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2016 | AGN | AGN
#Yes, so let's talk about generics first, and this will just give me the ability to just make a quick comment before I turn it over to <UNK> <UNK> about the generic performance.
Given the disruption and the pre-integration period with Teva, and the complication, the divestiture of the business is a lot harder than integrating an acquisition.
Our folks just continue to have impressive performance despite all of the additional work they've had to do regarding the Teva pre-integration process.
So something that I just have been very proud of that team for, and maybe <UNK>, you can talk about the environment.
I think <UNK> <UNK> is on as well, so maybe he will chime in as well.
<UNK>, it's <UNK> here.
So with respect to the pricing environment, I don't see a lot of change between what we saw in 2015 versus 2016.
There's no question about it, with the purchasing consolidation and the buying now and fewer hands, there's no doubt that there's challenges to that remaining status quo going forward.
But I think what you're seeing now in the way the companies are reporting, some are reporting higher price erosion versus others, and I think that's largely due to the strategies that they are employing.
Some companies are really trying to fill their capacity and they're chasing share.
And usually when you're chasing share, you're basically discounting your products in order to be able to get that volume benefit.
So that wasn't our strategy, nor was that the same strategy from others.
And from what we've been focusing on over the years is making sure that we've got the right capacity, and differentiating ourselves with the portfolio.
And those companies that have differentiated portfolios that are harder to manufacture, less competition in products generally see price erosion on the lower end of the range.
And so what I see in our business, and <UNK> alluded to the fact that our business has performed very well, despite obviously going through this integration, what we're seeing is that price erosion consistent with 2015, which we saw that in more the mid single digits, and I see that continuing in 2016, as well.
<UNK>, anything you want to add.
Only thing I would add too, is I think the FDA, again I haven't tracked the numbers, but the FDA I think, has really stepped up the approval process, so a lot of the backlog is clearing, and that's creating for some more competition, and for others with more innovative first-to-file portfolios like we have, it could create a better dynamic as well.
With respect to R&D increase, as <UNK> mentioned in her comments, it was all the project or program related, which is where you'd like to see the increase, particularly when it's late-stage programs.
And so, just by way of example, some of the big programs that we have kicking off in 2016 are the Repastinel Phase III, the oral CGRP Phase III, as well as a lot of work in Esmya Phase III, and a few others.
So it really is late stage program related for the vast majority.
Sure, so with respect to the SG&A, in essence, stability plus cost of launches, which make a slight increase.
It really is related to not being able to execute the restructuring that we had essentially worked very hard to plan, and we're ready to pull the trigger on when the Pfizer deal came around, and so we put that on the shelf.
I don't think it's fair to treat people through ---+ to put people through the stress of a reorganization, while they are also doing a pre-integration of the size and scale of the Pfizer one, and so we have in essence put that on the shelf or cancelled it, due to the pending Pfizer deal close, and obviously all of the work that's on everybody's plate, given the pre-integration work.
I think with respect to the synergy numbers, Pfizer was aware we were going to do that, and when we built our model that was contemplated.
The M&A environment, I think, remains of high interest to us.
I think when you look at the volatility or the weakness in the marketplace, I think it does a couple things.
One is, as it sustains itself, right, it has to stay in this environment.
I think we're seeing some high fliers now become more fairly valued, and I think we're also seeing opportunities.
As you know, <UNK>, you can't strike on these opportunities, because everybody is going to look at various lengths of average price to figure out premiums, so whether it be a 30, 60, 90 days VWAP, you have to let these things settle out before there's really any actionability around them.
But I think we're going to continue both as a standalone Allergan, and as a combined Pfizer, look for things that expand our intellectual property and our therapeutic areas, to complement our discovery and own pipeline capabilities inside of Pfizer.
I think we're going to look for opportunities to expand our therapeutic area leadership and our key therapeutic areas, much like standalone Allergan has been doing today.
So I think the thing you won't probably see, both for standalone Allergan and likely for combined Pfizer, is large transformational M&A in the short-term.
I think we'll be looking more for intellectual property, tuck-in, geographic, expansion and therapeutic area leadership support-type deals.
Sure, I'll answer the first one, and maybe ask <UNK> to touch on Restasis and Namenda XR formulary.
I think, with respect to the combination with Pfizer, I think it's incredibly exciting for our franchises and our growth profile.
When you look at the Pfizer organization, combined with the Allergan organization, I think the word that immediately comes to mind is opportunity.
That's opportunities to expand our capabilities, it's opportunities to strengthen our franchises, and it certainly is opportunity to expand our geographic footprint.
So when you look at those things in combination, it's intuitive.
I think the thing I picked up in last two months though is, it's also an opportunity for talent and capabilities.
And when you have an organization the size of the combined Pfizer-Allergan you really need strength in your executive and management ranks, and in the first two months, the combination of our executives and managers with Pfizer's looks like a huge opportunity to drive these businesses, and really have better performance than the market.
This is <UNK>.
As it relates to formulary coverage for Restasis and XR, I'll start with Restasis.
Sustaining growth for that product is going to be a function of formulary coverage, share of leadership and ultimately launching new other dry eye products.
The coverage for Restasis today is over 85%.
We expect that to be maintained through 2016, and we're already in the process of submitting bids, at least on the Part D side of the business, for 2017.
It's a very, very popular product with a big user base, and I don't expect any real surprises or major changes in formulary coverage for Restasis, and I think over the next two years we can continue to manage our discount rate.
And as it relates to XR, we look good for 2016, for both XR and Namzaric.
Optum just added both products to formulary, and here again, as we look into 2017, which we already have a line of sight to, I think the numbers are going to look very, very good.
Again, if Namenda XR and Namzaric are popular products, especially with neurologists and select primary care physicians.
I like the way the next two years looks for both businesses.
Yes, so I think with respect to Treasury, what's interesting to me is how much rhetoric there is around what Treasury will and won't do, and how many, I guess, supposed experts or pundits tend to want to opine on this, and how the market takes it as ---+ almost as it being real.
I think the reality is, Treasury has issued two notices of proposed rule making with respect to this provision, related to inversions.
We have carefully considered and evaluated both of those, and have constructed our deal in a manner that takes those into account.
What we understand is Treasury is working hard at promulgating the actual regulations to support those notices, and that seems to be their focus, as you would expect, and we don't hear anything about a third notice coming.
If in fact, a third notice did become public, then certainly we would evaluate that, but we don't expect anything Treasury could do could impact our deal, since we structured it according to the law.
And so we feel very optimistic.
I think most of the noise around the third ---+ or most of the rhetoric around the potential third notice is just noise.
The Treasury, from all we can tell, is working on promulgating the regulations to support the first two notices, which haven't been issued yet.
<UNK>.
In terms of caveats, I'm just trying to think this through, one, the projections are really on a standalone basis, and what we provided you were non-GAAP metrics, consistent with the guidance we provided you in the past.
And as also I noted in my prepared remarks earlier, that this guidance will remain in effect until prior to the filing of the EU prospectus to be filed by Allergan, in connection with the Pfizer transaction, subject to the US filing, so that's a technical matter, and also to note, it's not our long term guidance.
It's our 2016 guidance.
Okay, good.
First when I think about Restasis in 2016 and 2017 and beyond, I focus on the fact that 70% of our user base are repeat users.
It has got a great following in both ophthalmology and optometry.
As I mentioned earlier, after <UNK>'s question, the formulary coverage looks really good.
You're just scratching the surface of the dry eye market.
The percentage of people treated, as of the dry eye is sufferers, is very small.
We'll have perhaps a step down in the growth rate.
Of course, when Shire launches Lifitegrast, that's not surprising.
I think it will recover.
We came off of a very high double digit year.
When I look at Restasis relative to Lifitegrast, in terms of efficacy measures, sustaining tear production and goblet cell density, I think Restasis is a great option.
When you look at tolerability, it's an even better option, in my opinion.
We'll be launching Restasis multi-dose preservative-free in the second half of the year.
I think dry eye sufferers are going to love it, instead of getting 60 single unit vials, they're going to get one 60-dose vial.
And importantly, it's just much easier to administer a drop into your eye with a 60 unit vial as opposed to these single-unit vials.
And I think we're going to find out in the second half of the year they are going to prefer the option.
Even when you go beyond multi-dose preservative-free we have Oculeve and Mimetogen, and so we're essentially building a super market of dry eye products.
I like the overall outlook for the business.
As it relates to pricing, it is a highly economical product, relative to all the products that health plans are managing.
I don't expect any real issues.
We have excellent formulary coverage, preferred status on most plans.
I mentioned the 85% figure, and even with the introduction of Shire's Lifitegrast, I just don't see any major disruption.
Sure, so with respect to intellectual property and FDA guidance on Restasis, maybe I'll ask <UNK> <UNK>, our General Counsel to open.
<UNK>, with respect to your tax experts' review of the combined tax rate, I really think we can't comment on that.
I think Frank D'Amelio laid out the expectation of the combined Company tax rate many times, and I think we really have to leave it at that.
I think with respect to investor support of the deal, I have been out and about since the deal announcement, talking with investors, and we always get unsolicited comments from investors as well, and I really haven't picked up anything but support for the deal and enthusiasm for the deal.
Not suggesting that it's unanimous in any way, shape or form.
We have a very large shareholder base with very diverse opinions, but from what I can see and from where I sit, I think there is broad-based enthusiastic support for the deal, and I continue with the benefit of a little bit more hindsight in a few months of pre-integration, believe this is the absolute best course for Allergan shareholders.
I think owning 44% of the pro forma Company of the combined Pfizer-Allergan puts our shareholders in an absolute better position for continued growth, for continued value creation, and is absolutely the right move at the right time.
So I think that was our last question.
I thank everyone for joining us, and I would just add that 2015 was a highly successful year for Allergan on a broad number of areas, whether that be double-digit branded growth in our commercial performance, strong performance from our generics business during the face of a divestiture, and of course, R&D productivity both in brand and generics was I think of record pace.
We look forward to challenging ourselves to outperform our 2015 performance in 2016, and looking forward to keeping you all up-to-date as we move forward.
Thank you for your time.
| 2016_AGN |
2016 | CIEN | CIEN
#Hi, it's <UNK>; I'll take the first part of the question on Ericsson.
Largely we don't see an impact on our relationship.
As you know, the focus of the Cisco-Ericsson alliance is really around the IP and routing space; and we are the best-of-breed optical partner for Ericsson and we're continuing to do well.
In fact, we have won more business with them this quarter, and generally our pipeline with Ericsson is growing and, frankly meeting or exceeding the expectations we had for this year in terms of opportunity and revenue contribution from this relationship.
So generally, we don't see an impact, and we continue to be focused on the optical space with Ericsson and continue to do well there.
On the dynamics around the Alcatel-Lucent merger with Nokia Siemens, it's obviously very early days for that.
But judging by history from when they spun off their optical unit about three years ago, as a diversification under their disposal of nonstrategic assets, I think they called it, into the private equity world, it's clear that their motivation is primarily around mobile infrastructure and RAM, which places them number two in the world.
I think it makes a lot of sense from that perspective.
Also I think the IP, the TiMetra platform, was also another key driver of that.
Frankly, I'm not ---+ I think the jury is out on optical.
We don't, given their other priorities, probably believe that that's strategic to them based on their history and the other things that they're dealing with.
But again, the jury is out on that.
I think on any integration there is always a challenge and an opportunity, particularly when you're essentially putting a number of these large players together ---+ and particularly if the context of that is Europe, which has its challenges as well from a flexibility point of view.
So we'll see how that goes; but early signs are that optical is not a strategic focus for them.
Why don't I start with the broader perspective around what are we thinking in the second half, <UNK>.
I think first of all, we've got the largest backlog that we've ever had going into this time of year, as we look into the second half.
So obviously, that gives us confidence.
Q1 orders were higher than revenue as well, as <UNK> mentioned, so they added to that backlog.
We've got a disproportionate amount of the backlog being international, which can be longer-term; but we have pretty good visibility into the revenue recognition and project completion of those things in the second half.
So that gives us confidence.
The overall pipeline in every region has grown and the engagement levels are very strong.
And obviously, when we look at the forecast process, it includes all of those elements.
I think as <UNK> said earlier on, whilst we're mindful around the other macro uncertainties ---+ and I think we're all very aware of that ---+ I can honestly say we haven't ---+ there's no discernible impact yet on our business to that, both in the quarter that we've just gone through and in terms of the engagement that we're having with our customers.
So I certainly don't think that is a discernible factor yet in the business that we're seeing.
I'll just add to that.
In terms of the drivers in the second half, you're asking to rank-order them.
Not necessarily in order, but the second half will be stronger in part because ---+ we talked about the metro market; we have metro projects ramping up that will be larger in the second half than they were in the first half, specifically in North America.
<UNK> mentioned India earlier, a number of programs in India that from a revenue recognition timing are going to contribute in the second half.
And then the submarine market: as you know, the timing for completion of submarine projects and timing of revenue recognition can be a bit lumpy.
But we have a couple of large projects that will come to revenue in the second half.
So those are three of the big factors that give us confidence in a strong second half.
I think in terms of order of magnitude, Verizon is pretty important.
But there are others that are going to contribute meaningfully as well.
<UNK>, on the deferred revenue piece, deferred revenue arises when we get paid before we can recognize revenues, and that typically occurs in two places.
One is in maintenance contracts and the second is in long-term projects, particularly submarine, in which there is a payment schedule which extends during the period of deployment and then we recognize revenue at the end.
I frankly couldn't give you the exact breakdown of each of those pieces, but I'm sure it's both of them.
If we didn't ---+ the Q1 is going to be a somewhat lighter order intake quarter than other quarters, and so I'm sure that the maintenance deferred revenue went down in the quarter and probably a couple of longer-term projects.
I would not read anything into that.
It's going to fluctuate depending upon our order intake on the maintenance side as well as what's happening with the projects.
Stan, this is <UNK>.
I don't think it would be appropriate for us to get into that degree of detail around a specific customer.
But I would say, and I think <UNK> gave context to it ---+ and I know everybody is very focused on Verizon, and it is a very large deal, multiyear deal, for sure.
It begins to ramp in the second half.
It's probably not the biggest ramp for us of the other engagements that we've got overall.
So whilst it's meaningful I wouldn't just look to that.
I think the numbers you've probably got there are a little high, frankly.
This is going to be a multiyear ramp-up.
It's on track, absolutely on plan, but there are a lot of other factors taken into consideration there.
We think that our second half in North America is going to be strong.
Verizon is a part of that ---+ and bearing in mind we have a lot of other things that we do with Verizon as well outside of this next-gen metro.
But we do see good growth across a wider range of markets in the second half in North America including government, MSOs, Tier 2, the ICP guys.
We actually see a very good second half.
And that's pretty consistent.
Second half is always better than the first half.
Stan, I think it's early days for us on the Blue Planet, obviously.
I would expect, as I said earlier, I think more of the same this year in terms of percentage.
It may tick up a little bit towards the end.
Then I think we start to see some movement in Blue Planet revenues being a contributor to the bottom line.
We haven't given guidance about that, and obviously that's over a year out.
It's still a nascent market and the monetization model of that still has work to be done on it.
Thank you, everybody.
We appreciate your attendance today.
We look forward to speaking with you and meeting with you over the next few weeks.
<UNK> has a few words to (multiple speakers)
Yes, I'd just like to close the call, just to summarize some of the elements that we've talked about today.
Very solid Q1 revenue with a strong bottom line.
We do expect, even at the midpoint of our guidance for the year, to have organic growth faster than last year.
We are increasing our order intake, and our backlog continues to grow, as does our engagement with our customers in our pipeline.
We're growing in every region for the year is our forecast, excepting EMEA.
And overall, we expect to have a very strong financial performance this year.
We appreciate your time and look forward to talking with you.
Thank you.
| 2016_CIEN |
2016 | CHK | CHK
#Good morning and thank you, everyone, for joining our call today to discuss Chesapeake's financial and operational results for the 2015 full year and fourth quarter.
Hopefully you've had a chance to review our press release and the updated investor presentation that we posted to our website this morning.
During this morning's call, we will be making forward-looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections, and future performance and the assumptions underlying such statements.
Please note that there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our earnings release today and in other SEC filings.
Please recognize that except as required by applicable law, we undertake no duty to update any forward-looking statements.
And you should not place any undue reliance on such statements.
With me on the call today are <UNK> <UNK>, our Chief Executive Officer; Nick Dell'Osso, our Chief Financial Officer; <UNK> <UNK>, our Executive Vice President of Operations for the northern division; Jason Pigott, our Executive Vice President of Operations for the southern division; and Frank Patterson, our Executive Vice President of Exploration.
<UNK> will begin the call and then turn the call over to Nick for a review of our financial results before we turn the conference over for questions and answers.
So with that, thank you.
And I will now turn the teleconference over to <UNK>.
Thank you, <UNK> and good morning.
I hope you've had the opportunity to review our press release issued earlier this morning.
We also have a few slides related to our call, as <UNK> noted today, that can be found on our website.
Despite the challenging commodity market, we've made significant progress in 2015.
Further details regarding our financial and operating performance can be found in the press release.
For the purpose of this call, I want to focus more specifically on our strategy and plans for 2016.
I want to address today the primary issues facing the Corporation and hopefully answer any questions you have about Chesapeake.
To start, I'm very pleased with the meaningful progress in asset sales year to date.
We have closed on or have under a purchase and sale agreement approximately $700 million of divestitures.
This amount significantly exceeds our prior 2016 first-quarter projection of $200 million to $300 million.
The asset sale areas include properties that are covered by three VPPs, or volumetric production payments, and we will use a portion of the proceeds to repurchase these VPPs at favorable prices and further reduce the complexity of our balance sheet.
Net proceeds from these property sales will be approximately $500 million.
In addition, we also have line of sight on another $500 million to $1 billion of further asset sales that we expect to close by year end.
Due to the size and diversity of Chesapeake's portfolio, we have received several inbound offers and sales inquiries for smaller, non-core, non-operated properties from strategic buyers.
These smaller packages can range anywhere from $10 million to $500 million with limited EBITDA and production.
The interest level in larger $1 billion-plus sized asset sales is very low in the current market.
We expect to continue to make progress on several smaller asset divestitures, which when taken together can add up to meaningful amounts until we can evaluate the possibility of divesting a larger asset.
The quality and diversity of our portfolio provide tremendous opportunities to further optimize our current assets and bring additional value forward.
Secondly, we are addressing the operational leverage and commitments we have as a Company.
In 2015, we were able to renegotiate two gathering agreements with mutually beneficial solutions to Chesapeake and Williams in our Haynesville and dry gas Utica areas.
In 2016, we will continue to actively pursue improving our gathering and transportation costs, as demonstrated by two recently signed agreements with other midstream service providers.
These two agreements will enhance our EBITDA by an additional $50 million this year through lower firm transportation volume commitments and lower fees on certain pipelines in our Haynesville, Barnett, and Eagle Ford areas.
These achievements were primarily with our midstream partner Energy Transfer and were achieved by awarding additional business for services we need in our core basins at market rates.
We continue to work with all of our midstream partners in each of our major operating areas to find cost-effective, mutually beneficial solutions reflective of the current operating environment.
By leveraging Chesapeake's future midstream business opportunities for incremental dedications, for gathering services, processing, fractionation, liquids handling, and marketing, we expect to continue to negotiate improved gathering processing and transportation costs for our Company in 2016.
Turning to our cost structure, in 2015, we reduced our production cost on a per-barrel-of-oil-equivalent basis by 10% compared to 2014.
We also reduced our general and administrative costs per barrel oil equivalent by 24% in 2015, including non-cash stock-based compensation.
Our confidence remains very high that we can continue to lower these costs even further in 2016, as we are targeting another 10% reduction in our production costs and a 15% reduction in our G&A cost on a BOE basis.
On an absolute dollar basis, this represents a combined reduction of over $200 million compared to 2015.
As we plan for 2016, our current capital program is 50% lower than in 2015 using the midpoint of our guidance.
And we will focus on shorter cash cycle projects that generate positive rates of return in today's commodity price environment.
The improving quality of our operations, our capital efficiency, and lower service costs all give us incrementally positive point-forward economics, even with today's price deck.
In 2016, we will be focusing on more completions and less drilling, with our completion dollars representing 70% of our total drilling and completion program.
We plan to place 330 to 370 wells on production this year, resulting in a flat to modest decline of 5% compared to 2015, adjusted for asset sales.
Commodity prices are front of mind for all of us, so we will remain flexible in our capital program, depending on prices and market conditions.
Finally, we've made significant progress since the third quarter of 2015 to reduce our overall debt level by $2.2 billion through an exchange using second-lien secured debt in December that also reduced cash interest expense due to redemption of convertible notes in November and through ongoing open market purchases.
This is a stunning accomplishment and it is also no secret that we are looking forward to reducing our debt load even further in 2016.
We expect continued pressure on commodity prices, the current deposition, and the high operational leverage associated with our midstream commitments to exacerbate the challenge here at Chesapeake.
However, we have multiple levers available to us to further strengthen our financial and operational stability and strength.
Liability management initiatives are underway for 2016, asset sales are progressing, and our capital efficiency and cost structure continue to improve.
We will continue to demonstrate our commitment and passion to create value for our shareholders using all of our available resources in this current market.
I'll now pass the call to Nick, who will share more with you regarding our balance sheet and liquidity.
Thank you, <UNK>, and good morning, everyone.
I want to start by addressing our strategy in managing our near-term maturities.
We made significant progress in 2015 to reduce our overall debt level by $2.2 billion, primarily through an exchange using second-lien secured debt in December, but also reduced our cash interest expense.
However, there is much more work to do.
The primary focus for Chesapeake is the reduction or removal of our 2017 and 2018 debt maturities.
We are pursuing several avenues to reduce these obligations, including the use of additional secured debt, private negotiations with bondholders, and other types of exchange and tender offers.
We will continue to be active in the market to exchange or repurchase our debt and reduce these principle balances even further.
Turning to our liquidity, our undrawn revolving credit facility has just under $4 billion of availability to us, with about $92 million of [L] season collateral posted.
We went back to a secured facility in late September, with our oil and gas assets acting as the collateral for the credit facility lenders.
However, there were unencumbered assets and assets that have been pledged to our collateralized hedge facility properties that were not pledged to the credit facility lenders.
As of this month, our collateralized hedge facility has been terminated, which gives us more flexibility as we move into the spring redetermination season.
If necessary, we can pledge our unencumbered assets and assets previously pledged to the hedge facility to be used as collateral for the credit facility lenders in April.
As a result, we feel good about our ability to maintain robust liquidity through the upcoming borrowing base, despite the significant drop in commodity price strips.
We expect to end the month of February with approximately $300 million in cash on hand, which reflects having already used approximately $230 million of cash to retire bonds due March 15 at an average price below $95.
This cash balance also reflects only $135 million of the approximately $700 million of asset sales <UNK> referred to in his comments that have already closed.
, the remainder of sales for which we have signed purchase and sales agreements and expect to close between now and end of the second quarter.
Along with these pending sales, we will repurchase three of the Company's previously sold volumetric production payments, our VPPs 2, 3, and 10, for approximately $200 million.
The total projected net impact of these expected sales after purchasing the VPPs will be a reduction of approximately 25,000 barrels a day of equivalent production, which has been adjusted in our outlook provided this morning.
We are pursuing additional asset sales targeted at $500 million to $1 billion of proceeds in 2016 to further improve our near-term liquidity.
I look forward to updating you on our asset sales progress throughout the coming months.
As you have seen in our press release, we have broken out our gathering, processing, and transportation charges in a line item in the income statement to provide greater transparency into these costs.
Previously, these were reported as deductions to oil and natural gas and NGL revenues.
We continue to work to further reduce these costs and expect to optimize additional gathering, processing, and transportation agreements in 2016.
As <UNK> noted in his comments, we are proud to announce that we recently completed an agreement to reduce our Haynesville transportation volume commitment and fees, primarily on Energy Transfer's Tiger Pipeline, to better align with our volume profile, resulting in a $0.06 per Mcf reduction in our total Company gas gathering transportation costs in 2016.
To further maximize our cash flow in 2016 and provide additional protection against even lower commodity prices, we have hedged over half of our projected natural gas production, at approximately $2.84 per Mcf, and over half of our projected oil, at approximately $47.74 per barrel.
So to close, we have a lot of work to do to execute our strategy.
We will rely on our extremely talented workforce, outstanding portfolio of oil and gas assets, and strong partner relationships to attack our challenges.
Based on these strengths, we believe we can continue to adjust our business to reflect the new operating environment as a result of lower prices and return to significant profitability as a highly efficient developer of high-quality unconventional US oil and gas assets.
We appreciate your time today.
That concludes my comments and I will now turn the call over to the operator for questions.
Good morning, <UNK>.
Thank you for the question.
The discounts that we recognize today for open market purchases are very, very attractive.
And so what you can expect is we will continue to look for opportunities to buy back in that debt at a discount.
And that has been taking place and we will continue to look for those opportunities for those near-term maturities.
And we will weigh that very closely against the opportunities to invest in our portfolio.
Very mindful of the current pricing environment and mindful of getting the best return for our shareholders.
So that balance is ongoing on a daily basis and right now, we see a lot of opportunity in trying to pull in some of that debt at the discounts that we recognize.
Well, the process will be completed in April.
We stay in regular communication with the bank group.
We understand where they are on prices today; they very closely match the strip.
We can run that through our models ourselves.
No ability to be precise about where things will land, but we feel good about our ability to get through the redetermination season with a really strong credit facility.
Sure, <UNK>.
I'm very excited about what we see in the STACK.
I continue to say that our Mid-Continent area is one of the most undervalued assets in our portfolio.
I've been super pleased with the recent performance that we've seen there and I think ---+ like you said, I think we have an excellent position.
We will be very closely monitoring our capital program; that is a extremely competitive area at these low prices.
But also mindful if we can accelerate value to our shareholders, we will consider that.
So at this point in time, we do not have any intention of selling that area, but it doesn't mean that we wouldn't if we couldn't capture an excellent value for the Company.
I'm sorry, Dave ---+ you're saying the credit restructuring is ---+ what are you asking about there.
Sure, Dave.
Look, this is a pretty challenging time in the market and we had hired Evercore to help us out with our exchange back in December.
That news was released and generated some headlines.
We also have brought in counsel that is pretty adept at debt exchanges and other more complicated transactions around balance sheet restructurings like this, where there are restructurings.
And that context to me can mean a lot of things and debt exchanges are much more complicated than your regular way transactions.
And it makes a lot of sense to have counsel around that works on these types of things on a regular basis.
And is very, very helpful in navigating all the things that need to be considered when going through this type of an effort.
We have debt securities that trade at a significant discount.
There is real opportunity in that and we are going to continue to think through the various avenues the Company can take to deal with the near-term maturities we have, try to capture some of that discount that's there, and position the Company for better success in years to come.
The plan there as we look forward to 2017, Dave, is just to continue to be very, very prudent in our capital expenditures, mindful of the opportunities to purchase the debt at a discount.
I will tell you that inside of Chesapeake, there is a remarkable air force ready to take flight if we decide to ramp up our drilling activity.
That said, we just have to be very mindful of the balance sheet.
We have to be very mindful of our cash flow.
I'm not in any way concerned about the Company's ability to ramp up and deliver the efficiencies that we've recognized across the portfolio ---+ the operating synergies, capital efficiencies, the recoveries that we see, productivity on a per-well basis.
Our asset position and opportunity to drive value very quick there I think is as good or better than anyone in the industry.
But that all has to be tempered with we have to be very mindful of our financial position and make sure that we're making the best investment across the portfolio, which could include still working on the balance sheet.
So no commitment on how we will respond in 2017 at this point in time with higher prices.
But definitely want to be as balanced as we possibly can be, using asset sales as a measure to help with that activity and as a measure to help buy down debt at a discount.
Sure.
I'll take the asset sales question and then I think <UNK> has something he wants to say on CapEx.
But on asset sales, like I said, our outlook has been adjusted for the impact of the asset sales on the purchase and sale agreement of about 26,000 barrels a day.
So that's already included in our guidance.
As to additional assets that we may sell, I'll stay away from production guidance at this point, but just remind you that we are looking for things that will be accretive to our situation.
So we're looking to sell assets that are going to have an amount of cash flow with them to make them attractive to a buyer and yet, not fundamentally change our position relative to the cash proceeds we get versus what we sell.
So it depends on proceeds we get and how things go; those are obviously transactions that are in negotiations and there's several of them that could combine to be in that range.
And <UNK>, just on the CapEx question, just a little more color there.
So the range that we provide is $1.3 billion to $1.8 billion, inclusive of our capitalized interest.
And our drilling and completion program that we have a wide range on ---+ and the purpose for that is to account for flexibility in the program.
We also know that our teams will continue to do a very good job in capturing all the synergies and cost ---+ capital cost savings possible.
So we have that range on there.
Obviously as prices stay at lower levels, we will be pushing for the low end of that, but we have some flexibility as well depending on what our best investment may be, whether that be repurchasing debt or investing on programs.
So we've specifically had a wide range to account for flexibility going forward in the year.
<UNK>, this is <UNK>.
We did ---+ the curtailed volumes that we brought on were primarily out of the Utica that led to the big bump in Utica production quarter over quarter.
We did bring on all of those volumes.
We are currently producing about 1.1 Bcf a day out of that asset, gross, and that's full bore.
We're seeing some good cash realizations ---+ not fantastic, good.
But it's something we look at daily and we will adjust accordingly.
We have also brought on some curtailed volumes in the Marcellus.
We probably entered the quarter with about 500 million a day behind choke.
We bumped that over 2 Bcf towards the end of the year and currently sit just shy of 2.2 Bcf.
Again, good cash realizations, but a daily conversation will occur and we will adjust accordingly.
Yes, probably 200 to 300.
That's a possibility, <UNK>.
That's not something that we're targeting at this point in time, so we continue to ---+ we will be evaluating each of those opportunities as we progress through the year.
Prices will dictate a lot and the efficiency of the program and opportunities for where we can get the best return to improve the Company for the long haul.
So everything we're doing is focused on strengthening the Company from a financial standpoint for the longer term.
And those decisions that we make will be focused on that.
It's pretty significant, <UNK>.
We had ---+ and again, this would be ---+ I'll preface it by saying we have the ability to do that if we need to and we have to get through where the price decks are and see where the banks come out on collateral.
It's a calculation that's somewhat negotiated between companies and their bank group as they look at their reserves.
They look at where their capital budgets are.
They look at all the various factors.
So we will continue to work with our bank group and determine the best answer as to whether or not we want to pledge additional reserves there, need to, etc.
, to get the borrowing base where we think it should be.
But I feel really good about our ability to maintain a very robust borrowing base.
It's impossible for me to say at this point that it will remain exactly at $4 billion, but there's a lot of moving pieces to it.
And we have a lot of collateral to move around to support that calculation if we need to or want to.
Well, we may ask for additional covenant tweaks ourselves, but banks don't really have an opportunity to ask us for that unless we have an ask of them, right.
So we'll see how the year goes.
We'll see what we decide we want to do and how we decide we want to do things.
But as far as a redetermination goes, it's a process that if we just go through the process and have the collateral we need, the banks really don't have an opportunity to ask us for anything in that process.
It's a great question, <UNK>.
It's very large.
Substantial opportunity exists there, and either through negotiating directly with our midstream partners, where we have good relationships, or through the award of additional business ---+ negotiating contract extensions through awarding additional business that we have that's a part of our normal program, we see significant opportunity there.
And we are pursuing it aggressively.
That's correct.
That is absolutely right, <UNK>.
All right.
I think that concludes the prepared remarks we wanted to have today.
We thank you for joining us and please feel free to reach out to <UNK> with any questions you might have.
That concludes our conference call.
Thank you, operator.
Thank you, everyone.
| 2016_CHK |
2017 | BRC | BRC
#Thank you, <UNK>.
Good morning, and thank you all for joining us.
We released our fiscal 2018 first quarter financial results this morning, and I'm pleased to report our ninth consecutive quarter of improved year-on-year profitability.
Total sales growth of 3.6% and organic sales growth of 1.7%, we increased net earnings by 14.6% compared to the first quarter of last year and diluted earnings per share increased 11.4% to $0.49.
These improvements are direct results of our focus on serving our customers extremely well, developing high-quality innovative products, driving efficiencies throughout our global operations, streaming our SG&A structure and strengthening our culture of innovation and local ownership.
We make sure that every decision we make appropriately balances the long term and the short term, that our efficiency actions are sustainable and that we're investing in our future.
This focus is demonstrated by our increased investments in research and development.
R&D expenses were up 15% this quarter, and we're excited about the new products and update we've had in the pipeline for this fiscal year and beyond.
Our ID Solutions business continues to perform well, posting a total sales increase of 4.2%, which consisted of organic sales growth of 2.9% and a 1.3% benefit from currency.
ID Solutions was led by our EMEA and Asian regions.
Overall, IDS is posting solid organic sales growth, increasing its investments in innovation and improving its customers' buying experience, which is all leading to increased profitability.
In our Workplace Safety business, we realized a total sales increase of 1.9%, which included a 3.3% benefit from currency and a 1.4% organic sales decline.
We're seeing positive developments in our North American business, and we're confident we're taking the right steps to return this business to growth.
Our European WPS business continues to deliver organic sales growth as this marks our 15th consecutive quarter of organic growth on a per day basis.
This leadership team continues to execute our strategy of providing industry-leading expertise to our customers while managing the shift from catalog to digital.
Pricing pressures remain challenging in this business, but we're managing this by increasing the value we provide to our customers through our industry-leading expertise, offering more customized and proprietary solutions in the identification and workplace safety spaces, delivering excellent customer service and improving our customers' buying experience by building websites with the newest e-commerce platforms.
We believe that these actions will enable us to deliver more value to our customers and increase sales of proprietary products that solve our customers' unique challenges.
We're making meaningful progress in growing organic sales and driving sustainable efficiencies throughout the entire organization.
This is resulting in the achievement of our financial goals.
For the longer term, we've been renewing our focus on innovation and developing new creative ideas and solutions that our customers value.
We continue to make the investments today that will ensure our long-term success.
Our [proprieties] for the rest of the fiscal year are consistent.
We'll continue to serve our customers extremely well, develop high-quality innovative products that solve our customers' problems, drive efficiencies in every function of the business and improve our underperforming businesses.
The key to our long-term success is through organic sales growth, and we believe we're making the right investments today for consistent organic sales growth, which will accelerate bottom line profitability and cash generation over the long term.
I'll now turn the call over to <UNK> to discuss our financial results for the fiscal quarter.
I'll then be back to provide specific commentary about our Identification Solutions and Workplace Safety businesses.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
The financial review starts on Slide #3.
Total sales increased 3.6% to $290.2 million in the first quarter, which consisted of organic sales growth of 1.7% and an increase of 1.9% due to foreign currency translation.
As <UNK> mentioned, we're heavily focused on driving efficiencies throughout the entire company.
At the same time, we're investing in the development of innovative new products.
Our investment in R&D was $10.5 million this quarter, up 15% over the first quarter of last year.
Net earnings increased 14.6% to finish at $25.8 million this quarter compared to $22.6 million last year.
Diluted EPS increased 11.4%, finishing at $0.49 per share.
And our cash generation continues to be strong as cash flow from operating activities was 134% of net earnings this quarter.
Q1 represents a nice start to the year as organic sales are trending up, and we're investing it in our future by increasing our R&D efforts, all while staying focused on driving sustainable efficiency gains throughout the organization.
On Slide #4, you'll find a summary of our quarterly sales trends.
As I mentioned, total sales grew 3.6% and organic sales were up 1.7%.
We've now posted 2 consecutive quarters of organic sales growth and working to execute our strategy to continue this momentum and drive consistent organic growth for the rest of the fiscal year.
Moving on, Slide #5 is an overview of our gross profit margin trending.
Our gross profit margin was 50.3% this quarter, which was up slightly from the first quarter of last year.
Strong performance in our Identification Solutions business, along with efficiency gains throughout our global operations are more than offsetting pricing challenges in certain product categories.
On Slide #6, you'll find the trending of our SG&A expense.
SG&A was $100.1 million this quarter compared to $98 million in the first quarter of last year.
This increase was primarily due to foreign currency translation, along with investments in selling resources in certain businesses.
We continue to remain diligent on delivering efficiencies throughout our SG&A structure so that our increasing revenues can help fund our long-term growth initiatives while also delivering accelerated bottom line growth.
Slide #7 illustrates our increasing investments in R&D.
As you can see, there's been an increase in both R&D as a percent of sales and in absolute dollars.
We believe that a steady stream of highly innovative proprietary products that add significant value to our customers is critical to our long-term success.
Again, R&D was up 15% this quarter, and we expect to see increased spending throughout the balance of this fiscal year with our full year F '18 R&D expense expected to be up 10% when compared to fiscal 2017.
Slide #8 details our diluted earnings per share, which was up 11.4%, finishing at $0.49 this quarter compared to diluted EPS of $0.44 in the first quarter of last year.
Turning to Slide #9, you'll find a summary of our cash generation.
We generated $34.7 million of cash flow from operating activities this quarter, which equates to 134% of net earnings.
This compares to $34 million in last year's first quarter.
We continue to approach each decision with a cash-focused mindset and expect to consistently generate free cash flow in excess of net earnings.
Slide #10 shows the trending of our net cash position as well as a summary of our debt structure at the end of the quarter.
At October 31, we're in a net cash position of $47.7 million compared to a net debt position of $49.7 million at this time last year.
As we look at deploying our cash, our capital allocation approach is disciplined and patient.
First, we use our cash to fund organic growth opportunities throughout the cycle, which includes funding investments in new product development, IT improvements, capability-enhancing capital expenditures, et cetera.
Second, we focus on returning cash to our shareholders in the form of dividends, which we've consistently increased every year since going public.
After funding organic growth investments and dividends, we then patiently deploy our cash in a disciplined manner for acquisitions where we believe we have strong synergistic opportunities.
And we use our cash to improve shareholder returns through opportunistic share repurchases.
We currently have 2 million shares authorized for repurchase.
Overall, our cash generation is strong, our balance sheet is strong and we're focused on driving long-term value to our shareholders through our disciplined allocation of capital.
Slide #11 summarizes our guidance for the full fiscal year ending July 31, 2018.
Our full year diluted earnings per share guidance remains unchanged at $1.85 to $1.95.
Included in our F '18 guidance is low single-digit organic sales growth, which will be driven by the ID Solutions business.
Our guidance is based on foreign currency exchange rates as of October 31, 2017, which should be a slight tailwind for the full fiscal year.
Incorporated into our full year guidance is an increase in R&D investments of approximately 10% compared to fiscal 2017 and an income tax rate in our historical range of 27% to 29%.
Offsetting the investments in R&D are ongoing efficiency gains in our manufacturing facilities and in our SG&A functions.
We'll continue to invest in sales-generating resources while tackling the back-end processes within our selling functions with the goal of improving every customer's buying experience while providing a more cost-effective delivery model.
We will also stay focused on reducing G&A expense as we have opportunities to (inaudible) additional efficiencies in our admin structures as well.
Other key operating assumptions included in our guidance are unchanged, with depreciation and amortization expense of approximately $26 million and capital expenditures of approximately $30 million.
Included in our capital expenditure plan is approximately $10 million for the purchase of certain strategic facilities that we currently lease and the remaining $20 million is primarily for enhancements to equipment to improve our capabilities and drive efficiency gains.
We're not anticipating any restructuring charges and we're not excluding any onetime items from this guidance.
I'll now turn the call back over to <UNK> to cover our divisional results and to provide some closing comments before turning the call over to Q&A.
<UNK>.
Thank you, <UNK>.
Slide #12 summarizes the Identification Solutions first quarter financial results.
Organic sales increased 2.9% and foreign currency translation increased sales by 1.3%.
In total, IDS sales increased by 4.2%, finishing at $209.7 million this quarter.
Organic sales in EMEA and Asia increased in the high single digits while organic sales in the Americas region were effectively flat this quarter.
Sales in Asia were led by China, which increased organically by nearly 15% compared to last year.
We continue to win new projects while driving increased sales from our existing customer base.
Organic sales growth in our IDS business in EMEA continues to be driven by Western Europe.
I'm proud of the entire European team and their ability to consistently execute our strategy, which has resulted in increased sales on a per day basis for the last 4 consecutive quarters.
In the Americas region of IDS, sales grew in the mid-single digits in Canada and Mexico, were flat in Brazil and declined slightly in the U.S. We realized growth across most of our traditional product categories, with our strongest growth in our product identification and our wire identification product lines.
Sales growth in the U.S. industrial market was offset by a decline in organic sales in our health care product line.
We continue to face pricing pressure due to factors specific to the health care market, from the consolidation of group purchasing organizations and large health care companies to the uncertainty presented in the legislative direction of health care in the U.S. We're addressing these issues through a continued investment in R&D with a specific focus on products that help our customers improve their efficiency and mitigate risk related to incorrect data and treatment errors for patients.
For example, this quarter, we launched a new skin marker that improves the clarity of mammogram test results at a more effective cost price point than current solutions in the marketplace.
We have more product launches planned for this fiscal year that we're excited to bring to our customers to help solve their problems and drive value for their organizations and their customers.
Within R&D, we continue to improve the process by which we select and develop new products, be sure that we're spending our R&D dollars efficiently and bringing more products to market on a consistent basis.
We're leveraging customer insights into new product launches and updates.
This coming year, we'll have some exciting new printers and lockout tagout products planned that we believe will bring to our customers unique solutions that solve their problems.
The IDS segment finished the first quarter with $35.8 million in segment profit, which is an increase of 8.4% over the first quarter of last year.
This team has consistently increased segment profit over the past 2-plus years, which is a direct result of the focus on increasing organic sales as well as a focus on operational excellence that we've been working on since I arrived at <UNK>.
As a percentage of sales, segment profit improved to 17.1% this quarter compared to 16.4% last year.
Looking ahead to the full fiscal 2018, we expect low single-digit organic sales growth for IDS, and we expect segment profit to be in the mid to high teens as a percentage of sales.
We expect to continue to incur additional expenses from our investments in R&D while efficiency activities in our facilities and throughout our SG&A structure should continue to provide benefits that will more than offset our innovation investments, allowing us to continue our trend of strong financial performance.
Turning to Slide #13, you'll find our Workplace Safety review.
Sales increased by 1.9%, which consisted of organic sales decline of 1.4% and an increase from foreign currency translation of 3.3%.
When looking at our WPS business, we have 2 regions that performed well: Europe and Australia.
Our third region, North America, which is just under 35% of the total WPS segment revenue is where we struggled, but we're definitely improving.
Organic sales increased in the low single digits in our European business this quarter, continuing the trend of low to mid-single-digit organic sales per day growth that we've maintained for 15 consecutive quarters.
In Europe, one of the major drivers of this growth is online sales, which increased in the high single-digits this quarter and now makes up more than 20% of total sales in the region.
Our business leaders in Europe continue to deliver on their strategy and grow sales, especially through the digital channel.
We face pricing pressures in Europe just as we do in North America, but we've been able to make up for these challenges through operational efficiency gains and improvements in our SG&A cost structure as well as through partnering with our customers to fully understand their needs and providing a set of complete solutions for them.
Our Australian business increased sales in the low single digits this quarter.
We're seeing progress from that drive to bring our diverse product offering to many different industries in Australia while reducing our cost structure to improve profitability in this business.
Australia has now increased organic sales per day for 4 consecutive quarters.
Organic sales in North America WPS business declined in the mid-single digits, but showed improvement as the rate of decline slowed throughout the quarter.
Our average order size has increased and sales of our more proprietary product offerings improved.
Digital sales continued to increase and grew in the high single digits over the first quarter of last year, but this has not been enough yet to overcome the decline in catalog sales and return the business to sales growth.
Pricing pressures continue to impact this business and are compressing margins in our less proprietary product offerings.
We are continuing to take actions to return the WPS business to growth through 3 priorities.
First, we're working to improve the buying experience for our customers so that it's as simple as possible.
Building our mobile presence remains essential to delivering on this aspect of our strategy.
We must position ourselves to capture the shift to mobile as it continues to occur.
Our mobile sales are still a relatively small portion of our overall sales, but sales in mobile devices are increasing every month due to the improved capabilities of these sites.
Second, we're increasing our customer interaction to provide more value than simply fulfilling orders.
This allows us to understand what our customers are dealing with from a safety and identification standpoint and to better serve those needs by offering our compliance expertise and complete solutions.
Third, one of our strengths is our ability to customize and quickly turn orders around to our customers.
So we're improving our portfolio of products by increasing more customized and proprietary products and services that our customers value.
Meanwhile, we've continued to address our cost structure not only in North American business, but globally throughout the entire WPS segment.
To compete effectively, we need to ensure that our processes are streamlined to reduce the cost to process orders as well as reducing our structural costs.
First quarter segment profit in the WPS business was $6.4 million compared to $6.5 million in last year's first quarter.
As a percentage of sales, segment profit was 8% this quarter compared to 8.2% in last year's first quarter.
The decrease in segment [to] profit and profitability was due to the decrease in sales volume this quarter, but we continue to take actions to address our cost structure and take advantage of efficiency opportunities.
For the full year, we expect the global WPS business will have approximately flat organic sales and that segment profit will continue to be in the high single digits as a percentage of sales.
Fiscal 2018 is off to a good start, but we definitely have more work ahead of us.
We need to turn around our underperforming businesses, and we must continue to drive operational excellence throughout our organization.
We expect to continue to face pricing pressures in both the WPS business as well as our health care product line this year, which means that we must keep our innovation engine running and to launch new products in efficient and effective manner in order to drive sales growth.
We've improved our operations, and we continue to push decision-making further into the organization, which has resulted in increased ownership and accountability at every one of our global businesses.
We're simplifying our organizational structure and are constantly working to eliminate nonvalue-added activities that are not a part of new product development and manufacturing our products or directly in support of those efforts.
I'm pleased with our progress and our start in fiscal 2018, but we have to keep pushing for more as an organization.
The future is bright for <UNK>, and the entire <UNK> team is excited and motivated to exceed our goals and to continue to deliver improved results for our shareholders.
I would now like to start the Q&A.
Operator, would you please provide instructions to our listeners.
Sure, Joe.
If we look at our philosophy, it isn't changing.
However, as you know, having followed us for a long time, we came from a position, years ago before I got here, of regular volume acquisitions, particularly competitors and market share acquisitions.
We fundamentally don't believe that is the best way to develop a high-powered growth engine with high profitability.
I fundamentally believe rather that as we look at acquisitions, we need to think about them as an opportunity for us to bring key technology into the corporation that we can't develop in a timely and cost-effective manner ourselves.
Those acquisitions need to be positive both for the people we're acquiring and for our organization.
And really, I always like to say 1 plus 1 really does need to equal 3.
And I know a lot of people will say that.
But in the results, it really needs to be from adding something that the company truly doesn't have that will really continue to help us be a differentiating presence in the marketplace.
So yes, we absolutely will be acquiring in the future, but it will be technology based.
We are not setting any expectations for dollars of acquisitions per year.
What we are expecting within our organization is to make sure that we're internally very knowledgeable of the technology road maps, where we need to head, what we need to acquire and that we work with companies that we believe would be great fits, so that when there is a good time for them and for us, that we can quickly and effectively acquire them in a very positive manner.
What that does mean, though, is that we aren't looking at temporary issues as much as we're looking at the long-term from our acquisition base.
That doesn't mean we won't acquire in the near to mid future.
It does mean if we don't, it's because the opportunities aren't there that we are already targeting and looking at.
Now let's talk about stock repurchase as an example.
Our philosophy, once again, hasn't changed on that.
We do not believe in program buys.
We do believe that there are price points that when the market has a significant disconnect with the intrinsic value as we see it, that we will move into the market.
And as you know, since my tenure, we have done that.
But as you know, up to the reporting [cycle], we certainly haven't done that recently.
That reflects what we believe is a good connection [to] the marketplace and not necessarily a disconnect.
But we do stay actively aware of the price and our values, and we want to make sure as a result of any buybacks that we continue to return to our shareholders outsized gains.
As far as our third factor that we work with, I mentioned, is dividends.
We're quite proud that we've increased those 32 years in a row, literally ever since we became public.
And that is something that we keep in mind as we look each year at our dividend approach and whether we want to increase them or not.
I'm quite excited about our future.
I'd like to say very few companies today are positioned in the strength position we are.
And that will allow us to make key decisions at the right time to really drive true differentiating value to our shareholders.
That flexibility and that power will give us an amazing opportunity, not just in the short term and medium term, but in the long term.
Thanks, Joe.
So first of all, yes, we have certainly faced challenges.
We believe it's fundamentally a strong business in the long term.
It fits in our identification space quite well.
One of the areas that we've really been focused on in that business but are farther behind in the curve than we are in the other parts of IDS is developing the key new products that, that segment needs and wants.
We are very excited, though, about our pipeline of products.
That said, we have said we'll continue to face some pressures in that space, as we said ---+ I said in my opening comments, throughout the fiscal year as really there is a major consolidation effort and a push effort within that market space as we look at both the supply channel, but also the actual end users, the hospitals themselves are continuing to consolidate.
And that always provides both challenges but opportunities.
And we believe we've actually won some good opportunities, but it takes time for that revenue to develop from those.
But very clearly I want to state, it's a long-term opportunity for <UNK> as we develop the key products, as I mentioned some of them coming out that are both mitigators of risk and mitigators of cost.
Those we feel are 2 major elements in health care that no matter what comes out of legislative changes, will always be crucial.
If we can make sure we're providing our customers and their customers with a safer, better environment while, at the same time, doing that at price points that are below current solutions, it's an absolute win.
And as I said on the mammography, that's a great example of the products that we're coming out with that do both in effective manner.
So I feel very good about what we're doing and why we're doing it in that market space.
Yes.
Joe, this is <UNK>.
I can big picture, anyway.
First of all, this business is actually very strong.
It is obviously a quite profitable business as well, but the margins are below that of the IDS average.
And frankly, they have been since we bought them in December of 2012.
So we haven't seen major changes either direction.
Sure, Charley.
As we take a look at WPS, we are seeing our proprietary products really being the segments that we're growing.
We take a look at a lot of opportunities that we have where we can create total solutions for our customers.
And that's something that's a great strength.
We're viewed by our customer base as experts.
And I'm not saying that because we believe it.
I'm saying that because that's the #1 response we get from our customers as to why they do business with us and why they like working with us.
They're confident that we're not just selling more product, we're helping them solve their problems.
And whether it be in OSHA areas or just non-OSHA areas of compliance and safety, we are absolutely driving a solution that will make them a better, safer and more compliant organization.
So if we can give a proprietary solution or, more importantly, a complete solution to our customers, that's where we're seeing more of our growth.
Charley, I'd say we don't break that out specifically, but we're absolutely driving more growth in that area.
So we do expect and will expect to see that to continue to grow as a percentage of our revenue.
I wouldn't read anything into that.
I think we take parts of our organization, and we will create a large global focus.
Once we believe it is part of our DNA, we expect to continue to drive those areas.
We do that in a lot of our metrics and expectations.
That's an area where we needed a major shift in philosophy and structure.
That shift has taken place.
But to be clear, we expect it to continue as part of our regular cadence to take place within the normal functions of the businesses.
Sure, Joe.
As you heard in my comments, we're extremely pleased with our European and Australian businesses.
So to hit that path to flattish, we do expect them to continue their strong performance, and that is not just a strong short-term performance.
They've shown consistently that they're performing very well as organizations.
So we have every confidence based not only on their history, but more importantly, on the products and the efforts they're putting forth in marketing and in really positioning themselves that, that will continue.
So that's a key criteria, but one that we are very confident.
So the third leg of that stool, the North American business, we did end up performing about what we expected for the quarter.
And we actually performed in the way that we expected in that we improved throughout the quarter.
And that leads us to have confidence that the trajectory we're on is the correct one, the approaches we're making in the market space are the correct ones.
And we see through the quarter indications that the path we've outlined for the year will get us to the point there, where the entire business will be flat for the year.
We have excellent product releases throughout the globe.
Europe doesn't have the health care mix that North America has, so that's the difference that you're really going to see in the businesses.
They certainly are a strong team, 15 great quarters of success.
We continue to see that in the future.
But fundamentally, we're offering products that our customers really need and want, and that's accelerating both many of our printer-type products, but then the consumables that we value and they value continue to grow as a result of our printer platforms growing as well.
That said, that's happening in North America in that space as well.
But as I said, we don't have the offset from health care.
Yes, I can handle that one.
As we look at our SG&A, well, first of all, we were up versus last year.
The biggest driver of that was foreign currency.
So we went from $98 million to $100 million, and the vast majority was foreign currency.
And when we talk about investing in sales-generating activities, we're effectively talking about people.
So we're talking about additional marketing folks, we're talking about additional sales folks.
And it's really all across the board.
So that's really what it comes down to.
And it's proportional to our sales growth in those businesses.
We have a strategy for the number of salespeople we have in addressable regions, and we are pretty well marching exactly along that strategy.
Thank you.
I'd like to leave you with a few concluding comments this morning.
We've had a solid start to fiscal 2018.
We continue to grow sales organically in our IDS businesses, and WPS is steadily improving.
We're making up for pricing pressures through efficiency gains in our manufacturing processes, and we're continuing to identify opportunities for savings in our SG&A structure.
All of this while continuing to increase our investment in R&D by 15% this quarter and growing our pipeline of innovative new products that add value to our customers and make us stand out from our competition.
We're continuing to focus on improving the businesses that are not meeting our expectations, which includes our WPS business in North America, and we're starting to see improvement.
The entire team is focused on identifying efficiency opportunities.
We're thinking long term but acting short term to set ourselves up for increased organic sales and achieving permanent, sustainable cost reductions.
Through our focus on developing innovative new products, providing the highest level of customer service, driving local ownership and accountability and consistently pushing for efficiencies throughout the company, we're creating a winning culture that will enable us to achieve our goals and deliver consistently improved results for our shareholders for years to come.
As always, if you have questions, please contact us.
Thank you all for participating today, and have a great day.
Operator, you can disconnect the call.
| 2017_BRC |
2016 | VTR | VTR
#No.
I think it is ---+ I am glad you asked the question because what has not changed if we look full-year is $500 million of dispositions and $350 million of acquisitions, that is the same from our last guidance.
We expressed the acquisitions in the press release as $200 million incremental, which is from here as we did $150 million in the first quarter.
And so, that $350 million is just kind of a timing issue of when that money is being spent.
The balance is fungible in that we can talk about either redevelopment or we can talk about debt reduction.
It is simple to understand that we have approximately $300 million of gross debt reduction inherent in that forecast if we have $500 million of dispose, $200 million of incremental acquisition the balance will be debt reduction.
So that is the math, but redevelopment hasn't changed either.
Yes, and the key point is that we also generate cash flow which is fungible as a source as well, and so ---+.
Right.
Which is a partner to that.
You should feel we are very consistent with what we said before.
Absolutely.
Right.
Well, first of all it is important to highlight that that real estate tax charge, which I identified, is in the reported results through the expense line in the quarter.
And therefore you need to adjust that out if you are looking at a more underlying performance.
And that is in line with revenue and roughly in that 4% range as you highlight.
Within that clearly there have been wage pressures, whether of minimum wage or as we have shortages of nurses or whatever else.
But that comes right back to the need to drive our rate in part and parcel.
Yes, and it is consistent with the guidance that we gave at the beginning of the year.
Very consistent with the guidance.
And so holding margins through rate, covering that expense pressure and at the same time driving cost productivity importantly as part of that through operational excellence is inherent in holding that margin for the full year.
Well, it is nice that we were able to acquire the Atria portfolio when we did which had as its largest component the New York MSA, which has been a great market for us.
And as you point out, we do have two high-quality developments ongoing, both will be operated by Atria, one in Foster City in the San Francisco MSA and one in Palm Beach County, obviously both attractive areas.
And we continue to look at development and redevelopment opportunities with Atria and others in all of these markets.
And would feel positive, frankly, about if we found a good site in any of these dense markets to do a development that we had confidence in.
Our bar on ground up development, however, is very high.
And so, we want to make sure that we are really underwriting it carefully and have confidence in the outcome.
And that is why we have just kind of the MOB in downtown San Francisco with Sutter and these two senior housing developments in these great areas with Atria ongoing right now.
Well, thank you for the compliment.
It didn't always feel like it at the time, but hopefully in retrospect it is a very good track record of disciplined capital allocation by our team.
Look, I mean what gets us excited at Ventas is making money for our stakeholders.
And that has come and will come in many different forms, but that is what gets us excited.
And that is what we are going to continue to drive towards.
Well, we think we have a high-quality diverse portfolio with leading operators in our industry, the Brookdales, the Holidays and so on.
And the portfolios are well underwritten with credit support and the assets, as <UNK> said, are growing EBITDARM.
And so, we feel we are at good level of coverage that is market-based or above market base.
And with a reasonable CapEx imputed we are above a 1.0.
Probably closer to a 1.1.
And so we feel good about it.
Yes, yes.
I think that is a really good comment because over the years there has been I think a lot of misperception amongst investors that one type of investment, call it SHOP, has risk and one, call it triple net, doesn't have risk and so on and so forth.
When we do underwriting of any asset that we are acquiring, at the end of the day those assets have to produce cash flow.
And so that is what we are focused on always first and foremost.
And then along with it in all these areas, is it a leading operator, what is the asset and the management team's position in the marketplace.
Can we provide additional structural support in the case of triple net and like guarantees and security deposits and so on.
But at the end of the day we are looking for good assets that are going to perform through good operating partners and that is true regardless of structure.
So you make a good point.
And I think we have done that successfully.
Yes, good question.
Look, I think bundled payments are going to help hospitals, let's start there.
And that was of course one underpinning of our hospital thesis and investment as hospitals control more of these dollars and patients.
In so far, again, these just started in the 67 markets on hips and knees in April of this year.
Kindred has said that as far as this project goes it is going to have minimal impact they believe.
And in part I think they are using this new project to prove out that they are the best positioned post-acute provider in the country who can deliver really good post-acute care, limit readmissions and do so for a reasonable cost.
And that is of course the providers in post-acute who are going to thrive in the future.
So ---+ but there is ---+ there can be as part of these trends some evidence that some patients will go directly from the hospital either to senior living frankly or to home health.
And that is a trend that has been going on for some time and will continue.
But again, the skilled nursing guys have a role to play in the post-acute delivery of care and there are plenty of these patients, believe me.
Plenty of people are having hips and knees replaced.
And so, hopefully there are enough patients for everyone.
Yes.
I mean I think there will be winners and thrivers and consolidators like Ardent and others like HCA.
But again, they are sort of getting the payment in the bundled payment and they are paying the post-acute providers.
And so, we believe that the hospitals will do well and the post-acute providers who can deliver quality and do so at a low cost and limit readmissions are going to get more market share.
I am so ---+ thank you for asking that because that is something we talked about and we are happy to answer.
Which I am assuming is why is it lower.
And it is really timing if you look at it.
We had a number of things, particularly in the accounts payable line that in prior years ---+ if you compare to prior year we had the Kindred fee and other fees we have referred to in the first quarter which benefited cash flow in the first quarter of roughly $40 million.
Of last year.
Of last year.
To bring it back, typically Q1 is an outflow just seasonally from a timing point of view on the payable line.
So, last year it was really more of an anomaly as far as that goes.
And the other one is really timing around interest payments on bonds that are flowing to interest payables.
So they are really timing issues, <UNK>, but it is a good catch, absolutely.
So you should see that turn around to the balance of the year.
We always pay attention to cash flow.
Yes, I don't think you should be so focused on flu solely because there is a number of factors.
Clearly that, as we have said, all else equal is a tailwind.
You have a number of factors that are impacting occupancy this quarter.
We talked a lot about rate.
Certainly the rate is intentional and is driving the majority of that.
There is also an impact of the new units coming online and affecting occupancy, as I said in my prepared remarks.
So that is coming through that line as well.
And again, in line with our expectation.
So it is really a combination of factors where it is really hard to pull out any one.
Well, I would say that obviously when we look at rents we are looking at it on an effective rent basis.
There are targeted markets, for example, Brookdale has talked about it where they are providing concessions in some cases that they used after the Emeritus merger.
And a lot of those Brookdale has said are ---+ they expect to burn off and not be replaced during 2016.
So that would be one example.
No, we are driving rates.
No, quite the contrary, we are going the other way.
As I said, we are driving rate, not discounting.
And the NIC data would suggest in terms of rate growth that similarly across the industry there is good great growth.
So hopefully others are seeing the same which is a great value proposition in senior housing.
Right, I would describe it as a modest sequential decline.
We talked about 10 basis points in terms of units under construction ---+ so we are certainly not doing the touchdown dance yet on that.
I think where is it headed from here is a good question.
We don't have a lot more information than you do.
I think everybody is starting to understand what is out there, there has been a lot of talk about supply clearly.
And so, lenders and developers and everybody else taking note we hope is what is going to happen but only time will tell.
We have no evidence to suggest that is true.
Okay, so, most of the change in coverage is due to the fact that rent went up significantly in the fourth quarter of last year.
So we think that is a good thing.
You want to have good coverage but you don't want to have excess good coverage.
You want to hit that optimal point.
And yes, most of our 4% of skilled nursing is with Kindred, we have some with Genesis as well.
And look, I think what you are going to see, as we have talked about over time, is we have very strong coverage at 2 times.
You are going to see I think some continued pressures on the SNFs business.
And we are in a great spot with our partners who have credit and who are leading operators to work through those changes.
And we deliberately retained this portfolio because we believe in it.
Yes, good observation.
And again, happy that we acquired our MOB portfolio, which is very high-quality, again, in that 2010-2011 time period.
I think what drives people to really like MOB is that they are a low-cost setting, you see the demographics and the utilization statistics with the baby boomers and again the 10,000 turning 65 every day.
You see the Affordable Care Act which is improving the insured population in many states.
And then what you are getting as an investor is you are really getting above ---+ even at relatively low cap rates you are getting above core returns with core like characteristics.
Very reliable, consistent, steady, financial assets.
And in this global thirst for yield where we talked about why people like US real estate assets, that is a very attractive value proposition and I think that is why you are seeing all these new entrants and a lot of interest in this asset class.
Well, in the UK I think what ---+ we have a small senior living portfolio and then a very nice public partner in Spire who is in the hospital business (technical difficulty) triple net lease.
And we have triple net leases frankly on both segments in the UK.
I think what we are seeing there in the private pay as well as the more long-term care business is that there are changes in rules and regulations that affect staffing.
And that is in fact putting some pressures on the operators there.
Our portfolio has been doing well, it is a small portfolio that we have grown and we like.
But I think on a larger scale basis for both the government reimbursed and the private pay there are some trends there that are compressing margins.
Yes, well thank you very much.
I will thank all my colleagues at Ventas for contributing to delivering great results.
And I thank all of you for your interest in our Company and your support of our Company which we appreciate greatly and we look forward to seeing everybody at NAREIT in June.
Thank you.
| 2016_VTR |
2016 | ADS | ADS
#Thank you.
I would say three-quarters of it is the recovery normalization and then the tiny piece left is just the normalization.
I would agree with that.
If you look over the last three years, <UNK>, we have seen our gross losses move ---+ and this is over a three-year window ---+ 20 bps and that 20 bps is all due to seasoning.
For sure.
I think that ---+ and you will see that in the fact that we are roughly 80% private label, 20% co-brand.
The shuffling or the competitive pressure that you are seeing is really on the co-brand side.
That is where ---+ let's face it, you are running into the buzz saw of the big banks who are looking to grow balances and the best way to grow balances is certainly not through private label, right.
They're tiny balances, but through the big co-brand balances.
And so what we are seeing out there is the pricing on co-brand deals, the big Visa, MasterCard balances, which are five times, six times what our private label balances are, it's getting incredibly competitive and as a result we've backed off in that area because we don't really need it.
What you will find is most of our co-brand stuff is an added product to an existing private-label client.
So to answer your question, the co-brand space is not an area where we think that the pricing makes sense.
In terms of the private-label stuff, that is where you get a lot more focus on the card being viewed as purely the loyalty tool, which gets into the data and the digital and that's where you get the Conversant discussions beginning to come in and the Epsilon discussions.
That's sort of our sweet spot and the more assets we bring on the digital side, like a Conversant, the better off we are with those businesses.
And, frankly, the sale on the private-label side is more a sale of developing a loyalty program with all the digital channels attached to it.
And that's where we don't really run in the type of pricing issues that you run in elsewhere, and that's where we're going to stay.
We will continue to be active with it, <UNK>.
We will slip it to our second priority versus our primary in 2015.
So it will slip behind M&A.
So it will be somewhat consistent with what we've done in the past, M&A first; buyback second.
It does incorporate some.
As you can see, we gave a range on share count.
Obviously with the market conditions being where they are, we've already been active during the course of the year.
It does not assume the entire share program being used.
It assumes basically what we have already done for the most part.
And you are talking about the overall business.
I think it's going to be fairly consistent with what you saw in 2015 where card services always had the ability to grow a little bit quicker.
You are getting good traction with Conversant.
We are assuming basically high single-digit growth for 2016.
Could do a little bit better based on the developing pipeline.
BrandLoyalty, if you get some traction in the US, that could be beneficial to us.
On the downside, we've talked about it.
Canada looks rough.
As the mix shifts, it reduces the revenue per mile redeemed, ergo, it reduces our profitability.
Epsilon, I think we have pretty good guidance.
Mid-single-digit revenue and EBITDA growth seemed solid.
Could be a little opportunity there as we get traction in our marketing tech, but I think that's sort of middle-of-the-road.
Upsides are always if we deploy the buyback program, take our share count down.
Upside would be we deploy our free cash flow and we buy a small tuck-in acquisition that's immediately accretive.
That's kind of the way I would look at it.
From a guidance standpoint, what <UNK> and I always try to do is do something middle-of-the-road.
Recognizing there could be upside, there could be downside, but we usually try to leave enough there to make sure if there's a few unknowns, we have the ability to cover it all in our guidance.
Think of one-third, one-third, one-third It's not head-on like the vintages and private label.
Maybe it's a little bit faster.
But you are going to see ---+ actually if you sign it in 2015, you will actually get about one-third of it up and running in 2015.
So current year, you will get one-third, the next year you will get up to two-thirds and a couple years out, you will get the final one.
I really don't have anything burning at the moment, <UNK>.
I would say we are probably just using some of the capital, and if we find something broadening the footprint in Europe, I think it's an interesting time over there.
We've seen with BrandLoyalty that's been a very helpful area for us, so something in that side of it to help bulk up core Epsilon.
And then we will see how the year plays out.
And if there's nothing there, we will go more heavily on the buyback.
Yes.
Thank you, everyone.
Good-bye.
| 2016_ADS |
2016 | MYGN | MYGN
#Yes, I think both of those contributed.
The LabCorp agreement gets at one portion of our strategy which is broadening access to the test.
As you are aware, only about 50% of rheumatologists order the test and for those that don't order the test, the majority of those is attributed to the fact that they did not have access to patient service centers.
And so that's what the LabCorp collaboration allowed us to integrate with LabCorp and have access.
And so a portion of the increase was certainly attributed to that broader access.
And the practice integration program is driving increased frequency in physician practices.
For physicians that use Vectra, generally they only use Vectra on about 9% of the appropriate patients and so there's ample opportunity to drive deeper in those.
So equally those contributed to the growth that we saw in this quarter.
And I think what's important is that the practice integration program really was only in its pilot phase.
And now that we've rolled that out across the nation in the third quarter, we're expecting beginning Q4 but then probably more even so in FY17 to see the impact from that broader practice integration program.
So both are important.
Both have contributed significantly to the 18% volume growth we saw in the quarter.
This is <UNK>, I'll take the question.
I think the dynamics that went into our guidance as we laid out on the last call with respect to some of the puts and takes with respect to Prolaris' back pay, the Vectra CPT code changed.
And then also the United impact that we saw in the current quarter was a factor in that.
I think those were the things that we looked at.
When you look at our business on a sequential basis and we see growth in the hereditary cancer business, I think that's what would be expected in our fiscal fourth quarter.
From a companion diagnostics perspective, as we've always said, ovarian cancer patients which were the initial indication for BRAC CDX were always within guidelines and therefore we believe that was a cannibalization of our existing business.
As we look at the impact again, first it is important to note that virtually every payer had some preauthorization requirements.
In fact, some of those preauthorization requirements are very similar to United.
So this has really been the trend in the industry for at least a decade.
Because everybody ---+ all payers want to make sure that only appropriate patients are being tested.
And so we, long ago, put in some very expensive quality control measures to ensure that only appropriate patients were getting tested.
And in fact we published data on the extent of our quality systems and how effective they are at ensuring only patients generally that meet NCCN criteria are being tested.
So, for us this is really nothing new.
We built up the processes and the relationships with our physicians in order to comply with all these preauthorization requirements.
Now we do understand from many other laboratories, this is very unique and cumbersome.
And I know for some of them it has posed some challenges but in our view this is just the requirements for engaging in hereditary cancer testing.
As we've look at United, obviously we can look at the work in process for United, how many samples are awaiting release, and we have lots of historical data and current data on that.
So based on those trends and what we've seen through the third quarter as we began to implement these processes, that's why we're very comfortable saying that we aren't anticipating any additional impact from the United process in the fourth quarter because we've already adjusted all of our processes accordingly.
As far as your other question about proactive steps, again because most payers already include some sort of preauthorization requirements, these aren't necessarily unique and so we are always engaging with discussions with our payers and always are offering any information that they may want about the appropriateness of the patients that are tested under their plan.
So I mentioned we published on that, we can and do provide payer-specific data, if they would like to look at that.
And so there's a variety of things we can do to continue to ensure that we are testing appropriate patients.
And so we don't believe that other payers are necessarily going to invoke all this additional paperwork because it's cumbersome for them as well.
But in the event that another payer were to decide that they wanted some additional paperwork, it is not something unusual and we'll be prepared to provide any of the paperwork that we might need.
Thanks.
I think the code you are mentioning ---+ I can't remember the number, because we actually don't use that code.
That's not one we currently use nor is it one we would expect to use in the future.
So I think in this case that doesn't necessarily apply to us.
The codes we use are ones that we've discussed and agreed upon with all payers including both public and private payers and those are the codes that we bill.
I think it's important to note that for public payers, the pricing on our codes is going to be set by the PAMA legislation and in the future that's a weighted median private payer rates which, given our market shares, we would anticipate those to be our rates.
And so that's how we would expect public rates to be set in the future.
And to the extent that private payers look at those rates, those are going to be those median private Myriad rates in the future as well.
So that's how we would expect this to continue to unfold in the future.
I will make a note we've had some questions about PAMA, and for those who aren't aware, this might be useful information, that the PAMA regulations are in their final form.
They are actually in the hands of OMB.
That's the last step before the PAMA regulations become final.
And so typically OMB would review those sometime in 30 to 60 days, and so relatively soon we would expect to see those final PAMA regulations.
And that will dictate whether, in fact, the PAMA prices are in effect on January 2017 or there is some speculation that that may become effective in January 2018.
The last comment I would make is regardless of which scenario occurs, that January 2017 or January 2018, the prices that will be used to set those are going to be prices that are already dictated by our long-term contracts, because even if it's January 2018, those contract prices will be determined, in all likelihood, in January of 2017 to June of 2017 or maybe even March 2017.
So all of those are going to be covered by our current long-range contracts.
So we have good visibility as to what the PAMA prices will be, that will set the public prices and those will be the visible public prices that payers will ultimately see when those contracts come up for renewal in 2018 and 2019.
Thanks, <UNK>.
As you know, as we negotiated these contracts over the last three years, there has been a variety of laboratories out there advertising a wide, wide range of prices, even in the PAMA markets.
And we've been very effective at sitting down with payers and talking about the value that myRisk provides relative to other alternatives that are out there.
Again you have to remember from their perspective that a wrong answer in this industry in this particular application is extraordinarily expensive to a payer.
A false positive means that a patient is going to undergo very expensive interventions that are unnecessary.
And a false negative means that a patient that could've prevented a cancer may very well end up getting a cancer.
And this isn't just for the patient, this is an impact that's felt across the entire family, because generations will live with those wrong answers.
And it's been those very effective arguments that we've been able to make that here's the value that a highly accurate test provides to you and your plan.
Here's what Myriad does that is very different on getting both the sequencing accurate and the interpretation of that sequencing.
And we've been able to very clearly differentiate the performance of our product relative to others that are out there that purport to provide these similar results.
And so we would expect that differentiation to actually just continue to expand.
As I mentioned, our variant data base is growing exponentially.
Our advantages there are actually becoming more pronounced and so many of the arguments that we've made in the past, I think, actually are being accentuated.
The other thing that's important to note is that in the midst of this you also have the FDA that has expressed interest in regulation and that's either going to occur through FDA regulation or legislation.
Either one of those scenarios winds up with the FDA evaluating each of these high risk tests to ensure that all the appropriate claims are being made.
Obviously we have experience with that.
We're the only laboratory-developed test ever approved by the FDA.
They've seen all over our variant processes and we're obviously comfortable in that approval.
And so you need to begin to look at that as a reality in the kinds of timeframe that you're asking.
And the last I'll reemphasize that when it comes to what payers will see, the PAMA prices they will see will be the Myriad pricing because we will be the median for the codes that we use and that's essentially what payers are going to continue to see as the public payer pricing.
So I think when you put all that together it's not that different from what we've faced over the past three years.
And I think we have and will continue to be very successful at differentiating our product and offering the highest value product.
Yes, I think we continue to stick to the capital deployment strategy that we laid out previously with respect to prioritizing R&D first, M&A second and share repurchase.
And our stated goal has been to match free cash flow to share repurchases.
But to your point we don't include share repurchases in our guidance.
So I guess that's all I can really say about that.
It's just that, again, we state that we plan to match free cash flow to share repurchases.
If you want to build it in, that's up to you.
I wouldn't characterize it any differently than what it has been in the past.
It's a market with a lot of companies out there with negative burn rate ---+ burning cash.
In terms of the market dynamics, certainly what's happened recently, I think has probably put a lot more of those potentially in play.
But I wouldn't characterize it as different than what we've seen in the past.
Thanks, <UNK>.
These contracts are all commercial lives and not Medicare Advantage lives.
We generally include those when we talk about the Medicare segment because the coverage decisions made by Medicare are obviously enforced at Medicare Advantage.
So these 28 million were actually in the commercial side.
Some of these are low risk; some are all patients.
We're not going to probably provide that level of granularity nor necessarily payer information, per se.
And some of these could have a value component to those, so there were multiple payers in here and so each of those contracts, as you might imagine, are a little payer specific.
But overall, it was really some very nice progress from our managed-care team just in the last three months.
Great question.
Obviously we only cover a portion of the urologists with the sales team we currently have out there.
We have about 40 salespeople out there.
And so in order to deepen that penetration, it is something that we are evaluating now to see when it would be appropriate to add additional salespeople into that channel so that we can deepen penetration.
Given the level of reimbursement we are starting to obtain, we think it is an appropriate consideration and so we're going through that process as we speak and as we prepare for our FY17 budget.
Obviously at that point as we give FY17 guidance, we can provide some additional color on what the FY17 outlook is for Prolaris.
We've been very pleased with the growth rates we've seen.
You did see in our five-year plans that we had over 30% compounded annual growth rates for Prolaris, so you can see at least from the five-year plans that we made public that we do believe there's opportunity for continued and sustainable significant growth over the next five years.
Thanks, <UNK>.
Good question.
We're going to stay with the philosophy that we used this year.
As everyone on the call is well aware, predicting reimbursement is difficult to do in this environment globally.
And so as we look to provide guidance for FY17, we will stay with the same approach we used, which is that we will only factor in known reimbursement for guidance.
And then we'll characterize, as we did last year, what are upsides and potential downsides to whatever that guidance is that we might provide which, of course, upsides then would be additional reimbursement that we don't have line of sight to.
So we think that's the only reasonable way to address that uncertainty, but at least we can quantify the magnitude of what some of those upsides could be where reimbursement to potentially come for other products through FY17.
Thanks.
This concludes our earnings call.
A replay will be available via webcast on our webcast for one week.
Thanks, everyone, for joining us this afternoon.
| 2016_MYGN |
2016 | SBSI | SBSI
#Thank you, Andrea.
Good morning, everyone, and thank you for joining Southside Bancshares' fourth-quarter and year-end 2015 earnings call.
The purpose for this call is to discuss the Company's results for the quarter and year just ended and our outlook for upcoming quarters.
A transcript of today's call will be posted on www.Southside.com under Investor Relations.
During today's call and in other disclosures and presentations, I'll remind you that any forward-looking statements made are subject to risk and uncertainties.
Factors that could materially change our current forward-looking assumptions are described in our earnings release and in our Form 10-K.
Joining me today to review Southside Bancshares' fourth-quarter 2015 results are <UNK> <UNK>, our CEO, and <UNK> <UNK>, our President and CFO.
For our agenda today, you will hear <UNK> discuss an overview of financial results for the fourth quarter and the year ended 2015, including loan growth, oil and gas exposure in our loan portfolio, an update on our securities portfolio, cost savings, and the Board-authorized stock repurchase plan.
Then <UNK> will share his comments on the quarter and the year.
I will now turn the call over to <UNK>.
Thank you, and good morning, everyone.
Welcome to Southside Bancshares' fourth-quarter and year-end 2015 earnings call.
We had another successful quarter, with net income of $11.7 million.
We incurred one-time expenses in the fourth quarter of approximately $638,000 net of tax related to branch closings, merger-related expenses, and an early retirement package.
For the year ended December 31, 2015, we reported net income of $44 million, a 111% increase over the same period in 2014.
Our diluted earnings per share for the fourth quarter ended December 31, 2015 were $0.46.
Diluted earnings per share for the year 2015 increased 66% to $1.73 compared to $1.04 in 2014.
We reported 34.4% annualized loan growth during the fourth quarter of $192.6 million.
This loan growth was diverse with construction loans increasing $96 million, other real estate increasing $98 million, municipal loans increasing $25.7 million, and commercial loans increasing $14.9 million.
Loans for one- to four-family real estate decreased $22 million, and loans to individuals decreased $19 million.
For the year ended December 31, 2015, we reported 11.5% loan growth of $250.6 million.
Roll-off from the acquired indirect auto loan portfolio during the fourth quarter was approximately $15 million.
Since December 31, 2014, the balance of this portfolio has decreased 48.3% to approximately $80 million at the end of 2015.
Because we are a Texas-based bank, we are continually asked about the oil and gas exposure in our loan portfolio.
I can tell you that it is minimal and it is our intention that it will remain minimal.
Oil and gas exposure in the loan portfolio was 1.34% at the end of the quarter.
At December 31, there were $2.7 million of oil and gas loans classified sub-standard with an 8% reserve.
We did not have any oil and gas loans in non-accrual status at year end.
Loan-loss provision expense during the quarter of $2 million was commensurate with loan growth during the fourth quarter.
Next I will provide a brief update on the securities portfolio.
At the end of 2015, the securities portfolio reflected an increase of approximately $98 million from the prior quarter due primarily to an increase in US treasuries.
The duration of the portfolio at the end of the year was 5 years, up from the prior quarter's duration of 4.7 years.
The average yield increased 7 basis points as premium amortization decreased approximately $530,000 during the fourth quarter due to a decrease in pre-payments.
We anticipate continuing to utilize a barbell approach for our security purchases using US agency CMOs for the short end and US agency CMBS and Texas municipal securities for the longer end.
Our net interest margin of 3.35% remained flat on a linked-quarter basis.
We believe that since 50% of our loan growth occurred in December, and our loan pipeline for the first quarter of 2016 looks healthy, the margins should hold during the first quarter of 2016 or may improve depending on loan growth.
A couple of comments on non-interest expense.
During the fourth quarter, salaries and benefits increased, primarily as a result of merger-related costs, severance related to branch closings, and expense recorded related to an early retirement package offered to 24 of our employees with an acceptance date of January 29, 2016 that was accepted by one employee in 2015.
An additional 15 have accepted the package in 2016 and we currently estimate we will record a one-time expense of $1.3 million net of tax during the first quarter.
We estimate the annual cost savings associated with this early retirement plan will be approximately $1 million net of tax.
Yesterday, our Board of Directors approved a stock repurchase plan that authorized the repurchase from time to time of up to 5% of our issued and outstanding common stock, or approximately 1.27 million shares in open market purchases and privately negotiated transactions at prevailing market prices.
We believe repurchasing shares in a Company we know quite well, Southside Bancshares, Inc, at current market prices, is prudent.
Thank you and I will now turn the call over to <UNK>.
A strong year by any measure, earnings have recovered from 2014.
Our efficiency ratio is moving in the right direction and our return on equity has seen a marked improvement.
Loan demand is especially strong in all of our markets, which is certainly positive.
In fact, loan growth of 11.5% was achieved in 2015, even with the headwind of our indirect auto portfolio rolling off at $5 million to $6 million a month.
That portfolio at year end totaled $80 million.
Fortunately, as <UNK> indicated earlier, our exposure to the oil industry is nominal.
Neither the Austin nor the Fort Worth economy is centered in oil production, and as a result, we have seen no deterioration in either market due to the current pricing downturn.
However, if oil settles below $30 per barrel for a protracted term, we realize that the Texas economy, including the real estate market, may be affected.
We continue monitoring population growth, job growth, home prices, and new housing starts in all of our markets, as these are critical bellwether numbers that give an indication of economic direction and strength.
As we look at 2016, we see the potential for continued solid loan growth, an increase in non-interest-bearing deposit growth, a sharp focus on improving our operating efficiency, and as a result, stronger profitability for the year.
We're positive regarding 2016 and trust that a diversified Texas economy will cushion the impact of any of oil-related slowdown.
With the current Texas bank-stock metrics and our stock price, an acquisition is not as appealing as it once was.
At this time, we will conclude our prepared remarks and open the lines for your questions.
The nonaccrual loan that we put in nonaccrual in the first quarter continues to pay.
We continue to monitor it very closely.
We did not add an additional reserve in the fourth quarter related to that credit.
Like I say, it continues to pay, and all the payments continue to go to the to principal.
So every payment that comes in, it gets a little better.
And in terms of the provision expense for 2016, we are going to continue to reserve like we have been reserving.
Our oil and gas loans will probably continue to monitor those very closely, and if we need to increase reserves on any of those, we will take a look at that, but other than that, we are just going to monitor credits and take a look at them and reserve accordingly.
We have a group of consultants in right now and they are looking at different operations areas.
What we are looking at are trying to become more efficient in certain areas, and so we are just looking at those different areas, and out of that will probably come some cost savings through attrition and that will probably occur the latter half of the year.
But it is primarily in loan operations and on the branch side because of the foot traffic in the branches and things of that nature.
But we expect those cost savings to come through attrition.
On the revenue side, we are looking at some things that they have suggested to enhance some of our revenue-generating programs that we have in place now and then maybe putting some additional ones in place on the non-interest income side.
So we expect that, that probably will begin to generate some additional non-interest income revenue in the second half of the year also.
Yes.
I will probably let <UNK> give you a breakdown on it and he probably has that, but I want to say that probably at June 30, our loan growth was flat, and so it was backloaded the last six months of the year and especially the fourth quarter.
We have been ---+ it seems as though approving loans through the year on a fairly straightforward basis, but the fundings just had been held up, and so it was strange how they just fell into the last half of the year.
The growth generally came out of the three markets and <UNK> may have something that he can shed light on that a little bit more as to where the growth came.
Yes.
The predominant growth came in the DFW area, our Fort Worth markets, and our Austin markets.
Probably about $55 million to $60 million of that loan growth was in the Austin area.
I'm just trying to add it up here.
It looks like about $15 million of it was in the East Texas area and the rest of it was probably in the Dallas-Fort Worth area.
In terms of the types of loans, retail centers were about $45 million.
These are established retail centers, stable cash flows, very good LTVs; multi-family, this was in the DFW area, about $23 million; senior living facility in the DFW area, $15 million; assisted living facility in the DFW area, about $14 million; commercial loans, and these are all in East Texas, about $13 million, and that was fairly diversified.
Commercial real estate, an office building in downtown Dallas, about $15 million, a lot of equity and very stable cash flows on that; a municipal loan in Austin, that one has a permanent school fund guarantee on it; and then a single-family acquisition and development ---+ basically, builders and things of that nature, in the Dallas-Fort Worth area, about $24 million.
