that, combined with the value discipline of again, overweighted in Europe, that's been a near-term drag.
And that, in the last month or two, the dollar seems to be leveling here, which is helpful.
And then Europe for the first time as well as all markets outside of the US outperformed the US.
Maybe that's the beginning of a longer-term trend that from our asset mix would be, I think, very beneficial.
The other area, hybrid area for us, you had a little bit of a backup in the high-yield bond market that created some fear there.
But again, we feel pretty good about the hybrid in Franklin income flows, despite that anytime you have a high weighting of high-yield bonds you're going have more energy exposure.
And that created a shock over the last quarter and that seems to be a little bit better.
So those are the areas that I think we're more optimistic about in turning flows around.
And then you take an area like municipal bonds, it's been under pressure the last few years.
That's turned around into positive flows here over the last quarter, and hopefully we can start to see a pickup there as well.
Great.
And maybe going to capital management and the share repurchase, you mentioned that you put in place a ---+ get the 10b5-1 program.
So is it possible to give some color around that.
Maybe size or how you ---+ the structure of it around strike prices, things like that.
I can give you high level, because it is fairly complicated when you get into the details of the mechanics.
But I guess the first question is why did we do it now and what we were seeing was kind of a reduction in tradable volume for us.
And we felt like this would help us meet our ---+ we are not changing our capital policies or strategies, but it would help us meet our goals, because that was sort of a challenge for us in times.
And so the idea that during the period where we would voluntary black ourselves out from trading, we have this 10b5 plan, so it just opens the window up for more trading days for us.
In general, about the mechanics, we try to be more ---+ buy more when the price is down during that period and buy less when it's up.
I think our goal is to grow that business and make it a more meaningful contributor and get scale from size.
So that's ---+ whether that's through an acquisition or continues organically, that's really ---+ we know that needs to be bigger.
I think we're displeased, and I wouldn't call it a trend; it's just a lot of work has been done to get some major wins with that group, and we want to highlight that.
But it's something you wouldn't just expect to happen every quarter to have $1 billion in net inflows going into that segment.
But it's progress in the right direction.
And on a base of $10 billion or $12 billion or $14 billion, whatever it is today, that's meaningful to that business and important in growing the bottom line.
<UNK> <UNK>, UBS.
Good morning.
Question here on the excess debt capital you guys raised.
It looks like you raised about 400 for a ---+ to pay down 250 of outstanding notes.
Would the excess then be used to boost US domiciled cash and potentially fund some buybacks.
Yes, that's one ---+ yes.
Great.
Then there's also been chatter on the capital fund.
There's also been chatter out of DC out of a potential repatriation holiday.
And could you talk about how you would view of reduction in the tax rate in order to bring some cash back stateside.
Yes.
I think that the devil is always in the details on these things, but clearly conceptually, if it was advantageous to the shareholders and from a tax perspective and from a capital management perspective, we would take advantage of any repatriation law that was enacted.
Great.
And then last one, quarter to date we've seen emerging markets bounce nicely.
Can you give any color on what you've seen here quarter to date, whether or not some of the trends that you noticed and highlighted here in recent months, whether or not that's been continuing and maybe even gotten a little extra fuel as we've seen emerging markets bounce.
Yes.
I think we're careful about trying to give any kind of indication where we think flows are going.
This quarter, I think as I've stated, it's helpful to have the stronger performance certainly in areas that have been dragging like emerging markets, and I think that will help a lot of our different products.
But it's probably too early for that to translate into a shift in flows right now.
<UNK> <UNK>, Wells Fargo.
Yes, sure.
I don't think that we will have repeat of last year in the second half of this year.
I think what drove most of the performance fee ---+ the incremental increase in performance fees in 2014 was from K2.
And at this point, it doesn't look like that number will repeat itself for the second half of the year.
Well I think it hopefully will result in just better collaboration with the different groups.
We've always been a Company that has had a lot of autonomy with its investment groups, and the groups' different sources, different research organizations for information.
And we've just felt like we have such a strong team in place with a team of PhDs and led by Michael Hasenstab that it makes sense to try to leverage that.
Certainly the other factor near-term performance with what central banks are doing I think is becoming more important to traditional stock picking that we tend to do.
It's not something that we're going to push on the groups.
It's just a way for us ---+ for them to have another resource and a view that I think will result in an overall more consistent view for the various different groups in the Company.
And part of that is thinking about currency when you're looking at global equities.
And whether you decide to hedge or not, that's up to the various groups, but this will be a strong voice and a strong opinion on looking at currencies and how to add alpha through currencies instead of just leaving that up to the individual groups.
I think that's where we will see probably the majority of change.
<UNK> <UNK>, Deutsche Bank.
Yes.
I think it early to talk about what effect it would have on products.
I think the near-term question is when we look and discuss Templeton and the philosophy around not hedging and how that's been so detrimental when you have this kind of move for US investors, a year where the dollar has been up 25% against the basket of currencies.
So I think those are the more near-term discussions.
You wouldn't go hedge everything, but you would certainly consider hedging some of the funds or some of the classes of shares for those that want to have that protection and potentially lower volatility.
So I think that's where you'll see the near-term effect on products, but that's still something that we're discussing with the group.
I think the other part around how does it affect our solutions and our tactical asset allocation, I think all of that we're still working towards coming up with what we think is the most efficient way to leverage all of that expertise we have in-house.
But I think first and foremost for that group is they manage close to $200 billion, and that's really where you want their focus to remain.
Great.
That's helpful.
And maybe a question for <UNK> on the info systems.
Can you talk in a little more detail about what the plan is there in terms of what you're working on that's driving the elevated expense in the second half of the year.
Could you just repeat the question please.
Yes.
On the info systems expense, the shift up, I know we are going to be up 1% to 2% on a year-over-year basis, so the shift up into the second half if you can talk about, a little bit about what you're doing in that area in terms of project build and whether that is going to continue into next fiscal year as well.
Yes, this information systems technology line, it's pretty hard ---+ it's very hard to predict.
There's a lot of big projects underway and there's project plans and sometimes they come in on time, sometimes they get delayed.
But we do and have had some fairly big system initiatives underway.
They tend to be more operational in nature, HR systems, some fund accounting systems, that kind of thing, and they tend to be multi-year.
The only point I'm trying to make here is the expenses have been lower, and I just didn't want people to think that that is a good run rate going forward.
Yes, that's fair.
And then maybe just while we're on the topic, is there any thought to ever outsourcing things like fund accounting and some of the administration on the investment side.
That's something that gets looked at, I wouldn't say quite frequently but certainly every couple of years here And to date, the conclusion has been not to change that, although every time we go through the exercise, we do identify ways we can improve our existing structure and systems and processes, which is ---+ that's a current discussion right now too and that's part of the technology projects that I am referencing.
Great.
Thank you very much for taking my questions.
<UNK> <UNK>, Susquehanna.
Yes.
Thank you and good morning, guys.
Two questions, really just follow-ups from some of the things that I've heard.
So just on the new 10b plan, is the assumption that you guys put it in place because you weren't able to achieve your capital return goals previously and this may help that.
I think it's more that we thought we would have trouble meeting our goals in the future and this would help that.
It was just becoming more and more difficult to meet our goals is how I would characterize it.
I would start with the global bonds overshadows good stories underneath, and it's such a unique category.
And I think it's fascinating that our two best-selling funds are global bonds right now.
Last quarter the global bond fund Global Total Return was number one and two in gross sales.
So there's still plenty of investors that want that exposure.
I think it's just, again, a unique set of ---+ because you have shareholders throughout Europe that just have a whole different view and came into that with significant portions of their portfolio that that creates some near-term disruption.
But it's also our best-performing area still on a consistent basis over time.
So I think that ---+ when you have $4 billion in outflows in one quarter, that's going to overshadow a lot of stories underneath.
So I think the other, as I've said before, global equity with Templeton, the headwinds there by the dollar and the philosophy of not hedging, that's a pretty strong, especially on like the Templeton foreign fund creates some strong headwinds in the near-term.
So I think that's another area that is somewhat unique.
And then you take other areas, like I've talked about Mutual Series, why that has been a bit of a drag over the last few years, but could be ---+ could turn around fairly quickly.
And then areas where our deep value, like we've always had such strength with rising dividends fund.
In this kind of market it's more tech-oriented; that's going to drag as well.
They tend to be more defensive funds.
Some of the funds that we have led with have been a little bit more defensive in this type of market.
Now we have growth funds, Franklin Growth Fund has a very strong track record across all periods.
We're getting good flows there, but it gets lost, I think in the story.
<UNK> <UNK>, RBC.
Thank you very much.
<UNK>, just one question.
Do you think broadly speaking, fixed income investors are more willing to stick with the asset class in the past, despite the prospect of higher interest rates because of the changing nature and the more expansive nature of fixed income investing.
Well, I think that remains to be seen.
We really haven't had a significant rise.
We've had a couple of blips on short-term that have moved back quickly.
So I think there's always a market for fixed income, and the difference with fixed income is that rates go up; you attract new investors as they go up.
And people want to lock in liabilities and things, that creates demand in a down market for fixed income.
So I think there's always ---+ there will always be a place for fixed income, regardless if it's rising or not.
I think the unconstrained question is one that we will see how that plays out and how those funds really do in a rising rate environment.
And we think our global bond fund with negative duration will do very well in a rising rate environment, and that's what I've said earlier.
That is probably one of the catalysts to get increased flows back into that area.
So I think there clearly is a concern on investors' parts for rising rates, and that's going to affect people going obviously into longer duration assets right now.
But I think there's always clearly a place for fixed income.
<UNK> <UNK>, Citi.
Just a little bit of a modeling follow-up.
<UNK>, as you look out into the next couple of quarters, can you give us an update of what you're going to have in terms of purging some of the dormant shareholder accounts.
Yes, we don't ---+ we probably won't know that till July.
Okay.
You're right, seasonally that's when that happens.
Thank you.
Good morning, and thank you for listening to our commentary on second-quarter results.
I'm <UNK> <UNK>, CEO; and I'm joined by <UNK> <UNK>, our CFO.
Looking briefly at some of the highlights for the quarter, most importantly, relative investment performance remains solid, with the majority of long-term US registered and cross-border assets in the top of their respective peer groups on a 3-, 5- and 10-year basis.
We did see improved net new flows in four key areas: US and global equity, and taxable and tax-free US fixed income.
However, we were disappointed in the redemption pressure on global fixed income.
Institutional and high net worth flows were once again sources of strength.
The institutional business attracted its fourth consecutive quarterly increase in long-term sales, setting a new all-time high.
Our high net worth business achieved a second consecutive quarter of record net new flows.
Looking at financial results, we generated $758 million of operating income, on revenue of $2 billion this quarter.
During the quarter, we repurchased 3.6 million shares, and adopted a stock trading plan under Rule 10b-5 to facilitate ongoing purchases under the existing stock repurchase program.
At the end of March, we issued $400 million of 10-year notes, with net proceeds to be used to repay $250 million of outstanding notes due in May, and for general corporate purposes.
And lastly, one of the more notable business updates for the quarter was the establishment of the Templeton Global Macro investment group to better leverage the global macro expertise embedded in the Templeton Global Bond team, and to enhance investment team collaboration across the Company.
As slide 6 illustrates, fixed income relative performance remains strong, with more than three-quarters of assets in the top half of their respective peer groups for the 1-, 3-, 5- and 10-year periods.
Performance of equity and hybrid funds, while generally strong, was a bit more mixed.
On the positive side, mutual series has performed very well in the current environment.
Short-term equity and hybrid relative performance improved a bit from December, with 29% of the assets ranked in the top two quartiles as of March.
As I mentioned last quarter, the Franklin Income Fund accounts for a disproportionate amount of these assets, and its exposure to the energy sector significantly weighed on short-term performance, from the end of September through mid-December.
Since that time, performance has steadily been improving.
We've also seen recent performance of Templeton significantly improve.
Assets under management bounced around with markets this quarter, and settled slightly higher compared to December.
Due to prior-quarter declines, average AUM declined almost 1.5%.
The mix in AUM by investment objective was also unchanged over the prior quarter, though we're still seeing a bit of shift towards institutional clients.
AUM by sales region shifted slightly more towards the US this quarter.
Looking at the components of the change in assets under management on slide 10, solid investment returns of our funds were partially offset by almost $8 billion of foreign exchange revaluation.
This resulted in net market appreciation of only $7 billion.
On the flow side, long-term sales exceeded $46 billion again this quarter.
However, long-term redemptions ticked up, leading to increased long-term net outflows of $5.3 billion.
Cash management products were also an outflow, but that appears to be largely due to seasonally higher redemptions in India that reversed in April, as they typically do.
In the US, retail sales and redemptions were slightly improved from last quarter, as global fixed income and equity outflows slowed, and tax-free fixed income returned to inflows.
International retail sales slowed this quarter, and redemptions increased, particularly from global fixed income funds.
As I already mentioned, our institutional and high net worth businesses continue to perform well.
In fact, our reputation in the institutional market continues to improve.
In the most recent US institutional investor Brandscape survey conducted by Market Strategies International, our US institutional brand ranked among the top 10, a significant improvement over number 21 in the prior year.
Additionally, we were recognized as the fastest-growing Canadian institutional firm, with assets exceeding $10 billion.
On the international front, we recently learned that Asian Investor magazine recognized Franklin Templeton as the India Fund House of the Year.
This is our third time winning the award since it was introduced in 2010, and we're the only foreign-owned asset manager to win the award.
Looking now at flows by investment objective, global equity experienced an increase in sales, and a decrease in redemptions.
Global equity remains our largest category of AUM; and as usual, there were a number of gives and takes on flows.
In general, institutional and local asset management continue to be areas of strength, while emerging markets and retail global equity products have not had as much success.
As mentioned, global fixed income flows deteriorated this quarter, with about $4.7 billion of net outflows coming from the US and cross-border versions of the Templeton Global Bond and Total Return Funds.
Outflows from the US funds actually improved somewhat, but the cross-border flows reversed into outflows this quarter.
New sales into the funds remain strong, but increased redemptions appear to be driven by shorter-term performance.
US equity sales improved marginally from last quarter, driven by continued interest in certain Franklin growth and sector strategies.
But a few mutual series funds kept the category in net outflows overall.
Redemptions were consistent with prior periods, both on an absolute and percentage basis.
Hybrid sales slowed this quarter, as investors' concerns over energy exposure of the Franklin Income Fund continues to weigh on sales, and the US and cross-border versions of the fund were in modest outflows.
Hybrid redemption rates remain consistent with the prior four-quarter average, and high net worth had another strong quarter.
On another note, we're pleased to see the Franklin K2 Alternative Strategies Fund grain traction, as it was one of our top-selling hybrid funds this quarter.
That contributed to a great quarter for our solutions team, that had over $750 million in net new flows overall.
Looking now at tax-free fixed income, sales increased this quarter, and the redemption rate was below the four-quarter average.
This is a reflection of the strong 2014 muni's had, and the attractiveness of their tax-adjusted returns compared with taxable fixed income.
US taxable fixed income turned positive again this quarter, largely due to a $1.6-billion institutional inflow into the floating rate debt strategy.
Looking now at slide 15, we've shared a high-level view of selected 2015 strategic initiatives, and I'll touch briefly on a few of them.
One of our core initiatives every year is to maintain or enhance investment performance, such that the majority of our assets are in the top half of their respective peer groups.
And because performance is so important to our Business, all initiatives stem from it.
As I highlighted earlier, we established the Global Macro team, which will be responsible for in-depth global macroeconomic analysis, covering thematic topics, regional and country analysis, and interest rate, currency and sovereign credit market outlooks.
This team will continue to manage Templeton's Global Bond strategies, including unconstrained fixed income, currency, and global macro strategies.
While performance-driven initiatives are the foundation of our corporate strategy, we are equally focused on long-term global growth.
Enhancing our global institutional business continues to be a big focus for us; and our efforts have begun to pay off, as we have pointed out in recent quarters.
In fact, we attracted $9.6 billion in cumulative net sales over the past four quarters from institutional clients.
Furthermore, we continue to see opportunity in building investment solutions, strategies and processes, as we expect demand for these products to grow.
We are also encouraged by the success of the Franklin K2 Alternative Strategy Fund, which now has more than $650 million in assets, in a little more than a year since inception, and its cross-border equivalent has acquired $175 million in assets in six months.
The US fund is now available on all major platforms, and we are working to further expand the capabilities of K2, and are planning to launch a long/short credit fund in FY15, and are working to launch multi-asset and diversified growth funds in both Europe and Asia.
That concludes my comments.
I will now turn it over to <UNK> to discuss financial results.
Thanks, <UNK>.
Overall, operating results for the quarter were strong, with operating income of $758 million and net income of $607 million.
Although higher non-operating income drove the increase in net income, net stock repurchases contributed to the growth in diluted earnings per share, which grew faster than net income this quarter.
Looking at slide 18, overall revenues decreased 3% this quarter, as you may have expected, due to the changes in assets under management that we reported earlier this month.
Investment management fees were $1.35 billion, down slightly over the prior quarter, due mostly to lower average assets under management and two fewer days to earn revenue in the quarter.
Higher performance fees totaling $9.3 million offset this a bit.
Sales and distribution fees also decreased 3%.
This was primarily due to lower asset-based fees, though slightly offset by a small increase in commissionable sales.
Shareholder servicing fees were essentially flat over the prior quarter at $66 million.
And other revenue decreased to $16.1 million, due to lower consolidated sponsored investment product income, as well as the deconsolidation of one of our funds this quarter.
Looking now at expenses, lower average assets drove the majority of the 2% decrease in expenses this quarter.
The overall change in sales and distribution expense was consistent with the change in revenue.
Compensation and benefits expense was up 1% this quarter, due mostly to a seasonal increase in payroll taxes and merit increases; but this was mostly offset by lower variable compensation, lower carried interest expense, and a foreign-exchange benefit from the strengthening US dollar.
Information and technology expense decreased 3% this quarter, and occupancy expense was $32.1 million.
Information systems and technology expense has been lower for the first half of the fiscal year, but as I've indicated on prior calls, we have several things in the pipeline that I believe will push this line up over the next couple of quarters.
We currently anticipate that the full-year expense will likely increase in the range of 1% to 2% versus 2014.
The timing of some of this can be difficult to predict.
General, administrative and other expense was $82.1 million, and this is comprised of a number of items, including the mark-to-market of future liabilities related to prior acquisitions.
While these items can fluctuate quite a bit, we currently expect next quarter to look more like the first quarter.
Looking now at profitability metrics, the fiscal year-to-date operating margin was 37.8%, down only marginally from the prior fiscal year.
This quarter's operating margin of 37.7% was actually the highest margin ever for a second fiscal quarter, which tends to be a tougher quarter for margins because of seasonal expense increases and the shorter calendar.
The tax rate decreased this quarter to 27.5%, and this was due to the recognition of tax benefits resulting from the expiration of statutes of limitations in various tax jurisdictions, which we mentioned in our filing last quarter.
Due to the reversal of some tax liabilities related to this, we now expect a fiscal-year tax rate of around 29.5% to 30%.
This also impacted interest expense, which was only $1.7 million this quarter, due to the reversal of past interest accruals related to these liabilities.
Moving on, other income net of non-controlling interest increased quite significantly this quarter, for a number of reasons, which slide 21 illustrates.
First, the impact of the strong US dollar continues to drive large, unrealized gains on foreign exchange revaluations, which I remind you are mostly offset on the balance sheet under other comprehensive income.
Secondly, interest expense was only $1.7 million this quarter, as I just mentioned.
And lastly, higher dividend and interest income, as well as an increase in the fair value of our trading investments, also contributed to the increase.
During the quarter, we repurchased 3.6 million shares at a cost of $190 million, bringing year-to-date repurchases to 6.3 million shares at a total cost of $341 million.
Last month, our Board approved a stock trading plan under rule 10b5-1, to facilitate ongoing repurchases under the existing stock repurchase program.
These plans permit a company to repurchase its common stock during times when it would not normally be in the market, due to possible awareness of material non-public information.
Our new plan complies with this rule, while remaining consistent with our systematically opportunistic approach to share repurchases.
Increased repurchases and an additional quarter of the higher dividend increased the total payout, shown on slide 24, to $1.3 billion over the trailing 12-month period.
Measured against reported net income, that resulted in a pay-out ratio of 54%, coincidently split evenly between dividends and repurchases.
Now, the pay-out ratio remains an imperfect measure of capital return, given that roughly only 50% of earnings is generated in the United States, and available to be distributed via dividends and share repurchases.
We'd also like to remind investors that the net income denominator in these ratios is not adjusted for offsetting equity issuances, which have tended to be far lower for us than many peers.
During the quarter, we also took advantage of attracting pricing to issue $400 million of 10-year notes, at a coupon of 2.85%, a new record low spread.
Net proceeds of the offering will be used to repay the $250 million of notes maturing in May, so you'll see higher levels of cash and debt on the March 31 balance sheet because those notes have not yet matured.
And that concludes our comments.
Thank you for listening, and we look forward to hearing from you on our conference call later today.
| 2015_BEN |
2016 | CUZ | CUZ
#<UNK>, that's a great question.
Every now and then in this business you wish you could go back, but we were talking about that the other day.
I think when we had the opportunity to buy into Houston, it was a huge positive step for our Company to establish ourselves in a rapidly growing market of size and scale and be able to get in there and inherit a team which is a tremendous team.
And if you look at the results that team generated, both while Houston was still going strong and in my opinion more importantly as Houston started cooling off with us getting ahead of those big leases, they just did a tremendous job.
It was interesting to me a sort of light came off at the end of the tunnel for me about six, nine months ago.
And I can't remember what conference it was at, but I started each individual meeting with the investors and said is there anything that I can say to you in this investor meeting about Houston that's going to change your mind about Houston and they said no.
And so, I think what then happened was you looked at the size and scale of what you had in Houston mixed together with your other assets and you realized that you needed an opportunity to let more visibility come into the Houston portfolio without the distraction of the other cities because it really wasn't nearly as bad as people were thinking it was.
And that was a key element of our conversations with Parkway is they had a similar situation and by putting a ring fence around those assets, we now have a tremendous group of assets in Houston which we think will outperform the downside and the upside with the management team 100% dedicated to that and I think that will appeal to a certain type of investors.
So I think that the logic about which we made the decision was good, I think the way in which we executed while we had the assets was good, and I think the way in which we're now pulling the assets together is just fantastic and I couldn't have more confidence in Jim and the Parkway team to work with our collective teams in Houston and get a tremendous amount of value out of those assets for the shareholders.
I'm equally glad that the shareholders of the new Cousins are benefiting from these collective assets in both companies.
They are largely overlapped.
I mean that was one of the amazing things about Parkway and Cousins not just in cities; but also in terms of quality, urban best submarkets and put that in its own company that can stand on its own and really distinguish itself in these other markets.
So, that's what I was trying to get across in my excitement in my opening remarks.
<UNK>, I think it's early for that.
I think as you see our further information come out in terms of as we get toward 2017 and start showing some numbers on where we think 2017 is and we've had further time to get through the transaction part and look at the asset part that you'll see more of that.
But at a fairly low level if you look at these three cities that are new to us, they meet our criteria.
They've got growth rates above the national average, they've got new building rates way below the national average, and in certain submarkets you're seeing near $30 rents get achieved for the right assets.
So, there's nothing in those new markets for us that are unusual in terms of the characteristics that we look for in highlighting a Cousins market, but it's too early to comment on long term.
I'll take the first two and let <UNK> take the others.
When we had an in-house contractor, those were back in the days when we were building houses and so when we got out of that business, we got out of that altogether.
So, we do not have a contractor.
Our land positions are really very light and the majority of the land that shows up in that 1% is residential land that we would consider non-core and are continuing to work to settle down.
So <UNK>, I would hope that as soon as a little bit of the luster gets off the multi-family [rose], and I'm not smart enough to know when that is, that we would be in a position in these key submarkets and cities that we've highlighted to pick up a site or two that would give us the flexibility to be in a better position to build when the right time comes in the next cycle.
I'll let <UNK> or <UNK> comment on 191.
<UNK>, we didn't quite hear that the last part of your question, if you could repeat that.
The recent leasing activity that we have, those commencements are all at the beginning part of 2017.
And they do as you would expect have some degree of free rent.
And I would tell you in terms of what we're seeing in Atlanta as it relates to that, it's anywhere from kind of half a month to a year of free rent per year of lease term.
You got it right, yes.
Certainly as we look across our various markets, there is varying degrees of speculative construction underway.
We see a little bit more of it in Austin and Charlotte and there's virtually none in Atlanta.
But I think what's really driving our comment is taking a more cautious approach is just feeling like that we're kind of late cycle from an overall macroeconomy perspective.
So, we will continue to take a cautious approach.
That being said, we're continuing to see some pretty good activity from large customers who have built to suit oriented opportunities and we'll continue to look at those if they provide very attractive risk adjusted returns.
But as a general statement as we feel a little bit late cycle, we will take a cautious approach across all of our markets as it relates to speculative space.
The Decatur project, we feel very good about.
As <UNK> mentioned earlier, in a general sense we believe it's late cycle in the multi-family space as well.
But that particular project is so well positioned and really a very unique kind of urban location here in Atlanta over in Decatur, directly adjacent to MARTA station and so we think that is defensively positioned as you'll find for a multi-family site in the Sunbelt.
Really everything that we've talked about today, we've already sold in 2016 and so have fully funded.
We wanted to take the capital markets risk out of our development pipeline including the Avalon project.
So, the only thing that you would see us look to sell another asset if the purpose of that sale is to generate capital for a development need with a new development prospect.
And I would tell you, as <UNK> said, really the only type development prospect that I think you could see us take on today would just be another project like an NCR where you had a big company with good credit that wanted to do a long-term lease and it made sense, also the Dimensional Fund Advisors.
I'm long enough in my career that I've learned that I'm not smart enough to guess when the cycle is going to go down, but I'm willing to give up some of the fourth quarter just to make sure I'm ready for the first quarter of the next one.
<UNK>, that's a perfect question.
And I think what we see is that in all of these cities and we can name them that we're in, there appears to be what I would call an urban light node and it tends to be where the high income suburban household demographic is.
The Domain in Austin would be one and it's a way out from the city in terms of how we think of urban, but then once you get there; you look at household formation, you look at densities, you look at income levels, you look at school levels; then it tends to get led off with a mixed-use project as this one did.
And this one actually started and then cratered during the recession and then restarted.
But the first phase, which included single-family homes to buy, to rent offices, retail, et cetera, has just been a huge success.
And the second phase, there are only two phases of it, gave us comfort.
The other thing that gave us a lot of comfort is we had about six months of pre-development and as <UNK> alluded to, the pipeline of leasing and we're quite confident of some announcements that we'll have coming up validate our thesis.
It really is a topic we debate in here.
I think when we first got to know the market, we thought of this more as probably a merchant build because of the distance out from the cities.
But then when you start to look and you go here's a whole site with all this infrastructure and there can only be one other office building program for which we control that site, maybe we define a category of urban light and hold it for a longer period of time.
So, that would just be a jump ball for us to call a couple of years out when the thing's leased up.
<UNK>, I'd just add to that.
As we think about the type of asset we want to own long term, it's those that are going to come in at premium rents.
And we're obviously just coming out of the ground on the office building, but as we have some transparency on the rents they're achieving on the multi-family side, on the retail side in this project, and the sales that they're doing; they're very much Buckhead like.
And so as we look at that, I think that gives us a lot of confidence and/or perhaps inform our long-term decision once we stabilize the asset.
<UNK>, we've never given specific guidance on any one particular development project just from a competitive standpoint.
But I think we've given past guidance that our development pipeline is penciled out to a mid-8.5% GAAP yield on a weighted average basis and we think with the addition of this project that that remains relatively unchanged.
There is premium in the market for Avalon relative to what's there.
But we really think about Avalon, its competitive set isn't just what's around it because there's truly nothing like it.
The competitive supply for the most part of surface part type assets and we've seen a real demand for customers in that market.
As I mentioned a lot of large cap technology type companies, large financial institutions who are very much focused on recruiting and retention of the less caliber employee and really see this as an opportunity to locate out in that submarket versus having to go to Buckhead or the Central Perimeter.
So there will be a premium, but we think we're very close to validating that.
But as <UNK> said in his earlier remarks, the office rents on an early basis look more like Buckhead office rents.
<UNK>, there was good activity as we detailed in the past in 2015 in really all submarkets; Downtown, the Galleria, even out west.
As we moved into 2016, we've seen activity really slow and I think it's probably a function of buyers' expectations continuing to increase and sellers holding firm.
One of the things that we've always looked at as we evaluate the Houston market and I think it's important to note is really the quality of the underlying owners within the market, particularly in our urban submarkets in the Galleria and Greenway Downtown.
It's very, very large well capitalized groups like in Invescos and JP Morgans who own those assets on a very low leverage basis and they have the ability to take a long-term perspective.
So, we just haven't seen that bid-ask spread narrow to the point where we've seen a lot of transactions this year.
Great question, <UNK>.
I would say we look at it through a couple different lenses.
First, I wouldn't say that we're underwriting to a specific cap rate.
It's really more what's the spread over that going in yield relative to where we see spot cap rates today.
And obviously even with the build-to-suit, we like to have a healthy development margin and that will even ---+.
In terms of what that particular margin is, it's very dependent on the underlying credit of the customer that we're working with.
I don't want to go into specific details again to kind of put us at a competitive disadvantage in the future, but we do underwrite a margin to protect ourselves.
We also look at as we're doing these projects, what is the overall project cost and therefore what does that translate into in underlying rental rate to make sure that we're not developing a too specialized building or put ourselves in a position with a kind of way above market rate.
So, we kind of look at all those various factors to ultimately determine whether it's the right transaction for us and put a price on it.
Business as usual.
I don't want to get too much into that until we can get past some of the merger conversations.
But at the end of the day, two things that drive where you look to go and the part of the business we're in.
One is you've got to look at the cities and you've got to have the dynamics that allow you an opportunity to go in there and be successful.
And then the second is the human talent, which is the most important part like a Tim Hendrix that we have in Austin that are very much embedded with the core values and relationships that are necessary to make those.
And I think that the key drivers for us is looking at both, you have to look at the cities, but you also have to look at the competition that's there and see if there is an opportunity to bring your value and then you have to either have somebody on your bench or find somebody that can really bring you to the table quickly as a local sharp shooter.
I would give an example of that is that's one of the reasons we were comfortable buying Greenway is we had a 20-year team there with [much] of shared value and so when it came down to figuring out how to do some of those big leases early, we were able to act like a local sharp shooter even though we had not been in the market a long time.
But we are excited about the opportunities post-merger, but it will be driven by really looking at cities and those dynamics.
There's the population dynamic, there's the competitive dynamic, and then there's the human dynamic, and those will be the things we'll continue to look at.
It's all incremental.
I mean if you look at where we are; we've been in Charlotte a long time, we've been in Austin a long time, we've been in Atlanta since our founding, and we've been in and out of other markets.
We've been in Dallas, we've been in Fort Worth, we've been in other markets.
So it's not unusual for us to take a look at two or three or four other markets, but we're going to always be driven by quality of return versus scale and that's the game.
As you get the densification that's occurred in the Sunbelt and in these urban submarkets, there is an opportunity to have concentration and diversification and return and that's always going to be more important than scale.
We appreciate everybody being on the call today.
These are exciting times at Cousins, I hope you hear that in our voices and in our answers.
We look forward to talking to you all as things move forward and appreciate your continued interest in our Company.
Thank you.
| 2016_CUZ |
2016 | PII | PII
#<UNK>, this is <UNK>.
Let me cover at least some of the question.
I think we use the word modest in terms of the underlying organic performance of the business, and certainly foreign exchange which is something that has been moving quite significantly, and as I indicated in my prepared remarks we've seen the Canadian decline quite precipitously coming out of the end of the year.
And that puts some pressure.
But I think we're also trying to calibrate to what we're seeing in terms of more recent retail performance coming out of the month of December and making sure that we've got the range covering that.
When you look at it from an organic perspective, we're essentially calling it flat to up 5%.
So modest kind of gets you right in the middle of that, ex foreign currency.
<UNK>, is this your idea of one question.
So just to answer your last question first, we absolutely believe that 2016 will be a year of growth for Victory.
We have a lot of exciting product news.
We're excited about the marketing position with the American Muscle branding.
And we believe that with what we have coming, it should be a good start to the year and full year for Victory.
With Indian, obviously the production problems that we had in the first half of last year constrained our ability to meet demand, and with broader dealer networks finishing the year at 180, we feel pretty good about it.
But the overall market is weak.
And we don't know that there will be growth in the market.
So what we get will have to be share gains in what you know is a very competitive heavyweight motorcycle industry.
So we feel extremely good about where the business is, but we're trying to guide to what we believe is very achievable performance.
And as you know, we will work like heck to beat that.
<UNK>, I apologize if you heard one of us say we might not be able to gain much market share in motorcycles.
That is absolutely ---+
Overall.
Well, I think what we said is overall in Powersports, including all aspects, we expect to gain share.
ORV's going to be extremely competitive.
We know that.
We've factored that in.
We saw it in the fourth quarter.
And we're modeling that we're going to hold share.
And I think with Matt and <UNK> and the team, the way that they'll battle with better inventory positions and again continued new products, we feel good about our ability to do that.
I think the risk is in the industry.
And that's what we're modeling closely.
It was the weakest the industry's been in quite some time in Q4, and we're just protecting ourselves to ensure that we're not relying on gargantuan share gains to be able to hit our guidance.
<UNK>, this is <UNK>.
On the ORV side, oil ---+ key oil-producing states are somewhere in the neighborhood of just north of 15% of sales.
So there's some exposure.
Obviously as by far the leading manufacturer, we're exposed.
I would tell you if there's any reason for optimism, oil markets were weak year over year pretty much all year long.
We talked about ag weakness, and ag was I think weak most of the year.
But ag had been weaker in 2014.
So frankly we did not see the declines in ag nearly to what we saw in oil.
So if there's such a thing as encouragement in that the year-over-year performance in oil may be less bad in 2016, I think that's very much a possibility.
So we're exposed.
But I don't know that we're going to take a much bigger blow year over year than we did here in 2015.
<UNK>, Bill could provide really good color on this.
But let's, as we talk about share in side-by-sides, let's make sure we're grounded in where our position is.
You realize that we are three times combined the share of the next three players.
So we're coming from a pretty good position.
And the amount of share loss that we're talking about, I don't want to call miniscule, immaterial, not a very large amount.
We're not going to over react, although we are very focused on maintaining and gaining share.
But let's not ---+ we are not panicked over that and we feel very good about how we'll deal with it going forward.
Let me just add on.
Again, I think you get sometimes in quarters, as <UNK>'s alluding to, there can be a little bit of timing.
What was unique in the fourth quarter I think are a couple elements.
As everybody well knows, there was a number of new competitive introductions that frankly started shipping and had probably some initial pent-up retail sales that we saw in the fourth quarter for the first time coming off of zero comparables.
The industry was weak.
So the industry was less able frankly to handle that.
The other thing we had is we had a recall due to some quality issues with vent lines on our RZR product in October, and October was our weakest performing month of the quarter.
We think that had some impact as well.
That's shame on us.
But we seem to have powered through that as we go forward.
Then again, the other thing I said in my remarks is we were coming off some really sporty comparables in the fourth quarter where we were up double digits percent, which again I don't think we see frankly in the 2016 model.
We don't have those kind of comps that we're going up against.
I do think there is some unique aspects about the fourth quarter.
But as <UNK> said, it will be a competitive environment.
And we're going to have to be at our very best, and we're going to have to be better than we were in 2015 if we're going to hold and ultimately do what we expect to do, which is gain some share.
Our base assumptions on oil is, is it's going to remain weak for the full-year 2016.
We don't see any miraculous improvement or recovery in oil prices.
And so we expect that those markets will remain repressed.
But what I do think, again as I alluded to is a likely possibility based on what we saw in ag, is we saw big declines throughout 2015, and off of the much weaker comparables it's possible that while we expect them to continue to shrink they won't shrink as much.
Good morning.
<UNK>, this is <UNK>.
Let me just hit some of the key points.
The foreign exchange dynamic, just to kind of give you the high level, most of that lapping occurs in Q1 and Q2 and somewhat in Q3.
So through the course of 2015 the Canadian dollar had held up relatively well until we got pretty much into the third quarter.
And so for the first and second quarter that's going to be a pretty substantial impact.
And as I mentioned in my prepared comments, that's going to be as much as 2% to the top line.
And as I mentioned in my discussion about gross margins, it's a very heavy hit to the gross margin line because we're essentially exporting into that market.
We do have some hedge position that helps us offset the transactional impacts, but it's still going to be pretty heavy.
So that's the first item.
The second is, as I indicated, we're going to be down from an ORV in a snow-shipment perspective.
We're comparing against first quarter of last year where the Company had about 16% growth.
So we're going to be shipping at a much lower level, just given what we're anticipating will be the industry dynamics in terms of weaker retail environment.
And so that's certainly going to put a lot of pressure because that business, ORV and snowmobiles, is our more profitable segment.
Then as I mentioned, our operating expenses, even though from a full-year standpoint we're going to have a very modest increase, when you start looking at the quarters we've got about $20 million-ish of headwind when we compare the first quarter of 2015 against the first quarter of 2016.
So essentially the exit rate we have coming out of the end of last year, taking into account some of the cost reductions that <UNK> mentioned in terms of the headcount and salary reductions that we've made, we're still going to be facing a little bit of headwind when we start looking at that.
So as you look at the year as it plays out, obviously there's an assumption that things improve into the second half.
Some of that is just purely the foreign exchange dynamic, some of that is just purely the comps when you get into the fourth quarter comparing against what we did in terms of the pretty substantial shipment reduction.
There's also an element, too, and we referred to it, I think, several times in our remarks.
The work that <UNK> has been doing for the last year around building these value improvement project plans, they build momentum over time.
So by the time we get to the ---+ really, it's going to build throughout the year.
But really getting into the second half of the year, we will see the lion's share of those projects really taking hold.
Lot of material cost reductions, a lot of ---+ the platforming we've talked about in our vehicles.
And we'll get the benefit of that in conjunction with currency so it's reasonably powerful.
Now, we clearly recognize that we thought the same thing this year and that didn't happen.
So we've calibrated our plans to ensure that it's much more achievable.
<UNK>, the number's embedded in the guidance we just gave.
I think most of what we're doing, honestly, is to offset the currency headwinds we face which are ---+ I mean, honestly, just brutal.
But I don't want to ---+ what I did say in my prepared remarks is that Dave Longren ---+ now remember, Dave is arguably one of the most talented people we have in this business.
The last time we went through a downturn, Dave led the effort to just rip cost out of our vehicles and help us get turned around.
He's taking a much broader approach with this enterprise cost role now.
And with a couple of major buckets we have said he's going to give us an incremental $10 million to $20 million over the next couple of years.
I think the way to think about this is we've said that there's 300 to 500 basis points of gross profit margin that we expect over the next five years, and all of this is going towards that.
The biggest driver of the inventory, we probably should have been more clear on this, is we cut dramatic shipments out at the middle of December.
Those products were built.
So our finished goods inventory was up dramatically.
And that drove most of the increase.
It was just not a good year.
We're doing a couple things as we go into 2016.
We're going to have a significant improvement in our [sy op] process to make sure we get better at this overall forecasting and management of inventory in general.
But we're also adding inventory to one of the incentive comp metrics that our senior executives have.
It won't be just a balance sheet miss.
It will be a personal P&L miss if we don't get significantly better quickly at inventory.
So I think, <UNK>, <UNK> hit on a couple of the key points.
I think the gross margin improvement will start to materialize more in the second half.
One, it's sheerly about volume.
Two, it's about the foreign exchange headwind starts to abate a bit, assuming the rates hold at the levels that we've seen today.
You also asked about the segment performance.
We do have a chart in the deck, but just to kind of recap.
The ORV margins will be down, largely on the back of foreign exchange as well as just some of the mix shifts in the lower volume environment that we have, as well as what we anticipate will be slightly elevated levels of promotional activity.
Motorcycles, we anticipate to continue to see improvement.
As <UNK> alluded, the Spirit Lake facility enhancements is a allowing us to get more motorcycles through.
So the per unit cost is improving there.
And the global adjacent markets is going to be about flat, but isn't as big a impact to the overall Company performance.
It's completely mix, <UNK>.
You built out the Scout.
Now you've got a new Scout 60 at $8,999 that we expect is going to be a significant volume play.
That's really all it is.
We're going to see growth in all of our products within the thing.
It's just no comps on some of the mid-size.
Yes, you're right <UNK>.
The range is purely about the organic.
If you look back at our slide number 20 and we talk about our constant currency revenue performance of flat to 5% ---+ plus 5%.
So we're assuming the same level of currency.
The reality is there are going to be dynamics that happen within that.
But for the ease of modeling this and being able to give ourselves a clear shot at what we want to do organically in the business, we pegged the foreign exchange rate.
As I mentioned, we've got a pretty substantial level of hedge activity in place.
So we think we can mitigate a fair amount of the transactional impacts that we've got, and we continue to increase those positions as we go.
The translation could pose some risk to us.
But at this point it's tough to tell where that will end up.
<UNK>, you just answered your own question.
When we started Huntsville 1.5 years ago, ORVs were still growing at double digits, and we still need to plan.
Obviously as <UNK> I think fairly well articulated the benefits we get from it, but clearly demand is down from when we originally started the project.
So moving Slingshot there makes sense on many, many levels.
We built the plant to have extra capacity because we recognized the strategic location of it with the local supply base, the strong engineering base there, the proximity to our customers.
But really it also augments our ability to continue to fulfill the growth that we know is coming with Indian and Victory.
There's limited human capacity in the Spirit Lake area.
There's limited paint capacity in the Spirit Lake area.
By moving Slingshot out, we get two benefits.
One is eating into the absorption in Huntsville, taking advantage of that labor pool.
But also ensuring that we have a long way to run with our motorcycle business in Spirit Lake.
Let me see if I can get one question there.
With the new segment reporting.
As I said in my remarks <UNK>, it's a pretty tough environment in snowmobiles.
And we're going to do the right thing, as we always do.
And so we're expecting some pretty notable reductions to our build in snowmobiles.
So I think when you see the implied guidance, there's a dampening effect that is certainly snowmobile.
Don't look at the minuses as an expectation of where we see our retail for ORV.
Again, we're modeling a flat industry essentially and that we're going to hold share.
So I think the implied retail guidance on that would be somewhere in the flat range, not down.
And again, I think as we come up against more muted comps in the second half, I do think we expect that our retail performance should strengthen as the year goes on in ORV, at least directionally.
<UNK>, I think it's primarily a demand issue.
Again, we're very pleased with the progress we've seen out of Spirit Lake.
While there are still some backlogs within niches of products, and probably Victory's been the most adversely impacted, really what I think you saw on us missing our retail expectations was that the industry was weaker than we expected, being down high-single digits.
We didn't expect that.
We expected it to be closer to flat or down low-single digits.
That's primarily where the retail miss was.
Again, fourth quarter is fairly low seasonality for us.
So much better that we're positioned as we head into 2016.
As I indicated in my remarks, we're very comfortable with how Steve has that business set up.
<UNK>, this is <UNK>.
I'll take Canada.
Again, Canada was weak, <UNK>, all year long.
And particularly in side-by-sides, it's a much smaller percentage of the marketplace than it is with ATVs.
So we don't see what I would call material headwind year over year in Canada coming off of weak comparables, particularly with us being very heightenedly focused on side-by-sides.
I don't think we should worry about a seasonality impact there in Canada.
You want to comment on that.
As it relates to the automotive, and then you threw in the boat segment being reasonably strong, as you know, boats are notoriously cyclical.
And I think they're just benefiting from an upcycle in that industry.
And we know how that ends typically.
On the auto side, I think <UNK> Jackson, AutoNation, just described the situation in auto retail extremely well.
The record sales, what, $17.5 million, was fantastic.
But the dealer inventory fundamentals aren't good.
The length of the financing is not good.
And we believe that is really not going to last over time.
But it's certainly not helpful to us when we see those products selling and ours not.
There is an element, I have to admit, as much as I like to talk about the work value of our products, there's a little bit more of a necessity need to an automobile than a RZR.
We'll live with that.
Excluding currency, from a ORV standpoint, incremental margins are probably going to be in the, call it, 40% range as we grow a very high profitable business and <UNK>'s organization continues to execute on the Lean initiatives.
Motorcycles is a tough one.
We're registering right around 13%, 14% margins right now.
The incremental will be not quite at the Company level, but we're going to continue to see that improve.
So you're probably talking about numbers that would be up in the 20% range.
And then global adjacent markets is going to be slightly north of the overall gross margin level that they have.
No.
Todd gave us plenty of notice that he was planning to leave.
So we had a lot of time to prepare for that.
One of the many things that he did is he built a really good team underneath of him.
We've got a strong pipeline now.
The transactions are continuing to flow through.
And there's actually zero impact on the business.
Because Todd gave us so much notice, we've had a lengthy search going on.
We believe we can attract a really strong candidate to help us continue to drive our strategy through M&A.
So don't read anything into that at all.
That includes Slingshot, <UNK>.
That essentially is anything that its segment we compete in.
So mid-size and up, cruisers, bagger, touring, and three-wheelers.
In our segments, no.
In the broader based motorcycle market, I won't specifically comment.
I think they did just fine in that.
Frankly, some of the lower end motorcycles were relatively a little bit better than the big stuff.
So we definitely saw an elevated level throughout the course of 2015.
And you can see in the press release the balance that we have exiting 2015 versus last year.
We're at an elevated level.
As we get into 2016 we anticipate that, that will continue.
It will have an impact on gross margins, but when I stratify it against all the other things like foreign exchange and the other impacts that we have, it's relatively small in the overall scheme of things.
That's part of the plan is that we will sequentially start insourcing Slingshot paint once we get it down to Huntsville.
It may not be all of it, but it would be a substantial portion of that going forward.
Yes, we have not changed our $300 million to $500 million outlook for that business.
Year two is pretty exciting with what <UNK> and the Team have planned.
I think, <UNK>, that as the economy gets a little tougher and as we've raised the ASPs, particularly on some of the high-end stuff, we're watching that very, very carefully.
I would tell you, we had what I would call significant bets on the high end of our line.
So that's why you saw ---+ that's why primarily took the reductions in those products.
But we're watching that dynamic here as we go forward in a tougher economy.
And I think you can expect to see us in 2016 be sharper on our value-premium plays as we go forward.
The 15% does relate to North America.
So that's essentially key states and provinces in North America.
Yes <UNK>, on the currencies, I had mentioned in my prepared remarks the Canadian moving about CAD0.01 is going to be about $5 million to the top line.
It's close to $5 million to the gross margin line.
For the euro, about $0.01 move is going to be about $3 million to the top line and about $1 million, $1.5 million of income.
Yes, but I mean, they're small enough that they're not the ones moving the needle.
The CAD is the number one and then the euro obviously presents a pretty big challenge from a translation perspective if we get significant movement there.
I think, <UNK>, this is <UNK>, snow is improving as we've gone through the first quarter.
Fourth quarter there was just not a lot of snow.
And I would tell you generally the inventory that we're most concerned about is in the flatland areas.
We had a poor snow year last year in the Midwest, good snow in the Northeast, and then we had poor snow in both areas in the fourth quarter.
So we're watching the flats very, very carefully.
We have great product in everywhere, but particularly in the mountains.
We feel good about where we are there.
That's a good question, <UNK>.
I would tell you, we've seen the phenomenon with currencies helping our competitors for well over a year.
I think as we made the remark, this is the second or third year in a row of significant currency swings.
We've been facing that problem for some time.
It's certainly helpful for them.
I think as the economy toughens, there is heightened focus on value.
And we have a number of value offerings, and I think you'll see us sharpen that.
And I think we're going to watch, to the earlier question that <UNK> had about making sure we have our price sensitivities right on the high end.
I will tell you on the side-by-sides, when you think about entering the crossover segment with General, which is a $30,000-plus segment where we have 0% share, and that is a very compelling product and it's been well received, along with a full year of Turbo and a number of other things, we feel ---+ we got ammo on the high end and we expect those products to do well.
I mean, I'll put those products up and they'll kick everybody's butt, not to sound cocky.
We still feel good about the strength of the Polaris Armada, and we'll take our chances.
| 2016_PII |
2016 | NAVG | NAVG
#Okay.
Thank you very much.
This is <UNK>.
I'd like to welcome you to the first-quarter earnings conference call for the Navigators Group Inc.
We are pleased to report another solid quarter, with net income of $22.9 million for the first quarter of 2016, and operating earnings of $20.2 million.
The combined ratio for the quarter was 95.1%, marking our 13th consecutive quarter of underwriting profit, with profitable underwriting results in each of our three operating segments ---+ US insurance, international insurance and global reinsurance.
Despite challenging market conditions and the non-renewal of a significant treaty in Navigators Re, we were able to grow our business, with gross written premium up 4.4% over first-quarter 2015, and net written premium up 10.7%.
The first-quarter net written premium of $319.8 million is an all-time high for us.
Our investment portfolio continued to perform well, with pretax net investment income up 20.6% over the first quarter of 2015.
This contributed to an increase in book value per share of 3.6% during the quarter to $78.72.
Our US insurance business had an excellent quarter, with a combined ratio of 94.2%, 1.6 percentage points better than first-quarter 2015, with gross written premium growth of 5.7%, and net written premium growth of nearly 20%.
Our US property/casualty business continued to produce both profit and growth.
Within property/casualty, Navigators' specialty, our E&S unit had another very solid quarter.
From a top-line perspective, we experienced solid growth in our primary casualty unit, while gross written premium was down for specialty excess casualty.
The largest industry segment within Navigators Specialty is construction, and that's a business that we've specialized in since 1995.
About three-quarters of our specialty excess book is construction business and of that, about one-third of the premium comes from construction wrap-up or project policies.
And those are policies that are generally issued once at the start of the construction project, cover the life of the project, and by definition, are not renewable.
New business for project risk was slightly below our expectations for the quarter in excess casualty, which was more reflective of the timing of construction projects than it is a commentary on either the strength of the US construction activity or about market conditions.
Conversely, our primary casualty business experienced significant growth in new construction wrap-ups during the quarter.
Renewal rates were down an average of 1.5% for specialty excess during the quarter, and our renewal retention was 78%.
Renewal rates for primary casualty were down 1% for the quarter.
Overall, acceptable results.
One of the few hard markets in property/casualty in the US is commercial automobile.
We have a very focused appetite for transportation, particularly trucking risks, and a unit that specializes in this niche.
We were able to capitalize on market disruption to write about $3 million of new business during the new quarter that we feel is well-priced and well-underwritten.
Our commercial unit, which is focused on environmental, life science and excess casualty business produced by retail brokers, had another solid quarter, with profitable underwriting results and double-digit net written premium growth.
The environmental underwriting team is another unit benefiting from market disruption, and had strong growth in the contractors pollution product line.
Gross written premium for US marine business was up 5.7% over first-quarter 2015, and generated a healthy combined ratio of 79.8% for the quarter.
Underwriting profit was particularly strong in the marine liability, bluewater hull and craft product lines.
Within the professional liability product lines, gross written premium was up 7.2%, and net written premium up 11.4% for US D&O.
With double-digit growth in the private company and non-for-profit portfolio offsetting reduced premium writings in US public company D&O, which remains highly competitive, despite increased levels of security class-action activity hitting the D&O industry on the hills of reduced levels of such litigation in 2014.
We continue to take a cautious view of loss trends in US D&O, and book-to business at about breakeven for the quarter.
We are encouraged about the improved performance of our US [aires] intermissions business, which continued to demonstrate favorable loss emergence versus expected.
While gross written premium was up 9% over first-quarter 2015, net written premium more than doubled for E&O as we restructured the reinsurance treaty supporting this product, which should significantly improve the expense performance of that portfolio.
During the quarter, we experienced double-digit growth in the architects and engineers real estate E&O, and a competency in [O] product lines.
It was a good and very exciting quarter for our international insurance segment.
During the quarter, we announced that Michael Casella, a highly regarded international insurance executive, would join Navigators on April 1 to lead this segment of our business.
Mike is now onboard, and in is in what we hope will be the homestretch of working with the UK regulators to obtain authorization from Navigators' international insurance Company, which we anticipate will complement our existing Lloyd's capabilities to enhance the growth of our business outside of London, and particularly in continental Europe.
For the first quarter, our international insurance segment generated gross written premium growth of 17.7%, driven by double-digit growth in the property/casualty and international professional liability product lines, and 23.8 % growth in net written premium.
The combined ratio for the quarter was 99.4%, with profitable underwriting results in marine and professional liability.
Marine represented about half of our gross written premium within the international insurance segment for the first quarter.
And premium volume was up 6.7% over first-quarter 2015.
Cargo was the largest marine product line in our international marine book for the quarter, and achieved 15% growth over first-quarter 2015, with meaningful contribution from our European regional offices.
Similarly, our transport book grew 37% for the quarter, with strong production in London and the regional offices.
The marine and energy liability portfolios were down for the quarter, reflective of market competition, along with general economic conditions.
Also contributing to the growth were two relatively new product lines ---+ property, and political violence and terrorism, which collectively represented a little over 10% of the gross written premium of the international insurance segment for the quarter.
Turning to NavTech, our energy and engineering unit, the offshore energy business was down 30% from first-quarter 2015, due to a combination of reduced exposures resulting from depressed oil prices, rate competition and limited new business opportunity.
Conversely, our onshore energy and engineering product lines each experienced double-digit growth during the quarter.
Navigators Pro, our international management and professional liability unit, also had an excellent quarter, with a combined ratio of 94.2% and double-digit growth.
The international D&O team had good new business success in London across several niches, including commercial D&O, financial institutions and warranties in indemnities.
The errors and omissions product line also experienced strong growth, particularly in London, Copenhagen and Milan.
Despite challenging market conditions, particularly in the London market, we're well-positioned for growth, given the number of relatively new product lines we've introduced over the last three years, along with our investments in the regional offices in Europe.
Our global reinsurance segment produced solidly profitable underwriting results, with a combined ratio of 89.5% for the quarter.
Gross written premium was down 21% compared to first-quarter 2015, almost entirely due to our decision to non-renew two significant accident and health reinsurance treaties during the quarter, based upon market competition.
While premium volume was down in the A&H account, underwriting profit was sound, with a healthy combined ratio of 93.8%.
Our Latin American treaty and international property product lines experienced double-digit premium growth and profitable underwriting results for the quarter.
And the professional liability and marine treaty business of Navigators Re was about flat with first-quarter 2015.
Navigators Re's underwriters continue to be highly selective.
Non-renewing programs failed to meet our pricing requirements, while sourcing attractive new business that does.
Market conditions, in general, were challenging, and are expected to remain so for the foreseeable future.
While price is always an important factor to commercial insurance buyers, we work hard to earn and retain our business, while providing exceptional service, not only in the settlement of claims, but by providing value-added solutions promptly and efficiently by a team of first-class specialists.
During the first quarter, we introduced our three-year strategic plan to our employees, titled Opus.
The Opus strategy is focused on complementing our well-established underwriting culture with one that consistently emphasizes exceptional customer experiences.
This is very much a bottom-up strategy at Navigators, as we aim to engage every single employee in our organization in driving excellent customer experiences.
We believe this strategy will further differentiate the value of trading with Navigators from a marketplace that is increasingly being viewed as a commodity.
We are very excited and optimistic about the road ahead.
With that, <UNK> <UNK> will take you through our financial performance.
Great, thanks, Dan.
Good morning, everyone.
Thanks for joining us.
First-quarter net income of $22.9 million or $1.54 per share reported yesterday includes net operating earnings of $20.2 million or $1.36, net realized gains after-tax of $1 million or $0.07 per share, and after-tax foreign exchange transaction gains of $1.7 million or $0.11 per share.
Before we combine ratios, 95-1 includes a reported loss in LAE ratio of 57.9%, and an all-in expense ratio of 37.2%, comprised of net commission expenses of 14.2% and other operating expenses of 23%.
Overall, the all-in expense ratio was flat compared to prior year, with a slight uptick of 3/10% in commission expense, offset by an equal downtick in operating expenses.
It is noteworthy that the noncommissioned operating expense dollars are in line with the fourth-quarter 2015 expenses, reflecting our expected leveling in these other operating expenses.
The quarterly consolidated results include $13 million of underwriting profit, with $8.6 million of that profit coming from the US insurance segment, $4 million of profit coming from the global insurance segment, and $500,000 of profit from the international insurance segment.
Net investment income of $19.6 million increased $3.3 million or 20.6% in the same period last year.
The increase in investment income is primarily due to the continuing solid underwriting results contributing to growth in the overall investment portfolio, coupled with an increased allocation to higher-yielding preferred stocks.
The net realized gains of $1.6 million or $1 million after-tax was a result of normal active portfolio management.
Our overall investment portfolio's unrealized gain position snapped back and increased in the quarter by $35.6 million pretax, or $23.1 million after-tax, due to a decrease in interest rates and a rally in the equity market late in the first quarter.
The investment portfolio value at March 31 increased by $67.1 million to $3.04 billion, with a book yield of 2.66%, up 12 basis points from 2.54% in the fourth quarter ---+ an updated 30 basis points from 2.36% for the same period last year.
On a total return basis on the trailing 12 months, it was 2.47%, up 104 basis points from 1.43% in the fourth quarter, and down 119 basis points from 3.6% for the same period last year.
Our investment portfolio has maintained its AA minus average credit-quality rating, with a duration of 3.7 years.
Stock shareholders' equity at March 31 was $1.144 billion, up from $1.096 billion at December 31, 2015, or 4.4%.
The book value per share was $78.72, which compares to $75.96 at year-end 2015, decreasing by $2.76.
Annualized ROE was 8.4%, and operating ROE was 7.4%.
And lastly, net cash flow from operations was a positive $38.5 million in the quarter.
And with that, we'll open up the call for questions.
Operator.
Are you with us.
Hi, <UNK>.
Thanks for the question, <UNK>.
Really there's no change in the strategy.
We deploy the classic [wild dale] strategy that most P&C insurers practice, and that is very liquid high-quality on the front end, the middle plot of our timeline comprised of structured securities and corporates, and then the far end with tax preference securities, like tax-exempt securities.
What you see is, I would say ---+ I would caution in the description of much higher amount equity security.
I believe our allocation is only 7% all-in.
But what we have done is deployed approximately $250 million of our portfolio allocated to preferred stocks.
And I would say the majority of which are dividend-received, deductible-eligible, that pay book yields of north of 5.5% to close to 6%, and north of 7% on a tax equivalent basis.
And we have the added benefit that, that particular allocation, along with the tax-exempt securities in our portfolio, have contributed to a decrease in our effective tax rate, which is approximately 30%, as we move forward through the year.
So to sum up, the strategy remains the same.
It's just a reorientation of our allocation to equity.
So I guess on a zero-sum basis, we do allocate more to equity than we have over the last, let's say, five years.
But over the last year and a half, we have been probably in that 7% range.
Yes, the business is doing great, thanks for the question.
You know, just maybe a little further clarification on that.
We write construction business both on a primary casualty basis and on an excess casualty basis.
And unlike, you know, the standard lines companies, as an E&S specialty underwriter, a lot of our excess book is [mono-lined].
It's freestanding over other carriers' primaries.
It's not necessarily written over our own primary.
So, reflective of the type of projects that are coming to market and where ground is being broke, so to speak, there's just going to be timing differences on when a project starts.
So for the quarter, on production standpoint, our new business was down on an excess basis, up on a primary basis.
But I guess the general comment we would have is, we continue to be very bullish on the opportunities within the US construction segment.
And it's a nation that were are well-recognized as experts on, both on a primary and excess basis.
Thanks, <UNK>.
Sure.
From a capital management perspective, we are well-capitalized.
On a risk-based capital adequacy view that the rating agencies look at, we're clearly a AAA S&P capital adequacy property, and A++ in Best's Capital Adequacy metric.
But if we look at it internally, how we plan our strategies, we have plans for some of those dollars, if you will, to deploy them.
[Ken] mentioned the formation of Navigators' international insurance company.
So part of the capital will support that particular initiative, which we expect to be approved later this month.
And then certainly, as we do every quarter ---+ and I know in our annual reviews with some of the analysts, we share with you our long-term view.
And that is, we look at capital management strategies, be it cash dividends, stock dividends, stock buybacks.
We look at all options and discuss it thoroughly every quarter with the Finance Committee and the Board.
But today, we're pretty happy with the way we are positioned, but we would not rule out any cash dividends or share repurchases in the coming year ---+ or the coming years, I should say.
So we are open to everything.
But today, we feel like we are well-capitalized and able to execute on our strategy.
Okay, well, thank you very much.
If we have no further business, we will adjourn the call.
Thank you very much for your time and for your interest in Navigators.
Have a good day.
| 2016_NAVG |
2018 | NSIT | NSIT
#Thank you.
Welcome, everyone, and thank you for joining the Insight Enterprises Earnings Conference Call.
Today we will be discussing the company's operating results for the quarter ended March 31, 2018.
I'm <UNK> <UNK>, Chief Financial Officer of Insight, and joining me is Ken <UNK>, President and Chief Executive Officer.
If you do not have a copy of the earnings release that was posted this afternoon and filed with the Securities and Exchange Commission on Form 8-K, you will find it on our website at insight.com, under our Investor Relations section.
Today's call, including the question-and-answer period, is being webcast live and can be accessed via the Investor Relations page of our website at insight.com.
An archived copy of the conference call will be available approximately 2 hours after completion of the call and will remain on our website for a limited time.
This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, May 2, 2018.
This call is the property of Insight Enterprises.
Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Insight Enterprises is strictly prohibited.
In today's conference call, we will refer to non-GAAP financial measures as we discuss the first quarter 2018 financial results.
When referring to non-GAAP measures, we will refer to such measures as adjusted.
Adjusted measures discussed today will exclude severance and restructuring expenses recorded in all periods and acquisition-related expenses recorded in the first quarter of 2017 as well as the tax effects of these items as applicable.
You'll find a reconciliation of these adjusted measures to our actual GAAP results included on the press release and the accompanying slide presentation issued earlier today.
The slide presentation also includes a reconciliation of adjusted free cash flow.
Also, please note that unless highlighted as constant currency, all amounts and growth rates are discussed in U.S. dollar term.
Lastly, we adopted ACS 606 (sic) [ASC 606] effective January 1, 2018, on a modified retrospective basis.
This means that we have not re-presented the 2017 results shown in our earnings release or presentation materials issued earlier today.
Finally, let me remind you about forward-looking statements that will be made on today's call.
All forward-looking statements that are made during this conference call are subject to risks and uncertainties that could cause our actual results to differ materially.
These risks are discussed in today's press release and in greater detail in our annual report on Form 10-K for the year ended December 31, 2017, and other reports we file with the SEC.
With that, I will now turn the call over to Ken, and if you're following along with the slide presentation, we will begin on Slide 4.
Ken.
Hello, everyone.
Thank you for joining us today to discuss our first quarter 2018 operating results.
I'm pleased to report that we have started the year with strong top and bottom line financial results as our global team executed very well against the current market opportunity and maintained operational discipline across the business.
In the first quarter, we delivered double-digit sales growth and gross profit growth by tightly controlling expenses, which drove adjusted earnings from operations up 69% year-over-year and adjusted EFO margin up 80 basis points compared to the same period last year.
Specifically, in the first quarter of 2018, consolidated net sales were $1.76 billion, up 19% year-over-year, reflecting double-digit growth across our hardware, software and services categories.
Net sales were up 16% in constant currency.
As a reminder, we acquired Datalink January 6, 2017, so all this growth is organic.
Gross profit was $240 million in the first quarter, up 15% year-over-year and up 12% in constant currency.
Gross margins were 13.6%, down 50 basis points year-over-year due to lower mix of fees from enterprise agreements and fewer professional service engagements, partly offset by the positive effect of the acceleration of certain partner incentives that were fully earned in Q1 that would normally be earned over the full year.
And consolidated selling and administrative expenses were $188 million in the first quarter, up 6% year-over-year and up 4% in constant currency due to modest investments in headcount across the business.
All of this led to adjusted earnings from operations of $52 million, an increase of 69% year-over-year, with each of our operating segments contributing positively to our results.
On a GAAP basis, earnings from operations were $50 million, up more than 100% compared to Q1 2017, and adjusted diluted earnings per share was $0.94, another first quarter record for us.
On a GAAP basis, diluted earnings per share was $0.90.
Last year's first quarter results were very strong as well with adjusted EFO growth more than 100% compared to the prior year.
So on a tough compare, we're particularly pleased to deliver another exceptional quarter financially, reflects our continued strong execution in a stable and growing market.
Moving on to Slide 5.
In North America, we executed very well in the first quarter, reporting top line growth of 18%.
By client group, our top line results include double-digit growth with large, SMB and public sector clients in the quarter.
We benefited from the continuation of the device refresh cycle and also grew sales in the data center categories of networking servers and storage.
Gross profit in North America grew 11% in first quarter.
Gross margins decreased 80 basis points to 13.4% due to lower technical services projects in this year's first quarter and lower gross margins on hardware sales to large clients.
Despite the lower gross margins, double-digit growth profit, combined with operating expense growth of only 1%, drove adjusted earnings from operations up 57% year-over-year to just under $43 million.
Our execution has been consistent as these outstanding results represent our seventh consecutive quarter of double-digit adjusted earnings growth in North America.
In the first quarter, we continue to gain critical market share in North America according to third-party data, particularly in the device category but also in servers and storage solutions.
Demand has been strong for devices for the last 6 quarters, and the partner community has noted that they see this device refresh cycle continuing through at least the second quarter.
We share this view but expect device demand trends will revert to low single-digit growth rates in the back half of the year.
Moving on to Slide 6.
Moving on to first quarter results in EME<UNK>
Net sales increased 7% year-over-year in constant currency in the first quarter of 2018 with solid top line results across each of our hardware, software and services categories.
Gross profit grew 16% year-over-year in constant currency, and gross margin expanded 100 basis points year-over-year due to the acceleration of certain partner incentives that I mentioned a moment ago.
Adjusted earnings from operations were $7.5 million, up from $2.4 million reported last year.
We've integrated Caase into our operations in the Netherlands and remain excited about the opportunity to scale these services to our clients across the balance of 2018.
On Slide 7, you'll see that Asia-Pacific first quarter net sales increased 47% year-over-year in constant currency, driven by growth with public sector clients.
The public sector business has historically been seasonally stronger in the fourth quarter, but recent contract renewals in the education space have shifted some of that business to the first quarter.
Gross profit grew 20%, and earnings from operations increased 76% to $1.6 million.
Across markets where we operate, we continue to see clients migrate key workloads to the cloud.
As a global software provider with strong integration services and application development capabilities, we're well positioned to help our clients make this transition to the cloud.
Today our public cloud sales drive approximately 14% of our consolidated gross profit.
With expected increased demand for as-a-service solutions around devices and infrastructure, we believe our software DNA, strong data center capabilities and long history of supply chain expertise will help us serve our clients well and grow our share in this category.
Finally, the first quarter demonstrated yet again that global demand for IT solutions remains healthy with opportunity for share gains and growth.
We're executing well on the sales front and are focused on controlling costs and improving the scalability of our business for the future.
To that end, we're investing in automation and other operational initiatives to decrease the manual process in our business, optimize our cost structure and enhance our clients' experience with Insight.
We look forward to updating you about these initiatives on future calls.
I'll now hand the call back over to <UNK>, who will discuss additional aspects of our first quarter financial results.
<UNK>.
Thank you, Ken.
Beginning on Slide 8.
Ken covered the key highlights of our very excellent first quarter results, so I'll use my time to update you on other matters.
Our effective tax rate in the first quarter was 26%, similar to the rate reported in the first quarter of last year.
In the first quarter of last year, we reported $2 million of tax benefit on settlement of employee share-based awards in accordance with the new accounting standard.
For the quarter ---+ for the current quarter, our rate reflects U.S. federal tax reform enacted in late 2017 and the related impact on state income taxes and the limitations on deductibility of certain operating expenses and interest expense.
For the balance of 2018, we expect our effective tax rate will be between 26% and ---+ 26% to 27%.
Also, our results in the first quarter included the effect of acceleration of certain partner incentives into Q1 that would normally be earned over the full year.
We earned them fully in Q1 due to changes to the program and estimate that the accelerated Q1 benefit was approximately $5 million.
This acceleration was a significant driver of EMEA's performance in Q1.
As we noted earlier, we adopted ACS 606 effective January 1, 2018, on a modified retrospective basis.
This means that we have not restated the 2017 results presented in our materials today.
In our 10-Q to be released earlier this week ---+ later this week, we will provide a reconciliation from the results under the new 606 rules to the previously used accounting methodology.
Moving on to Slide 9.
As expected, the adoption of ACS 606 did not have a material effect on our top or bottom line results reported in the quarter.
However, the impact on certain balance sheet items was more notable.
In particular, after all the puts and takes associated with ACS 606, accounts receivable increased $81 million, while net sales increased only $12 million due to increased sales reported net, which is affecting our DSO calculation for Q1 and is expected to have a similar effect on this metric for the balance of the year.
With respect to our cash flow metrics overall, our cash conversion cycle was 35 days in the first quarter of 2018, up 6 days year-over-year as a result of higher DSO of 4 days and approximately 1 day each in DPO and DIO.
Just as ---+ as just discussed, the increase in DSO was primarily due to the impact of ACS 606 in our results for the first quarter of this year compared to the prior year.
Operationally, we're very pleased with the decrease we drove in aged accounts receivable balances, which reflect our Q1 cash ---+ which is reflected in our Q1 cash flow generation, and we will continue our efforts to reduce those balances over the rest of 2018.
Rounding out our cash flow performance, in the first quarter of 2018, our operations generated $151 million of cash compared to a use of cash of approximately $152 million last year.
As discussed on recent calls, our Q1 2017 cash flow results were impacted by the effect of a timing difference between the collection of a single large receivable in Q4 of 2016 of approximately $160 million for which the payment to the supplier was due and paid in January 2017.
Adjusted free cash flow, which we define as cash flow from operations less capital expenditures plus the change in the balance of our inventory financing facility, was $54 million in the first quarter of 2018, up from a negative $166 million last year, including the $160 million timing difference I just discussed.
We're pleased to see the positive shift in adjusted free cash flow generation year-over-year as we have been heavily focused on improving our cash collection cycle.
This full year, we expect adjusted free cash flow to be between $85 million to $120 million.
At the end of last year, we gave you a range of $100 million to $140 million for the full year 2018 cash flow from operations.
We expect to achieve this range but also wanted to provide guidance around free cash flow as we're using more of our inventory financing facility due to growth with certain vendors, and we believe that our cash flows are best viewed when combining cash flow from operations, CapEx and the inventory facility.
In Q1, we invested $5 million in capital expenditures, down from $10 million last year, and we used $8 million to repurchase approximately 221,000 shares of the company's common stock in this year's first quarter.
As of today, we've used $22 million in 2018 to repurchase a total of 637,000 shares and do not expect to make any further repurchases in the second quarter.
Based on the timing of repurchases in Q1, there was no impact on diluted EPS.
We did not make any acquisitions in the first quarter 2018, but in comparison, we used $181 million to acquire Datalink in the first quarter of last year.
In addition, we did not repurchase any shares in the first quarter of last year.
All of this led to a cash balance of $100 million at the end of the quarter, of which $81 million was resident in our foreign subsidiaries, and $259 million of debt outstanding under our revolving and our term debt facilities.
This compares to $184 million of cash and $371 million of debt outstanding at the end of Q1 2017.
I will now turn the call back to Ken to review our 2018 outlook.
Ken.
Thank you, <UNK>.
Moving on to Slide 10.
With respect to our 2018 outlook, for the full year 2018, we now expect to deliver sales growth in the mid- to high single-digit range compared to 2017.
We're also increasing our adjusted diluted earnings per share outlook for the full year of 2018 to between $4.35 and $4.45.
This outlook assumes an effective tax rate of 26% to 27% for the balance of 2018, capital expenditures of $15 million to $20 million for the full year and an average share count for the full year of approximately 36 million shares.
This outlook does not reflect the repurchase of any additional shares that may be made under our currently authorized share repurchase program, assumes no current year acquisition-related expenses, and excludes severance and restructuring expenses incurred during the first quarter of 2018 and those that may be incurred during the balance of 2018.
Thank you again for joining us today.
I want to thank our teammates, clients and partners for their dedication to Insight and for the hard work that resulted in our record first quarter.
We're very excited about the momentum of the business and look forward to a strong year.
That concludes our comments, and we'll now open up your line for your questions.
So <UNK>, first, it turns out that the $5 million actually is reflected in COGS, so it did impact gross margin.
Ultimately it's not in our OpEx.
But ultimately, just if you think about it, we did take an action at the end of 2017, I think, ultimately.
I don't think we talked about what the impact of that was, but we anticipate getting some benefit of that coming through in Q3 and Q4, primarily because our expenses ramped throughout 2017 going into 2018.
The delta is not as great in Q1 and 2 as it would be in Q3 and Q4 from an operating expense perspective.
Yes.
Thanks for the question, <UNK>.
Yes, you can definitely see that we're certainly moving in that direction, which has been a stated objective of ours.
So I think you can certainly see what's occurring there for us.
Certainly, the accelerated growth is having a certain ---+ a big impact for us as well as controlling our OpEx pretty nicely across all the regions.
So that's ---+ those are the main drivers.
We're still working diligently on the service portfolio, which we believe has a lot of leverage in it for the solutions we provide and, of course, as well as been helping expand the gross margin in that scenario that we're very focused on to really help us there.
So it's not just at the backs of having to hit top line growth.
We believe we also need to work on improving the margins.
So those things aren't completely in sync right now, but directionally, we're making good progress towards that objective.
Yes.
The ---+ certainly, we're well aware of what they commented on there.
We haven't really seen that.
Of course, there are, as you said, puts and takes, dependent upon the partner itself, where that occurs.
And we've been managing and balancing that over the last few quarters where that's become an issue in the channels.
That has not contributed to any real decline for us.
We're certainly cognizant of it.
For us, mainly the gross margin decline had to do more with the fact of not hitting the services objectives that we've stated as well as some large enterprise hardware deals that are still very accretive on the ROIC basis, which is why we do those deals, but still lower gross margin.
And they're pretty significant size, and that's what's degrading the gross margin a bit.
But at this stage, we wouldn't say it's coming from partner incentive changes.
Even excluding the $5 million that we talked about.
Yes, even excluding the $5 million acceleration, that's correct.
Yes, <UNK>, so we have third-party data that helps sort of solidify a lot of that information on the hardware front.
Software is much more difficult.
But on the hardware front, we basically certainly picked up share.
And notebooks were, by the way, were really strong across the whole channel, and we picked up further share by the data that we get on a weekly basis.
There was also pretty substantial growth in the categories of servers and storage in the channel as well, and we picked up considerable growth in both of those areas.
So those are the primary areas, and of course, those are all really big segments of the business in regards to hardware.
Those are the main drivers.
It's, basically, it's devices is #1, networking products are 2 and then server storage being 3.
So those are the categories.
On the software front, we can state that Microsoft, of course, being the largest provider of software in the channel play, and we're ---+ we get pretty good information from them on a quarterly basis, showing that we're continuing to maintain our #1 status globally with Microsoft.
So I think, <UNK>, by our calculation, the ---+ we didn't have any share repurchases in the original guidance that we gave you when we gave you the range of, I think, $3.90 to $4.00 originally.
So part of that is reflecting the benefit in the Q2 through Q4 of this year regarding the share repurchase that's about $0.05 to $0.07 ultimately.
There's a little bit of reduction, a small reduction in the overall tax rate that adds a couple of cents ultimately there.
And I think we ---+ there's a little bit stronger sentiment in the ---+ we believe, in the second half of the year with regard to the benefit we'll get from some of the cost reductions flowing through.
And that's offset by the $5 million acceleration coming forward, which is about $0.10 for us.
Ultimately that was contributed to Q1.
That's not going to be there in the second through fourth quarter.
So I guess there's a level of confidence in our execution for the remainder of this year.
| 2018_NSIT |
2017 | WMT | WMT
#Good morning, and thank you for joining us to review Walmart's Third Quarter Fiscal 2018 Results.
This is <UNK> <UNK>, Vice President of Investor Relations at Wal-Mart Stores, Inc.
The date of this call is November 16, 2017.
On today's call, you will hear from Doug <UNK>, President and CEO; and <UNK> <UNK>, CFO.
This call contains statements that Walmart believes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and that are intended to enjoy the protection of the safe harbor for forward-looking information provided by that act.
A cautionary statement regarding forward-looking statements is at the end of this call.
As a reminder, our earnings materials include the press release, transcript and the accompanying slide presentation, which are intended to be used together.
All of this information, along with our recently published fiscal 2019 earnings release dates, store counts, square footage, earnings infographic and other materials are available on the Investors portion of our corporate website, stock.
walmart.com.
For our U.S. comp sales reporting in fiscal 2018, we utilize a 52-week calendar.
Our Q3 reporting period ran from Saturday, July 29, 2017 through Friday, October 27, 2017.
Before we get started, I'd like to remind you that we will report our fourth quarter earnings on Tuesday, February 20, 2018.
Now, I'd like to turn the call over to Walmart CEO, Doug <UNK>.
Thanks, <UNK>, and good morning, everyone.
We're pleased with the strong results in the third quarter across each of our business segments.
We're providing customers with fast and easy ways to save money and time, and they're responding.
The highlights for the quarter from my perspective are: Walmart U.S. comp sales of 2.7% were strong; Walmart U.S. eCommerce sales were up 50%; adjusted EPS exceeded our guidance range; Sam's Club comps were strong at 2.8%; and in international, 10 of 11 markets posted positive comp sales.
So overall, we're moving in the right direction, the productivity loop is starting to turn, and I'm encouraged by our results.
I'll discuss more details from our third quarter in a minute, but I'd like to start by thanking everyone, who came to Bentonville for our Investment Community Meeting in October.
We hope that you gained a clear perspective of our strategy to make every day easier for busy families.
We have a plan that plays to our unique strengths.
We're acting faster and being disciplined about costs and capital.
Curiosity, creativity, decisiveness and speed are priorities.
There's a lot of innovation today in the business, and we enjoyed sharing some of the initiatives with you.
We've expanded online grocery pickup, launched Mobile Express Returns, and we're testing automated pickup towers and same-day grocery delivery.
We're also learning how to automate some routine functions in our stores, like scanning for shelf level out of stocks and modular accuracy.
We're leveraging our unique assets and financial strength to better serve customers and accelerate growth.
When we were together last month, we outlined 4 priorities: make every day easier for busy families; change how we work; deliver results and operate with discipline; and be the most trusted retailer.
By executing on all these strategic priorities, we're confident that our customers and shareholders will benefit.
The importance of that fourth priority, being the most trusted retailer, was certainly amplified over the past 3 months.
We saw significant destruction through hurricanes and wildfires in the U.S. and the earthquake in Mexico.
I'm so proud of the commitment our associates showed to the communities we serve.
During these difficult times, our customers needed us more than ever, and associates responded to each crisis in remarkable fashion.
We're proud that as a company we committed over $38 million to disaster relief this year, and that our customers have donated over $43 million, bringing the total to more than $80 million to date.
As you know, Puerto Rico experienced widespread devastation and with the ongoing recovery, we'll continue to partner with government officials, relief organizations and others there on the island to support the rebuilding efforts.
We'd also encourage each of you to get involved by financially supporting the Puerto Rico recovery efforts at give.
miamifoundation.
org/Walmart.
Now let's move back to our third quarter results and briefly discuss each area of the business.
<UNK> will provide more details on the financials shortly.
Let me start with Walmart U.S. We had a strong quarter with comp sales growth of 2.7% and comp traffic growth of 1.5%.
While we recognize that there are some incremental hurricane-related sales in these numbers, our core business is performing well.
Greg Foran and the team continue to improve our U.S. stores.
Across almost all categories, we're seeing growth.
The food business, in particular, has accelerated and delivered the strongest quarterly comp sales performance in almost 6 years with our fresh meat, bakery and produce teams leading the way.
Expense leverage has also been a priority, and we're pleased that the segment leveraged expenses in the third quarter.
It's important to note that we've accomplished this while maintaining high in-stock and service levels for customers.
Our associates are using technology and apps for inventory management and price changes that help make their jobs easier and increase productivity in the stores.
Store leverage is helping to allow our strategic investments in eCommerce to continue.
It's also exciting to see how we're removing friction from the customer experience with express pharmacy, an easier money services process and by expanding pickup options with our automated towers and Online Grocery.
We now have Online Grocery in more than 1,100 stores and are looking forward to expanding this popular offering to another 1,000 locations next year.
Walmart U.S. eCommerce sales were up 50% this quarter, with the majority of the increase through walmart.com.
Existing customers have become advocates for popular initiatives like Online Grocery and Free 2-Day Shipping.
And as a result, new customers, suppliers and partnerships are coming to Walmart.
The expanded assortment on walmart.com has also contributed to growth.
Over the past year, we've tripled the number of items on walmart.com to reach more than 70 million SKUs today.
As you heard last month, Marc's team is making progress on hiring additional category specialists, focused on improving the customer experience and our positioning with the top 1 million eCommerce items.
The recent agreement with Lord & Taylor is a great example of how we will be creating specialty experiences that complement what we offer and serve customers with the brands they want.
We're making good progress attracting premium brands to the site, such as KitchenAid and Bose.
We're continuing to expand our tests of same-day delivery and next day delivery, including our tests with August Home, and the use of crowd-sourced partners for grocery and our own associates.
The acquisition of Parcel brings us the ability to deliver items in New York and other major metropolitan areas on the same or next day.
At Jet.com, we continue to position the business to focus on higher-income urban customers.
We launched the Uniquely J private brand and also began selling ModCloth items on Jet this quarter.
In addition, we've started to attract more premium brands to the site, and we expect this to continue.
Staying in the U.S., let's talk about Sam's Club.
Sam's Club delivered comp sales growth without fuel of 2.8% in the quarter.
We're especially pleased with the improvement in member traffic, which was up 3.6%, including some hurricane-related benefits.
We're focusing the business to accelerate growth, narrowing the target member and taking steps to become more special to that member.
As John Furner outlined last month, the target member is a larger family with a higher income, probably in the suburbs.
They own their own home and a car or 2.
They may own a small restaurant or buy for their office as well.
By narrowing the focus on this member, we believe we can earn a greater share of their wallet.
We're already making good progress in areas where we want to win, including fresh food and with our Member's Mark private brand.
In addition, John and the team are using technology to make Sam's a better place to shop and work.
I'm encouraged by what we're seeing at Sam's Club.
Outside the U.S., the Walmart International team continued to deliver strong top line results with 10 of 11 markets posting positive comp sales.
Walmex performed well again this quarter with comp sales growth of 7%.
Last month, I visited stores in Mexico and was energized by how the team is improving each of our formats.
Our stores and clubs are fun to shop.
The team is also on their way towards a digital transformation.
They're changing how they work and that will bear fruit in the future.
In Mexico, we're providing convenience through initiatives, like Online Grocery, and we recently launched an eCommerce marketplace, which expanded our general merchandise assortment by about 20%.
In Canada, customers are responding to the investments we've made in price, and this is contributing to market share gains in key traffic-driving categories.
We continued to expand the number of locations where we offer Online Grocery pickup during the quarter and also launched an eCommerce marketplace, which doubled our online assortment and continues our focus on key categories, like home and apparel.
In China, we saw a solid net sales growth of 4%.
The team continues to do a nice job of improving key categories, like fresh and consumables.
We also further expanded the number of Walmart stores in China that offer grocery delivery in less than 1 hour, through the JD Daojia delivery platform to nearly 140 stores.
In the U.K., Asda delivered positive comp sales again this quarter.
The improvements in store experience and price investments are increasing store basket sizes.
We're excited to have Roger Burnley lead Asda into the future as CEO starting next year.
Over the past year, Roger has been our COO and deputy CEO, and he has a long and distinguished retail career.
I'd like to thank Sean Clarke for the tremendous work that he has done over the past year to stabilize the business and position it for growth.
Sean has done a lot for our company living in 5 countries over his 21-year career with Walmart.
Thank you, Sean.
So overall, the International segment continues to execute the strategy and deliver solid results.
In conclusion, I'm pleased with our third quarter results.
But I'm more excited about our strategic positioning as we enter the fourth quarter this year.
We're stronger as a company.
We have momentum.
And we have more opportunities to leverage our unique assets to serve customers in ways that are easy, fast, friendly and fun.
Thanks for your interest in Walmart and on behalf of all of us here, have an enjoyable holiday season.
Now I'll hand it over to <UNK>.
Good morning, everyone.
I want to begin by thanking everyone, who attended our investor meeting last month in Northwest Arkansas or listened via webcast.
We really enjoyed hosting the meeting as it gave us the opportunity to highlight our plan to win with customers and shareholders.
Underlying this plan is our financial framework, which highlights focusing on delivering strong, efficient growth, being disciplined in how we operate and allocating capital strategically.
We expect top line growth going forward to be led more by comp sales and eCommerce, with less emphasis on new units in the U.S. We have good sales momentum and cost transformation is gaining traction.
This gives us confidence in our ability to operate with discipline and leverage expenses.
In terms of capital allocation, we're prioritizing eCommerce, technology, supply chain and store remodels over new stores and clubs, which we believe will contribute to long-term value creation for shareholders.
We're excited about the future of Walmart.
Before I move on, let me highlight 3 items that negatively impacted GAAP EPS in the quarter.
First, there was a $0.29 charge related to the premiums paid for bonds tendered, which allowed us to retire higher rate debt reducing interest expense in future periods.
Additionally, discussions with the government agencies in the FCPA matter have progressed to the point that the company recorded an accrual of $283 million or $0.09 per share.
In Walmart International, the decision to exit certain properties in one of our markets led to an impairment charge of $0.04 per share.
Now let's turn to our third quarter results.
Consolidated net sales increased 3.8% in constant currency, driven by comp sales growth across the company, and adjusted EPS was $1, which is above the high end of our guidance range.
I'm especially pleased with our progress on expenses.
Excluding the charge for the FCPA accrual, we leveraged expenses as a company in the quarter.
The leverage and adjusted EPS is even more encouraging given the hurricane-related costs in the quarter.
Overall, our results were strong.
However, results were positively impacted by currency translation in the quarter.
Sales and operating income benefited by approximately $450 million and $60 million, respectively.
Gross profit margin declined 29 basis points during the quarter.
Price investments in certain markets and the mix effects of our growing eCommerce business were the primary contributors to the decline, although the impact from hurricanes in the U.S. was a significant contributor as well.
The presentation accompanying this transcript includes more details on gross margins for each segment.
Cash flow from operations and free cash flow for the first 9 months were solid at $17.1 billion and $10.2 billion, respectively.
Compared with last year, the decrease in free cash flow is due to timing of payments, an increase in incentive payments as well as lapping last year's improvements in working capital management.
In terms of capital allocation, we completed remodels of 342 stores globally.
And in the U.S., we further expanded our Online Grocery service to include more than 1,100 locations.
In addition to investing in the business, we returned $3.7 billion to shareholders through dividends and share repurchases.
For the trailing 12 months ended October 31, 2017, consolidated return on investment decreased 30 basis points due primarily to reduced operating income.
Let's move on to eCommerce.
As a reminder, eCommerce results include all web-initiated transactions, including those through walmart.com, such as Ship to Home, Ship to Store, Pick Up Today and Online Grocery, as well as transactions through Jet.com and the other sites in our family of brands.
Walmart U.S. eCommerce continued its strong performance with net sales growth of 50%.
We began to lap the acquisition of Jet.com mid-quarter, which impacted our overall growth.
Walmart.com, including Online Grocery, once again led the way and was responsible for the majority of the growth in the period.
Throughout this year, we've talked a lot about the speed at which we're moving, and we continued that progress in the third quarter.
For example, we launched new partnerships with Google and August Home.
These are capital-light initiatives that expand convenience for customers by enabling hands free voice shopping and unattended delivery in the home.
We also acquired Parcel, a technology-based, same-day, last-mile delivery company focused on customers in New York City.
Let's move on to operating segment details.
Walmart U.S. had a strong quarter with comp sales growth of 2.7%, led by a traffic increase of 1.5%.
While difficult to quantify precisely, we estimate hurricane-related impacts benefited comps by 30 to 50 basis points.
On a 2-year stacked basis, comp sales were up 3.9% and comp traffic increased 2.2%.
This is the strongest quarterly and 2-year stacked comp performance in more than 8 years.
The food business continued to accelerate with sales, traffic and unit growth across categories.
In fact, food categories delivered the strongest quarterly comp sales performance in almost 6 years.
Market inflation was around or slightly less than what we saw in the second quarter.
All formats had positive comps and eCommerce contributed approximately 80 basis points to the segment.
Gross margin rate declined 36 basis points in the quarter.
The margin rate decreased in part due to the continued execution of our price investment strategy and the mix effect from our growing eCommerce business.
In addition, we estimate that hurricane-related impacts were about 1/3 of the overall decline.
Operating expenses as a percentage of net sales decreased 10 basis points with stores leveraging at a higher level than that.
The U.S. team has made great progress, while maintaining high customer service levels, as associates are more efficient with improved technology, training and processes.
The combination of strong sales and greater operating discipline led to operating income increasing 0.8% in the quarter.
Recent hurricanes benefited top line results, but negatively impacted gross margins and SG&A.
We estimate the net result was a negative impact to segment income of approximately $150 million.
Our stores continued to do an excellent job of managing inventory, while maintaining high in-stock levels.
Inventory at comp stores was down 3.5% in the quarter.
Overall, we're pleased with the execution and momentum.
The fourth quarter is underway, and we are offering easy access to great products at excellent value heading into this holiday season, both in our stores and online.
For the 13-week period ending January 26, 2018, we expect comp sales to increase between 1.5% and 2% on a more difficult comparison.
Now let's move on to Walmart International.
We continue to experience broad-based momentum across the business and deliver strong top line results.
During the quarter, 10 of 11 markets delivered positive comp sales.
We're focused on driving growth across our markets through our fresh offering, private brands and Online Grocery expansion.
Net sales on a constant-currency basis increased 2.5%.
On a reported basis, net sales increased 4.1%, which includes a benefit of approximately $450 million from currency.
Additionally, it's important to note the impacts from the divestitures of Yihaodian and Suburbia created a headwind to sales of nearly $560 million when compared to last year.
While our solid sales performance was fairly broad based, we are particularly pleased with the results in Mexico and China, as well as with the improved results in the U.K. Operating income declined 12.2% in constant currency and 7.8% or $105 million on a reported basis.
The decline is attributable to 2 items: an impairment charge of approximately $150 million due to our decision to exit certain properties in one of our markets and lapping last year's gain of $86 million from the sale of several shopping malls in Chile.
Without these items, operating income would have increased year-on-year.
Let's now turn to highlights from key markets.
The results discussed below are on a constant currency basis.
Let's begin with Walmex, where sales momentum continued across all countries and regions.
Net sales increased 9.2%, excluding Suburbia, and comp sales increased 7%.
In Mexico, comp sales increased 14.5% on a 2-year stacked basis.
All divisions outpaced ANTAD self-service and our strongest performance came from food and staples.
In Canada, net sales increased 1.9% and comp sales increased 1%.
We further improved our price position, which contributed to market share gains in key traffic-driving categories, such as food and consumables.
The team reduced overall inventory levels even as sales increased.
Turning to the U.K., net sales increased 3.6% and comp sales increased 1.1%, as customers are responding to investments in the value proposition.
In-store service metrics have improved, and our performance has strengthened across private brands and Online Grocery offerings.
While the business has improved, we still have more work to do.
In China, net sales increased 4% and comp sales increased 2.5%, which is the best comp result in about 4 years.
Results in the quarter were primarily driven by strong seasonal categories during the Mid-Autumn Festival as well as strength across key categories, such as fresh and consumables.
From an eCommerce standpoint, we continue to grow our partnership with JD.com.
During the quarter, we launched the Walmart-JD Omni-Channel Shopping Festival, expanded our 1-hour grocery delivery service to additional locations and focused on initiatives related to inventory management and logistics efficiencies.
Overall, it was another solid quarter for Walmart International.
Moving on to Sam's Club.
Comp sales without fuel increased 2.8% with strong traffic growth of 3.6%.
We estimate that hurricane-related impacts benefited comps by approximately 70 to 90 basis points, but negatively impacted gross margins and SG&A.
We estimate the net result was a negative impact to segment income of approximately $20 million.
The focus at Sam's is on people, product and digital.
From a product standpoint, we're making good progress in fresh and with our private label brand, Member's Mark.
During the quarter, fresh categories, including meat, produce and bakery all performed well.
This is an important traffic driver for our clubs, and I'm pleased with the results we're delivering.
Member's Mark is a trusted and growing brand, and we recently increased its penetration across multiple categories.
More than ever, we're leveraging this brand to highlight value on items found exclusively at Sam's Club.
Efforts to simplify the business are paying off, and we are becoming more productive.
The team leveraged expenses in the period and operating income, excluding fuel, increased 4.2%.
This was a really solid quarter for Sam's Club.
For the 13-week period ending January 26, 2018, we expect comp sales to increase between 1.5% and 2%.
Let me close today with guidance.
We have good momentum in the business, and we are executing within our financial framework.
We expect a solid performance for the important holiday season, and we are raising expectations for full year adjusted EPS to a range of $4.38 to $4.46.
This compares to previous adjusted EPS guidance of $4.30 to $4.40 for the full year.
In closing, I want to say thank you to all of our associates for the work you do every day in serving our customers and communities around the world.
| 2017_WMT |
2016 | MNTA | MNTA
#Sure, absolutely.
So your first question was on appeal of IPR, and that would also go for appeal of any court case that we would have.
We would anticipate appeals here.
You would expect any company with a product that is as important as this to actually use appeals as a route to try to appeal a lost decision.
So that would fall in what is very typical and classic for generics, is looking at what do you think your chances are of winning that appeal, and that really depends upon the strength of the cases that actually were won.
So Sandoz is very experienced at this, and we expect that they will take a very close look at all the legal decisions when they're making a launch decision.
We do anticipate both a positive IPR as well as a positive outcome for us in our court case, and so therefore we expect it to be in a good position to be able to launch in the first quarter.
But we have to wait to see what the results of the court cases are.
On the CVS formulary, that's a place where I think I've been talking in the past about my belief that biosimilar penetration in the US will be helped by cost pressures and formularies actually picking up the programs.
And it's actually, I think, a very positive thing to see people starting to pick it up.
It should actually help penetration of biosimilars, in my view.
Sure.
Well, for the program overall, after Phase 3, we expect the program will have a very successful Phase 3 readout.
In terms of what Shire's going to do, we have not had formal conversations with Shire yet.
As I have said in the past, we think that the combination of Shire and Baxalta would be a good partner for us, but they have to make their own portfolio decisions.
And it may provide an opportunity for us to get the product back as well.
So we'll have to just to see what their decisions are.
I do anticipate that we will be having discussions with Shire in the relatively near future, and so we'll update you guys as appropriate.
Yes, I would say first, we can't really comment on our legal strategy, and second, it's a relatively new patent, so we're still really looking at all of our options.
There are several different ways that this patent could be gone after.
So I guess that my comment is you have to wait and see.
But we are pretty confident in our ability to actually challenge this patent.
We're just looking at the different options at this point.
I'm going to kick that question over to our Chef Medical Officer, <UNK> <UNK>.
<UNK>.
And I do want to give a shout-out to <UNK> and the team here, because the DSMB actually gave us these results at 9.30 last night.
So as you can imagine, it was a late night for many people here.
Sure.
So there were indeed some differences in the products.
I don't want to undermine the quality of the product that they made, but it's not to be expected that there would be some minor differences.
But I think what I was commenting on was, number one, Amgen's analytic work combined with their clinical work to show that those differences didn't matter structurally, as well as what I perceived as a very well-prepared FDA to actually take that analytic data and actually use that as a rationale for actually extrapolating.
One of my things that I was really surprised at is how well and strong in favor of this FDA came out.
They have been actually stating for a long time that they're going to actually use analytic data in combination with clinic data in making their judgment.
And in the earlier Advisory Committees, it tended to be a heavily clinical dominated discussion, and this one, it was a very different picture.
So that's where my comments came from.
Well, obviously, these antibodies, when you're trying to make them close, should be acting relatively similar to the original brand antibodies.
So if it's inherent in the antibody and you're trying to duplicate the structure, you'd expect to see it.
It's an interesting question.
My view has been in the biosimilar pathway, with the goal of making the same antibody, is that you're really working on trying to drive things which have the same effect.
And when you're starting to look at ADA, those are biologic effects that could have clinical effects that could have been in the original trials.
I do think that there are opportunities, as people do this, to actually look at making better molecules.
But my own view is that tends to shift you to a different pathway, because you actually have to show independent clinical evidence in terms of what you're actually creating.
<UNK>, I don't know if you have any thoughts on that.
Yes, I think you would be really judged primarily by having the same behavior as the parent molecule.
I think they wouldn't penalize you, is more the view I think we have.
So launching at risk here is Sandoz's decision under our contract.
We obviously were involved in all the discussions with Sandoz, but it really is ---+ so I really can't comment on Sandoz specifically.
What I can say is that in the generic world, when you're looking at patents, this patent is one that's going to rise or fall based on some pretty clear and simple standards of obviousness, et cetera.
So it's different than when you're looking at a complex issue of molecular weight measurement and things.
So we think this is going to be one that is going to be much clearer to understand the court's decision, and therefore it would be a much easier decision on launch, because of course, you will anticipate appeals.
But this is a much more common situation that is faced in generics, and Sandoz is a very sophisticated generic company.
So I anticipate that we will see pretty good logic here for launching.
And as I said in the call, we are preparing for first-quarter launch, and you should take that as we are all well aware that there will be appeals.
So first, obviously, we don't retain the ability to make that decision to launch at risk independently.
This product is partnered with Sandoz, and so I think the plan is really to work with Sandoz to figure out how to best get this product into the marketplace as quickly as possible.
On the novel drug programs, we have received several points of interest of our autoimmune candidates, and so I would say there is a fair amount of interest in what we're doing in the autoimmune space.
I can't give you more than that.
These are early programs, and so we will make our partnering decisions when we think we have the best opportunity for those programs.
But there is definite interest and attention being paid to these programs.
So we haven't given any specific guidance in terms of market penetration.
What I have said is that with the combination of the 20 and the 40, that we should have a more complete toolset to be able to deal with the contracting barriers that Teva has put up.
But I think our market penetration, the best way to look at it is to go back and think about what is the number of competitors in the market if we're first and we're only, what can we expect to see in share.
But the main point is that that market is a much larger market than the 20-milligram market.
So there are two issues there.
Let me try to get through them for you.
On the pricing side, it\
Well, formulation includes the concentration of the API, so that's why it's, by definition, a different formulation.
Yes.
Thank you very much.
I'd like to thank everybody for taking the time out of this beautiful day to join us on this earnings call, and we will keep you updated on all the things going on here and look forward to talking to you in the next quarter.
Take care, everybody.
| 2016_MNTA |
2016 | CPRT | CPRT
#Sure.
And Matt, big picture, as <UNK> noted, capital allocation questions are ones we address on a regular basis, as we consider organic uses of our cash for our business internally, as well as other possibilities, including debt pay down, share repurchases and the like.
So share repurchases over the long term will likely continue to be a tool, or an arrow in our quiver.
We don't comment or speculate precisely on when or how much we would do.
As for the tools, the specific path to share repurchases, whether they are tenders, Dutch tenders, open market purchases and the like, again, that's circumstantial.
We evaluate, given our own assessment of the pros and cons at the times of those decisions.
Sure.
So on the increased miles driven, more of those miles are freeway, rural and freeway driving activity, which is a higher rate of speed, which leads to more severe accidents.
It's down slightly, but it's ever so slightly.
I believe it went from 21% to 20.3%.
Well, when you look at the non-insurance, you have to bucket them, because a charity car is completely different than a dealer car.
And so we've seen growth in our ASPs for our dealer cars.
As I mentioned previously, those are our, the most profitable cars that we process.
And actually, we've actually seen growth in our ASPs for our charity cars.
And I can attribute that to a couple factors, one of which is because of the scarcity of our land, we've intentionally targeted certain customers, we visit them to ensure that we're getting the type of cars that are appropriate for us.
So we've been very selective in those that we allow to use our land, especially in the more precious areas, like Southern California and the New England area.
And because we've been more restrictive on accepting the low end cars, we've raised the ASP on an overall basis for the charity cars.
All right.
Thank you, everyone.
We appreciate you making the time to listen to our call.
We look forward to reporting on the fourth quarter in the new fiscal year.
And that concludes our meeting.
Thanks.
Thank you.
| 2016_CPRT |
2017 | EIG | EIG
#I will take that question, <UNK>.
I'd be reluctant to forecast where this might go.
When we look at reserves on a quarterly basis it is our best estimate at that point in time.
If you look at where the development was presently coming from, the bulk of it was coming from 2013 and 2014.
And we attribute a fair amount of that to the accelerated settlement activity that we've discussed just previously.
So that certainly has had a very positive impact on losses and, again, I think seeing it in 2013 and 2014 is significant.
You will recall that when we did the reserve strengthening several years ago we had an increase in our provision rate for 2013 in the fourth quarter of 2013.
It was at the time what we felt was necessary.
And I think what you are seeing here now with that favorable development in 2013 and 2014 is that our initiatives are having a positive impact.
Again, I can't forecast that out, that would be inappropriate, I believe, at this point.
But certainly we will continue the initiatives that we think will drive better cost containment loss control.
The approach there, <UNK>, is we will take it when we see it.
We are not ---+ we don't take it anticipating that there is more to come.
It is reflective of what we are seeing at the point in time in which we do the loss evaluation.
Now you referenced some of the improved performance we've had relative to the industry and specifically I believe that's a reference to our experience in California.
Relying on the data of the Workers Compensation Research institute we consistently outperform the industry in terms of average medical cost.
And I think what you are seeing in the reserve release is, in fact, reflective of that, the outcomes-based network that we put in place in California and across the country.
I think that will be supportive of generally better-than-industry average results going forward.
Yes, let me turn that over to <UNK>.
<UNK>, in terms of the commission results that we reflected earlier, as you would expect our commission arrangements in terms of our agency incentive agreements with some of our key agents reflect both growth goals as well as profitability goals, loss ratio goals.
And some of our agents did not meet all of those criteria and some of them didn't meet the growth criteria.
So as a result of that, the payments to those agents specifically were lower than we would have anticipated.
I referenced that a little bit at the end of my comments.
I think as we look at 2017 we expect that there is going to be continuing pressure on the top line because as declining loss costs following rates and a very competitive marketplace everywhere.
So our focus will remain on retaining the outstanding business that's on the books today and then very selectively pursuing growth opportunities where we can get the appropriate return.
In terms of what we expect to see on the loss side, I think the declining frequency trend is likely to continue.
I think there are some shifts in the economy that are occurring that have been occurring for many years that will continue going forward.
And so I would expect to see frequency continuing to be supportive of a declining loss cost.
Offsetting that, and maybe this is where the uncertainty is will be what happens on the severity side and specifically what might happen on the medical side, we've been through a fairly sustained period of very stable medical inflation.
Really below expectation and Worker's Compensation medical inflation being below CPI medical inflation.
Given the uncertainty around what could happen with the Affordable Care Act and whether or not any of that has an impact on workers compensation cost is an unknown.
It is not something that we are worried about, but it is something that we will be carefully monitoring because we could see an uptick in medical severity.
I am not forecasting that, but it is something we are watching for.
Yes, <UNK>, do you want to take that one.
Sure.
One of the things that we continue to see is when we evaluate our payroll at final audit relative to the payroll estimated at the inception of the policy, which is generally 15 months after the policy was intercepted, we continue to see payroll growth.
And as you know, a big part of our business is the restaurant class and that's consistent within that class, as well.
But we continue to see increases in payroll overall.
That hasn't deteriorated over the year.
In fact, it's been pretty stable.
It's clearly reflecting the fact that the employers that we write our actually hiring more employees, in some cases just adding hours to existing employees.
We have not seen that deteriorate throughout the year.
I don't know what that means for the future, but clearly we haven't seen any deterioration over the past year.
I don't know that it's reflective of a change in our thinking.
We have been looking to increase the yield through the dividend.
Obviously, the declining activity in share repurchases is connected to the rapid increase we saw in our share price in the fourth quarter.
We have always viewed share repurchases as a very powerful tool to return capital to shareholders, but we have been very opportunistic in the way we do that.
So on a quarterly basis we consider all of the tools that are available to us to return capital that we believe is excess of what's necessary in the business.
I will let <UNK> answer that.
Sure.
<UNK>, clearly one of the contributors to our new business growth has been the new states that we have gone into in 2016.
New York has driven a lot of our strong growth.
But even some of the existing states that we've been in, particularly in the Northeast territories, Pennsylvania, New Jersey and then down in the Southeast.
Florida, we've seen significant growth in Florida, as well.
And then in California, we've talked a lot about Southern California and what's been happening there, but in the Bay Area and other parts of the state we saw significant growth in 2016, as well.
So those are some of the larger contributors to the new business growth we've seen in 2016 over 2015.
I think we are.
In fact, in the fourth quarter for Los Angeles we actually grew our new business for the first time in a while.
So I think we've plateued there.
It still is our largest.
It's the largest market, and we obviously are still very interested in writing business that's profitable for us in that territory.
So we saw a turn in the fourth quarter that I think bodes well for us in that territory in the future.
Yes, I will take that.
Yes, that was principally coming from 2013 and 2014.
Well, let's take a look at what some of the drivers are here.
I referenced in response to one of <UNK>'s questions some of the initiatives, particularly in California but also nationwide in terms of the outcomes-based medical network we have in place.
That continues to drive much better results and there's no reason to believe that that's likely to change.
The accelerated claims settlement activity was really directed at a body of claims related to specific years.
But that will continue going forward.
And we have every reason to believe that that will continue to drive better outcomes than we've had in the more recent past.
Clearly, we will hit some point where the market plateaus.
But we believe that those initiatives along with the things we are doing in terms of better analytics around claims management will continue to support a stable if not improving loss environment.
It really isn't a consideration or a principal consideration to capital management for us.
Clearly we have been able to build a much stronger capital position from the standpoint of the A.
M.
Best rating.
If you will recall we had some fairly significant growth that occurred in 2011 and 2012 that was creating a growth penalty or a capital charge relative to our A.
And as that charge ran off over about a three-year period of time it really allowed that capital to come back in from a ratings standpoint.
Couple that with the increased profitability we've seen over the last several years and it's really completely rebuilt our capital base from a ratings standpoint.
So is it a consideration.
Well, certainly it's always a consideration.
But I don't view it as being a constraint in any way.
Thank you.
I thought about that, <UNK>, and I actually went back and looked at those numbers.
I've said this before and I'm feel comfortable saying it, I think we got 2013 pretty close to write.
We made that adjustment in the fourth quarter because of the trends we were seeing in that quarter.
Those were real claims.
They didn't go away.
Fortunately many of them are now being settled.
But I think in the end 2013 will prove to have been about the right call with the adjustment we made in that fourth quarter.
Very good, thank you.
Thank you everyone for joining us today.
Again, a very strong quarter and a very strong year.
We think we are heading into 2017 with a very good foundation.
I appreciate your participation today and your questions.
We look forward to speaking with you again in a couple of months to report the first-quarter results.
Thanks everyone.
Have a great day.
| 2017_EIG |
2016 | BLL | BLL
#Yes.
Well, probably like you, it sounds like we've heard that there has been discussions about potential capacity additions in that area.
Let's not forget this year the can market has been slightly down, actually, but not appreciably; down a couple of percent maximum over it.
But the can penetration still continues to go real strong.
There has been a bit of a pause here.
We'll have to wait and see what happens if there is new capacity put on.
I don't want to speculate at all.
But we're very much focused on maximizing the value what we do down there.
We've got a great team; we're very excited about the people there, their knowledge of the business, their knowledge of the industry, their knowledge of the customers, and their knowledge of the asset base.
No, there's still ---+ there is some working capital.
I would bucket it with a bunch of things: working capital, what happens in deferred taxes, what happens in pension.
To get to that number there is an Other category beyond just operating earnings growth that you need to get, to get to that number.
Well, we're going to look at all the things that we've done over the last number of years, whether it's factoring, supply chain finance, managing our inventories better, payable terms.
Every lever that we have to pull from a working capital standpoint, we're going to re-look at all of those with the newly acquired business and apply those things.
Some of them do take time to put in place, and that's why I think there will be incremental benefits over a period of time, over a couple-year period.
But everything's on the table.
That review, that 90-day review that we talked about, is getting into more detail on all of those things and figuring out, okay, what are the opportunities.
What are the timing of those opportunities.
And then how do they sequence over the next few years.
Well, absolutely.
As you know, we pride ourselves on being customer focused.
I do think that the engagement with the customer base right now, because there's a lot of change going on, is quite active.
And it varies by region, it varies by customer, and it varies by segment.
But rest assured we are very much focused on being the best in terms of making the can the most sustainable package from an economic perspective, while at the same time being very disciplined from a commercial perspective, ensuring we get paid for innovation, we get paid for our quality, we get paid for our service.
So more to come on this.
But rest assured, we're always actively engaged with our customers.
Yes.
As we still have a number of won but not booked type of things out there.
But what I was saying indirectly in my comments is we're entering the election season, and we are not anticipating many new wins to be booked just because of the ambiguity of the election cycle right now.
I think the Continuing Resolution risk is still out there.
So realistically it's difficult to assume any meaningful new wins during this election cycle.
But we feel really good about the long-term prospects of that business.
Good.
Well, I mean big chunks that I know will go out ---+ so there's a big chunk of severance for folks that are leaving the organization.
There was a chunk for compensation for people that were divested to Ardagh.
I mentioned some of that pension funding.
There's lots of fees and things that have to get paid.
But the biggest chunk would be taxes that have to get paid on the gain, which we think is around $250 million.
So those are the big chunks that will happen probably by the end of this year.
And each quarter we'll highlight the unusual or one-time, if you will, impacts of those.
Yes, well, first with respect to Mexico, everything in Mexico is going quite well.
The volume growth in Mexico that we're seeing, not only for the Mexican market but for the export out of Mexico, is going very, very well.
Our customer is doing quite well, and so we're excited about that.
I'd rather not put specific timing on new capacity in Mexico.
But rest assured the market continues to grow, and we think we've aligned ourselves with the right folks down there.
So more to come on that.
But nothing has changed from what we've talked about in prior conference calls around our long-term prospects about Mexico.
With respect to China probably the same holds true.
We are executing very well on our cost-out program.
As you recall, on the last call I talked about in excess of $30 million of cost-out, and we are right on track with that.
I give our folks a tremendous amount of credit.
Because without that, it would be a very, very challenging situation in China.
The bigger question is, as you look forward, what does that mean.
Because you can't save your way to prosperity.
We think the industry needs a level of consolidation in the China market.
There's too many independent players out there.
The strategic question is how that occurs and when it occurs.
I can't go into detail, but we are taking it very seriously because as you look through, there's just ---+ from a supply-demand perspective, there's too many suppliers chasing too few customers.
And every time in the history of our Company and the beverage can business when we see that, it speaks to consolidation.
How that looks, when it looks, what it looks like, too early to tell.
No.
We said we would generate $150 million in 2017 ---+ in excess of $150 million in 2017.
I understand where you're going, and I'd rather not go there.
Because as I said before, we're not going to be tracking all this.
All I know is we have our own goals and aspirations, and we're going to generate in excess of $150 million in 2017.
And our goal is to generate in excess of $300 million by the end of 2019.
I'm not giving a 2017 number yet.
As I said, we have to go through the 90-day review.
And, you're right, that's a $60 million run rate.
I think a lot of that will come out between now and the end of the year, and so the run rate will be lower than that.
How much lower, it's too early to tell yet.
You raise a fair point.
First and foremost, we are expanding our Czech Republic impact extruded business, and it is expected to come on either later this year or early next year.
It is ---+ from the totality of Ball Corporation I think the startup expense related to that would probably not be material.
Within the food and aerosol segment, it could be.
But I wouldn't get too concerned about that.
And then as we go forward on it, the only reason that over the last 18 months we've talked about the startup expense is because we had such a compression and preponderance of these growth capital projects.
I mentioned Monterrey, contra bottle, G3, Lublin ends, India, devices ---+ it all was happening at once, and so we felt we needed to point that out.
As we go forward, if that were to happen again, which I'm not saying it will ---+ but if that were to happen again, we would be as transparent as we can.
But I wouldn't get too worried about startup expenses as you look forward.
Yes, for right now that's a good thing to use.
Yes, what we're going to do as we get into next year, we'll highlight any cash costs related to getting after synergies.
We'll break things out so that you can decipher exactly what our run-rate free cash flow would be versus our one-time cost to get after some of those synergies.
Yes, just to give you a sense of it, if we're talking about severance, for example, cash flow severance, we'll point that out, because that's more one-time in nature.
If we're looking at converting a standard line to a specialty line, that's more operating from our perspective.
So, as <UNK> said, as we go forward, we will lay that out with as much transparency as we're able.
Phil, in your question, you said something related to Ardagh.
I didn't quite ---+ how does that (multiple speakers).
---+.
Yes, and with respect to the other things, just assume it's behind us, not in front of us.
As we go by region by region, certainly not over the next 12 months or so.
We always have contracts coming up for renewal, but ---+ there are some in different regions that over the next few years will be coming up.
But from an overall perspective I think the vast majority of our business is under long-term contract.
Any change-of-control issues were dealt with prior to closing.
Right.
Yes, it has leveled off a little bit.
I do think that when you really look at CSD, we have to think about fountain versus PET versus cans.
Fountain has been actually the one most hit by the declines more recently.
PET has been doing a little bit better than cans.
But can has been holding their own, to your point.
The thing that still continues to go very well is on the craft beer side.
In our business alone, it's up year-to-date 30%.
As you, as a consumer you go out there and you can see cans continuing to take a greater share of the package mix in the craft industry.
Then, last but not least, the overall beer category is up.
The overall category itself is up almost 2%, just under 2%; and can volume is up over 4%.
So we continue to take share from glass even in some of the more mainstream brands as well.
And soft drink specialties, specialty sizes is doing reasonably well too.
Yes, well, as I mentioned I think on the last conference call, it's a food and an aerosol business.
And those are different end-markets.
The aerosol business in that is actually bigger than the food business, and that's important to note.
We continue to see good growth, whether it's on the tinplate side here in North America or down in South America where it exists, or on the impact extruded side where we're here in North America and also over in Europe.
We continue to see very good supply-demand dynamics; we continue to see good growth; we continue to see good economic opportunities for investment on that side.
On the food side, that's where the challenge has been, and it's no secret that there has been overcapacity in there.
We've taken our lumps over the last couple years in that business.
Some of it was market-related from a pricing perspective, and some of it was self-inflicted related to the cost side.
We are 70%, 80% of the way through completing a project that is going to have significant cost reduction in that business to make us more competitive.
And that's where I think, <UNK>, because of the growth in the aerosol and because of the cost-out we have in food, that's why we ---+ as well as many other people ---+ do expect a better 2017 relative to 2016.
I think longer term, I just laid out really what the strategies of those two different segments is.
It's continue to grow with the aerosol and continue to be the supplier of choice for our big, multinational customers on the aerosol side.
And on the food can side, service our existing customers as well as possible and recognize that's a cash business.
Oh, gosh.
It comes from a variety of things.
Our bottle strategy and bottle technology continues to go well.
<UNK> mentioned on the CSD side some of the smaller sizes continue to go well.
Some of the larger sizes on the beer category continue to go well.
Energy drinks, sleek cans.
It really ---+ there's not just one area; I think it's across the board.
And I do think part of our strategy has been as the 12-ounce declines, either through absolute declines or through cannibalization, we want to grab that cannibalization by having specialty cans.
There's a good chunk of the loss of 12-ounce being captured by specialty cans, and that's why we've been focused on it.
Yes, it is a very broad question.
And remember, we're 30, 35 days into this, <UNK>, and this is a time of year where you're really not having discussions around price with our customers.
So, quite candidly, we've been very much focused on getting our folks aligned over what our strategic objectives are.
Okay.
Well, let me remind you that our folks in Asia have been doing a wonderful job in terms of the cost-out programs and managing a challenging situation.
But they haven't really been affected at all by the Rexam transaction.
They have not been involved in the integration, just because it Rexam had no presence over there.
And so as we look ---+ your question is about bandwidth.
We're quite cognizant from a corporate perspective of the bandwidth issues, but from a management people-on-the-ground issues over there, we've got a very good team.
The biggest question from our perspective, <UNK>, on that is: Is one consolidation enough to really change the dynamics.
You've heard us be pretty consistent that we're not going to be investing in China to become the biggest.
If there is an opportunity to make us better and meaningfully better as part of that, then we'll evaluate it.
But that's the criteria by which we will look at it.
Yes, thanks, <UNK>.
We've talked about this in prior quarters.
Recall, though, that from a manufacturing footprint perspective, we make tinplate food cans in the same facilities as we make aerosol tinplate.
So when you talk about separating it out, it does become more challenging.
But on the flip side of that, that provides the leverage of that.
So if the food can business continued to decline, we would be taking out a line here, a line there in existing plant.
But I don't think you can necessarily separate those two.
But having said that, we don't believe nor do we see exactly what you're talking about.
And that's why I said you've got to understand who you are.
And that part of the business, it's a cash business, so treat it as such.
Okay, great.
Well, thank you, Demetra, for your help; and we look forward to talking to everyone on our third-quarter conference call, which is at the end of October.
Thank you, everyone.
| 2016_BLL |
2016 | POL | POL
#Thank you.
Yes, it's going to go into engineered materials, more specifically the GLS business.
We are acquiring certain technologies.
We are acquiring certain assets, but no plants.
The ultimate goal and objective is to ultimately transition manufacturing into one of our existing PolyOne facilities.
That's the easiest way to think about that, <UNK>.
I think certainly once we have those products up and running on our lines that there is some synergy benefit.
When you consider what that is on a multiple basis, that probably takes a couple of turns off of it.
It's candidly a small part of the deal.
I really look more at the commercial aspects and growing the business.
We will invest in additional resources to help support that, which is offsetting some of that benefit.
I wouldn't draw a significant conclusion or benefit from the consolidation itself.
Yes.
I think in terms of the tax rate question, we'll probably average about 32%, which is in line with how we closed out 2015.
In terms of the interest costs with our refinancing that we've done, I would expect that our interest costs year over year would be down $5 million to $6 million.
That's a substantial savings from the outstanding work we did on the refinancing.
Certainly, the share count, as we have always been, we will look for opportunities in the market to repurchase our stock; but I'm not ready to announce what that is.
Again, we ended the year with about 86 million shares outstanding.
Sure, thanks, <UNK>.
We have time for one more question.
Hi, <UNK>.
The short answer to that is that I don't see any additional customers making that same decisions.
In terms of the types of products and services we are offering, again they're more smaller niche applications that are getting closer and closer to what we do well with color and EM.
I don't see that as a risk in the future, to answer your question.
Look, with respect to what I view as the future or forecast for DSS, I've been pretty clear on what I think the earnings impact is going to look like in 2016.
That really incorporates everything I know today.
Yes, I think this year we spent about $90 million.
That's a good ---+ between $85 million and $90 million is a good proxy for 2016.
Thank you.
I just want to say thanks for all of our investors and analysts who joined us on the call today, and your continued interest in PolyOne.
We look forward to speaking with you again at the conclusion of our first-quarter results.
| 2016_POL |
2017 | TOL | TOL
#Yes, as <UNK> just said the answer is both.
We have traditionally used M&A to enter a new market.
That occurred in seven of the eight builder acquisitions.
The only one that was not that case was Chapelle, which was ---+ we were already in California, that was effectively a very large land deal.
There are several markets we are looking at that for that would be new to <UNK> and as part of that investigation we not only look at land opportunities, we look at local builders.
And that will continue, but there's also opportunity within existing markets to take advantage of a great deal.
Remember the most value of the builder is its land, so we always have to weigh do we want to buy a builder that has some really good land, some above-average land and then maybe some average or below-average land and blend of that together in a market we are already in where we don't need the brand and the relationship with contractors and somebody to explain the architecture to us and how to buy land, etc.
We have to then weigh whether it's worth it to buy a portfolio that is a blend of different quality land with just chasing the best land deal in the market.
So we are in action.
There are quite a few small and medium-sized builders that are being marketed now.
We have a team that focuses on M&A exclusively, but nothing to report and I don't think it will be any different from what you've seen out of us which is eight acquisitions over 21 years.
We are very selective.
Sure.
So Porter Ranch was part of the Chapelle acquisition.
It's a town in LA County.
It's 20,000 residents, it's been around for 30 years.
We've mentioned before it's where ET was filmed when the kids were riding through the neighborhood.
So that helps date it.
Very successful community, and we were rolling until October of 2015 when the gas leaked occurred several miles away.
That gas leak took a month to fix.
The schools were closed.
Of course, people have to move out.
Right now we are on pace of the recovery.
We knew it would take some time.
We are selling at about two-thirds the pace that we were achieving before the leak, and that is up significantly since the month after the leak.
The good news is there's been no change in pricing.
We haven't had to come in with smaller product or at different prices or bigger incentives.
It's a great community with schools and office and retail and many happy residents.
And it's just taking some time to fully recover as we expected it would.
So I'm happy with where it now stands, but we fully recognize that we are not back all the way to where we know it will be.
Well, I think we are doing, I will say, as we anticipated.
But we are seeing an extended construction cycle, but not any greater than we had anticipated and not any, I will say, worse than we had seen last year.
It may be taking us two to three weeks longer to build a house than in a normalized labor market.
But we've expected that and we've been able to hold to that.
And so when we see sales pick up like they have and we don't see incremental delays beyond what we expected it leads us to increase the delivery guidance.
The concentration is as Doug outlined ---+ since we used that piece of paper we can't find it now.
It has significant openings planned for Northern and Southern California, Pennsylvania and certainly Boise from a year-over-year perspective but those have already happened.
What else do you have.
On the cadence it is pretty consistent over the four quarters of the year.
What I was just shown had 30 openings in Q1, 18 Q2, 16 Q3 and then 25 in Q4.
So we roll them out when the roads go in and either the sales trailer or the model opens and the landscaping can hit and it's already to go.
And it's, again, is just the timing of when all of that can occur when we get permits and when we can move forward.
And I'm happy with this cadence.
Texas, Pennsylvania, Florida are the first locations for T select.
Yes, on track.
Absolutely.
When Chapelle arrived, probably the greatest deal this Company has ever done, that was 5,000 lots that we had to buy and that's the way the deal was.
So we were we will be opportunistic.
We certainly want more option lots.
We are very focused on ROE.
We understand.
Pre-downturn we were 50/50 or better of optioned versus owned.
And as the market collapsed on the industry in 2006, 2007 it is pretty tough to shed owned lots, so you can shed option lots.
And that skewed our ratio the other way and we are moving them back.
We are not going to get to 50/50.
There aren't those opportunities out there unless we were to do very expensive land banking that we're not going to do.
So you will see it move as our teams are more focused on optioning versus owning.
We also have some opportunities to put larger assets into joint venture and keep them off our books.
We don't have a goal we are shooting to because we don't know the nature of the next opportunity and whether that seller will demand all-cash or we can work out a terms of deal.
But it is something we are very sensitive to, and you will see us continue to work hard to improve ROE and option more land.
You are speaking backlog conversion rate.
And we don't see any reason why it wouldn't.
And I think our increased delivery guidance is reflective of that.
I can't update you on what we think price increases will be during the course of the year because that is completely market-driven.
I can tell you today we are experiencing pricing power primarily out West in the markets we've been talking about.
Our incentives have remained flat companywide and our cost creep has been modestly below our price increases.
You talk about tri-state and then you talk about City Living, so I will take them separately.
Tri-state, Connecticut has been slow.
We are small in Connecticut and we are being very cautious.
Westchester County, New York has been strong and New Jersey has been hot.
A lot of that has to do with availability and where our land is located.
So we are in no way giving up on the tri-state.
If you have land in the right location we think you can do very well as we have.
With New York I highlighted a couple of buildings in my prepared remarks that are doing well.
The Hoboken building continues to perform very well and we had a new opening as I mentioned on 22nd Street where we are very happy to have 10 contracts in the first three months of opening.
We have in certain locations as we've talked about had increased incentives to sell, but even with those increases in incentives our gross margins have far exceeded the Company averages and we are very comfortable with the location of our properties in New York.
We are being cautious.
We haven't bought land in New York City in a couple of years now.
We are looking.
There are some deals that are coming back around at different pricing that may become interesting.
But I think we are well-positioned to absorb what has been going on in New York City.
As we've talked about we've also moved some properties into joint ventures.
<UNK> gave the example of a $350 million equity requirement is now $30 million.
And so I think we are being cautious and smart but also ready opportunistically to jump on some opportunities that could come along.
We have not.
We still have 20% all-cash buyers.
A lot of those come out of the Active Adult category and those that get a mortgage are still on average putting 30% down and only mortgaging 70%.
We do rates today, the jumbo is about a quarter point below a conforming Fannie Freddie loan, so about a 4 1/8 loan and a conforming is about 4 3/8 and as you know we have more jumbo buyers than the other builders.
So the mortgage side of our business is good and the buyers are really doing nothing different than they had in the past.
<UNK> <UNK> is here running TBI Mortgage Company.
<UNK>, anything else to add.
No, I think you hit it on the head.
The spreads are good.
The 7/1 ARM is 3.5% on a jumbo today.
So I don't think it's an impediment to buying.
There's lots of liquidity out there.
We are seeing people offerings every day almost with different stuff.
So I don't think mortgage is an impediment right now.
We achieved some of that ramp-up already in this quarter so we will have less of it for the rest of the year.
We have now delivered first quarter, we have given you guidance for second quarter and we have told you what the full year is going to be.
We are going to leave it at that.
Sure.
So the transaction we just announced closed at a 5 cap rate which was consistent with where we had underwritten it.
I think we continue to see investors have an appetite for the product.
But their willingness to lever has been curtailed a bit.
Instead of seeing 70% leverage we're seeing 55% to 60% leverage be acceptable to the investors.
And shockingly the banks aren't upset about that either.
I think in this particular case we really like the asset.
We like the return on our residual basis in it.
This is the Park at Plymouth project, and we get fees as well as getting regular return on investment and we have a $7.5 million gain to tap into at some point in the future if we want to.
We haven't changed our underwriting but we are being conservative.
We always underwrite to today's markets, so as <UNK> mentioned if we can't lever to 70% then we have to lever to 60%.
We build that into the underwriting.
If today's cap rate is 5.25% instead of 5% we build that into the underwriting.
The one thing I will comment on that you hit on the little bit, <UNK>, is location.
The Main and Main strategy of <UNK> for sale applies to <UNK> rental.
The quality, it is all condo quality and that so far is paying huge dividends.
There is a dramatic difference between a 15-year-old apartment community in the Philadelphia suburbs and what we have been talking about that we just sold down our interest in which is new and fresh and of condo quality not just in terms of the units but in terms of the amenities: the residence club, the dog spa, the pools, the gym.
And so we are going to continue with the <UNK> brand of luxury in the apartments, be obsessed with location and the quality of what we build but we are also going to be very aware of where the markets are moving and underwrite appropriately.
I think it's also helpful to note that our financial strength and our capital commitment to these projects is much greater than, I will say, historical apartment developers who put 5% to 10% of the money in, they get a pension fund to join them and a bank to finance them.
We are putting 25% in and as the banks and those pension funds get a little bit more selective on who they choose to partner up with we look better and better.
Sure.
Active adult is a growing part of our business.
As we talked about over the past year we have now successfully moved it west of the Mississippi, and it is today about 14% of our revenue, projected revenue for 2017 compared to about 11% in 2016.
So you can see the growth there.
And it we are continuing to look for new opportunities.
We've got Active Adult, obviously, all over the <UNK> and Midwest and now we have it in Denver and we are looking at opportunities in Phoenix, we are looking at opportunities throughout the West Coast.
We are even looking in Texas.
And with the boomers aging and hitting that move down point of their life we want to make sure we have plenty of Active Adult communities for them nationwide.
So it will continue to grow over the coming years.
The tax rate guidance we gave for the full year is 36.2% and we are sticking to that.
So we were a little bit below that in the first quarter.
We expect be a little bit above that in the second quarter and average out at 36.2% or so for the year.
Andrew, thanks very much.
Thanks everyone for joining in today and we will see all of you soon.
Take care.
| 2017_TOL |
2016 | REG | REG
#I can speak to that.
This is <UNK>.
We are not and I think that's in large part because of our centers.
We have great, well-located centers.
They are with great grocers.
They are necessity-based retail in large part.
So part of what makes San Francisco unique is the tremendous high barriers to entry.
There has not been over building in this last cycle or really in past cycles up to now.
It's a very supply constrained and our centers are performing really quite well.
And we're not nervous about that market.
It's one of our best portfolios.
This is <UNK>.
It's pretty simple in this case.
We actually had signed a lease with a nail salon and prior to us delivering the space to them, they ran into some troubles on some other locations and they basically backed out of the lease.
And we have backups we're already talking to, so that's the simple reason it has to do one tenant.
Talk about the Whole Foods opening and where we are from leasing standpoint even though the center is just being completed.
Yes.
Whole Foods opened last month and they are doing tremendous.
Well above their projections.
If you get a chance the center is at North Orange County.
It's one of our best developed, best looking assets and that's merchandise assets.
We're 90% leased.
We could at least it really two or three times over.
We've turned away a lot of tenants.
We've been very patient.
We've held out on a couple of our the best spaces and we really see no issue with getting those last spaces leased up.
It's really one of our gems.
And if you're in Southern California, please take a chance and stop by.
Yes, we've already talked about this.
I'll let <UNK> talk about the real estate.
In general I would not expect to see a lot of upside but at the end of the day we're comfortable with the real estate and feel like there will be good demand for our retail backfill.
And as we said in our prepared remarks, which you may have missed, that to replace a struggling operator with a better operator is going to be better for the long-term growth of that center.
Thank you.
We have a retail component ---+ there's also an entire bank of building which has upside as well.
I don't know, <UNK>, if you have had an opportunity to actually visit the center, it's across the street ---+
No.
That's what we're buying.
So there's different parts ---+ Whole Foods is across the street too.
There's different parcels within the center.
The main retail component is anchored by Barnes & Noble.
And I'll reiterate what I said in the prepared remarks, that would be a fantastic example of where bad news would be great news.
We love to get that space back.
The center was built a little over 10 years ago.
We would expect that we're going to start to really realize some of that growth ---+ it will certainly increase over the next 12 months but I think you're going to see the bigger step probably in 2018, is when we are really going to start to see the growth in the NOI.
We are really early in the process so there are many different alternatives.
So, it's just a little too early to share much detail but it could potentially be retail and perhaps multifamily on top.
It could be all retail.
There could be the potential of moving some of the tenants to that ---+ the other existing tenants to that location, but again, it's way too early.
And we could lease it to one user.
Thank you very much.
Lots of vacant building, <UNK>, and that what we ---+ so we really are evaluating the different alternatives as to what we may do with that parcel.
And no decisions have been made.
No matter what we do there will be significant upsides, obviously, from what is today.
Because it's zero today.
<UNK>, It's not ---+ I think the way we've seen it written about and talked about as a joint venture and although technically we will close as a JV, the idea is to condominium-ize immediately.
So we will have ---+ so, hold on, I just want to get the structure out of the way.
So we will have physical ownership and legal ownership of only our component.
We've can't, at this point in time, unfortunately, talk about purchase price details and the diversification of that between the multifamily and the retail but are looking forward to doing that upon closing and you will see a press release at that point in time.
We get all the economic benefits.
We will get all the economic benefits from the retail.
Avalon Bay will get all the economic benefits from the multifamily and we expect to have the thing totally broken out before the end of the year.
I'll reiterate what <UNK> said.
As you know, typically we're not ---+ we don't hold things this close to the vest.
The sellers are really sensitive about releasing the purchase price prior to closing so as soon as that happens, more than happy to share that information publicly.
That's 100%.
We look at that as <UNK> said, we look at that as a vacant building with a significant amount of redevelopment upside.
Correct.
We appreciate your time and wish that you have a ---+ wish you a great rest of the week and a terrific weekend.
Thank you very much for your interest in Regency.
| 2016_REG |
2017 | RSG | RSG
#Fourth quarter 2016 revenue was approximately $2.4 billion, an increase of $89 million or 3.9% over the prior year
This 3.9% increase in revenue includes internal growth of 3.6% and acquisitions of 30 basis points
The components of internal growth are as follows
First, total average yield grew 2.2% over the prior year
Average yield in the collection business was 2.7%, which includes 3.8% yield in the small container business, 2.4% yield in the large container business, and 1.6% yield in the residential business
Average yield in the post-collection business was 1%, which includes landfill MSW of 1.7%
It should be noted that a majority of our third-party landfill MSW business is with municipal customers that have contracts containing price restrictions
Total core price, which measures price increases less rollbacks, was 3.5%
Core price consisted of 4.7% in the open market and 1.5% in the restricted portion of our business
Second, our total volumes increased 50 basis points over the prior year, or 90 basis points excluding the impact from approximately one less workday
The following discussion of volume excludes the workday impact
Volumes increased 2.2% in the large container business
Volumes decreased 40 basis points in the small container business and 70 basis points in the residential business
Small container volumes include a 110 basis point impact from intentionally shedding certain work performed on behalf of brokers, which we view as non-regrettable
Excluding these losses, small container volumes would have increased 70 basis points
The decline in residential volumes was expected and resulted from not renewing certain contracts that fell below our return criteria
Residential volume performance increased 40 basis points sequentially, as some of the losses from early in the year are beginning to anniversary
The post-collection business, made up of third-party landfill and transfer station volumes, increased 2.7%
Landfill volumes included growth in C&D of 14% and special waste of 1%
MSW volumes were consistent with the prior year
Third, fuel recovery fees decreased 10 basis points
The decrease resulted from lower fuel prices at the beginning of the quarter and the lag in our fuel recovery fee
In the fourth quarter, the average price per gallon of diesel increased 2% to $2.47 from $2.43 in the prior year
The current average diesel price is $2.57 per gallon
And, finally, commodity revenue increased 1%
The increase in commodity revenue includes higher processing fees charged to third-parties and an increase in recycled commodity prices
Excluding glass and organics, average commodity prices increased 24% to $134 per ton in the fourth quarter from $108 per ton in the prior year
Fourth quarter total recycling volume of 626,000 tons was down 2.5% versus the prior year
Cost of goods sold was up 20% from an increase in rebates paid for recycled commodities
Now I'll discuss changes in margin
Fourth quarter adjusted EBITDA margin expanded 70 basis points to 27.9%
The improvement included a 90 basis point decrease in SG&A cost, partially offset by a 20 basis point increase in cost of operations
The 90 basis point decrease in SG&A was primarily due to higher levels of incentive compensation and legal costs in the prior year
Fourth quarter 2016 SG&A expense was in line with our expectations at 10.5% of revenue
The 20 basis point increase in cost of operations is due to an increase in fuel expense primarily due to a larger CNG fuel credit recorded in the prior year
In 2015, the full year CNG fuel credit was recorded in the fourth quarter, whereas in 2016 the credit was recorded ratably
This timing difference increased fourth quarter 2016 fuel cost by 40 basis points
Excluding CNG credits, fourth quarter 2016 gross margin expanded 20 basis points
It should be noted that CNG credits expired at the end of 2016. On a full year basis EBITDA margin expanded 20 basis points to 28.3%
SG&A cost decreased 50 basis points to 10.3% from 10.8% in the prior year
We believe SG&A cost will continue to decline to 10% of revenue within the next couple of years
I want to remind you that we provide a detailed schedule of cost of operations and SG&A expenses in our 8-K filing
Fourth quarter 2016 interest expense was $90 million, which included $12 million of non-cash amortization
Our adjusted effective tax rate for the fourth quarter was 35.8%, which was favorably impacted by tax planning opportunities
The net impact of these tax items increased EPS by approximately $0.02 during the quarter
Full year adjusted free cash flow was $885 million
Cash flow exceeded the high end of our guidance range, due to lower than anticipated cash taxes of approximately $30 million
Excluding the benefit from cash taxes, adjusted free cash flow would have been $855 million
Now I'll turn the call back to the <UNK>
And just to put some more color around that, as <UNK> mentioned, as we have disclosed in the past a $10 change in the average commodity price is worth about $0.03 in annual EPS
Now it's important to keep in mind that, that's based upon our average mix of materials and OCC makes up the most of our mix, but it's only 45% of the mix overall
So, a couple things to keep in mind, <UNK>, is that, first of all, the CPI lags
So whatever we print then in 2017, we won't see the benefit of that until the second half of 2018. So that's the first item
The second item is that you talked about the roll-off of the fuel hedges
What we need to keep in mind also is that the CNG credit goes away
So that's something that was available to us in 2016, but that doesn't repeat
And, also, right now, we're looking at overall higher fuel prices
So, thinking about the margin then, so we're talking about 20 basis points to 40 basis points of margin expansion
Think about 10 basis points of that coming from commodities, the rest coming from the core business, 30 basis points or so
So we see that as pretty strong and sustainable growth
Thanks, <UNK>
And you're right to point out
Things look better in that direction
They have historically
So again, as I just said to <UNK>, there is more wind pushing us than in our face this year
So it's a good way to start the year out
Well, I'll ask your one – I'll answer one question directly
We've had a lot of conversation about it, because as you know we are a statutory payer, right
And so, if and when there is some type of tax reform, we likely stand to be a beneficiary of that
So don't know when that will occur or how will occur, and as you know there are probably a number of levers that get pulled
So, we're not counting any of that just yet, but we certainly are thinking about how it might impact us
And so we're also taking the wait and see approach that you all do, but if there is some movement there, it's good for us
By the time the second half of the year comes around that's true
But you got to remember that we still have the first half of the year where we're dealing with the CPI of 0.1% so that's a significant headwind for us
Hi, <UNK>
So, I will say it another way
That's the strongest as far as from a guidance perspective, the strongest guidance we've given in, I don't know, how many years
Both EPS or free cash growing at high-single digits to low double-digits
So the business is moving ahead
We're getting the operating leverage and it is showing up in the cash
That's your point
Yeah
We believe that we're going to continue to see margin expansion over the course of the next several years, because of all of the factors, <UNK>, that we talked about including the increase in the volumes that we're seeing in small container business
And not to mention, what's happened in the – with CPI and how we're going to get a bump-up in our pricing second half of this year and then what we might be able to print here in terms of CPI in 2017 and how that will impact the second half of 2018.
That's correct
Yeah
Hi, <UNK>
Thanks, <UNK>
Hi, <UNK>
And this is not another platform acquisition out there, <UNK>, that's available to us and not only that we'd be interested in that, what we're looking to do really is to tuck-in other assets around our existing infrastructure
No, again, let me just say this, the main point, I think that should be important to people is when this opportunity developed, we certainly put a lot of time and effort, we had a great team on the ground, we got great relationships there in LA, we ended up protecting and actually expanding our previous market share there
As you know we've got great assets in the market, we're the only company that has a landfill in the County of LA, and so we want to make sure we continue to find a way to utilize our vertical integration opportunity and advantage there, which we've done
We are happy with the zones we have, and again we actually did a little better than the market share we had and it's going to be accretive to the business
So we are excited to get started with the city there, and I think it's going to be a great outcome overall
It is included, but you can imagine, right, the things starts kind of halfway through the year, it's a lot of startup costs
So it's not going to do much for us in 2017 by the time we get it all sorted out and stood up, we'll see some more benefit from it in 2018.
<UNK>l right, man
| 2017_RSG |
2016 | AIR | AIR
#Good afternoon and thank you for joining us today to discuss our fiscal year first quarter results.
As you can see, overall we had a very good quarter as diluted earnings per share from continuing operations increased 38%, from $0.21 last year to $0.29 in the current period.
During the first quarter we ramped up recently awarded programs on our aviation services segment, and we continued to win significant new business from both our commercial and government customers.
And if I may I'm just going to highlight a few examples of some of our wins in the period.
We won contracts from both Enter Air and flydubai to provide power by the hour component inventory management repair services for more than seventy 737-series aircraft.
The latter agreement represents a significant expansion of AAR's commercial footprint in the Middle East, and brings our total number of aircraft under management to over 1,200.
We also signed an agreement with Asiana Airlines to provide landing gear repair services at our Miami landing gear facility.
Further, we won a contract from CommutAir which operates on behalf of United Airlines as part of United Express to provide component repair and supply chain services for their fleet of 40 Embraer ERJ145 aircraft.
Our airlift business was awarded two additional rotary wing positions in Afghanistan.
And in addition, the Military Sealift Command extended our four positions providing vertical replenishment services in the Indian Ocean and western Pacific.
These awards bring our total contract positions to 21 aircraft as of the end of the quarter.
And of course most significantly, our airlift business also was awarded the global aviation support services contract of the Department of State Air Wing, otherwise known as the INL-A program.
Our airlift will be responsible for operating, maintaining, and provisioning the current fleet of 140 airplanes and helicopters operating around the world.
The potential duration of this contract is 11 years, including a 6 month phase-in.
Incumbent contractor filed a protest on September 11, and we expect a decision on the protest no later than December 21.
At this point I want to thank you for your attention and I'll turn the call over to <UNK>.
Thanks, <UNK>.
I'll discuss our first quarter financial performance in a bit more detail.
As <UNK> indicated we had a good first quarter.
Sales in the quarter were $404.8 million, up 4.7% versus the prior year.
Aviation services sales increased $18.8 million or 6% year-over-year, while expeditionary services segment reported a slight decrease in sales, although up from Q4.
Gross profit increased year-over-year for both segments.
The gross profit margin in aviation services was 16% with the mix of products and services responsible for the increase.
In the expeditionary services segment, the gross the gross profit was 11.5%, reflecting improved profitability in mobility products.
SG&A expenses as a percentage of sales were 11.1% for the first quarter, compared to 10.3% last year.
As the SG&A expense run rate is about in line with our expectations, and we expect that the SG&A as a percentage of sales will decline closer to our target of 10% as sales increase over the balance of the fiscal year.
Looking at interest expense for the quarter, it was $1.3 million, compared to $1.9 million last year, and that's primarily as a result of the retirement of our remaining convertible notes during FY16.
Our earnings per share, diluted earnings per share from continuing operations for the first quarter was $0.29, compared to $0.21 in the prior year, and that's a 38% increase in EPS as <UNK> had mentioned.
Taking a look at cash for a moment, we used $500,000 of cash from operations for the quarter.
In the prior-year first quarter we used $64.4 million.
Capital expenditures in the quarter were $9.4 million, and depreciation and amortization was $14.9 million.
During the quarter we paid dividends of $2.6 million, and we also repurchased approximately 619,000 shares of our stock in the open market for a price of $14.8 million.
And that leaves us as of August 31 with $67.9 million available under our board authorized share repurchase program.
Net debt decreased $7.1 million, and we ended with $143.7 million of net debt, and our net debt to capital ratio was low at 14%.
Our composites manufacturing business has continued to perform well, and as a result we decided to retain it within our expeditionary services segment, and we've reclassified this into continuing operations for all of the periods presented.
So finally at this point, we are sticking to our guidance of $1.30 to $1.40, and we feel good about the quarter that just ended, and we feel good about our outlook, but we're going to stick to our guidance at this point.
So thanks for your interest and I'll turn the call back over to <UNK>.
Thank you, <UNK>.
So as you can see, first quarter of 2017 was a nice improvement, we saw nice improvement over the prior year.
Our aviation service segment continues to exhibit strong growth, and our expeditionary services segment improved from recent performance levels.
Once again we ended the quarter in excellent financial position, giving us not just stability and flexibility but also capacity to go ahead and look to take advantage of market opportunities as they present themselves.
We will continue to make investments in our industry-leading operations as we move into FY17 and I am excited about our future prospects.
At this time I'll turn the call back over to the operator to open up the lines for any questions you may have.
MRO had, as I think we've signaled in the past, MRO's results this quarter are the softest historically for the year, and they didn't disappoint in that regard this year; it was soft again.
We ---+ to give you a sense of positions, we had on average, the middle of August we had about 33 positions, by positions I mean aircraft in the hangar for maintenance, and now we're running at 44 or, mid-40s, 40, 40-ish right now in September, and then we go up to 44 in November.
So it will start ramping again as the year progresses.
The supply chain business as you say, <UNK>, is strong.
We're seeing many opportunities.
John Holmes is not with us here today in Chicago because he's out visiting with customers, trying to drum up some additional business and actually meeting with a customer in our New York facility today.
So we're hopeful that we can announce a contract after October 1 that we've been working on for quite some time, that's a pretty good size.
And I would say around the [horn], the supply chain business is strong.
The MRO has gone through its typical cyclical experience and strengthening, and we're feeling pretty good about where we are today.
We've been diminishing our footprint there.
We're keeping it open for now for some light paint type work.
As we've discussed before, the state of Illinois has constructed a facility for us in Rockford that we're kind of pivoting towards, and hopefully we'll be generating some revenue and income coming out of that facility in the not too distant future.
We'll keep you up to speed on that.
Airlift has improved a little bit.
Our thoughts are that we're seeing signs of life in both businesses, so we are seeing the inquiry level get stronger, and we're not overcommitting at this point.
So let's see what happens.
As you know the world environment is unsettled as ever and it's just a question of how much more action the US will see outside in these different theaters, and that will be a good proxy for how our businesses do.
Why don't we hold off on making comments on the contract, it's in the protest period ---+
---+ and I think we'll talk about it once it emerges out of protest.
Yes, so we've expanded our program selling capabilities.
And I think what you're seeing here in some of these announcements is a reflection of their efforts.
And we have a team of folks who joined us last year, and they're wonderful team.
They complement our organization in a very positive way, and we're very hopeful that we'll continue to benefit from their efforts.
Also first quarter is always a little softer for us because of MRO sales, but we anticipate, our goal is to always to be below 10%, and our goal is to get down to that level before the fiscal year is out.
No.
Before we had a manufacturing group of businesses, and that's where it was, and when we sold off the businesses and kind of restructured the manufacturing, we basically just stopped and looked to exit both the composites business and the metals business.
We ultimately wound down the metals business, but the composites business which we were trying to sell, we weren't able to get prices that we were happy with, so we thought it was best, from the customers' perspective, for our people, et cetera, to go ahead and try to revitalize the business, and we've had some success in that regard.
So the business, based on how we see the markets unfolding, the leadership team at mobility is a very capable leadership team, as you know, and they were eager to take on some added responsibility, and they now have this operations part of their business.
We've had success in the past and continue to have success serving some of the regional manufacturers.
We've had some success on interiors for certain specialized aircraft.
That business continues to be strong.
So we're looking at opportunities to support the Boeings of the world, and the folks who support Boeing, as well as some of the regional carriers that are out there as well.
So we're kind of like a niche-like business.
We have some activity in the flat-panel world.
I don't know, <UNK>, is there anything else to add.
That's pretty good.
We're supporting some of the helicopter manufacturers.
That piece of the business has been doing pretty well.
It's both but it's mostly commercial.
Yes, I think the engineering business has had a couple of wins.
We had one out of Africa actually.
The business is doing okay.
It's got some opportunities that they're looking at, but at this point in time it's not a needle mover either way.
We're seeing deals that are interesting.
We're not seeing anything that is compelling necessarily, but we are seeing stuff out there.
There's a fair amount of stuff we're looking at.
As you know we're being very selective and disciplined, but I would say the deal flow on the acquisition side is light to moderate, in a general sense.
Yes, <UNK>, so first of all we were awarded the contract.
So we have a contract.
The contract is under a protest.
Under the protest, we were issued a stay order by the customer, or a stop order, so we are no longer working on the contract.
But we do have a contract.
In terms of the profitability or impact on the company's results, we prefer not to discuss that at this stage.
Well, I prefer not to discuss it.
I think it's a contract, it's a program that we have a high level of confidence that, or we know we can deliver in a way that's superior to anything that the customer is accustomed to, and that's all I would say.
I think the State Department put out a release which indicated a potential value up to $10 billion.
Okay, thank you.
Okay, well once again thank you for your participation and I wish everybody a very good day.
Take care.
| 2016_AIR |
2017 | ADP | ADP
#Thank you, <UNK>, and thank you all for joining our call this morning
We appreciate your interest in ADP
This morning, we reported our second quarter fiscal 2017 results, with revenue up 6% to $3 billion or 7% on a constant dollar basis
This quarter, we saw the continued benefits of strong prior period new business bookings and a strengthening in our retention metric which helped to drive organic revenue growth across all market segments
Our earnings growth exceeded our expectations this quarter with adjusted diluted earnings per share growing 20% to $0.87 per share
<UNK> will take you through the key contributing factors to our strong earnings performance in more detail shortly
During the quarter we experienced a decline of 5% in new business bookings compared to a strong second quarter in fiscal 2016. These results reflect a continued difficult grow-over related to the tailwinds from our fiscal 2016 sales of additional modules related to the Affordable Care Act, which was expected
Additionally, within the midmarket and upmarkets in particular we also experienced the effects of political uncertainty leading up to and following on from the November U.S
elections which slowed decision making among some clients and prospects during the quarter
Our value proposition remained wrong and we have a successful track record of managing change for our clients
As you have seen with ADP many times in the past, change can provide us with significant opportunities to grow and expand our solutions to help deepen our client relationships
We expect that the environment in 2017 and beyond will be no exception and at this current uncertainty and related hesitancy, will be a short-term phenomenon
Accordingly, we continue to expect new business bookings growth in the second half of fiscal 2017, but in light of the second quarter decline, we have now revised our outlook and now expect to be about flat for fiscal 2017 as compared to the $1.75 billion sold in fiscal 2016. The client experience remains a priority for us whether it's through investments in our service model, in innovation and the user experience or in our efforts to upgrade clients with the most appropriate strategic based platforms, we believe that we have the right strategy to address these continuously evolving needs and opportunities and we remain pleased with the progress we are making
We continue to see the benefits of higher retention rates for clients on our strategic platforms and from our continued investments in service
Accordingly, this quarter retention increased in line with our expectations by about 10 basis points as we saw the benefits of these ongoing efforts help drive further improvements in client service metrics
But at the same time, we remain cautious as we enter the time of the year when clients in our industry are most likely to change providers
In <UNK>uary, we completed the acquisition of The Marcus Buckingham Company or TMBC, to expand our core talent portfolio
This relatively small, but strategic acquisition brings together ADP's robust dataset with TMBC's innovative talent solutions so as to help clients build a better and more engaged workforce
TMBC and its founder Marcus Buckingham are cutting-edge innovators in using data and research to drive talent management practices
Their cloud-based performance and talent management solution now known as ADP StandOut coupled applications with coaching and education to give leaders the tools, insights and data needed to improve employee and team performance
Feedback on this acquisition from many of our mutual Fortune 100 customers has been extremely positive
We look forward to delivering new data-driven solutions to the market that bring together the unique capabilities of ADP and TMBC
As we think about the future growth of ADP, we anticipate that investments such as these coupled with our ongoing organic investments in innovation, service and sales will enable us to continue to stay at the forefront of the HCM industry
Other examples of our innovative successes can be seen in the traction of our ADP DataCloud and ADP Mobile Solutions app
As you know, we introduced our ADP DataCloud to allow business leaders and HR professionals to generate actionable insights from the workforce data embedded in their ADP HCM solutions
Today, several thousand clients are using our DataCloud analytics platform and we continue to advance the solution with new capabilities
During the quarter, we added depth to the geographic benchmark data and added time and labor benchmarks such as market-based absence and overtime
These new benchmarks are unique within HCM and leverage our close to 30 million anatomized U.S
employee records to assist HR professionals in developing and fine-tuning their strategies
With respect to the ADP Mobile Solutions app, we recently announced the number of users has surpassed the 10 million mark
Our Mobile Solutions app is the most downloaded app in the HCM market with users spanning 200 countries
We've continued to add new features and functionality to embrace the modern users' needs from workers accessing stock profiles, editing team schedules or approving time-off requests to users changing their 401(k) contribution or viewing their account performance
Organizations know that employees expect technology to be easy to use and accessible from anywhere while simultaneously being powerful and secure
Our Mobile Solutions app is the first app of its kind and continues to be consistently among the top three business apps in Apple App Store
For the last couple of quarters, we've been sharing our plans regarding our Service Alignment Initiative and I'm excited to highlight for you that we've been making great progress
During the last quarter, I took part in the opening of our new service and implementation facility in Norfolk, Virginia
We welcomed more than 400 associates to a new signature building and anticipate our presence in Norfolk will ultimately reach 1,800 associates
We are similarly on track in hiring in Orlando where we expect to eventually have about 1,600 associates
Also during the quarter, we announced our third new strategic service center in Tempe, Arizona
We anticipate opening that facility in the spring of 2017 with a capacity of 1,500 associates in that location
These new centers are a critical component of our overall service strategy and will enable us to significantly enhance ADP's service capabilities across the HCM spectrum
Lastly, before I turn the call over to <UNK>, I would like to add how gratified we are for the recognition we continue to receive from the HCM industry and the customers we serve
During the quarter, ADP received the Everest Group's highest recognition for our GlobalView HCM solution
Their report recognized us for the scalability of our solution while noting ADP's reporting, analytics and mobile app are key differentiators for us
In addition, ADP DataCloud earned a Cloud Computing Innovation Award from Ventana Research, recognizing our ability to deliver positive business impact
In bestowing the award, Ventana noted ADP's ability to provide organizations with data that can reveal the workforce trends and provide the deep insights needed to make better business decisions
In closing, despite the recent uncertainty in the U.S
business environment, we continue to believe that change will be beneficial to us as we are well-positioned to help our clients navigate the complexities of HCM
I remain confident in ADP's future and in the success of our strategic initiatives
In fact, I believe that we're in a firm position for sustained growth and success as we continue to make the technology and service investments to further increase the strategic value of the HR function
With that, I'll turn the call over to <UNK> for further review of our second quarter results and an update to our fiscal 2017 outlook
It's a great question
Obviously, there are two factors that are affecting the growth in our new business bookings
One was the known factor which is the difficult grow-over and obviously, we had some sense of that and factored it in in terms of our guidance for the year because we were obviously below our long-term 8% to 10% as a result of what we knew was going to be a more limited base to sell into since we had already sold half of our clients on ACA
So that was a known factor, but the reality is we didn't know exactly how much difficulty we would have in selling additional modules of ACA over what we sold last year
So that is a factor that obviously has become more difficult to measure given the talk of the administration of repeal and replace of ACA
So I guess, in a nutshell, whatever we assumed about the difficult grow-over, I think, it became a much more difficult grow-over as we think many companies in the midmarket and upmarket are probably – have a wait-and-see attitude in terms of what's going to happen around the Affordable Care Act
I think that there's also this kind of second factor which obviously we have no scientific way of measuring which feels like people are in general just delaying and waiting to see what happens not just with ACA, but with a variety of other things that the administration is talking about
Having said all that, there are also a lot of positive things and we see that reflected in some of the public markets or the equity markets in terms of anticipation of lower tax rates and fiscal stimulus and so forth
And in particular, one of the things that I noted, I've seen a chart that shows – I believe it's the NFIB confidence index, but small business confidence indexes are kind of off the charts positive and in a strange way, it's a little bit reflective of kind of what we're experiencing which is continued success which we don't give guidance by segment, but we have very good and strong new business bookings results in our down market and not so much in our mid and upmarket
And of course, the PEO, we generally consider to be a down market business but that business does have obviously a relationship to ACA and what's going on around regulation and the variety of regulations that had been talked about previously that now may be subject to change on a go-forward basis
So there's a lot of moving parts and hopefully that provides you a little bit of color, but we don't have really great precise scientific tool to be able to ascertain how much of the weakness is coming from each factor
I mean, the most obvious one is this the discussion around the Affordable Care Act, so we – as I mentioned in my prepared comments, ADP generally does well when there's change, but not when there's uncertainty about change
And so I think a protracted debate about what replacement means or what will be happening is probably not helpful to us in terms of our new business bookings results
There are a number of other items out there around, for example, overtime rules, EEOC [Equal Employment Opportunity Commission] reporting around pay equity and even DOL rules around the fiduciary responsibility that affects our retirement services business
So there's a number of things that are in play by the administration, generally speaking over 67 years we have benefited from whether it's one particular party or another particular party or one philosophy versus another philosophy because generally there's change, there's constant change and I think, employers use services like ours to help them manage through that change
So we, on a medium to long-term basis, are, I think, optimistic that whatever form comes of healthcare reform whether it's more state based or just a different way of providing because I think the administration appears to be committed to maintaining the number of people that have insurance so that will require some form of tracking and some form of enforcement or tax credits and it maybe more state based, but that's something that we hope to be able to help our clients navigate through when the administration and Congress, I think, get further along in terms of figuring out what exactly they want to do
And there's a number of other regulations that are probably less public and less significant on an individual new business bookings basis, but they all add up to quite a lot of bit of potential change which I think would be very good for ADP
As you can see from our retention notes, we haven't add – I think, <UNK> makes a great point which is what's fascinating is obviously the challenge for us right now is the new business bookings, but we haven't had cancellations or in fact we have clients that are still being implemented on ACA, but it's natural that once you've made a decision and you're committed and you're on the path and it is the law, by the way, it still is the law, it makes sense to go forward, but I can see how some people, if they're doing it in-house or doing it themselves might be hesitant to make a decision given the uncertainty around what's actually going to happen regarding the law
Well, I didn't say the new business bookings growth was weak in the PEO, we don't give segment reporting with details of our bookings
I was just trying to give you a general flavor because, as you saw, we also had some weakness on the revenue growth, but that wasn't necessarily related to ACA, but just in general, I was trying to convey that there is some logical, I guess, explanation to some of what's happening in the sense that there appears to be a lot of optimism on the part of small businesses and we're seeing that reflected in parts of our business
In other parts of the business the results are mixed because we do, I think, see as a result of the fact that 50% of the PEO's business comes from referrals of our existing payroll sales force, to the extent that that sales force is encountering some slower decision-making, particularly in the midmarket, and also encountering some slow decision-making as a result of uncertainty about ACA that is expected to have and is having some impact on the PEO
But to be clear, the weakness in the revenue growth of the PEO was almost exclusively the pass-through revenues and lower inflation in health benefits and a slight slowing in benefits participation which is probably also related to a, quote unquote, peaking of ACA implementations
And by that I mean that we have seen several year decline in benefits participation rate, in other words how many eligible employees of the PEO actually take benefits and that sort of the trend upward as we got closer to the deadline
So the last, call it, two years right before ACA, given the fact that the law was intended to increase participation and companies were coming to the PEO in order to comply with the law, we saw those participation rates trend up
And now we saw the increase in the second quarter be a smaller increase than in the prior second quarter and in the quarters before that
So that slowing trend of benefits participation coupled with lower inflation of benefits per worksite employee is what led to slower growth, if you will, in the PEO, but the 12% worksite employee growth is still very, very strong, so we're still very happy with what we consider to be net revenue growth in the PEO which is now growing almost in line with worksite employees whereas historically had grown a little bit faster because of this pass-through cost pressure
So I hope that helps a little bit
And it's certainly isn't for lack of head count, so we're in a strong position from a sales force capability standpoint
And I think if your question was really around did our retention – I think, you started off by asking about retention, did retention benefit from slower decision, that's possible
So it is possible that on the other side of the coin, if you will, people didn't make as many decisions than we were able to hold on to clients, it'd have very difficult for us to measure that, but it's possible
I think we also have – I think our expectation is a little bit of a return of the growth of the PEO pass-through cost, which I think that just mathematically also adds to – I think the last part of your question was a broad PEO margin pressure question about ADP, but in this first half, second half it is a factor
Based on our current forecast, just the expectation for our pass-through cost for the second half alone causes some pressure in the second half
And I think your broader question about overall pressure is a very, very good question which we spend a lot of time looking at and talking about
But this year in particular, because of lower benefits inflation costs, we actually, as you could tell from the first half of the year, it actually helped us
It took some of the pressure that we had historically had off
So even though the PEO has an absolute lower margin, the fact that its margin has been improving as much as it has combined with the slower growth of pass-through costs made this a moot point for the first two quarters of this year
And I think what you have from us is a commitment to really make sure that we have a lot of transparency around because we do a lot of what-if scenarios around the next two to three years what the PEO margin expectation is versus the ES margin expectation and the overall ADP
And we feel comfortable at least right now that we are in a place where we're able to still achieve the guidance that we've provided on a long-term basis, but over time that could change
If we have a lot of inflation and pass-through costs, we might have to revisit that topic just because of the pure mathematics, not because of the quality of the business or the strength of the business, just because of the math that I think you're implying
But I think for now, I think we're in an okay position
No, I think that – <UNK> may have something to add, but we had a great quarter earnings-wise, so that helps because we obviously provide guidance based on what we really think is going to happen
And as I think we were clear in our comments, the second quarter exceeded our expectation
So in fairness, we got a little bit of tailwind from the second quarter going into "maintaining" our guidance for the year on earnings
So I think we feel good about where we are in terms of our expenses, even though <UNK> described very well this issue of we've lapped our ACA revenues, and we had already lapped our ACA expenses for the last two quarters
So those kind of factors are what helped boost the margins in the first two quarters of the fiscal year which we don't get in the second two quarters of the fiscal year
But in general when we look at the quality and the trajectory of the business, we feel pretty good other than this issue in new business bookings, which ironically helps our margin in the first half of the fiscal year
Other than that factor, we feel pretty good about where we are
<UNK>, I think to add to that, I think we have some historical data to support <UNK>'s points like, obviously, we don't have any historical data to really be able to ascertain what's happening, what month and with what regulation
But the first point about the economy is indisputable that when ADP is obviously a very – from a recurring revenue model standpoint on our revenues and our profitability and so forth a relatively defensive steady company, but new business bookings is a little bit different
And when you look at 20 years of data, our new business bookings growth over the course of rolling four quarters because obviously any one quarter can have issues like we just experienced
We can have a new regulation that requires a new product
We had for example Y2K 20 years ago but, in general, follows very, very closely almost a smooth line what's happening with the economy, as does our pays per control growth
So our pays per control growth when unemployment is going up, tends to go down and vice versa
So we are in new business bookings, I think, somewhat tied to the strength of the economy and so, as <UNK> said – and we are, obviously, we try to be as transparent as possible
We were sitting here talking about potentially entering a recession
We would have to, I think, temper our optimism based on that 20 years of history
But since that doesn't appear to be the environment that we're entering at least for now, we feel that we're going to rely on this historical data and I think plan on returning to historical growth rates in our new business, and our new business bookings
In terms of this issue of the specific regulations and change and so forth, there's also a lot of history in ADP
There's more than 20 years of history where even though there are bumps along the road in terms of the amount of regulation and the type of regulation, in general the trajectory has been in one direction
And that's a global statement, not just a U.S
statement because governments try to effect public policy through employment and through employers, whether it's around safety, or taxes, or a variety of healthcare in this case
And so we like where we are, we like the space we operate in, and we're optimistic about, I think, the future, although obviously, we're not exactly happy about what's happening in the short term here
And I think – I'll just add that I think we are working on these types of products and others in order to drive not just incremental revenue from the products themselves, but to gain market share and to win more new business
Because the reality is that when we wake up every morning we're thinking about how you grow over $1.75 billion in new business bookings
And to give you a specific answer like in the next year or two we don't plan on sharing on this call that it had the same impact as ACA
Because again, the numbers are just so large that unless we simultaneously generate incremental revenues from new products, while driving – using those new products to drive better differentiation and more net new wins in the marketplace to gain market share, then we're not going to be able to grow the business
I think <UNK> described it well which is it's a very broad strategy around differentiation and strengthening our products, as well as we don't mind earning a little bit of extra revenue and income from selling those types of products
Yes, we're still on track
And very excited about it
So we like it so much because there's a service component in addition to a technology component which actually fits well with our business model, so you're right
There is a – they have deep, deep data analytics and insights in their own business, and so there's a lot of research-based, data-driven decision-making in how they deliver their products
I think the belief by them and by us is that we have obviously a very big data set to be able to enhance the work that they do to really help people create a better workforce
And so I think the combination of the coaching, the data and the analytics along with combining that with ADP, I think, we think that we could really do something special here
So again, caution that given the $12 billion of revenue, if it wasn't obvious from our comments, this is not an immediate game changer from a revenue growth standpoint, but it's an immediate game changer from a strategic standpoint and from a brand standpoint
No
I think that that's as good a math as – for example, when we had some challenges with retention in the last year, that's kind of the way to look at things is to use simple math to put things in perspective
And so we obviously fully expect to return to stronger new business bookings growth as these compares get a little bit easier and hopefully as some of this uncertainty wears off, but I think that your math is dead on, which is why you hear us still remaining optimistic
We would obviously prefer to have $100 million then to not have the $100 million, but I think in the context of what we're trying to accomplish for the company from a value generation standpoint, EPS, share buybacks, et cetera, it really doesn't – for now, it doesn't have a major impact
You're referring to new business bookings? Or
I'm not sure I understand, sorry, the question
The
<UNK>, I think that – sorry
Maybe I didn't at first understand the question, but I did look last night at sales force productivity over the last few years
And as you can imagine, now our average productivity per sales rep is down, but largely driven by ACA
If you exclude ACA, our sales productivity is still in line with our expectations
So I think what we've had is we had – and I think we've been every quarter I think very, very clear
We haven't been pretending that it was either sustainable or that we had done something magical to all of a sudden create such a huge increase in productivity in our sales force
Clearly, we got help from and lift from ACA sales
We had two years of 13% and 12% new business bookings growth, fiscal years, and I don't know the last time that we had ever done that
So clearly, maybe we didn't emphasize enough how much help we were getting
And certainly now it's difficult to go back to the sales force and remind them that we had help and now the help isn't there anymore
We've got to now focus on fundamentals
We've got to go back to selling new clients and the old-fashioned approach of ADP of having a reasonable mix of head count growth and productivity growth
And I think when I look through the numbers and try to normalize for ACA, we feel pretty good about where we are in terms of head count and also sales force productivity
It's actually a fantastic question because this afternoon I'm actually going to speak to our midmarket sales force about some of the things that we can and need to do in terms of getting ourselves reset here for a different environment
I think, as we said multiple times today, we're not going to a zero regulation environment
So 99% of the laws and regulations that affect employers are still in place today that were in place two months ago, and they're probably going to be in place a year and five years from now, and there may be new ones
And so we have always been there to help our clients with compliance and with regulation
Having said that, we're clearly entering a period of time with tightening labor markets where I think many employers' attention is going to turn to how to attract and retain a workforce
And this is something that we've been building to over the last four to five, six, seven years by investing in our talent management suites
by investing in tools to help our clients use data and analytics to run their business better and manage a better workforce
So we've been preparing fortunately for this strategic opportunity here for many years, and it's coming and it's coming fast because I believe we reported the ADP Employment Report this morning, and that's only going to add to I think the tighter labor markets
Because as we've seen multiple times in the last 20 to 30 years, as unemployment gets to the level that it's at now and we understand that there might still be a little bit of slack as a result of labor force participation, but that slack will also inevitably come out of the system, whether it's in 6 months or in 12 months
It may have already come out, we don't know
But besides higher interest rates, which are going to be beneficial to ADP, we think this is going to be beneficial to ADP's new business bookings and to our approach to the market, which is to help our clients and products exactly with this topic
How do you attract and retain the best workforce when everyone else is trying to do the same thing? So we're not ready to say there's a war for talent yet, but clearly there are pockets of that
And I think when that happens, I think some of the products and solutions that we've developed, this acquisition that we've just done with TMBC, I think, position us well to help our clients with that
So as we mentioned, obviously some of the uncertainties that have been created as a result of this change in administration and the talk about repeal and replace of ACA are certainly not helping us in terms of our new business bookings here in the second quarter, but we still are pretty positive about our business model
I think you've heard that from us today that we're well positioned for helping our clients with what are becoming very, very tight labor markets, and we're also optimistic that there will be some change
We know there's going to be change, so repeal is clearly in the eye of the beholder, but given that there's a commitment to maintaining 20 million Americans on insurance we believe there will be some new form of tracking of regulation and that we will have something that we can help our clients with if not the current ACA products that we have today
In the meantime, we're going to rely on our historical track record of being able to navigate through obviously these uncertain times and wait for the inevitable pickup in the economic activity as well as government activity around some of these changes
We continue to invest in simplifying our portfolio, as <UNK> said, including using that as one of the criteria for acquisitions
You've heard us talk about how we're aligning our service model
We're very excited about what that's going to do for the quality and long term cost of our service, and as you heard from us today, we're certainly not backing down on our distribution channel
So we continue to invest in our sales force and grow our sales force because we plan on continuing to grow
So we appreciate your time today
Thank you for joining us, and we appreciate your interest in ADP
| 2017_ADP |
2016 | ZTS | ZTS
#Good day and welcome to the first-quarter 2016 financial result webcast for Zoetis.
Hosting the call today is <UNK> O'Connor, Vice President of Investor Relations for Zoetis.
The presentation materials and additional financial tables are currently posted on the investor relations section of Zoetis.com.
The presentation slides can be managed by you, the viewer, and will not be forwarded automatically.
In addition, a replay of this call will be available approximately two hours after the conclusion of this call via dial-in or on the investor relations section of Zoetis.com.
(Operator Instructions) It is now my pleasure to turn the floor over to <UNK> O'Connor.
<UNK>, you may begin,
Thank you, operator.
Good morning and welcome to the Zoetis first-quarter 2016 earnings call.
I'm joined today by <UNK> <UNK> <UNK>, our Chief Executive Officer, and <UNK> <UNK>, our Chief Financial Officer.
Before we begin, I'll remind you that our remarks today will include forward-looking statements and actual results could differ materially from those projections.
For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statement in today's press release and our SEC filings, including but not limited to our 2015 annual report on Form 10-K and our reports on Form 10-Q.
Our remarks today will also include references to certain financial measures which were not prepared in accordance with Generally Accepted Accounting Principles, or US GAAP.
A reconciliation these non-GAAP financial measures to the most directly comparable US GAAP measures is included in the financial tables that accompany our earnings press release and in the Company's 8-K filing dated today May 4, 2016.
We will also cite operational results, which exclude the impact of foreign exchange.
With that, I will turn the call over to <UNK> <UNK>.
Thank you, <UNK>.
Good morning, everyone.
We delivered another solid quarter demonstrating our steady and predictable growth and conforming the strength of Zoetis as the industry leader in animal health.
The divestiture of our portfolio in terms of geographies, species and therapeutic areas, as well as our business model continues driving our performance.
In previous years, we have seen that different species leading our growth based on the changes in the market trends and the mix of products in our portfolio.
For example, in 2013 our growth was driven largely by swine and poultry products.
In 2014, it was driven by cattle and swine, and in 2015 companion animal and cattle led the way.
This quarter, the most significant operational growth driver by far has been our portfolio of companion animal, a strength we expect to continue through 2016.
Our companion animal business is growing thanks to increasing sales of APOQUEL [division] of Abbott Animal Health products, the introduction of new vaccines in Europe and the US, and the overall positive performance of the rest of our portfolio.
This important as we experience softer growth in livestock.
We continue to invest across our portfolio, and in the first quarter, our R&D investment continued to show many positive results, including the approval of SIMPARICA, our new oral parasiticide in the US, Brazil, and Canada.
This quarter also marked the completion of our ERP implementation.
After nearly two years, all our commercial operations, manufacturing plants, and support functions are on a single platform, enabling us to achieve greater efficiency.
Overall, we have been able to accelerate our operational efficiency program with a positive impact in 2016, and we expect to exceed the initial savings target of $300 million by year 2017.
I am pleased to say that with a positive momentum in the business and the help of improved foreign-exchange rates, we are increasing our guidance for the full-year 2016 and 2017.
Coming now to more detail on our first-quarter results, operational revenue growth was at 12%, and you can find the slide on our webcast that breaks this down.
This reflects 6 extra days in the quarter due to the accounting calendar, as well as the negative impact of changes in markets like Venezuela and India, and the product SKU rationalization that we communicated last year.
Adjusting for these factors, the growth will be 10% operational and 6% excluding the additional impact of recent acquisitions.
In the quarter, we grew adjusted net income by 28% operationally, once again growing faster than revenue and helped by the fact that our OpEx increased only 2% operationally compared to the 12% revenue growth.
We continue to deliver our long-term value proposition of growing adjusted net income faster than revenue.
In looking at the overall market, we continue to see the animal health industry performing well, despite global economic challenges.
We have seen good growth in most markets, as greater consumption of [proteins] and increased medical spending on pets continues to help create customer demand for our products.
As always, while I'm very pleased with the quarterly results, I also want to emphasize the need to look at our business on a full-year basis to account for some of the seasonal situations and timing patterns in animal health.
Let me now update you on our new product launches and R&D developments.
APOQUEL is showing steady growth.
We have continued to launch APOQUEL in additional markets such as Canada, Australia, and New Zealand.
And we plan in the coming months to introduce the product in the rest of the markets where it has been approved, including Japan, Brazil, and Mexico.
And this month, the product will be available to customers without restrictions.
In the first quarter, APOQUEL sales were approximately [$50] million, an increase of about [$14] million from the year-ago quarter.
As previously communicated, we expect APOQUEL to generate peak sales of more than $300 million.
As for Simparica, our new once monthly chewable tablet for the treatment of fleas and ticks, it has launched in the US and in several European markets.
It is early, but we are seeing a positive response from customers, and we expect performance to ramp up in the remainder of the year.
We are also developing combinations of this Saronaler molecule in Simparica with other agents.
This would cover a broader spectrum of parasites, including heartworm, and we see Saronaler as a strong platform for future lifecycle innovations.
Our canine antibody therapy that targets and neutralize IL-31 to help treat atopic dermatitis in dogs has been introduced to veterinarian dermatologists in the US and there are conditional license.
And we received another conditional license in Canada in the first quarter.
We are seeing a very positive customer feedback, and we are gaining market experience with the product.
We continue to allocate our capital for investments in key commercial activities, R&D programs, and business development opportunities that can generate faster revenue growth.
For example, vaccines and genetics are two areas we are expanding our portfolio, as we put greater R&D emphasis around disease [intervention], and in the first quarter, we have several positive developments.
We received approval of RUI LAN WEN, the second vaccine resulting from our joint venture in China, and the first combination vaccine in China to help protect ticks against certain locally prevalent illnesses.
We also gained approval in China for a poultry vaccine to help prevent Marek's disease.
In the US, we have now received licenses from the USDA for our new VANGUARD B oral vaccine, and three new VANGUARD Rapid Resp intranasal vaccines.
Zoetis is now the first and only manufacturer to offer oral, intranasal, and injectable options for vaccinating dogs against Bordetella bronchiseptica.
We were also granted a conditional license in the US for an avian influenza vaccine to help prevent disease caused by the avian influenza virus, H5N1.
We are participating in the process to supply the USDA with a vaccine for a stockpile, should they decide a vaccination strategy is needed.
We are also seeing progress in genetic tests, as our farm animal customers want more information about traits and conditions that can help them build a healthier and more productive herd.
In the quarter, in the US, we launched CLARIFIDE Plus, the first commercially available genomic test that gives dairy producers a direct way to predict risk factors for costly diseases in Holstein dairy cattle.
And just last month, in Chile, we launched the ALPHA JECT LiVac SRS vaccine for salmon, the first attenuated live vaccine against SRS.
This was a significant R&D achievement by PHARMAQ, and a much-needed product to help Chilean fish farmers.
Great news for the industry and terrific new opportunity for Zoetis.
In summary, we are off to a good start for 2016, based on the strength of our diverse portfolio and the continued benefits of our R&D investment.
We have been able to accelerate our efficiency program and expect to achieve additional savings targets of $300 million by 2017.
And finally, with improved foreign currency rates and the positive momentum of the business, we are increasing our guidance for the full-year 2016 and 2017.
With that, let me turn things over to <UNK>.
<UNK>.
Thank you, <UNK> <UNK>.
I'm going to hit on many of the themes covered by <UNK> <UNK>, because they're important to the financial review of the quarter.
So let's talk about our first-quarter performance.
I'll walk you through a number of factors that you should consider to gauge how we did in Q1.
There's some helpful information on the webcast slides, and of course, included in our press release.
I'll then hit on a few other highlights in the quarter results and discuss our updates to guidance.
Now before I jump in the quarter, let me say that we know that the US financial markets are quarter-centric, and not to [nocify] quarterly [warnalers], but in any quarter, a lot of noise can and does creep into the comparison for the prior-year period.
In our discussion and our webcast slides, our objective is to try to highlight for you the major elements of the noise in our results so that you can calibrate how our reported performance might influence your thoughts about our future prospects.
The most important thing about our first-quarter performance is that the results through Q1 supported an improvement to our outlook for the full-year 2016.
So with that background, let me cover two important points to enable you to put our 12% operational revenue growth in perspective.
First, we operate on a four-four-five financial week calendar, with our international operations closing one month ahead of the US.
This is a carryover from our days as part of Pfizer.
Under a four-four-five calendar, every handful of years you'll have a quarter in the year that has as many as six extra calendar days in it; that's what we have in Q1 2016 compared with Q1 of 2015.
We estimate that the additional days account for approximately 6% of the 12% operational revenue growth for Q1 2016 versus 2015.
Important safety tip for those with quarterly models out there: our fourth quarter this year will have five fewer days than the prior-year quarter and the full-year 2016 has one more calendar day than 2015, this being a leap year.
So that's the extra days.
Second, our operating efficiency initiative was a drag on our operational revenue growth in the quarter.
We estimate that the combination of the eliminated SKUs and the changes to our business models in Venezuela, India, and other countries reduced operational revenue growth by some 4%.
So you think about it like this: 12% operational growth in the quarter, minus 6% for the extra days, plus 4% for the impact of the efficiency initiative equates to a normalized growth rate of approximately 10%.
Of that 10%, roughly 4% came from acquisitions, including Abbott, PHARMAQ, and other smaller transactions.
So our organic operational growth in Q1 was circa 6% and including acquisitions was 10%, so not 12%, but pretty good, right.
Now, highlights from the first quarter, very high level.
We've now entered what I previously referred to as the golden age of our companion animal business.
We're full supply of APOQUEL, the launch of Simparica, our refreshed companion animal vaccine line, and the conditional license for IL-31, we are positioned to deliver significant growth in our companion animal business in 2016 and beyond.
On a normalized basis, organic operational revenue growth, which adjusts for the six extra days, the impact of the operational efficiency initiative, and M&A, we had about 20% growth in companion animal in Q1 compared with Q1 of 2015.
And the growth was reasonably consistent between the US and the international segments.
On the same normalized constant-currency basis, livestock was up 1%, with solid performance in the international segment offset by a decline in the US.
Q1 of 2015 was a particularly strong quarter in US livestock, and there were a number of other factors that I will touch on later.
Our livestock business, both in the US and international segments, are healthy and poised to contribute revenue growth in the remainder of the year.
Stepping down the P&L, our adjusted gross margin hit an all-time high of 67.4% in the quarter, a bit above the high end of our full-year guidance range.
But I'll point out that from a gross margin perspective, many things fell on the favorable side of the line during the quarter: mix, level of scrap, et cetera.
Our expectations for gross margin for the full year continue to be in the range of 66% to 67%.
In operating expenses, total adjusted OpEx grew 2% on an operational basis, but if you remember those extra six days, they impact our expenses as well.
Our progress in reducing operating cost continues, and we're on track to deliver on the promises of our operational efficiency in this initiative in 2016 and expect to enter 2017 having taken more than the targeted $300 million of cost out of our Company.
With our gross margin expansion and active efforts to contain operating costs, our 12% reported operational revenue growth translated into 37% operational growth in adjusted operating profit and 35% operational growth in adjusted income before tax.
The EC's actions last January were a key driver of the 350-basis-point rise in our adjusted effective tax rate to 30.9%, which resulted in our adjusted net income in the quarter rising 28% operationally.
Our purchase of shares, which began in Q1 of 2015 started in January 2015, helped to reduce our fully diluted share count from $503.2 million in Q1 of 2015 to $499.5 million in the current quarter.
And that led to operational growth of adjusted diluted EPS of 29%.
So that was a very quick walk down our P&L for the quarter.
Now here are a few more contextual details that I believe will help you think about our performance.
First, FX, dare I say that we may have found the bottom of the cycle.
Maybe not, but the environment has improved for sure.
Foreign exchange had a negative 2 ---+ 700-basis-point impact on our revenue growth in the first quarter compared with Q1 of 2015.
That's a big hit, but based on current rates, the FX impact on our growth will lessen over the remainder of the year.
While we continue to measure our performance on an operational or constant-currency basis, it just feels better when the gap between operational and reported results narrows.
Next, the SKU reduction and the changes to our business models in countries like Venezuela and India reduced our operational revenue growth by roughly 400 basis points.
You should expect the growth drag on the full-year to be roughly 500 basis points, so more of a negative factor compared with the prior year for the next nine months and particularly in Q2 and in Q3.
Importantly, the impact of the SKU reduction and the changes in business models are felt more in our international segment than in the US and more in livestock than in companion animal.
Let me step through the elements of the 12% operational revenue growth in Q1.
Price accounted for 3% of the growth, APOQUEL volume another 3%, 4% from acquisitions, 6% from growth of in-line products, and minus 4% from the impact of the SKU reductions and changes to business models in Venezuela, India, and other countries.
Companion animal was the star of the quarter.
Revenue growth normalized for both the six extra days and the impact of the efficiency initiatives, increased 20% operationally.
APOQUEL was the major driver, but other products contributed as well, including vaccines, as well as the Abbott acquisition.
We also expanded US customers' access to a number of our companion animal products through third-party distributors, and that change led to a one-time and semipermanent buildup of their inventories during the quarter to establish their base level.
In livestock, we had lots of puts and takes.
Normalized organic revenue growth was 1% operationally, with the international segment up 5% and the US segment down 9%.
First, let's talk about international.
France livestock rebounded as anti-infective sales in the quarter were higher when compared with a very light Q1 of 2015, which was caused by new legislation last year.
Australia livestock also posted a strong quarter, with better weather playing a role.
In Brazil, we had benefited from above-average price increases and continued favorable conditions in the cattle segment, which were, in part, offset by the negative impact of our SKU reductions.
In US livestock, a mild winter was a major driver of lower cattle product sales in the quarter.
With milder weather, there was a less risk of disease incidence and that impacted our [premium] products.
We also saw a decline in swine products due to increased competition.
In summary, after adjusting for the noise, we had a solid quarter from a revenue perspective and through the ongoing programs to improve efficiency, delivered an improved gross margin, contained operating costs, and posted strong growth in profits.
Switching to restructuring charges, let me quickly review this quarter's one-time charges related to certain significant items.
First, the stand-up costs, which are mainly associated with our separation from Pfizer, totaled $12 million in the quarter, down about half from the prior-year.
Now that work continues to wind down and will be substantially completed later this year.
In the second bucket, costs related to the efficiency initiative, we recorded $5 million of costs, which were more than offset by a $33 million gain associated with sale of four manufacturing sites and certain products as part of the efficiency initiative during the quarter.
Interesting, rather than the gain, I like to think about it from a gross cash perspective.
Gross pretax cash proceeds from the sale of the sites were $75 million.
But we have additional assets for sale, including a transaction in Taiwan, which closed last Friday and any impacts from those sales would further affect costs in this second bucket.
Finally, we recorded $3 million of costs associated with our ongoing supply network strategy initiative.
We're still in the early days of that initiative.
We also did record a one-time net tax charge of approximately $35 million in the quarter relating to the nullification of our Belgian tax ruling by the European commission for periods from 2013 through 2015.
Now guidance.
Turning to guidance, there are four factors that led us to narrow and raise our guidance for 2016.
First, let me cover the easy one, FX rates.
We refreshed our guidance for our current FX rates, and that was certainly a helper in our guidance.
Second, in the first quarter, our international segment was stronger than we had expected, and we're confident that strength will carry through the balance of 2016.
Third, we're more confident in our expectations for APOQUEL, as we put supply issues behind us and have launch plans in place in new markets and they're well underway.
And fourth, we reduced our guidance for our 2016 effective tax rate on adjusted income by 100 basis points.
This is due to changes in our projected mix of income by jurisdiction, as a result of internal restructuring of our international operations.
If you want to calibrate the various factors, at the midpoint of our guidance range for adjusted EPS, we raised guidance by approximately $0.10 per share.
I'd be remiss if I didn't say it's actually $0.105, but $0.10 a share for this purpose.
Roughly $0.03 comes from FX, roughly $0.04 comes from stronger operational performance, and the reduced tax rate added roughly $0.03.
I hope that helps you think about the change to the guidance.
For 2017, the only change we made at this point are based on changed FX rates.
So to go through it for 2016 and 2017, for the full year of 2016, we now expect revenue between $4.775 billion to $4.875 billion, reported diluted EPS of between $1.41 and $1.56 per share, and adjusted diluted EPS between $1.83 to $1 90 per share.
For the full-year 2017, we now expect revenue between $5.075 billion to $5.275 billion, reported diluted EPS of between $2.01 to $2.19 per share, and adjusted diluted EPS between $2.24 and $2.38 per share.