That gets you about $172 million of that loan growth.
The rest of it was smaller loans, but I just wanted to give you a flavor for what kind of loan growth was occurring.
There was.
Because we had a lot of ---+ we expect their equity to go in upfront and so there was a lot of front-end equity going in to a lot of these deals and that is what caused a lot of this funding to take place.
But no, we are not projecting 34% loan growth in 2016 (laughter).
<UNK>, we would like to have that, but with the economy a little bit uncertain in Texas, I think we would be tickled to death with 10% loan growth.
Obviously, if it were 12 or 13%, that would be even better, but I don't know that our expectations are quite as high this year.
I don't know that we have seen anything yet, and we are looking for that, because again, you are exactly right, we don't have much oil exposure.
So you look to see where could it come next and we think probably real estate is obviously the thing.
And we are large community Bank and we do a lot of lending around real estate, and so we try to be cognizant of that, and as I said earlier, we just don't see it in Austin or in the Metroplex, and certainly in East Texas, we are not seeing that.
The old East Texas oil field, they are just not doing much pumping out of it at all and so it's just not a factor.
But we watch Austin and the Metroplex like a hawk and so far we just don't see any indication.
In fact, it's just almost counter to what maybe happened in Houston.
If anything, Dallas-Fort Worth seems to be just as strong as it can be.
<UNK>, you may have some color to shed on that.
And one of the things we watch for very carefully, <UNK>, is job growth.
And job growth in Austin continues to be strong, and in Dallas-Fort Worth, it continues to be solid.
It may be down in little bit, but it continues to be solid and so we are watching for those signs, but so far, we haven't seen those.
Probably, we would say, we wouldn't mind going a little bit higher.
It is difficult.
The uncertainty about the economic situation has a lot to bear on that, but I think with what we are projecting, we will see that continue to grow.
We monitor that carefully.
Obviously, we are concerned about that.
We know everything is cyclical.
We understand what oil is doing.
The real challenge is to know what oil is going to be doing a year from now, and quite frankly, our crystal ball, we just don't know, but I anticipate that we are going to continue to see loan growth in that area and that is not unwelcome.
Some of the construction we are putting on is tenant finish out and some of these retail centers in some of these office buildings and things of that nature.
So some of that will go away pretty quickly.
There is an actual structure in place and they may just be doing some tenant finish out in just a portion of the area for tenants that have signed leases on just a small portion of that retail center or that office building.
So it's not ---+ some of that construction is not ground up construction.
We will repurchase right now.
It's accretive to earnings.
As long as it's accretive to earnings, we will be repurchasing.
We're not going to set a price out there or anything, but right now, where it is, we feel like it is prudent to make an investment in our stock.
I will speak to the efficiency ratio.
I feel like that our target is probably mid- to lower 50%s.
I think, with where we came in 2015 that we are well on our way there.
We came in just under 60%, maybe at 59% and some change.
From where we were with the merger, we are pleased with that and we see things moving the right direction, especially at the last couple of quarters.
So that's on target.
I think, our earnings projections bode well for 2016.
We think that it can be an outstanding year for us.
And in terms of ROA projection, I would say it's definitely above 1%.
That is certainly a focus that we have.
We were able to do that last year in both our Austin and Fort Worth markets.
We continue to look for good talented people that can bring something to the table for us.
That will continue to be, like I say, a focus for us in 2016.
We haven't set any target out there for exactly how many we are looking for, but when we see talent, then that is something that we will move on.
<UNK>, did you say trust income.
I am not looking at those numbers, but I thought probably our revenue might have been ---+ is it up.
If I recall that we anticipate our revenue will probably be up about 10% next year.
We expect expenses there to be less than this year, so we feel like the trust operation probably will become more profitable for us.
Won't be significant, like I say, but it is obviously moving the right direction.
We took a severe hit in 2008, probably as a lot of people did, and we have gradually built that back.
So next year, we expect the trust department to add an additional 10% to the bottom line for us.
One second.
Let me send that to you.
I don't have it in basis points.
I am sorry.
I'll send it to you.
Thank you.
Asset quality is strong.
Loan growth is significant.
2016 looks promising.
Thank you for joining us today.
| 2016_SBSI |
2016 | TDC | TDC
#<UNK>, the only potential answer might be around, as you look at it from the customer's perspective, in that there has been such pressure in the US on large CapEx transactions, that I think customers put off as long as they can ---+ adding in big increments.
And it might be centered around, as customers get to the end of the year, there might be budget to do something.
But that's speculation on my part.
There's nothing as it relates to what we're doing, or Teradata is doing, or the sales force or anything else, that's incenting or causing the fourth quarters to relatively speaking, do better than the other quarters we're in.
That's a good question.
Yes, <UNK>, we are going to be reporting it on a ---+ we will show it on a non-GAAP basis.
So it will be excluded, and you will see the impacts of it, in Q1 on our non-GAAP ---+ on our GAAP to non-GAAP schedules.
So, yes, it will be captured separate for the part that we are selling, and not that we're keeping.
Oh no, the part that we are keeping will not.
It will be combined in Teradata.
So we'll go back to the original segments.
It's ---+ very, very small, <UNK>, very small.
We will go back to the original segments of the Americas and international.
Yes, our ---+ as we look at that, it is transitioning through the year.
So you will see more of that impact of that $70 million at the later end, latter part of the year on a run rate.
But at $70 million is our target, to get out, to benefit the 2016 operating income by $70 million.
Again, the cost take-out target that would transition into 2017 is that $80 million to $100 million.
Now you have also the incentive comp, as I mentioned and the merits.
So the net $30 million positive from a cost take-out initiatives will come, as we progress through the year.
For example, we had some of those initiatives put into place here in Q1.
So again, those will flow through the year.
So it's just really on the timing of latter part of the year for that benefit.
Well, the guidance we were giving, is we are not anticipating in 2016 anything abnormal from a floor sweep perspective.
So we are keeping that consistent.
For what we're ---+ as we are looking at that guidance, it reflects what we anticipate, from a conservative perspective, from cloud and subscription on there, <UNK>.
And if we are seeing more accelerated or aggressive actions, with respect to cloud and subscription, we will update it accordingly.
So nothing really unusual, conservative on cloud and subscription, really no major changes from the transformation in 2016.
If I could characterized 2016, 2016 is where we're focused on our cost optimization, our cost structure, to better realign our costs with our strategic initiatives that <UNK> laid out.
And then, 2016, I would characterize it as operating margin expansion, trying to get that 300 to 400 basis points operating margin expansion in 2016, to lay the foundation, and to really fund the transformation.
That is how I would characterize 2016.
<UNK>, regarding new customer wins, so if you look back over the last two or three years, they have been very strong as we have reported on them.
And it's not just for data warehousing, it gets into the analytic ecosystem or big data solutions and everything else, which all drive revenue.
And I think that common theme on the product revenue that's happened in the last couple years, is the customer wins keep going up.
And they are at a very high rate, but most of the customers tend to buy in smaller increments, and start in smaller increments.
And that's been the most recent trend that impacts product revenue.
So if you look at the average dollar size for new customer wins, it's gone down.
The customers are starting in smaller increments.
And then, in the user base, all the customers continue to buy Teradata, but in smaller increments and less floor sweeps.
So absent of change, which we're trying to drive change, in how do we do business as it relates to our core data warehouse and product revenue, absent of change, it would take some of those dynamics to change.
And we are not counting on the way customers are buying, and what the customers prefer, we are not counting on that to change.
We are changing, in how we make it easier for customers to consume and buy Teradata.
And that is what we are counting on to transform ourselves, to get the product revenue growing meaningfully again.
Yes, <UNK>, let me follow up what <UNK> said, and lead into that gross margin, product gross margin, services gross margin.
As <UNK> said, we are making it easier through this transformation, of through our strategic initiatives to have our customers, particularly our larger customers buy and consume Teradata.
Through there, you can have [VPAs], you can have [DLAs], again, all these items make it easier for the customer to consume.
We saw that impact, positive and constructively through in Q4.
But it did have an impact on our product gross margin in Q4.
With that being said, let me lay ---+ let me just kind of reset.
We finished the year at 59.9[%], but there was about 200 basis points for FX and FAS 86 impact.
So it's really 62% versus 65% for the year in 2015 over 2014.
We expect 2016, with these programs, 2016 probably closer to approximate 2015, and going from there.
So we are expecting these programs to be in place in 2016, and having overall product gross margin in that range of [2015].
So that's giving me ---+ a little bit conservative on it ---+ that we have another 200 basis points of maybe movement in that product side.
On the services side, yes, 2015 we continued to invest, particularly in our Think Big big data, and building out the bench strength, and building out the team to take advantage of that.
And that, those costs as you are building out become expense through services.
So we expect services gross margin to improve slightly, possibly improve slightly in 2016.
Okay.
We have time for one more question.
So <UNK>, basically all we are doing is optimizing sales coverage.
So we ---+ the good news is we added a lot of territories over the last three or four years, and we've grew the number of territories from somewhere 300 and something to 600.
Right.
And we have the opportunity to look at, now the time is past, and we have been optimizing them the last couple years, but we have an opportunity to go deeper.
And it's not like you're reducing sales coverage.
You have the opportunity for customer coverage.
You have the opportunity to combine territories, and provide coverage to the same customer base, and I can argue to more customers with less territories.
So just think of it that way.
Our sales specialists and our go-to-market and compensation, no meaningful change there.
We will continue to evolve our go-to-market, where we are in early stages, but that's basically, the net-net as we look at Q1.
So you do get into some changes of account assignments and things like that, and it can have an impact when you do it.
So there's a little bit there in the first quarter.
So listen, in closing, we remain the undisputed leader for on-premise analytics, and we are well on the path to becoming a leading large-scale production analytic engine in the cloud, a leading analytic services company, and a leader in repeatable, analytical solutions across the entire analytical ecosystem.
We look forward to sharing more with you in the future, and I hope you all have a good day.
Thank you very much.
| 2016_TDC |
2017 | PRGO | PRGO
#Thanks, <UNK>, and good morning everyone
Bear with me with my – as you listen to my raspy voice this morning
I helped kick off the 2017 and 2018 cough/cold season this week
Last quarter, the theme I used to describe our business performance was converting opportunities into bottom line results
We are pleased that this theme continues, which is reflected in our performance again this quarter
Each of our businesses have developed a keen focus on execution, action, and capitalizing on opportunities, all of which have provided the foundation of our financial results in the first nine months of the year
These results were achieved again against a challenging and dynamic market backdrop for each of our segments
Now let's turn to slide 10, where you can see our GAAP reporting results for the third quarter
Please reference the appendix for a more detailed reconciliation from reported to adjusted results
I would like to take a moment to outline the effect of the favorable adjusted effective tax rate, or ETR, in the quarter
As you can see in this slide, our adjusted ETR is approximately 12% in the quarter, which contributed approximately $0.09 of upside to our previous guidance
Year to date, our adjusted ETR is approximately 17%, which is lower than our previous guidance
Our ETR guidance has improved primarily first to the utilization of tax attributes supported by the improved business performance in the CHC International segment, and second, improved jurisdictional mix of income across the company
For the third quarter, recall that accounting principles require what is commonly known as annualization of the expected decrease or increase of the annual tax rate to be recorded in the current quarter
Accordingly, the third quarter tax rate is below the expected annual tax rate of 17%, due to this cumulative benefit for the first nine months of the year
Turning to the CHC America results on slide 11. You can see that the net sales in the quarter were $599 million, compared to adjusted net sales of $590 million in the prior year, or growth of over 1% on a constant currency basis
This increase is primarily driven by higher net sales in the GI category, in addition to strong performance in our Animal Health and Mexico businesses as compared to the prior year
New product sales in the quarter were $13 million, driven by the store brand launch of Nexium, which launched late in the quarter
Offsetting these positive effects were lower sales primarily in the smoking cessation and contract categories, in addition to pricing pressure in certain OTC categories
Discontinued products were $3 million in the quarter
For the quarter adjusted gross profit margin was 36.4%, an increase of 100 basis points compared to the prior year
Sell through of higher margin products, specifically in the Animal Health and Dermatology categories, in addition to positive contributions from supply chain efficiencies, offset price erosion in certain categories versus last year
Adjusted operating margin was above 20% for the seventh quarter in a row, driven by gross margin flow through and lower selling and administrative costs due to restructuring actions and timing of R&D investments
The durability of this business is evidenced by the strong operating margin and continued consumer acceptance of store brand products
Turning to slide 12. Net sales grew by approximately 5%, excluding $42 million from the exited unprofitable European distribution businesses and favorable foreign currency movements of $12 million
This increase was primarily driven by higher net sales in the cough/cold, allergy, analgesics, and lifestyle categories, in addition to new product sales of $11 million
Adjusted gross profit margin in the quarter was 51.4% or a 570 basis point increase over the prior year, primarily due to the cancellation of the unprofitable distribution businesses
This segment also benefited from our strategy to insource more production of our branded OTC products, which helped to offset unfavorable effects from foreign currency purchases and a mix of lower margin products sold in the quarter
Adjusted operating margining of 16.4% was driven primarily by gross margin flow through and lower operating expenses, primarily due to the improved sales infrastructure
The year-over-year adjusted operating margin improvement included advertising and promotion, or A&P, investments in line with the prior year
Year-to-date adjusted operating margin was approximately 14.9%
Quarter by quarter, operating margin may vary by an estimated plus or minus 150 basis points from this run rate due to the timing of investments in innovation, A&P, or expenses to build out our back office systems in this segment, as I will discuss in more detail shortly
As an example, the third quarter adjusted operating margin was clearly in the upper end of this range due to seasonally lower A&P spending as a percent of net sales
Saying it differently, if A&P spending in Q3 was the same as the quarterly average percent of net sales in the first half of 2017, adjusting operating margin in Q3 would have been consistent with the lower end of our guidance range of 14% to 15%
Turning now to RX on slide 13. Net sales in this segment were relatively flat compared to the prior year
Excluding the $10 million year-over-year impact of Entocort, net sales in RX grew approximately 4% compared to the prior year
New product sales in the quarter were $31 million, driven by the generic launch of Axiron, among other new product launches, which are offset partially by price erosion at the lower end of our previous guidance of 9% to 11%
Adjusted gross margin was 54.9%, as price erosion in Entocort competition offset new product contributions versus the prior year
Adjusted operating margin for the segment was 42.4%, consistent with the same quarter in the prior year due to lower selling expenses driven by the restructuring of the specialty pharma salesforce and timing of R&D investments
Excluding Entocort, adjusted operating income grew an impressive 10% in the quarter to $103 million
The strategy in this segment of driving new product launches and proactively managing our cost base in the difficult to manufacture extended topicals market delivered solid results again this quarter
Now turning to slide 14. I will provide an update on our cash flow from operations and balance sheet
In the first nine months of the year we generated $482 million in cash from operations
Excluding an unusual tax payment of $74 million and cash restructuring payments of approximately $48 million, year-to-date cash from operations would total $604 million
Our team continues to focus on cash flow generation, as operational cash flow conversion as a percentage of adjusted net income for first nine months of the year was 116% excluding these two items
As of September 30, 2017, total cash on the balance sheet was $776 million, and total outstanding debt was approximately $3.7 million (sic) [$3.7 billion]
As a reminder, we intend to repay approximately $370 million of debt due in December of this year
Including this repayment, our total debt is expected to be reduced by approximately $2.6 billion in 2017. Our debt pay down actions this year continue to increase our financial flexibility, enabling the majority of free cash flow to be available for inorganic growth opportunities and/or returning capital to shareholders
Our combined total debt maturities for the years 2018, 2019, and 2020 are approximately $550 million
We believe that this balance sheet flexibility, coupled with our cash flow conversion, makes us unique in this space
Our capital allocation decisions are focused on total shareholder returns within the context of our long standing commitment to an investment grade financial policy
As part of our disciplined and balanced capital allocation strategy, we completed approximately $192 million of share repurchases year to date
Perrigo's strategic priorities remain focused on driving organic investment and organic pipeline, targeting inorganic opportunities in our Consumer and RX businesses to achieve measurable shareholder value creation, supplemented by shareholder return programs
On slide 15 you can see the bridge that walks from our adjusted EPS guidance provided on August 10 to the upgraded adjusted EPS guide provided this morning
The increase in guidance is primarily driven by three factors
First, given strong execution across all of our segments in the third quarter and a lower adjusted effective tax rate, we are upgrading our midpoint adjusted EPS guidance range by approximately $0.25 per share
Second, we used our balance sheet flexibility and strong cash flow position to repurchase $133 million, or approximately 1.9 million shares in the quarter, which represents a benefit of approximately $0.02 per share in 2017. This action in our – this action is reflected in our 2017 share count guidance of 143 million shares
Third, accounting for favorable currency movements compared to the forecast provided against August 10, we are updating our adjusted EPS guidance range by approximately $0.03 per share
The result of these combined factors is a 30% increase in our midpoint adjusted EPS guidance to a range of $4.80 to $4.95 per share
Our continued emphasis on operational execution and actions to focus and simplify our business model continue to strengthen our performance outlook
On slide 16 you can see our 2017 segment guidance
In CHC Americas we continue to expect approximately $2.4 billion in net sales
This guidance has remained consistent since February 28, 2017, when we initially announced guidance for the segment
Our adjusted operating margin guidance is expected to be within the range of 21% to 22%
At CHC International, given the actions we have taken in this business and the corresponding strong performance of net sales along with currency movements, we now expect approximately $1.485 billion in net sales
This quarter we are also upgrading our adjusted operating margin guidance for 2017 to approximately 14% to 15% of net sales
This is driven by continued execution of our focused business strategy
Included in this updated range are seasonally higher fourth quarter A&P investments, which were consistent with the 2016 spending levels
The CHC International team continues to look for ways to improve the portfolio with targeted streamlining and business development actions, executing on our insourcing strategy, and improving the cost structure of this segment
In RX, given the continued strong performance of new product launches and execution of our diversified extended topicals portfolio, we now expect approximately $965 million in net sales
This forecast also includes an updated price erosion assumption
We are now anticipating to be in the high single digits for 2017. RX adjusted operating margin is forecasted between 41% to 42% for the year
We have continued to upgrade both top line and bottom line guidance during the year for this segment, based on execution of our strong pipeline and our differentiated generics platform
On slide 17 you can see our increased consolidated 2017 guidance metrics
Driven by the upgrades just discussed for our CHC International and RX segments, we now expect consolidated adjusted net sales of approximately $4.8 billion to $4.9 billion and adjusted operating income in the range of $990 million to $1.01 billion for 2017. Regarding growth investments, third quarter consolidated R&D investments as a percentage of net sales were 3%, which is lower than our expected run rate of nearly 4% of net sales for the year, partially due to the timing of clinical studies and milestone payments
This shift of approximately $10 million to $12 million is expected to be invested in Q4. Our expected adjusted tax rate is now forecasted at approximately 17% to pre-tax income due to the factors outlined earlier
Our full year adjusted EPS range has been updated to $4.80 to $4.95, a $0.30 midpoint improvement from the range provided on August 10. This range includes the updated share count to reflect the buyback executed during the third quarter
The quality of business execution that we have seen through the third quarter not only provides increased confidence in our full year guidance, as illustrated by today's upgrade, but it also enables us to execute longer term strategic investments
While we are pleased to be on track to achieve the benefits from our cost savings program, we plan to invest a portion of these savings back into the business in 2018. These investments will be in such areas as continuing to improve the business capabilities in CHC International, including the IT infrastructure, and regulatory and compliance programs such as the new global data privacy regulation
To give a tangible example of reinvestment back into the business, we are currently in the process of implementing a pan-European integrated sales and operating technology platform that will continue to improve our forecast accuracy, reduce inventory obsolescence and returns, and support our sales effectiveness programs
Our guidance for operational cash flow has been increased to $620 million, consistent with the upgrade in earnings guidance for the year
Excluding the unusual tax payment for $74 million, cash restructuring payments of approximately $60 million, 2017 cash from operations would total approximately $750 million
Despite dynamic end markets, our guidance reflects the benefits of our ability to focus, simplify, and execute our business model
On a constant currency basis, excluding divested and exited businesses, our CHCA, our CHCI segments year to date net sales growth for 2017 are approximately 1% and 2% respectively
Excluding the year-over-year effect of Entocort, RX growth is trending above 2% in the second half of the year, driven by new product launches
These are overarching business trends are expected to continue as we enter 2018. I would like to thank the entire Perrigo team for the quality of business execution that we have seen through the third quarter, which has played a large part in our ability to again upgrade our 2017 guidance
I will now turn the call back over to <UNK>
This is Ron, but now I could just add, sometimes we focus on pricing, but at the end of the day it's about new products
Right? So take a look at that business, and essentially in the evolution of this business this year, we had $217 million of sales in Q1, $240 million in Q2, $251 million in Q3, and you'll see a sequential growth again in Q4. So when we're focused on pricing, what I think we've asked you to do is looking at the quality of the business and how this business is growing with net pricing pressure
So although we're – and <UNK> has mentioned – experiencing the high single digits with new products – example, $30 million of new products contribution in Q3. We grew 4%
That to me is the story
So pricing, you bet
But it comes back to, how do you offset new pricing? Is through pipeline, it's through new products
And we're proving our capability to show net growth in this business
And as we've talked, we expect net growth in the circa 2% in the second half of this year
So that to me is the ultimate metric of where the business trends are
Yeah, thanks, <UNK>, for the question
Obviously, a very relevant and important topic for every company at this point
To start, Perrigo has always talked about we believe that tax reform is necessary
Modernizing what you could argue is an outdated United States tax code for competitiveness for the U.S
in jobs and investment is critical for the U.S
economy over the longer term
You step back and think about Perrigo, kind of going to your question, we have over 10,000 employees
Our largest manufacturing footprint is here in the U.S
And our goal and our priority is to enable and deliver quality affordable healthcare to consumers around the world
So that's the business of Perrigo
I think, <UNK>, we can agree to kind of three things to start with
Number one, we're very early in the process
The first H-1 bill was issued just a week ago
It still remains very dynamic
And I think we probably can agree the final reform to the extent it's achieved will not be like the first bill that was provided
So that's probably the first thing
Number two, it's very complex
It's a very complicated process
And this goes to some of the amendments we're seeing already in the process relative to some of the architecture of the current bill
Tax reform is not simple
The third part is every multinational company, of which Perrigo obviously is in that umbrella, will likely be affected by tax reform
And the question, kind of going a little bit to your question is, what's often asked, is this good or bad for you? In my mind, that not – it's not a binary question
I think the issue we're all faced with is looking at what I call the building blocks and the systematic changes of the entire reform package
And then coming back and saying, what does that mean for Perrigo, our investors, and our customers? So again, we applaud the U.S
government for being serious about tax reform
<UNK>, we're taking a very thoughtful process
We do see the House bill as what I'll call the opening bid
And we continue to monitor and evaluate again what I call the building blocks and systemic changes
But for us to provide a good/bad systemic indication at this point would not provide a very steady hand, thoughtful process
So we're looking for what final reform is
Where does the final delivery of the legislative process come forth to? And we'll be very proactive in communicating and addressing Perrigo's situation at that time
So product mix was normal this quarter
We've kind of talked to investors across the board that if you look at a average gross profit margin, adjusted gross profit margin as the indicator, it's around 55%
This quarter, 55%
Now again, quarter by quarter we may vary off that 150 basis points plus or minus
But a standardized margin in this business right now, it's about that window
And we are right there this last quarter
I, yeah, I can take that one
But yeah, kind of a two-part question there
So first of all, we have talked about insourcing for some time, so hopefully that message has been clear, <UNK>, at least in my mind
We provided systematic commentary that that strategy started about a year and a half ago and we're starting to see the benefits
If you look at the gross profit margin in this business, it's been running pretty much like clockwork at 51%, 52% adjusted GPs to sales
So pretty consistent performance
So we are seeing the phasing in
And as we've talked about before, just to put kind of an overarching metric on it, we acquired the assets of Omega, the branded business
They were about 80% outsourced
Now our goal is to get that down to under 60% outsourced
And again we've said we're just about halfway through that journey, not quite
So figure a third to halfway through that journey at this point
So it's phasing into our performance as we speak
On the A&P piece, it's seasonal
I mean if you look at the metrics, <UNK>, and trend backwards, this business, yeah, Q1, Q2, Q4, usually runs 12%
Q4 is a great example
You're spending into the cough/cold season
You're spending into lifestyle
We have lifestyle weight loss products
You want to advertise and promote into "the January renewal cycle
" And Q3 is always running around that 10% of sales
So there's nothing I'll call out that we've done dynamically different
It is A&P aligned with our sales strategy is one of the key things Svend [Andersen] has done is ensuring our sales management model is aligned with our promotional programs
So we are making sure in a disciplined way that that A&P ties to our top line execution
And you're just seeing that in Q3. Nothing unusual other than business discipline and again some seasonally lower attribution, just given the product portfolio in Q3.
Yeah, so certainly I'll kind of go through a couple things
So first of all, again to your question, we did grow last year Q3, roughly 4% in Q3, 5%
Just to kind of put the comps out there that we're growing off of
So again, still good performance against those relative comps, number one
The cough/cold dynamic, we've moderated – or I shouldn't say moderated
We put in a normalized cough/cold season
If you look at normal business patterns, it's usually a little higher in Q4 just due to some seasonality
If you look at our guidance model for this year, you're going to see in the 2.5%-ish to 3% uptick from Q3. But that's pretty traditional
There's not a lot of difference from what we've seen in our historical patterns
So again, we're modeling on a normalized cough/cold season
We're not looking at any other kind of product – any kind of product dynamics other than the Nexium new product penetration that we see in Q4. And again on a sequential basis if you model out in that 2% to 3% zone – that's what our guidance tells you to do – you'll come out what we expect in the Q4 sales line
| 2017_PRGO |
2018 | PES | PES
#Thank you, <UNK>, and good morning.
Joining me here in San Antonio is <UNK> <UNK>.
He is President of our Wireline Services and Coiled Tubing Services segments; and <UNK> <UNK>, President of International Drilling, U.S. Drilling and Well Servicing; and of course, <UNK> <UNK>, our Chief Financial Officer.
Appreciate you joining us for our first quarter call.
We had a great first quarter.
Revenue increased in all 5 core businesses, international drilling, U.S. drilling, wireline services, well services and coiled tubing services and generated a 14% revenue growth overall.
EBITDA increased 38% quarter-over-quarter led primarily by revenue growth and margin expansion in our wireline services business, international drilling operations and domestic drilling operations.
Our U.S. drilling operations continue to be extremely strong and stable.
This business is lean, efficient and outperforming in pretty much every KPI metrics.
Even with the majority of rigs on sub-20,000 per day dayrate contracts and only 3 higher dayrate newbuild contracts remaining, the business is yielding a best-in-class margin per day of 10,436.
All sub-20,000 per day dayrate contracts as well as the 3 remaining newbuild contracts renewed during this calendar year.
And after all these contracts are mark-to-market, we still believe we will be close to 10,000 a day margins.
Equally as exciting is our drilling operations in Colombia.
The seventh rig began drilling at the end of March, and we saw 18% revenue growth in the quarter and 47% increase in gross margin and a 5% gain in margin as a percent of revenue.
The outlook for Colombia is very favorable.
1 rig is contracted through February of 2021, 3 rigs are contracted to April of 2020, 2 rigs into 2019 and 1 rig through the remainder of this year.
Rig reactivation and startup costs are essentially behind us, and we have improved our profitability on mobilizations.
Second quarter will benefit from those changes as well as having the seventh rig in operation for the full quarter, and we still have one more rig, our eighth rig, that can be activated at some point during the year.
On the Production Services side of the business, wireline services again led the way.
Astounding 25% quarter-over-quarter of revenue growth, 60% improvement in gross margin and a 6% gain in margin as a percent of revenue to 25% margins.
Our well servicing business had a 15% growth in revenues and an 8% improvement in gross margin, however, slips slightly 2% in margin as a percent of revenue.
Both our well servicing segment and our coiled tubing segment were slow to get started in the new year, which is pretty much typical seasonality.
But our second quarter outlook for both of those businesses is favorable and improving furthermore throughout the remainder of the year.
Coiled tubing services had a 7% revenue growth, but declined in margin and margin as a percent of revenue.
Essentially, the big pipe market subsidized the small pipe market, and we've also had the customary seasonality.
The coiled tubing business in our markets continues to favor large pipework.
We are transitioning our coiled tubing business in that direction with another 2 and 3H unit coming to us at the end of this month and another by the end of the year.
The offshore market continues to be very soft and April continued to be a little soft, but May and June looked favorable to us and the third quarter as well in our estimation.
I'd like to turn it over to <UNK> for some further financial comments.
Thanks, <UNK>.
Good morning, everyone.
This morning, we reported revenues of $144.5 million and adjusted EBITDA of $23.4 million.
Reported net loss was $11.1 million or $0.14 per share.
Our adjusted net loss were $6.9 million or $0.09 per share, which excludes the impact of the valuation allowance adjustments on deferred tax assets.
I think <UNK> covered some of the headline on the individual segments, so I am going to move to our term contract coverage.
We have currently all 16 of our AC rigs in the U.S. were earning revenues, and 14 of those are under term contracts.
The roll-off on those is as follows: 2 in the second quarter of 2018; 2 in the third quarter of 2018; 5 in the fourth quarter of 2018 and 5 throughout 2019.
Looking at some of our company-wide expense items.
G&A expense was $19.2 million.
For Q2, we expect G&A expense to be $19.5 million to $20 million.
However, I would note that our G&A expense will increase or decrease based on the results of our share price performance and other performance measures for incentive-based comp, which can create some volatility quarter-over-quarter.
Depreciation and amortization is $23.7 million in the first quarter and is expected to be approximately $23.5 million in the second quarter.
Interest expense was $9.5 million in the first quarter and is expected to be about the same, $9.5 million, in the second quarter.
Excluding the valuation allowance, the effect of foreign currency translation and state taxes and other permanent differences, our tax rate in the first quarter would have been in the 21% to 23% range.
We had $9.7 million in committed letters of credit and $56.6 million available under our $75 million asset-based lending facility at the end of the quarter.
At the end of the quarter, our reported cash balance was $70.7 million, which includes $2 million of restricted cash.
As anticipated, we used approximately $5 million in cash during the first quarter, with the primary uses related to our semiannual bond payment and term loan monthly interest capital expenditures and prior year incentive compensation payments.
For the full year 2018, we expect that we'll be cash flow positive.
Cash, capital expenditures in the first quarter were $11.7 million.
We estimate 2018 capital expenditures to be approximately $60 million, which includes estimated routine of $40 million and approximately $20 million for the purchase of the 2 large-diameter coil units <UNK> mentioned, some remaining payments of 3 wireline units, 2 of which we received in January and additional drilling in Production Service equipment.
With that, I'll turn it back over to <UNK> for final comments.
Okay.
Thank you, <UNK>.
As we look forward to the remainder of this year, we remain very optimistic.
As we look forward to the second quarter, we see a continuation of 100% utilization in our U.S. drilling operations with margins remaining in the 10,000 to 10,500 per day range.
In the international operations, we expect to continue running the 7 rigs out of 8 for an 83% to 86% utilization, with margins ranging between 8,000 and 9,000 per day.
On the production services side of the business, we anticipate revenues to continue to improve, up 7% to 10% and margin improvement as well of 1% to 3% to 25% to 27% range.
For the remainder of this year, we are anticipating modest discretionary capital spending with a goal, as <UNK> mentioned, to be free cash flow positive for the year.
Our growth focus will be on reactivating underutilized assets and improving pricing.
And as I stated in our last quarter call, we will continue to strive for positive net earnings by the fourth quarter.
It's challenging, but we are striving for it.
With that, I will conclude the prepared remarks and entertain any questions.
Well, the ---+ we hear the same low- to mid-20s number thrown around there.
Quite honestly, at least in our observation, are not many mid-20 contracts out there.
In fact, I'm not aware of one.
I hear that bantered about, but we're not seeing that.
I would say that repricings today are probably in the $21,500 to $23,000 range.
That sound about right, Don.
And that could strengthen, I think, that would be for one of our very high spec rigs repricing.
I think if someone was to put out a newly built rig, I know for us, at least, we would strive for the mid- kind of 20s in order to do that with multiyear term, but I'm really not hearing too much of that either, so.
Yes.
Well, as I commented, we're ---+ we've been really fortunate and successful in obtaining long-term contracts.
So we would want to do something similar in order to justify putting the eighth rig out.
We would be looking for at least a couple of year term plus and a good margin.
That rig will require a little bit of capital, so we're going to be patient.
It would be less than 5 million, but maybe in the range of 3 million to 4 million-ish to activate it, but ---+ so we are not in a rush, but we ---+ with the right opportunity came along, we have 4 very good clients there that we have great relationships with that we would prefer to keep that rig with one of those 4 because it's worked out extremely well.
And so if the time comes where we're offered a good enough contract, then we'll execute it and start the refurbishment.
I think the demand is there, yes.
<UNK>, do you want to add.
<UNK> just got back from Colombia last week.
Any add on the demand.
No, <UNK>.
It's definitely there.
Again just to reiterate what <UNK> said, we want to get it in the right situation with the right client.
And we're having some conversations now and think if well pricings' in there in maybe third or fourth quarter, we might have an opportunity there to put that rig to work.
But we're being patient in making sure we get the right contract to protect the investment.
I would say we're hopeful that it will rise to the high end of that range and maybe even higher, but we just have to let it operate for a while.
We reactivated all those rigs and there were start-up costs and things associated there that we're still washing out.
And I think there's a good chance we could average 9 or greater once we kind of get it all settled out.
Would you agree to that, <UNK>.
I do.
And again, I think we had some start-up costs associated with the seventh rig that kind of impacted our margins in the first quarter.
We should have a nice clean look at the business in the second quarter.
<UNK>, would you want to weigh in on that.
Sure.
We definitely achieved some pricing increases in both businesses.
And I don't think that we got the full impact there throughout the first quarter, so we definitely see a little more uptick in the second quarter as those continue to flow through.
And I might add on there that in April, we did start seeing an improvement in the well servicing business.
A little bit more utilization and a little bit of pricing and a little bit more 24-hour work.
So we're hoping that will be sustained through the quarter.
And then in our coiled tubing operations, there were seasonal aspects of certain of our markets that persisted into April that now are ---+ we are kind of moving out of that period.
And so we think the May and June months are going to be very favorable there, and then, of course, as we move into the third quarter.
And then we'll be also operating the new 2 and 3H unit where it's in extremely high demand.
We've already got a client that has secured that unit.
It will go right to work straight from the fab yard to a location, so we're excited about that contribution from that new unit.
Right.
Well, we have the favorable seasonal opportunity in the second and third quarter with longer days, more daylight, less weather.
So we have that benefit coming.
We also are activating more of the well servicing rigs that we did that swap.
We have 20-well servicing rigs at the beginning of last year.
We've just about got all those out and positioned.
Labor continues to be very tight, but we're slowly getting labor solved and putting these rigs out.
The wireline, as I've mentioned, I think, on the last quarter call, I think it was 7 or 8 that we're refurbing and putting out, but we're running wireline very, very hard.
So we'll probably be refurbing some, putting them out and then grabbing a few units out of the field that have been running hard and kind of cleaning those up and putting those back out.
So I don't know how many incremental adds we'll have.
It will be maybe a few, but it probably won't be all 7 or 8, 9 units of incremental because we'll need to fix up the others.
Until we get of those cleaned up, then we'll put them back out and then it would be incremental.
And then, of course, we'll be evaluating through the course of the year additional orders that ---+ of specific units where we've had good early success with, and we'll be evaluating that over the next several months.
Deliveries, pretty far out there, so we probably want to make orders this year for early next year type deliveries.
Okay.
Well, thank you very much for participating on the call, and we will look forward to visiting again for the second quarter.
Thank you very much.
| 2018_PES |
2016 | CBB | CBB
#Yes, it's about $120 million and yes, it's sufficient.
You nailed it perfectly.
It's opportunistic, given where the market was.
We are carefully watching the market.
It's obviously been extremely volatile.
Even when you look at the trading of the 2020s, they've moved quite a bit over the last few weeks.
We will just remain opportunistic on several levels.
Our near-term focus is on the revolver and extending of the revolver and then beyond that, we will just remain opportunistic.
Thanks.
| 2016_CBB |
2017 | O | O
#Thank you all for joining us today for Realty Income's First Quarter 2017 Operating Results Conference Call.
Discussing our results will be <UNK> <UNK>, Chief Executive Officer; <UNK> <UNK>, Chief Financial Officer and Treasurer; and <UNK> <UNK>, President and Chief Operating Officer.
During this conference call, we will make certain statements that may be considered to be forward-looking statements under federal securities law.
The company's actual future results may differ significantly from the matters discussed in any forward-looking statements.
We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q.
(Operator Instructions) I will now turn the call over to our CEO, <UNK> <UNK>.
Thanks, <UNK>.
Welcome to our call today.
We are pleased to begin the year with a successful quarter, achieving AFFO per share growth of nearly 9%.
We completed $371 million of acquisitions, maintained high portfolio occupancy at 98.3% and raised $1.5 billion of permanent and long-term capital at favorable pricing.
Our balance sheet strength positions us to continue pursuing the highest-quality net lease properties in the marketplace, while securing attractive returns and investment spreads, given our sector-leading cost of capital.
Let me hand it over to <UNK> to provide additional detail on our financial results.
<UNK>.
Thanks, <UNK>.
I'll provide some highlights for a few items in our financial results for the quarter, starting with the income statement.
Interest expense decreased in the quarter by $1.4 million to $59.3 million.
This decrease is primarily driven by the recognition of a $1.3 million noncash gain on interest rate swaps during the quarter, which caused the decrease in net liability and lowered our interest expense.
As a reminder, we do exclude the impact of noncash swap gains or losses to calculate AFFO.
Interest expense this quarter was also impacted by the recording of approximately 1 month or $2.3 million of preferred dividend as interest expense.
Since the redemption notice for our preferred stock was issued before quarter end, we were required to reclassify the preferred stock as a liability at that time and then recognize about a month of preferred dividend as interest expense.
Our G&A as a percentage of total rental and other revenues was only 4.7% for the quarter as we continue to have the lowest G&A ratio in the net lease REIT sector.
Our nonreimbursable property expenses as a percentage of total rental and other revenues was 2.7% in the first quarter.
We tend to experience slightly higher property expenses in the first quarter, but we continue to expect nonreimbursable property expenses as a percentage of total rental and other revenues to be in the 1.5% to 2% range for all of 2017.
Funds from operations, or FFO, per share was $0.71 for the quarter versus $0.68 a year ago.
FFO per share was impacted by a $13.4 million or $0.05 per share noncash redemption charge related to the unamortized original issuance costs associated with our preferred F shares.
Excluding this noncash charge, FFO per share would have been $0.76 for the quarter.
Adjusted funds from operations, or AFFO or the actual cash we have available for distribution as dividends, was $0.76 per share, representing an 8.6% increase over the year-ago period.
Briefly turning to the balance sheet.
We've continued to maintain our conservative capital structure.
As <UNK> mentioned, year-to-date, we have raised approximately $1.5 billion of well-priced long-term capital to fund our acquisition activity and retired over $400 million of high-coupon preferred stock.
Our senior unsecured bonds now have a weighted average remaining maturity of 8.1 years, and our fixed-charge coverage ratio is now 4.5x.
Other than our credit facility, the only variable rate debt exposure we have is on just $38 million of mortgage debt.
Our overall debt maturity schedule remains in very good shape, with only $276 million of debt coming due later this year, and our maturity schedule is very well laddered thereafter.
And finally, our overall leverage remains modest, with our debt-to-EBITDA ratio standing at approximately 5.5x.
In summary, we have low leverage, excellent liquidity and continued access to attractively priced equity and debt capital.
Now let me turn the call back over to <UNK>.
Thanks, <UNK>.
I'll begin with an overview of the portfolio, which continues to perform well.
Occupancy based on the number of properties was 98.3%, unchanged from last quarter and up 50 basis points from a year ago.
We expect our occupancy to remain at approximately 98% in 2017.
During the quarter, we re-leased 49 properties to existing and new tenants, recapturing approximately 104% of the expiring rent, which is above our long-term average.
This quarter was the third consecutive quarter of leasing recapture rates above 100%.
Since our listing in 1994, we have re-leased or sold nearly 2,400 properties with leases expiring, recapturing approximately 99% of rent on those properties that were re-leased.
This compares favorably to the companies in our sector who also report this metric.
Our same-store rent increased 1.6% during the quarter, primarily due to higher percentage rent.
90% of our leases continue to have contractual rent increases.
Our portfolio continues to be diversified by tenant, industry, geography and, to a certain extent, property type, which contributes to the stability of our cash flow.
At the end of the quarter, our properties were leased to 250 commercial tenants in 47 different industries located in 49 states and Puerto Rico.
80% of our rental revenue is from our traditional retail properties.
The largest component outside of retail is industrial properties, at about 13% of rental revenue.
Walgreens remains our largest tenant at 6.8% of rental revenue, and drugstores remain our largest industry at 11.1% of rental revenue.
We remain comfortable with the momentum in the drugstore industry and continue to view our exposure favorably given the industry's attractive demographic tailwinds, nondiscretionary nature and continued growth from in-store pharmacy pickup.
Additionally, Walgreens and CVS, our top 2 drugstore tenants, have generated 15 consecutive quarters of positive same-store pharmacy sales growth.
During the quarter, we added Kroger to our top 20 tenants, representing 1.2% of our annualized rental revenue.
We are pleased with our Kroger locations and the addition of this high-quality, investment-grade-rated grocery chain, which we view as one of the better operators in the industry.
We continue to have excellent credit quality in the portfolio, with 45% of our annualized rental revenue generated from investment-grade tenants.
The store-level performance of our retail tenants also remains sound.
Our 4-wall weighted average rent coverage ratio for our retail properties remains 2.8x, and the median is 2.7x.
Moving on to acquisitions briefly before handing it over to <UNK>.
We completed $371 million in acquisitions during the quarter, and we continue to see a steady flow of opportunities that meet our investment parameters.
During the quarter, we sourced $10.8 billion in acquisition opportunities.
We remain deliberate in our investment strategy, acquiring only 3% of the amount sourced.
Our selectivity reflects our focus on quality.
We continue to expect to complete $1 billion of acquisitions in 2017.
As a reminder, this estimate primarily reflects our typical flow of business and does not account for any unidentified large-scale transactions.
Now let me hand it over to <UNK> to discuss acquisitions and dispositions.
Thank you, <UNK>.
During the first quarter of 2017, we invested $371 million in 60 properties located in 18 states at an average initial cash cap rate of 6.1% and with a weighted average lease term of 16.4 years.
On a revenue basis, approximately 68% of total acquisitions are from investment-grade tenants.
98.7% of the revenues are generated from retail, and 1.3% are from industrial.
These assets are leased to 20 different tenants in 13 industries.
Some of the most significant industries represented are grocery stores, automotive services and motor vehicle dealerships.
We closed 11 discrete transactions in the first quarter.
The transaction flow continues to remain healthy.
We sourced approximately $11 billion in the first quarter.
Of these opportunities, 54% of the volume sourced were portfolios, and 46% or more than $5 billion were one-off assets.
Investment-grade opportunities represented 28% for the first quarter.
Of the $371 million in acquisitions closed in the first quarter, 23% were one-off transactions.
As to pricing, cap rates continue to remain flat in the first quarter, with investment-grade properties trading from around 5% to high 6% cap rate range and non-investment-grade properties trading from high 5% to low 8% cap rate range.
Our investment spreads relative to our weighted average cost of capital remained healthy, averaging 195 basis points in the first quarter, which were well above our historical averages.
We define investment spreads as initial cash yield less our nominal first year weighted average cost of capital.
Regarding dispositions.
During the first quarter, we sold 14 properties for net proceeds of $31.2 million at a net cash cap rate of 8.3% and realized an unlevered IRR of 9.8%.
In conclusion, we remain confident in reaching our 2017 acquisition target of approximately $1 billion and disposition volume between $75 million and $100 million.
With that, I'd like to hand it back to <UNK>.
Thanks, <UNK>.
We were very active on the capital markets front in the quarter.
We issued approximately $800 million in common equity at an average price to investors of approximately $62 per share.
Additionally, with the highest credit rating in the net lease sector, we issued $700 million in fixed-rate unsecured debt with a weighted average term of 18.3 years and a yield at 4.1%.
Our credit spreads remain among the lowest in the REIT industry, and our leverage continues to decline, with net debt-to-total market cap of approximately 26% and debt to EBITDA of approximately 5.5x.
We currently have approximately $1.5 billion available on our $2 billion line of credit.
This provides us with ample liquidity and flexibility as we grow the company.
Last month, we increased the dividend for the 91st time in the company's history.
The current annualized dividend represents a 6% increase over 1 year ago.
We've increased our dividend every year since the company's listing in 1994, growing the dividend at a compound average annual rate of just under 5%.
We're proud to be one of only 5 REITs in the S&P High-Yield Dividend Aristocrats Index.
Our dividend represents an AFFO payout ratio of 83.5% based on the midpoint of our 2017 guidance.
To wrap it up, we've had another good start to the year.
Our portfolio remains healthy, our growth prospects are attractive and our balance sheet remains in excellent shape.
We continue to be well positioned to capitalize on the highest-quality acquisition opportunities given our sector-leading cost of capital and financial flexibility.
These strengths of our business should continue to position us to generate dependable dividends that grow over time.
At this time, I would like to open it up for questions.
Operator.
Just first, what I've noticed over the last maybe quarter or so, and maybe you've done it through '16, taking a bit more exposure to larger boxes, so the Walmart neighborhoods, which are maybe in the 40,000 square foot range and then the Krogers, which are maybe slightly larger.
Can you maybe just walk us through sort of what makes you comfortable with exposure to big boxes and any trends you may be seeing in your own portfolio in comparing and contrasting to the smaller-exposure smaller boxes.
Yes.
Sure, <UNK>.
The majority of our retail big boxes that we own are leased to tenants with service, nondiscretionary or low-price point components to their business.
So we're comfortable with those.
Only about 1% of our properties, so about 50 big boxes, are boxes that are leased to tenants that don't meet that ---+ those investment parameters, that are selling discretionary goods.
But those tenants, many of them are strong discount merchandisers that are doing very well.
So we're comfortable with the larger boxes.
On the grocery side, you mentioned ---+ that's a business we like quite a bit.
95% of grocery sales occur in brick-and-mortar locations, and we are aligned with some of the top operators in the country and the top regional operators there.
So that's an area where we're comfortable owning big boxes.
And you'll see some properties that are in that 40,000 up to even 65,000, 70,000 square feet range.
Okay, that's helpful.
And just second question and just a follow on.
Just in terms of the watch list and the rent ---+ the overall rent coverage, any changes in the watch list.
And just in that coverage, can you maybe give us a range of what the range of the rent coverage is.
Well, the ---+ I think it's more important to look at the median.
I mean, we have coverages that are close to 1, and we have coverages that are at 4x.
Our median for the whole portfolio is 2.7x, and our average is 2.8x.
You mentioned the watch list.
The watch list has remained in the low 1% area.
It's still there.
Not a material change.
Our retail tenants have seen their sales grow at approximately 3% over the last year, so we're pleased with that as well.
And then in terms of the tenants outside of our top 20, our coverages on those tenants is actually higher, notably higher than it is for our overall portfolio.
And I think that's important to note.
Just because a tenant is not in that top 20 doesn't mean they're not a strong tenant.
We added several properties this quarter, which pushed them up to 1.2% of revenues and knocked Home Depot out of the top 20.
So it was not a single large portfolio.
It was a smaller portfolio.
Well, right now, the FTC is asking Walgreens to sell up to 1,200 assets via the acquisition.
It's expected to close in July.
There have been some rumors that it may be blocked by the FTC.
If it were to move forward, we've looked at our exposure in terms of asset closures, and we only have 15 Rite Aids that are within a 2-mile radius of a Walgreens.
And even if they were relet to another retailer, such as Fred's, which is being mentioned, our credit would remain Walgreens.
And the average lease term for our Rite Aid properties is just under 10 years, so we still have that credit.
So we think it'll be a nonevent for us.
Curious what you're seeing in terms of pricing differentials between portfolio deals and individual properties.
Sure.
On an individual asset, we're seeing them trade anywhere from 25 to 100 basis points below ---+ with cap rates 25 to 100 basis points below where we'd see them trade in a portfolio.
So there's still a notable difference.
There's a premium cap rate for portfolios.
And then just the leverage, you talked about it having trended down.
Do you expect to maintain the current leverage levels.
Do you think it could continue to trend down.
Or should we expect leverage to move up from here.
I think we're going to maintain this level.
This is a level that we're comfortable with and gives us sufficient flexibility to operate the business.
No, it's still holding at just a shade above 6%.
So there's been no material change to that.
It's really percentage rents was the primary driver, and they came in early in the year and gave us the higher-than-expected, same-store rent growth ---+ not higher-than-expected, but the higher-than-expected ---+ what we expect for the full year, which is still around 1% to 1.2%.
So it was higher in the first quarter, primarily due to that percentage rent.
So I do think that if the 1031 buyers go away, that there'll be more opportunity to play in those assets.
They've traded at levels that we think don't necessarily make sense, so we really haven't been a player on the sell side or the buy side in the 1031 market.
But if that were to occur, I think you're right, <UNK>.
I think that we could see some acquisition opportunities as a result of that if we were to step in there.
Yes.
This is <UNK>.
We continue to see a healthy flow of sale-leaseback opportunities on the corporate side.
This is something that we touched on even in our last call.
The quality of discussions, the number of discussions have continued to trend up over the years.
And it's no different this quarter vis-\u0102\xa0-vis the last year.
Well, we're focused on the highest-quality convenience stores like a 7-Eleven, Couche-Tard, Circle K, who are both in our top 20.
We want 3,000 square feet or more where they have a significant inside store.
70% of the store sales are generated by customers not buying gas, so the emphasis is really on convenience.
These are great locations in good markets run by solid operators.
So we're still bullish on the C store industry, and it's our second largest industry today, and I think it'll continue to be one of our top industry investments.
We are selling some smaller kiosk and smaller store ---+ convenience store operations.
So we are focusing on the top-tier, the highest-quality C stores.
We continue to be very selective, as is evidenced by our 3% acquisition ratio relative to what we sourced in this last quarter.
We've run anywhere from 3% to 7% in the last several quarters.
So our investment parameters continue to be quite tight on the retail side.
We're investing in service, nondiscretionary and low price point businesses that compete in all economies effectively and better compete with e-commerce.
So I think we remain selective and cautious, and we're very judicious with our exercising the use of our cost of capital, which is the lowest in the sector.
<UNK>, anything to add there.
No.
Well, I think it is really summed up by what I said.
What we're focusing on are service, nondiscretionary and low-price point retailers and businesses.
So you look at drugstores, C stores, dollar stores, grocery stores, QSRs.
Those are all areas that we continue to focus on.
And if an asset and tenant don't meet the definition, don't meet our investment parameters and investment strategy, we're not going to pursue it.
Dan, we're comfortable with our current exposure.
If anything, it'll stay where it is or maybe trend down just slightly.
We haven't been big on education or schools for a variety of reasons we've discussed in the past.
And childcare, we've seen some of those companies over the years struggle a bit.
Some of our tenants and locations actually are doing quite well, and those are the ones we intend to hold.
But it's a business where demographics within a neighborhood can change over time, and what you thought you had when you bought the asset 20 years ago is much different than what you end up with 20 years later.
And those are assets that ---+ where we've seen changes in demographics and more challenging situations, we've sold over the years, which has decreased our exposure.
Well, it's certainly our hope, and it's our expectation that if your capital cost and treasury prices actually, for a sustained period of time, hold at a higher level, we would certainly expect cap rates to increase as well.
Cap rates have always followed the cost of capital.
When our cost of capital was 10%, we were buying assets at caps of 11.5%.
So there's always a lag period, though.
Bond prices and yields, bond yields can move 10 bps in a day or greater than that.
That just doesn't happen in the real estate market.
The cap rates are a bit more sticky, and they lag by a quarter or 2.
And you need to see some more stability of interest rates at a certain level.
Just because they tick up to ---+ the 10-year ticks up to 2.70% per week and back down to ---+ and holds for several weeks and then it ends up within a few days back to 2.30%, that's not really going to drive cap rates.
You're going to need to see it ---+ see rates stay at a sustained higher level.
And then you'll see, with a lag period, cap rates move.
Yes.
For retenanting in the first quarter, we had CapEx of right at about $2.5 million.
And that was primarily ---+ most of that was an expansion for a industrial tenant where we received an 11% yield on the incremental invested capital.
And the tenant extended their lease term by a factor of 2x.
So when we have those opportunities, we would like to deploy capital with those sort of returns and qualitative results as well.
So looking forward, we'll continue to have some of that.
It won't be a huge number, but I wouldn't be surprised if we have other quarters right at the same amount or even a little bit higher.
Yes.
We don't have a target for investment grade.
We went from 47% to 45%.
And that's primarily a result of Diageo completing their exit on our lease on the wineries and vineyards in Napa Valley and Treasury Wine Estates picking up that lease now that they've bought those operations from Diageo.
Treasury is the largest vendor ---+ publicly traded vendor in the world, has a market cap at about $9 billion.
It's not rated.
Its credit metrics in terms of debt to EBITDA are actually stronger than Diageo's.
It's not as large of a company as Diageo, but we're very comfortable with that investment.
We're comfortable with our tenants in the top 20 and outside the top 20, both investment grade and non-investment grade.
So I think you'll continue to see the investment-grade number kind of fluctuate.
If the Rite Aid-Walgreens merger happens, it'll tick up about 1.8%.
But it'll ebb and flow in this general area, I think.
Our acquisitions in the first quarter were about 67%, 68% investment grade.
So as long as we continue to stay at that level, it will slowly pull it up, but it's not something we do consciously.
It's sort of gravy to get that investment grade-rated tenant and a really good property underwritten conservatively.
Thanks, Tracey, and thanks to everyone for joining us today.
We look forward to speaking with all of you soon.
I'm sure we'll be seeing some of you at NAREIT in June, if not before then.
Have a good afternoon.
| 2017_O |
2015 | EGHT | EGHT
#Good day, ladies and gentlemen, and welcome to the 8x8 Incorporated first quarter 2016 earnings conference call.
(Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to turn the conference over to <UNK> <UNK>, Director of Investor Relations.
You may begin.
Thank you, and welcome, everyone, to our call.
Today, I'm joined by 8x8's Chief Executive Officer, <UNK> <UNK>; and our Chief Financial Officer, <UNK> <UNK> <UNK>, to discuss our results for 8x8's first fiscal quarter of 2016 ended June 30, 2015.
If you have not yet seen today's financial results, the press release is available on the Investors tab of 8x8's website at www.8x8.com.
Following our comments, there will be an opportunity for questions.
Before I turn the call over to <UNK>, I would like to remind all participants that during this conference call any forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.
Expressions of future goals, including financial guidance and similar expressions including, without limitations, expressions using the terminology may, will, believe, expect, plans, anticipates, predicts, forecasts, and expressions which reflect something other than historical fact are intended to identify forward-looking statements.
These forward-looking statements involve a number of risks and uncertainties including factors discussed in the risk factors sections of our annual report on Form 10-K in our quarterly reports on Form 10-Q, and in our other SEC filings and Company releases.
Our actual results may differ materially from any forward-looking statements due to such risks and uncertainties.
The Company undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after this conference call except as required by law.
Thank you.
And with that, I'll turn the call over to <UNK> <UNK>, Chief Executive Officer of 8x8.
Thank you, <UNK>.
As <UNK> noted, financial results for our first quarter of FY16 were strong with a 26% year-over-year increase in total revenue.
Service revenue grew 29% year over year to $44.2 million.
This included a one-time revenue gain from the accelerated payment on a VDI license agreement and one month of revenue from DXI, which as you know, we recently acquired.
Excluding the aforementioned one-time revenue gain, 8x8 service revenue in the first quarter grew 25% year over year to $43 million.
Additionally, our service revenue from mid-market customers increased 40% year over year, and now represents 45% of the Company's total service revenue compared with 43% in the previous quarter.
As a result of the accelerated payment on the VDI license agreement, you should remove approximately $286,000 of quarterly service revenue beginning in the second fiscal quarter.
GAAP gross margin was 73% compared with 71% in the same period a year ago.
Service margin was 81%, an increase of 100 basis points from the year-ago quarter.
Without the benefit of the accelerated payment, our non-GAAP net income was strong at $3.7 million, or $0.04 per share.
This represents 8% of revenue compared to $3 million, or $0.03 per share, also representing 8% of revenue in the same period a year ago.
Average revenue per customer, excluding the one-time revenue gain across our entire customer base, was $353.
This is up $33 sequentially, and a 20% increase compared with the same period a year ago.
Monthly business service revenue churn was 1% compared with 0.4% in the same period a year ago.
Although this rate will fluctuate from quarter-to-quarter, a 1% average monthly gross revenue churn rate is the best rate to use in your models.
As a reminder, 8x8 calculates gross churn, that is we do not include add-on MRR, or a monthly reoccurring revenue from existing customers, only cancellations.
If we did include add-on monthly reoccurring revenue, our churn percentage would be negative.
Cash, cash equivalents, and investments were $157 million at June 30, 2015.
This compares with $177 million in the previous quarter.
$23.4 million of cash was used in the quarter to acquire both DXI and Quality Software Corporation.
Cash flow from operating activities was $4.7 million, and capital expenditures were $1.1 million in the quarter, or 2.2% of revenue.
Sales and marketing expenses increased sequentially in the first quarter by approximately $2.3 million, primarily due to one month of expenses from DXI and our planned investments in channel enablement, enterprise sales team, and demand generation.
Our GAAP G&A this quarter includes approximately $900,000 of acquisition-related cost.
Our tax provision this quarter is $785,000.
Our effective tax rate will be impacted this year by adding back our acquisition-related cost.
Cash taxes this quarter are approximately $300,000 and we expect this rate to continue each quarter in FY16.
As <UNK> mentioned, we continue to expect annual revenue for FY16 of $202 million to $206 million.
This represents a 24% to 27% year-over-year increase, with non-GAAP net income as a percent of revenue of approximately 6%.
For FY16, we are targeting overall gross margins at 73 % to 75%.
At the operating level, we are forecasting R&D at approximately 10% of revenue, sales and marketing at 49% to 50% of revenue, and G&A at 8% to 9% of revenue.
As you know, we are focused on sustainable, profitable growth, and we expect to continue to be profitable in FY16 on a non-GAAP basis.
That concludes my prepared remarks and I will now turn the call over to <UNK>.
Thank you, <UNK> <UNK>.
As you can see, we are off to a great start this fiscal year, and I'm more excited than ever about the multiple market opportunities that exist worldwide for our differentiated unified communication and contact center solutions.
With that, we'll be happy to take on any questions you may have for us today.
Operator, please open the line for any questions.
Hey, <UNK>, how are you doing.
Yes, so the part, <UNK>, I don't know if you picked up on this, but new monthly recurring revenue sold in the first quarter of 2016 to mid-market customers and by our channel sales team increased 38% year over year.
The interesting thing, and I think I mentioned that in my prepared remarks, we've been making a migration from SMB to mid-market, and we're starting to see very good traction, as you know, in the mid-market.
The interesting thing is we are starting to see enterprise customers and they are happening faster than I thought.
An enterprise customer, we are classifying as somebody with greater than 2,500 seats or more, and we are starting to see more and more of those.
And the thing that is interesting is, they are not coming in and saying we just want a division, they are typically coming in and saying we are looking at moving to the cloud.
More often than not, they will do some kind of proof of concept or something like that.
So the sales cycle is typically the same six months, I think that we had previously alluded to.
That is the amount of time it takes and that includes a proof of concept.
But once they do a proof of concept, which tends to be 1 location, or 5 locations or 10 locations, often global locations, they tend to go ---+ all right, we're going to do deployment across the entire corporation.
As you know, that is not been the case with the cloud before.
What's typically happened is you will have large corporations say, well, we had this one branch office that nobody really cares about, we'll go cloud there but everything else is on-premise.
We are now noticing that these larger corporations are not just taking cloud as, yes, whatever, we will just do it as an aside.
They're taking it as strategic and core.
They are moving, as you would guess, very cautiously, they put you through the ringer.
They want to test out your technology.
The want to test out your deployment methodology, they want to test out your call quality, they want to test out your reliability, et cetera, et cetera, and they have an army of people that do some of this testing.
But when they do move, it is the entire corporation, not just one part of it.
I think you are seeing it, if you think about it.
Every quarter, mid-market/enterprise is representing a larger and larger portion of our revenue.
If you think about it, last quarter we were 43%, now we are at 45%.
Steadily, it is moving in the right direction.
I never like to predict massive acceleration.
But I'm very pleased with the trajectory, where more and more we are starting to see not just mid-market ---+ mid-market is pretty much saying we are going cloud more often than not.
When enterprise is also starting to say we are going cloud, like it's very interesting, and I think that's what we built the Company to do, and I think we're probably first in line because we put the time and energy and, bluntly, the heartache and pain and suffering to really understand how to deploy these large, global customers.
And, as I said, I don't want to declare victory because it is always a journey, but it's starting to feel better and better.
<UNK> <UNK>.
Let me speak about that.
Certainly, if you take out the one-time accelerated SoftBank, we were at 8% versus 10%.
So you see that we have already started to invest in some of the areas that we had said that we would invest in.
What's key for us this year is to invest in enabling our channel, that's a big priority for us.
Ramping up our enterprise sales team, because as we had said, we are seeing the increase in the pipeline.
And then on demand [gen] as well, we want to make sure that we are achieving our goals by creating more leads and more opportunities.
So we are investing and we would expect that investment to continue, we're just at the early stages of that investment.
Also when you add in DXI, our acquisition, we will have a full quarter in our second fiscal quarter.
They are not profitable yet.
We expect them to be close to break-even for the year, but there is some ramping that's going to happen before that happens.
In this particular fiscal quarter, there's some losses that we will incur with DXI.
So we are sticking to our 6%.
We believe that there's an opportunity out there for us.
We didn't invest last year like we said we would because we didn't see that opportunity.
But this year, we are seeing the opportunity and we don't want to miss out on that opportunity.
So there will be some investments and that's why we are sticking to our 6% non-GAAP net income.
Fair enough.
The good news is, I think, as Enzo mentioned, pipeline for us, and pipeline ---+ we call it the SQQL, right.
Sales ---+ sorry ---+QSQL, sales qualified lead that marketing sales says are sales qualified, and then the second Q is that sales actually agrees with marketing and says that they qualified the sales qualified leads.
That number is the most it has ever been.
And I think you are seeing that reflected in MRR growth.
This quarter, new MRR was an absolute record.
Last quarter, it was also an absolute record.
So little by little, you're starting to see that translate into business.
And as I said, for us, we feel pretty bullish about it.
I think win rates ---+ we like to feel particularly, if it's an international global-type customer, and particularly if they are looking for an integrated solution, more often than not, we win.
We're pretty comfortable with where we are across the board and I think we can give you guys a little more color at a later date.
Yes.
Actually, a lot of our large customers have offices in Australia and so they kind of pushed us in that direction.
It started off with existing customers saying we need capability in Australia.
And then we started to get a bunch of new customers and a couple of partners came in that, basically, took our technology and are acting as resellers to the technology.
So we went live with that.
We've gone through training process with that and we've already started deploying there.
So, again, we are doing this quite rapidly and we're finding, again, the ability for a cloud-based company to deliver an integrated virtual office, virtual contact center, virtual meeting type solution, so essentially, a one-stop shop.
But do it on a global basis with SLAs and industry-leading call quality is a huge differentiator.
Increasingly, we are seeing that our competition is people like Avaya and Cisco and others, which is great.
You want to play with the big boys, and I think we can win, and we're starting to win against them, which is unique for cloud companies these days.
And so we are starting to really feel pretty good about that.
One of the key drivers is DXI.
So DXI has a number of large customers, so they did bring significant increase to our ARPU.
Yes.
That's the key.
We are, of course, adding new customers and we are adding larger and larger customers.
But for the most part, this particular quarter, DXI was the number one driver.
You're welcome.
No.
Not initial.
If you look at my prepared remarks, I said that we saw a lot of 500 to 1,000 seats that we won this quarter, with initial deployments of 500 to 1,000 seats.
We have got about 130 enterprise customers, right, but they are not full deployment.
Our largest deployment is in the [2,000-ish-seat] range.
That's starting to tell you how we are being pushed.
Because if you remember, in the last six, nine months, is the first time we got to that 1,000-ish seat range.
We were never even close to that, and now we're starting to talk about customers in the 5,000- and 10,000-seat range.
Some of them are starting smaller and then trying to migrate.
But we saw, I think I remember saying five ---+ of our top five deals they were all in the 500 to 1,000-seat range.
We are starting to see more and more traction with the larger customers.
It's becoming increasingly a differentiator, particularly with the larger customers.
If you think about it, and I want to emphasize this part because, to some extent, I have to pinch myself.
I was thinking back to the last year or so, and if you remember, we used to talk about ---+ well ---+ we had 20 to 50 seats, 50 seats, essentially is defined as mid-market, and, oh, by the way, we are trying to get up to 250 to 500 seats.
Then we started to win a couple of 1,000-seat type accounts.
And suddenly, 1,000-seat-type accounts are essentially our bread-and-butter and we are starting to really try and push forward towards a 5,000- to 10,000-seat.
Again, I don't want to get ahead of the headlights because we haven't won any 5,000- or 10,000-seat-type accounts yet for the whole deployment.
But the thing that is starting to become more and more interesting is that's now a non-trivial portion of our pipeline.
So it's fascinating to me about how the market is starting to tip towards cloud because normally a 5,000- to 10,000-person company is not even going to talk cloud, they are all so focused on-premise and now they're coming to us and talking cloud and we were literally not quite seeking them out.
These are people that sought us out.
With regard to your comment with ---+ from a growth perspective, I think we had talked about the mid-market and channel grew approximately 38% year over year for new MRR.
And so that is nice and steady and solid and continuing to kind of go upmarket there.
I think the majority of them have some form of analytics.
I apologize.
I made the statement that analytics is an increasingly unique differentiator.
It's starting to almost become like table stakes.
Because imagine a large distributed company, 38, maybe they are in 38 countries.
Maybe they are in 50 countries.
They have 500 locations, 200 locations, 1,000 locations, 800 locations.
Given IT person here who is now deploying globally, every time he hears about a call quality issue, he is able to anticipate and understand whether it was a network issue, a deployment issue, a user error or whatever.
That is increasingly what is enabling us to be able to win these larger opportunities.
Okay.
Good question.
Without DXI, our ARPU was $326.
That's a $6 increase sequentially, $6 or $7 increase sequentially from our fourth quarter, and that's what we would expect going forward.
DXI added the rest, so that's how we got from $326 to $353.
Going forward from your modeling perspective, $6 to $7 in that range is the right number to use for an ARPU increase, sequentially.
Typically, moving from PBX solution to cloud, but the thing that is kind of interesting is several of these companies are cobbled together over time.
In other words, what is quite interesting is the larger the company, more often than not, they have cobbled together multiple companies through acquisition.
You will have three, four, five different PBXs and they are now looking to go to one common way of communicating throughout the company, and so then this becomes their strategic initiative project, typically driven at a very high level of a company.
So, again, these are early days, so I don't want to declare victory.
But it is interesting, I think we talked about the number of $500 to $1,000 deals that we are starting to win this quarter.
And I think we're starting see that our pipeline from 1,000 to 10,000 deals is starting to grow.
As I think I indicated also, we're starting to see quite a bit of traction in channels and that's an area that we had not put much investment in over the years.
But just in the last six months or so, as you know, six to nine months, we've started to invest in channel and that's started to pop, where 5 out of our top 10 deals came from channel.
That's a great question, <UNK>.
This falls in the category of we are very cautious about these guys.
Again, they surprised us when we started to get bigger and bigger deals.
Our philosophy is, we will go through the first set of processes, which is all paper, et cetera.
And typically, when we get to the bake-off, when you get to a trial, typically they go with either one or two.
More often than not, they will only go with us.
We are pretty choosy because we have walked away from several of these deals.
If we feel like there is not a good fit for our technology, or not a very high probability of winning, we tend to walk away.
Because in the end, I don't want to do a lot of these ---+ what we call whale-type deals, I only want to do a select few and I want to make sure we pick the ones that we feel very comfortable about doing because that then proves the model and shows that we can continue to move upmarket in a very consistent way.
So for us at least, the ones that we take on, we expect to win, and have a very high probability of winning.
And the main reason is because any ones that we think we don't have a good chance of winning, we don't take on.
We kind of take our toys and go home.
Yes, <UNK>, that's a great question.
As you know, our mid-market customers grow quite rapidly.
They're constantly acquiring other companies.
So we grow with them.
We have a number of examples of customers that have started out small and are now in our top 20, top 30 customers.
Most ---+ I wouldn't say most, but between 45% and 50% of our new MRRs come from existing customers.
If we continue to provide them a high-quality product, they are going to continue to buy from us, and so that's why we love the mid-market is because it gives us that nice lifetime value because of the growth associated with these customers.
A) They stick with us for a very long time because of the backend integration, and, two, as they grow, and we grow with them.
Again, great question.
This is where our performance SLA ---+ so I'd like to think that we've been smart about how we've been going about it.
We were a Company, as you know, two or three years ago, we were primarily SMB.
Then we moved up into mid-market, and, candidly, bread-and-butter is mid-market.
Increasingly, you are seeing that's our core, that's the one that's growing [38-ish%] year over year, that represents, as I indicated, about 45% of our revenue today.
Now we're starting to see enterprise new move, but they are early.
In other words, it's still early days for enterprise.
From our perspective, what we did is ---+ so we basically learned from mid-market customers because that transition from SMB to mid-market was pretty painful.
We went through that over the last two years or so.
The transition to enterprise, I'm sure, will come with its share of challenges, but the good news is all of those things we have been announcing in a structured and step-by-step way, elite touch, the first company to be willing to offer performance SLAs over the public Internet.
The ability to work with both MPLS and public Internet and we give customers a choice.
If you want MPLS, great, but we still suggest you have a backup off the public Internet and that's because MPLS lines sometimes get cut.
So then you want the ability to go on the public Internet, or you can go just on the public Internet.
Some of our customers go with a dual MPLS/public Internet strategy, and some customers are going straight with a pure public Internet strategy.
And the key is, we have learned, because we've now got a very significant chunk of mid-market customers that we've kind of really learned how to ensure that we provide the kind of service levels that they expect for a mission-critical system.
Enterprise is probably a jump up and ---+ but it's not as dramatic a jump as the jump it was from SMB to mid market.
Well, that went fast.
All right.
In closing, I'd like to thank all of you who attended our first Analyst Day last month, either in person or via webcast, and to remind you that, in August, we will be presenting at the Needham conference in New York and the Oppenheimer and Canaccord Genuity conference in Boston, and we look forward to meeting with you at one of these events.
Thank you, again, and have a good day.
| 2015_EGHT |
2017 | THRM | THRM
#<UNK>, the phenomena where we see some customers making some switches to their portfolio, actually introducing heat vent where they didn't have it before in some of their products, is really a forward-looking phenomenon.
We've seeing a little bit in the past year, but it will affect us more as we get through 2017.
Keep in mind that when we look at switches, it's not always a lower price.
There's sometimes additional content we are able to capture.
Generally it's a lower price; but we view it as a positive effect more because our customer's looking at having two solutions to go to the market with.
That covers more potential products that they have in the marketplace.
It is going to be pretty small in the fourth quarter.
The exciting thing for us is that we'll actually be shipping real product-for-sale production by the end of the year.
It doesn't really start to become meaningful until 2018.
If you recall, we announced that our annual run rate will be around $35 million or $40 million when it gets to full ramp up on both projects that we have, both contracts.
That takes about 18 months, and that 18-month period starts at the end of this year.
It's a little too early to tell right now and give a forecast of numbers and growth rates at this point.
Yes, the early indications are that the first quarter has been a little bit light, driven by the North American business being some inventory adjustments.
Particularly Ford and GM have backed off a little bit, and it's primarily just to adjust inventory.
They ran hard in the fourth quarter, and now they had a little bit of extra stock.
We don't see any indications that there is a dramatic reduction in demand.
The North American marketplace is running at an all-time high rate.
Frankly, customers are still buying like crazy.
So we don't see any indications in the rest of the markets worldwide that would cause us to be concerned about 2017's automotive rates.
Europe is still running at a good rate, but they're not running at records.
The Chinese market is stabilized.
They are not doing fantastic, but they are doing good.
We see a generally good (technical difficulty).
I think it's sequentially higher.
Keep in mind that we had an easy comp and that we didn't own CSZ in the first quarter.
That was going to be my point.
The first quarter, we are going to be picking of a quarter from CSZ, which we didn't have last year.
So you will see substantial growth for us for that.
In the automotive business, I think you will see about the same as you saw in the fourth quarter.
We are as confused as the Trump administration appears to be about what their policies are.
Our physical plant and facilities in North America are driven by a Mexican presence.
That's where we have set up our business.
That's the way we run.
We don't really have capacities and facilities to be able to make dramatic shifts in our production.
Our North American manufacturing base is primarily based upon presence in Canada for our global power systems and a large presence here in the US for our medical products division.
Obviously if the rules change, we will evaluate those rules and change our strategies or adjust our strategies as necessary.
From what we've seen so far, there's a lot of rhetoric about a 20% tariff on products produced in Mexico.
We have a very good and strong operation in Mexico.
They would be described in traditional terms as a machiladora.
So lots of product materials are gathered from around the world, brought into the Mexican facilities.
They are assembled, and the value added there is primarily labor and testing.
Then those products are distributed to our customers in Mexico, US and in Canada.
We would have to evaluate what the impact these tariffs or duties might have on our operations.
Obviously, these are costs that would be passed on to our customers.
So it's not exactly an easy thing to do.
But it is certainly not easy for us to plan for some unknown threat of an economic war between these countries.
In general, we are going to take a wait-and-see attitude and try to see what really comes out of the government.
The administration is making a lot of (inaudible) noise.
The full government has to vote and pass new laws, and we will review those laws and make our plans based on that.
The only thing I would add to that, <UNK>, is that our manufacturing strategy has been to serve our customers locally.
When we look at our facilities in China, in Asia generally ---+ we also have a plant in Vietnam and in Eastern Europe ---+ those plants do not bring products back to the North American locations from those plants.
They serve those local regions.
I certainly wouldn't describe the oil and gas markets as anything close to normal at this point.
There's still a great depression going on in oil and gas.
It's much more pronounced in oil than it is in gas.
It has been described that oil is global and gas is local.
Gas demand is still very strong, and it is strong by region around the world.
We have adjusted our strategies to focus on markets where gas distribution and research is high.
South America, Southeast Asia and a little bit into the Mid-East ---+ the activity there is very high.
Canada and the US, the activity has flattened out a bit although the demand for natural gas is very strong.
That is one of our stronger market segments in this global power unit.
We do see the 2017 backlog increasing.
2016 was a 100-year event in oil and gas, and we were impacted by that.
We continue to be under pressure from the softness in the oil and gas businesses.
We see 2017 as a stronger year.
Will it achieve what we saw in 2015.
I don't know.
It's a very good possibility.
You have to remember that business is not at all like all of the rest of our businesses.
It is basically a contract business.
We get contracts, we build the equipment, deliver the equipment.
We can only do that when the customers are building pipelines or servicing pipelines.
It's a very good business.
2016 was a very bad year.
2015 was a very good year.
We are expecting 2017 to be somewhere probably in between.
Hopefully billions and billions.
We are starting with our own direct team.
We will add people as the demand requires.
But the United States is a very large and diverse marketplace in the medical industry.
We are probably going to be adding somewhere around 15 to 30 people in total.
We are well into that process now.
We are very excited about the caliber of people that we are attracting and the types of opportunities that this new team is going to bring us.
In our models, we use the low 20%s as we look into the 2017 period, say somewhere between 22% and 23%.
| 2017_THRM |
2016 | BPFH | BPFH
#Good morning, everyone.
Thank you for joining our call this morning.
In the third quarter, our Company generated net income of $19.6 million or $0.22 per share, compared to $0.18 per share last quarter and $0.16 per share in the third quarter of 2015.
Return on average tangible common equity was 14.3% for the quarter, and return on average common equity was 10.2%.
We are pleased with the Company's overall performance during the quarter.
Our Company demonstrated improved credit quality, capital levels, and profitability metrics.
Specific highlights for the quarter include first, our core private banking performance continues to be a valuable source of earnings in 2016.
The private bank generated top line revenue growth, driven by solid and disciplined balance sheet growth.
At the same time, our commitment to risk management remains high, as asset quality metrics remains very strong.
Second, in our wealth management and trust business, we continued to build a unique franchise that is integrated with our private banking clientele.
<UNK> <UNK> and his team continued to show progress reducing client attrition, while staffing the business properly for long-term success.
Third, our investment management and wealth advisory segments continue to demonstrate healthy margins and profitability, despite environmental pressure on revenue growth.
Finally, all of these factors, coupled with ongoing expense discipline translated into improved profitability metrics for the Company.
Our efficiency ratios improved for the Company and for the private bank, while our pretax, pre-provision earnings reached their highest level in the last two years.
Moving ahead, our focus for the Company will continue to be on disciplined growth, balance sheet quality, and generating high quality earnings.
With that, I will turn the call over to Dave for more detail.
Thanks, Dave.
Slide 10 contains financial information for the wealth management and trust segment, which operates under the Boston Private Wealth brand.
Total revenue decreased 3% linked quarter to $10.9 million.
The prior quarter included transactional fees of approximately $150,000, while the current quarter included a revenue adjustment that negatively impacted this quarter's results by $135,000.
Excluding these items, revenue was flat linked quarter, in line with AUM, which was also flat linked quarter.
Total operating expenses decreased 10% linked quarter to $12.3 million, reflecting lower levels of legal and consulting fees, in addition to the impact of previous restructuring charges taking effect.
Overall profitability improved sequentially to a net loss of $800,000.
On slide 11, we show both net flows and new business flows for Boston Private Wealth for the last eight quarters.
Net flows were a negative $120 million in the quarter, reflecting a slow down in new business generation from $235 million to $148 million.
The draw down of the short-term liquidity account in excess of $90 million.
In addition, we made a business decision to exit a large accommodation for an ongoing client relationship, because it was unprofitable.
Turning the net flows positive remains a priority, and we are encouraged by our team's continued progress stemming client attrition.
During the quarter, lost business as measured by AUM declined 12% linked quarter.
We also saw a meaningful slowdown in client attrition, as measured by the number of lost clients.
In the quarter, the client attrition rate was significantly reduced, and reached its healthiest retention level of the last two years.
I will now hand it back to <UNK>.
Thanks, <UNK>.
Let me now address net flows across our other wealth businesses.
Slide 12 shows AUM net flows by segment.
In the investment management segment, we saw net flows of negative $111 million for the quarter.
The wealth advisory segment had net flows of negative $105 million during the quarter.
On a consolidated basis, we had Company-wide net flows of negative $336 million, or 1.2% of our starting AUM of $27.3 billion.
We closed the quarter with AUM of $27.5 billion, driven by positive market action and investment performance.
On slide 13, we show the total revenue for the investment management segment increased 1% linked quarter, with a 6% decrease year over year.
Operating expenses increased 1% linked quarter, though they decreased 4% year over year, representing lower incentive compensation.
Third-quarter 2016 segment EBITDA of 32% remains above our 30% corporate target.
Moving to slide 14, our wealth advisors reported revenues of $12.8 million, up 2% linked quarter and year over year.
Operating expenses decreased linked quarter by 2%, and 4% year over year to $9 million, reflecting a combination of lower performance-related bonuses, and lower amortization.
Third-quarter 2016 segment EBITDA margins increased to 33%.
That concludes our comments on third-quarter 2016 performance.
With that, we will open up the line and entertain your questions.
Yes, why don't we narrow the frame, <UNK>, to investment management, which is one of our three pools.
The other two, I'm really pleased with the progress in Boston Private Wealth, and I think our two wealth advisory firms are very stable and are doing good things to expand their practices.
Within investment management, at the industry level, everything you say is true.
The entire sector faces secular headwinds, so there's no easy solution.
I will tell you, we are pleased with the progress, particularly with Anchor, which is our larger and more significant firm, in the overall picture financially.
They have gotten pretty close to flow neutrality with very strong investment performance and strong distribution.
In the quarter, we lost one large platform mandate at Dalton Greiner which was obviously a setback, and represents the numbers.
Your assertion that it's a tough category is true.
Our goal is to get those firms as close to net neutral as we can, both firms, we think are high integrity, well-managed firms capable of performance, and we like the profitability.
What we have said to our shareholders, Alex, is we would like to push the business to breakeven in this latter half of 2016, ramping obviously to positive margin territory in 2017.
Our level one operating income margin goal is probably in the 10%-ish range.
Long-term, we think the business is capable of much more.
We have talked with shareholders about a 15% to 20% operating income interval, as representing pretty good industry performance.
You can see some models in the industry doing better than that.
There are models like ours, north of 20% operating income.
In the near term, Alex, I'm being very patient.
I know that's a surprising statement, because we are a very profitability-oriented Company, but our guidance to <UNK> and his team is build the business right.
I believe they are doing that.
We have a pretty compelling client proposition.
The client value added is extremely satisfying right now, but we are going to push that business above breakeven as we roll into ---+ as we finish the year and roll into 2017.
2017 will be a profit built year.
And those are our longer term profit targets.
No, it's a mixture ---+ I will turn it over to <UNK>, but in prior calls, we talked about a mixture of efficiencies, which is why we laid in restructuring charges for the first half of the year.
Long-term though, absolutely.
The purpose of that business in our portfolio is to be a growth business, no two ways about it.
Alex, we are not commenting on the election, those are house rules, but other than that, anything else is fair game.
We will have to blame it on Vladimir Putin, too, but I'm confident it's not structural.
As I think about, to your point, the last four quarters were normal, in the 200 to 250 range.
I'm confident we'll get back to that.
I just think it was this business, as you know as you're in the business, is sometimes lumpy, and I can't point to anything else.
I would love to take Brexit as an excuse, but I won't.
The only thing I would add, Alex, we were encouraged by the client flow in the quarter, and we scratched our head over exactly what you're raising, why was the new business down.
In every quarter, we have had a couple of pieces of very large business that have propelled us.
While we had terrific success with target clients this quarter, it was the absence of a really big one or two outliers.
It was no more complicated than that.
So I don't think we can point to something systemic.
It's a commercial building, and we went through and looked at the tenants, and they were having some issues with timing on the leases and getting those renewed, and so we moved it to classified.
It's still paying as agreed, still cash flowing, and a cautious but appropriate move on our part.
No, it's right in our market in LA, and it's an office building.
Yes, so, thank you.
I will speak to that at least in regard to Boston Private Wealth.
There were two, exactly as you explained departures in the quarter.
One was essentially a money market account, and yes, you know how profitable those can be.
And the other was an accommodation, the departure of an accommodation we made for a client, where it was an unprofitable business, but we did it as an accommodation for a client we continue to have, where we exited that business, which actually improved our bottom line.
And to the second part of your question, yes.
I would say as we are getting into the holistic planning business, we are seeing smaller, more velocity, more touch points, and greater profitability with the clients we are bringing on.
Yes, thanks, <UNK>.
In investment management, it's a challenging rotation from a pretty barren institutional market, and what I mean by barren, there is just a dearth of high-quality US equity mandates in the institutional space.
And our firms in that space, Anchor and Dalton Greiner, have been rotating into the retail platform business.
That's an appropriate ration in our opinion, and yet a challenging one.
In the two ---+ in the wealth advisory space, it is not a, quote, shedding of large clients or anything like that.
We continue to serve a very attractive clientele at KLS, and at Bingham Osborn.
Bingham in the quarter showed a fair amount of stability, with flows slightly positive.
KLS tends to be a little bit more front-loaded firm in the earlier part of the year, because their clientele is very seasonally bonus driven.
In addition, KLS is working through an expansion of the Managing Director group.