To summarize, we enjoy a diverse product portfolio, global footprint, and productive R&D that together enable us to balance fluctuations across different species, therapies, and markets and deliver consistent revenue and profit growth over time.
We are well down the road of improving the efficiency of our operating expense structure, leading to improved margins, and we are on track to achieve an adjusted EBIT margin of 34% in 2017.
With a continued focus on expense efficiency, we expect to deliver operating profit growth faster than the revenue growth.
Last but certainly not least, we strive to intelligently allocate our capital and actively manage our capital structure to drive shareholder returns.
That's it for my prepared remarks.
Let me turn it back to <UNK> <UNK> before we get to Q&A
Thank you, <UNK>.
Before we begin the Q&A, I wanted to mention a personnel development.
Beginning July 1, <UNK> O'Connor will be promoted to the role of Vice President of Corporate Strategies, Business Analytics, and Enterprise Risk Management for Zoetis.
And Steve Frank will now lead our Investor Relations program.
<UNK> will be reporting to Alejandro Bernal, Executive Vice President and Group President of Corporate Strategy, Commercial, and Business Development.
<UNK> has done a great job as head of Investor Relations over the last two years, and I want to thank him for those contributions.
He will continue to be a valuable advisor to me, to <UNK> and Alejandro, in his new capacity.
I am pleased to say that <UNK> will leave the Investor Relations program in good hands under Steve Frank.
Steve has a great knowledge of our industry and business, having worked in animal health for the last 15 years, and has been involved in our recent acquisition of PHARMAQ, Abbott, as well as our IPO.
Many of you know Steve, and he has been working with <UNK> in IR since 2014 to prepare for this opportunity.
I am sure we'll have a seamless transition.
With that, let me open the lines for Q&A.
Operator.
(Operator Instructions) <UNK> <UNK>, BMO Capital.
Good morning, folks, and congratulations on the quarter, and congratulations, <UNK>, on the promotion.
Could you ---+ I'm not sure if I caught the APOQUEL sales, if you don't mind repeating what the APOQUEL sales were by region.
And could you also comment on some of the vaccines that you're developing on your livestock business, particularly the avian vaccine.
Thank you very much, we would appreciate it.
<UNK> <UNK>, Guggenheim.
Hi, thanks for taking my question.
So, you guys talked about maybe exceeding your operational efficiency target of $300 million.
I was wondering if you could give more color there on the potential upside, and then how this could positively impact your 2017 guidance and margin expectations.
Thanks.
<UNK> <UNK>, Credit Suisse.
A follow-up to that question ---+ on the restructuring SKU rationalization and overall cost structure initiatives, how should we think about the quarterly progression throughout the year.
And then as a second question, how would you characterize the current environment in the US livestock business.
You mentioned weather impacting the business in the quarter, but how should we think about the dynamics now.
Thanks.
<UNK>, it's <UNK>.
I'll take the ---+ how do you think about the OpEx rollout.
As we said, we expect to enter 2017 with the cost structure trimmed down to its new and efficient level.
We have some work to go on that.
And I think if you're a quarterly modeler ---+ I know you are ---+ I think you've got to think of that as continuing to show in positive impact through Q4.
It's not like we're going to finish this in Q2; we're not going to finish in Q3.
There's more to come that you will see evidenced in our cost structure in Q4.
So, I don't know if that exactly answers it.
But just suffice to say that the improvements will continue to occur throughout 2016, and with a good chunk in Q4 2016.
You want to take the last one.
<UNK> <UNK>, William Blair.
Thanks very much.
Can you just talk a little bit about the strategy around dermatitis in dogs, now that you've got IL-31 out there, as well as APOQUEL.
What are you learning about the market and how vets are using those two products.
Thanks.
<UNK> <UNK>, JPMorgan.
Great, thanks very much for the questions, and congrats, <UNK>.
First, just update on SIMPARICA and how you're thinking about the rollout of the product.
Should we think about a slower ramp here, given entrenched competition.
And what type of share do you think Zoetis can ultimately capture of this obviously very large end market.
Thanks.
As I mentioned, it's early ---+ the interaction of SIMPARICA.
SIMPARICA has been to use ---+ in the US and in a few European markets.
We plan to introduce the product in the rest of the markets where the product has been approved.
SIMPARICA has been launched with very strong [publications].
And comparing SIMPARICA against other products, oral and topical, and we have seen that SIMPARICA ---+ it's showing very positive comparison in terms of fast of action.
So it's very fast on killing ticks and fleas, and also very important.
So, the SIMPARICA is keeping full efficacy during the [relation] of the treatment, which is also very important and much better than some of our competitors.
So we are definitely convinced that SIMPARICA will have a place in the market.
I think it's ---+ we are not yet establishing what is the target in terms of market share.
But definitely we expect that we'll gain the market share that corresponds to accompany that our strength, capabilities are more present in the market.
Yes, it's <UNK>.
I just want to follow on, on that.
I think that the overall market size is ---+ for parasiticides ---+ is about $4 billion.
The dogs portion is about $2.5 billion.
The fastest growing segment are the oral parasiticides.
But if you want to think about the market, it's that $2.5 billion market.
And we believe two things: one, with our footprint and the quality of our sales forces, we have the opportunity to certainly penetrate that $2.5 billion market, and participate in the fastest-growing part.
The second thing I want to point out is, this is a self-developed product.
And that means the economics of this product to us as compared with the economics of the product to Merial and to Merck that were in-licensed through third parties.
This is a very good product for us, and we're really excited about both the prospects of penetrating that market, but also getting the fruits of our investment in R&D.
So this is a great story; let's see how it plays out.
<UNK> <UNK>, <UNK>eries.
Thanks very much for taking my question.
So, Elanco licensed a new canine osteoarthritis drug just in the last quarter.
I wonder if you could talk about that, in terms of why you didn't feel compelled to license that asset.
And just remind us what products you have in that area, and if you are very active in terms of R&D, late-stage [product color] in there, and how that might impact your Franchise.
Thanks very much.
Mark Schoenebaum, Evercore ISI.
Hello, guys.
Thank you for taking my questions.
It's actually <UNK> <UNK> on behalf of Mark Schoenebaum.
Congrats with the strong quarter and, <UNK>, congrats on promotion.
So, I have two somewhat related questions.
First, on more about market trends in general.
So, your official guidance for 2016 and 2017 implies a strong operational growth in terms of revenue, like mid- to high-single digits.
So I'm wondering if we can think about this revenue growth over the longer term that just will continue to grow in line with the rest of the industry ---+ animal health industry ---+ or at some point we need to expect some slow down of this trend.
And a second somewhat related question is about segments.
Do you have more color about the potential long-term growth in different segments of products, antibiotics versus vaccines versus other pharmaceuticals and other segments that you report.
Thank you.
Thank you, <UNK>, and let me first describe the market trends.
So we see that the overall market trends that maybe are slowing down the growth in some inter-markets, it's not affecting the same way to our industry.
And one example, so we have seen that in Brazil, the GDP, it's declining, while the GDP for agriculture, including the livestock, is growing.
So again, so it's in the animal health industry, I think we cannot extrapolate the market trends which are affecting other sectors to our trends.
And our trends are based on operation, which still continue growing; middle class, which is still increasing; and also the need to improve productivity, because there's always been a challenge with the need of more food with fewer resources.
And companies like Zoetis that can bring this type of innovation, they have a significant opportunity for growth.
And the same drivers are also impacting companion animal.
More people, more (inaudible) is increasing the number of pet adoptions.
And also very important, the amount that pet owners are spending per pet in keeping these animals healthier and to live longer.
So we are very confident that the market trends remain positive for the animal health industry.
And for Zoetis, we have been targeting that to grow in line or faster than the market.
In the first [three] years as independent Company, we have been growing faster than the market.
In 2016, because some one-time impact related to our operational efficiency, they reported the growth will be lower.
Adjusted by this factor, we expect that we'll be growing in line of [factor] on the market.
The same for 2017.
We have created for 2017 a growth that, in my opinion, it's ---+ at the mid-point, it is faster than the prediction of the market, and we have no reasons to believe that in the future we will continue growing in line or faster in the market.
So, one of the things that are very important is that we have already all what is needed to maximize our portfolio, and very important.
Our R&D investment continue delivering very strong results, and we have been continue bring into the market new products.
But also very important, bringing to the market lifecycle innovation which is also helping to protect our future growth.
And maybe <UNK> can talk about trends in specific areas, antibiotics, vaccines, things that are part of our efforts to ensure that we have the right balance and the right opportunities for growth.
<UNK> <UNK>, Barclays.
Hello, good morning.
Thanks for the questions.
Just on the IL-31, what is your expectation in terms of timing for going from a conditional to a full approval.
And just, obviously, there's some limitations in terms of your promotion of the product right now.
Just how widely is that being used in terms of that [narrative].
It's <UNK>.
I'll take that on the capital allocation front.
Of course, we continue to, I think like most companies, and we focus first on what kind of capital can we allocate within our Company to drive incremental revenue and profit growth.
That is always going to be very high return activity.
So the first thing we do is try to max out programs inside that can drive revenue.
And that falls in a bunch of categories.
That could be incremental sales force; it could be investment in DTC advertising to grow markets; it could be incremental investment in R&D to develop new products; it could be incremental CapEx to create a technology platform for us.
So it's all those things.
So we do that first.
The second piece, which is I think what you were asking about is outside.
So we look outside and what sorts of opportunities do we see.
We see a very consistent flow of what I'll call smaller deals that we do every single year that, none of which I think on an individual basis is going to be exciting to the markets at large.
But in the aggregate, help us, one, feed our R&D effort because we can acquire technologies and things that feed R&D.
Second is small add-ons that we just continually do, and that can be anywhere from $40 million to $75 million a year in activity, and it's relatively consistent.
The next bucket would be the mid-sized M&A.
I think last year, I guess I'd put PHARMAQ in that category, and maybe even Abbott in that category as well.
Last year, we were fortunate enough to close two deals.
I wish we could do that every year.
The challenge is not our desire ---+ would you do this deal.
We'll do those deals 100 out of 100 times if they present themselves.
As we used to always love to say, we're tanned, rested and ready to do those deals when they present themselves.
And we're spring-loaded to go after them when they present themselves, but predicting when they're going to be available is a challenge.
On the larger scale, M&A, really I guess what you think of as potentially transformative, we've said many times over, a transaction with one of the top five companies is very difficult for reasons of anti-trust ---+ you can think of it as FTC type issues, because there's a lot of concentration now amongst the top, say five companies.
So the prospects for large transaction, I'd say, never say never; it's not zero, but it would be pretty hard.
And then next down the list, there are opportunities there.
We continue to look.
We're very active, and I should say we're very proactive in [targeting] assets that we think would be interesting and valuable to add to our Company.
But of course, we're not going to disclose what our list of targets might be at any moment in time.
And then the last bucket is the one that is the one that I think is important, and I referenced it in the tail end of my prepared remarks.
And that is returning capital to shareholders.
As we enter 2017, when we have lots of stand-up costs and the operational efficiency cost and all those things behind us, not just from a P&L perspective, but also from paying out the accruals, et cetera, and we put that cash flow behind us, that negative cash flow behind us, and we enter 2017, we still have to throw off a fair amount of cash.
And the question is ---+ well, gee, if you don't have anything to do with it, what are you going to do.
Well, a couple of things.
One, we have a dividend.
It's circa a commitment this year of, call it, circa $190 million or thereabouts in 2016.
We have a share repurchase program.
We are currently repurchasing shares at the rate of $75 million a quarter under a program that we announced way back in November of 2014.
And so, long-winded, but we intend, to the extent that we can't deploy that capital in our Business or outside our Business, to return to shareholders in the form of dividends and share repurchases over time.
We think that's appropriate.
Cash is a non-productive asset for us to have around.
But this also dovetails nicely into the discussion of capital structure, which you inquired about as well.
So, we have articulated that we expect to operate in the normal course of business in the range of 2.5 to 3.5 times trailing EBITDA for a debt level for our Company.
Operating in that range will enable us to maintain an investment-grade rating ---+ we believe will enable us to maintain an investment-grade rating, and that's important.
As you pointed out, the market is taking a different look at leverage levels today than they might have two or maybe three years ago, and we're cognizant of that.
I've said, because we get this question a lot, and I'll restate it.
People say ---+ well, would you ever do a deal that would cause you to be above that range.
The answer is yes, we would go above the top end of that range to pursue what we felt was value-generative M&A.
Would we go above that range to buy back stock.
Probably not.
In fact, I'll say definitely not.
But we would, in the context of making an acquisition.
So, we get below 2.5, we probably put some leverage on; we get above or up to the top end of the range at 3.5, you'd expect us to manage that leverage down.
The objective is to try to operate in that range.
And I'll stop there.
I think the high end of the range, I don't know what it is.
Next question, please.
Yes, sure.
Thanks for the question, <UNK>.
It's <UNK>.
I'll take that.
I'll go through ---+ the factors, again, mid-point of the range, $0.10 up ---+ $0.03 from FX, $0.04 from stronger operational performance, and then the tax rate was a $0.03 helper as well.
And that gets you to the $0.10 raise at the mid-point of our range in 2016.
Yes, you're quite right, 2017, we said we updated our 2017 guidance solely for the favorable change in FX rates.
It's 2017 guidance.
We're one quarter into 2016.
We have a pretty broad range there.
You can surmise that our outlook continues to be in that range or we would have adjusted that range.
So there's no set time at which we would change 2017 based on an operational ---+ change our operational view of 2017.
But to the extent that we were outside the range for 2017, we'd change it.
I'll stop there.
Next question, please.
Let me start with sarolaner, SIMPARICA now, which ---+ the name in the market is SIMPARICA.
And we have no restriction for this product.
We have enough product to use the product in all markets.
And the regulatory authorities approve, and in the US all new markets.
And we also have operations for Canada and some other countries.
So it's something that we don't see any restrictions.
So at the time of the launch in the US and also in Europe, there is no any insignificant loading of the product on the country.
So, most of the product was related to samples that we provided to (inaudible) to get familiar with the product.
So we have not generated significant revenues in the first quarter, but we expect that this revenue will be ramping up during the rest of the year.
So we have very good expectation for the product.
As I mentioned in some of the other comments, we have very strong publications supporting the efficacy of the product.
As I said, this product is working very fast and also it's showing that during the duration of the treatment, it's having very strong efficacy.
So it's not dropping efficacy at the last day of the duration of the treatment or [the countries] maintaining the efficacy.
And in terms of SKU, I think we have made significant progress on SKUs.
So most of the SKUs have been already eliminated from our portfolio.
And maybe there are some few SKUs that will be eliminated from now until the third quarter, which are related to SKUs that will be replaced by other products that we are introducing to market.
But the large majority of SKUs have been already eliminated from our portfolio.
Let me continue on, on that, because I think you asked a question about how it plays out over the course of 2016, and also important.
When we eliminate an SKU from the portfolio, if we sell it, like as we did, we sold some plants, as I'd said in my remarks, during the quarter, and we sold it with some product.
Obviously, that product is gone.
When we eliminate an SKU and we stop producing, we may still have inventory and we may still sell it.
And so that's why you're seeing it play out over the course of 2016.
But let me frame it.
Q1, we said the impact of SKU reductions was about 4%.
We said that we expect it to be about 5%.
This is growth versus prior year.
For the full year, which it says that during the nine months, Q2, Q3 and Q4, it will be greater than 5% impact from a growth perspective versus the same period ---+ in the same period in the prior year.
And I further said that it's mostly in Q2 and Q3, so middle part of the year, as we sell out these products and they're gone.
And what you're going to see is a moderation of that in Q4, because we did start to see an impact in Q4 of last year.
And as we enter 2017, there's still going to be a drag, because you still sold them at the beginning ---+ some of these products at the beginning of 2016.
But if you look at the kind of run rate, when we enter Q1 of 2017, that will be fully reflective of all of those SKUs being gone.
And again, impact versus prior year heavier in Q2, Q3 of this year, moderates in Q4.
There's still an impact in Q1 next year and Q2 next year, but it diminishes pretty substantially.
The key part is we will have this activity behind us entering 2017.
Next question, please.
It's <UNK>.
Let me take the balance sheet and working capital questions.
We are working very hard to shrink and then eliminate the gap between when we report our earnings and when we release the balance sheet.
We're expecting to file our Q Friday of this week, so we've shrunk it to a couple of days; it had been substantially more than that.
That's just a ---+ we could not shrink those days in the context of also changing all of our ERP systems, et cetera.
So, we're working on that, and our goal is to be like most other companies, to have our balance sheet on the same day we report earnings.
So just know that's a priority for us and we will get there.
With respect to working capital, you pointed out to the days sales of inventory that were on hand at the end of the year.
We expect that we can have some pretty sizable improvements in our investment in working capital or our working capital efficiency.
Now, with the ---+ thank some higher power ---+ the completion of our SAP implementation where we have every part of our Company up on one instance of SAP, we now have the opportunity to activate the tools that will enable us to much more tightly manage our investment in inventory, while at the same time having a high service level to our customers.
That's not something that is instantaneous; that is something that we've started.
And I think I've said in public forums before, we expect to make progress against that in 2016.
We'd expect to make much more substantive progress on that in 2017.
And that is the focus of our opportunity in being more efficient in working capital.
We're pretty good in accounts receivable.
I say pretty good ---+ we're good in accounts receivable, and we're also good on accounts payable.
So it's really inventory that we are focused on.
Expect a modest improvement in 2016, and a more significant improvement beginning in 2017, as we get the tools up that will enable us to better manage our supply chain.
Your question regarding the distributor stocking, again, that was in the US.
That was with respect to some companion animal products to increase.
So the amount that went in was approximately $18 million in the quarter, and so it's something you should take into consideration Next question, please.
Thank you very much for your attention, and looking forward for following quarters and also the interaction with all of you.
Thank you.
| 2016_ZTS |
2015 | BEN | BEN
#Well, I think it is unique.
I think it speaks to the strength of our global footprint and working with some of the large financial institutions.
This really is a new category.
It's not an existing relationship with an advisor.
It's really how does the bank address the smaller balances that are out there, but still significant, that wouldn't make sense for maybe a one-on-one advisor to service, but a way they can effectively offer products to help those people.
To me ---+ and I wouldn't say the expectation is going to hugely move the needle for us in the next three years with what's raised here, but I think it's a point of the changing distribution landscape and how that the digital world is not just the traditional direct channel doing it or robo advisors or whatever you want to call it.
It's also firms like Franklin Templeton that can go out and use the depth of our resources in building solutions and then going out and leveraging the relationships throughout the world.
We're going to do this in Asia and Europe and the US and in a cost efficient way, in a low-cost way, hit a new market.
And I think this is, to me, an exciting first step in opening up the distribution landscape to do more of these types of things with ---+ whether it's with brokered dealers, partnerships, or who knows in the future where you do things direct to small accounts.
It's just a first step.
And I think an exciting one where we developed a new type of product that really has alternatives in it and has all the different categories within it, including we have lower passive cost funds in it, as well.
It's not all Franklin Templeton in it.
That, I think, gives it more credibility and hopefully can lead to a new market and significant sales over the long term.
I think you have to be consistent.
We try to not ---+ I think it's a huge mistake to just go to where least resistance is in a sale.
And we try to go out there and be consistent about our story and talk about where the obviously, if the client has X amount of assets in a given category, we better spend our time talking about that.
If we didn't do that, and I think our sales force has been around long enough to know that you are going to lose that relationship and credibility pretty quick if you are not talking about the areas where you are having underperformance.
So, yes, I mean, a big part of it is focusing on retention and really also painting a picture of why these things should turn around.
And I think that's what you have to spend your time on.
But also always have something that is in the channel that's exciting that they can talk about.
That's also adding value and always having something new, whether it's K2, whether it's a Flexible Alpha Bond Fund, or a Franklin Growth Fund.
Those are things you want to talk about.
So I think it's always a balance of the two, and we're very careful about ---+ and watch very closely on all presentations that are made in the field to make sure that they are focusing on where the assets are first.
Yes.
Think, first of all, take each category and go back a year or six months ago.
You'd have top decile for every period.
If you have top decile for every period, you are taking more risk generally than many that would manage closer to the index.
And we have always said this is a very unconstrained approach.
And any time an act ---+ a real active manager will underperform and grossly underperform in certain markets.
You're never top one, three, and five every period if you are a true active manager and really don't worry about being that different from the benchmark.
Take the Franklin income fund for example.
It's the highest yielding fund in its category.
We know it underperformed generally when rates go up because we will always have more duration in that fund and everything held equal in the short run, that will happen.
He can do some tweaking around that.
But people buy it for the stability of that higher income and it truly is a hybrid, not a pure equity fund.
So the peer group even gets a little bit confusing.
I don't think the energy ---+ and it's not the first person to buy a fixed income in that category and one that we feel like there hasn't been a lot of differentiation within the group and that there are still are many companies at the prices today are going to do fine.
You know, you're paying debt first.
That's the main thing.
And many of these can service a debt.
Now, there has been some that have obviously not done as well through this period.
But it's an active bet.
And active bets in the short run can make you look kind of silly.
And that's the nature of the being a true active manager.
So I don't think anything has changed.
I think you just have two that have headwinds at the same time.
Again, the long-term performance still looks good, clearly, in the global bond case.
I mean, this can turn around in a couple of weeks as far as the short-term numbers.
I don't think we are being.
I think there's other ones that are private companies and others that have significant assets and probably the two, three biggest firms in this category, two out of the three are private.
So you don't hear about them.
But everybody is equally being affected by them getting out of that business.
Yes.
Sure.
I think that ---+ yes, that's a great observation.
Obviously, that can't go on forever.
But we do have flexibility.
So we have short-term flexibility where we have inter-company borrowings that we can do.
We have the ability for debt.
If we feel the need to do it, as we've shown in the past, we will increase the leverage of the Company.
But I think what drives it is us being opportunistic when we feel like there's opportunities to buy the stock at a good price.
And then from there all the other decisions flow.
So I don't think anything's restricted really.
Well, I would say that ---+ I mean, we've talked about some of the areas would be in the alternative space of something made sense there in the high net worth space if something made sense there.
We talked about that in the past.
I think whether there was a large-scale manager outside of the US that was complementary and could get some synergies out of that would be interesting for us as well.
And I think something on the institutional lower cost side that we could leverage through the retirement channel here would be interesting as well.
So those would be a few.
But I think we, as always, we try to look at pretty much everything, try to get a better sense of value and what's out there.
So I wouldn't preclude anything.
But as far as a wish list, those would be the ones that we would ---+ you could have an international manager without a US distribution, which could be complementary.
Those are the kind of things we would look for.
I think ---+ and, obviously, like anybody looking at this space, you want something that has a strong repeatable process with consistent results over time and the right kind of culture that can fit in and the right kind of incentives by doing it.
And that's where I think, as we've said in the past, just going out and buying hedge funds or alternative managers can be somewhat challenging as it's hard to align the right incentives after somebody who is solely responsible for the results is selling most of their up side in that deal.
So that's why we haven't really done many of these types of acquisitions.
I hope not.
[ Laughter ] You know, I am absolutely long term and I think that this ---+ the fire burns probably too much every day for me.
But this was in no way ---+ I think this was recognition of two people that have been here for a long time and we think make ---+ we really think ---+ makes us a stronger organization.
Just the demands on travel time and this helps me, I think, organize in a way where we can better use our strengths in the Company and Vijay and Jenny bring a fresh energy and perspective.
I think also the realignment of our executive committee, now having three of our senior investment people, is something that I think is very important for the Firm going forward and really bridges the gap between the management guys and the investment guys and puts us all together as one team.
So in no way should it indicate ---+ and I hope that's good news, me having any change.
But we are excited about these changes, and I really do think it's going to put us in a much stronger position to address the areas that need to be addressed.
Thank you again for everyone participating on our call and we hope we have some better news next quarter.
Thank you.
Hello, and thank you for listening to our commentary on fourth-quarter and fiscal-year results.
I'm <UNK> <UNK>, CEO, and I'm joined by <UNK> <UNK>, our CFO.
FY15 was challenging in many respects.
Risk aversion spiked alongside volatility, resulting in underperformance of economically sensitive stocks, the continued decline in emerging markets' equities and currencies, and one of the longest commodity routs on record.
This, in turn, weighed on short-term investment performance for many of our funds, and gross and net flows for some of our flagship strategies.
The Company has successfully navigated through periods like this before when the sometimes contrarian and value-oriented approach of our investment strategies have been out of favor.
We're confident that we have the talent, discipline and foresight to continue driving our long-term success and to identify new investment opportunities.
As we work through these challenges, our shareholders can expect the Company to continue to demonstrate prudent expense management, which <UNK> will address, and also a disciplined, long-term focus on capital management.
Focusing more on the quarter, our Company continues to benefit from a diversified product range, and we're seeing areas of strong performance and positive flow trends.
However, these strengths were overshadowed by our larger flagship funds and some one-off redemptions.
Financial results remained solid this fiscal year, with operating income of over $3 billion and a strong margin of 38%.
This quarter, we accelerated share repurchases to $500 million, and repurchased a total of 11.9 million shares.
This brought the total fiscal-year payout to $1.7 billion, including the special dividend declared in December.
We recently announced the reorganization of our senior management team.
Our emphasis was on expanding the responsibilities of key Company leaders, while also further engaging our investment management teams in running the Organization.
Effective October 1, Vijay Advani and Jennifer <UNK> assumed the expanded roles of Co-Presidents.
As Co-Presidents, they will now jointly oversee the majority of investment management and all related investment management support services, including trading, performance analysis, and risk management, in addition to the other areas of responsibility.
The addition of these responsibilities is designed to draw upon their unique perspectives and insights in running our Business while further broadening their business knowledge and leadership abilities.
In conjunction with these changes, we also announced the formation of an Executive Committee.
This group, which includes the Co-Presidents; <UNK> <UNK>, our Chief Financial Officer; and Craig Tyle, our General Counsel, as well as the three heads of our investment management business, will shape the Company's overall strategy and make operational decisions.
We believe these organizational changes will further strengthen our Company by expanding the responsibilities of key talented individuals, while also adding additional investment management perspective to our senior leadership group to help guide resource allocation, product development, and our continued growth in the years ahead.
Looking at US retail and cross-border funds relative performance on slide 6, long-term fixed income performance remained strong, with the majority of assets ranked in the top half of their peer group.
Shorter-term absolute and relative underperformance of our global bond and total return funds, which comprise about half of our ranked fixed-income assets, is weighing on the one-year numbers.
Equity and hybrid relative performance continues to be pressured by the Franklin Income Fund, as its underperformance over the past year is now weighing on the five-year performance rankings, in addition to the one-year and three-year where it represents roughly 30% of ranked assets.
I encouraged BEN investors that are curious about the positioning of these funds to take a look at recent video commentaries from the portfolio managers, which can be easily accessed from the investor relations section of our website.
Long-term relative performance, or other equity and hybrid funds, remained solid, with the majority of assets still ranking in the top half of their respective peer groups.
Assets under management ended the quarter at $771 billion.
Average assets also decreased, and were down 7% at $825 billion.
The mix in assets by investment objective and sales region remained well balanced this quarter, but as a result of the drop in assets, we saw a slight shift towards fixed income, as equity assets depreciated more substantially.
Total market depreciation of over 7.5% or $66 billion was the primary driver of the overall change in assets under management since June.
Long-term net outflows increased to $28.5 billion due to a combination of slower sales and increased redemptions, as a confluence of market factors continued to weigh on short-term performance and, in turn, flows of a number of our flagship funds again this quarter.
We remain confident that what we are experiencing is part of a natural business cycle, and demand for our flagship products will recover as the investment theses of our portfolio teams play out.
Along those lines, we have been through these periods before, and thought it might be beneficial to put our flows into some historical context, as we show here on slide 11.
The chart illustrates historical organic growth rates against the relative strength of the S&P 500 Value Index versus the S&P 500 Growth Index, which shows how our flows have trended when growth or value outperforms.
Of course, this is just one of the factors that can influence flows given our mix of assets that has changed over the past 20 years.
In the late 1990s, as growth began to significantly outperform value, our flows slowed and turned negative in what was a very difficult time for our Company.
That trend reversed in early- to mid-2000s until the global financial crisis when growth again began to outperform value.
After the GFC, the correlation between overall flows and gross outperformance lessened, but that also coincides with the growth of our global bond franchise.
During this period, however, global equity flows have struggled.
As Sir John Templeton said ---+ this time is different, is the most costly four words in market history ---+ which is why we feel that this is simply a time when some of our contrarian investment strategies are out of favor.
We are confident that our investment professionals have their products well positioned.
Turning to slide 12, you can get a better sense of the high-level flow trends within the retail and institutional channels where we have seen a number of large redemptions this quarter across different areas of the Business.
US retail experienced a spike in redemptions to almost $29 billion, which accounted for the bulk of the increase in Firm-wide redemptions this quarter.
While this was largely due to redemptions from Franklin Income Fund and global fixed-income strategies, we also saw an increase in municipal bond fund redemptions and two large redemptions on our variable annuity business.
Franklin Templeton's legacy variable annuity business was built on well-branded, long-only strategies.
Through 2007 and going into 2008, we were the number one selling asset manager in the variable annuities space.
But the global financial crisis created misalignments between long-only portfolios like ours and the lifetime income guarantees that insurance companies are contracted to provide policy holders.
As a result, some carriers elected to leave the business altogether, while remaining players have attempted to de-risk their portfolios.
This trend has resulted in over $3 billion in net outflows this quarter from various subadvised accounts, in addition to those realized in prior periods.
Institutional net flows were also impacted by a few lumpy redemptions totaling $2.7 billion from a large client that redeemed from global equity and fixed income mandates.
We anticipate additional redemptions from companies attempting to de-risk over the next couple of quarters.
We are working to counter this trend, as many insurance carriers have introduced new investment-only variable annuities with no guarantees tied to the securities markets, which allows us to reintroduce our long-only strategies, as well as our new managed volatility fund.
We were also pleased to announce we are working with Citi to develop a suite of funds that will cater for the needs of their emerging affluent segment, a key target segment with significant potential and over 2 million existing clients globally.
We are expecting a phased rollout starting mid- to late-2016 to all core markets, given our strong global footprint across Asia, Europe, Latin America, and the United States, which aligns with that of Citi.
We are excited about this new initiative which represents a significant opportunity to strengthen our global brand alongside one of the premier global financial institutions, and believe this initiative could drive meaningful sales over the next few years.
Our institutional pipeline remains strong, and we continue to win new mandates across a variety of strategies.
In fact, October has already seen a large $5 billion funding to a global fixed income strategy from an Asian pension client.
Outflows from global equity strategies remained elevated this quarter, as a decrease in redemptions was offset by a similar decrease in sales.
Emerging market strategies, including Templeton Asia growth, which have underperformed on a relative basis, were the primary contributor to global equity outflows again this quarter.
Also impacting flows was an institutional redemption of $1.3 billion from a client that I mentioned earlier.
On the positive side, our local asset management team has attracted about $500 million of inflows to retail and institutional clients.
Global fixed income strategies came under increased pressure during the quarter, as we experienced a decrease in sales and a spike in redemptions, which led to outflows of $12 billion.
The majority of the outflows were attributed to strategies managed by our Templeton Global Macro Group, including the flagship Templeton Global Bond and Total Return Funds.
Also contributing to redemptions was about a $1.4 billion redemption from a large institutional client.
Outflows from US equity strategies increased to $3.5 billion, as they also experienced slower sales and increased redemptions.
The primary detractors from flows were almost $2 billion of outflows from several subadvised accounts, including $1.5 billion in terminated accounts, as well as about $600 million of redemptions from our variable insurance product funds.
Hybrid strategies also experienced a quarter-over-quarter decrease in sales, and an increase in redemptions that led to increased net outflows.
Most of the increase in outflows was attributable to the US registered and cross-border versions of the Franklin Income Fund.
Combined, the funds experienced outflows of about $3.8 billion due to short-term underperformance that I touched upon.
On the other hand, K2's liquid alternative offerings continue to generate solid inflows, and we recently launched the Franklin K2 Long Short Credit Fund to capitalize on that momentum.
Turning to slide 19, both tax-free and taxable US fixed-income strategies posted net new outflows this quarter.
Tax-free outflows increased primarily due to a $1 billion platform-driven redemption at a large distributor that primarily reallocated into some new proprietary funds.
On the taxable side, we continued to see interest in floating rate strategies, as well as our cross-border US government fund.
However, high-yield and strategic income strategies were net outflows.
Now, I will turn it over to <UNK> for financial results.
Thanks, <UNK>.
Although assets declined significantly in the third and fourth quarters, overall we had a pretty solid year for financial results.
Operating income was down 6% this fiscal year, but 2015 was still the second-highest year for operating income in the Company's history.
Due to the impact that declining markets had on investments and other income, net income and diluted earnings per share declined 15% and 13%, respectively.
Focusing on the fourth quarter on slide 18, operating income was $718 million, a decrease of just under 7% from the prior quarter.
Net income was $358 million this quarter, which is quite a substantial decrease, but it is mostly due to a number of items impacting investment and other income, as well as the quarterly tax provision, which I will discuss in a moment.
Similarly, diluted earnings per share also declined and was $0.59 this quarter.
Turning now to revenues, investment management fees were $1.3 billion, and declined at 6%, in line with the decline in assets under management.
Sales and distribution revenue decreased 10% this quarter, which was consistent with the decrease in assets and sales that <UNK> discussed.
Shareholder servicing fees decreased to $64 million due to the annual purge of US closed accounts in July, which were approximately 600,000 accounts.
And other revenue was $42 million because of unusually high revenue from certain products that we consolidate, which was offset in investment and other income, and net income attributable to non-controlling interests.
Slide 29 shows the impact that consolidated sponsored investment products and variable interest entities had on specific P&L line items.
In total, the impact on earnings per share was immaterial.
Looking at expenses on slide 20, sales, distribution and marketing expense decreased 10% to $626 million this quarter, which is consistent with the change in sales and distribution revenue.
Slide 28 shows sales and distribution net was $116 million in the quarter.
Based on current sales levels, we think that this is a reasonable run rate for the short term.
Compensation and benefits expense decreased 7%, due mostly to reductions we made in the quarter to variable compensation, and also due to a decline in market value of certain long-term incentive awards, as well as a seasonal decrease in certain benefits.
For the year, compensation declined 1%, but headcount increased 2% as we continued to leverage our low-cost jurisdictions.
Of the 200 net headcount additions this year, 235 were in low-cost service centers, and we reduced headcounts by a net 35 in all of our other locations.
Information and technology expense was a little higher than anticipated at $65 million, due to a number of technology initiatives that I mentioned in past quarters.
Increases in information and technology expense are not unusual for the fourth quarter.
Occupancy expensed increased slightly this quarter and was $36 million.
And lastly, general, administrative and other expense was $92 million due to higher advertising costs and an increase in the mark-to-market value of certain liabilities, as well as an impairment associated with a prior acquisition.
During the fourth quarter, we developed our budget for the next fiscal year.
And during this process, we decided upon a number of immediate and longer-term cost-cutting measures, as well as focus areas of investment.
So a few comments about expense levels for 2016: While we're still putting the finishing touches on our plans, our direction is clear.
Excluding distribution expense, we are forecasting a 3% to 4% decrease in the remaining expense categories, which will be offset somewhat by strategic investments.
Last quarter, we were thinking that 2016 expenses would be flat year over year.
Our best guess today is that we should see slight reductions in expense levels year over year.
The caveat to that is execution risk.
Planned expense reductions, as well as incremental investments, can be delayed for a number of reasons, and currency fluctuations can also impact expense levels.
In addition, we are developing contingency plans to reduce expenses further, should markets significantly decline in the future.
Looking now at profitability on slide 21, our expense discipline this year has yielded a modest expansion of the operating margin to 38.1% for the fiscal year, despite a decrease in revenue.
To put the revenue story in perspective, we have weathered a number of volatile periods in the past 20 years.
And historically, periods of revenue compression have lasted one to two years.
In fact, in the last 20 years, we experienced only four fiscal years of negative management fee growth.
Moving on, the tax rate for the quarter was 36%, which was higher than expected due primarily to a reduction of earnings related to investment losses outside the US, and a shift in the mix of earnings.
Looking ahead, we currently expect the FY16 tax rate to be in the 30.5% to 31.5% range.
As I mentioned earlier, other income decreased significantly this quarter, which reflects the volatility we have seen in global markets recently.
Fourth quarter, investment and other losses was $116 million, net of non-controlling interests.
By far the biggest contributor was losses from equity method investments of about $73 million.
This includes a $60 million unrealized loss on a longstanding investment in a lower tax jurisdiction, which was a significant driver of the change in earnings mix impacting taxes this quarter, as there was no associated tax benefit.
As a reminder, our equity method investments tend to move directionally with the MSCI World Index, so such losses should not be a surprise.
Additionally, the mark-to-market losses on trading investments and consolidated sponsored investment products impacted investment losses this quarter.
Moving on to equity capital management, we repurchased 11.9 million shares during the quarter as the stock pulled back, and 10b-18 qualified volume increased, allowing us to accelerate share repurchases materially.
Repurchases totaled $500 million, nearly triple the average quarterly pace of the prior five years.
For the fiscal year, repurchases totaled 22.5 million shares, driving our end-of-period share count down by 3% on a net basis.
Earlier this week, the Board approved an additional 30 million shares to the current repurchase authorization to allow us to continue our share repurchase strategies, which have both systematically more than offset annual issuance and opportunistically accelerated repurchases when warranted.
Over the course of the fiscal year, the Company returned over $1.7 billion to shareholders via repurchases and dividends, which pushed the nominal pay-out ratio to 86%, substantially exceeding US cash flow generation.
That concludes our prepared remarks.
We look forward to the live call today.
| 2015_BEN |
2018 | CLGX | CLGX
#It's a higher COGS business model, so more variable type of cost model.
So in terms of how we measure, consistent with what we've said in the past, our metric is ex market largely.
There's some ---+ there's a few other items like FX, which is not that big this year over the course of 2017.
It's ex wind downs, product sunsets, which again is not as big a number.
So it's largely ex market and obviously less acquisitions to get to the 3%.
In fact, it's a little over 3%.
In terms of the growth going forward, I think early ---+ if you were to look back a year or 2 ago, it was mostly share.
And we've made a big push to get more systematic on how we approach price and emphasis on innovation and new products.
So those are becoming bigger drivers going forward.
So we think those ---+ having all 3 levers at our disposal will help us grow ---+ increase the growth rate in the future.
Well, no.
I think, as we said, '18 is ---+ '18, we're getting our stuff together and moving on.
I think '19 ---+ as we get into '19 and through '19, you're going to see a benefit.
And then ---+ because we're not going to pop up from a low margin to kind of a 30% overnight either.
So as we get through the first part of '19, I think you'll see the margins accelerating.
And I think you'll see the very clear path toward the 30%.
I think you'll see ---+ I think, from an organic perspective, you'll see the same pattern in '18 that we saw in '17.
All things that Jim talked about there, I think will continue.
I think that the high-level story is, I think, continued pricing, share gains and penetration by the core mortgage operations and I think solid growth by the nonmortgage piece of the company.
I think those will be the same thematic points in '18.
Great.
And then the drivers of the guidance range, I think the range is a little bit wider than we've had historically.
Just wondering, is that primarily on the volume ---+ origination volume.
Or any other factors to call out.
Are you referring to the adjusted EBITDA range.
Yes.
Yes.
We've typically been in that $20 million to $30 million range.
So this year isn't anything unusual.
And the drivers of kind of the low to the high end, is it the volume.
Or are there other factors.
No.
It's ---+ no.
I mean, there's nothing unusual there.
It's a typical range that we put together.
The big thing, as you know, is the 10% downmarket.
So there's not much more to it than that.
On the segment reporting, I just want to make sure I get the moving parts here.
<UNK>, are you guys still feeling good about the rule of thumb that kind of $20 million to $25 million of revs on every $100 billion origination swings.
Is that still accurate.
Yes.
That's still correct.
And that would be ex the valuation businesses.
Okay.
So it sounds like UWS ---+ I mean, obviously, now you have all the mortgage exposure there.
So I guess on the base level, if the origination forecast holds about 2% decline of revenue and then you've got the incremental, I guess, diversification, is that right.
Can you help maybe size that up a little bit.
I'm sorry, can you repeat that.
So about a 2% decline in UWS rev.
That's where it looks like it will be jumping off.
If the origination forecast holds, but then you guys talked about the, I guess, continued diversification efforts.
Just trying to get an idea, is that kind of a good base level.
And then kind of what we should grow ---+ how much faster we should decline that based on diversification.
Yes.
There's no real change in the sensitivity due to the market.
So I don't think there's anything unusual.
We've already kind of talked about the valuation piece.
So there's not much there.
Yes.
I think, <UNK>, the sensitivities Jim mentioned, that's kind of the, obviously, the nonappraisal portion.
The reason why we don't include that, obviously, is because you got ---+ you don't have a market exposure.
You have a client-specific exposure.
And so that's why we kind of do it that way.
But I don't think there's anything unusual.
As Jim said in the UWS, I think they ---+ that we expect to continue to outperform the mortgage market volumes.
So it's [down] percent, 10%, we tend to ---+ expect to do significantly better than that.
We don't obviously guide by segment-specific level, but I think all of our exposure is in that segment for the most part and I think that will give you better visibility to our performance there.
Okay.
That's helpful, <UNK>.
And then on the [margin-side] segment, I mean, obviously you guys don't guide to segment margins.
But if we look at UWS, it seems like that's probably got the biggest leverage point in getting to the 30% kind of total company margin.
Is there a kind of broad range we should think about by 2020.
Like ---+ how much could you guys expand that margin from here.
Yes.
I think it's hard to say.
But you're exactly right.
<UNK>.
I think that ---+ and as I said in my prepared remarks, we're excited because as the purchase market goes and as the predictability of the volumes go, I think that, that's good for us and we are poised operating leverage-wise to pop the margins up.
So I think that's a very good long-term value driver for this company.
It's cash generative.
It's high margin.
We got ---+ and as we automate further, it should be even better operating leverage as we get into '19 and '20.
So you're exactly right on that point.
And as <UNK> said earlier, we expect both segments to be above the 30% target by 2020.
| 2018_CLGX |
2016 | SSTK | SSTK
#For contributors we're basically paying in US dollars and it's converted at the time of the transaction.
So if a customer signs up with us, we are converting that at the current exchange rate and then paying that contributor in US dollars.
Mobile is important for us.
On the buyer's side, it's still primarily the desktop where we see most of the usage for our images.
On the contributor's side and also occasionally on the buyer's side too, we see more and more usage through our iOS and our android applications.
Both of the applications we continuously released new features on, and reversed image search is actually something that's really important on the buyer's side.
We find that sometimes people that are creative, that are our customers, will see something that they like to use in one of their projects.
They may not be ---+ they may not have the equipment with them to shoot that photo.
They may not have the model releases for the people in that photo right in front of them.
So what they can do is they can shoot the scene that they're literally looking at and get images that look like that that are commercially released off of our website.
We think that's a pretty amazing shift in the way people buy images.
Our customers are really excited by it, and we see a lot of them using it.
Actually one more thing, on the contributor side, we've made it easier and easier for people to contribute images via mobile, and the cameras on phones, as you all know, are getting to be pretty amazing.
So we now are seeing more and more images come through mobile devices, and that's part of the reason why our library keeps growing faster and faster.
So we want to continuously enable our contributors to be able to produce that content right from their mobile devices wherever they are.
Thanks for joining us today.
If you have any follow-up questions please let us know you are in New York and we look forward to talking to you later.
Thanks.
| 2016_SSTK |
2016 | LLL | LLL
#Let me give you ---+ from a historical perspective, also know ---+ about eight years ago our top line was being driven by the services business, which we spun off, namely Engility, because of the occasion work needed in theater.
Now, it's a different cycle right now, but readiness has become a critical issue for customers.
We have a great asset in that space, and it's a space that I don't think we should be ignoring.
We definitely want to do better with the margins on it.
But I think we've demonstrated in the quarter that we're well thought of by the customer community, and we're winning sizeable long-term work on significant platforms with significant units that are fielded.
So this is an area that has the potential to be a good driver of top line in our business base going forward.
And, believe me, the margins are something that we're focusing on.
I don't know if we know that.
Someone who we beat, obviously.
Sure.
The first one is the Fort Rucker maintenance support contract, and that happens to be our largest contract in terms of annual sales at about $450 million per year.
Our contract is scheduled to end on September 30 of 2017.
We'll be recompeting that over the next year or so, and I wouldn't be surprised to see our contract extended six to nine months, which is becoming more and more common on these recompetitions.
It's likely to be a late 2017, early 2018 item.
We're performing well in that contract and we like our chances in that recompetition.
The second one is the Army C-12 contract, which is presently doing about $180 million to $190 million in sales per year.
That's also within our Vortex Aerospace business.
The new contract should start in the fourth quarter of 2017.
Aside from those two recompetitions, we don't have any large single-contract recompetitions across the entire company for the next several years.
But that's where those two stand, <UNK>.
One thing we've ---+ this is Chris ---+ just added a slight change to our process on these larger opportunities is Mike is heading up regular quarterly reviews of these key win opportunities.
That gives us a six-, nine-, 12-month visibility so we can all agree on what teammates we align with.
We look at the draft proposals and challenge terms and conditions, to the extent that's appropriate, and we develop an outreach program to make sure that we're touching the appropriate stakeholders.
In fact, we have one of our top executives earlier this week down in Fort Rucker spending a few days just to independently talk to our customer and see how we're doing and getting some favorable reports out of that.
So I think given the significance and then maybe a little more focus at the executive level earlier in the process is going to improve our chance of winning.
To chime in on that.
There were also recompetes going on in that space where we are not the incumbent, where we will be pursuing the recompetitions to go after additional market share, so that should provide some cushion just in case.
But I think our past performance, especially on Fort Rucker, gives me a comfort level that we are in good shape there.
That's become a very critical capability for our customer, and we should have about five years under our belt of excellent performance.
So it's one that we're looking forward to being successful winning.
Sure, Rich.
I'll take that question.
I'm probably starting to sound like a broken record when it comes to our margin targets for 2017 because we've been saying the same thing now for at least a year and a half.
So I'll go through it again.
Within electronics systems, we expect margins to be somewhere between 13% and 14% for 2017.
Obviously, I'm more comfortable with the lower end, and that is a nice increase to this year's margin guidance which stands at 12.1%.
Within communications systems, the margin targets that we articulated for next year are between 10% and 11%.
Our midpoint guidance for 2016 is 10.4%, so I think we're going to be closer to the high end of that range for 2017.
Lastly, within commercial ---+ within aerospace systems, we said that the target range for margins is in the high single-digit area, which is 7%, 8% or 9%.
What we explained was, the way we get to the high end of that range for aerospace systems is more international ISR, and other international work, to grow in the business base and improving the margins of logistics, or Vertex, and we covered that in the first question.
So, clearly we're still working on those items.
And as of now, I'm more comfortable with the low end of that range for 2017.
I've got to chime in.
We've talked about this before.
Ultimately, we're all trying to get more operating income and more cash.
We're going to do that through top-line growth, we're going to do it through M&A and we're definitely going to do it through margin expansion.
But the ultimate goal here is to generate more cash, and I think that creates more value for everybody involved.
Sure, Rich.
There's primarily two risk items.
The first one concerns our voluntary return program, which we instituted in the fourth quarter of last year.
As you know, it stands at $35 million in terms of total estimated returns, and that's following the $15 million increase that we recorded to it in the first quarter of this year.
The good news with respect to the returns are, one, it's voluntary, so we could discontinue it at our discretion.
Two, it takes care of our customers.
Three, the return experience is trending in the right direction, declining.
And we now have seven plus months of experience with that voluntary return program.
We have a very robust, detailed statistical analysis, and our estimate is holding and proving to be accurate.
Like anything else, it's subject to change, if the return rate were to change for some reason.
But right now it's heading in the right direction.
The second item is that we're involved in class action lawsuit litigation on the holographic weapons sights.
We have valid defenses and we're vigorously defending ourselves.
And we're presently scheduled to go to mediation in August to try and settle that litigation.
Obviously, litigation is inherently risky, and we're not sure ---+ we can't predict if we're going to be able to settle those items and what the ultimate outcome will be.
Those are the items on the holographic weapons sights, Rich.
The placeholder is still $750 million.
But as we talked about, we're looking at several acquisition targets and opportunities.
We should be able to at least complete a couple of transactions, and when and if those occur, we'll shift some of that remaining $475 million in share repurchases to M&A.
So, handicap that now in the $200 million, $300 million range.
We'll see what happens.
Actually, I'm glad you asked that question, <UNK>, because the targets that I just discussed for 2017 do not factor in any pension expense assumption changes.
So we're not going to set the assumptions for next year's pension expense until we get to December 31, because that's our measurement date.
The way things are trending in the interest rate markets year to date, we're looking at a meaningful reduction in the discount rate for the pension expense assumptions, somewhere in the 90 basis point range.
That 90 basis point breaks down to between a nearly 70 basis point reduction in the 10-year Treasury yield, since the end of last year, and another 20 basis point reduction due to the overall tightening of credit spreads in the investment-grade market.
So that 90 basis points reduction, if it holds, would translate into about a $45 million increase to pension expense for 2017 versus this year on a pretax basis.
This year we're funding the pension plan at $100 million, which is twice what the minimum requirement is.
And I expect that we would fund another $100 million for next year.
I don't see any other requirements beyond that, even given what's happening when interest rates.
Our asset returns for the year are doing well and tracking nicely to our full-year estimate of 8%.
I'll just say, relative to the teammates, we work with pretty much everybody in the industry.
We try to align with what we think our customer wants from a platform perspective, and then we select and work closely with that OEM.
I think in the ---+ and the trainer has been talked about, it seems, like for half a decade here.
And I think given the budget and such, it's probably a 2018 time frame.
Training, unfortunately, is one of those things that's easy to push off.
I guess JSTARS is probably in the next six to nine months.
We'll be working jointly on putting together proposals, is my expectation.
We have a great relationship, I think not only with Northrop, but a lot of the other companies.
When Mike and I were over at the air show, we spent a lot of time reconnecting with our partners, both internationally and domestically.
We're satisfied with that process.
There absolutely are.
We're working some things in the classified world, which probably is an easy answer since I can't tell you much more than that, but we're looking at all aspects.
We have opportunities in space, we have opportunities at sea, under sea and some airborne assets.
It's early to say, but I think we're in pretty good shape.
All the ISR aircraft are going to be up for recapitalization and some of them are shifting more to business jets from the larger platforms for performance and endurance and cost savings, so we're adjusting our strategies and our offerings accordingly.
But there's a lot out there, and I think we're kind of moving up the food chain a little bit, Mike, and starting to bid some of these as primes that we might not have done previously.
Part of that has to do with how the customer is pursuing the program, meaning if they want an airframe OEM to be the prime, we're not going to become an airframe OEM, obviously, but we can be a significant subcontractor on a missions system.
There are times where the mission system becomes the driver of who primes a contract.
We try to stay as flexible as we can and get ourselves on the best team or get the best members on our team where we have the best probability of a win.
We're very fortunate in the space occupy where we bring to the table not only state-of-the-art sensors and communications gear and data links, but we also have a very strong capability, as you know, in systems integration in the Greenville facility where I believe ---+ I would call it a national asset in terms of being able to integrate sensors and coms on virtually any platform.
We're very platform agnostic, which gives us the ability to partner and team anywhere we see a good opportunity on a global basis.
There certainly is a lot of activity, I was going to say, with platform OEMs looking for partners to help missionize airplanes, and we're always at the top of that list
There's a couple of areas where a modest acquisition would give us the ability to be a prime on a smaller scale, if you will, in some of the areas that Chris mentioned.
So let me turn it over to Chris for the M&A, because he's really been tracking that carefully.
But it seems to be a very broad spectrum of companies that are on the market at this point, whether it's in avionics space or whether it's in the ISR space, et cetera.
But go ahead, Chris.
Actually, all the markets, we have at least one opportunity in each of these.
We even have a couple internationally, but those would be in countries where we already have a footprint and understand the political and governmental situation.
We have some in commercial aviation, the pilot training, security and detection in defense.
We're really looking for one of three things.
We're either looking for some new technologies, as a way to jump start an area of interest to our customers as compared to spending the R&D.
Or we're looking for some new products that can enhance our existing business, and then there's occasions where we actually get access to new customers.
So it's a pretty obvious process.
We refocus first and foremost on the strategic bit.
Just last week Mike and Ralph and I were going through the list, and like I said, about a dozen of these passed the strategic hurdle, and now we're going into the next phase of making offers and starting due diligence and working the finance side.
As Ralph said, we would love to do a couple in the second half of the year.
We're not going to do a bad deal just to say we did one.
I kind of like our position and some of these, given our reputation of doing over 100 acquisitions, a lot of people come to us on a proprietary basis because they like the model.
They like the culture and they like the opportunity to be part of a bigger company.
So I'm very pleased and excited about the potential on the M&A front.
Okay.
It was those two items.
In general aviation, what I said during my comments was that last year we introduced a new product.
It's a multi-link transponder, which we call LYNX.
It's for the general aviation market, and that is geared toward responding to a new mandate that's presently in effect.
The sales on that new product, even though the mandate are in effect have been slow to materialize and they're lagging what we planned.
That's probably $20 million of the $50 million sales reduction in electronics systems guidance and the other $30 million is due to softer demand for the weapons sights at EOTech.
No.
I think that's a good list, but we're continuing to work with the business leaders and see what makes sense.
Some of these consolidations are actual movements of facilities, and some are organizational, trying to optimize the management in the backroom operations.
We haven't actually divested anything in 2016 other than NSS, which closed in January, as you know.
The ones we're working are so small, I was almost reluctant to even mention them.
But we're going to do something ---+ I think that's a lot in one year, and we're going to continue to look where it makes sense.
And part of these acquisitions are going to fold into the strategy as to how we organize and structure depending on the size and location of them.
We'll keep you abreast of these things as we go through them.
But these aren't easy to do, and I think we've got our hand full with the ones we've announced.
We have some savings from those consolidations that are contemplated in those margin targets, <UNK>, so ---+
We hope to do better.
To the extent that it results in additional ISR assets being deployed, that would clearly bring an uptick for us, also in the comms ---+ the communications area as well.
But as of right now, the ---+ I talked about this earlier, the reduction in sales this year coming from the final run-off of the Afghanistan drawdown, which is presently at about $160 million, $165 million, is where it stands.
So the improvement that we're seeing in our DoD business in sales for this year, which is about $200 million, is not coming from that area, <UNK>.
<UNK>, we attempt to be a thought leader in this area, and one of the things that I think we've done to get ahead of the pack, if you will, is to sign a teaming arrangement with a technology-driven company on the West Coast.
I'm not going to name them, I've mentioned this in the past, that is on retainer with us in bringing some of those commercial technologies to the table and marrying them up with some of our defense technologies in terms of user interfaces, weight, power, size.
All things that are very important to the war fighter, especially if they're carrying something around.
In addition, just the type of technology that would traditionally be nurtured in the commercial environment.
As you've read, the DoD has done something in the Silicon Valley, now they've moved to open an office up here in the Northeast, near MIT.
So they are very, very focused on accelerating innovation, if you will.
And we have certainly not missed that, and we are attempting to stay ahead of the pack.
As I said during my comments, we're working on smaller form factors for our SIGINT Systems, some low-cost next-generation infrared search and tracking systems as well as our mission simulator, which will enable us to bring the war fighter training at the mission level.
Now, a lot of this technology is dependent on video graphics and things like that as well as the expertise we bring, and we've really found a great partner to help us in this area.
It's a mutual relationship, of course, but it's working very well.
And we've made this as a resource available across the Company for our group presidents where they can tap into it and bring it into their R&D programs as needed.
I see it really bearing fruit in the future for us, where it's really differentiating the things that L-3 is doing.
I think we're one of ---+ I haven't heard anybody else taking this kind of a step other than maybe on one other occasion.
And we're looking at more opportunities like that to reach out of the box, if you will, and bring some thought leadership, commercial technologies to the table to stitch into our own product offerings where we can make a big differentiator between what we're offering versus the competition.
I'll just chime in.
We've talked a little bit about the agility of L-3, and Mike and I have had several customer meetings on this topic.
The focus is on the third offset, and we have some offerings and some investments to provide some capabilities that are needed.
It's our rapid development methodology, and working with this partner that Mike mentioned, I think we're bringing some things to the forefront quicker than a lot of other guys.
I think that's going to pay off.
So we did a mid-year correction on where we're spending our R&D to try to address some of these challenges.
Again, I think we're one of the few companies that's increased our R&D spend year over year as a percentage of revenue, or however you want to mention it, and I think that's the long-term approach we're taking to growing the Company.
And I think we're going to see some benefits in the years ahead.
Certainly as you've seen, as we see almost every week now, the global threat environment continues to get worse and worse.
Different threat scenarios are occurring, whether it's an airport situation or other soft targets.
Being a thought leader in this area and how we could adapt technologies to help keep citizens safe, if you will, and help identify threats, whether it's through systems we have or things that need to get developed, we're certainly on the case right now.
Thank you, <UNK>.
With that, thanks very much for joining us this morning.
We had, what I would characterize as another strong quarter, and we continue ---+ we intend to continue to build on this progress.
As we've discussed, we are pursuing a three-pronged approach to drive growth and enhance profitability.
First, we want to achieve more organic growth and are working closely with our business development organization to better leverage our investments in R&D, as well as approaching proposals, teaming agreements and making sure that we engage in the best win strategies that we can think of.
Second, we're active in scouting out potential acquisitions to broaden our customer offerings and enhance our long-term strategic positioning.
We'll continue to take a disciplined approach, as you've seen us do in the past, but we liked having a healthy pipeline of candidates to look at and we're seeing that now.
Third, with respect to cost control, we are tightening operations, as you've heard.
We're consolidating where it makes sense, and we are engaging in other cost reduction activities to help with the margin story.
Our program execution remains strong and consistent, and we're focused on opportunities in our commercial training solutions business, ELIR, and in additional markets which will be part of our growth story going forward.
The steps we've taken are showing positive results.
Overall, we are well positioned to achieve future growth and deliver long-term value to our customers and shareholders.
So once again, thanks for joining us.
Everybody enjoy the rest of the summer, and we look forward to speaking with you again in October.
Thank you.
| 2016_LLL |
2016 | IVC | IVC
#Thank you, <UNK> and good morning.
I will begin today's call by reviewing the consolidated financial results for the Company's fourth quarter ended December 31, 2015.
During this period, we made measurable progress towards turning around the business, building on our quality culture, and generating profitable growth.
Our continued focus on working capital yielded free cash flow of $29.2 million during the quarter, which led to free cash flow of $13.9 million for the full year.
In the fourth quarter of 2015, gross margin, which is an important measure as we shift our sales focus to more clinically complex products, was higher as a percentage of net sales from continuing operations by 0.7 percentage points, compared to the prior year's fourth quarter.
Excluding the benefit of warranty accrual reversals in 2015, and the impact of the divested rentals businesses from 2014, gross margin for the fourth quarter 2015 was higher by 1.1 percentage points, compared to the prior year's fourth quarter.
This increase was driven by favorable sales mix, partially offset by unfavorable foreign exchange.
Constant currency SG&A expense decreased $5.3 million or by 6% compared to the fourth quarter of the prior year.
This decrease was driven by the sale of the rentals businesses in the third quarter of 2015, which lowered SG&A by $6 million, and by favorable product liability expense.
Excluding these items, SG&A increased primarily due to employment costs and the write-off of cost associated with a cancelled legacy software program due to a change in IT strategy.
Better gross margin and lower SG&A expense were drivers of an improvement in adjusted net loss per share to $0.06 for the fourth quarter of 2015, compared to an adjusted net loss per share of $0.12 for the fourth quarter of 2014.
Importantly, the company generated adjusted operating income of $2.3 million and reported operating income of $1.3 million during the quarter.
For the consolidated company and normalizing for the divested rentals businesses, constant currency net sales decreased 1.7% for the fourth quarter compared to the same period in the prior year.
Increases in Europe and Asia Pacific segments were offset by larger net sales decline in the North America/HME and IPG segments.
I will now turn the call over to our <UNK>, <UNK> <UNK> to discuss the performance of the segments and additional financial results for the fourth quarter.
Thanks, <UNK>.
All the references to earnings or losses before income tax exclude restructuring costs.
In the fourth quarter 2015, constant currency net sales for the Europe segment increased 1.2%, principally due to increased sales of mobility and seating and respiratory products, which were partially offset by the decline in sales of Lifestyle products.
Earnings before income taxes decreased by $3 million compared to last year.
The decrease in earnings before income taxes was largely due to unfavorable foreign exchange and a reduced gross margin, which was driven in part by negative sales mix.
For the fourth quarter 2015, constant currency net sales for the North America/HME segment decreased 6.3% as increased sales of mobility and seating products were more than offset by declines in sales of respiratory and lifestyle products.
Loss before income taxes for the fourth quarter in North America/HME segment was reduced by $2.6 million compared to the same period prior year.
The improvement was related to a higher gross margin, primarily related to the benefit from warranty accruals, lower manufacturing costs, and favorable sales mix.
These benefits were partially offset by increased SG&A expense primarily related to the write-off of costs associated with the cancelled legacy software program and to higher employment costs.
The increased SG&A expense was partially offset by the lower product liability costs.
Excluding the net sales impact of the divested rentals businesses, constant currency net sales for the IPG segment decreased 3.5% driven by reduced sales and therapeutic support surfaces and interior design projects.
Excluding the intangible impairment charges of $4.8 million in the fourth quarter of 2014, earnings before income taxes increased $0.7 million in the fourth quarter compared to the same period prior year.
This improvement was primarily related to the divestiture of the rentals businesses, which generated a loss before income taxes in the fourth quarter 2014.
In the fourth quarter, Asia-Pacific constant currency net sales increased 10.8% due to volume increases at the company subsidiary that produces microprocessor controllers and the company's distribution businesses in Australia and New Zealand.
For the fourth quarter loss before income taxes was reduced by $1.3 million compared to the prior year's fourth quarter.
The reduction in loss before income taxes was due to volume increases and improved gross margin driven by lower manufacturing and freight costs.
Total debt outstanding, which includes the convertible debt discount described in the release, was $48.3 million as of December 31, 2015.
The company's total debt outstanding consisted of $13.4 million in convertible debt and $34.9 million of other debt principally capital lease liabilities.
During the fourth quarter, borrowings on the revolving credit facility ranged from a high of $8.9 million to a low of zero with an ending balance of zero.
As of December 31, 2015, the available borrowing capacity on the company's credit agreement was $38.2 million for the US-Canada portion and $15.2 million for the European portion.
As of December 31, 2015, days sales outstanding were 42 days, which was historically the lowest DSO performance for the company.
This compares to 45 days as of December 31, 2014.
Inventory turns were 5 as of December 31, 2015, compared to 4.9 as of December 31, 2014.
On December 21, 2015, the company entered into a payment plan with the tax authority in Europe related to a previously disclosed and contested tax audit involving financial years prior to 2012 in current taxes payable.
Based on year and exchange rates, the company's aggregate payment obligation was approximately $10.9 million, including approximately $0.6 million of interest that will accrue during 2016.
The payment plan provides for 12 monthly installments over the course of the calendar year 2016 with interest paid as part of the final payment.
I'll now turn the call back over to <UNK> for a few closing comments.
We then can address questions.
Thank you, <UNK>.
As you can see from the fourth quarter financial results, we're making progress towards our priority of generating profitable growth.
In 2015, we started to gain traction in the transformation of our United States sales force from a generalist team to one more focused on clinically complex products.
This will be an ongoing effort in 2016 with expanded investment, more resources, and ongoing training.
Also in 2016, we expect the European results to continue to be negatively impacted by foreign currency pressures.
In the North America/HME segment, we expect ongoing turbulence as reimbursement reductions associated with the world rollout of national competitive bidding continue through the first half of this year.
We believe that the rural areas comprise the remaining 50% of Medicare spending on durable medical equipment that had not been influenced by NCB in rounds 1 and 2.
Combining these factors with the historical seasonal sales weakness that typically influences our first quarters, we know substantial work remains ahead of us.
We are also making progress with our enterprise-wide quality culture, most notably at our corporate headquarters in Taylor Street manufacturing facility in Elyria, Ohio, which are currently under a consent decree with the FDA.
We have responded to the FDA regarding the previously disclosed Form 43 observations from the agency's inspection of the company's compliance with the first two certifications of the consent decree.
We are incorporating our responses to the agency's observations in our ongoing quality systems improvements.
In addition, on February 9, 2016, the independent expert auditor issued its certification report for the third phase of the consent decree indicating our substantial compliance to the FDA's quality system regulation.
This report was submitted to the FDA this week.
According to the terms of the consent decree, we must submit our own report to the FDA regarding our compliance status, together with our written responses to any observations in the expert's report.
If and when the FDA accepts the reports of both the expert and the Company, we expect the agency to re-inspect the impacted facilities.
We cannot predict the FDA's acceptance of these reports nor the amount of any remaining work that may be needed to meet the FDA's requirements.
So while receipt of this third expert certification report is an important milestone, it is only one step forward in our ongoing journey towards an enhanced quality culture.
To accelerate the next phase of this journey, in January, we welcomed John Watkins as our new Senior Vice President, Quality Assurance and Regulatory Affairs.
John is transitioning into the role from Doug Uelmen, who joined Invacare in 2011 and who will be leaving the company in March 2016.
John has an expansive career in quality and regulatory functions driving substantial improvements in complex situations in building efficient and effective systems.
His experience includes leadership roles in a number of medical device manufacturers including Welch Allyn, Boston Scientific, and Zimmer Biomet.
Earlier in his career, John spent 21 years as a pilot in United States Air Force both in active duty and the reserves.
I want to thank Doug Uelmen for bringing the company to this important transition point of receiving the expert's third certification report.
Doug led the renovation of several key quality prophecies and the expansion of the company's quality and regulatory resources and expertise.
I continue to be excited by Invacare's potential and I want to thank our associates for their hard work and commitment in 2015, as we launched many important changes within the company.
I'm looking forward to more progress in 2016.
Thank you for your time and attention on today's call.
We'll now open the phone lines for questions.
Thanks for the question.
It's an important set of details and probably worth clarifying.
There are two elements that are required in this phase of progress of the consent decree.
We need to have a qualified expert render substantial compliance opinion, which has been done, that's the same expert reviews before.
That report needs to be submitted to the FDA and accepted by the FDA, and that's potentially two steps.
We've submitted it to the FDA, but as we had seen in the prior two certifications, there is the opportunity for clarifying questions or things like that that the FDA may require before it actually accepts that report.
So, we're not through that phase yet, we simply submitted it to the FDA.
In addition, the second part of moving forward is the submission of the company's own report substantiating the steps we've taken which lead us to believe that we're ready for another re-inspection.
We will submit that report and the FDA has to accept it.
There is also potential for clarifying questions for the rejection of this, I suppose.
Once they accept both of those, then the 30-day clock starts during which the FDA can begin its re-inspection.
Beyond that though, there is no constraint on timing, we can't predict how long the audit might take or whether the audit will be successful first time through.
So I think as we look back to the prior rollout of NCB, we do as we've always done and disclosed before we're sure to look at the receivables accounts and bad debt credit exposures we have as a number of businesses face a significant reduction in reimbursement, so that's a potential headwind.
We've had good success historically, but this could change again, so we're watchful for that.
In addition, it's an opportunity for us to collaborate with customers in solutions that help them save cost, and we always talk to them about things like HomeFill, which avoid the delivery charges and network expenses that our customers may have by more traditional methods of providing respiratory care.
So it's an opportunity, but there are also some challenges of 50% reduction in reimbursement revenues, you can imagine, very significant for many of our providers.
Sure, be glad to do that.
A couple of things, one, if you look at the DSOs, we were actually very proud of our DSO number last year when we hit 45 days at the end of 2014.
But having said that, the team did even better this year and that was really a global effort ---+ Europe, North America, and Asia-Pacific ---+ a lot of focus on the fact that we can move a little bit better on DSOs, move a little bit better on customers that makes a big difference.
So again 45 was a nominal year last year, but at 42 days, this year did very, very well.
So, I want to emphasize first that was really proactive management.
The other thing that helped us a little bit is organically constant currency net sales for the fourth quarter were down 1.7%, if we're doing a good job of collecting and the sales aren't growing that helps this too, obviously that could go the other way as we expect to grow over time.
But for this particular quarter that was a benefit.
So I think first, I'd say receivables very, very strong.
The other thing I would emphasize is that in a difficult environment only from the vantage point that we weren't blowing through the sales numbers, the team on the manufacturing and sourcing side did a very good job of controlling inventory.
So again, we managed to get back to five times turns, I don't think any of us would emphasize that ---+ would claim that that's world-class, but that's good improvement and particularly in an environment where we had a little bit of mix in terms of sales, we're doing better and the mobility and seating for instance in North America, but struggled a bit on the lifestyle and respiratory.
So, trying to manage that through and have the right product and not bring in more products, again the team did a good job on that front.
So, I'd say we did well in both of those fronts, but generally a good focus throughout the free cash flow statement.
I'd emphasize for you that from our vantage point, again, the goal is always to improve off that number.
I think there's always could be timing issues, but I think if we're thinking more medium term, I don't think any of us are perceiving the five as where we want to be.
That's something we should improve off of.
But I think (multiple speakers) a little color to that, some of the underlying changes that were made are definitely sustainable, we're looking at raw and finished goods transformation.
So these are just (inaudible) year-end goal.
Good point.
Well, I don't want to put the cart before the horse here since it is a constructive ongoing dialog with the FDA, which you can imagine that along and parallel with the third-party certification report, we've been preparing this.
So, it shouldn't be too long, but I wouldn't want to surprise the FDA with what we submit.
So, there's a dialog that goes along with that.
It's a great question and we evaluate a lot of things along the way every day and weekend whether it's right for disclosure or not.
There are probably two parts to this, it's an important milestone that reflects a lot of work that the company has done to improve its quality systems, but we understand that it's only one little step in a long journey and a lot of improvement that's going to continue for a long time.
But in parallel, you could imagine that in this type of work, there are many people involved in the local facilities, probably hundreds and so from a Reg FD standpoint, it becomes increasingly difficult for us to keep all those people engaged and informed, but then not have it get out into the public in an unusual way.
So, we chose to disclose at this time, so everybody has got transparency to what's going on.
In the future, we'll continue to examine those same kind of factors.
We have various versions of market share and I don't know that any of them are anchored well enough to really talk about in the marketplace, also we're the only public company in this space.
So, we're challenged by that dynamic.
We have good products in power mobility, still have clinically unique technology that comes out of our Taylor Street facility you can see from our report, we're still selling robustly from Taylor Street and then as we've mentioned previously, we have the ROVI motion product that came out earlier in 2015.
We're having good results with that.
They're both positioned, so they can each win in the marketplace.
So, I think generally we're increasing, but to actually anchor it to a market share, gain is difficult for us.
I continue to look at our European business that has really good leadership and unfettered access to the full portfolio of products.
I think the composition of the European markets in total represents essentially what North America looks like if you compare the government VA channel private pay, Medicare, Medicaid payment and when I look at those results, I think you can estimate what a model might look like for the whole company.
Yes, I guess I'd say the following.
First I would emphasize again, I think we have a really good team there, it's been in place for a long time.
If you look back historically, we've had two different acquisitions.
We've had a combination of, I'll call them internally Invacare grown and then people from two different acquisitions within Europe sizable acquisitions over the last 15 years.
So that's given us quite a good team and the team that's been in place, I think a lot of that you mentioned the 3.5% organic growth for the 12 months.
Fourth quarter, it was 1.2% for many, many quarters.
They've delivered good growth.
We would expect that to continue if we're looking out longer term.
I think a lot of it is in the marketplace doing well with the products we have.
I think we've mentioned before that we take ---+ they have a new product with the base that's made in North America that they sell throughout Europe with their own seating that is done very well in terms of that capability.
So, there's been some new products, but our goal is to give the more new products over time, but again between management, their position in the marketplace fighting every day, the team has delivered organic growth for quite a while.
And I think they have a nice mix of products, and teams that products are typically planned or sub-business based and then the commercial teams are by country, they've got a really good dynamic of seeing what works in the dynamics of one country and figuring out how to apply that in other countries, they work really well together.
So I'm not sure to what level of or what amount of time we can spend getting into the details of each of the form 483 observations.
I'll say, on one hand, they're not trivial.
On the other hand, I'll say the FDA issues about 4,700 Form 483s each year and these are serious and ordinary at the same time and we are building plans to make sure we accommodate improvements that the FDA has outlined, very good audit work done by the FDA as you can hope for in an engagement like that and we're taking those very seriously going forward.
In terms of resolution to Form 483 observations, the process typically is the FDA leaves behind the Form 483, which are the local inspector's observations.
A company typically has 15 business days to respond, we took the opportunity to respond.
And then in parallel, the government prepares its own report and then there's the opportunity for a dialog and going forward.
There isn't typically a succinct closure process with Form 483 observations, as I'm sure you know.
Those audits were going on in parallel.
Yes, the 483 was the response of the ---+ it was the inspector's observations of their own audit and at the same time, the independent expert within the building doing its audit and they had produced its report.
If you recall, the FDA's audit scope was primarily certification one and certification two of the consent decree.
It won't be terribly material.
It will help us on the IPG business but it won't be anything that you'd see dramatically differently over the course of quarters, not a big impact of course from the beginning.
Just to clarify, during the course of the year, we had a variety of payments to the four senior executives, that was a combined for the year $24.7 million and that was in there.
Additionally, just for clarity purposes, what also was in there was the benefit from the sale leaseback transaction, which was $23 million.
So, again $24.7 million during the course the year as a combined payment out for earned benefits for the four senior executives and then additionally we did get $23 million through the PP&E through our sale-leaseback transactions.
So, net-net they're pretty close, but $24.7 million was the (multiple speakers).
That is correct.
We'll say $1.7 million, yes.
Thank you, <UNK> and thank you everyone for your time and attention today on the call.
<UNK>, <UNK>, and I are available for any follow-up questions.
Have a good day.
| 2016_IVC |
2016 | IIIN | IIIN
#Selling prices and steel wire rod prices are correlated over the longer term, but a spike in raw material cost doesn't entitle us to raise our selling prices, nor does a collapse in raw material prices obligate us to reduce our selling prices.
Our selling prices are really more a function of THE conditions of supply and demand at our level of the supply chain.
I can give you a pretty good idea.
That we had accumulated a cash balance that was above and beyond the needs of business.
As we were looking forward, we have an unused credit facility.
We have plenty of liquidity.
We can grow our business the way that we want to without the cash that was paid out, and we have a history of returning excess cash to our shareholders.
And it was as simple as that.
That was the motivation behind it.
Yes, I would say that the shipments were softer than we had anticipated for the quarter, but the Q4 has been notoriously difficult for us to forecast just due to the seasonal factors that are at play, between the weather and holiday schedules.
We're hopeful that the weakness that we experienced will prove to be short-lived considering the rebound that we've seen so far in January.
In the past we've gone through similar stretches where there may be lulls in demand that appear to be out of sync with some of the macro indicators.
But over the longer-term there tends to be a closer correlation.
So it's difficult for us to really ---+ when we go through a short stretch like that where demand softens, it's difficult to really pinpoint what's driving it.
And I think you generally have to look out over a longer period to really come to some conclusions.
Well, we're off to a strong start, which is encouraging.
But, again, we would just caution that weather is a pretty significant factor.
Last year it was to the negative, and it can obviously go in the other direction, but we're encouraged by what we've seen so far.
(multiple speakers) supply chain at our customers, or ---+.
We don't sense that there's been any movement in either direction.
I think just in the current environment our customers are playing it generally closer; not speculating in either direction.
Yes, and I would add that customer sentiment is almost universally positive.
So, I don't detect that there's been any sort of unplanned inventory build in the supply chain downstream from us.
Thank you, Bryan.
We appreciate your interest in Insteel and would encourage you to call and check in with us if you have further questions.
Thank you.
| 2016_IIIN |
2017 | AMD | AMD
#Thank you, <UNK>, and good afternoon to all of those listening in today
First quarter revenue increased 18% from a year ago to $984 million based on growth across both of our business segments
Gross margin also improved driven largely by the success of our recently launched Ryzen CPUs
I am pleased with our first quarter product execution and improved year-over-year financial results, which demonstrate the revenue growth and gross margin expansion potential with our strong set of new products
Looking at our Computing and Graphics segment
We delivered our fourth straight quarter of double-digit percentage year-on-year revenue growth
Strong demand for Ryzen CPUs and improved GPU sales resulted in CG revenue increasing 29% from the year ago period
CG revenue declined 1% sequentially, which was better than normal seasonality, as significant growth in desktop processor sales driven by the first month of Ryzen CPU sales largely offset seasonal declines in GPU and notebook APU sales
Solid demand for our family of premium Ryzen 7 processors, including our flagship Ryzen 7 1800X offering, which is the industry's highest performance 8-core CPU drove our highest desktop processor revenue in more than two years
Ryzen CPUs have been consistently ranked among the top-selling processors at global etailers and retailers, and press reviews and end-user sentiments have highlighted the strong performance and value proposition
In early April, we launched our enthusiast-class Ryzen 5 processors and received overwhelmingly positive reviews that demonstrate our multi-threaded leadership and unmatched value proposition
The Ryzen CPU partner ecosystem also continues to strengthen
We have seated more than 300 software developers to support their work optimizing for Ryzen CPUs and have already seen double-digit performance gains across a number of top-tier gaming titles
Last week, the first Ryzen-based OEM gaming desktops were announced, and we continue the rapid rollout of Ryzen-powered systems with additional launches planned for major OEMs later this quarter
In Graphics, GPU sales increased by a strong double-digit percentage from a year ago based on growth across all of our product lines
The ramp of Polaris-based notebook design wins drove increased mobile GPU sales, while our desktop growth was led by improved channel sales
In early Q2, we launched four new Radeon RX 500 GPUs, featuring our Polaris architecture that deliver improved performance
These new mainstream GPUs provide a compelling solution for the millions of gamers looking to upgrade their PCs to support advanced display technologies and deliver optimal gaming experiences
We also saw higher professional graphics revenue from a year ago, driven by expanding channel sales and growing data center wins as we continue to increase our GPU compute footprint with leading cloud service providers
We remain on track to launch the first products from our next-generation Radeon Vega family later this quarter
Vega is a forward-looking architecture that combines a revolutionary memory subsystem, next-generation compute engine, advanced pixel engine and new geometry pipeline to dramatically improve performance and energy efficiency for the next generation of GPU workloads
Customer excitement is building as we focus on bringing significant competition to the high-end GPU space across the PC gaming, professional design and GPU compute markets
Turning to our Enterprise, Embedded and Semi-Custom segment
Revenue increased 5% from a year ago driven by the latest game console offerings from Sony and Microsoft and our third straight quarter delivering year-on-year embedded revenue growth
We see solid demand for our latest FinFET based semi-custom offerings in 2017, including the planned holiday launch of Microsoft's 4K-focused Project Scorpio console featuring a new AMD SoC
On the data center front, in March we demonstrated that our upcoming Naples server CPU would offer more cores, I/O, and memory bandwidth when compared to the highest-end dual socket x86 server CPUs currently available, resulting in better performance across multiple workloads
Naples platform development work continued to accelerate in the quarter
We are in the final stages of preparation in advance of launch and are very pleased with the status of our silicon and customer engagements
We have now seated thousands of Naples processors across an extensive set of OEMs, end users and partners, and remain on track for our first Naples products to launch this quarter
In closing, we started 2017 delivering significant year-on-year revenue growth and margin expansion based on solid product execution and strong market and customer reception to our new leadership products
Our focus in 2017 remains on launching our Naples server CPU with broad customer, partner and ecosystem support
Naples is the first step in our long-term plan to deliver a leadership data center product roadmap; complementing the success of our mainstream Polaris-based GPUs with our high-end Vega GPUs; extending our Zen core into the mainstream desktop and premium notebook markets with the launches of our Ryzen 3 CPUs and Ryzen mobile APUs in the second half of the year; and expanding our participation in the fast-growing market for GPU compute with the launch of Radeon Instinct Accelerators mid-year
2017 is an important year for AMD, and we are well-positioned for solid revenue growth and margin expansion based on bringing performance, choice and innovation to an expanding set of markets
I look forward to discussing more about our long-term strategy at our Financial Analyst Day later this month
Now, I'd like to turn the call over to <UNK> to provide some additional color on our first quarter financial performance
So look, we're very pleased with how the Ryzen launch went
It was a big launch for us
We did Ryzen 7 first early March and then Ryzen 5 here in the middle of April
All of the feedback that we've gotten so far from both our customers and from end users has been very strong
I think the value proposition is very strong at both the Ryzen 7 eight-core devices, as well as the Ryzen 5 four and six-core devices
Relative to how it performed in the quarter, actually, it performed as we expected
So with a global launch, we were reaching many distributors and many channel partners, and I think that's gone well
We did see some early shortages in terms of motherboards, and that was our motherboard partners ramping their supply in line with our CPU supply, but that was really dissipated after the first couple of weeks
So nothing out of the ordinary there
So we feel really good about where it is
I think the important thing is as we go into the second quarter, we not only have the channel sales, but we also have the major OEMs that will be launching their systems in the second quarter
So I think that's the next piece of the Ryzen launch for us
But overall, I would say it went quite well
Absolutely, Matt
So if you look at our gross margin progression given the mix of our business, clearly, we made actually very nice progress year over year
So if you look at Q1 2017 compared to Q1 2016, we expanded margin by 2 points, and that was really on the strength of Ryzen
When you look sequentially, because of the mix of our business, game consoles were at the lowest point in the first quarter
And there will be a ramp of game consoles going into the second quarter
So the relative mix of the business sees more gaming consoles in the second quarter relative to the first quarter
So that's the reason for the sequential guidance
But again, if you look year over year, Q2 2017 to Q2 2016, you'll see again a nice margin expansion as a result of the strength of the products
Thanks, Matt
<UNK>re, <UNK>
So as we go into the second quarter, we certainly are adding both the Ryzen 5 in addition to the Ryzen 7. So if we look at the forward guidance, up 17% quarter-on-quarter, that is driven by additional Ryzen, as well as a semi-custom ramp that I just talked about
We are early in the ramp
Everything that we see is – we're getting positive reception throughout the ecosystem and we're going to continue with go-to-market activities, and as I mentioned, the OEM component of that will kick in in the second quarter
So on your first question, relative to the margins and how those look, I think they are – the yields are as expected
So both the 16-nanometer and the 14-nanometer have done really well
And so, in terms of the new product ramp, the yields are as expected and per our margin structure
And, <UNK>, maybe just to finish off the comment, I think, to your question, I think, we feel pretty good about our cost structure
We're always going to continue to try to reduce the cost structure over time
But in terms of the margin expansion story, as we go through the year, it's going to be about the mix of business
And as we get into the higher ASP, stronger product portfolio and that ramps to a larger piece of the business, that will be the margin expansion story
Thanks, <UNK>
Absolutely, <UNK>
So Vega is really a new architecture
So it is focused on the price points above Polaris
We expect Vega to be a broad product for us that will go across the gaming segment, the professional workstation segment, as well as GPUs in the data center
And we will be launching products across all of those segments with the Vega architecture in the next couple of months
So the Polaris refresh for us is the RX 500 series that we launched just a couple weeks ago
And that is what we would use in those mainstream price points in 2017.
So we are on track to launch the rest of the Ryzen portfolio in PCs
We'll launch Ryzen 3 earlier in the second half, and then we will launch Ryzen mobile towards the holiday cycle for the second half
<UNK>, maybe let me start and see if <UNK> has some comments to add
I think certainly the Ryzen gross margins are substantially better than the legacy portfolio
So I think that is true
I think when you look at the sequential – there was 1% sequential decline, and there was a $7 million or $8 million sequential improvement in operating loss
There was also some additional R&D in that segment as we're ramping up both product expenses as well as some sales and marketing and go-to-market expenses in the quarter
So overall, it was as we expected
Maybe, <UNK>, do you want to add to that?
<UNK>, maybe I just want to clarify because I want to make sure that we were clear
So the masks were in OpEx and now they're going to be capitalized as they go into production, so they weren't in COGS before
I think it really is a full-year statement, and I think it's a recognition of, as we transition from 14-nanometer to 7-nanometer, 7-nanometer masks are substantially more expensive than 14. So I don't think you can exactly put it the way you put it
But overall, I think what we're trying to do is basically as the mask sets become more sizable on the production level to capitalize them
Thanks, <UNK>
So, <UNK>, I think you should expect that we will expand margins as we go through the year
We do have this mix effect between Semi-Custom and new product revenue
But certainly, our exit velocity, as we exit the year, we should see – when you compare year-on-year sort of Q4 2017 to Q4 2016, you should see the margin expansion
Yeah
So the full year guide is low double-digit revenue growth, 2017 to 2016. I think, given our product portfolio being very much influenced by the PC – the Ryzen and PCs, Vega for GPUs as well as Naples from a server standpoint, we expect that the Computing and Graphics segment will be – will grow more so than the EESC segment overall on a year-over-year basis, just given some of the consumer markets move faster than some of the data center and server markets
So, look, we're really pleased with where we are with the Naples program right now
Overall, from a performance standpoint, the product and the customer engagements is going as we would expect
We will launch here in the second quarter
So we'll start some low volume of revenue shipments during the second quarter that will ramp gradually into the second half of the year
And so, overall, I think, that is how the server outlook will be
I think I have said before and I would still say that the server market has a longer design win to revenue conversion cycle
And so we would expect it to take a couple of quarters for us to ramp the Naples product over time
But you should see a number of customers announcing what AMD platforms over the next couple of quarters
So we believe we're highly differentiated with Naples in the sense that we have more cores
We have more memory bandwidth
We have more I/O than our competition
So for certain workloads, I think, Naples is going to do very, very well, certainly, in the cloud as well as in certain HPC workloads and big data workloads that can use all of that memory and I/O bandwidth
We will be talking more about the positioning of Naples and the key workloads, as we go through the next couple of months prior to launch
But, certainly, we feel that it's, again, like Ryzen, on the strength of the Zen core, we have a very, very strong foundational product
And now it's about making sure that we help our customers get to market
Yes, <UNK>
<UNK> <UNK> <UNK> - Credit <UNK>isse Securities (USA) LLC <UNK>, can you hear me?
<UNK> <UNK> <UNK> - Credit <UNK>isse Securities (USA) LLC Yeah
Just quickly, <UNK>, given that mix now is becoming quite important in trying to understand gross margin, I'd be kind of curious, what percent of your Compute business in the March quarter was based on Ryzen? And I guess, if you assume that all of the transitions to Ryzen eventually – had that occurred in the March quarter, can you give us an understanding of how much better gross margins would have been? And then I have a follow-up
All right, <UNK>, that might be hard for me to answer very specifically, but let me give you the high-level view
So we started selling Ryzen on March 2, and a good piece of it was – basically for us positioning into the distributors
We take revenue on a sell-out model and so you should think about – although, we shipped a number of Ryzens, we didn't necessarily revenue them all in the quarter just given that we're on a sellout model for our revenue recognition
In terms of where we are in the transition, Ryzen, non-Ryzen, we still have a long ways to go
I mean, the way we should think about it is Ryzen 7 was at the very high-end
We're going to – Ryzen 5 has started
We have Ryzen 3 that will come next, and then we have the entire mobile portfolio as well
So it will take us through this year to really transition the majority of the product over to Ryzen
I think everything that we've seen, the ASP uplifts are definitely very beneficial
And so, we're pleased with sort of the pricing that we're commanding for the product and the reception for the product
So I think it's just – it will take us a couple of quarters to transition the overall portfolio over to Ryzen
<UNK> <UNK> <UNK> - Credit <UNK>isse Securities (USA) LLC <UNK>, as a follow-up to that, I know you guys are coming up with an Analyst Day next month and some of these targets might change
But to the extent that your old gross margin target was sort of 36% to 40%, I'm just kind of curious
To what extent can you get to that 38% midpoint just by moving your current market share mix towards Ryzen? And to what extent does getting to 38% or above imply either market share gains in the Compute business on the desktop, notebook side or on the server side? How do I think about that dynamic?
So the long-term guidance, 36% to 40%, I think we have multiple ways of getting there
Certainly, on the PC side, it is not anticipating that we gain a significant amount of share over our historical numbers
So I think the idea on the PC side is, again, I think 2017, a large percentage of the margin story is around PCs
I think as you go into 2018, you'll see a larger percentage of that be in servers
But to the fundamental question, I think we feel good that the mix dynamics are there, the product is strong enough to command the right ASPs that we can get to the long-term margin targets several different ways
<UNK> <UNK> <UNK> - Credit <UNK>isse Securities (USA) LLC Thank you
Thanks, <UNK>
So without commenting on the exact numbers between Semi-Custom and Ryzen, I think, it's fair to say that the Semi-Custom business will have a reasonable ramp in the second quarter as will Ryzen
In terms of relative to our expectations, it's actually very close to our expectations of what we expected the ramp rate to be, as we're going into this new segment
As I think I've mentioned on one of the previous questions, we don't expect to be at peak run rate in the second quarter
I think we will be continuing to ramp Zen-based product in the PC business throughout the year, as we bring more and more SKUs online
And so, I think, the second quarter will certainly be higher than the first quarter
And we expect the second half to be higher than what we're seeing in the second quarter, as we ramp more and more SKUs, as more OEM platforms come online
As you guys know, the PC business tends to be a very back-half loaded business
So, as we get into back-to-school, the retail segments and holiday, you would expect that both channel and OEM PC sales to benefit from the stronger product portfolio
On the GPU side, we actually haven't seen anything abnormal
We normally see the seasonality going from Q4 to Q1 that sales go down
We saw something very normal to that
From an inventory standpoint, we think it's normal to maybe even slightly lean because we were going through a transition from our 400 Series to 500 Series
So we see the gaming segment as healthy
From what we see, I think we feel good about the gaming segment overall
Graphics continues to be a strong segment
For us, it's not just the channel business, but it's the ramp of our OEM business
So we have a number of new OEM systems that are also ramping here in the first half of the year
As it relates to ASPs, we are excited with the launch of Vega that will see a significant improvement in our ASPs, just given our current presence in the high-end segment of the GPU market
So yes, overall, I think, we feel good about the market
Maybe let me start on the OpEx and then have <UNK> comment on the second piece of the question
So on the OpEx, we are making targeted investments in several different areas
The key areas are in GPUs and server, and it's both on the R&D side as well as on some go-to-market
So from our standpoint, these are very strong products
We want to make sure that we have enough customer resources to help our customers ramp into production
So I think they're targeted investments, but as we've been in the past, we'll be very prudent with where the OpEx goes
And then relative to the
So, Joe, the way to think about that is for the Ryzen 7 and a good portion of the Ryzen 5, we really didn't have a competing product in that segment, so it's really additive
We've actually added Sam [Samsung] to our CPU market coverage
The legacy products will continue in the market
They will certainly continue through this year, and that's all contemplated in the model
So we feel that they're very complementary products and different geographies moves at different rates
We have still a significant installed base of motherboards out there from our previous generation, so we'll keep supporting both products
So we're very pleased with where the Ryzen product is positioned now
We think, from a value proposition standpoint, performance, performance per dollar, it's very strong
We obviously have other products we're going to be launching throughout the year to ensure that we have strong product positioning throughout the year
And I think the more important thing, Joe, and we'll talk more about this at our Financial Analyst Day is we have a long-term roadmap, whether you're talking about PCs or GPUs or servers to ensure that we continue to refresh our product plans and our product roadmaps over time
So I think we feel good about where we are positioned today, and we're going to ensure that we continue to roll out products to strengthen that positioning over time
Yes, Chris
So there was no particular supply constraint
I think it's more of the ebb and flow of the market
When you think about the channel market or the DIY market, you can basically introduce your product any time during the year
The OEMs have a very set cycle
They typically launch new products in Q2 for the back-to-school season
And so that was just the timing of when the OEM platforms were ready
And then, again, when you're launching so many different SKUs – I think, launching Ryzen 7 first, then Ryzen 5, then Ryzen 3 – was absolutely our plan to make sure that we hit all of the logistics and stuff on plan
But, overall, like I said, nothing different than what we expected
I think we're pleased with where the overall launch is, and we'll be rolling out many more products over the coming quarters
| 2017_AMD |
2018 | PDFS | PDFS
#Thank you, and welcome, everyone.
If you've not already seen our earnings press release or written management report, please go to the Investors section of our website, where both are posted.
Today, we will discuss the first quarter of 2018, both business progress as well as the environment we experienced.
I'll also describe the business environment we're anticipating for the remainder of the year in our response.
First, let me summarize the significant contracts closed in the first quarter, an extension to a 7-nanometer IYR contract, a contract with an IDM for Exensio-Test, contract with an Asian foundry for Exensio-Control and many other contracts for Exensio platform and modules, including Exensio-Test and related services.
The market opportunity at logic foundries in all geographies, including China, for the Integrated Yield Ramp solution, which we refer to as IYR was softer in the quarter.
Capital spending reports by semiconductor capital equipment companies indicate that the large spending was by ---+ driven by memory fabs, while spending at logic foundries was weak.
While we have some early adoption of our IYR solution at memory fabs, the primary market for IYR is still logic fabs ---+ foundries.
As we've been reporting over the past few quarters, with few exceptions, logic foundries has slowed down their investments.
And we see the effects and that slow down on decreased business activity in IYR solutions.
We also continue to see mix 28-nanometer volumes at logic foundries.
As a result, our gainshare revenue continues to be lumpy.
Beginning in Q1, [indiscernible] gainshare became the more significant node for gainshare revenue contribution, which we expect to continue through the remainder of the year.
Our business activity in areas outside of logic foundries ---+ technologies continue to be robust.
Our newer products, including new applications of our Characterization Vehicle infrastructure, applied primarily to More-than Moore technologies are Exensio Big Data platform and our Design for Inspection, or our DFI solution, all continue to receive interest in the marketplace.
In particular, we have a number of ongoing demonstrations of DFI, where we are testing customers wafers in our Milpitas facility.
Exensio, while strong overall, it is garnering notable interest for applications that's our unique ability to improve quality in yield and multichip assembly.
Overall, revenue from these newer products and services now make up about 50% of our Design to Solutions ---+ silicon solutions revenue.
For DFI, the initial hardware development of our next generation tool, DFI tool, the eProbe 250 is complete and our focus is shifted to developing applications for customer's ramp and production control needs.
While already meeting our goals for throughput improvement over the previous generation tool, we continue to make improvements beyond the capability of the eProbe 150 to find the logical defects that have importance to our customers.
Most recently, the machine is demonstrating unique features, we believe are critical to inspect for mass production applications.
As far as selling activity for DFI, we continue to design on-chip instruments for a number of applications and demonstrate capability on customer's wafers at various test facilities.
We expect such demonstrations to continue throughout the year.
Importantly, we plan to release our fifth generation pdFas Tester in the third quarter of this year.
This generation is designed to increase our effectiveness at characterizing both commodity and embedded nonvolatile memories.
We have a number of pilots ongoing with customers and some contracts already in place to take advantage of this innovative capability.
This will present increased opportunities with embedded and stand-alone memory customers and More-than-Moore technologies.
For the remainder of the year, we believe that business activity will continue to be in our solutions for fabless systems in more than more fabs.
We anticipate spending in logic foundries, particularly second-tier foundries to remain soft.
As yield ramp for second-tier logic foundries has been such a big part of our revenue, we expect that the softness in this part of the market will make 2018 a challenging year from a revenue perspective.
As we look to the second quarter, we have a number of new customer selling activities, but the timing, during the quarter, is not clear at this time.
Further revenue from DFI Exensio and contracts covering CV infrastructure, plus Exensio for legacy fabs, is primarily ratable, without a large bump in the quarter, in which the new contracts are signed.
Hence at this point, you will see in our outlook in the management report, we are cautious about our expectations for Q2 revenue in comparison with revenue in the future quarters.
As I have said on previous calls, we believe that for these legacy fabs that are using our CV infrastructure and for Exensio platform, primarily to control manufacturing, a ratable business model tied to usage, much like the model we are using for DFI and Exensio, allows us to better capture long-term value.
We intend to continue selling yield ramp engagements with gainshare in cases with the customer's values tied to market ---+ values tied to time-to-market and our investment is heavy.
As a result, the environment we are experiencing and the slower revenue recognition related to usage-based models, we took some actions in the first quarter to reduce spending, primarily related to yield ramp business in the U.S. and EU.
As we move through this year, we will look for opportunities to further improve efficiencies and to further reduce spendings associated with our yield ramp business, particularly outside of Asia.
Further, we experienced ---+ we expect spending on third-party development to begin the taper off over the next 2 to 3 quarters as spending associated with the now completed development of the eProbe 250 ends.
Some of these savings will be offset by further investments, primarily in Exensio, with some additional investments in field applications for DFI.
In summary, we are transitioning PDF's business from a dependency on the introduction of new nodes, to value across the manufacturing lifetime.
Moreover, we are bringing our technology that was primarily used at leading-edge fabs, up to the fabless and system companies.
These changes are aimed at diversifying our revenue sources, returning the company to growth and providing more predictability to our financial performance.
With this, I'll turn the call over to Greg.
Thank you, <UNK>.
As you may have seen in our earnings release, we have posted in the Investor Relations section of our website, a management report with detailed comments regarding the financial results of PDF for the quarter.
Given that, I'm going to focus my verbal comments for the quarter and a few key highlights reflected in those results.
Looking at revenue first, as you are aware, the company has adopted ASC 606 or Topic 606 methodology for all revenue reporting, beginning with Q1 in 2018.
The company has elected to implement this change using the modified retrospective method.
There is a summary of the adjustments related to this change, which is published as part of our Q1 2018 management report, available in the Investor Relations section of our website.
Additionally, a detailed description of all the adjustments, impacts and methodology changes related to ASC 606 will be included with our upcoming 10-Q filing.
At the summary level, the major adjustments for Q1 are as follows: for opening balances, there was a $5.7 million increase to opening retained earnings, which includes revenue adjustments plus deferred commission expense changes; there is a $1.3 million adjustment to deferred tax liabilities related to the increased opening balance for retained earnings; and then finally, for Q1 activity, the net effect on revenues and costs for Q1 was immaterial and essentially zero.
For the remainder of the year, we expect the impact of the new accounting rules to be a reduction of our total revenues for the year of approximately $2 million to $3 million.
Now looking at the Q1 results in summary.
Total revenues at $24.7 million for the quarter were down $2 million as compared to Q4 2017.
Solutions revenues at $18.2 million decreased by $800,000 when compared to Q4 2017, while gainshare revenues at $6.5 million decreased by $1.2 million.
The Q1 over Q4 decrease in solutions revenue was primarily the result of higher perpetual software license revenue and related hardware revenues recognized during Q4, which did not reoccur in Q1.
The decrease in gainshare revenue was primarily due to 28-nanometer volumes in revenues across multiple customers, partially being offset by an increase in 14-nanometer revenues.
Expenses on a GAAP basis, total expenses for the quarter were $25.2 million, approximately $700,000 lower than the previous quarter.
This decrease in expense was primarily due to lower variable compensation expenses, lower third-party development cost on the next generation eProbe tool, lower cost to sales related to hardware sold to a customer as part of a software sale in Q4 and lower stock compensation expenses.
This decrease in spending was partially offset by severance payments incurred during the quarter related to some of our cost-reduction initiatives begun during the quarter and higher legal expenses and audit fees.
On a non-GAAP basis, total expenses for the quarter were $21.8 million, approximately $800,000 lower than the previous quarter.
This decrease was primarily due to the items previously mentioned for the decrease in GAAP spending, except for the impact of the severance payments and lower stock compensation expenses, which have been excluded from non-GAAP expenses.
Once again, on a GAAP basis, cost of sales was $11.5 million, which was approximately $800,000 lower than the previous quarter.
This was primarily due to lower hardware cost mentioned earlier, lower compensation expenses due to reductions in force, lower travel expenses and lower stock compensation expenses, partially offset by the severance expense and payments that I mentioned.
On a non-GAAP basis, cost of sales was $10.1 million, approximately $900,000 lower than in Q4.
And this was primarily due to items previously mentioned for lower GAAP cost of sales, once again, excluding the impact of stock compensation expense in the severance payments.
GAAP R&D expenses were $7.2 million, approximately $400,000 lower than the previous quarter, once again, due to lower third-party development cost on the next generation eProbe tool.
Non-GAAP R&D expenses were $6.3 million, approximately $400,000 lower than Q4, again, due to the lower third-party costs.
GAAP and non-GAAP SG&A expenses were $6.4 million and $5.4 million, respectively, each increasing approximately $500,000 from the previous quarter, primarily due to higher audit cost involved with the 606 implementation and legal fees.
Other expense was approximately $400,000 higher than Q4, primarily due to the impact of a weaker U.S. dollar with respect to our foreign currency denominated expenses.
GAAP net loss for the quarter was approximately $400,000, an improvement of $2.2 million over Q4.
Non-GAAP net income for the quarter was $2.2 million, down $1.9 million from Q4.
Refer to our call transcript from Q4 2017 for an explanation of the impact of the 2017 tax act on our Q4 GAAP net loss results.
Turning to the balance sheet.
Total cash at $98.4 million declined by $2.7 million during the quarter.
This reduction was primarily the result of stock repurchases, totaling $4.1 million.
The purchase of company stock related to the settlement of employee tax obligations and RSU grant of $600,000.
And PP&E expenses related to purchases relating to our ---+ development of our DFI solution, of $2.4 million.
These uses of cash were partially offset by the cash generated from operations of $3.3 million and stock option exercises and ESPP purchases of $1 million.
Accounts receivable at approximately $66.2 million at the end of the quarter consisted of $35.4 million of trade accounts receivable and $30.8 million of unbilled accounts receivable.
The combined AR was approximately the same as the previous quarter.
Additionally, under ASC 606, $3.7 million has been reclassified from unbilled accounts receivable to contract assets and recorded as other current assets.
DFO for the combined accounts receivable, increased from 225 days in Q4 to 243 days.
DSO, including contract assets, is now 257 days.
Of the $30.8 million unbilled AR balance, we expect to bill $23.1 million over the next 12 months, of which, $12.2 million will be billed during Q2.
During Q1, we collected $25.2 million, which was up from $22.3 million collected in Q4.
Since the end of Q1, we have collected $11.11 million of the $35.4 million trade accounts receivable outstanding, which if they had been collected by the end of the quarter, would have reduced our DSO by approximately 40 days.
Looking at taxes, our GAAP tax benefit for the quarter was $381,000.
This provision consisted of the gross GAAP tax rate of approximately 23.7%, plus adjustments for discrete items of about $190,000.
We expect our full year net GAAP and non-GAAP tax provision rate, after discrete items, to be approximately 18.5%, which is in line with our previous outlook.
Looking at the remainder of the year, given the market conditions that <UNK> has described, we now expect 2018 revenue, excluding ASC 606 impacts, to be approximately flat when compared to 2017.
Looking at the impact on revenue of ASC 606, we expect total revenues for the year to be reduced by approximately $2 million to $3 million.
As <UNK> stated, we expect Q2 revenues to be more heavily affected by the current market conditions in either Q3 or Q4.
During Q1, we began implementation of our cost-reduction initiatives aimed at reducing the company's total non-GAAP expenses.
These cost reductions will allow the company to make some strategic investments, while still reducing our total non-GAAP spending by approximately 5% or more year-over-year.
Given the uncertain market conditions, our goal is to deliver improved non-GAAP earnings as compared to 2017 excluding the impact of ASC 606.
With that, I will turn the call over to the operator for Q&A.
Yes, I ---+ probably not of that detail, but I think, we did talk about gainshare.
We were expecting it to be up slightly year-over-year.
At this point in time, I think given the Q1 results, we're probably thinking more flat around gainshare, with Exensio and DFI growing and that growth being offset almost completely by decline in the yield ramp business.
No change from our prior discussions on the number of machines or the schedule.
We're still expecting to ship 250s around midyear or so.
I think, it's really getting down to 1 or 2 customers.
If you go look at the $11 million we collected after the end of the quarter, that brought, almost, all of our customers' balances to nearly current with the exception of two.
One of which is very large foundry in China.
Based on what we're seeing that they are, basically, slow on payment across the board not just with us.
That's one that we are battling every day to get as low as possible.
The other one is a situation where the customer has already agreed to pay, we're basically processing a tax filing through the government that's in Asia, that's taking some time to get clear, but it does save us money on withholding tax.
So once that's cleared, we know that we'll get paid, which will really leave us, primarily focused on the one large foundry in China.
I believe, it's about $12 million at this point in time.
Thank you.
| 2018_PDFS |
2018 | TREX | TREX
#Thank you, <UNK>.
Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities law.
The statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.
For a discussion of such risks and uncertainties, please see our most recent Form 10-K and Form 10-Qs as well as our 1933 and other 1934 act filings with the SEC.
The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
With that introduction, I will turn the call over to Jim <UNK>.
Thank you, Bill, and thank you all for participating in today's conference call.
This was a strong quarter for Trex, representing our fifth consecutive quarter of record revenue and net income and a positive start to another growth year for the company.
First quarter of 2018 sales results reflect the expected high single-digit growth in Trex Residential Products.
In the December through March time period, we focus on stocking orders from our distributors and dealers to ensure that an adequate inventory is available in advance of the peak decking and railing season.
Our year-over-year residential organic demand for the first quarter and for the first 4 months of this year indicates a much stronger, low double-digit demand curve.
Economic forecast support our expectation for continued progress in 2018.
First, the repair and remodeling market is expected to grow at a high single-digit rate in 2018, and exterior property improvement, the subsector that most closely aligns with Trex Residential, is expected to capture 34% of the home improvement spending.
At the same time, consumer confidence is at its highest level since 2004.
This index historically correlated well with Trex Residential sales.
From a company perspective, our data analytics show that the North American consumer has been very active in the marketplace so far in 2018.
Despite the long winter that has persisted in parts of the country, we're seeing record activity on our website, and our trade partners continue to report positive point-of-sale data.
Also with lumber pricing increasing, the Trex value proposition for decking and railing has become even more attractive to consumers.
And it's not just a question of pricing.
The quality of certain wood species is not as good as it was in the past.
All of this underpins our conviction that the composite category will continue to gain share from wood.
As the undisputed category leader, we believe that Trex is capturing more than its share of the conversion from wood.
This represents an excellent return on the investments we have made in our targeted marketing programs that we rolled out over 3 years ago.
We also reported during the first quarter that Trex was honored with awards from the 2018 Builder Brand Use Study.
For the 11th consecutive year, Trex was named as the Brand Most Used and the Brand Most Used in the Past 2 Years for composite PVC decking category.
Trex also took the top position in quality category in this year's study.
Trex Commercial Products also had an improved first quarter and its performance was consistent with our expectations, reflecting a solid backlog as well as new project wins.
As you know, we're a leading provider in the domestic commercial railing market, which we estimate at approximately $1 billion.
We continue to be the market share leader for major stadium projects with about 85% of all major stadiums and arenas in North America.
A good example of a recently completed project is the Little Caesars Arena in Detroit, which is the home to the NBA Pistons and the NHL Red Wings.
The project included over 18,000 feet of Trex commercial railing.
The arena was designed to engage fans and features gondola-style seating that is suspended above the playing area, accompanied by several hundred feet of strong, secure glass track rail provided by Trex Commercial Products.
Our involvement in a project of this scope can last for several years from planning to final installation.
But we also bid for refurbishments of college stadiums and smaller athletic venues like soccer and tennis stadiums that have a much shorter project cycle.
We're pleased with our first quarter gross margin performance as it was in line with our expectations for continued expansion of our residential and commercial gross margin.
In residential, the drivers of high gross margin were similar to the prior quarters, which <UNK> will detail later.
One of our major manufacturing cost-savings initiatives, which I mentioned last quarter, involves improvements to our production lines that will provide a step change in the manufacturing process of our deck boards.
We began implementing the first phase of these manufacturing enhancements in the first quarter of 2018.
We will complete the retrofit to the remaining lines by the end of this year.
In the first quarter, we utilized one of our production lines for a significant number of trials, and the results of those trials of the first phase were outstanding.
When the first phase of this is completed in the fourth quarter of this year, available capacity will increase by at least 20%.
More to come on this as the year progresses.
The commercial gross margin recovered from the fourth quarter levels reflecting the roll-off of several legacy projects.
We continue to make progress on margin improvement with the execution of a number of cost-reduction initiatives and improved acquisition of estimating and project management.
We continue to be confident in our ability to drive margin improvement through the second half of this year.
I will now turn the call over to <UNK> <UNK>, our Chief Financial Officer, to provide further insight into our financial results for the period.
<UNK>.
Thank you, Jim.
Good afternoon, everyone.
We're pleased to report strong year-over-year comparisons driven by increased recognition of the Trex brand and operational performance.
First quarter 2018 consolidated net sales amounted to $171 million, representing an 18% year-over-year increase, as higher volumes in Trex Residential Products drove 7% sales growth to $155 million.
We're also pleased with Trex Commercial Products contribution of $16 million.
Consolidated gross margin was 44.8% compared to the 45% reported in the first quarter of 2017.
The impact of the inclusion of lower margin Trex Commercial Products was almost completely offset by the strength in Trex Residential, where gross margin expanded 260 basis points to 47.6%.
This significant margin expansion was due mainly to material cost advantages and manufacturing cost savings, which together accounted for approximately 80% of the year-on-year improvement and higher capacity utilization, which represented 20% of the increase.
Trex continues to benefit from the use of low-cost raw material streams, which provides a significant cost advantage.
Also, we're investing in R&D programs to develop processes that will allow us to use a greater variety of scrap material, including lower cost and harder-to-recycle sources.
Trex Commercial Products gross margin at 17.7% for the first quarter improved from the fourth quarter 2017 as lower-margin legacy contracts began to roll off.
As Jim mentioned earlier, we're confident in our ability to improve commercial gross margins this year.
The challenges we see in the commercial business are similar to the ones we faced at Trex a number of years ago.
And our teams are working together to deliver margin improvement by the beginning of this year's third quarter.
SG&A for the quarter totaled $29 million.
Brand-related expenses that drive market share gains, the inclusion of Trex Commercial Products, and $1.2 million in noncash amortization of intangible expenses related to our recent acquisition resulted in a $5.7 million increase in SG&A.
This represented 16.9% of sales compared to 16.1% of sales in the year-ago quarter.
Exclusive of amortization expense, SG&A was 16.2% of sales for the quarter, 10 basis points above the comparable quarter in 2017.
Net income amounted to $337 million or $1.25 per diluted share, representing year-over-year increases of 33% and 32%, respectively, from $28 million or $0.95 per diluted share reported in the last year's first quarter.
This increase was partially attributed to timing related to a lower tax rate of 22%, which resulted from reduced federal statutory rate and benefits realized in the quarter on divesting of stock compensation.
With respect to capital allocation, in the first quarter, we invested in a number of fast-return projects that will result in future manufacturing cost savings, process improvements and other operating efficiencies.
Additionally, we repurchased 50,000 shares of our outstanding common stock for a total outlay of $5 million as part of the share buyback program authorized by the Board of Directors in February 2018.
For financial modeling purposes, please note the following items: We expect consolidated incremental margin for the full year 2018 to be approximately 45% to 50%.
We project the improvement to be second-half weighted related to the manufacturing process enhancements noted by Jim and margin improvements in the Trex Commercial Projects (sic) [Products] segment.
Full year capital spending is projected between $20 million and $25 million.
SG&A is expected at approximately 17.5% of sales for the year.
The remaining intangible expense related to the SC acquisition is approximately $1.7 million and will be fully amortized by the end of the third quarter.
We expect the full year tax rate for 2018 to be 25%.
As Jim noted, the Board of Directors approved a 2-for-1 stock split of the company's common shares in the form of a stock dividend to be distributed on June 18, 2018, to the shareholders of record at the close of business on May 23, 2018.
Now I'll turn the call back to Jim for his closing remarks.
Thanks, <UNK>.
We're off to a solid start in 2018.
The environment for consumer spending on home improvement and for outdoor living, in particular, remained strong, and we are seeing positive comparisons in Trex Commercial.
At the same time, we have begun to benefit from the cross-product development between our residential and commercial operations.
While we're seeing some increased costs in transportation, metals and certain other categories, we have clearly been able to more than offset these increases with cost-reduction initiatives and favorable capacity utilization.
In the second quarter, we expect to report consolidated sales of $191 million.
We anticipate that Trex Residential sales will be $174 million and Trex Commercial Products will contribute $17 million.
This will represent a year-on-year growth of 10% for Residential and 21% on a consolidated basis.
Reflecting our positive long-term outlook, the Board of Directors has approved a 2-for-1 stock split to be distributed on June 18 to shareholders of record on May 23, 2018.
Operator, I'd now like to open the call to questions.
Yes, the guidance that we provided consistent with what we talked about a year end for the full calendar year 2018, we see very similar type benefits of what we've seen in the past couple of years.
We'll still have strong operational savings from our cost initiative programs.
We'll see utilization.
The raw material benefits won't be driven as much through pricing.
We've talked in the past about gradual decline in pricing in the marketplace.
But more so related to the efforts that we have from an internal perspective with R&D and operations to find different classes of material that can be used that may not be actively sought after today.
So we'd expect that the categorization of those savings to fall roughly into the same buckets and not too different of amounts.
Well, we've been able to service our customers within a 2-week lead time in season.
So it really doesn't expand our capabilities to handle more sales.
It's really 2 things.
It adds a buffer on our capacity that is something that we need to pay attention to as we go forward.
This is the first of at least 4 phases that we've identified.
So we see follow-on opportunities clearly beyond this first move.
There will be cost reductions that we'll start to see in the second half of this year, but the full benefit of this first phase won't be recognized until 2019.
They are for 2018.
So it was just really the catch up from the fourth quarter.
We were a little bit below where we expected to be in the fourth quarter and came in a little bit higher in the first quarter of this year.
As we said, these projects, as to exactly when the revenue gets booked, it can move from quarter-to-quarter.
We've got good visibility, but within a couple of million dollars, it can move from quarter-to-quarter.
So that was really the only dynamic that we saw in the first quarter.
You're referring to the poly, in particular, I think, right.
Yes.
We really look at this in 2 ways.
If you did a like-for-like on the poly, it seems to be a slightly weakening market.
We have been very focused at trying to qualify new materials, as Trex has been very successful with this approach in the past.
But we're trying to qualify these new materials that basically nobody else wants.
And what that means is, we can take materials that are lower price and being able to use those, maybe 25% or even 50% of what our material costs would be at these lower-price items that helps drive our overall cost profile to a lower level.
And that's something we've always done.
I think we're getting a little better at it.
And we've been pretty successful over the last 12 to 18 months, in particular.
Yes.
When we look out at our capacity requirements, we're basically going out 3 to 4 years and looking at our capacity requirements.
Before this 20% improvement, we did not have a need for an additional building for the next 3 to 4 years.
So this further pushes out the need for additional production facilities with this first phase.
And, again, I mentioned first phase.
We do have 4 phases of this process that we've identified.
And it's our belief that we can eventually push the requirements for an additional manufacturing facility out considerably further with the additional phases.
As with anything, you take a low-hanging fruit first with the lowest CapEx spend and the best bang for your buck and that's what we've done for 2018.
It starts to get more expensive as you go into 2019, '20 and beyond.
But at this point, we've ---+ we're basically doing the first phase as a straight add-on.
Second phase will be replace equipment that needs to be replaced anyway with better equipment that will enhance our throughput.
So part of this would be replacement capital, but with additional throughput capabilities on the replacement side.
Yes.
It\xe2\x80\x99s a tough number to come by.
The overall market change, I think when we end up this year, I wouldn't be surprised to see the wood market lose about 1 point of share.
That would be about $50 million.
Now that would be spread between us and other competitors.
We believe, because of our campaign that we've been very active on, the customers that we have, we think that we pick up a greater percentage of that wood add.
So I think the benefit there moves us certainly above the expected high single digit that ---+ of growth that the market is expected for composite material.
Well, basically, it's a retrofit of the production equipment.
So we're adding additional equipment in that gives us a better throughput profile, better quality than what we had before.
It's difficult to say how this is going to fall.
And I think other people on calls have brought this issue up.
But part of the issue that every company is running into right now is transportation.
And it tends to make the sales for everybody ---+ it's going to make the sales for everybody a little bit lumpy.
Things that you expect will drop in the second quarter may end up dropping in the third quarter.
We're playing heads-up ball on that.
We've seen this impacting us.
For example, in the first quarter where we had several million dollars\xe2\x80\x99 worth of orders that were scheduled to be shipped out, couldn't get wheels under it because of transportation.
That problem is going to be worse in June.
And so we're working to move orders so that we can do not have that bottleneck at the end of the quarter.
So I think it ends up being a little bit different mix than what we expected at the beginning of the year and being driven more by transportation than consumer demand.
Thank you.
We do not publicly give credit often enough to one of our greatest competitive advantages: Our people.
Our ongoing success would not be possible without the best team in the business.
We recently did an Employee Engagement Survey related to Trex and looked at our overall results.
It indicated 3-dimensional strengths.
That were, quality and customer focus; clear and promising direction; and employee engagement.
These were significantly above industry norms and underscores where our team has been so successful, not only with our operating results.
To all of our employees, thank you for your support of the company.
And to our shareholders, we thank you for your confidence in Trex.
Wish everybody to have a good evening.
| 2018_TREX |
2017 | NSC | NSC
#Thank you, Jim, and good morning, everyone
Thank you for joining us today
Norfolk Southern delivered first quarter revenue of $2.6 billion, a strong 6% year-over-year increase, which was driven by volume growth of 5% and a revenue per unit improvement of 1%
We attained volume and revenue gains in all three of our major market groups with a particularly robust performance in coal, intermodal and steel versus the first quarter of 2016. Additionally, fuel surcharge revenues increased due to higher on-highway diesel prices
We maintain our focus on pricing
Revenue per unit excluding fuel was flat as pricing gains were offset by negative mix associated with increased intermodal volume and short-haul utility coal
On slide 8, Merchandise revenue was up 2% for the quarter with a 1% increase in volume and overall revenue per unit growth of 2%
Volume gains were primarily driven by metals and construction strength due to improved steel production and increased construction and drilling activity
Other markets declined slightly in the first quarter due to reduced energy shipments, truck competition and, in automotive, decreased U.S
light vehicle production
Merchandise revenue per unit increased 1% excluding fuel surcharge as positive pricing gains were partially offset by negative mix related to increased aggregate and soybean volume
Turning to our Intermodal market on slide 9, revenue of $571 million represents a 9% increase over first quarter 2016 with a 4% gain in volume and a 5% improvement in RPU. Our improved service product helped drive a 5% volume increase within our domestic intermodal franchise despite weakness across the trucking industry
Continued strength in East Coast port activity supported international volume, which was up 3%
Excluding fuel, our intermodal revenue per unit improvement of 1% was driven by current pricing initiatives within the context of a soft trucking environment
Moving to slide 10, Coal revenue increased 20% to $420 million in the first quarter, driven by significant volume increases in the export and utility markets as well as pricing gains
Utility coal volume of 17.6 million tons in the first quarter benefited from our previously announced market share gain and higher natural gas prices, which offset the impact of mild winter weather
In our export market, we handled 6.3 million tons in the quarter through Lamberts Point in Baltimore due to improved demand and pricing for U.S
export coal
More than doubling its shipments, Baltimore is primarily lower RPU thermal coal and represents 38% of our total export volume, while Lamberts Point grew over 50% and is predominantly metallurgical coal
As we look ahead to slide 11, our focus is on continuing to execute our strategic vision for growth
We are forecasting generally improved economic conditions, particularly related to manufacturing and consumer spending, which we expect will positively impact our volume
Merchandise volume is expected to be relatively flat in 2017. Crude oil, which represented over 50,000 units last year, is predicted to decline close to 30% in 2017 as shipments are diverted to the Dakota Access Pipeline
The largest year-over-year decrease is projected in the second quarter
Additionally, a projected 3.5% decline in 2017 U.S
vehicle production will negatively impact our automotive volume
However, metals and construction, grain and plastics are expected to be up year-over-year
Within Intermodal, our strong service product has and will continue to enable success in converting service-sensitive volume from the highway
Looking ahead, we expect positive macroeconomic trends to drive organic growth
Expected increases in transportation demand and gradually tightening truck capacity in the latter part of the year will provide potential volume growth through the remaining quarters this year
We expect year-over-year growth within our coal markets with export gains driven by the continued tightening of international supply, most recently affected by Cyclone Debbie in Australia
Though seaborne prices fell from the highs in late 2016 and earlier this year, the after effects of the cyclone recently increased prices again
This should be a short-term benefit to U.S
coals in the global market
Due to this volatility, we expect to exceed our guidance in the second quarter and return to 3.5 million ton to 4.5 million ton rate in the third and fourth quarters
We expect utility coal volume to grow this year and remain confident in our quarterly guidance range of 17 million tons to 19 million tons
It is important to note we are in shoulder months when the utilities typically rebuild their inventories from winter; although this winter was relatively mild, particularly in the South and, as a result, stockpiles remain elevated
Consistent with our strategic plan, we are securing high-quality revenue growth that complements our existing network
We have developed a service product conducive to attracting new revenue and launch new customer focused initiatives designed to improve our customer experience and make it easier to do business with Norfolk Southern
At the same time, we have a keen understanding of the capacity of our existing network and we'll work to balance growth in targeted areas with the needs of our customers
While leveraging the value of our service product, we will continue our initiatives to attain pricing in excess of rail inflation
As we have previously stated, we take a long-term view of our markets and pricing to yield sustainable shareholder value
We will continue to work with our customers to understand their expectations and remain an integral part of their supply chain
I will now turn it over to Mike, who will discuss our operational performance
Yes, Chris, as you noted, we do have relatively easy comps in the second quarter
We also had that in the first quarter and we delivered 5% growth
It starts to get a little bit more difficult in the third and fourth quarters, although that's the time period in which most analysts expect that trucking competition is going to tighten
And so, we're going to continue to leverage our very good customer-focused service product and try and take trucks off the highway
We did that in the fourth quarter of last year, and we did that in the first quarter of this year in pretty loose truck environment
So, we feel good about where we are with growth
We've given you some guidance on what we see in our coal and our merchandise markets, and in our intermodal markets
Yes, we saw consistent pricing in the first quarter with last year, and we're continuing to differentiate ourselves based on our service and ability to innovate as supply chains evolve
We're confident in our ability to continue to drive high-quality revenue that complements our network at low incremental costs, which will ultimately and continue to drive shareholder value
Sequentially, it's – yeah, it's pretty much the same as where we were last year year-over-year and sequentially
We continue to see pressure in the trucking environment and we are getting some very significant and competitive rate increases at our export coal franchise
As truck markets tighten and economic conditions continue to improve, we fully expect additional opportunities for price later this year and into 2018.
Ken, this is <UNK>
Network performance is one way to look at it
Jim's been very clear that we're driving customer-specific service metrics that are unique to the markets that we serve and, in many cases, unique to the demands of individual customers as their transportation needs evolve
This allows us to improve the value that we provide to our customers
It provides for more rich conversation with our customers as we're renegotiating contracts and looking for additional business, about the benefits of the Norfolk Southern product
And, they can become defined as for individual customers or broadly by markets
And if you look at, say, intermodal, it could be availability of a box on a chassis at a terminal; within the merchandise network, it could be consistency of delivery to a customer location to the original ETA
Those are all important things to the customer
And I can tell you, categorically, that for each of those individual customer metrics, we are in much better shape than we were last year and have improved year-over-year
And that's what we're doing is we are collaborating with our customer to find out what they want and becoming a much more integral part of their supply chain
Yes, Mike, you talked about our equipment strategy, and I think it's notable that our efforts to go to a more homogenized fleet don't just benefit operations
It also improves our ability to compete with truck and provide a better service product to our customer
It's more flexible by definition
It lowers investment risk
It lowers operating costs, and it improves our ability to provide a serviceable piece of equipment to our customer in good working order on time
So, there's great collaboration between marketing and operations on a lot of these initiatives to make sure that we're taking a sustainable approach and a balanced approach to take costs out while improving our service – individual service to our customers
Hey, <UNK>, I'm glad you brought that up
It's – it is an issue with the mix headwind, as you reference
However, we did get very competitive rate increases, and very significant rate increases, at Lamberts Point; although, you should note that Lamberts Point is still only 14% of our overall coal volume
So, it's a relatively minor component, because we have a pretty diverse coal franchise
And so, while Lamberts Point grew over 50%, Baltimore, which is more of a thermal market and has a lower RPU, grew over 100%
And so, you can see some mix issues within that within export
And then, we were supported by a market share gain in the North, and the very mild weather in the South limited our growth in Utility South
So, last year, we had talked at this time, <UNK>, our Utility South volume was about 54%, 55% of our utility volume
That's flipped a little bit
And now, Utility North is more than 50% of our utility volume
That also has a – tends to have a lower length of haul than Utility South, and so that creates some pressure on our RPU. But I'll note, we are really focused on adding high-quality revenue that fits our network, complements our product and drives long-term shareholder value
And that's – and our first quarter results reflect a successful execution of that strategy
You noted that with Cyclone Debbie that prices have gone up
That's a near-term phenomenon and we're already starting to see a correction there; although, that will benefit, clearly, our second quarter export volumes
And so, in my remarks, I guided to the fact that we would probably exceed our previous guidance of 3.5 million tons to 4.5 million tons in the second quarter, and then third and fourth quarters would be back within that range
There's a lot of volatility, as you could expect, within our coal network; not only because of seaborne prices, but also because utility coal is now a load follower and stockpiles, while significantly down from last year, are still elevated
And so, we're going to be watching the same things that you watch
We're going to be watching natural gas prices, weather, electricity demand, cooking coal prices and API, too
It's going to be highly dependent upon market conditions and those four or five factors that I just referenced, <UNK>
We're getting price
We're particularly getting price in the export met market
The sustainability of that's going to be dependent upon the – some of the factors, such as coke and coal price
Yeah, we – <UNK>, we take a long-term sustainable view of our pricing, the value of our service product, the markets and the customers we serve, which ultimately is going to promote shareholder value in the near-term and long-term
We are fully confident that trucking capacity is going to tighten in the second half of this year, which will lift truck prices maybe – late this year and early next year, and we're taking a long-term approach to this
We grew our volume in the fourth quarter of last year in a difficult truck environment
We grew our volume in the first quarter of this year in a difficult truck environment as we leveraged the value of our service product
Dave, we're achieving price
We have achieved price, and we're going to continue to do it
For us, truck is pricing opportunity
Conversions from truck create an opportunity not just in intermodal, but in our merchandise network
And Mike and I talked about collaborating with customers on an equipment strategy that allows us to convert truck to rail in the merchandise network
So, we're going to continue to push on price
We've achieved price and volume in very difficult truck environment last year and in the first quarter of this year
It's potentially starting to tighten a little bit, and the analysts believe that it's going to tighten a lot more as the year progresses
So, that's our focus is taking a long-term view of our pricing and the value of our service
We had some shifts within our intermodal network, but we achieved our price
And, clearly, truck is limiting the upside to our price, so we've talked about that in the past, too
We're confident in our ability as we move forward and our results reflect it
It's a process
As cars fall out, we can scrap them
It's a homogenous fleet and it has quicker cycle times
You have to buy – purchase less cars, invest in less equipment to replace that carrying capacity
| 2017_NSC |
2016 | HIW | HIW
#Sure, <UNK>.
You know what, I think, that's right.
I mean, that's the exact balance we try and keep in mind when we're doing deals.
So, Nashville is a market we're not giving concessions, right.
There's very little to zero free rent.
And then, Atlanta, you might be - again, it's coming down to maybe a half a month per year.
So, we're balancing that.
It depends on the deal and the specific market.
But concessions, in general, remain muted.
Well, there's still a gap between second and first gen.
I don't think we - there might be spots, but there's not a market where second gen has now gotten within a hair of first gen.
There's still a significant delta between first and second gen as construction prices, much to our chagrin, continue to escalate.
Well, and hopes that Skip Hill, our Raleigh division lead is listening along with his leasing team, we'd like it to be a 100% pre-leased.
But your question is a good one.
Again, to use that same term as a mosaic of things that we take into consideration.
And so, for example, in Skip's division, we started Centre Green III mid-summer, 100% on a speculative basis.
It's in a setting where we have four existing buildings that are all 100% leased.
And then in a PUD that has over 1.3 million square feet, that's 97% pre-leased all owned by us.
And so, we have customers who are needing to grow and if we don't capture them in Centre Green III, then they're going to go to brand X.
So, that's the mosaic for the rationale for us starting that, and it's a 160,000 square foot building, not a 300,000 square foot building.
But I think that we would have to take each situation into consideration before we decided if we were going to build it and at what level of spec we would build it if any at all.
Thanks, <UNK>.
Hey, <UNK>.
That's exactly right.
At the time that we had to submit the list, which is roughly 45 days from closing of CCP, which we closed on March 1.
So, it had to be on the identified list and it just wasn't in the queue at that point in time.
(multiple speakers).
Okay.
Thanks, <UNK>.
So, thank you for your attention today.
We appreciate it and look forward to talking to you next quarter.
Thanks.
| 2016_HIW |
2016 | GPS | GPS
#<UNK>, you really pushed the button, you really pushed several of my hot buttons on this question so congratulations.
Again if you start with, where can we see start to see this roll out.
We're really pushing stretch in men's, which we're finding the men's customer really responds to across multiple fabrications and multiple wearing occasions.
So if you're in Old Navy today there's a stretch Oxford shirt in there that is super comfortable.
It's really like this precision fit.
We're pushing stretch across, in men's, our two key bottoms fabrications in terms of denim and twill, and both shorts and long bottoms.
And really testing where else we can go with it.
Because we believe that it's actually really revolutionizing in many respects.
That's a big word, but how men dress and the comfort and fit that they have in both tops and bottoms.
So that's a step.
We have nanotechnology in a pant in Banana that we have basically not marketed at all, which is highly stain resistant.
If you pour a cup of coffee on the pants, it beads up and runs off.
And we find that he has responded to that.
Right now, to be honest, we are more using pre-existing fiber and fabric innovation from our vendors.
We are also reorganizing in order to be able to work with some of our key vendors and be more proactive about driving innovation, which then we believe can unlock potentially some proprietary benefits.
And I don't want to get into that right now.
It's a much longer conversation and its early days but we feel that our scale and our size, working as a $16 billion enterprise for the company, has the potential to not just benefit from pre-existing innovation but drive innovation.
And so that's exciting for us as well.
And it's across a number of different dimensions, whether it's heat management, whether it's stain resistance, whether its stretch and comfort.
Just to name a few right now that are out there.
Yes.
Let me try to quickly hit the two.
On rebalancing fashion versus basics ---+ it's kind of an old term but I'll go with it for a second.
We needed to reestablish authority in some of our key item programs because we had moved away from that.
So you saw that happen in spring and summer ---+ big multi-cc knit programs, et cetera.
We were overassorted there and so we're learning season over season, and we've made some changes even after we booked in order to tighten some of our programs up.
So season over season, getting rebalanced for, again, key item programs but also making sure that we have depth in some of these fashion buys.
That's something that is going to get better every season.
I was just again in stores yesterday, and I saw Gap show up again with the first full fall and you'll see that again with more depth in fashion as we get into September.
So it's a season over season process, and one where we're actively learning and managing our buys as aggressively as we can.
On denim, I've obviously been tracking and reading all of the comments that have come out across the industry over the last several days and there's a bit of optimism about denim out there.
We're obviously extraordinarily well-positioned in the denim business across all our businesses.
Banana has a great denim business now as well and it's front of store.
I'm not ready to say ---+ I'm always hopeful about denim and it's been in a trough for a long time.
We are absolutely positioned to ride the rise of denim but I don't want to get frothy about talking about the fact that denim is now on a massive upturn and everything else.
I'm much more in the mode of under promising and trying to over deliver here.
I'm confident denim will come back because it has been in kind of a malaise.
We are well positioned across all of the bottoms fabrications whether it's from an active fabrication, a bistretch in a pant for a woman, a twill fabrication or denim, we are well positioned to play wherever the market goes.
Yes, and on the operating margin guidance, <UNK>, we don't guide specifically to expenses as you know.
But to try to be helpful, what I will remind is that we will continue for certain to be very disciplined with regard to our expense management.
We delivered not only in Q2 but I think for the entire first half on an adjusted basis, flat expenses and that isn't easy to get to because we are on many years now of managing these expenses pretty much flat.
And it gets harder in the second half.
The other reminder I'll just point to is that I've mentioned a couple times that because we are focused on improving the traffic we are making some investments in marketing in Q3.
<UNK> will jump in and I will jump in behind her.
Yes.
So I would say broadly speaking, North America is stronger than international.
It was interesting to see the UK retail sales come out this morning that were fairly strong.
So maybe that's European tourists going into the UK.
But broadly speaking there have been more challenges versus North America, and I would say that is probably somewhat attributable to global geopolitical uncertainties.
But it does vary by geography.
And it actually varies quarter by quarter.
Yes.
We're still bullish on our international business.
Obviously I'm committed to it.
But it's, honestly, you have to look country by country at the end of the day.
Old Navy, as an example, in North America and Canada, it's continued to be a very strong business.
If you look at what is I think a very interesting environment in China right now, in the space that we're in.
We are seeing the value business there, particularly with our Gap factory stores continue to be very good.
But the customer is somewhat standing on the sidelines, which has resulted in a lot of very aggressive and early sale activity across the whole specialty channel.
So it's hard to really generalize overall but I would agree with <UNK>.
North America better, and international more challenging.
I'd like to thank everyone for joining us on the call today.
As a reminder the press release, which is available on www.gapinc.com, contains a full recap of our second quarter results as well as the forward-looking guidance included in our prepared remarks.
As always, the Investor Relations team will be available after the call for further questions.
Thank you.
| 2016_GPS |
2016 | AAP | AAP
#Obviously, <UNK>, it varied.
But I think the question for me here is given the starting point, can we move faster.
That's the big question.
And given 30 days on the job, it's difficult for me to provide that at this point.
But I can tell you that I think the opportunities here are far greater than I've seen in the previous three times that I've been challenged with this type of situation.
So I do believe there's a possibility that we'll be able to impact it quicker.
As <UNK> mentioned, we're really focused on driving those customer service and execution metrics right away.
But we want to make sure we get the strategy right, and that's why you're seeing the numbers that you're seeing from us.
The strategy and driving the value of this Company through the roof over the next five years requires us to have the right approach for multiple years.
And that's why we're being very thoughtful, deliberate, and disciplined about how we approach the short-term guidance, and then also our strategic plan, which is going to be, as we said earlier on the call, completed sometime in the fall, which will give me a much clearer idea of what we're speaking about here.
The ability to impact Q2, Q3, I don't know at the moment.
We talked about our sales trends.
We talked about the need to improve execution.
How quickly that will impact short-term results is an unknown for me right at this point.
But I do know the strategic plan that we pull together for the fall will be something that will enable us to really unlock big growth, big productivity, and really get shareholder value moving.
I would say that it is not different.
And if you look up, which you could, past experience, it was not two years.
I would see us impacting much before that.
Thank you.
So obviously, I want to thank all of you for your questions.
In closing, allow me to reinforce, we're extremely well positioned.
We have tremendous scale as a Company.
We've got a passionate and motivated team.
There's no doubt we've got many areas to improve, but the exciting opportunity ahead is to transform this business into the leader it should and needs to be.
You can count on us to listen to our customers.
You can count on us to be a customer-driven culture.
You can count on us to enable our team members to win in the marketplace.
And ultimately, we're all very confident that this will lead to increased value for all of our shareholders.
So thank you for joining us today.
And this concludes our call.
| 2016_AAP |
2018 | AMZN | AMZN
#Sure, <UNK>.
Let me address your question by answering the entire company.
I'll note where the North America elements are strongest.
So for the quarter, we came in at the highest end of our revenue range, $60.5 billion, 26 ---+ 36% FX-neutral growth and 25% FX-neutral growth, excluding the Whole Foods acquisition.
So the fact that we came in at the high end of the range, volume was high, especially in North America, and a lot of times in Q4 and other quarters actually, we see better efficiencies when the warehouses are busy.
So it was very clean operational quarter, I would say.
The ops team did a great job handling record volumes in Q4 and also incorporating all the new capacity we had opened in 2017.
If you remember, we have added over 30% to our fulfillment square footage in 2017, coming off a similar increase in 2016.
So amid all these opening of new buildings, many of them late in the year, the ops team did a fantastic job.
Advertising was also a key contributor as we're continuing to make more value ---+ the offerings more valuable, both to customers and advertisers alike, and that was particularly strong in North America.
Although not in the North America segment, I would also point out, AWS had a strong quarter, accelerating growth versus Q3 and also expanding operating margins by 100 basis points.
So particularly in North America, I would say it was the ---+ the strong volume ---+ top line volume, combined with increased advertising revenues and also a very clean operational performance.
Obviously, there's a lot of things that can happen in Q4 from weather to demand patterns changing.
We've seen additional costs creep in, in the name of customer experience in prior years.
And this was, in hindsight, probably one of the cleaner Q4s recently.
Sure.
I ---+ we'll be giving you guidance quarter by quarter, but I can talk to the general trends in the large investment areas.
Let me start with AWS infrastructure and growth in technical and sales teams.
That will continue.
We're in a $20 billion run rate in top line revenues for AWS, up from 18% ---+ excuse me, $18 billion last quarter.
So we're very happy with the ---+ both the progression in new services and features that we've been able to bring to customers and also their response.
We'll continue geographic expansion and continuing to, again, build on our tech teams and our sales teams.
So that would ---+ that expense is going to continue and likely increase.
Prime benefits will continue to increase as well.
Prime Now ---+ excuse me, Prime Video, Prime Now, AmazonFresh, all of our major Prime benefits we continue to expand globally.
Devices, as Jeff said in the press release, we are very happy with the results of Alexa.
It's a very positive surprise for us, both on a ---+ adding a little bit more to that, we had record device sales, we had very high levels of customer engagement, including increased levels of voice shopping, growth in functionality, growth in our partner ---+ partners we work with.
Skills there, we've increased rapidly.
We're over 30,000 skills for Alexa.
We've got 4,000-plus smart home devices from 1,200 unique brands.
So the ---+ the relationships we're having with external companies is actually helping to accelerate the adoption of Alexa with customers.
So really strong usage of ---+ excuse me, Alexa with our devices.
Obviously, Echo, Echo Show and the Echo family all directly tied to Alexa, but also Fire TV and tablets.
And we're seeing more and more engagement.
Alexa usage on Fire TV is up 9x year-over-year.
Music listening time on Alexa was 3x higher this holiday season.
So that's what we mean when we said far exceeding our expectations.
Those are the things I would point to.
And that is an area, again, where we'll continue to invest heavily and as we say, double down on that.
Fulfillment, again, is ---+ fulfillment capacity, especially to fuel the strong top line growth and growth in Amazon fulfilled units, which, again, is growing much quicker than our unit growth rate, we expect that and hope that to continue as well into 2018.
Video content, we spoke about on the last call, we do like the results we're seeing with engagement on customers, their buying habits, their engagement with the video content, their use of it on devices.
And we will continue to increase our budget in that area.
But I'll be release ---+ yes, I'll incorporate that into the guidance each quarter as we move through the year.
Sure.
Let me start with that last one.
Yes, shipping costs are going to be very tied to AFN unit growth and also the impact of greater Prime adoption and faster shipping methods.
So yes, we consider that a very strong quarter, down sequentially in the growth that we've seen recently.
That will fluctuate quarter to quarter.
Again, it was a very strong operational quarter in Q4, and we've expanded the number of items that shipped free.
We're now over 100 million items in the U.S. So yes, shipping cost is always going to be a strong part of our offering, and we're ---+ it's going to be increasing due to our business model.
And we, at the same time, look to minimize the cost by getting more and more efficient in that area.
AWS, yes, if you remember last year, we did have price increases in December of last year towards the end.
So it had a partial impact on the quarter.
But generally, just strong usage growth.
Usage growth continues to be strong, growing at a higher rate than our revenue growth rate and customers continue to add workloads and expand.
And as I said, we're adding new services and features all the time, over 1,400 in 2017 alone.
So it's a number of factors, I would say.
It's not as simple as lapping a cost there ---+ excuse me, a price decrease last year, but very happy with the performance in ---+ of the AWS business.
Now over a $20 billion run rate.
Sure.
Let me start with guidance.
So yes, the operating income guidance is $300 million to $1 billion.
Operating income last year was $1 billion.
Q1 is generally when we see the volume drop off from Q4, obviously, but a lot of the costs remain from the year-over-year buildup in costs, particularly in the fulfillment network.
So it's generally a headwind every Q1.
It's ---+ given the 30%-plus growth in square footage last year that we've built, that's one major headwind from Q4 to Q1.
But we also continue to invest, particularly in Alexa and our device area.
As I mentioned in a number of comments earlier, we're very happy with the results, the customer adoption, the device sales that we're seeing and the general customer acceptance there.
So we will continue to invest there.
Those are probably the 2 largest factors in Q1, I would say.
And on advertising, I would say our strategy is to make the customer experience additive by the ad process.
We want customers to be able to see new brands and have easier time discovering products that they're looking for.
For brands, we think the value proposition is that we can find ways for them, especially emerging brands, to reach new customers.
So we're working with advertisers of all types and sizes to help them reach our customer base and the goal of driving brand awareness, discovery and better purchase decisions by the customer.
Sure.
Let me start with the Whole Foods question.
We're continuing to be very excited about the opportunities we have to innovate with the Whole Foods and Amazon teams together in our physical stores.
It states in our supplemental disclosure that physical stores revenue was $4.5 billion in Q4, which is primarily comprised of Whole Foods and was slightly better than what was built into our guidance that I gave you last call.
So ---+ so far, our focus has been on continuing to lower prices even beyond the initial ones that we discussed at the close of the deal in late August.
We've launched Whole Foods products on our Amazon website.
And the technical work continues to make Prime the Whole Foods customer rewards program.
And we expect to have more on that later in the year.
We've also added Lockers and much more to come.
So we're very happy with the initial results out of the team in Whole Foods down in Austin.
Also, I will mention that we did see a small operating income/loss for the quarter from Whole Foods.
At the time of the acquisition, we had stepped up the fair market value of certain assets on the balance sheet.
This is going to increase the amortization.
It's a noncash charge, but it will increase the amortization over the useful life.
And a lot of that is forward front-loaded, so we'll see higher amortization in the first few years and then it reverses later.
So excluding these noncash expense items, Whole Foods had a positive operating income in Q4, but you'll see in the 10-K that the operating income, including the charges, was slightly negative in Q4.
International growth, your comment about slowing down, I think there's a slowdown versus Q4 ---+ 3, if that was your point.
28% growth in Q3, FX neutral, was helped quite a bit by Prime Day and kind of the strengthening of Prime Day in a number of locales.
Although we've had Prime Day in most of those countries, it's really starting to gain more and more traction there.
So that is probably more of a help to Q3 than a discussion of any weakness in Q4.
So we're ---+ continue to be pursuing the same strategy as we have in North America, adding Prime benefits, adding devices, adding video content, adding AmazonFresh, Prime Now, giving a lot of value to the Prime customers in international countries as well.
And also in that number is India.
And India continues to be a good story for us.
We feel that it's had a lot of growth in the past year.
In fact, more Prime members joined India's Prime program in the first year than we've seen in any other country in the history of the world, our world.
So the selection is also increasing Prime eligible selection is up over 25 million items, launching video there and also continuing to add other Prime benefits such as Prime Music will be coming soon.
Amazon Family is there.
As I said, Prime Video, and we had our first Prime Day in India.
So that's a little bit on international growth.
Yes.
And on new businesses or expansion of categories, as you discussed, I would not talk to anything that's not been publicly announced, but on some of the ones you mentioned, they are underway and are continuing.
I would say on logistics, we will continue to build our logistics capability both ---+ and that will be all the way, too.
And delivery, we've been able to increase service levels in many cases by delivering it ourselves.
And although we have a strong partner network here, we will always be able to leverage our strength and our knowledge about where shipments are going, both within our network and to final customers that will create opportunities for us there as we increase or better the customer experience as well.
We continue ---+ I would say on the category side, the biggest effort will continue to be on groceries and consumables with the Whole Foods acquisition.
And again, we continue to look at our whole offering of AmazonFresh, Prime Now, Whole Foods, how can they work together to create better and better offerings for our customer base.
And to a lesser extent, versus grocery, I would say, we continue to build our business, B2B businesses, and very happy with the initial performance there with a number of the companies and universities that we've been working with and their initial results.
Yes.
I'm not ---+ let me just back it to a more general statement.
I'd say, Whole Foods is not less in their commitment to providing the best selection of high-quality products and having them in stock for customers.
We made no changes post the acquisition that would have impacted anything related to in-stock, except perhaps the fact that price decreases have brought up demand and there's an amount of rebalancing related to that.
So I think the out-of-stock issues that may be getting press are tied more to the increased demand that we're seeing and also selective weather-related restocking issues.
But stepping beyond any short-term issues, the commitment is ---+ remains to have healthy, high-quality selection in stock for products.
That's what the Whole Foods team has committed to.
That's what the Amazon team, with them, is committed to.
And also across any delivery channel that we have, AmazonFresh, Prime Now or Whole Foods.
So where there's issues, they'll be corrected.
Where there's areas we can improve our selection and delivery for customers, we'll do so.
But it'll be something that we're working on.
So the immediacy, the perishability are all challenges everyone has in this area, but we're confident that we will have a good service and continue to delight customers.
Sure.
We see a lot of value in all of our businesses.
And AWS is a key component as is the physical consumer business.
The ---+ what I'll point out is the management team is a common management team.
The consumer business, if you will, is, if not the biggest, one of the largest customers of AWS.
So we see a lot of commonality there where we as ---+ depending on position in the company.
On the consumer side, the use of AWS has driven great infrastructure efficiencies, just like other companies see when they use AWS, turning fixed cost into variable cost and pooling resources and not having a lot of trapped capacity throughout the company and taking advantage of all the new services and features.
So as a internal customer, the consumer business is very happy with AWS.
And I think AWS is also very benefited by the fact that they have a large internal beta customer that tries out and uses a lot of their products and services.
So it's a good combination for a lot of reasons, and we see no reason to change the structure that we have.
I think we're also part of the key lean in from a lot of brands and agencies into the e-commerce marketing space.
So whether it's our site alongside search or social marketing, it's really helping them engage customers on a high, efficient ---+ highly efficient manner.
| 2018_AMZN |
2017 | NLSN | NLSN
#Thank you, Mitch
Overall, our business continues to deliver growth and margin expansion in a challenging environment
In our Buy segment, revenue remains weak as a result of challenging fast-moving consumer goods environment in the U.S
However, we continue to drive growth across the rest of the business in both Watch and Buy while also delivering margin expansion
This is indicative of the strength of the portfolio and the resiliency of this business
Let me give a few more details on our total company performance in the second quarter
On the left side of the page are our results on a U.S
GAAP basis
Revenue was just over $1.64 billion, up 3% on a reported basis, driven by solid growth in our Watch segment and the emerging markets in Buy, partially offset by 110 basis points of currency headwind and continued softness in our U.S
Buy market
Net income was $131 million, and net income per share was $0.37. Our net income per share results were driven by revenue growth, margin expansion and lower restructuring charges
Moving to the right side of the page
On a non-GAAP basis, total revenue was up 4.1% constant currency
The net of acquisitions and dispositions contributed approximately two points to our revenue growth
Our core revenue, which we define as total revenue less noncore or nonstrategic assets, grew 7.6% constant currency in the quarter and just under 4% excluding the Gracenote acquisition
I’ll provide more color on the segments in just a few moments
Adjusted EBITDA was $512 million, up 4.9% constant currency, and adjusted EBITDA margins were 31.1%, up 25 basis points on a constant-currency basis
As I’ve mentioned in the past, we are running the productivity play with intensity and delivering cost efficiencies which help us expand margins and fund growth initiatives like electronic measurement in diary markets, expanding coverage in Buy and funding the Connected System
Free cash flow was $162 million, which was a record second quarter and was up 65.3% versus a year ago
We remain on track for our full year plan of approximately $900 million to fuel growth and return cash to our shareholders
Next, I’ll move to the segments, starting with Watch
And the key takeaway is that our Watch segment continues to perform well and is delivering solid revenue and EBITDA growth
Revenue was $821 million, up 10.9% constant currency
Excluding Gracenote, Watch revenue grew 3.5% constant currency
Audience Measurement of Video and Text was up 16% and excluding Gracenote grew 4.7% constant currency, led by strength in total Audience Measurement
In addition to strength in national TV, we continue to see momentum in Digital Ad Ratings and Digital Content Ratings
Digital Ad Ratings campaigns grew 33% in the quarter, and we now have over 400 advertisers using the product, including all of the top 25 in the U.S
Digital Content Ratings also continue to see strong momentum as we increased penetration among top digital publishers, including Facebook
As expected, Audio was flat in the quarter
Marketing effectiveness was up 18.6% constant currency as we leverage our Watch and Buy assets to help advertisers and publishers measure the return on investment and media spend
Other Watch was down 17.2% due to exiting part of the telecom product offerings in the U.S
and the exit of our legacy net ratings product in the U.S
, which is being replaced by Digital Content Ratings
We also exited a content testing asset in the quarter as we continue to execute on our plan to prune noncore assets from the portfolio
Watch adjusted EBITDA was $357 million, up 8.2% constant currency
Watch margins were 43.5%, down 1.1 points
Excluding 145 basis points drag from Gracenote, Watch margins were up more than 30 basis points constant currency, driven by productivity improvements
Our Watch business continues to perform well and is delivering solid revenue and EBITDA growth
Turning to Buy
The key takeaway here is that revenue declines and margins were slightly better than 1Q as we navigate a tough U.S
market
The rest of the developed markets remain resilient, and we see ongoing strength in emerging markets
Second quarter total Buy revenue was $823 million, down 2% constant currency
Core Buy revenue was up 2.7% constant currency
Our revenue in the developed markets was $510 million, down 1.2% constant currency behind continued weakness in the U.S
, partially offset by mid-single-digit growth in the remaining developed markets
business, which is just under half of the developed market revenue, improved sequentially
Now, let me provide some additional color on what we’re seeing in the U.S
We continue to benefit from strong long term contract renewals with our largest clients
However, as we have discussed, some of these clients are seeing challenging market conditions and cycling through significant cost cuts
And as a result, they make near term decisions about some of our products and services as they lower overall spend
We know that our measurement and analytics are critical and that, over time, clients must invest in the data they need to run their businesses
And in the second quarter, we saw this dynamic play out to some extent as clients spent a bit more behind some of their data and analytics needs
Our business in the emerging markets remains robust
Revenue was $296 million, up 10% constant currency
The bets we have made to expand coverage and services are delivering broad based growth with both multinationals and locals
Once again, we saw strong growth in Latin America, Southeast Asia, Eastern Europe and Greater China
In addition, margins in our emerging markets are expanding as we gain scale in key markets
Our Corporate Buy revenue was down 69%, reflecting our pruning of noncore Buy assets
Buy EBITDA was $163 million, down 1.8% constant currency in the second quarter
Our disciplined cost and commercial actions, along with improving operating leverage in the emerging markets, drove a slight increase in EBITDA margins despite a decline in total revenue
Moving to foreign currency impact
I want to remind you that we report revenue and EBITDA on a constant-currency basis to reflect our operating performance
We generally don’t take on transactional risk so this slide focuses strictly on the translation impact for reporting purposes
In the quarter, foreign currency resulted in a 110 basis points drag on revenue and a 40 basis points drag on EBITDA
If yesterday’s spot rates hold constant through 2017, then we expect a 40 basis points benefit on revenue and a 70 basis points benefit on EBITDA for the full year
Moving to 2017 guidance, we are maintaining our full year EPS guidance of $1.40 to $1.46 and free cash flow guidance of approximately $900 million
We are raising our adjusted EBITDA margin outlook to plus 20 basis points, a constant currency expansion as a result of our cost out actions
We’re lowering our total revenue guidance to approximately 4% to reflect our first half results, our outlook in developed Buy and some updated timing on noncore product exits
This includes approximately 6% core revenue growth and approximately 3% core revenue growth excluding Gracenote
There are no changes to our expectations for other financial metrics provided on the right hand side of the page
And as we look at 2017 revenue growth, a few dynamics are playing out: one, our Watch business remains solid; two, we continue to see robust growth in the emerging markets; and three, we continue to plan for a tough U.S
market
We now expect developed Buy revenue to be down 3% to 5% on a constant currency basis for 2017. In the U.S
, we expect the second half to continue to improve versus the first half, though not enough to land us at our prior guidance
We are not forecasting an improvement in the market environment for the back half of 2017. However, a review of our revenue pipeline for 2018, which includes renewals and new business, suggests an improvement in our business in 2018. This, along with an improving market environment, suggests a return to flat revenue in developed Buy for the full year for 2018 versus 2017. And lastly, we remain committed to our balanced capital structure that is funding growth while enabling us to return cash to shareholders in the form of a growing dividend and share buybacks
And with that, I’ll turn it back to Mitch to provide more color on the quarter
Thank you, <UNK>
We’re still working through our operating plan for 2018. However, as I said in my opening comments, our current revenue pipeline, which includes renewals and new business wins, suggests that developed Buy should be flat for 2018. I’d point more to the back half of 2018 than the front half
We’ll obviously share more details when we give the 2018 outlook later in the year
But from our clients’ perspective, we know that our data and analytics are critical to help them understand their performance and business drivers
And while they’ve had to make some tough cost tradeoffs, quite frankly, ultimately, they’ll need to invest in those data and analytics to help them grow their business
And what we see, as we look into 2018, are a few dynamics
One is we’re continuing to win with both retailers and manufacturers
We’re renewing 100% of our long-term contracts with our large global manufacturers
Those contracts are staggered so even the ones that renewed with a lower base spending have price escalators through the contracts, and we’re comping against a pretty tough 2017 environment
The last thing I’ll add is that our Connected System has actually given us incremental capabilities to sell in during renewals, and this has a pretty positive impact on the value of those agreements
On developed Buy, I’d look at the first half for trending purposes, and in the first half, our U.S
business is down double digits
The back half comps get a little easier, but as I said, we’re not forecasting a change in the environment
So the guidance framework that we gave of down 3% to 5% for developed Buy represents relatively easier comps in the U.S
in the back half and tougher comps in Western Europe, which, quite frankly, was up high single digits in the back half of 2016.
It’s in line with the framework
It grew roughly 5% in the first half ex Gracenote
So if you look at the trends for the first half, we’re right on the framework
I’d say a couple of things
One is national and digital are both solid in terms of what we’re seeing in the marketplace
Where there’s been some pressure is local
But quite frankly, there, we’re excited about the prospects that we have in local with the new initiatives that we’re going to roll out, the expansion of electronic measurement in the diary markets, the integration of set-top box data and the panel expansion benefits to our clients
So, we feel good about the framework overall
And again, if you’re looking at the first half, we’re in line with that framework
As I mentioned in my opening comments, we had about 2 points of inorganic revenue in the quarter
Approximately 4 points were added from Gracenote and Repucom
That was offset by approximately 2 points from exits of segmentation and telecom and some of the research assets
In Watch, we had approximately 9 points added from Gracenote and Repucom, offset by approximately 1 point drag from the Other Watch assets exits and telecom
And in Buy, we had approximately 4 points of drag from the exit of the assets and segmentation in customer research
So that should give you the pieces of organic
You have a little bit of timing there, obviously
If I look at Marketing Effectiveness, for example, organically, we grew close to double digits in the first half
We’re going to see strong demand and higher growth in the second half from our key products, and so we feel good about the 15% to 20% range for the year
If I look at Audience Measurement of Video and Text, as I said, it’s in line with our framework if you look at roughly 5% in the first half
I feel good about national and digital
Local is where the pressure is, and we talked about the initiatives there
And then if I look at the corporate bucket, we have a few things rolling through there
One is we actually sunset the digital rankings product in the quarter
We have also exited some assets in content testing
So overall, I feel good about the guidance framework
Let me just sort of walk through that, just to give you the pieces
So if I look at ---+ let me just start with Buy
If I look at our Buy business, we’re going to be down roughly 2.5% to 3% on a constant-currency basis for the year
That suggests that developed is down minus 3% to minus 5%; emerging, plus 8% to 10%; and then, corporate bucket is down 60%
And if I moved to Watch, no change to the framework there, up 11% to 13% in total for Watch
We see audio as being flat; Audience Measurement of Video and Text, up 14% to 16%; Marketing Effectiveness, up 15% to 20%; and then the Other Watch bucket, down 10%
So that gives you the framework that we have for the total company
Again, you always have a little bit of timing and lumpiness quarter-over-quarter, but we feel pretty good about the framework that we have from a guidance standpoint
Yes
So if I look at developed Buy, let me take it in a couple of pieces
I’ll talk about the U.S
, and then I’ll talk about Europe
I look at the first half, again for trending purposes, in the first half, the U.S
business was down double digits
The comps do get a little easier in the back half of the year, but we’re not forecasting a change in the environment
So that guidance framework of being down 3% to 5% actually represents slightly easier comps in the U.S
in the back half
But the comps actually for Western Europe are a tough ---+ are a little bit tougher because in the back half of 2016, Western Europe was up mid-single digits
And what I’ll say about Western Europe is that we continue to be pleased with the recovery that we see in Western Europe that, again, began in the back half of 2016. So while the second half comps are a little tougher, I would say that the environment there is as good as it’s been in 3 or 4 years in those markets
So again, that framework that we suggest says U.S
is a little bit better against a different set of comps, and Western Europe has a tougher set of comps in the back half of the year and net-net, you’re about where you are in the first half of the year for our Buy business
Sure
So I’ll hit a couple of things, and I’ll ask Mitch to chime in on the remaining pieces of it
As I said, there are really three things, Dan, that sort of drive our outlook
One is what we are seeing in terms of wins with both retailers and manufacturers in this environment that we’re operating in
That’s been pretty important for us to continue to go after new business, and our teams are doing a pretty good job from a business development standpoint based on what we see in our early read
The second thing I would say is that we’re continuing to renew all of our long term contracts with our global manufacturers
And while we’ve had some of those contracts that renewed at a lower base, obviously, those contracts are staggered, and even the ones that renewed at a lower base have price escalators that move through the contracts as you go forward
And then the third piece, as I said, is sort of comping against a tough 2017 environment
We expect to see some improvement there based on our most recent discussions with our clients
And as I think about sort of the impact of the Connected System, I would say two things
One is that we do expect some revenue from the Connected System, some of which will be incremental, specifically revenue from the Connected Partner Program
But really, the second dimension is the one where we see the Connected System is actually giving us incremental things for our commercial teams to go sell and do renewals, and that’s actually given us a positive impact on some of those agreements
Our primary focus next year is going to be on conversions
And we expect that to ramp through the back half of the year, but the incremental revenue and the promise that we see from the Connected Partner Program is actually a positive as we look into 2018.
Yes
So if I look at the U.S
business down mid-teens in the first quarter, second quarter, it was down again high singles, and then we saw sort of mid-singles across the rest of the developed world
So those are sort of the pieces that are there
And again, environment is still tough in the U.S
, and we feel pretty good about the recovery that we’re seeing, particularly in Western Europe, that really began in the back half of last year
And I can’t reiterate enough how pleased we are with that recovery and the fact, that, that environment is as good as it’s been in the last three or four years
Yes, just, so from a guidance standpoint, you’re right, the key pressure from a core standpoint is actually in developed, where we’re now guiding being down minus 3% to minus 5%
That is the key driver to what you see in the core revenue number coming down
From a Gracenote standpoint, no change in terms of our expectations there
The business is off to a great start
The integration is on track
The teams are excited about some of the commercial opportunities that Mitch mentioned
So no change to our Gracenote outlook there
The business is off to a really good start
I would say the margin profile is similar
But what I would say on Buy, as you’re thinking about margin profile, is really more around our cost actions, and the cost actions that we took there were really aimed at rightsizing our business for the current market realities
We took restructuring charges over the past three quarters to fund these actions
These actions were in addition to our normal productivity plays, and they’re helping us mute the impact of a softer revenue environment
And quite frankly, the other thing is none of these actions impact our ability to invest in our key initiatives
So as you’re thinking about margin profile, just know that we’ve got a number of cost actions that began in the back half of last year that are going to roll all the way through 2017, and that is the reason why we raised the EBITDA margin guidance and the big contributor to us maintaining our EPS guidance for the year
Yes
Western Europe is probably 35% to 40% of the developed market business
Yes, just a little bit under 50% this quarter
| 2017_NLSN |
2016 | AVT | AVT
#Okay I'll have each of the Business areas give their update on the growth initiatives starting with <UNK>.
<UNK>.
So growth initiatives for TS, 80% is to support converged infrastructure, flash based storage and anything which has to do with software defined data center.
And then on the sub platform we declared that our focus would be on cloud, would be on mobility, would be on big data analytics and then security to support both the data center and all those new technologies.
So that is what we declared during the Analyst Day last year, and basically nothing has changed.
We are maniacally now executing on growing those technologies, and by the way I can share with you that with one exception we are growing at least double digits on all those initiatives.
So it is going very well.
Again the SBU should accelerate that trend, and the fact that is going to be software driven means that the specialization is going to facilitate the implementation of the acceleration of the implementation of the strategies and the recruitment of the specialized partners and in some cases vendors so that we can improve our value proposition.
Basically we feel very good about the progress we are making still.
Our legacy business, the weight of our legacy business is very high, so that is the reason you don't see yet all the benefits from the top line and margin standpoint, but we are very confident on the progress we are making.
This is <UNK> I will talk about EM.
So our Evergreen strategies around design chain and supply chain, we continue to make investments there.
As we said earlier, Premier Farnell is going to help us engage more deeply with design engineers plus the digital design tools that we put into place starting in the Americas and how we're [rolling out] around the world are helping us increase both our registrations and our design wins.
If you look at our funnel for FY16, registrations were up 11% and our design wins are up 5% so our investments there are paying off.
If you look at what we are doing around digitally transforming our business, both our organic efforts which are helping customers dictate the experience they have with Avnet, both online and off-line, coupled with Premier Farnell we think will be a game changer for us.
I've already talk about our embedded strategy and the growth opportunities we see there.
And there's also a focus as <UNK> and I both talked about at our Investor Day a focus on IoT so at EM we continue to look to grow the three building block technologies, and those will grow faster than the market again for us this year.
So we think we are executing well against our strategies and as we get past our ERP issues it will start to show up in our results.
I think it's a great point because if you look at our quarter this quarter even with our EFP issues we are going to be in our normal seasonal range.
So if you project that past, getting past our ERP issues and getting the benefit from the ERP system around pricing and inventory management, things like that, that should only accelerate our performance.
We have not backed off on the budget we've committed to the Corporation for the fiscal year.
Let me start with Avnet specifics than I will talk a little about what we are seeing in the market, Matt.
If you think about our ERP issues April was not a very good month for us.
Things started to improve in May, and then June was fairly typical.
When you look at the guide, seasonality wise we had a very poor April, so that's part of it.
If you look at our book-to-bill, book-to-bill for us is fairly strong at this point.
We ended the quarter at 1.09 and it has continued at 1.08 with all regions above parity at this point.
So we are seeing that the market is a little stronger than we have seen typically.
I think those two things combined coming out of our ERP issues with the fact that the market, I would say sentiment seems a little stronger.
I think bodes well for us to hit our budget and our seasonality this quarter.
No.
We don't normally talk about out quarters, but what I would tell you is you have to take into account there's ins and there's outs.
We had some wins with some of our biggest suppliers that are coming in so I think what we're just going to have to look at is how those play out and we will keep you updated on any changes to our seasonality going forward.
Yes so the answer is yes, absolutely.
Again if you think about those four new special SBUs their role is ---+ they have several roles.
The first one is to come up with a differentiated value proposition because again it is a software sell so the [key to required] will be different.
The solutions required will be different and so with this specialization approach again that's going to accelerate us being able to define and deliver [both] solutions to the market.
The second priority is going to be to recruit Partners so new Partners who specialize in those areas but also enable our existing Partners who are building practices in those areas.
And the third is to complement our existing line card where needed so that we come up with the best value proposition and line card in the market.
So these are the three objectives, so the answer is yes, and again the SBU is the enabler to make it happen.
And by the way.
And the vendors are identified.
We don't want to add too many vendors.
We strongly believe in limited line card as having the right vendors on the line card.
So it's identified and we started by the way working on it.
Hi, <UNK>, it is <UNK>.
I would expect the EM margins to improve sequentially neighborhood of 30 to 40 basis points and again it's due to the sequential improvement in the Americas to the point that you highlighted earlier coming off the weaker April and then the ERP running more smoothly as we work through the September quarter.
<UNK>, that is the right way to be thinking about it.
The extra week had more of an impact on the TS business, so right way to think about it.
So I just had one thing if you normalize it, so if you normalize our quarter last year, remove the extra week and you remove the embedded business which has been transferred to EM.
In fact we are forecasting to have flat operating margins year-on-year.
Thank you for participating in our earnings call today.
Our fourth-quarter FY16 earnings Press Release and related [CFO] commentary can be accessed in downloadable PDF format at our website, www.ir.avnet.com under the Quarterly Results section.
Thank you.
| 2016_AVT |
2016 | THRM | THRM
#Good morning, Mike, and good morning, everyone.
Thank you for joining us for our call.
We want to start off this call with well wishes for our friends and colleagues who are living in our Vietnamese market area.
There was a large typhoon came through last night and was disruptive to the community.
Our operations lost power for a couple of hours and our facility received minor damage to a roof structure but everyone seems to be safe and we are giving all of our well wishes for all the residents of the area, our people and their families as well as of all the other residents as well.
The second quarter for us was a good, solid quarter.
It was not a fantastic quarter but it was a good quarter.
We saw lots of good things occurring and we are very pleased and encouraged by these good news.
The lead for our story is our new acquisition; Cincinnati Sub Zero is performing very well.
We are very impressed with the products, the markets that we are attacking, the management team and the leadership there.
This is a very good sign for us.
It gives us entrance into the medical market which we have been studying for quite some time.
It also gives us an entrance into the industrial heating and cooling environmental test chambers which is a good solid business which we are very excited about as well.
The acquisition of Cincinnati Sub Zero provides us a clearer path to being able to satisfy our previous work being done on our Navy contract and a subsequent contract that we now have for the Air Force for similar types of products.
So all in all, that has been a very, very good situation for us and we are very pleased.
Many of our products are responding exactly as we had hoped.
We are seeing continued strong growth from our heated steering wheel businesses.
It is up over 20%.
The heated ventilated business is doing very well as it is being introduced into the moderate and mid range vehicle lines, being well accepted across the board and several of our businesses are doing extremely well.
The electronics business continues to make progress in its launch preparation as does our battery thermal management business.
We did see softness in the growth rate of our climate control seat business and that is attributable to a couple of programs that have been shifted out, moved away from its initial launch dates that were anticipated to be early this year.
This was discussed in our last quarter results call and it has continued into the second quarter.
We also have seen very impactful results due to the oil and gas industry constriction with our global power business.
The oil businesses has seen a tremendous amount of push out on their order rates, their businesses are much more capital driven and the oil and gas industry issues have now gotten down to us and their business continues to be pushed back into next year.
We are not receiving cancellations at the moment but we are receiving push outs and those push outs are going to impact our revenue and have impacted our revenue in a soft way.
We are going to continue pushing and talking to new customers about new products.
We've got lots of exciting things coming but we are going to today do as we normally do.
We are going to have <UNK> explain in his normal, clear and concise way, all of the numbers and the factors of the business and then we will open the floor for discussions.
<UNK>.
Good morning, everyone.
Thanks for joining us today.
I just want to mention that our earnings for the 2016 second quarter were $0.50 a share on a fully diluted basis.
This included one-time transaction expenses and purchase accounting adjustments associated with the CSV acquisition.
Without these expenses, our diluted earnings per share would have been $0.59.
This represents an increase of $0.06 or 11% over the second quarter of 2015.
The improvement came from our continued product revenue growth including the new sales from CSZ and favorable margin performance offset by higher operating expenses.
As mentioned, we acquired CSZ on April 1, so we had a full quarter of results with the new company during this year's second quarter.
CSZ's reported revenue of $17 million and operating income of $1.6 million and adjusted EBITDA of $2.3 million during the quarter before the impact of purchase accounting adjustments, those purchase accounting impacts included additional depreciation and amortization of intangible assets totaling $320,000 and a one-time additional cost associated with a fair market value adjustment for inventory on an acquisition base of $4 million.
That is a one-time adjustment that we won't see again in a future period.
Those are all added back with these amounts that I'm stating for the earnings and EBITDA.
This quarter our gross margin was 32.4% after adjusting for the one-time purchase accounting for inventory adjustments for CSZ that I just mentioned.
This amount was 1.6% higher than prior year amount of 30.8% mainly due to the higher gross margin at CSZ and some other improvements.
Our operating expenses were $49.1 million during the second quarter.
This was $10.1 million higher than the prior year period.
About half of this increase was attributable to the new operating expenses of CSZ since the acquisition.
These totaled $5.6 million.
Our main increase represents additional resources, primary additional employees in engineering and development positions which are supporting the many new business initiatives we are working on at the Company.
These include the battery thermal management which <UNK> mentioned.
This will launch in about a year from now.
The new electronics business award that we are now working on developing further and our new battery management initiative and quite a few others that we are working on at various stages.
Our first-quarter adjusted EBITDA was $35.5 million.
Again when adding back the one-time purchase accounting adjustment for inventory associated with CSZ, this was $1.6 million or 5% higher than that of the prior year.
Just real quick on the balance sheet, we continue to be ---+ have a very strong balance sheet.
We had cash totaling $132 million at the end of the quarter.
We had borrowed the funds required to acquire CSZ which totaled $75 million during the first quarter but have since repaid approximately $30 million out of our cash reserve for this revolver borrowing that we did.
Our available liquidity from both cash reserves and our revolving line of credit capacity totaled about $260 million at the end of the quarter.
So again, we have lots of liquidity to run the business.
<UNK>, those are my initial comments.
I will turn it back to you.
All right, thanks, <UNK>.
Good job as usual.
Operator, I think we are ready to open the phones for questions from the field.
I would say really that is about what we see in terms of the directional growth.
We are as we said in our press release, we are indicating that we expect full-year growth for 2016 to be at the low end of our guidance at around 10% and I would say that roughly speaking <UNK> will correct me here very quickly as soon as I say this, but I think you will roughly see about 5% of that from the CSZ acquisition, three quarters of that businesses' operation during this year will fall under our P&L and you would see about 5% impact on our total revenue from that.
<UNK>, is that correct.
That is correct.
Well the growth rate in the auto business is kind of episodic so what we predicted, what we actually commented on in the first quarter where we saw some programs that didn't release and were actually deferred for a year, that impact carries over for the full-year but we won't see be impact from this rather happy programs until sometime early next year.
So we aren't going to see a resurgence of 15% and 20% growth rate I don't believe but we will see continued strength in the marketplace.
We have an interesting thing coming for us in the third quarter, we had a historic quarter of revenue for our global power thermal electric group.
The business in that one particular quarter, it was an accident of scheduling but it was a tremendous amount of volume that went out so the third-quarter comps are very difficult for us to match up with global power now falling on harder times.
But in general, the core business we see, we do see some strengthening in the base business.
So we are fairly confident right now that the 10% looks solid for the full-year based upon what we see in terms of releases for the third and early releases for the fourth quarter.
Certainly, <UNK>.
For years we said that the heated and cooled seat, our premier premium seat was targeted for the luxury market place and that luxury marketplace while it is a very good market to be in, it is also one of the smaller segments of the market globally.
We have targeted the heated and cooled business for the luxury market and have been very successful in that arena.
We have also commented in the past and have said publicly that we believe that the market for heat/vent products is significantly larger than that, orders of magnitude larger than the heat/cool business.
We are beginning to see strong interest in that market now in the target market which is the midrange market.
There's two reasons for that being a critical combination.
The first is power.
The electrical power consumption of a thermal electric driven heated and cooled seat is significant and in the midrange vehicles, power is at a premium.
So many of the vehicles that are looking at adding a comfort feature for seat occupants in their cars are challenged being able to find the amount of power thermal electric needs.
There is also the cost impact of course.
In a midrange vehicle, a premium type of vehicle is something that is not in the target market for the demographic customer range.
So we have always expected the heat/vent business to be much larger than the heat/cool business but we also think it is going to be a very nice growth opportunity for us over the next five years.
So we do see continued strength in heat/vent and we see strength in heat/cool but we also believe that heat/vent will overtake heat/cool over the next few years in terms of contributing to our growth.
We also will see some conversion, there will be some people who added heat/cooled to their vehicle lines because simply there weren't any better choices for them to make and they still suffer from the same issues of power and price.
So we will see some of the people who had been buying heat/cool switch over to heat/vent and that will be happening in the future as well.
So I think you are going to continue to see good solid growth and strength out of the heat/cooled and heat/vent business which we refer to as the climate controlled seat business but the dynamics in the markets will shift a bit where heat/vent will overtake and eventually surpass dramatically the heat/cool business.
The margins for us on both of those two segments are very comparable and we are very happy with the opportunity to see kind of the new segment for us open up to be able to add to our original heat/cooled marketplace.
Sure.
Obviously the heat/cooled product has a couple of unique factors.
We have a group of technologies that we know better than anybody in the world, we know how to design, install, implement and manage a system with a thermoelectric cooler generator.
This is critical when you are trying to increase the time to comfort for seat occupants and this is a particularly handy thing when you are targeting the high-end consumer who is focused on creature comforts in the cabin.
If you are not looking for that or if you are not as concerned about time to comfort and you have more time for the HVAC system in the car to aid in the seat occupant comfort, then you can use the heat/vent system and that is what we are really referring to is the be biggest differentiation here is the time to comfort factor.
So when we designed all of the heat/cooled systems, we had to become experts at air distribution, at air movement devices, channeling throughout seats, how to manage these systems themselves for noise, for vibration, how to learn how to install them and we have essentially had about a 15-year head start on anybody else in the marketplace.
It is more susceptible to competition in the marketplace.
Several of our customers in fact have attempted to design their own systems, most notably some of the European, German luxury carmakers have their own designs of heat/vent systems but in our view, these are inappropriately placed in many of the high-end German luxury vehicles.
And we see that as a big opportunity for our heat/cooled systems.
That is another big area of potential growth for us.
Many of these German luxury carmakers set the standard for luxury worldwide.
Offering a heat/vent system in a very, very high-end German luxury car where the global customer is very focused on creature comforts and technology is we believe an opportunity for Gentherm to be able to introduce our product line.
On the heat/vent side, we know how to do it better than anybody in the world.
Not only know how to do it, we are actually very good, we are the largest supplier in the world.
So our strengths there are a real advantage.
We also have some techniques that we have been able to patent and be able to prevent people from copying what we do.
We have successfully enforced these patents in the marketplace and I think all of our competitors are very aware of our keen interest to protect our intellectual property and our ideas.
So I would say that in general it is more susceptible to competition and the best way to fight that is to be the best in the business, have the best design product at the most competitive prices and to most importantly be able to deliver to your customer standards and the automotive industry has the highest quality and service standards in the world.
So we believe we are uniquely qualified and uniquely positioned and have a very unique product line in the heat/vent systems.
You are going to have to pay an extra quarter, you got a lot of questions out of your one question.
I think it is a little bit of excitement but I think it is actually good execution for the local team.
They have done a great job there, a good team.
They've got great leadership and they've got great products.
What we are going to bring to their business opportunity is more scope.
We are going to be able to go after larger international markets.
We are going to be able to go after new verticals for their core technologies and we are certainly going to be able to focus on the medical side of the world for them as well.
Our excitement about our progress with the Navy and now the Air Force contract for patient warming systems are going to be really, really big drivers for them in the future.
Being a part of a larger company, they have more scope now, they have more financial resources available to them.
Our initial project whenever we look at a new acquisition is getting to know the markets, getting to know the management team, getting to know what their strategies are and trying to find ways that we can help.
With CSZ, we found an excellent management team in place.
They have good leadership, they have a very good strategy, a little capital will be helpful for them and our international scope, being able to introduce them to locations and markets and customers in Europe and in Asia I think are going to be very, very helpful in the long run.
But even with that said, we see very good response from their customers and their markets coming up in the future quarters.
Unlike the auto business, their business and the global power business has a longer lead time.
These are custom devices in many cases and so when we look forward into the booked orders, we see very, very strong results and we are very excited about our new partners at Cincinnati Sub Zero.
All right.
Don't forget that quarter.
Well, we are at our core, we are a technology company and technology requires you to be innovative and be creative and think about the problems in a different way and that requires technical talent to be able to do this.
So we do not see a flattening out, we see lots of new opportunities coming for us.
Some of the base businesses that we have engaged in today as an example, the electronics business, we are going to continue to build capacities and capabilities there hopefully forever.
These are interesting products, they are interesting challenges that this team is trying to attack and it requires a full plethora of good skilled people to be able to come in and help us design, develop and implement these new technologies.
Our strategy in the electronics business as an example, was to build a core team and then with that core team establish manufacturing capability.
Once we had manufacturing capability online and running, then expand the team to be able to go after outside business beyond our own business which was roughly $100 million worth of electronic controlling devices, something we understood very well and knew very well and we got all of those assets in place and now we have our first really significant outside contract.
It has been announced, it has been discussed and it is something that we as a company see as the perfect example and opportunity.
Now we have that first contract and we can take that technology to many other customers, all of that requires additional staff, additional team, additional capacity.
So as businesses grow, you invest in those businesses.
These businesses are valuable to us.
The margins are healthy, the growth rates are strong and the opportunity for us to incorporate a full what we would call a system-level product as opposed to a component supplier is very high if you have these types of capabilities.
The same situation holds true in our battery businesses.
We initially sought to find ways to cool batteries operating in the automotive industry in the field and we were given the challenge by a couple of very good, solid significant customers.
We have worked on that challenge and came up with a very unique and innovative design to be able to satisfy not only a cooling requirement but 0also a very complex packaging requirement and always of course in the auto business, we are challenged by cost.
So we were able to come up with a great idea and that led us into broader applications, additional customers for these types of technologies and as we were into that, many of these customers are asking for additional solid suppliers who understand electrical system management and have asked us to look at electronics, some of the management systems that are required to coordinate and manage the charge and discharge of the battery cycles inside the car.
So that is almost exactly the perfect picture of what we would like to do.
We have taken our skills in heating and cooling and we have converted those and we have added this, multiplied those by having the capacity to build electronics including high-power electronics and management systems for battery systems and that is leading us deeper into the energy management system.
So all of those things require additional talent.
In some cases new talent and as new challenges arise from our entree into a segment.
So this is not something that we see we are going to flatten out and cut off additional investment in R&D.
In fact I am pretty excited about spending more money in R&D because that means more opportunities are coming our way.
Certainly.
There is all types of ways to cool things.
The traditional method is a compressed gas system where you push coolant through a very complex network of systems from the engine cabin all the way back to where batteries are stored.
These are expensive, they are expensive not only in terms of cost but also the complexity, the design of your vehicle and the additional feature that has to be added to keep these devices cool.
The beauty of thermal electrics which is our unique differentiator is that it is a self-contained and can be isolated from the rest of the HVAC system of the car and can be targeted and packaged directly with the battery packs wherever they are in the vehicle.
The system itself is actually very, very low profile and very slim and can fit inside usually an existing battery pack without a major redesign of a vehicle or a tear up of the vehicle which is very costly for a carmaker.
This is the biggest thing.
A lot of people including us by the way, we have design systems that simply use air and in some applications air is sufficient.
Certain battery types as an example a simple lead acid battery that is inside of the engine compartment of a vehicle in very hot ambient operating conditions simply blowing air over the battery or through the enclosure for the battery is sufficient to keep damage from occurring.
In other types of batteries, there are many types of batteries that are highly sensitive to temperature particularly to heat.
This is the core of the problem that we have been able to resolve.
If you have any type of lithium types batteries, these things don't like to ever be above 50 degrees seat.
So if you have a system where you can protect that battery pack from seeing 50 degree temperatures, then you have reduced the warranty cost and increased the service life of the battery pack and these things are quite expensive.
An example of a European 48 volt pack for a typical car in the European market sells for around EUR600 to EUR700 per piece.
That is a significant investment on the OEM and on the consumer's part when they buy a vehicle with stop start or a mild hybrid type vehicle.
So this package that we have using thermal electrics is a very, very unique feature and that sets us apart from the average company.
Yes, I think they actually were.
I can't, no.
I don't know it.
I'm not being coy, I don't know what the numbers are.
It is a very dynamic environment when you are launching a vehicle and some vehicles get launched or in many cases we are being added to a vehicle, that is probably more the case here where we are being added to an existing vehicle and the decision to do that can be made literally at the last minute if they decide that they don't want to go.
The decision to go is a very complex decision, it takes years of development and effort and testing and investment frankly in that so getting ready to go is very difficult.
To decide to defer or delay is actually ---+ can be made at the last minute.
It is not unheard of in the auto industry to decide that other factors in the vehicle, we were never the case here where we were the driving factor behind that but other factors in the vehicle may drive the decision to try to reduce the complexity of a midyear change or a model launch.
No, we have no control over it.
I think so.
We have been targeting that low 30s has been our objective for five years and we believe we have gotten our operations and our business model tuned to about that range.
So we are pleased with how the gross margins have turned out and we obviously always want to have better margins and we are focusing on programs to try to improve that in the future but for right now we are right on target with where we wanted to be with gross margins.
I think I would add to that, we have various margins on different products in different times and so we operate in a range plus or minus 1%, 1.5%.
We are probably at the upper end of that range right there might be lower quarters or there might be better quarters but in that range.
That is a good point, gross margin is driven by product mix.
Yes, their business is driven by basically a capital investment project so when we see their business, it is not like a regular recurring restocking business.
People implement programs, the pipelines are being built, they are being serviced to maintain when they are run and being run hard.
When they are not being run hard or they are not being built, there is no demand for the product so what we are seeing is kind of the new type of business kind of fall off and what we are left with is the service and the lingering pieces of the old projects that are coming in.
So no, we don't expect the second half of this year to pick up and we won't expect to see big activities or huge changes until oil and gas recovers.
And by the way, we are most directly focused on the gas pipeline industry.
We are not so strong in the oilfield business.
We are much stronger in gas and gas is continuing to hold up pretty well in terms of demand worldwide and will certainly be the petroleum-based products back to the market much more rapidly.
But like with some of our other businesses, this market was, our segment of the market was very slow.
We trailed the front end of the downturn in oil and gas but we will probably be pretty quick to come back as soon as the market strengthens and we start seeing demand again, the market will come back and they will require and push our factories.
So we are taking advantage of this down time in prepping our operations and getting our team ready and beginning to examine new markets on a global basis to be able to be ready for that upturn when it comes.
We will have some dribs and drabs of revenue as these things start to grow but when we are referring to a launch in 2017, the full volume will start at one of our programs in 2017 and then the second program will follow in 2018.
So there will be actually be some small revenues here and there as the customers buy early stage production runs but it won't be anything significant until 2017 and 2018.
<UNK>, would you like to comment on that.
It hasn't changed, it has always been sort of getting started in 2017 as the program starts to come on in the latter half of the year but then it starts to ramp up because one of the programs has several vehicles to it and they come online over a period of time, a couple of years.
We are very focused on achieving our corporate goal of growing 10% to 15% per year and we believe that we have the underpinnings for that to continue in 2017 and actually maybe even accelerate in 2018 and 2019.
So generally speaking I think we are still pretty good with our corporate objective.
(multiple speakers) The expenses for CSZ which are obviously ongoing but there's no one-time things that go away in the operating expenses.
So the answer is yes.
Thank you very much, Jessie.
We would like to thank everyone for joining us today.
We have had a very good year so far.
We have been able to successfully expand our operations and our support in a little bit of a slowdown and some of the increasing demand for our business.
We have been able to open new facilities in Vietnam which is a beautiful new factory, lots of good people in there working, helping us satisfy current and future demand in our Asian market places.
We just last week were in Europe and we went and saw the grand opening of our Macedonian facility, another beautiful state-of-the-art factory staffed with world-class technology and a tremendous team of people and a new staff of we have 300 new associates there all completing their training and getting themselves ready to help us satisfy the future growth in the European market and that will also be the manufacturing site for our first products in the battery thermal management businesses and all of these things are on schedule and performing to expectations.
In fact, they are exceeding expectations not only of ourselves but also of our customers.
We will be opening a new Mexican facility here in North America to help satisfy the future demands of our North America business.
And so this growth, this expansion is very, very good and puts us at the forefront of all the automotive industry and being able to satisfy these demands.
In addition to that, we are making great progress in moving into our strategic initiatives.
We have found great partners in the medical product lines that are going to help us bring to production and bring to the marketplaces both government, military and the general medical industry some of our heating and heating and cooling products for the medical markets.
We got a bonus in that we also got into the industrial chamber business which is going to provide another new market for us on a global basis and another engine of growth.