They have added four new managing directors, which I think bodes very well for the future, but to accommodate that, they are working through client service transitions, and the like.
But I'm not overly bothered about anything going on in the wealth advisory segment.
Those are two very stable practices, that we think have proven they will perform over the long term.
Probably the greatest sector challenge is in the investment management space.
That's an awfully tough patch right now.
Nevertheless, we continue to like the overall profit performance of those firms, so we are working with them.
Yes, as you know, our shareholders know that our long term ROE targets are higher than what we are generating right now.
Our cost of equity is 9%.
We think anything above that is value added.
I was pleased with the 10.2% in the quarter.
We did guide our shareholders down in this rate environment.
Our long-term house targets of 12% are awfully hard to achieve without a little bit of yield relief.
I think we are doing a pretty deft job of managing the balance sheet.
A modicum of rate relief certainly improves the ROE picture, and yet I'm not going to hazard to guess on rates.
I think that the jury is still out.
I think it's too early to make a rate call.
But we are doing it the hard way, if we can continue to generate quality earnings above the cost of equity, certainly north of 10%, makes us happier as a management team.
To push into that 11% to 12% space, we are going to need a little bit of margin help.
I just want to thank all of you for your ongoing interest in us.
We felt it was a pretty good quarter from a balance sheet management and profitability standpoint, and we maintain an awful lot of confidence in our wealth businesses, and we are going to continue to work hard to generate quality performance.
Thank you.
| 2016_BPFH |
2016 | AVY | AVY
#Good morning.
We are making filings in a couple of jurisdictions, call it Germany specifically.
Normal customary filings that we usually go through.
This is a highly competitive space, and we see that the acquisition that we're making is going to even increase the level of innovation in this space, so I think that the regulators will look at that favorably.
They invested in restructuring that business over the past year and a half, streamlining the organization.
Yes.
I think, look, we're in a record cycle from a margin perspective, and we're really kind of at the peak for PSM, so I would anticipate we're going to have margin compression in the back half of the year.
We talked about this before.
In the last couple quarters we've seen some modest benefit from deflation at a price, and so it'd be reasonable to assume that the business cycle would see offsets of this gain.
Additionally, we're seeing some signs of modest inflation in the commodities markets, and as I mentioned earlier, we are seeing some ---+ the 1% change for performance tapes with the customers' program that's exiting, and that was a margin that was a little bit higher, higher margins than above average in the business as well, so it's a little bit of an impact to the second half, as well.
I think what we're going to talk about is right now we're at a record ---+ .
Q1 is really a record quarter for PSM from a margin perspective, so less about year over year and more about we are at a peak right now.
Most of that came from price ---+ or from volume, sorry.
And then about 3% of that actually came out of the emerging markets.
Yes, so as far as your first question, the performance on the margins within PSM, so yes, it was basically the margin beat in PSM was what caused us to beat our own expectations of the total Company.
Essentially the mix came in a little better and we continue to drive growth within the high-value segment, so that was a key contributor to that factor.
Within emerging markets, we did see within China, we just saw some modest growth as China, the level of growth, as we've been talking about for four out of the last five quarters or so, has moderated from what we had seen traditionally.
So it was in low-single digits.
However, that's been offset by pretty phenomenal growth in Ausian, as well as in India.
That's what's going on with the growth trajectory and the margins.
One of the other things that came in a little better than we expected, we were expecting essentially neutral benefit on the net impact of price and raw material inflation, it came in a couple million dollars better than our expectation, so that was a positive contributor, as well.
Remind me <UNK>, what was the second question.
We're not going to reset targets.
We established those targets for 2018.
As we've always said, this business is an extremely high-return business even at those levels, and we've never seen them as a ceiling or a cap and we're continuing to test our limits and continue to push this business both on the top and bottom line, and that's something we'll continue to do.
We think it would be at this point after a few, five, six quarters of out performance to just change the long-term trajectory or long-term targets is not the right time to do it.
Yes, so in the core products we are ---+ actually, I think what I commented on is we're starting to see early progress from the actions we've been taking.
Now the revenue is actually down modestly, but recall we said we were going to be more aggressive on the pricing front with certain ---+ in certain categories and we've done that.
And so the volumes are actually up with value, and that's if I am excluding RFID right now.
They're significantly up if you include our RFID.
Volumes in our core products are up, and so we think we're seeing good signs.
It's been consistent the last few quarters from volume growth perspective, good trajectory there.
In the contemporary or the department stores, we are still seeing volumes down, and a lot of it has to do with some of the challenges that a number of the department stores are seeing in their own marketplace today.
As far as what customers are telling us, it's hard to give you an average.
If you look at it, there's a number of customers that are doing quite well, a number of retailers and brands, and there's a number that are having their own challenges as they work through things.
Overall, we're coming off of a winter season that was a little lackluster from a retail sales perspective, and so a number of the retailers have more inventory than they want to be having right now, and that is factoring into their thinking.
On a broad base, if I had to characterize it, I'd say cautious optimism is what the retailers and brands are looking at, and those that are even struggling, everybody's looking to get more productivity out of their existing retail footprint, and it's something that we can help them achieve that, particularly with RFID, and that's the focus of the conversations.
In general on our working capital we ---+ part of ---+ a big part of the change is that we had some planned investments in inventory, primarily in the RFID space to support the accelerated growth that we've seen in that business.
So over time we expect that, that will even out.
But we did plan on making those investments to make sure that we made our customer commitments.
Just quick on the receivables, specifically there's a regional impact as far as regional mix.
The higher growth in some of the emerging markets where we have slightly longer terms has an impact on that.
I'd say overall I think we can do a little more here on the working capital perspective.
We saw some deterioration.
Part of that is just due to mix and some strategic decisions that <UNK> comments on in inventory.
We think we can do more here.
In general, we're going to see over each quarter there's a little bit of variance that goes on with the corporate expenses.
You should expect it to be anywhere from $20 million to $25 million a quarter.
It's within that variance that we see just based on timing of some of the expenses.
As far as SG&A, as we've talked about, we've had a significant restructuring program, especially in RBIS, where a majority of their savings are coming through the SG&A line.
When you look at SG&A savings, the productivity, primarily at the restructuring, is driving the improvement overall.
We also have some favorable---+ sorry, we also have some favorable in currency, as with the currency change that also was favorable, but there was offsets with higher employee costs.
The EBIT margins are above the RBIS average.
The order patterns are consistent with the guidance we're giving overall, but just the real test is not entering the quarter.
It's really how long the peak lasts throughout Q2, so if it ends a few weeks early, that obviously has a big negative impact to us.
It's consistent right now, but it's really not an early read.
As we've said we have limited forward visibility.
Last year the season actually ended relatively early and that was one of the reasons we had the decline last year in Q2.
So consistent, but I'd say it's too early to give you any color on how that will play out.
Yes, so we have ample capacity through both cash and our current credit lines.
We're ---+ we have plenty of capacity available in our credit lines that we can fund this transaction, and we'll look at long term what this means for us from a financing perspective.
But we generally, we have a CP program and we've got some other credit available for us that we can use.
There's very ---+ as I mentioned in my comments, there's very little that we've got into the number for next year for synergies.
We really will have some from the procurement side.
But the Mactac team has done a phenomenal job of investing in the business and really streamlining it.
So what we're getting is a business that's really complementary to our graphics business in Europe.
Chris, this is <UNK>.
The answer is there.
The answer is no.
So only the US Department of Justice was looking at anticompetitive practices.
There was a ---+ in Europe there was also an investigation of the industry that happened around the same time, but the two weren't linked in terms of an antitrust linkage, so to speak.
They were independent investigations.
Sure.
As far as the assets that is we're acquiring, it was eight coating lines and they have capabilities across all different primary adhesive categories, emulsion, hot melt and solvent.
That's what we're acquiring.
As far as what the Company's gone through over the last year and a half is that they basically restructured down to a single manufacturing facility.
They used to have more than one and that's been the area of focus.
As far as the top line, this business is ---+ Mactac has an extremely respected, well-respected brand in the graphic space and tape spaces.
This business used to have some other unprofitable categories, specifically bulk roll label materials, that they've exited over the last year and a half as well that were unprofitable and pretty low end.
The trajectory for the overall business isn't really indicative of what was going on in the underlying core.
Yes, we know them as ---+ from what we've seen in the due diligence and also competitors that they're well respected within the market, and it's a platform that we expect to be able to leverage and continue to grow profitably.
You've got a good memory, Chris.
The Jackstadt acquisition, we did have filings in multiple jurisdictions around the world.
You're correct also in that about 80% of Jackstadt's sales were in the bulk roll label category, although they did have a decent-sized graphics business as well.
We went through a second round of process with some of the regulatory authorities in Europe, specifically in Germany.
So it took them, I think, four or five months and then we got the approval.
Mactac's business is primarily a graphic's business, by and large, with a little bit of tape.
It's a nice add on to what we're doing.
These are both categories where we have relatively low market shares respectively.
I don't want to project how regulatory agencies will react, but suffice it to say that we wouldn't have done the deal unless we had some level of confidence that it would go through.
Yes, Chris, so overall I think the way you've characterized it is right and then I'll answer your question.
We continue to drive growth and looking to have outsized growth in the high-value segments that obviously improves mix, and we've also been talking about instilling more discipline in our less differentiated segments with how we grow and ensuring that it is profitable growth there.
Our productivity initiatives, that is a core strength of ours we continue to execute on and have consistently done that and will continue to do that.
As far as if you look at where the margins are in Q1, <UNK>'s comments were comping from Q1 where we're expecting it to go forward.
You normally have a seasonal reduction in those margins in the second half late in the year, so we just want to highlight that there's some seasonal adjustments.
We've got the impact of lower ---+ the tapes decline of one customer which will have an impact.
From a ---+ just purely from the purchase prices we have for raw materials and the selling prices, it was a modest benefit.
There was definitely some deflation in North America and as we talked about last time, we've actually been adjusting our own prices to our customers and those segments that are impacted the most.
It's ---+ we're at peak levels.
You don't want to lock down each time you get to a new level and say this is something you should baseline your models on and how you're thinking about it.
I will tell you our focus here is about growing this business and growing it profitably and continuing to see opportunities for how we can further expand margins, which also ---+ this is a great business and a great platform.
It links right into why we're trying to penetrate these spaces even more aggressively with acquisitions like Mactac.
Thanks, Pama.
Well, I'd just like to say I'm excited about the Company's future, probably more excited than when I joined more than 33 years ago.
I'd also like to say that the course that we set in late 2011 and then committed to the longer-term targets in 2012, it's working, and ---+ but there's more to come.
I'm proud to have been part of making Avery Dennison the leading company that it is.
I want to thank the leadership team, our employees, our customers, and our suppliers for their creativity and commitment to our success.
I have enjoyed engaging with investors and financial analysts over the years, and I really appreciate the relationships that we've built.
Thank you.
| 2016_AVY |
2015 | STBA | STBA
#Hi, <UNK>.
Like I said, it's as Dave said, you have some multifamily, you have some hotels, you have some office, you have some retail, you have some municipal projects that are lumped in there.
The one area that's probably not real active is single family lot development, which we're not seeing a lot of that activity right now.
We do have some churn.
I mean, as projects near completion, then they roll into your other bucket, or get financed out.
So you'll see some ins and outs in that portfolio.
On a linked-quarter, that C&I portfolio was essentially flat.
And there's some seasonality in there too.
I mean, you'll usually ---+ the fourth quarter and first quarter are a little slower than your second and third, just for timing and everything.
There was not anything in the NPA bucket that was directly tied to the oil and gas.
And matter of fact, some of it was just expected clean-up on some of the acquired portfolio out east.
And then, we had a C&I credit out in one of the Ohio markets that just was due to some unforeseen circumstances, just kind of got sideways.
But it was nothing related to oil and gas.
Now that being said, it's something that we're watching.
There's been a couple of companies that have laid off in the area.
You just look at, rig counts are down.
I think at the peak, they were about 125, just looking at statistics a couple weeks ago.
And last year about this time, there were maybe 55 rigs, and now there's 29 in Pennsylvania.
So it's going to have some pressure on some of the supply chain.
But production's up.
It's up to about 20 billion cubic feet a day, I think in the region is the last number I heard.
But the issue still is, getting it to market and the pipeline.
I think capacity is maybe half of that.
Now they anticipate that kind of equalizing about this time next year.
So they'll at least be able to get what they can produce to market.
And then, probably in 2017 to maybe 2018, that number goes up.
So you can start to be kind of a net exporter on the resource.
But that being said too, there's a lot, a lot of activity in the region.
It appears that the Shell is still moving forward with their big project out in Beaver.
We've seen clients that are getting inquiries from a lot of petrochemical type companies, or end users of the products or manufacturing concerns that can be right on top of a cheap energy source.
So even though there might be a little bit of a slowdown for the next year or so, long-term, it's going to be just really, really good for the region so.
It's kind of tough to measure too on ---+ when you're going into the local gas station in the morning, you used to see a few more bodies around from the service company guys.
And so, the impact on those types of businesses or hotels or whatever, still not showing up in the numbers yet.
But again, it's just something we're probably going to take a look at.
Dave or <UNK>, you're welcome to weigh in too.
Our portfolio kind of indirectly tied into it is about $[50] million, and the average risk weightings are about 3.5[%].
So mostly, pretty clean today.
They do have a lot of ties to the energy sector.
So they've had some customer losses related to that.
There's been some consolidation.
I mean, they get couple clients who got sold.
To bigger entities.
And then they ---+ some is tied in, some workers' comp customers, and kind of the shrinking payroll and this stuff is impacting premiums as well.
Well, on a monthly or quarterly basis, that's going to impact ---+ certainly not the whole portfolio.
It might be maybe $200 million to $300 million of the ---+ or not even that much, maybe $200 million of the whole portfolio.
So it's a slow ---+ it's a slower (multiple speakers).
Thanks, <UNK>.
Hi, <UNK>.
Yes, I don't believe anything is on a SNC in the portfolio.
I would probably ---+ maybe a little over half, I would say.
Okay, <UNK>.
I want to thank everybody for participating in today's call.
And <UNK> and Dave and I appreciate the opportunity to discuss the quarter's results, and look forward to hearing from you in our next conference call in January.
So thank you very much.
| 2015_STBA |
2016 | HOPE | HOPE
#I think the increase that you see that are related to anything related to the Hanjin bankruptcy, you're going to see in the downgrades to the increase in special mention categories.
So our classified category is not actually impacted yet.
So we have parked everything as special mention.
As <UNK> mentioned, we identified all those borrowers I think proactively in the third quarter.
We have, I would say, a number of credits there that we're looking at.
As far as other categories, other types of industries that make up the special mention, the increase is really spread out.
And the way I see the portfolio, they're not really one-offs.
They're just more proactive management of the portfolio.
And when I look at the loan amounts there, they're fairly well diversified.
You're talking about much smaller dollar amounts, and really across different industries.
And so I think this is more a proactive management of the portfolios rather than any type of credit concern that we're seeing there.
I'll have to get that to you.
I don't have that one in my head.
Yes.
There's a lot of pluses and minuses.
So you're correct in the numbers you're looking back at.
I tend to turn that around, and as I'm analyzing it look at it in terms of efficiency ratio.
If you back out the merger-related expense, we're at about a 48% run rate right now in these numbers.
I expect that ratio to go down in the fourth quarter, probably in the 46% to 47% range.
And as the cost cuts from the branches and so forth and post conversion, we should be getting to the kind of targets we talked about when we announced the deal of the mid to low 40%s next year.
As a run rate when we complete the cost cuts.
Probably about mid-year.
I'll start with the base case and I'll let <UNK> ---+ <UNK> likes to give the negative and positive cases.
The base case, I would just look at the current quarter without the sort of unusual activity of one large customer and the impact of the Hanjin classification.
The provision would have been less than half of what we reported.
And that, going forward it's going to be very much dependent, as you suggest, on the migration of individual credits.
I suspect <UNK>'s going to tell us it's kind of early ---+ the definition of special mention is we're watching it and we're not really anticipating a loss yet based on what you know.
You want to add any color to that, <UNK>.
That's bringing Wilshire onto our books.
Loans that were classified at Wilshire are now acquired classified loans.
Okay.
Thank you, Gary.
Once again, thank you all for joining us today and we look forward to speaking with you next quarter.
Thank you.
| 2016_HOPE |
2017 | FRGI | FRGI
#Thank you, Raph.
Q3 was certainly a challenging quarter for Fiesta and our team members as hurricanes Harvey and Irma impacted the majority of our restaurants and the communities where they operate.
Within 2 weeks of Hurricane Harvey's arrival into Texas, that caused severe flooding in the Houston area and disruption to our San Antonio operations, we closed every Pollo Tropical restaurant in Florida and Atlanta as we prepared and withstood the impact of Hurricane Irma.
Given the severity of the storms, I am pleased to report that there were no injuries incurred by our team members and that all of our restaurants that we had planned to reopen have done so with the exception of 1 Taco Cabana location.
Resuming full operations after the storms had passed was a tremendous effort undertaken by our team members and supplier partners, and we thank them all for their diligence and tenacity.
We are proud that Taco Cabana and Pollo Tropical served thousands of meals to evacuees and first responders in both Texas and Florida.
These efforts have been captured on video and can be accessed on our website.
In addition, through our nonprofit Fiesta family foundation, we are continuing to assist many of our team members who have personally suffered losses as a result of these storms.
In the aftermath of Hurricane Harvey and the related uncertainty, we decided to permanently close our 2 Houston Pollo Tropical locations.
Due to limited awareness of the Pollo Tropical brand and the high relative overhead costs needed to support the 4 remaining restaurants in San Antonio, we decided to permanently close all 6 Pollo Tropical restaurants in Texas and focus on revitalizing core markets and our brand repositioning strategy.
The hurricanes resulted in a short-term loss of business and inventory as well as some property damage and delayed our brand relaunches, but we are back on track now.
As Danny will explain, we relaunched Pollo Tropical last month with new menu items and a new ad campaign.
Importantly, just prior to the hurricanes, we were experiencing better sales trends at Pollo Tropical with comp sales that improved from high single-digit decline to low single-digit decline.
Taco Cabana sales trends admittedly were still soft, but this was expected since we had significantly reduced our promotional discounts and advertising for several months.
However, we remain optimistic that the strategic renewal plan is taking hold as leading qualitative indicators that preceded improving sales trends at Pollo Tropical are now beginning to build at Taco Cabana.
In our earnings press release, we laid out the significant accomplishments we have made so far across key elements of our strategic renewal plan.
We are working hard every day to fundamentally improve the guest experience and induce trial and increase frequency.
Our guests, particularly in core markets, already have strong affinity for our brand and that, coupled with superior financial performance of these restaurants, is why we are focusing our efforts and investment in core markets first.
Strategically, we're in the process of repositioning our Pollo Tropical brand outside of our core markets beginning with locations in North Florida and the Atlanta metropolitan area.
We are planning to regionalize the menu in stages, starting in the first quarter.
We have recently completed research that validates the new products we are planning to roll out, including fried chicken options; side dishes like sweet potato, casserole and fried okra; and an extension of our desert line, potentially including peach cobbler and pecan pie.
Before I turn the call over to Danny, who in addition to serving as our company's COO, has recently taken on an additional role as Pollo Tropical President, I would like to welcome 3 accomplished executives to our Fiesta leadership team.
Chuck Locke was recently named Taco Cabana President.
Chuck is highly respected in restaurant executive with more than 20 years of operations, development, marketing and finance experience.
Before joining us, he served as Chief Operating Officer of Anthony\xe2\x80\x99s Coal Fired Pizza, a polished casual dining concept based in South Florida.
He is now just a few weeks into his new role and is already working hard to strengthen the implementation of our strategic renewal plan.
Tony Dinkins was recently named Senior Vice President of Human resources, overseeing our overall talent management strategy.
Tony has 25 years of human resources experience working at leading organizations across multiple industries.
Most recently he served as Senior Vice President of Human Resources at Cable & Wireless Communications.
Maria Chang Mayer will join us in just over a week.
She will serve as our new General Counsel and Secretary, bringing to Fiesta an impressive breadth of legal experience.
Our team members have the passion and resolve to implement our plan, and we believe their actions are going to fundamentally enhance our core business models and our performance as we enter 2018.
I thank them for their efforts and commitment in overcoming some very real obstacles this past quarter, and know that they would agree with me when I say that we believe we are squarely on the right track.
With that, I'll turn the call over to Danny.
Thank you, Rich.
I\
Thank you, Danny.
Comparable restaurant sales at Pollo decreased 10.9% in the third quarter of 2017, compared to a 1% decrease in the third quarter last year.
This year's decline included a 13.1% decrease in comparable restaurant transactions, partially offset by a 2.2% increase in average check, of which 1.2% was attributable to menu price increases.
Comparable restaurant sales and transactions were negatively impacted approximately 5.5% to 6.5% by the hurricane.
Sales cannibalization from new restaurants on existing restaurants negatively impacted comparable restaurant transactions by approximately 60 basis points.
Turning to Taco Cabana.
Comparable restaurant sales in the third quarter decreased 12.6% compared to a 4.1% decrease in the third quarter last year.
This year's decline included a 14.3% decrease in comparable restaurant transactions, offset by a 1.7% increase in average check due to pricing.
Comparable restaurant sales and transactions were negatively impacted approximately 2% to 3% by Hurricane Harvey.
In mid-October, we rolled out tiered menu pricing at both brands based upon a pricing elasticity analysis at the individual restaurant level that was completed during Q3.
We believe the price changes will result in incremental, effective pricing of approximately 2% at each brand.
In terms of our key restaurant-level line items, we have highlighted our year-over-year variance explanations by brand and on a consolidated level in our 10-Q that will be issued this afternoon.
We use restaurant-level adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which is defined as adjusted EBITDA, excluding franchise royalty, revenues and fees, preopening costs and general and administrative expenses, including corporate-level general and administrative expenses.
At Pollo, third quarter restaurant-level adjusted EBITDA decreased by $6.5 million.
We estimate that restaurant-level EBITDA was negatively impacted by hurricanes Harvey and Irma by approximately $3 million to $4 million.
Restaurant-level adjusted EBITDA was also negatively impacted by a decline in restaurant sales, higher cost of sales as a percentage of restaurant sales and higher repair and maintenance costs, partially offset by the positive impact of closing unprofitable restaurants.
At Taco, third quarter restaurant-level adjusted EBITDA decreased by $5.7 million.
We estimate that restaurant-level adjusted EBITDA was negatively impacted by Hurricane Harvey by $1 million to $1.5 million.
Restaurant-level adjusted EBITDA was also negatively impacted by a decline in restaurant sales, higher cost of sales as a percentage of restaurant sales and higher restaurant wages and repair and maintenance costs, partially offset by lower advertising expenses of $1.6 million.
Please refer to our earnings release and 10-Q for all related non-GAAP reconciliation tables.
Now let's quickly go over charges recognized in the third quarter.
We recognized additional impairment and other lease charges of $15.9 million, primarily related to 6 Pollo restaurant closures in September and additional Pollo and Taco restaurants that we continue to operate and other lease charges for restaurants closed during the quarter, partially offset by recoveries related to previously closed Pollo Tropical restaurants.
We estimate that the cash impact of lease and other charges in 2017, related to all restaurants that have closed in 2016 and 2017, will be approximately $3.5 million to $4 million assuming ongoing lease, tax, utility and other obligations, net of payments received for lease terminations and assignments of $0.9 million.
Thus far, we have made good progress subleasing or terminating leases of our excess properties.
As previously disclosed, the 6 closed Pollo Tropical restaurants contributed approximately $3.7 million of restaurant sales and $1.2 million of pre-tax restaurant-level operating losses, including $0.6 million of depreciation expense to results for the 6 months ended July 2, 2017.
In 2016, these restaurants contributed approximately $6.7 million of restaurant sales and $2.2 million of pre-tax restaurant-level operating losses, including $1 million of depreciation expense and $0.4 million of preopening costs to results in 2016.
Adjusted net income was $1.7 million or $0.06 per diluted share compared to adjusted net income of $8.1 million or $0.30 per diluted share in the prior year period.
We utilize adjusted EBITDA, a non-GAAP financial measure, for the purpose of assessing performance and allocating resources to segments.
This includes adjustments for significant items that management believes are related to strategic change and/or are not related to the ongoing operation of our restaurants, in addition to stock-based compensation, impairment and other lease charges and other expense income.
During the quarter, consolidated adjusted EBITDA declined 44.1% to $13.2 million, primarily driven by lower restaurant-level adjusted EBITDA at both brands, partially offset by lower G&A expenses, primarily as a result of lower Pollo Tropical regional administration costs related to restaurant closures.
For 2017, we continue to expect annual capital expenditures to be $60 million to $70 million, including $22 million to $25 million for development of new restaurants; $22 million to $26 million for ongoing and deferred capital maintenance; $13 million to $16 million for other corporate projects such as IT and systems projects and indoor video menu boards; and approximately $2 million to $3 million for remodeling costs.
Next year, we expect to open 9 new company-owned Pollo Tropical restaurants in Florida and 7 new company-owned Taco Cabana restaurants in Texas.
The Taco Cabana restaurants will include 5 closed Pollo Tropical restaurants that will be converted.
For 2018, annual capital expenditures are estimated to be $60 million to $68 million, including $26 million to $28 million for the development of new restaurants; $23 million to $25 million for the ongoing reinvestment in our Pollo Tropical and Taco Cabana restaurants, including approximately $11 million to $13 million in deferred maintenance needs, approximately $4 million to $6 million for restaurant remodeling costs and approximately $7 million to $9 million of other expenditures, which primarily include information technology and systems projects.
With momentum building at Pollo, leading indicators beginning to show promise at Taco and a full senior management team in place to implement our plan, we look forward to a successful 2018.
Thank you for your time this afternoon.
And now Rich, Danny and I would be happy to answer any of your questions.
Matt, please open up the line.
I would say, from the current media campaign that we have at Pollo, we're getting as we thought we would.
Building awareness around the renewal is not something that is immediate, but we are seeing improvement in the trends.
We see it in our sales.
We see it in our check average, because that's the combination of the renewal plan as well as the message in the offer, which currently, at the moment, is a chicken and ribs combination offer.
So that's part of for our strategy.
So we see the lift in check, we see the lift improvement in transactions and then, clearly, in sales.
But the awareness campaign will take time to really seed.
We're just a few weeks into that media campaign around that message.
What I would suggest, <UNK>, is look at the year-over-year numbers that you're modeling and also, from our perspective, we're planning a build to momentum.
So start more conservative in the beginning and then hopefully we are planning to see momentum build over time as guests are coming into the restaurants, they're experiencing a great atmosphere, improved food quality and better hospitality and coming back with more frequency.
Well, I can start and then ---+ it's Rich, and then, everybody else can jump in.
We have a very strong now Fiesta team, with the expertise that will be able to bring it across the 2 brand lines.
And that can be from human resources, food and beverage, legal, you name it ---+ marketing.
We can now use those resources at the 2-brand level.
At Pollo, we've got Danny.
He's familiar with the Pollo.
The Pollo team is in place and the Pollo team is excited, passionate and is achieving the results.
The trajectory that we need to get to your first ---+ your earlier question, to not only breakeven, but to positive comp store sales.
Chuck is new.
Chuck spent the first 2 weeks in the kitchen.
He learned all the food, specs, recipes, et cetera.
I expect Chuck to have a significant impact.
His operations background is significant.
He's also a people's leader.
He's a great leader, but the people not only respect him but like him.
So I expect that working with us as a team, we will bring the same type of passion, and it's there at Taco, to get the same results that we're currently experiencing here at Pollo.
The one thing that I would add to that is that, this is ---+ the plan is grounded and confirmed in research, and there has been an extensive amount that has occurred for each brand.
And we're nearing the completion of that research and it's taught us a lot, but it's also confirmed a lot about what we're doing.
And so, that's a great guidepost for each brand.
And as Rich said, sharing these resources and building these teams, it's really nice to see the plan come together and be confirmed.
And I would just finally add that there's collaboration right now among the management team to really deliver the plan that we've put in place.
And everybody has a positive attitude in terms of what they think the future will hold and it feels great to be part of the team.
I apologize, but I'm not really sure what's going on with our phones today.
But you guys mentioned that October obviously was trending flat and you guys didn't launch the new ad campaign until the 23rd.
So I guess, just revisiting that previous question, have you guys seen a little bit of a step-up from those flat trends.
Or because you were going over maybe the hurricane from last year, there's a lot of volatility there.
I would say, there is the volatility around when we were lapping the hurricane from last year.
But what we said earlier is, we were seeing results that were nearing where we're at today prior to the hurricane, so we feel like we've been building momentum.
And now that we've ---+ we have advertising, we hope that, that momentum can continue and hopefully build from there.
And just one additional thought on that is, we're also comparing against a discount period from last year in terms of direct mail.
So the comparisons are not quite apples-and-apples, but it's ---+ but we have seen progress.
Got it.
And then, I mean, in kind of a more normalized environment, how should we think about, I guess, the reset, new level of margin profile of Pollo.
Well, that is a big question.
I think we have a much healthier store base today, with a lot of the unprofitable stores having been closed, so the Pollo profile is certainly better in terms of sales.
So I think we're running about $2.5 million in sales on an average basis.
And then we're in the low 20s in terms of restaurant-level margins.
And we were higher previously in our higher-performing restaurants; however, we've made investments in food and in labor and in maintenance, so we're seeing that impact on our margin.
Got it.
So low 20%-ish.
Makes sense.
And then, just on G&A.
Are we still tracking kind of in that sort of the high 50s range for the year.
We haven't specifically guided toward G&A, but as we've shared, we've absorbed some savings this year, we'll see a little bit of savings next year.
So that, from a directional standpoint, seems appropriate.
Just because the Q3 G&A is so much lower than what we've seen, is that kind of the right way to think about it.
Or are we going to see some stock comp volatility, et cetera, to maybe move that around.
Yes.
We did see some stock comp impact this quarter just based on the timing of some of the grants that were issued.
We also have lower bonus payments this year because of our current performance.
So you'll want to take that into account as you think about next year.
Well, let's say, it's a very good question.
We are going to continue the advertising in a very pragmatic manner for the balance of the year.
We'll have advertising in the month of November as well as some in December for this year.
And then, next year, you would look for promotional windows of 6 to 7; and you would look for a strong presence of marketing and media throughout the state of Florida into Atlanta.
But you'll also see us doing more with social and digital media in the days and months to come as we target some of these users that we feel provide us with some larger opportunities.
And I think on the menu board, it's much simpler.
That's not my opinion, that's also our guest's opinion, to follow.
It leads up with the things that we do well at, which is the family meal as well as the half chicken and quarter chicken.
So ---+ and it also has the desserts.
And it's early; early indications are that desserts are doing extremely well, primarily the new cheesecake as well as new the key lime pie.
And that has increased our check average, which is not from price, it's primarily because of the add-on with the new sides that we talked about earlier as well as the new desserts that people are trying and liking.
Yes, we will.
Yes.
So right now we are targeting at least 30% return.
So the stores that we're opening in 2018 are primarily in South Florida, which generate returns in excess of that number.
And then, of the Taco Cabana new restaurants that will be opening, 5 of the 7 are conversions, which require a much lower investment amount ---+ and the conversions of a Pollo restaurant, much lower investment cost with which to open up a new Taco restaurant.
Okra.
Clearly, our research has showed us, in using one of the major research firms that are in the restaurant industry, that the menu differentiation by geographic area is the way to go ---+ the way we need to go.
This was done by research of both internal guests as well as our nonexternal guests, but I'll answer it another way.
The one item that we're looking at is fried chicken, and people have already said rich fried chicken.
But this will be our marinated chicken.
It's not going to taste like some of our competitor's fried chicken.
And it will not ---+ in the beginning, we're testing, it'll not be a bone-in, it'll be a boneless breast.
So we're still keeping the core of Pollo Tropical.
You'll still have the flavor from the marination that we have throughout the chain.
It's some of the side items that we're doing and some of the one-off items that are more local, giving the ---+ our users the ability to try something else in addition to just your typical bone-in whole chicken, quarter chicken, half chicken with the rice and beans.
So we're not changing the essence and core of Pollo, we're just bringing the outside of it to more a localized brand.
Yes, across the geographies, the consistency would be 75%, in that range, with the menu flexibility of up to 25%.
We'd like to thank everyone for their interest and their investment in the company, and thank you very much for participating on the call today.
| 2017_FRGI |
2015 | JWN | JWN
#<UNK>, this is <UNK>.
I'll take the first part of the question regarding the mobile app, and Trunk Club, and some of our newer businesses.
Our plan is to over time certainly include those businesses on that program.
But we're in the process right now of building out some new foundations for our loyalty program.
We're going to introduce a non-tender this fall.
And I think the important thing is we focus on getting that done first, and getting our larger businesses supported by that.
And then subsequent to that, we will put the functionality in for some of our newer businesses.
This is <UNK>.
With regards to the NPG question, thanks for noticing, yes.
We've had good NPG business, and our sales are growing faster in NPG than it is across our branded business and it's good.
It's just been part of our intention and plans, and it's been working out well.
I'd say in particular, some of the strong places where we've been performing is we've introduced Rack NPG in a much more purposeful way.
And that's gone very well.
The successful price point particularly in some of those more trend and young customer departments that we talked about earlier.
In women's, in particular I think BP and SAVVY.
That's gone extremely well, and also in TBD.
So across the board, NPG is performing well.
It's important part of our strategy, and we will continue to let it find its level.
Hello, <UNK>, this is <UNK>.
I'd say overall, it's just what <UNK> said earlier, that our plan is to provide the customer of choices to shop.
How they want to shop.
One of the interesting things about launching <UNK>Rack.com, is seeing the difference in customers between that business and our HauteLook business.
The [flashtail] business is still a very viable business, a big business.
It's one that we think is really additive to what we do, and there is a synergy there that foundation that HauteLook had was it allowed us to launch rack.com much sooner than we would have been on our own.
So we're seeing synergies of those businesses in things like a product, I think our product in <UNK>Rack.com has improved significantly since launch.
We're continuing to explore some synergies with marketing.
But again, there's a point while there's some customers who go back and forth, they are a separate customer.
Some customers prefer flash, some categories are stronger in flash, and some prefer persistence.
So we really like the combination.
Yes.
Thanks.
Sure, <UNK>.
First on the CapEx, as we said, we expect in the forward years after this year that the CapEx as to percent of sales will start to be below the average of 5%.
Next year should be measurably lower than it is this year, and we should see it gradually even off after that.
In terms of capital, I would just reiterate at this point in time, that we've had a very balanced approach in terms of how we not only invest our capital, but also how we return it to our shareholders.
And so should we be successful with the sale of the credit receivables, then we'll apply those lenses and we'll study what the most appropriate way is to deal with that excess capital.
And we will certainly let you know what we decide.
Sure.
The Rack, as we've stated in the past, behaves a little differently than our regular priced business.
But when it comes to the contribution, the four wall contribution, it's very similar to the full-line business.
So as that business continues to grow, it's contributing positively to the overall earnings growth of the Company.
Now that being said, as you go through the investment cycle we're going through right now, it looks a little different.
But long-term, that has a very positive contribution.
Thank you.
<UNK> this is <UNK>.
Regarding the port, we are no different than any other business that had some minor impact to that.
But we just didn't think it was material, and for it to create this later date to call out.
So for us, it didn't have an impact on the figure that warranted further explanation.
In terms of the business, we've talked about it a little bit.
We debated a little bit prior to the call till we go through some of the very minor nuances that maybe could have contributed to the Rack having a slight decrease, again, we've just seen some improvement there.
We're going against from last year, the best performance we had in the two-year time period in terms of the Q1.
But there were a number of little contributions that created that decrease.
But we're very confident about our plans for the year, and our ability to continue with the trends we've had in the past, and the budget we have of low single digits.
And again, we think the results of late are demonstrating that, and so we feel good about it.
Yes, <UNK>, I don't think any change in the sales pattern, particularly on the upside, is going to change our current game plan for the year.
We've got a lot on our plate.
We're running real hard to get everything done.
So if we are able to generate some incremental flow-through, that would likely be the case.
Hello, <UNK>, this is <UNK>.
We don't release expectations around rack.com's growth rate.
So I'll stay away from that one.
Okay, so I guess I'll answer the second part of that question.
This year in terms of free cash flow, I think we've said that this is going to be a year where we're not going to generate excess free cash flow, mostly because of our CapEx plan.
By the end of the year, cash levels will be approximately where they are now.
I think they are roughly about $800 million right now, they'll probably be between $600 million to $800 million depending on how the business performs.
Yes, <UNK>.
Well first, with the kind of growth plans we have, it's frankly tough to imagine that SG&A would decline.
Hopefully, we're in a position that we continue to grow, and we're funding that growth.
So I don't envision SG&A declining.
If you're going to get leverage, it's going to come from the top line.
We continue to look for opportunities I think to recalibrate elements of our business, to make it more efficient as customer preferences are changing, and that's helping us.
But in terms of expectations that SG&A would decline, I wouldn't factor that into your models.
Sure.
Well first with the gross margin, there's a few things going on there.
I'll tell you from a merchandise margin standpoint, we're relatively even with last year.
We had some deleverage in some components of the expense, and some leverage in other components of the expense that make up that line.
The other thing to understand is as the Rack becomes a large percentage total of the business, Rack has a lower merchandise margin than the rest of the business.
And so you're going to have just by the very nature a mix impact to that.
But our margins overall were on plan, so we felt good about the performance there.
In terms of share repurchase, we, every quarter, we recalibrate our buyback matrix.
We still have a substantial amount of authorization left to buy back shares, and we are still committed to a balanced approach to allocating that capital.
So I think what you should see in the future would be consistent with what we've done in the past.
Sure, <UNK>, this is <UNK>.
In terms of the inventory levels, we included on our slides there was a chart that I think directionally indicated where those increases were coming from.
We didn't share exact numbers, but I think you can certainly imply qualitatively where the growth was coming from from those slides.
In terms of Rack product that is coming from full line, <UNK> is going to handle that.
So it has a function of the sell throughs within the full-line stores, which where, as <UNK> talked about, we're always working on to be more efficient.
But as we add more stores, percentage-wise it comes down a little bit.
I do think it's important to note that you should look at it as well as the full priced business and off-priced business.
So as we have a more robust e-commerce business in full price, there's a portion of goods there too that we cleared through the Rack.
So it's not just a function of store count from full-line to Rack.
| 2015_JWN |
2016 | FL | FL
#Against the bulk of our brick and mortar banners, I don't necessarily see a big impact, because the level of distribution and product segmentation at both TSA and Sport Chalet is different than what we sell at the premium end.
I think there is a bit of pressure against the Eastbay business, as the cleated numbers that you hear, and I have no idea if the numbers that we hear are true or not, but there's some pressure against the cleated side and the performance side of the business.
But as it relates to back-to-school and what kids are buying, I don't see a lot of impact to our brick and mortar business, or brick and mortar brands, I should say.
I think we saw a little bit of impact on traffic on the day of the vote, but not much since then.
We do have a bit of a currency impact, in that we buy for that market in euros and sell in pounds.
And so we do what we can to hedge that currency difference.
I don't think we'll really see much, <UNK>, until the world starts to understand what it really means, and that's an ongoing debate at this point.
The consumer's back and shopping in the UK.
So we'll keep you posted, if we see things differently.
I spoke about the Kyrie shoe from Nike and the Curry shoe from Under Armour, both performed well in the quarter.
The KD 9 that launched, again, a different price value, a little bit of innovation in the upper, a great mid-sole and out-sole combination so the consumer responded to that.
The LeBron Soldier product that he wore in the playoffs sold well.
There's more work going on in basketball, and we'll wait until the vendors really bring that to market to talk about it.
I certainly would not think of preempting some of the good work that they're doing, and talking about it, before they talk about it.
Basketball, as <UNK> mentioned, was up nicely in the quarter.
Some of it is signature driven, some of it is lifestyle driven, but still good performance for us.
So we see good things in basketball in the back half of the year.
Well, we've said it many times, <UNK>, that our consumer's not driven by categories, they're driven by cool and sneaker culture.
So our buyers and our merchants do a great job of working with our vendor partners to bring in assortments that resonate with our consumers.
The consumer moves very quickly, so our team has to be very nimble and adjust on-the-fly, so-to-speak.
I'm less focused on categories.
We're less focused on categories than we are making sure that we have the assortment that is really stimulating the consumer's engagement with us as a brand.
So from an ASP perspective, they do a great job of managing that as well, and we're not talking about trading $200 signature basketball shoes for $49 shoes.
We're talking about a lot of these casual silhouettes still being elevated, and price points, and our focus is really on the premium area of sneaker culture, and the consumer is definitely responding to that.
So I don't ---+ <UNK>, you may want to comment on ASP mix, but I don't see any changes in the back half.
No.
The trend has been there for quite a while now.
ASPs have been up.
The customer has voted for these shoes, that they feel have really good price to value, and that price has been a bit elevated.
That, coupled with all of the really good work that we're doing on improving our allocation to get the right product to the right place, right time, and keeping control of the inventory growth.
That too has fueled lower markdowns.
Therefore, that is a bit of the higher ASP as well.
Our merchants are very thoughtful about the assortment across price points, to make sure that we're bringing compelling product, and it's not skewed to the point that we're pricing folks out.
We had a flat Q1, 40 in Q2, which was really driven by underlying merchandise margins.
We had a bit of a delever on occupancy.
We had this dynamic of some ---+ couple of properties here in New York that were closed.
So you got some sales and you got rent.
So a little bit of a delever there.
So as we look to full year, that 10 to 30 that we guided to still makes sense.
Well, <UNK>, the ASPs are ---+ I've said this for three or four quarters now, because that concern seems to be out there, but the ASP formula, algorithm, is really complex.
So a shift in basketball can be offset by lower markdowns.
It can be offset by elevated Stan Smiths or Superstars.
So our team, I can't give them enough credit.
They do a great job of mixing price points across footwear, across apparel, across accessories.
You combine the great assortments that they put in play across those price points, across those categories, and you combine that with great inventory management that <UNK> mentioned, and having the right product in the right store at the right time, so we don't have to mark as much product down, puts us in a position to continue to drive the premium end of the market, which keeps the ASPs at the level that we're at, and growing.
So I can't do much about the concern that you all see.
I can just rely on what our buyers, our merchants, and our vendor partners do to the mix of product, that we sell to our consumers.
That's one element, certainly.
Again, if there were just a straight A plus B equals C formula, we might share that.
I'm not sure that we would.
But we might.
But certainly that's one way to look at it.
The great product that stimulates the customer to buy it at the premium price points is good for us, and the less markdowns that we have to spend to move out of product, whether it be seasonally or because of sales performance, the better that is for our gross margin line.
So when you combine all of that, certainly having great products across all of the price points is one of the things that allows our ASPs to stay elevated.
The IMU has really stabilized, and it has been pretty stable for the last several quarters.
We are past the point where shift in category and brand mix is impacting the IMU.
Obviously the results in the guidance that we give, we've factored in what we see happening with minimum wage, and change to overtime exemptions, et cetera.
The reason why we are pleased with our wage compensation structure, that includes the commission element that's helpful to our store associates, it rewards those who are better salespeople.
They have the ability to determine their wage, and significantly earn above minimum wage, if they are good sales folk.
That helps us manage that.
But also, the reason that we continue to invest in things that give us some productivity advantages in the store, things like the processing of inventory, trying to make that more efficient, so that we can focus the hours on sales activity as opposed to stock keeping activity.
All of those are things that we work on to be able to manage that wage rate.
And as I described, we felt very good about how selling wages came out, and the leverage that we had on that.
Well, we are on a nice run with adidas, absolutely, <UNK>, and getting the allocations relates to the great relationship that we have with all of our vendor partners.
And right now in several markets, no matter what retailer you talk to, they would tell you they don't have enough of the best product.
But that's one of the things that our vendor partners really do, is they control the scarcity model, they pump in the appropriate number of shoes.
Our merchants would always like more.
They like to feed at the trough when something's hot, but the vendor partners do a good job of controlling the flow into the marketplace, and keeping that ever-present demand out there, and I think it helps to keep the heat in our industry.
It helps to keep the consumer excited about getting the next.
By and large, it's a good thing.
And we continue to work with all of our vendor partners to increase our allocations, and the story telling that we do in the store to connect better with the consumer, and connect them with the product stories.
We have a very balanced approach to our capital allocation.
The number one priority is investing in our business, hence what we have described as elevated capital with our remodel program and digital efforts, around giving the customers a great store experience, whether they come into the stores or digital.
And that investment is part of what we're doing to get after our long-term objective.
So priority number one is that investment, but we are very committed to returning cash to our shareholders, in both a strong dividend program and an active share repurchase.
At this point, we have $361 million remaining on our $1 billion share repurchase authorization.
It is not formulaic, so I can't describe something to you that would help you with that model.
But you can see, we recognize good value.
Sure.
From a store count perspective, <UNK>, we've announced or we talked about the last few quarters that we slowed down our store development here in 2016, because we've got two very significant properties that we're going to open in New York City, to give our SIX:02 banner a real presence in the city, and that's the 34th Street store that we'll see open in the next couple weeks, and then Times Square, which will have a SIX:02 shop within it, that will open hopefully by the end of the year.
So that was a decision that we made to slow down the store rollout, to make sure that we get those two doors right.
The SIX:02 team has done a great job of bringing in some new brands, catching up with the lifestyle side of the equation.
Again, this female consumer that we're after is very discerning in that she's expects all of the performance elements to be present in every piece that she buys, everything that she buys, but it's got to be very stylish.
And we've got some great new brands, the best place to see and measure the progress, if you're not near a SIX:02 store, is on SIX02.com and you can see some of the great showcase product that we've got there.
The intent would be to make sure that we've got the assortment right with some of the exciting things that we're going to see in 34th Street and Times Square.
We've got the physical space right.
We'll likely accelerate door count when we get into 2017.
We said all along that this is a very competitive marketplace.
The fashion is changing.
The look is changing.
The response and reaction to some of the asset-driven models are changing.
So she's a very discerning, very quick moving customer, and we're trying to capture her interest, and get her engaged with the SIX:02 brand.
It's been a little bit difficult with only 30 doors, so I'm a firm believer that the excitement that's going to be generated out of the doors here in the city will certainly give a big momentum push, as will some of the good work that we're going to do with some of our key vendor partners in the SIX:02 space, to drive real energy around that banner.
I'll tell you, I'm encouraged, because where we brought this customer the special product, she has really responded to it well.
Absolutely.
I think that the team is on to some good stuff.
There's always ---+ I've talked about it before, <UNK>, that the level of patriotism and the focus around sport and the excitement is driven by things like the Olympics, like the World Cup, like the NBA playoffs.
It may or may not be a direct connection or correlation to the product.
A lot of the product that you're seeing on the Olympians' feet and bodies will certainly be commercialized in the back half of the year and into next year, maybe not at the same price points that the special product for the Olympians has been built to, but at price points that are meaningful and commercializable in our stores.
There's excitement around the Olympics, certainly.
We have some very clear country-related and Olympic colored product in the stores, and there's been great response to that, but that's not what really moves the needle.
It's the after-effect and you'll see some of the great ---+ if you've been watching any of the track and field, there's an awful lot of great Nike product on the feet of a lot of the sprinters and distance runners that will certainly be in the Eastbay catalog.
Same thing with stuff from adidas and Puma.
Obviously Puma with Usain Bolt and the great performance that he's had.
The branding presence that you've seen from Under Armour, all those things are going to be positives to the business in the back half of the year.
The consumer that we're really trying to attract into SIX:02, she expects the performance elements to be built in.
So again, she's still very active.
She wears it to the classes that she goes to, whether it's yoga, spin, out for a run, whatever.
It just is more fashion led.
There's influence from some of the style leaders out there in the marketplace today that require it to be more than just a basic garment.
It's got to perform.
That's the expectation.
But it's got to look great and help her project that athletic fashion image that she's really after.
Makes a lot of sense.
If she's wearing it everywhere, she wants it to look really good and special.
And looking to us as a specialty retailer, we've got to bring her special.
It needs to be something different that she can't find everywhere else.
And while our core athletic brands are certainly making a lot of progress in that area, there's brands like Alala, and Koral, and Spiritual Gangster that are in SIX:02, that really bring the fashion twist to this performance product.
So it's not a lack of performance, or a real shift from the performance, it's just that the performance expectation is built into her mindset, when she buys the garment.
<UNK>, it's a good question.
The facts are that most of the basketball shoes that we sell never see a basketball court.
Most of the running shoes that we sell never see the roads or the trails or the track to run in.
They just look really good, and they're part of the sneaker culture that we really support.
So as our vendors continue to bring heat across the categories, whether it's deemed a performance shoe or a lifestyle shoe, our core consumers, the people that we really ---+ that are the sharp point of our muse work, they don't really distinguish things like that.
They're really more focused on how does it look, what message does it send to the people that I hang out with, et cetera.
So as long as people are talking about and wearing and in love with sneakers, we continue to support the sneaker culture, that certainly across the markets that we're in, is a significant part of today's pop culture.
And I think will be going on.
It's self-perpetuating, too.
You think about adults today grew up with sneakers.
They are getting ever-more discerning at an earlier age about the nuances between the different sneakers.
I think you see that in the results in our Kids business.
They fall in love at an early age, and they're not falling out of love with the category.
It's a good question, <UNK>.
And certainly Q2 I would chalk up part of the toughness to the market in Germany, because none of our banners performed well in the economy, with some of the traffic issues that we saw.
But from a broader perspective, we're repositioning both Runners Point and Sidestep, and we did some ---+ you know how we operate.
We test things pretty significantly before we go ahead and roll them out, and the tests that we saw back in 2014, when we positioned Runners Point was all things running, and Sidestep more on the lifestyle end of the spectrum, with our Foot Locker banner right in between.
The results in 2014 were pretty positive, and it convinced us that we could go ahead with that.
In hindsight, what he we found was there were a couple of really significant silhouettes that were driving the running side of the business, especially in Germany.
Each market in Western Europe is different.
Germany was definitely locked on to a couple of key silhouettes that have fallen out of favor a bit.
So it really caused ---+ first we fired a bunch of customers from Runners Point, because we took out the vulcanized shoes, we took out the skate shoes, we took out the boots, and we really focused it on the running consumer.
And then that running consumer moved off a couple of the key silhouettes that had really been propping up the results.
So it's an assortment mix.
It's a brand mix.
I think the team in Recklinghausen is addressing it as quickly as they can, with the vendor partners.
Then the other piece is on the Sidestep side of the house, making sure that we've got the right lifestyle piece of it and a little bit more fashion forward.
So we've got work to do there, but the team is diligently working on it.
We spent a little time over in Germany this summer, and we see some progress.
But we do definitely have work to do.
We're definitely committed to the SIX:02 brand and the amount of capital, <UNK>, we'll figure out as we keep moving forward.
We have to get a little brand recognition out there.
We have to make sure that we've got our target muse, and the right asset led, and scarcity model.
She's not that different from our male consumer, once we get the right product assortment in.
We have found when we bring the right product assortment in that's asset led and it's a little bit scarce, she's very reactive to that, and very much in those moments she looks very much like our male consumer.
But we have to win her every day, and that's where the shifts that you refer to, that we have talked about, are critical that our team is on those.
So from a ---+ we're certainly supportive and 100% behind the SIX:02 brand.
We'll get more brand recognition and momentum as we get through these openings in New York City, and 2017 and 2018 will look different from a capital investment perspective for her, I'm sure.
I think we have time for just one more question.
Well, couple of things, <UNK>, going back to the first part of your question.
We don't break out the exact performance of the remodels because each of them performs a little bit differently.
But it's ---+ I can tell you that the remodels outperform the balance of the chain, and in totality they surpass all of the hurdles that we have from a financial point of view, from a capital investment point of view.
So again, ideally we'd want to stop remodeling at that first one that doesn't pass all of those hurdles appropriately.
I'm not sure that anybody in the organization has that good a crystal ball, to tell us which one that's going to be.
We continue to be investing in that program, as <UNK> talked about.
And I guess I'd also point out that beyond the House of Hoops, that's certainly our biggest partnership program with our vendors, but we've got vendor partnerships across multiple brands.
We've got The Armoury with Champs Sports and Under Armour.
We've got Flight 23 and Jordan shops with Footaction.
We've got the Fly Zone with KFLs and Nike.
Those are open around the globe.
We've got The Collective with adidas.
They're all committed to bringing fresh, new, exclusive product into those spaces.
So I'm not going to get into the amount of exclusives that we've got in each of those, but the commitment that we've made, we signed the lease, we share the build-out costs, they deliver great product, some of it exclusive, some of it with time leads, et cetera.
We do the servicing and the story telling in the stores, and we have great partnerships that continue to fuel sneaker culture.
So they're all working and we're very positive about the vendor partnerships.
Well, we've had a great run in fleece on the high end, the tech fleece, et cetera, not so much in Q2, but still the kid was buying ---+ our consumer was buying fleece, even in Q2.
We've got a great position in wind wear going into the fall, and we've seen good early results from that.
So we're positive about that.
We've got the licensed product business in Champs Sports, at the level that we want to it to be, and they're having a nice run with licensed product where they're able to chase and fill in on the right team, the right player, et cetera, the right sport moment.
Dad hats are a winner on the accessories side.
So there's a lot of things that are interesting the consumer right now.
Graphic tees, the right graphic tees, some of them are sport moment led, some of them are culturally led, and some of them are just brand reads that our consumers are after.
The apparel is so much different in each of our banners that there's winners, and obviously some things that aren't quite as positive in each of the banners.
But it goes across the full spectrum.
Our merchants are doing a great job of really tuning into their local customer, and what appeals to that local customer in apparel, and assorting to it.
I think that's one of the things that we're seeing show up in the apparel results.
<UNK>, before you jump in I just want to make sure that we call out and have the people of Louisiana in our thoughts.
We've got a bunch of teammates down in Louisiana that have been flooded out, and we know that they're working hard to put their lives back to normal, but it's something we should all think about and remember, so ---+
Okay.
Thanks, <UNK>.
Thanks for everybody's participation today.
If we didn't get to your question, or you if you have a follow-up, I'll be back at my desk shortly.
Please join us for our next earnings call, which we anticipate will take place at 9:00 AM on Friday, November 18, following the release of our third-quarter results earlier that morning.
Thanks again and good-bye.
| 2016_FL |
2016 | WWD | WWD
#No, not a guide up.
We said that, largely, all of the [$16 million] would be recovered through cost savings.
Obviously, given the first quarter, you can kind of run rate these things ---+ full-year savings is probably closer to the number ---+ you know, the full [$16 million].
But ---+ so it is a slight downward ---+ extremely slight, to the guidance to the point where it isn't having a significant impact.
But it's not ---+ I would not characterize it as upside.
And so I think ---+ off of this, I think, <UNK>, you're saying the question is ---+ was it in our plan.
And would have been incremental, I think is a little bit ---+ and we were looking at that going in.
And so, as <UNK> highlighted, the guidance holds, and we will recover as we go through the year.
So it's ---+
It was anticipated along with the savings at the time when we gave the original guidance.
Right.
I think for the most part it was across all regions.
As I'm going through on the aftermarket upgrades and services, I'd look at we were doing well in Asia and the Middle East, and North America.
So it was pretty much ---+ the upgrade market and service is doing well everywhere.
That's a fair statement.
We look at where we are and we're not seeing or anticipating any downward pressure from already ---+
Any further.
---+ any further ---+ that is a good way to say it, <UNK> ---+ any further downward pressure from where we are.
Got it.
Well, depending upon what currency rates do, but we do not anticipate, and guidance doesn't really anticipate, any further heavy impacts to foreign exchange.
Thank you.
I will answer the second one first.
CapEx of approximately $180 million for the full year.
And what I mentioned was that in the second-half, we anticipate that the run rate will begin approaching that $100 million level.
Is that ---+ okay.
And I will turn it back to <UNK>.
Yes, so on initial provisioning spares in the aerospace market, we are seeing good provisioning coming from programs already launched, programs such as 787 and the like.
We also are anticipating just the beginning of some of the new narrowbodies as the fiscal year goes forward, but more of that will be in 2017.
But year-over-year, we're going to be up on provisioning sales.
Yes.
Usually we don't break it out ---+ all in all, I think we're looking at about ---+ I think it was about a 5% overall aftermarket increase.
And that's broken up between provisioning, spare parts, and repair and overhaul services.
And each are up year-over-year.
Okay.
Well, I'd like to thank all of you for joining us today, and thank you for your questions.
And hopefully, we were able to give you some clarity on our first-quarter results.
And <UNK> and I will look forward to talking with all of you in the next quarter.
Thank you.
| 2016_WWD |
2016 | HNI | HNI
#Good morning, everyone.
We'll share our assessment of the second quarter of 2016, provide some thoughts on our outlook for third-quarter and full-year 2016, and then open it up for questions.
I've very pleased with our year-to-date profit performance.
We delivered a 34% increase in non-GAAP earnings-per-share on 5% lower sales.
Gross profit has improved significantly, driven by strong operational material productivity.
We are clearly realizing the significant financial returns for our investments, including our Business System Transformation initiative.
Our businesses are strong, and we expect to deliver record non-GAAP earnings-per-share in 2016, while still continuing to aggressively invest and position our businesses for continued long-term profitable growth.
We're on track with our goal to double our earnings every three to five years, and feeling great about that.
So, for the second quarter, non-GAAP earnings-per-share increased 28% on 6% lower sales.
Sales results for the quarter were as we expected.
Office furniture sales were down 5%, down 7% on an organic basis.
Sales of the supply-driven channel were up 1%, or down 2% on an organic basis.
Sales in our other office furniture businesses, which include North American contract and international, were down 11%.
Our North American contract business was down [9%].
Our art sales decreased [8%].
Strong continued growth in the new channel ---+ the new construction channel continued with sales increasing [8%].
Sales in our hearth retail channel were down 23%.
During the quarter, dealers with our Majestic, Monessen Vermont Castings brands adjusted their buying patterns and inventory levels.
As a result, sales of our retail [non-pellet] products were down 18%.
So let me explain a little bit.
Our industry-leading operational capabilities provides a more efficient delivery model with better cash flow for our dealers.
These dealers are reducing their inventory levels and realizing the timing of their seasonal orders to the back half of the year.
Our retail pellet products, which represent 4% of our sales in the second quarter, were down 52% due to the impact of warm weather and lower energy costs.
So, overall, I'm very pleased with our strong performance in the second quarter and first half of the year.
I'll turn it over to <UNK> <UNK>.
Thank you, <UNK>.
Additional financial highlights for the second quarter include non-GAAP consolidated gross margin of 39.9%, was an improvement of 340 basis points versus the prior-year.
These results were driven by strong operational and material productivity and price realization, which was partially offset by lower volume.
Non-GAAP selling and administrative expenses were down versus the prior-year due to cost reductions at both the operating segments and Corporate, partially offset by the impact of incentive-based compensation and acquisitions.
As we look to the third-quarter 2016, we anticipate consolidated sales to be up 3% to flat.
On an organic basis, consolidated sales are forecasted up 1% to down 2%.
Office furniture sales are expected to be up 4% to flat.
And organic office furniture sales will be up 2% to down 2%.
Supply-driven office furniture sales are projected to be up 6% to 9% or up 3% to 6% organically.
Sales in our remaining office furniture businesses are forecast to be down 3% to 6%, and sales in our North American contract business are expected to be flat to down 3%.
Part sales are expected to be up 3% to down 1%.
New construction channel sales are forecasted to be up 6% to 9%, and sales in our remaining hearth businesses are expected to be down 3% to 6%.
Within those remaining part businesses, we are projecting retail non-pellet sales to be up 3% to flat, and retail pellet sales to be down 16% to 19%.
Non-GAAP gross profit margin is expected to be approximately the same as the second quarter of this year when it was 39.9%.
Non-GAAP SG&A is expected to be approximately 20.5%.
So our estimate of non-GAAP earnings per diluted share for the third quarter is now in the range of $0.90 to $0.95 a share.
So for the full-year 2016, our current best assessment of non-GAAP earnings per diluted share is now in the range of $2.80 to $2.95 a share.
We expect consolidated sales to be down 1% to 3%, in line with our prior guidance.
We are forecasting office furniture sales to be down 1% to 4%, and sales in our hearth business for the year expected to be flat to down 3%.
<UNK>.
All right.
Well, thank you, <UNK>.
I'll wrap up here.
Our businesses are strong and well-positioned for the future.
Our brands are competing well in their respective markets.
We continue to identify investment opportunities that will deliver strong financial returns in the future.
I'm confident in our ability to drive long-term shareholder value.
So with those comments complete from <UNK> and myself, we'll now open it up to questions.
Well, first off, <UNK>, as <UNK> indicated to you, our guidance for the remainder of the year on topline is consistent with prior guidance.
So, we're seeing the overall market kind of behaving as it did the last time we addressed this or spoke about it ---+ there's no real change there.
The upgrade in the guidance is just continued strong execution, operational performance.
And we are believing that's going to continue as we go forward.
I'll let <UNK> address the interest.
Yes, I don't think interest changed, <UNK>, in our outlook.
We refinanced our credit agreement in April and took out some private placement debt with a revolver that has lower financing.
But I would say that was all incorporated in our full-year ---+ our quarter and full-year guidance.
So, to <UNK>'s point, it's really driven by that strong operational performance which we've seen through the first half of the year and continuing through the back half.
Yes.
I wouldn't think about it too differently than we've talked in the past, <UNK>.
I would think of office furniture 25 percentage points or so ---+ you know, that can be plus or minus a few; and hearth, we've said ---+
Of leverage.
Of leverage.
And hearth operating leverage in the 30% to 35% range on kind of a normalized basis.
And then you are exactly right ---+ the add is those structural cost takeouts on top of it.
And I think what we said last quarter ---+ or a couple of quarters before ---+ remains similar to today, our outlook.
We said we'd start to see a modest amount of benefit here in the back half, really the fourth quarter of 2016, and kind of 50% to 60% in 2017 of that $35 million to $40 million that we had laid out at run rate by 2018.
So I think it's pretty consistent with what we've talked in the past.
But you're ---+ if you're thinking about how you layer that up, you're on the right track.
I'd probably skew it more as it builds through the year as you think about it.
But I ---+ so, that would be my direction.
Next year.
So experiencing strong growth in new construction channel ---+ liking that a whole lot.
Interesting sort of dynamics around this supply chain destocking ---+ or whatever term you might want to use ---+ of the acquired Vermont Castings dealers, which includes Monessen, Majestic, and Vermont Castings brands.
So we ---+ one of our strengths in the hearth business is really an outstanding ability to deliver products, through a manufacturing capability and a distribution capability, closer to time of order.
So that allows the dealers to not ---+ they don't have to take early buy inventory and hope and pray it sells through, because they're able to take it as they order it.
And that creates tremendous opportunities for improved cash flow for the dealers, and we become stickier with them as well.
So that's all good.
And then the ---+ so that's going to work through; that should work through between now and the middle of next year, I would say.
And then the other is this pellet decline.
So it's just a dramatic decline.
It ran up dramatically the previous 24 months and now it's running down dramatically.
And I would say we're getting down towards the bottom of where I think that's going to settle out.
That's probably another ---+ through this burn season, so the middle of next year, it should start to annualize there.
And it's becoming a smaller and smaller portion of our business, so it has less and less impact.
So, to answer your question again is, I would say the middle of next year, <UNK>, is when we should start to see all this stuff kind of reach an equilibrium.
And we'll feel the full benefit of the new construction growth and less of the downdraft from sort of supply chain inventory positions and the negative draft from pellet declines.
Well, <UNK> provided some guidance on this.
So, really we're saying it's ---+ our view hasn't changed on this.
It's going to continue at the current run rate; the comps become easier.
We like a lot of what's going on with our business there, but I don't think, <UNK>, we're calling anything additional up or we're calling anything additional down since we spoke with you last.
Yes, <UNK>, just as you think about that guidance for the year, that would imply back-half on our North American office furniture businesses would be flat to up very modestly.
And that's in line, as <UNK> said, with what we talked about before.
Say more, please.
I'm not sure I understand the question.
Nothing that we would call out.
So I'll take your corporate question first.
I would expect, from a full-year basis, corporate expenses to be up slightly.
You've got some issues on timing.
We had some big cost reductions in the back-half of last year that will anniversary; some strategic investments; some of the things with our self-insurance programs around medical, and our other insurance programs that move between the quarters.
And then, finally, you think about incentive-based comp that rolls through there, predominantly around profit-sharing for our members, as our business profitability improves.
So, we'd expect to see full-year core non-allocated corporate to be up very modestly versus prior-year.
Your second question was a variable fixed.
Everything in our business is variable.
We have no fixed costs.
So, we don't really separate that out in our thinking.
We take costs out, and we expect cost to come out and it stays out when it comes out.
And I'd add ---+ I'll take a slightly different twist on it ---+ if you think about structural costs a bit, to <UNK>'s earlier question, what we have not yet to see the real benefit of is important, is this structural ---+ big structural cost take-outs we talked about beginning of this year, just starting to come into play in the back-half of the year.
So there remains significant opportunity, as we look out from now through the next three years, to further reduce our structural costs.
And we called out, back in February again, $35 million to $40 million on a run rate basis.
And we feel good about that ---+ that opportunity in front of us.
That ---+ we haven't backed off that at all.
So, as <UNK> said, that's still yet to be executed and still yet to be accounted for as go forward.
Yes.
So, I'll take a run at that.
So, clearly, first-half of the year, there was some modest deflation.
And as we look at ---+ in the second-half of the year, we'll start to see that flat kind of be flat.
So we won't see the same benefit.
But remember, <UNK>, we buy particularly steel and many of our materials on an index basis, so we tend to lag.
So it's more of a 2017, and really, as you start to get past the second quarter before we start to see any significant impact from a material cost increase.
Yes.
That's ---+ I think you summarized it well, <UNK>.
Thanks, <UNK>.
Well, thank you so much for tuning in.
We appreciate your interest in HNI, and we look forward to speaking with you more in the future.
Have a great day.
| 2016_HNI |
2015 | ELY | ELY
#<UNK>, this is ---+ looking forward is highly speculative.
Take it with a grain of salt any comments on there.
There certainly has been a less promotional environment this year.
There's been less inventory in the field.
If you look at all of the metrics you can see that the field inventories in sticks particular are down year over year and down in a meaningful manner.
That same is occurring on an international basis.
Launch cycles in general have lengthened, or product life cycles.
Certainly here at Callaway we've made a very conscious and strategic decision to lengthen many of our product life cycles.
We feel good about that.
It has led to improved market conditions in most of the markets across the globe, but particularly here in the US.
Right now I feel good about it, that there's been a stability restored to the markets that is sustainable.
But that's very speculative.
Now it does feel sustainable and we are enjoying very stable improved trading conditions.
<UNK>, this is <UNK>.
I think you have to be a little bit careful in looking at revenue as it compares to our production volume and the type of absorption we get.
I think that we will try to produce in a more stable, constant way over the course of the year, so I wouldn't necessarily try to equate, if I understand your question properly, an expected fixed cost absorption or a variable contribution on higher margin from quarter to quarter.
What I can tell you is that there's been tremendous operational improvements in the golf ball business and the margins have improved greatly year over year.
I wouldn't be necessarily looking for variation from quarter to quarter on changes in volume.
So if you compare our current results or our current guidance to prior, just for the impact of foreign exchange, there was actually a slight negative impact to our Q3 results versus our prior guidance for foreign exchange, about $2 million to $3 million on the top line.
If you look at our full-year guidance right now and the impact of that FX on that, there is actually slight positive impact of about $3 million.
I would say that's primarily due to the strengthening yen.
In the grander scheme of things in the larger context of our $800 million-plus of revenue, it sort of noise.
Hey, <UNK>, this is <UNK>.
Yes, we are.
In a local currency basis, because of the foreign exchange movements, we've also had to increase pricing in the international markets.
You are seeing both the average transacted price points move up and the price points on the new products as we bake more and more technology into them.
That seems to be resonating with consumers.
From a Callaway perspective it's been a trend that's continued for a year or two.
The sell-through results have been positive.
When you look at all of the international markets, we've started to adjust pricing, including in Europe.
Europe had a really strong quarter but there is some pricing in the results, particularly in Q3, in the international markets.
So it's definitely part of the story.
Great question.
I don't know.
We are moving based on what we believe our product is worth and the technology we're putting in it.
In the international markets we are very successfully raising the prices.
But I think there is a trend in the market as well.
We are a leader, though, in so many product categories now and so many markets that I'm sure we are influential.
And <UNK>, this is <UNK>.
The other thing that I would mention on pricing in this industry, it's not just the price that products are sold in at.
Pricing in this industry is also having to be less promotional and have less discounts.
I think the strength of our products and our market share and how the products has resonated with consumers has allowed us to be less promotional in terms of discounting.
That's price too.
Sometimes that's not as obvious as selling in at a higher price point, it's also us being less promotional and having to discount less given the success of the products.
It's probably worth explaining because it's a little bit complicated.
What's happening to the shares, they are being used in our EPS calculation.
When we converted to $85 million of debt in Q3 that actually led to the issuance of 11.3 million additional shares.
However, the weighted average shares that's used in the calculation for Q3 only went up by 5.3 million because that transaction happened somewhere after we were halfway through the quarter.
When you look at it on a full-year basis, and <UNK> mentioned that we've actually issued a notice of redemption for the remaining principal balance.
When that happens and that is redeemed, which we anticipate it would be, there'll be another 3.7 million shares.
You will get the full 15 million shares now added to our basis.
However, that would be averaged over 12 months for a full-year EPS calculation.
So on a weighted-average basis that adds less total shares to the full-year weighted average over the full year, because it's dividing by the 12 months now.
Correct, right.
That's exactly right.
You'll get the full effect of the 15 million shares in 2016 [earning] from day one.
You got it, <UNK>, and in Q4 it's going to be closer to that more into the mid 92 million because you'll have almost all the shares in for Q4.
Yes.
Thank you.
I want to thank everybody for tuning in today and calling in on the call.
Again, to the Callaway team, thanks for some great results.
Appreciate it and let's keep it going.
Thank you.
| 2015_ELY |
2018 | HVT | HVT
#Thank you, operator.
During this conference call, we'll make forward-looking statements, which are subject to risks and uncertainties.
Actual results may differ materially from those made or implied in such statements, which speak only as of the date they are made, and which we undertake no obligation to publicly update or revise.
Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the Securities and Exchange Commission.
Our President, CEO and Chairman, <UNK> <UNK>, will now give you an update on our results and provide commentary about our business.
Good morning.
Thank you for joining our 2017 full year and fourth quarter conference call.
As we released earlier, fourth quarter net sales were down 2.6% with comparative store sales down 3.5%.
Total written sales were up 0.3% and written comparable store sales decreased 0.7% over last year.
While we were disappointed with the close to the year, we feel that we're well positioned to build positive momentum in 2018.
The earnings per share for the full year 2017 were $0.98 compared to $1.30 in 2016.
The Tax Act resulted in a reduction in diluted earnings per share for Q4 and the full year of 2017 of $0.27.
The most important sales driver continues to be increases in our average sales ticket, up 2.2% to $2,030.
This is the 13th straight quarter, the average sale has increased compared to the previous year period.
Our in-home designers were instrumental in 20% of our sales, and when of our designer is involved, our average sale is twice the overall average.
We continued to see a decrease in store traffic, but our closing rate is increasing, which we believe is related to our improved sales training and customer engagement as well as customers preshopping on our website.
Over 80% of our customers have searched our website before coming in the store.
We believe that havertys.com is inspiring our customers, and we're working to make it as transactional and easy to use as any in the industry.
Total written sales for the first quarter to date are up 1.7% over the same period last year, with written comp store sales up 0.9%.
Total delivered sales for Q1 are down 1.7% and comparable store sales decreased 2.4% over the same period last year.
We began the year with a softer New Year selling event and experienced an actual winter in our regions, which helped us start weekly.
We're pleased to see that the recent Presidents' Day Holiday sales were strong enough to help produce the positive year-to-date written numbers.
This year, we've implemented an omni-channel solution to make sure we're meeting the customer, where she wants to meet.
We've added a pay now link to our sales tools, which has been very well received by our customers and sales team.
This allows customer engagement started at the store to be completed online while incenting the sales team member.
We've added a much improved idea board for the customer as well as My Design Center, so the customer can have full access to our 3D and 2D design tools whether in-store or online.
My Design Center allows customers to utilize Havertys' website on her terms.
Our team members in stores get credit for online transactions when they have established a working customer relationship.
We're seeing a 10% increase in our Internet sales and it's currently running at 2.2% of total sales.
We've been successful in adding higher quality product across all our categories.
We've recently seen a nice improvement in our leather upholstery lines and in our revamped youth bedroom categories.
We know that our customers expect fashionable, better quality merchandise from Havertys and our H Design associates have helped us grow special order and custom products, assisting our customer make the vision of their home come true.
We've recently heard many customers comment about our stores that look younger.
We think that means that the major remodeling of our stores with LED lighting, open and easier to shop floor layouts and more fashion-oriented products, we now have a feel that relates better to today's shopper.
Our significantly improved accessory program of wall decor lamps and area rugs has been a real factor in completing the rooms look and building the average ticket.
We're seeing more interest in casual rustic finishers in our case goods and the entertainment areas.
The new bedding lineup rollout, which is underway, will be important in helping us gain share in that important department.
We recently commissioned an in-depth survey of 1,500 customers and potential customers, which question brand awareness in key drivers in the shopping process.
Among all respondents, Havertys received the highest ratings in almost all categories.
Havertys rates highest on a trustworthy brand; comfortable product; durability; superior craftsmanship; professional, knowledgeable and friendly associates; a wide selection in a style I prefer; staying on top of trends; good value for the money and available in a timely manner.
We also rated highest on free in-store design and customized furniture.
An area where we rated third was in sales promotion ---+ in the sales promotion area.
We've begun a deep dive on how to best reach and appeal to our core customer and to attract new younger customers.
In 2018, we're investing additional dollars in more specific focus marketing in the digital space and with a targeted television program in most of our important markets.
We are enthusiastic that this effort will help us gain positive sales momentum this year.
Just this month, we have shipped industrial-strength Android tablets for our stores and our sales teams to better serve our customers in the stores.
This replaces our former BYOD program of iPads that we built several years back.
I saw these tablets in use this past week, and our sales team is very enthusiastic about the ability to complete any transaction and show all our products without ever leaving the customer.
With all our H designers having easy-to-use laptops in the store and homes, this technology combination is changing the customer engagement process.
We feel that these 2 devices with the sales and H Design team may significantly strengthen the sales culture by allowing an uninterrupted customer engagement through the entire sales process.
This year, we've modified our management incentive programs for all of our executive officers as well as our regional in-store managers to more closely align with our monthly and quarterly sales goals.
We'll always be disciplined in controlling cost and maintaining gross margins, but this year, there are stronger financial incentives to make sure that we do everything to help serve our customer and to grow the company sales.
We ended 2017 with 124 stores, serving 84 cities in 16 states, with approximately 4.5 million square feet flat with last year.
After opening one store in a new market late this year, we expect to see a slight decline in the store count and sales square footage by year-end 2018.
Our ongoing focus continues to be the drive for higher sales per square foot, reaching our previous highwater mark goal of over $200 a foot.
We ended 2017 at $185 per square foot.
By early summer, we will open the 150,000 square-foot expansion of our Western Distribution Center outside Dallas, Texas.
This will feature state-of-the-art furniture handling processes and equipment and will allow us to better serve and grow our business in that important region.
We will reduce double handling of product and excess transfers while allowing for more regional selection and faster delivery to our customers.
In 2018, we are concentrating on maximizing our investments and tools and continuing to make the process improvements throughout the company.
Our ongoing top priority is improving the interaction with every customer.
We know that we must make the shopping and buying process smoother and genuinely enjoyable for our customer.
We are driven to delight our customers.
And this is the Havertys' mission.
And I'll turn the call back over now to <UNK> <UNK>.
Thank you, <UNK>, and good morning.
In the fourth quarter of 2017, sales were $215 million, a 2.6% decrease over the prior year quarter.
Our comparable store sales were down 3.5% for the quarter.
As expected, our gross profit margin decreased 80 basis points to 54.1%.
The $800,000 decline was primarily due to the increase in our LIFO reserve.
There was a $700,000 increase in this reserve in 2017 versus an $800,000 decrease in 2016, which resulted in a $1.5 million change over the prior year quarter.
Selling, general and administrative expenses declined $900,000 to $103.6 million or 48.2% of sales.
This decline was largely driven by a reduction in administrative cost, primarily reduced medical benefit costs and employee incentive compensation, which was partially offset by increased advertising and marketing expenses and occupancy cost due to new store openings and renovations.
Other income of $1.9 million includes gains from insurance recoveries related to our Wichita, Kansas store and our Florida, Alabama and Georgia stores that were impacted by Hurricane Irma.
If you recall early in the third quarter of this year, we temporarily closed our Wichita location due to flooding caused by a ruptured water pipe.
This location was reopened late in the fourth quarter of 2017.
Interest income was basically flat at $0.5 million, and pretax income decreased $3.3 million to $14.1 million during the quarter.
Our tax expense was $11.1 million during the fourth quarter, and it was impacted by $5.9 million charge related to the Tax Cuts and Jobs Act of 2017.
The reduction in the corporate tax rate required us to reevaluate certain tax-related assets based on the new statutory rates.
Including the impact of this charge, our effective tax rate was 79.2%.
If you exclude the $5.9 million charge, our effective tax rate was 37.5% in the fourth quarter.
Net income for the fourth quarter of 2017 was $2.9 million or $0.13 per share.
Excluding the impact of our tax charge, our net income in Q4 was $8.8 million or $0.40 per share.
Now turning to our balance sheet.
At the end of the quarter, our inventories were $103.4 million.
We ended the quarter with $79.5 million of cash and cash equivalents.
And our $60 million revolving credit facility remains untapped as we have no funded debt.
Looking at some of our uses of cash flow.
Capital expenditures were $9.1 million during the fourth quarter of 2017 and $24.5 million for the full year of 2017.
We expect to spend approximately $20 million in capital expenditures in 2018.
During 2017, the company paid a total of $11.4 million of cash dividends to the holders of its common stock in Class A common stock.
As <UNK> mentioned in terms of store count, we ended the year with 124 locations.
Our earnings release list out several additional forward-looking statements indicating our future expectations of certain financial metrics.
I'll highlight a few, but please refer to our press release for additional commentary.
In 2018, we expect our gross profit margin for the full year to be 54.7% compared to 54.3% in 2017.
Gross profit margins for the first half of 2018 are projected to be 20 basis points lower than the average for the year with the second half running approximately 20 basis points higher.
Fixed and discretionary type expenses within SG&A are expected to be in the $258 million to $260 million range for 2018, up approximately 2.3% over those same costs in 2017.
Variable SG&A costs for 2018 are expected to be 18.5% as a percentage of sales.
After review of the recently passed legislation known as the Tax Cuts and Jobs Act, we expect our effective tax rate in 2018 to be 25%, excluding any impact for the vesting of stock-based compensation awards.
This concludes our commentary on the fourth quarter financial results.
Thank you for your participation in today's call.
Operator, we would like to open the call for questions at this time.
Yes, we see ---+ we came in right about where expected in 2017.
And we're expecting to go up, as I mentioned, into 2018.
And primarily it's a continuation of less markdowns and more favorable pricing and product mix, in general, for 2018 on the gross profit line.
On the G&A side, we've got some higher occupancy costs, some inflationary increases in salaries.
We talked a little bit in our press release about enhancing our 401(k) plan and things of that nature.
So we've got about 2.3% increase in our fixed G&A costs by going from $253 million up to $258 million to $260 million.
And then on our variable G&A component, where we're projecting it to go from 18.3%, up to 18.5% and that's primarily more increased personnel costs and related to delivery and warehousing.
Those are the kind of the big categories for next year.
We certainly are keeping our eye on it.
It's top of mind.
At this particular point in time, we don't anticipate a huge impact of freight in terms of own our LIFO as we saw last year.
But that's something that we are monitoring very closely and if that viewpoint changes, we'll let you know.
Well, I think the main thing is that we want to consolidate and use our best stores and make sure that we're focusing there.
We do have some leases that are terming out this year in markets that we already feel we have good coverage.
And yes, they would be underperforming stores.
A few of them, we haven't announced them, but they really overlap in most ---+ in several of our markets.
So an example would be, we just opened a magnificent new store in Columbia, South Carolina and closed 2 smaller underproducing stores.
And in Birmingham, we closed a store and consolidated into 2.
So it's helping us be more productive.
And ultimately, the objective is to be more profitable in serving these markets.
Well, we are going to give some back to our employees, and we haven't detailed that, but we will.
I do believe that we plan to invest more in marketing in our major markets.
So we've ---+ those are in the numbers that <UNK> gave you.
So we feel pretty good about that.
I just think there is some opportunities to also look as we do every year at our quarterly dividend that could be something that we would look at.
And we also have the ability to do some stock buybacks, which depending on how the market reacts we could be doing that also.
So we've got a lot of visibility and a lot of possibilities to what we do with the cash.
We're looking at some other opportunities, but our whole focus I've just outlined is getting our existing markets producing better and existing stores covering that and getting more sales per square foot.
We started slow because of it.
It is winter and weather is a factor every winter.
I would say, it impacted the East ---+ our coastal stores, the Atlantic coast stores, more significantly than anywhere else.
And I pointed out, we were behind going into this past holiday event, and we did very well there, which brought us positive.
So it did impact everywhere mostly ---+ well, it didn't impact Florida, but mostly the Atlantic coast stores up to D.
C.
where it just came week after week as it tends to do up there.
So I don't think we have any specific quantification for that.
It's about 20%, but it's increasing in some of our better markets.
And I think we will get close to the goal I outlined several years back of being about 25%.
We are not a decorator house.
So a lot of our customers come in and just need to be served on something specific.
Our sales team, I think, with these new tools and the training is more qualified and adept in doing that.
We don't have to get in everybody's home.
We would like to, but that's not how our customers want it.
So we provide it however she'd like to do it.
And I think somewhere in the mid-20s percent is where it'll level out.
Well, I will say that everything for a corporate officers ---+ not everything, but a major portion of our corporate officers' incentive pay and LTI is related to performance.
I've been on that for quite a while.
<UNK> and I have been ---+ we made sure that is going all the way down and specifically to seeing increases in sales.
We have also changed the percentage mix for all of our store operators and general managers and individual store managers where they might have been related heavier on pretax profits.
They're going to be more incented on hitting monthly and quarterly sales numbers because we have pretty good control over the expenses now.
And I think the main ---+ their main energy and effort needs to be in making sure that we serve our customers and generate sales at each location.
That's a board decision.
And yes, we have done several when we had excess cash.
It's certainly an option.
That's a board decision, and they review that every quarter.
Great.
Thank you.
Thank you, everyone, for your participation in today's call.
We'll talk to you again in early May when we release our Q1 2018 results.
| 2018_HVT |
2017 | DAN | DAN
#Thank you, <UNK>.
Good morning, everyone, and thank you for joining us for our Q2 earnings call.
In addition to highlighting our very strong financial results, I also appreciate having this opportunity to briefly communicate how the Dana team continues to deliver on our commitments and progress towards our long-term targets.
In the second quarter, we delivered strong results with sales of $1.8 billion, which was a very robust 19% year-over-year increase, 11% of which was organic growth.
This is our second consecutive quarter that we have achieved double-digit year-over-year organic growth.
This strong organic growth is a result of relentless perseverance to provide innovative products and outstanding service to our customers, leading to our strong sales background.
This, coupled with our recent acquisitions and improved end market demand, continues to drive our top line revenue growth.
Our adjusted EBITDA came in at $217 million or 11.8% margin, a 30 basis point improvement over last year.
Diluted adjusted EPS increased 28% over last year's second quarter to $0.68 per share primarily due to our improved operating results.
Free cash flow was strong at $96 million, driven by higher earnings.
And finally, we have significantly increased our full year financial targets from the prior guidance, including an additional $0.5 billion in top line growth.
Coming back to the operational activities.
Last quarter, I updated you on the progress we are making relative to executing on our enterprise strategy by specifically highlighting the first 2 elements: leverage the core and customer centricity.