We got into batteries by knowing how to cool batteries and that has led us into an additional operational activity for the electronics that control batteries.
And as we look at that, there is lots of opportunities in the energy management systems and so we made an acquisition of a group of people and technologies that would help expand our ability to understand how battery systems need to be managed and designed and that is going to provide tremendous opportunity for us as a future growth driver and a new place to expand our knowledge base.
And just the core electronics technology, we bring an innovator's approach to a business that in many areas is commoditized but we have been able to find very unique segments in the electronics world that we think will be tremendous growth for us and a good opportunity for us for a long time in the future.
We are very happy with the business, we are very happy with the conditions.
We continue to struggle with market conditions where they exist.
We continue to win and we have a very strong balance sheet and we have all the capacities necessary to continue operations as we have seen them in the past.
And we also are adding to that additional pieces that we see necessary for us to be able to achieve our long-term growth objectives of 10% to 15% revenue growth per year with a small bit of profit at the end of every day.
So we thank you all for joining and we ask you to join us again in 90 days.
Thank you, operator.
| 2016_THRM |
2016 | KEYS | KEYS
#Sure, I will start with just answering the modular question, and then I'll turn it over to <UNK> <UNK> who heads up our Communications Solutions Group.
With regard to modular we saw double-digit growth for orders and double-digit growth for revenue.
So we were very pleased with the strength.
Aerospace, defense, and optical in particular, were strong.
But it is very good to see continued double-digit order and revenue growth in modular.
Hi, <UNK>.
This is <UNK> <UNK>.
Maybe I will start out with a couple of macro comments about the communications industry.
As <UNK> indicated in his opening comments, probably the biggest event during this previous quarter was the contraction in the overall supply chain associated with the devices and chipsets and component manufacturers.
But we also saw a pretty big contraction in the R&D part of the communications market.
A lot of the major accounts that operate in that ecosystem were still going through consolidation and restructuring, and that's putting a real damper on their capital equipment spend.
So that's I think the color commentary I can make there.
In regards to pockets of strength, we really do have a unique competitive advantage when you look at the data centers and what's going on there with the 100-gigabit roll-out, and an as well as the 400-gigabit R&D spend, more in the research phase.
We are very well positioned from a portfolio standpoint.
We've got a variety of high-speed digital products that are (inaudible) testers, arbitrary waveform generators.
And in fact in the area of digital communication analyzers, we just introduced a new family of sampling scopes, from 1 to 4 channels, very compact form factor, low noise, and really designed for high throughput in a manufacturing setting.
So I think we will continue to benefit from that 100-gigabit build-out.
In the area of 5G, that's probably the other area to highlight.
And I will go back to, again, some of <UNK>'s comments about Mobile World Congress.
Several of us were there and met with a lot of customers.
And going into Mobile World Congress, I think our general consensus was that we would see an initial deployment in the 6-gigahertz range.
But what's happened since then, it is very clear that there will be at least a dual deployment and a much higher frequency band.
28 gigahertz seems to be the sweet spot of a secondary implementation.
That really plays well into the product portfolio that we have, and have had for decades on the aerospace, defense side of the house.
And so in fact we've had something called a 5G test bed that we put out, which is a way for customers to upgrade their labs to have test equipment that's more compatible with the testing requirements of millimeter wave frequencies.
We have seen that test bed be very well accepted in the market.
And sales have far exceeded our expectations.
And that's the primary driver behind our 5G strength right now.
So hopefully that helps give you a little bit of perspective.
Yes.
First of all with regard to gross margin, our gross margins are really driven more by product mix than anything else.
So I think as we look forward, we don't really see any fundamental drivers that would change ---+ would drive a meaningful shift in gross margins moving forward.
With regard to OpEx, you'll notice that our OpEx has been reasonably stable through the first half of this year since the addition of Anite.
And from a modeling perspective, I'd look to that moving forward.
Thank you.
I did, yes.
The core growth rate is 2% and the absolute growth rate is 8%.
No.
No, the only comments that I can say is that we do continue to be very cautious around the communications space moving forward.
We've taken the same approach that we always take to preparing our guidance, looking at incoming order rates, strength of our funnel, and the quality of our backlog.
So our approach to guidance this quarter was entirely consistent with prior quarters.
The only thing that I would note is in the current quarter, in our second quarter, we did post solid single-digit growth rate outside of the comms area.
Yes.
I think from an industrial orders perspective, we had a reasonably strong quarter.
But I would note that it was against a pretty soft compare from Q2 of last year.
So we were certainly happy with the order results in industrial.
If I was to provide you with a little bit of commentary, it was driven ---+ the orders in the industrial side were stronger than the comm and semi side.
But again, just noting the soft compare from Q2 a year ago.
Yes, I will let <UNK> comment about can we quantify that, the magnitude of it.
I can comment a little bit on the duration.
We are seeing a very broad, widespread uptake in this whole 100-gigabit ethernet build-out in the manufacturing space.
So I don't think that's a trend that's going to disappear overnight.
In parallel with that, right on the heels we have the 400-gigabit wave that's coming.
And there's quite a bit of research going on in that phase.
And the manufacturing deployment of that will likely be in late 2017.
So I think we've got a pretty good trend to play to here over the next year or two.
With regard to size, and we just don't provide granularity at that level to individual portions of our product platform.
The only think I would reiterate was the statements that <UNK> had made about we feel like we have a strong hand to play here.
And as he just said, we think it is one that's a little bit of legs.
I will take the first part of that question and then I will hand off to <UNK> for the second part, which is we're not going to provide granularity on the sequential gain at this point in time.
The more than doubling year over year is all that we can give you.
Yes, <UNK>.
On the ramp, it's very difficult to call it this moment.
You've been at Mobile World Congress.
There is no doubt that it has shown acceleration currently in the market and with some customers.
But I would say it is too early to call when the ramp-up is really going to happen.
Thank you, <UNK>.
I'm going to let <UNK> <UNK>, who is the Head of our Services Organization, get a chance to talk.
I'm glad to answer that question.
There are a number of factors going on.
So yes, there are multi-year contracts in there.
Some of the contracts come in in a lumpy fashion.
But I think the real underlying story here is that Services is composed of two major components.
One is our repair and calibration services business and that showed strong consistent growth.
The other part of the equation is that we have a used equipment business that is also included in our Services numbers and that's very lumpy and goes up and down depending on our demo inventory that's available for sale as well as general product trends.
The underlying growth area, the repair and cal was very strong.
And the used equipment continues to be a little bit lumpy.
We don't quantify the individual market segments by region, but I can let <UNK> see if he has any qualitative points that might be able to assist you.
This is <UNK>.
The thing I can say is that in the Americas we did see, as expected, growth in aerospace, defense.
And this is true for the DoD and for the (inaudible).
But clearly comms was slow, especially with the large accounts.
And this comes back to the comment we did at the beginning of the call, still linked to the overall situation in the wireless industry.
We cannot quantify that for you.
Sorry.
We guide one quarter out.
Obviously there is a lot of ---+ there are a lot of dynamics that happen within the marketplace.
We very glad that we have seen aerospace, defense business be steady.
We are very glad that we see China being steady.
We are glad that we see Russia return to growth this quarter and last quarter in orders versus last year when we saw a lot of solid declines.
So outside of comms, the backdrop is reasonable.
But when you integrate comms, it is still a little uncertain.
However, there is one thing that we are very, very confident in.
We have a very good business model.
We know how to turn that into cash at the end of the day and produce the results that you have seen.
So we will keep at it.
And we think our relative position and our growth relative to the competition was pretty strong.
And I remember talking about two years ago about how we want to ---+ wanted to return to market growth.
And you can assess how we did relative to the other players in the industry.
And very pleased with our posted revenue growth and our profit growth, as well as our 9% order growth for the quarter.
Clearly the macro is still very uncertain, as you can see.
You could look ---+ you can also look at all the competitors and see what they posted during the last quarter relative to what we posted.
But at this point Japan still is soft, and we seem the comp semi business to be not so strong.
China, clearly they're making some significant investments in semiconductor.
But the question is, is how long or what will happen at the end of the year.
So it is still a very uncertain background.
But as we have guided the last almost nine quarters, independently from Agilent from the first quarters before we split until now, we have met our guidance every single quarter.
Hopefully that gives you some confidence.
Thanks, <UNK>.
Yes.
So obviously we have instituted the share repurchase program last quarter.
We executed about 20% of it during Q2.
And that's really designed to be an opportunistic program that ---+ and you can read into the fact that we executed a significant portion of that that we have confidence in our ability to perform in a variety of market conditions.
Our stated strategic priorities have not changed.
We continue to look for M&A opportunities that will help us to achieve our longer-term growth objectives.
But at the same time, when the opportunities present itself we will continue to execute on the share repurchase program as well, although we don't give any particular color as to what our plans are with regard to that execution.
Our aerospace defense business, Alex, has been very steady.
It modulated down a bit when there were continuing resolutions going on.
But overall, if you look at a trend line of that business for 16 years since we split from Hewlett-Packard, not Agilent, it is pretty darn steady compared to any of our other businesses.
And again, we are the prime player in the United States.
The United States is the largest spender in the world by a large amount.
We believe in the long term that they will be bringing in new programs to strengthen our ability to deal with new types of threats.
And we are very pleased with the position that's there.
We don't expect any instantaneous sharp turns up or sharp turns down.
But we feel very comfortable with our position.
It is also worthwhile to note that our aerospace, defense business is not only in the US, that it is also overseas.
And although it's somewhere around one-third of our business, a lot of the business for the International countries are sold through US prime.
So in total, a higher percentage of our business goes to international countries, approaching 50%.
So we are very well balanced with US and with other countries.
We've had a very steady business in that area.
And we are looking forward to capitalize on any gains in any defense spending around the world.
I think we can also say that with the relative stability in the US budget situation over the past couple of years, we do expect aerospace, defense spending to return to typical norms as you think about government fiscal year end in September.
Thank you very much, Alex.
Thank you, and thank you all for joining us today.
We look forward to seeing you at that upcoming investor conferences that I mentioned at the top of the call.
And have a great day.
| 2016_KEYS |
2016 | DUK | DUK
#Yes, <UNK>.
The O&M ---+ the non-recoverable types O&M was down $0.04 year-over-year in the quarter.
And again, we had about $0.05 of storms delta quarter-over-quarter offsetting that.
But we had the $0.04 benefit.
I think our original capital plans for the year are still intact.
I think it's just a shaping during the year.
And, <UNK>, if you look back ---+ even at 2015, we spent about 20% of capital last year.
We're kind of in that range this year in the first quarter and then it picks up over the course of the year.
So the pattern looks similar to what we've experienced in previous years.
Yes, <UNK>.
As we had mentioned in the February call, we're looking at the majority of these cases to be back-loaded in the five year time frame.
But that's always subject to scrutiny of costs and events that are going on at the time.
And in fact, we are looking at accelerating a rate case we may file notice this year for a filing for Duke Energy progress South Carolina jurisdiction.
So we're always looking at what's the appropriate time to go in, what's our cost structure look like and the investment timing related to that.
I'd still say that the majority of the cases are in the backend of the five year time frame.
But the South Carolina is an example of an opportunity we have that we need to move on perhaps earlier.
<UNK>, the rate case timing in Florida ---+ you may recall we have the GBRAs in place in connection with the building of the plants.
And that, along with us, has a stay out through 2018, I believe.
And then in Indiana we've been pursuing the [TDSC] ---+ the grid investment which will give us an ability to track and that will ---+ in hearing ---+ hope to get approval in Indiana, which will give us opportunity to reset prices for those investments.
And we'll continue to monitor whether load trends and other things would change our timing in Indiana.
But we believe the tracker that we're pursuing is the highest priority rate activity in that jurisdiction.
Thanks, <UNK>.
Hello.
My quick question was you mentioned on growth on the gas side that you might look at other gas assets.
So just to clarify, are you looking ---+ are you talking about building on your platform for gas with acquisitions.
Or are you looking for organic growth to build on your gas platform.
The first objective is to close the sale or close the purchase of Piedmont Natural Gas.
And we believe that we'll have organic growth opportunities within that platform, not only for new customer additions but expansion of the interstate pipeline system in the Carolinas as we continue our strategic move from coal to gas.
And then beyond that, for midstream or LDCs there was a question earlier that addressed our interest in that.
We will consider those types of additions to the portfolio that makes sense, compliment what we're trying to do.
But our primary objective is closing the transaction, focusing our attention on integration, focusing our attention on growth organically, as I outlined, and then other opportunities we'll evaluate as they arise.
Got you.
Thank you, guys.
That's all I have.
Our next question will come from <UNK> <UNK> with SunTrust.
If you look in the side deck, <UNK>, the ---+ on slide 13 it gives you the full year assumption for commercial.
And that business is commercial wind and solar, which, as you know, have tax credits as an important part of their economics.
So that gives you a range or a perspective on the magnitude of that contribution.
More heavily PTC.
Just because of the nature of our portfolio, <UNK>.
On the PTC side we look at PPAs that are in the range of typically 15 to 25 years in that type of range.
And the PTC benefit, <UNK>, as you know, was a 10 year benefit.
Certainly we've been in the business ---+ started modestly in 2007.
And then you can look at our kind of capital contribution and growth 2012, 2013, 2014 ---+ so I would say early in that PTC period generally.
Let me make a comment and then <UNK> can continue.
<UNK> commented a moment ago, <UNK>, that we see the potential for rate cases in South Carolina in 2016 that's consistent with capital spending and cost structure and earned returns.
And so we do have rate case potential in South Carolina in the very near term.
And then later in the five year period, in North Carolina, that will be the result of regulatory lag showing up on capital investment that is occurring now and will occur into the future.
I commented on trackers in Indiana and Florida.
But at some point, we'll address updating those rates as well.
So I think regulatory lag for any jurisdiction where we have historic test periods or the need to use base rate increases to achieve prices is going to have some regulatory lag associated with it.
And that's the careful analysis we closely watch in determining the timing for filing.
And I would add, as we said in February, we had a slide on our five year growth and we showed the lag was about 3% negative.
And that's an average number over the five year period.
It will vary year per year.
And it is, as <UNK> said, related to the jurisdictions where you've got gaps between rate cases and you build up investments during those gap periods.
So we're working on that and planning around those events.
Thanks, <UNK>.
<UNK> morning, <UNK>.
Thanks, <UNK>.
It is hard to predict storms, obviously.
The past three years we've seen winter storms that have hit us in the range of $50 million or $60 million a year.
But whether that's normal or not, I would hesitate to say.
We try to impute an amount that we think about in our budgeting.
But you'll have during the Summer season the potential for hurricanes in the Southeast.
And then in the winter storms across our jurisdictions, other than Florida, typically there's the potential.
Hard to predict but we've seen winter storms the past three years in the neighborhood of $50 million or $60 million.
That's correct.
Yes, let me give a little color on this.
Typically outages from storms do not affect volumes very significantly ---+ as one point to make there when you're looking at the whole breadth of things.
I would say that the ---+ I always want to say this, when you're looking at a quarter in particular, short periods of time, you have to be careful about weather normalized data.
I think the first quarter of 2016 was mild, particularly March.
And I don't know whether we pulled all of the weather impacts out appropriately in the first quarter of 2016.
Correspondingly, the first quarter of 2015 was very, very cold.
And I don't know whether all of the weather was pulled out of that quarter as well.
So you're comparing these two weather normalized periods and it shows that the weather impact may not have been that significant.
I suspect that it may have been more mild than what we showed in the first quarter here but I don't try to guess what that could be.
So we just roll with the data.
I like to look at the 12 months rolling more critically there.
We did, as we acknowledged it, it was a bit of a soft quarter.
But I think the 12 month rolling numbers are in line with what we've been forecasting.
And I would want to emphasize that in response to a relatively weak load, we have aggressively pursued our cost structure to offset that.
That's part of our long term plan.
<UNK>, the only thing I would add to it is we have standard methods of identifying what is weather related and non-weather related.
And what <UNK> is commenting on is that standard methods can be impacted in periods where there's extreme temperature.
So extreme cold or extreme warm weather that we experienced in March.
So that all leads us to look at longer time periods so that we don't have those anomalies that could exist in any quarter.
And that is really what has lead us to this 12 month rolling average discussion on load because we think that is more indicative of trends we're experiencing.
And as you can imagine, we watch this really closely and manage the business for a low load growth environment.
Thank you.
Hi, <UNK>.
<UNK>.
Yes, sir.
That's roughly right, <UNK>.
Yes, I think you could get in the ballpark there and it's a little ---+ that's a rough way to do it.
But again, I think getting weather normalized data is as much art as science.
And when you get an extreme period like we had in March and comparing it to an extreme period like the prior year, I think you can get fluctuations that can make that comparison a little distorted.
We think our customer growth in volumes are in line with our broad prediction levels and we'll keep an eye on it.
The other thing that we look at, <UNK>, is multi-family housing versus single family homes.
We're starting to see some positive trends in the Carolinas where there are more single family home construction opportunities.
But coming out of the economic downturn, a lot of the growth was in multi-family units, which by their footprint, use less energy than a home.
So I think we're closely monitoring this and the call to action for us is to insure that our cost structure and the way we manage our investments and assets are consistent with the trends we're seeing at the top line.
And we believe we have a demonstrated track record in managing our business that way.
<UNK>, we're on target for the range of $4.50 to $4.70 that we talked to you about.
This is the first quarter.
I think to give you anymore specifics on placement within the guidance range is just premature.
As you know, the third quarter is our most significant quarter.
And we're managing the business with identifying rate increase opportunities.
<UNK> talked about South Carolina.
Of course watching costs is part of that and we would like to see a longer trend on the sales growth to continue to monitor where that is progressing.
So on track to achieve what we set out to achieve at the beginning of the year.
(laughter) Thanks, <UNK>.
Okay.
Yolanda, thank you.
And thanks, everyone, for hanging in with our fire alarm and our farewell to <UNK> <UNK> and welcome to Mike Callahan today.
And most of all, thank you for your interest and investment in Duke.
We look forward to meeting with many of you over the next several weeks and months and look forward to continued discussion.
So thanks again.
| 2016_DUK |
2015 | USB | USB
#Yes, I think I will just repeat it for everybody.
What we've been doing for a year now is watching our FTE assets and being very prudent about where we have them.
We've recently gone through a rationalization program where our lower performers that were not not performing, just not at the highest level given the importance of an FTE, we've now used a Company program to do a talent upgrade and effectively eased people out of the Company.
And on top of that, in the last quarter, we added this discretionary expense review, which is the other half of the expense category and start looking at where we don't need to be spending money at this point in time until rates move.
And that's something we gave some color around.
I said that in the quarter four it will be a $10 million to $15 million net benefit that we wouldn't have had if we hadn't taken that extra action.
For 2016, it will obviously be more than that, but we are not ready to size it because I am also not going to necessarily give you guys a sense that all expenses stop because we are just reallocating them to the right things and in some cases, we are going to be investing in places we haven't in the past.
So too early to rate for 2016, but definitely a net positive and our goal is to get to the deposit operating leverage at the minimum annual level starting next year.
Yes, I would say it's up from a reported number and that's principally driven, as we've said, by the fact that our tax credit amortization expense at quarter four is our seasonally highest increase related to tax credit amortization expense.
And we said that that would probably go up in the range of about $65 million to $75 million, similar to what we saw in previous trends.
And then you could expect to see that increase being partially offset by some of the elevated costs that we've called out here in quarter three.
No, I don't remember being that strong, but I would say it's not getting worse.
I know I said that before.
Undeniably, it's not getting worse.
Things aren't going backwards.
People aren't going in the direction of not investing.
People aren't afraid to buy cars.
People aren't afraid to use their credit line.
I think for a more political discussion, there is the haves and have-nots and the barbell of who is participating and who's not is greater than it used to be.
But being a prime-only lender and being at a pretty high quality on the line of customers, we are not impacted mostly by that and we are feeling a small, slow, steady, almost monotonous, I will call torturously slow improvement over the course of time.
I do believe, <UNK>, I've always believed it, I could be totally wrong and happy to be if I am, but when the first rate moves, a real move, not a thought of it, not a predilection of it, not a guess of it, I do think that the corporate America starts to move quickly and they will start to take advantage first because they have the most to gain.
And then I think they will start to create some incentive ---+ create consumerism and I think we are off to the races.
I think for the first time business will draw us out of the slow recovery than consumers.
And while we will call it a recovery because is not a recession, it still feels slow and very measured.
So I'm not writing home about it.
Without interest rates moving, you just keep seeing us all doing a little more of what we were doing before, managing to the needs of customers who do have the wherewithal and do have the motives to want to keep growing and benefiting in their lives.
But plenty of people aren't playing yet and the savers are getting killed.
Yes, there's two ways ---+ two answers to that.
One is mobile transitions to banking channels.
We are spending money on that.
We've talked about our growth, our hundreds of people in Atlanta that work on those topics.
I haven't starved that one bit because that is the changing environment we are in.
We have to be a leader on that.
We are expected to be and we have to invest, so that's a good ROI in the long term, not a near-term ROI.
The other one, <UNK>, is we are spending money on compliance.
What I've learned, if you've heard my speech before, it's like we've gone from baggage handlers to pilots.
Same company.
Baggage handlers every once in a while make a mistake and up until now, it's okay, no one loses their life.
But pilots in the same company can't crash a plane.
I've had to move all of our employees from baggage handlers to pilots and we are still in that transition.
The regulators have required that of us as well.
So I am spending money on either back office or more often than not technology to replace some of the error-ridden places where human interaction creates an outcome that's not acceptable anymore and that investment is worth it, not because it's a better product necessarily, but because it's a better compliance outcome and it's a safer way to earn when you don't have the potential of penalties and fines and risks.
So those are two things that have not been touched.
Other things would be the more attractive ways to just increase the capabilities you do in the back office that no one really sees, but it's just more elegant, less involvement where people have to touch customers, where customers can self-serve, all those things are ---+ some of those are nice to have.
Where they are not required, we are holding back on those and those will be the things we will add back the minute we start seeing revenue growth.
Thanks, everybody.
Thank you.
Thanks, Melissa.
| 2015_USB |
2015 | GIS | GIS
#Okay, thank you.
Hey, <UNK>.
Good morning.
Thank you.
Yes, it's about $0.05.
I think it is ---+ what we had $0.04 in July, it's $0.09 now, so about a $0.05 swing.
And as obviously, the US dollar strengthened, the Canadian dollars, it's the [A] dollars, it's the Euro, it's the Brazilian real.
So yes, we see more of a headwind in our reported results from currency.
Yes, good question.
That is a FY16 estimate.
So it will be a partial year depending on when the deal closes, hence the reason why we gave you a range.
As we've talked about, <UNK>, as you and I talked about, talked with other investors ---+ as we talk about our portfolio, the reason we're often asked why, why don't we do ---+ why aren't we more active from a divestiture standpoint.
And one of the things we always come back to is, we have very profitable cash generative brands.
And so, Green Giant has a little under $600 million in sales last fiscal.
Its margins were in the upper teens, and so that's going to be lost income this year.
We're obviously going to use the proceeds to ---+ as we said, half of it is going to used to reduce debt, half is going to be used to buyback shares, so that will have a somewhat mitigating impact on the results.
But at the end of the day, it's a profitable business, and hence the reason we got a pretty fair price from B&G.
Yes, a small, certainly a certain amount of direct overhead that will go, and there's some stranded overhead that will go as well during the course of this year.
That's in those numbers as well.
We're already seeing it, <UNK>, and I'll let Shawn jump in here.
So I'll take them separately.
So in the baking area, where we've really shifted our attention to getting the price point at the shelf right, that's already been executed, and we're already seeing stabilization of that business.
On the [dry dinners] front where it's ---+ the value is being delivered by increased product in the box, that takes longer to actually execute and get the flow through on the shelf.
And so, that will probably take us, I would say another 60 days to get it fully on shelf, and get a good clean read.
Okay.
Thanks, <UNK>.
Good morning, <UNK>.
Those are the key drivers.
I'd say another one is with ---+ we're seeing growth in US retail.
That obviously has a beneficial mix impact to, a slight favorable mix impact.
But you hit the big three.
And let me just address that, and I think what is probably a question about our balance of the year as well, because you do hit on what is going to change as the year unfolds.
So we had a benefit, as you recall a year ago, we had higher merchandising expense in the first quarter.
We spent much of last year working that down, and we started seeing benefit of that in the back half of the year, we started seeing gross margin expansion starting in Q4.
We also have the benefit of our cost savings.
That is still primarily hitting our administrative expenses, but we're starting to see some benefit in our gross margin as well.
And then inflation, inflation in the first quarter was less than 1%.
We still expect it to be 2% for the full year.
So obviously, we'll be above 2% for the next three quarters, and that had a beneficial impact ---+ a disproportional beneficial impact in Q1.
And those three items were all relatively equal in terms of their impact in the quarter, and as the year unfolds.
And so, we certainly had planned for very strong Q1 as <UNK> mentioned in his remarks, in the earnings release, and we're pleased to see it come through.
Hi, <UNK>.
Yes, thanks for the questions, <UNK>.
Both of them are really good.
On the e-commerce front, in the US, food sales that are going through online are between 1% and 2%.
Now that's changing pretty quickly, meaning moving from 1% to 2%.
If you said, what does it look like out four or five years ahead, all the projections I've seen are in the 5% to 6% range.
So it's going to be a high growth area.
Obviously, Amazon is leading some of the thought there.
Walmart.com is investing a great deal to make sure that they ---+ and utilizing their stores to make sure they're competitive.
And that really is causing all of the players in the marketplace to want to be active in the e-commerce space, so an important place for us to play we believe.
As I mentioned with our portfolio, whether it's small hard to find items or our top turning items, we believe that we're well positioned to capture that growth.
As far as the long tail, and our look at our overall distribution of SKUs, there have been several efforts over the years, by I would say all the manufacturers to go through a SKU rationalization.
And in general, SKU rationalization if you just cutoff the tail because a lot of those items are either highly profitable or are covering a lot of overhead, that doesn't really work.
So the job first is to get better distribution on the high turning SKUs, and replace, get those slower turning SKUs off the shelf, so that when you do discontinue them, the impact of those is very small at that point.
So our first job is to really move our distribution up to our fastest turning items, and then consider what things we can discontinue.
And the only thing I, the only comment I would add to that, <UNK>, is that it's very easy to see e-commerce sales grow very rapidly.
We have only to look at other markets where we do business, like the UK and France where some of our categories, our online sales are approaching 10%.
So it's pretty clear that we're going to move in that direction very rapidly in the US.
And this is an area that we're investing in at General Mills to develop our capability, and make sure that we can be leaders and great partners for all of our customers who have a lot of interest in this.
Just to put one finer point on what <UNK> just said.
The piece that will really shift the US landscape on e-commerce is when it moves from being single item search to being full basket online search, which it has in the places <UNK> mentioned in Europe and other parts of the world.
And you can see that coming.
And so that's why we expect the growth projections to materialize.
Hey, <UNK>.
It won't be that same level, but it will be something incremental to that.
In the next year, we'd have a full impact of the share reduction and the debt reduction, so it will be south of the $0.05 to $0.07.
But it will be incremental, since this year is only a partial year.
Yes, this year we were up ]290] basis points.
Last year in the comparable quarter, we were down, I believe it was 200 basis points.
So to think about a full year increase in the 50 to100 basis points is a pretty fair range to be in.
Hi, <UNK>.
We were pleased with the sales growth.
The cost pieces that came in, were pretty much right in line with our expectations, because again they were pretty foreseeable, in terms of the merchandise timing, and cost savings, the inflation.
What I would say is, we were very pleased with US retail sales.
Volume came in probably 1 point ahead of our expectations.
And from a Company standpoint, stripping out Annie's and ForEx and all that, we had organic volume growth of 1% and price mix of 1%.
So a total sales of ---+ organic sales growth of 2%, and we haven't seen a quarter like that in a couple years.
So we felt good about the start.
And what I would say is, we'll continue to monitor that, and we'll handle the proceeds of that similar to what we've done with our plan and our cost savings, which is if we see some plus, there's going to be some we invest back, and some that we flow, and we will keep you apprised of what we see.
I think that is a fair recap.
We are ---+ we feel good about the quarter, it did come in a little ahead of our expectations on the top line, obviously to flow through to ---+ a little bit better on the bottom line.
But it's only one quarter.
And as <UNK> and Shawn talked about, most of our initiatives are still in front of us, which we feel good about, but we want to see play out before we revise our expectations for the full year.
Well, that's an excellent question, and <UNK> will be very happy to ---+ (laughter).
Well, first of all, I'll tackle the question on the earnings.
I mean, again, we were 20% down.
Strip out ForEx, it was 3%.
And that has a number of factors anything from transaction FX to launch costs for Yoplait in China, so some timing items as well.
We still fully expect, not only mid single-digit sales growth, constant currency basis international, but margin expansion on top of that.
So we still feel good about how the year will play out.
In terms of your question on pricing, pricing comes into play locally when there's local inflation that is offsetting it.
If there's not necessarily economic factors that are driving it, it's a little bit tougher to get pricing in the marketplace.
But we take pricing where we believe that we have the opportunity to do it, and you've seen that come through probably most fully in our Latin American markets over time, where you do see local inflation.
We can follow-up with you.
My recollection is that it's been it was pretty stable.
It was better in Q4 and it was we were kind of down 1% here in Q1, but I mean, its basically been stable.
And so, I would say that it didn't worsen.
Of course, we'd like ---+ we need to see it improve.
Well, I'll hit the Annie's question, <UNK>.
Annie's was a 3 point benefit to our net sales, our USRO net sales and 2 points of that was volume and 1 point was price mix.
You saw it on the slide, the Company was 1 point each.
I don't ---+ do we know the answer to the second question.
Our inventories.
We believe that our inventory levels are actually in line as we go into Q2 this year.
That was not as much the case last year when we were in this position.
So I would expect, as <UNK> indicated earlier, that our movement and our RNS should kind of track well from here on out.
All right.
Well, we know our friends at ConAgra are on the phone, so I think we should wrap up here.
Okay.
Thanks, everyone.
| 2015_GIS |
2016 | OXM | OXM
#We think it's got great, lots of white space in front of it, <UNK>.
If you look at the brand, the message of the brand is classic Southern and Coastal, and that's a message that really resonates pretty broadly.
A lot of people from all over the country vacation on the Southern Coastal regions in places like Charleston and Savannah and Ponte Vedra and throughout the South, and that represents a happy memory for them.
If they like the brand, they like the logo.
It's very appealing, and so we think it can be strong not only in the Southeast, but throughout the country.
And when you look at the updated classic point of view, that's one that can resonate with a very broad section of the population.
The price point, being the premium or affordable luxury price point, is a great place to be right now.
So we think it's got lots and lots of white space in front of it.
Yes, I think I'll take the second part of that first.
And I think on the currency situation, it certainly at this point doesn't look like year-to-year it's going to be worse in the back half for us than it was last year.
So I don't know whether it will be a tailwind or not, but at least it shouldn't be an increasing headwind, if that makes sense.
So that should help a little bit in the year-to-year second half.
Then on the first part of the question, about what we're doing in tourist markets to try to combat some of the negative factors at work there, well, obviously there are certain parts of that that are beyond our control.
But there are a lot of things that are within our control, and there are a lot of things that we're doing in terms of in-market, marketing activities, trying to establish good ties with tourist groups and tour companies within those regions, hotel concierges, all that type of stuff.
We're not just sitting back and accepting the fact that it's going to be tougher to do business.
We're very active locally in marketing these destinations and trying to do what we can to improve the situation.
First of all, I would tell you, our timing on opening Waikiki was obviously not great.
I mean, it was many, many years in the works and we opened it as soon as we could get open.
But the Hawaiian market has been tough, and you can hear that not only from us, but there are plenty of official statistics on tourist spending there and that kind of thing that you can read and understand that it's not been a great time for upper end retailers in Hawaii.
All that said, I would tell you that we're very happy with Waikiki.
Again, we didn't open in the greatest time in the marketplace, but we're happy.
It's a beautiful store and restaurant combination that represents the brand beautifully.
We're seeing all kinds of guests there.
We're doing good business, and we do believe that it is having some positive impact in Japan.
Our Japanese business, and it's not solely due to Waikiki, obviously, but has actually been comping up really nicely this year so far.
At Southern Tide.
So let me start with the first part of that question and what it is that we like about Southern Tide.
I think if you know what the other key brands we own are in <UNK>my Bahama and Lilly Pulitzer, Southern Tide is a very natural extension.
It's got a very clear and strong brand position.
Again, being classic Southern Coastal, it's very clear in its positioning.
It's a happy brand about happy times and the happy places, which is similar to <UNK>my and Lilly, and we believe that those types of brands elicit the kind of emotional connection from the guest that we believe is part of the formula for success.
Then if you look at it from a distribution standpoint, we've always talked about the fact that we like brands that have wholesale distribution, that's specialty store driven and in the department store world is sort of Nordstrom and up kind of distribution.
And Southern Tide exactly fits the bill there.
Their distribution outside of their own website is specialty store, and then they sell at Nordstrom and Von Mauer, which is just terrific distribution, from our point of view.
From a price point perspective, they're in that affordable luxury or premium space, with similar pricing to what you see in a <UNK>my Bahama or a Peter Millar, and that's a great place, in our mind, to se\\it in the marketplace.
And then last but not least is the people at Southern Tide.
We don't have a lot of access, executives here that we can parachute in to an acquisition and take over, so having people in place in the business that are culturally aligned with us, have the same values and principles in the way that they operate the business and the same vision about how to run and build a brand is very important to us.
And the team at Southern Tide absolutely fits the bill on that mark, too.
So it was a really good fit for us all the way around and we're happy to add it to our Company.
In terms of their channels and path for growth, they've got their existing wholesale channels, which there's room to grow there, both by adding doors, geographics expansion, and very importantly, by doing more business within existing doors by really managing the business better for higher sell through and throughput.
So some good growth opportunities there.
Secondly, they have their e-commerce website, which I believe is last year was a little less than 20% of the business.
They're off to a really good start there, but we think there's lots of runway for e-commerce.
Then most recently, they've started focusing on shop-in-shops within some of their existing wholesale customers, and they've got several of those going that have the impact of both presenting the brand better and more strongly to the marketplace, but they also, when you do a shop-in-shop, you tend to see an uplift in sales within that door.
And then they've got a couple of signature stores going that are very similar to the signature store concept in Lilly Pulitzer.
So they're third-party retailers that are basically licensed to run a Southern Tide store, and we think that's a great channel for them that's really in its infancy, at this point.
And then somewhere down the road, and I'm not prepared yet to put an exact time frame on it, but we believe this brand can absolutely support company-owned retail and will at some point in the future.
Good.
Thanks for being on.
You mean in the sell through at retail amongst the wholesale customers.
Well, look, we don't have perfect information about it, but as you know, the majors, almost to a store, had a tough spring.
So you're in a very tough climate when you're selling within those stores.
That said, we believe we generally held our own at worst and did well at best within those environments.
So in some of them, our selling was really pretty strong; in others, it held its own within the climate.
But I don't think there's anywhere where we really think we're lagging behind what the overall business of the store was.
Yes.
So as you know, <UNK>, and you've seen, and probably most people on the call know, we have worked over the last several years to really build a much stronger Women's effort.
This spring was the first season where we really had what I'm going to call the new Women's product out there.
We did generate a lot of newness.
So I know that you shop and you saw what it looked like.
And Women's, there was a lot of newness there this spring.
We, through that newness, we created an awful lot of excitement in our stores and among our consumer base.
From a selling perspective, some of it worked well, some of it didn't work as well as we hoped.
And from that, we're learning a lot from a fit, a fabrication standpoint, a price point standpoint, and a merchandising standpoint.
And this is exactly what we had hoped would happen was that we would gain a lot of good learnings out of spring 2016, and that's happened and we'll incorporate those learnings into future seasons as quickly as we can, and we're convinced that we're on the right path with Women's.
In terms of whether it moved the needle or not this spring, the answer is it didn't.
We didn't increase our percentage of Women's.
And in fact, I think we probably went backwards slightly, and that is a result of it being somewhat hit and miss.
And I think also, in fairness to the Women's effort, it's very difficult when the environment's as tough as it was the spring, it's going to be hard to really push on a new initiative like that and see as much success as you'd want to.
So bottom line, <UNK>, again, it didn't move the needle, but it did accomplish an awful lot of what we were looking for it to accomplish this spring.
And as you know from talking to us over the last several years, we're very, very committed to the Women's effort.
We think we've got the right team in place, and we think they're headed in the right direction.
The design and merchandising team spent a lot of time in market, key markets this spring.
So places like Newport Beach, I think, and <UNK>sdale and Palm Desert, actually on the floor watching guests shop the line and talking to guests, so that they were firsthand getting the input and are able to incorporate that.
And then of course, we're aggregating that information otherwise for them, as well.
We're executing our plan quite well this year.
The Australian business is performing nicely.
The Japanese business is comping quite nicely.
We're continuing our overhead reduction efforts there and are exploring the possibility of licensing some of the markets.
So I think we're, that part of the business is tracking very well to achieve its objectives for the year.
I know we just opened three in Lilly in May, and we've got another two coming in Lilly in the balance of the year, I believe.
And then we had a net of zero in the first quarter, is that right, in Lilly.
So it will be five total for the year.
And we'll open eight at <UNK>my.
Eight at <UNK>my.
Thanks a lot, <UNK>.
Yes, so in e-commerce in general, I would say that we, the big takeaway to me is that for the year, we still expect e-commerce to be a strong driver of growth.
And in the first quarter, we saw some turbulence there and going into May, especially in Lilly Pulitzer, where you didn't have all the excitement that Target created last year.
You didn't have that this year.
But e-commerce is still going to drive more than its share of growth.
And then your other question, I think was about omni channel.
Yes, I think it's a big focus of our investment, both from a capital perspective and a people perspective.
So we mentioned in our prepared comments that a very significant portion of our CapEx for the year is dedicated to IT initiatives which, for the most part, are centered around helping to build our omni channel presence in the various brands.
And that's a change from the past.
So the proportion of our CapEx that's being dedicated to e-comm and omni channel initiatives is growing.
And we think that's important.
We think to build for the future that we need to do that.
Then from a people perspective, we are continuing to dedicate a lot of our new hiring to people that live within that world.
So that includes people focused on social media and other digital forms of communication, people in the e-commerce world, people in the IT world that are dedicated to supporting some of those initiatives.
Does that help.
Restaurants had some challenges in the first quarter, too.
Their traffic, I think, was down a little bit less than what we saw in non-restaurant locations, but they were not totally immune to what was going on in the broader marketplace and within the other parts of our business.
All that said, we're still very bullish about our restaurants and our island locations.
As we move into the new age of retail and branded and fashion apparel world, we really think that those island locations are a huge asset to us.
They give us a point of distinction and a way of communicating our brands to consumers that is fairly unique.
And you can see, <UNK>, out there in the marketplace that a lot of people are actually trying to play catch-up with us.
But I will tell them and tell you, it's not the easiest thing to do, and we're glad that we've been at it in <UNK>my Bahama for 20 years now, because we know how to run and operate a restaurant business.
And again, we think that combined with the retail that's at those locations gives us a distinct and relatively unique way to get our brand message across in an environment where it's harder and harder to do that.
Okay.
Thanks a lot, <UNK>.
Thank you very much for your attention today.
We appreciate your support, and we look forward to speaking to you again in a couple of months.
| 2016_OXM |
2017 | TSCO | TSCO
#Thanks, <UNK>, and good afternoon, everyone
I want to take a minute to thank <UNK> for allowing me to be part of the best team in retail as well as thank all of our dedicated team members that are truly the heart and soul of Tractor Supply and have made the past 11 years the best of my career
We will be completing the transition at the end of February, so hopefully I will see many of you before then
But I wanted to thank the investment community and our many analysts that have supported the company and me over the years
Your insights and professionalism have made us a better company, and I'm very fortunate to have had the opportunity to interact with all of you
Now back to business at hand
For the quarter, ended December 31, 2016, on a consolidated year-over-year basis comparable store sales increased 3.1%
Net sales increased 16.4%, to $1.92 billion
Net income increased 10.6% to $123.6 million, and EPS increased 14.6% to $0.94 per diluted share
Demand for our core everyday basic items remained steady throughout the quarter
However, demand was limited for winter-related products during the months of October and November due to a warm start to the quarter combined with an unseasonably warm winter last year, which limited early season urgency
When cold weather arrived, the consumer responded positively and we saw a lift in seasonal sales
As a result, sales were the strongest in the month of December, as cold weather drove sales of winter seasonal merchandise such as heating fuel, insulated outerwear and power equipment
We managed the warmer than normal months of October and November by taking advantage of an extended summer selling season, most significantly in parts of the Southeast and Texas, where we maintained a full assortment of summer-related products in response to continued customer demand for seasonal products
As <UNK> mentioned, we experienced strong demand for many of our basic everyday items in both hardline-related areas and C
such as livestock and pet category, which generated mid-single-digit comparable chain-wide sales
These benefits were partially offset by softness in categories such as safes, footwear, gift and decor
Comparable store sales were positive across all regions
The strongest performance was in the Southeast and West
The performance of the Southeast region was broad-based and also benefited from the sale of emergency response products related to Hurricane <UNK>
We continue to see strength in the Western region, as we expand our store base and gain market awareness and share
Comp transaction count increased for the 35th consecutive quarter, gaining 4% on top of a 0.6% increase last year
Comparable transactions were driven by continued strength of our C
items such as pet and animal food as well as heating consumables
Average comp ticket decreased by approximately 90 basis points compared to last year's decline of 190 basis points
Deflation and big ticket sales decline were the two primary drivers of this quarter's average ticket decrease
Deflation was slightly higher than we anticipated at approximately 60 basis points, driven principally by livestock feed, bird feed and lubricant categories
Comparable sales of big ticket items were down low-single digits year-over-year
Because of the warm start to the quarter, sales of cold weather-related big ticket products such as log splitters and stoves were down
These are items that tend to be purchased earlier in the season and can be influenced by the weather
As a reminder, the fourth quarter included an extra sales week as part of the company's 53-week calendar in 2016. The 53rd week also included one additional comparable store sales day in the quarter
We estimate that that additional comp day added approximately 60 basis points to same-store sales in the fourth quarter
The additional week represented 6.2 percentage points of the overall 16.4% sales increase for the quarter and provided an estimated $0.055 benefit to diluted earnings per share
Petsense store sales are not reflected in same-store sales as those stores will fall into the store base beginning with the fourth quarter of 2017. Now turning to gross margin, which decreased 35 basis points to 33.7% compared to no change in the prior year
The merchandise team continue to proactively manage both sales and gross margin during a challenging sales environment
We were sharper on price to drive traffic and create value for the consumer
In certain holiday and discretionary products, we accelerated markdowns earlier to ensure that we ended the season in a clean inventory position
The mix of merchandise negatively impacted gross margin by an estimated 13 basis points
This was driven by the strong sales in C
products specifically animal and pet food, bird feed and heating fuel which are below chain average margin categories along with softness in higher margin categories such as footwear, gifts and decor
Freight was generally flat the prior year
Lower diesel prices along with lower import costs were offset by higher inbound transportation costs and a greater mix of freight intensive categories
For the quarter, SG&A including depreciation and amortization was flat as a percent of sales to 23.6%
SG&A was impacted by several factors
We benefited from strong expense control from our cost saving programs along with leverage from the solid comparable store sales growth
We are very pleased with our expense management during the quarter which resulted in leverage of store occupancy, medical and related payroll cost, as well as other store and Store Support Center costs
We continued to benefit from our LED lighting retrofit initiative resulting in lower utility and related maintenance costs
As part of our focus on enhancing the customer experience, we allocated more payroll hours to our stores and invested in additional marketing throughout the quarter
And, therefore, we experienced deleverage in both of these expense categories
Additionally, the impact of consolidating the Petsense operations along with onetime charge related to the acquisition of Petsense resulted in an incremental 40 basis points to SG&A in the quarter
Incentive compensation did not have a material impact on SG&A in the fourth quarter
Total consolidated SG&A expense grew 16.5% from the prior year
We estimate the 53rd week added approximately 5.9% to the year-over-year SG&A growth for the quarter
Exclusive of the 53rd week, the onetime acquisition and integration cost of about $2.4 million and the Petsense SG&A expenses, SG&A grew only 6.7% over the prior year
Our effective income tax rate for the quarter was 36% compared to 35.4% last year
The increase in the rate is principally due to timing of federal and state tax credits in the prior year
Turning to the balance sheet, at the end of the year, we had a cash balance of $53.9 million and $274 million outstanding debt compared to cash balance of $63.8 million and $150 million outstanding debt at the end of last year
During the fourth quarter, under our stock repurchase program, we acquired 1.7 million shares for $116 million
Also during the fourth quarter, we acquired Petsense for $145.7 million, funded through cash-on-hand and revolver debt
Average inventory levels per store for Tractor Supply stores decreased 2.9%
We managed our inventory well in the quarter and are comfortable with our seasonal inventory as we move into 2017. Capital expenditures for the year were $226 million compared to $236.5 million last year
We opened up 21 stores and closed one Del's store in the fourth quarter
For the year, we opened 113 stores and closed six Del's stores
The decrease in capital expenditures relates to cycling of the construction of our Southwest distribution center last year, offset in part by a greater mix of retrofit locations for new stores which generally require renovation capital and incremental capital to fund our LED lighting retrofit project
So, now, I'd like to turn the call over to <UNK> to discuss our initial outlook for 2017.
Thank you
Thank you
| 2017_TSCO |
2018 | ACOR | ACOR
#Thanks, <UNK>, and good morning, everyone.
Thanks for joining us.
Highlights for the quarter included acceptance of our NDA for INBRIJA by the FDA with a PDUFA date of October 5, 2018.
INBRIJA is our investigational inhaled levodopa treatment for symptoms of OFF periods in people with Parkinson's disease, who are taking carbidopa/levodopa regimens.
We also submitted a Marketing Authorization Application, or MAA, to the European Medicines Agency for INBRIJA at the end of March.
Last week, we presented new data on INBRIJA at the Annual Meeting of the American Academy of Neurology.
We had 4 abstracts accepted for oral presentations.
Dr.
Charles Oh presented long-term safety and efficacy data from Study 005, our extension study ---+ or excuse me, long-term safety study.
The presentations were well received, indeed enthusiastically well received.
Turning to AMPYRA.
We reported revenue of $103 million in the first quarter.
This was below analysts\xe2\x80\x99 consensus of $129 million.
However, it was only slightly lower than our own internal forecast.
And that was primarily related to a modest expansion in inventories in the fourth quarter, although still within our contractual terms, which normalized by the end of the first quarter.
Prescription demand in the first quarter was in line with our forecast as well.
And second quarter sales to date and prescription demand is also in line with our internal forecast.
We are therefore reiterating our net sales guidance for the full year of $330 million to $350 million.
Regarding our AMPYRA patent appeal, we've been assigned a date of June 7 for oral argument before the federal appeals court.
And we are looking forward to the opportunity to argue our case in court.
This table summarizes the key financials for the quarter.
Of note, we ended the quarter with $333 million in cash and are well capitalized for anticipated launch of INBRIJA.
Moving to our key milestones for 2018, most important is our PDUFA date for INBRIJA on October 5.
We're preparing for approval and launch potentially in the fourth quarter of this year.
And as I noted previously, we'll also have oral argument for the AMPYRA patent appeal on June 7, with a decision anticipated in the second half of the year.
We've completed and analyzed the Phase I data for our remyelinating antibody, rHIgM22.
This was a study in 27 people with acute relapse in multiple sclerosis, and the study's primary objective was safety and tolerability of a single dose following a relapse.
The data showed that a single dose of rHIgM22 was not associated with any safety signals, but the study was not powered to show efficacy.
We had exploratory efficacy measures, which showed no difference between the treatment groups.
And we're now considering the next steps for the program.
So our strategic priorities for 2018 are to achieve approval and successful launch of INBRIJA, to maximize the value of AMPYRA, including our vigorous prosecution of the appeal and continued financial discipline.
We'll now open the line for your questions.
Operator.
Yes, so, well, the ---+ our base case on which we base our projections has to assume, as it does, that there is a loss of exclusivity unless and until we win the appeal.
Should we win the appeal, we would expect to continue to have exclusivity on AMPYRA for several more years, and that would be a ---+ obviously a very good scenario and would allow us to accelerate development of pipeline, and it would be a very good upside scenario in terms of our ability to build value and develop additional products.
Okay.
So we don't comment on ongoing activities with FDA during the NDA review unless there is something material.
So really can't comment on an inspection question at all.
In the normal ---+ I will say just as a general principle, in a normal course of an NDA, one would expect at some point that there would be inspections by the FDA of our manufacturing facilities.
I do want to add a thought to your previous question, which is that, of course, we expect a precipitous decline in revenue, if we were to have generic entry following the end of July.
And we are going to take appropriate steps as needed with regard to that.
And depending on the trajectory of the loss of revenue, we would adjust expenses as needed.
I'm sorry, I'm not sure I understood your question about drawdown to our own inventories.
If that means.
.
Dave.
Yes.
We really ---+ we don't give quarter-by-quarter guidance.
So what we can tell you is that again, I'll reiterate, we were very close to our actual numbers with our internal forecast for the first quarter.
The second quarter prescription trends, inventories and sales are all in line with our internal forecast.
And we are therefore reiterating our guidance for the year.
Okay.
So I'm afraid I can't answer any of your question because we just don't give that kind of guidance in advance while we're in the stage where we're having discussions.
So I can tell you that, of course, we are having discussions, and we're having a lot of them, and we expect to have a lot more before launch.
That's all part of the process of coming to a price and a pricing strategy and a contracting strategy and so forth.
So the whole commercial team is vigorously involved in that.
I will take the opportunity to point out that we have had an extensive amount of very successful experience in doing precisely that with AMPYRA.
And both products share a lot in common in terms of being therapies that are addressing ---+ or aimed at addressing very important symptoms of chronic neurological diseases.
So we have a lot of experience with that, a lot of successful experience and we're using all of that knowledge and experience and applying it to our planning now.
So we expect that by the time we get to launch, we'll be fully locked and loaded.
And frankly, you almost never have a final determination on price until you actually have approval and your label.
And so we would wait for that to give more color on it.
Yes.
It was enthusiastic.
I think that's a fair characterization.
I was there.
I had 2 full days of meetings with KOLs myself.
Our whole ---+ we had a full team there, Medical Affairs having conversations.
And the overall feedback was, if I can summarize it this way, it was very consistent with our market research, which is that we need this medicine.
OFF periods are our biggest single challenge with this patient population.
And we ---+ also, we really like L-dopa.
It's a gold-standard therapy.
And the frustration with L-dopa is that the oral regimens are so inconsistent and inconsistently absorbed and so forth.
We ---+ our own research has said that 89% of doctors say that they will use a therapy like this.
And from what I saw and our teams saw at AAN, that is consistent with the market research.
We would have disclosed if there were an AdCom ---+ if the FDA had suggested that.
So no, we have not heard that to this point from FDA.
Phil, I'm sorry, I can't give you more than I've given, which is that we have our own internal forecast.
Based on what we're seeing so far, the year is consistent with those forecasts.
And with ---+ by the way, with due acknowledgment, that it is more difficult to forecast in a year where one anticipates a potential loss of exclusivity, that does make it more difficult because you have other assumptions you have to put in.
But I can't go into it on a quarter-to-quarter basis.
I'm sorry.
So our current sales force is rightsized for the launch of INBRIJA.
And if we are successful on the appeal and we're able to keep our exclusivity on AMPYRA, we would need to increase the sales force to sell both products simultaneously.
So we would anticipate a 30%, 35%-or-so expansion of the sales force in that case.
But in the case where they were only selling INBRIJA, they are rightsized right now.
And so we have the ---+ that they would actually transition seamlessly from AMPYRA into INBRIJA.
Right.
So the MAA was submitted in late March.
It's currently undergoing what's called the validation by the EMA or the European Medicines Agency.
That's, broadly speaking, it's kind of like being accepted for filing by the FDA.
And we anticipate that the validation process will be completed around the end of May, if it goes by typical timing.
If they do validate it, then the review procedure could take approximately another year, give or take a few months, depending on whether there are clock stops and how many and so forth.
With regard to selling abroad, we are looking at a number of options.
As we said earlier, we are exploring potential partnerships ex U.S. not only in Europe, but elsewhere in the world.
We are exploring whether there is a role for us to expand ourselves into marketing in certain territories.
We have not, at this point, applied anywhere else.
That is something that we're evaluating in terms of where and when we would versus having a partner potentially do it, and it depends on the territories such as Japan or some of the larger markets.
Yes, we can.
The thrust of the approach to INBRIJA is that this is L-dopa, which is the gold-standard therapy.
It is addressing what is recognized by the vast majority of clinicians in this space to be the #1, and certainly, one of the #1 problems they have in treating people with Parkinson's disease, which is that L-dopa is extremely effective and safe in general, but it is also poorly absorbed and subject to significant fluctuations during the day in terms of plasma levels with currently available oral therapies.
And when the plasma level drops below therapeutic level, the patient turns OFF, which means they go back to their baseline disease state and now they can be incapacitated because they're trembling and they're stiff and they are falling and their motor function is declining and other things are declining as well.
So this is seen correctly as a bridge between the oral doses, where you have the random and unpredictable drops in plasma level, you inhale INBRIJA and fairly rapidly come back to a therapeutic level, come out of your OFF period.
And our studies showed that, that effect lasted at least an hour.
So enough time to bridge you between the times when your oral doses are kicking in.
So that is widely appreciated by ---+ what we are finding, it's widely appreciated by clinicians, thinking of it as a way to optimize the impact of the gold-standard therapy in Parkinson's disease.
We're still working on that, so I don't have a definitive answer for you.
We don't expect ---+ currently, I don't expect a need for any more safety studies.
Obviously, this is a single ---+ so far, we've only done single-dose study here.
So we are talking about what future studies might look like.
Yes, we can't address anything specific with respect to that.
I mean, I think it's fair to say that no matter what, we're expecting a precipitous decline in sales.
This is just no way to get around that.
Obviously, we'll do what we can with that and we'll brief you as ---+ if we get to that point.
Our goal is not to get to that point, obviously.
We believe that our patents are valid and that we're going to argue that in the appeal.
But we're reiterating our guidance for the year.
And if there are changes as we go along, we'll obviously alert everyone.
I'm going to ask Dave to respond.
Yes, so we were encouraged by that study.
Obviously, the reason for the study was safety to make sure there was no contraindication or reason not to let people use it in the morning.
And once we saw that the safety data were good, we opened up the extension study and allowed people to use it in the morning as well.
And we were encouraged by the data you pointed out, which even though it was not a ---+ it was ---+ by no means was it an efficacy study or powered for efficacy, we were encouraged by some of the trends that we saw in the data.
So we are talking about what future studies might look like to look into that more deeply.
Great.
Well, thank you, everyone, for joining us, and we look forward to briefing you in the next quarter.
Have a great week.
| 2018_ACOR |
2015 | SYK | SYK
#Sure, <UNK>.
I think as you think about what we said in terms of the early launch, what they're really looking at observational outcomes, with both existing robotic and non-robotic users, but really focusing on the key opinion leaders who really have a presence at the podium.
And we're going to be evaluating everything from implant positioning, adverse events, ligament releases, patient satisfaction.
That's going to be a lot of the initial focus.
Absolutely over time we'll be developing I'm sure, more robust clinical evaluations or trials.
Right now, that's going to be the focus initially.
I think that's something that will come over time as surgeons move up the learning curve and gain greater experience, but given the very limited launch early on as we look to optimize the training protocol, that won't be the focus.
Sure.
Right now, emerging markets represent about 8% of Stryker sales.
That's clearly below med tech.
It's not a bad time to be less exposed to emerging markets.
But that doesn't mean we aren't committed for the long term.
Our India business is doing well.
China will be an important market for the future, so we're certainly not going to ---+ we're not going to invest at the same rate that we've invested for the last couple years while we weather the current storm, but we are in it for the long term and we do plan to grow in emerging markets.
It's just, we had planned previously to be a little bit more aggressive in areas like Russia and Turkey.
That's clearly not a good use of our investment right now, so we'll sort of hit the pause button in those countries.
As the market conditions improve, we'll dial up the investments.
Very pleased with the investments we have made in Europe.
Those are driving terrific returns.
As an overall Company we do want to grow our business outside the United States.
Our strong US business continues to perform very well, and we do plan to grow outside the US, and that's why the operating model changes are extending even beyond Europe to include the other countries of the world, because I think that direct connection to our product divisions will drive growth everywhere else outside the United States.
And Europe is very instructive.
What we've seen in Europe, we know we can replicate in other countries.
I'm not sure what catch-up you're referring to, because if you look at the last year's third quarter, we had knee growth of 6.8%, hip growth of 18.1%, trauma of 15.3%.
So we're posting strong growth this quarter on the backs of pretty strong growth in the prior year.
So for 10 quarters, consecutive quarters of over 5% organic growth, it's not like we're catching the tail of periods of slow growth.
We're posting consistent, steady strong growth.
Now, from quarter to quarter there's some variation between businesses, but overall, this is a very steady growth story that you're seeing at Stryker.
I'm not sure I understand the question, or if it was a specific business you're referring to.
Because on an overall basis, we're posting growth on top of prior growth quarters that were pretty strong.
We haven't quantified the targeted gains.
We have been very clear that we do expect, once it's in full commercial release, to begin to get on a trajectory to gain meaningful market share, and we would expect to be on that trajectory in 2017.
I wouldn't be assuming quite that level of share gains but we also want to get some experience under our belt.
This is brand-new to the industry, but we're really excited about the impact it will have in terms of driving share gain in 2017.
I think as we get closer to that time frame and we think about setting our targets for 2017, we'll be able to have a better sense of what that could possibly mean.
No, I think you should just assume that will be contemplated within our normal spend.
The first thing I'd say about our MedSurg businesses is they had an absolutely huge quarter in the third quarter of last year, if you look back at the numbers that we posted, close to 20% growth in a number of those businesses, so very tough comps.
We're very pleased with our medical division, and expect them to continue to perform very well.
Endoscopy, certainly, we've had a few challenges related to the vertical integration.
That's starting to pick up steam, and I'm feeling very optimistic about that.
That camera launch is sort of the end of the 1488 camera cycle, we're moving to the 1588 platform that we launched towards the end of this year, and certainly, there was a little bit of a delay in orders as people are anticipating that launch.
The one product area that is later in its cycle is our System 7 power tools within instruments.
If you look at the instruments numbers, they continue to post pretty strong results throughout the rest of their portfolio.
But that's one area, as you look into 2016, where you can anticipate maybe a little bit of a moderating of growth, as it gets toward the latter part of their cycle.
They have another range of products that they can sell, and they're performing very well.
I would tell you I'm very pleased with our MedSurg performance.
I know the absolute growth in this quarter looks a little smaller, but again, on the back of an outstanding third quarter of last year, it's not like our business is slowing down, or that we're losing momentum or losing share.
I feel like we have very, very solid businesses that will continue to perform well.
I would start by saying when you look at our portfolio, it does address both hemorrhagic and ischemic, but the majority of the revenue is still driven on the hemorrhagic side, which is going to be the coils and related accessories where we're seeing growth.
Ischemic growth is certainly outpacing that, but it's a much smaller market at this point in time.
And it's certainly benefiting from data, whether it's the MR CLEAN study that showed using stent retrievers, including the majority of the retrievers used in that device was our own, absolutely have a benefit on patients, and this was further enhanced with the AHA guidelines that came out earlier in the year.
That data is really underscoring the benefits of these devices.
They're the only devices that have clinical data supporting their use in ischemic patients.
Growth there is much faster, but obviously off a much smaller base.
There really haven't been any new entrants into the hip and knee market.
The competitive backdrop has been very stable.
I think as we think about the merger between Biomet and Zimmer, they're obviously a considerable player in the market.
We haven't seen them report Q3 results, so like you, we're at a disadvantage.
We feel very pleased with the momentum we're seeing in the business.
We have said it's usually a few quarters in before you really get a sense if any dissynergies are tracking above or below what they anticipate, but we're really focused on our business, we've got a great portfolio of products.
Obviously the MAKO and the new indication we see as a huge benefit.
We'll see what happens to them, but really the focus right now is gaining traction with our own customers and using MAKO to get into some competitive accounts.
I would say when you think about it, right now, essentially all of our focus is on the recon market.
I can't underscore enough the amount of time and energy that's being put into the Total Knee launch to make sure it is executed as close to flawlessly as possible.
We do think that is the biggest indication, and can have considerable impact on the market.
I think there will be downstream applications in other areas of joints, whether it's in the shoulder or in the spine, but that is multi years away from where our focus is right now.
New markets are often difficult to predict.
So when we created our foot and ankle business unit a few years ago, I really didn't expect that the market would be this big, and that the growth would be this high.
So it's been a fantastic business unit for us, performing extremely well, mostly with organic growth.
We had obviously the SBI acquisition as well.
The market still seems to be very hot.
There's still a lot of surgeons that are increasing their volumes, and more and more surgeons getting trained.
So we do believe that this will be a high growth market for the foreseeable future.
Whether it stays up at the 20% or starts to moderate, I'm not sure.
We're not really concerned about competitive dynamics.
We have a great product portfolio, very strong sales force execution.
When you're riding market growth, and you've got the products and the sales force, it's a good place to be.
The latter, very small, and it really covers the entire range.
We're seeing all sorts of customers out there.
I wouldn't be able to characterize it as one specific type of hospitals.
We have some hospitals with one robot, some with multi.
We have some that were existing customers, some that are competitive customers, some that are buying the robot, some that are leasing the robot.
It really is the full range.
There's not one specific characteristic that I would point to.
M&A, the timing of M&A is always difficult to predict, and valuations is one factor.
It's not always the only factor.
We also have issues sometimes around quality, and remediation that's required.
Sometimes it's cultural fit.
There's always a range of issues that we go through, when we're looking at a target, and as we get under the covers and do due diligence, then we figure out whether we really want to move forward or not.
Valuation clearly is always one of the factors, but I wouldn't say suddenly, just because we have a temporary market pullback that the companies are ready to sell to us at a much lower price.
So I think it will take a little time for that to settle in.
But clearly, valuations is one of the factors that we look at, and one of the reasons that we won't move forward.
It's not the only reason.
Yes, so I tell you that we're not focused at all on the competition.
We really don't see Blue Belt as a fully robotic solution.
It's really, in our view, it's an enhanced navigation system.
It doesn't have the type of features that our system has.
We really believe we're alone in the purely true robotic space, and that we have a long runway ahead of us, and we're really not concerned with competition.
Sure.
So I mean one, we don't break that down externally at all.
But I mean, you should expect that any of our businesses that are seeing mid digit plus organic level growth, we would expect to get reasonably good operating margin improvements on that over time.
Based on the market growth dynamics in different geographies and/or in aggregate for a business, if the growth rates are down in the lower single digit range, you probably shouldn't expect really any operating margin improvements.
As that goes up, though, we should definitely get operating margin leverage in almost any of our businesses.
And I think that in general, that's what we're driving to achieve over a two, three year period of time on average.
<UNK>, just I want to make sure I'm understanding the question.
You're saying how long it takes to physically upgrade an existing account to the new indication, to the new robot, the software and the related hardware components.
I would say, at the end of 2016, we feel like we'll be in the very good position to go into a full commercial launch, and we won't be limited by the need to upgrade existing customers.
You're always bringing on new customers, but that's part of the reason to have a very measured controlled rollout, is to make sure we're in a position really to put the pedal down, and when we go into full commercial launch.
As far as the gross margin rate question is concerned, so yes, it was a very good quarter.
As I mentioned really in the early part of this year, both in the first and second quarter, we talked that our gross margin rates were going to improve as we moved into the third and even into the fourth quarter of this year.
Our expectation from a breakdown of some of the categories.
So two of the biggest impacts in this quarter are FX and mix, and maybe a little bit on the pricing, since pricing was only 1.3% for us.
But FX and mix were probably, if you look at the total improvement, they're probably each in the 50 basis point plus range, as far as the impacts that they have.
Keep in mind that a lot of our products are manufactured in Europe.
As the European or the euro currencies have been declining this year, and the US has stayed strong, we've actually continued to get improved gross margin rates from FX, despite the fact that FX on the bottom line at the EPS level has actually been negative for us.
And then same thing on the mix side.
I think that you should expect both of those to continue as we move into the fourth quarter, and then you should look more from an anniversary perspective that the improvements that we'd expect next year would be relatively modest at the gross margin level, but we'll get into that as we announce our overall expectations for the year.
Generally, if price is at the upper end or in the 1.7%, 1.8%, to 2% range, we'd expect our gross margins to be relatively flat in that kind of an environment.
Thank you all for joining our call.
Our conference call for the fourth-quarter 2015 results will be held on January 26, 2016.
Thank you.
| 2015_SYK |
2016 | CNMD | CNMD
#Sure.
Great question, Kristin.
We closed the SurgiQuest transaction on January 4.
And there's really two priorities when you close a transaction: it's number one, people; and number two, product supply.
And on the day of close, we communicated to every individual within SurgiQuest their status within CONMED.
We also brought both selling organizations together, including management of sales ---+ all sales reps and all marketing individuals from both organizations, and conducted extensive product training across the entirety of the new offering inclusive of the SurgiQuest bag, inclusive of the CONMED bag.
When sales reps went home, they went home into a new defined territory.
And I would say over the last couple weeks, the effort has been focused on learning the new geography.
For the reps that were picking up new customers, it's a lot of meeting and greeting and seamless handoff from the CONMED rep or the SurgiQuest rep who may have covered them.
So I feel like we got out of the gates on the right foot; great communication.
Really letting every employee ---+ CONMED and SurgiQuest ---+ know where they stood.
And I think overall, we would say our customer reception has been favorable, and it's really about picking up both sides of the offering and making sure we're doing our best to advance it.
The guidance we've put out there ---+ $55 million to $60 million ---+ we think is a responsible number.
You look at some of the supplemental information; we show a pretty detailed schedule of what SurgiQuest did last year.
We call out that there was some one-time items in their second quarter related to the revenue for international.
We also know that they had a really strong fourth quarter, some of that clearly motivated by the announcement of the acquisition.
And so we've tried to handicap all of that and give ourself a solid chance to get to the revenue that we've put for guidance.
So out of the gate early; feel very good about where things stand and the leadership that Bill Peters and the sales and marketing team are bringing to that business.
It would be very hard for me to quantify it, but we are not a large organization.
So all the people that are driving business are the same people that were working on acquisition integration plans.
And I think it's reasonable to assume there was some impact on the focus on the underlying advanced surgical business during the run-up to the close of that.
We got pretty quick ---+ Hart-Scott-Rodino closed.
There were other contractual items that we had detailed that had to be closed.
And when we got the quick news on Hart-Scott-Rodino, it just made sense to go really fast to try to close it as quickly as possible.
Though as <UNK> called out, I think I mentioned in the quarter the CET business and the cardiology critical care business were both pretty soft, and I think that had more to do with the fourth quarter than any big distraction in advanced surgical, though there certainly was some.
The advanced surgical business in 2015 for the year delivered 3.2% growth.
And as you recall at the beginning of the year, we made an announcement that we were taking two smaller businesses, endomechanical and advanced energy, and going to combine those to create smaller geographies and sales professionals who had a bigger offering.
And that would allow them to be more efficient with their accounts and their coverage.
And we think that played out very well.
Obviously during that time, we were cross-training people on the half of the bag that they were picking up.
We think that the SurgiQuest acquisition is a natural drop-in center of the fairway ---+ whatever you want to call it ---+ product for that portfolio.
And as an only-in-class technology, highly innovative offering, we think it will shine even a brighter light on the broad CONMED advanced surgical bag.
So I call those kind of all of the positive things that we saw in 2015.
Obviously, things that potentially were adverse to the effort this year ---+ as I mentioned in the previous question, it's still a pretty small management team and at the same time, they are trying to run the business.
They were working diligently around the clock on the SurgiQuest transaction, on the SurgiQuest integration planning, and really trying to put their arms around that organization and the people within CONMED that were impacted by that change.
So there's only so much bandwidth, but I feel like we really ended the year in good shape.
And I'm optimistic about how our chances look for advanced surgical as we enter 2016.
When you look at our 2016 guidance specifically as it relates to export, we did not factor in any material upswing in those markets, specifically in Brazil or in China.
Now, I would say that as we look at the trend from a dollar standpoint, from a performance year over year over a number of year period, we would like to believe that we've kind of hit the bottom of the trough.
When I look at our fourth quarter versus our third quarter versus second and first quarter, we don't see anything right now that indicates a worsening.
Certainly I think China got a little bit worse for everybody in the fourth quarter.
I think I mentioned at the conference earlier this month that China was a pretty small percentage of our overall revenue: under 2.5%.
And we're export in portions of China; we're direct in other portions.
Our direct business seems to be doing okay, hanging in there.
Our export business a little bit more up and down.
So no material change in guidance, and part of this is just macroeconomic.
And I'm not smart enough to call a change on that.
Sure can.
So the way I look at it is as follows.
So we are ending 2015 at $1.60 on an adjusted basis.
And we really have two things going on that is going to reset the bar for 2015.
So the first is moving the cash EPS and the impact of that on the legacy CONMED business is $0.30.
The other item that we have to factor in to reset the bar is FX, and that number is $0.41 to $0.43.
But if we assume $0.43, the net of those two brings us from $1.68 to sort of a new baseline of $1.55.
And then I think of sort of the next category as areas where we need to execute in 2016.
And that's a aggregate of $0.30 to $0.40 and that gets us to the $1.85 to $1.95.
Within $0.30 to $0.40 is our organic business as well as SurgiQuest, and what we attempted to do today is really lay out the components of SurgiQuest in the supplemental financial disclosures that let people build models.
What I will say is that within that $0.30 to $0.40, depending on where you are in the range, SurgiQuest provides a substantial amount of it.
What I would say is it's included in the $0.30 to $0.40.
And the difficulty that I have is is we are expecting something from a major contribution from SurgiQuest.
However, we have taken the SurgiQuest business and we merged it within to our advanced surgical business, so it's really one business now.
So we're actually cutting in some places on our business and reinvesting on the SurgiQuest side.
We're also doing the opposite: getting synergies on SurgiQuest.
So I guess what I would do if you are modeling is use the guidance that we've provided to come up with your estimate on SurgiQuest and then the difference is really the organic growth.
Sure.
Let me start with SG&A.
So we ended up the year below 40%, and that would certainly be the target we'd be looking for under normal circumstances in 2016.
Unfortunately, currency is going to be impacting FX and the FX impact on currency is going to be 80 basis points unfavorable.
Going the other way is that we are going to get leverage from SurgiQuest.
And the leverage we're going to get from SurgiQuest on the SG&A line will push us back below the 40% level.
And last, while it's a reporting change from a reporting standpoint going forward with adjusted cash EPS, we'll get an additional 170 basis point reduction on an adjusted basis.
So that's really the puts and takes on SG&A.
From gross margin, we ended the year on an adjusted basis of 54.2% compared to 2014 adjusted of 55.4%.
While that's a 120 basis point decline, 2015 actually had 140 basis points of currency impact.
It also had 70 basis points of unfavorability due to the beginning-of-year deferred variances.
So excluding those items, our gross profit improvement in 2015 was 90 basis points.
As we look at 2016, we're going to get back the 70 basis points from the deferred variances as we are starting the year much more favorable.
As we have discussed, FX continues to be a problem and the FX impact on 2015 gross profit based on the current FX rates is an additional 140 basis points.
And just to be clear: this is in addition to the impact realized in 2015 of 140 basis points, so we're having an aggregate 280 basis point unfavorable FX impact since the beginning of 2015.
The last factor that's going to impact 2016 gross margin is SurgiQuest, which will have a slight favorable impact on an adjusted basis as the SurgiQuest margins are higher than our corporate averages.
From an R&D perspective, R&D amounted to 27.8% in 2015, as we mentioned, representing 3.8% of sales.
With the SurgiQuest acquisition, we will be adding $2.8 million to $3.2 million of additional spend.
From a percentage standpoint, we should be close to historic levels based on our current R&D budgets.
And as <UNK> mentioned, we are considering various alternatives to redeploy the funds freed up from the medical device excise tax suspension.
And it's likely that additional research and development projects will be one of those alternatives.
So I'm going to pause there and see if you have any additional questions.
Our preliminary number is $8 million, but I want to caution that's a preliminary number and we're still completing the valuation.
Sure.
So as I mentioned ---+ as mentioned, we had $256 million as of the end of the year.
We acquired SurgiQuest for $265 million, and of that purchase price, approximately $42 million was related to cash that we had on our balance sheet.
Sure, Jeff.
I think the filing is reflective of ---+ it's a simple business transaction.
Scopia acquired Coppersmith.
Jerome Lande, the principle at Coppersmith, is now a high level executive within Scopia.
And the shares of Coppersmith were ---+ that Coppersmith owned in CONMED are now owned by Scopia.
And Jerome remains a member of our Board of Directors, and this is the simple regulatory filing to announce that transaction.
I think the way to look at cadence for 2016 ---+ and I think 2015 is a respectable predicate ---+ the second and the fourth quarter are certainly bigger quarters on an absolute dollar basis.
And I think that's a byproduct of the way we've structured the US selling effort, with a commission-driven sales force with targets set up on an annualized basis.
But also people very motivated to show progress at the halfway mark.
International is a little bit harder to predict because of the export versus direct business and they tend to be more stable throughout the course of the quarters.
So I do think you cannot use the fourth quarter as a predicate on the first quarter, and I do think you will see us growing through Q1 into Q2.
You always get a little bit of a third-quarter slowdown and that tends to be a bigger fourth quarter.
And I see no reason to expect different this year.
SurgiQuest, we have tried to build a responsible model.
We know that out of the gate there is a lot of things that happen in a transaction: cross-training, new customers, new reps.
So we think that has a little bit slower start out of the gate and then builds as the year unfolds from more of a straight line build through the year versus following the normal pattern of Q2, Q4 being bigger.
Does that help.
Let me take the inventory build.
So biggest piece of it was building up some inventory related to the Denver shutdown.
So as you may recall, that facility made primarily electrosurgical generators for which we have a pretty good business outside the US.
And as a result, in order to give some lead time on registrations, we need to build up some inventory.
And as far as gross margin for next year, given all of the puts and takes, I think we're going to be trying to get back to 54%.
But as I mentioned, there's a lot of moving pieces with that.
It's a great question.
It's an expectation; it's not an expectation that we've built early into the model.
It's something that as we look at the business, we think happens in a longer period of time because the focus out of the gate is each side of the transaction ---+ CONMED learning the SurgiQuest product portfolio, SurgiQuest learning the CONMED portfolio.
There's some time to get everybody comfortable and then moving to that next level, where we get product pull-throughs probably a little bit later in the year.
Though we certainly think that something as innovative as the SurgiQuest AirSeal system, when we bring that in and talk with customers, it shines a brighter light on the rest of our portfolio.
So that's an absolute expectation.
I can't say that I could point to anything at three weeks in to say that we've seen that, but it's certainly an expectation.
Well, I look at a couple things here.
Number one: the biggest percentage of our revenue is orthopedics.
And we've put together what I think is a stronger second half of the year, which bodes well for the future.
And we did that both in the US as well as in our direct international markets, which is two-thirds of international business.
So the biggest piece of our business had a stronger second half than it did a first half.
And those leaders, those managers, those reps in the direct markets get better with each and every day.
I also think the cadence of products is going to help them.
Three of the four acquisitions that we completed in 2015 ---+ three of those were product line drop-ins that benefit the orthopedics business on a global basis.
And then there's internal work that continues ---+ products that were introduced last year that will continue to increase and products that we have in the plans for this year that we think should benefit.
So the biggest business ---+ I think we've got a lot of things lined up correctly to help us move forward there.
The next biggest business is the advanced surgical portfolio.
Again, the team has been in place now for a year.
We just added ---+ and they grew 3.2% in the US market.
We just added a very exciting acquisition to that portfolio.
They had some new products that they were supposed to get in 2015 that are now more geared towards the first half of 2016.
So the combination of the experience leadership team, SurgiQuest, and the addition of some new products.
So our second-biggest business has a lot of momentum.
And that leaves our two smaller businesses, endoscopic technologies and legacy business cardiology critical care.
Both of those businesses have had full-time leaders in place since last January.
Both of those leaders have been looking at strategic alternatives for their businesses in terms of product additions, sales force efforts with customers in different manners, whether it's through structured programs.
And I think we will start to realize some of that benefit as this year unfolds.
So I put all that together.
And on the other side, I think we've spent a lot of time studying the export market and where we think we are with the export market.
Just for reference, a data point: if export would have been flat in 2015, we would have been in our original growth range.
So the volatility in export took us out of the game.
Could it happen again.
Yes, it could happen.
But again, I've got to look at the facts, the data I have in front of me.
And right now, we think export is at least stable, and so we've modeled 1% to 3% based on everything that I've just discussed.
And then other things we are expecting.
The business finished the year ---+ and this is in the supplemental schedule; we break it out by quarter ---+ the business finished at just over $49 million.
And I believe the prior-year number was around mid-$30s million.
I don't have that number right in front of me, so don't hold me to the T, but it was in the mid-$30s million.
So it was pretty sizable growth rate.
But again, we point out that part of that growth rate in 2015 came from some one-time build-up of international distributors that will not repeat.
So we've got to back that out.
And then we also know that in the fourth quarter, they had a pretty substantial run-up, which we think is an inherent byproduct of highly motivated salespeople not having a clear picture on what their future is going to look like until the transaction closes.
So we think there's probably some revenue that may not necessarily repeat.
So we've tried to pull those things out and build a responsible model.
So we've put the $55 million to $60 million guidance out there.
We hope we can have that conversation at some point in the future.
It's a percentage.
Actually, it works both ways ---+ percentage and dollar.
So the business does have both capital and recurring.
And it's a little bit analogous to CONMED in that the majority of the business, north of 70%, is recurring.
I wouldn't say that there is a large capital backlog and I think you can look at the supplemental schedule we put out and look at their fourth quarter to support that statement.
So it is a capital business.
The capital is not placed; it is sold.
And there was an active pipeline that continues to be worked, and we're looking to expand that pipeline.
Does that answer your question.
Okay.
Thank you, Karen, and take you, everyone, for your time today.
We look forward to speaking with you on our next earnings call, which will be held on April 27 of 2016.
And we look forward to getting the year off to a good start.
So thank you, everybody.
Have a good evening.
| 2016_CNMD |
2018 | CECO | CECO
#Thank you, Phil.
Good afternoon, everyone, and thank you for joining us.
With me on the call today is <UNK> <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Vice President, Finance and Interim Chief Financial Officer.
This conference call is being webcast live within the Investor Relations section at careered.com.
A webcast replay will also be available on our site, and you can always contact the Alpha IR Group for investor relations support.
Let me remind you that this afternoon's earnings release and remarks made today include forward-looking statements as defined in Section 21E of the Securities Exchange Act.
These statements are based on assumptions made by and information currently available to Career Education and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements.
These risks and uncertainties include, but are not limited to, those factors identified in Career Education's annual report on Form 10-K for the year ended December 31, 2017, and other filings with the Securities and Exchange Commission.
Except as expressly required by the securities laws, the company undertakes no obligation to update those factors or any forward-looking statements to reflect future events, developments or changed circumstances or for any other reason.
In addition, today's remarks refer to non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.
The earnings release and slide presentation, which accompany today's call and which contain financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures, are available within the Investor Relations section at careered.com.
So with that, I'd like to turn the call over to <UNK> <UNK>.
<UNK>.
Thanks, <UNK>.
Good afternoon, everyone, and thank you for joining us on today's call.
I'll begin by reviewing the fourth quarter and full year results, which came in ahead of our expectations.
<UNK> will then review the financial results and 2018 outlook in more detail, before I provide some final closing remarks.
Let me also point out that for the remainder of today's discussion, references to ongoing operation represent results from the University Group and Corporate.
We executed well against our objective of sustainable and responsible growth, as demonstrated by our fourth quarter and full year operating results and metrics, which were better than the prior year.
Our initiatives and investments in the student-serving processes and operations were able to effectively serve the prospective student interest at our universities.
For the quarter just ended, total enrollments within our University Group increased by 3.3% as compared to the prior year and new student enrollments grew 15.4% as compared to the prior year quarter.
Both AIU and CTU contributed to this growth.
At CTU, total enrollments increased by 0.9% and new enrollment increased by 7.4%, a second consecutive quarter of new enrollment growth.
This growth has been supported by our initiatives and investments in student-serving processes and operations, which are intended to improve student experiences, both before and after they're enrolled in our programs.
We believe that the positive enrollment growth is a testament to the impacts of these initiatives and investments.
Throughout the year, we have continued to invest in our admissions and advising functions to increase retention and help student outcomes ---+ help students complete their intended field of study.
We expect this trend of improving student retention and the academic outcomes to continue into 2018, and believe that consistently strong retention over time will result in higher graduation rates.
As a result, it is important for us to invest in admissions and advising resources as well as use innovative technology to effectively address and meet the demands of prospective students.
CTU's Phoenix admissions and advising center is one such investment, and we are pleased to share that during the first quarter of 2018, we expect CTU to experience positive new enrollment growth versus the prior year quarter, primarily driven by these initiatives and investments.
This expected growth would represent a third consecutive quarter of new enrollment growth at CTU.
At AIU, new enrollments increased by 27.2% for the quarter as compared to the prior year quarter and positively impacted total enrollments, which increased 7.7% as of the end of the quarter, representing AIU's third consecutive quarter of total enrollment growth.
These increases were primarily driven by student support initiatives and investments, including AIU's admissions and advising center in Phoenix as well as the academic calendar redesign, which positively impacted the number of enrollment days during the quarter versus the prior year.
AIU has further increased the focus on advisor calls for students in their first and second sessions, as those sessions represent a meaningful transition phase for students who are acclimating to their programs of study.
Additionally, a revised learning management system was launched in the fourth quarter that offers our students a more streamlined experience, making it easier for them to navigate course content by providing a step-by-step roadmap for completing all of their activities.
Overall, AIU has now experienced 2 consecutive years of new enrollment growth.
I'm not only pleased with the turnaround and stabilization efforts that started 2 years ago, but also excited about AIU's future prospects.
I do want to take a minute and point out an underlying characteristic of AIU's ongoing performance.
The academic calendar redesign will cause variability in quarterly new enrollment trends due to the varying number of enrollment days in any given quarter.
For instance, we expect new student enrollments to decrease approximately 40% in the first quarter of 2018 as compared to the prior year quarter.
However, we expect this decrease to be more than offset by growth in new student enrollments in the second and third quarters of 2018, such that on a rolling 3-quarter basis, we expect new student enrollments to reflect growth.
Our universities have continued to focus on refining and executing on operational changes, while undertaking several new initiatives and investments, with the overall goal of improving student experiences.
We revised our admissions and advising operating models, which we believe has improved accountability and coordination between the functions, ultimately benefiting our students.
There is now more accountability at the advisor and manager levels to encourage and enhance student engagement.
Turnover within our admissions function continues to be at multiyear lows due to several initiatives, such as stronger staff training and development.
This has enhanced the overall quality of service for our students and has elevated their onboarding and orientation experience as they prepare to start school.
Our investments in faculty and advising resulted in an approximately 10% increase in staffing during 2017 and resulted in increased communication dialogue between the 2 groups, which we believe has positively impacted student retention due to more personalized and relevant interaction.
Increased investments and focused execution within our admissions and advising functions have improved the overall student engagement as students prepare to begin their education.
Simultaneously, focus on faculty training, increased student engagement and use of technology to educate and engage within our students have continued to enhance student experiences after they begin school, which we believe results in improved retention.
AIU has fully transitioned to a graduate team model, while CTU is in the process of aligning to a similar student-oriented operating structure.
Recall that the graduate team model structure personalizes student-facing services in financial aid, admissions and advising, and we believe this structure helps increase accountability and ultimately, improves overall student experiences and retention.
Technology is also a key focus for us, and we leverage it as an enabler and differentiator when it comes to student onboarding, retention and learning processes.
Let me discuss a few technology-initiative investments that we have prioritized.
First, we continued to expand our award-winning adaptive learning platform beyond just our general education courses, and believe this is helping students increase their learning and enhance academic outcomes.
Second, retention has been a key focus of our organization, and in 2018 we will make an investment in a retention analytics tool at CTU that uses predictive modeling to provide the right type of coaching and service to each student in the most relevant and timely fashion, a proactive versus reactive approach.
Third, we continued to expand and invest in our mobile capabilities.
Adoption amongst our students has grown progressively through 2017, with the majority of our students now subscribed to our mobile platform.
New features were regularly added in 2017.
And in the fourth quarter, our universities launched a faculty mobile application.
This feature gives faculty the ability to access learning materials, assignments and the class roster all through their mobile application, while also making it easier to communicate and send reminders and messages to their students.
Overall, we remain pleased with the academic and operating progress at our universities and are entering 2018 with positive momentum in key operating metrics and trends which should support our outlook of growth in 2018 and beyond.
We'll continue to innovate and invest in new technology, while appropriately staffing student support operations in ways which we believe will further support sustainable and responsible growth at our universities.
Finally, I'll provide a brief comment on our teach-outs.
As of the end of 2017, we have less than 100 students remaining to complete their education at our teach-out campuses.
Our teams are continuing to work diligently to further optimize the remaining real estate obligations associated with these teach-out campuses, and our teach-out strategy remains largely complete.
Most importantly, the completion of our teach-out campuses frees up incremental resources to allocate towards investments in technology and student initiatives intended to further our objectives of achieving responsible growth and improving student experiences, retention and academic outcomes.
Now with that, I'll hand the call over to <UNK> for a more detailed review around our results, balance sheet and outlook.
<UNK>.
Thank you, <UNK>.
Today, I will start with a review of our 2017 operating results, then discuss our balance sheet and finally conclude with our 2018 outlook before handing the call back to <UNK> for his closing comments.
For the quarter just ended, total enrollments within the University Group grew by 3.3% supported by new enrollment growth of 15.4% as compared to the prior year quarter.
This trend was primarily driven by our student-serving initiatives and investments, including the Phoenix admissions and advising centers as well as improvement in overall retention trends.
Also contributing to the quarterly enrollment growth was the academic calendar redesign at AIU.
Fourth quarter University Group revenue increased by 5% to $142.4 million as compared to the prior year quarter, driven by various operating initiatives that contributed to the growth in new and total enrollments.
For the full year, revenue increased 1.3% to $569.6 million versus the prior year.
Operating income from ongoing operations was $25.5 million in the fourth quarter and $95.5 million for the full year, which compares to an operating loss of $17.9 million and an operating income of $44.7 million, respectively, in the prior year periods.
The improvement in operating performance benefited from continued efficiency in our marketing costs as well as improving enrollment trends.
Also, recall that the prior year quarter included a legal settlement of $32 million.
Adjusted operating income for ongoing operations was $28.1 million in the fourth quarter and $105.9 million for the full year, which reflects growth of approximately 67% and 19%, respectively, as compared to the prior year periods.
These favorable results were driven by improved retention, growth in new enrollment trends and efficiencies within our ongoing operating structure.
Moving to our teach-outs.
As expected, operating loss declined to $14.8 million in the fourth quarter of '17, which represents an improvement of more than 60% as compared to an operating loss of $38.1 million in the prior year quarter.
For the full year, operating loss was $61.4 million, an improvement of approximately 20% as compared to the prior year.
These improvements are primarily driven by reduced expenses, as these campuses wind down their operations.
Now, let me address our balance sheet.
We ended the year with $180.1 million of cash, cash equivalents, restricted cash and available-for-sale short-term investments which will be referred to as cash balances for the remainder of today's discussion.
This represents an increase of $4.2 million over the third quarter of 2017, with the increase primarily driven by improvements in the ongoing operating performance.
Net cash provided by operations was $7.3 million during the quarter as compared to cash used of $9.8 million during the prior year quarter.
The increase in cash provided by operations was primarily driven by substantial completion of the teach-outs and improved efficiency of ongoing operations.
For the full year, net cash used was $21.8 million as compared to net cash provided of $6.5 million in the prior year, with the increase in cash usage for the current year primarily attributable to the $32 million of legal settlement payments made during the first quarter of 2017.
As previously discussed, we have been focused on optimizing our lease obligations associated with the teach-out campuses.
These lease obligations had been a large component of our cost structure and cash usage.
We have been pleased with the progress made over the last few years in reducing these obligations by securing sublease arrangements as well as entering into early termination or lease buyout arrangements, which in some cases did require an initial cash outlay.
Our 2018 remaining lease liabilities will be approximately 50% below our 2017 levels, driven by our previous optimization efforts or natural lease expirations.
While we continue to be opportunistic in this area, with the ultimate goal of further reducing our obligations, incremental savings from hereon may be immaterial.
While on the balance sheet, let me spend a few minutes on income taxes.
For the year ended 2017, we recorded a tax provision of $67.1 million, which included a $52.7 million charge for the revaluation of net deferred tax assets and net state unrecognized tax positions as a result of the comprehensive tax legislation known as the Tax Cuts and Jobs Act.
This resulted in an effective tax rate of 185.2% for the year.
Effective January 1, 2018, the corporate federal income tax rate is reduced to 21% as compared to 35% in the prior year.
Also, at the end of 2017, we had $215 million of federal net operating loss carryforwards, which will be used in future years to offset federal taxable income, effectively reducing any related tax payments.
Finally, capital expenditures were $2.9 million in the fourth quarter and $6.3 million for the full year.
This compares to $0.8 million and $4.1 million in the respective prior year periods, with the increases reflecting selective growth investments in our universities, including our new admissions and advising centers in Phoenix.
Before I continue to 2018's outlook, let me review our '17 actual performance in context with our outlook for the year.
We experienced better-than-expected growth in total enrollment and efficiencies within our advertising spend that drove our ongoing operating performance for '17.
We also managed our teach-outs and lease obligations in an effective, efficient and responsible manner, significantly reducing our expected operating losses for the teach-outs.
As a result, full year 2017 adjusted operating income for ongoing operations was $105.9 million, above the high end of our outlook range of $100 million to $105 million, while the adjusted operating losses for our teach-out campuses came in at $39 million and was significantly better than our outlook range of $50 million to $60 million in adjusted operating losses.
Primarily driven by these operating results, the year-end cash balances of $180.1 million were also ahead of our outlook.
The company is executing well against its objectives of sustainable and responsible growth.
The improved performance and efficiency of our operations is allowing us to further invest in student-serving functions within our 2 universities, helping us create better experiences and academic outcomes for our students.
With that in mind, let me provide some color around 2018's outlook.
Slide 3 and 4 of the presentation will provide some details around our outlook for the current year.
We expect total company adjusted operating income to be in the range of $99 million to $106 million, which represents an approximate 50% increase from prior year levels, with continued growth into 2019.
Further, adjusted operating income from ongoing operations is expected to be in the range of $110 million to $115 million.
We expect year-end cash balances to be in the range of $220 million to $225 million at December 31, 2018, with continued growth anticipated in 2019.
Let me also point out that due to the continued decreases in our balance sheet obligations associated with our teach-out campuses, we now expect more of our operating income dollars to result in operating cash flows versus the prior years.
Slides 3 and 4 also provides some additional information regarding our expectations for the first quarter 2018.
We expect adjusted operating income from ongoing operations to be in the range of $26 million to $27 million, and the total company adjusted operating income to be in the range of $22 million to $24 million.
On Slide 4, we have provided an estimated range of $9 million to $11 million of adjusted operating losses for 2018 related to our teach-out campuses.
As <UNK> mentioned, we had less than 100 students at the end of 2017 remaining at our teach-out campuses, who are scheduled to complete their programs in 2018.
On Slide 6, we have provided a summary of key assumptions contained within our outlook.
I would also like to remind everyone that there may be some variability in our quarterly results driven by the timing of our operating expenses and the varying impacts from our initiatives, including the ongoing impacts of the calendar redesign at AIU.
Finally, as we have done in the past, Slide 7 through 9 in our presentation provide reconciliations of GAAP to non-GAAP items.
With that, I will turn the call back over to <UNK> for his closing comments.
<UNK>.
Thanks, <UNK>.
2017 has been a successful year for the company as we continued to execute against our objectives of increasing growth as well as improving retention and academic outcomes.
I'm very pleased with the progress we have made since 2014, improving from an operating loss of approximately $140 million to our outlook for operating profit of $84 million to $91 million for 2018.
Throughout this process, our students remained our focus and priority.
None of this would have been possible without the support, dedication and commitments of our students, our employees and faculty, and our stockholders.
2018 represents a shift in the operating model of the company as we complete our transition from teach-outs and restructuring to investments, technology advancement and student initiatives.
Going forward, we'll continue to take a measured approach to balance our objectives of effective and efficient student services with our financial and operating commitments.
Operational improvements made within student support operations, redesign of our course structure and content, investments in technology and new admissions and advising centers in Phoenix, are all contributing to better student engagement and responsible growth.
Our University Group performance is tracking in line with our expectations, and we remain confident in the long-term potential and the academic value proposition of both universities.
Thank you, again, for joining us today.
And we'll now open the call for any analyst questions.
I'm sorry, <UNK>.
What was the last part of your question.
Programmatic, that's what I missed.
The good news is, is that, I think this has really been a several-year process to improve the overall effectiveness of our advertising.
And then from that, going forward, our ability to improve the admissions process, and I think you combine that with continuing to invest in the programs themselves.
I think have, again, allowed us to take advantage of the opportunities in the market.
So again, I think, going forward, we're encouraged by the demand.
And I think we have the right people in place to execute on that.
And again ---+ so we're quite optimistic about what we're seeing going forward.
Well, again, I would just say this, that, although new programs tend to be small in size initially, we continue to have a robust product development process.
But I don't ---+ I wouldn't really call out one particular program that's had a big contribution.
But I will say going forward, that we continue to be very focused on new program development.
And again ---+ and those build over time, as you know, you get some momentum.
But this year's growth, I wouldn't really attribute to ---+ any meaningful amount of that growth contributed to any ---+ was contributed by any one program ---+ new program.
Sure, good question.
The ---+ first and foremost is, based on your earlier question, we continue to see good demand, and as a result, I think investing in that front-end part of the business is our #1 objective.
And so ---+ we would go right to ---+ again, the Phoenix student advisement centers have been our main focus and will continue to be this year.
We also ---+ as I said earlier, we want to continue to devote money to our resources to program development as well as our belief is that technology not only is an enabler, but it also enhances the learning experience and the differentiation that we hope will allow us to continue to gain ---+ not just again to grow, but to gain market share, because we really do think we have the right teaching learning model, the right technology in the classroom.
So I'd say those are the short-term investments.
I think, beyond that, we would obviously be and are looking at very carefully the best way to deploy the capital.
And that would, hopefully, support the objectives of our shareholders as well.
I think that we should ---+ I think it's responsible for us to look at those opportunities.
But again, will they support our overall strategy, which is that consistent and responsible growth, and again, focusing on high-quality programs and the area of the market where, again, you feel you can benefit those students.
But I ---+ I mean I'd say, look, certainly wouldn't want to say no.
But again, if it would add to and support our overall long-term strategy, I think we ---+ it's very responsible for us to look at those things.
Yes.
Sure, let me go to the capital expenditures.
Typically, I would say, capital expenditures will range between 1% to 2% of revenue.
So that's a very good ---+ good range to look at.
As far as the tax rate goes, as you know, we have a ---+ the new tax rate is 21%, plus we add some state taxes.
So a safe rate for next year would be anywhere between 26% to 30%.
Yes.
That is correct for now because we do have $215 million of NOL.
However, keep in mind, there is some new changes around our stock compensation.
So that ---+ in fact, if you look at this year, that cost us 3 percentage point in our tax rate.
So I'm just taking all that into account and giving you a number.
But, basically, that should be the range.
Materially, very little.
I mean, there might be some ongoing leases like some utilities and that kind of stuff.
But materially, they should be down, they should be all out.
Well, again, as I said earlier, we appreciate you joining us for the call, and we do look forward to our call next quarter.
Thank you, again.
| 2018_CECO |
2016 | XRAY | XRAY
#Group practices are certainly having an impact in our business.
I think that's why we highlighted it as one of the six megatrends.
Now you're talking to the CEO, Matt, here and I would tell you that we're never happy about doing enough in the group practice area.
We do believe that they appreciate everything that DENTSPLY SIRONA has to bring to the group practice to their individual operatories.
I think our 360 program has been extraordinary.
The ability to educate and train is something that we've differentiated ourselves.
We've got world-class brands and we're able to help them with the procedures.
Certainly I would see more and more that group practices appreciate the impact that digital dentistry and single visit dentistry has on their practice.
It's our belief you are going to see more of that in the quarters and years to come.
Matt, it's <UNK>.
I might also add that as the synergy teams come together focusing on the revenue synergy opportunities, one of the areas that they are particularly focused on and excited about with a tremendous amount of energy is, in fact, DSOs and group practices.
They see the unique opportunity of the combination here driving unique value to this customer group.
And, again, it's exciting to see their excitement.
So I think you will hear more and more from us in this area as we move forward.
And I think, just to add to that, this is becoming more than a North America phenomenon.
<UNK> is really highlighting what we're seeing around the globe.
Yes, the CapEx number we would expect in the range of $110 million to $125 million for the year.
And CapEx conversion as we said before should clearly be above net income.
We should convert more than 100% of our net income to free cash flow.
Sure.
I think Australia continues to be strong for us in the quarter.
Canada is in Rest of World for us, so real positive driver.
Pretty pleased to see Latin America, including Brazil, hold up and grow solidly.
And then China.
With all the talks about what's going on in China, I would say that we've put together very solid growth, and the reality is that 7.5% is significant.
We can probably say Middle East is a bit more challenged.
We can say <UNK> ---+
I said it earlier, yes, that's right.
We do see this in our business.
I think on the long term, a critical market for us and we're all excited about is Japan.
Japan showed some slowness in the quarter, multiple reasons for that.
I think we're on track.
Feel good about the team we have there and the product offering, but Japan has got to be a long-term driver for us.
So we would have done better had we gotten more there.
But understand what's going on there, as well.
Thank you all very much for your interest in DENTSPLY SIRONA.
We're looking forward to updating you on our next call in November and if you have further questions we're available for follow-ups.
Enjoy the rest of the summer.
That concludes our conference call.
Goodbye.
Thank you.
| 2016_XRAY |
2017 | ATNI | ATNI
#Thank you, operator.
Good morning, everyone, and thank you for joining us on the call to review our first quarter 2017 results.
With me here is <UNK> <UNK>, ATN's President and Chief Executive Officer.
And as usual, during the call, I'll be covering the relevant financial information and certain operational data, and <UNK> will be providing an update on the business and outlook.
Before I turn the call over to <UNK> for his comments, I'd like to point out that this call and our press release contain forward-looking statements concerning our current expectations, objectives and underlying assumptions regarding our future operating results and are subject to risks and uncertainties that could cause actual results to differ materially from those described.
Also, in an effort to provide useful information to investors, our comments today include non-GAAP financial measures.
For details of these measures and reconciliations to comparable GAAP measures and for information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at atni.com or to the 8-K filing provided to the SE<UNK>
And I will turn the call over to <UNK>.
All right.
Thank you, <UNK>.
As <UNK> noted, this quarter was in line with our internal forecast and more reflective of the profit levels of our current portfolio of businesses in the past quarters, which included several special charges.
For the quarter ---+ for the first quarter, total consolidated revenues were $128.1 million, up 43% from $89.7 million in the prior year period.
While adjusted ---+ while consolidated adjusted EBITDA increased 23% to $42.1 million, representing a 33% margin.
Our financial results for the quarter did include $1.6 million of expenses related to the sale of our Northeast U.S. wireline business, of which $700,000 were transaction-related expenses incurred in closing the deal and $530,000, which are related to the reversal of minority interest upon deconsolidating the operations.
To review these results by segment.
Our U.S. Telecom revenues were $43.8 million, down 5% from the prior year, and adjusted EBITDA was up 3% to $23.2 million.
Of the $6.1 million in wireline revenues included in the segment, $4.2 million was from Sovernet, the Northeast U.S. wireline business that we sold in early March, I just mentioned.
These operations also included about $700,000 of adjusted EBITDA to the segment this quarter.
In the domestic wholesale part of the U.S. Telecom, we have been focusing on ways to find greater cost efficiencies as we continue to experience rate pressure, as <UNK> noted earlier.
And some of those efforts have started to pay off with reducing operating costs, partially offsetting lower revenues this quarter.
In the International Telecom segment, segment revenues were up significantly again this quarter, reflecting the impact of our Bermuda and USVI acquisitions, increasing by 109% or approximately $41.4 million, and adjusted EBITDA increased 63% to $23 million.
We completed the sale of the St.
Martin operation that was acquired as part of the 2016 USVI transaction.
That sale closed on the first day of the quarter, so there were no contributions to operating results from these operations in the quarter.
After many years of being stable, we've recently seen a decline in the value of the Guyana dollar to the U.S. dollar over the last several months.
While the published rates don't indicate the change, we have seen higher rates in our bilateral agreements that we've entered into in the last several months and did incur a $600,000 expense in the quarter related to our U.S. dollar purchases.
We'll continue to monitor that rate going forward and any related impacts on our reporting exchange rate.
In the Renewable Energy segment, revenues decreased 10% to $5 million, and adjusted EBITDA was down 32% to $2.9 million.
And as we noted last quarter and <UNK> mentioned, revenue was down against last year as we reached the end of contract period for most of our California Renewable Energy credits in 2016.
We also saw weaker energy production this quarter, due to rainy weather conditions in California.
And consistent with past quarters, we've absorbed higher operating costs in overhead, as we ramp up our India operations.
Consolidated company operating income for the quarter was $17.8 million, which included $22.4 million of depreciation and amortization expense, reflecting our 2016 acquisitions and capital expenditures.
Also included in operating expense for the quarter was $1.7 million of noncash stock-based compensation expense.
We ended the quarter with lower-than-anticipated effective tax rate of approximately 21%, and this lower rate was primarily driven by tax benefits that we're able to realize from the sale of the U.S. wireline and St.
Martin businesses.
Looking at the balance sheet.
At March 31, we ended the period with cash and short-term investments of $274 million.
And quarter-to-date, cash provided by operations was $32.1 million, and we ended the quarter with total debt outstanding of $152.4 million.
Capital expenditures for the quarter were $45.7 million, of which approximately $6 million was incurred by the U.S. Telecom operations, $16.7 million by our International Telecom segment and $21.8 million in the Renewable Energy segment.
Capital expenditures are always difficult to project, especially early in the year.
But given the rate pressure we're seeing in our domestic wholesale business, we're carefully evaluating capital expenditure plans for the U.S. Telecom segment.
As a result, we're currently estimating that total telecom capital expenditures of 2017 are more likely to be in the lower end of the $95 million to $115 million guidance range that we provided at the end of 2016.
And with that, operator, we'd like to turn the call over to questions.
Ric, I can help with that one, I think.
I think the fourth quarter, like you said, is typically the lower one, for the reasons you noted.
The second and third quarter, though seasonality and the way that even the newer contracts we've entered into, are a little bit smooth (technical difficulty)
Say it again.
Operator, are we having an issue here.
Now we can.
Right.
Yes, and I think that as I said, I think that there really does feel like there's a good chance that when you look at those year-on-year comparisons, they'll be down.
Yes, I think it's cleaner.
I mean, there will be some ---+ there is some variability and some seasonality in this business, but not as much as there used to be.
So the first quarter used to have tighter margins because of some seasonal higher-margin revenue being lower.
But that's mainly in the wireless and we've added so much wireline revenue that, that really shouldn't be a big impact anymore.
So I think this is definitely in the ballpark.
I mean there's always a seasonality in the fourth quarter on the holidays for us.
So ---+ and I think first quarter tends to be little bit lower.
But I think that's the ---+ that's really how it plays out.
So on the former side, I think it's hard to say more than what we said.
It's hard to quantify at this time.
But if you look at the percent of revenues then this year, it's higher than even large-scale providers would see where they tend to have a very consistent number.
And the way these smaller markets work is you can get a project done completely in a year or in 1.5 years, and then the next year, it drops down quite a bit.
So I think we ---+ all things being equal, existing business would expect it ---+ expect the number to drop quite a bit in the segment.
In the ---+ on the broadcast option, the last I heard, we're still ---+ today is the last day.
We're still under limitations.
I don't want to really talk more about that.
But any license has potential future spend with it.
But as to when that is and where that is, I'd rather not get into.
<UNK>, we can't hear you.
We can hear you.
Yes.
Yes.
I don't want to get into detail on the pricing, because there are not in a lot of contracts.
And so that's important information, but I can give you ---+ conceptually, I think to answer your question decently, which is we have said for a while that we see more or less revenue per geographic area per site on an average basis, hitting the ceiling capping and not ---+ in the old days, there was years where there was movement, up and down, based on usage that could be pretty significant.
That's leveled out quite a lot.
And I think the main thing we're seeing is the carriers adjusting priorities in terms of what quality of customer experience they want in rural areas.
And of course, the general pressure you always have ---+ to work with the customers, and so some of that's working its way through.
But related to that is, we had a lot of capital expense to this business that your customers might not see.
And so you'd say, okay, that's the world then we'll adjust accordingly.
So I did ---+ there's not ---+ most carriers are not ---+ there's not really an overbilled other than in limited circumstances.
But most customers are not doing that.
Yes, I can probably help a little bit with that.
The obvious one's on the data you can say, we are seeing as Guyana moves up in the speed, it's a little bit more of the landline cutting cords, if you will.
So ---+ and then the other markets that are heavy prepaid, so they can [swing] on wireless.
It can somewhat swing around a little bit in a quarter, depending on whatever promotion we're running or our competitor might be running.
It's a pure ---+ the cost is not a lot of added direct cost as the revenue comes online.
So the main costs are in the overall platform cost.
It's not ---+ and cost related to it where the plant sites are, that we're already incurring.
So put it simply ---+ maybe that's not 100% clear, so try say more clearly.
Revenue as it comes in from these projects that we're turning on, the incremental margin contribution is going to be very high from that revenue.
And so as revenue ramps, margins will get better and better.
And approach margins you'd see in solar businesses everywhere, including our domestic business.
But it's really ---+ it's really just saying because you work your way, as you turn the plant up, when it's a final mature plant in general revenue, it'll have high margins.
But as you're working your way there, the costs are fixed on it.
So as your building revenue won't be as higher-margin against fixed cost.
Yes, as I said in my remarks, I think we are having discussions about new geographic areas and builds.
They don't know yet whether that will yield something that makes sense for both us and the carrier.
But we think it's decent enough probability to mention.
Yes.
I think it's ---+ I will have someone look it up.
It's about 5 ---+ 5 to 6 ---+ 100,000 a quarter.
That just kind of shows up in the consolidated segment.
Yes.
I think we can.
I think financing, assuming we get the financing in terms we like that will either way, it will can of dictate what we expect on the future build.
And we see the demand there, but we're trying to make sure that the returns, and obviously, the gearing levels affect that, are where we want to see it to continue to invest.
And so all in all, it's too soon to tell.
And I think at that time too, we can also give some better sense of what size contribution we might see in 2018 from this business.
Yes.
I think we're looking at a number of things.
I would say sort of a lot of the traditional telecom, rural networks, small-market networks, not a lot of activity right now for us.
But those are ---+ those can be [onesie, twosie , as we've seen from the deal that we've done recently.
Sort of tangential things working off of existing competencies and markets where we're exploring and looking at.
Some of our businesses are getting more into cloud services, for example, and we're looking at that carefully and to see can we do it well.
Does it ---+ is it a good return from both the cash invested and the time standpoint.
And then renewable energy, we still think probably has more ---+ we see more opportunities there.
We were ---+ we were hoping to do more in the U.S, I think, in the near term.
But there's a little bit of a cloud on that, that for the industry right now, there's tariff application applied that could put pretty hard, pretty heavy duties on imported modules, which might cause a flurry of building in the U.S. and then a decline, right.
I mean it's pretty efficient, and people are ---+ they can't get the ---+ if costs go up and they can't get the pricing to go up, then builds won't happen.
But ---+ so we see opportunities there.
And again, India is still ---+ we're effectively putting a lot of money to work already and as we noted earlier, we'll see by the second half of the year, what's the forward pace on that.
Yes.
We've looked at a number of markets and there are a number of interesting markets out there.
But for ---+ but it's a pretty high bar to go into a new market right now for us, as we make sure we've got our house in order in India.
Obviously, the U.S. we already operate.
But for the right thing, we would find a way to devote the resources.
Thank you, everyone, and we'll see you in another quarter.
Take care.
| 2017_ATNI |
2016 | NDAQ | NDAQ
#I would say, first thing is we always judge our effectiveness first before we get to efficiency.
What that means here is we're certainly looking at non-financial metrics, and I think you touched on a few of them.
I pay paid close attention to the number of participants that come in on a daily basis.
We were in the 20s through most of last year, getting to the high 20s now, we're getting to the high 30s of number of daily participants.
That's good, so we're spreading through the community.
We look for our progress in particular instruments.
We look, obviously, at the overall scheme but we're trying to focus on a couple different instruments, most notably nat gas options, and to have double-digit market share in that space.
So, we focus on that.
We also look at the total number of contracts we trade.
We look at the break down between trade reporting and central limit order book trading that's done.
And then last and probably most important is the open interest.
As I referred to in my comments, we had over half a million contracts of open interest, which is well beyond what we thought we would be at this stage of time.
So, increasing engagement from the community, increasing participation, and we're hitting all the metrics we need.
With respect to a direct answer to your question, I think the financial metrics come to play in and around mid year, going into the second half of this year.
But right now we would like to get to higher average daily contract rate and obviously increase our market share in certain targeted products.
But so far so good.
<UNK>, it's really both.
I think that what we see, we see margin upside, both from continued elimination of some redundant expenses, as well as revenue growth in the business as a whole with higher margins.
We will take it any which way we can but I think both will be contributors here.
Sure, thanks for the question.
The first thing I would say is SMARTS has really three different markets that we're trying to serve at this point.
We have the exchanges, which was the original business for SMARTS, and it's the longest-standing business.
It's a deployed solution out to the clients we've been selling through exchanges for many years, as well as to regulators.
I should say exchanges and regulators.
And that continues, as you can tell, to grow in terms of new exchanges, taking our solution like Nigerian stock exchange most recently.
But that's a longer sale cycle.
Obviously there's a finite number of exchanges, but we continue to find real success there, and that's a more mature part of our business.
The broker-dealer community is the second community that we have sold to, and that's a newer part of our business but definitely the fastest growing.
We actually surpassed 1,000 users this year, and we were just thrilled with that.
We, in fact, sent them a small gift.
And I think that it's really exciting to see continued double digit growth in that part of the business as we continue to find striking demand for trade surveillance solutions across the broker-dealer community.
In the year, over the last two years, we've made it so it's multi-asset class and it's every geography, so it really can serve any and all trading firms in the world.
The third community is the buy-side community.
And for the first time this year, we do have three buy-side clients who have signed up for the service.
And we have chosen to invest through our R&D program to build out a more fulsome buy-side solution for this trade surveillance.
So, buy-side firms, both hedge funds and traditionals, are really becoming much more sophisticated in their trading operations, and they realize now that they need sophisticated tools to couple with the sophistication of their trading strategy.
We believe that that will be a new area of increased demand for us for the SMARTS service.
We also are looking at how we can integrate more machine intelligence into the solution.
And we have been discussing how to integrate even more intelligence to make it more useful across the platform in terms of compliance and trade supervision.
So, that's a quick synopsis of the SMARTS business but it really is a great business for us.
That's a difficult question for me to answer directly.
You'd have to talk to them.
But I'll just make one comment on the topic.
Certainly, we think it is time for a redo of Reg NMS.
And I also think Reg NMS deserves some credit in that we had a duopoly kind of situation before Reg NMS came along, and we've seen a dramatic decline in spreads and effective transaction cost in the market.
It served a purpose for a long period of time but we certainly think refinement is in order.
With respect to IEX, our position is it's thoughtful, it could be innovative, and is very similar to what we had suggested to the Commission back in 2012.
They told us it was not in either the letter or the spirit of Reg NMS, and said we could not do it.
So, our position with IEX is that it really should be after there's a rethink of Reg NMS and how do we get the new market structure in place, and then let innovation develop under the new set of rules and not patch work and try to get exceptions under the existing rules that exist.
I would say, yes, we certainly see blockchain adoption coming in public market equities, but we'll not predict when.
Certainly that will take a village to get there.
To move from the legacy infrastructure that is ingrained in everybody's infrastructure is not an easy thing to do.
So, we'll be involved with those conversations and an active participant but when you think of NASDAQ and blockchain you have to think of us being focused on what's the art of the doable, what's pragmatic and what's possible.
Obviously with NASDAQ private market, it's the beginning of time so we were able to create the experience we wanted.
We're looking for similar type opportunities.
We want to have use cases where we can deliver and get paid for and bring real value today.
So, as I said in my prepared remarks we're committed to proxy voting in Astonia.
They have a rule set that will allow us to do that.
We have about three other use cases, which we'll not announce today but are very close to being funded.
And those use cases will have a common theme, that they will be doable, we can deliver it, and deliver real value and not get wrapped up in the allure of blockchain technology but focus on blockchain to enable real products that customers want to pay us for.
While <UNK> looks at the exact impact, I'll answer the second part of the question.
As we work with a very broad set of clients, we have over 70 marketplaces around the world that will leverage our technology, they have things that they want to do to enhance that technology over time.
It may be a new feature, a new product or asset class that they want to bring into their marketplace, and maybe speed they want to continue to enhance their speed or enhance their volumes, and then maybe regulatory changes they have to make to be able to manage through the regulatory environment they're facing.
In all of those cases that would be a change to the original scope of what we built for them and, therefore, they come to us and they ask us to size out and work through enhancements and change requests associated with the technology.
In general, I always think of it, in general, as somewhere in the range of a $20 million annual revenue stream to us, but it can fluctuate year over year.
I'm going to turn it over to <UNK> to answer the specific question.
<UNK>, the change request variance from the prior year was, on a year-over-year basis the increase in change request was $5 million.
That gives you some context now.
Also keep in mind that's on a reported basis and so a portion of that revenue is going to be subject to the FX impact that we have.
I would estimate it's probably proportionately in the $3 million to $4 million of an organic impact relative to market technology revenue as a whole.
Sure.
In the information services business, as you know, we operate two sub businesses, the index business and the data products business.
And we look at product development across both of those areas.
Clearly in the index space we work very closely with ETF partners to launch new products that they believe will have investor demand around thematic indexes.
And we can do that now with the AlphaDEX index family with First Trust, we can do that with our dividend achievers index family, our buyback index family, and Dorsey Wright index family.
So, we have a broad range of strategies that we can deploy through new products and we do that on a regular basis.
With regard to data products, we do a lot of work with our clients to look at new ways that we can either present our data, provide new technologies around our data like FPGA technology, to deliver some of the data that we already have.
And then we have been working closely with clients to start to get their demand and their interest in some new data analytics and, again, the use of machine intelligence to help fuel some of those products.
But it's early days and we're still in the research phase for that.
I would say it's too early to change that target.
As <UNK> referenced, the product is new.
We're so excited to have it rolled out.
And we're gaining experience by the day.
In the quarters to come we'll have a better sense of that.
With respect to NLX, we are continuing to have what I'll call intensive dialogue with our customers.
The focus now is with respect to the open interest, realizing that's an enduring value.
There remains in that community a strong desire for a credible alternative.
We have been successful at running the enterprise at, I think, a hyper efficient level, so it allows us to have a betting chip on the table without us impacting the mothership in some material way.
<UNK> was just there last week, I was there a few weeks ago.
The community's engaged and we have some pretty exciting plans in place, and we'll see how they play out later in the quarter.
<UNK>, do you want to add anything.
We could add that what we believe is very important is a question about moving open interest.
We have an approval for a scheme for that approved by the UK authorities.
And now we are working with customers to making that real.
And I would say that I met a couple of the really big players in discerning products and they are very keen that something is going to happen soon.
And the reason for that is pretty obvious for me.
What they have in their mind is only one thing ---+ how can they reduce the capital cost to the bank, and the way to do that is to clear more products in the same clearinghouse, in this case [lana] clearinghouse, because thereby they can reduce the cost of clearing, and thereby the capital cost.
And for the record, scheme is a defined term in the UK, and it doesn't have the connotations that it has in the US, just the pricing plan.
And improved one.
I would say this.
One, the treasury market is undergoing some fundamental rethink.
And the market is not just us and broker tech.
There are other competitive forces in play.
That being said, I think we've seen on the positive side some marginal increase in activity based upon the rate movement.
We've seen some increased take up of eSpeed Elect where we have more participants coming on pretty much every week or so.
So, o that's on a good side.
But on a relative basis, even though there are competitors, I think relative to broker tech we are still share challenged and obviously our efforts have to become more effective in that regard, and we're working hard at it.
We basically are continuing to work towards a full solution offering that will continue to allow, it will actually turn on the GAAP reporting of the contract.
We're not giving any sort of estimates right now on time and we're working with the client.
So, I can't give you a direct answer to that question at this point because we continue to work through the development and the acceptance by the client.
But as we get closer, we will certainly make sure that you stay informed.
Just to clarify for everyone, the question really relates to IPOs that we have come on to NASDAQ.
And we basically for the period ---+ or switches ---+ for a multi-year period they are able to take the services for free, and then we turn them into paying clients as they choose to continue to take those services over time.
And with those, we have had a strong IPO environment in 2014 and 2015.
But if you really look at it, the clients who are rolling off are clients that went public in 2012 and 2013.
And we do have strong success in converting them into paying clients.
And therefore, the way that we manage that internally is that the listing business does pay the corporate solutions business some piece of that cots to be able to offer those out to their clients.
So, really, those free clients are being partially paid for by listings, and that's reflected in our segment results.
But the 10,000 customers are not getting a free trial of IR Insight.
No, there's no free trials going on, on IR Insight.
If that was your question.
I think we feel incredibly comfortable.
One, you have to realize that when you go public it's an event to raise your profile.
You want to get publicity associated with it.
And the companies want publicity associated with a brand that they know and like.
So, there's a very large brand barrier to the IPO pipeline.
Obviously, we've seen others try to build an IPO franchise with very limited success in the past.
But, in addition, I think under <UNK>'s leadership we've done a lot to actually put hard products into our listing.
So, when you think about our corporate solutions product, which we talked about today, and just talked about on the last question, that's a whole range of services that we uniquely can offer, and that is a large barrier to entry.
When you think about the technology we bring to bear on the IPO across at this point in time, again a big barrier to entry.
It's our job to always be paranoid but with respect to the different businesses we have, the IPO business has a large and I think protective moat.
Thank you.
| 2016_NDAQ |
2017 | GPI | GPI
#You're welcome.
Well, I don't know that I can articulate in great detail versus some of the independents, but the factor that we have in our company is that 26% of our business comes from Toyota or Lexus brand franchises.
And these are car-driven franchises.
And to keep that machine running, we take a lot of car trade-ins.
And cars have been hit the hardest on used vehicle values, and we have to keep taking those to make the new car sales.
So that's one of the challenges that we need to overcome.
But that said, I would think there is still opportunity for us to have a bit more discipline and do a better job than we have in the past.
I would say we're quite open on brands as we look to grow externally.
And everybody would like luxury brands and so forth, but we have had success with virtually all brands.
And so it's just a function of geography and return on investment.
So I would say we're as open as we've ever been on brand.
No.
At this point ---+ we did our offering in December 2015.
We are very actively capitalized.
We have plenty of dry powder, so there is really no need for that at this point.
Yes, I think that's a good explanation.
The team has done a good job of making those trades.
Well, I do think it dictates that they will be tweaking up their incentive tactics or strategy a bit.
But we have to remember, leasing is very regionalized within the US ---+ Northeast, and California and Florida come to mind.
So, in many cases, they can deal with that on a regional basis, I think.
But I do believe that most of these companies that have done a lot of leasing, most of these brands, are going to be making some adjustments.
And there will be funds flowing into non-lease tactics.
<UNK>, this is <UNK> <UNK>el.
I mean, we have an internet presence today, and we do do some direct sales.
We use multiple channels, whether it's our internet, whether it's eBay Motors.
So, we are doing some of that today.
We have the capability of doing basically online sales.
Well, I would say there is an assumption of a slight decline in retail.
Yes, it is obviously less impactful on a global basis because you have less, but on a new vehicle, we are basically 62 days on a global basis.
Yes, you're correct, that is not material.
But it is, I think, 400 new and 450 used units.
So in the overall scheme of things, irritating but not material.
Okay.
Thanks, everyone, for joining us today.
We look forward to updating you on our first quarter earnings call in April.
Thank you.
| 2017_GPI |
2016 | MET | MET
#This is one of the biggest and most complex areas, and of course lower interest rates has made this a larger reserve needed.
As universal life with lifetime secondary guarantees, lower rates have made these contracts to be more valuable to their customers, and therefore, we've had to increase the reserves on them.
Well, we are seeing less people annuitize.
If you annuitize, you don't pick dollar-for-dollar.
So less people annuitize, more people pick dollar-for-dollar.
But the actuarial calculations are highly complex.
We run tens of thousands of runs over a wide range of scenarios.
So when we talk about these interest rates, these are the average interest rates, both even in stat and GAAP.
It's just the mean of those interest rates in stat reverts to roughly this 4.25% in 2027, whereas the GAAP piece, if you pick dollar-for-dollar a piece of your risk, the guaranteed piece, the certain period of your annuity, has to be reserved under GAAP using a mean reversion interest rate of 1.36%, and that's a very wide difference, including your separate account returns.
And I want to stress, that's a separate account return before fees.
So you generally having negative returns in your separate accounts, so you can see how that can have a high cost to this.
If interest rates migrate higher, and you have to mark this every quarter to the current yield curve.
So if interest rates go up, this charge becomes less, as you go through time.
So we also wanted to give you the wide range of the changes, because what the ultimate cost of these things will be will depend on interest rates and what policyholders do.
I would also like to stress, this is over a long period of time.
Our average age of these contracts is in the 60s, and people will elect these options well into their 80s and higher.
So these are long-term contracts, and how this works out over time will be the ultimate cost.
But we do match this to our experience, and we do it on a regular basis, as we get credible experience, and we now have a new industry study that we just got that had some good credible experience for GMIBs, and that's why we set our reserves appropriately.
| 2016_MET |
2017 | SEM | SEM
#Thanks Bob.
Good morning everyone.
For the fourth quarter, our operating expenses which include our cost of services, general and administrative expense, and bad debt expense was $953.1 million.
This compares to $942.6 million in the same quarter last year.
As a percentage of net revenue, operating expenses for the fourth quarter were 91.1%, compared to 90.7% in the same quarter last year.
For the year our operating expenses were $3.84 billion.
This compares to $3.36 billion last year.
As a percentage of our net revenue, operating expenses for the year were 89.6%, compared to 89.9% last year.
The decrease in our operating expenses as a percentage of net revenue is attributable to a 30 basis point decrease in cost of services compared to last year.
Cost of services increased to $909.9 million for the fourth quarter.
This compares to $902.3 million in the same quarter last year.
As a percent of net revenue, cost of services increased 20 basis points to 87% in the fourth quarter.
This compares to 86.8% in the same quarter last year.
The increase is primarily due to the higher relative costs in our Specialty Hospitals.
For the year, cost of services increased to $3.66 billion.
This compares to $3.21 billion last year.
As a percent of net revenue, cost of services decreased 30 basis points to 85.5%.
This compares to 85.8% last year.
The decrease in cost of services as a percent of net revenue was the result of cost reductions achieved by Concentra, which were partially offset by an increase in Specialty Hospital cost of services as a percentage of revenue.
G&A expense was $25.7 million in the fourth quarter, which as a percent of net revenue is 2.5%, compared to $24.1 million, or 2.3% of net revenue for the same quarter last year.
For the year, G&A expense was $106.9 million.
This compares to $92.1 million last year, which as a percent of net revenue was 2.5% both for this year and last year.
Our G&A function includes our shared service activities, which have expanded as a result of the acquisitions we have completed over the past 18 months.
Bad debt as a percent of net revenue was 1.7% in the fourth quarter.
This compares to 1.6% in the same quarter last year.
Bad debt as a percentage of revenue was 1.6% both this year and last.
As Bob mentioned, total adjusted EBITDA was $97.7 million, and adjusted EBITDA margin was 9.3% for the fourth quarter.
This compares to adjusted EBITDA of $100.8 million, and adjusted EBITDA margin of 9.7% in the same quarter last year.
For the year, total adjusted EBITDA was $465.8 million, and adjusted EBITDA margins of 10.9%.
This compares to adjusted EBITDA of $399.2 million, and an adjusted EBITDA margin of 10.7% last year.
Depreciation and amortization expense was $37.4 million in the fourth quarter.
This compares to $34.3 million in the same quarter last year.
The increase resulted primarily from the acquisition of Physiotherapy.
For the year, depreciation and amortization expense was $145.3 million.
This compares to $105 million last year.
The increase resulted primarily from the acquisitions of both Concentra and Physiotherapy.
We generated $5.5 million in equity and earnings of unconsolidated subsidiaries during the fourth quarter.
This compares to $4 million in the same quarter last year.
During the year we generated $19.9 million of equity and earnings, compared to $16.8 million last year.
The increase was driven by improved performance in existing investments where we hold a minority position.
During the year we had pretax non-operating gains of $42.7 million, primarily related to the sale of our Contract Therapy business and the Kindred swap.
We had pretax losses on early retirement of debt of $11.6 million during the year.
Last year we had a pretax non-operating gain of $29.6 million related to the sale of NaviHealth investment.
Interest expense was $42.4 million in the fourth quarter.
This compares to $33.1 million in the same quarter last year.
For the year, interest expense was $170.1 million, compared to $112.8 million last year.
The increase in the interest expense for the full year is primarily the result of additional borrowings related to the financing of the Concentra acquisition in June of 2015, and the Physiotherapy acquisition in March of 2016.
As well as an increase in interest rates related to the amendments of Select's credit facilities in the fourth quarter 2015, and the first quarter of 2016.
The Company recorded income tax expense of $3.9 million in the fourth quarter.
The effective tax rate for the quarter was 15.9%.
For the year we recorded income tax expense of $55.5 million, and the effective tax rate was 30.7%.
Net income attributable to Select Medical Holdings was $20.2 million in the fourth quarter, and fully diluted earnings per share was $0.15.
For the full year net income attributable to Select Medical Holdings was $115.4 million, and fully diluted earnings per share were $0.87.
At the end of the year we had $2.7 billion of debt outstanding, and $99 million of cash on the balance sheet, which included $22.6 million of cash at Select, and $76.4 million of cash at Concentra.
Our debt balance at the end of the year included $1.15 billion in Select term loans, $220 million in Select revolving loans, $710 million in Select 6.375% senior notes, $642.2 million in Concentra term loans, and $48.9 million in unamortized discounts, premiums and debt issuance costs that reduced the overall balance sheet debt liability.
We also had $27.9 million consisting of other borrowings and notes payable.
Operating activities provided $65.8 million of cash flow in the fourth quarter, and $346.6 million for the year.
Our day sales outstanding, or DSO was 51 days as of December 31st, 2016.
This compares to 52 days at September 30th, 2016, and 53 days at December 31st, 2015.
Investing activities used $91.3 million of cash during the fourth quarter.
The use of cash resulted from $58 million of acquisition-related payments, $43.4 million in purchases of PP&E, $1.6 million of investments in businesses which were offset in part by $11.6 million in net proceeds from sales of assets and equity investments during the quarter.
Investing activities used $554.3 million of cash during the year.
The use of cash resulted from $472.2 million of acquisition-related payments, $161.6 million in purchases, PP&E, $4.7 million of investment in businesses which were offset in part by $84.2 million in net proceeds from sales of assets and equity investments during the year.
Financing activities provided $56.3 million of cash in the fourth quarter.
The provision of cash resulted from $45 million in net borrowings on the Select revolving credit facility, and $19.2 million in proceeds from bank overdrafts, offset in part by $5.2 million in debt payments, and $1.9 million from non-controlling interest purchases and distributions.
Financing activities provided $292.3 million of cash for the year.
The provision of cash resulted primarily from $795.3 million in net proceeds from term loans related to the financing of the Physio acquisition, and refinancing of term loans at both Select and Concentra, offset in part by $438 million in term loan repayments, and $80 million in net repayments of revolving credit facilities.
In addition, $11.9 million was provided from the issuance of non-controlling interests, and $10.7 million in proceeds from bank overdrafts.
As Bob mentioned, Select is in the process of refinancing its senior credit facilities, and we expect to complete the transaction early next month.
The proposed financing remains subject to certain closing conditions, and the effects of the refinancing are not included in our current financial guidance for calendar year 2017, which I will reaffirm for you now.
This includes net revenue expected to the range of $4.4 billion to $4.6 billion, adjusted EBITDA expected to be in the range of $540 million to $580 million, and fully diluted earnings per share expected to be in the range of $0.73 to $0.91.
This concludes our prepared remarks, and at this point in time, I would like to turn it back over to the operator to open up the call for questions.
Sure, <UNK>, let us give you a bridge to get you to both the improvement in the margin, as well as the increase in total overall EBITDA.
So if you take a look at where we ended up for 2016, we ended up at close to $466 million.
And if you take a look at our business segments, you can take a look at on the Specialty Hospital side, first take a look at inpatient rehab.
Inpatient rehab, we had about $22 million worth of start-up losses associated with the three projects that Bob talked about, which were CRI, TriHealth, and Cleveland Clinic.
We anticipate that those will generate somewhere in the neighborhood of $15 million to $18 million worth of EBITDA.
That in and of itself, is a $40 million swing.
Plus the overall business we anticipate on the inpatient rehab side to be about another $5 million, so all told for the inpatient rehab facilities would be about $45 million.
On the outpatient rehab side, we acquired Physio in March of 2016.
So if you annualize that, plus add back the synergies, the $20 million of synergies that we expect to get from that, plus the growth from our legacy business, that is about another $25 million.
And then on Concentra, Concentra had a fabulous year in 2016, so we anticipate the growth on a same-store basis will be pretty modest, probably in that $5 million range.
So adding all of those up, you're going to come up with about $75 million, which will get you to in that $540 million to $545 million range.
And then the balance of the year, or the balance of 2017 will really be a function of the volume increases that we see on the LTAC business.
And that is really where that's coming from.
No, I think certainly we had a lot going on in 2016.
I think the improvement in the margins in 2017 will be more attuned to our business moving forward.
And I think the other thing to point out is the CRI development that we did is a very unique development.
It's a very large project, as Bob had mentioned in the opening of the call.
And we don't anticipate seeing those types of projects very often.
So from that perspective, that had a very detrimental impact on the margins in 2016.
There was not, but it was about $4 million for the quarter.
| 2017_SEM |
2018 | VRSN | VRSN
#Thank you, operator, and good afternoon, everyone.
Welcome to VeriSign's Fourth Quarter and Full Year 2017 Earnings Call.
With me are: Jim <UNK>, Executive Chairman, President and CEO; Todd Strubbe, Executive Vice President and COO; and <UNK> <UNK>, Executive Vice President and CFO.
This call and our presentation are being webcast from our Investor Relations website, which is available under About VeriSign on verisign.com.
There, you will also find our fourth quarter and full year 2017 earnings release.
At the end of this call, the presentation will be available on that site.
And within a few hours, the replay of the call will be posted.
Financial results in our earnings release are unaudited, and our remarks include forward-looking statements that are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.
VeriSign retains its long-standing policy not to comment on financial performance or guidance during the quarter, unless it is done through a public disclosure.
The financial results in today's call and the matters we will be discussing today include GAAP and non-GAAP measures used by VeriSign.
GAAP to non-GAAP reconciliation information is appended to our earnings release and slide presentation, as applicable, each of which can be found on the Investor Relations section of our website.
In a moment, Jim and <UNK> will provide some prepared remarks.
And afterward, we will open the call for your questions.
With that, I would like to turn the call over to Jim.
Thanks, <UNK>, and good afternoon, everyone.
I'm pleased to report another solid quarter, which capped a strong 2017 for VeriSign.
Fourth quarter and full year results were in line with our objectives of offering security and stability to our customers while generating profitable growth and providing long-term value to our shareholders.
For 2017, VeriSign delivered strong financial performance, reporting $1,165,000,000 in revenues, resulting in $653 million in free cash flow and generating full year 2017 non-GAAP operating margins of 65.3%.
2017 was a strong year for the .com and .
net domain name base in which the company processed 36.7 million registrations and finished the year with 146.4 million names.
During the year, we marked more than 20 years of uninterrupted availability of the VeriSign DNS for .com and .
net.
Also last year, we renewed the .
net registry agreement for another 6 years until 2023.
During the fourth quarter, we continued our share repurchase program by repurchasing 1.3 million shares for $145 million.
During the full year 2017, we repurchased 6.3 million shares for $593 million.
Effective today, the Board of Directors increased the amount of VeriSign common stock authorized for share repurchase by approximately $586 million to a total of $1 billion authorized and available under the share repurchase program, which has no expiration.
Our financial position is strong with $2.4 billion in cash, cash equivalents and marketable securities at the end of the quarter.
We continually evaluate the overall cash and investing needs of the business and consider the best uses for our cash, including potential share repurchases.
At the end of December, the domain name base in .com and .
net totaled 146.4 million, consisting of 131.9 million names for .com and 14.5 million names for .
During the fourth quarter, we processed 9 million new registrations and the domain name base increased by 0.57 million names.
During the quarter, we continued to see strength from domestic registrars, which was offset by a lower second-time renewal rate associated with the remaining China surge names from late 2015.
Although renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the fourth quarter of 2017 will be 72.2%.
We expect full year 2018 domain name base growth of between 2% and 3%.
For the first quarter, we expect an increase to the domain name base of between 1.5 million to 2 million registrations.
I'd like to comment now on a recent positive development in our efforts to become the registry operator for .
web.
You may have seen the 8-K we filed in January.
In it, we disclosed that the U.S. Department of Justice's Antitrust Division notified us that it had disclosed its investigation regarding the .
web top level domain.
We are now engaged in ICANN's process to move the delegation of .
web forward.
<UNK>owever, as this is ICANN's process, we cannot say when it will conclude.
And while it's possible that our operation of .
web will commence this year, the 2018 revenue guidance we will provide does not include any revenue from .
Of course, we'll provide you with updates as appropriate.
And now I'd like to turn the call over to <UNK>.
Thank you, Jim, and good afternoon, everyone.
For the year ended December 31, 2017, the company generated revenue of $1,165,000,000, up 2% from fiscal 2016, and delivered GAAP operating income of $708 million, up 3% from $687 million for the full year 2016.
Revenue for the fourth quarter totaled $296 million, up 3.2% year-over-year and up by 1.1% sequentially.
During the quarter, 60% of our revenue was from customers in the U.S. and 40% was from customers abroad.
As it relates to fourth quarter GAAP results, operating income totaled $176 million compared with $169 million in the fourth quarter of 2016.
The operating margin in the quarter came to 59.7% compared to 59% in the same quarter a year ago.
Net income totaled $103 million compared to $106 million a year earlier, which produced diluted earnings per share of $0.83 in the fourth quarter this year compared to $0.84 for the fourth quarter last year.
As of December 31, 2017, the company maintained total assets of $2.9 billion and total liabilities of $4.2 billion.
Assets included $2.4 billion of cash, cash equivalents and marketable securities, of which $729 million were held domestically with the remainder held abroad.
I'll now review some additional fourth quarter financial metrics, which include non-GAAP operating margin, non-GAAP earnings per share, operating cash flow and free cash flow.
I then will discuss our 2018 full-year guidance.
As it relates to non-GAAP metrics, fourth quarter operating expense, which excludes $13 million of stock-based compensation, totaled $106 million compared to $97 million last quarter and $103 million in the same quarter a year ago.
Non-GAAP operating expenses were higher in the fourth quarter as we had indicated on our last call, primarily due to an increase in sales and marketing spending in the fourth quarter.
Non-GAAP operating margin for the fourth quarter was 64.1% compared to 63.9% in the same quarter of 2016.
Non-GAAP net income for the fourth quarter was $119 million, resulting in a non-GAAP diluted earnings per share of $0.96 based on a weighted average diluted share count of 124.3 million shares.
This compares to $0.92 in the fourth quarter of 2016 and $1 last quarter based on 125.5 million and 124.1 million weighted average diluted shares, respectively.
Dilution related to the convertible debentures was 25.2 million shares based on the average share price during the fourth quarter compared with 20.6 million for the same quarter in 2016 and 24 million shares last quarter.
The share count was reduced by the full effect of third quarter 2017 repurchase activity and the weighted effect of the 1.3 million shares repurchased during the fourth quarter.
Operating cash flow for the fourth quarter was $199 million and free cash flow was $190 million compared with $205 million and $198 million, respectively, for the fourth quarter last year.
Now I'd like to provide an update on implications to the company of the Tax Cuts and Jobs Act enacted in December 2017, which I will refer to as the Tax Act.
As stated in today's earnings release, fourth quarter and full year 2017 GAAP financial results include a net $9 million tax expense increase resulting from the Tax Act.
This increase is comprised of a provisional income tax expense of $196 million, consisting of onetime U.S. taxes on accumulated foreign earnings triggered by the Tax Act and related foreign withholding taxes, both net of applying previously unrecognized foreign tax credits.
This expense is offset by an income tax benefit of $187 million resulting from the revaluation of our net deferred tax liabilities from 35% to the 21% U.S. federal income tax rate in the Tax Act.
As a result of the onetime U.S. taxes on accumulated foreign earnings, we also intend to repatriate by early in the second quarter of 2018 approximately $1.1 billion of cash held by foreign subsidiaries, net of foreign withholding taxes and based on current exchange rates.
Additionally, on a go-forward basis, due to the Tax Act, annual earnings of our foreign subsidiaries will be taxed by the U.S. This allows for annual repatriation without further U.S. taxation of distributable capital reserves from foreign entities.
The taxation of foreign earnings and withholding taxes associated with ongoing repatriations will increase cash taxes over the amount the company has historically paid.
Also the lower corporate tax rates and limitations under deductibility of interest implemented by the Tax Act decreases the value of future interest expense deductions.
In light of the Tax Act, we are presently evaluating our capital structure, including a possible redemption of our convertible debentures.
Finally, since mid-2017, we have used a tax rate of 25% to calculate our non-GAAP net income and non-GAAP earnings per share.
Looking ahead, we believe a more reasonable estimate of the tax rate to calculate our non-GAAP net income and non-GAAP earnings per share is 22%.
As a result, we will begin to use 22% non-GAAP tax rate when reporting first quarter 2018 non-GAAP results.
With respect to full year 2018 guidance, revenue is expected to be in the range of $1,195,000,000 to $1,215,000,000.
Non-GAAP operating margin is expected to be between 65.5% and 66.5%.
Our non-GAAP interest expense and non-GAAP nonoperating income net is expected to be an expense of between $115 million and $122 million.
Capital expenditures are expected to be between $45 million and $55 million.
And finally, cash taxes are expected to be between $70 million and $90 million.
This 2018 cash tax guidance reflects our best estimate of the various impacts of the Tax Act, including the impacts of our intended repatriation.
In summary, the company continued to demonstrate sound financial performance during the fourth quarter and the full year 2017.
Now I'll turn the call back to Jim for his closing remarks.
Thank you, <UNK>.
2017 was another solid year for VeriSign.
There was further expansion of the domain name base and revenues.
We generated an efficiently returned value to shareholders.
We renewed the .
net registry agreement for another 6 years until 2023.
And we marked more than 20 years of uninterrupted availability of the VeriSign DNS for .com and .
net.
Finally, earlier this year, we disclosed that the U.S. Department of Justice notified us that it closed its investigation regarding the .
web top level domain.
We continued our work to protect, grow and manage the business while continuing our focus on providing long-term value to our shareholders.
We think our focus on profitable growth and disciplined execution will extend the long trend lines of growth in our top and bottom line and allow us to continue our consistent track record of generating and returning value to our shareholders in the most efficient manner.
We will now take your questions.
Operator, we're ready for the first question.
I don't think I have at the tip of my fingers the precise numbers.
But I don't believe that they're material.
I have seen a lot of activity in the secondary markets of trading in .com registrations that have crypto in them.
But I don't think that there any meaningful direct contributions to new .
net registrations in the numbers that we reported.
And there's just a huge amount of interest in cryptocurrencies and Bitcoin, as you know, now that it's hit the exchanges.
And what we've seen, I would say specifically, is a spike in value in the secondary market of .com names with any multiple keyword names with crypto in them.
Sure.
I mean, keep in mind though on an annual basis, our total marketing expense is pretty flat year-over-year.
As I talked about a few quarters ago, we clearly look to execute our marketing programs that we think drive the best return for the company.
And sometimes those programs we have to pivot during the year.
And we had lighter marketing expenses, as we talked about, in the middle of 2017.
And we finally got some programs coming out.
We did make a little bit of a shift away from some registrar marketing programs to more direct marketing programs.
We did do some of our advertising for our brands, both .com and .
net, both domestically and abroad.
And so we've been doing a little bit more direct marketing as a result of that.
And those programs came out in the fourth quarter and will continue to run in the first half of 2018 here.
Yes.
So as mentioned in my prepared remarks, from a GAAP perspective, we made an accrual for the onetime transition tax.
And that was partially offset by the reevaluation of our DTLs.
So from a GAAP perspective, that was about $9 million.
From a cash tax perspective, as you mentioned, we're guiding to $70 million to $90 million in 2018.
And that's up from about $28 million this year.
As mentioned, this reflects a variety of the impacts from the Tax Act, including the impacts of our intended repatriation.
And while I don't think it makes sense to go through all the puts and takes of the tax calculation, I think the big items impacting the company from a cash tax perspective going forward are really the tax on foreign earnings, the U.S. tax on foreign earnings, and then the U.S. limitations on interest deductions, partially offset by the U.S. tax rate.
But that amount does include impacts as well from our repatriation.
As far as interest limitations, yes, tax reform clearly has diminished benefits for interest expense.
There are some limitations there.
And as a result, as I've mentioned, we are looking at our entire capital structure.
We're looking at it.
We'll be evaluating it.
And as our converts are part of that capital structure, we look at them as well.
Yes, I think it's just too early at this point to discuss any details about go-to-market or launch plans for .
web.
There's an ICANN process that we're now engaged in with the Department of Justice having closed their investigation of .
And when that process completes, I'm sure we'll have a lot more to say.
But at this point, it would just be premature.
So in 2017, we absolutely have seen a good U.S. market.
But having said that, European markets have also done well for us.
Our expectation is that we'll see good growth in both U.S. and international markets next year.
But we don't guide to the specific markets or their performances.
Well, I think in general, I don't think there will be a change in how we approach capital allocation.
As always, we look at the needs of the business using our strategic framework of protect, grow and manage.
And we do what we think is best for the business.
As you may recall, our strategic framework includes making sure we maintain an adequate amount of liquidity for the business, both today and for tomorrow, what we think the needs are to continue to invest in our protect mission for the network and our business for today and tomorrow, to invest in technology and innovation that we think will drive profitable growth of the business.
And then once we accomplish those goals, we then evaluate how much excess capital we think is appropriate to return to shareholders and in what form.
So we think that framework, which we've been using for the past 6 years, has served us well.
And we'll continue to use that framework as it relates to the capital of the corporation.
Yes.
So we don't guide renewal rates by country.
As mentioned, the cohort that was originally from the 2015 China surge, that cohort was about 1.4 million names coming into the year.
And that renewal rate was probably, on a blended basis, maybe about 40% for that cohort.
So we did have a portion of those names come out.
<UNK>owever, we were anticipating that.
We did comment on that last quarter.
And that was in the guidance that we gave and we fell within the range of the guidance.
But most of that cohort now is, I would say, through the system for many material names.
And I would expect renewal rates to go back to more normalized rates.
Well, so first of all, I guess just to remind everybody on the call, in late September 2016, NTIA approved the .com Registry Agreement to be extended to November 30, 2024.
At that time, NTIA chose not to extend the Cooperative Agreement.
So it is currently scheduled to terminate on November 30 in 2018.
Whether to extend that Cooperative Agreement or not is NTIA's decision and their process, and so can't comment on that.
They do have the right to conduct a public interest review for the sole purpose of determining whether or not they'll exercise their right to extend the term of the Cooperative Agreement.
Now one update that is new since the last time we talked is that <UNK> Redl was confirmed as the Assistant Secretary and Administrator of the NTIA in November of 2017.
Unfortunately, that's all the update I can give you there.
We can't comment on Mr.
Redl's appointment or the NTIA in regard to their process related to the Cooperative Agreement.
That's theirs, not ours.
As soon as we can, we'll share whatever information we do have though.
So <UNK>, as I mentioned, we're just evaluating our convertible debentures in conjunction with evaluating our capital structure.
So we're still looking at that.
So our guidance is really based on where we see it today of what we're doing.
It doesn't involve looking at any changes from that fact.
We're still evaluating it.
Yes.
So if you're referring to ---+ so I think you're referring to the transition tax.
The Tax Act allows you to look at your taxes, what they would have been with the Tax Act or without.
So it's a with-or-without calculation.
And for us, when we do that calculation, we expect to actually defer that amount of tax over the 8 years allowed by the Tax Act.
So as we mentioned previously, we don't guide to a long-term cash tax rate.
<UNK>owever, I would say in the short term, we expect that, that rate to still be below our GAAP tax rate as we use up foreign tax credits.
At the end of 2017, we had about $122 million of foreign tax credits.
And we now expect to utilize those over the next 2 to 3 years.
That's correct.
Like I said, they'll be probably fully utilized over the next 3 years.
So obviously, you'll use them up ---+ use more of them up in year 1 and 2 and probably less in year 3.
But the utilization of FTCs, to be perfectly candid, is somewhat complex and is dependent on a variety of factors.
So it's a little bit ---+ clearly, I have an idea of what they'd be.
But it's probably premature to give that number because they can change over time depending on how foreign income is recognized overseas.
Thank you, operator.
Please call the Investor Relations department with any follow-up questions from this call.
Thank you for your participation.
This concludes our call.
<UNK>ave a good evening.
| 2018_VRSN |
2016 | AVY | AVY
#Morning, <UNK>.
Sure.
I think typically the way we've characterized our CapEx is, 1/3 growth, 1/3 productivity, 1/3 IT/maintenance capital.
It's actually is going to move to about 50% of growth in capital spending.
We started a number of projects later in the year.
We need some new graphics capacity in the US, so we are going be investing in some new capability there.
We're also going to get a productivity benefit from that investment.
It's going to take us a while to plan out.
It's a fairly decent-sized investment.
We need new coating capacity in Asia, and so we are going to be in the process of building a new water-based coating line there.
And then we've got some IT projects in North America.
We've got a fairly old system in the US that we are going to upgrade and replace.
Those are some of the key investments in pressure-sensitive materials.
In RBIS, clearly RFID with its rapid growth, we're continuing to invest there as well as some of the heat transfer technology.
We are also are spending capital on automation in that business to continue to drive better labor productivity.
It's a more labor-intense business than material, as well as to help us facilitate a more efficient footprint.
Well above our hurdle rate.
Or greater.
I think, as you might guess, most operating plans for businesses always look for improvement every single year.
We are not really different than anybody else.
We're not going to get specific guidance for operating margins by segment.
I think the team has done a good job driving mix, growing faster in high-value segments, and at the same time getting more competitive in some of the more competitive segments, frankly, and driving improvement there.
For us, pressure-sensitive materials is a high-return business.
It is at a multiple of our cost to capital, and driving growth.
Top-line growth is also an important goal for us, so I feel good about the position of the business.
Again it's ---+ right now, with oil prices low, I know a lot of people are saying, that should really help you.
To be honest, we haven't seen that much change in the commodities we buy over the last 90 to 120 days.
A lot of the things we buy are several steps down from crude oil.
And then there is still some economies where we are seeing inflation.
I think the team has done a good job.
We are continuing to pursue our strategy of driving productivity, driving top-line growth and mix, and we have the expectation to continue to drive for more improvement.
Those targets that we had set for 2018 are not a cap.
They are simply a long-term guidance range.
But we feel confident today that we can operate at 11% or over.
Thank you.
<UNK>, I will answer the last part of your question first.
There is no knock-on effects or implications to the rest of the business in PSM.
This is specifically within the performance tapes business, which is an application business.
And one application ---+ it's not losing share, if you will, to another competitor.
There's a technology change, as <UNK> said.
Our focus, when we've talked about investing in this business, it's really been focused on the industrial tape side, where we did continue to see growth in Q4.
And it is going to be a key focus for us going forward.
We look at this as an application we got a few years ago.
The team did a great job in driving value and achieving our objectives on this application, and we knew eventually we would have a sunset and it's coming in 2016.
When we look at PSM for 2015, by and large by a multiple of two and three times, the benefit in margin came from net productivity in restructuring.
So that really was driving the margin improvement that we saw for the year.
Your question, going into 2016 ---+ when we laid out this business, if you look at 2012 when we laid out long-term targets, we said 9% to 10% operating margin target.
We've passed and exceeded that.
We've now said 10% to 11% as the operating margin for this business.
And it's really, what we said is, those are proxies for what would make a high return on capital business here.
That is our focus and we have been testing and getting, achieving new heights.
We don't, as <UNK> said earlier, see this as a cap in any way.
We all have operating plans to look to see how can we test even further new heights.
But the reason that we are saying we're confident we can hold 11% or more in this business is, one, we feel that it's a very high return business and we've got to focus on growing it, then, as we've done a great job over the last few years.
Two, is just macro uncertainty as far as what's out there within the economy and all the headlines that everybody's reading.
No, there really wasn't.
That was a component when we looked at the total guidance.
Right now, we've got the euro pegged slightly under $1.09.
Good.
About $150 million in 2015.
The charge is primarily in the SG&A line.
There is a portion that goes through the gross profit line, but I would say it's probably an 80%/20%, 75% to 80% going through SG&A.
There's a number of initiatives going on.
First we're looking at footprint consolidation to get efficiency in the business.
And then secondly we also, as we talked about in the prior quarter, looking at driving more efficiency in the regional basis, getting out some of the layers of management in the business; and so that's a big component of the SG&A line as well.
Just to add onto that, <UNK> ---+ the footprint consolidation, as <UNK> talked about, we've announced in eastern US as well as western Europe; and then one of the overall objectives here is to lower costs so we can be more competitive in all segments.
We're cutting SG&A across the board, if you will, on a number of areas.
It's not just about lowering costs.
It's actually about streamlining the management structure to move decision points closer to the customer and close to the market so we can be faster and more nimble in the market.
That's what we are doing.
The SG&A is broad based, but it's again not just on cost reduction ---+ it's also around getting quicker in the marketplace.
We talked about this generally in a net basis.
When you look at the net impact of pricing and deflation, as we commented, we saw modest benefit in Q4 again as we've seen the previous couple quarters.
If you look at where we fit now flowing into 2016, it's essentially neutral ---+ the net impact between pricing and raw materials.
It's hard to give a very broad comment on those trends globally, because it depends region by region.
In some regions we're raising prices quite dramatically, double digits to offset inflation.
Other regions, clearly in some regions we have some deflation and it's a competitive environment, and we're working through that.
One thing I do want to say is, we talked last year about a couple course corrections we were making and one of them was rebalancing the dynamics between price volume and mix within PSM.
I think largely what you are seeing is, we've done a good job in doing that, of rebalancing those dynamics.
And we talked about getting more disciplined in the less-differentiated segments within PSM, and we have done that as well.
And the focus is, how do we continue to drive growth profitably across all the segments.
We don't provide commentary on that.
We didn't make any contributions to the plan.
We are seeing some pressure in Europe because ---+ generally because of the currency shifts that you are seeing there, but that's the only place we're really seeing pressure.
When you look at our long-term goals, we really have set the target around $175 million to $200 million a year for CapEx spending on average.
Yes, so there were several questions in there.
Let me try to take a couple of them.
One is, if you look at our margins ---+ you asked about the 53rd week impact and what's the variable flow through from volumes.
We did see what you would typically expect from a volume flow through from the growth, but if you think about the lack of the extra week that we had, that was pure variable flow through last year, and we commented about it the benefit that it gave us to 2014's earnings.
And we expect that to come back down more than $0.10 in Q4.
You've got your fixed cost structure which stays solid for the quarter, and you've got an extra shipping week.
That was what that item was about.
But no shift on the volume variable flow through.
As far as the mix ---+ typically Q4, the mix is lower if you're looking sequentially versus Q2, Q3, because we have more graphic sales, for example, in Q2 and Q3 than we had in Q4; so that you would typically seek Q4 be somewhat lower than if you're looking on a sequential basis.
As far as the ---+ go ahead.
No, because those are very different markets.
Graphics are more for the durables market.
They're long-lived labels, if you will, so they're not ---+ nothing to do with the e-commerce trend.
The e-commerce we talked about was a key point of growth, particularly in Asia; and that is, while it's not just classic variable information labels, like <UNK> said earlier, and actually within China, with this growth that we've achieved, we've actually gotten margins back to where they were before the slips we saw them in 2014.
I would say, yes, we have an active pipeline going for M&A.
We talked about it.
I would say it definitely includes the materials businesses ---+ all the material businesses.
Vancive is also is an area that we are looking in.
RFID is an interesting question.
I would say the answer is yes, but I would say there's not just a lot out there.
We are one of the biggest entities out there for RFID and really our focus there, other than driving the great growth that we had, is looking for applications outside of the core apparel business because we have a really unique capability in the marketplace.
And I think, in the long run, that will bode well.
<UNK>, from a capital point of view, it's basically in the equipment to make, not what I would characterize as integrated inlays.
One of the advantages that we have is being able to offer the retailer form factors that are very similar to what they use today and then make the incremental costs of adopting RFID even lower than it was before.
I think the team has been very innovative and creative, driving both lower costs for inlay production, but also at the same time giving the retailer almost a seamless and lower-cost transition.
We're really changing the game there.
We have invested a little more in the front end, but that's actually been in place for quite a while.
We have a really experienced team that understands ---+ I would say we don't have so much a turnkey approach.
I think we have probably the most knowledge in the business on how to effectively execute a program and we can help guide retailers in a number of areas as they roll out their programs.
I would characterize it this way: the folks that have invested in RFID are accelerating what they're doing.
We had a couple of large customers ask us, can we go even faster.
I think the team did a great job of accommodating that pretty seamlessly.
Our growth in the quarter was almost 90%.
That's a lot for any operation's supply chain team to execute.
As retailers continue to understand the need for really accurate inventories to play in the omni-channel world, I think it is becoming ---+ I won't say a no-brainer ---+ but it's becoming an essential part of being competitive.
And that's the discussion that's going on.
Retailers are talking mainly about how, and not if.
I think this will be a great growth platform for us for the next few years.
It comes from a combination ---+ so it's sort of at all ---+ what I would characterize as all levels, right.
We have scale in purchasing chips.
We have an ability to integrate the manufacturing of the antenna, the making of the inlay and integrating that into the final tag in a seamless process, which reduces materials and reduces process steps.
I was literally just in Asia a couple of weeks ago looking at our operations and talking to the team, and they have already figured out a way to double the productivity that we're getting on our newly installed equipment.
I get pretty excited about that.
So far, I don't see a limit to what we are doing.
We also have some longer-term programs ---+ and I mean the next two to four years ---+ where I do think there is an ability to take another step change in the cost reduction of an inlay.
I can't, due to confidentiality, get into the details.
But we are all in on this business and I feel really good about both our short-term and our long-term prospects.
Thanks, France.
Our focus in 2016 will be the same as it's been for the last four years: to deliver exceptional value for customers, our employees, and our shareholders.
We're going to continue to pursue the broad strategic priorities that we communicated, fine-tuning where appropriate.
And we look forward to seeing that strategy and execution translate into superior total shareholder return over the long term.
Thanks for joining us and we will talk to you at the end of the next quarter.
| 2016_AVY |
2017 | AAON | AAON
#Hello, and welcome to our third quarter investor conference call.
I'd like to start this call by reading a forward-looking disclaimer.
To the extent any statement presented herein deals with information that is not historical, including the outlook for the remainder of the year, such statement is necessarily forward-looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995.
As such, it is subject to the occurrence of many events outside AAON's control that could cause AAON's results to differ materially from those anticipated.
Please see the risk factors contained in our most recent SEC filings, including the annual report on Form 10-K and the quarterly report on Form 10-Q.
I'd like to begin by discussing the comparative results of the 3 months ended September 30, 2017, to September 30, 2016.
Net sales were up 8.7% to $113.7 million from $104.6 million.
Sales increased primarily due to a favorable product mix.
Our gross profit increased 7.8% to $35.7 million from $33.1 million.
As a percentage of sales, gross profit was 31.4% in the quarter just ended compared to 31.6% in 2016.
Selling, general and administrative expenses increased 25.3% to $13.0 million from $10.4 million in 2016.
As a percentage of sales, SG&A increased to 11.5% of total sales in the quarter just ended from 9.9% in 2016.
The overall increase in SG&A was primarily due to increased warranty expenses.
The company has been working on modifications and refinements to its warranty policy.
These modifications more clearly define what qualifies as a warranty claim and place a deadline for when claims may be submitted.
This has increased our warranty reserve and increased our warranty expense for the 3 months ended September 30, 2017.
Income from operations decreased 0.3% to $22.6 million or 19.9% of sales from $22.7 million or 21.7% of sales.
Our effective tax rate increased to 35.3% from 31.1%.
The company's estimated annual 2017 effective tax rate, excluding discrete events, is expected to be approximately 36%.
The rate is higher for 3 months ended September 30, 2017, due to shifts in income to states with a higher tax rate and a smaller excess tax benefit from stock compensation.
Net income decreased to $14.7 million or 12.9% of sales compared to $15.7 million or 15% of sales in 2016.
Diluted earnings per share decreased by 3.4% to $0.28 per share from $0.29 per share.
Diluted earnings per share were based on 53,014,000 shares versus 53,394,000 shares in the same quarter a year ago.
The results of the 9 months ended September 30, 2017, to September 30, 2016.
Net sales were up 3% to $301.1 million from $292.3 million.
The company saw an 8.8% increase in total units sold.
However, due to growth in volume of less expensive units, revenues increased at a slower pace.
Our gross profit increased 0.8%, $92.3 million from $91.6 million.
As a percentage of sales, gross profit was 30.7% in the 9 months just ended compared to 31.3% in 2016.
Selling, general and administrative expenses increased 18.9% to $35.5 million from $29.9 million in 2016.
As a percentage of sales, SG&A increased to 11.8% of total sales in the 6 months just ended from 10.2% in 2016.
The overall increase in SG&A was primarily due to the increased warranty expenses we mentioned earlier.
Income from operations decreased 8.1% to $56.7 million or 18.8% of sales from $61.7 million or 21.1% of sales.
Our effective tax rate decreased 32.1 million from 32 ---+ or decreased to 32.1% from 32.4%.
Net income decreased to $38.7 million or 12.9% of sales compared to $42 million or 14.4% of sales in 2016.
Diluted earnings per share decreased by 6.4% to $0.73 per share from $0.78 per share.
Diluted earnings per share were based on 53,103,000 shares versus 53,457,000 shares in the same period a year ago.
Looking at the balance sheet.
You'll see that we have working capital balance of $103.5 million versus $101.9 million at December 31, 2016.
Cash and investments totaled $39.9 million at September 30, 2017.
Investments have maturities ranging from 1 month to 12 months.
Our current ratio is approximately 2.7:1.
Our capital expenditures were $26.4 million.
We originally expected capital expenditures for the year to be approximately $42 million but have now raised it to $48.5 million to accelerate acquisition of sheet metal equipment.
The company had stock repurchases of $13 million year-to-date.
Shareholders' equity per diluted share is $4.10 at September 30, 2017, compared to $3.85 at December 31, 2016.
We continue to remain debt-free.
I would now like to turn the call over to <UNK> <UNK>, our President, who will discuss our results in further detail, along with the new products and the outlook for the remainder of the year.
Good afternoon.
The net sales increased 8.7% for the quarter.
This was primarily due to volume.
Potential on the water-source heat pump continues to accelerate.
The various markets.
The replacement market versus new market remains steady at about a 50-50 mix.
Commercial and retail.
Commercial remain steady with our earlier statements.
Retail seems to be weakening just a bit, primarily with regards to some of the larger grocery stores.
They seem to be a little scared by what Amazon has done.
Office buildings are remaining relatively steady.
Medical and health care has continued to be strong.
Education, towards the third quarter, we typically see a lot of product go out the door, not quite so much coming in.
And as far as new orders, we've had some conversations with some various school districts that are longtime advocates of our products, and they're looking at how they're moving their purchasing to an earlier portion of the year.
We're doing this through various direct sale functions, still through the rep force but not going through the traditional long bidding process that, again, is traditional.
Manufacturing, not really seeing any change there.
Lodging, it seems to be a little bit sporadic.
We'll see it have little spurts.
We recently saw another spurt where we've had a decent little input of orders from our various national accounts with lodging.
Municipalities are not seeing any real change there other than, like I said, in the education with K-12.
The backlog at September 30, 2017, is $73.8 million compared to $62.2 million a year ago.
The backlog usually represents somewhere between 45 and 60 days of our production.
So we look for production to remain strong while we get this backlog back in the reasonable level ---+ historic level.
For the remainder of '17, we're accelerating the production again because our backlog is ---+ sorry, handing that over to Norm.
Thank you.
The remainder of 2017 is looking strong this year, just like it looked strong a year ago on shipments.
Unlike a year ago, when we were getting weak input on orders, the orders appear to be strong this year.
So we can only conclude to further belief that last year, we got the slowdown in orders due to hesitancy during the election cycle.
The water-source heat pumps are starting to grow significantly.
If we are estimating correctly, we will build about as many ---+ build and ship about as many water-source heat pumps in the fourth quarter as we did in the preceding 3 quarters, which is ---+ should give you an idea about the market growth.
The biggest thing on the water-source heat pump is that the timing was bad.
We had anticipated we'll be able to move some things a lot faster than we were able to move them, and so that set everything back.
The actual product is coming off very well.
The quality is excellent.
The shipping to the customers is pretty much on time for when they want it.
So the only real major change is how fast we've been able to get our design work done and all of our approval work done and start getting orders.
The backlog, we think, will be better than it was a year ago and therefore launches into 2018 much better than we did last year.
This will have a lot of positive effects because last year, when we came out of 2015 with a low backlog, we were having to cut back on personnel and reduce the run rate in the factory.
This, of course, then started turning around with new orders coming in, in the first quarter of 2016.
And we had to turn around.
Within a few months, we started hiring additional personnel and basically ran behind where we would like to have been for the first half of this year and then have locked ourselves in a position of having to deploy catch-up in the last 2 quarters.
As you can see, we did a pretty good job deploying catch-up during the third quarter and got ourselves back in the positive for the total shipments and have quite a significant improvement quarter-to-quarter in shipments.
Gross profit.
We believe we'll maintain pretty much where it is.
We do have a price increase, which is going into effect on November 15.
That will be on orders coming in.
And of course, those orders will go into backlog, and they will take somewhere about 8 weeks or thereabouts to begin coming out of the backlog.
So it will be in the middle of the first quarter before we start seeing any noticeable improvement with pricing on what goes out the door.
Capital expenditures, as was noted, is going to be approximately $48.5 million.
We are moving very, very quickly in a lot of areas, including capital and additions to what we're doing.
The 2 big areas of capital expenditures have been the establishment of the water-source heat pump production line and the new R&D lab, which we're building.
This lab is ---+ for those of you who haven't heard, it's 162,000 square feet, very significant.
We believe in many facets of it, it's the largest lab in the world.
And about a year from now, we will be up and running with it.
The building itself is pretty well finished on the outside, and what we're doing now is putting all the testing and equipment into this thing.
We will have 10 individual testing areas in it.
And there's a lot of internal work to do to put all those test cells and all the things in and verify their accuracy and get everything ready to start functioning.
I'd like to open it now to questions.
<UNK>, the SG&A was a little bit of a surprise to us, just the additional warranty reserve and expense associated with it.
I thought that will roll off after last quarter.
Should we be thinking about an elevated level here into the second half.
Or do you still think that comes in.
Well, this particular quarter that we're coming into, I think we'll still have some trailing expenses coming through.
We just had a couple of different issues that all kind of snowballed on us at the same time at the end of Q2.
The main one we were aware of was our policy change.
We had a few problems with paint process and some vendor issues that caused us to have additional charges in Q3 that we believe are fully under control.
But the costs are going to taper off into Q4.
So we don't anticipate anything going into next year however.
Got it.
And then just with regard to kind of waiting on the certification for the new pump line, can you remind me the importance of that.
You're obviously getting orders as we speak, and it sounds like 4Q is going to be a good shipping period for you.
What's the relevance of this certification.
This is <UNK>.
So the relevance of the certification is probably several factors.
One of the ones that\
Okay.
<UNK>, that's very thorough.
Appreciate that.
Then on the ---+ yes, I guess the question is you guys are out securing these initial orders for the pump line.
Any sense of what the response has been from competition.
Are they offering discounts, taking prices down.
Any readout there.
There is a readout there.
No, they haven\
Yesterday was the first day that I felt any kind of forward push at all.
Up until yesterday, it has been running along at a pace that had been pretty consistent.
Yesterday, we booked about 2x a normal day, which I felt like was a bit of a forward push.
Today, I haven't checked it.
But earlier in the day, it was back on a normal track.
I think we're probably a few days away.
Reps are notorious for procrastinating until the last minute, especially if they don't have any delivery pressure.
So I think I will have a better sense of this in another week or 10 days.
But we do expect some forward push.
Joe.
Hello.
Well, I want to say they are a work in progress going in the right direction.
We have been able to reduce the backlog.
I think the highest we ever saw was about $90 million.
I think the highest at any reporting point was in the mid-80s and now we're in the low 70s.
So we're working the backlog in the right direction.
The guys are doing a really good job.
We're becoming more efficient but we're not back to where we were pre-changeover of the management.
We're still using a few more people to produce the dollars.
But it is headed in the right direction.
The other thing that's headed in the right direction that's affecting our bottom line is the warranty.
Some of the issues that ---+ in addition to the warranty policy change, which really ---+ I began that almost immediately when I got here because I was being notified of various timing situations that I didn't think were suitable.
So I was trying to get some of that cleared up and really did a lot of that in the first quarter and some of it trailed into the second quarter.
Kind of the bit of a surprise was a vendor issue and some paint process issues that <UNK> mentioned earlier that kind of caught us right at the peak there during that changeover of that management.
Not necessarily due to their fault but the timing was about the same.
Well, we got ahold of the vendor issue and we got ahold of the paint process issue.
But it had a duration that caused us some expense.
Those have both been resolved, and we're now down to just the last vestiges of people sending in their reimbursement.
And actually, I think we're pretty much digested on that now.
So I look for both of those things to improve, fourth quarter, the labor efficiency to improve, the warranty expense situation to improve.
Sure.
So our product development road map, it kind of goes in line with our construction of these additional facilities that Norm mentioned earlier.
So our facility, we termed it A, B and C or call it Phase 1, 2 and 3.
So Phase 1 or A is what we completed a year ago.
It's what we've been using to vet out the process, and that's what we're using to build product now.
Phase B is due to be completed in the next 45 to 60 days.
And at the same time, we're designing more product, widening the product offering in the product family that will be built on that Phase B.
Phase C will be a little bit of additional product but it'll be more of a high production line.
For instance, we just, last week, finished a big run.
All of the units were identical.
There's actually 380 units that are identical.
And the third phase of our line is to take advantage of those sort of orders to where we can run them at a higher rate with not a lot of variance.
So to answer your question, we'll have more product to address more markets starting January 1.
Throughout the entire year of '18, we will add more and more product that by the end of '18, we'll have a complete family offering from the entire desirable product line.
The percentages of the market that each one of those address tapers off the further you go down the line.
So what we have done right now addresses somewhere around 38 ---+ the line 6A addresses about 38% of the available market.
Line B addresses about 34% of the available market.
So that puts us at 72% really around the first quarter of the year.
And we should have product to go on that line mostly by the end of the first quarter.
So 70-something percent of the available market, we will be prepared with product design certified and a facility to build it.
That last 28% will come throughout the year.
No, Joe, I want to stay away from that right now.
We're still ---+ that would be kind of peeling out a segment there and giving too much forward guidance if I gave it in dollars.
So we'll just say that we can address 70% of the available market.
And eventually, by the end of next year, we're going to be able to address 100% of the available market.
And as I've said before, we're looking at a runway of between 3 and 5 years to get to our aspirations of 20% market share.
All of which are looking very attainable, the orders that are coming in now, everything's occurring that we thought would occur.
Some of it is just taking a little longer.
As Norm would say.
.
We're still in about the $35 million to $40 million range.
We're still finalizing all of our budgeting plan for what we're going to get done next year.
I do want to point out that if you look at our balance sheet, you'll notice that we have assets in place.
Our cash flow is lower than we would anticipate, but part of that is due to getting equipment up and released and the payments finalized.
Yes, certainly.
So we\
Well, to be 100% finished and what they call commissioned and certified, we believe that we'll be able to accomplish that about this time next year, somewhere in the October, November range.
But I was going over it with them yesterday.
We sold a major project on the West Coast to a major end user, owner of their building that has a desire for this sort of witness testing that I mentioned earlier, the rep bringing in the revenue for that.
They have a desire to test this equipment.
Well, their schedule is June and July.
And so I was going over the lab schedule just yesterday with our people that are managing that, and we have figured out a schedule where we can accommodate that.
So we will have certain aspects of this lab that will be available for use in as early as June ---+ I don't know if it's 6 or 11, but the first week or 2 of June next year is on the schedule.
But to have it absolutely complete, have a grand opening and say, Joe, come see my new lab, I'm looking at probably October, maybe November.
Well, the gross margin percentage of '16 was one to be admired and appreciated.
But it's not easily duplicated.
The real driving goal here is to put more dollars to the bottom line.
Now we've had a few things that we believe are essentially not exactly onetime occurrences, but this warranty expense and the inefficiency from the changeover from the historical product and project management and plant management to the newer guys, those were somewhat behind us.
So we will see a return to some of the margin percentage ---+ some of it that we've lost, we'll regain with that.
The other thing is this price increase that we just put into effect, it's going to at least keep us from having any erosion.
The ---+ when you look at the percentage of materials and the percentage of price increases that we're seeing on those materials, that pretty much absorbs 1% of our 3% price increase.
One of the percent.
About 1% is in salaries and hourly wage increases.
The other 1% percent might possibly help the bottom line a little bit, but it might also just absorb some of the less visible things like the gas bill goes up, the electric bill goes up, things like that.
So those miscellaneous things.
So we believe that there won't be any margin erosion due to material cost, labor cost and those miscellaneous things.
And then the most serious margin erosion that occurred in '17 was the efficiency going from people that had managed the plant for eons to young guys.
And these young guys have done a really, really outstanding job.
I mean, they have now produced product that's a better product at a higher rate than has ever been produced out of this plant before.
This was a record revenue quarter and they've got it going in the right direction.
They will get the efficiency back.
But to get to those 2016 margin percentages, that's a pretty lofty goal.
I would like to keep a lid on our price increases and not have to have any more than we have to, get the top line up, get the dollars to the bottom line up and let the margin be a little bit of a float.
Well, that's part of my strategic planning process to figure out exactly how that lab's going to affect that SG&A.
But we have every intent of not letting it push us in.
Warranty expense, expecting that will go down will lower SG&A in all probability going forward.
Water-source heat pump is.
.
Yes, we've been shipping.
And like Norm said in some of his earlier comments there, in the fourth quarter, we will ship more units or as many units as we shipped year-to-date.
Well, the thing is if it was a significant portion of revenue, then it might hurt it for a period of time.
But when you look at it percentage-wise of revenue and what we believe is going to happen, then even though its distinct margin is below the benchmark for the rest of the company.
It can't move the whole margin more than just a small click or 2, one way or another.
We do know that the margin is going to start off lower than our benchmark.
But I'll share something with you that was pretty interesting.
We've been building these things where we'll have 3 or 4 units of one configuration followed by 3 or 4 more units of a different configuration alternating down through the lines.
There's 15, 16 units on the assembly line at one moment.
And there could be 3 to 4 different configurations.
So they don't get catch any rhythm.
One of them they do, we'll say is a ---+ that looks like a basketball and the next one they do looks like a football, okay.
So they don't catch a lot of rhythm.
And so we know what the margin was on those and it was lower than our benchmark margin.
Well, we had this order for 380 identical units, of which we ran a 190 of them, nose to tail, just random.
And our margins were very nice.
We looked at that and said, okay, now we get it.
So when you catch that rhythm, when you got that muscle memory where people don't have to stop and think, what do I have to do next, well then you get this efficiency.
So when we get the flow line put together, A, B and C.
A, we'll always have ---+ the intention is it will always handle that variance.
There'll be footballs and basketballs and baseballs going down that line at any one moment.
Line B, will be more unique units, bigger tonnages, bigger configurations.
Line C, which we're going to build throughout next year, will be for those high-volume lines.
So we're probably a year to 18 months from having experience and facilities that will allow us to get pretty close to what we believe the end goal would be for an overall product line gross margin.
So just to summarize, some of the stuff we've got going on has definitely got a negative margin attached to it.
Some of it is breakeven.
And on this one large job, we probably made a little bit, not standard margin that you're accustomed to but we were definitely in the black.
So it's going to vary.
Day to day it varies, depending upon a whole host of things, including how well people are able to make it happen and whether or not there's some glitch in the whole system that shuts the system down for some reason.
So we're still in the startup phase, and that's probably going to go on for several months yet.
And then we'll get down to where it will be very rare of when we have one of these issues.
We're going to have an issue every 15 or 20 minutes to having an issue every 2 or 3 hours.
We'll be crossing in the middle of the year, I think.
Where it's really going to start becoming noticeable on the bottom line in any significant scale, I think it's going to be the very end of next year and possibly into 2019.
Recognize what we have done here.
Let's just summarize it a little bit.
We have a totally new product, which is state of the art, way out advanced from anything else that's out there in many areas.
We've designed and built a production line which might be a state of the art for any industry anywhere.
Think of this, a piece of sheet metal, aluminum sheet metal that's sitting in the tower.
About 2 hours later, that piece of sheet metal was shipping down the road as a finished product.
In other words, the work in process on that piece of sheet metal is just a matter of minutes.
It's not a matter of days or months or hours.
It's a matter of minutes.
Each individual unit gets an individual set of sheet metal.
So we have no run rate or minimum run or changeover or anything.
Every unit is a changeover.
Every unit is unique.
And that has to be done in a very sophisticated manner because when we're up and running on the production line we've got right now, we think that run rate per unit is about 4.5 minutes.
So everything will totally change every 4.5 minutes possibly or the run rate will be just [for any] 4.5-minute units we put together.
So this is a very unusual situation.
We thought we could put this kind of line together.
We thought we could leave the challenges.
We undertook to do it and we've succeeded.
So it's going to be very interesting to see what that will do to us on the bottom line once we really fully understand how to run it and each of the individual people working on the line fully understand it because we have no cost at all in storage and warehouse, taking it to the warehouse, bringing it back from the warehouse.
There's a whole lot of things that just don't exist in this line.
We have 0 people working on fabricated sheet metals.
It's all automated.
We have 0 people fabricating copper.
We have 0 people fabricating insulation.
We have minimum time necessary to bring the purchased parts down because we have installed 28-foot high towers with 40 shelves and the shelf comes down and delivers the right product with the right unit at the right time and there's the next one and brings a different shelf down.
So we load the whole shelves during the nighttime, and in the daytime, there's nobody hauling parts to the line.
These parts come down right at the line when they just put over on the line and it's simple.
So this has been an enormous challenge we've had and we're rapidly getting into the final stages of it.
We know we can make it work now.
We know it is working.
What we haven't done is perfected all the potential that it has, and that's only going to take time and additional run time.
There's been a lot of concern, as you can imagine, among a lot of people because of the ---+ how far out into the future we went in our product and in our manufacturing methodology.
All of that is now proving itself to be good.
Everybody is thrilled with where we are.
But we aren't where we're going to be in a year from now.
We appreciate everyone for listening into our third quarter conference call.
And we'll look forward to speaking to you again when we have our fourth quarter results.
Thank you.
Thank you from the rest of the ---+ all of us.
Thank you.
Bye-bye.
Bye.
| 2017_AAON |
2016 | IVZ | IVZ
#I would say the effort that we started three years ago broadening our fixed income capability, probably almost four years ago now, is really proving to bear real fruit.
And as you say, if you just look across the fixed income performance, it is very strong.
And we are seeing growing demand, all channels, all regions, within fixed income.
And some of that is still not at the level that we anticipate because some of the capabilities do not have three-year track records.
They are getting close, but we are starting to get commitments on them because the performance.
Quite frankly, institutions in particular looking for another high-quality provider of fixed income capabilities.
So not just good performance, but we do think it is ---+ we are not seeing the highest level of contribution yet from the area.
So we are very positive on it.
It is only growing for us.
It is such a big market, and we are so under-penetrated that our opportunity to continue to grow, even if there are some rate impacts I think is significant.
It is a good question, and I think we are all ---+ we are imagining, right.
It's hard to imagine, but what I can say, and this probably gets back to some of these other topics that we talked about, breadth of capability, depth of capability matters a lot.
We think quite frankly high-conviction manager and fundamental investing and factor investing is really important.
We think we're obviously one of very few firms that can do the range of both types of things.
Quite frankly, the other thing that Jemstep does, it is an enabling tool for our advisory clients to get broader, deeper relationships with their clients and serve clients that may---+ individuals that could ultimately be totally disadvantaged by the fiduciary rule that's being put in place.
That is part of what we are thinking of how Jemstep can help us and our clients with a rule that we don't know exactly what it's going to be at the moment.
That's how we've been thinking about it, so hopefully that's helpful.
Nothing more than what we have, quite frankly.
We're just leveraging in many ways capabilities that are in our view not ---+ can scale much more than they are today and taking capabilities that are somewhat focused on a particular region and unlocking them on a global basis.
We can use existing sales people, we can use existing teams, so there is no new infrastructure that we necessarily need to put in place to support that activity.
It is more a matter of coordination, education, and making sure that our team ---+ sales teams in particular ---+ understand these products and can articulate the benefit to their clients.
Is this in particular in the UK.
If you look over the last few years, and let's do Europe first.
It has been ---+ really the independent global asset managers, largely US, that have been continuing to take greater share on accounts.
I know there are some other very good competitors that participate, but that has been the fact for whatever reason.
And over the last number of years as you have seen, we just continue to make stronger and stronger inroads on the continent, and we still think that is the case.
We still have ---+ we think quite a way to go to penetrate the market, and that continues for us.
In the UK, it is really quite different.
It is a really competitive market.
Very few non-UK firms are successful in the UK.
It is really the heritage of our presence in the UK is why we are so strong there.
Again, it just continues to be competitive, but we are very well-placed there, and we think we will continue to do well.
But there would probably be another market that is largely driven by regulatory developments and what's starting to happen here in the United States.
It is very difficult to be a smaller firm, and I think the strong are just going to get stronger in the UK as that will be the case in the United States too.
So Rhode Island would be the highest profile in the United States, I would say.
But again, we are seeing ---+ one of the components of being able to do that, it is really this combination of broad range of capabilities and from our point of view, side conviction factor and fundamentals.
We have both of those, and I think that is actually really important if you're going to be successful in solutions.
And it is continuing to carry on for us in each of the regions, so the US, Asia-Pacific, frankly China in particular and on the continent in particular.
So we will just continue to go down that path.
There is growing opportunity in the area, and again I think it is ---+ you really have to be a broad-gauged set of offerings to be successful.
And that is where we start, and then the overlay of some very talented people who could do the solutions work for the clients.
Hard to ---+ we, probably like you and everybody else, we do our looking forward to try to understand where the strength would come.
It will be a contributor for sure and a growing contributor over the two and three years out from where we are right now.
That is another reason why we have such confidence in the 3% to 5% range.
It has been 100% broad across the asset class, utilizing anything from a factor based capabilities to alternatives.
So it's client dependant, but it has used the full range of capabilities in most cases.
On behalf of <UNK> and myself, thank you very much for your time and we look forward to talking to you next quarter.
Have a good rest of the day.
| 2016_IVZ |
2017 | DAKT | DAKT
#Thank you, Candice.
Good morning, everyone.
Thank you for participating in our second quarter earnings conference call.
I would like to review our disclosure cautioning investors and participants that in addition to statements of historical facts, we will be discussing forward-looking statements reflecting our expectations and plans about our future financial performance and future business opportunities.
All forward-looking statements involve risks and uncertainties, which may be out of our control and may cause actual results to differ materially.
Such risks include changes in the economic conditions, changes in the competitive and market landscape, management of growth, timing and magnitude of future contracts, fluctuations of margins, the introduction of new products and technology and other important factors as noted and detailed in our 10-K and 10-Q SEC filings.
With that, let me highlight some of the financials.
Orders for the second quarter of fiscal 2018 were $142 million as compared to last year's second quarter of $117 million.
Most of this order fluctuation is attributable to the volatility in our large project and account-based business in Live Events, International and Commercial business units.
As a reminder, both orders and net sales fluctuate due to the impact of our large project and account-based business.
Large projects include multimillion dollar orders of display systems for professional sports facilities, colleges and universities and Spectacular projects.
Account-based orders can also be multimillion dollars for in size for national or global customers, mostly in our out-of-home advertising space.
Our business also fluctuates seasonally based on the sports market and construction cycle, and is dependent on various schedules based on our customers' needs.
Orders also for the quarter were impacted by softer demand in the Commercial on-premise displays.
For the year, orders are up slightly by 1.1%.
Sales for the second quarter of fiscal 2018 were relatively flat at $169 million as compared to $170 million last year for the second quarter.
Sales increased in Live Events, High School, Park and Recreation and Transportation business units and decreased in the Commercial and International business units quarter-over-quarter.
Live Events contributed to the sales increase as the number of projects for professional sports and colleges and universities work was up as compared to last year.
Continued market demand and deliveries timings also contributed to sales increases in the Transportation and High School, Park and Recreation business units.
Commercial business unit sales declined compared to last year due to the softer demand in the on-premise display business, a reduction of shipments in orders in the Spectacular niche, which was partially offset by an increase in our billboard niche due to the timing of deliveries.
International business unit sales followed the decline in orders.
Gross profit was 25.2% during the second quarter of fiscal 2018 as compared to 26.1% during the second quarter of fiscal 2017 and remained flat on a year-to-date basis.
Gross margin percentages for the quarter were negatively impacted by the additional warranty expenses mentioned in the release, offset by a positive onetime $1.2 million gain from the sale of our nondigital operating business and also due to the improved productivity and sales mix.
Total warranty as a percent of sales was 3.9% during the second quarter of fiscal 2018 as compared to 2.7% last year during the same period.
Operating expenses increased $1.5 million or around 4.8% during the second quarter of fiscal 2018 as compared to the same year last ---+ same period last year due to the large degree from the increase in product development expenses.
Product development expense increased by $1.8 million for additional resources focused on speeding up the development of display and control solutions out to the market.
Selling expenses decreased quarter-over-quarter, mostly due to lower bad debt expense and commission expenses.
And general and administrative expenses remained relatively flat quarter-over-quarter.
Our overall effective tax rate was 24.6% as compared to 30.1% last year.
The primary factors impacting our effective tax rate is due to our ---+ an increase in the expected research and development tax credits because of the increased velocity in product development this year as well as utilizing a portion of our warrant valuation allowance against ---+ on net operating losses.
We forecast the forward-looking effective annual rate to be approximately 30%.
As we have previously discussed, our effective tax rate can fluctuate depending on tax ---+ changes of tax legislation and on the geographic mix of taxable income.
Our cash and marketable securities position was at $61.5 million at the end of the quarter.
We reported a positive free cash flow of $3.6 million as compared to positive free cash flow of $10.5 million for the same period in fiscal 2017.
Capital expenses for the first 6 months of the year were $7.7 million as compared to $4.6 million last year.
Primarily ---+ primary use of the capital include manufacturing equipment, research and development, testing equipment in facilities, demonstration equipment for new products and information technology infrastructure.
We expect capital expenditures to be less than $25 million for the fiscal year.
We made no repurchases of stocks during the first 6 months of the year.
Looking ahead, our third quarter is historically a lighter quarter for sales and profits due to the seasonality of our business of sports, outdoor construction and the impact of 2 major holidays in the U.S. We are starting fiscal 2018 third quarter with a higher backlog than last year and an active order pipeline.
Based on current estimates of production and deliveries for the quarter, we estimate third quarter sales to be at a level higher than last year's third quarter.
However, sales could change pending project bookings and customer schedule changes.
I'll now turn the call over to <UNK> <UNK>, our Chairman, President and CEO, for commentary on our business.
Thank you, <UNK>.
Good morning, everyone.
We had a positive financial performance for the first half of fiscal 2018, reflected in increases in sales, operating income and net income.
Order bookings paced similarly to last year at $342 million overall for Daktronics.
Looking deeper into the business units, order bookings on a year-to-date basis were up in Live Events business unit for continued demand for upgrading or new installations throughout professional sports, including the NFL, NHL and ML<UNK>
We continue to see demand in the marketplace from facilities using our solutions to enhance the fan experience or the entertainment factor, using increasing higher resolution display products.