This quarter, I would like to provide you a brief update on the balance of the 3 elements: expanding global markets, commercializing new technology and accelerating hybridization and electrification.
Please turn your attention to Slide 5 as I would like to briefly describe how Dana is leveraging our expanded global footprint to increase our markets through customer service and outstanding performance.
The third gear of our enterprise strategy is to expand our global markets.
Needless to say, to capitalize or grow in addressable markets starts by ensuring that we are properly positioned to compete in our target markets.
By investing both organically and through acquisitions, we are optimizing our global footprint by adhering to our operating principles highlighted on the page: sharing of best practices amongst our new and existing facilities, ensuring that we are in near proximity to our customers, benefiting from improved resource utilization and capabilities in the region, and providing our customers a single-supplier solution for their global vehicle platforms.
One of the less conspicuous yet extremely important benefits that came with the Brevini acquisition is their outstanding global service and assembly center network to support off-highway customers.
These centers, although small in physical size, are low cost and extremely effective at facilitating pull-through new business sales from large and small customers while supporting our local aftermarket customer requirements.
Another example includes the acquisition of the SIFCO operations in Brazil.
These operations have enabled us to better support our customers by accommodating local content requirements and further strengthen our position as a central source for Ford's products across their off-highway, light vehicle and commercial vehicle segments.
By acquiring the USM facility in Warren, Michigan, we have expanded Dana's already substantial manufacturing footprint in the U.S. and advanced our strategy for developing, designing and manufacturing products in close proximity to our customers.
We're also expanding our footprint organically.
As we've previously shared with you, Dana announced a new high-tech axle assembly facility in Toledo, Ohio.
The facility, which will open later this year, is located less than 3 miles from Fiat Chrysler's Toyota assembly plant and is also optimally located to support automakers throughout the region.
Supporting our ongoing commitment to China market, we broke ground last month on a new manufacturing and assembly facility in Chongqing, China that will provide advanced driveline products for the Chinese light vehicle market.
Scheduled to open in late 2018, the facility enables us to bring our latest all-wheel-drive technology to Asia.
And if you recall, we recently broke ground on a state-of-the-art manufacturing facility in Europe to support new business wins in that region.
Dana's fourth operation in Hungary, the plant is strategically positioned in close proximity to our existing Gyor operations to facilitate resource and best practice sharing, enables us to deliver technologies to our European customers more efficiently and cost effectively.
Please turn to Slide 6, the fourth element of our enterprise strategy: commercializing new technology.
The public recognition we have garnered from around the world as a mobility supplier that truly collaborates with its customers to provide industry-leading technology, quality and service is further proof of the effectiveness of our strategy.
This quarter, Dana received several major awards from valued customers, and partnered with another who received industry recognition for providing class-leading technology in a very competitive market segment.
In May, we were honored by Fiat Chrysler as the 2017 Innovation Supplier of the Year for North America.
This award recognizes extraordinary commitment to innovation, quality, warranty, cost and delivery.
Specifically, Dana was acknowledged for developing a technologically advanced heat exchanger that boost engine power for the induction-air system of a future FCA vehicle.
Dana was also honored by Ford for quality, value and innovation, receiving the prestigious Ford World Excellence Award.
As you may know, our industry-leading AdvanTEK axle technology is found on the new Ford Super Duty truck and, soon, the new Ford Ranger and Ford Bronco here in the United States.
An international panel for 24 European countries recently selected the Volkswagen Crafter as the best transport van of the year for 2017, featuring Dana's proprietary driveline design, which integrates the vehicle's all-wheel-drive system with an electric locking differential.
These awards, like the numerous other awards Dana has received over the past year, are testament to the emphasis we place on technology leadership, providing our great customers with world-class quality, service and advanced solutions that will help them to succeed in the marketplace.
Let's move to the next slide to discuss the final component of our enterprise strategy, accelerating hybridization and electrification.
Dana has been designing engineering products for hybrid and electric vehicle manufacturing for nearly a decade in our drivetrain and thermal management businesses.
These capabilities serve as key enablers as hybridization and electrification accelerates across mobility segments.
An example of this I would like to share with you today is in our off-highway segment, where we have recently partnered with Sandvik, a world leader in technical solutions and equipment for mining and construction industries, on a new electric drive unit for an underground drill rig for the mining industry.
This revolutionary drivetrain technology enables the battery to recharge during a drilling cycle or during downhill tram utilizing its regenerative braking system.
This first-of-a-kind technology helps to reduce production costs while reducing environmental impacts.
The mining industry has been utilizing electrified drivetrains for many years.
This new product entry is a great example of how Dana is unique to most companies in the mobility segment in that our investment in core technology, including electrification, is transferable across all 4 of our businesses and all 3 of our end markets.
Please turn to Slide 9 for an overview on market conditions.
In North America, stable economic growth is providing a solid base for all of our businesses.
And while light truck production is still expected to be mostly flat compared with last year, we continued to see good growth in our key light truck platforms, including the Ford Super Duty.
We are increasing our expectation for Class 8 trucks and are now forecasting production to be in the range of 220,000 to 240,000 units this year.
And building on the trend that began last quarter, we are continuing to see improving market conditions for our mining and construction equipment globally.
Moving to Europe.
We expect slow economic growth this year due to continued political and economic uncertainty, but our currency expectations have improved as the euro has strengthened against the U.S. dollar.
The European off-highway markets are moderately stronger, including the mining sector, where we are seeing the expected stronger aftermarket demand as well as improving OE demand as mine operators are replacing existing equipment.
Looking at South America.
We remain positive about Brazil as the economy begins a slow recovery, including key end markets such as agriculture.
The commercial truck market has improved some year-to-date, and bus production is stabilizing.
But the market still have a ways to go before we can characterize it as a recovery.
In Argentina, the economy is expected to turn to low single-digit growth this year.
In Asia Pacific, we continue to see improving conditions in India being driven by economic reforms, and in China, where we expect growth to remain stable.
In terms of our markets, we expect low single-digit growth in light truck production across the Asia Pacific region.
And finally, as with other regions, the mining market is showing moderate growth, primarily in Australia.
Next, please turn to Slide 10 (sic) [9].
As we look at the business by segment, we continue to see healthy sales of our key light vehicle customer platforms, and inventories remain at low levels.
While the overall light truck volume in Argentina is expected to be flat, sales of the Toyota trucks remains strong.
Again this quarter, our launch readiness for the new Jeep Wrangler program is proceeding as planned across the Dana facilities involved, including the new plant in Toledo, Ohio.
In Thailand, truck production remains strong and is expected to be up 10% from last year.
In Commercial Vehicle Driveline, we continue to see strong demand for specialty and medium-duty trucks in North America as the Class 8 market shows resilience this year.
Our market share remains stable.
On a related note, you may find it interesting that 5 Dana facilities recently received the PACCAR award for exceptional quality and warranty performance.
Our off-highway business has finally seen demand beginning to improve in the mining end markets, and we are seeing favorable product mix due to healthy construction equipment demand.
We have had recent success supplying formerly Brevini product solutions to longtime Dana customers.
This cross-selling is one of the many benefits of the Brevini acquisition and one that we will accelerate as we continue to integrate the operations.
We are pleased to report that the integration is going well with our synergy plan, yielding results, as <UNK> will illustrate in just a moment.
In Power Technologies, we had another good quarter, with strong demand for light trucks driving favorable mix.
While still ahead when compared to last year, a strengthening euro is expected to benefit to both the Power Technologies and our off-highway segments.
And finally, 6 of Dana's Power Technologies manufacturing facilities were recently honored with the General Motors Quality Excellence Award.
This award recognizes only top-performing supplier manufacturing facilities that have met or exceeded a very stringent set of quality performance criteria and achieved the cross-functional score of the Dana ---+ or of the GM organization.
Now I would like to turn the presentation over to <UNK> for a review of the financials.
Thank you, Jim.
Slide 12 provides an overview of the financial results for the second quarter of 2017.
Sales of $1.8 billion were up $294 million versus the same period last year, delivering growth of 19%.
On a year-to-date basis, sales are up over $0.5 billion compared to the first half of last year.
The majority of the growth was organic as we continue to convert on our sales backlog and benefit from strong end market demand, resulting in double-digit organic growth of 11% in the second quarter.
Adjusted EBITDA was $217 million for the second quarter, a $39 million increase from the prior year.
Adjusted EBITDA was $422 million for the first half, up nearly $100 million over last year.
Margin in the second quarter was 11.8%, a 30 basis point improvement over last year, and the margin in the first half of this year was 100 basis points better than the first half of last year.
Net income was $71 million, an $18 million improvement over the same period last year.
For the first 6 months, net income was nearly $50 million better than the first half last year as higher adjusted EBITDA was partially offset by higher depreciation expense due to the increased level of capital spending, higher tax expense due to stronger earnings as well as higher acquisition and restructuring-related costs.
Diluted adjusted EPS, which excludes the impact of nonrecurring items, was $0.68 per share in the second quarter, an improvement of $0.15 per share compared with last year, and the first half was up $0.44, driven primarily by increased earnings.
Free cash flow of $96 million was $12 million lower than the same period last year, as the growth in adjusted EBITDA only partially offset increased investments to support our organic and inorganic growth.
However, free cash flow for the first half of the year is essentially in line with last year in spite of a $25 million outflow related to the USM Warren plant acquisition, which was completed in the first quarter.
Please turn with me to Slide 13 (sic) [14] for some additional details regarding the second quarter sales and profit growth.
Sales increased $294 million compared to last year's second quarter, and adjusted EBITDA was $39 million higher for a 30 basis point year-over-year improvement in margin.
The growth was driven by 3 key factors.
First, foreign currency provided the only headwind in the quarter, reducing sales by $10 million and adjusted EBITDA by $4 million due to the continued strength of the U.S. dollar against other currencies.
Second, organic growth added $164 million to sales as strong demand for key light vehicle programs, such as the Ford Super Duty, and continued improvement in the off-highway end market augmented the conversion of our backlog into sales.
The organic growth delivered an incremental $26 million of profit.
And finally, the business acquisitions made in the first quarter, Brevini and the USM Warren plant, added $140 million in sales and $17 million in adjusted EBITDA.
The profit conversion of 12% has improved 300 basis point sequentially as the cost synergies associated with the Brevini acquisition are achieved.
Slide 14 provides more details regarding our free cash flow generation in the second quarter as well as the first half compared to the same periods last year.
Higher earnings in the quarter were offset by investments to support our growth, both organic and inorganic.
The incremental adjusted EBITDA of $39 million was more than offset by a $20 million increase in working capital to support the higher sales levels, a $14 million increase in capital spending and $8 million of transaction cost primarily related to the Brevini and USM Warren plant acquisitions.
Free cash flow in the first half of the year is essentially flat with last year as the $96 million of adjusted EBITDA growth was used to fund costs associated with the business acquisitions and incremental working capital and capital spending to support the organic growth.
Please turn to Slide 15 for a look at our full year outlook.
As Jim mentioned, we're raising our full year guidance due primarily to dramatically improved demand across nearly all of our end markets and solid operational execution.
We expect sales to grow by $1.1 billion compared with last year and profit to increase by $145 million, which will expand margins by 40 basis points.
There are 4 key factors driving the improvements versus prior year.
First, we now expect currency to be a modest tailwind to sales of about $20 million, mainly due to the recent strength of the euro against the U.S. dollar.
We're still expecting a headwind of about $10 million of profit as some of the transactional impacts in a basket of currencies offset the translational benefits.
You'll find the table of our key currency expectations in the appendix.
Second, organic growth is now expected to add about $600 million this year through a combination of new business and improved demand in all 3 of our end markets.
This is an increase of about $350 million from our prior guidance and represents a 10% organic growth rate.
We expect about a 20% profit conversion on the incremental sales.
Third, inorganic growth, specifically the Brevini and USM Warren plant acquisitions, are expected to add about $450 million in sales and about $55 million in adjusted EBITDA, representing a modest improvement over our previous expectations.
And finally, in the second half of the year, we'll experience a $15 million headwind due to the gains last year in our Dana company subsidiary that was divested at the end of the year.
Please turn with me to Slide 16 (sic) [15] for a closer look at how we expect the adjusted EBITDA will convert to free cash flow.
In line with the increased sales and adjusted EBITDA raises to our guidance, we've raised our free cash flow outlook by $40 million from $60 million, which was essentially in line with last year, to $100 million or about 1.5% of sales.
We expect that approximately $100 million of the adjusted EBITDA growth will be used to support a $75 million increase in capital spending to deliver the new business backlog and a $25 million settlement to the trade obligation associated with the USM Warren plant acquisition.
Lower cash outflows associated with interest, taxes, pension and intercompany FX hedge settlements ameliorate the impact of higher cash flows for restructuring and transaction cost.
It's worth noting that in spite of a $600 million of organic sales growth, we do expect that working capital requirements will increase by an amount comparable with last year.
Please turn with me to Page 17 (sic) [16] for a look at the revised full year guidance for our key financial metrics.
As we mentioned on our last call, conditions across our end markets were strong in the first quarter, and that continued in the second quarter.
Foreign currencies have strengthened, and each of our business segments are seeing higher demand for our end markets.
While we will continue to monitor these trends, we've raised our projections from what we provided in April, as indicated in the far right-hand column of the slide.
We now expect sales to be at about $6.9 billion, a $500 million increase from our indication at the high end of the range that we affirmed in April.
Adjusted EBITDA is now expected to be over $800 million.
This represents an $80 million increase from our indication at the high end of the previous range.
This profit level will result in an 11.7% margin, which is 30 basis points higher than our prior guidance.
With capital expenditures of approximately $400 million, we anticipate free cash flow will be about $100 million.
And finally, diluted adjusted EPS is now expected to be about 20% higher than last year at $2.30 a share.
Slide 18 (sic) [17] provides a perspective of this year's improved financial performance in the context of where we've been and where we're heading.
Last year, we laid the groundwork for our future success by introducing our new enterprise strategy, Shifting Into Overdrive; completing 2 business acquisitions; securing $750 million of sales backlog; and expanding margin by 50 basis points through improved operational execution.
Earlier this year, we completed 2 additional business acquisitions and are well on our way to delivering the overall value proposition for all 4.
We're now poised to deliver over $1 billion of sales growth as we convert the first $175 million of the $750 million of backlog and as our end markets improve more and more quickly than we anticipated when we outlined our long-term financial projections.
This growth will deliver 40 basis points of margin expansion this year, and our cash flow will be slightly better than last year but remains constrained at our peak investment level of $400 million of capital spending.
As we look to next year, we expect to experience significant margin expansion and free cash flow growth based on a few key factors.
First, we will recognize the majority of the cost synergies associated with the Brevini acquisition.
Second, we had another $300 million of the $750 million of backlog that will come online at attractive margins as we leverage our existing fixed cost base.
Finally, we expect capital expenditures to return to levels more in line with our new annual depreciation and amortization expense.
Needless to say, as a result of our positioning, we're very excited about what the future holds for Dana and for our shareholders.
With that, I'd now like to turn the call back over to Dennis to take your questions.
Thank you.
Sure.
With commercial vehicle, Joe, it's important to remember that the growth that we saw there was related to the SIFCO acquisition.
Given the depressed volume levels that we're at in Brazil, those sales are coming on without any incremental profit at basically breakeven.
So that's the primary driver.
There was a bit of a headwind on currency for the commercial vehicle segment, which also primarily related to Brazil.
But those are the primary drivers for CV.
As it relates to power tech, it's a little bit of a different story in that you'll remember we had a really strong first quarter in power tech off of a pretty poor comp from last year.
A little bit of a different scenario in the second quarter.
We had a pretty strong comp Q2 of last year, and we didn't get as much profit conversion on the incremental sales as we would have liked or preferred.
The combination of product mix and a few small performance challenges put us in a position where we really didn't yield the margin in that segment that we would like.
However, we do expect more from that business, and we expect better things to come in the balance of the year, in particular from power tech.
Sure.
I'd just point to a couple of things.
You are right, the lower profit in the second half is a result of expected lower sales.
So at the midpoint of our range, we're expecting the top line to be a couple hundred million dollars lower on the ---+ primarily on the organic side; a little bit of a lift inorganically from having a full 6 months of both acquisitions.
Just in terms of the drivers of profitability, it's also important to note that we have a major vehicle launch in Jeep Wrangler in the second half of this year, well, which would put a little bit of pressure on margins.
That program has been ramping up, but most of the activity is going to take place within the second half of the year.
Relative to our call on the top line, I think there are a couple of things worth noting.
On the light vehicle segment, the Ford Super Duty program performed particularly well.
I mentioned that in the remarks earlier.
And what you will see is the normal seasonal shutdowns that we would expect in the second half of the year really across that segment.
So we think that in light vehicle, it's largely a seasonal impact.
In commercial vehicle, we still remain cautious.
And you'll note we're in at about 220,000 to 240,000 on the North American Class 8 market.
Based on what we've seen, I think we're just a little bit cautious there compared to what you've seen in some other external sources yet.
So to the extent that their call is right and ours is wrong, there could be some upside in the balance of the year on CV.
And then I think there's probably a bit of cautiousness in the off-highway space.
We saw really strong improvements in the aftermarket and in the production market in the first half of the year.
There is some seasonal downtime embedded there in that market as well, too, but we're just keeping an eye on that.
So I think hopefully, that gives a little bit of sense on how we're looking at the top line, and then the combination of the lower overall sales and the increased launch costs associated with the Wrangler are really the drivers on the margin.
Yes, that was a little bit front loaded, so you will see a modest impact associated with the timing of backlog year-over-year as well.
Sure.
So the overall performance versus prior year certainly is aided by our platform mix.
So we've highlighted the fact that if you look at the Ford Super Duty sales on a year-over-year basis ---+ or production levels, excuse me, our sales, the ---+ we've got a lot of strength there in that platform.
The overall market has held up well.
In light vehicle, I think we had expected a little bit softer, but it's done quite well.
Relative to what has changed from what we thought previously, certainly all of our markets are doing well, and we highlighted that.
But in particular, the off-highway market in the construction and agriculture segments are performing much better than expected.
You'll note if you go back in the last couple calls, we've continued to say that we expect the off-highway market to start to recover, but it's very challenging to be able to get a feel for when that's going to come back and how quickly it's going to come back.
So we're in a position now later in the year to see greater strength in that end market.
It's also worth noting that we were probably on the more pessimistic side for the North American Class 8 market at the beginning of the year.
We were closer to 200,000 units.
You've seen us bring up our guidance in the 220,000 to 240,000 range.
So really, it's strength across each of our end markets and some acute strong performance on a platform within the light vehicle segment that have helped to drive the higher confidence and the higher sales on a full year basis.
Yes.
So couple of things important to note, and it's primarily the Brevini acquisition that has a margin-dilutive effect on the off-highway segment.
You'll notice we include some materials in the appendix that provide more detail there.
But in that, there are 2 things.
One, that business is still ---+ while coming out of trough, is at historically low volume levels, and the margin profile was lower than our business.
They did not have as much success before we bought the business in flexing their fixed cost structure.
So that's one driver.
The second driver, as you note, is the synergies.
When we announced the transaction, we indicated that we'd have $30 million worth of cost synergies.
So Jim had mentioned some of the cross-selling we're doing.
That all represents upside, but the cost synergies alone were $30 million.
And we're right on track with those.
We track them very carefully on a monthly and quarterly basis, and the plans are progressing well there.
So that and the improved market demand will be the factors that help to elevate the margin profile of the Brevini business within the off-highway segment.
Yes, we're not necessarily in a point yet in the year we'd be comfortable putting out formal guidance for 2018, and we'll revisit our longer-term targets as we get closer to that point.
But as you note, the market has come back much stronger than we expected.
So when we talked about where the $1.4 billion of sales growth was expected to come from at Dana from 2016 to 2019, acquisitions played a role at about $450 million, backlog played a role at about $750 million and then market recovery was expected to be about $200 million.
And you'll note we've seen more than $200 million of market recovery.
It's really been about $400 million in this year already.
So we were a little bit surprised by how well the markets responded in particular within the off-highway space.
We thought that this downturn in commercial vehicle, particularly in North America, was going to be longer, more protracted and at a lower level.
It seems that, that's less likely to be the case the more that we see.
So really, those factors are driving the improved performance for this year, and we'll just keep keeping an eye on the next couple of years as we get closer to it.
Thanks for the question.
It's Jim.
I would say compared to a year ago, it's slightly better, slightly better because we've ---+ we made mention before we're close to a very sizable plant or near closure of a very sizable plant, and we've exhausted some inefficient, old capital, more specifically the equipment itself.
So we're slightly better utilized than we would have been a year ago.
No, negligible impact from a margin perspective, and we continue to work with our customers to remedy that, which is consistent with the vast majority of our contracts.
I guess, <UNK>, I would indicate the improvement from a top line perspective in the balance of the year is pretty consistent on a percentage basis across each of the businesses.
So we tried to highlight the fact that light vehicle market over well---+ overall is doing better than we expected, Class 8 in North America is up and, in particular, the construction and mining segments within off-highway are doing considerably better than expected.
Probably a stronger performance compared to expectations for off-highway relative to the others; but on a percentage basis, we're in the same neighborhood.
From a margin perspective, we would expect that the light vehicle business is probably going to be in the same ballpark, potentially a slight lower due to the fact that we have the launch cost in the balance for the year.
We expect CV to do pretty well, maybe a bit better.
And then off-highway, we'll see a little bit of improvement; and then power tech, pretty consistent.
So when you look throughout the business, the margin profile we would expect between the first half and the second half to be pretty consistent, except for the fact that from a seasonal basis and really from we think where demand is going to be, we think sales are going to be a bit lower than the first half of the year.
Yes, again, unfortunately, we're not in a position at this point to give you specific numbers, but we have indicated and continue to have strong conviction that the incremental margin profile on the growth will continue to improve.
So by no means do we believe that 20% is the best we can do on the incremental sales, both in backlog and in market recovery as a lot depended on where the growth come from, which segments, which parts of the business but also the fact that the major launches, we refreshed ---+ or the 2 largest platforms in the company have refreshed and are undergoing major launches within about a 12- to 18-month window.
When we look to 2018, those launches will be behind us.
We really expect to have better yield and return on sales going forward.
So we have conviction that the margin profile can continue to improve in this business as we convert our backlog and see our markets do even better.
We've been pretty clear on our capital allocation priorities.
In the near term, we are heavily focused on successfully integrating the 4 acquisitions that we've made within the last year.
So we're spending a lot of time and energy across each of the business segments and the leadership team, focused on making sure that the investments we've made there yield the returns that we've expected.
The other thing that we're heavily focused on is growing the business organically.
So you've seen us take the vast majority of our incremental profit growth and put it back into the business to make sure our cost structure is in line in the form of restructuring investments, the integration associated with the acquisition, but largely the organic growth through capital expenditures.
On the M&A front, we continue to take a look and keep our eyes out.
And I suspect Jim wants to share a comment or a thought or 2 on M&A as well.
Yes, <UNK>, thanks for the question and joining us today.
I think you should expect us just to keep our eyes open, of course.
But keeping our eyes open and executing pulls multiple levers.
Not only have we completed the acquisitions we've talked about here today, but we haven't been shy about pulling levers to move some assets out that didn't make sense such as Dana Companies, such as Nippon Reinz in Japan, et cetera, et cetera.
So we'll keep our eyes open to it.
We're ---+ obviously, we have a very strong balance sheet, but we're going to make sure it stays that way, too.
Yes, I think the recovery within off-highway mining has been seen primarily outside of the Europe ---+ or outside of the U.S. Europe has been very strong, and I think you'll remember that the majority of our production comes from Europe.
And while we service other parts of the world, I would say that I can point to Europe.
We've also seen Asia Pac and in specific China.
I think Jim mentioned Australia as well, too.
They performed better than expected on mining.
So I would say while there's been some modest improvement domestically, the markets I mentioned are the ones that have seen the more dramatic increases.
I'm sorry, <UNK>, I didn't catch that first part.
Can you try that again.
I think that's a market that we're very cautious about looking much further out.
So I think I would candidly say that we don't have a lot of strong visibility into mining beyond the next few months and balance of the year.
I think we have some thoughts of where it's headed; but beyond that, it's a little bit tough to call.
It's a little bit of program timing on the light vehicle side which is causing us to spend a little bit earlier.
And then in a couple of our other business segments, we had some pretty attractive investment opportunities, a combination of growth and margin-enhancing activities that we saw and decided to greenlight in light of the better performance on the top line and on the bottom line.
It's a minority of it.
So a smaller portion of the incremental $25 million to $30 million is associated with timing.
So, <UNK>, this is <UNK>.
We still have very strong conviction that this will be a 5% cash flow business by 2019 and still believe that a meaningful reduction in capital expenditures will be a big piece of that for us.
So again, I mentioned refreshing 2 of our largest platforms within the last couple years has certainly driven CapEx.
There is a ---+ the CapEx is a leading indicator of the backlog conversion, so the backlog growing and remaining very high has been a driver.
But we still have conviction.
I think I indicated in the comments that we would expect by next year you'll start to see CapEx fall in line with what our new level of depreciation and amortization will be once we're on the other side of this investment spike.
Yes, we're not going to be in a position to give you any specific numbers.
But as Jim indicated, we have spent a lot of time and energy with our customers demonstrating our broader range of capabilities and have been very pleased by the response that we've gotten from our customers.
The opportunity to be included in RFPs that we weren't previously, and Jim also mentioned the handful of wins that we secured in the last few months.
So we are excited about that.
It does represent incremental margin upside to the $30 million of cost synergies, but we're still not in position where we're going to discretely identify that individual element.
Yes, a little bit of seasonality.
But if you step back just from the second quarter and look at the first half, the conversion on the sales growth organically in the first half has been more like 25%, which actually means second half conversion will be lower than the first half to be able to get to the 20%.
And the seasonal impact of lower sales has a bit of an impact on that.
So you have less growth.
And then the other element is the JL Wrangler launch that we have within the second half of this year.
So those are really the drivers as to why the conversion will be slightly lower in the second half versus first half.
But we have confidence that we'll be able to get to about the 20% mark by the end of the year.
Yes, it makes up the majority of the gap there that you see, <UNK>.
So we've built a brand-new large facility.
We are ramping up the fixed costs within the facility during the period.
Now that's coming up to the balance of the year, so we're adding costs.
We'll have some inefficiencies with the launch.
So we really don't start to recognize the new sales on the launch.
It's really towards the end of the year or the ---+ or early next year.
So that's really the primary driver, and it makes up most of the gap that you see there.
Yes, you have a bit of product mix in the quarter when you do the year-over-year comp that was part of the factor.
And on the performance side, there are just some of the challenges that we see at running at such a high level of demand on a sustained basis.
So stepping on our toe in a couple of places.
But we see opportunity to improve that and still get an attractive yield or improved margins with power tech as we move forward.
So we ---+ as we mentioned, we expect more, and then we know that business will do a bit better in the balance of the year.
Okay.
Thank you, <UNK> (sic) [<UNK>].
This is Jim again.
Just to close real quick.
I feel very good about our practice of making reasonable commitments and living to those commitments.
Why.
Well, because the Dana team continues to do an excellent job.
The focus on the customer, the focus on technology, the focus on the cross-company teamwork, all important ingredients.
When you kind of zoom back for a minute, growing at the rates that we're growing at while, at the same time, completing and integrating 4 acquisitions, of course, is no small feat.
So I really couldn't be more proud of the Dana team for everything they've recently done and will continue to do in the future.
Thank you for your attendance in the call today.
Looking forward to seeing you or talking to you very soon.
| 2017_DAN |
2017 | DOV | DOV
#Thanks, Bob
Good morning everyone
Let's start on Slide three of our presentation deck
Today, we reported first quarter revenue of $1.8 billion, an increase of 12%
Growth from acquisitions of 12% was complemented by organic growth of 4%
Partially offsetting these strong results was a 4% impact from dispositions and FX
EPS was a $1.09 and included a gain of $0.39. Adjusted EPS of $0.70 exceeded the high end of our expectations, principally reflecting strong performance on higher revenue and a lower tax rate
Adjusted segment margin was 11.8%, an 80 basis point improvement over last year, largely driven by strong incremental margin on increased volume in our energy segment
Bookings increased 21% to $2 billion
This positive result was broad based and reflects organic growth of 12% and acquisition growth of 12%, offset by a 3% combined impact of dispositions and FX
Total company book to bill finished at a seasonally strong 1.12. Overall, our backlog increased 20% to $1.3 billion
On an organic basis, backlog increased 13%
Free cash flow was $36 million for the first quarter, which is always our lowest quarter of the year
Our quarterly result was impacted by inventory increases driven by selective pre-builds
Overall, we remain committed to full year free cash flow of about 11% of revenue or 140% of net income
Now turning to Slide four
Organic growth in the quarter was solid led by energies growth of 15% on improving US oil and gas fundamentals
Refrigeration and food equipment increased 5%, primarily on strong retail refrigeration markets
Engineered Systems was up 2%, primarily reflecting continued solid growth in printing and identification
Fluids organic revenue declined 2%, principally reflecting weak longer cycle transport markets
As seen on the chart, acquisition growth in the quarter was most prevalent at Fluids and Engineered Systems at 35% and 9% respectively
Now moving to Slide five
Energy revenue of $324 million increased 14% year over year and 11% sequentially
Earnings were $42 million and segment margin was 12.9%, both significantly improved over last year
These results exceeded our expectations, driven by continuing improvements in oil and gas fundamentals, especially the US retail
These results also reflect strong conversion on volume
Bookings of $348 million were up 27% year over year and 16% sequentially
These bookings trends, along with continued rig count additions and higher expected well completions, set us up for a strong second quarter
In total, in the second quarter, we expect year over year revenue growth of about 30% or 4% on a sequential basis
Book to bill finished at 1.07. Turning to Slide six
Engineered Systems revenue of $608 million was up 5% overall and included organic growth of 2%
Excluding a gain on a disposition, earnings of $86 million increased 4% over an adjusted prior year, driven by volume growth
Our Printing and Identification platform revenue of $249 million increased 4%
Organic revenue was up 5%, reflecting solid global marking and coding and strong digital textile markets
In the industrial platform, revenue increased 6% to $359 million
This result included net acquisition growth of 8% and a 1% organic decline
The organic decline was attributable to lower shipments at environmental solutions
The remaining businesses in the industrial platform, all delivered solid organic growth, especially our auto service equipment business
Adjusted margin was 14.2%, essentially in line with last year
Bookings of $676 million were up 18% overall, including organic bookings growth of 12% and growth from net acquisitions of 7%
Organic bookings growth was very broad based, with printing and identification up 7% and industrials up 15%
Book to bill for printing and identification was 1.03. Industirals was 1.17. Overall book to bill was 1.11. Now on Slide seven
Foods revenue increased 32% to $525 million, principally driven by acquisitions
This revenue performance primarily reflects solid activity across the majority of our businesses, especially retail fueling within fueling and transport
This market is benefiting from robust activity in the US and also from improving international activity
Overall, organic revenue declined 2% and FX was a 1% headwind
Earnings increased 14% to $53 million, largely driven by volume growth, offset in part by $4 million of integration and restructuring costs
Margin in the quarter was 10%, slightly better than expected
Bookings grew significantly to $566 million, an increase of 35%
This result reflects acquisition growth of 35% and organic growth of 2%
Organics booking growth was broad based
Book to bill was 1.08. Now let's turn to Slide eight
Refrigeration and food equipments revenue of $357 million included organic revenue growth of 5%
Organic revenue increase was largely driven by the strong activity in the glass door and refrigeration case product lines
Food equipment results reflected solid organic growth in the commercial kitchen equipment markets, offset by expected lower shipments in can shaping equipment
Earnings of $34 million were down 12% year over year, reflecting a $2 million impact from a disposition in the prior year and approximately $2 million in restructuring
Margin was 9.4%, 110 basis points below last year and largely in line with our forecast
Bookings of $439 million increased 7% overall and 13% organically, reflecting strong order rates in nearly all of our end markets
Book to bill was seasonally strong at 1.23. Going to the overview on Slide nine, let me cover some highlights
Corporate expense and interest expense were both essentially in line with expectations
Our first quarter tax rate was 25.7%, reflecting the impact of a disposition and other discrete items of about $0.04. Excluding these items, our normalized rate was 27.8%
Moving on to Slide 10 which shows our 2017 guidance
As Bob previously mentioned, we are increasing our annual guidance
We now expect total revenue to increase 11% to 13% versus our prior forecast of 10% to 12%
This forecast includes organic revenue growth of 4% to 6%, up one point
Our expectation for full year acquisition growth is largely unchanged
Completed dispositions will now impact revenue by 2% and FX is now expected to be a 1% headwind
From a segment perspective, energy is now expected to grow 20% to 23% organically, up seven points over the last forecast, largely driven by the growth in our drilling and production and automation businesses
Engineered Systems and Fluids organic growth rates are both being raised one point at the low end, driven by solid bookings growth
Refrigeration and food equipments estimated revenue range has been increased one point to reflect our strong first quarter and continued bookings momentum
Corporate expense has been increased $5 million and net interest expense remains unchanged from our last forecast
Our full year tax rate is now expected to be slightly lower than our initial estimate, largely driven by favorable tax items reported in the first quarter
Our forecast for CapEx and free cash flow is also unchanged from the prior forecast
Lastly, we now expect full year segment margin to be around 14%, excluding the gain, up about 30 basis points from our prior forecast
Turning to the bridge on Slide eleven
Starting with 2016 adjusted EPS of $2.85 as a base, the year over year impact of lower restructuring cost in 2017 is unchanged
Performance, including volume productivity pricing and restructuring benefits, is now expected to increase $0.29 from the prior forecast at the midpoint, principally driven by our improved organic revenue forecast, especially at energy
Compensation investment will now be about $0.02 higher than our prior forecast
The combined impact of interest corporate expense and the tax rate is about $0.01 lower than our prior forecast
Lastly, the full year net benefit from disposition will be $0.35. This represents a gain on sale of $0.39 less the $0.04 of previously forecasted earnings from the divested business
In total, we expect 2017 EPS to be in the range of $4.05 to $4.20. With that, I’ll turn the call back over to Bob for some final thoughts
Holy
Let’s see here
I'm looking at Bob
So I actually don't have in front of me the data on the Wayne margins inclusive of ADNA
They're not negative, but they’re - we are - as your question infers, we are eating a fair amount of purchase accounting charges here in the first quarter
From a full year perspective, let me give you this comment
I think you should have a fairly good feel for the ADNA for this business for the full year
We do see the operating margins for Wayne and Tokheim expanding through the year
The first quarter is the lowest quarter of the year, both in revenue and earnings for this business
I think for the year, we're looking at margins for the year of 11% in my operating margins brand, 11% for the year, with the fourth quarter being maybe 300 basis points higher than the yearly average
And the first quarter was - I don't think we hit 8% operating margins in the first quarter
Just shy of 8%
So I guess to add to that
The Wayne business is typically double digit, slightly over double digit type margin profile, ex ADNA again, all these numbers that Bob is talking about
And Tokheim, we've told you before is in the high single
So the combination of those two …
Is about 11 for the year
Now, we're - what I would say is DFS or Dover …
Fueling Solutions, we're off to a great start there
I would expect that we will beat our plan with respect to acquisition, delivery of EPS related to DFS
Okay
So let's stay with the first quarter first
As you know, the conversion there was significant year over year
Adjusted ex restructuring, Jeff, 60% conversion year over year, driven on the strength of drilling as you point out
Sequential improvement in margin on the higher volume about 30%, 31%
As I think about it going forward, and we gave you some numbers related to the second quarter in our script, the pre read, I’m thinking that the year over year for the year, for the full year, will be in the 40% range
So coming off that high first quarter conversion will moderate based upon the mix of business
But sequentially I still see going sequential improvement in that 30% range
Still feel very comfortable with the year
First quarter activity was a little bit stronger than we expected, Jeff coming into the quarter
So the inventory levels naturally were a bit higher
Receivables a little bit higher than we expected, but I would also tell you that in a couple areas of the business, we did make decisions about halfway through the quarter to do some selective pre-builds to make sure we were holding delivery times where we wanted them to be in the second quarter
And that's - they were …
$40 million of inventory that was - I would just label as pre-builds to support second quarter delivery schedules
Slightly over 13, yes
So I think, Steve you're dead on with those numbers
Here what I would say, is we just went through energy
We’re up 30 to 40 basis points from our last estimates
So that spread pretty evenly across the other three segments
That’s the best way to think of it
So everybody up slightly with energy being up significant
Through the third and the fourth
No
That’s just cash payments against the reserves
Yes, in April
About $2 million
| 2017_DOV |
2016 | AKS | AKS
#Good morning, ladies and gentlemen, and welcome to AK Steel's fourth-quarter and full-year 2015 earnings conference call.
(Operator Instructions) As a reminder, this conference call is being recorded.
With us today are Mr.
<UNK> K.
<UNK>, Chief Executive Officer; Mr.
<UNK> W.
<UNK>, President and Chief Operating Officer; Mr.
<UNK> <UNK>, Vice President, Finance and Chief Financial Officer; and Mr.
<UNK>las O.
<UNK>, General Manager, Investor Relations and Assistant Treasurer.
At this time I will turn the conference over to <UNK>las <UNK>.
Please go ahead, sir.
Thank you, Candace, and good morning, everyone.
Welcome to AK Steel's fourth-quarter 2015 earnings conference call.
In a moment, <UNK> <UNK> will offer his comment on our business.
Following <UNK>'s remarks, <UNK> <UNK> will review our fourth-quarter 2015 results and together we will field your questions.
Our comments today will include forward-looking statements within the meaning of section 21-E of the Securities Exchange Act of 1934.
Included among those forward-looking statements will be any comments concerning our expectations as to future shipments, product mix, prices, costs, operating profit, EBITDA, or liquidity.
Please note that our actual results may differ materially from what is contained in the forward-looking statements provided during this call.
Information concerning factors that could cause such material differences in results is contained in our earnings release issued earlier today.
Except as required by law, the Company disclaims any obligation to update any forward-looking statements to reflect future developments or events.
To the extent that we refer to material information that includes non-GAAP financial measures, the reconciliation information required by Reg G is available on the Company's website at AKSteel.com.
With that, here is <UNK> for his comments.
<UNK>.
Thank you, <UNK>.
As <UNK> indicated earlier, AK Steel reported adjusted net income of $53.8 million, or $0.30 per diluted share, for the fourth quarter of 2015.
This compared to our earnings guidance of a net loss of $0.33 to $0.38, which included an estimate for charges of $0.42 per share related to the temporary idling of the Ashland Works blast furnace and steel-making operations and the impairment of our discontinued insurance operations.
These adjusted results for the fourth quarter represented a substantial improvement compared to net income of $6.7 million, or $0.04 per share, for the third quarter of 2015 and adjusted net income of $26.1 million, or $0.14 per diluted share, in the fourth quarter a year ago.
The recent fourth-quarter improvement reflected the benefit of lower raw material costs, strong automotive demand and our decision to reduce exposure to the carbon steel spot market as part of our margin enhancement strategy.
Also included in the fourth quarter results is a higher than expected LIFO credit, which I will discuss further in a moment.
Looking at shipments, our mix of tons shipped improved in the resent fourth quarter as a result of strong automotive demand and our decision to reduce exposure to the carbon steel spot market.
This resulted in fourth-quarter shipments of approximately 1.66 million tons, which were 215,000 tons, or 12%, lower compared to the third quarter of 2015.
Sales for the fourth quarter were $1.54 billion, which was $167 million lower than the third quarter.
This decrease was driven by a reduction in shipments to the carbon steel spot market, as well as lower spot market pricing, resulting from continued high levels of what we believe are unfairly traded imports.
The sharp reduction in spot market pricing also resulted in sales that were 23% lower than the fourth quarter a year ago.
Our fourth-quarter 2015 results included $7 million of cost associated with planned major maintenance outages.
This compares to roughly $12 million in outage costs in the third quarter of 2015.
Our adjusted EBITDA for the recent fourth quarter was $168.1 million, or $101 million per ton.
As <UNK> mentioned, this was our best quarterly performance in more than seven years.
This also represented an improvement of $48 million, or $37 per ton, compared to the third quarter of 2015 and a $51 million improvement, or $43 per ton, from the fourth quarter a year ago.
The EBITDA increase in the recent fourth quarter, compared to the third quarter of 2015 and the fourth quarter a year ago, was due in part to the effective lower raw material costs combined with strong demand from our automotive customers.
Additionally, our relentless focus on costs and operational improvements helped drive the increase.
In the fourth quarter of 2015, we recorded a LIFO credit of $98.6 million compared to a LIFO credit of $44.8 million for the prior quarter and $5.3 million in the fourth quarter a year ago.
The fourth-quarter LIFO credit was primarily driven by strong operating cost performance and higher shipments.
In the fourth quarter, we had three special charges that are excluded from our adjusted net income.
These special charges totaled $200.9 million, or $1.13 per diluted share, and included a net corridor charge related to pension and post-retirement benefits in the amount of $131.2 million, or $0.74 per diluted share.
This consisted of a pension corridor charge of $144.3 million, partially offset by an OPEB corridor credit of $13.1 million.
The net corridor charge was driven primarily by the weak performance of the financial markets, partially offset by an increase in the discount rates of roughly 30 basis points at year end 2015 compared to year end 2014.
The second charge, as we previously announced, was related to our decision to temporarily idle the Ashland Works hot end operations in December.
We recognize a charge of $28.1 million, or $0.16 per diluted share, supplemental unemployment and other employee benefit costs as well as other expenses incurred to temporarily idle the operations.
The charge reflects the assumption that the temporary idling will likely last throughout 2016.
However, we will reassess market conditions regularly to determine when to restart the Ashland works hot end operations.
The third charge is related to our investment in AFSG, which is the holding company of AK Steel's discontinued insurance operations.
As part of our strategic review to optimize assets, we made a decision to receive a cash distribution of $14 million from AFSG.
In connection with this distribution the remaining investment in AFSG was determined to be impaired and we recognized a non-cash charge to write of the remaining investment of $41.6 million, or $0.23 per diluted share.
AK Steel has no financial obligations to AFSG.
In the fourth quarter of 2014, adjusted net income excluded $7.1 million of cost related to the acquisition of Dearborn Works as well as a pension corridor and OPEB settlement charges of $5.5 million.
Highlighting our results for full year 2015, sales were approximately $6.7 billion, an increase of $187 million, or 3%, compared to 2014, primarily due to the full-year inclusion in our results of Dearborn Works and increased automotive sales.
Shipments for 2015 were nearly 7.1 million tons, an increase of 957,000 tons, or 16%, compared to 2014.
Once again, the increase is mostly due to the acquisition of Dearborn Works, as well as continued strength in the automotive market, partially offset by reduced shipments to the carbon steel spot market.
Moving from sales to our operations, we incurred approximately $51 million in planned maintenance outage costs during 2015, roughly $24 million lower than the prior year.
In 2015 we had no major unplanned mill outages, which is truly a credit to our operation of the plants.
In 2014 we incurred unplanned outage costs of $41 million for our Ashland Works blast furnace.
In addition, last year also included about $45 million in costs related to extreme winter weather conditions.
At the bottom line for 2015, we reported an adjusted net loss of $53.5 million, or $0.30 per share.
This compares to an adjusted net loss of $59.7 million, or $0.40 per share, for 2014.
In addition to the recent fourth-quarter special charges I mentioned, our adjusted results for 2015 excluded a first-quarter charge of $256.3 million, or $1.44 per share, to fully impair our investment in the Magnetation joint venture.
Our adjusted results for 2014 excluded expenses of $31.7 million, or $0.21 per share, related to the acquisition of Dearborn Works, as well as a corridor charge of $5.5 million, or $0.04 per share.
Turning to the balance sheet and the cash flow statement, for the fourth quarter of 2015 our capital investments totaled $27.2 million, bringing our capital investments for the year to $97.3 million.
This reflects our strategy to focus our resources and capital in those areas where markets pay for the value that AK Steel delivers.
In the fourth quarter working capital was a use of cash of $112.8 million.
This was primarily the result of a planned increase in inventory levels as we transition production from Ashland Works to Middletown and Dearborn Works.
For the full year 2015, working capital was essentially flat.
I would note that our credit facility borrowings remain the same from the end of the third quarter to the end of the fourth quarter of 2015.
We actually lowered our borrowings under the credit facility by $55 million in 2015.
I would also note that our total debt pension and other post-retirement employee benefits, or OPEB liabilities, decreased by $124 million in 2015 compared to the end of 2014.
This is partly attributed to our focus to reduce liabilities.
Total liquidity at year end was a solid $700 million.
With no debt maturities until the end of 2018 and the required pension contributions in 2016, the $700 million of liquidity is more than sufficient to meet our needs in 2016.
Although we are very comfortable with our liquidity position, we will continue to further improve our working capital management, as well as focusing on other liquidity enhancing actions.
Now turning to our outlook, we would like to provide you with some data points for 2016.
In the current year, we anticipate capital expenditures to be in the range of $120 million to $140 million, including approximately $40 million of related growth investments.
These growth projects, such as the coating line modifications at our Dearborn Works, which will allow us to produce next-generation advanced high-strength steels, are important pieces for our strategy to focus on higher value and innovative products.
We expect our planned maintenance outages in 2016 will be about the same as the $51 million we had in 2015 and we do not have any major blast furnace maintenance outages planned for the current year.
We expect working capital to be a modest source of cash in 2016 as a result of reduced exposure to the commodities spot market.
With respect to LIFO, we currently do not expect a large LIFO credit in 2016, primarily as a result of more stable raw materials prices.
We anticipate that our pension and OPEB credit for 2016 will be approximately $50 million compared to a credit of $63 million for 2015.
Our 2016 depreciation expense, including our variable interest entities, is expected to total approximately $213 million compared to $216 million in 2015.
Finally, in regard to income taxes, our 2016 book tax rate, as in recent years, will be primarily driven by a function of changes in our LIFO reserve.
In addition, given our NOL tax carry-forward position, we expect that our cash taxes will continue to be very minimal.
Specifically for the first quarter, we see shipments declining marginally from the fourth quarter as continuing strength in the automotive market is more than offset by an expected decline in shipments to the commodity spot market based on current market conditions.
Additionally, we estimate our average selling prices to be about the same as the recent fourth quarter.
The additional insight we are providing reflects the change in our approach to providing earnings guidance.
We'll provide you with as much information as possible going into a quarter as opposed to providing our earnings guidance near the end of the quarter.
Finally, I would like to reiterate <UNK>s remarks.
The AK Steel Management team is very focused in terms of how we want to strategically position AK Steel.
We have a great foundation to work from as we believe our quality, breadth of product, customer service and innovation is industry leading, positioning AK Steel to deliver more value-added products and services while minimizing underperforming assets and low-margin products will take time.
We will continue to discuss our progress and let me assure you this team is acting with a keen sense of urgency in returning the Company to sustainable profitability.
Let me conclude my comments by saying thank you for your interest in AK Steel.
At this time, we would be happy to take your questions.
Yes.
That will be similar as we get a richer mix as we reduce sales to the carbon spot market.
Part of it is you're going to be reducing what you're selling into the carbon spot market, so we will be lower on our hot-rolled and cold-rolled products, so that will be a decline.
We are continuing to see strong command in the automotive business, so we continue to see strength in the market quarter over quarter.
In the fourth quarter, you see a little bit of seasonality with the holidays and that of the demand for the automotive products.
Those are a couple of factors.
In addition, continued growth in our electrical steel products, especially the higher-end, high efficiency electrical steels that we will continue to grow in that market, too.
It is a market mix and a product mix.
As we have been indicating, it is getting away from the commodity side, reducing our exposure there and being more focused on the value-added products.
Bottom line, we need to show it at the bottom line and that is where our goal is to improve it.
We talk about cost reductions but we focus more internally on margin enhancements, which includes cost reductions.
So example, in 2015 some of the initiatives we have taken we worked on reducing our slab costs by changing the burden of how we operate our furnaces to make sure both at the blast furnace site and at our melt shops to get the lowest cost raw material blends to make our slabs.
We've been working on optimizing what we are doing at our melt shops on how we are producing carbon slabs and where we are producing that.
We did that throughout 2015.
On the coal front, actually our AK Coal operations has done a great job in working on becoming very competitive in their capabilities to reduce costs.
Those are a few items that I would say was closer to about $65 million of improvements that we had in 2015 compared to 2014.
In addition, we continue to focus on lowering our overhead cost and then on the Dearborn Works side, as Jamie had mentioned, we had about $59 million in cost-base synergies.
We have a lot of activities there.
Going forward, we will continue to update everyone on how we're progressing in reducing cost because ultimately that is what we need to do as a company is figure out how to reduce cost.
We will also be focused on and communicating what we are doing to improve our product mix and our market mix and to be more focused on those more value-added products.
Good morning.
As we had mentioned, as contract pricing moves.
It will parallel to what is happening in the spot market but it's not to the order of magnitude that you see in the spot market that has been history and continues that way.
The good thing is it doesn't have the volatility and as we look at our products we look at making sure we provide quality service delivery and those new products and the research and innovation for the customers, because that is the thing they are looking for in the future and make sure we are a good supplier to our customers.
If you look at it on the pricing front, it is definitely not the level of what you see declines in the spot market that you would see in the contract side.
And to partially offset that would be some benefits you get on the raw material front.
We've see high iron ore drop.
As you know, we buy our iron ore based on the IODEX component of the pricing for the iron ores based on the IODEX.
That has continued to declined throughout 2015 and still continues to decline here in the first half of 2016 and the forward curve shows it will continue to be pretty weak.
That is actually an advantage we have at AK Steel compared to others.
Scrap has fallen.
That normally will parallel what is happening in spot market pricing.
In addition, we have seen coal prices drop and everyone's well aware what has been happening in the energy markets as we consume a lot of natural gas, so that will be helping us.
I am not saying that the cost reductions on the auto front will offset the pricing.
It will not.
But we do have some opportunities to help overcome some of the price decreases that we have seen in the automotive industry.
I think if you look at the commodity prices of what we are seeing into 2016, we have seen scrap actually move up a little bit and I think that will parallel what happens with the hot-roll pricing and the spot market pricing.
On the coal side, our contracts are annual contracts, calendar year contracts, so we have our pricing completed for 2016 when it comes to the coal side, which is really the main ingredients for making coke.
We do have some of our raw material or our energy cost so some of that we have locked in also.
I would say we don't see as much volatility, but I will never say never, because I was shocked would happen here in 2015 with some of the declines that happened in the energy markets in the raw material markets.
It seems like they have gotten to pretty low lows.
I'd say if you look at the success of AK Steel and it's predecessor company, Armco, the thing we have been focused on is that new product, coming up with new processes, new products for our customers.
My belief is if you are standing still, you are moving backwards because your competition is moving ahead of you.
We always got to be focused on it no matter what the market conditions are.
I have been in the business over 30 years.
It is a cyclical business.
We understand it.
What you've got to do is be smart about how you invest that capital and where you put it.
We believe we are prudent with our capital, how we put into certain products.
Example, investing $29 million at Dearborn to get advanced high-strength steels and some of the other projects I mentioned some growth in our high-efficiency electrical steels and some other products we have going on.
Our focus is, if we are investing the capital are we getting return on it.
So that is where we are focused.
We still have to maintain our equipment and we will look at what we need to maintain and how we need to maintain it and that is always the challenge to keep those cost down as low as possible.
I did want to also, <UNK>, go back on one other comment you were asking about pricing in the future.
If you look at it from an integrated side, an AK Steel side, is pricing would start to rise if the market ---+ spot market prices rise.
Actually that helps us because we are only about fourth or so of our melt is scrap related.
So actually as you see steel prices go up, normally scrap and carbon steel spot market prices parallel each other, so we actually get some margin expansion in the spot market as scrap races rise compared to what happens with those that are [mini-melt].
No doubt also that we have also been hurt as it has come down because we are not 100% scrap based.
We've had some benefits from iron ore and other raw materials but not to the benefit that others have seen that are 100% scrap based.
If you look at imports, looking back over time, normally imports have been about the low 20% of our market.
Look back even earlier, just even a few years ago it was about 20% to 22%.
Currently it has been running around 29%.
We peaked at, I think, a quarter last year around 34%.
Imports have definitely been an issue.
We have taken on several things, actions to address it.
One is the trade cases.
We have three trade cases that have been filed.
We have ---+ countervailing duties have been assumed on all three of those cases and we are still waiting for anti-dumping duties to be assessed in the hot-rolled and cold-rolled cases, which we expect to happen here in February and March.
We believe it has been very effective for China.
As you have seen, if you put the two duties together, the countervailing duties and anti-dumping, those are now totaling over 400%.
They have not been effective for some of the other countries, being more in the single-digit to low double-digit percentages.
A challenge that we are having and we are focused on is what I'll call the wack-a-mole, which is monitoring where the import's coming from and make sure we are seeking all available remedies out there to ensure that we have a level playing field, because the issue is, is not as so much imports coming in.
They have, and always will be, part of our market.
It is really what is the pricing of that material and are they being subsidized or are they selling at low ---+ at unfair levels.
We will also look at any other options that remain out there on the table and addressing imports as they come in because we can't sit still and let imports destroy the steel industry and other related industries.
If you think about the impacts it is having on the steel industry, it also goes out to the mining industry, transportation industry, a lot of other industries they could impact.
Not just our business alone.
It is very important for us and we have a lot of people in Washington helping us to fight these trade cases or fight the unfair trade and address the situations.
When we look at the automotive industry, we are seeing that it's remaining very strong, going up a little bit in 2016 but it looks like most of the auto manufacturers are running pretty much near their capacity, so I don't know if there is really a lot of upside for them to produce a lot more.
But everything we are seeing is showing strong demand in 2016.
That benefits us both on the carbon front and the stainless front, whether it is the chrome or the chrome nickel business, because we have some high-end chrome nickel business also that goes into that market.
We're also seeing still solid demand when it comes to the construction and heating and air-conditioning markets.
We are not a huge player in those markets, but that still is an outlet for the steels to go into.
In regards to imports, we have seen the imports come down, especially from the main countries that we have filed cases against.
We have been seeing the permit applications for imports slowly declining also, so I think there is a lot happening out there.
In regards to at AK, as you are well aware we did idle our blast furnace at Ashland.
We have three blast furnaces and in our Company and we did idle Ashland in December so we have reduced our capacity.
It made no sense to be selling products at the prices that were out there in the marketplace and not getting a return on our products.
Efficiency standards are certainly helping and that is driving the demand for our high value-add product or higher efficiency product.
We are seeing growth in both those markets and our regular growth grain-oriented markets as well.
Both from a volume ---+ certainly from a volume standpoint, they are increasing.
We are certainly seeing some market pressures from a price standpoint but they are holding up very nicely.
That has not been an issue and we are performing very well and increasing our capacity throughout 2016 compared to 2015.
We think with the efficiency standard increases that we have seen, we see even more demand for our products.
We are very content that we are in a very good spot there.
We continue to work from a research and innovation standpoint.
Expect that within this year, we are probably going to bring another advancement in our regular grain oriented that will take another step function improvement and efficiency and we are going to remain the industry leader in producing the most efficient steels that are out there.
That demands some value and there is certainly a lot of folks interested in that.
We are not concerned with that at all.
The comment I would make there, <UNK>, is one of the items we had was a large LIFO credit in the quarter.
That did have an impact and as <UNK> mentioned, we do not expect to have a large LIFO credit as we move forward here into 2016.
That will be primarily depend on what happens with raw material cost that is really the driver for LIFO.
We did have a large LIFO credit.
In regards to, as I mentioned on contract pricing, we do anticipate for the contracts we are negotiating here for the first ---+ it started effective the first of the year, that the auto contracts do have lower pricing and that will be partially offset by some lower raw material cost and energy cost.
We will see some pressure on our margins when it comes to the automotive side, just reflecting the trends we have seen in the spot market.
I wouldn't comment yet of what we are seeing exactly going to happen in the spot market but that it is probably seeing a slight uptick occur with our pricing increase announcement that we made.
Scrap has moved up a little bit here, so we will see what happens over the next two months and what happens in the spot market.
But we are not going to be a major player in the spot market and that is why Jamie commented on the average selling price, because you are going to be taking out the D&C spot tons, a lot of the hot-rolled and cold-rolled tons.
If we had just done that, that would have resulted in a higher average selling price but with the pressures that we are getting from the contract pricing, that will put some downward pressure on it.
Add them all together, it is coming up to roughly a flat average selling price.
(Multiple speakers)
I will take the second one first.
In regards to pension funding, as <UNK> mentioned, we do not have any required pension funding in 2016 and really what will drive in the future is what happens with our asset returns that will drive our required fundings.
We have always taken the approach to do the minimum funding on that in regards to pension funding.
In regards to vertical integration, we are very happy right now with our position where we are at on our raw materials.
We have a little bit of our coal that we get from AK Coal.
The rest we buy in the marketplace.
We are fine with that.
In our vertical integration, we have most of our iron ore we get from close natural resources and also get from Magnetation, our agreement with Magnetation.
We are pleased right now.
As it does fluctuate, all of the contracts have some type of IODEX component in it and other drivers in it for pricing.
We like to float with the market some.
That helps to align with what happens in the market prices.
Our focus is, is where can we invest the money to get a return, as we talked about on our capital investments.
On the raw material front, we see whether it is iron ore or coal or other commodities that there is plenty of capacity and plenty supply out there and we do not see any major changes in the near term for those markets rising.
That is a difficult question only because it is very mix dependent.
We have, as <UNK> mentioned earlier, we are making a small investment that allows us to get more of the TCH or higher efficiency products and we are doing that intentionally because that is an improved, better margin product for us.
However, as we have received more business in the regular grain oriented, we are continuing to fill our units and get more tons out.
So it is really difficult to pin down an exact because RGO versus TCH or NAFTA versus international really changes that very fluidly and we just kind of adjust with that.
It is hard to pinpoint a specific number for you.
But we are filling up our capacity.
We are getting nearly full and that is a great thing for us.
The majority of it is annual contract pricing type of negotiations.
We have increased a fair amount.
More than 10%, probably pushing 20% year over year is what we would anticipate.
<UNK>, this is Jamie.
Let me answer the second part of that.
I would [turn] down and expectations for the large LIFO credit as we get into 2016, just based on an expectation that raw material prices, while they can get lower, they are probably closer to a bottom.
In terms of looking back at 2015, in total the LIFO for the year was almost $200 million.
If you just hold everything flat going forward from 2016, you'd say well, gee, that should be about $50 million per quarter.
Theoretically, you can say costs were may be overstated in the first part of the year and we caught up in the second part of the year and it has to do with LIFO calculations.
I would just look at it going forward and again, like we said in our prepared remarks, the expectation for the 2016 is a much smaller credit.
I would comment, too, if you look at it from the LIFO side, raw materials continue to fall throughout the year.
If you look at where we started at the beginning of the year, where the IODEX was at, where scrap was at, where everything was at, it was much higher and it declined literally every month of every quarter throughout the year, all the way into December and a continued to design decline in December for a lot of the raw materials, which is what was driving our LIFO credit to grow.
Also then, we are getting the benefit to that because that is now what is in our inventory, so as we go into 2016 we do have lower-cost inventories than we came into 2015 with, so we have that benefit too.
If you compare it to fourth quarter, as we indicated we had about a $99 million LIFO credit in the fourth quarter that is reflecting as you are adjusting the values of your inventory to a last- and first-out basis, giving some of that a little bit higher benefit in the fourth quarter.
But if you look forward, if raw materials did not change, then you would ---+ and a lot of other factors of those don't change or volumes, et cetera, that you would be getting rid of most of that LIFO credit.
I don't know if I would say be able to split it.
It is not a simple calculation to say how much of it is turning forward and you get the benefit in lower cost.
I would say is that we've continue to see lower cost.
We see total cost going down next year.
They're calendar year contracts so we will have what we pay for coal, for example this year, we use that inventory as it flows through all of our system and then start having lower coal cost come in, for example.
We will get to the benefits.
Iron ore has continued to fall.
The IODEX has continued decline, so we'll get those benefits.
Scrap has actually started to uptick a little bit which, if that does, that usually means the spot market pricing will start to move upward also.
It is not an easy one to estimate and to split out in the way you are asking.
Sure, and I can take that one.
From an Ashland operational standpoint, we currently have the assumption based on what we tied to our cost that we hit when we idled it, or that we took when we idled it, that the current view would be that it is temporarily idled for the remainder of the year.
That does not mean that, that will be the case it will be an evaluation that we do on an ongoing basis and reviewing the hot-roll price, the raw material prices, the imports and we really have no set number.
It is simply a factor of we would need to have it support sustained profitability in order to resume operation in Ashland.
That is a remains to be determined type of question.
As far as the raw material portion, it is still a work in progress.
As you mentioned, we have a take-or-pay with every aspect of our contracts for raw materials.
However, we have a lot more flexibility than we've have had in the past or probably have ever had.
We are continuing to work with our providers of those raw materials and are making adjustments accordingly and working with them to see our way through that.
There are things that we can do both from the accounts receivable side and even from the accounts payable side to enhance liquidity.
Also, the primary focus is on inventory, making sure we keep inventories aligned with market demand.
Those are some of the actions that we can take and we will continue to take.
Ultimately, it is also on us striving to improve our earnings and lowering our cost.
That is how you get the old-fashioned way of getting a cash generated from your operations and that is our key focus of our entire management team.
As we had mentioned back to one comment that <UNK> had asked earlier, when you look at the raw materials, we did get the benefit of raw materials declining throughout 2015 so as you go into the second half, we were benefited of lower raw material cost there throughout the year and that will carry over into next year.
With that, on behalf of the entire AK Steel management team, I would like to thank you for joining us on today's call.
I can assure you that we will continue take on the challenges head-on and focus on adding value for bondholders and shareholders and we look forward to providing you with an update of our continued progress next quarter.
Thank you.
| 2016_AKS |
2016 | MMSI | MMSI
#So let me go to Canada and let me go to Australia for starters, because those were the startup businesses.
The ability to go in and to serve your customers\
Yes, that's a good question.
So one of the things that, when we modeled and we purchased that business, we modeled at around 55% gross margin.
As part of the transfer, making sure that we could get our manufacturing up and running here, we built bridge inventory.
I believe when I talked to our good friend in the back of the room, that we will finish up that inventory in the next 30 days or less.
Is that fair.
So in the next 30 to 60 days, we will have used up all of that higher cost ---+ and remember, that's pretty high cost, because we gave incentives for people to stay there.
It was a much higher cost.
What we found out is that when we brought it here, put it into a production system with Neil Peterson, who oversees our manufacturing and our engineering, and Ron Frost, our COO, we essentially doubled the throughput.
And so we're now estimating that those revenues are going to be about 70% ---+ margin, excuse me ---+ gross margins at 70%.
You add onto that now the Super HeRO, and there are some common pieces there.
So if we were to say at mid-October that it's essentially 30 to 60 days, you'll see a little teeny bit probably in the fourth quarter.
But for all intents and purposes, <UNK>, the first things that go out in Q1 are going to have those higher margins on them.
And we're also seeing some momentum in the business as well.
So we think it's a great product.
So let me answer your next question.
Yes, it's a good question.
So what we did is we've shut down the European operation.
I think we have about five or six of the 37 folks, so that's a big deal.
We put and moved customer service, and we moved the inventories that were at a third party out there.
What we have here is some wrap-up.
It's HR, it's some accounting things and audits that had to be completed.
There's facilities, and of course, we're keeping some R&D people.
But do you want to maybe, a little bit more on that.
Yes, it's primarily wrapping up the facilities, <UNK>, in Germany.
We have reached an agreement there.
We are looking at what we're doing with the facility in San Jose and pulling that together.
And there are some car leaks and some other operation leaks that need to be taken care of.
But essentially, all of the work regarding personnel has been done.
That was the biggest piece of the equation for us.
Some of those costs will run into the fourth quarter, but we're actually ahead of where we had forecast on that.
So just some of those non-personnel-related items need to be wrapped up in the fourth quarter.
And Jayce, we had our OICs out on TDY for civilians.
That's officer in charge and temporary duty, where we had folks from Salt Lake City that were there on the ground in place, running the businesses.
They have now all been recalled.
They're back on post, and I think that speaks to the issue of having those issues substantially complete.
It's just a few other things that we need to wrap up.
But the management, the sales, all those things, have been completed.
So there's not much left to do but a few little housecleaning details to wrap this up.
I would say no.
I would say we have not at this point.
And what we did is we wanted to stabilize and make sure we retained their revenues; we wanted to get the business pieces done.
We had an initial sales training ---+ and remember, the sales force now consists of half Merit people and half DFINE in this OIS division.
So we\
That's correct.
No.
In the third quarter, we did about $7 million.
In the fourth quarter, it should be about $9 million, so that will accelerate.
Because remember, there was about $16 million that we felt that we would capture to the balance of the year to fit our program.
And incidentally, think about it for a second, <UNK>.
You've got a business that you buy, salespeople leave, you've got the disruption, you're shutting down, and you can maintain those revenues.
Oh, you're including the HeRO.
He's including the HeRO in that number for the Q3.
In the fourth quarter.
Oh, in the third.
Okay, I'm sorry, okay.
Yes, HeRO in there, I'm sorry.
There you go.
Okay, I'm sorry.
Oh, yes, Mexico's been running for 18 months.
I'll tell you some of the really blessings of Mexico.
First of all, the people that work there are hard-working, wonderful human beings.
The great part, <UNK>, is our turnover rate.
Think about this ---+ a new business establishing down there with a lot of device companies.
We have a turnover rate that's less than 1%.
I can't think of anything happening better to Merit than having made the decision to get that business up and running.
And again, there are cost benefits; of course there are.
However, the more important thing is the availability of labor and then being able to retain those people.
And we've done it, I think, with good management techniques in terms of how we take care of people, how we feed people, how ---+ we even have an air-conditioned warehouse.
Those things may sound a little trite, but they're not.
And they've made a huge difference.
And in Mexico, the company to work for in Tijuana is Merit Medical.
Yes, I think ---+ listen, I don't think there's any question that when you can grow in a summer quarter on your core business, and drive that business, that we're getting pull-through.
It's coming through in vascular access, needles.
We've introduced a new inflation device into the interventional business there.
And incidentally, just to comment on one of the other questions about inflation devices, cardiology procedures are somewhat flat.
The radial procedures are improving.
But we never include our inflation devices in the endoscopy business in the inflation device numbers.
We throw them into that area or throw them into the endoscopy business.
And so that's something that we don't ever put upstairs in that other product, and that product is, for the sake of discussion, is up almost 15%.
So we're continuing to sell those inflation devices as well as the balloons and the other things.
So again, as I look at the business, <UNK>, overall, it's very healthy.
We're getting pull-through.
We're solving problems for customers.
And we have this big pipeline of new products.
And I ---+
Go ahead.
Go ahead, <UNK>.
I'm sorry.
So the biggest factor on the embolization side of the business was the reduction in orders that we got coming out of Nippon Kayaku out of Japan.
So they filled their shelves, so we saw the big numbers there.
And then now what they're doing is they're ---+ I guess I'll say they're coming to reality ---+ they're managing their inventory.
So that's the biggest single issue there.
And the other thing, too, is that all of our salespeople were really working on maintaining this business from the DFINE.
So there's all that training, people out in the field, people maintaining the business, and that was our priority.
That's where we spent our time.
Yes, and there's one other factor that will help that business, and that is we have a couple of new products that are in the pipeline, so that will be one thing.
And then maybe the more important thing is the SwiftNINJA.
I don't think anybody really understands the impact of this product.
I tried to state that, but remember, this is a steerable microcatheter.
And listen, when you can sell a product for $1,200 in Europe, and we expect and we hope ---+ I'll just say I hope ---+ I hope that we'll have that product approved here in the next couple of weeks.
It's a big deal, and what do they put through those.
The answer is embolic materials.
So it's a big, big factor for us to have that present and to work with interventional radiologists.
It will help that substantially.
That's the pull-through that I think, with a number of products, that will certainly pull through embolics.
No, well, you know, <UNK>, for good and varied reasons, I'm not going to comment on that.
We have a clinical trial out there, but there's other things that we're working on, and I'm just not going to answer that right now other than to say that that is an active trial.
It's not under any scrutiny or anything like that, but I'm just going to hold back on that, and it has nothing to do with any of that stuff at DOJ.
But there is an opportunity out there that, at the appropriate time, we'll discuss on the trial.
We are making more money ---+ we get higher prices in those locations for our products, on what I\
Great idea.
What a great idea!
(inaudible).
I hope that answers your question.
Yes, well, listen, if one thing that Merit is, as you know, is the global leader in inflation devices.
And procedures change.
The biggest issue is that when you're doing declots and you have to do a PTA for these patients, they require higher pressure, and they have higher-pressure balloons.
Merit had a 35-atmosphere, but some of the larger balloons are rated at 40 atmospheres.
We had a competitor that came out with a 40-atmosphere, and we were able to respond to it.
And we actually already had it in the mill.
So there was a little bit that's lost, I would say, in the second quarter, maybe the first and second ---+ just a little bit, not a lot ---+ and then I think the bottom line is people prefer the basixTOUCH, and certainly, the higher pressure.
Incidentally, just so I can say this so my competitors to hear it, we have the capability to go up to 55 or 60.
So in our technology and the things we've qualified, as higher pressures are needed, we already have that capability in-house.
So hopefully, that will discourage our competitors.
But we're set and we're ready to go.
The higher the need, we have that capability that's already proven.
So that will be a little tip for my competitors ---+ we're already there.
Well, again, everybody, we had a lot of folks on the phone today.
I think it was 120, and I want to thank you for taking the time.
And I know that there are a lot of calls that you\
| 2016_MMSI |
2016 | TMO | TMO
#Yes, so in terms of FEI, really we're very excited to have the company as part of Thermo Fisher Scientific and a great addition in terms of colleagues.
The business is on track to have a good year in terms of growth and obviously had a nice contribution in Q3 and a good contribution to our success in Q4.
So integration is just getting underway.
We did the planning between announcement and close, and the teams are executing well, and we're very excited about what FEI is going to bring to the Company over time.
What we expect over time, as we said back in May, is that this business will grow faster than the company average.
Thanks, <UNK>.
Good morning, <UNK>.
<UNK>, thanks for the question.
Obviously, we'll give our guidance in early 2017 on the Q4 call.
The way that I see it is you have the base operational assumptions and the capital deployment assumptions.
And if I think about the environment, the environment looks very similar to what it was in May, so that puts us in a range of 4% to 6% organic growth in terms of that.
And in terms of capital deployment, we will clearly benefit from the accretion that we get from FEI on a year-over-year basis, and certainly the accretion that we get from the Affymetrix transaction.
So at a high level, the way you articulated it, I agree with you.
Obviously, you have to work through all the math, but given the strong acquisitions that we've done this year, we're going to get a nice contribution to our earnings from the capital deployment actions in this year.
The academic end markets, the government end markets, were very similar to what we saw in Q2, with the US growing in the low single digits and the rest of the world a little bit more muted than that, and we didn't really see any meaningful changes in the trends.
We're doing well.
So that is the summary.
So you can parse it different ways and the growth is strong, no matter how you parse it.
Obviously, the bio production and the clinical trials logistics for bio pharma services businesses continue to perform very well and are growing a little bit above the rates there.
But if you just do the math, it implies that the rest is growing very strongly, as well.
So there wasn't much nuance in terms of the strong performance.
I would say that our chroma mass spec business obviously had a good quarter serving that business, as well.
But that's not implying that something did poorly, but given that there's been a lot of questions about what's going on in capital equipment, it's actually been pretty good.
So we feel good about the end market.
It's been a good nine months and it's been a good number of years, and we're well-positioned.
From the industrial and applied markets, they declined very slightly in the quarter.
As I read things outside of Thermo Fisher, what's going on in the broader world, clearly the industrial markets are soft globally.
It didn't seem like any particular geography really jumped out at us as a particular standout off of that.
The applied markets in China continue to be good, so that's obviously positive, things like food safety and environmental protection.
So that's a bright spot.
But we didn't really get any particular pockets of weakness on the industrial and applied that we saw.
<UNK>, the first thing I'd say is I think we're performing incredibly well.
I don't think anything other than that.
And in terms of the academic and government markets, if you go back to what we said at the very beginning of the year, which is probably the best way to think about what's different or what's the same, we expected that the year would start slower in the US in academic and government and then build as the year went on.
And actually, the year started a little bit stronger than we had expected and has stayed study with that at low single digit growth.
So it came a little bit early and it's been very steady.
In terms of the other geographies, obviously given that we expected academic and government to be a little better in aggregate, it basically says it must be a slightly weaker, and clearly that's been offset by the strength in bio pharma.
So that's the sort of looking back in late January, what's changed.
In terms of are we off cycle versus others, I don't know, I think we're gaining share versus others, but that's my opinion.
When we thought about our range of outcomes for the year, we felt comfortable with raising the guidance at the end of Q2 to 4.5% organic growth and we feel comfortable reaffirming that 4.5% outlook.
And the way I think about it is our commercial teams cover a range of customers.
We focus them on where the best opportunities are, and in a way, we don't force a lot of micro level analysis for the investment community.
It's our job to manage through it and we feel well-positioned to deliver a really nice year in terms of performance.
Yes, so given that we owned the business for nine days, but obviously been working with the team for a while, the Life Sciences business is performing very well, both with strong revenue growth and strong bookings performance.
The industrial-related and material science businesses are a little bit more muted.
And as we look at the numbers, it seems like the industrial businesses have bottomed out, which is encouraging, and then obviously as we get into owning the business longer and in the future, we can give you more color on that.
Thanks, <UNK>.
Good morning, <UNK>.
So <UNK>, good question.
As I think about the healthcare and diagnostic end market, it was very similar in Q3 to what we saw in Q2.
What I would say is the more, the super high-value added businesses, transplant diagnostics, the allergy and autoimmunity business, the clinical NextGen sequencing businesses, those businesses are performing very well.
The more routine, volume-related businesses, your basic consumables used every day, has been a little bit softer, but not a change in trend.
So what would have to happen for pickup in growth, two different factors could help drive it.
You don't need both, which is a little bit higher level of activity in the basic consumption of the products for consumables would help, and the other is we have a number of programs that are driving our Life Science tools into the clinic and they will be meaningful drivers, as well.
So the driving into the clinic, that's in our control entirely and that puts us very optimistic about the midterm prospects for the diagnostic business, and then we'll always take the upside if the markets get even better.
<UNK>, in terms of Affymetrix, let me give you an update on the integration, let me give you an update on the business performance.
Integration's going really well.
We are running very smoothly there.
Our synergies are running ahead of plan.
We'll achieve about $11 million in synergies this year, which is a $5 million to $6 million better than we had assumed for this year.
In terms of the business performance, the bioscience business is doing very well, growing sharply and that's very positive, the micro array business, like we mentioned last quarter, is soft.
We expect it to be soft for a few more quarters, as we really drive adoption of the precision medicine micro array, and we're obviously actively marketing that.
So that's a quick update on Affymetrix.
Yes, in terms of the sequencing of the quarter, nothing really jumped out as particularly meaningful in terms of what happened in each month.
And obviously, we have the benefit of the first three weeks of October's results, so if they were off that trend line, that would is factored into our thinking, and it wasn't.
So from that perspective, we didn't really see anything from a calendarization that was any particular impact.
In terms of spending and those things, we're managing the business like we always do, which is we spend aggressively in the areas to drive value added and we are very conservative and frugal on the things that are low value added.
And that's kind of how we run the Company day in and day out, so no significant changes on that front, either.
I don't know the growth by end market for Europe, because we don't manage the Company that way.
Qualitatively, Western Europe was a little bit stronger than Eastern Europe, in terms of performance.
But that's not a change in the trajectory over the last several quarters.
But that's what we've seen.
And from recollection, Germany had a pretty good quarter in terms of growth within the Western Europe, but that's not implying anything particular about any of the other countries.
You're welcome.
<UNK>, are you there.
The things that I think about in planning always goes to the one, new product launches and what are the exciting things we've got in the pipeline and what the impact's going to be and making sure that that's well characterized; two, any particular special causes year-over-year one way or another.
And at least as I sit here today, I don't see any special effects one way or another, so next year should look like this year in terms of some of the high level things.
One of the things we mentioned at the beginning of the year, which we're continuing to execute on, which I'm encouraged about is when the medical device tax was put on a two-year hiatus, we spent the savings on investing in some mid-term restructuring activities.
We will get one more year of that hiatus and we will invest those monies, as well.
So there's no effect year-over-year, but that means we'll have invested about $30 million in actions to drive more efficiency in the second half of 2017 and 2018, which I think is really good and encouraging and is something that we embedded into our long-term model.
So those are some of the things we're thinking about.
And I know that <UNK> is looking forward to giving a detailed set of guidance at the beginning of 2017.
Yes.
It's our job to widen the gap versus others in the industry every day.
That's what we're paid to do is to make the Company stronger and get better every day.
And when I think about how we're performing this year, I think the Company's performing very well.
I'm very proud of the effort and the capabilities of our team and they're delivering.
So I think that's very positive.
Obviously, we benefit from the strong competitive position we have.
We have a very strong e-commerce platform, as you said.
We have the largest commercial team.
We have the best commercial team, in my mind.
And when I think about it, we've got great products, we've got unique position in the emerging markets, which allows us to capitalize on those opportunities.
I highlighted a couple during the quarter, but the way I really believe, and when I visit a customer in China, it's rational for them to do a disproportionate amount of their business with us, because they simply get a better experience.
We've got better people, better supply chain, and a more comprehensive set of offerings.
So I think we're very well-positioned and we feel good about the outlook for the balance of the year, and certainly as we get into 2017 and beyond.
Yes, I guess it's hard ---+ there's always challenges in the world.
We do our very best to navigate through them so that we don't have to spend a lot of time explaining all the things that go wrong.
And I think we do a good job of that, because we deliver good results consistently.
I guess I really can't reconcile for you.
I think the only two comments I can make is that we had a very good growth in chrome and mass spec, so if I look at what I've read about that, we did really well in that end market.
And when I look at our clinical NextGen sequencing business, we grew very quickly.
So I really can't reconcile for you what others are saying.
It's hard to do.
Yes, <UNK>, our business is really focused on the clinical applications of sequencing, and we benefit from the ease-of-use, the low capital cost, and one of the very low volume of sample that you need to run an oncology panel on our sequencer.
And that's allowed for really good adoption.
And you're seeing a steady cadence of new assays that we're launching, which reaffirms to our customers that we're investing and meeting their needs.
So that's the area that we've seen good momentum in.
Thanks, <UNK>.
<UNK>, this is <UNK>.
I'll take the pricing one.
So we look at pricing on a total for the Company and we're about 60 basis points of price.
So it's very consistent with what we've seen for the rest of this year and actually what we saw pretty much for all of last year.
We're lapping some of the things that we did in Japan in terms of the FX offset, but that's going to be offset by some pricing actions we're taking in the UK, as well.
So pricing has been pretty consistent for us.
We've been on a really nice, consistent roll for a number of quarters.
And having visited China twice last quarter, the business is performing well, the bookings are strong, the outlook is good, and so we really haven't seen anything that would say the visibility is any different or if there's any particular strong clouds on the horizon.
The business seems to look good and we're benefiting from our strong competitive position there.
Operator, we have time for just one more.
We have a really strong position there.
It's been a core part of our business for a long time.
But we really haven't changed the risk profile as much.
We do have, obviously, a couple big investment areas that will position us for accelerating growth over time.
One is in the adoption of clinical NextGen sequencing and those applications, and our announcement, as you highlight, on the Cancer Moonshot is an example of that.
And the other is obviously in the area of mass spectrometry, where we've got a fairly big program, as well.
We're not really taking a different strategy, but we've been pursuing one for a number of years, in driving new applications into the clinic while benefiting from a very strong, highly profitable consumables business.
So thank you for the question.
Let me wrap up with just a quick comment, which is, as I reflect back, we're certainly on track to deliver another excellent year and we look forward to announcing our year-end results early in 2017.
And of course, thank you for your support of Thermo Fisher Scientific.
| 2016_TMO |
2016 | GWW | GWW
#Hello, this is <UNK> <UNK>, Senior Vice President of Communications and Investor Relations.
With me is <UNK> <UNK>, Senior Director of Investor Relations.
The purpose of this podcast is to provide you with additional information regarding Grainger's first-quarter 2016 results.
This podcast is supplemented by our 2016 first-quarter earnings release issued today April 18, and other information available on our Investor Relations website.
This material contains forward-looking statements that are based on our current view of the competitive market and the overall environment.
Future risks and uncertainties could cause our actual results to differ materially.
Please see our SEC filings, including our most recent periodic reports filed on Form 10-K and Form 10-Q which are available on the Investor Relations website for a discussion of factors that may affect our forward-looking statements.
Tables reconciling non-GAAP measures accompany the script of this podcast and today's earnings release, which are both available on our Investor Relations website.
Today we reported our 2016 first-quarter results.
While we are currently experiencing economic headwinds and our short-term results are affected, we continue to manage the business for the long-term.
Our investments in eCommerce, KeepStock and supply chain including the New Jersey and Toronto distribution centers will provide and support growth for years to come.
We have also invested in tools and processes that will make us more productive including a new CRM system and SAP in Canada and Mexico.
Now let's cover the specifics for the quarter.
A stronger than expected January, due to carryover spinning from fourth-quarter customer shutdowns and favorable holiday timing, contributed to our sales performance.
The difficult economic environment and headwind from last year's sales of seasonal products and Ebola-related products were also considerations.
Solid expense management and the timing of planned spending offset some of the gross margin pressure.
In Canada, we completed the installation of SAP which will drive better service and increase productivity over time.
However, we saw a further slowdown in February and March due to the implementation which also had an unfavorable impact on expenses.
And our single channel online businesses of Zorro in the United States and MonotaRO in Japan posted continued strong performance.
Now let's look at the quarter in detail.
Company sales increased 3%.
We had 64 selling days in the quarter, one more than the previous year.
On a daily basis, sales increased 1%, reported operating earnings declined 10%, and net earnings were down 12%.
Reported earnings per share of $2.98 were down 3% versus $3.07 in the previous year.
The first quarter in both years contained restructuring items as noted in the press release issued today, April 18.
Please refer to the adjusted results found in the press release.
All results referenced in the remainder of this podcast are adjusted unless specifically noted.
Now let's walk down the operating section of the income statement in more detail.
Gross profit margins decreased 300 basis points versus the prior year to 41.8% driven by lower performance in the US and Canada segments.
Operating expenses for the Company declined 4% driven by restructuring benefits and the timing of planned spending.
Company operating earnings declined 5% versus the 2015 quarter.
This decrease was primarily driven by lower gross profit margins partially offset by lower operating expenses.
Company operating margins were down 110 basis points versus the prior year to 13.4%.
Net income was $199 million down 6%.
Earnings per share of $3.18 were up 3% from the 2015 first quarter.
Let's now focus on performance drivers during the quarter.
In doing so, we will cover the following topics.
First, sales by segment in the quarter in the month of March; second, operating performance by segment; third, cash generation and capital deployment; and finally, we will wrap up with a discussion of our 2016 guidance and other key items.
Before we begin our sales discussion, please note that some of our businesses have a different number of selling days due to local holidays.
For consistency we use the number of selling days in the United States as the basis for our calculation of daily sales.
Company sales for the quarter increased 1% on a daily basis.
The 1% sales growth included a 4 percentage points from Cromwell acquired on September 1, 2015, and a 1 percentage point reduction from foreign exchange.
Excluding acquisitions and foreign exchange, organic sales declined 2% driven by a 3 percentage point reduction in price and a 1 percentage point reduction in lower sales of seasonal products partially offset by a 2 percentage point increase from higher volume.
By month, daily sales were as follows: up 4% in January, up 1% in February and down 1% in March.
Let's move on to sales by segment.
We report two business segments, the United States and Canada.
Our remaining operations located primarily in Asia, Europe and Latin America are reported under a grouping titled other businesses.
Our other businesses also include results from our single channel online businesses in Japan, MonotaRO, the United States, Zoro, and Europe.
Sales in the United States which accounted for 75% of total Company revenue in the quarter were down 2% on a daily basis.
The 2% decrease was driven by a 3 percentage point decline in price and a 1 percentage point decline from lower sales of seasonal products partially offset by 1% from volume growth and a 1 percentage point contribution from increased sales to Zoro, the single-channel online business in the United States.