We are seeing this both in upgrades or refurbishments for existing facilities as well as planning for new venues.
High School, Park and Recreation orders remained flat for the first 6 months year-over-year.
This market continues to trend towards more sophisticated video systems, which have higher average selling prices, in addition to continued needs outside of the sports venues to communicate with students, parents and visitors.
Once again, these trends exist when refurbishing existing systems as well as the new locations.
Commercial business orders ---+ business unit orders decreased this year as compared to the same time frame last year.
The major factors contributing to this difference were the competitive environment in the on-premise niche, fewer national account based on-premise opportunities and volatility of large custom projects in the Spectacular niche.
Digital billboard orders were up slightly year-over-year.
While it was a slower start for orders, the marketplace continues to adopt digital technology for on-premise and third-party advertising applications and we see this continuing in the future.
The pipeline of opportunities active in the Spectacular area of our business as well.
We are seeing strong activity for replacing or refurbishing existing systems as well as the placement of systems in new locations across our Commercial segments.
Orders in our International business unit are lagging year-over-year, primarily due to the irregular nature of large projects.
This inherent variability affects timing of both orders and sales, and sales was also impacted in this period.
Transportation business unit orders have decreased on a comparative 6-month year-over-year basis, but we believe this decline is due to the general volatility of timing and not an indication of changes in overall market activity or our market share.
Opportunities continue to surface due to stabilization of Transportation funding and increased customer demand for mass transit systems and advertising applications.
The higher sales level for the year improved gross margins through gains in manufacturing productivity.
We also saw improvement in gross margins on large projects and selected price increases in certain markets.
In addition, profitability improved by selling our nondigital business.
Unfortunately, these increases were offset by higher warranty expenses, which made our overall gross profit relatively flat year-over-year.
The increase in warranty cost is not the result of a new issue but is based on our decision to preserve market leadership by more quickly addressing certain field issues to keep our customer relationship strong.
During fiscal 2017, we made progress on increasing product development velocity and expect to continue this throughout fiscal 2018 and likely into fiscal 2019.
While these efforts will increase development expenses as a percent of sales in the near term, we believe this investment is necessary to drive forward new solutions to meet customer needs and to expand our global market share.
Rollouts of products, including display and control solutions, are expected throughout the coming year.
We expect continued success in growing our business over the long term for the following reasons: we remain confident in the expanding global digital marketplace through adoption of digital systems across the sectors we serve.
These products have a known end-of-life that will drive continued business to replace or refurbish the installed base.
We continue to enhance and develop product lines and comprehensive solutions for our broad market base as well as specific customer needs.
This allows for success in markets during natural ups and downs of each segment.
In addition to our comprehensive product lines, we are committed to earning customers for life, driving continued investments in quality, reliability and other performance enhancements to meet our customers' needs today and over the long term.
And from the active support from initial project planning through intended use of a system leads to satisfied customers and repeat business aligned with the natural replacement cycle.
While optimistic about our long-term future, various geopolitical, economic and competitive factors may impact order growth.
Our business will continue to be lumpy.
With the ---+ while these areas can impact a specific fiscal period, we continue to pursue long-term profitable growth.
While the path may not always be smooth, we believe the growing market and our industry-leading solutions position us to generate long-term profitable growth.
With that, I would ask the operator to please open up the line for any questions.
I would believe our Live Events marketplace as far as top line has been sustained over the past 3 years or possibly more.
And I think that continues to be a strong marketplace for Daktronics.
It continues to be highly competitive and it's a different set of customers season by season over ---+ even though the marketplace is the same leagues or types of venues.
So I would predict, <UNK>, that we continue to see good performance by Daktronics in this marketplace and we believe that our reputation in this area is ---+ remains strong and we have a good chance at continuing our previous performance.
We are dealing with not a new issue but an issue we've talked about maybe more than a year in the past.
And we made a conscious decision this quarter to address certain field issues in certain areas more aggressively.
That's really to retain customer satisfaction.
And we have reserved, we believe, appropriately for that and won't see that as a continued expense in future quarters.
Yes, that's a good question, <UNK>.
We see that, that business continues to adopt the technology, but for some reason there wasn't as much activity in the first half of this year.
We continue to see optimistic ---+ optimism from that marketplace.
We use a reseller market as well as some direct sales through national accounts and we believe that will be an ongoing positive business for us in the future.
I appreciate everybody for signing in today, and I hope you have a great holiday season.
And we'll talk again in a few months.
Thank you.
| 2017_DAKT |
2015 | JCP | JCP
#Sure, we have.
It's obviously very hard to pin down exactly but we think it's about 50 basis points impact that shifted out of Q2 into Q3.
I'd also add, though, that we think that's roughly the impact of Halloween falling on a Saturday at the end of the quarter.
So our third quarter we think it's about a neutral and obviously it hurt second quarter by about 50 basis points.
<UNK>, on the first part of the question I mean we have a high degree of confidence that the $1.2 billion target is achievable because as you noted we have multiple paths to get there.
It starts with sales but to your point sales in my view is not the key driver.
The key drivers are gross margin performance and making sure we control SG&A.
I don't think any of us can sit here and tell you that we are satisfied with our SG&A performance.
We noted we have to aggressively look at cost and we started I think the second-quarter performance should reflect that we're taking a very serious stance on making JCPenney a more efficient and low-cost operator.
I come from a world where low-cost retailer will always win.
And so we're taking a very hard look at everything that we're doing to ensure that we're focused on an SG&A percent and an SG&A spend that is relevant for the business model that we currently operate, not that we operated pre-2011.
And so as you root out bureaucracy, as you start to ask very specific questions on how you leverage not only structure but how you leverage third-party resources, you start to find very meaningful savings that you can identify.
We start to identify those savings and we believe we will continue to identify those savings.
So SG&A and just being a more low-cost operator is a key component.
The second component is gross margin.
We talked about the importance of private brands and I think for us we have a great foundation and Mike Ullman deserves a lot of credit for the efforts that he placed on creating a private brands infrastructure and sourcing infrastructure here.
I come from a retailer that was primarily nationally branded and we were very proud of that.
But when you are a nationally branded retailer you face enormous pricing challenges as you become an omnichannel retailer.
So we know that not only will our private brands give us differentiation they also give us the ability to have accretive gross margin performance.
While we are still very competent and very supportive of key national brand partners like Nike and Levi and Alfred Dunner and Dockers and Carter's and IZOD we're not going to lose those relationships because customers love those brands but we know private brands play a huge role.
And I mentioned pricing.
We have a huge opportunity in just the optimization of our pricing strategy.
We do it the old-fashioned way and we're going to modernize that.
So top line is important and we have a line of sight that we're going to continue to grow top line.
But we also will put intense focus on gross margin and intense focus on being a low-cost retailer.
And we believe those three things will lead us to that target, that's why we're so confident.
Sure, <UNK>, I'll take that one.
So we've done a lot of work around our balance sheet and we'll continue to do work in the future.
Right now we're sitting with about $4 billion in net debt or at least at year end we will have about $4 billion of net debt.
We expect to be able to throw off at least $500 million of free cash flow over the next two years which will obviously go to paying down debt and reducing that debt burden.
In addition to that as you well know we have the real estate term loan out there, the no call provision fell off in May.
We continue to look at options there on how we can increase the tenor, potentially reduce the collateral and/or improve the terms on that.
So we continue to work on that as well and we think there's some opportunity around that.
So we continue to work on it and we think as we move down our path to $1.2 billion we can continue our deleveraging process.
Great, thanks <UNK>.
Well for us we do believe omnichannel is a multiyear initiative.
So for us I mean we see it in a couple ways.
First, the benefits we'll be tapping into enterprise inventory.
One thing that we're very confident in is that our geographic location of stores is really a competitive advantage.
I remember years ago when many experts talked about how brick-and-mortar retailers would be at a significant disadvantage to pure play online retailers.
And I think now the sentiment has changed and the brick-and-mortar locations are a close to population density of being used for fulfillment creates a more real time, more same-day advantage to get close to the customer.
So we think enterprise inventory is a huge part of our success today and forward.
We also believe that when we are able to roll out buy online pick up in store or BOPUS same day that that's really the key game changing initiative for retailers.
And again as I mentioned we're going to be piloting it later this year with a rollout happening the first part of next year.
We are very pleased with the progress.
It can't be understated the importance of bringing in someone like Mike Amend who has an e-commerce background.
And Mike will be the first omnichannel leader that is truly an e-commerce expert who has real-time experience in managing e-commerce in different platforms and different businesses.
So he's going to bring a much more aggressive approach in to the business and we think that's going to allow us to grow and grow in a very efficient manner.
From a CapEx standpoint we have a tremendous advantage.
Many retailers that are ramping up into an omnichannel world they have to make significant capital investments in constructing dotcom distribution centers.
Because we are a former catalog retailer we already have the supply chain infrastructure in place to leverage.
So rather than spending significant capital building distribution centers we're spending less capital to digitize those distribution centers.
That's the key of bringing in Mike Robbins from Target to work with us on the supply chain side.
He understands this transformation really well and he's going to help us take the physical structures, digitize it so that we're actually a little bit ahead of our competitors without spending the same amount of capital.
Now we're going to have to spend capital but we're not spending capital on physical structures.
It's more the digitization of the structures which we think can be done and we're in the process of doing that right now.
<UNK>, we're pleased to say that we don't have one associate in the Company that's currently at minimum wage.
We've already taken action throughout the year to raise every associate above the minimum wage.
So we believe we're in a good position.
As <UNK> noted we're paying very close attention market by market to the competitive landscape.
Our field leaders have the autonomy to make the necessary decisions so that we can continue to drive talent.
And if we believe that we're not well positioned then we react without any bureaucracy to take care of the team's ability to recruit and retain talent.
Yes, <UNK>, this is <UNK>.
I will take that.
Last year if you look at the full year I think we improved gross margin 540 basis points.
As I said in my script we improved it in Q3 710 basis points.
We really drove margin in Q3 and we think frankly we did it at the expense of top line in Q3 and as you know we're up against a soft top-line comp and Q3.
Right now we expect to be able to drive the top line and our focus isn't to drive incremental gross margin in that quarter.
We still think for the full year we're on track to hit the 100 to 150 basis points.
We know we still have continued opportunities as we talked about earlier around private brand.
We're on track to be at least neutral gross margin in clearance but know there's opportunity to go beyond that.
And we continue to look at the penetration of private brands as well.
So there's lots of opportunities to drive gross margin and we ultimately think we're going to continue to get it closer to our historical levels through the 150 ---+ 100 to 150 this year and then into next year and the year beyond that.
But we don't feel that Q3 is really the time to try and pick up 50 or 100 basis points of margin.
<UNK>, the only thing I will add to that just to put it in perspective, I mean gross margin in Q3 of last year grew from the prior year 29.5 to 36.6.
And to <UNK>'s point, I mean that's pretty phenomenal growth I'm one quarter, and we're not taking or foot off the pedal.
We're going to continue to focus on growing gross margin the right way, but we have a long-term view so that we can have sustainable gross margin growth and not heroics quarter to quarter.
So we're spending a lot of time on process improvement, and we believe that all of those efforts are allowing us to improve it as we've done this year, and we have no intention of taking our foot off the pedal.
We just want to be realistic that last year Q3 was almost an anomaly, but we're going to stay very focused on it.
And we believe that we're going to hit or beat our expectation for the second half of the year and for the full year regarding our gross margin target.
Yes, I'll take those, <UNK>.
I think for women's, we're very pleased.
When you look at men's and women's apparel, they've been two of our strongest businesses for the first half of the year in a marketplace in retail that's probably not as commonplace as you would think.
So we're very pleased.
I think you're going to see more in the second half.
It is going to be a continued focus on style, quality and value.
We're very pleased with our national brands, we're very pleased with our private brands as it relates to those three things.
I think you're going to see more emphasis on special sizes, on petites and women's sizes.
Our customers continue to ask for more assortment in those areas and we're going to accommodate them because those customers are very loyal.
In addition to that, you're going to see us spend a lot of time on as I mentioned earlier the science of retailing.
We're going to focus a lot of our intention and efforts on the allocation process, on the replenishment process and on the presentation.
Those things may not sound very strategic but for a retailer the toughest thing to do is get the right product, the right style, the right quality and to get the customer to be committed to it.
We believe we've done that.
We have to now get the processes correct so that when she comes in her size is there waiting for her.
You mentioned kids.
Kids and home in my opinion were the two most devastated businesses in the failed strategy.
And we have made a lot progress on those early days for back to school.
We're very pleased with the performance we're seeing in the kids business and we hope to see it continue month after month, quarter over quarter.
We had a lot of brands we had to discontinue.
We had a lot of assortment changes we had to make.
We had a lot of size and a lot of fit changes to get more back to the traditional business that we're known for.
And we're seeing those improvements kick in and now we're focused on allocation, inventory position, etc.
We're pleased with our partnership with Disney.
We're rolling out Disney Baby and we're excited about that.
We are the only legitimate Disney Store within a store.
We're very excited about that.
And we have some other new initiatives we'll be rolling out later this quarter that we're very excited about as well.
And on the home side again I don't want to sound too boring but our biggest issue in home remains that we just have to get our inventory position correct.
We are still way too lean on some of the key categories like sheets and towels and bedding and we're working on that.
We've made improvements and you're going to see more improvements throughout the year.
We need to get our promotional cadence correct in that business.
We need to be more aggressive on leveraging square footage to get greater revenue per square foot and we're making those changes.
So we're pleased that home was one of our best performing divisions in the second quarter and we're committed to not again letting up until we get this business fully turned around in-store and online.
We're making progress.
<UNK>, this is <UNK>.
I'll take that.
Clearly we continue to see AURs moving up slightly but I agree with you I don't think that there's a lot of room to continue to raise prices in this environment.
So frankly we continue to see it and whether you call it traffic or conversion we really see it on that side of the equation versus the AUR.
The vast majority of it was from our cost-cutting efforts.
I think the total impact of the closed stores was less than $10 million a quarter from an SG&A standpoint.
So the vast majority of that is coming from our initiatives and really around back of the house and the stores because we don't want to impact the customer facing pieces and then as <UNK> talked about getting more efficient in our advertising.
And even the corporate overhead played a significant role in the third quarter and of course the credit revenue was up as well.
So all things are working from the SG&A standpoint and it's the initiatives we're driving not just the closed stores.
So let me, <UNK>, give you some more high level view and I will let <UNK> give you the specific numbers on productivity.
Candidly what we're looking at as we go back in time and we compare the business to previous performance is not necessarily trying to replicate some of the key metrics from the past but more focus on just creating shareholder value.
And I'm not making that statement to avoid giving you specifics.
But this is such a different retail landscape today versus 2007, 2008.
And my challenge to the team is that the things that we did during that time period to run an efficient world-class retailer simply won't work today because we're going to have to have a significant penetration of our business online versus in-store.
So from a sales productivity it's going to be difficult to do an apples-to-apples comparison because the emphasis on omnichannel is going to be so significant in the future versus what we had in the past.
We're also going to take a hard look at every single thing that we sell and we're going to start to look at the business not only from a sales per square foot but growth profit dollars per square foot to ensure that we are very efficient.
But at the end of the day the ultimate goal is can we create shareholder value with every decision we make to ensure that it is accretive to the overall business.
And Sephora and salon and center core are all areas that create revenue in a way that we didn't do it in the past and we didn't do it as efficient as we will in the future.
But the key will be to change the dynamics of the business, makes it very difficult to do an apples-to-apples comparison.
But I'll hand it over to <UNK> to give you more specifics on the numbers.
I'll just add I think part of your question was what part of our $1.2 billion dollars or what was the productivity embedded in that.
And as we talked about before we have a lot of growth initiatives around center core, around home and around omni that we feel really strongly about.
And we believe in our ability to drive to drive mid-single-digit comps over the next few years.
That said we really only need to be able to drive low single-digit comps to still hit the $1.2 billion.
So from the standpoint of what productivity improvements are baked into the $1.2 billion it's a 2% to 3% comp store growth over the next few years in productivity will get us to the $1.2 billion.
That said we expect to be able to drive them in the 4% to 5% to 6% range over the next few years as our initiatives kick in but we don't need to to hit the $1.2 billion.
Sure.
As I think you know in our real estate and other bucket we put income from sales of assets, other real estate deals, litigation and gains or losses from our JV and then we determine how many of those we think are truly one-time or not one-time.
So clearly some of the gain on sales of assets we felt were one-time, some of the other expenses that we incurred during the quarter we felt were part of the ongoing operations and did not back those out from an adjustment.
We did end up with a $19 million charge.
We'll tell you for the full year we expect to be that bucket to be about a $30 million credit.
On the traffic ticket average ticket value was up for the quarter.
We're not giving out traffic.
We're using transactions as a proxy and transaction counts were also up for the quarter.
Obviously it's early days but we're pleased with our performance and we're very pleased with our start to back-to-school.
It's actually a great question.
And the best way to answer it is that we allow our customers to define JCPenney.
We spend a lot of time since we brought on our new Chief Marketing Officer, Mary Beth West, asking customers what they think.
Rather than leaders of the Company sitting around in a conference room deciding what we think the Company should be we think it's more informative to reach out to the customers who have been very loyal to us who are not spending as much as they used to and not shopping with the frequency that we would like.
And we're asking them what would they prefer from a goods and services for us to carry.
Now the caveat to that is that we have one overriding objective and that is to create shareholder value.
And so as we create shareholder value we're going to take this Company and design it in a way that we're going to serve the customers within the demographic that we are best suited in a way that's more efficient than any other competitor in-store and online.
I can't minimize the importance of private brands as we strive to be a world-class omnichannel retailer.
Again any retailer that is increasing their penetration of national brands while increasing their percent of online business will have to deal with some very capable, very capital-intensive competitors who are great at price analytics.
But as we continue to focus on making our sourcing and private brands more efficient we believe we can become an omnichannel retailer and protect ourselves from a profit and from a value standpoint unlike most retailers in our space.
So the short answer is we will allow the customers to define who we are and what we are and our goal is to respond to that while attempting to create shareholder value in making this a world-class Company again.
Well candidly we would love to have more capital to spend.
Having said that if you look historically over the last five years a significant amount of capital was put into the stores.
And as I said earlier, when the Board and Mike Ullman first approached me to consider coming to JCPenney I candidly had not been in a JCPenney in quite a while.
And so I started to go around the country and just pop into stores to get a sense of the culture and a sense of how the business was running.
And my first takeaway was the stores look really good.
And I was surprised because the Penney's I remember was a little tired and a little worn.
But I would have to admit that although some of the capital investments were not well thought out and they have not been accretive to the business they've done a really nice job of cleaning the stores up, brightening the stores and making them more modern.
So we're at an advantage that we put a lot of capital into the business over the course of the last five years.
And so we're not so committed to going in and fixing stores that are broken down, tired and old because we fixed a lot of areas.
So the fleet in short I think is in really good condition.
Now we have capital allocated on a monthly, quarterly, annual basis for maintenance.
We're never going to slack on making sure that we invest in maintenance to keep our stores performing well, looking well and operational.
But having said that, we are going to also invest capital in improving our IT systems.
We're going to invest capital in digitizing our omnichannel platform.
And as we noted we are going to continue to expand Sephora in our stores.
We're going to have a commitment to center core and we're going to brighten and modernize the aesthetic outside of Sephora to improve our cross-selling.
And we're going to be committed to making our salons more attractive and we have 12 locations we've invested capital in and we're monitoring the revenue.
So we will invest capital in the stores.
We will be committed to expanding business shops in the stores and we'll be committed to making additional changes.
But we're going to be very prudent.
We're going to be very strategic and we're going to have to have a high internal rate of return for any capital we put in but if we can get that then we will invest it.
And we believe it will be very beneficial to the Company.
So this year's guidance is between 250 and 300.
We'll probably come in towards the high end of that range.
I would expect next year to be 300, maybe slightly above 300 in the year , beyond that 2017 we're probably looking at 350 to 375.
Can you help me with the question.
I'm not sure ---+ I mean obviously we expect to get to the $1.2 billion in EBITDA.
At $1.2 billion we think we will be throwing off $300 million to $400 million or more of free cash flow each year and then obviously we expect that to be able to use that to pay down our debt.
Sure.
So we have a real estate term loan out there today that's I think give or take $2.2 billion.
There was a 1% no call provision that rolled off in May.
It's not due until 2018 so there is no gun to our head.
But if there's something advantageous to the Company whether it's from the terms of the loan obviously extending the tenor of it or even to a degree we believe it's over collateralized and pulling some of the collateral out, those are all options that we're talking to some of our banking partners with to see if there's an opportunity to take care of some of that.
If the market remains strong there may be an opportunity to take care of that this year.
If not we're probably looking at taking extending it next year.
<UNK>, we are very committed to being promotional.
I think if we learned anything from the failed strategy is that this is a promotional space that we're in and we're going to have to compete.
Having said that though we think our current rewards program is not very good.
And so we're in the process of not only evaluating it but piloting different things that we will do and we're very excited about a relaunch and a redesign that we should roll out at some point in 2016.
And we think that will address one of your questions of making sure that we are rewarding key customers for their loyalty and not only rewarding them but we're able to capture very valuable data so we can have more efficient one-to-one marketing and communication with them.
In the meantime we're going to take on some resources, some very efficient third-party companies to help us run our pricing analytics.
As a mentioned I do believe that one of the reasons why we're not growing our margin as fast as we like in private brands is that we don't have a very efficient pricing strategy and it's very old-fashioned.
So we're going to spend a lot of time on that over the next couple of months and we believe that we have a lot of margin that we can gain from having a different point of view.
But we're going to stay aggressive.
We're not going to do anything to put top line at risk and we believe as <UNK> has mentioned that we have plenty of opportunity within the supply chain, plenty of opportunity within our marketing strategy, plenty of opportunity throughout our entire business to continue to find ways to grow our gross margin while we continue to improve the processes that will be long-term and sustainable.
Thanks each of you for your interest in J.
C.
Penney.
And we look forward to updating you on our business on our third-quarter conference call.
Thank you.
| 2015_JCP |
2016 | SCSC | SCSC
#Thanks, <UNK>, and thank you for joining us today.
As you can see on slide number 3 of our presentation, we delivered exceptional results this quarter, led by strong demand across our Business.
Our teams executed very well on our strategic objectives, with record net sales of $994 million and record non-GAAP diluted earnings per share of $0.88 per share, both above the high-end of our expected range.
We increased net sales 23% year over year, and grew our bottom line even faster, with 29% year-over-year growth for non-GAAP EPS.
We were pleased with our return on invested capital of 17.5%.
We were pleased with our strong sales growth, led by large deals in our Barcode & Security segment.
These large deals came primarily from enterprise mobility, our retail channels and a seasonally strong KBZ government quarter.
Our strong quarterly results were driven by the acquisitions we completed during the past 16 months: Imago, Network1, and most recently, KBZ.
A key part of our strategic plan was to combine these acquisitions with our existing business.
This combination of excellent operations and a strong balance sheet has led to accelerated growth and profitability in the markets where we compete.
With the success of our SAP ERP implementation, we now have invested in a platform to support our organic growth and future acquisitions.
The robust IT platform we have implemented will allow us to develop new digital tools to help our customers grow their business.
We believe our customers are interested in ScanSource providing more than just boxes of products.
That is why our Company is evolving from just a product distributor to a technology solutions provider.
With that, I'll turn the call over to <UNK> to discuss our financial results in more detail and our outlook for next quarter.
Thanks, <UNK>.
As you can see on slide 4, and as <UNK> said, we had an exceptional quarter.
Net sales increased 23% year over year.
Non-GAAP EPS grew 29% year over year to a record $0.88 per share.
GAAP EPS grew 33% year over year.
Gross margins were 10.1%, and non-GAAP operating margins were 3.7%.
Our return on the invested capital was 17.5%.
Our results were stronger than expected across our core businesses, as well as recently acquired companies.
Large deals led to higher-than-forecasted sales.
Our gross profit margins were higher from better vendor program recognition in North America POS and barcode, improvements in profitability in Latin America and Europe communications, and a higher services mix in our communications business in North America.
Recently acquired KBZ performed better than expected, due to the combination of the two Companies, and we had a $38 million government deal that generated strong ROIC but at a low gross margin.
We are excited about the investments we have made in our networking businesses to build on the growing demand for networking solutions and connectivity throughout all of our business units.
As of October 1, 2015, we branded ScanSource Security as ScanSource Networking and Security.
With this organizational change and the acquisition of KBZ, we moved some business operations from our Communications & Services segment to our Barcode & Security segment.
We reclassified prior-period results to provide comparable financial information.
This information is available in tables in our press release.
As you can see on slide 5, net sales totaled $994 million compared to $807 million, which is a 5.1% organic growth rate.
The dollar impact on sales due to foreign currency translation was a negative $35 million.
Our presentation includes a summary of constant currency growth, excluding acquisitions, by segment, for the current quarter and year-to-date period.
Our second-quarter 2016 gross profit was $100.6 million, or 10.1% of net sales, compared to $78.1 million, or 9.7% of net sales a year ago.
This reflects a favorable mix and better vendor program recognition.
SG&A expenses, excluding amortization of intangible assets and acquisition costs, were $64.4 million, or 6.48% of net sales, compared to $48.7 million, or 6% of net sales in the prior-year quarter.
SG&A expenses were higher year over year due to increased employee-related expenses, primarily from acquisitions and bad debt expense.
Our second-quarter 2016 non-GAAP operating income was $36.3 million, or 3.7% of net sales, compared to $29.4 million, or 3.6% in the prior-year quarter.
Our effective tax rate was 34.7% for second-quarter 2016, and 35.1% for the prior-year period.
Our estimated annual effective tax rate for the full fiscal year is 34.5% to 35%.
Second-quarter 2016 non-GAAP net income was $23.7 million, or $0.88 per diluted share, compared to $19.7 million, or $0.68 per diluted share for the second quarter of 2015.
Foreign currency translation had an estimated $0.04 negative impact when compared to last year.
Total shares outstanding as of December 31, 2015, were 26.4 million, a decrease of approximately 8% from a year ago, from share repurchases.
Average diluted shares for the second quarter of 2016 totaled 26.9 million, down 7% from the year-earlier period as a result of share repurchases.
Now shifting to the balance sheet and capital allocation plan, our working capital measures are referenced on slide 8 in our presentation, and are in line with our normal trends.
We continue to execute our capital allocation plan, and remain disciplined and focused on acquisition opportunities that are strategic, accretive to EPS and increase our ROIC.
The acquisitions we completed during last 16 months were in keeping with our strategic business plan, our value-added model and focus on growing our bottom-line profitability.
Turning to slide 9, at December 31, 2015, we had cash and cash equivalents of $39 million, and debt of $150 million, for a net debt of $76 million.
During the quarter, cash from operations generated $17 million.
We used $30 million of cash for share repurchases during the quarter ended December 31, 2015.
Consistent with our overall financial plan objectives, leverage increased to approximately 0.61 times trailing 12 months EBITDA.
Our return on invested capital totaled 17.5% for the quarter.
This was our highest quarterly ROIC since FY13, due to our stronger profitability for the quarter.
At December 31, 2015, we had repurchased over 2.4 million shares for approximately $90 million, and executed 75% of our authorization as part of a planned capital allocation strategy.
We have now repurchased over 9% of our current outstanding shares.
Now turning to our forecast on slide 10, as a reminder, the quarter ending March 31, 2016 is our seasonally slowest sales quarter.
We expect net sales for the quarter ended March 31, 2016 to range from $850 million to $900 million, and non-GAAP diluted earnings per share to range from $0.62 to $0.70 per share.
Foreign currency translation negatively impact sales by approximately $30 million, assuming a stronger dollar compared to the previous quarter a year ago.
The foreign-exchange rates used in our forecast are summarized in our presentation slides.
I'd like to now turn the call back over to <UNK>.
Thanks, <UNK>.
We have two reporting segments, and I'll start with Worldwide Barcode & Security.
Net sales of $690 million increased 26% year over year, or 8% growth in constant currency, excluding acquisitions.
Our POS and barcode businesses in North America and Latin America had record sales quarters in local currency.
It was a strong quarter for big deals for our POS and barcode units across our geographies.
In North America we had a strong big-deal quarter in enterprise mobility and retail technology solutions.
We had another record quarter for payments initiative, more than double over the prior-year quarter.
The EMV Chip and Pin opportunity is still gearing up, with many in the industry estimating that we are 35% to 45% through the upgrade cycle.
We are seeing great returns from our investments to support this fast-growing business opportunity.
In Europe, our team executed very well and beat their sales plan.
Large deals led to the higher-than-expected sales.
However, we see the opportunity to grow our business in certain customer segments, and we are going to be investing more in those areas.
In addition, we are providing our customers some innovative digital tools, such as our PartnerPAD, which we believe will help our customers grow their business in Europe.
We have successfully completed the integration of our Latin America POS and barcode business, due to strong efforts of our local management teams in Brazil, Miami and Mexico.
The sales and support teams have generated profits for the last three quarters, after several years of unprofitable operations in this Latin America business.
We've now achieved the scale and critical mass necessary to achieve sustained profitable operations in the region and meet customer demand with value-added services.
In Brazil, we had another record quarter in local currency.
Net sales in Brazil increased 33% year over year in local currency, but declined 12% when translated into US dollars.
Our customer channels grew, and our strong financial position continues to be a competitive advantage.
We had growth across all product categories, and the receipt printer transition business is still driving growth.
Our networking and security business in North America had excellent growth in our video surveillance, wireless and networking business.
A number of factors are driving the wireless growth, including product upgrades and E-rate spending for schools.
KBZ had outstanding results this quarter.
With over half of its business in the federal government sector, the quarter was seasonally strong following the end of the government's September 30 fiscal year.
Now to our second segment, Worldwide Communications & Services, which had net sales of $304 million.
Net sales increased 17% from a year ago, or a decrease of 0.5% in constant currency, excluding acquisitions.
However, this team did exceed their plan for profits and return on working capital.
In North America, we had good year-over-year growth for many of our unified communications vendors, and a better mix of services.
This was offset by lower enterprise sales and fewer big deals.
During the March quarter, we are working to gain momentum with new unified communication vendors Mitel and Unify, and will also be expanding our services offerings.
For the 12th year in a row, Polycom named ScanSource as Distributor of the Year for North America and EMEA.
In Europe, we had better results from the integration of our Europe communication business and are Imago business.
This led to record sales results in local currency.
The combination of the businesses allows us to achieve critical mass and growing profitability as we expand our business to meet customer demand.
Network1 had a record quarter in local currency, with strong growth in SMB and service providers.
In Latin America, Network1 made solid progress with UC vendors, and also had record sales with our physical security vendors in Mexico.
With our point-of-sale and barcode business, we are the largest HP distributor in Brazil.
And both teams won the HP Distributor of the Year awards for Brazil.
We are very pleased with the execution of our strategic plan, and the strong demand across our business.
We delivered record second-quarter results both for sales and for non-GAAP earnings per share.
Looking ahead, we will continue our focus on profitable growth.
We will now open it up for questions.
I'll try to take that, <UNK>.
This is <UNK>.
For us, it's still new, for us, with their business.
As you know, our scanned stores traditional business in the US was not a strong player in the government space.
We've always had some of our businesses and our vendors doing business with the government.
But that was something that we weren't sure when we acquired KBZ how much that would happen in these first quarters, in basically a little over a quarter.
We do believe, though, that it is a seasonal business.
And that certainly is reflected in our expectations for them for the March quarter.
But we were very pleased with their success.
And for that Company itself, this was an all-time record quarter for their sales.
Yes, it is extremely positive.
When we go back and look at the valuation we put on the business, and we look at what we expected from a contribution margin in EBITDA, they are ahead of plan for the year.
So we are very pleased with that.
The team really has done a great job working with the ScanSource team to combine the strengths of ScanSource and the strength of KBZ, and we believe that's how they were able to perform better than they would have if they were on their own.
Yes, we've made great progress with ERP, and that wasn't really what was driving the inventory.
We wanted to make sure, because of this increased demand that we are seeing, that we had sufficient inventory there to be able to meet the demand.
And the issues related to the ERP, we believe, are pretty much behind us.
No, we do not see any of that.
Thank you
Well, if you look at ---+ let's start with North America.
We believe that after we went live with our system back in July, we had certainly some bumpy times in that September quarter, that we acknowledged last quarter, that we wanted to make sure we could certainly get through that successfully, and we did.
So we were very pleased that our customer competitiveness is still very strong.
And the way I would characterize that in North America would be that our best customers, our largest customers, are growing their business and they're still performing ScanSource as their distributor.
So we believe from a market share perspective in the US, that we are in a very strong position, that we haven't given up any ground to our competitors as of the end of December.
When I look at all of our other regions, I would say an even stronger comment.
That in Latin America, that not only have we continued to see competitors in Brazil struggle financially, but now that we have, I'll call it, repaired some of the challenges and problems we had in Mexico and Miami, we're seeing market share gains there as well.
So we believe that, that has allowed us to bring in new customers who may not have worked with us in the past, in that region.
And then quickly over to Europe, again, I think we're starting to see a much better operation after three quarters there with SAP.
And we combine that with our acquisition of Imago, which again, has really approved our go-to-market with our European comms business.
We believe the strategic plan that we had laid out, where we were going to grow our communication business across our other two geographies, is now starting to pay off for us.
We were actually ---+ I would say, no.
We were actually pleased with the demand that we got in the December quarter.
And as we looked at what we would face going into 2016, there are several key areas that continue to look strong ---+ the payments program that we talked about.
We've described our success with large deals, with what we call the retail technology, which is our larger resellers who are selling solutions into retail.
That was very strong.
Even our mobile computing business continued to be very strong for us.
And we believe that, that's not short-lived; that wasn't just a December phenomenon.
So the feedback from our customers is that they believe they have a strong demand continuing into 2016.
Okay.
I would think so.
We certainly had a strong performance in KBZ without that.
And so if you look at that one transaction, we would hope that by next year, we are continuing to grow that government business.
But I would say, right now, it's certainly a bluebird that was not in our forecast.
And <UNK>, I would just add onto that, that was a low gross-margin business that we took.
It had very high ROI, and that's why we took it.
I don't want you to think that our quarter happened just because of KBZ and what happened there.
That was just part of the story.
Our core business is performing very well.
Well, <UNK>, I think most of the ---+ on the third quarter has to do with the seasonality of the sales.
The fact that the sales are going down is really what's happening on the guidance there.
We believe it's still a strong year-over-year performance when you look at it, and we are pretty excited about the March quarter and the full year.
Thanks.
I think from the guidance ---+ <UNK>, this is <UNK>.
I will take it first.
The March quarter has always been our toughest quarter to forecast.
So we go back and look historically, seasonally, it's slower, weaker.
And so it's always one that is has some more risk to the forecast.
So that's why, for us, we always go into this one saying: all right, how much of the demand do we take from December and feel good about that through March.
And it requires us spending a lot of time with not only our customers, but also our key suppliers, and coming up with what we believe is a reasonable number.
But again, we've got what we believe is the right offers in place, so that we can take advantage of whatever demand is out there, and take more market share where possible.
Yes, this past quarter, we doubled the business.
Of course, this was the December quarter, which followed the October liability shift date.
I think when you think about our typical channels where we're selling into, it's not the tier-one retailers, right.
It's not the Walmarts and all the big retailers.
So really, it's the big guys that make these kind of moves first.
So I would say that the market that our customers are going after probably is even less penetrated than that.
So it's a question of the economics for that retailer, as to when they'll make that decision.
But we believe that this should last, frankly, for a couple of years, that it won't happen all in a quarter, or two, or even one year.
It's a multi-year cycle.
Because of the size of the retailers that we cater to, it would be a long time.
Yes, we've had this printer business we called out for probably a couple years now, and it is really driven by the government of each state trying to enforce the tax collections of the retailers.
And over time, the printers that we were selling two years ago, that we called fiscal printers, they kind of run their course.
And the government decided that they would accept a different type of printer technology now.
So there's actually really a replacement or a refresh of the technology that was sold before, and it's happening on a state-by-state basis.
So it happens over time.
And we see this as an ongoing business.
At every quarter, we continue to see that business doing well.
And frankly, the vendors we're working with down there are the right vendors.
We have the key couple of vendors that are producing the technology ---+ and these are very specially designed printers for that market.
And we're the dominant distributor for that business.
So as long as there's demand, we'll have an unusually large market share in that market.
And what we're finding is, this new printer technology replacing this older fiscal printer technology is really a lower-cost printer, but it requires other components.
So it's more of a solution sell.
So we're seeing still good revenues associated with that, but it's coming from more than one vendor as we are selling that product.
I mean, it still gets you to that range.
We haven't broken out the gross margin that went with the revenue.
But I think you can pretty much figure that out from what we've done.
And again, we've tried to disclose all that information in quite a bit of detail, so it's easy for you guys to follow.
And if you have any questions on that, just follow up with me, and I'll try to walk you through it and hope that it makes sense to you.
Thank you.
Okay, thanks for joining us today.
We expect to hold our next conference call to discuss the March 31 quarterly earnings results on Tuesday, May 10, 2016.
Thank you.
| 2016_SCSC |
2016 | PLAY | PLAY
#We had indicated on our year-end call and talked a little bit about the 15 class of new stores where we opened 10 stores, 8 of which were in existing markets.
And a lot of those opened up late in the first quarter, fourth quarter of 2015.
So we really didn't see a big cannibalization impact in 2015.
As we headed in to this year, we were expecting to see some cannibalization, and we did.
In line with our expectations, we hadn't really cited a specific number, and I'm not sure I'm going to do that today.
But we expect that to moderate somewhat over the course of the year.
The 2016 class is skewed more towards new markets.
Six of the stores that we're going to build this year, if we go to the high end of the range will be in new markets.
So we don't anticipate the same level of cannibalization in the back part of this year as what we saw in Q1.
Thank you.
Thank you very much for your continued interest in Dave & Buster's.
We look forward to seeing many of you at the Piper Jaffray conference, the William Blair conference next week, or the Jefferies conference in the following week which we're attending all three of those.
Beyond that, we'll be back to you in early September with our second-quarter results.
Thank you.
| 2016_PLAY |
2016 | STLD | STLD
#Good morning.
Good try on the end there, <UNK>.
Those compound questions are tough to handle.
The pricing environment I would say it's principally product mix, and also we have on the sheet side of the business a reasonable amount of indexed contract which lags.
And so that helps support our price in a downward pricing environment.
Yes.
Let's simply say that we feel that our share price is dramatically undervalued right now.
I'll just leave it at that.
Thanks, <UNK>.
For anyone on the call, again, thanks for sharing your time with us.
We are fully focused on yourselves, we're fully focused on our employees, and fully focused on our customer base and other constituents.
I would like to thank everyone for their support of our Company.
And to the employees that may be on the line, guys and girls, absolutely phenomenal job this past quarter and for everything you do for us, you do set us you apart.
We are Best-in-Class and we'll continue to be so.
And just be safe in everything you do.
Thanks everyone.
| 2016_STLD |
2017 | PAHC | PAHC
#Thank you, operator.
Good morning, everyone.
Welcome to the Phibro Animal Health Earnings Call for our First Quarter ended September 2017.
On the call today are <UNK> <UNK>, our Chief Executive Officer; and myself, <UNK> <UNK>, Chief Financial Officer.
We'll provide an overview of our quarterly results and then we'll open the lines for your questions.
Before we begin, let me remind you the earnings press release and financial tables can be found on the Investors section of our website at pahc.com.
We're also providing a simultaneous webcast for this morning's call, which can be accessed on the website as well.
Today's presentation slides and a replay and transcript of the call will also be available on the website later today.
Our remarks today will include forward-looking statements and actual results could differ materially from those projections.
For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements in our earnings press release.
Our remarks today will also include references to certain financial measures, which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP.
I refer you to the non-GAAP financial information section on our earnings press release for a discussion of these measures.
Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the earnings press release.
And so with that out of the way, here's <UNK> for some introductory comments.
Thank you, Dick, and thank you, everyone, taking time to join us this morning.
We had a very strong performance this past quarter.
Our nutritional specialties sales were up 17% and sales of vaccines were up 25%.
This tremendous growth is a direct result of our efforts to work with our customers, especially those in the United States who have moved to limit or eliminate the use of medically important antimicrobials.
This growth more than made up for the sales decline in MFAs and other, which we had expected as we overlapped with last year's quarter.
We expect one more quarter of negative overlap for U.S. sales of medically important antimicrobials.
This quarter was also marked by improved economic conditions in Brazil, a key market for us.
Common indications are that this economic balance sustaining and we continue to see the cattle market in Brazil and globally as a key focus for our continued growth.
We see cattle as an attractive species for sales and growth across all of our Animal Health segments and, with this in mind, we acquired the Biotay business as we look to leverage Biotay's well-respected presence in the Argentine cattle sector.
We see many opportunities to strengthen our internal product development and organizational capabilities as we seek to fully capitalize on our existing portfolio, our pipeline and adjacent opportunities.
It is my belief that we are only just scratching the surface of these internal growth initiatives.
As you know, in our guidance for the year, we have increased operating expenses for developing the opportunities.
While results of this increased spending may not be apparent this fiscal year, it will pave the way for above-market growth in the years to come.
We continue to be active on the business development front, particularly where we can use synergies from our product portfolio and/or our organization to drive possible growth.
I will now turn it back to Dick and look forward to a discussion after our prepared remarks.
Thanks, <UNK>.
Before we get into the numbers, I'd like to remind everyone that we do present our results on a GAAP basis and also on an adjusted basis.
The adjusted results exclude all acquisition-related items, such things as intangible amortization, inventory step-up, accrued compensation costs, transaction costs and accrued interest.
We also adjust and exclude unusual nonoperating or nonrecurring items, some other income and expense items that would include foreign currency gains and losses that are reported separately in our financials and also the income tax effects relating to each of those pretax adjustments plus any unusual or nonrecurring income tax items themselves.
So with that, let's turn to Page 5 and review the highlights of our September quarter.
Our consolidated sales were $193 million for the quarter, a 3% increase versus the same quarter last year.
The increase was driven by volume growth in the Animal Health segment and by commodity pricing in the Mineral Nutrition segment.
We reported net income of almost $16 million and diluted EPS on a GAAP basis that we improved substantially from the prior year.
Our sales and gross profit improved over last year and offset increased investments and operating expenses.
In addition to the sales and operational increases, our reported results benefited from several other factors, including: We had reduced acquisition-related transaction costs in the current year and the current quarter, we reported reduced net interest expense due to lower financing or borrowing rates from our new credit facilities that we recently entered into and our provision for income taxes.
The effective tax rate was favorable due to the benefit of both employee stock option exercises and a favorable mix of international income.
On adjusted basis, adjusted EBITDA was $30.1 million, up $300,000 or 1% over last year, and we'll discuss that in more detail as we discuss segment performance in the coming slides.
Adjusted diluted EPS was $0.38 a share.
That was a $0.02 per share or a 6% increase over last year.
Adjusted EBITDA ---+ the improved adjusted EBITDA was offset by increased depreciation expense, but adjusted net income and adjusted diluted EPS benefited from the lower net interest expense and a lower effective income tax rate due to that mix of international income.
On Page 6, these are selected line items from the P&L.
And as we ---+ I'll just skip past the sales growth because we'll handle that in more detail when we look at the segments, but in total, adjusted gross profit increased $2.6 million or 4% due to the volume growth and the sales increase, also due to favorable product mix and due to certain production efficiencies, manufacturing cost savings basically.
Adjusted SG&A increased $2.7 million in total, roughly the same amount as the increase in gross profit, and that was due ---+ primarily due to increased spending in the Animal Health segment.
To position ourselves for future growth, we've increased spending on product development and organizational capabilities as we called out in our expectations and our guidance for the year.
Our adjusted net interest expense was favorable, as I said, on the improved borrowing rates and adjusted income taxes, favorable due to the mix of international income.
So looking at Page 7 and looking more closely at Animal Health, sales were almost $129 million.
That was growth of $4.3 million or 3% over last year.
The sales growth was driven by strong increases in the nutritional specialties and vaccine product groups, offset by a decline, as we expected, in the MFA and other category.
Nutritional specialty products were almost $31 million in the quarter.
That category grew $4.5 million or 17% over last year on volume growth of products for the U.S. poultry and dairy industries.
Vaccine sales were $18.5 million for the quarter and that ---+ those sales grew $3.7 million or 25% over last year on volume growth across the product portfolio.
Looking at sales of MFAs and other, those sales were just under $80 million in the quarter, a $3.8 million or a 5% decrease from last year.
Looking at that between the U.S. and international, our U.S. sales of MFAs and others declined $10.5 million.
Of that decline, $4.2 million of the decline was due to reduced sales of medically important antimicrobials, primarily on the change in consumer preferences and the lower use of certain antimicrobials in the market.
It was also due to unfavorable timing of certain customer orders.
Internationally, the ---+ our sales of MFAs and others increased $6.7 million due to growth across most of our regions and including the benefit of improved economic conditions in Brazil.
Our gross profit, calculated on an adjusted EBITDA basis for the segment, gross profit for the segment increased $3.7 million on the volume growth, favorable product mix and production efficiencies.
Within the segment, we increased our operating expense spending by $2.5 million, as I said, for increased product development costs and improvements in our organizational capabilities.
And that all lead to adjusted EBITDA of $33.7 million, which was an increase of $1.1 million or 3%, and due to the sales growth and favorable gross profit, partially offset by the investments we made in operating expenses.
And now looking at the other segments on Page 8.
Mineral Nutrition net sales of approximately $52 million increased $500,000 or 1% over last year primarily due to commodity pricing.
Segment adjusted EBITDA of $3.7 million was down $300,000 from the prior year on higher raw material cost.
Performance Products net sales of $12.5 million were a bit ahead of last year, but adjusted EBITDA declined on higher product cost and corporate expenses were approximately even with last year.
Looking briefly at our balance sheet capital ---+ and capitalization and capital allocation.
On a gross basis, our leverage ratio of debt to adjusted EBITDA was 2.8x at September.
We had $62 million of cash on hand at that point in time so that was roughly 0.5x of leverage.
So on a net basis, our leverage ---+ our net leverage ratio would be about 2.3%.
For the quarter, net cash flow before business acquisitions and financing was approximately breakeven.
We saw ordinary course use of cash from the timing of sales and collections in our ordinary business.
We also saw use of cash from the routine timing of payments of annual incentive compensation.
We invested approximately $12 million in a business acquisition in the quarter.
We acquired an Argentine Animal Health business as a platform for growth in the Argentina beef sector.
And we paid a quarterly ---+ routine quarterly dividend in the quarter and declared the same amount per share to be paid in late December.
And then, lastly, we have reaffirmed our annual guidance and have presented it here in the webcast presentation for ease of reference.
No need to talk through again, no changes to the number.
We've reaffirmed what we put out a couple of months ago.
So that's the conclusion of our prepared remarks.
So operator, if you would open the line for questions, please.
It's more ---+ it's forward ---+ we'll see the offset going forward.
So Q2 or the remainder of our fiscal year, we'll see some of that business come back.
But overall, this decline that we've seen now for 3 quarters will continue through the fourth quarter.
And as we've noted and as everyone's noted with the VFD and with consumer preferences, the use of antibiotics in general and medically important antibiotics has come to a ---+ come down to a level which, we think, is sustainable.
We'll see us going in the first quarter of '18.
We try to run our business around the world and be in places that have the ability to raise lots of animal protein.
Argentina is the third or fourth largest producer of cattle in the world.
They've gone through some political upheavals the last couple of years.
Now, it's clearly stable again.
And it's a market where we had a small office.
We were doing some business, but we wanted to increase our presence in the cattle market.
And the products we look to sell there, it's a whole range of products and products we're doing around the world, whether we're doing in Mexico and Brazil and Australia, et cetera, et cetera.
So these people have a range of products.
We are going to look if they have something unique that we could take elsewhere, but our focus is going to be bringing our nutritional specialties, our vaccines and some of our antibiotics to that market to help them maximize efficiency and produce healthy animals and help them regain their exports around the world.
So I think it's a yes, yes and a yes.
We are increasing our efforts in nutritional specialties and vaccines, both in the U.S. and around the world.
So as we hire more salespeople and technical people around the world, we need more back office support.
So it is both headquarters.
It's both in region.
And the focus is on these new products that we've been very successful in launching here in the States and get them across the world.
So let me take the first part on Q2 and looking forward.
I would frame that as we've reaffirmed our guidance for the year.
Our initial guidance said that the first half of our year would be, on an EBITDA basis, roughly flat with the prior year.
That's what we saw in our September quarter and we've stayed with that same guidance.
We haven't updated that guidance.
I think, as you mentioned, we've talked about the overlap on the U.S. decline of medically important antimicrobials and we are ---+ continue to expect, over the course of our fiscal year, sales and EBITDA growth in line with our guidance.
And, Dave, it's a very good question.
And so we take it in 2 parts.
One, in terms of our business, we see a huge growth around the world in cattle.
So as Brazil returns, that we will benefit from that.
We continue to have good presence in Southeast Asia, in Africa and South America and sort of trying to look and gain a little bit in North America.
Overall though, I just came back.
A couple of weeks ago, I was in China.
Health for Animals, the organization which we normally meet in Brussels, decided to meet in China.
And it's sort of what we saw there and what we've heard in the past represent what's going around the world.
The Gates Foundation, for example, is spending a lot of money with the WHO because it's not just about human health.
It's human health tied to animal health.
As population grows and people try to grow out of poverty, their need and ability to get food which is nutritious and healthy, proteins, which is available and cheap is very, very important to feeding the population of the world and increasing human health around the world.
So, I mean, the Gates are putting billions of dollars into this.
And we see this around the world.
So we see a very, very rapid movement to what we have grown to expect in the United States now for 50, 60 years.
And countries around the world have the benefit of not going through the trials and errors that we've done here or the Europeans have done.
They're going right away to first line forms of feeding animals, of taking care of animals.
So we're seeing rapid growth in Indonesia in one population to ---+ in the protein business, which is predominantly poultry.
In China, we're seeing a rapid change in ---+ not in the consumption of pork, but in the quality of the pork, which means getting smaller farms to close and ---+ because they don't necessarily know how to or report how to take care and keep the pigs healthy ---+ and they're moving to larger farms.
And we see that happening very, very rapidly now in China.
So all of these effects, whether it's in Africa or Southeast Asia or in China or in South America, will affect all of our business, not just Phibro, but all of the people in this sector because we have the technology, we have the expertise, we have the people and we have the reach.
So it comes back to what I said earlier.
I'm very, very optimistic about growth for us as well as our competitors, but I contemplate more about us as we take advantage of these changes around the world.
All right.
Well, we'll say thank you to everyone and have a happy Thanksgiving.
We don't have any cooking suggestions for this year.
I bought a new fryer.
The last fryer I had, had some electric problems and now I have a slightly different one.
So I can report based on we ---+ how I might do with my turkey.
All right, everyone.
Have a good day and good talking.
Thanks.
Bye.
| 2017_PAHC |
2015 | MANH | MANH
#Very good.
Thanks, <UNK>.
By the way, this quarter's operating cash flow is the second best quarter in the history of Manhattan Associates.
We can, <UNK>.
Yes.
Thank you.
Yes.
I think it's a little bit of both, <UNK>.
There's no ---+ as you know, there's no silver bullet here to bringing license revenue in for the quarter.
We still are subject to a little bit of lumpiness.
We are still subject to big deal timing.
But I do think our close rates are solid.
We are seeing good momentum, particularly in retail and omni-channel initiatives.
And frankly, hats off to our sales team who are executing very well across the globe.
We never discount that, but the lean would be really more towards investing in growing our intellectual capital headcount, <UNK>.
Let's see.
A couple three questions in there, <UNK>, and all good ones.
By the way it was Lilly Pulitzer that presented at Momentum.
No problem.
Just wanted to make sure that we were clear there.
And I wasn't talking about another particular signature win during the prepared remarks.
But with regard to the momentum and the focus around retail store solutions and so forth, we're certainly seeing a lot of interest.
Your question was, should we expect to see that business developing faster than our order lifecycle management business.
It looks a little bit like order lifecycle management of a few years ago.
There's a great deal of interest out in the marketplace.
The buying cycles are still very long, at the moment.
You're seeing early adopters get on board.
And I think it'll be 18, 24 months, in my view, before we start seeing consistent buying cycles in that space, much like the ones we are now seeing in the order lifecycle management space.
Yes, sure.
Thank you, <UNK>.
Appreciate it.
Okay, Kyle.
Well, thank you very much, everybody, for joining us this afternoon.
I appreciate your time.
And we will certainly look forward to updating you on our Q3 results in about 90 days or so.
Good afternoon.
| 2015_MANH |
2018 | LNT | LNT
#Thank you, Sue.
Good morning, and thank you for joining us.
I'm pleased to share with you our first quarter 2018 results and updates on several of our key strategic priorities.
After my remarks, <UNK> will provide details on our first quarter financial results and highlights of our regulatory schedule.
We had a solid start to the year, with first quarter results in line with our expectations.
Winter temperatures returned to normal, and higher margins in both our Wisconsin and Iowa utilities resulted in quarterly earnings of $0.52 per share, a $0.09 per share increase versus last year.
With these results, we are well positioned to deliver on our 2018 earnings guidance range of $2.04 to $2.18 per share.
I would also like to brief you on several developments on our strategy to deliver cleaner, cost-effective energy to our customers.
The Iowa Utilities Board recently approved our additional 500 megawatts of wind generation, which brings our total approved wind generation to 1,000 megawatts.
The advanced ratemaking principle for Iowa wind projects are included on Slide 2.
As you can see, it was a very constructive order and our Iowa customers and communities will benefit from this expansion of clean, affordable energy.
Construction is already underway at the Upland Prairie Wind Farm and later this year, we anticipate beginning construction at English Farm.
These 2 sites total 470 megawatts and are expected to be in service in 2019.
I would like to thank the welcoming communities that are collaborating so well with our project teams, as we work to minimize the disruptions that can come with any large-scale construction project.
We are finalizing site selection for the remaining 530 megawatts of the approved wind, which is expected to be placed in service in 2020.
In Wisconsin, we completed the purchase of our 55-megawatt share of the Forward Wind Energy Center last month after receiving approvals from the Public Service Commission of Wisconsin and FERC.
Our customers will benefit from lower costs, as we transition a 10-year-old wind farm from a Purchase Power Agreement to utility-owned.
This purchase was included in the capital expenditure plan we released in November, which calls for a total of 200 megawatts of additional wind investment for WPL customers.
We are currently evaluating the different choices for additional wind generation for Wisconsin customers and anticipate making a regulatory filing later this quarter.
Our plan to add up to 1,200 megawatts of new wind generation will more than double renewable energy for our customers, with approximately 30% of Alliant Energy's rated electric capacity coming from renewables by 2024.
Wind energy brings many benefits, including annual lease payments to fund families and property tax payments that support the rural communities we have the privilege to serve.
Our existing wind farms had strong performance in the first quarter, shaping an average capacity factor over 40%.
Our new wind farms, we believe, are more efficient, as we anticipate the energy production to be as much as 25% higher than our existing wind farms.
We're also very pleased that last month, the Institute for Sustainable Infrastructure awarded our Dubuque solar project, the first Envision Platinum rating for solar installation.
This award recognizes our commitment to construct sustainable projects that highlight our environmental stewardship, our collaboration with local communities and that deliver cleaner, affordable energy to our customers.
This is our second Envision Platinum Award.
As you might recall that the Marshalltown combined-cycle facility received the same award last year.
We're making good progress on the construction of the West Riverside Energy Center in Beloit, Wisconsin.
This 730-megawatt, combined-cycle facility is approximately 30% complete.
It is on time and on budget and is expected to be placed in service by early 2020.
The combustion turbines and generators have been set on the foundation and all the major pieces of equipment are on the site.
There are approximately 500 skilled workers employed on this project and they will remain there through this fall.
As our industry evolves, the policies that govern the way we do business must also change.
The Iowa legislation recently passed a bill, which includes updates to energy policy in Iowa.
If signed by the governor, the new law will increase regulatory efficiency, help Iowa families and businesses save money and provide more opportunities for business growth and job creation.
Some of the provisions of the legislation include: an optional forward-looking test year to better align customer benefits with energy investments; statutory language providing for a transmission rider to promote regulatory efficiency; and an improved process for extending natural gas service to help grow Iowa's economy.
We will continue to work with policymakers and other stakeholders for the benefit of our customers.
I'm excited about our achievement so far this year.
Our team will continue to focus on the following goals for our company for 2018: complete our large construction projects on time and at or below cost and in a very safe manner; continue our generation fuel transition, with traditional fossil plant retirements; advancing clear energy through the completion of the West Riverside Energy Center; and our substantial investments in wind generation; deliver on 5% to 7% earnings growth guidance and a 60% to 70% common dividend payout target; and we'll continue to manage the company to strike a balance between capital investment, operational and financial discipline and cost impact to customers.
In closing, I invite you to participate in our first virtual-only Annual Shareholders Meeting on May 17.
We look forward to extended participation from our shareowners, since you can now join a meeting from any location through your computer or telephone.
I hope you all can participate.
Now I will turn the call over to <UNK>.
Good morning, everyone.
Yesterday, we announced first quarter 2018 earnings of $0.52 per share compared to $0.43 per share in the first quarter of 2017.
The key drivers for the $0.09 increase were higher electric and gas margins at our 2 utilities and increased customer demand caused by colder temperatures in our service territory compared to last winter.
We provided additional details on our earnings variance drivers on Slides 3 and 4.
Excluding temperature impacts, we saw relatively flat retail sales in our service territories in the first quarter.
Slightly higher temperature-normalized sales at IPL were offset by slightly lower temperature-normalized sales at WPL year-over-year.
The lower temperature-normalized sales at WPL are primarily a result of 2 industrial customers experiencing unplanned outages in the first quarter, which we anticipate will be resolved by the third quarter of this year.
In summary, first quarter 2018 earnings of $0.52 were consistent with our expectations.
As a result, our consolidated earnings guidance of $2.04 to $2.18 per share remains unchanged for 2018.
Slide 5 has been provided to assist you in modeling this year's effective tax rates for IPL, WPL and AEC, including the impacts of tax reform and the tax benefit riders.
We currently estimate a consolidated effective tax rate of 12% for 2018.
Also, note that our forecast for ATC earnings assumes an ROE of 10.2%, once the FERC's decision for the second MISO ROE complaint is issued, which is currently expected sometime during the second quarter of 2018.
Turning to our financing plans.
Our 2018 financing plan remains unchanged, including up to $200 million in new common equity, an additional long-term debt at IPL and Alliant Energy Finance.
Consistent with this plan, Alliant Energy Finance issued a 2-year term loan of $300 million last month.
As a reminder, this is part of the total planned issue up to $1 billion of debt at Alliant Energy Finance this year.
The remaining up to $700 million of debt will primarily be used to refinance $595 million of term loans that are coming due in the second half of the year.
Our future financing plans continue to be driven by the robust capital expenditure plans for our utilities as well as future regulatory decisions on tax reform benefits beyond 2018 and proposed changes to the capital structures at our 2 utilities to maintain strong balance sheet.
We currently expect to provide our 2019 financing plan as part of our second quarter earnings call in August.
Lastly, we have included our regulatory dockets of note for 2018 on Slide 6.
These recent regulatory decision and planned regulatory filings are important components of our 2018 operational and financial results.
Last week, both the Iowa Utilities Board and the Public Service Commission of Wisconsin issued their decisions on how utilities will provide the 2018 federal tax reform benefits to their customers.
For our Iowa retail customers, the annual savings due to lower federal taxes are expected be approximately $75 million for 2018, including tax-related savings from IPL's electric transmission providers.
Our Iowa Retail electric customers will begin receiving these credits earlier this week, and our Iowa Retail gas consumers will receive the impacts of tax reform benefits with interim rates that we implemented later this month.
Our Wisconsin retail customers are expected to receive approximately $45 million of credits on their bills for 2018, beginning in July.
Both state commissions deferred the decision on the utilization of excess deferred taxes created by federal tax reform to future rate filings.
Turning to our key regulatory filings for the remainder of 2018.
IPL filed a test year 2017 retail gas rate review in Iowa yesterday.
This filing requests recovery of investments in IPL's gas distribution system over the last 6 years to ensure continued reliability and safety of our system and to support economic development in our communities.
A summary of the test year 2017 Iowa retail gas rate review filing and its proposed regulatory schedule may be found on Slide 7.
In Wisconsin, we expect to file a 2019, 2020 test period electric and gas rate review later this quarter.
This rate review will reflect recovery of new capital investments, including the West Riverside Generating Station.
Additionally, we plan to include in our filing a proposal to use excess deferred tax benefits created by the federal tax reform to help stabilize customer rates over the next 2 years.
Lastly, WPL plans to file a construction authority request for new wind generation for its Wisconsin customers later this quarter.
We very much appreciate your continued support of our company and look forward to meeting with many of you over the next several months.
At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session.
Yes, Nick, and that's a good question.
And a couple of other things that are included in that delta.
Keep in mind, it's the AFUDC calculation as well.
So we'll probably update that slide the next time we hit the road.
But we still believe it will be in the 6% range.
This whole legislation was really to help with some regulatory efficiencies, and it really wasn't intended at all to increase our earnings projections at all.
So really just stick to the middle of our guidance range.
This is really just an ---+ a regulatory efficiencies that we're going to get out of this legislation.
No, that's one ---+ that's some of the details we need to work out once the legislation is approved.
So you know, the commission has been very proactive in the state as you're well aware.
So we're fairly confident we'll get very solid rules on how to work with the forward-looking test year in the next few cases.
| 2018_LNT |
2015 | MCO | MCO
#Sure, <UNK>.
I'm actually going to hand this over to Michel, and let him offer his thoughts on this.
Thank you, Ray.
I think this is really a matter of two factors.
One, the currency play, and two, the rate differential that exists and the spread differential between the US and European markets.
And I think the both of these fronts, I think we continue to expect to see favorable factors for such a trend.
So we don't have a number to offer here, but I think the conditions that have been favorable to date are expected to remain in place at least for the short term, medium-term.
<UNK>, let me just add something.
We show, in terms of our revenue performance, the revenue is based on the location of the issuer rather than the market into which it is issued.
So think about that in the context of our US versus European corporate revenues.
Sure, <UNK>.
Just a second while we look that up.
For the first quarter of 2015, the incentive comp accrual was about $38 million.
And that's up from last year's $29.5 million.
And we're running about on target with where we expected to be at this point in the year.
That number is one that obviously bounces around.
If we're doing worse, that number is smaller.
If we find ourselves doing better, of course that number would become a bit heavier.
But $38 million for the first quarter.
We're really currency.
As a matter of fact, most of the outlook story, the changes, relate to currency.
The 37% growth is really driven again by the US municipal market, which had a very strong quarter.
We expect that the US market is going to continue to be strong through the year, although not at first quarter levels, as I think I mentioned earlier.
And again, it's a combination of refinancing with the opportunity to do so in an attractive rate environment, and the expiration of lockup periods for some of the municipal bonds.
No, it is, again, an FX story.
I know this starts to sound like a broken record.
But we have reasonably large recurring revenues coming out of Europe.
A lot of frequent issuer pricing arrangements and the monitoring fees that go along with that.
We're seeing growth, but that growth is really being impacted by the decline of the euro.
They are running pretty much in line with the way they were through 2014.
So we continue to get a nice kick from price, and we anticipate that continuing.
Our coverage has been strong, and obviously, we are ---+ we would attribute that to a combination of the work we're doing on our Analytics.
And the demand that that is creating from the institutional investor immunity for issuers to get Moody's ratings.
Beyond that, I think it's really a matter of operational execution, and we're paying a lot of attention to executing well.
Nothing fancy about that.
Ironically, not really in that area.
And your correct, the Structured Finance area in particular shows some coverage volatility.
It always has.
Rating shopping is more prevalent there.
But the area where we are strong in the commercial mortgage backed securities area, in terms of multi-family or multi-property deals.
We've been strong in even before there were where there was a moratorium on the ratings from one of our competitors.
And so the strength continues, but it hasn't really changed in terms of the mix we are picking up because of external events.
I guess the short answer, <UNK>, is no, I don't think so.
The demands on financial Institutions globally in terms of meeting stress tests, capital requirements, liquidity requirements, the businesses that they have been curtailed from.
Are all continuing to put pressure on profitability, willingness to make loans.
And I think also are increasing the awareness from corporations and municipal entities that they need access to multiple forms of liquidity and capital.
And so the bond market is ---+ it's not a substitution for bank relationships, an alternative and in addition to the banking relationships.
I think that's probably a fair number.
It's going to vary quarter to quarter cyclically, but structurally, I think that's very much intact.
Sure, <UNK>.
We're looking at the first quarter 2015 over 2014.
Investment grade at $87 million was running at 29% of the almost $300 million we saw in the CFG for the first quarter.
That 29% is up from last year's 18%.
So as we said, investment grade has been running hot and strong, and the jumbo deals are really terrific.
Spec grade at about $63 million is up from last year's $53 million.
Percentages are about the same, 21% versus 20%.
Bank loans are down, both absolutely and in percentage terms, about $45 million versus last year's $67 million.
15% of the total gross of last year's 25%.
And other is at $104 million, which is up from last year's $97 million.
But on percentage terms, down to 35% versus last year's 37%.
So the big change there is the increase in percentage from investment grade, spec grade bonds, and percentage terms up a little bit, bank loans down.
Very important for everyone to note.
We can do okay with a changed mix, and we're doing pretty well despite the fact that the investment grade piece was stronger in the first quarter.
Looking at structured, first quarter 2015 versus 2014, looking at asset-backed securities.
Absolute numbers, about $21 million, about flat from last year's $23 million.
Percentages, it's 21% of the total for structured of $101 million, down from last year's 24%.
Residential mortgage-backed securities, which does include covered bonds, about $18 million.
Flat from last year's $18 million.
Percentage-wise down to 18% versus last year's 19%.
Commercial real estate, up $33 million from last year's $29 million.
In percentage terms it's also up to 33% versus last year's 31%.
Structured credit, which is primarily CLO's, up to about $29 million from last year's $25 million.
Percentage-wise, up to about 28% versus last year's 26%.
And then FIG, first quarter 2015 versus 2014.
$94 million in revenue versus last year's $85 million.
Banking about $63 million, up from last year's $57 million.
That stayed flat at about 67% of the percentage total.
Insurance, at about $25 million versus last year's $21.5 million is up to 27% from last year's 25%.
Managed investments, $3.5 million versus last year's $6.6 million is down.
That's 4% of FIGS total versus last year's 7%, and then others about 2%.
And then lastly, PPIF, total is $100 million versus last year's $80 million, that's a big jump.
PFG and sovereign, up absolutely to $56 million from last year's $41 million.
Up in percentage terms 56% versus last year's 51%.
Project and infrastructure, also up about $45 million from last year's $40 million.
Percentage-wise, down to 44% from last year's 49%.
And that's the total for PPIF.
So that's the whole view on the ratings business.
We have the MIS other line, which is something new, <UNK>.
That includes KIS and ICRA, so that's up little bit from last year because the ICRA consolidation, $7.8 million versus last year's $3.3 million.
And of course the ICRA percentage at 56% of the total is higher, because we didn't have that view as of last year.
And sorry, just for clarification.
The MIS other is ICRA's non-ratings businesses.
The ratings agency has its revenues rolled up into the lines of business that we have for MIS already.
Thanks for that clarification there.
It's rounding, <UNK>.
This is pretty hard for us to forecast.
So what we're looking at, it's a negative 4% to 5% in revenue.
It's positive 4% to 5% in operating expenses.
As we talked about before, our main exposures are the euro and the British pound.
At the end of the first quarter, the pound was at $1.48 and the euro was at $1.07.
And we had run this year with the euro at $1.15, was what we've had in our forecast.
Now, a very happy phenomenon from me as the CFO, is the euro this morning is at $1.12.
So we are kind of coming back in the right direction, and Ray and I talk about the euro every day.
So what that all boils down to is, you were to see the euro to further weaken, a $0.05 decline in the euro would cost us another $20 million in revenue but help us $4 million on the expense side.
So the net would be we'd be down $16 million or about $0.05 on EPS.
So this is actually pretty simple.
The shorthand we use is if the euro falls another $0.05 versus the dollar, it'll hit us $0.05 in EPS which is a pretty simple metric for you to use.
It could be, <UNK>.
It depends what happens going forward.
As I said, we're slightly cheered by the fact that the euro is up a little bit, but this is bouncing around far too much for us to put a tight range around this.
And as you saw, we held guidance.
And we don't like to move guidance after the first quarter, that would be a correct observation.
But this currency piece makes it a little bit harder to know where we are going to go.
So we are going to have to just watch it.
And the euro could continue to strengthen, or it could weaken from here.
And those two situations don't look the same.
That's why we're being a little bit thoughtful, and we'll see where we get to as the year goes on.
I think we view, <UNK>, we always have our sort of $50 million in expense flexibility if things we got difficult.
We can slow down on things, and certainly slowing hiring would be the first thing.
But I always want to put some perspective on this, because Moody's is a growth Company and you need to think about us that way.
We're looking at 72% of the S&P 500 have reported so far, and sales growth for the S&P 500 all-in, is minus is minus 4.1%.
And if you take out the energy companies, if you want to make that the argument, the growth is up 2%.
We just put up 13% growth, and 18% percent on a constant currency basis.
So in order to do that, we are spending some money.
But as you know, our shareholders have been telling us if we can get growth, we should do that.
And I think we've demonstrated pretty effectively we are able to do that, despite some pretty hefty currency headwinds.
We think we've had a pretty good quarter.
Understood.
I'll comment a little bit, and then Mark may want to comment.
I guess we've had the confluence of two frustrating events in the Professional Services line.
And I'm managing the Copal Amba business, Mark is managing the rest of Professional Services which includes CSI.
But the two really have nothing to do with each, other than they are reported up through the same line in Moody's Analytics.
I did mention the product line that we decided to reduce in scope for Copal Amba.
But we very much like the trends and the outlook for Copal Amba.
I think I've mentioned before, it has generally Moody's like growth rates and close to Moody's like margins.
And right now as banks are looking to reduce costs, being able to offshore knowledge processes is growing at a pretty terrific rate.
We are very pleased with what we are seeing at Copal Amba.
We were just out in India last week, a group of us, and we're very pleased with the opportunity that that business presents.
So just a little bit of a lapping problem.
And I don't know if Mark has anything more to add about CSI than what he's already said.
Mark.
I would just add that in training and certification, ignoring the currency impact which is quite substantial, I would say the underlying business is okay.
It's not growing as well as the rest of Moody's Analytics, so it's below trend in that respect but it's all right.
Yes, I think Linda did mention it.
Trailing 12 month sales is 24% growth.
That includes WebEquity as well.
Which would be a small piece.
Yes, it's a small piece.
A couple of points.
I can talk about Moody's.
I don't really know anything more that you do about how other firms got to their performance levels in the first quarter.
We have talked about the Moody's story pretty extensively here.
So, <UNK>, I actually don't have a lot to add to that.
I apologize.
Yes, I think that the banks have got to work through an evolving, regulatory and profitability environment.
That is going to have an impact on lending.
It's also I think going to continue the disintermediation trend that we've been seeing.
And so I think that's structural as well.
<UNK>, it's Linda.
I'm going to read to you from the Fed's press release on this topic from November 7th.
It says, the annual Shared National Credits Review found that the volume of criticized assets remains elevated at $340.8 billion or 10.1% of total commitments, which is approximately double pre-crisis levels.
So let's assume that the banks are listening to the feds on that front, and perhaps they are tamping down leverage lending in this higher risk category.
Because they've got to hold more capital against these loans, as we said, even if they put them into CLOs later.
So it's pretty important that that situation be understood, and I would urge you to take a look at what the Fed is saying and also at the research we've written on this topic.
First of all, congratulations, <UNK>, on your joining <UNK>t Research.
And the mid-case the base case we're looking at now is $30 million of expense ramp.
And our first-quarter expenses were $494 million.
I think on an earlier call, we had said maybe $500 million for the first quarter, and I think we had had a steeper ramp originally that might have even been $40 million to $50 million.
So we are kind of backing off on that.
Again, I would caveat, this is probably the number I dislike giving the most because it can vary based on a whole bunch of different things.
And this is cutting a pretty finely to give that midpoint of $30 million of expense ramp Q1 to Q4, but that's our best guess as of right now.
No.
If these are US issuers, US domiciled companies, we would be charging those in dollars.
When we look at volume and we look at headcount, obviously, we are pleased when both are up.
But because of the way the pricing is structured I would say as a general rule, seeing more smaller issuers, a higher count, would make more of a difference than a higher dollar volume.
| 2015_MCO |
2015 | MSM | MSM
#Thanks, <UNK>.
I think the biggest thing I would call out with respect to end markets is the distinction that we drew in the prepared remarks.
Specifically around metalworking related, which is our core business, and you're seeing it.
We talked about the fact that our core growth rates, while we're confident are above market, are actually below Company average.
That's really being driven off of what we're seeing in metalworking related end markets that have been particularly hard hit.
And I think the best proof point there would be the MBI, which is a sentiment index specifically geared towards metalworking shops which has gone negative now for three straight months.
So that's probably the single biggest highlight that would also be influencing our results.
Sure.
Good morning.
Morning.
Yes.
So we're actually really pleased with despite the overall top line being influenced by the macro environment and being lower than where we'd like to see it in a normalized environment, we are pleased with the cross-selling traction.
So we mentioned 300 to 400 basis points in growth.
I think that's important because what we've been highlighting is three big growth initiatives for CCSG.
Sales force transformation and expansion being one, service improvements to the business being two, and then cross-selling being the big one.
And I think we've shared that out of the gate, cross-selling has taken more time than we had initially anticipated to gain traction.
That we saw the ultimate opportunity as being as large as we had sized out from the start, but it was taking a little more time.
That was in fact the case.
There was a significant ramp this past quarter.
We're pleased with progress, and I think that was the result of a lot of actions that the team has been taking over the past number of months to increase the traction.
Going forward, look, I certainly would like to think that we're building momentum here.
I don't see a reason why that traction shouldn't continue.
And the exciting part about that growth program is we're leveraging the entire base of the hundreds and hundreds of salespeople that we have.
So there's a lot of leverage in that program.
Thank you.
Hey, Peyton, how are you.
Sure, Peyton.
I would say in general, we are seeing a continuation of what we pointed to last quarter.
Which is that the larger businesses are faring better than the small guys, and we are seeing that play out in a continued differentiation in the growth rates between the large accounts and the core or the smaller accounts.
So really, no surprise there, no dramatic change from the last quarter.
I think what we wanted to point out though is that, that growth delta is producing at an ongoing ---+ in an ongoing way a gross margin headwind.
That fortunately, I'm pleased with how we're making up for that headwind with some of the counter measures that we've implemented.
Thank you, Peyton.
Thanks again, everyone, for your continued interest.
Our next earnings date is set for October 27th where we'll cover our fiscal fourth-quarter results.
So we look forward to speaking to you over the coming months, and thanks again for joining us today.
| 2015_MSM |
2015 | CNK | CNK
#Our primary focus ---+ and we said this in the past ---+ is to continue to invest and grow the Company.
We think we demonstrated over the years that, whether it is organic or M&A activity, that we delivered great results to our shareholders.
If you're a seller, this is a great time to come to the market because there's a lot of optimism for the industry over the next few years.
So if I'm a seller, I think this is a great time to come to the market.
As it relates to Latin America ---+ when we first went to Latin America there wasn't a lot of modern theaters that you could acquire.
But over these past 20 years a lot of good high-quality theaters and platforms have developed that would be very attractive.
Whether or not they'd come to the market is another story.
But obviously we think that Cinemark would be in a prime position to take the lead in those types of negotiations.
Here domestically, there's a lot of high-quality regional circuits that many of them are family-owned.
So that brings in a different matrix, just why are they may or may not decide to sell.
But there's some high-quality assets out there.
The thing that we like about our balance sheet is that we can enter into these transactions without financing being a condition of it because we have such a strong balance sheet.
And so we are actively out there looking for opportunity, but then also in expanding our Company where it is appropriate on an organic basis.
We've probably been the most conservative in raising our prices over the years because we feel that attendance is the main driver of the business.
And also, as you analyze Cinemark you will see that we focus a lot on screen utilization.
So as we look at the different platforms we bring to a marketplace, a lot of that focus is on if we think it is going to increase the utilization.
Or even as we look at alternative content or a lot of the things we are doing in the marketplace is, how we can increase the overall utilization of the theater and expand our margins.
Like many other circuits, we are looking at our screens that are underutilized.
And if they are underutilized, how we can reposition them in the market, whether it be recliners or different premium formats that we might bring to market.
Yes.
We operate in 41 states.
So obviously it performed in some states better than other states, just like Regal and AMC.
I think they have similar footprints.
They are probably in the 40 state-plus range, both those companies are, and we are in 41 states.
Also, and it's spring now, but to refresh everybody's memory, we had some tough weather conditions in the Midwest and the Northeast of the country that caused some closures for us.
Then a film like American Sniper, although it is a great movie and I wouldn't take anything away from it, but since it is more an American-related story, it probably didn't perform as well in Latin America as some of the other films.
So we face similar challenges from quarter to quarter and have a similar ---+ or probably similar ---+ impact as AMC or Regal because they have a broad footprint like our Company does.
We cannot comment on the DOJ.
We have seen the public announcement, but we have no comment beyond them.
As far as clearances themselves, they've always been part of this industry.
I've been in this industry obviously a long time, and clearance has always been part of the industry.
As a relates to Cinemark, only 8% of our theaters are in cleared zones and the vast majority of those clearances are with Regal or AMC or Carmike.
So we don't have a lot of clearance zones.
And so I cannot see it being a big factor either way in our Company.
I will take the first part, on salaries.
The focus of Cinemark, as we schedule our employees, has always been the amount of employees per customer.
So we use a technology called Kronos, and have for several years, both in the US and we've also introduced it in several of our Latin countries.
The thing we like about Kronos is that you can establish the ratio between the customers and the employees, because if you're understaffed you are probably losing money and if you're overstaffed you're losing money.
So it is a great technology that allows us to properly schedule.
Obviously, a lot of the states have already passed minimum wage laws and that, and we've complied with all of those laws.
Also, like with the Affordable Health Care Act, that's also already baked into our numbers.
If there is increased prices, you tend to offset a lot of those prices with ---+ or costs with price increase as much is possible, or operating efficiencies.
But Cinemark has always been ---+ feel that our number one asset is our people, and so as to how we treat our employees and how we relate to them.
So we don't see it as a major issue one way or the other going forward.
On the concessions.
I was just going to say on concessions ---+ without breaking out the specific percentage, price is a smaller part of our domestic per cap growth of 7.5%.
The lion's share is more volume increases, our strategic promotion activities, and I would say some of our floor concepts with lane dividers and things to basically drive increased throughput of sales.
<UNK>, good morning.
And Latin America, a lot like the US, is content-driven.
That's what drives the attendance.
As far as the price increases in all these countries, they tend to follow inflation.
And we try to do a little better than inflation in these countries.
And all businesses operate in the same way.
I've always been focused more on the attendance as the driver down in Latin America, which is driven more by content ---+ not unlike the US back in 2008, when you had the recession here, our industry performed very well because of content.
Then, as far as, in Latin America, prices fluctuate more just with inflation, and then we try to capitalize a little beyond that.
I was going to add, the bulk of our increase is really inflation-oriented.
If anything, that could've been higher.
We had some 3D mix working against us, just based on the total mix of 3D content, which that actually dragged down the price a bit, in particularly internationally.
It is inflation, but then also it's introducing new products just like we are in the US.
And it's also creating the expectation of what you do when you go to the movies, because in a lot of the markets that we just enter into when we open up a new theater, maybe concessions haven't been a big part of the theatrical experience.
So that's also part of it.
But we continue to expand.
And a lot of the same concepts that we use in the US, to have a variety of products that allows customers to make the choice.
And in the case of these countries, it might be sugared popcorn or it might be ---+ in Brazil it might be cheese bread.
So it's also adapting to those local tastes.
No, absolutely.
As you're aware, I'm very familiar with Brazil.
We've been down there for over 20 years.
And even when I was directly overseeing international there were some malls that were built ---+ I remember when the mall outside of Niteroi.
They were building the mall, so obviously we went ---+ they wanted us to put a theater in it.
I went out and took a look at it.
And I said to myself, why would anybody be building a mall here, let along putting a theater there.
That's always been part of the process, that you have to do the market-by-market on the ground evaluation.
We are very fortunate that our management team is from Brazil and they have been with us over 20 years as site selection.
And you have seen some of this where, in the past couple years sometimes we were being criticized that we weren't growing maybe as fast as the market when it was really exploding in Brazil, but that's because we are always very conscious about site selection, whether it is in Latin America or here in the US.
We don't have any of the situations where those malls are in trouble because of our local expertise and that local market knowledge, and also checking out to make sure it meets all the criteria as to why or why not we were going into a mall.
And even another example of that: we announced this year small-market initiative.
And it's with not only a great developer and Black Rock backing it, but they have all the primary tenants, or the top tenants that are already committed going into these malls with us.
We would never face, with this here lineup of tenants, that kind of a situation.
Sure.
We are pleased with our yield at 2.4% now.
We think that's pretty good.
When we think about dividends, we have been on a ---+ historically the dividend has been increased about every three years or so.
We do have a conservative Board when it comes to that.
As <UNK> mentioned earlier, I think our priority would be on continuing to invest in growing the Company and delivering the types of ROIs that we've seen in the past.
We think that's the best long-term way to reward our shareholders, with just Company growth.
So that's our first focus.
And then we evaluate the dividend in light of that and our overall forward-looking cash assumptions.
Thank you.
I think that George Lucas really said it best here about four or five years ago at CinemaCon, and I'm sort of paraphrasing.
But he says, getting to digital is going to open up all kinds of dramatic changes from a technical standpoint in our industry, and it is going to allow a lot of the expansions that are going to be really good for our industry.
In fact, our own premium large format is due to Disney; sustainable 3-D is due to Disney ---+ or, I mean, digital.
And so you're seeing a lot of announcements from various companies that all these advancements in technologies that are coming our way, and now with satellite delivery we do have the platform, to the point that you are making to ---+ and it is a very robust platform.
And it was designed to be able to handle all this type of content throughout the industry.
And so I think that you are going to see big technical breakthroughs coming in our industry, which will be good for all of us.
And Cinemark has a history of being very focused on technology and what it can do for us.
That's why ---+ I've been in this industry for a while, like I said earlier, but I've never seen a better time, because now technology is a real asset to us, where before, when we were on the film-based technology, it was a real hindrance.
But we have a very bright future ahead of us.
I would add, I think all the examples you raised are exactly what excites us about the prospects of alternative content and the platform that's now in place to take advantage of it.
We have been ---+ throughout my career in this industry, I've always viewed the studios as our partners and have always had an excellent business relationship with each and every one of them.
That doesn't mean from time to time that we don't have various business issues come up.
But on a long-term basis, I think both the studios and the exhibitors realize that we're very dependent upon each other, and so it is up to us to focus on how we grow the pie rather than fight over pieces of the pie.
What I like about Cinemark's relationship ---+ and I cannot speak to others ---+ with the studios is, the focus is always on how we grow the pie and expand the relationship and to bring more people into the theaters.
And that's our focus, and it is a win/win for both of us.
The thing we like about 3D and also our XD is that ---+ and I think this first quarter was an example.
We had great performance on our XD screens on American Sniper and on 50 Shades of Gray, and then also on Cinderella.
And also from a 3D standpoint, surprisingly, SpongeBob SquarePants had very good 3D performance.
So we focused on both those because we think it allows the customer a choice as to what format they want to see it in.
And if the customer makes the choice for the higher ticket price, the entire industry benefits.
And as far as overall pressure on the film, I don't want to get blown out of the sights that, yes, on really high performing films you are going to pay more rental but it tends to average out.
And it will tend to shift from studio to studio as to film rental.
But if you look at film rental over a long period of time, it tends to be probably one of the more stable areas of our business.
And we feel that we can easily manage it.
And if it goes up, that's probably a good sign for our shareholders because that means that the films are performing really well in the marketplace, and of course we are making more money.
So really high-performing films would be good news both for the studios and for us.
Not of note, but we've always felt, and we've been very clear about it, that we feel the number one driver of our business is attendance.
And we don't want price to be a barrier of why people go or don't go to the movies.
Our pricing model takes that into consideration.
And if you want to pay a lower price, you might go at a different time of the day or a different day of the week.
But we want to do whatever we can to increase people to enjoy Cinemark theaters.
That same concept plays through to concessions in offering varied products and varied sizes to keep them within reach of all our patrons.
Thank you, <UNK>.
Does that conclude our call.
I want to thank everybody for joining us this morning.
And we will look forward to speaking to you again to report our second-quarter results.
Thank you.
| 2015_CNK |
2016 | WDC | WDC
#Again, fair question.
I'm not going to go there.
At this point, our priority is working to satisfy the closing conditions as it relates to the Unis investment including getting through the CFIUS process.
To speculate at this point as to what happens if the US government considers it to be a covered transaction ---+ it's a little bit early to do that so I'm not going to dare do that at this point.
So, relative to the visibility of demand we have some improving insight actually as these businesses mature to plan for data center buildouts and what is going to be required to do that and what our proportion of that might be.
We continue to refine our engagement with those customers such that we get a more insightful view into it.
Relative to our drive lead times, it depends on the type of drive that we are talking about.
Anywhere from four to eight weeks would be a good planning number.
Larger capacity being a bit longer, and that's due to test time.
Yes, and suffice it to say that given the market volatility that we have seen, the anxiousness that has been out there.
We are clearly taking a ---+ as well as our customers are taking ---+ a very cautious view with regards to the demand outlook, particularly here in the near-term.
We believe that's the prudent thing to do.
But, as always, in terms of the way that we manage our business, if demand happens to be higher than what we would expect, we will be there to meet that opportunity.
Yes, we don't necessarily have any specific data on that other than to indicate we think that inventory levels are pretty healthy.
And, what I mean by healthy is relatively lean and in pretty good shape.
In other words, we don't think that there is any, call it, excess inventory.
We had seen that through calendar-year 2015 particularly with some of the ---+ in the PC market.
We believe that that's worked its way through the system.
And so, in that regard ---+ this is a positive statement.
We don't believe that there is an inventory overhang that we or the broader industry need to deal with.
I don't have a good sense for that.
I don't think we have a call on that right now.
I hope you're right.
I'll put it that way.
(laughter)
That I'm not going to speculate on.
I don't really know.
I don't know what Toshiba's plans are.
That is obviously a question for them.
What would they do.
Would they sell them.
I don't know.
That's not a question that I'm going to speculate on.
So, if you look at ---+ we had $270 million of revenue last quarter.
I believe a year ago we had about $230 million of revenue so we've got a tough compare.
Obviously, we are still in the midst of the quarter.
But, it's possible that we might see our year-on-year revenue down a bit going into calendar Q1.
But, as far as the fiscal year, we would prefer not to be short-term focused in terms of that.
But, it's really ---+ when we talk about exceeding industry growth rates it's over a longer period of time.
It's a little bit too early to say whether or not our growth this year will accelerate or decelerate versus that.
That's not really an indication one way or the other.
But, I'd prefer not to comment on that specifically.
<UNK>, just to clarify you must be looking at units, right.
One of the things that we need to continue to focus on is the petabyte growth as opposed to the unit growth.
Obviously, as we ship higher capacity points, we're going to ship, all things remaining equal, fewer units.
And so, as <UNK> indicated, we continue to see strong petabyte growth.
The number that we are estimating is 32% which is pretty ---+ well, longer term 35%.
This past year for us was 32% which is pretty consistent with our expectations.
The exchange ratio and the price has been fixed.
I believe it was [$79.60] (corrected by company after the call).
Let me take client first.
We see that continuing trend toward client SSDs particularly in commercial-class notebooks.
It still remains within our planning guidelines so we don't see it accelerating beyond our expectation, but it is steadily increasing and it is certainly factored into that outlook.
Relative to the enterprise, we do see as evidenced by our own SaaS enterprise SSD strategy, we do see the beginnings of the incursion of enterprise SSD into what is traditionally performance enterprise.
And, the way to think about that is it starts at the top.
First with 15,000 RPM drives as being the first area for that conversion to begin, and then later on it will be in others.
But, we do see incursion in both those segments.
All of which is happening within the rate of ---+ that we have planned in our outlook.
So, that would be the color I can give you.
It's still the correct number.
Sure.
Just to remind everybody as part of our due diligence as it relates to the SanDisk acquisition is that we did extensive technical due diligence related to where SanDisk/Toshiba was with regards to the 3D NAND transition.
That we were very comfortable with where they were at and continue to be very comfortable with where they are at with their transition and are particularly encouraged by the recent announcements that they made in conjunction with their earnings announcement which indicates that they are now commercially shipping their 3D ---+ 48-layer 3D NAND product into the marketplace.
Relative to ---+ I'll have <UNK> address the enterprise refresh.
But, in terms of PCs, we have not been bullish on the PC market for a while.
We would see, generally speaking, the rate of decline in the PC market to be a bit less than what it has been this past calendar year.
And, maybe something in 6%, 5% ---+ something like that kind of range on a full-year basis.
As I indicated, we continue to be not particularly optimistic from an overall perspective regarding what's happening in the PC market.
And, our financial plans and future plans are not highly contingent on that.
<UNK>, enterprise outlook.
I think on an enterprise outlook basis ---+ I sort of referenced it.
On the capacity enterprise segment, we see that continuing to progress.
We see an increasing adoption of helium-class drives as the people deploying infrastructure realize the benefits of the TCO that that technology offers.
We articulated that growth rate we would expect across that total segment.
Relative to the performance category, I just talked a little bit about that.
We do see the continuing penetration of flash-based products into that marketplace.
We see that continuing through the balance of the year as evidenced by a number of people and their systems announcements most recently.
We would expect that to benefit from that obviously with our strategy of being media-agnostic as we move forward with the completion of the SanDisk acquisition.
Thank you for joining us today.
In summary, we continue to execute well in a challenging environment.
And, we are taking proactive steps to maintain and extend our cost leadership in the HDD industry.
We are also pleased with our progress on our strategic efforts to diversify and strengthen the Company for the long term including the acquisition of SanDisk.
We look forward to keeping you informed of our progress on all fronts.
Thank you for joining us.
| 2016_WDC |
2016 | WWD | WWD
#Well, I think what ---+ just on the order trends, we have good confidence in the full-year.
We just happened to see some of the activities from various customers that's a little soft in first quarter.
I don't want to over-react to any of that, it's just kind of normal activity but we just wanted to call out that we expect a soft first quarter in our planning followed by a much stronger second through fourth quarter
Yes, it was actually both.
We did have strong Military.
We started to see some initial provisioning for the narrow-body programs, as anticipated.
Those would start to come in.
So we had good across-the-board activity in segments minus the bizjet market.
But the rest were all healthy and a lot of the work we've been doing on our margins has been coming through.
So, a strong, healthy quarter.
I think you're ---+ the ramp that you're referring to the initial provisioning, right.
Yes.
On the initial provisioning, it's little more complex than just a ratio of how many aircraft are out there.
The initial provisioning is usually tied to the number of new operators, the number of routes those operators are doing, the location of the routes.
So we have good formula that we use to estimate initial provisioning sales and then we work it hard with the airline customers so there's a number of factors that go in.
But, definitely, that they are starting and as they produce more per year that's going to translate to more operators, more new routes and that will be a positive for initial provisioning.
As I said earlier, it has started and as we move into 2017 and 2018, that will continue to grow.
No surprises.
I would not call them one-time charges.
I would made the comment that through the year, we were taking actions.
There were some of those in the quarter.
They weren't significant enough to call out separately but there was also costs related, predominantly, the costs were related to the start up associated with the new Fort Collins industrial facility.
So the combination of those two things.
Both were planned and so no surprises but they did bring down the earnings little more then you saw.
If you would put those back we were pretty much on the full-year rate.
Yes.
Well, as we saw, Oil and Gas was down vary significantly.
Transportation, which we lump in with CNG, and you also have Rail and Marine, was down again fairly substantially.
Our Renewables business was up, flat and Power Gen ---+ [did I say something] about Power Jet.
No.
Power Gen was also down but was improving as we hit the fourth quarter.
As you saw overall, the last two years have been tough on the top line for our Industrial segment.
No.
It really hasn't impacted us.
Hello.
We are still seeing some slight improvement.
And in terms ---+ one of our larger activities in China is the CNG truck market.
There has been a number of quarters, improvement in the spread between diesel and natural gas.
That seems to be taking hold.
We're seeing some initial signs and some order volume going in the right direction.
We're not sure how fast that will ramp but that has ---+ it looks like ---+ it looks promising that, that could be turning the corner.
A lot of our Other Equipment sales are still fairly flat.
We are seeing some aftermarket, so utilization is going on.
So we always looked at if equipment is being utilized after a period of time they start buying new as well.
So we're seeing utilization, aftermarket sales but we're still not seeing large improvements in the sales outlook at this time.
No.
That would not be the case.
What I would say ---+ we've try to highlight this for a while and hopefully you can see with the numbers that we put in the slide deck.
We have very good fleet dynamics or if you want to say the demographic of our fleet is quite good.
In terms of the installed base and the maintenance cycles that are going on, in particular around the A320, 777 and some of the other legacy products.
The second part of that is, I would say, is our aircraft turbine system group, and when you're on the engine that's a very good aftermarket part of the markets.
Meaning it generates a lot more demand for maintenance.
So the good fleet dynamics, the high intellectual property, proprietary products we have on the turbine side and the shop-visit rates that are going on, that's all activity we anticipated.
It's strong.
And as we launch these new platforms, including the small wide-bodies that are going out still in volume today, as well as the narrow-bodies, both those with initial provisioning, those dynamics is very good and we could see that continuing and we have a strong, healthy aftermarket.
Thank you.
No.
I think we've said for some time that the 20% was our long-term target.
We happened to achieve that here this year and we had an extremely strong fourth quarter.
And so I think some normal volatility.
And saying ---+ what we did say is we would either maintain those healthy margins or grow them slightly.
So I don't think there's anything new underlying any of that.
We continue to see very strong Aftermarket.
That will continue to grow and it's really nothing more than that.
Could be.
Yes.
That's what we're ---+ in terms of order volumes, you never know until you get through the quarter but the way it looks at the moment we could be down a little bit.
Yes.
25% on average.
Well, and I think if I recall, <UNK> was going back to 2015 because, perhaps, of the charge that we had in 2016.
So it would not be lower than the reported amount.
But when you look, $0.66 a year ago in 2015 and it was $0.40 this quarter because of the charge and we had an extremely low tax rate in the first quarter this year as well, because of the R&E credit.
It's too early to tell.
I don't believe it would be significantly lower than that.
All we're targeting is that current order volumes are showing a little bit different pattern that we saw last year this time.
The [H] (multiple speakers) ---+ the H is continuing to track the sales and orders that GE has announced and we're tracking with them.
It's progressing well.
Yes.
We definitely see it moving up as these new narrow-body programs start to ramp.
So if you look at the Airbus volume ramp rates that starts to ---+ as you get into 2018, 2019, FY18 FY19, you're going to start seeing those ramp up and that starts to help with that growth rate number.
Well, if the infrastructure investments take hold, that would be a positive if you go through where our control systems end up.
That's like our end Construction Equipment, Mining, Transportation, Power, Oil and Gas, all those have the potential to be markets that will benefit from the new administration's policies.
At this point we haven't taken a stance or an opinion on the growth rate associated with those but there's no doubt that those are favorable to our industrial segment and we're going to wait and see the policies and then once we know that we may have a better idea of the growth that could come from that.
No.
None.
I really can't comment on the rest of the supply chain.
That I don't know, but for Woodward we've had ---+ the narrow-body programs have an aggressive ramp rate.
They have had from the very beginning.
We've been working very closely with the engine customers as well as the airframers on ensuring that we are well positioned to deliver on those ramp rates.
And I'd say this is the best I've seen in my career of our customers working on production readiness, ramp rates, and making sure the supply chain is going to deliver.
So, I would give them kudos for that.
We are tracking well and we're confident that we can meet all the production rates that they are asking for.
So, I think we're in good shape.
We just need all the supply chain to be in good shape and the rates will track.
Yes.
From a standpoint of the JV itself, I'm not really able to report much on the point venture.
In terms of the structure, there are three programs, two of which are active and one of which is in development.
The GE90, the GEnx, which powers the 787 and the 747-8, and then the GE9X, which will be in the 777X.
That one is in development.
The structure is such that those three ---+ two programs that are active flow through joint ventures so we sell to the joint venture, joint venture sells to GE and to other aftermarket customers.
And then we share development on the GE9X engine and that flows through the joint venture as well.
So in the fourth-quarter you see the impact of, largely, the aftermarket sales offset by the development cost in that line on our reported results called the earnings from the JV.
Right.
The item you have to look (inaudible) at is ---+ we are on the H machine.
It's got good content for us and GE is ramping up.
So that's a positive to us.
But we also play across the entire industrial turbo-machinery market and a lot of the other [suppliers] in other parts of the market, are soft.
So, it's an offsetting one.
So there is no misalignment between our sales and our outlook and GE's.
It just happens to be the rest of the market is soft.
So when we talk about Power Gen, we're talking not only about gas turbines, about steam turbine powered generation, as well as reciprocating engine power generation.
So, we go across the whole portfolio.
In total power was soft but the H class is a bright spot in that market.
Year over year would be ---+ as you can look at our quarterly flow for this year, first quarter was down quite a bit.
As we've indicated, we really don't know how this recovery will pan out in terms of timing.
So, it's very difficult to tell whether it will be slightly down to flat to slightly up from the first quarter of this year.
Sure.
No.
We will continue to come down from that level as well.
So, yes, there's still a little hangover on capital projects related to all the new facilities and so forth.
So we will continue to decline in 2018 and beyond.
Okay.
Thank you again for everybody joining us today.
And for many of you, I know we will see you at our investor conference here later in December and I look forward to seeing you and talking to you at the time.
So, thanks for joining us today.
| 2016_WWD |
2017 | HBI | HBI
#Thanks, <UNK>
Given my recent decision to retire by the end of the year, let me reflect on the past few years as a way to help frame the company's future as we launch Project Booster
Over the past five years, the implementation of our Sell More, Spend Less, Generate Cash strategy and all its variations has significantly transformed our business
Over this time, we've added approximately $1.6 billion of revenue
We've expanded our global footprint with nearly a third of our sales now coming from our international businesses
We've more than doubled our operating profit, while expanding margins by over 500 basis points
We've completed $2.3 billion of acquisitions, and we've returned roughly $1.5 billion to shareholders through dividends and buybacks
The evolution of our business model has clearly driven strong results over the past five years
With Project Booster, we're entering the next phase of our evolution, which is where we fully leverage our large global footprint and unlock the full revenue and cash flow potential of our business model
And we believe this positions us for continued growth over the next five years
In terms of the impact and cadence from Booster; the project, which began late in the first quarter, is expected to be neutral to operating profit and cash flow in 2017. We incurred approximately $7 million of cost in the first quarter or about $0.02 a share primarily from head count-related actions
We expect an equivalent level of expense in Q2, which is factored into our current guidance
The Booster-related costs are reflected in our adjusted results
So, to be clear, these costs are not part of our acquisition and integration-related charges
The savings from these actions, which are expected to fully offset the first half costs, should flow through in the third and fourth quarters
Looking forward, gross cost savings, working capital improvements as well as growth-related investments in Project Booster are expected to build over the next two years reaching on an annual basis $100 million of net cost savings and $300 million of incremental cash flow from operations by the end of 2019. I want to emphasize that the benefits from Booster are on top of our annual $30 million to $40 million of supply chain efficiency gains and on top of the remaining synergies from our prior acquisitions
And as <UNK> noted, when you combine the remaining synergies from our existing acquisitions, with the expected benefits from Project Booster, we are very well positioned to exit 2019 at a run rate of more than $1 billion a year in cash flow from operations
Now let me walk you through some of the specifics for the quarter
We're off to a strong start to the year as our results were in line with our expectations and our guidance
Sales increased 13% over last year, driven by roughly $210 million of acquisition contributions
With respect to organic sales, was 4% decline versus last year, was in line with our expectations and showed sequential improvement from the fourth quarter
Organic growth in Activewear, Online, Asia and the Americas was offset by expected declines in Innerwear as well as our new Other segment, which consists of our businesses that are being managed for cash
Touching briefly on organic sales
There were a number of encouraging signs within the quarter that reinforced our confidence for continued sequential improvement as the year progresses
Online sales in the U.S
across all channels grew at a double-digit rate
Our largest business, men's underwear, grew low single-digits as order patterns normalized with a large mass retailer
Our Activewear segment returned to organic growth, while our Asia business continue to grow at double-digit rates
And as we look through the second half, simply wrapping our higher growth acquisitions and last year's exit from our legacy catalog business is expected to add over 150 basis points to organic growth
Looking at our segments
Activewear sales increased 3% over last year, driven by low single-digit organic growth and a modest contribution from last year's acquisition of GTM
Champion sales in the U.S
were up double-digits, as we continued to benefit from our refreshed product offering and increased space within the mass channel
This more than offset the decline in our Hanes Activewear business
Operating margin of 10.2% was essentially flat relative to last year
Switching to our International segment
Sales growth was driven by the contributions from last year's acquisitions, while organic sales on a constant currency basis were essentially flat in the quarter
Operating margin of 10.6% increased 170 basis points over last year driven primarily by synergies from Hanes Europe
Turning to our Innerwear segment
Sales decreased roughly 6% over last year in line with our expectations
Operating margin of 20.3% was essentially flat versus last year
In basics, the strength in our men's underwear business was more than offset by declines in other product categories due to challenging traffic and cautious inventory management by retailers
With respect to intimates, the entire year-over-year decline was driven by a single retailer who began its planned door closings during the quarter
We felt good about our outlook for the second half as our shelf space is stabilizing, and we're seeing traction with our new Maidenform offerings, which are being rolled out across multiple channels throughout the year
Looking at our overall results, gross margin improved 230 basis points over last year to 40.2%, driven by acquisition-related mix as well as efficiency gains within our supply chain
Operating margin of 11.6% declined 50 basis points over last year, due entirely to the roughly $7 million of costs related to Project Booster
Core operating margins increased 40 basis points in the quarter, driven primarily by $5 million of acquisition synergies
The tax rate was 6% in the quarter, in line with our full year guidance, while EPS of $0.29 was at the high-end of our guidance range despite the $0.02 per share impact from Booster-related expenses
With respect to balance sheet and cash flow highlights
Core inventory declined 8%, while cash flow from operations improved $262 million over last year
About half of the cash flow improvement was timing related, while the other half was from structural improvements to working capital
We also invested approximately $300 million during the quarter to repurchase nearly 15 million shares
Turning to guidance, we reiterated our full year outlook while also providing second quarter guidance
So I'll point you to the press release and our FAQ document for any specifics
That said, let me touch on a couple of items regarding Q2. First, with respect to sales, our guidance includes approximately $200 million from acquisition contributions, which implies an organic sales decline of roughly 2%, continuing our improving trend to return to organic sales growth in the second half
And second, our guidance includes approximately $8 million of Booster-related expense or about $0.02 a share, which will fall primarily in SG&A
So, in summary, we're off to a strong start for the year as our results were right in line with our expectations
We grew revenue 13%, we grew earnings per share 12%, we delivered strong improvements in cash flow, and we returned over $350 million to shareholders
And with that, I'll turn the call back over to <UNK>
Well, as we said, about $100 million of the Project Booster number will come from cost savings
Those cost savings will be both SG&A related, but mostly cost to sales related as we continue to leverage our supply chain
And then $200 million of the $300 million cash flow improvement from Project Booster will then come from working capital improvements, and that's going to come across the board
It'll come through continuing to drive improving inventory turns
It'll come through – and also as well in improving our accounts payable and accounts receivable management
So, there are lot of elements to it
It's really not one thing, but a whole organizational effort
<UNK> <UNK> <UNK> - Credit Suisse Securities (USA) LLC Thanks
And could I ask about your expectations for return to organic growth in the back half of the year? What are you seeing at point-of-sale to give you comfort in that trajectory?
Thank you, <UNK>
Sure
I'd be glad to, Mike
So, let's take inventory first
When we began our acquisitions a few years ago, we actually saw our turns begin to decline as we begin to integrate new businesses into our organization
As we've now become better at that, and we've kind of bottomed out kind of that two turns type of a range
What we now see is that we are able to continue to integrate but do so and we returned our turns to a more normal level
So, I would expect to see about a 10th of a turn a year in improvement in turns from that two turns base on average
So that's inventory
Let's talk about accounts payable
As we become more global and our footprint as we become larger, we have an opportunity to become more effective in the way we negotiate terms, conditions and price with our largest vendors
And so, as we do that, we're seeing our days to pay extend
I think you're seeing there's a lot of people, we're seeing it as well
On the accounts receivables side, what we're seeing is that as we're able to integrate our international businesses, we're able to make good progress in reducing their DSO
We have a really strong competency in our organization, and we're able to transfer that to our acquired companies and reduce DSOs
So, it's really, like all those three things playing together, it things that we know how to do that we've done in the past and that we expect to be able to continue to do in the future
Yeah, I was actually hopping somebody would ask that
Our margins are really good this quarter
We're up 230 basis points on gross margin, 200 basis points of that came from acquisitions, about 30 basis points came from manufacturing cost savings that dropped down to the bottom line
When you really look at the operating profit margin for the quarter, we saw the base business, the core business generate 40 basis points, that's 90 basis points of improvement from cost savings and synergies, mostly and then offset by about 50 basis points of Booster expenses
So, a really strong performance in the quarter on margins
In terms of Q2, if you do the midpoint on our guidance back into that, you find that we're expecting operating margins in second quarter to be down about 150 basis points
That's 100 basis points from the dilution from the short-term dilution from the lower margin acquisitions that we did last year
The core margins, it should be fairly flattish except for the 50 basis points from Project Booster that will flow through in the quarter
We're kind of expecting flattish margins because we're going to see a little bit of a richer mix towards Activewear this year versus last year in the quarter
And that business has a little bit lower margins
Yeah, I think as we talked about in our prepared remarks, we would expect the Booster expenses and savings in 2017 to pretty well offset each other
Then as we roll into 2018 and 2019, you would expect similar to what we've seen with synergies
We expect to see the SG&A savings come a little faster than the cost of sales because the cost of sales take a little longer to flow through to the balance sheet and then on to the P&L
So, what that would suggest then is that in terms of cadence, you'll see savings in both 2018 and 2019, though skewed a little bit more to 2019 as our current plan
But you'll see savings and investments throughout that period, and we should hit a run rate net savings of about $100 million by the end of 2019.
I'm sorry, I meant operating profit margin would be more flattish
Core operating margin would be flattish in Q2.
I think you're going to continue to see improvement
I don't want to start giving guidance on gross profit margin, but we'll continue to see improvement
It's the same dynamic that you saw in the first quarter that you should see in the second quarter, perhaps not necessarily on the same scale, but should see strong improvements year-over-year
Yeah, it was very strong, but we expect – what we said historically is that, we do expect – even when we wrap the acquisitions in the beginning of the third quarter, we still expect to see incremental gross margin improvement quarter-after-quarter or year-over-year, improvement in each quarter
Well, I'll tell you, we don't generally give guidance on that
Historically, our cash taxes have been half or less of our estimated tax rate
That varies from year-to-year though, <UNK>
It's not generally a big driver of cash flow one way or the other
| 2017_HBI |
2016 | GILD | GILD
#You know, I think it's hard to tell on the flow of patients, first of all.
What we do know is there's plenty, plenty patients out there.
As I said, we have ---+ our data, we've got three different sources of data which shows that 25,000 to 30,000 patients are coming into treatment.
Obviously, a lot less than that are actually being treated.
And anecdotally, as I said, I think it's because there's bureaucracy still in the physicians' offices, which give a kind of ---+ you know, I guess that's sort of gating in a sense, the number of patients that can be treated.
And also, it's from the patient's side, you know, people are actually ready to be treated.
I think they want to be teed up, if you like, for treatment; but they might not want to actually start tomorrow morning.
So I think we should expect patient flow to be fairly stable through this year.
And then on the negotiation side, I mean, I think with real-world data, payors are tending now to really take a lot more time and put a lot more thought into evaluating the clinical profiles of the product.
And you know, until we see the clinical profiles of the new products, it's very hard to predict how competitive they are.
I mean, if they are competitive, I think we have to anticipate prices will come down, and we'll negotiate.
Because we certainly don't want to lose any access to patients for our product.
And we'll defend our market share vigorously.
So it's hard to predict.
I think directionally, competition equals lower prices.
But we are going to be focusing on looking at differentiating our product.
We've got great products out there now, and our pipeline looks really exciting.
So I think we're in good shape for a long and sustainable and healthy HCV business in the US.
Maybe, <UNK>, I could take the first part of your question.
This is <UNK>.
We gave guidance for the full year.
I would say, yes, this quarter we had a slightly uptick relative to our HIV expectations and slightly down relative to HCV.
But I think we have still got three quarters to play things out.
And as <UNK> said, we continue to be optimistic relative to patient starts and a more stable, predictable environment going forward.
But it's still very early to tell.
Yes.
And in Europe, I've got to say, the payors are treating the products generally with less consideration to the clinical differences than we are seeing in the US.
And there are some payors who are treating the products a bit more like commodities.
And we are working hard to make sure that we educate them as best as possible.
And I think the real-world data, much of which originates from Europe, is really supporting us in that.
But we have seen some instances of, for example, tenders in the Nordics which have a very binary outcome.
And there are certain times that, you know, we've decided that those tenders' prices don't warrant the value of our product.
So our market shares have been a little bit less than Europe.
And specifically, to answer your question, I think all three players are out there in Europe trying to get business.
But at the end of the day, we hope that people will recognize that the Gilead products are highly effective, very simple, very tolerable.
And the real-world data, which is now ---+ you know, there's vast amounts of it ---+ really does support us when physicians make their choices.
And as I said earlier, where physicians have the freedom of prescription, we've tended to have very, very strong market shares, in the 90%-plus.
So, <UNK>, actually it's four products that we have currently in early clinical studies, if you include the Nimbus compounds.
That deal, by the way, has not closed yet.
But it should close in the next week.
So we have the ASK inhibitor, the ACC 1/2 inhibitor, the simtuzumab, and then the FXR agonist.
And we could by the end of this year be in four Phase 2 studies, really, you know, in NASH, to look at the effect of any one of these agents by themselves.
And then we would also at the same time look at our star combination studies to see ---+ you know, too, we always have said we believe in the three points of [PET] disease pathogenesis.
There's fibrosis, inflammation, and metabolic.
And we now have agents that address all of them.
And we're absolutely ---+ our hypothesis is that ultimately it's a complex biological disease and probably more than one agent will be needed.
And we're looking forward ---+ maybe sometime next year we will then go to Phase 3.
With regards to BD, we're of course looking.
At the moment there is nothing out there that I would say we have to get ---+ as I said, we have four components.
We are going to look at those individually and then, as the results come in, make decisions what else we would need.
I would say, <UNK>, so we have, as you know, 4774 ---+ 4779, that's the GlobeImmune vaccine.
We presented data at last AASLD showing that at least in virally-suppressed patients, it did not lead to a reduction in its antigen.
We are currently doing a study in treatment-naive patients.
We then have 9620 to [deal our seven] agonists in Phase 2 as well or Phase 2a.
And then we have two other internal programs that we haven't disclosed yet.
They are pre-IND, but we have identified with two different mechanisms, molecules that we want to develop or evaluate in human clinical studies.
But having that said, it's early ---+ I mean as a general statement ---+ in hepatitis B cure.
And we are really having a very open mind and looking outside: what else is there potentially that would fit our portfolio.
I think, broadly speaking, your math is correct on that.
It's hard to tell exactly where the patients are coming from.
But I think mathematically that sounds about right.
Sorry, what was the second question.
Oh, yes, sorry.
Eight weeks ---+ yes.
We've drifted slowly but surely upwards on the eight weeks.
I think were about 43% now.
I've got to emphasize: the data we have is called intent to treat rather than actual prescriptions.
So the intent to treat in the US is about 43%.
The epidemiology, as we previously said, we probably suggest about half genotype 1 patients would fall into the criteria that would trigger off eight-week treatment.
We're not going to break down the weeks of therapy.
I mean, I just said what we think the eight-week amount is.
But the rest of you'll have to just model yourself.
And I'll hand it over to <UNK> for the second question.
So, <UNK>, as you know, steroids FXR agonists do many, many things, not only in the liver but in also other target organs.
So our philosophy is that we have an FXR agonist that purely acts at the level of the G.
I.
So it does not get totally absorbed to any meaningful degree.
And then what it does ---+ at the level of the G.
, it releases FGF 19.
And we believe that FGF 19 does everything that it needs to do in order to impact on NASH.
That's our hypothesis, and we are testing that.
And we should have data available in the fourth quarter of this year.
So that's a fairly easy experiment to do.
You simply look at bioavailability, which is below, but the FGF ---+ might increase the FGF 19 levels with some of the consequent metabolic effects.
That way we also think we can prevent pruritus.
We can prevent the cholesterol effects.
We can prevent alkaline phosphatase elevations, et cetera.
And so if this all is true, it should be a much safer and cleaner FXR agonist.
We could probably have some of the preliminary data at AASLD, and we would then move into Phase 3 soon after that.
So we're not that far behind other companies.
I don't have a lot of details at my fingertips, actually, <UNK>.
I would say, just to build on what <UNK> was saying earlier, the interactions we are having with many people working on diagnosis projects around the country are that there's a lot of ---+ a surprisingly high level of positive diagnosis in some of the urban centers, and in the ER rooms in particular in those urban centers, where diagnosis rates have been double at least what even the local investigators have anticipated.
Why that is, I'm not sure.
But this has been consistent throughout the country.
So I would say that diagnosis rates, the 200,000, would grow rather than shrink, certainly for the next few years.
And there's great efforts, of course, now to encourage diagnosis, because people know that at the end of it, they're going to be treated and have a high probability of being cured.
Yes, so <UNK>, you're exactly right; there have been previous ACC programs at Merck and Pfizer.
They have not been successful, and the reason had to do with the specificity.
This compound is really unique.
It's a low nanomolar inhibitor of both ACC-1 and ACC-2.
It then inhibits not only the pathway that goes to the [nova like progenesis], so no coenzyme A production; but it also inhibits at the level of the mitochondrion.
It stimulates, I might say, lipid acid beta oxidation.
So it does really two things.
It inhibits the formation of lipids, palmitate mostly, and at the same time it stimulates the beta oxidation of lipids.
And so there has been some anecdotal reports from the Pfizer compound that inhibition of ACC-1 and 2 results in a decrease in liver fat.
That's, by the way, something we would do as one of the next experiments.
We would look by MRI on reduction of ---+ we have already shown at the EASL presentation that it inhibits lipogenesis.
Now we have to show also that it inhibits lipids fat content of the liver.
It's a very straightforward and easy experiment to do.
And I think once we have shown that we have pretty high confidence, that there will be a meaningful clinical benefit of the compound.
Thank you, Candace, and thank you all for joining us today.
We appreciate your continued interest in Gilead.
And the team here look forward to providing you with updates on our future progress.
| 2016_GILD |
2015 | GWR | GWR
#I think our full year expectations when we discussed our guidance, the 2% to 3% range.
We came in at 3.5% for the first quarter.
Mix was probably a good half a point of that.
And in that 3% to 4%, there's definitely some mix which is pushing up a little bit, but I think it's modest.
I still think our pricing around 3% is inline with expectations.
Mike, do you have any more color.
I can comment on the fact that we don't have pricing freedom on all our properties, so it will be minimized in some degree.
But we do view that the guidance we gave earlier we should be able to participate in.
And if there's opportunity to take price, we certainly will.
That's certainly something we look at everyday, and look at the value we bring to the market.
Do you really think I'm going to answer that question.
We're a very small dog.
We watch with interest how others might go about their business.
And to the extent that anything happens and there's opportunity, we'd look at it at that time.
Developing deep philosophical views from where as relatively small as we are, we're not going to do right now.
It's an interesting question.
In terms of ---+ if you look at the investments we've made there.
So we'll take FreightLink, which made back in about 2010.
In terms of how we value assets, what we typically would do is we'd look at the useful life of mines at the time that we make the acquisition, and that was about 50% of the value.
And then we valued the intermodal business, which is north to south and far more stable than the mining side of the business, and that at the time was about 50% of the value.
And that was it.
And so we didn't actually pay for any of the optionality in some of the projects that have ensued since then.
So if you actually intrinsically look at the economics of the initial investment, it still looks very good.
In terms of, do we have to reevaluate our view on Australia.
We still see a lot of opportunity in parts of the mining sector for us to continue to play an important long-term role.
There continue to be interesting projects that we're working on.
It's unfolded far more slowly than we ever expected.
Quite to the contrary, right.
It went from being an engine of growth to going the other direction.
Do I think that the price of iron ore is going to stay at $50 in perpetuity.
I doubt it.
So there's embedded optionality in things we serve today and there's also other new projects in other commodity groups that have interesting long-term profiles.
So the latent optionality of owning the track and the geographies that we own it, I think time will prove that value will get unlocked over time.
And in the meantime, you've got a very good free cash flow, strong free cash flow generating entity that we've just combined with another Australian business.
So we've got to weather the storm.
And as you can see from the results in the first quarter, we've cut an awful lot of cost and our team's has done a pretty good job of being as lean as we can be, and then we've got to strike opportunities amidst the economic dislocation that exists there.
Well, we're doing ---+ we're sitting down with each of the management teams of the subsidiaries, which really are discrete business units.
And we're looking at their business plans that they presented to us previously, in the context of acquisition.
And we're looking at based on our own business assessment and our own ability to allocate capital to good opportunities as to where the highest and best use of investment for growth could be.
We continue to see it as ---+ there are a lot of different places where we could grow, and so we're actually updating strategic plans for each of those regions and evaluating various investment opportunities to underpin further growth, whether it be in Poland, the UK itself, or in the continental European business.
That's a great point.
So in some cases, we're talking to customers in one geography who now see us in ---+ we're working with customers in two geographies that see us in a third, and it's opening the doors to specific conversations that we otherwise would not have had.
Yes.
Think of it holistically as global commodity guys have a global view of the world, and there aren't any global rail operators.
We're pretty much the only guys you can talk to on certain projects, because we can touch them in three continents, four continents at once.
We'll turn that ---+ <UNK> <UNK> will answer that for you.
He is the voice of our disclaimer, but he is also our head of business development and M&A, and he can speak to that.
And running trains.
Yes.
We don't talk to specific contracts, but when you reflect upon our earlier statement about generally speaking what remains of our Canadian and Australian business has a very high freight component.
The timelines to when you know can vary from one week to six months, depending on what's going on with the underlying commodities.
There's a whole bunch of ways, but I mean some of them can go away very quickly.
In terms of laying up equipment, when you make commitments under long-term contracts, you typically have to be ready to serve, whether the mine's shipping or not.
So we have that.
So you can assume that is often the case.
Even with the mine going away, you still have to have equipment available, in case the thing opens up within a couple weeks.
Hey, <UNK>.
<UNK>, you want to answer that.
<UNK>, this is T.
J.
I think the answer is it varies.
And it can vary across commodities and it can also vary within certain commodity groups.
For example with coal.
Not every coal customer has the same margin, so it's not all 50% evenly across.
Sometimes it's greater, sometimes it's lower.
It depends on any number of factors.
You're seeing that within every commodity.
So it does vary.
50% has always been sort of good, big picture company-wide average.
But again, is it a few cars off the back of the train, or is it [unit] trains coming and going or whatever, so ---+ .
If you do the math on the numbers we just gave you, you'll see that there's a slightly higher margin of some of the business that we've lost.
You'll be able to do that math.
Good morning.
How are you.
Another way of saying that is, we're not worried about the impact to us directly, because we don't own the equipment and we'll take the equipment as it comes.
However, you need to ---+ what <UNK>'s saying, you need to broadly think through what the implications are for the rest of the rail network overall and what it can do to hamper efficiency in that regard.
Obviously our first priority is always to get an acquisition integrated and get it right.
In this particular instance, where as we said before, the management team that's been running the business for the past couple decades is intact.
It's not that it's not a lot of work, but it's a much lower risk integration process.
And therefore our ability to continue to contemplate other opportunities at the same time is greater than if you are doing the typical transaction of this size.
So the answer is we are looking.
We are both focused on the integration and we are also actively looking at a variety of investment opportunities, in various parts of the world.
All of those buckets still exists.
You're thinking of industrial railroads, which are typically spun out when times are tough for industrial companies that have railroads embedded in them.
That's clearly the case right now in the mining sector.
So that bucket sits.
The bucket that had declined over time, there were very few short lines spinouts of Class Is, and then of course the Rapid City, Pierre & Eastern sort of contradicted that trend when we did that about a year ago.
So I would call that a less active, much less active bucket, but that's not to say interesting things can't happen.
The existing short line operators, and I'll call it the aging entrepreneurs, who may not have an [oar] in the business, but to ---+ and therefore at some point in time may wish to exit their rail ownership and given our footprint nationally, many of those are either nearby or contiguous with existing G&W operations.
So that bucket is still alive and well.
Equipment investment internationally is, still remains an interesting group, but now that is not just possible new equipment investments in Australia.
It's also within the context of our new European operations.
And I would just say that overall the size of the potential international opportunity has increased just by virtue of having a new geographic footprint.
So the number ---+ if you saw the number of items on the whiteboard in our head of M&A's office, you would realize that the scope of what we're looking at is a pretty ---+ there's a lot of opportunities in every geography where we currently have operations.
The criteria ---+ we have to have good management in order to do a transaction, so it's always going to be easier for us to do things where we currently have a footprint and by adding.
And that's the importance of the Freightliner transaction, that we did have a deep management team that has bandwidth and the ability to integrate into new geographies as well.
So I would say that part, the international piece of that pie ---+ I'll have to dust that off from investor presentations from a couple years ago, and maybe put some checks in the ones that are most active, but that's more active than it used to be.
Actually asked him to type it up, so I could see it.
Number one, what's unusual about it this year is the speed with which from having an extension done in September the co-sponsorship has materialized.
So, I can't remember the numbers precisely, but you've already got probably 140 members of the house and probably roughly 20 senators that have already signed on, and we're early in the year.
So I think beyond ---+ people realize that this is good public policy, and if they're going to do it ---+ we had it in place for ten consecutive years and it probably doesn't make sense to keep doing it on a retroactive basis.
It makes sense to be doing in the context of when people actually make investment decisions.
And so I think there's good bipartisan, this isn't controversial.
I think there's good bipartisan support for it.
Having said that, it is not big enough in my estimation, although I will not pretend to be a legislative expert.
But my advice to me is that there's no ---+ it's just not big enough to garner a stand-alone vote.
It's always going to be part of something else.
Hey, <UNK>.
It's T.
J.
We haven't provided any 2016 views.
But again just to reiterate, generally speaking absent any other business trends like we're seeing in energy or coal, a significant portion of our North American carloads are industrial-based.
We said that GDP is growing, you would expect us to be growing alongside of that, plus or minus.
Plus new business, minus any customer churn or minus any macro trends, like what we see with the rising steel imports, which is affecting our metal shipments.
So you've got the framework right.
It's exactly serving the [trains].
We grow industry GDP.
And again, typically we look at 50% incremental margins and pricing that's sort of inflation plus.
And as we always say, look to what the Class Is are talking about or getting, and we're going to be achieving similar levels of price increases.
I don't think that the near-term softness that's sort of unfolded is affecting the psychology much at all.
They are very personal decisions and I wouldn't say the current economic environment is affecting the sale process.
Well, I mean there's obviously been in a very rapid, in a very ---+ you have to be pretty humble when in a very short period of time you do a bottoms-up analysis of the business, where it turns on a dime in short order.
So you have to be humble that anything can happen.
And obviously the US economy, even in the eyes of the Federal Reserve, is going a little slower than people had expected.
And so we worry about the trajectory of the US economy overall.
And of course we still serve a lot of iron ore and keep an eye on that as well.
So those are probably the two.
Now having said that, the core business, regardless of what happens with those two variables, generates a very high level of free cash flow.
And so the business is very solid and very diverse and able to absorb whatever might happen, but those are probably the two you'd think about.
Yes, absolutely.
I mean times of economic adversity and economic dislocation is when you make your best investment.
So, you have to simultaneously be as efficient as you can be in those businesses that are being buffeted by the real world and the real economy, and then opportunistic in terms of taking on long-term views on assets that may have been beaten up to where you could have an investment opportunity.
So you have to ---+ a Company like us has to do both of those things at once.
Sure.
This concludes our Q1 earnings call.
Thank you very much for joining us.
Operator, you can read the replay instructions.
| 2015_GWR |
2016 | ORI | ORI
#Okay.
Thank you, and again, good afternoon to all.
And as it was just announced, we have several Old Republic senior executives on the line and they'll participate and answer such questions as may come up relative to this morning's earnings release.
With the second quarter's call, we thought we would once again limit ourselves to just a few remarks that I'd like to ---+ what we believe are the most important points in the release, and then we'll open the visit to the Q&A questions, as was just indicated.
So here goes.
The results for the most recent quarter were somewhat below par for both general and title insurance, and the reasons for that were given I think fairly clearly on pages 2 and 3 of the release.
On the other hand, again, as we say in the release, the RFIG runoff business provided the most positive lift to the latest quarter's performance, and to a lesser degree to that of the first half of this year.
Taking a look at General Insurance, it's obviously ---+ it's increasingly clear to us as the year's progressing that we will perhaps probably experience a mid-single-digit rise in earned premiums for this year in its totality, and (inaudible) been the case so far.
Most of this is going to come from organic growth and a bit more from a still small startup underwriting facility that we set up early in 2015.
As we look at it today, we think that the North American economy is likely to be stuck in a slow gear for the foreseeable future, and this means that we'll be looking to strong business retention, a modicum of new business in various specialty areas, and also to the benefits of expanding the segment's footprint from both continuing on geographic as well as from product distribution and type standpoints, in order to achieve that mid-single-digit rise in volume.
In general insurance, our claim costs remain relatively stable from an overall standpoint.
We think they're benefitting from prior periods' rate improvements, which continued to flow through the earning stream, as well as from favorable developments of reserves established in prior periods.
It's noteworthy as you read the release, we think, that this is the very first quarter out of the last nine consecutive quarters that prior periods' general insurance reserves have thrown off a bit of redundancy.
And in this, we're reasonably and increasingly comfortable with the idea that we've finally gotten ourselves back on track as to expect that prior years' loss costs should not emerge adversely and thus impinge upon current year results.
Expense-wise, the release points to some noise, as you read, from the combination of relatively minor expense items that are flowing through the latest quarter's income statement.
In this regard, we think that subsequent quarters' premium inputs for the rest of this year should better cover these what we view as blips in period cost.
Therefore, from an overall standpoint, we're reasonably confident that General Insurance pretax earnings will look moderately better as the year wears on.
And the same thing holds true for title insurance.
The year-to-date comparisons with 2015 suffer a bit from some of the, again, out-of-the-ordinary positives that existed last year.
For the rest of this year, however, we think that the combination of a strong pipeline of orders at the end of June and the prospect of an extended period relatively lower interest rates, as well as a fairly improving job environment in this country, that all of that bodes well for this important core segment of our business.
Finally, with respect to the RFIG runoff, the release points to the key elements that drove its earnings, as well as their impact on Old Republic's consolidated results for the first half of both 2015 and 2016.
And again, save for the continuing saga of a couple of CCI litigations that continue to be resistant to resolution, as well as a remaining exposure of sorts in the mortgage guarantee MI area, the combined runoff operations, we think, are likely to fairly mosey along consistently for the foreseeable future.
Turning to other matters, the consolidated operating cash flows that are disclosed on page 5 of the release are down about 46% year-over-year.
This is driven mostly by the slower top line growth in both the general and title businesses.
And this is of course a main reason for the 1.1% year-to-date rise of the cash and invested asset balance shown on top of page 6 on a cost basis.
And to some extent, this is also impacting the consolidated investment income line shown on page 5, i.
e.
, as cash and invested assets grow more slowly, all things being equal, you can expect investment income to slow down a bit, accordingly.
Balance sheet-wise, there isn't much change in either its composition or its continued strength.
If we look again at the summary tables on page 6, it's readily apparent that the approximate 12.8% year-to-date GAAP basis increase in the common shareholder's equity account came mostly from market appreciation of the securities portfolio, particularly the common equity portfolio.
And of course, this is particularly due to the equities portion, as I say, which reflect the stronger US market performance in the second quarter in particular.
So as we said before, we'll turn this visit over to whoever is listening and address whatever pertinent questions that may be out there, and we've got the talented ---+ my associates here that I'm sure will come up with answers that will be satisfactory.
So, Operator.
<UNK>, you want to address that.
Sure.
Hi, <UNK>.
It's a combination of large deductible business and guaranteed cost business, so when we say large account construction, it would include both.
And as we also say, we're operating in a very competitive environment.
There is definitely evidence in the marketplace of competitive behaviors, and I think as I discussed in the prior quarter or two, we are committed to not chasing business to maintain a top line, and we're willing to let business go that we don't think is priced adequately.
So as we move down the line, we'll continue to respond to the marketplace, and if the competitiveness doesn't improve then we'll continue to maintain our underwriting discipline and let that business go.
Yeah.
We write construction in several of our segments, so when we talk about large construction business, it involves primarily a segment that is currently at about $300 million of premium on a gross written basis.
<UNK>, I would refer back to the beginning of 2015 when we had a press release about a new joint underwriting venture that we were starting.
And so when we talk about the new startup, we also talked about it in our first quarter 2015 conference call.
So this is primarily coming from that operation.
Well, we have ---+ Karl, correct me, but we're all over the lot there.
You know, you're talking $2 million, $3 million here, $4 million, $5 million there, pluses and minuses.
The point we're making, <UNK>, is that when you take all these somewhat different types of expenses that are flowing through the income statement, particularly this past quarter, we believe that that accounts for most of the difference you see from longer-term trends in the expense ratio.
And that's why we also said in the release, as I recall, that we expected that as the year wears on, these, what I refer to as blips, should evanesce to some degree and be absorbed in the overall premium stream of the year.
Hey, <UNK>, thank you.
This is <UNK>.
I don't think we've really had a shortfall on that.
What we have done is, in some key areas, commercial and others, we've increased some staffing opportunities for us.
Obviously, with new people on board, their book of business and follow-up on that is just a little delayed.
A lot of that is just a timing issue for us.
Certain things have hit the bottom line before on the revenue side, so I don't feel there's any shortfall at all.
We're very comfortable about that.
Thank you.
I guess everybody's on vacation in the Hamptons or something.
<UNK>.
Right.
On the commercial auto, we continue to see some severity in that business, and as such, as we talked about for the last few years and as have many in the industry that write commercial auto, we have taken necessary rate action and continue to take that, so we're still getting the necessary rate to offset those severity trends that we're seeing, and I would put those in the mid-single digits.
And different than what I spoke about some of the behaviors we were seeing in the construction area, in the commercial auto area, most of the competition is seeing the same kind of trends that we are, and therefore responding accordingly, and we are able to get the necessary rate increases that we need, so the marketplace is more supportive, certainly, in that line of business.
I think, as we said, generally what's contributing to our top line growth is some moderate, low-single-digit rate increases on average if you average up together all of our lines of business.
So in general and in the aggregate, we are, but the marketplace is certainly competitive.
And as we always say, it varies dramatically by class of business, line of business, geography.
So depending upon those variables, the answer can be very different.
Yeah, thank you.
This is <UNK>.
You know, on that, we follow a lot of the MBA projections on that, and they're saying it should be up to 44% this year but it should drop down to about 27% for 2017.
July started off very, very strongly in that.
As long as the rates stay low, there's still some opportunities in that, and I think we're going to see it fairly solid for at least the next quarter, possibly pushing us to the end of the year.
Because of our agency network, sometimes we're delayed a little bit in the premiums hitting our bottom line.
It should slow as 2017 goes if you follow the projections.
Okay.
Well, thank you.
Appreciate everyone's interest in Old Republic and your attendance at this visit.
And so we'll look forward to the next one in a few months.
You all have a good afternoon.
Thank you.
| 2016_ORI |
2016 | BKS | BKS
#The Traffic was the bulk of the cost decline for the first quarter, though conversion was a little bit of an issue, as well, and that's some of the comments that we did talk about in terms of inventory and store payroll.
No, <UNK>, that's not what we said.
We are ---+.
No.
What we said was there's a store redesign project where we're fixing some merchandising, and the sampling of our stores ---+ we talked about it on Investor Day, as well ---+ just to create a more dynamic feel and discovery and browsability to improve conversion in our stores.
So, we said that we're going to test about 10 of these stores by holiday and 50 by year end.
But they're not new openings.
Closings are about 12.
Yes, I think at Investor Day we said, and correct me if I'm wrong, it was 98% of our stores ---+ 98% of our stores are cash flow positive.
Great.
Thank you all for joining us on today's call and for your interest in Barnes & Noble.
We'll report our second-quarter earnings in December.
Thank you.
| 2016_BKS |
2017 | CTL | CTL
#Good afternoon, everyone, and thank you for joining us
I'll start off by saying that I'm thrilled to be talking to you today as the Chief Operating Officer of CenturyLink
I'm very excited about what we can do together now that we are one company
With the close of the acquisition last week, we've begun executing on our integration plans
And even with only seven days since the close, we've achieved several milestones
For example, we've interconnected the CenturyLink and Level 3 networks and are now beginning efforts to integrate them as a single unified network
We've enabled our sales teams to quote the combined company footprint as on-net and have given them full access to the customer information for the accounts they support
We've defined the management organization, we've set out budget targets for 2018, and we have the business units developing their own detailed budgets and strategic plans for 2018. We have an aggressive but achievable integration plan for the year or two ahead and I have high confidence in our ability to hit the synergy targets we've discussed previously
I view this as a three-step process
Interconnection is the first step and ensures we can easily and efficiently pass and trade traffic between all of our networks
Integration, the second step, is about being able to go to market as a single company and in a seamless way
There's a lot of work to do, but we have an excellent integration plan in place
And lastly, transformation
It's not enough to incrementally improve on what CenturyLink and Level 3 were doing, we must transform the business to make it easier for our employees to do their jobs, to meet the evolving needs of our customers and to drive profitable growth
As most of you know, the objective, I think, is the most important for driving shareholder value is increasing free cash flow per share
Over the coming year, you will hear me talk more about our own transformation effort and our initiatives to support our customers and their own digital transformation
All of these efforts are aimed at delivering profitable revenue and growth in free cash flow per share
I thought I'd take a minute to talk about what the new CenturyLink is and what it is not
Our goal is to become the world's best enterprise networking company, recognizing that our wholesale and consumer customers are essential to provide us the scale and scope and capabilities we need
But today, we routinely compete and win against the largest telecom providers in the world for the business from the most demanding enterprises
Sometimes, we are compared to a much smaller ROX (17:23)
While we have rural service territories and I think we do a great job for those customers, we are also the local phone companies in cities like Denver, Phoenix, Seattle, Minneapolis, and many other large urban markets
We have a great Consumer business that's very important to us, but we are not a primarily consumer-focused company
Approximately 25% of our revenue comes from consumers
75% of our revenue comes directly from enterprises or through the wholesale customers we support
Some may think of us as a North America-only company
And while we have an incredible network in North America, we are a global facilities-based provider with substantial networks in EMEA, Latin America and subsea, and we serve customers in more than 60 countries
The reality is that the new CenturyLink is a leading telecommunications company in the global marketplace with excellent competitive capabilities
We have organized our team around our customers and are focused on profitable revenue, operational excellence to reduce cost and drive a great customer experience, and increasing free cash flow per share
<UNK> will provide more insight on this in a moment, but I want to get my perspective on the CenturyLink dividend
I've had the chance to speak with the board of directors, <UNK> and <UNK> about it and we all agree, we are firmly committed to the dividend
As I look at our financial plans over the next few years, I'm confident about our ability to meet the dividend obligation and believe it is an important component of our equity story
Turning to Level 3's third quarter 2017 results
We saw revenue growth in almost every area we measure: total revenue, core network service revenue, or CNS, and enterprise CNS revenue
With our disciplined approach to managing the business, we also saw continued margin expansion and growth in adjusted EBITDA and free cash flow generation
Even though we've seen a dampening effect due to the length of time it has taken to complete this transaction, our products and services resonate with our customers
Since a low-point in the fourth quarter of last year, we're seeing sequential improvement in enterprise CNS sales in each and every quarter and as our service delivery team installs the pending orders, we expect better sequential revenue performance in the fourth quarter
As we integrate this new company, we are focused on delivering value to our customers, improving the customer experience, competing aggressively to gain market share and managing our business with financial discipline
Having spent the last year with <UNK> and the management teams from CenturyLink and Level 3, I can tell you, we are all excited about the transformation efforts underway
We are confident in our ability to deliver the synergies we've announced
We have aligned our focus around driving free cash flow per share growth and support the dividend
And I intend to push hard to increase our intensity, agility and speed in managing the business
In summary, we are well positioned as one of the largest enterprise communications providers in the world
The scope and scale sets us apart from where CenturyLink or Level 3 have been before
Together, we are a global enterprise-focused company and a strong competitor against the largest communications companies in the world
With that, I'll turn it over to <UNK> to provide an overview of the Level 3 detailed financial results
<UNK>?
And one quick add-on to that
Phil, this is Jeff
It also includes us continuing to invest in growing our business
We don't think that we have to massively cut capital expenditures or do anything unnatural
We think we can grow this business
We think we can capture the synergies
We think we can continue to invest in it and support the dividend
And you asked about integration and misses in sales did result from a lot of integrations
Integration is tough and we need to make sure that we are very, very focused on maintaining the relationship between our sales team and our customers
We've done a lot of integrations between the two companies
We both have a lot of experience in it
Our teams have a lot of experience in it
So we're bringing that to the table
But some of the specific things we're doing are making sure that we don't move a bunch of accounts unnecessarily, making sure that we move accounts one-time, making sure that we try and maintain that relationship between the customer and their account rep, making sure we give information to the account rep to be successful in selling
And then that all the back-office support from service delivery to service assurance that we maintain the experience for the customer so that we can drive continued performance
Integration is important
But I also talked about transformation
And transformation is something that we have an opportunity in front of the combined company
We want to change the way our customers interact with CenturyLink
We want to make it simpler for our employees to meet their needs
We continue to deliver an enhanced customer experience for the customers
If we focus our efforts on driving an extraordinary customer experience, then I worry far less about sales misses or the integration impacts of those things
But we are very, very focused on making sure we maintain the momentum, keep up the effort to deliver great customer experience and drive sales and revenue going forward
I expect – so, it's hard to say
You're asking me to predict the future and I'll give a warning upfront
I'm no good at predicting the future and now I'm going to go ahead and try
I think that a year from now, we ought to seeing success in the target customers that we're going after with the target products and services that we're going after them with
We think that we have a great capability today to deliver for Enterprise customers, and we want to continue to do that
And so, we think we have a great capability today
After we continue to work on integration and transformation, we ought to have a great capability a year from now and we ought to be seeing some results in it
Now again, I'm hesitant to predict exactly when some change is going to occur, but those are the things we are focused on
Yeah, first of all, <UNK>, I think that <UNK>'s comments on the quality of the product that we have are exactly right
We have a very good product here
And there are times – there's a lot of concern I'm hearing in questions, there's concern around will SD-WAN be a substitute for MPLS and, therefore, a headwind that we have to overcome? There will be cases where we sold an MPLS circuit, where an SD-WAN would've been a better solution
Those will transition
We're good at managing those transitions
There are also places where we lost and we're not able to sell an MPLS circuit because MPLS was too expensive and SD-WAN would've been a better solution
So there will be revenue opportunities for us to win in locations where we can't win today with just pure MPLS services
And one of the things that we know absolutely is that our customers have a diverse set of networking needs, that there are data centers that they want to connect with dark fiber, that there are main locations that they want to connect with waves, that there are big branch offices that they want to connect with MPLS
And there are small locations that they want to connect with SD-WAN and the strength of the CenturyLink offering is that we can go across all of those dimensions and solve those networking needs for the customer across each one of those product sets
And so, so are there headwinds that could come from SD-WAN and other technologies that are being developed? Of course, there are
But we're exceptionally good as an industry in dealing with those technology transitions and transformations
And we will be, as a company, very successful in dealing with those things and making sure that we continue to focus on satisfying our customers' needs for networking services with profitable revenue and making sure that we're investing in the infrastructure and it will be another tool that we can go to the market with
<UNK>, I'll kick off on your question about the market and what happens as we go from a four-player market to a three-player market, I don't really think about it that way
I worry about one player in the market and that's CenturyLink
And we know from history that if we perform well, if we execute well, our customers buy our services
If we sell the right product, we can make money at those products and deliver for our customers
Pricing dynamics and share dynamics, I hope that we get a greater share of our customer spend, that we become more integrated into their business and more essential for their success
We see that that once a customer starts buying services from us, they continue to buy more and more, and so we see that trend and we want to continue that
But pricing dynamics is less related to the number of players in the market and more to technology transitions and technology substitutions
And one of the things that over the last 20 years, we've gotten pretty good at making sure that the pricing dynamics in the market that we're comfortable with them
We've talked a lot, <UNK> and I have both talked a lot and I know <UNK> and <UNK> have about pricing over the years, but that's not a primary driver in our financials
The primary drivers are, are we able to meet our customers' needs and sell them more services? We deal with the pricing, downward pressures pretty well
And they're not near as aggressive as they used to be
And Nick, I don't think that – none of the customers I've talked to have concerns about whether this is good for them, good for the industry, good for our ability to offer products and services that meet their needs
I think someone want to know, well, I'm going to spend more with you, am I going to get a better discount? If I wait until after the close, am I going to get a better price? I think there are some of those things that have gone on, but nobody's come to me and said or anybody that I've gone to has said, wait a minute, we're really concerned about this
No, they think it's good
They think we're a stronger company
They think we have the ability to bring the quality of both networks to bear for them
They think that we have better products as a combined business
There are always concerns about, are you going to mess things up during integration? But for the most part, I think our customers are very comfortable with this and think it's a very positive outcome for them in doing business with CenturyLink
No, I think, look, we've been closed for eight days, so we'll work on exactly how we're going to allocate our capital going forward
But I think that our capital needs to be allocated to drive the customer experience and that's true for the Consumer business
That's true for the Enterprise business
We need to get closer and closer to the customer with fiber
We need to build infrastructure to drive the simplification of the way that the customers interface with us
And the more we do that, the more we focus on driving a differentiated customer experience, the more – over time, that will equate to not only reducing costs and higher profitability and better free cash flow, but, over time, will also translate into better growth
Customers will churn at a lower rate
They'll buy more services from us
And so that is really how we're going to continue to invest
And as I said and as <UNK> said and <UNK> alluded to, we need to continue to invest that capital in driving our business forward
And so we think that there's real opportunities to do that both in the Consumer business and in the Enterprise business
I think some of those may have different growth trajectories, but we think they have all that we can drive better profit out of all of them
| 2017_CTL |
2017 | CHTR | CHTR
#All right.
Thank you everybody.
Thanks, everyone.
Thank you.
| 2017_CHTR |
2017 | ARI | ARI
#Thank you, operator.
Good morning and thank you all for joining us on the ARI Third Quarter 2017 Earnings Call.
As usual joining me this morning are Scott Weiner, the Chief Investment Officer of our Manager, and <UNK> <UNK>, our CFO.
With ARI's third quarter performance we believe the company continues to demonstrate the depth of its originations platform and the strength of its capital markets capabilities.
ARI originated over $420 million of new loans during the quarter, bringing total originations for the first 9 months of the year to north of $900 million.
Subsequent to quarter end ARI committed to an additional $300 million of commercial real estate loans, bringing year-to-date originations and fundings to over $1.3 billion.
We continue to find investments that meet our risk adjusted return expectations while constructing a portfolio that is diversified both geographically and across property sectors.
At quarter end ARI's loan portfolio totaled $3.6 billion with a weighted average unlevered all-in yield of 9.5% and a weighted average LTV of 62%.
At quarter end 89% of the loans in the portfolio had floating interest rates and the portfolio had a remaining weighted average term of 2.5 years.
At present we believe ARI has a strong pipeline focused predominantly on floating rate first mortgage loans, consisting of both new opportunities as well as the option to participate in the refinancing of some existing transactions.
Of note, 2/3 of our originations for the first 9 months of the year were with repeat borrowers, including 2 transactions which were refinancings of existing loans within the ARI portfolio.
We believe ARI continues to benefit from the breadth of the broader Apollo commercial real estate platform and as such ARI is on track for a record year of originations.
ARI's ability to co-originate loans with other investment funds managed by Apollo enables the company to win mandates while offering the borrower a seamless execution in dealing with 1 financing source.
As I noted, ARI has already closed approximately $300 million of transactions in Q4 and we anticipate this quarter will be one of ARI's most active to date with several large transactions currently in the pipeline and expected to close.
Turning now to CMBS, consistent with prior quarters we continued to reduce our exposure by selling 3 AJ bonds at prices in excess of where the bonds were marked which with principal paydowns generated $71 million of proceeds.
In addition, subsequent to quarter end we received approximately $48 million of proceeds from principal paydowns on and the sale of another 4 AJ bonds at $2.5 million above their 9/30 marks.
As CMBS is no longer a core focus for ARI, the sales allow us to redeploy the proceeds generated into higher yielding commercial real estate loans.
In thinking about the CMBS sales it is worth reiterating that the sale of CMBS in excess of the marks is accretive to book value, but given that ARI's balance sheet still reflects the bond's historical cost basis, there is a non-cash recognized loss that flows through GAAP earnings and is reflected in operating earnings.
Said differently, while the sale of the CMBS generated a $7.4 million realized loss, which will be reflected in Q4 financial results, that realized loss will not impact ARI's ability to pay the common stock dividend.
In addition to our investment and portfolio activity during the quarter the company completed its successful $230 million convertible senior notes offering.
The 5-year notes bear interest at 4.75%, 75 basis points lower than the coupon on the convertible notes offering ARI completed in 2014 with a 10% conversion premium, equating to $19.91 convertible price.
ARI also redeemed its 8.625% Series A preferred stock during the quarter, which have the highest dividend rate of the outstanding preferreds.
Subsequent to quarter end we repurchased $30 million of ARI's 8% Series B preferred stock from an investor and subsequently issued $30 million of common stock to the same investor which we anticipate will be approximately $0.03 per share accretive to book value.
Lastly with respect to capital availability, the company recently increased the capacity on its repurchased facility with JPMorgan to $1.4 billion.
We continue to focus on expanding ARI's capital sources and optimizing the balance sheet with a focus on diversifying our financing providers, extending the term of the company's debt when possible and lowering (inaudible).
Before I turn the call over to <UNK> I would like to take a minute to provide an update on the condo development at 111 West 57 Street in New York City, commonly known as the Steinway Building.
At the end of the second quarter, ARI, along with other investment funds managed by Apollo, split off a [$25.5] million junior mezzanine piece of the existing mezzanine loan and sold it at par to (technical difficulty) to subsequently call the new mezzanine loan into default and filed for foreclosure.
The foreclosure was completed at the end of August at which time the new sponsorship group invested new equity towards recapitalizing the development.
Construction on the property has continued unabated and we remain comfortable with the progress of the project towards completion.
The tower will top out at 85 floors and as of the date of this call construction has now reached the 42nd floor.
With that I will turn the call over to <UNK> to review our financial results.
Thank you, <UNK>, and good morning everyone.
For the third quarter of 2017 our operating earnings were $49.8 million or $0.47 per share.
This compares to $32.7 million or $0.45 per share in 2016.
GAAP net income for the same period in 2017 was $57.2 million or $0.54 per share.
This compares to $60.6 million or $0.83 per share in 2016.
As noted in the press release, both GAAP and operating earnings this quarter included $3.6 million repayment income received with the early repayment of a mezzanine loan.
I want to highlight a few enhancements we made to our disclosure this quarter.
We expanded our portfolio diversification chart to illustrate asset class exposure within each geography.
This quarter both the geographic diversification and property type charts are based on the amortized cost of our loan portfolio.
Previously these charts were based on net equity.
Also we've included a new loan chart in a supplemental with detailed information on each of our loans.
We hope that you find these disclosures helpful and as always appreciate any additional feedback.
With respect to leverage we ended the quarter with a 1.0x debt to common equity ratio.
During the quarter we repaid the remaining outstanding balance on our UBS CMBS facility and now have 1 remaining CMBS facility with Deutsche Bank.
As <UNK> mentioned, subsequent to quarter end we increased our borrowing capacity on our JPMorgan facility to $1.4 billion which enables us to fund additional first mortgage loans.
Our book value per common share increased to $16.36 at September 30 from $16.16 at June 30 and $15.94 at September 30 of last year.
As <UNK> mentioned, one factor contributing to the increase was the sale of CMBS during the quarter at prices above where they were previously marked.
Finally I wanted to highlight our dividend.
Based on Tuesday's closing price and our recent dividend run rate of $0.46 per quarter our stock offers an attractive 10.2% yield.
Our board will meet again in mid-December to discuss the Q4 dividend and we will make an announcement shortly thereafter.
And with that we'd like to open the lines for questions.
Operator, please go ahead.
It's deal by deal.
Some certainly do.
In any discussion with a borrower I would say to the extent a prepayment penalty is due it is part of the overall discussion as to whether or not we ---+ what the structure of our new transaction will be.
But I would say there are certainly other opportunities within the portfolio where prepayment penalties would be due, but it's tough to predict or project with any real accuracy as to whether or not we will receive those or not just given sort of the fluid nature of discussions and sort of borrowers' ability to control timing.
I don't think there's an overall shift going on.
I think somewhat is just sort of the lumpy nature of what we've been working on.
And sort of as I've said many times before it's always a little bit uncertain around timing.
So it's tough to read too much into quarterly shifts.
I would say we continue to be active in pursuing both first mortgage and mezzanine opportunities and whatever color we provided around what is likely to happen in Q4 wasn't meant to indicate any sort of broader strategic shift.
Yes.
Sure.
So just to directly answer your question and then I'll provide some additional color.
I would say generally speaking there have been no material changes.
Things are progressing as we would have hoped.
Maybe going west to east geographically on the project in North Dakota which I think by now everybody is aware is a mix of a garden style multi-family project that is 330 units, 36 single family homes and then some excess entitled land.
I would say 2 positive developments on that front.
I would say on the garden style multi-family occupancy has increased from call it the mid-70s to now the mid 80s.
So we're seeing good demand for the product, rents are still flat.
So again to the extent we're playing for time on the multi-family it's great to see the occupancy increase.
I think what we would hope to see now is sustained higher occupancy which ultimately leads to at some point a move up in rents.
The other positive news around that project is we have undertaken a strategy to sell the single-family homes on a one-off basis to either existing renters or the market at large.
Those homes have stayed virtually 95% to 100% occupied for their existence.
So we're now strategically in the market trying to sell the homes.
We have sold 3 to-date, I believe there is a fourth under contract, and sort of we're intentionally making sure we've always got 2 to 3 vacant so we have something to offer to the market.
Those homes sell for, broadly speaking, $275,000 to $300,000 a home.
So if we sold all 36 of them you're talking about net of costs and fees probably $9 million to $10 million that would be generated to sort of continue to amortize down the loan, but that's a positive development.
And I think both the higher occupancy rate on the multi-family as well as the success of selling the homes I think just speaks to generally a more positive tone around Williston overall.
Certainly oil at $50 a barrel has created a measure of stability.
There continues to be activity, continues to be demand for employment.
So generally we've always been playing for time on that transaction but I would say the last 6 to 9 months have generally been positive.
Moving further east, I know I had commented last quarter on our retail center, 20 miles or so north of Cincinnati, I would say no real change, the project continues to move along at call it mid to high 80s occupancy.
A few new leases signed.
I was out there about 6 days ago, just sort of touring the asset.
Physically it was spot on in terms of the execution.
I would say the <UNK> <UNK> inexact science of anecdotally talking to a bunch of the shops there and employees there I would say foot traffic appears to be picking up, I would say people are optimistic about the upcoming holiday season, but there is still work to be done from the asset management perspective in terms of continuing to drive more leasing activity, more occupancy overall, but no real change from our last conversation.
And then moving to the condo project in Bethesda.
I believe when we last spoke at the end of Q2, it's a 50-unit project overall.
At that time there were 28 projects either sold or under contract.
We continue to chip away at it.
Today there are now 31 condos that have either been sold or are under contract.
So we've got 19 left.
I would say on the margin foot traffic has picked up a little bit.
We continue to remain cautiously optimistic that we will continue to just chip away with it, with sales.
And again, nobody has anything bad to say about the physical construction of the product, it was executed flawlessly in terms of actually delivering what was expected.
And it's just a matter of moving quickly and being thoughtful around pricing as we do get foot traffic in there.
But we're sort of chipping away at it which is sort of the strategy we envisioned all along.
I would say nothing that's material.
I think what we're trying to do is maintain a very active dialog with the folks on the ground just to make sure that we don't miss an opportunity to get a deal done, broadly speaking.
But generally speaking at this point I would say we've got it priced appropriately given what we're hearing from people coming in the door.
No, I would say, look, given the recent hurricane activity there's been various things we've looked at.
Miami specifically ended up being quite lucky vis-a-vis the hurricane.
So no impact on what's going on.
And just to be clear, the assemblage that's being created will ultimately be envisioned as a mix of office, hotel, high-end retail, a real mixed-use asset.
As we do in these assemblages we've created the options to participate on a go-forward basis.
We will make that decision at the appropriate time.
But as of now I would say the activity around the site that's being assembled has been positive and we still feel very good about that investment.
I mean again we try and predict out repayments and I think we show what is coming to you based on maturity date.
I think oftentimes, particularly given the nature of what we do things end up being a little longer dated that we would have envisioned either because something at the asset takes longer to affect or someone wants a little bit more time to find the spot-on refinancing.
Again I think the nature of the business is lumpy.
And as Jade and I have talked about many times before, it's tough to draw too many conclusions from quarterly activity.
I think we've again provided what we expect to happen over the coming quarters from a modeling perspective.
I think on par things to the extent they change they move a little later they rarely happen sooner.
But what we provide is sort of best estimate based on current documents as they are written.
No, I mean generally no.
I appreciate the point.
I think it's important to sort of think through our portfolio and recognize that a lot of what we do is sort of multiple stages to what's happening to the asset.
And typically what we do is not a straightforward, hey, we're going to take an office building from 80% to 90% leased and once it gets to 90% we'll just go refinance it somewhere else.
And ARI will be left with the ones that never got to the leasing.
The stories and credits tend to be more complicated than that.
So as of today based on what we've seen in the portfolio I appreciate the question, but I would say there's been no ---+ nothing that indicates that sort of we're being left with the ones you wouldn't want to hold and we're being paid off on the ones you would want to hold.
I think it sort of has played out as we would have expected based on original underwriting to be quite candid.
There are some that we've done pre-development loans where people are then putting a construction loan in place, we've given ourselves the option to participate in the construction and have chosen not to participate in the constructions.
There are others where the nature of a transitional asset has changed.
It's still not ready for a more traditional financing and we have sort of been impressed with what's taken place at the asset and we've decided to stay in the transaction on a go-forward basis.
But so far I would say nothing, no broader conclusions that I would draw vis-a-vis what's going on in the market right now.
That's net of the provision that we had recorded last year in Q2, which is $10 million.
So there's been nothing significant from a principle side with respect to the North Dakota loans, just the way we presented it and maybe Hilary or <UNK> could walk you through it post call, but certainly nothing significant has happened yet.
If we succeed on the home sales, yes, you'll see it come down, but nothing to-date.
Yes, I mean keep in mind what we lend against today is still a bunch of somewhat dated single tenant for the most part street retail which to be perfectly candid works as what it is today.
The plans by the equity investor/developer obviously call for taking down what exists there today putting up high-end retail with hotel, office above it.
I'd say what's going on in a very positive way around the site that we lend against, is the continued opening of other high-end stores, other restaurants, more foot traffic, which sort of validates the design district as a location overall.
And we continue to have a very productive dialog with the existing investor who continues to evidence their support of the site by putting more equity in as needed to either acquire additional sites or pursuant to the loan.
There will ultimately be a conversation with the developer, once their plans are finalized in terms of what they want to do and based on whatever pre-leasing they've achieved as to whether or not we want to stay into the construction loan or not.
But for now I would say our view of what they've assembled has only increased based on the activity that's taken place around the site thereby validating the Design District overall as a location long-term in Miami.
Yes, I mean ---+ yes, similar story, I mean I think what they've created in Brooklyn is a incredible location.
I think the story in Brooklyn is they've literally acquired ---+ I'll get the number wrong, but a significant number of parcels.
There are literally 2 more parcels that they would hope to acquire that would allow them to literally create a completely solid block.
They continue to work on that.
Again, what is envisioned for Brooklyn is a mixed use of some sort.
Again, property types as I've described previously.
Given their assemblage, given the basis they created, we and they both remain very optimistic about the future success of that project.
And I give credit to them as real estate investors/developers in their ability to, in an exhaustive effort, create an assemblage that is very valuable given what's gone on in Brooklyn overall.
Thank you, operator, and thanks for those of you for participating this morning.
| 2017_ARI |
2015 | BRC | BRC
#Thank you.
Appreciate the questions, <UNK>.
Good morning, George.
Absolutely.
Thanks <UNK>.
I'd like to talk a little more generically if I could.
I will say we're very excited in the long-term growth prospects of our healthcare business.
We believe going into 2015, we had not been investing in development of new products and R&D in that space at all, despite our PDC business.
We have changed that methodology dramatically.
And as a result, the group is both energized, motivated, and I am extremely excited about the product sets that they will be introducing in the next few years.
Now, it does take a little longer, as you are aware, in healthcare, to gain traction with products.
But once you've gained it, you have significant hold on the customer as opposed to some of our other industries.
In addition to that, I believe you were asking about the safety identification space.
That is an area that we're doing well in.
But we can obviously continue to do better.
We haven't seen a downward trend.
We're actually pushing for an upward trend, and believe we have differential advantages there.
Once again, as we invest in new and R&D and new development efforts that are really designed to reflect the voice of our end customer, much more effectively than we had before, that we will continue to see growth in what is already a very, very strong space for <UNK>.
Yes.
<UNK>, this is <UNK>.
I actually can.
And that is our Brazil business in US dollar terms, frankly, has been shrinking quite substantially.
Partly because of the organic sales decline that we just mentioned of actually a bit north of 15%.
But frankly, more importantly, the depreciation of the Real.
So our business is now sub $20 million, so it's been shrinking.
And that is quite a challenge, if I could add some color that, based particularly on your spillover effect.
If we start by looking at Asia, that area for us has been flat, and it's been a tremendous macroeconomic challenge.
In particular, if we dive down a little deeper, you'll see that it's China that is actually the cause of the challenge.
I don't think that should be a surprise to anyone on the call, based on the macroeconomic issues in China and the difficulties that everyone is facing there.
That said, Brazil is a significantly bigger challenge for us.
And the changes there are concerning, not just to us but once again to everyone doing business in that country right now.
We are reacting quickly and actively to that situation.
We have been there for a long time.
Our new President of the division is getting his feet wet in a strong way in that area.
He is working actively and personally with me and with <UNK> and with the leadership in that organization, to make sure we're making the best long-term decisions to maximize value for <UNK>.
Let me start ---+ I think that's a very fair set of questions.
Let me start with your first one.
The impact was actually quite significant to the tune of about $6 million.
But also was fairly good margin business.
So we are rebuilding from that point in regard to the revenue.
But beyond that, I want to be clear, operating efficiencies in our new locations are not nearly to my level of expectations, or to the level of operating efficiency that we had in our existing facilities.
Long-term, we are going to change that dramatically.
I know that the infrastructure we've put in place in Louisville is far superior to the infrastructure we had before.
And in Tijuana, we believe fundamentally, that we can create a workforce and a dynamic environment that will improve on our situation there as well.
So we are making great strides forward.
Did I ---+ if you could repeat any other parts of your question you had.
I'd be glad to answer further.
We were digging, as you astutely assessed, and we mentioned, we were digging out of a hole that we created.
So since we no longer have that hole and are digging out, we have good confidence.
That as we dig out of the situation, as we become much more efficient and effective, we will be able to drive our focus back to where it needs to be.
And that is innovation, customer service, working directly with our customers and our channel partners to make sure we provide what we do very, very well.
And that has not been able to be our total focus over this past year.
Let me touch on the platforms first.
So our comment was on ID Solutions that we anticipate upper teens, if you will, from a segment profit margin.
We finished the year of 2015 at about 18.5% or so, 18.6% to be exact.
So we would anticipate slight improvements.
With year-on-year improvements in the back half of the year.
On the Workplace Safety side, we finished the year at 15.5% segment profit margin.
And our guidance was mid ---+ I'll say mid ---+ I'm sorry ---+ mid-teen segment profit margins.
So we would expect, I'll say, a slight increase in our Workplace Safety profit margin.
From a G&A perspective, we do anticipate, and as <UNK> mentioned in his prepared remarks, we clearly are focusing on driving down our G&A expense.
Actually focusing on driving down SG&A expense to be a bit broader.
And as we look at the run rate coming out of the quarter, going back to your question specifically on G&A, we finished at $28 million in the quarter which is effectively, I'll say, a pretty good run rate going into FY16.
So that's effectively what we've factored in.
So not huge improvements in G&A in FY16, but as <UNK> commented, this is clearly an area that we see improvement opportunities in FY17, FY18, and beyond.
To be very specific on that on the longer term, we're looking, as we really decentralize our model, to make sure that we're doing business differently and not the same way we've been doing it and trying to squeeze savings out of just cuts.
The goal will be to make sure that we actually gain the advantages of the decentralized model.
Those are great questions.
I actually want to change the term.
I realize we used rationalization in our presentation, and that's because that's more of an industry-standard term.
We are using optimization within <UNK>.
And there's a significant real difference between rationalization and optimization.
And the reason for that is, we do have a large curve and a long tail in many of our products.
But for us to take a look at that tail and say we're going to cut the tail, would be dramatically problematic.
And therefore, a very easy solution is not one that would be very effective for us.
To give you a great example is, we sell the alphabet and we don't sell very many Qs.
But you can't pull the Q out of the alphabet and say, since we don't sell a lot of them, we're not going to have them.
Other examples are, we need to be offering full portfolios to our customers of offerings, and we may sell a product in red, white, black, yellow, purple, green, orange.
And we literally may not sell any of the yellow, purple, green, and orange.
But we need to be able to present, or extremely small amounts, we need to be able to present the full product portfolio to our customers so that they understand that if they have needs in those areas, they can create products.
Another opportunity for us is we have great, great selling, great margin products that have sister products that we have not effectively marketed together with the primary product.
And as an end result, the sales difference in revenue and margin of the one product to the other is dramatic.
We need to make sure we understand where those products are, how we need to tie them together, and how we need to drive them forward.
Then, there are some large opportunities, and this is speaking to IDS specifically, where we have products that really, A, don't relate to our other products.
B, aren't really in our driven market segments.
And, C, to your point, may actually be pulling us down as opposed to raising us up.
I am more than willing to take a revenue hit if the end result is better total profitability for the Company.
And we will therefore, drive our revenue growth through innovation, new products, new emerging markets, which we're also excited about, and new industries.
More than glad to drive our revenue that way.
And we are changing some of our models with our total Company force so that they understand that it's profitable growth that counts.
And growth for the sake of growth is not acceptable.
And straight out, there are some segments in some parts of our business that that disconnect has been obvious to me in the recent past.
And we need to work hard to fix that.
At this point, although personally I'd like to say it for our analysts.
I don't want to speak publicly to it, because of the competitive nature of that answer.
I will tell you that we do have a specific target.
Not based on an arbitrary number, but based on some very extensive analysis we've been doing over the past six months.
And that target will shift some of our product offerings, but I want to be very careful about publicizing that target at this time.
Not because of you or the analysts, I'd be thrilled.
But just the competitive nature some of that information.
But you should know that we have been doing an awful lot of analytical work prior to setting this as one of our major focal point initiatives for the year.
Thank you.
Appreciate your questions.
Good morning, Charlie.
Very good sir.
Thank you.
I appreciate it.
Yes.
Morning, Charlie.
This is <UNK>.
I absolutely can comment on the digital side.
So with respect to Workplace Safety.
If you look at the total revenue base in Workplace Safety, which would include certain businesses frankly that don't have much in the way of digital sales at all because that's not their business model.
If you look at the total revenue pie, 15% of that is digital sales.
And if you go back in history, a little over a year ago, it was about 13% of the total pie.
So clearly, digital sales are growing in the Workplace Safety business, and that's really where our main focus is.
Now we obviously have digital sales in our ID Solutions business, it's much less.
It's not a critical piece of the sales, and frankly, we haven't talked about it that much externally because it isn't as relevant to the organization.
So that's where we stand with digital sales.
Sure.
Let me add a little color to that.
Let's start with the IDS, which is a smaller portion, but we'll start.
We are also transferring their platforms to be able to be mobile capable.
Because we want the next generation of users, and hopefully the tech savvy generation that I'm in, to be comfortable and at ease working with <UNK> products regardless of the platform and able to facilitate their needs quickly.
That said, a much larger driver of revenue in the near future is affected in WPS.
The markets are quite different, Australia, you mentioned, as an example.
There is a particular case of where the mining industry, all of the commodities, are a major factor to their economy.
And therefore, to our economy within Australia.
That's been a major drag.
As far as the actual digital models, the United States is changing rapidly, more rapidly than Europe, as an example.
And the United States, that transformation which initially we were behind in our actual in platforms, I now believe we're ahead of our competition.
But we have to migrate that to all of our different platforms, as opposed to the four that we've created.
That means that we had some catching up to do, and that we have not gained the traction of that change over as significantly as we would want to.
Because we really do do a tremendously good job with catalogs.
So now switch to Europe, since that transformation has been much more limited in Europe, the Europeans are and it appears remain much more comfortable with the catalog than you ---+ particularly with all the languages involved.
I believe, and don't hold me to the exact number, but it is 15 different languages that we produce catalogs, unique catalogs in Europe.
That creates a great advantage and a great niche focus for us, that has allowed our sales to grow and to grow well in that area.
So really what you're dealing with is very different profiles in those different business areas.
And that's why you're seeing different results, and that's why we're being a little more open today about explaining what the root causes are.
So that it does help you to understand why we're seeing pressures in one area versus another area, and why that rolls up to the stream that you're looking at.
Hopefully that helps.
That is not something at this point we want to speculate.
And I will say, straight out, that things are changing so rapidly in some areas that I think it would be at our peril to speculate on an actual percentage.
What I will say is that we understand it's a need to be properly positioned in the digital space.
We have actually made a leapfrog effort in that area.
Leaping beyond technology where we're behind, to the technology and platform methodologies where we're actually ahead.
And we're going to stay ahead, because we believe that our product offerings, our customer service, our methodologies to get to the market, our reputation, all make us a strong presence in the market.
And what has been in inhibiting us to the largest extent is the fact that people found it almost impossible in many cases to reach us in the ---+ through the internet, and through mobile applications.
Thank you.
Great questions.
Good morning, <UNK>.
Absolutely.
The very good news is, we are not seeing margin pressures from the top, from the revenue line.
That's excellent news, very positive.
We've also done a lot of analysis in this area to make sure that we aren't seeing dramatic pushes in margin erosion from that end.
That's the good news.
You were correct, though.
The operational inefficiencies, and I'll actually have <UNK> comment specifically on that in an instant, are what's driving the key difference with what I would expect, what I want, to what we're doing.
If we take a look at how we consolidated in Europe two years ago, and how we consolidated North America last year, fundamentally, our expectations, our method to deploy things, our approach was problematic at best.
We ended up transferring an awful lot of technology very, very quickly, without the level of blueprint, so to speak, the road map, and the core support that was needed.
Once you get behind that curve, it becomes extremely difficult to catch up.
And we've been pouring vast resources, and continue to, into that.
We have lots of employees that are very new at their jobs.
They have high enthusiasm, but low experience rates in what we do.
And we have been stretched thin as a result with making sure they have the proper support and proper capabilities.
We see, in looking at these operations, that customer service has to be our number one priority.
As such, you are going to see a much higher level of support, and therefore, cost than we would normally believe these businesses should or would dictate.
That's going to remain for a while, because we're not going to get behind that curve again.
<UNK>, do you want to comment on any specific numbers related to that.
Sure.
Yes.
Let me just recap a couple of numbers related to the IDS profitability, and that is, the reported profitability was 14.4% segment profit.
Included in that 14.4% were a fair amount of non routine charges to the tune of $7.4 million pre-tax.
If you exclude those items, the IDS segment profit would have been 18.1%, which of course, is still down from the 20.2% last year.
And that gap from 18.1% to the 20.2% is exactly what <UNK> is talking about.
It's the inefficiencies that we are still feeling within the platform.
Let me add one more comment.
What could I have done differently in this past year.
In hindsight, looking back at the situation, we needed to flood those businesses with even more support by far when we saw how bad the problems were.
We began flooding them.
We began bringing in people.
But I believe that if we want to learn from our mistakes, we have to own up to them and we have to move forward.
A couple of mistakes that I believe are key is how we went about the whole project.
But then once the project was becoming such a challenge, we should have added even more resource quicker.
And that may have cost us even more initially, but I believe in the long-term when you do that, it ends up costing you less over the total life.
We are absolutely in that position right now.
We are absolutely doing that.
And, as a result of the situation, as I said, we'll be doing it longer and in a more costly manner than I would certainly like.
But I'm not about to change that approach right now until we all feel confident that our customers are going to continue to get the service that they expect and deserve from us.
Let me think.
Yes.
I think that that's probably a good assumption.
That it's consistent.
I don't have the numbers in front of me.
I'm shooting a bit from the hip.
But yes, I think that that would be consistent.
Yes.
The way that you get to the low end of the range would be an assumption that some of these efficiencies, actually a big piece of the efficiencies that we've been feeling, continue into the future.
Inefficiencies.
Yes, inefficiencies.
He needed to add an i into that.
That would clearly would be the big piece.
Would be the inefficiencies continuing in IDS.
And as I said before, and I don't want to be redundant.
But we are going to err on the side of caution at this point.
In regards to making sure our facilities are staffed with experienced people who can help the transformation continue to go at the most effective methodology.
And that will be ---+ the change will be determined when we feel very confident that we can slowly remove some of the safety nets we've put in place.
I want to be clear.
Yes, they did escalate in the fourth quarter.
That relates to my earlier comment about if in hindsight, one area that I would've fixed earlier would have been to flood the businesses with even more support.
Although we had given them a fair amount of support, even more support earlier.
And yes, you're seeing that reflection of that change in the fourth quarter, and you're seeing that ongoing cost.
I'm going to have to ask you ---+ we had a technical glitch right after you said you'd seen this as a GDP business.
The technical glitch interrupted some of your question.
So to answer your question, I fundamentally believe the core of our business is a GDP growth business.
I also believe that we have technologies that we are going to deploy in the future that will be supplemental to that core GDP business.
So in the three to five year timeframe, we hope to have additive ---+ we expect to have additive revenue on top of that from these initiatives.
That said, your question comes back to, if I see the growth around GDP, and your consistent with that, and you plan to do that in the future, why are you adding the resources.
And the answer back is, I think you have to look under the hood of the engine.
The engine may be heading to the hill.
If we aren't very, very positive with our customer interaction and we haven't been.
That our customers could have reason to grow frustrated with us, despite our great history, despite our great products.
We need to make sure that that doesn't happen.
With a company our size, with our history, there's a lot of natural momentum built into the flywheel.
We can't afford to jeopardize that momentum to get it restarted again.
As we see in the case of the revenue that we lost, is much, much more difficult than keeping it going, and so we absolutely know we have to add the resources.
We had to add it to make sure the customer experience went back to the expectation that it had been.
Yes, they were buying.
But that doesn't mean they're happy, and you want to make sure your customers remain extremely happy with you.
Now, let's get the other half of that, <UNK>, if you don't mind.
Yes, your other question was on working capital and the cash flow impact.
As you know, our fourth quarter, we did have a nice, I'll say, a nice tailwind from working capital.
We do anticipate that a piece of that will continue into FY16, specifically with respect to inventories.
Inventories are still at an elevated level, and we are planning for some of that to come down.
So we expect working capital to be a slight tailwind for us in cash flow next year.
Thank you.
Appreciate the questions.
Well for WPS, you're exactly correct.
We believe that we have reset to a new norm in that area.
As far as IDS as one of the things I said earlier in my point, was very good news is we've been analyzing over the last year plus.
And I don't want to go back too far in detail, but we have not been seeing pricing pressure in that regard.
So we do believe fundamentally over the next two to three years, we will be able to offset some reasonable amount of pressure that we see in the future from competitive situations.
And improve upon that, based on the fact that the biggest by far drag on our margins have been the operational inefficiencies created through the consolidation efforts.
And there literally is no number two at this point in that the number two is much, much farther down on the scale.
Absolutely.
We are a small enough player in the region, obviously both as a percentage of our sale and a percentage of the market that we do see some potential upside.
We certainly don't want to count that into our guidance.
We certainly don't want to plan, because some of these programs because they tend to be much more OEM based in Asia, take longer.
And so we continue to invest in the region, particularly for OEM type export sales.
We're not counting on that lifting the boat this year, just due to the nature of the timing of those.
We've made a lot of decisions in that realm.
I don't want to get into the actual specifics of pay and things along that nature.
But I will say we've analyzed our cost structure, our pay structure, our personnel involved, the experience levels, our overall support structure, our processes and procedures.
We've literally gone under the engine every way possible.
And in many ways, yes, have had to make some changes based on some initial analysis done a couple years ago in some cases wasn't actually applicable to the end situation.
So that may be the level of people involved, that may be how we structured it (technical difficulty) some very positive changes in that regard.
Thank you, sir.
| 2015_BRC |
2015 | QNST | QNST
#Thank you, <UNK>.
And thank you all for joining us today.
Our turnaround continued at a good pace in fiscal Q1 with strong growth from new product, market and media initiatives revitalizing our business and offsetting challenges.
And leading to a fourth consecutive quarter of year-over-year revenue growth.
Adjusted EBITDA margin came in as planned in the quarter and reflected important investments in growth initiatives and new media partnerships.
Throughout this turnaround period, we have made investments in strong progress with new initiatives while keeping cash flow and adjusted EBITDA positive and while maintaining a strong balance sheet.
One area of important progress continues to be partnerships, these efforts continue apace and successfully.
Revenue from large media partnerships grew 215% year-over-year in Q1.
We expect continued growth and that revenue from such partnerships will reach a run-rate approaching $40 million per year in Q2.
These partnerships reduce risk through media diversification away from direct reliance on search engine rankings and affiliates to more stable traffic sources.
They also generally improve quality and margin.
Perhaps most importantly, these partnerships validate the strength of our unique technologies and capabilities in performance marketing and embed us more broadly and prominently in the Internet ecosystem.
Examples of such partnerships include takeovers of performance marketing functions and technologies for big branded finance and career media properties, backend modernization of unmatched traffic for client buys ---+ client media buys, and white label products for search engines and other performance marketing platform companies.
Now, let's review our business performance and outlook.
Revenue from our financial services client vertical grew 5% year-over-year in fiscal Q1.
Auto insurance revenue growth slowed somewhat but still grew at 13% year-over-year, despite well-publicized marketing pullbacks from a number of large carriers in the quarter due to insurance industry loss ratios.
We expect auto insurance to re-accelerate this quarter, or fiscal Q2, as carriers have begun to restore spending.
We are also making good progress rolling our product and growth initiatives across our other financial services businesses.
As a result, we expect revenue from our financial services client vertical to grow about 20% year-over-year in Q2.
Revenue from our education client vertical 8% year-over-year in the quarter, the fastest rate in recent memory.
Growth from new products and markets more than offset declines in traditional lead generation for US for-profit clients.
Education also benefited from an easy comp in last year's first quarter.
We expect more growth from new products and markets, particularly not-for-profit clients and international, especially Brazil, going forward.
We also expect continued volatility from US for-profit clients.
Education revenue will likely be down year-over-year in Q2 primarily due to spending pull-backs from US for-profit clients.
We continue to serve for-profit, post-secondary education clients with new products and approaches that work well under new rules and challenges.
But due to ongoing challenges in the industry and growth in other areas, US for-profit education clients are representing a smaller and smaller share of our education revenue and of our total Company revenue.
Specifically, revenue from US for-profit education clients was down to 28% of total Company revenue in Q1 and is expected to be less than 20% of total company revenue for the remainder of the fiscal year.
Not-for-profit and international clients represented 24% of education revenue in Q1 and are expected to represent 38% of education revenue in Q2.
Revenue from not-for-profit clients grew 71% year-over-year in Q1 and we expect growth of 117% in Q2.
International revenue, mainly Brazil, is expected to grow 44% year-over-year in Q2 on a constant currency basis.
To further illustrate our reduced reliance on US for-profit education revenue and the revitalization of the rest of our business, we expect revenue from businesses other than US for-profit education to grow 17% year-over-year in Q2 and for that growth to accelerate in Q3 and Q4 to over 30% per year.
Turning to our outlook, our underlying business trends are strong and we expect a significant acceleration of revenue growth and adjusted EBITDA margin expansion in the second half of the fiscal year as, one, growth initiatives and new partnerships scale and represent an increasing share of our overall mix.
Two, we reach the tail end of the heavy investment cycle in auto insurance and, three, we begin to benefit from top line leverage.
We are reiterating our outlook for 10% revenue growth in FY16 and that full-year adjusted EBITDA margin will be higher in FY16 than FY15.
With that I'll turn the call over to <UNK> will discuss the financials in more detail.
Thanks, <UNK>.
Hello and thanks again for joining us today.
For the first quarter we reported $72.4 million of revenue, up 5% compared to the same quarter last year.
Adjusted EBITDA was $1.1 million or 2% margin.
Adjusted net loss was $0.02 per share.
We continue to execute well on our growth initiatives, growing revenue in our two largest businesses as a result of our differentiated product set, broader media footprint, expanded markets and key strategic partnerships.
We expect these initiatives to drive accelerated growth in the second half of FY16.
Therefore, where we are reiterating our outlook for approximately 10% growth for the full year.
With that overall context, I'll now discuss our detailed performance in fiscal Q1.
For revenue by client vertical, our education client vertical represented 37% of Q1 revenue and grew 8% compared to the year ago quarter to $27.2 million.
In this client vertical, new products and markets represented 65% of total education revenue and grew 73% year-over-year as our dependence on sales of legacy products to US for-profit institutions continued to decline.
In lieu of legacy products, our new products include better matched and qualified leads which are more suited for for-profit clients under existing regulations as well as our recently launched click and call products.
New markets include not-for-profit and international clients which now make up approximately 25% of our total education business and will become an even larger piece of the mix going forward, as <UNK> detail.
For 2016, we expect to see contribution from US for-profit clients using legacy products continue to decline while new products, not-for-profit clients and international markets, particularly Brazil, continue to grow.
Our financial services client vertical represented 45% of Q1 revenue and grew 5% compared to the year ago quarter to $32.2 million.
Auto insurance grew 13% in the quarter and we expect growth to re-accelerate in that business in Q2.
We believe we are well-positioned to return financial services client vertical to solid double-digit growth beginning in Q2 as carriers have begun to resource spending and as we ramp strategic partnerships.
Revenue from our other client vertical represented the remaining 18% of Q1 revenue or $13.1 million.
Moving to adjusted EBITDA for the first-quarter, we delivered $1.1 million or 2% margin as we invested in new areas of opportunity.
We expect to see margin expansion in the second half of the fiscal year primarily for top line leverage.
Turning to the balance sheet, our cash and cash equivalents balance at quarter end was $61 million.
Total debt was $15 million and our net cash position was $46 million.
In summary, over the past 2 to 3 years we focused on re-invigorating products, re-establishing our media and investing in key partnerships that leverage the strength of our unique technologies and capabilities in performance marketing and embed us more broadly and prominently in the Internet ecosystem.
We've also made important changes in our organization in order to take the business to another level.
We've re-aligned management resources to get the best people focused on the most complex initiatives, restructured organizationally to better align cost with revenue and focused on balance sheet and P&L efficiency.
This past quarter we restructured employee compensation to more meaningfully align with shareholder interests.
We shifted our entire team, including senior management, to performance-based share grants for FY16 and tied vesting to stock price appreciation.
We believe this demonstrates confidence in our ability to grow the business from here and to create meaningful long-term shareholder value.
We are working diligently throughout the business to maintain a healthy balance sheet and return the company to double-digit top line growth and adjusted EBITDA margin.
With that I'll turn the call over to the operator to open it up for Q&A.
Hello, <UNK>.
Yes, I thought the deal made a lot of sense for a Bankrate.
I think that, as I understand it from Ken's comments, they want to focus on owned and operated.
And, I think that makes sense given their assets and their capabilities.
I think the deal also made sense for All Web Leads.
I think it's, there's a lot of overlap and synergies between those two businesses given that they are both really driven by networks of insurance agents and matching to those networks of agents.
And All Web Leads has done a phenomenal job really, of managing that network and that business.
And I think they'll do a great job with the rate assets and merging that.
I think as it relates to us, I think the consolidation of the channel is a good thing as it allows all of us to do a better job of managing the channel to get better results for the clients.
We have a very strong, very close working relationship with All Web Leads.
And I so think ---+ and I think that we're quite complementary to them and again managing the channel for the clients which will draw more budgets to the channel.
So I think overall, I think it was a net positive for all the companies involved and I think it's going to be a net positive for QuinStreet
Again, I think one of the benefits of consolidation is that you do get a little more rationalized competition for specific media sources, which SEM keywords are a very big and very important media source for everybody.
So I do think ---+ I don't know that I will be a meaningful impact but I think it's that definitely, generally in the right direction.
And there's going to need to be some more consolidation in all of these performance marketing groups and I think as a standards keep getting raised and the bars keeps getting raised, in terms of technologies and by the clients, I think we're going to continue to benefit from that consolidation.
I think this is definitely an example of that.
Yes, the main drivers of that, the main driver business-wise will be auto insurance which continues to be, just a lot of momentum in that business for us.
As you know, and this came up on the Bankrate call as well, they been struggling with that a little bit because of pullbacks from clients and we're down I think about 20% year-over-year last quarter as we were up 13%, even with those headwinds.
Those headwinds have subsided and we expect that the auto insurance business will grow well past 20% again year-over-year in the existing ---+ in the current quarter and in the back half.
We're also seeing the re-acceleration in our other insurance verticals, the non-auto insurance verticals, where we are beginning to roll out the same products and strategies that have re-invigorated our auto insurance into those businesses and we expect a good lift there.
Our mortgage business is actually been up 30% to 40% year-over-year over the past several quarters, on the backs of the new products and some new media partnerships that we have there.
And we expect continued momentum there and that industry has consolidated some and again I think that's a very good thing and its for being reflected in our business momentum.
And, we do expect that we're going to be a very important player in personal loans, particularly on the affiliate and the more fragmented channel side of that equation.
That's an important new vertical for everybody.
Obviously Ken talked about it, you've heard <UNK> Lebda talk about it, and seen the effects they've had on their business.
That's an important new market where we expect to be a ---+ as we are in all of these verticals, a very important player, particularly as we bring our technologies, performance market platform and technologies, to bear on the more fragmented part of the media, the non-owned and operated but the SEM, the SCO, the affiliate, the partnership areas.
We expect that's going to be a really big business.
It's growing very rapidly for us.
It's not a big scale yet, not unlike bank rates said, but we do expect that that's going to be a real strong business.
So if you add all those up, it adds up to a lot of momentum in the financial services client vertical in total that and accelerating momentum through this quarter as we indicated, getting it about 20% year-over-year growth, we think this quarter and even faster growth in Q3 and Q4.
And, we look at that and see that coming with quite high confidence so those things are all adding up to, we got a lot of vectors going in the right direction in financial services.
Thank you, <UNK>.
Thanks, <UNK>.
Yes, our credit cards business is up, I think 30% to 40% year-over-year this quarter and we'll do that again ---+ the last quarter, I think we do that again this quarter.
It's just on a relatively small base for us, but that business is coming back for us.
It's just not getting not the scale yet where it's going have an impact on the overall all number but we feel pretty good about where it's headed and where we can be in that ---+ what we can look into at that business in coming quarters and years.
That's, that issue has gone through a lot of change, as you know and a lot of the business got consolidated into a few of the larger media players, like Bankrate.
And it's been a big benefit to Bankrate.
And the rest of us have had to adapt to the new regulations on the new sensitivities on compliance side and develop some new products and new approaches.
We have some of our ---+ one of our best business managers just focused on that.
He's made great progress, we're very close to the issuers.
And I would say that we feel again, we have good strong growth on a percentage basis.
It's just not yet at a scale that's going to make a big difference for us.
But I like the trend line and I like we're heading and I think we're through the hardest part of the credit card period.
And I do think that market's coming back.
Sure, <UNK>.
| 2015_QNST |