Let's review sales performance by customer and market for the quarter and the United States.
Government was up in the mid-single digits, light manufacturing and retail were up in the low single digits, commercial was down in the low single digits, contractor and heavy manufacturing were down in the mid-single digits, reseller was down in the low double digits and natural resources was down in the midteens.
Now let's turn our attention to the Canadian business.
Sales in Canada represented 7% of total Company revenues in the quarter.
The business in Canada continues to face a challenging economy given the country's exposure to oil and gas.
Results reported in US dollars were further affected by the strong US dollar.
Sales for our business in Canada declined 25% on a daily basis and 17% on a daily basis in local currency.
The 17% decline consisted of 14 percentage points from lower volume and 6 percentage points from the SAP implementation partially offset by 3 percentage points from price.
The Canadian business installed SAP on February 1, 2016.
As expected, the business experienced lower sales following implementation as team members became acclimated to the new system.
All customer end markets were lower in the quarter.
On a geographic basis, daily sales in the province of Alberta which represents about one-third of the Company's business in Canada was down 26% in local currency.
Local currency sales for all other provinces were down 10%.
Let's conclude our discussion of sales for the quarter by looking at the other businesses.
This group includes our operations in Europe, Asia and Latin America and represents about 18% of total Company sales.
Sales for this group increased 47% on a daily basis consisting of 33 percentage points from Cromwell acquired on September 1, 2015 and 17 percentage points of growth from volume and price partially offset by a 3 percentage point decline from foreign exchange.
Sales growth in the other businesses was driven by the strong performance from these single channel online businesses in the United States and Japan which grew 34% on a daily basis.
Earlier in the quarter, we reported sales results for January and February and shared some information regarding performance in those months.
Now let's take a look at March.
There were 23 selling days in March of 2016, one more than in 2015.
Company daily sales declined 1% versus March of 2015.
Sales results in March included 4 percentage points from acquisitions and foreign exchange was essentially flat for the month.
Excluding acquisitions, organic daily sales declined 5% driven by a 3 percentage point decline in price, a 1 percentage point reduction from the timing of the Easter holiday, a 1 percentage point reduction in lower sales of seasonal products and a 1 percentage point reduction in lower sales of Ebola-related products partially offset by a 1 percentage point contribution from volume.
In the United States, daily sales in March declined 5%.
This decline was due to a 3 percentage point decline in price, a 1 percentage point reduction from the timing of the Easter holiday, a 1 percentage point reduction in lower sales of seasonal products and a 1 percentage point reduction in lower sales of Ebola-related products partially offset by a 1 percentage point contribution from increased sales to Zoro.
March customer end market performance in the United States was as follows.
Government was up in the mid-single digits, light manufacturing was flat, retail was down in the low single digits, commercial was down in the mid-single digits, heavy manufacturing and contractor were down in the high single digits and natural resources and reseller were down in the midteens.
Daily sales in Canada for March were down 20% and down 18% in local currency.
The 18% daily sales decline consisted of a 16 percentage point decline in volume, a 3 percentage point decline from the SAP implementation and a 1 percentage point decline from lower sales of seasonal products partially offset by a 2 percentage point benefit from price.
The volume decline was seen in all customer end markets.
On a geographic basis, sales performance in Canada was driven by softness in the province of Alberta which was down 24% in local currency in March.
All other provinces were down about 18%.
Daily sales in March for our other businesses increased 41%.
The daily sales growth consisted of 31 percentage points from Cromwell and 10 percentage points from volume and was primarily driven by Zoro US and MonotaRO.
Performance for the other businesses was driven by 28% daily sales growth for the single-channel online businesses.
Our businesses in Latin America and Fabory in Europe were affected by the timing of Easter, where extended holidays are more common.
Turning to April, daily sales growth to date has benefited from the timing of the Easter holiday.
We are expecting low single-digit sales growth for the full month.
Now I would like to turn the discussion over to <UNK> <UNK>.
| 2016_GWW |
2016 | LYV | LYV
#I think we are doing a good job, at least in this call, of suggesting that we believe we hit ---+ we will repeat history in terms of our growth rate.
So, if you looked at our stock over the last three years and what we have been able to do on a revenue and a cash flow perspective, we see no reason why we can't continue to grow this business at similar rates.
In order to grow, number one is we have an incredible unique business model at this point.
With our scale leveraged across our flywheel, we are able to drive some more concerts, which drives a bigger audience, which drives more sponsors, which drives more ticketing fees.
So, you're really starting to see the flywheel effect of our business.
So how will we grow ticketing.
Both ways you mentioned.
We will continue to be more efficient as our new and improved technology comes to life, and we get to retire our old platform and technology that was much more inefficient, so we will have a per-ticket savings.
Over time, it will continue to drive our savings on that side.
But we still have Ticketmaster on a global basis, and one of the things we've done I think really well at Ticketmaster when we took over is to redefine our business.
Ticketmaster was looked always at a very I think narrow perspective of the business called arenas in America.
We look at ticketing on a global basis, so why we talk about being in 22 countries and growing that, why ---+ we are very excited on secondary to get way ahead of the curve on those other 12 markets outside of America.
So we think we can grow the pie, we can grow our market share within secondary, and grow it on a global basis.
We still think we have a lot of room whether it be in clubs and theaters with TicketWeb, one of our products, whether it's festivals with Front Gate, we still think we have room in a lot of the niches within the industry that we have currently or historically not served.
So, we think we have lots of room to grow vertical and horizontal in ticketing as well as achieving costs through a more efficient platform.
Sponsorship, as I said, is kind of the bigger a platform it becomes on a global basis, the more people we put through the turnstiles, the more attractive we are to Madison Avenue.
So, we are seeing ---+ we are able to increase our ad units, rate card as you said, take a local partner up to a regional partner or renew him at a higher rate, because we have better assets, both on site and online.
So when we look at sponsorship, it's somewhere in the $2 billion number is what the latest reports would say is spent on music in America out of the advertising budget, so we are still we would say dramatically under our market share.
We could double our advertising business before we have to actually even get out of that kind of $2 billion that is dedicated by Madison Avenue to go spend on music onsite activation.
So we still think there's a big pie available.
The better our ad units and the better our positioning of our business is for Madison Avenue, we think we will continue to grow that business through rate card and through higher per-deal metrics.
I'll work backwards.
Sacramento, I was surprised how much press I did see on that one too, given the size of it.
So that would have been our theater ---+ they must have very good PR people at the Ace of Spades that we're doing the deal with.
So it's a theater club.
We have theater and club division.
We would book/manage over 100 theaters or clubs, kind of in the 1,000 to 3,000 range.
It's a strong, strong category for us globally.
And my team under Ron Bension is continually looking for theaters and clubs where we would be taking over booking to drive our business into.
So that would be a small deal in relative terms to our business, but that 100-plus theaters and clubs which drives ---+ which is a great platform for us because it tends to be younger skewed, which means we get present to the Red Bulls and the young sponsors that are really looking for a very young demo, and it also drives our ticketing business.
So, they are continually looking for opportunistic theater or clubs to manage and/or book in kind of a non-CapEx manner.
As far as South Africa, it continues to be our 41 countries and path we've been on.
When you look around the world, there tends to be these markets like South Africa, Cape Town, where there may be an established promoter who really has a strong market share.
He is the go-to kind of promoter or business for any artist that goes to South Africa.
We've been working with Attie for years, and he has been our go-to promoter for years, so at a certain point, we have been talking about a deal where instead of spending Rihanna and selling off to Attie where he is monetizing all of the local business, you get to a point where our business is so scalable now on a global basis that when we move into markets like that and acquire and continue to consolidate kind of the global footprint, we then are our synergies of ---+ drive the local promoter, build our sponsor business and drive our ticketing economics make it very accretive for us.
South Africa, we don't think it's a short-term big business for us, but we think, over a long term over the next five years, we think it is a growth industry, one of those emerging markets that, again, if you are a 19-year-old fan in South Africa, Cape Town, right now, you are on YouTube and you're dying to see Rihanna or Beyonce.
So the more and more we sit with these artists and talk about what's their global plans, the more and more they are now looking at places like South America and Asia and South Africa and Cape Town to add to their itinerary.
And we want to be ahead of the curve on having our platform in place so we can monetize that content when it touches down.
You led with I think it was an unfair question, is that how you (multiple speakers)
You can ask them at the next Liberty investor dinner we go to.
Listen, Liberty has been a great, solid shareholder for us.
Greg and <UNK> and Mark Carleton have been very instrumental in playing along with our strategy.
We've made them a lot of money since we merged businesses and we both have done very well together.
And we would expect Liberty to be a long-term shareholder and a great contributor to our strategy.
Where and how they do what with their tracking stocks, as you know, that's not important to me.
What's important is that we deliver good returns to our shareholders and good things happen when that happens.
And that's our focus and we will keep doing that for Liberty and others.
| 2016_LYV |
2016 | KND | KND
#Well, I think on the margin improvement side, first of all you have to look at home health and hospice, I think, separately on the margin side.
I think that on the home health side, look, you are dealing in a very tough rate environment.
You've got ---+ you are heading into next year, the last year of Medicare rebasing for the home health business.
On the hospice side, we've just gone through this very significant change to the U-shaped curve.
And I think, <UNK>, that all of those things with reimbursement, we are going to talk I'm sure about pre-claims review and some of the other legislation that has come down the pike.
All of those things have a tendency to mute what happens with margins.
Having said that, I'm just incredibly impressed with David Causby and Brandon Ballew and the team at Kindred at Home, and what they've been able to accomplish.
Our five regional presidents across the country that just do a fantastic job running this business, they continue to develop specialty programs and the ability to deliver on a higher acuity patient in a way that I think actually singularly represents what's happening in the home health space, better than most of our competitors out there.
So, to that end, I've been surprised that even in some of the rate pressure environment that we've been in, we've been able to grow revenues as effectively as we have.
So we will keep an eye on that as it relates to margins.
I wouldn't expect to see significant margin improvement over the course of the next year, because of the reimbursement pressures that are on.
But I do think that we can continue to drive revenue at a pretty meaningful clip.
And I think that you will see us do that into next year and the future.
Sure, yes.
It does not run through the core cash flow numbers.
It does run through the GAAP cash flow numbers.
But then there is a whole bunch of other stuff that is wrapped inside your GAAP cash flow numbers as well.
So probably the ---+ so there is that reconciliation table on page 20 of the release.
The easier way to think about it probably, <UNK>, is you can just add $30 million on top of the $126 million, or on top of the $83 million.
That kind of gets you to the same place, with less brain damage.
Let me try and take the parts ---+ take the pieces apart, if I could, in what I know is a little bit of a complicated environment.
So, A, we were trying to be helpful with going back and looking at the last four years or five years ---+ I think it's even better if you go back even further ---+ just to talk about the seasonality effect of what happens from Q3 to Q4, primarily driven by our LTAC business.
And while you are exactly right, the composition of our businesses has changed significantly, and I am going to get to that in a second.
The point is that because the LTACs typically have this tough seasonal third quarter, you do typically see this return to normalcy in Q4, and you do have a lift.
We were asked by a lot of analysts over the last ---+ since we reported last night, and some investors ---+ how do you get from $0.07 to $0.20.
And we were simply reminding folks it's not that big of a lift when you look at what has happened historically.
Secondly, to answer your question a little bit more specific, as I said, I would pull the pieces apart ---+ I want to talk about some of the pieces that we think are happening to get from the midpoint guidance in Q3 to the midpoint guidance in Q4.
Number one, yes, there is that seasonality lift.
You should expect to see some lift in our hospitals and others as we get into the winter months, as we see sicker patients toward the end of the year.
We typically see a bit of seasonality moving from Q3 to Q4, and that is what is in the number.
The conservative nature of your question is that we have guided investors on in the context of our guidance is that we have a $30 million impact, the impact of criteria built into our guidance over the last 4.5 months of the year.
That's a month and a half here in Q3, and that's three months of that $30 million in Q4.
So we think we've taken a very realistic look at, yes, we will have seasonal growth in the LTACs.
But on the other side, there's clearly going to be an impact from LTAC criteria in an environment that we will start to be able to mitigate against some of the criteria effect as we move into the end of Q4.
But that mitigation really kicks in for us in 2017 and beyond.
In the last point that I would mention, in terms of the conservatism, if you will, that's in the number, or why we feel good about the bridge going from Q3 to Q4, is because you have to remember, you have to look at Kindred at Home and you have to look at our IRF business.
And you have to look at some of the faster growing parts of what we are doing, the continuation of the synergies we've achieved from Gentiva.
And you have to say, there are a lot of really nice growth stories in this Company as we move from Q3 to Q4 as well.
If you take the combination of seasonality, growth stories in our other businesses, historical precedent over being able to move EPS by, on average, about $0.12 over the last four years, netted against a conservative view of criteria, $30 million of effect that's built into this guidance, and that's kind of all the moving pieces.
So I think that's about as clear as I can be on why we feel like the numbers are absolutely what we said they would be.
As a reminder, we sit here at the middle of this year at about $0.63 of earnings.
We had guided investors to a midpoint of $0.90 for the year.
We are reaffirming that guidance.
We are trying to, because of all the moving parts, be really specific, to hold everybody's hand through what we think Q3 and what we think Q4 is going to look like.
And I think we've been very transparent, if you will, about where Q1 was going to be, where Q2 was.
And that's all we're trying to do for Q3 and Q4.
Here's what's happening mechanically.
And I'm not sure, <UNK>, I follow the $0.30 to the $0.02.
I don't know what (multiple speakers).
Yes, $0.38.
Mechanically, <UNK>, what happens is ---+ and this is ---+ it's interesting; because we have talked about this a lot.
It may be disappointing in the context of looking for big bells and whistles to go off in terms of what happens.
It's going to be very much methodically moving forward, kind of in the same path that we've been on.
What you are going to see is is that we will continue, because of our approach in our LTACs, to take all patients that we believe are medically appropriate for an LTAC level of care.
Any referral source that wants to send us an LTAC that we think either meets compliance or can ultimately be a medically complex, site-neutral patient, we are going to take.
Once those patients come to our facilities, our facilities will identify, once and for all, whether they are going to meet a full LTAC DRG on the one hand, or whether they will fall into the medically complex side, on the other hand.
Then, depending ---+ as we always do, and focused on quality, and focused on what the patient needs ---+ with a medically complex patient, you should assume acuity will probably be a little bit less.
Lengths of stays will go down.
And you will start to see the mitigation take hold by the reduction in length of stay on those patients that wind up on the medically complex side of the house, if you will.
In addition, we will continue to go after and work towards finding more post-intensive care patients on the other side.
The net effect is going to be that on our full LTAC DRG post-intensive care patients moving forward, you should see rates go higher.
You should see lengths of stay probably go a little bit higher on that side.
And on the medically complex side, you will see rates be lower and you will see lengths of stay be lower, all of which we hope will ultimately lead towards higher occupancy in the hospitals in total; and will allow us, as we work towards this, to mitigate into Q4, into Q1 of next year, and beyond.
That's mechanically how it will all work.
It's possible, Josh.
I would say slightly; but I wouldn't say that there won't be any effect.
I mean obviously these hospitals, first of all, are running very well.
They've done a great job of keeping their focus, and on running their business just like we'd want them to do, all the way through the tape of getting this deal done.
We want to make sure that we are being really good partners to our friends at Nautic and Curahealth who are buying these.
And I think that they are taking 12 hospitals that are going to be in great shape when they take them over.
There is clearly going to be an effect of criteria on these hospitals, and that was not contemplated in our guidance.
So there may be a little bit of upside there, to your question.
It was also contemplated, quite frankly, as the Nautic and Curahealth folks evaluated what they were willing to spend on this, and how we came to obviously a transaction point.
So I think both of us are walking into this with our eyes open.
But, yes, I think it could be slightly positive for us after we close the deal.
Yes.
Well, I am looking down at the table at my Chief Operating Officer, and Kent is telling me that we have not negotiated a budget yet, so please don't make his budget for next year quite yet.
(laughter) Look, I will just speak to it at a high level, if I could, Josh.
I think that it shouldn't surprise you, many of the trends we expect to continue to see in 2017.
You should see outpaced growth in our home health business, hopefully in the mid-single-digit levels, revenue-wise.
You should see outpaced growth in our hospice business at those same levels.
I think that as our IRF pipeline continues to fill, and as our IRFs business continues to grow, you will obviously continue to see outpaced growth there.
I think you will continue to see a stabilization in our RehabCare segment inside of KRS.
And I would expect that we will do much better in that business segment next year than we did it this year.
I think nursing centers are still a little bit of a question, as we sort of watch as the year unfolds.
But I would think growth there will be pretty muted next year, clearly.
And then you get back to the LTACs, Josh.
And that's obviously the effect of wildcard towards how do you get back to that $1 billion.
And on that front, look, we've been pretty clear about what we think the mitigated effect of LTAC criteria is from 2016 to 2017.
As a reminder, what we said in the last investor call was you would have a $30 million impact this year, and then you would have an incremental $25 million to $30 million impact next year.
More of that will come in the first part of the year.
And then mitigation obviously will unfold, and we will start to mitigate that in the back half of next year.
So, that will ultimately ---+ those puts and takes will get you to at least a $1 billion number.
We've done a great job in terms of continuing to, as I talked earlier, drive synergies at Gentiva.
Although I think we are getting close to the end on that; we are almost up to the $85 million level there.
We have always done a really nice job here at Kindred on something that we call continuous improvement, which is where we are always looking to take money out of ---+ resources away from the bedside.
And there will be a piece of that, I think, in our plan next year.
We are still working on health benefits and insurance.
So there's a lot of moving parts, I think, still.
But generally, those are the pieces that as we think about getting back to at least $1 billion next year, that's how we feel pretty good about getting to that point.
Really, we are trying to play this pretty much straight down the fairway, A.
J.
It's really about what we thought.
It's probably ---+ the best way to describe it, I would say, it's kind of the midpoint of the scenario.
There's a better case and there's a worst-case.
We think $30 million is kind of the midpoint.
And that's just playing it straight as we can.
That is still our view.
Well, first of all, the 25% rule, let me start with ---+ it's bad policy.
It doesn't make any sense.
You have LTAC criteria in place ---+ which is presumably created by Congress, signed off into law by the President, which is pretty declarative about what an LTAC patient is or isn't ---+ the 25% rule seems to be an archaic relic of an old legacy system that just, quite frankly, doesn't make any sense.
I always like to fall on what is good policy and what's bad policy.
And my view is the 25% rule is bad policy.
That having said, we haven't given up hope yet that talking to our friends in Washington, when they come back and maybe after the election, that there is still a chance that we can hopefully try and get something done.
I think it's the right thing to do.
As it relates to our model and the effect of the 25% rule, a reminder that since 80%-plus of our hospitals are freestanding hospitals in their own unique location, the 25% rule for us is not of no impact;, but it is fairly de minimis, I think, in the context of the rest of the trends that we see and the various things that we are dealing with.
So we haven't really quantified a specific dollar amount, other than to say it is contemplated in our guidance and in our at least $1 billion for next year that we will be dealing with the 25% rule.
But I still remain hopeful that legislatively, we can work through what, as I said again, is that policy.
On the home health side, again, we've been dealing with rebasing.
Now we have this pre-claim review issue, and there's no question that there is an impact to that.
That is also already contemplated in the guidance that we give.
And we will have to ultimately see.
The home health rule is not finalized yet for next year; so when it is, we will ultimately give some more granularity on that.
There is no question it will have some impact on our business as these reimbursement cuts have had in the past.
But you know, we are pretty good about just putting our heads down and trying to work our way through them.
I suspect we will do the same thing next year.
Sure, thanks, A.
J.
Look, we still have deep affection for our nursing center business.
We still believe it to be an extraordinary value proposition in the marketplace today.
I remind investors all the time, if you have walked into one of our new transition of care centers and seen the kinds of patients we take, what the rehab gyms look like, the outcomes that we are producing, these are not your parents' or grandparents' nursing centers anymore.
These are highly active, very capable facilities of taking care of a complex patient at a pretty low price point.
The problem is, obviously, today, you've got all of these pressures with what MA wants to see happen, with what conveners want to do, with what the consumer wants to do.
People want to be home.
And in some cases, that's the assisted living facility; and in some cases, that's home.
And it's having this pressure effect, if you will, on our nursing center businesses.
But we still think that it's a very viable business, and it's still very important.
As it relates to the dispositions that we did over the last couple of years, look, I appreciate your comment.
Paul and I, I think, worked hard over the last couple of years to try and figure out where we wanted this business to go.
We worked hard with our partners at Ventas, and Debbie, to make sure that we were all collaboratively thinking about this in the right way.
And I think that for all us, we have made the right decisions for our companies in terms of the position we took to kind of move in the direction away from nursing centers.
The interesting thing ---+ to your longer, broader question about how we feel about nursing centers ---+ is that even today, with our 90-plus nursing centers that we have across the country, we don't have great geographic positioning in all of our integrated markets.
So that leads me to the second part of your question, which is we want to partner with other nursing center providers in markets where we don't have full coverage.
We think that as we evolve and become what we call a post-acute benefits manager, our key relationships with hospitals as a trusted partner ---+ both in the context of caring for patients and in the context of coordinating care for patients ---+ means that more and more, we are going to reach out to partners and create, as I've been calling them, these high-performance virtual networks.
That means we want to work with lots of other nursing center companies across the country that think about things the way we do; that think about their star ratings the way we do; that think about outcomes the way we do.
And I think you will see more of those partnerships, not less.
So it's really kind of a yes, A.
, to both of your questions.
And we will see how it plays out over the course of the next couple of years.
We've got time, operator, for one more.
I think that when you look at ---+ it's a complicated question, <UNK>, when you start to think about our Q3 and our LTAC business is going to look like compared to Q3 last year.
On the one hand, I agree with you.
We had a very poor Q3 in our hospital business last year, coming off of what was a very good Q1 and Q2.
I don't want to take everybody back to the horror shows of the summer of last year, where we had all this displacement with the acute care hospitals and everything that was happening in the marketplace.
It was a tough summer last year, as I recall, for everybody in the healthcare acute services side.
And our hospitals obviously felt some of that.
But I think that as you think about this year, <UNK>, not only does criteria start on September 1, but as <UNK> mentioned in his prepared remarks, we have the first probably half of August where all of those patients that are in-house are going to be affected by that as well.
And <UNK>, there's really not much mitigation, I think, in the first 45 days that we can do.
We are going to take the patients.
The rates are going to be applied.
You can do the math on what the rate degradation is going to be for those that move into medically complex.
And I think that's going to pressure margins in the quarter.
That's why we've guided the way we've guided.
And that's why probably you will see some pressure on margins in Q3 this year versus Q3 last year, even though it's coming off of a not-so-great comp.
It is probably little bit of both.
It probably is, on the margin, easier to take a 30 bed hospital and reconfigure and do what you want to do, than it is to take an 80-bed hospital and do what you want to do, just because of size and complexity.
Hard to argue that.
But, I do think we have different approaches because the makeup of our buildings is different.
I think that our ability to manage a medically complex patient and to grow occupancies in our hospitals ---+ because we've got a lot of fixed cost, and we want to continue to cover that by putting more heads in beds ---+ makes the right sense for us.
And I'm not sure that it's any more complicated or less complicated.
It's just a different approach.
And as I said, our folks are well prepared and ready for the challenge.
That's a good question as it relates to 2017.
I think we are watching the labor pressures unfold.
They are real.
As I've talked about publicly, when you are into the mid-4% unemployment levels, and you've got a busy healthcare environment where everybody seems to want the same nurse or the same CNA, particularly in these institutional environments, there's absolutely an inflationary perspective to what's going on.
We probably had more contract labor in this quarter than we've had in our hospitals ---+ and, really, at Kindred, in a long time.
We are usually very, very diligent about that.
But we've had to go that path, just to fill staff.
I think, <UNK>, probably my view is we are at kind of a run rate on where we think labor is.
I'm not sure we are going to see and acceleration.
It's pretty tough, and summer seems to be always the toughest part of the year, labor-wise, for us also.
People go on vacations.
People start to retire.
People think about different things.
So, I don't think we've contemplated much of a change from our run rates into our 2017 guidance.
Let's see how the rest of the year plays out.
If labor continues to spike higher, we will obviously address it.
But for right now, I think we feel pretty comfortable with the run rate on labor, and where our forecast is for 2017 being okay.
Thank you, everybody, for a very detailed and robust conversation.
Obviously a lot of moving parts in our business.
Again, we are very pleased with our Q2 performance, our cash flow; very pleased to reaffirm guidance for the rest of the year.
We are ready to head into the challenge of LTAC criteria.
And we appreciate everybody's questions and support and interest in the Company.
And we will talk to you all next quarter.
Thank you very much.
| 2016_KND |
2016 | ES | ES
#Thank you, Brandon.
Good morning, and thank you for joining us.
I'm <UNK> <UNK>, Eversource Energy's Vice President for Investor Relations.
As you can see on slide 1, if you've gone into our slides which are on our website, some of the statements made during this investor call may be forward-looking as defined within the meaning of the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on management's current expectations, and are subject to risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections.
Some of these factors are set forth in the news release issued yesterday.
Additional information about the various factors that may cause actual results to differ can be found in our annual report on Form 10-K for the year ended December 31, 2015.
Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and the slides we posted last night on the website under Presentations and Webcast, and in our most recent 10-K.
Turning to slide 2.
Speaking today will be <UNK> <UNK>, who yesterday became Eversource Energy's President and CEO, and <UNK> <UNK>, our Executive Vice President for Enterprise Energy's Strategy and Business Development.
Also joining us today are Werner Schweiger, our Executive Vice President and Chief Operating Officer; <UNK> <UNK>, our new Senior Vice President and CFO; Jay Buth, our Vice President and Controller; and John Moreira, our VP of Financial Planning and Analysis.
Now I will turn to slide 3 and turn over the call to <UNK>.
Thank you <UNK>, and thank you all for joining us this morning.
I also want to thank many of you on our call today for the notes you've sent me since our announcement last month of Tom's retirement.
Tom's record of providing value and service to customers and investors as CEO first of Boston Edison, then at NSTAR, Northeast Utilities and Eversource Energy was unsurpassed in our industry.
I was both honored and tremendously excited by being our Board's choice to succeed him.
This Company has a tremendous future ahead.
We continue to identify investment opportunities to enable our region to successfully implement the state and federal energy policies that continue to shape our region.
We also have what I consider to be the best group of 8000 employees in the industry, and a very talented and very experienced management team.
I look forward to continuing to work closely with our investors as our Company continues to deliver to you attractive returns by providing the highest level of service to customers.
As <UNK> mentioned, I'm pleased to share with you that yesterday the Eversource Board of Trustees elected <UNK> <UNK> as the Company's Senior Vice President, Chief Financial Officer, and Treasurer.
Most of you know <UNK> well.
He's been a key contributor for us for years.
So congratulations, <UNK>.
I would like you to say a few words.
Thank you, <UNK>.
I would echo <UNK>'s thank you for those notes and congratulations and calls I received.
So thank you very much.
I know ---+ I've known a lot of you for many years, going back to the Investor Relations Day several years ago.
But I'm looking forward to meeting those of you who I haven't had a chance to meet yet and working with you closely over the weeks and months ahead.
I know I have some big shoes to fill, but I'm excited about the opportunity.
I just also want to close it and say I'll be part of the Eversource team at the AGA Conference down in Naples.
And I hope that I'll get to meet you in person down at that event.
And I'll turn it back to you.
Great, <UNK>.
Today I will cover our first-quarter financial results, our strong operating performance results for the quarter, and update on certain transmission projects and regulatory dockets.
Starting with our financial results in slide 4.
We (inaudible) $244 million, or $0.77 per share in the first quarter of 2016 compared with earnings of $253 million, or $0.80 per share in the first quarter of 2015.
Both of those are GAAP numbers since we are no longer separating out merger integration costs in reporting our results.
These results represent a solid start to 2016, despite the very mild weather in the first quarter.
These results also support our full-year EPS estimate of $2.90 to $3.05 per share, as well as our long-term earnings growth rate of 5% to 7%.
Our Transmission segment earned $0.27 per share in the first quarter of 2016 compared with $0.21 per share in the first quarter last year.
The first of two principle drivers of that increase was the absence of a $0.04 charge we recorded in the first quarter of 2015 after FERC issued its final decision in the first New England Transmission ROE complaint.
The second factor was the earnings growth we are experiencing as a result of our continued investment in the reliability of the New England power grid.
That rate-based growth added $0.02 per share in the first quarter of 2016.
On the Electric Distribution side we earned $0.34 per share in the first quarter of this year compared with earnings of $0.41 per share in the first quarter of 2015.
Three principal factors contributed to this $0.07 reduction in earnings.
The primary driver was the absence in 2016 of about $0.09 of benefits we realized in the first quarter last year from settling several long-standing dockets at NSTAR Electric.
Milder weather in the first quarter of 2016 reduced earnings at NSTAR Electric and PS&H, where distribution revenues are not fully decoupled.
And that cost us about $0.02 per share.
Partially offsetting those impacts were lower O&M and other items, including our second-quarter 2015 accumulated deferred income tax settlement at Connecticut Light and Power.
All together those factors added about $0.04 per share in the first quarter.
On the Natural Gas Distribution side, we earned $0.16 per share in the first quarter this year compared with earnings of $0.18 per share in the first quarter of 2015.
Warmer weather was the principal factor, with lower gas [revenues] costing us $0.05 per share, despite a nearly $16 million annualized rate increase at NSTAR gas.
We had a very cold first quarter in 2015 and a very mild first quarter in 2016.
Heating degree days in the Boston area were 21% above normal in the first quarter of 2015, when NSTAR gas did not yet have decoupling.
In Connecticut, where Yankee Gas is not yet decoupled, heating degree days were about 10% below normal in the first quarter this year compared with 18% above normal in the first quarter of 2015.
The weather impact was partially offset by lower O&M, a rate increase at NSTAR Gas, and other factors that together added $0.03 per share to earnings.
Turning from our financial results to operations.
Our transmission investments totaled $140 million in the first quarter of 2016.
And we continue to target transmission capital investments of $911 million for the full year.
As you can see on slide 5, we continue to move ahead on our major reliability transmission projects across the system.
We are making solid progress on our two large families of reliability projects, The greater Boston Reliability Solutions and the greater Hartford Central Connecticut Solutions.
We have now invested more than $130 million in those projects, with many elements now completed, under construction, or before regulators for approval.
By 2019, we expect to invest $900 million in these comprehensive solutions to our region's energy long-term reliability challenges.
The New Hampshire Site Evaluation Committee has a number of projects before it, including our Northern Pass.
Last month, we filed application with the Site Evaluation Committee to build the $77 million Seacoast Reliability Project in Southeastern New Hampshire.
We expect a decision on our application by mid-2017, and to complete the Seacoast project by the end of 2018.
We also continued to expand our natural gas delivery system in the first quarter.
We've added about 2500 natural gas heating customers in the first quarter, up about 20% from the 2050 we added in first quarter of 2015, and very consistent with our full-year 2016 goal of 12,500 new heating customers.
We added a 72nd town to the Yankee Gas service territory, the town of Bozrah in Eastern Connecticut.
And despite the mild winter, we did have one frigid weekend around Presidents' Day, when both Yankee Gas and NSTAR Gas set all-time records for the amount of natural gas delivered in a single day.
On February 14 NSTAR Gas delivered over 8.5% more natural gas to our customers than the previous record set back in January 2014.
Now, I will turn to our regulatory calendar in slide 6.
We are awaiting a decision from the New Hampshire PUC on our comprehensive settlement with numerous state officials and other parties to divest PS&H's generating assets.
To remind you, PS&H generating rate base, including undepreciated plants, fuel and inventory, totals approximately $700 million.
Any investment we have in our generation business that is not recovered through the plant sale process will be recovered through securitization.
We continue to expect the entire sale and securitization process to be completed by this time next year.
Moving from New Hampshire to Washington.
On March 22, the administrative law judge at FERC handling complaints number 2 and complaint number 3 involving the ROEs earned by all New England transmission owners issued his initial recommendation.
For the 15-month refund period ended in March 2014, the 400-page recommendation called for a base ROE of 9.59% and a cap of 10.42%.
For the 15-month period ending October 2015, the decision called for a base ROE of 10.9% and a cap of 12.19%.
Our currently allowed ROE is 10.57% and our current cap is 11.74%.
So if the FERC were to adopt the ALJ recommendation, we would find ourselves under-reserved for the earlier refund period by $34 million after-tax and over-reserved for the later refund period by $8 million after-tax.
Because we cannot be certain how FERC Commissioners will ultimately decide the case, we didn't book any charges this quarter due to the ALJ recommendation.
We will reexamine the issue as this process moves forward.
If FERC were to adopt the ALJ recommendation, we would have a one-time net charge of approximately $0.08 per share.
Going forward, however, we would earn a higher ROE of 10.9% compared with the current base of 10.57%.
Parties to the case filed comments on the ALJ recommendation on April 21.
We continue to expect a final FERC decision around the end of this year or early 2017.
I should note that after six months of no additional complaints, a fourth complaint was filed this past Friday by Eastern Massachusetts municipal electric companies.
We await FERC action on this fourth complaint.
Turning to financing.
Eversource parent issued $500 million of senior notes in March, $250 million of 5-year notes with a coupon of 2.5% and $250 million of 10-year notes with a coupon of 3.35%.
Proceeds were used to pay down short-term debt.
The issuances were several times oversubscribed.
And we're very pleased with the rates we received.
Now I'll turn the call over to <UNK>.
Okay.
Thank you, <UNK>.
I'll provide you with a brief update on our major investment initiatives and then turn the call back to <UNK> for Q&A.
Let's start with Northern Pass on slide 8.
The review process for Northern Pass continues to move along according to schedule.
March was an important month from the standpoint of receiving public input on our project.
A total of seven public meetings were held around the State in the month, three by the New Hampshire Site Evaluation Committee, two by the US Department of Energy, and two jointly between these two primary permitting agencies.
The Site Evaluation Committee will hold two additional public meetings on some follow-up items, one later this month and another in June.
April 4 was the deadline for the written comments on the draft Environmental Impact Statement, and we expect a final Environmental Impact Statement from the DOE in the fourth quarter of this year.
On the state side, the New Hampshire SEC recently established a near-term schedule through the end of June, providing for commencement of the discovery process in mid-May.
The dates are similar to what we had proposed.
Under the state statute, we would expect the New Hampshire SEC to hold evidentiary hearings and issue a decision before the end of the year.
We are aware that some interveners have requested a more prolonged review period, and we expect a ruling soon on those requests and establishment of a firm schedule.
Assuming the final schedule is consistent with the statutory deadline, as you can see on Slide 9, it would support the issuance of a presidential permit from the Department of Energy early next year and the commencement of construction shortly thereafter.
We continue to see support for the project building in New Hampshire.
And we were gratified by the number of favorable comments in the public meetings, particularly from the labor and business communities of New Hampshire.
We believe this is a sign of growing public support for the project and the billions of dollars of benefits it will bring to New Hampshire.
As stated in our February earnings call, we bid both Northern Pass and the Clean Energy Connect into the three-state electric RFP.
Clean Energy Connect would allow 600 megawatts of carbon-free energy to flow from New York into New England.
The review process for our projects, and the other approximately 20 that were bid into the process, continues.
And we expect the states involved in the RFP, Massachusetts, Connecticut, and Rhode Island, to announce the winning bids this summer.
I'll now turn to Slide 10 and the Access Northeast project we plan to build with our partners, Spectra Energy and National Grid.
To remind you, Access Northeast is a $3 billion project to upgrade the existing Algonquin Pipeline and add 6.8 billion cubic feet of LNG storage in Acushnet, Massachusetts to bring firm natural gas supplies to power generators in New England.
Our share of Access Northeast is 40%, or $1.2 billion.
The project is designed to provide 900 million cubic feet per day of additional natural gas supplies to serve the region's power generators during cold winter periods.
That will allow up to 5000 additional megawatts of the region's most efficient, low cost units to remain online when winter temperatures drop, saving New England customers approximately $1.5 billion to $2 billion in a typical winter and approximately $3 billion in an extreme winter, such as the 2013 and 2014 period.
Access Northeast builds up the existing Algonquin footprint, which already touches 60% of the power generation in New England, a percentage that will soon grow, as nearly 2600 megawatts of new proposed plants are built and connected to the project.
Access Northeast allows direct last-mile deliveries to the power plants to ensure greater reliability and cost benefits.
The business model is that electric utilities sign long-term contracts with Access Northeast and then retain an independent capacity manager to market that capacity to generators at a market price.
Without Access Northeast, those generators are frequently without fuel to run their units during cold winter weather when the region's existing pipeline capacity is used, primarily to heat homes and businesses.
If a large amount of new pipeline capacity is set aside to meet the fuel supply needs of natural gas generators, we can depend less on more costly and higher emitting coal and oil plants that typically operate when the region's natural gas supplies are short.
We continue to make significant progress on securing and seeking approval of contracts with New England electric distribution companies.
The current status of the state reviews is on slide 11.
You will recall the following RFP this past fall, NSTAR Electric, Western Mass Electric, and two National Grid electric distribution companies filed with the Massachusetts DPU seeking approval of contracts for pipeline and storage capacity with Access Northeast.
Our two utilities asked for a decision by October 1 of this year.
The DPU has established a schedule to review that filing that would support a decision in the early fall.
Evidentiary hearings on all of the contracts are scheduled for this summer.
Once approved by the Department of Public Utilities, these contracts will account for more than 40% of Access Northeast targeted capacity.
In Connecticut, we expect the State Department of Energy and Environmental Protection to issue a request for proposals for natural gas capacity shortly.
We expect this process to be complete, with approved contracts late this year or early in 2017.
In New Hampshire, you may recall that the Public Utilities Commission issued an order on January 19 in which they accepted a staff report that concluded that the Public Utility Commission had sufficient authority to approve electric distribution contracts for natural gas supplies, if those contracts were shown to be in customers' interest.
On February 18 Public Service of New Hampshire filed with state regulators a natural gas contract with Access Northeast that was similar to what the four Massachusetts electric utilities filed in their state.
If the New Hampshire Public Utility Commissioners agree with the staff that they have sufficient authority to approve such agreements, they would then determine whether the specific contracts submitted were in the customers' best interest.
A technical session on the docket schedule was held yesterday.
We are optimistic that the Commissioners will agree with the staff that they have authority to approve a contract with Public Service of New Hampshire and Access Northeast.
The PUC's consideration of whether the contracts provide benefits to customers would follow its legal ruling on the issues.
In Maine where regulators have been engaged in natural gas contracting issue for sometime, state regulators are scheduled to reach a decision on recommended solutions by the early fall.
In Rhode Island, National Grid issued an RFP in the fall with bids received November 13, around the same time as the Massachusetts electric distribution companies had their RFP.
We expect the National Grid to make a decision and file with Rhode Island regulators by early this summer.
In Vermont, the State has expressed support for additional natural gas infrastructure, but its level of participation is yet to be determined.
We expect that the State processes will be sufficiently advanced by the end of this year so that we can promptly file our formal application with FERC and bring additional natural gas supplies into New England for the winter of 2018 to 2019.
We continue to believe that Access Northeast offers an excellent near-term and long-term answer to the region's intensifying energy challenges.
Now I would like to turn the call back over to <UNK> for any Q&As.
And I'm going to turn it back to Brandon, just to remind you how to enter questions.
Our first question this morning is from <UNK> <UNK> from UBS. Good morning, <UNK>.
<UNK>, this is <UNK> <UNK>.
The construction period would start for the project in 2018.
Would start in early 2018, approximately the April/May timeframe.
And then the first sections would go in on the piping for the winter of 2018.
So you're talking about the November timeframe of 2018.
I would say right now we're still on schedule.
We will be prepared to file the comprehensive filing at FERC in the November/December timeframe.
We believe the timing in and around the other states, including Connecticut, even though Connecticut is late, built inside their process they have 90 days to negotiate precedent agreements with the EDCs.
We think that could be done in approximately 30 days or 35 days.
Their approval process through their regulatory body, PURA, is a very short term.
It's about 60 days.
So we think all of these schedules line up right now for conclusion by the end of this year, and filing with FERC and start of construction in the spring of 2018 for the first phase of the pipeline.
I would say, although the two projects were designed somewhat differently, we were designed to supply gas to generators, to firm up 5000 megawatts.
And they ostensibly, the Kinder design with NED, was all around providing LDC power supplies.
I think the fact that they are not going to be there obviously puts more pressure on the overall gas supplies of the region.
I believe that there is more support for firming up around Access Northeast, both in the business community and with policymakers as well.
Sure, <UNK>.
This is <UNK>.
We had solar legislation that was approved in Massachusetts that increases the net metering cap and actually extends the opportunity for utilities to consider a utility-owned solar.
There is also proposed legislation that the Governor is endorsing which recommends hydroelectric commitments, as well as offshore wind is being discussed as well.
Those are only in draft form or proposed.
It's only the solar legislation that's passed to date.
Okay.
Thanks a lot.
All right.
Thanks, <UNK>.
Our next question this morning is from <UNK> <UNK> from Morningstar.
Good morning, <UNK>.
<UNK>, it's a tough question because you have such an extreme change from one year to the next.
Avery, very cold winter in the first quarter, a very mild winter this quarter, resulting in a sales decline on the electric side of 8.5%.
I would say that virtually all of that is weather-driven.
I think without the ---+ if we had had normal weather, I think the sales would have been close to flat, is my estimate.
Flat is the estimate that we provided.
We're estimating the long-term growth rate on the electric side to be flat as well.
As you know, we are decoupled in a number of our franchises.
And as we have future rate cases, we'll be decoupled everywhere, I expect.
But we are forecasting flat on the electric side.
But because of the gas conversions going on, we think there will be 2% to 3% growth in gas sales annually.
And really I think the primary driver to that flat growth has got nothing to do with the economy.
In particular in the Boston area, the economy's booming.
There's lots of construction going on.
But we as a Company spend $500 million a year, $0.5 billion a year, on energy efficiency.
And I think that has a significant impact, 2% impact on the sales results for the Company.
Now fortunately the rate-making mechanism for energy efficiency spending makes us whole, either decoupling our lost space revenues, reimburse us if we actually do a good job on the projects we're able to earn an incentive.
And at the same time we're recovering our costs as we incur them each year.
So the cash flow is positive as well.
So were it not for energy efficiency, I think we would be looking at 2% or higher sales volume growth.
Thank you, <UNK>.
Our next question is from <UNK> <UNK> from Deutsche Bank.
Good morning, <UNK>.
Thank you very much.
Thank you.
Sure.
We have a lot of positive cash flow items, right.
Our fundamental business is strong to begin with.
We've got bonus depreciation that's been extended.
We have $700 million of cash coming in the door next year from the divestiture and securitization.
And what we have said in the past is that to the extent that we can't find additional projects to pursue to redeploy that cash, ultimately it's shareholders' monies, and so obviously we pay off some debt as well.
But we would consider a share buyback if there wasn't a better use of the proceeds.
That being said, I wouldn't expect any announcement this year.
I mean, we are certainly executing to our plan for 2016.
As we reaffirmed guidance today, we continue to believe that we're going to be able to achieve those results.
And those results for 2016 do not assume a buyback is in place.
Thanks, <UNK>.
We don't have any other questions this morning.
So we want to thank you for joining us.
We look forward to seeing you at the many conferences over the next couple of weeks.
And have a good rest of the day.
Thanks, Brandon.
| 2016_ES |
2016 | KMI | KMI
#This is <UNK>.
I think in terms of what you can expect in the dividend, that's hard to say today.
I think in terms of what you next week at the conference as <UNK> said we are going to show you the portfolio of the backlog of projects that we have.
We are going to give you an approximate multiple that we expect to earn on that.
So you ---+ that is just the backlog has nothing to do with our base business, but you will get a sense for how much distributable cash flow we think will be produced from that backlog.
Than people can make whatever assumptions they want to make about what happens with the base business and how ---+ where exactly we take the balance sheet and how we return capital at some point to people whether that's share repurchase or dividends or otherwise.
But I think there is very good financial theory that says whether a Company pays a dividend or does not pay a dividend does not impact the value of the firm.
So we can tell you how much cash that we are going to produce from these investments, and then I think from that you can come up with what you think the value of the stock is worth.
What do you are saying is that the value of the firm depends on the dividend policy ---+
| 2016_KMI |
2016 | BNED | BNED
#It's total.
I'm sorry.
We didn't make that clear.
It's of our total sales or revenue.
Yes.
If you do the math and back off the general merchandise, that would be correct.
You're in the ballpark.
I'll let <UNK> talk to the process.
We order based upon our needs and we get enrollment feeds from the school on a daily basis for all of the schools that we serve for the most part.
We order according to our needs, our projected needs, to make sure that we have enough books to meet the needs of all the students.
That's our core mission of our business.
As far as the reduction in inventory, it really centered on, over the last two years, we upgraded all of our stores to our new platform, and there was a learning curve there over the last two-year period that resulted in some over-ordering at the store level.
Again, our books are all ordered at the store level by our store managers.
Because of that learning curve on our new system, there was some over-ordering that we corrected this year, so that will result in lower inventories, but it wasn't because we anticipated lower enrollments.
We order to the enrollment as it comes in on a daily and weekly basis the information.
We adjust our orders accordingly.
| 2016_BNED |
2015 | FE | FE
#Well, first of all, I would say this.
We're not afraid of any audit of JCP&L's operations.
I am confident that when they do this review they're going to see a JCP&L that is much different than the JCP&L they saw the last time that they did a review.
The reason for it is as a result of the 2011 and 2012 storms.
There were reliability issues that kind of crept into the rate case and there was no adequate mechanism within the rate case to deal with the reliability issues so coming out of the rate case this is a way to kind of put those reliability issues behind us and position us, as I said, where we can now work with the BPU to move forward together.
First of all it was ATSI that we filed for, not TrAIL.
We got to wait to see where we come out on these initiatives that <UNK> talked about, <UNK>.
We have some significant opportunity in the cash flow improvement project that <UNK> talked about.
And then a couple of the other big items that we're still looking at the capacity performance and the PPA.
We don't have any plans right now to term any of that debt out.
We will continue to look at it.
The first quarter's a little bit unusual from cash flow output.
We generally pre-pay our Pennsylvania gross receipts tax.
That's about $170 some million.
We had a pension contribution that we made in the first quarter.
Ohio property taxes are due in the first and third quarter and generally our benefit plan pads are in the first quarter.
So it's a bits of an abnormal.
I would expect that over the rest of the year we would not see that balance to grow.
In fact, we may reduce that somewhat.
But we will continue to look at whether it makes sense to term any of it out.
I would prefer, as time goes on, to push that further down into the business units, have the debt closer to the asset, but I think we've got to wait to see where we come out on some of these initiatives before we make that final decision.
<UNK>, we made that decision a number of years ago to record any changes in actuarial assumptions on a mark-to-market basis.
In our ongoing operating results we have all of the service costs in there and then just any changes in the actuarial assumptions and the biggest piece of that is generally the change in the discount rate which has fallen over the what few years.
So, we have no intention of changing the way we report our pension and our operating earnings going forward, but we fully break that out and let you know what the discount rate is and the actual return on the assets.
Well, I would say this.
We're always in discussions with the parties that are intervening and we're not in discussions with the commission because we can't be and when we have something to tell you, we'll tell you.
Well, what I ruled out is anything that would have a negative impact on our regulated growth strategy.
So we just had rate cases in a number of our operations.
It it would be counter productive there if we're looking at going forward and making additional investments inside those utilities.
What I ruled out is, I used transmission as an example, but what I have a ruled out is anything that impacts our regulated growth strategy.
Hi <UNK>.
Good morning.
Well, why don't I let Donny take it but as I have told you, our goal is to run the competitive business overall a little more conservatively so that we can have predictable results and that's what we're trying to achieve and obviously what I talked about is the fact that last year there was a polar vortex.
This year in February there was what they termed a Siberian express which was actually more severe weather and a higher PGM peak load.
And I think that we were able to capitalize on some of that weather improvement that we get on the utility side by doing what I said, and that is operating our generating business much more conservatively and part of that is we're not going to dispatch units into a price that they don't make money if we can avoid doing that.
So, Donny, do you want to fill in any details.
Okay.
Well, I think that was the last question so we want to thank you all for your support.
Obviously, I think we had a pretty good quarter.
It was influenced by the weather and I'm not going to take credit for the weather because we've got July and August coming and if it goes the other way I'm not going to take blame for the weather either.
But it was a good start to the year.
If you dig down below that our operational performance was right on schedule with what we're trying to accomplish and I know one quarter doesn't make a trend, but you have to start with one before you can get to 10 or 12.
So that's our game plan and we thank you all for your support.
| 2015_FE |
2015 | EBS | EBS
#Thank you, Mallory.
Good afternoon, everyone.
My name is <UNK> <UNK>, Vice President of Investor Relations for Emergent.
Thank you for joining us today as we discuss our financial results for the first quarter of 2015 and our outlook for the second quarter and full year of 2015.
As is customary, our call today is open to all participants.
In addition, the call is being recorded and is copyrighted by Emergent BioSolutions.
Participating on the call with prepared comments will be <UNK> <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
Following <UNK> and <UNK>'s prepared comments we will conduct a Q&A session at which time other members of senior management will be available to participate.
Specifically, <UNK> <UNK>, Executive Vice President and President of our Biodefense Division; and <UNK> <UNK>, Executive Vice President and President of our Biosciences Division.
Before we begin I will remind everyone that during today's call, either in our prepared comments or the Q&A session, management may make projections and other forward-looking statements related to our business, future events, or our prospects for future performance.
These forward-looking students reflect Emergent's current perspective on existing trends and information.
Any such forward-looking statements are not guarantees of future performance and involve substantial risks and uncertainties.
Actual results may differ materially from those projected in any forward-looking statements.
Please review our feelings with the SEC on forms 10-K, 10-Q and 8-K for more information on the risks and uncertainties that could cause actual results to differ.
During our prepared comments or the Q&A session we may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Emergent's operating performance.
Please refer to the tables found in today's press release regarding our use of adjusted net loss, adjusted net income, EBITDA and adjusted EBITDA and the reconciliations between these non-GAAP financial measures and our GAAP financial measures.
For the benefit of those who may be listening to the replay of the webcast, this call was held in recorded on May 7, 2015.
Since then Emergent may have made announcements related to topics discussed during today's call.
So again, please reference our most recent press releases and SEC filings.
Emergent BioSolutions assumes no obligation to update the information in today's press release or as presented on this call except as may be required by applicable laws or regulations.
Today's press release may be found on the Investors on page of our website.
With that introduction I would now like to turn the call over to <UNK> <UNK>, Emergent BioSolutions' President and CEO.
<UNK>.
Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining our call.
During the call today I will highlight some of our recent business achievements and then <UNK> <UNK> will finish with a discussion on our financial performance.
I'll start with a discussion of our Biodefense Division.
As you might recall, on January 28, during standard quality inspections performed in accordance with customary procedures, the Company discovered foreign particles in a limited number of vials in two manufactured lots of BioThrax.
In order to determine the source of these particles the Company began an investigation into its operations as well as those of its suppliers and contract manufacturers.
On April 22 we announced the completion of this internal investigation.
Following a comprehensive assessment we identified a supplier component as the most probable root cause.
As a result we are implementing certain targeted corrective and preventive actions in the operations of our suppliers and contract manufacturers as well as in our own operations.
The investigation concluded that there was no impact to any BioThrax lots in distribution or to any of our other products and manufacturing operations including Building 55 operations and plans for licensure.
With the conclusion of this investigation we reaffirmed our financial outlook for full-year 2015, which includes the full impact of all decisions on BioThrax lot disposition.
Now that we have resumed full manufacturing operations, BioThrax lots are being released and scheduled for delivery this quarter.
The downtime that occurred during our internal investigation has resulted in an approximate 90-day lag in delivery and we expect deliveries to be caught up by the end of the third quarter.
Now let me give you an update on Building 55, our large-scale BioThrax manufacturing facility.
During our last call I mentioned that we would be meeting with the FDA to discuss our sBLA filing strategy.
We have had ongoing dialogue with the FDA about submitting our sBLA in phases with the final submission being the pivotal nonclinical final study report.
This pivotal study is complete and primary endpoints were met, as we announced on February 13, with the only remaining deliverable being the final study report.
This report is targeted for completion in Q4 and is progressing on time.
Given our current status, and although the schedule is tight, we continue to target regulatory approval of Building 55 in early 2016.
Moving to our Biodefense portfolio, in <UNK>h we received FDA approval of Anthrasil for the treatment of inhalational anthrax in combination with appropriate antibiotics.
Achievement of this milestone triggered a $7 million payment to the Company under a development contract with BARDA.
Anthrasil has received orphan drug designation and, as a result of this approval, the product qualifies for seven years of market exclusivity.
As the only FDA approved polyclonal therapeutic for the treatment of anthrax disease, Anthrasil becomes the fifth approved product in our growing Biodefense portfolio and continues to be an important part of the US government's strategic national stockpile.
Next let me update you on our latest Ebola efforts.
On <UNK>h 16 we announced collaborations with Oxford University, GlaxoSmithKline and the NIAID.
Under the agreement signed with these organizations, we manufactured an MVA Ebola vaccine candidate for use in a Phase 1 clinical study.
This clinical trial is being supported by a grant from the Wellcome Trust and the UK Department of International Development.
The study will evaluate the safety of the vaccine as a heterologous boost to GSK's CHMP adenovirus type III Ebola vaccine candidate.
We manufactured this vaccine candidate at our debut campus in Baltimore, Maryland using our proprietary MVA technologies and capabilities.
That facility has been designated by HHS as one of three centers for innovation in advanced development and manufacturing and it is designed for surge manufacturing of medical countermeasures to address public health threats.
We look forward to announcing the initiation of the Phase 1 trial shortly.
As we have discussed in numerous calls over the past years, we are committed to organic growth through sales of our Biodefense portfolio internationally.
Our strategy involves a two-pronged approach that we are employing in parallel.
The first approach is direct sales to government agencies.
And on this front, in the fourth quarter of last year we had our first significant ex-US hyper-immune product sale from our portfolio.
And during the first quarter of this year we have submitted multiple proposals for individual products as well as countermeasure packages for chemical and biological threats.
The other approach that we are employing to international sales is through the European Joint Procurement Mechanism, or JPM, which was adopted through EU-wide legislation in 2013.
The JPM is a voluntary system that enables any of the 28 EU member states to pool their demands and procure pandemic vaccines and other medical countermeasures against cross-border CBRN health threats.
We see this as the European Union's recognition of the importance of creating and maintaining stockpiles of CBRN medical countermeasures and as an effective mechanism for expanding the presence of our Biodefense products in Europe.
Based on these two approaches we expect to see significant growth in ex-US sales across our Biodefense portfolio.
Shifting over to the Biosciences Division, last week we announced the FDA approved IXINITY, the treatment of hemophilia B in adults and teenagers.
With this approval we are very pleased to be able to offer patients and healthcare providers an additional choice to better manage this disease.
We expect IXINITY to be available to patients by the end of this quarter.
We have also been making progress with our most advanced ADAPTIR platform candidate, ES414 for patients with prostate cancer.
As part of the amino oncology space our ADAPTIR platform is a proprietary redirected T-cell cytotoxicity, or RTCC, approach to treating cancer.
We partnered ES414 with MorphoSys at the end of 2014 and in <UNK>h we announced the initiation of a Phase 1 study to evaluate the safety, tolerability and clinical [activity] of the product.
The initiation of this study triggered a $5 million payment to the Company by MorphoSys.
We look forward to clinical data from the study and also working towards additional partnerships allowing other product candidates based on our ADAPTIR platform.
So operationally we had a very productive start to the year already achieving three of our 2015 goals, including securing Anthrasil approval, initiating the Phase 1 trial for ES414 and launching IXINITY.
We also remain well-positioned and on track to deliver on our remaining 2015 goals including finalizing the sBLA submission for Building 55, securing a post-exposure prophylaxis indication for BioThrax, completing a strategic acquisition that aligns with our core competencies and supports our growth plan, and announcing our next multiyear growth plan in the second half of 2015.
That concludes my prepared remarks and I will now turn it over to <UNK> <UNK> for details on our financial performance.
<UNK>.
Thank you, <UNK> and good afternoon to everyone on the call.
I would first like to make some general comments about our financial results for the first quarter of 2015 compared to last year.
I'll also comment on the balance sheet focusing on our cash position.
Then I'll finish up with details related to our 2015 forecast including our thoughts on Q2 revenue guidance as well as the implications for revenues and net income for the second half of 2015.
For the first quarter total revenues were $63.6 million, or $9.7 million above Q1 of last year representing an 18% improvement.
The increase in revenue is primarily due to modest organic growth in sources of revenue other than BioThrax as well as the impact of having the former Cangene operations consolidated with Emergent for the full quarter of this year.
As you know, during the quarter we made no shipments of BioThrax to the CDC to the investigation which had a significant impact on our overall financial results for the period.
As a point of comparison, in Q1 of 2014 we recorded $24.5 million of BioThrax revenues.
As expected, the gross margin on consolidated product and CMO revenue for the quarter of 39% is below the normal range of 60% to 70%, again due to the lack of BioThrax shipments during the period.
As we progress through the remainder of the year, and as we return to normal shipping schedules for BioThrax, we anticipate gross margins in future periods to be well within the normal range reflecting the significant profit contribution of BioThrax.
Gross research and development spend for the quarter was $38.7 million, $8.4 million higher than prior year.
Taking into account the offsetting effect of our contracts, grants and collaborations revenue, our net R&D spend for the quarter was $5.6 million versus $14.9 million last year.
SG&A was higher year-over-year by $4 million due primarily to the additional costs associated with the Cangene operations we acquired in late February of last year.
As experienced in recent years our first-quarter financial results typically result in a loss due to the BioThrax delivery schedule and the timing of our annual maintenance shutdown activities for our facilities.
For the quarter we realized a GAAP net loss of $21.5 million, or $0.57 per share versus a $20.2 million loss or $0.55 per share loss in the same quarter as last year.
On an adjusted basis the net loss was $18.8 million or $0.48 per share versus $14.6 million or $0.37 per share in 2014.
In addition, EBITDA for the first quarter was negative $19.6 million, or $0.52 per diluted share, and adjusted EBITDA for the period was negative $18.4 million, or $0.50 per diluted share, once again reflecting the impact of zero BioThrax shipments during the quarter.
Finally, at quarter end our balance sheet continued to reflect a very strong capital position highlighted by our cash balance of $216 million, the third-largest quarter and balance in our history.
The reduction in our cash balance from year end 2014 was a result of having no BioThrax shipments, as well as capital investments, as well as payments of taxes and bonuses during the first quarter.
Our financial strength positions us to continue to execute on our growth plan including targeted acquisitions.
Overall, our operational performance was very strong during the first quarter despite the 90-day interruption in formulation and fill/finish operations related to BioThrax.
And we remain confident in our ability to make up for that interruption and still produce financial results in line with our original guidance.
This confidence is based on a number of factors.
First, we see the net effect of the interruption to be essentially a compression into the remaining three quarters of 2015 of our original forecast for BioThrax shipments for the entire year.
Shipments that were originally planned for Q1 are now projected to be shipped in Q2 and Q3 and, as <UNK> stated earlier, we expect to be caught up with planned BioThrax shipments by the end of the third quarter.
In years past the second half of the year has accounted for approximately 60% of BioThrax annual shipments.
Due to the 90-day interruption we now anticipate that the second half of the year will account for nearly 80% of BioThrax sales during 2015.
Second, as of today we are eight months into the BioThrax production year and we are able to sustain high levels of sublet manufacturing without interruption through the investigation period.
Third, our sublet manufacturing success rate has been strong over a sustained period of time.
And fourth, full manufacturing operations for BioThrax, including the key downstream steps of formulation and fill/finish, have now resumed.
Accordingly, we are affirming our forecast for total revenues of between $510 million and $540 million for the year including between $270 million and $285 million of BioThrax product sales and net income between $50 million and $60 million on a GAAP basis and between $60 million and $70 million on an adjusted basis.
We are also forecasting Q2 2015 total revenues of between $105 million and $120 million.
That concludes my remarks and I will now turn the call back over to the operator to take your questions.
Operator.
Thanks for participating on the call today and thanks for the recognition of the team's effort.
It really was a very significant effort and I'm very proud of what they have accomplished over the past two to three months.
So I appreciate your commentary there.
So as you might appreciate, the team took a very detailed approach to the investigation, we evaluated numerous potential vectors for how this contaminant or particulate got into the system.
We looked at our own operation, we looked at content manufacturers, we looked at suppliers.
And we identified I think of various ways that we could improve the controls around the system, not only at the suppliers and CMOs but also within our own operations.
And as I think I said in the prepared comments, we are now instituting some corrective and preventive actions which we think are quite robust and very broad in scope, but overall I think will improve the operation.
So we have a high degree of confidence that this truly is behind us.
Of course we continue operations to validate what we've done, demonstrates what our belief is.
But we do remain highly confident in terms of the actions that we are putting in place.
In terms of the fill/finish, <UNK>, do you want to talk about our plans for migrating fill/finish, or ---+.
Yes, certainly.
So I think as a result of the investigation, <UNK>, as <UNK> mentioned, it was kind of a tiered approach and a very detailed approach.
So we have always, since the acquisition of Cangene, planned to ---+ and it was one of the synergies that we evaluated as we purchased Cangene ---+ to move BioThrax fill/finish into the Cangene facility.
So that is something that we are actively working on and are pursuing and something you are going to see and we will probably talk about as we get closer to approval.
But we are actively pursuing that and we think that's a real important step in our vertical integration, if you will, of our supply chain.
As you know we have a very robust business development process here evaluating any number of candidates both on the Biodefense and the Biosciences side and the cash is a critical component of our ability to execute on accretive and meaningful acquisition targets.
And those targets are at various stages of evaluation.
Some are early; some are a little bit more advanced.
Our expectation and our goal for the year, as I mentioned, is to complete an acquisition.
That can be consistent with our growth plan in terms of a revenue generator to provide value to the organization, whereby we can exercise some of our core competencies and create value, which is greater in our hands than in the hands of the seller.
So we remain targeted for doing an acquisition, at least one, Biosciences and/or Bio-d and the target is some time during the course of this year, so stay tuned on that.
Thanks for participating in the call and thank you also for recognizing the team's efforts.
Yes, we were in close contact with the FDA.
We advised them of the identification of the particles and what we were doing as a result of it.
We also communicated with the FDA on completion of the investigation.
We did share a copy of our investigation report to them.
In order to release product, as you know, the FDA releases every lot that we produce.
So we are now in standard release mode with them where they are evaluating lots that we produce and going through their lot release protocol.
And so lots are being released and we are now expecting to deliver, as he heard with respect to our 2Q forecast, BioThrax lots beginning this quarter.
Yes, sure.
So in terms of our next growth plan strategy and getting that out to the market for people to understand where we are headed going forward, we are planning to announce that in the second half of the year.
It is pretty advanced in its development.
We are iterating with the Board, but our target remains getting something out to the shareholders in the investment community in the second half of the year.
So stay tuned on that.
In terms of international markets and B 55 and all of that, our first priority, as you might expect, is addressing the unmet need by the US government.
There is a 75 million dose stockpile requirement, we estimate it is somewhere around 30 million doses right now.
That's our estimate; it's not an official estimate.
So our first priority is to complete an arrangement with the CDC to address that stockpile requirement.
And to the extent that there is additional capacity within 55 after meeting US government needs, then we will start to address the international market.
So a little bit too early to give any assessment on that, but suffice to say that we are keenly focused on being in a position to supply out of 55 and provide all customers with product that we can produce there.
I think the other comment that your question raises is the other Biodefense products for international markets.
And what we are seeing is a growing recognition of the value of the portfolio that we have, the hyper-immunes, the device, etc.
and I think an appreciation of the importance in the international markets of having stockpiles.
And the JPM, the Joint Procurement Mechanism that we saw in Europe, I think is a clear manifestation of that desire and intent and collect the resources of the European Union, allow them to band together to establish those kinds of stockpiles.
And we are seeing some real momentum in not only governments coming together but also a recognition of the importance of the products that we have to offer in addressing the CBRN threats.
So we are quite excited about that development.
We've been working hard with government agencies to push that along and move that along and we see some real benefit over the coming years with that mechanism being in place.
So, I think the timelines for sales really depend on every individual government agency that we deliver, they have their own unique processes.
The benefit of having engaged with these agencies over the years is we have a pretty good understanding of how they work and what the process requirements might be and how we might be able to interface with key decision-makers to ensure that the procurement dollars are there and available.
That's one of our core competencies is really understanding that procurement process, particularly in the European and some of the Far East countries.
So there is no single answer to that question.
It does depend on what agency is involved and what country is involved.
Under the joint procurement mechanism that is brand-new, so we're going to have to get some experience there in understanding exactly how that is going to work.
What is encouraging for me is that the member states are in fact talking to each other and have bought into the notion of combining their demands so that they can, through a single mechanism, procure and get deliveries on these medical countermeasures.
That's really an exciting development from my perspective.
Yes, thanks for the question.
I am really thrilled that that product got across the goal line.
You might recall it came with the Cangene acquisition.
All the work had been completed.
An application was submitted.
The team did respond to the FDA's request for additional information last year.
Didn't cost us anything to really get this product across the goal line.
And I'm really pleased we are now in a position to start addressing patient requirements.
I'm going to ask <UNK> to talk more about the specifics with respect to the strategy, but it's a real milestone and a tribute to the team's effort to get us to where we are today.
<UNK>.
Thanks, <UNK>.
Yes, we've got a really excited team of commercial operations folks and salespeople ready to hit the ground running now that we have approval of IXINITY.
No doubt the Factor IX market is a competitive market, but we have a product that is every bit as good as any of the other standard acting Factor IX products.
And we intend to differentiate our offering by differentially partnering with the community.
So it's not just about the product, it's about the product, the people that we've got presenting it and all the programs that are wrapped around it.
One of the specific differences is that that Emergent is the only company in the industry that is exclusively focused on the hemophilia B community, so those with Factor IX deficiency.
All of the other Factor IX products are in the hands of companies that also have Factor VIII products for hemophilia A, which is the vast majority of the market and the part of the market that the hemophilia B patients feel gets all the attention.
So when you are trying to partner with a community and you've got a meaningful and sincere commitment to the segment of the market that you are serving, it tends to resonate much better with the patients.
So all of our programs are wrapped around these hemophilia B patients and the specific segments of the market where our product matches best.
And we've been able to recruit a team of salespeople who for the most part have been living in the hemophilia community for many years, if not decades in some cases.
So that is going to ---+ they come to us bringing their relationships with the providers and the patient advocates in the field.
And all of that, I think, is really going to help us earn our share of a competitive market, even though we are a late entrant with a product that is not all that well differentiated.
It's really not just about the product, it's about how we are approaching the market and all the things we've got wrapped around it.
Thank you, Mallory.
With that, ladies and gentlemen, we now conclude the call.
Thank you for your participation.
Please note an archived version of the webcast of today's call will be available later today and accessible through the Company website.
Thanks again and we look forward to speaking to all of you in the future.
Goodbye.
| 2015_EBS |
2017 | MCF | MCF
#Originally last July when the industry was dead, we were thinking these wells would be $8 million, $8.5 million to drill and complete and hook up.
So as time went by, and we started getting active and people became more active, so by the time December rolled around, that $8.5 million well slid to really like a $10.2 million, primarily driven by completion cost increase, not really as much as a rig or anything else.
And that's the number we're using in our budget, even though we've been ---+ we've seen additional cost creep, and we anticipate that to continue, if commodity prices stay in that $50 price range.
There's a lot of demand, and the way people are ---+ there's not that much supply when it comes to the frac crews.
So we anticipate there to be some additional cost creep, but we're keeping our flexibility in terms of how much we're committing to at any one time.
Relative to the first well, that was our first well.
We had some mechanical issues with the first well, so we came in above our cost.
But on the next two wells, we were basically at the AFE number that we put out.
So making progress.
The fourth well we're drilling a pilot hole.
We're going to do some additional testing and science on that, so that may end up costing a little bit more than our AFE.
But generally that's what we're seeing.
You hit the nail on the head.
We're trading at a pretty significant discount to our PV-10 value, especially if you look at the five year strip.
We're significantly discounted.
So we're getting in front of investors, and trying to talk to them to help them understand what we're doing, what the economics at the play are, what our value Company-wide looks like, cash flow from coming off our other assets, especially like the Gulf of Mexico, that's always a question as to, well, what's your strategy, what's your long-term strategy.
Well, our strategy is to make money first and foremost.
But in terms of how we get there, I think people would prefer for us to have a single basin focus but we've got great cash flow from the Gulf of Mexico, and we're going to continue to use that cash flow to develop our assets.
And right now, Southern Delaware is a premier asset, not only for us, but for most people that are active in West Texas.
That's our strategy, is just to get in front of more investors and tell them our story and really execute, show them our results.
So in terms of, <UNK>, are you asking how do we feel about that first well relative to our initial ---+
Well, I think it's really early in the process.
If anything, it's probably slightly below it, but we're not really sure about that, because it's just really early, and the way we flowed the well back, we had a controlled flowback.
Whereas a lot of our offset wells were pretty much open choke from the very beginning.
So we're monitoring that, and watching that pretty closely, obviously.
So I'd just say it's early.
That's all I would say to that right now.
Yes, yes.
Well, <UNK>, we originally had a pause in our budget.
But based off the results of the first well, and the fact that we think it's important to keep our service providers on our team, we decided that we'll keep moving forward, because we're excited about what lies ahead for us.
What will that mean to the budget for the whole year.
Obviously CapEx will be up versus what we originally forecasted, but so will everything else, hopefully.
But we ---+ like <UNK> said, we will continue to watch it all through the year, so to the extent that things ---+ the likelihood of a second rig is probably optimistic at this point, but you never know.
If results and/or prices are better than we expect, you might see one, but I think that would ---+ it would be optimistic to plug that into your model.
Probably nine.
No, nine in total for the year.
For calendar year.
So we'll total 11 or 12 by the end of the year.
That's always our strategy, but we do have, as we always say, we do have our ---+ or have said, we do have the capacity to go outside of that, if we think it's appropriate.
And if we keep this going, this rig going for the whole year, we probably outspend some, but not a meaningful amount relative to our liquidity.
We include some in our capital budget already.
We had about $10 million in our original capital budget for acreage acquisitions in 2017.
That's it.
Thanks so much for everyone's participation, and look forward to updating you soon.
| 2017_MCF |
2017 | ZEUS | ZEUS
#Thank you, Operator.
Good morning, and thank you for joining us to discuss Olympic Steel's 2016 fourth quarter and full-year results.
On the call with me this morning are Olympic Steel's President, <UNK> <UNK>; Chief Financial Officer, Rick <UNK>; President of our Chicago Tube and Iron Business, Don McNeeley; and Executive Vice President and Chief Operating Officer, <UNK> <UNK>.
It seems like a long time ago, at this point, but as the fourth quarter began with metal prices declining and depressed shipping activity, both of which impacted results for the period.
However, during the November election, sentiment in the steel industry quickly turned to increasing optimism.
Metal prices started moving higher into November and price increases accelerated through year end.
December was a very strong month for Olympic Steel.
The rebound in pricing was due to supply side dynamics combined with political optimism towards the business community after the very negative environment around the presidential campaign.
Continued enforcement of fair-trade policies and potential infrastructure investments, corporate tax reform and job creation will directly benefit Olympic Steel and many of the markets we serve.
Compared with 2015, both our carbon and specialty metals flat product segments generated better operating results in the fourth quarter and full-year periods.
The tubular and pipe products segment reported better operating results for the year as we recorded impairment charges in 2015.
During 2016, we announced Management's succession plans.
In December, we announced Ray Walker's retirement as President of our carbon flat-roll group.
March will be his final month at Olympic Steel.
Ray Walker played a significant roll in growing our businesses over the past 30 years, and we would like to thank Ray for his many contributions to the Company.
We wish him a long and well-deserved retirement.
John Mooney will succeed Ray as President of our carbon flat-roll business group.
John has been with Olympic Steel since 1989, has been working along side with Ray, and to ensure a smooth transition.
Prior to his promotion, John served as Vice President of our Eastern Region.
Also, late last year we announced Any Markowitz has taken the leadership helm at our specialty metals business group.
Andy filled the President's role, which was vacated by <UNK> <UNK>, as he was promoted, in August, to Executive Vice President and Chief Operating Officer of the Company.
Prior to his promotion, Andy Markowitz served as Vice President of Sales and Marketing for our specialty metals group.
Our succession planning approach afforded us the ability to promote from within, allowing our continued experienced leadership in each of our business segments.
Developing talent has always been a part of our corporate culture.
We believe providing career advancement opportunities for our employees helps us to retain the best people in the industry.
Entering 2017, our outlook is quite optimistic.
Demand has improved in most industries we serve, spot sales has been particularly strong, as inventories remain lean in the supply chain, and distributors restock in anticipation of historically stronger spring shipments.
Stable raw material prices and lower levels of imported steel continue to support higher market prices in the first quarter.
Also of note, last month we announced the Board of Directors declared a regular cash dividend of $0.02 per share.
The dividend is payable on March 15, 2017 to holders of record, yesterday, March 1.
With that, I'll turn the call over to Rick for our quarterly financial review.
Thank you, <UNK>.
And good morning, everyone.
As <UNK> indicated, we ended 2016 with positive financial momentum.
We reached record annual market share in 2016, made sustainable reductions to our expense base, and as we enter 2017, we have a very strong balance sheet.
Our inventory turnover was strong in 2016.
And our low-cost, flexible debt agreement positions us well as we enter a strengthening marketplace in 2017.
As a backdrop to my financial review, total service-center shipments declined industry-wide again in the fourth quarter.
According to the MSCI Metals Activity Report, the streak of year-over-year declines in per-day shipping volume reached 23 months in December.
In-service-center shipments in 2016, were 6.2% below 2015's volume.
In that declining environment, Olympic Steel, again gained market share.
As our shipments year over year were flat.
In 2016, we achieved record market share in all of the product groups that we sell.
In carbon flat-rolled and plate products, in carbon pipe and tube products, and in both stainless steel and aluminum sheet and coil products.
This success can be attributed to our commitment to customer performance and our increased sales force representation.
You may have noticed a change in the press release financial tables that we issued this morning.
In order to provide better transparency at the segment level, we are now presenting tons- sold data for our two flat product segments.
Tons-sold is a less meaningful metric in our pipe and tube products segment; therefore, we have never reported sales volume for that segment.
The earnings release segment tables also now include gross profit details for all three segments.
This information has always been included in our SEC filings, but we wanted to provide the data at the time of the earnings release, as well.
Our volume increased for both carbon and specialty metals flat products in the fourth quarter.
Most of the increase occurred in the back half of the quarter, which is normally a seasonally slow period due to the holidays.
Full-year sales volume in carbon flat products segment ended the year down 1% compared to 2015.
This was offset by a 14% increase in specialty metals volume, which when combined resulted in the flat sales volume between years.
In the fourth quarter, net sales improved by 7.3% to $254.9 million, as we experienced higher volumes in carbon and specialty flat products, as well as higher prices in our carbon flat product segments when compared with the final quarter of 2015.
Despite the rise in sales late in the year, net sales for the 2016 full year declined 10.2% to $1.1 billion from $1.2 billion in 2015.
The sales decline was solely due to lower average selling prices, which were down 10.2% in 2016 versus 2015.
Consolidated gross margin in the fourth quarter was 20.2% of sales at slightly below last year's fourth-quarter gross margin of 20.7%.
For the full year, gross margin expanded from 19.8% of sales in 2015, to 22.3% in 2016.
We generated $1.7 million more gross margin dollars in 2016 despite the 10% decline in revenues between years.
We recorded $800,000 of LIFO income in the fourth quarter and $1.5 million of annual LIPO income in 2016.
This was less than the LIPO income last year of $1.5 million in the fourth quarter, and $3.3 million for the full year in 2015.
Year-over-year operating expenses were down $1.9 million in the fourth quarter and $7 million, or 3% lower for the year, excluding the impairment charge in 2015.
As I commented earlier, we have made sustainable expense reductions in our business over the past two years.
Our 2016 fourth-quarter operating loss narrowed to $2.7 million, as compared with $7.2 million operating loss in 2015.
Full-year 2016 operating income improved to $5.7 million compared with operating loss of $27.8 million in 2015.
And that included the $25 million of non-cash impairment charges.
After adjusting for those 2015 charges, our operating income still more than doubled in 2016.
Due to an increase in working capital for inventory purchases during the fourth quarter, our interest expense increased by $100,000 in the quarter to $1.4 million.
For the full year, interest expense was $5.3 million, down from $5.7 million in 2015.
The decreases were due to lower average debt balances in 2016.
Our effective borrowing rate was 2.4% in 2016.
That compares with 2.1% in 2015.
And that increase was due to higher LIBOR interest rates in the current year.
As we mentioned on our last call, our 2016 effective tax rate is abnormally high and really not a meaningful measure or future indicator.
You may recall we booked a state income tax valuation reserve in the second quarter of 2016.
That, combined with the effect of nondeductible expenses on low pre-tax income, skewed the effective tax rate in 2016.
We expect our 2017 income tax rate to approximate 38% to 40% of pre-tax earnings.
For the fourth quarter, we recorded a net loss of $2.1 million.
That is $0.19 per share.
That compares with a net loss of $5 million or $0.45 per share in the fourth quarter of 2015.
For the full year, we earned a pre-tax profit of $0.4 million, but we reported a net loss of $1.1 million, or $0.10 per share, and that was due to the tax items I just reviewed.
This is an improvement from a net loss of $26.8 million, or $2.39 per share, in 2015.
And, again, that 2015 number is inclusive of the impairment charges.
Now let's turn to the balance sheet.
Our balance sheet remains in great shape.
Accounts receivable at year end totaled $102 million.
That's $9 million higher than at the end of 2015, and it's sequentially down by $9 million from September quarter end.
The quality of our receivables remains sound.
Days sales outstanding in 2016 averaged 37.5 days.
And that is an improvement from 38.4 days in 2015.
As <UNK> will describe in a moment, we planfully increased our inventory by $23 million in the fourth quarter to $254 million, which was $47 million higher than at the end of 2015.
Entering a rise in shipping and pricing environment in 2017, the elevated inventory level positions us quite well.
Inventory turns improved to 4.7 times as an average for 2016.
That is an improvement from 4.2 turns in 2015, and we did achieve five inventory turns periodically throughout 2016.
Total [vet] at the end of 2016 was $166 million.
That is an increase of $18 million from the beginning of the year, and up $1 million during the fourth quarter.
As of year end, December 31, availability from our asset-based lending agreement was $94 million.
That was up from $86 million at the end of September.
Our debt-to-total capital remains strong, ending the year below 40%.
Capital expenditures approximated $7 million in 2016.
And that was comparable to 2015.
We increased our capital spending budget for 2017.
And we anticipate investments closer to our annual depreciation level, which was $17.6 million in 2016.
At the end of 2016, shareholders' equity was $253 million, or $23.11 per share.
And our tangible book value per share was $20.93 per share.
We plan to file our Form 10-K later today, and that will provide additional details on our operating results for the fourth quarter and the year.
So now, I will turn the call over to <UNK> for his operating review.
Thank you, Rick.
As <UNK> touched on, the fourth quarter started out slow with reduced shipping volume and steel prices continuing to decline.
This followed a challenging third quarter.
Our hot-rolled coil prices slid 18% and plate products were particularly weak.
As we discussed during our last call in October, the market did not experience the typical, seasonal, back-to-work bounce following the summer slowdown.
On top of that, there was a continued uncertainty surrounding the presidential election, and more economic concern which manifested in a buyers' strike for the first month of the fourth quarter.
Overall, the final quarter of 2016 capped off another uneven year for our industry, with the first two quarters up and the second two quarters down.
We saw that in 2015 and saw it in 2016.
We believe we will see much better in 2017.
That being said, our commercial and operating teams rose to the challenge.
As <UNK> commented, we achieved market share gains in each of our primary product categories, all while in a declining volume environment.
This reflects our objective of growing our commercial sales team by consistently developing and training people internally, as well as attracting seasoned and experienced talent from the outside.
These business development initiatives and investments have helped us set new Company records for market share and carbon flat-roll and plate products.
We also reached a record high in our share of carbon pipe and tube market, which is a direct result of the hard work being done by Don McNeeley and his team at Chicago Tube and Iron.
Our first quarter, 2017 performance will continue to profoundly demonstrate the success of these strategies.
Also, the specialty metals segment, which <UNK> commented on earlier, under the strong 8 1/2 year leadership of <UNK> <UNK>, has been our fastest growing segment over the past few years.
And now represents more than 5.5% of the stainless steel sheet and coil markets and nearly 2% of the aluminum sheet and coil markets.
Both of these are new highs for Olympic Steel.
Further success is projected with Andy Markowitz's promotion to President of Specialty Metals.
Complementing these top-line efforts, we continue to drive cost lower, as Rick commented.
In 2016, operating costs have been steadily decreasing since we initiated our profit improvement program in early 2015, while expanding our Sales Team.
Overall, we are proud of all that was achieved during the challenging year of 2016.
Following the election, there was a radical about-face in buyers' attitudes, and in 2016, we finished on a high note.
In fact, our December earmarked a fresh start to 2017.
According to CRU index, hot-roll coil prices hit the low of $469 per ton in early November, and since then, prices have been moving steadily higher.
By the middle of November, hot-roll coil prices have moved up $39 per ton, and then add another $91 per ton by the end of December.
Entering 2017, prices continued higher in January and throughout February.
While it is still early, shipping volumes throughout our organization are signaling substantial growth.
Service center shipments increased 4% year over year in January of 2017, which is the first year-over-year increase in two years.
Shipments in January rose 30% sequentially from December, which also represents a larger-than-normal bounce following the holidays.
As Rick commented, we deployed capital during the fourth quarter to increase inventory.
This prepared us to appropriately respond to customers in a rising demand environment, and to address growing spot-market activity.
This also resulted in strategic positioning of low-priced inventory heading into 2017 and bodes well for our financial performance in the first half of this year.
The recent appointments of steel industry veterans, to the respective roles of Secretary of Commerce now confirmed, Wilbur Ross, and US Trade Representative, Robert Lighthizer, yet to be confirmed, are an indication that our industry will be well-represented in the new administration and we are excited at these prospects also.
The improved sentiment is also starting to be validated by current economic data.
Factory orders improved in four out of five past months.
Philadelphia Fed's manufacturing survey index registered a 43.3 reading in February, which was well beyond the expectations of 18.0.
And it's up from 23.6 in January, so the sentiment and the bias is moving in the trend line that we like, which is up.
This marked the highest reading for this index since 1984 and the biggest beat, relative to expectations since 1998.
Steel price appreciations level off in early February, and we are always cognizant of the fact that pricing increases are not indefinite.
Although, the six published price increase announcements have, for the most part, been absorbed by the end of February.
Further, we have high expectations for the first half of 2017, should anticipated economic improvements materialize.
With that, I now turn this over to the operator and open this call up for questions.
Thank you.
<UNK>, Dave <UNK>.
I will take early ---+ I'll take the first part of the question which is the easy part.
<UNK> <UNK>, our Chief Operating Officer, will take the second part on specialty metals; a far more in-depth question.
So on the demand side, actually, we are seeing a robust demand, both in January and February, as we concluded February here just the other day.
Our projected growth, very similar to what the MSCI is publishing.
We expect to continue to garner more market share.
Therefore, we would be getting a little bit more than the MSCI is reporting.
We are already seeing that demonstrated.
We are seeing that demonstrated, <UNK>, across the board with our customers.
So, it is really just not one customer group, it is a series of them.
And even some of those groups like agriculture, which was depressed for so long, is now starting to come back.
That is adding to our volume count, particularly in our western facilities of Iowa and Minnesota.
We are seeing very strong demand.
Really, not one where the customer is trying to outflank the pricing, but real demand for their products.
<UNK>, on the stainless side, you are correct.
We certainly have seen the imports pick up.
We will see almost an elimination of Chinese product, due to the dumping duties.
That has been replaced by some of the other Asian countries.
As you did talk about, the price increase led by North American Stainless this week, is the third increase that we have seen since October.
There was an October increase, a January increase, and now this April 1 increase.
And we do expect that there will be continued strength in the market.
Thank you.
Operator.
Sure, <UNK>.
As we look at the quarter, it was really very uneven.
And October was an ugly month and December was a wonderful month, and we thought a great start to 2017.
I would tell you that the core demand is significantly higher and the bias is significantly stronger across the board.
So we have some of our large OEM customers projecting out into May with some fairly robust bill patterns.
We see contributing sources to those large OEMs doing well.
We have seen some consolidation among some of those larger OEMs, but that is just for the benefit of their manufacturing process.
Really across the board and in all of our stores, we are really seeing a much higher demand.
Now that is our myopic view because we are gaining market share.
So, in terms of gaining market share, things at Olympic Steel look pretty good.
Of course, a large part of that is reigniting our significant sales presence in all of our territories.
We have achieved that and we are seeing the results of that now.
Yes.
A couple of things.
Number one, we talked about the inventory.
And we did strategically and planfully, as we said, take up our inventory at year end.
Our inventory, I will tell you, is very well-positioned to take advantage of both an increasing price and an increasing demand market.
So we're, as <UNK> just told you, we are fully participating.
We have the inventory to do that.
Our mix of business is relatively similar, but we are seeing strength in our spot business.
And in our spot business in a rising marketplace, that tends to give us a little boost to the gross margin.
I would tell you that on the contract business, our margins look pretty stable, pretty consistent with what they have been historically.
And so when you throw that all together, we are obviously seeing strength in the sales and we are seeing strength in the margin, both in terms of total dollars and on a per-ton basis.
I think we have it where we want it.
And we have a projection, <UNK>, as you would well imagine, insulating ourselves from any higher risk that we might interpret.
We really hit the crescendo of our inventory early in February.
But we didn't quite reach the top level that we projected we would because our shipments are so robust.
So we have a managed plan as you would expect, and as you have known that we do, particularly throughout the first half of this year with targeted goals.
We will continue to be appropriately inventoried to securitize to growth that we really accumulated last year and expect to accumulate in 2017.
<UNK>, it's <UNK>.
Our target goals are still between 4.5 and five turns.
We have the ability to flex that relative to, one on shipments, and two on our purchases.
We would expect if our shipments get up, our inventory will probably be on an inventory turn cycle on the lower side of the 4.5 to five inventory turns.
But we are maintaining our disciplines relative to business conditions.
Well, I think two things, <UNK>.
Yes, we are looking at some growth in terms of adding some strategic equipment.
As you have heard, we are growing the specialty metals business significantly.
We have some spending earmark for that business in 2017.
And the other is really, the last two years we have been at the low end of our range, I will call it, in terms of really just spending on all the things we need to do to keep our equipment and facilities in tip-top shape, and we have done that.
So, yes, we typically guide to ---+ we're between $5 million to $10 million of a maintenance CapEx spending Company.
And the amount above that is for growth initiatives.
<UNK>, let me add that over the course of the last 5.5 years, six years, we have repurposed some facilities to embrace specialty metals.
And so we've added some equipment and we've redeployed some pieces of equipment.
But from an overall perspective, as Rick said, one of the highlights, at least internally, is our commercial integration.
So our specialty metals is now integrated into a number of our facilities, as is our Chicago Tube and Iron, which allows Chicago Tube and Iron to reach its customers in a little bit more profound way using Olympic Steel's footprints.
So, some of those capital expenditures have embraced that commercial integration of specialty metals, now a business segment, and of course Chicago Tube and Iron, a significant business segment for us.
I would tell you a near-term goal.
I will answer for <UNK> and he can ---+ (laughter) answer you directly.
(laughter)
With actually, with a successful transition of <UNK> <UNK> to Andy Markowitz as President.
Andy Markowitz has spent his whole career in the specialty metals end.
We clearly ---+ it would be hard to tell you when that will occur.
But we really don't see any barrier to doubling our participation.
And beyond forecasting the doubling that, we will wait until we get close to the doubling of that to then we will forecast a little bit more.
That does not come at the expense of CT&I, and that does not come at the expense of the carbon business, which continues to grow.
We just have a much more fluid outlook, and our service has been terrific to customers and they have been embracing us.
<UNK>, do you want to comment a little more.
<UNK>, I agree with your assessment.
At the level that we are at, there is certainly no reason why we would not be doubling it.
And I think we have all of the right people and right tools in place in order to do it.
And <UNK> lets us do it.
That is a good thing.
(laughter) (multiple speakers) <UNK>, it is not a specific targeted goal.
We are about growth.
We are a growth Company.
If the growth moves faster on stainless, we expect to grow on carbon.
If stainless becomes a bigger overall part of the overall mix, that is fine.
It is not a targeted goal.
We have targeted growth goals for the whole corporation.
Some guys move faster, and some guys move slower.
That's all.
Absolutely.
Everybody does what is in their own best interest.
I would say that.
Certainly, we have some cautionary concerns about the back half of the year because nobody can tell you what the overall demand is.
So steel mills today seem to be liking the position of where they are at.
They have great confidence, as <UNK> indicated in his remarks, that the government is going to be helpful both in business growth and the discipline around the import supply.
There has always been price disparity.
There's also a need in the United States for a certain level of imports.
What I would tell you is, <UNK>, we just are concerned about our disciplines.
Again, if the demand picks up, everybody is going to be happy.
<UNK>, let me just add that I think the steel industry has really suffered, particularly past the recession and the protractive recovery.
It has been a neglected industry, particularly as it gets to government, government relations, so forth and so on.
This is a significant change here.
I don't think that the imports ---+ I don't think anybody wants to be the subject of a tweet.
Let me put it to you that way.
And I think that the steel industry as a whole, and metals as a whole, is front and center on the dashboard today.
Particularly with Wilbur Ross' recent confirmation.
A great pick for Secretary of Commerce.
And of course, we have all collectively known Mr.
Ross from his days of acquiring LTV, Bethlehem, Acme, and pick a number of them.
And then recently having been on the Board of ArcelorMittal, which he just resigned.
Robert Bud Lighthizer has been a friend of ours for a long period of time.
He is from around the Cleveland area.
We have known him for a very long period of time.
He was, from our perspective, a significant legal council from Skadden and Arps for US Steel.
He did a very good job for them when US Steel was led by Tom Usher.
The combination of those two, as I mentioned earlier, I think profoundly changed.
And shift that emphasis to promoting steel as opposed to neglecting steel.
So I think that we are in a really, really good shape.
If our President performs as he says he will, I think we are in a very good position today.
If anyone is still out there, we really thank you for joining us this morning and for your interest in Olympic Steel.
And we look forward to sharing our first-quarter results with you this spring and hope everybody has a great day.
Thank you, all.
Bye-bye.
| 2017_ZEUS |
2016 | DEA | DEA
#Good morning.
Before the call begins, please note the use of forward-looking statements by the Company on this conference call.
Statements made on this call may include statements which are not historical facts and are considered forward-looking.
The Company intends these forward-looking to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is making this statement for the purposes of complying with those Safe Harbor provisions.
Although the Company believes that its plans, intentions, expectations, strategies, and prospects as reflected in or suggested by those forward-looking statements are reasonable, it can give no assurance that these plans, intentions, expectations, or strategies will be attained or achieved.
Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the Company's control, including without limitation those contained in item 1A, Risk Factors, of its annual report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 2, 2016, and its other SEC filings.
The Company assumes no obligations to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
Additionally on this conference call, the Company may refer to certain non-GAAP financial measures, such as funds from operations and cash available for distribution.
You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the Company's earnings release and separate supplemental information package on the Investor Relations page of the Company's website at ir.
easterlyreit.com.
I would now like to turn the conference call over to <UNK> <UNK>, Chairman of Easterly Government Properties.
Thanks, <UNK>, and good morning.
I would like to spend a few minutes discussing our first quarter of 2016.
We were very pleased to acquire the 71,100-square-foot Albuquerque, New Mexico, Immigration and Customs Enforcement facility, which, combined with our other properties, represents a portfolio of 37 buildings from which 96% of its rental income is derived from the full faith and credit of the United States federal government.
ICE-Albuquerque represents well our focused investment discipline.
As a new facility, built in 2011, it serves a critical mission for an important agency of the federal government.
The building's hierarchy of mission makes it an integral part of ICE's ability to provide enforcement in the busy Southwest-quarter region.
The development team remains active in responding to all opportunities that would fit within the strict criteria of our portfolio metrics.
While there has been very little in the way of projects that we would consider, we are actively engaged in several opportunities.
Additionally, our asset management and development teams are currently engaged in a number of value-added projects to our existing portfolio.
22 of our 37 properties have seen mission-enhancing projects by the government, at government expense, which serves in keeping our tenant able-to-perform mission, while keeping our already young buildings updated.
Our acquisition pipeline remains robust, and we are looking at a number of single-facility and multi-facility portfolios.
These buildings are very similar to our existing portfolio of properties.
They are leased to a single tenant of the US federal government, are the result of design-build award, and are usually over 40,000 square feet in size.
It's important to note that we underwrite the agency, and the hierarchy of mission, of the perspective building before performing the deep dive on the actual bricks and mortar.
We see a number of opportunities, over [200 million], that are actionable in the near to midterm and will continue to maintain our rigorous underwriting standards so as to do as well, or even better, than the current 93% to 95% renewal for this class of federally leased buildings.
I will now turn it over to <UNK> for a discussion of the quarterly results and earnings guidance.
Thank you, <UNK>.
Today, I will touch upon our current portfolio, discuss our first-quarter results, provide an update on our balance sheet, and review our 2016 guidance.
Additional details regarding our first-quarter results can be found in the Company's earnings release and supplemental information package.
As of March 31, we owned 37 properties comprising nearly 2.7 million square feet of commercial real estate.
The weighted-average lease term for the portfolio is 6.9 years, and our portfolio occupancy remains at 100%.
In addition, 96% of our annualized-lease income is backed by the full faith and credit of the United States government.
For the first quarter, FFO per share on a fully diluted basis was $0.30.
FFO as adjusted per share on a fully diluted basis was $0.29, and our cash available for distribution was $0.26 per share on a fully diluted basis.
GAAP measures and reconciliations to GAAP measures have been provided in our supplemental information package.
For the 12 months ending December 31, 2016, the Company is reiterating its guidance for FFO per share on a fully diluted basis of $1.19 to $1.23 per share.
This guidance assumes acquisitions at $75 million in 2016, including the ICE-Albuquerque acquisition we completed in the first quarter, spread evenly throughout the year.
This guidance does not contemplate dispositions or additional capital markets activity.
Let me walk you through this guidance in more detail.
As of December 31, 2015, given acquisitions that were completed through 2015, run-rate FFO on a fully diluted basis was approximately $1.17 per share.
This increase to $1.17 already included approximately $9 million of cash general and administrative expenses for the year.
This amount provides the resources which we believe will support robust growth for the Company this year.
A portion of this increase is compensation for our team, based on Easterly meeting or exceeding our communicated growth targets.
As you know, a disproportionate amount of Management's total compensation is incentive based.
To be clear, if we do not meet our growth targets, our cash G&A expense will be lower.
As I said, the run-rate FFO for the business at year end was approximately $1.17 per share.
We would expect the impact from $75 million of acquisitions, spread equally across the year in 2016, to add $0.08 per share to our run-rate FFO on a fully diluted basis, bringing run-rate FFO to $1.25 by the end of 2016 and FFO for the year to a range with a midpoint of $1.21.
Now turning to the balance sheet, at quarter end we had $184 million outstanding on our revolving line of credit and total debt of $267 million.
Availability on our line of credit stood at $216 million.
In terms of leverage, net debt-to-total enterprise value was 26.3%.
Finally, as previously announced this week our Board of Directors declared a dividend related to our first-quarter of operations of $0.23 per share.
This dividend will be paid on June 23 to shareholders of record on June 8.
When we came public, our first full-quarter dividend was $0.21 per share.
We increased our dividend to $0.22 per share one quarter later, and now, two quarters after that, we have increased it further, to $0.23 per share.
This is in line with our outlined expectation of consistent dividend growth.
I'll now turn the call back to the operator for questions.
Good morning, <UNK>.
First of all, the answer is of course, and we have been looking at multi-building portfolios since we went public.
Our overall pipeline remains at about $700 million, but $200 million, as I've said, is sort of what we'd like to have from an active standpoint.
Yes.
The first-quarter, if were to annualize that number, you would see it coming a little higher than our communicated $9 million rate.
That's due to just the corporate activity associated with the business in the first quarter.
But you can expect that to peter out and grow consistently over ---+ from a run-rate basis over the remainder of the year.
Good morning, <UNK>.
I think the message is that the Company continues to do what we said we're going to do.
It continues to grow.
We see a very actionable pipeline going forward, and I can just reiterate that we have terrific team here that are able to mine wonderful opportunities from a big list of properties.
And I think you can expect us to do just we've done in the past.
And we're looking forward, as we said, to acquiring $75 million to $125 million in properties this year.
No.
And as I said before, we really have not seen any change in the competition, as I mentioned I think last quarter.
And we continue to do what we do.
We think the middle sector of this market is a good place to play.
And I would say there are no changes.
Okay.
And I believe you touch on this earlier, but has there been any improvements in the GSA build to suit activity.
And what do you think will be the catalyst that will drive that activity higher for the government.
I think that there has not been any change.
We came off of 2007 and 2008 when we saw a lot of activity.
Obviously the federal government is not doing as much development today, and changes would be as these buildings become older, not our buildings because we are some of the newest in the federal government inventory.
But as some of those of buildings need to be replaced, the government will be forced to start building again.
I think the bottom line is the spending is due to the Congress of the United States, and if you can tell me what they're going to do I'll be very gratified.
But I don't think there will be much change at this point.
| 2016_DEA |
2015 | ALGT | ALGT
#<UNK>, it's <UNK>.
Keep in mind that we operate mainly in environments where we don't have any direct competition, so for the most part no.
And that's reflective of our 7% decline in TRASM for the second quarter and our guide for the third as well.
Keep in mind that same-store sales without any growth we would be down about 4% just based on what we've done with the credit card surcharge, [shift from D], the debit card discount, and baking in the taxes that have increased in the third quarter last year.
So 4 percentage points of the 7% decline is just associated with other things.
And then we are growing pretty rapidly right now, so a 3% decline in TRASM is a pretty good demand environment considering 20% growth.
We are catching up from growth that we wanted to do, but weren't able to do with the pilot shortage that ended in April of this year.
And also we are adding a lot of off-peak flying opportunities that now work in the environment with more A320s in our fleet and low fuel prices.
So those two events ---+ the opportunity to change the network in response to those two things is going to slow down our growth as we bake that in on a comp basis.
So we will not be growing over 20% for very long.
I think a more stable growth would be seven ---+ as we've always said, seven, eight airplanes a year, mid-teen ASM growth annually.
Those obviously we like to keep close to the vest, but we are working very hard both sides to move forward, see if we can get something done here.
In fact, we are meeting today as we speak.
Here talking about a number of areas.
First contracts, as we've said before, always take longer because you have to touch every area and so that's just a laborious process to get through all that.
But I think both sides are looking for movement and getting something done.
So we're pleased with the progress.
I think that there's more work to do certainly, but it's moving along nicely.
I don't want to go there.
That's one forecast that I wouldn't want to hazard a guess at this point.
Yes, both coasts, all-in, we are paying about $1.80.
It's higher on the A320s; we can say that definitely.
But keep in mind that as we introduce the A320 into the fleet, we try to deploy it on routes that use it the most.
We are cherry picking still, so it's not really accurate to compare margin differential between the two types.
I would say that where fuel prices are today it still makes sense for us to substitute the MD80 with used A320 equipment at the prices that we are transacting on today.
So fuel prices relative to where they were last year haven't changed our fleet outlook.
Not for a long time, <UNK>.
It would be ---+ I think the way to think about it is we can't really take more than one plane a month on a sustained basis, because of the challenges of originating and inducting used equipment.
We intend to grow the airline in this environment, obviously, so if half of those are for growth and half of those are for replacement, we got 53 MD80s and some 75s.
We are still in this plane seven years from now.
It will depend upon the availability of aircraft, but the CapEx of this year and last year should be higher than what we see going forward, because ---+ primarily because we did the big deal on the leased airplanes that are on lease to EasyJet.
We did that deal last year, so brought forward a lot of the CapEx that is going to happen; would otherwise have happened in 2018 and 2019.
We are investing in the future.
We are bringing forward a lot of the CapEx so I think we're going to see CapEx go down.
And then there's the big question of how many and what price.
I think it will be lower than the $300 million that we ---+ on a steady-state than we've experienced this year and last year.
I can't give you a real definitive answer on that, but I think a good number is 20% to 30% less unit revenue on a flight that is on a Tuesday, Wednesday, or Saturday relative to the same week on a Thursday, Friday, Sunday, or Monday.
So as we grow off-peak flying, which would be those three days that I mentioned, we are going to continue to put pressure on our unit revenues and you'll see that in our utilization.
One of the real great things about our business model is that as fuel price comes down we can fly more with the same assets because we have underutilized assets during those off-peak periods.
And to give you an idea going forward, off-peak day flying, day a week flying in the second quarter was about 36% growth.
In other words, 2014 over 2015 we grew off-peak flying by 36% in the second quarter.
In the third quarter that number is 66%.
So it's a big catalyst for our growth to be able to take advantage of these off-peak opportunities and it does put pressure on our unit revenues.
It increases earnings.
No.
It makes third-party product sales harder, in general.
Generally speaking, third-party conversion is correlated to fare.
I wouldn't correlate that to utilization increase.
What's happening there is that we introduced some new technology for pricing at the end of last year and that's been really accretive, and then you're seeing network shift towards the East Coast.
And so the unit revenue production of our car rental business has greatly increased from those two factors.
It doesn't really have much to do with off-peak flying.
Yes, sure.
I think, as demonstrated by our recent opportunities in the spot market that we've taken advantage of, we continue to find Airbuses in sufficient quantities and prices to meet our growth.
And I don't see that changing.
I think the market is moving towards this.
We've had more and more interest from sellers than we've had this same time last year.
I think the market is coming our way.
It's an operational limit, yes.
The debate we are having now is there's no economic constraint to grow in the Company.
We have plenty of opportunity.
We have availability of airplanes.
We have markets we want to serve and passengers that we want to serve.
It's really about us balancing how quickly we can grow the airline with how much strain we can put on the operation.
<UNK>, it's <UNK>.
Just a follow-up to that.
one of the things I admired about Southwest over the 40-some years they've been doing this is, while they were a growth phase, they were doing 10% to 15% a year.
And the organization ---+ it's a stress to jump it up to 20%, 25% and then to come back to 5% to 10%.
You'd much rather kind of standardize around a pace that the organization can gear up to and deliver consistently.
Certainly you can push things, like we are doing this year.
But operations, every time we go to a new level we have more requirements for just the volumes and things like that, and we want to be mindful of that.
Predominately it will come from the same kind of growth that we've had over the last 12 months, which is underserved markets on less than daily service.
And the A320's performance capabilities won't really impact our network planning.
So we're not adding airports that are in challenging places, hot or high, nor are we flying longer.
It's really about ---+ with the A320 it's really about utilization, so we are flying more often on the margin.
But if you look at the recent announcements, it's all been relatively larger cities.
I would expect that trend in those size cities to continue.
One of the big catalyst for our growth over the last 12 months has been Cincinnati and markets like it; Indianapolis and Memphis more recently and Austin is growing.
We are really looking hard at those kind of markets and I think that's going to be the story for the next 24 months or so.
So like we said the last four years, it's next year.
Sure, yes.
It has many of the same characteristics of all our markets, which is that there's no low-cost, daily alternative.
And so if you want to go between those two city pairs or travel in that city pair you need to have traffic over a hub and it's not priced appropriately for a nonstop customer that pays with their own wallet.
We view that as a great opportunity for us.
If you look across the midsize market space, there's not a lot of connectivity between those markets.
And if there is, then the incumbents won't really be hurt by us because we'll travel on days of week where there's spill traffic already existing.
So, yes, we think it's a great opportunity and doesn't hurt anybody or compete with anybody else.
It's a service no one's providing.
Yes, <UNK>.
It's always kind of a nice badge of honor to be investment grade, particularly in this industry.
Has Alaska made investment grade now.
Are they up there.
But, frankly, you need that under traditional metrics because the industry didn't produce any cash and you're always borrowing, and so it was a self-fulfilling problem that without making any money you weren't ever going to be investment grade to begin with.
But the interesting place we find ourselves, we don't need a lot of capital.
We are producing our own capital, buying used airplanes; able to borrow at oh my God rates with today's environment.
We just borrowed 1.7 over LIBOR for used airplanes.
So in many ways I'm telling our Board that what we have today is the same model we started with, the MD80.
The only difference is we are putting $5 million or $6 million of capital into an Airbus airplane and borrowing $10 million, $12 million, whatever the number is.
But that package is the same package in many ways that we had with the MD80; you just look at the debt as part of the asset and the economics.
So the model ---+ while we need some capital from a debt side and should use it, I'm not sure investment grade gets us much better rates unless maybe we wanted to go to the unsecured market.
And what was ---+ Ryan Air like 1.78 or something for $500 million, $800 million.
That would be nice to have, but we just ---+ we're fine where we are at right now from a capital deployment perspective.
I think, candidly, the other side is we're too small to be investment grade.
We've been told that numerous times.
They are just looking for size and scope more so than perhaps we have at this point, too.
<UNK>, it's <UNK>.
No, it's primarily driven by flight crews and you're going to see the number of FTEs related to those outpace growth, whether its aircraft or ASMs or however you want to measure it.
And that's been a consistent trend.
Yes.
<UNK> can give you some more color, but it's hard to beat 29%, <UNK>.
That's something, that's rarified atmosphere for us here and I certainly ---+ while I'd like to maintain it, I'm not going to sit here and tell anybody we can.
But there is complexity when you have multiple airplane types, there's no doubt about it.
I'm not sure we can increase the margin much beyond where we're at but ---+ <UNK>.
The thing to consider on those airplanes is that there's one-time maintenance events coming up on those dates that would otherwise need to be run through the P&L, so by retiring them we won't necessarily get a benefit, nor ---+.
It will be basically neutral to where it is now, because we're not doing that maintenance today.
The Hawaiian network is performing really well.
It's the biggest beneficiary of the decline in fuel prices in our network because of the length of haul.
But we continue to look at the 75 and as those events come up our best guess is reflected in that fleet plan, which shows them retiring.
Maybe I will take the loyalty question and turn it over to <UNK> for costs.
This is <UNK>.
Today, just to be clear, we don't have a loyalty program nor a fare club.
We've talked about it for several years to our investors, and as we sit today, we would plan on launching a loyalty program which is based on a co-branded credit card in about the middle of next year.
So we are working towards that goal today.
The growth that you've seen in our ancillary production has come from air ancillary products, primarily; and I think that's going to slow over time as far as a year-over-year increase, but we continue to focus on it.
We want to take down the airfare to make travel more available to our passengers and we do that by raising ancillary in some ways.
So that's loyalty.
And we really don't ---+ we really are in a position to give you any guidance on how effective or how productive our loyalty program will be.
Stephen, on the cost side, if you take the midpoint of where we just guided, down 13 down to 11, that puts you roughly at $0.058.
Without getting into too much detail, the expectation was you'd see a nice size reduction into 2016 as well.
A couple of the areas, D&A I think we have the most aggressive policy out there.
Our book value in our MD80 fleet will be substantially reduced.
Maintenance it appears it will be a fairly light year, although we haven't got into any of the CFM motors yet, so we'll see those in the next couple of years.
But, in general, it should be a really nice cost story as we go forward.
That's correct.
I'll talk about the scheduling side of it.
I think you're right; it does cause a challenge to route or schedule a flight between two cities that we don't have a base in, but we are very capable of doing that on an inside turn or a triangular pattern.
So I don't think we are constrained in growing those markets as we sit today significantly, but I think that you're right.
It's going to force us to make some adjustments and I think that's going to come in the form of more mid-continental-based airplanes.
And so we've announce ---+ (multiple speakers).
They're not necessarily in a destination market, but they will be in a city that we have significant presence in.
We've recently announced basing airplanes in Cincinnati and that's an indication.
Now we have 10 markets from Cincinnati and it starts to get difficult to route all those markets without putting a base there in Cincinnati to better serve that community.
(multiple speakers)
Yes, we don't have any significant scheduled overnights anywhere in the network today.
It's still an out-and-back pattern.
Absolutely.
That's important for us to maintain that as best we can.
Just keeps it simple and allows our people to understand what the basics are, so that's critical in what we do going forward.
No, it hasn't changed.
If anything, we continue to move towards a fully-outsourced model.
The only two bases that have any sizable Allegiant presence would be St.
Pete and Bellingham.
We partner with four or five major ground service providers across the nation.
Just to give you an order of magnitude, we have maybe 140 direct station personnel.
Those are folks above and below wing that would actually touch the plane.
So 95% of what we do is outsourced.
Yes.
Lukas Johnson and his team spend a lot of time thinking about that.
And from my perspective, we are just about willing to try anything.
We just really need to be honest with ourself about the potential of any given market and be willing to cut anything, and then have the flexibility in all our contracts to do so.
So as I sit here today, relative to where we were, say, last year, I think our growth potential is much increased based on the success we've had in some of our midsize markets, which wasn't really part of our strategy as recent as two years ago.
And so going into midsize markets provides the ability to fly a fuller calendar on more days of week and to more destinations, and now, as Michael [talked] about and mentioned earlier, now we were experimenting connecting those midsized communities.
We've had great success doing all of that and if that continues on, then, yes, there's four to five years of growth just exploring that strategy.
And that won't change the proportion of our routes that have direct competition, because we continue to look at connecting markets that don't have any nonstop service today.
<UNK>, you want to touch that.
We are midway right now through about a four-month project to rewrite our hotel back-end that will open up some automated pricing technology that will give <UNK> the ability to add breadth of hotel inventory underneath, which I think is important as the network shifts out of Vegas.
Again, <UNK>, it's a Vegas-centric market with hotel.
It just stands out to a much greater degree than any other city, and as we add more capacity, most of which has gone to the East, you're just going to have pressure on those per-passenger numbers.
We are real pleased the cars have stepped up and we are holding our own on a per-passenger revenue basis now, which is good.
The network is going to continue to challenge unit revenue for hotels and that's going to be because more of our passengers are coming from bigger communities that have, in general, lower take rates.
And also less often will those passengers be destined for Vegas as a proportion of the network.
So we are going to continue to see ---+ And revenue declines; I will bring out our third-party production in the second quarter on a dollar basis is the best it's ever been.
Mention Canada, too.
So it continues to be a very important part of our business.
And <UNK> nudged me to remind you that Canadians and Mexicans tend to have the highest take rate as a demographic, and we are carrying less of those folks proportionately and that continues to be the case.
Our Canadian markets are particularly challenged because of the exchange rate.
Thank you all very much.
Appreciate the questions and the interest.
If you have any follow-up, obviously go through Chris and the IR team and we will be glad to try to answer them as best we can.
We'll talk to at the end of next quarter.
Thanks again.
Have a good day.
| 2015_ALGT |
2016 | BLD | BLD
#Thank you, <UNK>, and good morning, everyone.
Please turn to Slide 3.
We are very pleased to report an excellent first quarter, with strength in both revenue and the conversion of that revenue to the operating margin.
Our results reflect the ongoing housing recovery, as well as the initiatives we've implemented over the past nine months designed to outperform the slope of that recovery and improve our cost model.
Total sales were up 15.5%, with TruTeam, our installation business, up 16.9%, and Service Partners, our distribution business, up 11.3%.
These results are significantly beyond our benchmark of 90-day lagged housing starts, which were up only 7.3% in the first quarter.
Certainly the mild winter, which enabled builders to catch up on a portion of the fall season's backlog, contributed to our increased sales volume.
Additionally, we believe that both TruTeam and Service Partners grew market share, as our Company-wide focus on local branch empowerment and customer service is generating positive results.
Our adjusted operating margin improved significantly to 5% compared to 1.9% for the first quarter of last year.
The drop-down to adjusted EBITDA was 26.6%, and <UNK> will take you through those details during his comments.
In previous calls and presentations, we have indicated a 20% drop-down with a reasonable way to model our business.
And as we've said, that's an average for the year, understanding that there will likely be quarterly fluctuations.
We remain comfortable with that benchmark.
Having said that, we will continue to be aggressive in making the changes necessary to optimize the operational performance of TopBuild within the context of any economic environment.
Also keep in mind that the seasonality of our business historically has the first quarter as the lowest of the year.
Although we expect that to remain true this year, the magnitude of this seasonality may be less significant due to the strong first quarter, which as I mentioned earlier, benefited from a mild winter.
On Slide 4, regarding our share repurchase program announced on May 3, we purchased just over $1.5 million of our stock in the first quarter at an average price of $28.81.
We view this program as an important component of our total capital allocation strategy, which also includes investments in our business and selective acquisitions.
As circumstances change, we'll continue to balance these priorities in a manner that provides optimal return to our shareholders.
Turning to Slide 5, we remain bullish regarding the housing recovery and building housing starts will, at some point in the cycle, return at least to the historical annual average of 1.5 million.
While a multitude of factors, such as credit availability, student debt, shifting attitudes regarding homeownership, and labor availability continue to make the ride bumpy, the strength of the underlying demand trends is very compelling.
So although the rate of the increase in this cycle is gradual, the recovery will likely last longer than previous cycles.
This is a very good environment for TopBuild.
Let me now turn it over to <UNK> for comments on our operations.
Thanks, <UNK>.
And good morning, everyone.
Turning to Slide 6, as <UNK> noted, both TruTeam and Service Partners achieved solid revenue growth in the first quarter.
Upfront, I would like to thank and congratulate the entire TopBuild team on a great quarter and strong start to the year.
TruTeam sales increased 16.9% compared to first quarter 2015, along with a 530 basis point improvement in adjusted operating margin to 5.3%.
These results are primarily driven by strong execution in both the residential and commercial businesses.
TruTeam was also very disciplined in aligning material costs with customer pricing in the quarter.
Service Partners grew revenue 11.3% compared to first quarter 2015 and adjusted operating margins increased 110 basis points to 9%.
Distribution results were driven by strong insulation performance across all markets.
Year-over-year pricing in the quarter for Service Partners was down slightly, given weaker gutter aluminum prices, as well as a more robust insulation pricing environment in Q1 2015.
Moving to the next slide, while we recognize a portion of our first quarter growth was attributed to the builders playing catch-up from the backlog created in the fall of 2015, a portion of growth is also directly attributed to the meaningful changes we made throughout our organization over the past year.
We have simplified the business, making it easier for customers to do business with our branches.
We have improved the sales process and enhanced customer service, empowering local managers to run their operations as small business owners, with full accountability for their results.
We've also eliminated waste and inefficiency, closing underperforming branches and reducing costs.
Bottom line, these initiatives have and will continue to enable us to create market share and provide us with a streamlined business platform from which we can leverage the continued growth in residential and commercial construction to expand margins and grow our bottom line.
Turning to Slide 8, I know we previously talked about our initiatives to grow our commercial installation business organically and through acquisitions.
I want to give you a brief update on this side of the business where we see tremendous growth potential.
As a reminder, commercial can be broken into two categories.
Light commercial, examples of which include chain restaurants, retail stores, and small projects; and heavy commercial, which includes high-rise buildings and larger projects.
Currently, the majority of our over 170 TruTeam branches undertakes light commercial projects, while 15 or so branches handle heavy commercial projects.
On the light commercial side, we are seeing nice growth year over year and in our future backlogs.
We're also seeing growth strengthening in heavy commercial.
We have created a commercial hub within TruTeam to expand our market share organically.
Our commercial hub works with our local branches to identify, estimate, and help manage larger commercial projects.
This commercial focus is producing solid results, as we've just closed work on three of the country's largest development projects.
Tower 3 at World Trade Center and the Towers at Hudson Yard, both projects in New York City, as well as Nike's world headquarters in Oregon.
The total commercial market is estimated to be a $4 billion industry.
While we believe we are the biggest player, we estimate our market share is less than 4%, so there's plenty of growth opportunity for TopBuild in the commercial space.
Finally, as shown on the next slide, we announced earlier in the quarter, TopBuild's Home Services Group was recognized by the US Environmental Protection Agency with the 2016 ENERGY STAR Partner of the Year: Sustained Excellence Award for our continued leadership in protecting the environment through superior energy efficiency achievements.
We have been an ENERGY STAR partner since 2002 and remain focused on helping builders meet the increasingly stringent energy codes and helping consumers recognize the benefits of energy efficient homes.
Our team has done a great job of leveraging our business platform to drive growth and we expect this to continue throughout the year.
I thank our entire TopBuild team for their hard work, dedication, and continual focus on safety.
With that, let me turn things over to <UNK> to discuss financial results for the quarter.
Thanks, <UNK>.
To echo the sentiments of both <UNK> and <UNK>, we had an excellent quarter and a nice start to 2016.
Both segments had strong volume growth and we successfully leveraged our established business platform to expand margins and grow our bottom line.
Let's start with Slide 10.
Revenue increased 15.5% to $414 million, primarily driven by sales volume growth from a strong industry demand for residential construction in both TruTeam and Service Partners.
TruTeam also benefited from increased commercial construction activity and higher selling prices.
Gross margin increased 100 basis points to 21.6%, and our reported operating margin was 4.8% compared to a negative 0.3% in first quarter 2015.
On an adjusted basis, our first quarter operating margin was 5%, a 310 basis point improvement from the adjusted first quarter 2015 operating margin of 1.9%.
As noted in today's release, first quarter 2016 adjustments totaled $1 million, primarily related to 13 branch closings and staffing reductions in Daytona Beach, both of which we announced in March.
Adjusted EBITDA for the quarter was $25.3 million compared to $10.5 million in 2015 and our drop-down to adjusted EBITDA was a healthy 26.6%.
Taking into account the previously disclosed $1.9 million legal settlement, which overstated operating profit and EBITDA in fourth quarter 2014, and which was corrected in first quarter 2015.
Adjusted EBITDA in 2015 would have been $1.9 million better and our drop-down to adjusted EBITDA would have been 23.2%.
Turning to Slide 11, looking at TruTeam results, this segment delivered first quarter revenues of $272.9 million, a 16.9% improvement over prior year.
TruTeam's adjusted operating margin was 5.3%, a 530 basis point improvement over first quarter 2015, driven by improved volume leverage due to strong residential and commercial construction activity, increased selling prices, and cost reduction initiatives.
Moving to Slide 12, Service Partners' first quarter revenue was $160.9 million, up 11.3%.
Adjusted operating margin was 9%, up 110 basis points as a result of increased sales volume and cost control initiatives, partially offset by a reduction in selling prices.
On Slide 13, we see that first quarter SG&A declined $5.3 million and as a percentage of sales, improved 410 basis points to 16.8% compared to 20.9% a year ago.
On an adjusted basis, SG&A was up $1.5 million and as a percentage of sales, improved 210 basis points versus prior year.
The increase was primarily due to higher stock-based compensation costs and fixed asset disposals taken in the period.
Please turn to Slide 14.
Adjusted net income for the quarter was $11.9 million, up $9.7 million from prior year.
As a result, the EPS on an adjusted basis came in at $0.31 per diluted share, up $0.25 from prior year.
On Slide 15, we note CapEx in the quarter of $2.9 million, 0.7% of sales in the quarter.
Working capital as a percent of sales improved 50 basis points from March 2015 to 7.6%, driven by improved performance in inventory and accounts payable.
Operating cash flow was $3.4 million for the quarter and cash on the balance sheet was $108.2 million, a decline of $4.7 million from year-end 2015.
As we've stated in the past, the first half of the year is the weakest cash flow period for TopBuild, driven by seasonality in the business, and in this case, higher first half disbursements tied to an inventory build late in 2015 in anticipation of a fiberglass pricing increase.
Our effective tax rate for first quarter 2015 was 38.8%, but we still believe a normalized tax rate of 38% is representative going forward.
Before opening the call for questions, I want to underscore a point <UNK> made in his opening remarks.
This was an unusually strong first quarter with sales helped by the mild winter and extended lag from 2015.
We're confident in the strength of our business, but expect a more normalized seasonal performance for the remainder of the year.
<UNK> has some summary comments before we're ready for questions.
We continue to execute consistently well on our strategy.
We're driving topline growth in our core residential insulation business, ahead of the housing recovery curve.
We're supplementing that with strong growth in commercial, a close adjacency that we've been active in for years.
We're converting that topline growth to stronger margins with our consistent focus on operational improvement.
And we have a capital allocation plan that balances and prioritizes the needs of our business, selective M&A, and our share repurchase program.
So going forward, count on us to be very disciplined with our consistent execution of this strategy.
Operator, we're ready for questions.
<UNK> again.
In areas where the codes are being more stringently adopted, you do see higher R values going into place.
Some folks are open to some different solutions relative to spray foam, other types of dipfrap applications, blown-in blanket type applications of fiberglass as well.
Where we see better adoption, we do see some opportunities for advanced type of solutions such as spray foam, or again, higher R values in fiberglass.
Yes, relative to the ---+ those changes, again, it comes down to ---+ it's so nuanced is at such a local level of code officials and how they are enforcing the new codes, so it's very nuanced and hard to say how much do we expect to see from an increase of the code adoption.
But we do consider it to be positive tailwind.
Not just residential, but in ---+ also on the commercial side of the business.
You were talking earlier about what we see, but commercial codes are changing as well.
Although it's hard to quantify an exact number, it's absolutely great tailwind for TopBuild and both businesses.
<UNK>, <UNK> here on that one.
I would say that, historically, if you look at the last three years in our business, there's been a really consistent seasonality.
Like, if you plot the quarterly sales as we've done in some prior releases, some prior presentations that we've had, I would certainly say this year, given the strong Q1, and we do believe that what happened is the lag between starts and completions probably shrunk a bit in Q1 because of the weather.
The weather permitted that to happen and the builders make that happen.
So I would suggest to you that Q1, as it relates to the whole year, is going to be stronger.
We still see strength in the rest of 2016.
The business is doing well.
We would expect 2016 to continue to perform really well.
But I would say that just given the magnitude of ---+ even though we can't put an absolute dollar on it, it's impossible to be able to tell you of our total sales upside in Q1, how much of that was one-time due to the factors that I mentioned.
I would say that the seasonality quarter by quarter is going to look different.
Q1 likely will still be the lowest, but the magnitude of it will not be the same.
But that's what I was just going back to, I think.
<UNK>, again, <UNK>.
Certainly, the 20% that we've talked about historically is still, as I indicated in my comments, still the way we would suggest you model the business.
We always talked about the lumpiness in our quarterly results.
There were some quarters last year where we were not at 20%.
Here's an example of a quarter where we came over top of that quite a bit; and you're right.
There certainly is an underlying focus that we have in the Company on operational improvement.
So as time goes on, it's our goal as a management team to take that 20% to a higher level on a longer-term basis.
But at this point in time, I would suggest to you that there still is lumpiness that happens in our business relative to the incidents at certain expense levels and things of that nature that potentially then contribute to a quarter being below 20% and some other quarters being above.
So don't want to be too evasive in terms of giving you some feedback on that, but I would still say that as this year progresses, it's still going to go up and down and we think 20% is a good way to model.
We would be pleased as can be as a team here if the year ended and we were over top of that.
And again, that's our focus in terms of what we can control with our operating model and the kinds of improvements that we can make and we'll continue to make.
We want to make sure ---+ we want that to happen as time goes on.
But that's how I would answer that question at this point in time.
Okay.
Good morning, <UNK>.
So I'll take the first part of that question and <UNK> will take the second part on margins and trends.
I think the general contractors and we have these relationships actually across the country.
I think they are feeling pretty strong about their backlogs as they look at what they have secured, work that's been approved, all the way into 2017.
So I'd say the trend and the sentiment for our general contractors is pretty positive across the country.
Relative to the TopBuild business that you hit on, this is about us in a business we've been in for a while, really making our expertise and growing our share nationally across the country.
Again, light commercial, really across the footprint and then heavy commercial in those select locations where we have that expertise.
And as you heard, we made an investment in our commercial hub, which is organically growing the business, going out, bidding big projects, providing expertise across the country, helping our business as well.
So I would say summing up the sentiment, general contractors are optimistic, actually into 2017, as in we're gaining share, you're right, and actually across the business, light commercial and heavy commercial.
We just think it's a great, great growth opportunity for TopBuild as a whole.
And <UNK>, this is <UNK>.
In terms of the question around the margins and pricing, typically in the commercial side, if you split it between light commercial and heavy commercial, light commercial tends to track pretty closely to residential in terms of the type of margin performance we see.
Heavy commercial tends to be a little bit higher, recognizing there's a higher level of both expertise and potentially risk on a project like that.
So that tends to be the trend line we've seen and expect to continue to see in the future.
Sure.
Good morning.
So good morning, <UNK>.
It's <UNK>.
Relative to labor, I see a strong first quarter, but relative to our installation business and our distribution business, we've talked about labor being an employer of choice in the past.
Everyone really did a great job.
The team, our individual businesses out in the field did a great job of servicing our customers, keeping up with that, and quite honestly, building for the future.
So we feel really good about our work around labor and providing great service across the footprint.
That's been a real positive and we feel good about that going forward.
Relative to on the material side of things, we did see some traction relative to pricing in Q1.
Not to levels of what was publicly announced on the increases, but we saw traction in Q1.
I think on the strength for the rest of the year, we'll see what the manufacturers decide to do from a pricing announcement perspective, but we did see some traction pricing-wise in Q1 in the business.
Relative to our diversification, I'll turn that over to <UNK>.
<UNK>, on that question, I would say to you that we, as a priority, we have strong relationships with all the manufacturers out there and we will continue to do that.
It makes a lot of sense for us to be able to maintain that level of relationship with all the players and strategically, that's the way we view that and that's the way we'll continue to drive forward with it.
Yes, that was really around one of the ---+ one of the things we do really well here is we have a lot of focus on the branch-by-branch P&L.
There's very high visibility from the executive team in terms of how our branches are performing.
So we do that analysis every month, every quarter.
And what we did here recently is really go branch by branch and understand those that were performing substandard, we took a really good look at what the future holds.
And we asked ourselves the question, is there a line of sight to the financial performance getting to a level that we think is acceptable, meaningfully better than it has been.
And so factors might include branches in a geography that we don't think, from a housing recovery viewpoint, are going to grow very fast.
That's a factor.
And you think about the customer base, the competitive set, any of the factors that we think contribute to performance of a branch, we took into account.
And if there were a handful of branches that we just believed there was not a line of sight to meaningful improvement, then we did not want to continue to be substandard performing there.
And quite frankly, if we leave some focus on fixing some of those branches, it allows us to really focus ourselves on the rest of the portfolio, which is very strong.
We still have a national footprint.
And we think as time goes on, you'll see us maybe do that again.
There could be some pruning that happens here and there, but you're also going to see some M&A as time goes on eventually, whereby we're going to look to add to our presence in geographies that we think are high growth.
So I think what you can look forward to is the constant analysis that we've done and the results of that is going to be some closures and some additions as time goes on and we'll just continue to refine our national footprint as circumstances dictate.
This is <UNK>, <UNK>.
So in terms of SG&A, you're right.
Did a great job in the quarter, up $1.5 million and essentially all of that was non-cash type of costs that hit us between some stock-based comp and some fixed asset disposal.
On a go-forward basis, we are going to remain focused certainly in terms of managing that SG&A footprint.
You will see sometime over time here, some increase in dollars, but certainly, we're going to leverage.
As we've said many times, we've got a footprint in place both in the field and we've got a back office in Daytona Beach that's set from a much higher level of volume.
You're going to see significant leverage off of that in the future and that's our expectation.
<UNK>, that's not a question we can really answer with any specificity.
I can only tell you that an important part of our model, and again, to reiterate what I said earlier, one of the things we do well, is we maintain relationships with all four of our manufacturing partners.
And it's been and will continue to be a great partnership because with their high fixed cost model in their manufacturing environment, we can be a very valued partner for them in terms of the scale that we have.
And obviously, on the other side of the equation, we expect to buy extremely well with all of our partners.
So that's, that's the strategy.
That's how we're working it.
It's ---+ I can't really give you any insight into what the actual numbers have done.
Good morning, <UNK>.
This is <UNK>.
So we've ---+ the term that we use is empowered.
So we've absolutely ---+ we feel like we have great leaders at the local branch level.
We think that is critical in this model.
We focus on that.
And so having great leaders means you empower those local leaders to make decisions around getting the appropriate, everything from getting the appropriate labor to building great relationships with local customers, local custom builders and others in their local market to ---+ at the same time, make appropriate decisions to drive their P&L.
So we give them more authority to do that.
To <UNK>'s point, we have a pretty robust review that we do at P&L level, monthly with our divisions, so we keep the appropriate finger on the pulse there, but we believe in great local leadership and great local leadership drives this business.
And we have a high level of confidence in our team in the field.
And relative to the process, we've just improved process.
Taking efficiencies out, made decision-making quicker, this ability to where our customers like doing business with our local divisions, again, baked from those relationships and stuff.
So we're just taking a greater approach to that and streamlining and simplifying the business.
It's getting great feedback from our customers, great feedback from our local leaders.
We think it does continue to build on the value proposition in those local relationships.
We leave that ---+ it's always a local decision.
We leave that at a local level as well.
So we've given our local leaders have the ability through ---+ there's appropriate authorization that goes up to regional leadership and stuff appropriately, but they know their local markets the best and so we give the appropriate empowerment there with the appropriate regional leadership that looks at that as well.
We don't really give guidance, <UNK>, specifically on the upcoming quarter.
I can only tell you that back to my overall comment, we think 2016, the balance of the year is going to continue to be good.
And that's how we see the second quarter playing out.
Again, I'll tell you that as I indicated, Q1 was ---+ it had a benefit from a one-time mild winter pull forward of the starts to contingents lag.
And that's not going to reoccur.
In the magnitude, that's not going to reoccur for the balance of the year.
But having said that and again, as I indicated, it's impossible for me tell you what that is, whether that's 1%, 5%, whatever it is.
So we don't see that repeating itself for the balance of the year.
But I will tell you that there's strength in the business.
We think the housing recovery is still on track.
There's always going to be ---+ I realize the challenge you have is just the mild things come forward.
And I hate to use ---+ I hate to lean back on the obvious but there's always ---+ that's always going to happen.
There are factors that are nuances in trying to equate our revenue linearly with what happens with housing.
Things like the lag.
I mean, the lag moves around.
That has a big impact on our business.
So over the long term, as we indicated ---+ the longer periods you look at, if you looked at it for a year, we're quite comfortable that we're going to outperform whatever happens with housing.
When you go quarter by quarter, it's a much more difficult proposition to line that up too well.
So that's little more color for you.
I don't know if I answered you exactly.
But that's some color.
This is <UNK>, <UNK>.
Commercial has performed extremely well.
We continued to take share in that, both on the light and the heavy side.
So that performed above our Company average in total.
I think what we've given, the guidance we've given, which is about a 12% CAGR is still what we're comfortable with in total.
You know, we may do better there versus an R&R versus residential.
I think right now on a go-forward, we're comfortable with that type of guidance.
Just a few more comments for you on commercial, <UNK>.
So as <UNK> indicated, we've been involved in commercial for a lot of years.
It goes way back, our experience.
But as we go forward, we view that as a growth engine for us.
But having said that, we need ---+ we know that we need to do that in a very disciplined way.
I keep using that word because, as <UNK> spoke to the margins, he indicated that there's risk associated, some much ---+ heavy commercial in particular, there's a much more complicated job that requires a lot of expertise, starting with how it's quoted, starting with understanding the full scope of the job, the execution of it.
So we know from our experience in heavy commercial that we need to be very, very disciplined and as we increase our footprint there, as we become a bigger player in that space, which is a very big space, as we've indicated, we're going to do that in a really disciplined way.
We think that's really important.
And I think over time, depending on what the trajectory is of the residential housing environment, we believe commercial is going to move up at a stronger rate, but again, that compares to how strong the residential moves up as well in terms of that comparison.
But again, very important initiative for us and one that we're going to be very disciplined about how we execute it.
No, we pretty much ---+ we had minimal impact from that.
I think what we gave guidance on was a $10 million impact for the rest of the year.
As of the end of March, the majority of those branches were shut down.
We actually have two that are shutting down or finalizing in this quarter, second quarter, because of some customer commitments we had.
So if you take the $10 million, you can spread it pretty evenly across the rest of the year in terms of the impact of 2015.
You're welcome.
Good morning, <UNK>.
This is <UNK>.
<UNK>, as you would expect, where the weather had the greatest impact for us was in places like the Northeast and the upper Midwest where we saw better sales than we would have normally seen.
So when we look at our performance year over year, that's where we saw a bigger spike, were those two.
But again, we're indexed pretty well around the country at this point and so we saw growth everywhere.
But certainly higher in those areas that would have been impacted by a significant weather we typically would have seen in normal seasonality.
So ---+
This is <UNK>, <UNK>.
I think generally the comment or the response on that is we saw, as we talked about last quarter, and I think others are talking about this quarter, we saw that lag from last year roll into the first quarter really everywhere across all regions.
So we had the nice impact of that, along with mild weather across the entire country that really helped to contribute to a very strong first quarter.
<UNK>, <UNK> here.
I wouldn't ---+ I would say that we certainly saw the results that you're referring to.
We don't obviously know the inside of how those numbers are constructed in terms of the buckets they are put in.
But we can only describe it, like, in our case, <UNK>, our model is different than theirs.
I mean, we have a big distribution component of our business.
The stage of the life of the Company is a bit different.
We described our M&A strategy as being far more selective.
We've gone through the roll-up.
So you got two different companies that are in two ---+ in very different stages of development.
The components that are inside each companies are different, though.
So all of that is my way of saying that it's very hard for me to respond to that difference.
I mean, we know that we're very, very comfortable with the strategy that we have and we pay a lot of attention, obviously, to what we're doing.
That's probably the best we can do in terms of responding.
Thanks, <UNK>.
I want to thank you all on the phone today and those listening to the webcast for your interest in TopBuild.
We appreciate your support in the Company.
2016 should be another strong year for TopBuild.
And we look forward to reporting our second quarter results in early August.
Thank you.
| 2016_BLD |
2017 | HPE | HPE
#Sure.
So if you look at FX as an example, we have a rolling hedge program, we do that by country, we do that by product.
So what you're seeing is the hedges we put in place, call it six to nine months ago, which were favorable as they rolled off in Q1, so there was no real impact from an EPS perspective, driven by foreign exchange.
And then when you look at DRAM pricing as an example, that increased about 50% in the month of January.
So again, we had some supplies built up or some inventory built up, so you don't see the full effect of that.
So you will see both the FX and the commodity pricing flow through the rest of the year.
Now, we're going to try to price for some of that.
We've gone out with price increases, and it's really a question of what will the impact be toe demand and what will be the competitive response.
So you'll see a flow through I would say in typical seasonality.
Let me add one thing about the EPS takedown of about $0.12.
So when you think about commodities, and you think about foreign exchange, that was about ---+ we estimate about $0.12 of degradation.
And the decision we had to make is did we want to cut $0.12 more of cost out of our cost structure.
And as you all know, we've been taking a lot of cost out of this Company over the last 4.5 years, and my view was we've got very good investments in field selling cost, in innovation, in automation, in IT, that is going to put us in very good stead for the long term.
I did not think it was the right thing to do to absorb all of that commodities and foreign exchange degradation by cutting more costs into what I think are going to be very high return on capital and return on investment projects.
So we decided actually that the best long term thing for the Company was to not cut into bone and meat.
Yes, so let me take a cut at that.
So we did guide the $2 to $2.10 as a combined Company, because again, similar to prior practices, until we actually separate, we will provide that outlook, and then we'll adjust that outlook once the transactions have closed.
So to your one of your questions around the as-reported guide, the take down would apply to that, so the $1.45 to $1.55 would go down by $0.12 on both ends of the range.
And again, that's primarily driven by the FX, commodity pricing, and some execution challenges.
When you look at the $1.25 to $1.35 number, from an ongoing perspective, because obviously we are not going to report that guide on a quarterly basis, it does have the 2017 assumptions in there.
I think you'll still get within that range longer term.
It really depends on how those price increases that we've executed, how those take.
So the more that they take, you'd be up at the higher end of that range.
If they don't take, given demand or competitive response, you'd be at the lower end of that range.
Yes so I'll address that, and <UNK>, you can jump in here if you'd like.
So let's start with FX.
I think to your point, we guided in October for the full year 2017 outlook at SAM, so at that point in time, the Euro was trading I'd call it $1.10, and the yen which has another significant impact was trading at about JPY103.
When we came out on the fourth-quarter earnings call, we did highlight that there was some pressure.
So we got a question, I can't remember who asked it, and we said yes, rates are less favorable than they were.
I think at that point in time the Euro was about $1.06 and the yen was at about JPY110, JPY111.
But given the fact we were three weeks into the year, given the fact that we were rolling into a new administration in the US, and we weren't quite sure how that was going to play out, as well as the fact that we had hedges in place that protected the first quarter, we decided to continue to monitor the currency environment.
We would make some operational changes that we thought were appropriate, and then that's why we didn't change the guide then.
As we sit here today, we're now five months into the year, and that Euro was still sitting at about $1.06 the Yen is still sitting at about JPY112, so we felt it was prudent to adjust our guide now.
And it's really, it was a cognitive choice that <UNK> alluded to, is we had choices that we evaluated, and we decided this was the prudent thing to do, so we could continue to drive the strategy, we could continue to make the strategic investments that will drive long-term value.
So that's the foreign exchange piece.
And then on the DRAM piece, those prices spiked in January, about 50% in January.
We did do some advanced purchases in the fourth quarter, but there was only so much you could buy, because everybody was facing the same thing, and there's only a limited amount of capacity.
So again, that's why you didn't see a lot of that pressure in our Q1 EPS, because we were using inventory that we had bought at lower pricing.
And that's something that will continue to play out in Q2, Q3 and Q4.
It depends on how the capacity comes online, and we really don't see the foreign exchange changing drastically as we go forward as well, so hopefully that answers your question.
Yes, okay, so let me address the growth question.
I think you're probably right, that we've grown half the quarters since we separated, and you have to look at first what is the go-forward Hewlett Packard Enterprise, as opposed to also the whole Company, because in much of the last year, obviously Enterprise Services was more of a drag than EG was.
But let me answer the question about go-forward Hewlett Packard Enterprise, which in 2017, which is EG plus HPE Financial Services.
I would say yes, I think we can return to growth, but there is one caveat that I would make, and that is a single Tier 1 service provider who was a big customer of ours, who is slowing down orders dramatically.
But for the rest of the business, ex that large single Tier 1 service provider, I think we've set ourselves up well to be prepared to tackle the future.
I like our portfolio, we've really reshaped this portfolio, both inorganically as well as organically.
I think you should feel very good about TS.
Remember, over the last three or four years, there was a lot of question, could we return TS to growth.
And orders precursors revenue.
We've seen orders grow, and the last couple of quarters you've seen revenue grow, and orders grew again this quarter.
So we're very confident about the TS growth rate, and of course that happens to carry a much higher margin than our infrastructure products.
Aruba continues to do very well.
And as I said, some of our other high growth areas.
So I'm going to say yes with the possible exception of the single Tier 1 Service Provider, and that could throw us into slightly negative growth for 2017.
On the cost out, so listen, we have taken a lot of cost out of this Company.
We have improved the efficiencies, the business process reengineering.
And by the way, embedded in our forecast for 2017 is all of the reshaping that we did around RemainCo, costs are coming out.
We've totally reshaped how that business is run, with far fewer layers, and much more efficiency.
So that will continue.
I do think after we're separated there is going to be potentially some more costs to come out.
Right now, we're carrying almost the full IT load because the IT team is doing all of the separations.
We will skinny down IT, obviously some of IT will go to Software, some will obviously go to CSC, so I think that will help us.
And then there's some other things we can go after, but I have to say quite honestly, the low hanging fruit is gone.
Yes just to elaborate on that a little bit, if you look at our OpEx for Q1, we were down year over year about $340 million.
Now granted, we had the TippingPoint divestiture, so I'll call it from an operational basis, it's roughly $220 million, so we do have a lot of cost take out in the plan.
We're executing upon that.
I think when we get to, when we talk a little bit about this at some point, when you get to the Q4 of 2017, we did this benchmarking as an example on all of our functions from a run rate perspective, we will be at that benchmark except for the IT and the real estate component.
So again, it takes us a little bit of time to get through these separations and then we can really zero in on the IT and the real estate front to continue to capitalize on those savings.
But I think our view is there's always opportunity for cost.
It's just a question of how much and how quickly can you take that out, and right now we feel like we're taking out quite a bit of cost.
Sure.
So remember as we go forward as RemainCo if you will, which is EG plus HPE FS, we needed to set up EG to be a very lean and cost effective competitor, because guess what.
In Europe, we compete against the Chinese, obviously it's a very, very competitive market.
So we wanted to reorganize ourselves in a way that we thought would be much more cost effective and more efficient.
And the first was we appointed Peter Ryan to be the new Head of Global Sales.
We've actually never had a Head of Global Sales.
He's now the Head of Global Sales, and he's got three new region heads: Jim Merritt, who used to be in Asia, and did a fantastic job for us in Asia has come back to the United States.
And then we promoted <UNK> Isherwood to be the Head of Europe, who filled in behind of Peter Ryan, because he had been head of Europe, so I've got three new region heads, plus Peter being a new Head of Global sales.
They are not new to HP, but they are new in their roles.
Secondarily, we have now real plans to grow TSS, which is our Technology Services Support business as well as TS Consulting, so Scott Weller still runs TSS, Rafael Brugnini still runs TSC, but we've hired someone to take both of those businesses, and really drive growth overall in the services business, because we've got to grow our advisory and transform service, we have to grow our support services business, as we have in the past, and there's a lot of opportunity in some of the new products, particularly around flexible capacity services.
So we hired a new executive named Ana Pinczuk, who is going to be in charge of all services.
Scott Weller is still in place, and we think very highly of Scott and Rafael Brugnini is still in place.
We also hired a new leader for our channel program.
We had a fellow who was hired in a number of years ago, who actually did a very good job for us, but was really focused on selling cloud services and so we actually hired a fellow by the name of Denzil Samuels, who has a long history with the channel.
He most recently was at GE, and so he has come in the last month or two months to run all of the channel worldwide, yet Scott Dunsire is still in place in the United States.
And so we've got consistency there but we do have a new head of the channel.
So I think all these folks to some degree were also doing double duty.
We were making divestitures, we were doing M&A, we were doing separation, and Antonio was doing a lot of double duty as well.
So I think the good news is largely that is through the pipeline or through the python if you will, and I'm feeling pretty good about people settling into their new roles.
But quite frankly, I probably put more change into this organization in Q1 than I probably should have.
I wouldn't ---+ this doesn't go under the org change category, but I wouldn't underestimate at the local level the impact on the country leaders, which obviously do a lot of selling for us.
When you do a separation like this, you have to go out and speak with customers, you have to explain to them the ES separation from HPE, you have to deal with workers councils, if there are any organizational changes, so there is quite a bit of work that ripples through the organization.
And we've got two separations going on now at once.
And I'll add one more thing.
When we separated HPI from Hewlett Packard Enterprise, it was one family.
There was one adult that was supervising both the separation of the siblings.
Now, we're doing separations that is a merger with a third party, and that actually adds a complexity that we knew about, but has created some complexity.
And by the way, the most intense time for the ES separation was in Q1, no question about it, and now we're on sort of a nice glide path to March 31.
No, I think we actually did quite a good job of intercepting that merger, and we have recruited a lot of new channel partners.
They are beginning to ramp.
Much as we did a good job intercepting the server move from IBM to Lenovo, we did a very good job intercepting a lot of that business, so I think we've taken advantage of that to some degree.
Lenovo is around.
They've got their hands full on a couple of other things, the server business and Motorola, but Dell is being very aggressive, particularly on the server side of things, and we're countering that when we think it makes the right sense.
We aren't doing share for share's sake here, but we are being smart about it.
And then in Europe, we actually are seeing the Chinese.
We're seeing Huawei being more aggressive, and we're trying to avoid what we learned in the PC business, which is they do the land and expand.
If you can keep them from landing, then that is a much better long-term strategy, so we're working hard on that, too.
I'd also say the joint venture on China is actually working quite well.
There's been some growing pains there but actually we're quite optimistic about that, and optimistic about the Shingwa team that is now in charge of that business.
And given the trade situation and what may or may not happen with the administration, I'm very glad I'm part of a joint venture in China.
Yes, so I'd say listen, the bright spot in the storage portfolio continues to be the all-flash growth, which was almost 30%.
And it would have been considerably higher if we had more SSD supply, so we're feeling really good about our all-flash display.
I mean our all-flash product.
Some of the other parts of the business were weaker than probably they should have been.
I think I will attribute some of that to execution, and some of that to market.
So we're not happy with the storage performance this quarter.
I'm quite happy with the all-flash situation, but there's other things that we're going to buck up as we go forward.
And so I think that's the way I would characterize the quarter.
It's actually both.
It's a year-over-year comp issue and it is a different buying pattern than had been anticipated.
And so we'll see if that corrects over the next two or three, four quarters, built into our forecast is that it does not correct, so if it does, that would be an upside.
And again remember, these Tier 1 deals, we do make money on them, but they aren't as profitable as the core ISS, so that doesn't translate as dynamically into operating profit as it does to revenue.
So they are facing a very competitive business, the Tier 1 business is very competitive, and we'll see what happens there.
So <UNK>, the organic TS results were 2.5% in constant currency, so 2.5% growth in constant currency.
So we're actually feeling pretty good about that, and it is driven by the new product acceleration, data center care, proactive care, FSC.
And if you go back three or four years on TS, in all rights, for awhile there, that business should have been down 25% a year because it was so driven by our mission critical business.
The TS team deserves a huge amount of credit for diversifying the product and actually having that business down only single digits.
Now, with the new products coming online, and being actually quite successful, orders are up and we anticipate that business will grow organically, forget adding the SGI services on top of that.
So we're feeling pretty good about that business, and anticipate we're going to see growth.
Keep in mind that business, about 85% of those revenue streams are recurring, so that's why we're confident in the growth throughout the course of the year.
And listen, a lot of the server business that was weak didn't have high attach to it anyway.
So Tier 1 Service Providers has no service attached to it, so it's not a drag on our services business.
Yes, so I think that we're going to continue to execute the returns-based capital allocation strategy.
We feel like that's been working well for us.
So in Q1, as an example, we'll return $750 million in cash in the form of share repurchases and dividends.
So we're still committed to that $3 billion that we talked about at SAM, again in the form of share repurchases and dividends.
Now I will say we are biased towards share repurchases, but we feel like that framework is working well with us, and we're going to continue to operate within that framework.
As far as the repatriation, we haven't incorporated any of that into our plans, because we're not sure what is going to happen, to be quite honest with you.
But if there was a one-time holiday, as a majority of our cash is offshore, we would certainly benefit from that, like many other companies.
But I would just balance it with, even if we were to see some sort of holiday, I'm not so sure that it would change our returns-based approach.
I'm not so sure it would change our approach or strategy towards M&A as we go forward.
I agree with that.
Remember what we've said, is the kind of acquisitions that have worked well for this Company are 3Com, 3PAR, Aruba, SGI is actually going to be very successful, and SimpliVity, we're excited about, it's too new to declare victory.
We just closed on Friday.
But what do they have in common.
They've got reasonable valuations, they leverage our distribution channels, they are complimentary technologies, and they drive profitable growth.
So I think the best indication of the future is the past.
I mean I'm not entirely sure.
What I will tell you is that they have dramatically decreased their purchasing, below commitments that they had made to us.
Yes, sure.
I'll just give you a total year perspective, so our guide, we're still comfortable with a negative $1.8 billion.
We have, to your point, we've paid out the $1.9 billion in pension.
Now there are some more payments to be made because we don't finalize everything until we close the transaction, but we do expect that those payments will be less than the $2.5 billion that we had communicated at SAM, so we will see some favorability there.
The reason why we're sticking with our guide is because obviously, with the $0.12 takedown, that drives some earnings pressure.
So net-net we still feel very comfortable with the free cash flow guide.
As far as working capital, again, we have some timing elements here and there, but I would say overall assumptions over the course of the year have not changed, since the guidance we gave at SAM.
| 2017_HPE |
2017 | EFX | EFX
#Thank you.
Let me see if I can deconstruct what your view is, which is a good view, and say that it is in the teens.
You also have, don't forget, two months of Veda benefit in 2017 you didn't have in 2016.
So that's part of the contributor.
Then the core of what you're saying is true.
You have very high, once again, very high organic non-mortgage, non-ACA growth, and there's no magic there.
<UNK>, that is the same thing we've been doing since [PGI] and EGI.
It's really is broad-based.
If I went through, and I think I did, I can't remember, as an example I think I gave EWS, the number of verticals that are growing double digit.
I can do the same thing in International.
I can pick different countries, and different verticals in different countries.
I can take different verticals in the USIS and show you how they're growing.
It's so broad-based.
It's not one vertical, it's not two verticals.
It's not one product or two product.
It's a combination of all those things coming together.
As <UNK> mentioned in his script, right, you're seeing continued very strong double-digit growth out of EWS, and then out of International, and GCS growing above their long-term model.
So the areas of growth are really concentrated there.
USIS, still performing well relative to mortgage, but the growth is concentrated in those businesses that <UNK> talked about.
Yes, traditionally that's been the case that they've pre-screen, the precursor to underwriting, which that puts you online stuff.
So we're not explicitly baked that into any guidance, <UNK>.
We expect, though, if that is in our pre-screen that will eventually lead to more lending, which is good for us.
Yes, good point.
So the answer to your first question is ACA was not directly counted in that 3%.
The 3% is the mortgage headwind alone.
Again, we're saying (inaudible) what you do, you can do the math, was the growth driver in the past goes from being a growth driver to flat.
That is a headwind for us.
The rest has got offset, and we got offset.
Think about the guidance we gave you as being offset by things we're already doing.
So it's a combination of NPI and EGI.
Thank you.
One of the things, maybe before ---+ hopefully you guys are still on the phone, is that, <UNK>, if I could.
Two points have came up in a few (inaudible) we would address.
One was around the OIS revenue when compared it to others up 4% versus some of you expected that to be larger.
Point of clarification, where it estimated that some of your (inaudible), that is burdened by 2 points, was it 2 points.
3 points of headwind from what we call our direct-to-consumer business.
Remember, when we created GCS, we took most of our consumer and gave it to GCS.
We left behind some reports marked to TU and to Experian.
That has been declining.
That declined even faster in the fourth quarter.
You've heard Experian announced they had a big breach last year in the fourth quarter; that didn't repeat.
So that's 3 points of headwind this year versus [less headwind] in the first three quarters of the year.
The other question that was raised is the sequential margin change in EWS.
I think I'll just quickly talk about that.
That's driven by really two things.
You've got some seasonality in a couple products in the mix.
We're still (inaudible) in the high margin offerings in the [USIS] that you may have seen in the third quarter.
Secondly, as I mentioned and <UNK> mentioned, we're investing nicely in standing up the International work number.
Those are two small points that are sequentially working the margin (inaudible) to explain that.
That business is a still well on its way to get that 50% to or mid-50%s margin.
I just wanted to clarify that point.
<UNK>, you want sing a song or something like that (laughter) farewell.
| 2017_EFX |
2017 | AMT | AMT
#Good morning, everyone
The fourth quarter wrapped up another year of solid growth, complemented our nearly 8% organic tenant billings growth with well positioned acquisitions and newly constructed size, aiding over 45,000 new sites during the year
In addition, we exceeded our deleveraging targets while continuing strong growth in our dividend
As <UNK> highlighted, we once more posted double-digit growth across our key financial metrics, both in Q4 and for the full year
And as <UNK> just mentioned, what was achieved is just a latest example of our long track record of generating this type of growth
Looking ahead, we believe we are well positioned for another successful year in 2017. But before we get into the details of our 2017 expectations, let’s quickly recap our operating results for 2016. If you please turn to slide eight, we grow double-digit organic tenant billings growth internationally in 2016, and had another year of solid activity in the U.S
right in line with our expectations
This growth was supported by a record quarter of new business commencements in Q4. Our U.S
property segment revenue growth for the year was about 6.7%, which included a negative 1.3% impact from non-cash straight-line revenue recognition
U.S
organic tenant billings growth matched our expectations, is 5.8%, reflecting a slight acceleration in the back half of the year
Volume growth from collocations and amendments contributed about 4.5%, while pricing escalators contributed about 3%
This was partially offset by churn of about 1.7% on an annualized basis, of which just 30 basis points was associated with operational churn from the big four wireless carrier core networks
Demand trends in the U.S
remained steady with carriers actively spending to augment the coverage and capacity of their 4G networks
International organic tenant billings growth was double that of the U.S
, coming in at about 13.5% on a consolidated basis with all three international segments growing between 13% and 14%
This was the seventh consecutive quarter of double-digit international organic tenant billings growth, supported by significant network spending by tenants across our portfolio
Contractual pricing accelerators, driven by local CPI indices contributed about 6.9% to that growth
And volumes from collocation and amendments drove an even greater contribution at 7.7%
Other run-rate items contributed an additional 30 basis points
This was partially offset by churn of about 1.4%
Additionally, our organic tenant billings growth rate was elevated by about 30 basis points due to organic new business commencements on the new Viom assets
Our large multinational tenant base continues to make significant investments in their networks as access to advanced handsets become more attainable to an increasing proportion of their customer base
Additionally, these network investments appear to be catalyzing incremental usage, as the quality of the mobile experience continues to improve
These trends along with our high quality asset base once again let a strong international growth for us in 2016. On the inorganic side, the day-one revenue associated with the over 45,000 sites we added over the course of last year, including the Viom portfolio, contributed another 15% to our global tenants billings growth
Our new-build program also remained active, and we constructed over 1,800 towers globally this year with an average day-one NOI yield of about 10%
Turning to slide nine, we also generated strong margin performance adjusted EBITDA and consolidated AFFO growth for the year
Our gross margin percentage was over 69% despite a negative 11% impact from pass-through revenue and the addition of approximately 45,000 new initially lower margin sites
Cash SG&A, as a percentage of revenue, declined 70 basis points from 2015 levels to 7.9 %
And as a result, we generated a full year adjust EBITDA margin of just over 61%, which would have been about 10% higher excluding the impact of news sites in pass-through
In fact, if you were to exclude just the impact of pass-through over the last three years, our adjusted EBITDA margin would have been essentially flat, despite adding almost 80,000 news sites over that time, demonstrating the significant margin expansion on our legacy assets
We also generated double-digit consolidated AFFO and AFFO per share growth for the ninth consecutive year
Consolidated AFFO grew by nearly 16% and AFFO per share grew by over 14% to $5.80, while AFFO, attributable to common stockholders, grew over 13% or nearly 12% on a per share basis
Notably, both consolidated AFFO and AFFO per share exceeded the high-end of our previously issued outlook and outpaced our initial outlook provided last February by about 4%
Turning to slide 10, let’s now take a look at our expectations for 2017. At the midpoint of our outlook, we are projecting property revenue growth of over 10% to $6.3 billion
This includes a negative impact of about 1.3% from the expected year-over-year decrease in non-cash straight-line revenue, as well as a negative 70 basis point impact from the non-recurrence of approximately $39 million of U.S
decommissioning revenue realized in 2016. We expect consolidated tenant billings to increase by over 12% or roughly $590 million in 2017, driven by organic tenant billings growth of 7% to 8%
In addition, revenue growth associated with pass-through revenue, non-cash straight-line revenue and other non-run rate revenue is expected to be offset by our forecasted impacts associated with foreign exchange fluctuations
Therefore, all-in, total property revenue is expected to increase by just under $600 million
We expect strong organic growth in 2017 from both our U.S
and international businesses
These expectations are predicated on our sizeable new business pipeline, and our view that the positive demand trends underlying our 2016 growth will continue in 2017. In fact, in U.S
, we actually expect organic tenant billings on a dollar basis to increase by more than 15%, resulting in the reacceleration of our U.S
organic tenant billings growth rate to approximately 6% for the year
This reflects our expectation of an increase in collocation and amendment activity across the portfolio
I would also like to make clear that we have not yet included any material leasing expectations from the ongoing incentive options nor any potential impact from first-net deployments in our current outlook
In our International markets, we’re projecting organic tenant billings growth of around 10%, which includes nearly 30% increase in lease commencements from that realized in 2016. While pricing growth from escalations is expected to cline approximately 200 basis points from the prior year to about 5%
This is due to a new factors, including subdued inflation rates, primarily in Brazil, where the currency is stabilized; our U.S
dollar based contract in Nigeria, which provides us a natural currency hedge, but includes U.S
based escalation provisions; and our larger Indian business, which expects escalators around 2% to 3%
Finally, churn for 2017 is expected to be just over 2% internationally, which includes the assumption of higher churn in India, driven by carrier consolidation
We remain encouraged about our growth prospects in markets like Mexico, where we expect double-digit growth to continue, even without factoring in any contribution from a new wholesale network deployment expected to begin in late-2017; and in Brazil, where there have been some macroeconomic challenges, we are seeing indications of stabilization and potential for a reacceleration in carriers spend
In fact, we realized record setting levels of new commencements in Brazil in Q4. In Latin America, as a whole, we expect organic tenant billings growth of around 11% in 2017, down from 2016, primarily as a result of the lower CPI-based escalators; again, most notably in Brazil
Growth in our EMEA region is expected to step-down from about 14% in 2016 to around 10% in 2017. On a dollar basis, we expect volume from collocations and amendments to be consistent with 2016 levels; however, expect them to be more weighted to the second half of the year compared to 2016 where we saw commencements weighted more to the first half
In addition, our Nigerian assets have a natural currency hedge with over 50% of their tenant leases indexed to the U.S
dollar with the corresponding U.S
CPI index escalator
Given the recent volatility in Nigeria’s currency, we believe this is a favorable component to de-risk our business
Even though, it reduces growth in the country compared to what we would have achieved with local inflationary based pricing escalators
Meanwhile, we continue to expect solid tenant demand in growth in India
In fact, we expect volume growth from new collocations and amendments to be nearly 10%, which reflects the impact of new business agreement signed late last in 2016, as well as strong new business pipeline
Offsetting a portion of this growth is an elevated level of potential churn, which we expect will reduce revenue growth by around 5%, primarily as a result of the ongoing carrier consolidation activity in the market
While it creates a near term headwind, we view consolidation as a long-term structural positive for the market
And in the future, we expect stronger well capitalized tenants to support an industry where wireless competition can be incrementally more rational
And as we’ve said previously, India has always been a market where we expected a long cycle of consolidation, while the long-term opportunity remains strong
So to summarize, we expect another year of double-digit international organic tenant billings growth as a result of increased levels of collocation and amendment activity in our international markets in 2017 despite lower CPI based escalators and some increased churn assumptions
Moving on to slide 11, we expect another solid year of growth and adjusted EBITDA and consolidated AFFO per share
Our adjusted EBITDA is expected to grow by about 9% for the year
Cash SG&A as a percentage of total revenue is again expected to be under 8%, despite adding France and Argentina to our footprint, as well as increased spending on IT system upgrades in the U.S
Our consolidated adjusted EBITDA margin for the year is expected to be down around 1% from 2016 levels, but actually up from the prior year, excluding the negative impacts of pass-through and the year-over-year $72 million decline in that straight-line
The margin is also being negatively impacted by the full year inclusion of the Viom portfolio in 2017, as well as the non-recurrence of about $39 million in 2016 decommissioning revenue in the U.S
We expect our legacy business, exclusive of the items I just mentioned, to actually drive margin expansion of round 90 basis points in 2017 as compared to last year
Meanwhile, consolidated AFFO and consolidated AFFO per share growth are both expected to be over 10% for the year
In addition to our operational efficiency, this reflects our active balance sheet management
We expect consolidated AFFO per share in 2017 to be $6.40 at the midpoint of our outlook
This reflects the expected resumption of our sharing purchase program in the near-term
Relative to FX impacts, we’ve used our historical approach to forecast the impacts of currency fluctuations
If the spot rates as of Friday held for the balance of the year, our AFFO forecast would increase by about $38 million or about $0.09 per share
As you can see on slide 12, our outlook for total 2017 capital expenditures is $850 million at the midpoint
This includes $160 million in non-discretionary CapEx, primarily related to site maintenance
The remaining $690 million or so is related to discretionary CapEx, including about $160 million for new site construction
During 2017, we expect to build around 3,000 sites primarily in our international markets or around 1,000 more than we built in 2016. As a result of ongoing carrier investment, we expect new site construction to accelerate compared to the prior year across nearly all of our international markets, particularly in India, Mexico and the Brazil
Historically, sites we’ve constructed in our international markets have delivered highly favorable returns with our most mature vintage of those sites now delivering NOI yields of approximately 38%
Even on sites we built since 2014, NOI yields were already in mid-teens
We expect that price constructed during 2017 will deliver similar returns overtime and further enhance the growth and yield of our global asset base
Turning to page 13, you can see that we’re entering 2017 with a tremendous amount of financial flexibility
During 2017, we expect to generate cash from operations in excess to the $2.7 billion we generated in 2016, and expect to have around $900 million in incremental debt capacity to maintain current leverage levels
As a result, we expect to have more than $3.5 billion available to deploy during the year; applying 20% growth rate to our 2016 common stock dividend results in a projected payout of $1.1 billion in 2017, subject to our Board’s discretion
We also expect to spend about $87 million of preferred dividends and about $850 million in CapEx with just $160 million of that being non-discretionary
Additionally, earlier this month, we deployed around $500 million to fund our acquisition of FPS Towers
After accounting for these items, we expect to have over $1 billion of excess cash available to the either reinvested back into the business or returned to shareholders
Given the expected strong growth in our business over the long-term, driven by the secular trends in the global wireless industry and resulting pending investments needed to support that growth, we believe our stock is fundamentally undervalued today
Accordingly, given the accretion opportunity to buying back shares currently offers is potentially compared to our other options, we would expect to reengage our share repurchase program shortly
As always, we continue to evaluate acquisitions in the event those opportunities offer a better strategic and long-term AFFO accretion profile, we would adjust the pacing of our repurchases to accommodate
In either case, we expect to utilize our substantial expected excess cash to create value for our shareholders
Moving on to the slide 14, we expect to utilize our financial flexibility and disciplined capital allocation strategy to drive growth and improve yields across the business
As you can see, our track record speaks for itself
We have significantly increased our asset base since 2012, positioning us as the global leader in our industry, while continuing to invest in our existing business and fund our growing common stock dividend, which is more than double since its inception in 2012. Our disciplined investment methodology has enabled us to expand and diversify our asset base across key wireless markets around the globe, resulting in sustained growth and key financial metrics, including significant recurring free cash flow generation
Turning to slide 15, and in summary, we generated strong operating results in 2016, highlighted by our seventh year of double-digit growth and property revenue and adjusted EBITDA, and our ninth consecutive year in double-digit growth in consolidated AFFO per share
At the same time, we enhanced our Company’s long-term strategic positioning in key markets through selective acquisitions while reducing our SG&A, as a percentage of revenue to under 8% and growing our common stock dividend by about 20%
In 2017, we are focused on strategic priorities which support our vision of being the premier independent owner, operator and developer, of communications real-estate globally, while continuing to drive strong financial results
We expect to evaluate accretive investment opportunities, explore additional avenues to drive future growth, and use our significant internally generated investment capacity to do so
We’ve expanded our presence to currently 15 countries, having substantial scale and significant capability to adeptly serve the biggest global companies in the largest free market democracies in both developed and emerging markets around the globe
Operationally, we remained focus on efficiently integrating our new assets, while driving strong growth across our existing asset base and leveraging the scale we’ve built across our global business to drive expanding margins and growing cash flow
We are well positioned to support our customers as new technologies and networks are deployed, particularly in the U.S
, with the potential FirstNet opportunity, as well as in Mexico with the awarding of a new wholesale network buildup, which could provide upside to our plan
Further, we are now back within our target leverage range and a substantially increased financial flexibility to pursue large accretive acquisition opportunities and resume our share repurchase program
As a result, we expect to drive strong total shareholder returns, both in 2017 and beyond, as we continue to provide solid underlying growth in our business with an increasing yield
And with that, I’ll turn the call over to the operator so we can take some Q&A
Question-and-Answer Session
I mean, the overall tenant billings growth is about 37% in the market and the organic tenant billings growth is in the ---+ the international growth is 10%
India is probably in 8% to 10% range
No, that includes the churn
The actual co-lo amendment growth is 10%
It’s difficult to say
If you take a look at the major consolidation that we ---+ going on right now with the major carriers
And even though there are rumored, RIc, it’s probably upwards of 10,000 tenancies over couple of year period, two to three year period for us
And so that could be upwards of say 1% about consolidated revenue, probably in those, and it’s very difficult to predict
We have lock-in periods for all those carriers as well
So, it’s really difficult to predict that there’ll be settlements along the way or the extensions, or how that will impact
As we said all along when you take a look at this major consolidation, it goes around the globe and we’ve got a lot of experience within the U.S
We’ve always found in the U.S
with the major consolidations, it’s actually been a net positive for us
Its carriers are overbuilding their networks and positioning and integrating their business
And in India, there is such significant growth
We’ve talked about the new build-to-suit programs that we have
We’re building 150 to 200 sites there a month in over the last couple of years
And so when you take a look at the amount of white space in the market, just in terms of coverage issues that they have, and now where the prices are in handsets and the new spectrum that’s being deployed in the market, we’re really bullish in terms of the type of growth we’re seeing going forward
So, it’s really difficult to impact what the churn is
I know what the overlap is, if you will, between the carriers
But it’s difficult to predict just how much of that will actually result in churn
In terms of the new assets billings, don’t forget that last year we had an additional quarter of rolling over from 2015 of the Verizon portfolio
So, that’s what really drove a lot of the new asset billings last year
This year we’ll continue with our build program and we’ll probably build 50-60 sites, if you will
So, that will be the major contributor of new asset billings, as well as the site builds that we did last year that are rolling over into 2017. So, that’s a reason for that particular decline
And your second question again, was…
No, absolutely not
I mean the escalator assumptions continue to be right around that 3%
But remember from an overall waiting perspective, they declined slightly as a result of the escalator that was underwritten in the large portfolio from Verizon, so that drove the overall of that a little bit
But the overall is right at 3%
We have very few have asked this question before
So, I mentioned, less than 5% of our sites actually are CPI based in the United States, so 95% of them are on fixed escalators of some type
First of all, it’s the fact of our pipeline and the conversations with that with all our customers in terms of their expected activity for 2017. Then it’s just the ongoing expectations of that 30% to 40% growth in data traffic and the unlimited plans
And all the things that <UNK> talked about in his piece in answering a question just not too long ago
So, it’s all of those <UNK> that are really driving that increased demand
As I said, underpinned by what we physically have in the office in terms of driving new co-lo and amended business, which is really what’s driving the activity
Clearly in 2017, we expect about 15% growth, as I mentioned in my prepared remarks, relative to increase in co-los and amendments as compared to 2016 in organic tenant billings
So, that’s really what’s driving the growth
I think last year is the CapEx budgets are actually deployed by the carriers
There is still a slightly more back half loaded deployment in activity for tower companies or ourselves included, I don’t know if that’s significant, it's probably pretty even
But I would just expect that there is a slightly more back half loading
I think in certain markets, as I mentioned in EMEA, for example, outside of United States we’re going to see a little bit more back half loading than front half loading that we had last year, which is partially driving what the decline is in the tenant billings growth
And relative to FPS, it’s in the $55 million range revenue and $40 million, $45 million for EBITDA
Let me answer that one
We’ve very disciplined capital allocation process within the business
We’ve talked about that before
I mean it’s all mass
It’s where we’re going to be generating the most value on an NPV basis, as well as on ongoing basis from an AFFO accretion perspective
So, we’ll continue to evaluate transactions on a global basis
There is a lot of activity no doubt around the globe
We’re very selective when we’re looking at those particular acquisitions
And as I mentioned in my markets, I do believe that our stock is fundamentally undervalued today
And so, I think it affords us an opportunities, given the position that we’re now in
We’ve got additional financial flexibility to flex our muscles a little bit and to go into the market
And as you’ll recall, prior to the two large transactions in United States, we were ---+ even though we were paying a growing dividend, we were still active in the market in terms of buying back shares
With those two acquisitions, it took our leverage up into the 5.5 plus range
And so it was very important for us to get that back down south of 5, which is where we are today
And so that affords us the opportunity to really look at that program, as well as continually look at acquisitions
So, we’ll continue using the approach that we’ve used
If you take a look at the results, I think the record speaks for itself, and we’ll use that model going forward
<UNK>, on the buyback, it’s really difficult to say just how much is going to be used in 2017 relative to buying back shares
We will put our typical process in place and run programs throughout the year
And depending upon where the volume this year is, we’ll pick it
We’ll pick up the pacing in
And it will also, as I said if and when we’ll continue to look at M&A throughout the year
And to the extent that we determine that there is an M&A opportunity out there that’s strategic and is more accretive than buying back shares, then that will probably prove to be the spot where we will be investing the cash
So, it’s really difficult to say exactly
I can’t tell you that hopefully in short order we’ll have that program back on and we’ll continue to be able to reinvest back in the business and return cash back to shareholders wherever we can create the most value
On the SG&A question, we continue to drive that down
If you take a look at the legacy business, there’s continued improvement in the overall SG&A as a percentage of revenue
This particular year, we also have bringing on people in Argentina and people bringing on in France, it's probably 200, 300 people between the two markets, as well as I mentioned before, we’re making some incremental IT investments in our ERMs in the United States
But going forward when you take a look at our conversion rate shows when you pull out straight-line or not straight-line pass-through revenue, you’re up
And then at the gross margin level, you’re up in the 90% range, and at the EBITDA level you’re up in the 80% range
So, given that kind of conversion ratio on our legacy business, you would expect to see some sizable, I think, reductions in overall SG&A as a percentage of revenue
What we continue to do is we continue to walk [indiscernible] at the same time, so we continue to invest back into the business to be able to drive growth to create a long-term sustainable path for our shareholders
But I think if you take a look at the one of the charts that we had in the PowerPoint presentation today, you can see the incremental SG&A margin that’s been driven in the business, and that’s largely through reduction in SG&A as a percentage of revenue
As we take a look at, <UNK>, just looking at the total property revenue versus AFFO per share
First of all, it’s always our goal
I mean it's our objective to have double-digit AFFO per share growth, going forward
I mean that’s really is driving our business in the investments that we’re making in the business
I think if you take a look at ’17 versus ’16, you take a look at pass-through revenue, for example
I think the increase in pass-through revenue is just as a result of bringing on the additional quarter of Viom, is probably driving that property revenue, whereas it's not driving to that nor AFFO per share
So, that would be one of the reconciling items to be able to connect the two
| 2017_AMT |
2016 | NEU | NEU
#Thank you, Doug, and thanks to everyone for joining us this afternoon.
With me today is <UNK> <UNK>, our Chairman and CEO.
As a reminder, some of the statements made during this conference call may be forward looking.
Relevant factors that could cause actual results to differ materially from those forward-looking statements are contained in our earnings release and our SEC filings, including our most recent Form 10-K.
During this call, we may also discuss non-GAAP financial measures included in our earnings release.
The earnings release, which can be found on our website, includes a reconciliation of these non-GAAP financial measures to comparable GAAP financial measures.
We filed our 10-Q earlier today.
It contains significantly more details on the operations and performance of the Company.
Please take time to review it.
Our comments today will be referring to the data that was included in last night's press release.
Net income was $64 million, or $5.43 a share, compared to net income of $59 million, or $4.72 a share, for the second quarter of last year.
Earnings for both second-quarter periods included the impact of value and interest rate swap at the fair value.
Excluding that special item from both periods, earnings for this year's second quarter would have been $65 million or $5.50 a share.
This is an earnings increase of about 13% and an EPS increase of 18% from last year's performance.
Petroleum additives' operating profit for the quarter was $103 million, which is about $8 million or 9% higher than last year.
Petroleum additives' sales for the quarter decreased 7.4%, or to $516 million, compared to sales for the same period of the year $557 million or a $41 million reduction.
Reduction in revenue was accounted for from price and shipments for the majority of the change.
Petroleum additives' shipments for the second quarter of 2016 were down 1.5% from the same period last year.
We experienced decreases in lubricant additive shipments in North America and Latin America, with fuel additive increases in North America and Asia-Pacific.
Through the first six months of the year, our shipments were down 2.4% versus 2015.
Lubricant additive volumes have been slower than expected, with fuel additive volumes being stronger than expected.
We believe the PA industry long-term growth rate of 1% to 2% hasn't changed and we don't see any new trend of the volume data year to date.
Onto the cash flow for the quarter, items of note including funding our dividend of $19 million and variations of working capital.
We continue to operate with very low leverage, with debt to EBITDA at 1.3 times.
For 2016, we expect to see an increase in the level of our capital expenditures to a level higher than 2015, which includes the anticipated spending on our Phase 2 Singapore investment, as well as improvements to our manufacturing and R&D infrastructure around the world.
For the first half of 2016, we have ramped up spending to $64 million.
Phase 1 is officially open in Q2 and Phase 2 will be commercially ready in 2018.
We expect capital expenditures to remain in a higher-than-normal range for each of the next several years in support of our growth plans.
This is no change from the position we discussed over the past several quarters.
In summary, our business continues to perform very well and we are pleased with its overall performance, as we continue to operate this business in a business climate that was marked by slower world economic growth and a strong US dollar.
We remain focused on the long term and are investing heavily in R&D and additional capacity to support our customers worldwide to meet our long-term growth goals.
We remain committed to our safety-first culture, providing customer-focused technology-driven solutions, and to a world-class supply chain to meet our customers' growing needs, and this approach will continue to be beneficial to our shareholders.
Doug, that concludes our planned comments.
We would like to open up the lines for questions, please.
<UNK>, we expect margins to be in the mid to high teens, as we have experienced.
I don't see any significant change.
<UNK>, what I am saying is that from a margin perspective, we expect the margin to be in a normal range.
From a volume perspective, we are working in a difficult economic time.
We have seen some reductions in some regions, a little bit of a sluggish nature in some of the regions.
So we don't expect volumes to be anything but over the long term a 1% to 2% growth, and we expect to do a little bit better than that.
<UNK>, this is <UNK>.
Your observations are very ---+ very real and we are very aware of this, and frankly disappointed that we are not seeing more growth in our volume.
I don't see it as being anything fundamental.
I think there is ---+ you mentioned a number of possible causes and I think we are seeing pieces of each of those, but frankly we just need to do a better job in this sluggish environment of bringing in more growth.
And that's what we are ---+
As far as our R&D investment, as you know, this is a technology business.
We invest for the long term, and obviously we are continuing, as you can see from the R&D investment, to invest heavily for new products and development solutions for our customer long term and don't see a change in that going forward.
That's not something that we track very often.
We do look at it, certainly, but if I had to tell you where I think we are compared to last year, I would think it might be down slightly because a lot of the investments we are making right now are related to industry changes that are coming over the next one to two years, significant industry changes.
So, more of our R&D dollars right now are geared toward products that weren't coming out this year, but are coming out over the next couple of years.
We've talked about keeping debt to EBITDA in the 1 to 1.5 times range, with 1.5 being probably better than 1 for a number.
Right now, we're at 1.3.
We have a lot of CapEx that <UNK> has mentioned.
We are patient in terms of looking for acquisitions.
We are also patient in terms of buying in shares.
So, we just have to look at all of those factors, weighing the outlook for CapEx, acquisitions, the current price ---+ relative price of the stock, and all of that to factor in.
So, I am telling you how we think.
We obviously don't state in advance before we do buy shares.
Sure.
The industry, as you well know, <UNK>, has certain specifications, which often are just minimum specifications for playing the game.
And anytime there is a significant change in those specifications, it means a lot of new investment in R&D, a lot of new products.
We are seeing them right now in both the heavy-duty diesel and the passenger car aspects.
They do present new opportunities, but they generally don't result in significant change in the overall competitive picture.
We don't talk about those specs a lot because we are not a spec-driven company.
We are a value-driven company and we develop products that provide value for our customers, and specs are just a ticket to the game, albeit a very expensive one that we all need to pay attention to as the changes come, because they always result in increased demands on our products.
Yes, those factors you mentioned are all baked into the 1% to 2% increase that we see.
Some of the major drivers of growth would be growth in the developing and emerging markets, China, for instance, and the growth in the transportation fleet in countries like China.
And even though the growth is slow, we are still seeing significant expansion of the car and truck fleet there.
Also, the increased demands that are placed on motor oils and other lubricants, demands that are driven by the need for improved fuel economy in particular and some of the operating conditions of these newer engines drive increases in the needs ---+ the need for additives over top of the growth of lubricants or fuels, the end markets there.
So, yes, we are seeing extended drain intervals.
We have been seeing those for some time now.
We are seeing alternative fuel vehicles.
We are seeing hybrids and so on, but all of that is factored into the equation.
All right, thanks to everyone who has called in, and we will talk to you next quarter.
| 2016_NEU |
2017 | FITB | FITB
#Good morning and thank you for joining us
I will start with the financial summary on slide four of the presentation
As <UNK> mentioned earlier, we are very pleased with our results for the quarter
During the quarter, the expansion of our underlying net interest margin, the sequential decline in our expenses and excellent credit quality reflect our continued commitment to driving improved financial performance
For the fourth quarter, there was a net positive impact of $0.01 per share resulting from several items; the most significant item was the $16 million pre-tax charge to provide refunds to certain credit card customers, offset by the previously disclosed Vantiv gain, a positive mark from our Visa swap and a tax benefit from the early adoption of an accounting standard
Our adjusted net interest margin which excludes the credit card charge, expanded three basis points sequentially
We maintained pricing discipline during the quarter and our asset sensitive position allowed us to benefit from the rising interest rate environment
Our reported NIM contracted by two basis points
Expenses remained tightly controlled as we continue to look for efficiencies throughout the organization
Credit quality was excellent as evidenced by our ongoing improvement in criticized assets and a decline in net charge-offs during the quarter
Our focus on improving our returns led us to deliberately exit certain commercial relationships and reduce indirect auto-loan originations
This led to a sequential decline in our total loan portfolio
In aggregate, we exited approximately $3.5 billion of commercial loans in 2016 and we expect to exit roughly another $1.5 billion in 2017. So with that, let’s move to slide five for the balance sheet discussion
Average commercial loan balances were down 1% sequentially and flat year-over-year
As I mentioned earlier, throughout the year we made deliberate decisions to exit lending relationships that do not meet our desired risk and return profile
This had a negative impact on C&I balances which decreased by 1% both sequentially and year-over-year
During the quarter, we maintained our origination spread levels as LIBOR increased, driving a five basis point increase in our C&I yield
We will continue to optimize the portfolio to achieve better returns while improving the stability of our credit performance
The sequential decline in average C&I balances was partially offset by 1% growth in commercial real-estate this quarter
As we have discussed in prior calls, in construction as well as in firm lending, our teams are cognizant of valuation and supply-demand dynamics
Our disciplined client selection and credit underwriting in commercial real-estate will continue to rely on stringent standards
Average construction loans grew by 1% sequentially in the fourth quarter
As a sign of healthy construction portfolio, loan run-off increased this quarter as underlying projects were completed and sold or refinanced
Our pipelines are diversifying away from multi-family and we are becoming more selective as the sector gets deeper into the later phase of the cycle
Average consumer loans were flat from last quarter and were down 2% year-over-year
Auto loans were down 3% from last quarter and 13% year-over-year in line with our reduced originations
Throughout 2016, we maintained a consistent focus on improving the profitability of this business
We are continuing to work on additional tactical changes to further improve the returns in 2017. Residential mortgage loans grew by 3% sequentially and 10% year-over-year as we kept jumbo mortgages, ARMs as well as certain 10 year and 15 year fixed rate mortgages on our balance sheet during the quarter
Our home equity loan portfolio decreased 2% sequentially and 7% year-over-year as loan pay downs exceeded origination volumes
Our originations this quarter were seasonally down 14% compared to last quarter and flat year-over-year
Our credit card portfolio grew by 1% sequentially but was down 2% compared to the fourth quarter of 2015 including the impact of the sale of the Agent portfolio in June
Excluding the sale of the Agent Bank portfolio in the second quarter of 2015, our credit card portfolio would have grown by 3% year-over-year in the fourth quarter
The introduction of two new credit card products last October and investments we are making to significantly upgrade our analytical capabilities should lead to faster growth in credit card outstandings
In addition to our new initiatives in credit card lending, our GreenSky partnership should support faster consumer loan growth as well
We started funding loans in October and are confident that our partnership will help us achieve a better balance between commercial and consumer loan growth
Average investment securities increased 3% sequentially in the fourth quarter, partially due to under investment during the previous quarter
Our investment portfolio yield was stable with only a one basis point decline sequentially
We had three top priorities for 2016 in terms of managing our balance sheet
First, we wanted to make material progress in positioning our loan portfolio for improved and stable returns through the cycle; second, we sought to balance our interest rate risk exposure; third, we wanted to maintain a healthy level of liquidity on our balance sheet
We achieved all three goals by focusing on originating loans that met our targeted return requirements, exiting relationships with sub-par risk return profiles and optimizing our mix of liabilities
These objectives will also remain our top priorities for 2017. At this time, we have exited approximately two-thirds of the commercial lending relationships that did not meet our desired profile and have roughly another $1.5 billion to go
Excluding these deliberate exits, we expect to grow total commercial loans by 4% to 5% in 2017. Including these exits, we expect our commercial loan portfolio to grow by closer to 2% at year-end
We plan to maintain indirect auto loan originations at $3.4 billion in 2017 which will likely result in a roughly $1.5 billion decline in that portfolio
Including the impact of the auto run-off, we expect our overall consumer loan portfolio to grow modestly in 2017 on a period end basis
We also expect to maintain our investment portfolio at roughly the same level we are at today
Average core deposits increased 2% sequentially driven by increased commercial interest checking account balances and consumer money market account balances
Excluding the impact of the two market exits, Pittsburgh and St
Louis, average core deposits were up 2% on a year-over-year basis
Inclusive of the impact of the market exits, core deposit growth was approximately 1% year-over-year
Our modified liquidity coverage ratio of 128% at the end of the year was very strong and exceeded the new 100% minimum
Moving to NII on slide six of the presentation
Excluding the impact of the credit card charge, taxable equivalent net interest income increased $12 million or 1% sequentially
Including the charge, NII was down $4 million to $909 million
The impact of the credit card item was partially offset by improved short-term market grades in the fourth quarter and higher investment securities balances
Excluding the credit card charge, the NIM on an FTE basis increased three basis points from the third quarter to 2.91%
The impact of the charge was five basis points resulting in a two basis point contraction in our reported NIM
Fourth quarter margin performance was largely driven by an increase in short-term market rates during the quarter and continued pricing discipline in our loan portfolio
We expect the NIM to widen by approximately 8% to 9% basis points from the fourth quarter reported number to about 2.95% in the first quarter
On a full year basis, we expect the NIM to range between 2.95% and 3%
The low end of the range is based on the rate scenario with no additional Fed moves, while the upper end of the range assumes two additional Fed moves in June and September
We will continue to execute a balance interest rate risk management strategy as we have done over the last three years
Our risk management approach aims to limit a downside impact of low interest rates while maintaining an asset sensitive position
The cumulative increase in LIBOR over the last two quarters, and our ability to maintain pricing discipline have had a sizeable positive impact on our NIM
If the expectations for higher interest rates actually materialize, NIM expansion will be a function of deposit pricing lags and betas
Our disclosures on this topic are very transparent in terms of the impact of various interest rate and deposit balance scenarios
Including the impact of day count, we expect our first quarter net interest income to be up by 1.5% to 2% from the reported fourth quarter net interest income
With the background of our earning asset growth expectations that I detailed earlier, we are projecting full year net interest income growth of 3.5% to 5% bracketed by the two rate scenarios that I just outlined
Shifting to fees on slide seven of the presentation
Fourth quarter non-interest income was $620 million compared with $840 million in the third quarter
Our fee income adjusted for items disclosed in our earnings release was $608 million, up 2% from the adjusted third quarter level
Mortgage banking net revenue of $65 million was flat sequentially as lower production gains were offset by positive net MSR valuation adjustments during the quarter
Originations were seasonally down 5% from last quarter and up 54% year-over-year
During the quarter, 41% of our origination mix consisted of purchase volumes and 59% consisted of refinance volumes
Approximately 70% of the originations continued to be sourced from the retail and direct channels and the remainder were originated through the correspondent channel
Gains on sale were down 51% sequentially reflecting the lower origination volume and 132 basis points aside of gain on sale margin
Net MSR valuation adjustments were positive at $23 million compared to a negative $9 million last quarter
Corporate banking fees of $101 million were down $10 million or 9% sequentially, reflecting the impact of election related volatility from the time of capital markets activity
Decreases in institutional sales revenue and lease remarketing fees were partially offset by an increase in foreign exchange fees
In 2016, we grew our capital markets fees by 14% reflecting strong performance in all of our investment banking products including M&A advisory, equity capital markets and corporate bank underwriting revenue
Additionally, adjusted for a lease residual impairment reported in 2015, our corporate banking fees were up 4% for the full year in 2016. These results suggest that our relationship driven model and our efforts to increase the scale and scope of our product offerings are bearing fruit
We expect corporate banking fees in the first quarter to be stable relative to the fourth quarter
Deposits service charges decreased 1% from the third quarter and 2% relative to the fourth quarter of 2015. This primarily reflected reduced monthly service charges as part of our new consumer checking account line up
Total wealth and asset management revenue of $5 million was down 1% sequentially
Our focus on reducing reliance on transactional revenue has resulted in nearly 80% of fourth quarter fees now being driven by recurring resources versus 73% in the fourth quarter of 2015. Revenues declined 2% relative to the fourth quarter of 2015 mainly due to lower retail brokerage fees
Result of the fourth quarter included $9 million pre-tax gain from the Vantiv warrant exit that we announced during the quarter
With this transaction, we have exited our remaining warrant position and the final tally on our Vantiv warrants is $812 million in pre-tax gains for our shareholders
Our recurring TRA payment of $33 million is also included in our total non-interest income
Third quarter results were affected by the TRA termination and settlement transactions
The Vantiv related transactions during the last two quarters were very beneficial in terms of managing the risk parameters around our financial interest in Vantiv and reducing volatility in our reported results
Excluding mortgage-banking revenue and non-core items shown on slide 14 of the presentation, we expect non-interest income to grow by 3.5% to 4% in 2017. In the first quarter of 2017, on the same basis, and excluding the annual $33 million TRA payment in the fourth quarter, we expect non-interest income to be roughly flat sequentially
In addition, we expect mortgage origination fees to decline by 10% to 15% in the first quarter
Next, I’d like to discuss non-interest expense on slide eight of the presentation
Expenses were well managed this quarter down $13 million or 1% compared to the third quarter to $960 million
As <UNK> stated earlier, we are making good progress in executing on key strategic initiatives while controlling expense growth
For the full year, our expense growth was under 3.5% year-over-year compared to our initial guidance of 4.5% to 5% at the start of the year
We expect expenses in 2017 to be up 1% compared to 2016. Our guidance includes incremental expenses associated with new initiatives under North Star
In the absence of North Star related expenses, we would have expected our total expenses to decline by about 0.5% in 2017. Over the past few months, we have stated that we intend to achieve positive operating leverage in 2017 and today’s guidance reflects that expectation
More importantly, we believe that we will achieve positive operating leverage, even if the Fed decides not to raise interest rates further
Once again, I’d like to remind you that our total expenses includes the amortization of our low income housing investments, which most of our peers reflect in their tax line
In 2016, this line item added 3% to our efficiency ratio
Our first quarter expenses will be more elevated this year relative to other years due to timing of certain expenses
We have changed the grand date for our long-term compensation award this year for all of our recipients which will pull forward about $15 million of expenses from the second quarter to the first quarter
In the first quarter, including a merit increase that will become effective during the quarter, we expect our total expenses to be approximately 2% higher year-over-year
Slide nine has a list of initiatives which we shared with investment community last month
As you can see, we are not and we were not expecting a significant revenue impact from these initiatives in 2017. They are in the execution phase and will be providing support for revenue growth in 2018 and beyond
The important note related to these initiatives is that we are paying for these investments by cutting costs elsewhere
Turning to credit results on slide 10. Net charge-offs were $73 million or 31 basis points in the fourth quarter, an improvement from $107 million and 45 basis points in the third quarter of 2016 and $80 million or 34 basis points in the fourth quarter a year ago
The sequential decrease was primarily due to $36 million decrease in C&I charge-offs
Recoveries during the quarter were down $6 million from last quarter and $1 million from the fourth quarter of 2015. Total portfolio non-performing loans were $660 million, up $59 million from the previous quarter resulting in an NPL ratio of 72 basis points
The sequential increase was driven almost exclusively by a single RBL credit in our energy portfolio that is well collateralized and current on all interest
Our criticized assets were down $354 million quarter-over-quarter
Our criticized asset ratio has steadily declined over the last five quarters and continues to be at the lowest levels since before the financial crisis
The decline in criticized assets and low net charge-offs suggest that the credit quality should remain relatively stable
However, credit losses especially on the commercial side - also on a quarterly basis
Our loss position was $26 million lower than last quarter
Our resulting reserve coverage as a percent of loans and leases of 1.36% was one basis points lower than both last quarter and last year
At the end of 2016, our reserve coverage was among the highest in our peer group and well above the median
Our total net charge-offs in 2016 were $363 million or 39 basis points
Our previous guidance that net charge-offs will be range bound with some quarterly variability is unchanged
Also we continue to believe that our provision expense will be primarily reflective of loan growth
Moving on to capital and liquidity on slide 11. Our capital levels remain strong
Our common equity Tier 1 ratio was 10.4%, an increase of 23 basis points quarter-over-quarter and 58 basis points year-over-year
At the end of the fourth quarter, common shares outstanding were down approximately $5 million or 1% compared to the third quarter of 2016 and down 36 million shares or 4% compared to the last year’s fourth quarter
During the quarter, we executed an accelerated share repurchase of $155 million which reduced the share count by $4.8 million shares, primarily reflecting the decline in unrealized securities gains given the rising rate environment, our book value and tangible book value were down 3% and 4% respectively from last quarter
Book value and tangible book value were up 7% and 8% respectively compared to last year
As I mentioned perilously, our common equity Tier 1 ratio increased by 58 basis points from 9.82% at the end of 2015 to 10.4% at the end of 2016. This result, when combined with 1$ billion capital distribution to our shareholders during the year, demonstrates our ability to generate capital at Fifth Third
As we are now going through this year’s CCAR exercise, it is too early to give you meaningful color on our expectations, but sufficed to say, that we will remain good stewards of our shareholders’ capital
During the past four to five years, we targeted stable capital ratios entering the new CCAR cycle and in near term, we would expect to maintain the same approach
The composition of our capital distribution between dividends and share buybacks will be reviewed and approved by our board
With respect to our taxes, the early adoption of an accounting change had a positive impact on our taxes in the fourth quarter of approximately $6 million
We expect our first quarter and full year 2017 tax rate to be in the mid-25% range
Given the anticipation for meaningful changes in the corporate tax regime, there’s a lot of interest in how potential changes may impact our effective rates
It is clearly very early to confidently predict the nature of these potential changes
Our tax positions are similar to other financial institutions in the form of tax credits associated with low income housing, a small portfolio and a very small mini portfolio in some leasing activities
All else being equal, we believe that we should be able to allow a large percentage of any reduction in corporate tax rates to drop towards bottom line, but it is too early to define on the dynamics of the competitive environment and how that may ultimately impact bank’s ability to retain any potential benefits associated with the anticipated changes
Our 2017 financial plan reflects the benefits from our recent actions and provides the four core initiatives of the North Star
These initiatives will leverage our strength in middle market lending, industry verticals and specialty lending areas in our commercial business
In the consumer business, growth initiatives in mortgage banking, credit card and personal lending will provide support for more balanced growth in our overall loan portfolio
We continue to expand our capabilities in businesses such as capital market, insurance and wealth management which generate attractive returns
Our revenue growth outlook, our ability to achieve positive operating leverage without changing our risk appetite, our ongoing discipline of maintaining a strong balance sheet and a longer term strategic positioning of our business lines together provide a positive backdrop for our shareholders
We have included the updated outlook on slide 12 for your reference and with that let me turn it over to <UNK> to open the call for the Q&A
<UNK>, I think with the flat investment portfolio and the 2% year-over-year growth, earning assets will grow
It’s probably going to be closer to sort of 1% type number as the average the two dollar items
So on fees <UNK>, as we indicated before, we were not expecting much of a lift in 2017. These initiatives are underway, some of them will come to their final phases this year
For example, the mortgage system will go online the fourth quarter of this year, there are others on the capital market side
We are gradually executing that includes potential insurance etcetera
So our expectations with respect to fee income were focused on growth in 2018 and beyond
We have significant investments in our credit card and personal lending areas that would be encouraging both from a fee side as well as the balance sheet side in 2018 and 2019. So, my overall comment is whether it’s NII or fee income, in 2017, you are seeing the results of what we have done so far through the end of 2016. On the expense side, we clearly have started executing some of the expense initiatives earlier in 2016. Now if you include some of the exit strategies in commercial in 2017, those are more negative than positive for NII as you can imagine from – just the pure 2017 calendar year perspective
So that’s why some of the 2017 guidance appears to be a bit more muted, but we are pretty optimistic as we look forward into ‘18 and ‘19.
Yes, the mortgage income we expect the origination income to be 10% to 15% above I think we said last year’s levels
And that’s purely obviously was just an impact of interest rates actually in mortgage a number of our efforts as we get closer to year-end will boost our ability to support a higher origination level
We just need to manage that transition period between higher interest rates and our new system coming online in an efficient manner
That’s for sequentially, adjusted for the TRA payment and mortgage, flat sequential Scott
Yeah so without necessarily giving a precise guidance on total provision dollars, I would point out that this quarter’s provision as lower due to one significantly lower commercial charge off dollar number and two, the EOP over EOP declined in loan balances
So as loan balances grow, you clearly are going to – with these releases of growth in that line item and then <UNK> just talked about overall in terms of charge-off expectations
So I wouldn’t necessarily take the $28 million commercial charge-off and project that over the entire year on a quarterly basis which will guide your provision expectations a little bit
Thank you
I think we gave some indication as to how we go from the current level – I think the number that we’re looking for 2016 in terms of core ROTCE is probably about 10%
So, - and we will take you and I think we’ve given you some examples as to how that 10% gets to 12% to 14% and the combination of expense saves, balance sheet – and fee income growth
And <UNK> we will continue to clarify that path as we execute these initiatives
But obviously the current environment, it materializes whether it’s with respect to interest rates or the tax rates, our expectation is that we would clearly be closer to the upper range of that guidance because we clearly stated that we would reach the lower range of our guidance with no rate increases and a meaningful change in the environment
To kick off you mean for 2018 guidance?
I mean I think I don’t have the exact sort of necessarily split in terms of the revenue pick-ups in front of me right now, but you will start seeing those lifts as we get near the end of this year
The few areas where I think it will be more visible clearly personal lending will be one
I think as we sort of finalize the analytical investments in credit card lending, you will start seeing that in 2018. I think you will start seeing capital markets, you will also in addition to that seeing the impact of sort of the exits this year of $1.5 billion left will be coming to an end, so that will provide a built-in improvement in loan growth into 2018. So those are all pointing to a pretty good 2018, but we will continue to provide more details as this year goes on
I don’t have that number right in front of me, <UNK> but we will again just give us some time and we will quantify that
Correct
| 2017_FITB |
2016 | UTX | UTX
#Let me start and I will let <UNK> bail me out at the end.
Right now, as we look at Pratt, we wanted to be very specific.
There's $300 million of additional negative engine margin on top of probably $100 million, or half of that pension headwind that <UNK> mentioned, so a $400 million headwind.
It's just hard to see, even with better aftermarket next year and better military, hard to see how Pratt is going to grow earnings.
So we actually expect them to be down.
E&D I think is the other challenge at Pratt where we had expected it to be down next year.
With the timing of all these programs moving to the left a little bit, we are continuing to see pressure on E&D.
So one of the offsets that we are just not going to see until probably 2018 and 2019 is E&D.
As far as overall UTC, again, we are not quite ready to give guidance as you can imagine.
We are still going through the detail of the plans from all the units and there's a lot of moving pieces.
Clearly, we are going to get a benefit from share buyback, but it's probably not going to offset the negative engine margin and the big pension headwind that we have.
I think that's why, as we look at it today, it's hard to paint a picture where we could see earnings growth at UTC next year.
Right.
And my comment, <UNK>, was about EPS, not so much just about segment EBIT because obviously with the pension of $200 million, the negative engine margin <UNK> talked about; keep in mind the interest expense will be higher next year by about $100 million as well just based on the fact that we need to be in the market to borrow money to fund the share buyback.
So even the share buyback will be a significant benefit year-over-year.
In terms of lower share count, we will lose some of that through higher interest expense.
My crystal ball gets really cloudy beyond about six months.
I would tell you, <UNK>, we are on track with what we've laid out for the 2020 goals, which would show profitability starting to improve in 2018 and 2019.
And as you know then first aftermarket, or first big overhauls on the GTF are around 2020.
So we expect earnings growth to pick up in 2018.
I'm not going to give you a number here, but clearly with the aerospace ramp continuing, there's going to be some challenges, negative engine margin and the mix at UTAS, but those things should be overcome by lower E&D and higher aftermarket as well as growth on the commercial side.
Keep in mind, on the Otis side, we are also going to be investing for the next couple of years.
Philippe has laid out a plan to restore some growth to Otis, top-line growth.
That's going to require some investment in the salesforce.
It's going to require some significant investment in E&D to refresh the productline and from a system standpoint, we need to spend money on these digital initiatives.
So there is going to be headwind next year beyond just what we've laid out.
All of those things would start to pay off in 2018 and 2019.
So, again, we are trying not to surprise anybody with the 2017 outlook, but we are on track to exactly what we talked about back in March about the 2020 outlook.
Great questions, Jeff.
So, on the first one, the math for 2018, there is growth in the negative engine margin on GTFs clearly, but they will benefit from us coming down the cost curve.
But the fact which you may not be thinking about is that the CEO engines, or the V2500s, will be coming down significantly from 17 to 18 as will be the GP7000s and both of those carry negative engine margin as well.
So while GTF will grow, the others will come down and that's not something that's happening in 2017 as much.
So that's the other fact which will keep the incremental GTF incremental negative engine margin at Pratt within the $100 million range.
On the second question on working capital, again, I think we have been very clear about this.
There is probably a year or two more as we ramp up as we take the engine productions up at Pratt net-net.
There is going to be demand on inventories.
We will continue to see some improvement as the supply chain stabilizes in inventory terms, but, in absolute dollars, there will be some demand on that, as will there be demand on CapEx for another year or two where we will probably spend significantly ahead of our depreciation.
But after that, we start to feel ---+ we are back to the 100% of net income or more.
The fundamental thing, Jeff, to keep in mind is that each and every one of our business units has the structure to deliver 100% or more free cash flow to net income.
It's just this temporary phase of significant investment we are making to meet the production requirements coming up and that's keeping some pressure on it.
Otherwise we are in very good shape.
90% or close thereabouts this year, about 100% last year in face of these investments is not a bad number.
You've got a second part to it, <UNK>, or are we going (inaudible).
Yes, sure.
Well, let's start out on the North America residential.
Obviously, it was a good year.
It's interesting, the weather was very hot throughout the summer and yet we really didn't see much traction in residential until September when the dealers were forced to restock inventory.
So it was a good quarter, but I think there is still some concern out there about the legs left in the housing market.
As we look at it, household formation continues to be very, very strong at about 1.2 million a year.
That's going to grow.
If you think about 1.2 million housing starts, 20%, 25% of the resi business is for new construction and I think that should remain on track.
I think more importantly, it's the aging of the installed business out there that is going to really drive growth.
There's over 100 million split systems installed in the US.
Average life is somewhere between 10 and 15 years depending upon where you live and how much you use the equipment and that is again the big increases that we saw back in the early 2004, 2005 when the market was 7.5 million units a year.
Those units are approaching the end of their useful life.
So I think we should continue to see well above GDP growth in resi for a couple more years here.
So I'm not at all discouraged here.
I think it's a really ---+ we are in a very good place.
We've got great products; very high efficiency systems and there is a big push I think to continue to gain share there.
As far as the structural cost reduction, <UNK>, there's always things to do.
I think Dave Gitlin and the team down at the Aerospace Systems business in Charlotte have been focused on it.
I'm reminded, since we acquired Goodrich back in 2012, four years ago, we've realized about $600 million of synergies.
We've closed more than 30 factories.
There are still more factory consolidations to come.
I think there's also structural cost opportunities in the aftermarket down at the Aerospace Systems business.
We have a very large number of overhaul and repair shops around the world.
I think Dave is working on opportunities there.
So more to do at Aerospace Systems.
Clearly Bob McDonough and team are looking at ways to continue to reduce costs in the very competitive markets that we are.
Probably no more big plant closings there, but still executing on what they've got out there already.
And the same is true on Otis.
I think they are consolidating their engineering footprint to three major engineering centers from over 15 today.
That will help reduce structural costs.
We are also focusing on trying to consolidate the service supply chain.
We've got over 60,000 suppliers in Otis's service network and there's a huge opportunity there to reduce costs structurally.
The one place I'm not going to be reducing structure is probably Pratt over the next couple of years.
They've done a heck of a job over the last six or seven years taking overhead costs out.
Their SG&A is like 5%.
So, right now, for Pratt, it's about probably adding capacity.
But we are going to continue to look for ways to take costs out everywhere from the corporate office, to the aftermarket, to the supply chain.
Sure, <UNK>.
So I think the reported numbers would say UTAS aftermarket grew by ---+ commercial aftermarket ---+ grew by about 2%, but we had the benefit of 4 points from last year's contract closeouts.
So I think the trend rate would be about 6%, which seems more in line with the normal world.
We've always said that the long-term growth rate for commercial aftermarket in the UTC Aerospace Systems business should be mid-single digit and this quarter felt like that.
There was some benefit in provisioning that we saw with some new programs coming in, but that's in the range of a point or so.
So I think I would say very normal type of a quarter.
The trends seem reasonably okay and good.
Obviously, for the full year, we are expecting low single digit growth at UTAS and we still feel comfortable with that.
On the Pratt side, a lot of the growth has been coming on the V2500 engine.
As we've talked about before, there are two factors driving it.
One is the service bulletin, but more importantly it is about time now that the first overhauls for the V2500 select five engines start to come in.
We have seen the average age of a V2500 at about eight years, and 50% of those engines had not come for overhaul.
So they are starting to come into the shops now, which is helping on the commercial aftermarket there.
I think overall I would say it's a normal, what you would expect kind of a trend in commercial aftermarket.
Well, let's start with Pratt, <UNK>, and again, not to be more specific than we already have been, there is $400 million of headwind, but there will be growth in some of the other parts of the business to offset some of that at Pratt specifically.
So we are not going to just mail in Pratt and say they are going to be down $400 million to start.
We've got work to do there and we will continue to work through the end of the year to make sure we've wrung out every penny we can in terms of their forecast for next year.
The other headwind, the pension headwind is real, but it's real today.
We will have to see where rates are at the end of the year.
It moves us around a lot, as you can imagine.
Obviously, this pension transaction that we did earlier this quarter is just our way to start trying to reduce that big liability that we got out there.
We got $1.7 billion off the books, but, as I say, there's more to come there.
I think we are going to continue to look for ways to immunize the plan to try to avoid some of the pressure that interest rates put on us.
And interest rates, it's not just pension.
It's all the other long-term liabilities also add cost.
So we've got a long way to go on the plan.
Clearly, we should see growth at CCS.
We are pushing obviously the Aerospace Systems business to grow.
They are going to have a pension headwind though as well.
And Otis, again, probably a tough year next year as we continue to invest in E&D and systems and all of that.
But we will see.
We are going to get benefits out of share count.
We will see.
I think there's just a lot of moving pieces yet.
It's also part of that ongoing customer contract negotiations, <UNK>, so that's pretty normal for us to see that where the sales adjustment comes as part of the collaboration accounting that happens on the risk revenue sharing partners.
I won't give you a specific number.
I will tell you that we expect more than double, so probably north of 300, 350 units.
Well, I think you're right about the negative engine margin.
I'm not sure how you are calculating the fourth-quarter margin rate.
Yes.
Right, right.
We can talk more off line, <UNK>, on that one, but I think there is ---+ you know the factors which are going to impact Pratt in the fourth quarter.
The negative engine margin is one.
We don't see E&D coming down that much in the fourth quarter.
There is obviously some benefit at Pratt Canada.
We continue to see FX good news, pension good news.
Net-net the math would get you to the fourth-quarter number, which is easy to calculate now.
Yes.
It is net, <UNK>.
It was supposed to decline by $100 million, not $150 million.
I think we talked about that before.
So this is the net because ---+ just the discount rate change in UK and US is pretty significant, as you know.
It's not just US.
UK has seen significant reduction in discount rates as well and we have a pretty significant pension liability in the UK markets as well.
So it's a combination of that.
The $200 million is the net number based on discount rates today.
As <UNK> said, that can change, again, depending on what happens with the Fed and what happens on December 31.
So in terms of marketshare, the key thing, <UNK>, there is ---+ the biggest market, as you know, is China.
We see China is about 50% of the new equipment market still.
In terms of units, it's even larger and there, based on the data that we have talked about for the three quarters, our unit orders have been up 3% where we firmly believe the market has been down 5% or more.
So, clearly, we are seeing some benefits in the marketshare in the China business.
I would say even though the data is not quite there from industry overall, but given the strength we have been seeing in our orders in Americas, we have been doing extremely well there and I would venture that we are gaining significant share in Americas.
And then in Europe, the order rates are up 21% this quarter, which suggests that, again, we are probably doing better than market.
So net-net, the initiatives that Philippe has laid out, particularly on the new equipment side, are starting to show up this year.
Yes, I think pricing has been very, very difficult for the last couple of years in China.
We've been talking about that.
We actually started to see some stability here in the third quarter on pricing as the market continues to be relatively robust, especially in the tier 1 and tier 2 cities.
Pricing is an issue really across the Otis portfolio, but is obviously most acute in China.
US, I think we are doing a little bit better.
Pricing in Europe continues to be tough and I think we continue to lose a little bit of pricing on the service portfolio every quarter.
So the key for us and for Otis to turn this around is to make sure we get that service stickiness, so we see the cancellation rates come down, and we also improve the productivity of the field workforce.
So there's a lot to do at Otis.
It's not just about pricing.
There's some structural things we need to do, but I think Philippe and team are on the right track.
And keep in mind, <UNK>, that the China team for Otis, particularly, is very good at taking cost out from the supply chain as well.
While we see pricing pressure every year, they have also been able to extract cost reductions from supply chain.
So they will continue to do that.
They continue to push productivity in the factories there and they will offset at least part of the pricing pressure that we have seen.
Q3 pricing was not any worse than what we had seen year-to-date, so it seems to be stabilizing a little bit.
Still much higher than what we saw last year, but down 7% to 9% as opposed to the 4% to 5% that we used to see before.
So, great question, <UNK>.
We've always said that, for Aerospace Systems, the adverse mix would be the biggest headwind in 2017.
It starts to become better from 2018 onwards, but the UTAS team is also working very aggressively on cost reductions.
You can see it from this year's performance.
They are doing extremely well with regard to the plan that Dave Gitlin laid out.
They are very much on track with it, and I think the same thing will hold for next year.
They will be offsetting a large part of this adverse mix issue that they have with the changeover from legacy platforms to the new generation aircraft with the lower margin products replacing high-margin legacy products.
But we do expect UTAS to do very well in terms of being able to offset a large part of that mix in 2017.
No, I think it's more of what you said first, which is easier comps in fourth quarter.
If you remember this quarter, we had the negative adverse impact of the FX mark-to-market adjustments.
Last year in fourth quarter it had gone the other way.
So, therefore, we get some easier compares, which are relatively easy to forecast and that's why we feel comfortable with the Otis guidance for the year.
And I think just to add just a bit of color there, <UNK>.
The fact is these fixes that we are talking about at Otis, this is nothing you are going to see come through in the P&L right away.
Even if we improve on the new equipment side, it takes us 18 months to install the elevators.
We give free service for a year.
You are really talking two to three years out before you really start to see big traction on the new equipment side.
Service productivity will be a little bit faster, but again we are making more investments than we are seeing on the productivity site initially.
So a little bit of patience on the Otis side, I think, but on the right track.
All right, I want to thank everybody for listening in today.
I appreciate that.
As always, <UNK> and the investor relations team will be available all day to answer your calls.
I would ask that you go easy on our new guy, Carroll Lane, as he comes up to speed, but I'm sure he's looking forward to meeting with each and every one of you.
So thank you very much and have a wonderful day.
Take care.
| 2016_UTX |
2017 | AAP | AAP
#Thank you.
We're pretty much done, <UNK>.
We executed that in the third and fourth quarter.
Feel really good about it.
Our stores are getting better service.
Their accuracy it is up.
The fill rates are up.
And primarily, I think you'll recall, that was in the Northeast, so we're done.
Again we're working a little differently than we have in the past, <UNK>.
We're starting with the customer, and we're working back.
And the deployment strategy of when in doubt build a super hub, we're just not doing that anymore because it doesn't necessarily give us what we need to serve the customer better.
So we've rethought the supply chain and the fulfillment process from the customer back, and we're looking at it in the context of what we believe is important for our DIY'ers and what's important for the professional customers, and we're building it out from there.
And again, it's not just about, gee, I got a hub, I've got a super hub, I've got stores.
I have 40 million square feet of fulfillment centers that I'm going to use to get my inventory positioned properly, and I'm going to get it in a place to where I can get it to the customer faster and more accurately and reliably and predictably than before.
So it's a bit of a terminology shift for us.
I appreciate that from your side of the desk.
But we're really excited about that approach, and so are our people.
Well, good question.
First of all, we are really reliant on our suppliers.
They are really partners to us in this journey.
<UNK> can speak to some of the ones that we've forged the strongest partnerships with over the years.
But I can tell you, all of them want to see AAP do well in the marketplace.
I think that's important for them, and it's important for us.
And we want to see them do well.
It's really important that their partnership allows us to really drive our agenda.
We have a wide range of brands in our house with <UNK>'s leadership of WORLDPAC, with our private label at Autopart International, with the many branded players that we have.
They are critical for our success.
So we've been very excited about how engaged they've been as we've built out our journey, and we're going to build on that.
I think there's an opportunity for us to forge even deeper relationships with our supplier partners, and you can count on us to do that going forward.
Sorry.
Segment performed better to what.
Sorry, <UNK>.
Yes, we saw it in both, and it was proportionately similar.
We've had really good success, as <UNK> alluded to, in the professional side, regaining momentum with professional customers, picking up more customers, and also selling more to the customers we have on the professional side.
On DIY, honestly, our team members are really helping us here.
They've always wanted to serve our customers better, and we're now giving them the tools to do that.
We measure our performance there, obviously, in terms of our customer hot line.
We measure it in terms of social media reviews.
I can tell you, our social media reviews in DIY are up by a factor.
Not by percentage terms.
They are up by a factor.
And we're really excited about that because our team members are really putting the customer first and they are caring about them, as are our independent partners.
So when we put the customer first on the professional side, we gain more business, and when we do so on the DIY side, we earn that extra trip, that extra item in the basket.
So we're growing proportionately with the two groups, and both are critical to our long-term success.
Well, I'd like to thank all of you for joining the call.
As we step back and think about 2016, it was a challenging year for Advance.
Our team members experienced just a tremendous amount of change last year, starting with my appointment in April.
But given the level of changes we implemented, I'm very encouraged with the overall progress.
And I'd like to thank all of our team members and all of our independent partners who care for our customers every day out there in the marketplace.
They are putting the first back in customer first.
And it was really their dedicated commitment and focus on the customer in the back half of the year that enabled us to deliver a strong finish and a positive top line that improves share.
So going forward, our overarching focus is clear.
We're going to put the customer first.
We're always going to do that.
And our goals remain clear.
And we plan to accelerate sales growth to above the industry average, and we're going to close the margin gap versus our competition.
So to achieve it, we're evolving the culture of the Company, and one that's excessively focused on the customer, and one with an exceedingly high level of accountability, ownership, and drive for results.
So we're really excited about 2017.
We'll be working with a high level of urgency to deliver on our objectives, and we look forward to updating you again on our progress next quarter, and thanks again for joining our call.
| 2017_AAP |
2016 | XOXO | XOXO
#Yes, <UNK>.
If I could just give you ---+ we haven't been breaking the numbers out specifically, but if I can just give you the bigger picture.
The two big transactional opportunities we have is helping our couples engage with their local wedding professionals and helping our couples connect their guests to the transactions they need to create.
Registry is the biggest component of guest transactions, but not the only one.
You're also seeing us start to connect our guests to transactions like booking their hotel room box when they're coming in from out-of-town for their wedding.
Because the local transaction business is just getting up and running, because the registry business is the one that's had the most history in the Company and because we're now enjoying the benefits of product investments we made into that registry and that overall guest ecosystem over the last couple of years, you're seeing that registry at the moment is the biggest driver of that overall number.
If you look at the broader picture of the total addressable market and the value that we can create in the years ahead, the local transaction business ends up creating the opportunity to be the big driver.
Your point is very well taken, and we continue to have a conservative perspective on the publishing business.
What we really want to do is be managing that business to be a smaller and smaller portion of the business so that the declines that we would expect in the industry for publishing won't be as impactful to our numbers and as much of that drag.
What I think we've said in the past and I think it bears repeating here is that we continue to think that transactions will be our fastest-growing revenue line followed by the online advertising space, even with the local productivity issues we've discussed here.
And then publishing, we continue to have a conservative view on that business and would have you model that as declining.
Thanks, <UNK>.
<UNK>, thank you for the question, and it's an insightful one because the success of our marketplace ultimately comes down to our continuing ability to please our consumers and our users and connect them with the solutions that they need.
One of the numbers that is available to everyone, so we'll often reference it, is just our ability to drive audience at the top line.
You're now seeing that across XO Group; we have the highest number of comp score uniques that we've ever had.
That number is ---+ I'm looking to pull it up.
It's right around 20 million for the total enterprise and it's close to 12 million uniques for The Knot, which is, as we've referenced before, tends to be a number that's larger than our next four or five competitors combined.
The signal that is one that you guys are able to see on the comp score level, as well as a really positive one and suggests that the continued investment that we're making in our products is paying off in terms of drawing our audience in and engaging our audience.
It's a really good question, <UNK>.
I think when I look at the Q2 OpEx, there's a couple of things that moved it sequentially that I would have you consider.
The first one is that Q2 typically does have our highest adjusted EBITDA margin because of the sequential seasonal uptick in revenue, so there's just a little bit of that growth you can't grow the OpEx as fast.
Hiring was up in the quarter, roughly 20 or so folks.
You'll see that in our investor deck when it goes up on the site.
But much of that came at the end of the quarter, so we just didn't see the expense hit the numbers.
And then there is just one accounting thing that I would have think about a little bit.
If you look at our AR balances and our ARDSO, we've been able to take the ARDSO back down to levels we had in early 2015.
There is a corresponding decline in bad debt expense that we saw from Q1 into Q2 that probably depressed what those OpEx numbers look like.
I think as we move forward, you'll have the hiring be there and the investments you want to make in the business.
And as we said, we really want to target that adjusted EBITDA margin target to do exactly what you mentioned, which is invest.
Because our real goal here with the Company is to grow the Company faster, and we have a lot of confidence in our ability to make that happen over time and we want to invest against that.
| 2016_XOXO |
2015 | BBBY | BBBY
#Thank you, Bakeba, and good afternoon everyone.
With me on the call to review our first quarter fiscal 2015 results are <UNK> <UNK>, Bed Bath & Beyond's Chief Executive Officer, and <UNK> <UNK>, Chief Financial Officer and Treasurer.
Before we begin, I would like to remind you that this conference call may contain forward-looking statements, including statements about, or references to, our internal models and our long-term objectives.
All such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today.
Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties.
The Company undertakes no obligation to update or revise any forward-looking statements, as events or circumstances may change after this call.
Our earnings press release, dated June 24, 2015 can be found in the Investor Relations section of our website, at www.bedbathandbeyond.com.
Here are some highlights from the press release.
Please note that our first quarter financial results were within our previously stated model range: First quarter net earnings per diluted share were $0.93.
Net sales for the quarter were $2.7 billion, an increase of approximately 3.1% over the same period last year; and Quarterly comparable sales increased by approximately 2.2%; or 2.5% on a constant currency basis.
The Company continues to model fiscal 2015 net earnings per diluted share to be between relatively flat and a mid-single digit percentage increase.
<UNK> will discuss our quarterly financial results and provide an update on our 2015 model later in the call.
Our first quarter performance reflects the core strength of our business across all channels and concepts.
We are pleased that our ongoing investments to enhance our omni-channel shopping experience are producing meaningful benefits for our customers and associates.
Let me now turn the call over to <UNK>.
Thank you, <UNK>, and good afternoon everyone.
I\
Thank you, <UNK>.
I'll start with some first-quarter financial highlights.
As a reminder, the first quarter typically accounts for the smallest portion of our annual net sales and earnings, so any fixed costs, as a percentage of net sales, are relatively more pronounced in the first quarter than they would be in any of the other three quarters.
Overall, we are pleased with our fiscal first quarter results.
Net sales for the first quarter were approximately $2.7 billion, approximately 3.1% higher than net sales in the prior-year period.
Of this increase, approximately 70% was attributable to the increase in comp sales and the remainder was primarily from new stores.
Our comparable sales in the first quarter increased by approximately 2.2%, attributable to increases in both the average transaction amount and the number of transactions.
As anticipated, year-over-year Canadian currency fluctuations unfavorably impacted our comparable sales by approximately 30 basis points in the first quarter.
Gross profit for the first quarter was approximately 38.1% of net sales, compared to approximately 38.8% of net sales in the corresponding period a year ago.
The primary factors contributing to this decrease, in order of magnitude, were first, an increase in coupon expense, due to an increase in redemptions, partially offset by a slight decrease in the average coupon amount, and second, an increase in net direct-to-customer shipping expenses.
Selling, general and administrative expenses for the first quarter were approximately 28.1% of net sales as compared to 27.5% of net sales in the prior-year period.
This increase in SG&A as a percentage of net sales, was primarily attributable to higher technology costs, including related depreciation, and an increase in advertising expenses due in part to the growth in digital advertising.
Consistent with our previous model and reflecting the movement in gross profit margin and SG&A expenses, the first quarter operating profit margin of 10% was approximately 130 basis points lower when compared with the same period last year.
Net interest expense of approximately $19.9 million in the first quarter relates primarily to interest associated with our $1.5 billion of senior unsecured notes and the interest from our sale/leaseback obligations related to certain distribution centers.
Our tax rate for the first quarter was approximately 37.5% compared to approximately 37.4% in the first quarter of fiscal 2014.
The first-quarter provisions included net after-tax benefits of approximately $1.5 million this year and approximately $1.8 million last year due to distinct tax events occurring during the quarters.
Considering all of this activity, net earnings per diluted share were $0.93 for the first quarter of fiscal 2015 and in-line with our modeled range.
Turning to the balance sheet: As of May 30th, 2015 our cash and cash equivalents and investment securities were approximately $793 million.
Retail inventories, which include inventory in our distribution facilities for direct-to-customer shipments, were approximately $2.8 billion at cost, an increase of approximately 5.3% compared to the end of the prior year period.
This increase includes an initial investment in inventory related to our newest Las Vegas distribution facility which opened during this quarter.
Retail inventories continue to be tailored to meet the anticipated demands of our customers and are in good condition.
Capital expenditures for the first three months of fiscal 2015 were approximately $72 million and included expenditures for technology enhancements, new stores, existing store improvements, and other projects.
Consolidated shareholders' equity at the end of the first quarter was approximately $2.6 billion, which is net of approximately $385 million, representing about 5.3 million shares of first quarter share repurchases.
The Company's current $2 billion share repurchase authorization had a remaining balance of approximately $499 million at the end of the first quarter and is expected to be completed in early fiscal 2016.
As a reminder, this repurchase program may be influenced by several factors including business and market conditions.
Since our first share repurchase authorization back in December 2004 and through May 30th, 2015, the Company has returned more than $8.9 billion of cash to shareholders through repurchases, representing over 167 million shares, and we have done this during a period of significant capital investment in the future of our Company, while continuing to generate significant operating cash flow, and maintaining a solid balance sheet.
Now I'd like to turn to our planning assumptions for the second quarter and full year, which include the following: We are modeling a 2% to 3% increase for comparable sales for the second quarter, and continue to model a 2% to 3% increase for the back half of 2015.
Net sales will exceed the comp sales percentage increase by approximately 70 basis points in the second quarter, and by approximately 110 basis points for the back half of the year.
This modeled comp sales range of 2% to 3% includes an unfavorable impact, for both the second quarter and back half of the year, of about 20 to 30 basis points due to modeled year-over-year fluctuations in the foreign currency exchange rate related to our Canadian operations.
Assuming these sales levels, gross profit is modeled to deleverage for both the second quarter and full year.
Contributing to the modeled gross profit deleverage are increases in both coupon expense and net direct-to-customer shipping expense.
As we said previously, we are modeling the fiscal 2015 deleverage in gross profit, as a percentage of net sales, to be less than it was in 2014.
SG&A is also modeled to deleverage for both the second quarter and full year, which includes increases in technology related expenses and investments in compensation and benefits.
Also contributing to the full year deleverage is the non-recurring benefit relating to the credit card litigation settlement, which occurred in the third quarter of fiscal 2014.
Depreciation expense continues to be modeled in the range of approximately $255 million to $265 million for the full year.
Annual interest expense is now anticipated to be approximately $81 million, primarily resulting from the interest related to the $1.5 billion of senior unsecured notes and the interest from our sale/leaseback obligations related to certain distribution centers.
The second quarter and full year tax rates are estimated to be in the mid to high 30s% range, with an expected variability as distinct tax events occur.
Based on our model, we expect to generate positive operating cash flow.
Capital expenditures in 2015 are planned to be approximately $375 million to $400 million, which remains subject to the timing and composition of projects.
Our technology-related projects represent nearly half of our planned capital expenditures for the year, and include the deployment of new systems and equipment in our stores, enhancements to our omni-channel capabilities, ongoing investment in data analytics, the continued build out and utilization of a data center in North Carolina, and the continued development of a new point-of-sale system.
In addition to our technology-related projects, capital expenditures also include the opening of approximately 30 new stores company-wide, including the five we have opened to date; and our new Customer Service Contact Center that <UNK> previously mentioned.
We will also continue our program of renovating or repositioning stores within markets where appropriate.
As a reminder, we anticipate an increase in the number of new stores and repositioned stores that will be self-developed this year compared to last year.
As such, we will incur incremental capital expenditures for the construction and other improvements.
As you may know, this is not a new strategy for us, but is a decision made on a project by project basis, to optimize our real estate occupancy expense structure.
As part of our strategy to renovate or reposition stores, we seek opportunities to leverage our broad merchandise assortments from all of our concepts.
We have been creating specialty departments within our stores in categories such as health and beauty care, baby, specialty food, and beverage.
At Bed Bath & Beyond stores alone, we have nearly 200 locations that have one or more of these specialty departments, and we continue to model approximately 15 Bed Bath & Beyond stores to add at least one specialty department this fiscal year.
And, we will continue making enhancements to our distribution and ecommerce fulfillment centers to improve capacity and productivity.
Regarding our current $2.0 billion share repurchase program, we plan to continue to repurchase shares and estimate this program to be completed by early fiscal 2016.
This repurchase program, however, may be influenced by several factors including business and market conditions.
We are now modeling full year diluted weighted average shares outstanding for 2015 to be approximately $167 million, subject to the timing of our share repurchase program.
Based on these and other planning assumptions, we are modeling net earnings per diluted share to be in the range of $1.18 to $1.23 in the second quarter, as compared to $1.17 in 2014.
For the full year, we are continuing to model net earnings per diluted share to be between relatively flat, and a mid-single-digit percentage increase, as compared to 2014.
Our 2015 model incorporates an unfavorable Canadian currency exchange rate impact of approximately $0.05, including about $0.01 in the first quarter, based on a modeled 2015 Canadian currency exchange rate of approximately 1.25 Canadian dollars to each US dollar.
In summary, our balance sheet and business fundamentals remain strong, and we believe, with the strategic investments we are making today, we are well positioned for the future.
As we've said before, this is an exciting time for our Company and we continue to manage our business for long-term growth and profitability.
And finally, we plan to report our 2015 fiscal second quarter net sales and net earnings results on Thursday, September 24th.
I would now like to turn the call back to <UNK>.
Thank you, <UNK>.
As we repeatedly say, our ability to interact with and satisfy our customers wherever, whenever, and however they express their life interests, and travel through their various life stages is our strategic imperative.
This has been our mission for the past 44 years and it continues to be the foundation for everything we do.
In today's ever-evolving retail environment, this approach has never been more important.
In understanding and satisfying our customers' needs and wants, we believe the whole is greater than the sum of our parts, which gives us a powerful retail model that will enable us to further refine our relationships with our customers.
Our shared-services model has been one of the foundational pieces of our organizational structure since we made our acquisition of Harmon back in 2002.
The knowledge and best practices afforded us by our shared services model ultimately allows us to most efficiently drive a better and more robust customer experience.
By leveraging our corporate infrastructure for many functional areas where appropriate, we are able to do more for and with our customers, while optimizing efficiencies and profitability across our Company.
We look to continue to leverage the capital investments we make in one area of our business across all our concepts, channels and countries in which we operate.
We see this across our Company in areas such as technology, analytics, marketing, logistics, real estate, product development and merchandise assortment.
For example, as <UNK> mentioned, we leverage our broad merchandise assortments by creating specialty departments within our concepts in categories such as health and beauty care, baby, specialty food, and beverage.
We also gain economies of scale as we optimize our store operations and market coverage, resulting in favorable advertising and real estate opportunities.
This is a model that we continue to improve upon through our ongoing investments in disciplines such as analytics, target marketing, logistics and information technology.
As I said earlier, this is an exciting time for our Company and we are excited about our future.
We are confident that we are making the appropriate investments to position our Company for long-term profitable growth, and to further enhance shareholder value.
In closing, I would like to thank our more than 60,000 dedicated associates for all of their efforts which drive our Company's success.
It is their passion to succeed and satisfy our customers, that enables us to continue to do more for and with our customers wherever, whenever, and however they wish to interact with us.
Thank you for listening today and for your continued interest in Bed Bath & Beyond.
<UNK>, <UNK> and Ken Frankel will be here tonight to answer any questions you may have.
| 2015_BBBY |
2015 | ASGN | ASGN
#Right.
So I think what we said publicly, Toby, is we think that we can get to 2.5 before the end of 2016, and probably think sooner than later.
When we first started saying that, we thought we'd say at the end of 2016.
If things continue apace, the way they are right now as far as EBITDA growth and cash generation, we think we'd get there sooner in 2016.
As we've always told you ---+ as well as the credit rating agencies and our investors ---+ anytime we're at 2.5 times leverage, I think the future cash generation is better served either being returned to shareholders in the form of share purchases or, if we can identify an attractive asset, acquiring another business.
So there's a real upside to us delevering quickly.
We are creating equity value.
We're reducing our interest expense.
But most importantly, we're positioning ourselves to retain our credibility with our stakeholders with our stakeholders and be able to do share purchases and acquisitions.
Subsegments of technology, clinical research, and creative.
But we're not going to get into foreign language translation or anything like that.
I would just tell you it's subsegments.
We gave the numbers in the prepared remarks.
And let me just give you the absolute number, if I can find it.
We'll have more to say about that next year.
We are winding down on a couple of things ---+ one is an integration of our European operations, and also an integration of some domestic visions into the Oxford segment.
But yes, there's going to be some efficiencies gained.
And we'll have more to say about the actual effect of that when we give some guidance on 2016.
As it relates to the numbers that you asked for on headcount: excluding Creative Circle, the ---+ and this is average number for Q3 ---+ was 2,039.
And that's up from 1,720 in the third quarter of 2014.
Thank you.
You know, <UNK>, it's a great organization that was built by a couple of great people.
And they put underneath them a great second tier.
So one of the endearing features of the business beyond its great margins and the great end market was ---+ they were our kind of folks, great people.
And they feel empowered.
It's been a net positive for everyone and our shareholders.
But for our new employees, they are now participants of our employee stock purchase plan.
The first window just opened for them.
They are seeing the ability to participate in the growth of the equity of the Company, and the Company doesn't have to be sold to get liquidity in their holdings.
A lot of city managers and others are receiving equity awards on an annual basis.
And so we've, so to speak, equatized them.
And they are now part of our programs.
And there's no sales channel conflict.
We've had a lot of events in the marketplaces, and creating awareness, and there's very good esprit de corps.
We have not lost anyone because of the acquisition.
You know, they have a number of employees.
Have we lost some people because of relocation or want to stay at home.
A couple, but all in all it's a net positive.
And the cooperation and the collaboration has been very good.
And that's why you see not a deceleration in the revenue, a continued healthy growth rate and margin.
I mean, they grew 22.6%.
So, <UNK>, I will go ahead and respond.
We saw, as <UNK> said earlier, growth across the board ---+ double digit growth, as we said, in all the industries except for government.
Technology, business services were particularly strong.
Financial services particularly strong, considering some of our best or top accounts were not giving us a lift.
But it was pretty much across the board, I would say.
In terms of industrial activity, are you talking about ---+ what ---+ consumer industrial companies.
That unit also grew, not the oil and gas portion of it, but the other parts of it did grow.
In consumer and industrial.
No.
Nope, double-digit growth.
<UNK>, on that one, what we were referring to is not that a customer said we price our business 300 basis points lower than we used to, and we say no, and someone else picks it up.
And without naming banks, there are a couple of banks that have cut their spend with all vendors by 50%.
On ebb and flow with specific banks.
It's pretty broad-based, so ---+ I hate to say I'm not going to speak for competitive purposes, but I've learned the hard way.
We have spawned a lot of boutiques in the subsegments by bragging about their growth rates.
So you know where we're playing.
And I would tell you it's pretty broad-based.
We appreciate your time and attention, and we look forward to visiting with you again on the fourth-quarter conference call.
And management will be in New York for a couple of conferences in November.
Thank you.
| 2015_ASGN |
2016 | CATY | CATY
#Hi, <UNK>.
Yes, <UNK>.
<UNK> <UNK>.
We have about $300 million of wholesale deposits that we expect to run off in the first quarter.
And if, in terms of our deposit costs, based on the surveys that we see as well as our own deposits, we have not raised rates at all since the Fed increased prime.
And given, for us, relatively our loan-to-deposit ratios, we would ---+ we tend to want to wait longer before raising deposits because we do have access to wholesale funding that would help us meet loan growth.
So I don't see any pressure for us to increase deposit rates for the next couple months.
<UNK>, this is <UNK> <UNK>.
As far as promotion is concerned, what we have now is as Chinese New Year is approaching, and traditionally we have a small promotion for deposits.
But this time, because our liquidity is quite good, we are not giving any concession increase in rates.
All we are doing with this promotion is to give a monkey (laughter).
It looks very nice.
You can see it on our website, I think.
You should see the monkey.
<UNK>, I retired from giving guidance on the margins, but we ---+ if you can look at our net interest income growth year-to-year and link quarter, it is pretty good.
I think that would bode well.
And we're going to let our securities portfolio ---+ we're going to be cautious on reinvesting it.
We would rather pay down this $300 million of wholesale CDs, so ---+ and then lastly, as I mentioned on the last call, February is a good month, because we have so much in the way of mortgages.
And I think this year it's a 29-day month, but it's still ---+ we get some extra margin increase from the short month in February, so that's where we are.
Sure.
Yes.
Let me look at that, because we ---+ the money market, we have a number of products.
And we have, for the large corporate customers, we have a premium money market account, and I mentioned that there was an increase in money markets, so ---+ And then the CDs, so the money market went up 2 basis points link quarter.
The CDs went up 2 basis points.
That is just the impact from our summer CD promotion, which is now fully ramped in.
We just track it by the individual loans that change by more than $4 million.
So it'd be ---+ any number we give you wouldn't be accurate, but it certainly was more than it was in the third quarter.
Yes.
When Congress passed the budget bill in December, it extended the solar tax credit until 2019.
So we have several years.
And given the amount of taxes we're paying, we have plenty of capacity.
So we would try to keep the solar tax credit at the same dollar amount.
And then meanwhile, if you look at the balance sheet, in the low-income housing and affordable ---+ I'm sorry, and alternative energy balance sheet, that went up by about $90 million from a year over year.
We are ramping up our investments in low-income housing, much as some of the other banks have been doing.
So that should help lower our effective tax rate in future years as well.
Great.
Thank you, Aaron.
Hi, <UNK>.
They would go up $4 million for the full year, so it's $1 million a quarter.
No, let me just try to do math without a calculator.
For the full year, that line was $33.3 million.
$24.5 million was solo, so the rest was ---+ I think it was $9.8 million is low-income housing.
So that could ---+
So that's going to go up by $4 million in 2016.
Yes.
So in no particular order, we are going to pay down the balances and then the average rate in those CDs are running off.
It's probably 85 basis points.
It's like our average CD ---+ yes, it's 85 basis points.
And then seasonality ---+ I'm doing this from memory, but in past years our money market balances have dropped during the Chinese New Year, Irwin, right.
Yes, that is our Chief Operating Officer.
So we and ---+
Well, last year was a little bit special because of our summer CD promotion.
We brought in quite a bit of money.
And the other one, of course, is our merger with Asia Bank.
But in the fourth quarter itself, our deposit growth was $270 million.
Right.
And that is net of those two lumpy deposit growth that I talked about.
Yes.
So, <UNK>, we repurchased 2 million shares in 2015 and we started in the middle of August.
And we generally had a price target of just right around [30].
So we have 622,000 shares remaining.
We would start buying back early next week when we are passed the blackout period.
Then we will go to our Board to ask for a new authorization.
We have plenty of dividend capacity.
So, yes, we've told investors we want to manage our capital levels, so if our stock price is reasonable or appropriate, we would try to buy it back 2 million to 3 million shares a year, and we will try to target like a 90% or 100% total capital return.
So our capital ratios would diminish over time as our loans grew.
<UNK>, this is <UNK> <UNK>.
Just to repeat, our priority of excess capital usage is ---+ first and foremost, is to grow our Business.
And secondly is on dividend and then I looked at opportunity to go to bank as well, so those are our priorities.
It's actually ---+ I'm guessing it's about $600,000 in Q1 for FICA, and then there's probably almost $1 million in the second quarter, because that's when we pay our bonuses.
And so that's a seasonality of our payroll.
Thank you.
Thank you again for joining us for this call, and we look forward to talking with you at the next quarterly earnings release.
Thank you.
| 2016_CATY |
2015 | MDSO | MDSO
#We have not disclosed win rates, historically.
Off the top of my head, I don't have that information for you.
I know our win rates have been consistent and probably this year have actually moved higher, a bit higher than they were historically.
I can tell you that in large deals historically, our win rate has been around 70%, 80%.
I feel pretty good about where we are in some of our large situations currently.
No.
Like we said, we feel very good where we are competitively
I think I mentioned that while our backlog growth year to date compared to 2014 and historical trends was very much inline, its also on the bookings numbers that <UNK> referred to in his prepared remarks.
Year to date we feel very good, you obviously know, and it's very obvious from that call that Q4 is a pivotal quarter, and some larger deals that are moved from Q3 into Q4 that obviously have an impact on 2016.
Again, from an overall coverage perspective and backlog bill standpoint, we are actually slightly ahead of where we were in 2014.
We're on track, and I think if you look at the metrics from a cloud subscription revenue perspective, we are targeting a growth of organic 20% and beyond.
For next year, which I think is already a great outlook for things to come, but obviously Q4 is standing in between.
That's a meaty question.
Let me address it this way.
I actually think we are much further along this year than we were last year at this time.
If you look at the overall metrics that we provided, we're in a good place.
We are within the guidance range that we provided.
One of the big differences this year is that a lot of the difference in terms of where our midpoint is and where we are probably going to land, is coming from our services revenue line.
It is qualitatively different from last year and we are winning business and we are building backlog.
I think there are some things that no matter how ---+ you come into a year and you make a prediction based on the information that you have and some assumptions you make, like anybody does when they look at their pipeline.
We've had good pipeline conversion, there are some things you cannot account for.
Each organization that we deal with has different priorities and they have different processes for getting deals closed.
And then there are other things that get into the mix For instance there may be an acquisition going on, or there may be something going on that slows the process down that we cannot account for.
It's not a personnel issue, it's not a process redesign issue on our side in the sales organization.
I think our sales organization is doing better this year for sure.
As you know, we made some leadership changes, and we brought some new folks in, I think all of that has been positive.
Having <UNK> join us is a big positive, because he has dealt with ---+ he has been in large organizations, and I think across Medidata we're adding employees who help us to scale our business.
I think that's kind of the way you need to think about our business going forward, as we're becoming much more important to our customers and the scale of the business we're doing is increasing.
And we're making sure we have the talent that can help us get across the line.
Sorry.
Yes, let me take that question.
The way you have to think about this, is these deals now really impact 2016 and not really Q4.
The incremental revenue that we recognized in the quarter is very minimal.
We feel very good, I feel very good about the coverage we have to the outlook that we provided.
We have a clear path.
But the enterprise deals are really more important as you go into 2016.
Yes.
At this point we're not prepared to give guidance.
I think what we gave as a general parameters, and we're going to stay consistent with, is that we look to continue to see improving operating leverage in the business over the next three to five years.
You are seeing it this year versus last year, and I think, without giving you specifics directionally, you should expect to see it next year versus this year as well.
I think if you look at our guidance range and see midpoint of the guidance range we provide at the beginning of the year, one important part of it and <UNK> mentioned it earlier, and I totally should've made that point before.
Initially the[2016 impact of] professional services we revised that outlook in Q2, we made a further statement now of a new revision contribution of provisional services to our overall total revenue.
That brought us down to where we have not provided the revised outlook to.
We weren't able to backfill this with additional cloud subscription revenue.
As I said, our cloud subscription growth is strong.
20% plus year over year.
To all this into perspective.
All those deals that we were talking to, we're focused in closing them in the fourth quarter so that they will have impact to 2016 and we will maintain those growth targets going forward based on the success.
And to answer the second part of your question, they would have had an impact this year had they closed earlier.
As any deal does, even though have inherent ramp to them.
And yes, the scale we're talking about is pretty significant.
By any cloud company's measurement.
They are very, very large deals.
On gross margin or EBITDA.
On a EBITDA level, our guidance range we reaffirmed our guidance range from between [90 to 96].
We revised our outlook towards below the midpoint to the end of it, I think we should be comfortable.
We're on track, we have a very, very strong Q3 in terms of EBITDA margin.
We had a particularly strong quarter as it relates to gross margin.
Not only in this quarter but year to date.
We continue to make investments into our infrastructure to enable future growth, which is most important.
We don't want to short invest into our business, which will suffer us later on.
So we make these decisions as we go.
Q4 is really for us all about getting ready for 2016, and I think that's how I would describe the situation.
Sure.
I think we've actually ---+ we created a value function a couple of years ago.
We blended that into the sales organization in the past year.
And that's gone extremely well.
Given what we are selling to our existing customer base and new customers, especially folks who maybe not as familiar with the Medidata story or the Medidata platform, and where we think we can add value, it's resonated well.
It's put us in very good competitive position, because it's given people an understanding of how we differentiate from the competition, and where they can expect to see efficiency and drive lower TCO and a higher rate of return on their investment.
It's still a work in progress, as it probably will be forever.
But it has gone extremely well, I think it's been it has positioned us very well.
I want to point out the value function is not just around pricing, it's around overall relationship with our customers.
This is how we make sure as we're working continually with people who are higher and higher level executives in our client base, that we get them to exhibit the behavioral changes, that I was talking about before, to make sure that they get the maximum value of our software.
I wanted you to understand that this is not just a pricing thing, this is the way we manage the whole business.
Thanks again to all of you for joining us on the call today.
We're looking forward to seeing you at our financial analyst day in early December.
And looking forward to being able to share a bit more about the Medidata story with you at that time.
| 2015_MDSO |
2016 | FWRD | FWRD
#No.
Yes, we think it's a mid-single-digit from a volume standpoint, <UNK>.
And then with good pricing actions, hopefully we can push that up a little bit more.
I think you are looking at low side, 2%; high side, if everything goes right, 5%.
And then for us to get really big growth, something will have to happen in the macro environment.
So maybe one of the smaller competitors goes out of business.
Think of all the different things that could happen that might impact that.
But in the normal course of business, I think that's where we'll be.
When you get into ORs in the low 80s, I start getting nervous from the standpoint of how much more can you improve it.
Then when people ask you how much more can you improve it, I get really nervous.
So, I will go back to what I said earlier.
To make this better, at this level, a lot of positive things have to happen.
They happened in the second quarter.
We got a little bit of relief on fuel.
We had, overall, pretty good volumes.
And we had the volume that we wanted, and got rid of the volume we did not want.
We had our pricing in place, and it did a good job.
So all of those things have to occur to really make an 83 and 82.
Again, if things line up, we can do it.
If they don't, we're happy with an 83.
This is a <UNK> opinion, so it's worthless.
But I think the inventory levels we see today are the new normal.
We've had a number of months to get them down, and it simply hasn't occurred.
And when you talk retail, you can't group it because there are retail outlets, stores, whatever, that are doing well.
And there are others that are just dying on the vine.
So it's really hard for me to lump those all together.
If I followed your question, when we say ---+ first of all, we got the warts from the Towne acquisition behind us.
That's, number one, most important.
Number two, we retained the business from Towne that we wanted to.
So that was a big step forward.
And number three, it is now priced properly.
So all of those things together worked themselves out in Q2; took us a year to get there; and they will carry forward as we go into the future.
That is correct.
We won't buy forwarders, I can assure you that.
You never know when opportunities will come up within our operating parameters.
We do have competitors.
But today, as we sit here, we have nothing on the books.
Thank you.
| 2016_FWRD |
2016 | PEG | PEG
#Thank you.
Thanks, <UNK>, for the question, I'm glad you asked it.
To my knowledge, D.
C.
Cook had an issue in 2010, Indian Point had an issue starting a month or so ago.
There have been a handful, I think six or eight European plants.
These are not ---+ to my knowledge, these are not life-threatening issues.
They are literally 800 bolts typically that secure these metal plates, we call them baffles, to the reactor vessel.
And they are under pressure.
There is a pressure gradient because of the high temperature steam that flows through the holes in these baffles.
You get a mechanical stress, in our case, I think we have 832 bolts.
It's typical of pressurized water reactors.
That's why I mentioned earlier, to <UNK>'s question, that we would have to look at Salem 2 again at its next refueling outage, although it passed a visual inspection in 2015.
It would not be an issue for Oak Creek because that's a boiling water reactor.
I don't want to suggest anything other than we have to complete the inspection.
But none of the prior instance has this been an issue that has threatened the plants going forward ---+ integrity or anything of that nature.
Sure.
There are a whole host of them, <UNK>.
There is ongoing renewable portfolio standard commitments that could result in some additional solar work.
There are a couple of special projects that we haven't named publicly on the distribution system that involve major customers that would benefit the entire customer base, that we will be pursuing.
There is always new and additional work that comes out of the PGM RTET; that's the kind of thing you'll see us looking at and potentially announcing in 2016.
However, the major backfill in the out years of the plan won't be announced in 2016 because they are pretty new, and that will be a continuation of our gas system modernization plan and a continuation of Energy Strong.
The reason we won't announce those in 2016 is because we are only a year and a half into Energy Strong, and we're only six months into GSMP; and those were both three year programs, give or take a few months, on some unique aspects of them.
So you're right to say that we have historically backfilled the years four and five.
I think there is a very high probability we will do the same this time.
But I think that in terms of the goals for 2016, it will be more, some significant distribution projects that we have and potentially some solar work that ---+ to keep the state on its RPS targets, you will see us pursuing in the near term.
You're welcome.
Hi.
I think there are three uses for storage.
Right.
One is to the extent that one has some localized distribution reinforcement that can be more economically achieved through storage rather than substation enhancement.
Second, would be your classic arbitrage between peak and off-peak power, which has become less of an economic driver nowadays, just given the abundance of natural gas.
Third, could be sort of a similarity to that, which is to offset the intermittency associated with renewables.
But in terms of using batteries as peakers, I think that if you just have to take a look again at the dollars per KW.
My goodness, gas engines just keep getting more and more efficient and storage seems to be losing in that race to keep up with them.
I think there are multiple applications.
I didn't mean to suggest that we only would consider one.
What I was trying to point out is, whether the application is the supply side, or whether it's a customer reliability side or whether it's providing peaking services, other ancillary services ---+ we don't have a religious fervor around one technology or another.
We look at them all the time.
Yes.
No.
I mean, that's pretty much what we have told the world, right, that we see three very tangible, tactical reasons for remaining integrated.
It's the financial synergies between Power's cash generation and Utility's cash needs.
It's the customer build synergies between the customer the power serves and the customers that PSE&G serves.
Power's prices go down, PSE&G's distribution rates go up, quite candidly.
Last, but not least, is the benefits of scale associated with the corporate support functions.
And as Power continues to pursue growth opportunities outside PGM East, the first two issues become less important, right.
You have more customers that are not PSE&G customers that we will be serving in New England and in your state.
You have more need for Power's funds from operations going to Power as opposed to going over to the Utility.
And as both companies get bigger, then corporate support synergies become less on a percentage basis.
And the reason why I say outside of PGM East, is because we are pretty much preempted from making any acquisitions within PGM East.
Given the slow growth and demand, we are not big fans of Greenfield Development PGM East.
You've quickly run into an oversupply situation.
Having said all of that, we have demonstrated that we're pretty bad at acquiring assets.
By that I mean, we seem to have a more conservative view of where the market is going and are consistently outbid.
Keys being the one expectation to that, which I believe, was largely because of our confidence in our ability to manage construction risks, that perhaps some of the others did not possess and some of the portfolio benefit it brought to us in performance of PGM West.
We look all the time at generation assets.
We have an ---+ I was about to say anti-coal bias.
That sounds very political and I didn't mean it that way.
But just given the direction of the environmental regulation, you won't see us taking a look at any coal expansions in terms of new assets.
We do look in our target markets, which would be the rest of PGM, New England, and New York state.
We just have to get it the right price.
And we are going to remain disciplined in what that means for us.
Hi.
So the equipment is not routinely on site.
But we are in the process right now of securing that equipment while we do the ultrasonic testing.
This is a highly ---+ my tongue got tied ---+ highly irradiated area inside the reactor vessel.
But we are in conversations with at least two vendors who claim to be able to help us do the work and we are confident we will be able to bring them on site.
I mean, as I said, there is at least ten other reactors that had this issue in the past.
Yes.
I think there is a robotic device that needs to go in and change out the bolts and replace those that are ---+ that failed the ultrasonic testing.
It's not something you can send a person into the vessel.
From a critical path perspective, too, the inspections that are ongoing now need to take place first.
We have some time off the critical path to be able to secure that kind of equipment.
Thanks.
Hi, <UNK>.
And your comparison is what, <UNK>.
We'd have to go through the individual math.
Maybe we can follow up with you on that.
But you have a range of output where you are within a high or low band.
So it's going to vary.
I know that some of that 2018 output is going to come from BTS, who tends to have a higher price, and then we run a lower price environment as well.
So it's going to be some mix of that.
Hi, <UNK>.
<UNK>, the range is the range.
Historically, what we do is after Q1 we don't modify our numbers or push people up or down and live with the range.
After Q2 we may move a nickel one way or the other, if we think there's a definitive bias one way or another.
In terms of verbally guiding.
And then typically after Q3, if there's a need we tighten the range one way or the other.
With so we're $2.80 to $3.00.
It was a tough winter.
And we have got a lot of focus on our operations and our cost efficiencies and the range always assumes that the rest of the year is normal weather.
We never assume that the weather is going to suddenly do something different than what the weather service predicts as a normal year.
Thank you, Brent.
So thank you, everyone for being on the call.
And the main message I hope you took away is my favorite message, which is steady as she goes.
We have a utility capital program that's proceeding as planned.
Power construction programs which we combine cycle units is on schedule and on budget.
Operations are strong through the enterprise and the balance sheet is as solid as ever.
<UNK> and <UNK> have some travels in the next couple of weeks.
The three of us have some travels in the next couple of months.
Hope we get to see most, if not all, of you during those travels.
Thanks a lot and we will talk soon.
| 2016_PEG |
2016 | ASNA | ASNA
#Thank you.
I think it varies, <UNK>, brand by brand.
What we do is we look at the entry-level price point for our competitive set.
We look at what is the out-the-door price for a lot of this product and see how we can become competitive.
And that's basically what Justice did when they developed style buys, and virtually all of our brands are taking a look at this approach and seeing how it might apply to them on perhaps a smaller scale, but still have those compelling price points to get the customer as a gateway product into the store, liking the quality, liking the fashion touches.
But then really using that as a way to get her to build her basket to include other more fashion-oriented items.
Again, <UNK>, it's going to be a case by case by brand.
But what I would tell you overall is that we're always going to plan on the more lean side, because we feel it's much easier to chase.
If you ever played baseball, my coach always told me to run back when you heard the crack, because it's always easier to run in for a fly ball than to run back for it, and that's how we view our inventory management.
And <UNK>, we're likely to take some bets where we know we were lean last year.
We know that during back-to-school we were light at Justice.
We broke, inventory broke.
We had to chase.
We couldn't get back in fast enough.
There will be selective areas where we're going to take bets.
Back-to-school would be one at Justice.
You also know from recent calls that we said we were a little light on inventory going into the holiday with Justice.
There are selected periods where we will take bets, but they're very informed bets based on areas we knew we were out of stock and didn't have enough to do business this past year.
Otherwise, you should expect it to remain conservative on the inventory front.
Sure.
Justice is going through a transition.
As you may recall, <UNK>, if you were on our last call, we've got a terrific new woman, Sara Tervo, at Justice, and she's gearing up a terrific plan for back-to-school, which is, as you know a critical season for us.
Justice will be very heavy in social media.
We're not ready to reveal it yet, but it's one of these stay tuned.
You'll see a lot of things that I think you'll be impressed with.
So that's going to be a big push at Justice, and once we make that, that will be something we do on a more ongoing basis.
We're reinventing our marketing at Justice under Sara's leadership, and as she's built her team, she is developing a lot of these new programs, we're really doing a big bang reveal for back-to-school.
In terms of the other brands, I would tell you that our social media can always get better.
But I would suggest that it is pretty well developed across all of our brands.
Depending on which brand, we have different programs underway.
But we've seen a shift in ollars and attention from more traditional advertising to social media, because we've seen ---+ as we've gotten better at doing it, we've seen improved results and that will continue.
Well, it's a little harder to tell.
Certainly online, you can tell or it's easier to tell on click-throughs.
But it's a little harder to tell if someone comes in the store, what drove them into the store.
I just think that's more along the lines of the more modern aesthetic that Ann is.
I think in the past, there have been some more traditional fit and they're evolving it to be a bit more of a modern aesthetic.
They've been evolving their fit and yes, it is a better fit than it was a couple years ago.
So, yes, we are looking for a more modern aesthetic.
Thanks, <UNK>, appreciate your call, your questions.
Certainly, as we mentioned earlier in the call, <UNK>, that LOFT has really had a very, very strong season, very pleased with what they're doing.
So I would say they're above our expectation.
Ann is pretty much in line with our expectation, as is the ability to generate the synergies and the cost savings that we've been talking about for about a year now.
That's coming in, as <UNK> said, pretty much right on plan.
So I'd agree with your comment that Ann is the area that we see the most upside for.
Thank you very much for taking the time to listen to our call today.
| 2016_ASNA |
2017 | MYGN | MYGN
#Thanks, <UNK>.
That demonstration project that we mentioned will not complete during this public comment period.
I think that study be a little longer study.
So that is going to play out over the coming months.
So it is not going to add to the 36 publications that we already have during that timeframe.
From a growth perspective, I think one of the things that was important for us to look at is what did the trends look like after we were able to discuss the data from AMPLE.
And as we mentioned, we did in fact see when you saw December and January data compared to October November data, you actually saw a nice uptick in demand that was demonstrative of the impact that our sales teams were having.
So I think it's the fact that the sales force realignment has been completed.
It is the fact that we've got really good messaging out there and a talented team that is out there being able to give physicians continued confidence.
And it's looking at the trends that we have seen in the last couple of months.
I think those things together have us confident that we are going to return to sequential growth in the second half.
Thanks, <UNK>.
As you know having covering the industry for a while, predicting these things is difficult.
What I can say is that the health economic data that we discussed is recent data.
And the fact that we have been able to generate that data in United Healthcare's database as well as Humana and Anthem's databases ---+ and those analyses are either done at this point or very close to that ---+ that speaks loudly to the insurance carriers because these are their own members, and we can demonstrate cost savings in their own plans.
And so we think that will be very impactful, and that data is either available now or will be available quite shortly.
And so obviously you can imagine we are aggressively having those discussions about not only the utility of the debt but the health economic impact in their own members.
And that will continue to be a high priority for us.
This concludes our earnings call.
A replay will be available via webcast on our website site for one week.
Thank you again for joining us this afternoon.
| 2017_MYGN |
2017 | XL | XL
#Thanks, Mike, and good evening
Consistent with recent quarters, we posted an earnings presentation on our website to accompany our prepared remarks
Our net loss in the quarter was $1.04 billion or $4.06 per share compared to net income of $70.6 million or $0.25 a share in the third quarter of last year
Our operating net loss in the quarter was $1.03 billion or $4 per share compared to operating income of $122.5 million or $0.44 per share in the prior year
Our results in the quarter were driven largely by the pretax net loss of $1.48 billion associated with the third quarter natural catastrophes
Our results were also, however, impacted by the benefit of lower operating expenses and increased returns from our investment portfolio compared to last year
Our year-to-date annualized operating ROE, excluding AOCI and integration costs, was negative 8% year-to-date compared to positive 6.1% in the same period last year
Excluding catastrophe losses, our underwriting profitability improved in the quarter compared to the third quarter of last year
Our accident year, ex cat P&C combined ratio decreased from 91.3% to 89.8%
Greg will discuss our underwriting performance by segment and in more detail in his prepared remarks
Turning to the third quarter catastrophes
Consistent with our preannouncement, our total pretax net catastrophe losses in the third quarter were $1.48 billion, including $1.33 billion for hurricanes Harvey, Irma, and Maria
Total catastrophe losses represented 58.8 loss ratio points in the current quarter compared to 4.1 loss ratio points in the third quarter of 2016. The consolidated total net loss of $1.52 billion you will see in our financials is different from the $1.48 billion I just mentioned because of our majority ownership in New Ocean Capital Management
We are required to consolidate their full results and then show the minority interest separately, which was approximately $34 million
In our slide deck on Page 8, you will see that we disclosed gross and net losses by event and in the aggregate
As Mike mentioned, we expect to recover approximately 44% of our gross losses, a ratio that is favorable when compared to the combined recoveries related to natural catastrophes in previous years
The breakdown of net catastrophe losses by segment in the quarter was approximately 48% Insurance and 52% Reinsurance
The breakdown by geography was approximately 51% related to mainland U.S
losses, 41% in the Caribbean and 8% related to other international events
The distribution of losses to segment and business components as well as the manner in which the reinsurance protections responded were significantly impacted by some of the unique features of these series of events, including the higher levels of flooding following Harvey and the geographic concentration in the Caribbean from Maria and Irma
These characteristics more significantly impacted business written in line with wholesale market, including Lloyd's, and the large commercial property lines
Turning to prior year development
As a reminder, our normal practice during the first and third quarters of our reserving process is based on the review of actual versus expected losses
Our semiannual full actuarial review will be included in next quarter's results
In the third quarter, we had net favorable development of $30.9 million or 1.1 loss ratio points compared to $53.6 million or 2.3 loss ratio points in the prior year quarter
This reflects favorable development of $8.8 million in the Insurance segment and $22.1 million in the Reinsurance segment
Insurance releases were largely attributable to better-than-expected attrition losses in aerospace, and Reinsurance releases were mainly attributable to better-than-expected experience primarily in short tail lines, including property catastrophe and specialty lines, with lesser contribution from certain casualty reserve adjustments
We also have beneficial development of approximately $15 million related to the structured reinsurance reserves within our deposit liability balances
The benefit of these developments is recorded in the income statement as negative interest expense in the quarter
Operating expenses were $409.4 million in the quarter, a 19.5% or $99.1 million favorable comparison to the prior year quarter
In the third quarter of this year, there were no integration costs compared to $54.5 million in the prior year quarter
Other significant drivers included the impact of losses on our variable compensation and favorable foreign exchange rate movements
We continue to focus on operating efficiencies through establishing a culture of continuous improvement, and we expect to drive additional operating leverage going forward as we've discussed in previous calls
For the full year 2017, we anticipate operating expenses, excluding integration costs, to be at or likely below the low end of our previously guided range, which is approximately $1.77 billion, assuming that FX rates stay roughly as they are today
During the quarter, we recognized net income tax benefits of $60.1 million
Our operating effective tax rate was 5% for the quarter, and that compares to negative 1.6% in the prior year quarter
In accordance with the applicable accounting principles, the net tax benefit associated with the catastrophe losses generated in the quarter will be recognized over the full year of 2017 and not exclusively in the third quarter
As such, we recognized a partial benefit in the third quarter, and we expect the remainder of the benefit will be available to offset tax expense in the fourth quarter
So for the full year, we expect the operating tax rate to be in the range of 4% to 6% as a result of the impact of third quarter losses on the overall distribution of income by jurisdiction
Fully diluted book value per common share decreased by $3.88 from the end of the prior quarter to $38.27 driven by catastrophe losses
Fully diluted tangible book value per common share also decreased by $4.01 from the end of the prior quarter to $29.70. Turning to the Investment Portfolio
My comments, as always, will exclude the Life Funds Withheld Assets
Net investment income increased by $1 million to $172 million compared to the prior year quarter and decreased by $5 million compared to the second quarter of 2017, which was somewhat elevated due to a few nonrecurring factors we mentioned last call
During the third quarter, our average new money rate was 2.6% compared to 1.9% in the third quarter of last year and 2.1% in the second quarter
The increase in new money rates for the quarter was attributable to targeted portfolio rebalancing in the fixed income portfolio, which led to a rise in the total gross book yield of the portfolio to 2.6% at the end of September 2017. Excluding these rebalancing activities over the last few quarters, the forward new money rate remains below the book yield, continuing to pressure net investment income prospectively
Portfolio activity in the quarter resulted in a slight increase in duration by 0.2 years to 3.7 years, slightly long relative to our liability-based benchmark duration
Net income from affiliates was $63 million for the quarter compared to $25 million in the prior year third quarter primarily due to rebalancing the portfolio, better individual fund returns and a more benign markets for hedge fund strategies in the quarter
Unrealized gains were $657 million at the end of the quarter, and the total mark-to-market return from the Investment Portfolio was 1% in the quarter in original currencies
Turning to capital
Early in the third quarter, we repurchased approximately 2.7 million common shares at an average price of $44 per share or $121 million
Year-to-date, ending September 30, we bought back approximately 13.8 million common shares at an average price of $41.36 per share or $572 million
At quarter end, we had $520 million of common shares available for purchase under our share buyback program
However, at this time, we do not anticipate repurchasing additional shares for the remainder of the year
As mentioned last quarter, and as a result of our tender offer and other buybacks of certain of our preferred shares, we reported a book value net gain through noncontrolling interest as a result of securities purchased below their carrying value
Overall, the company continues to retain surplus capital relative to its binding constraints at any time
Those constraints, as always, include those imposed by our regulators, rating agencies as well as our own internal capital model
Our financial leverage at the end of the third quarter was approximately 31.8% compared to 29.5% pro forma leverage at the end of the second quarter
You may recall that due to the timing overlap of our new debt issuance at the end of June and the tender offer completion in early July, our financial leverage at June ticked up temporarily
This overlap impact self-corrected in the third quarter when the impact of the tender was recorded, but was then offset by the impact of third quarter losses
We maintain our previously stated long-term goal of leverage levels in the mid- to low 20s, and we believe we have the flexibility and tools to move leverage below 30% in the next year
We anticipate in the next week or so we will announce the normal course renewal of our Form S-3 shelf registration
This is a part of our typical process and is not related to any particular need for capital activity
With that, I will turn the call over to Greg and look forward to your questions
That will impact the expense ratio as well
Sorry, the $7.9 million on expenses is on expenses
FX impacts premiums, and I think Greg gave the adjusted growth in premiums adjusting for FX
So the 4% to 6% range will be for the entire year
That will give a benefit to the fourth quarter
I wouldn't want to tell you it's exactly 0, but we should be approaching that
| 2017_XL |
2017 | CSGS | CSGS
#Thank you, Sharon, and thank you to everyone for joining us.
Today's discussion will contain a number of forward-looking statements.
These will include, but are not limited to, statements regarding our projected financial results; our ability to meet our clients' needs through our products, services and performance; and our ability to successfully convert the backlog of customer accounts onto our solutions in a timely manner.
While these statements reflect our best current judgment, they are subject to risks and uncertainties that could cause our actual results to differ materially.
Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release any revision to these forward-looking statements in light of new or future events.
In addition to risk factors noted during the call, a comprehensive discussion of these factors can be found in today's press release as well as our most recently filed 10-K and 10-Q, which are all available in the Investor Relations section of our website.
Also, we will discuss certain financial information that is not prepared in accordance with GAAP.
We believe that these non-GAAP financial measures, when reviewed in conjunction with our GAAP financial measures, provide investors with greater transparency to the information used by our management team in our financial and operational decision-making.
For more information regarding our use of non-GAAP financial measures, we refer you to today's earnings release and the non-GAAP reconciliation tables on our website, which will also be furnished to the SEC on Form 8-K.
With me today on the phone are our <UNK> <UNK>, our Chief Executive Officer; and <UNK> <UNK>, our Chief Financial Officer.
With that, I'd now like to turn the call over to <UNK>.
Thank you, <UNK>, and thank you all for joining us.
I'm pleased to report that for the first quarter we executed according to plan with strong revenue growth in our cloud and managed service offerings and a continued investment in our products, solutions, people and go-to-market strategies.
For the first quarter, we grew revenues 3% to $192 million, one of our strongest first quarters ever.
In addition, we generated non-GAAP earnings per share of $0.62 per share.
Our non-GAAP operating margin was 18% and is in line with our target range.
And finally, our cash flows from operations were $30 million.
<UNK> will walk you through more details regarding our financial performance later in the call.
In February, I shared with you 4 key initiatives that we are focused on, all aimed at increasing shareholder value.
These include: first, continuing to drive revenue growth, in particular, through our cloud-based and managed service offerings; second, expanding our broadband and cable footprint globally and getting broader and deeper in our international clients' operations by helping them solve their business challenges; third, investing in our platforms and go-to-market strategies like our next-generation Ascendon cloud-based solution, enabling operators to participate in a highly dynamic and growing digital economy with a highly cost-effective platform that allows them to launch and generate revenues from digital services quickly; and fourth, continuing our relentless focus on executing extremely well on behalf of our clients.
Our proven reputation for doing what we say has served us and our clients extremely well in a highly competitive business environment.
Let me share with you how we are doing on those initiatives.
First, we continue to grow our relationship with our largest client, Comcast.
We converted another 975,000 Comcast residential customers off of a competitor's legacy platform and onto our advanced convergent platform in the first weeks of April.
This brings the total number of Comcast residential customers converted onto our platform to approximately 8 million since 2014.
In addition, Xfinity On Campus, which serves students attending universities around the country and is fueled by our cloud-based Ascendon platform, continues to expand to more college campuses around the country.
We are pleased with the confidence that Comcast has placed in CSG to serve its residential and college customers, and we'll continue to work diligently to help them successfully execute on new business opportunities and help them solve their business challenges.
Next, we continue to make solid progress on our efforts to convert our traditional software clients into longer-term managed services engagements.
This past quarter, we signed several small new contracts, including one with New Zealand's largest broadband providers and another one with Airtel Africa, a leading provider of mobile services in Africa.
In addition, we expanded the services we provide to one of our existing managed service clients, Telstra, Australia's leading communications and technology company.
Since 2013, when we signed our first managed services contract with Telstra, we've grown the annual revenues generated from this operator by almost 500%.
Telstra is a great example of how once our professionals get in and start working side by side with our clients, we are able to identify more ways in which we can help them streamline, standardize and automate their operations, resulting in lower cost for our client and increased opportunities for CSG.
Overall, we have more than doubled our global managed services revenue over the last 12 months, helping us increase the visibility and predictability in our overall enterprise revenues.
And when we look at our business overall, today, we generate around 90% of our total revenues from highly visible, multi-year relationships with communication service providers around the globe.
That allows us to manage our own business and investments in a highly thoughtful and intentional manner.
Third, we continue to generate strong momentum and excitement with our Ascendon next-generation digital services platform.
Today, we announced that iFlix, the world's leading subscription video-on-demand service for emerging markets with 2-plus million customers, will use our Ascendon platform to manage its customer payment options, whether that's a credit card, PayPal, a gift card or Google in-app purchasing on multiple devices.
This allows consumers to determine which payment option works best for them versus iFlix dictating that, leading to high customer satisfaction and loyalty.
Importantly, managing the complex ecosystem required to provide all these options to consumers is one of the cornerstones of the Ascendon platform.
Finally, we continue to focus our attention on helping our clients execute very well in their business while providing the scalability, security and reliability that is required to compete today.
For example, we just successfully migrated our Ascendon next-generation platform to the Amazon Web Services public cloud.
AWS has commended CSG on being the first BSS provider offering their next-generation digital services solution in the public cloud.
This move aligns with our cloud-first strategy and provides benefits to both CSG and our clients, including being able to accommodate our customers' requirements for data sovereignty while broadening our capabilities and agility, enabling a significantly more cost-effective architecture and pay-for-use business models, fostering growth with elastic capacity and providing the resiliency, scalability and security that our clients demand in today's world.
This is not just moving the architectures and legacy business models into the cloud.
This is changing the game on time to market and fundamental cost structures, and we are pleased to be on the leading edge of this in the BSS space.
We continue to look for ways to optimize our own operational processes and technologies so that we can share those savings with our clients.
Moving to a cloud-first strategy for our key solutions continues to differentiate us from our competitors.
So as I look back on the first quarter, quite simply, we're doing what we said we would do, and it's showing up in our financial performance.
I really like our position.
We have an enviable business model with strong fundamentals that position us well to drive shareholder value.
We have unrivaled domain expertise in the broadband and video markets.
We work with some of the largest and most innovative communications providers in the world, and we continue to grow our footprint both with these clients and new clients around the globe.
We have proven technology and a solid reputation for operating our solutions really well.
We have a financially sound company.
We generate strong cash flow and have a strong balance sheet, which gives us tremendous flexibility for investing in our people, our solutions, our clients and still return capital to our shareholders through our dividend and share repurchases.
And most important, we have talented and dedicated employees across the globe who are committed to helping our clients and our company achieve greatness.
Before I hand it over to <UNK> to review our first quarter financial results, I want to thank our employees for making our clients' success their success and to our clients for putting their trust in our people to help them deliver.
With that, I'll turn it over to <UNK>.
Thank you, <UNK>, and welcome to all of you on the call today to discuss our financial results for the first quarter as well as our outlook for the remainder of 2017.
We were pleased with our solid start to the year and the progress we're making on our strategic initiatives.
Now I'd like to walk you through our financial results in more detail.
Total revenues for the first quarter were $192 million, an increase of 3% from the same period last year.
Sequentially, revenues were down 1% from the fourth quarter mainly due to our seasonally stronger software and services revenues we typically see at the end of the year.
Our cloud and related solutions grew 6% over last year.
This was driven largely by the conversion of new customer accounts onto our cloud solutions and the increased revenues from our recurring managed service offerings, which, by itself, doubled from last year.
This strength helped to offset our expected decrease in software and services revenues as we continue to transition this part of our business into a more predictable recurring revenue model.
Our first quarter non-GAAP operating income was $35 million with a margin of 18%, which is in line with our expectations.
GAAP operating income for the first quarter was $27 million or a margin of 14%.
Our non-GAAP adjusted EBITDA was $43 million for the first quarter or 22% of our total revenues.
Our non-GAAP EPS for the first quarter was $0.62 compared to last year's $0.77.
Our non-GAAP effective income tax rate was 34% for the current quarter, slightly better than our previous expectations of 37%.
This lower effective income tax rate provided approximately $0.03 of non-GAAP EPS benefit to the quarter.
I will provide more color on this later in my comments.
And finally, our GAAP EPS for the first quarter was $0.62 compared to $0.64 for the same period last year.
In summary, our financial results for the first quarter reflect our solid execution as planned with the year-over-year decrease in our operating results reflecting our commitment to invest in the long-term strength and growth of our business.
Moving on.
Before I address our balance sheet and cash flow items, I wanted to briefly summarize 2 significant capital items that occurred in the first quarter.
The issuance of shares as part of these 2 transactions was contemplated in our initial 2017 guidance and completed in combination with cash payments such that our expected overall share dilutions is unchanged from last year, consistent with the February guidance.
First, we settled the final obligation related to the refinancing of our 2010 convertible debt in the first quarter as follows: We paid cash of approximately $35 million for the remainder par value of the notes, and we delivered approximately 700,000 shares of our common stock to settle the $29 million value of the conversion obligation in excess of the par value.
Second, Comcast exercised its $1.4 million vested stock warrants during the quarter.
We net share settled Comcast's exercise by issuing approximately 650,000 shares of our common stock, which had a market value of $32 million.
If you recall, the stock warrants vested as Comcast converted new customer accounts onto our ACP cloud solution.
Since 2014, we have converted nearly 8 million of Comcast residential customer accounts to our solution.
Also, the appreciation in our stock since the warrants vested will provide a net income tax benefit for this year, which is the primary driver of our lower 34% non-GAAP tax rate for 2017 that I mentioned earlier.
Overall, we believe the warrants have proven to be an effective financial incentive and reward for both Comcast and CSG.
Now onto the numbers.
We ended the quarter with $238 million of cash and short-term investments compared to $276 million at the end of the fourth quarter.
The sequential decrease is mainly attributed to the final settlement of our 2010 convertible debt that I just mentioned.
We generated $30 million of cash flow from operations and $20 million of free cash flow for the quarter.
Our ability to generate strong, consistent cash flows from operating activities continues as one of our fundamental business strengths.
This, plus our solid balance sheet, positions as well for future growth opportunities.
We paid over $7 million in dividends this quarter, which reflects an increase of 7% in our per-share dividend rate over last year.
In addition, share buybacks totaled $5 million in the quarter.
Let's move on to our outlook for 2017.
As a result of the solid execution in the first quarter, we are raising the bottom end of our revenue guidance and now expect our 2017 revenues to come in between $765 million to $785 million.
Our expectations for our non-GAAP operating margin percentage for the year are unchanged at approximately 18%, which is consistent with our current quarter results and reflects our current commitment to invest in the long-term strength and growth of our business.
We are increasing our 2017 non-GAAP EPS guidance range to $2.45 to $2.59, which reflects an improvement of about $0.10 per share over our previous expectations.
This change is mainly driven by the expected improvement in our non-GAAP tax rate to 34% from our prior guidance of 37% as I mentioned earlier.
We continue to anticipate our outstanding shares to be approximately 33.1 million shares for the year.
In addition, we raised the bottom end of the range for our non-GAAP adjusted EBITDA to $171 million to $179 million.
And finally, we increased our range for operating cash flows to be $105 million to $125 million for the year, an improvement of $5 million over our previous expectation; and we expect our 2017 CapEx to remain at $20 million to $25 million.
In summary, we are off to a good start to the year.
We are growing our top line with new logo wins, transitioning our software clients to long-term managed services arrangements and by continuing to win market share in the cable space.
We are investing in our people, our products and our clients to drive long-term value, and we are continuing to return cash to our shareholders.
We like our position.
With that, I'll turn it over to the operator for questions.
Yes.
Matt, I'll take a shot at that one.
Telstra is a great customer.
And when we first started working with them, they had some internal systems in the BSS areas that we operate that they had on multiple different platforms that they wanted to consolidate together for efficiencies.
So we worked with them on that, and we worked very closely with them.
When I was in Australia not too long ago, it was great because when you walk on the floor with them, it's really tough to tell the difference between a Telstra employee and a CSG employee because they're all heads down working on the same objective of improving their business through the operational integrity.
And so the domain knowledge and the domain experience that we have from doing it for 35 years, combined with the relationships that we picked up in the Intec acquisition a couple years ago, allows us to leverage that domain knowledge with the great relationships and software products that were there to take on more accountability and responsibility for their systems in a way that it improves their bottom line economically and it improves the overall service they could take to their end customers.
So we just continued to take on more international managed services business, and what starts to happen is that becomes a model.
When we can show that and show the return on investment, then we can share that broader with some of the other customers that we mentioned there.
And it ---+ a lot of people can talk about the success they're going to have in the future, but these items are ---+ they're in the rearview mirror.
We did it.
It's over.
And so it creates a great platform to keep going not only there at Telstra but at other customers around the globe.
Absolutely.
You know the cloud has been an underlying fundamental transformational activity.
I used a lot of Dilbert words there.
But it really changes the game because what we used to do is bring great value in Software as a Service, managed service type activity because we had such large investments in hardware, storage, processing, network and that great ---+ brought great benefit over time.
But then what happened is, as it became a public cloud, we all see the great big ones that are out there in that space, if it's Amazon, if it's Microsoft.
And they've just taken the same model we've used for 35 years and spread it around the globe on a much larger scale.
So when we can get the multi-tenancy and we can roll our applications into that, we can get a great price point on the services we deliver.
But not only that, the ability to roll it out very fast.
So whereas it used to be very challenging for us to put a data center in a foreign domicile and work through the data security issues, the data sovereignty issues, they've already done that on a global scale basis.
And that's why we keep pushing that this is a game changer in the business model because we can drive materially lower cost per unit and we can roll it out in 90 days in our Ascendon platform.
And we've got proof points of that.
So as I mentioned in the prepared comments is that this isn't just taking old architects and redoing them on new technology that we see happening or redoing business models, if it's still going to be a professional service gig where we charge you a ton in the future.
This is a game changer for the customers that we're deploying it for, and we're getting some good traction with it.
Yes.
We have a great relationship with Charter, and if you recall, Time Warner was our very first customer 35 years ago.
So we've got a lot of depth and domain knowledge in that area.
When Charter did the acquisition, we worked very closely with them and worked with them daily on their systems and the processes we go through.
Charter is very focused.
They're an incredible operator, and they're very focused on that integration and doing the right things.
And so we've been working with them and are extending that contract on a month-to-month basis, which is way outside of our norm because of our long-term contracts and our important relationships.
We would only do that in a situation where we have a committed relationship, which we have with that Charter relationship.
And so we're in close discussions with them on a day-in, day-out basis, and we hope to have that resolved in a longer-term fashion very soon.
And hopefully, and that you should take that as yet another sign of the value and the partnerships that we have is when we get that done and in place.
But we have extended and gone outside of our model to do a couple of 1-month extensions just because of how important the relationship with the client is.
Two quick questions.
First, on the new products that you guys are doing, the development, how's that going.
And what's looking good this quarter.
And I'm sorry, Larry.
I misunderstood you.
Thank you for the question.
But was it around the new products, did you say.
Yes, around the new products and the new developments.
Just, I guess, how it's going this quarter.
And what's looking good.
It's going well from a product development and delivery.
We're getting a much better understanding of how we can continue to accelerate the products into the marketplace.
But we talk about a lot of Ascendon and some of the pieces that are there both from a digital BSS and also from a OTT, over-the-top type activity, as we mentioned in today's press release, around iFlix.
That's a huge one, a huge win for us, and it's all based upon the net new products and the R&D that we've done.
And those are 7- and 8-year development efforts that are positioning us well to win in next-generation providers of those services.
So we're feeling really good about the products.
And then in addition to that, we still have folks that are moving onto legacy platforms that we're having good luck with.
So we see a combination of honoring our past and inspiring our future, and those R&D dollars are really starting to get us some traction in those areas from Ascendon onto our other components.
And [Colin] the other thing is similar is the Telstra reminds me.
How ---+ anything new in other nations, Europe or Asia or so forth.
Or anything that's motivating potential clients there to make them look at your products and possibly hiring you in the near future.
We still see activities in those spaces.
We talked about Airtel Africa is also in India, along those lines.
And I just sat through the other day a portion of our more detailed pipeline review, and Brian Shepherd and the teams around the world are doing an incredible job of building that pipeline.
And we see it as a very healthy pipeline, and we're getting some of them across the finish line.
And importantly, we are investing in our go to market and our brand, which is helping to build that pipeline and get the focus on where it should be, which is solving customer problems with those solution.
Well, thank you very much, and thank you, everyone, who was on the call.
Once again, I couldn't be more grateful and blessed for those employees that are on the call to make sure they understand, also customers and interested financial partners as we go through this journey together.
But we really like our position.
We really like how the business is positioned, and we want to keep bringing you quarters of delivering to plan.
So thanks again, and have a great quarter.
| 2017_CSGS |
2018 | NATI | NATI
#Good afternoon.
During the course of this conference call, we shall make forward-looking statements, including statements regarding future growth and profitability, future gross margin, continued operating leverage in 2018, changes to our long-term model and our guidance for revenue and earnings per share for the second quarter.
We wish to caution you that such statements are just predictions and that actual events or results may differ materially.
We refer you to the documents the company files regularly with the Securities and Exchange Commission, including the company's annual report on Form 10-K, filed February 22, 2018.
These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements.
With that, I will now turn it over to the Chief Financial Officer of National Instruments Corporation, <UNK> <UNK>.
Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining our first quarter 2018 earnings conference call.
Today, I will begin with an update on our financial performance.
Then <UNK> <UNK>, Executive Vice President of Global Sales and Marketing, will share insight into our platform success.
And Alex <UNK>, our President and CEO, will share his thoughts on the business and outlook for 2018.
Our key messages today are record revenue for our first quarter, 26% year-over-year growth in non-GAAP net income and strong quarter of double-digit year-over-year revenue growth for our software and data acquisition products.
For Q1, revenue was $312 million, up 4% year-over-year and a record for our first quarter.
This is slightly below the midpoint of our guidance, with weakness concentrated in a small number of accounts in the mobile devices supply chain, which was especially apparent in Taiwan and Korea.
From an operational perspective, non-GAAP gross margin and operating margin results were both the highest for our first quarter in 7 years.
Non-GAAP gross margin in Q1 was 76.6%, up 130 basis points year-over-year, driven primarily by the strength of our broad-based software and data acquisition products as well as favorable currency exposure.
Our non-GAAP operating margin was 12.9%, increasing 140 basis points from a year ago.
Record Q1 revenue and deliberate expense discipline drove a 26% year-over-year improvement in non-GAAP net income.
Q1 non-GAAP net income was $34 million or $0.26 per share, which was at the midpoint of our guidance.
The Global PMIs held relatively steady to last quarter, indicative of a supportive growth environment.
The diversity of our data acquisition and software products across a wide range of industries and applications has long been a strength of NI, and we were pleased to see strong year-over-year double-digit growth in these products in Q1.
This helped offset the weakness in the mobile devices supply chain where we tend to see more volatility.
Moving to the balance sheet and capital management.
We ended the quarter with cash and short-term investments of $415 million at March 31, 2018.
During the quarter, we paid $30 million in dividends, and the NI Board of Directors have approved a dividend of $0.23 per share for Q2.
Now looking at Q1 orders.
The value of our total orders was up 5% year-over-year in US dollars.
Orders with a value below $20,000 grew 2% year-over-year in the first quarter.
As an indicator of the strength of our system sales, we saw all orders over $20,000 up 7% year-over-year.
Now, I would like to take a look at Q2 2018, which will include forward-looking statements.
As you're aware, the release of LabVIEW NXG was a refresh of our 30-year strong software platform.
LabVIEW NXG provides a modern infrastructure, including robust built-in self-test capabilities for future code development.
To take advantage of this and accelerate the development of new software features, in Q2, NI will be using agile project methodology.
This means our software team will be able to release much more frequent updates, providing even greater responsiveness to customer needs.
Because the self-test capabilities dramatically reduce the need for extended customer testing, we expect capitalization of agile project development to be immaterial.
This will apply to a significant majority of our software development efforts.
Starting in Q2 2018, we will remove all capitalized software and amortization from our non-GAAP results, which will provide greater transparency into our R&D spend, improve predictability of our P&L and enable P&L comparability.
As a result of this change, we are adjusting our long-term model for gross margin upward by approximately 200 basis points and increasing our R&D expense model target to 18% of revenue.
These changes are built into our Q2 2018 guidance.
We are optimistic about delivering leverage in 2018.
In Q2, we want to deliver on our growth and profit goals while increasing our backlog to improve efficiency and visibility.
We currently expect revenue in Q2 2018 to be in the range of $320 million $350 million.
We expect GAAP fully diluted earnings per share will be in the range of $0.15 to $0.29 for Q2, with non-GAAP fully diluted earnings per share expected to be in the range of $0.23 to $0.37.
For these forward looking statements, I must caution you that our actual revenues, expenses and earnings could be negatively affected by numerous factors, such as any weakness in global economies, foreign exchange fluctuations, expense overruns, manufacturing inefficiencies, adverse effect of price changes and effective tax rate.
In summary, I am pleased with the discipline to our operating model that enabled us to deliver on our operating income target this quarter despite lower revenue.
I want to thank our employees for continuing to execute on our key business strategies while managing expenses.
I believe our employees drive the culture and the value of our brand, which has been and continues to be a major differentiator in our space.
Together, we will continue to focus on our growth and profitability goals into 2018.
We look forward to seeing you at our Investor Conference on May 22 in Austin, Texas.
As usual, this will be held in conjunction with our annual user conference, NIWeek.
You will have the chance to hear from NI leadership about the strength of our software differentiation and our strategy to drive focus throughout our company while leveraging our platform investments within our key industries.
You will have access to customers to help you better understand our value and the competitive advantage that our platform provides to help them win in their space, and we will speak to our long-term operating model and capital structure.
I will now turn it over to <UNK> <UNK>.
Thank you, <UNK>, and good afternoon.
I will now provide additional commentary on our performance in Q1 as well as some insight into our sales channel evolution.
Starting with our regions, we saw the strongest performance from EMEA, driven by broad growth across our product and account portfolio.
Our Americas region saw slight year-over-year revenue growth, with strength in aerospace and defense and challenges from direct U.S. government spending.
Within our APAC region, our revenue was flat year-over-year, with weakness in several large accounts in the mobile device supply chain, particularly in Taiwan and Korea.
Double-digit revenue growth in China and Japan helped offset this weakness.
Turning to industry performance.
While our semiconductor business saw headwinds from the slowdown in the mobile device supply chain, broad-based demand for our platform and semiconductor characterization and production tests remained strong.
In particular, we saw continued adoption of our platform for testing 5G devices.
For example, engineers at Qorvo, a leading provider of RF solutions, used LabVIEW, PXI and the vector signal transceiver to test their new front-end module targeted for early 5G mobile devices.
Paul Cooper, Director of Carrier Liaison and Standards at Qorvo mobile products, said "The wide bandwidth, excellent RF performance and the flexibility of NI\
Thank you, <UNK>.
While our revenue came in slightly below the midpoint of our guidance for Q1, we continue to drive operating leverage.
Our revenue this quarter was negatively impacted by weakness in the mobile device supply chain, which was partially offset by improved growth in our broad-based business.
As <UNK> mentioned, at the midpoint, we are guiding to record revenue and record non-GAAP net income for our second quarter.
The strong growth of software bookings during the quarter helped us to deliver a significant year-over-year increase in our gross margins in Q1.
We believe our software platform is our most crucial differentiator and value driver, and its growth signals strength in our market position.
We believe the reception to LabVIEW NXG and the increase in LabVIEW adoption that we've seen across our customer base validates the investment in our software platform.
I'm also very pleased with the performance of our broad-based data acquisition portfolio.
These products provide measurement capabilities to systems across almost every industry.
We believe the performance of these hardware products, along with strengthened software, demonstrates the broad health of our platform across a diverse set of customers and applications.
This has long been a strength of NI's market position.
2018 has already been an exciting year in technology with the first standards for 5G communication coming out of the 3GPP, a new autonomous functionality rolling out of the lab and onto public roads.
Each new milestone in technology adds more and more complexity to validation and production tests.
Using a platform-based approach helps ensure the test ---+ ensure the test costs and test time don't outpace product design.
Our customers have shown that our software-based platform is critical to managing the test challenges of rapidly evolving technology.
At Mobile World Congress this year, we released a significant number of announcements, including our plans to collaborate with Samsung on test environments for 5G new radio to help test interoperability of next-generation base stations and mobile devices.
Our extensive work with innovators in this space has helped us bring 5G-capable technology to our platform quickly and positions us to meet the testing needs of these next-generation wireless products.
As the standards evolve and these companies bring innovative products to market, our platform will help ensure that they can scale from research to production and meet their cost, quality and time-to-market goals.
We're only 4 weeks out from NIWeek 2018, where we'll bring together thousands of users, decision-makers and NI engineers to discuss technical challenges, gain insight into new technology trends and to lead with new solutions.
At NIWeek, you will see the continued expansion of NI's 30-year investment in our software-based platform and tangible examples of customers leveraging decades of investment in hardware and software.
These investments deliver value to our customers through integration of the whole software stack, of drivers, test development software and test management software.
At NIWeek, we will demonstrate how we are adding more value to this platform through new capabilities and by leveraging software advancements like analytics and cloud computing to support the latest technology trends.
I'm excited to celebrate the impact our customers are having on the world and to see our teams unveil the latest products that will further differentiate our platform for existing customers and to expand the number of users that we can serve in the future.
I would close by thanking our employees and reiterating the importance of focus.
Our multiyear platform investments in hardware and software, coupled with a multiyear evolution of our sales channel, have positioned us well to capitalize on the complexity created from new and emerging technology.
I'm excited to see us deliver these new technologies and processes to drive further adoption within our target industries and applications.
Aligned execution from product development to system delivery will help us further differentiate our platform in these areas and deliver high-value systems to market faster.
Once again, I look forward to seeing you at NIWeek, and we'll now open up for your questions.
Yes, I have a question and a quick follow-up for ---+ on <UNK>.
Alex, my question is around the segments.
You operate in academic research here or defense, electronics, communications, industrial.
Any color you could give us in terms of how these individual segments are performing both currently and then just a forward-looking view into the second half.
And then, <UNK>, agile development you said, quite interesting.
Would that have any impact on software OpEx or any of the testing OpEx that goes with these frequent software releases.
So, <UNK>, thanks very much for your question.
Yes, let me kind of deal with the broad context and then <UNK> will get into the details of the specific kind of industries that we serve directly to give you some color there.
Broadly, we're seeing the success and reaping the benefits of the investments we've made over multi-years in our software platform and in our broad-based data acquisition and control products and very pleased to see the positive reaction there.
We did see, as we said, some slowdown or weakness in the mobile device supply chain.
And unfortunately, that turned what would've been a really great quarter into just a good quarter.
So we're glad to see record revenue in Q1 and deliver on our profitability goals.
When we look at that particular area for Q1, that mobile device supply chain account had been more volatile than our normal business over the course of many years, and so this provides a little bit of a speed bump for us as we enter into 2018.
But on the good news side, the revenue year-over-year from that set of accounts is down about 2/3.
So their ability to have a negative impact on our go-forward expectations is pretty low.
And if that does return, then that'll be a tailwind for us in the second half of the year.
Yes, I'll just chime in, <UNK>.
This is <UNK>.
So yes, the strength in software and data acquisition cuts across all the industries and customers that we serve.
So we're very pleased with that in the quarter.
From an industry color point of view, transportation and aero defense were both strong for us in the quarter.
And then as Alex commented, semiconductor is kind of a tale of 2 sides.
It was approximately flat where these few accounts, less than 10 accounts in the mobile devices supply chain, were particularly weak.
And the rest of the industry in general was good, was strong in terms of our business in validation labs as well as in production tests, and those roughly offset themselves in the quarter in semiconductor.
Okay.
This is <UNK>.
I'll take the question on the software OpEx.
We're pretty excited, as you mentioned, about the ability to move to this agile methodology and leverage that for our customers to deliver these features much faster.
And so the guidance that I provided was that we will be increasing our target for R&D.
We were running at a target of 16%, and now that will go up to 18% to align with that new view of non-GAAP R&D transparency.
And obviously, we expect our gross margin to move up correspondingly.
So you'll see 2 areas in our model that will move, substantially offsetting, as we provide that, I think, really more transparent and industry-norm view of our ---+ both our R&D and our gross margin.
And we'll be talking about our ---+ evolution of our long-term model at NIWeek.
So we'd be happy to get into it in more detail at that point.
Just a couple of comments about this.
As we reflect NXG for us, the LabVIEW NXG in particular, has been a multiyear, very-large investment.
And we've been looking forward to the opportunity as that ---+ we drive adoption of NXG completeness.
It's been a very stable release.
I'm excited that the R&D team now is able to transition to a much more rapid development process so we can bring features to market for our customers much more quickly.
And I'm glad that we'll be able to align with what's more common industry practice as we move forward.
Obviously, from a year-over-year point of view, we did have revenue from those guys last year, Rob, as you mentioned.
Obviously, we've always kept that kind of range consistent.
So the real thing I think to focus on is the midpoint.
From a sequential point of view, given the decline we saw on those accounts in Q1, I don't really anticipate that they can have an impact on our ability to hit our guidance in Q2.
From a guidance point of view, we will be looking to build some backlog if we can.
And obviously, we've been very successful in terms of delivering on the profit element here.
So we'd like to have a little bit more backlog to be more efficiently able to manage the business.
So going forward, from a Q2 guidance point of view, that set of accounts, as <UNK> mentioned, handful in the mobile devices supply chain, unlikely to have any substantial impact on our ability to hit our guidance for Q2.
Yes, I'll take that, Rob.
It's <UNK>.
Yes, in APAC, I'd characterize it as sort of broad success in the narrow set of challenges.
So those small number of accounts concentrated in a couple of countries really were offset by double-digit growth in the areas that I mentioned, in China and Japan, and so that's what added up to the results in APAC, which was approximately flat in U.S. dollars.
And then similarly, just a little bit more color on Americas.
It was up 1%.
A little bit of that mobile devices impact comes into the Americas as well.
And then the ---+ as I mentioned in the prepared remarks, the U.S. government continues ---+ the direct sales to U.S. government and things like the National Labs continues to be a challenge offset by strength in areas like automotive and aerospace in particular was stronger in the Americas.
On the salesperson transition point specifically, Rob, we will be ---+ a part of our Investor Conference will have a session where we're going to walk through the evolution of the channel.
It's been a 18-month to 2-year journey to [reorient our sales force].
We really tried to do that in a staged fashion to minimize the disruption.
I want to really, as <UNK> said earlier on, congratulate the teams on going through that transformation without any significant disruptions.
Yes.
No, that's been a weakness for some time.
Of course, as things are weak over some time, they become a little less impactful.
So I don't.
But I will say, it was good to see the aero defense, which is commercial aerospace and a lot of defense contractors, for that business to start to strengthen.
We just haven't seen it in the direct U.S. government and places like National Labs yet.
Thank you very much for joining us today.
Encourage you again to join us either in person or over the web for our Investor Conference at NIWeek.
We look forward to an exciting event and to building on our momentum as we go through the rest of 2018.
Thank you.
| 2018_NATI |
2016 | CAT | CAT
#As we sit now, the thing that has actually been pretty good is sales that go directly to end-users, rather than through a rental fleet.
So the weakness right now is ---+ mostly what we've seen is in and around our dealers loading rental fleets and I think that's where this sort of hangover of equipment that was being used for oil and gas, a lot of it resides right now.
They are pretty stocked up on rental fleets.
Used prices are down a bit, so that's not encouraging them to sell used equipment out of a rental fleet and replace it with new.
So I think that is right now the reason that we are not seeing a more positive construction number in the US.
You would hope ---+ time heals all things and you would hope here sometime over the next couple of quarters that we would be through that.
Thankfully, it's not another down year there.
It's sort of flattish there for the full year, up for the industry.
We're doing a little better than the industry and that's kind of continuing a trend that's been going on now for a couple years.
We've got great product, great dealer distribution there.
I think customers are kind of coming around to the quality business model.
Again, hopefully next year can build on this.
We'll have to wait and see, but at least for this we're looking for, from an industry standpoint, of flattish industry.
That's actually a great question and I'm remiss for not having mentioned that when I talked about the second half.
We have had good cost reduction during the first half of the year for material and our view is we will continue to have cost reduction in the second half of the year versus 2015.
But commodity prices have come up a little, so we are probably going to have less than the first half of the year.
In other words, full-year, even second half versus the second half of last year, positive, but the positiveness has probably peaked and it will probably go down a little bit in the second half of the year.
So that is one of the reasons, I think, that second-half profitability ---+ that plus the inventory declines, plus the absence of the sort of $0.04 we got on the security sale in the second quarter all kind of make it look like it doesn't hang together first half, second half with sales.
I'll take that one; it's <UNK> <UNK> here.
I don't think it was any surprise that Joy was acquired with what has happened to them and the mining industry in general and all the mining customers, particularly coal customers, that are out there around the world.
Obviously we have known Komatsu for decades.
We've known Joy intimately as well the last decade or so since they emerged from bankruptcy and we entered mining in a bigger way.
So neither one of these are new players.
Certainly it's a consolidation that makes sense.
In the mining world, it's going to be smaller for at least a period of time.
Again, we know them; they know us and I think, going forward, we will continue the competition just as we have in the past.
And I expect us to continue winning where we win.
No doubt about that, and it's particularly in construction.
Part of that, as you mentioned, is seasonal and I think part of that again is related to dealers taking inventory down during the second half of this year.
Again, partly seasonal; I think partly delivery performance.
We are doing a much better job of delivering on-time stably to customers, so I think both of those things are contributing to lower orders.
If you look at end-user demand ---+ I'm talking construction here ---+ for the second half of the year, our sales to users that's going to be pretty steady in the second half of the year.
So it's not as though we are seeing a deterioration in demand from end-users.
It's more dealers have lowered orders to take out some more inventory.
Yes, I think that is exactly what we're saying.
I think that's a fair assumption.
The retail sales numbers are the ones to watch and really drive this whole supply chain.
And as long as they are steady, the chain will work itself out.
As <UNK> said, second half will look different than the first, but that's the one that really drives us.
Of course, that gets back to market share and a lot of other things as well, <UNK>.
I don't know if they will be flat flat, but they should be closer than they are right now, yes.
So that's 2016 versus 2015 costs and we start ---+ a lot of that started coming out very early in 2016.
Our first quarter was quite favorable; our second quarter was even more favorable.
So I think we will probably end the year with a ---+ as you look forward, based on the timing of the cost reduction, a tailwind but I don't think it would be $1 billion.
I will start with that on the Solar piece and then I will turn it over to <UNK>.
But on Solar what we see customers pushing out a little bit is the timing of some maintenance and that doesn't have usually as long a backlog as the new product, so it probably impacts this year's sales a little quicker than it does backlog, just by the nature of it.
I think the reason that we made a comment on Solar backlog is because everybody is concerned about it and we're just trying to reassure everyone that what they're selling they're replacing with new orders.
That's not falling off a cliff or off the table, and the gas business keeps on chunking along.
I'll turn it over to <UNK>.
Thanks.
In terms of your trough earnings question, I think your question is a reasonable one to assume.
As you say, without all the restructuring costs, we're at $3.55.
And as <UNK> said, you take $0.08 back, we are a little bit above that even.
But certainly around 40, where we are now, that's a reasonable assumption to go after and that's where we are going to fight to try and find a bottom, if that's what we are fighting in the future.
This is <UNK> <UNK>.
I might just add a quick point, <UNK>.
The trough earnings number has been stated between $2.50 and $3.50.
I'd say if you look at how ---+ I would say the sales decline modeled in those scenarios would not have been as severe as what we've experienced in the four-year trend.
So going from above 60 down to 40, we've been absolutely trying to stay ahead of the process to be prepared if things did not get better.
If we were not staying ahead, quite frankly, there was no way we could have done $2 billion of cost reduction this year to offset some of the price pressures and the drop in volume.
We really like our midcycle numbers.
Everybody wants to know when we're going to start recovering in that trend towards midcycle, but we still need to be prepared for what could happen in the short term on the downside.
And so we have talked about kind of a 25% to 30% decremental.
I would say we are still committed to that.
I would also say that we are being extremely directive in the things that we fund.
Things like digital, which will be up significantly this year over last year.
Things like funding the businesses that we believe have the highest opportunity to improve the value of the Company and our operating profit after capital charge, which we call OPACC, in the medium term.
So we want to fund those industries which we think are attractive for us and where we play well.
And things that are not as attractive are the places that we look first to cut.
We are still in that process and we're still preparing to stay ahead of the game.
And I would say that, if required, we would be ready.
That's right, <UNK>.
I would just come back to the incremental/decremental pull-throughs on the way up and the way down that have served us pretty well.
Going back to 2009, on the way up from $30 billion to $66 billion and then on the way down from $66 billion to $40.25 billion this year.
We managed to stay inside of those targets all the way up and down.
I think that's probably one of the single-biggest differences we've been able to accomplish from prior deep slowdowns in the 40% range top line is we've got everybody targeting those and that's where we go after with our cost reductions.
And, as <UNK> said, our capital allocations in those businesses we really want to stay in and thrive in long term.
So a couple of things.
One, $2 billion is a little too high a number.
It's probably more like year-over-year $1.5 billion.
And it's probably split two-thirds Construction, one-third Resource, in that sort of ballpark.
In terms of adequate levels, I tried to address this point.
I think adequate levels is a little bit of a moving target around delivery performance.
So again, if we were able to cut delivery performance in half from where it's at now, dealers would feel comfortable holding less inventory.
If our delivery ---+ let's say things ticked up, orders ticked up, the markets heated up, and let's say we had trouble keeping up, that would concern dealers and they would order even more.
They would want to hold even more.
But just the opposite is happening right now.
We have excellent delivery performance.
They can get pretty much what they need when their customers need it.
So that's causing them to hold or want to hold less, and the more ---+ the better we do with Lean, the more that will probably be the case.
So I'm trying to stress the point I don't think dealer inventories are excessive.
There's a reasonable range, but I think they will come down over the second half of the year.
Well, it should be ---+ and <UNK> has talked about this quite a bit ---+ on the way up, we previously kind of had a 25% incremental target.
But I think while we have not quantified it, certainly our expectation is that the first chunk of what goes up would certainly be at a higher rate than that.
Yes, that's a good question.
I think our construction business is a great example of how our managing for maximum OPACC, operating profit less the capital charge, can work.
They've been on this path to maximize OPACC for the last few years, which is fundamentally around figuring out where you make the most money and where you don't; fixing where you don't, and reinvesting in where you do to increase sales.
So that's over-simplification of it, but that has worked.
They have also taken out ---+ they are also very cost-conscious.
They have taken out costs, but relative to where we think a trough, a midcycle, a peak would be, they are not as bad off as, say, oil or rail or mining.
But I think there's plenty of upside for them.
North America is still well below the peak.
Brazil is, wow, so far down you can hardly see it.
So I think there's plenty of scope for improvement and, based on the work that these guys have done to figure out where to invest to drive OPACC, I think there's still plenty of upside left for them.
I don't see material down side at the moment, frankly.
We've seen so many states step up with bond issues.
We've seen many states step up with tax increases for infrastructure spending.
Anecdotally, a lot of our customers are busy across the country.
A 2% growth rate of the ---+ 1.5% to 2% does not spur a lot of investment, but there's enough going on to tell me that we are not facing a cliff here unless there's some outside event of some kind that occurs.
So I don't see it collapsing or, as you said, a big fall off.
I would sure like to see the growth increase based on increased economic activity.
This is <UNK>.
I'll just make one other comment; and we're not going to give you kind of an incremental number this year to plot in.
We've talked about it being fairly high.
One thing I would say for reference is that the vast majority of costs we have taken out we would not add back.
And so as we have restructured, as we have changed things, if you think that there are costs that we are ready to add back that we've taken out, I would say, outside of some very minor amounts, most of those costs we're not going to add back.
So as we add period costs in an upturn relative to our incrementals, it would be focused really around our OPACC improvement agenda; those places we want to invest more because we think there's a significant amount of value.
And so that will probably drive that incremental discussion when we get to that point.
I think probably the best way to say that is where oil prices are today it's probably not enough to drive a lot of incremental investment there.
I think the thing you will see first is the idle fleets being put back to work, particularly around drilling, before we see some investment.
Oil prices this morning I guess were in the $42-plus range; we are probably still a ways away from that.
This is <UNK>.
Cat Financial is always trying to increase their share.
Just like every other part of our business, they are trying to increase their market share, if you will; the percentage of deals that they do versus their competitors.
And they've actually done a very good job over the last couple of years in increasing that and I think that's what you are seeing.
The limit on that is you certainly don't want to do shaky deals.
You don't want to sacrifice credit quality to do it, but you want to work very closely with the dealers, with the customers, and capture as much market share as you can.
This is <UNK>; I will add on to that.
We are very proud of the people at Cat Financial and how they run that business very independently.
In partnership with our product groups, but very independently.
And so you will see our allowance being very well-maintained at around 1.25%.
Past dues, a similar trend at 2.93%; fairly close to previous quarter and below historical average.
And we have grown our share there.
But one thing I want to comment on, which we had a few questions come in on, there is pressure in the used equipment market.
It's probably down 2% or 3% from the last quarter; it's probably down 5% to 10% if you look from a year ago.
We carry a little over $600 million of used equipment, both from repossessions and residuals.
Still pretty well-behaved.
We had a gain last year and we had a very small loss this quarter and so we don't see any big issues in that regard.
But I would tell you that that is an area that does have some pressure and that we are watching that is, at this point, very well maintained.
That's a good question.
I wouldn't relate it specifically to any one of those.
I think you have to look at it in the aggregate and <UNK> made actually a really important point a couple minutes ago and that is that we are trying to get ---+ we don't have a crystal ball.
We don't know what's going to happen in the marketplace, but we want to be positioned to deal with it if it does happen.
So I would say that over the course of the past quarter we are a little more negative on the world economy; the Brexit, the Turkey, the elections, oil price, you name it, all of that contributes.
And we are less bullish on second-half sales because of that.
Whatever impact that would have in the future, we are trying to get ahead of that with additional cost reductions.
So I would say it's us trying to get ahead of the potential, not what we actually know.
And not specifically related to any one of those items.
Hopefully, this is the worst quarter we will see.
I think embedded within our outlook we see it getting a little bit better.
Second quarter, price wise, was deteriorated a little bit from the first quarter.
And when you get to numbers as ---+ we're talking a change quarter to quarter of a couple hundred million; not for pricing, but in total for them.
Costs were a little higher because of some inventory adjustments, just kind of normal surplus and excess inventory.
And then we had little negative inventory absorption for RI.
They took out inventory in the second quarter; that hurt a little bit.
They are certainly a part of the extra cost reduction that we are going after in the second half of the year.
When I talked a little bit about first half/second half, we think their sales are going to be up a little bit in the second half of the year, so I think the combination of extra cost reduction and a few more sales, hopefully, will make this the ---+ make the second quarter the worst of the year.
It's hard to tell actually.
The highway ---+ the Federal Transportation Act that was passed last year, in itself, did not increase overall funding an awful lot in this country.
It held it at inflation plus a little bit, but it did give it five years.
I think as most states have recovered from their fiscal problems the last few years, they are starting to recognize the need for infrastructure and we are seeing that.
If there is any impact, and I've said this all year long, from that transportation act of last year, it's going to be a 2017 event.
We might feel it.
I don't think it would move the needle a great deal, but we would certainly feel it, and it's hard to quantify until states start lining up for their matching funds.
So there's quite a big effort underway to get that done as well.
We'll just have to see it play out.
It's certainly going to be a positive, but I would doubt we'd see it move the needle in a big way in 2017.
But we would feel it.
Two good questions, Steve.
First, on taxes.
All-in we're looking at a 25% tax rate this year, but that is a little lower because of all the restructuring, which has tended to be in a little higher tax jurisdictions.
So the restructuring is attracting somewhere around I think low 30%s, 34% I think.
So excluding restructuring, it will vary a little bit by quarter depending upon how much restructuring there is, but probably around 27%, excluding restructuring.
And then what's normal on incentive pay, I'm going to qualify it a little bit here: it depends on how many employees we have, because it scales if you look at it in terms of dollars.
But based on the number of employees we have right now, if we were to pay everyone at a 1.0 payout, which we would consider to be normal, in a normal year, you are looking at something in the order of magnitude of, let's say, rough number $850 million.
Joe, I feel a little bad here; I didn't ---+ I tried to prep a little on rail, but I didn't do it by region, so can't talk too much about North America specifics.
Sorry I'm just not further up to speed.
What I would say is we're looking for a bit better rail sales in the back half of this year.
Remember, we have just introduced our new locomotive at midyear.
And while sales aren't huge for that right now, given the state of the overall industry, we certainly are going to sell some.
So that's part of the increase in the back half of the year.
Well, we are hearing that dealers are booking a bit more.
In fact, I verified that with our Mining group last night.
They are seeing ---+ dealers are seeing an uptick of bookings around rebuilds.
Hasn't really hit our parts business quite yet, but hopefully it will.
And your synopsis of no big upturn in parts sales around Mining is actually correct.
At least so far.
I think we are at the top of the hour here, actually a minute or so over, so we will conclude the call.
Thank you very much.
| 2016_CAT |
2018 | FN | FN
#Thank you, <UNK>, and good afternoon, everyone.
We're pleased that our third quarter revenue came in above the top end of our guidance range with revenue of $332 million and non-GAAP net income of $0.71 per share, including the impact of a $0.06 foreign exchange headwind.
This strong profitability is also reflected in cash flows, with year-to-date operating cash flow increasing 49% to nearly $90 million and year-to-date free cash flow of $61.5 million compared to a little over $3 million a year ago.
We believe that business trends are stabilizing, and this is reflected in our expectations for increasing revenue in the fourth quarter, as TS will detail later.
As in the second quarter, 72% of third quarter revenue came from optical communications programs and 28% from noncommunications.
Within optical, telecom continues to dominate.
Under 64% of optical revenue, telecom revenue grew 6% on a sequential basis.
We anticipate that this stabilization will continue into the fourth quarter in both telecom and datacom programs.
We are also optimistic that our non-optical communications business will resume sequential growth in the fourth quarter after a modest decline from record levels in the second quarter.
These trends reflect not only market conditions of our customers and their customers, but our ability to attract new customers and new programs.
Our strong position in the market is driven by our experience and reputation as a technology-driven manufacturer for optical communications and other markets that require precision, manufacturing and advanced packaging.
Over the years, we have reinforced this focus on optical communications, while also leveraging us to enter adjacent markets, such as optical sensing, commercial lasers and medical.
New business, which again represented 35% of revenue in the third quarter, continues to reflect this diversification.
Fabrinet West, our new product introduction facility strategically located in Santa Clara, California, has been instrumental in helping us get closer to customers and win new programs serving diverse end markets.
While there's only one Silicon Valley, we believe there are a small number of global regions that share similar characteristics of a large concentration of technology companies.
One of these locations is Israel, where we already have a number of customers.
In March, we made early steps towards establishing a new NPI facility in Israel, where we can continue our proven model of providing local new product introduction services, helping our customers with design for manufacturability, and then transferring those programs to Thailand for value manufacturing.
While it's still very early days for us in this exciting region, we're confident that in Israel, we can replicate the NPI playbook that we have been successful with in Fabrinet West and Fabrinet UK.
Having already established a beachhead in Israel, including a new Executive Vice President to lead the charge, we look forward to sharing our progress with you as we execute on our plans.
In summary, we are pleased to have exceeded our revenue expectations in the third quarter.
We're enthusiastic about the fourth quarter and beyond, with stabilizing or improving trends across the markets we serve.
And we're excited about the many opportunities ahead.
Now let me turn the call over to TS to discuss the details of our third quarter performance and our outlook.
TS.
Thank you, <UNK>.
Good afternoon, everyone.
I will provide you with more details on our performance by end market and our financial result for Q3 of fiscal year 2018 as well as our guidance for Q4.
Total revenue in the quarter was $332.2 million, above the high end of our guidance range.
Non-GAAP net income was $0.71 per share, within our guidance range.
In the third quarter, we experienced a $2.4 million or $0.06 per share foreign exchange headwind compared to a $3.7 million or $0.10 headwind in the third quarter of 2017.
Excluding the impact of these headwinds, non-GAAP EPS would have been above our guidance range.
Looking at the quarter in more detail.
Revenue from optical communication programs was $241 million compared to $287 million a year ago and $242 million in the second quarter.
Non-optical communications programs represented 72% of total revenue, consistent with the second quarter.
Within optical, telecom represented 64% of revenue, up 4 percentage points from the second quarter.
In other words, in the third quarter, telecom revenue increased by 6% from the second quarter to $154 million.
Datacom revenue was $87 million or 36% of optical communications.
By speed, 100G solution continued to dominate with revenues of $129 million, down slightly from $133 million in the second quarter.
Revenue from 400G solution was $10 million in the third quarter compared to $16 million in the second quarter.
Revenue from QSFP28 transceivers was $37 million in the third quarter compared to $42 million in the second quarter as the transition to lower-cost CWDM4 variance continues, with volume not yet high enough to offset lower prices.
Silicon photonic revenue was $66 million compared to $74 million in the second quarter.
Turning to non-optical communications.
We again had a strong performance, but did not beat our record second quarter performance.
Non-optical components and module represented 28% again in the third quarter at $91 million.
Revenue from the industry laser market was again a record at $43 million, up 23% from a year ago.
Automotive revenue of $21 million was below the record from nearly $26 million in Q2, but up 6% from a year ago.
Sensor revenue grew slightly to nearly $5 million from $4 million in the second quarter.
Other revenues of $22 million was down slightly from $23 million in Q2.
Finally, new business was $116 million or 35% of revenue in the third quarter as it was in the second quarter.
Now turning to the details of our P&L.
A reconciliation of GAAP to non-GAAP measures is included in our earnings press release and investor presentation, which you can find on our website.
Non-GAAP gross margin in the third quarter was 11.6%, consistent with ---+ as Q2 and below our target range of 12% to 12.5%, primarily due to start-up costs related to certain new customer program as well as to the decrease in revenue and a continued strengthening of the Thai baht from the second quarter.
We expect gross margin to improve in the fourth quarter, but not enough to put us in the target range for all of FY 2018.
Non-GAAP operating income in the third quarter was $30.1 million, and operating margin was 9.1%, up slightly from Q2 from cost savings on the reduction in workforce that we made in Q2 as well as approximately $1 million impact from the reversals of management bonus accrued against FY 2018 objective.
Taxes in the quarter were a net expense of $1.5 million, and our normalized effective tax rate was 6.2%, consistent with Q2 and in line with our expected range of 6% to 7%.
We continue to anticipate an effective tax rate of 6% to 7% for fiscal year 2018.
Non-GAAP net income was $28.4 (sic) [$26.9 million] in the third quarter or $0.71 per diluted share compared to $0.72 in Q2 and $0.80 a year ago.
On a GAAP basis, which includes share-based compensation expenses and amortization of debt issuing costs, net income for the third quarter was $21.1 million or $0.55 per diluted share compared to $21.7 million or $0.57 per diluted share in the third quarter of fiscal year 2017.
As I mentioned earlier, we experienced a $2.4 million or $0.06 per share negative impact from a stronger Thai baht on our GAAP and non-GAAP bottom line results for the third quarter.
Turning to the balance sheet and cash flow statement.
At the end of the third quarter, cash and investment were $315.4 million.
This represents an increase of $27.8 million from the end of the second quarter, primarily from operating cash flow of $52.7 million, which increased 31% from the second quarter, offset by a CapEx of $6.9 million, share repurchases of $12.5 million and repayment of long-term loan from bank of $3.4 million.
Free cash flow, which is operating cash flow less CapEx, was $45.8 million in the third quarter, an increase of 53% from Q2.
On a year-to-date basis, operating cash flow was $89.8 million.
After subtracting CapEx of $28.3 million, year-to-date free cash flow was $61.5 million, reflecting the meaningful decrease in CapEx that we have anticipated for FY 2018.
We expect CapEx in FY '18, all of which is maintenance CapEx, to be approximately $35 million.
During the third quarter, we were active in our share repurchase program and bought back approximately 422,000 share at an average price of $29.58.
As of the end of the third quarter, $37.6 million remains in our repurchase authorization.
I would now like to turn to our guidance for the fourth quarter of fiscal year 2018, which incorporate approximately $7 million negative impact from sanctions on ZTE.
As a reminder, we do not have any direct customer in China, but many of our customer do serve Chinese customers.
With that background, we anticipate revenue to be in the range of $334 million to $342 million, an increase from the third quarter, as <UNK> indicated.
From an earnings perspective, we anticipate non-GAAP net income per share in the fourth quarter to be in the range of $0.73 to $0.77 and GAAP net income per share of $0.55 to $0.59 based on approximately 37.9 million fully diluted shares outstanding.
In summary, we are pleased to have delivered revenue in the third quarter that was above our guidance range and are enthusiastic about increasing revenue in the fourth quarter as customer demand across our diverse range of program stabilize or improve.
Our position in the market continues to strengthen as customers look to us to manufacture their most challenging designs.
Operator, we would now like to open the call for questions.
So as we mentioned in our prepared remarks, the ---+ our estimate for Q4 is an impact of about $7 million in our Q4 outlook.
And that's included in the outlook we give for Q4.
That number we arrived at from discussions with our customers, so we feel pretty solid about that number.
This is TS.
I think the volume is always there in terms of quantity.
The thing cloud, the whole ---+ the data is a pricing reduction.
So ---+ and we, in our prepared remarks, we say that the lower prices is not enough to offset the volume increase.
So it will stay in the two-part, obviously, volume continues to increase, but again, because of the price reduction, we can't really tell.
I think we expect both segments to grow moderately.
And that's why you see our ---+ reflected in our total guidance.
Yes.
So essentially, we have a new entrant about maybe 2 or 3 quarters ago, and they start ramping.
So there's a new customer we acquire.
And other than that, it's still the same customer profile.
One of them has been ramping down.
If you listen to their earlier earning call, they're talking of ramping down temporarily.
And since then, their volume's came back.
So if you look at from Q2 to Q3 to Q4, most of the customers are about the same, except we added in a new customer, and they're ramping very nicely.
So there's nothing really to update on that.
MACOM is a customer of ours.
They're not a 10% customer, so we're not going to go into huge amount of detail.
But they remain a customer of ours.
There's a number of programs we're working on with MACOM, and there's no real update since we last discussed it.
We're probably not in a position to really talk about that, because it's more of our customer's business for them to talk about.
But we're still working with the customer and with the end customer on that program, and it's progressing at a pace.
But we're not really in a position to give that level of guidance down to the effective program.
I will say, if you look at the number in detail, it's the telecom sector.
And most definitely, it's the nonspeed telecom gadgets that make the quarter.
Those things are on laser, modem, amplifier and so on.
That ---+ those we don't classify them by ---+ with 100G or 400G and so on.
So those are pretty strong segments, and that pretty much endorsed, also verified by our customer in the earning call, if you can listen to their earning call.
The other one I would just add to that is our optical sensing business is up, was pretty strong last quarter, as was commercial laser business.
That business is very strong.
So it's across a number of sectors.
So the March decline in silicon photonics, we have a mix of customers in the silicon photonics space.
But it is pretty concentrated, as we mentioned a moment ago, in a few ---+ with a few customers, with one in particular seeing weakness last quarter.
And they talked about that in their earnings call.
But we do see that actually recovering this quarter.
So the ZTE effect is factored into our numbers.
That's not to say that something else couldn't happen.
But based on best information that we have right now, there's about a $7 million impact, some of which is actually that silicon photonics business.
No, it's across a number of customers.
It's more than one customer.
It's across a number of customers.
As you'd appreciate, we don't ship anything directly to ZTE.
We actually don't ship anything directly to China, all of our product ships, exports.
But that $7 million is across a number of customers, who ---+ customers of ours who ship to ZTE.
So Dave, normally we don't guide gross margin.
But if you check our guidance on the EPS and the revenue and work backwards, and given the knowledge of operating expenses are a little bit low in that Q3, I will say, you will realize that the gross margins are improving in ---+ at Q4.
We have implied a better gross margin going to June quarter.
And again, on the CapEx ---+ operating expenses side, $8.5 million is extremely low.
We talked about reversals of some of the management bonus accrual.
I would expect to get back to about $10 million to $10.5 million level, the normal run rate level in the June quarter.
So hopefully, that's helpful.
Next fiscal year, a lot depend on the revenue, okay.
If we are going to ramp, for example, like last year, 45% grow, obviously, we need a lot of CapEx.
But assuming normal growth, I will say it will still be around approximately around $35 million and $40 million.
We don't commission a second building until maybe at the end of 2018 or maybe early 2019 calendar year, right, <UNK>.
Yes.
I think If we get to the point where Chonburi is 70% to 80% ---+ certainly 70-plus percent utilized, we'll be commissioning a second building.
Obviously, that will then drive a much bigger CapEx in the year in which we do that.
It's a problem we hope to have.
But as of right now, I think that $35 million to $40 million is probably a good number for next year.
Yes.
The second building, we'll probably spend in FY 2020.
We will commission the construction in FY 2019, but I think the payment will be in 2020.
I think there are about 3 or 4 customers there.
A lot depend on their demand posture.
One of them doing well; the other one sees a temporary setback, and in their earnings call, they're talking about coming back.
So hard to tell but I think if both of them are being well, obviously, we'll see the number going up.
Okay.
Thank you, operator.
And thanks for everyone for participating in today's call.
We look forward to speaking with many of you at the upcoming investor events.
And we'll talk to everyone when we present our fourth quarter fiscal 2018 results in August.
Thanks, again, and have a great afternoon.
| 2018_FN |
2017 | VRSN | VRSN
#Thank you, operator, and good afternoon, everyone.
Welcome to VeriSign's First Quarter 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 the Investor Relations section of our verisign.com website.
There you will also find our first quarter 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 longstanding 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 for VeriSign.
First quarter results are 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.
We reported revenue of $289 million, up 2.4% year-over-year and delivered strong financial performance, including non-GAAP EPS of $0.96, up 12% year-over-year, and $139 million in free cash flow.
As part of managing our business during the first quarter, we continued our share repurchase program by repurchasing 1.8 million shares for $150 million.
Our financial position is strong with $1.8 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 March, the domain name base in .com and .
net was 143.6 million, consisting of 128.4 million names for .com and 15.2 million names for .
net.
The domain name base increased by 1.4 million net names during the first quarter after processing 9.5 million new gross registrations.
The U.S. market contributed to the better-than-expected performance.
Although renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the first quarter of 2017 will be approximately 72.2%.
This preliminary rate compares to 74.4% achieved in the first quarter of 2016.
In the fourth quarter of 2016, the final renewal rate was 67.6% compared with 73.3% for the same quarter of 2015.
As noted in our prior conference calls, the portion of registrations associated with the China names surge that occurred in the first quarter of 2016 continued to renew at lower-than-historic first-time renewal rates in the first and second quarter of 2017 and are contributing to slightly higher deletions in the first half of 2017.
In addition, Q2 tends to have slightly lower seasonal new gross registrations than Q1.
Based on these and other factors, we now expect full year 2017 domain name base growth of between 1% and 2.5%, with a change of the domain name base for the second quarter of 2017 of flat to an increase of 0.4 million net registrations.
As many of you are aware, we are in the process of reviewing the .
net registry agreement with ICANN as the current term expands on ---+ sorry, ends on June 30.
On April 20, ICANN posted the new .
net registry agreement for public comment, which is open until May 30th.
From our perspective, the posted agreement does not contain changes to the material terms, such as the fees paid to ICANN, the renewal rights or the 6-year term.
We believe we're on track for renewal prior to the expiration of the current term agreement.
Finally, as discussed during our prior earnings call, we decided it was in the best interest of the company to sell our iDefense business.
The iDefense sale was completed at the start of the second quarter and VeriSign continues as a customer to benefit from the threat intelligence information provided by iDefense.
And now, I'd like to turn the call over to <UNK>.
Thank you, Jim, and good afternoon, everyone.
Revenue for the first quarter totaled $289 million, up 2.4% year-over-year and up 0.8% sequentially.
During the quarter, 60% of our revenue was from customers in the United States and 40% was from foreign customers.
As it relates to our GAAP results, operating income in the first quarter totaled $175 million, up 5.1% from $167 million in the first quarter of 2016.
The operating margin in the quarter came to 60.7% compared to 59.2% in the same quarter a year ago.
Net income totaled $116 million compared to $107 million a year earlier, which produced diluted earnings per share of $0.94 in the first quarter of this year compared to $0.82 for the first quarter last year.
As of March 31, 2017, the company maintained total assets of $2.3 billion and total liabilities of $3.5 billion.
Assets included $1.8 billion of cash, cash equivalents and marketable securities, of which $316 million were held domestically, with the remainder held abroad.
I'll now review some additional first quarter financial metrics, which include non-GAAP operating margin, non-GAAP earnings per share, diluted share count, operating cash flow and free cash flow.
I will then discuss our 2017 full year guidance.
As it relates to non-GAAP metrics, first quarter operating expense, which excludes $13 million of stock-based compensation, totaled $101 million as compared to $103 million in both the fourth quarter of 2016 and in the same quarter a year ago.
The sequential decrease was primarily a result of lower marketing spend in the first quarter compared to the fourth quarter.
Non-GAAP operating margin for the first quarter was 65.1% compared to 63.3% in the same quarter of 2016.
Non-GAAP net income for the first quarter was $119 million, resulting in non-GAAP diluted earnings per share of $0.96 based on a weighted average diluted share count of 124.5 million shares.
This compares to $0.85 in the first quarter of 2016 and $0.92 last quarter based on 131.6 million and 125.5 million weighted average diluted shares, respectively.
For the past 2 years, we have used a tax rate of 26% 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 $0.25 ---+ 25%.
As a result, we will begin to use a 25% non-GAAP tax rate when reporting second quarter 2017 non-GAAP results.
Operating cash flow for the first quarter was $148 million and free cash flow was $139 million compared with $150 million and $143 million, respectively, for the first quarter last year.
Dilution related to the convertible debentures was 21.3 million shares based on the average share price during the first quarter compared with 21.1 million for the same quarter in 2016 and 20.6 million shares last quarter.
The share count was reduced by the full effect of fourth quarter 2016 repurchase activity and the weighted effect of the 1.8 million shares repurchased during the first quarter.
With respect to full year 2017 guidance, revenue for 2017 is now expected to be in the range of $1,145,000,000 to $1,160,000,000, increased and narrowed from the $1,138,000,000 to $1,158,000,000 range provided on our prior earnings call.
Full-year 2017 non-GAAP operating margin is now expected to be between 64.5% and 65.25%, increased and narrowed from the 64% to 65% range as provided on our last call.
Our non-GAAP interest expense and non-GAAP non-operating income net is still expected to be an expense of between $93 million and $100 million.
Capital expenditures for the year are still expected to be between $35 million and $45 million.
And cash taxes for the year are now expected to be between $20 million to $30 million, changed from the $15 million to $25 million range provided on our last call.
As previously mentioned, the majority of expected cash taxes in 2017 are foreign, primarily because of domestic tax attributes, including cash tax benefits from our convertible debentures.
As we said last quarter, these convertible debentures are an important part of our capital structure and our intention based on current conditions is to not redeem these debentures as they become redeemable in August of this year, which will allow these cash tax benefits to continue to accrue.
The financial guidance provided reflects the completion of our iDefense asset sale on April 1, 2017.
In summary, the company continued to demonstrate sound financial performance during the first quarter of 2017.
Now, I will turn the call back to Jim for his closing remarks.
Thank you, <UNK>.
In closing, during the first quarter, we expanded our work to protect, grow and manage the business while continuing our focus to provide long-term value to our shareholders.
We think that our focus on profitable growth and disciplined execution will extend the long trend lines of growth in our top and bottom lines 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 are ready for the first question.
This is <UNK>.
In short, we saw increased demand from U.S.-based registrars in the quarter, which was aided in part by what we would call domain name-centric advertising by several channel partners in and around the Super Bowl, which happened in the February time frame.
Yes, that hasn't changed too much over the years.
That's still very consistent.
You are correct, <UNK>, that marketing spend was down sequentially.
The reason behind that is partly because Q4 was so high.
We had a large amount of marketing spend going into the market in Q4.
And then with regard to our marketing spend this year, the timing of our marketing activities are more heavily weighted toward events later in the year than last year.
So as we've outlined in our 10-Q, our expectation for marketing expense is to increase as a percent of sales in the subsequent quarters.
We're not disclosing the sale proceeds from iDefense.
They were not material.
I think there might be some more information available in the next quarter since the sale actually closed in Q2, but the divestiture of iDefense was ---+ the sale of iDefense was not a material event.
I think you're seeing the final sort of move out of the China search names.
There were some that carried over into April, and we're seeing the final deletions of the so-called China search names from late 2015 and 2016.
We have 3 of the transliterations in market, 2 in Korea and 1 in Japan.
At this point, we don't have any additional details on any additional launches.
In China, we are still going through the licensing process to operate our Chinese IDNs, but no additional details to share at this time and we'll provide more information on these and future rollouts as appropriate.
No substantive update.
We are continuing to cooperate with the Department of Justice relative to the CID that we discussed last quarter.
Those interactions and dialogues have been constructive.
We're producing documents and information and answering the questions as needed.
So it's an ongoing process.
Nothing substantive to update now.
But, of course, as soon as there is, we'll share it with you.
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.
Have a good evening.
| 2017_VRSN |
2017 | IDCC | IDCC
#Sure.
So as we mentioned there's two components of revenue, high level right.
There's the connection level revenue which we will give to Avanci and then separately there is the upper layer revenue that will come from the software and patent licensing with respective to those upper layers.
When we put out the goal on IoT revenue we did say that we were also going to help people along the way because that was a 5-year goal and we would need to give you milestones along the way to show that we are marching towards that objective.
During the course of the year that things that we will do our best to give visibility into will be things like customer wins on the software side and related revenue there, related to those wins.
And as I mentioned in my script particularly how we see that is opportunity scaling.
So we do have customer opportunities for example in the UK.
We have opportunities to our partners HARMAN for example we will provide color around those opportunities as appropriate to show that we are marching towards that goal.
I think the same would be true for how we will look at the Avanci revenue as it starts to come in at the appropriate time giving color as to what is coming in and how we can see that growing.
Again our intention is to give you as much granularity here as we can so that you can see that we are achieving the goals that we laid out.
Yes, so I guess the first thing I'd direct you to <UNK> is we disclosed in our MD&A the breakout as well as in our financial metrics the breakout between fixed and per-unit and that is the recurring components of that, because the past sales is broken out separately.
And so you will see the shift that occurred in the fourth quarter as compared to the prior quarter and even more so as compared to earlier in the year and the mix going more heavily weighted towards fixed.
So I think that would address the first part of your question.
Yes I think rather than give you the percentage I think you can pretty much get there by looking at the breakout on our financial metrics because we will have within the fourth quarter those components broken out because they are the recurring components.
They are the levels from existing agreements more or less carry forward into the next year.
Yes look it's not a surprise in terms of that particular dispute.
I think that what we always try to do and we get asked about what you think about XYZ's licensing practices and things like that and I would rather just talk about what we do.
And I think to some extent what we do actually gets brought out in some of these litigations as the right thing to do.
I will go back years and years ago, but it is still relevant to the Broadcom and Qualcomm disputes, where Broadcom actually showcased InterDigital licensing practices as the correct way to do it.
And we have had a number of situations either at the ITC in front of other regulators where practices have been validated.
And so I think my sense on that <UNK> is even though it is a big dispute it is not one that particularly relates to us because obviously Qualcomm's licensing business to a degree is much different than ours.
There is unique factors in that and those are factors that I think are going to get looked at and they are not factors that exist in our practice.
They are always interesting to watch.
But I do not think ultimately it has a big impact on what we are doing.
In fact, the one thing I would say is the timing is interesting in that once we settled with Apple that dispute began and whether I don't know this for a fact, but just guessing is whether one of the things that Apple will point to is its agreements with us as comparison to what it has with Qualcomm.
That actually would be a very positive thing if that were to happen.
Thanks.
Good morning.
Sure.
I would say that it continues to be a very important activity at the Company.
I think that the strategy is a pretty well understood strategy at the Company in terms of what were going after, which is good because you've got everyone lined up at the Company, you know exactly what you need to look for, and exactly what a good fit would be, and not worrying about things that would be bad fits.
In terms of the opportunities you actually have two different kinds of opportunities.
One is as a result of Hillcrest there is certainly an opportunity to go deeper on sensors and sensor fusion.
That's one choice we have and certainly our radar there and capability there in terms of an acquisition would be much enhanced based upon the Hillcrest team because they are going to know that space really well.
And there certainly opportunity to go after other areas of deep competence and we can do those in two ways.
You can either acquire something where it is all ready an established position, obviously pay a little bit more for that.
Or you go after areas that you believe will become pervasive and that is a little bit more of a bet, but the benefit of that path is it tends not to be as expensive because there is still value to come on there.
The thing I like about the M&A strategy and the reason we are very excited about it is it leverages the customer base, it leverages our business model, it leverages our historic practices here which have been very, very valuable.
We are not trying to use M&A to turn this into a different Company.
I like this Company a lot, I think were in a really good position and I think we do a really good job, I just want to do more of it.
And so in terms of timeframe, Matt I'd say look, it's like anything else.
I mean we are doing a good job on the Hillcrest integration.
We certainly have the capacity and capability to do something if something were to come across our desk today we could do it, there's nothing that prevents us from doing that.
The key is finding the right one and I would say we are pretty active in that search.
| 2017_IDCC |
2018 | KLIC | KLIC
#Thanks, Joe.
This quarter, we booked a $105 million charge specifically related to the impact of Tax Cuts and Jobs Act of 2017.
Due to this large charge and our ongoing trend to further expand our market, drive share gains and the improved overall profitability, we had supplemented our earnings release with non-GAAP financial metrics.
<UNK> will provide some additional information shortly regarding our non-GAAP approach.
Going forward, our remarks will refer to GAAP results unless noted.
For the December quarter, we started out fiscal 2018 with strong results.
We delivered $213.7 million of revenue, way above guidance; gross margin of 46.3% and the operating income of $38.6 million.
Excluding the impact of tax reform and our other non-GAAP items, non-GAAP diluted EPS was $0.54.
This operational performance was stronger than our expectations a few months ago and dramatically stronger than our trailing December quarter average largely due to favorable semiconductor-related industry condition and also the slightly earlier- than-anticipated recognition of revenue associated with automotive-related shipment from prior periods.
Our significant exposure to positive trends in advanced packaging, automotive, flash memory, LED, in addition to industry's ongoing capital intensity, are anticipated to continue driving strong operating performance through fiscal 2018.
Much of our incremental earnings were driven by our capital equipment segments while Aftermarket Products and the Service segment, APS, performed in line with our aggressive trends.
The strength from capital equipment was driven by strong demand primarily for our ball bonding, wedge bonding and the wafer label packaging offering.
Our ball bonding business was up 10% from the same period last year.
Ongoing strength in NAND flash, LED and the general semiconductor were the primary driver of this upside.
Additionally, we enjoy continuous strengths within our advanced packaging business, specifically with our wafer label packaging offering.
This performance support optical and the nonoptical sensor capacities and they continue to benefit from premium mobile image and the 3D sensor assembly needs.
Looking forward, the compound annual unit growth rate for nonoptical sensor, 2017 through 2021, is projected to grow at a nearly 11%, and then a larger optical sensors market is anticipated to grow at a nearly 16% over that same period.
We continue to shift our new opportunities for this unique and competitive advanced packaging offering.
Finally, revenue of our APS business had increased by 19% over the same period in the prior year.
We remain focused in driving share gains and to further enhancing this recurring revenue basis business as we move forward.
I would now like to turn the call over to <UNK> <UNK>, who will cover this quarter's financial overview in greater detail.
<UNK>.
Thank you, <UNK>.
My remarks today will refer to GAAP results unless noted.
Net revenue for the quarter was $213.7 million.
Healthy gross margins of 46.3% generated $99 million of gross profit.
This represented a nearly 45% increase in gross profit over the same period in the prior year.
During the quarter, we generated $38.6 million of operating income and booked a net income loss of $69.3 million and negative EPS of $0.98.
On a non-GAAP basis, which primarily excludes a onetime tax charge related to the $105 million impact of the Tax Cuts and Reform Act of 2017, EPS was $0.54.
As <UNK> mentioned, this is a very strong performance during what has historically been viewed as a seasonally soft quarter.
At 46.3%, gross margin came in stronger than we anticipated, largely due to product mix between automotive, advanced packaging and LED equipment.
While wedge bonding and advanced packaging contribution benefited the December quarter's gross margin, we anticipated LED demand to increase substantially and forecast a March gross margin of slightly below 45% as we discussed in our September quarter conference call.
Turning to the balance sheet.
We ended the December quarter with a total cash and investment position of $650.2 million or $9.21 on a per share basis.
On a book value per share basis, we closed the December quarter with $12.05.
Working capital, defined as accounts receivable plus inventory less accounts payable, decreased by $57.1 million to $212.1 million.
From a DSO perspective, our days outstanding decreased from 83 days to 73 days.
Our days sales of inventory decreased from 99 days to 84 days, and days of accounts payable increased from 42 days to 54 days.
As a result, our cash conversion cycle reduced from 140 days to 103 days sequentially.
Lastly, I want to briefly discuss the impact of the recent tax reform and our non-GAAP methodology.
For tax reform, we ultimately expect it to allow greater flexibility of our global resources, further simplicity of our global entity structures and ultimately a reduced cost for future U.S. cash deployment.
While the impact of the associate regulation of the Tax Cuts and Jobs Act of 2017 to our further global entity structure is not yet crystal clear, our near-term strategy of driving fundamental improvements through organic development and strategic M&A, while opportunistically executing open market repurchase program is unlikely to change.
Due to the significant size of this extraordinary item and also our focus on operational efficiency and business expansion, we decided to introduce non-GAAP reporting beginning in the December quarter.
We believe this provides the investment community with an additional level of transparency to supplement our U.S. GAAP reporting as we work to expand our markets, drive share gains and improve overall profitability.
This concludes the financial review portion of our call.
I will now turn the discussion back to <UNK> for the March quarter's business outlook.
Thanks, <UNK>.
Looking into the March quarters.
We are targeting revenue to come in between $205 million and $215 million and are anticipating another very strong fiscal year.
While we have historically enjoyed a sequential increase in the March quarters, as discussed earlier, our free guidance was largely related to earlier-than-expected revenue recognition of some automotive-related solution in December quarters.
Regardless, considering the strong guidance, the first fiscal half is anticipated to be approximately 21%, higher than the first fiscal half of 2017, setting a new record for the company.
Ongoing effort to broaden our base of solution and drive fundamental business improvement are expected to further mitigate seasonal and cyclical effects while driving new record for the company.
Through 2018 and beyond, we continue to be aligned with some of the fast-growing segments in the semiconductor space, including automotive, memory and the front-end expansion in China as well as Korea.
Automotive IC units are anticipated to increase by 16% in calendar 2018 and are forecast to be growing electronic system market ---+ are forecast to be the fastest-growing electronics system market through 2021.
We will continue to support the capacity and the new technology needs of our global automotive customers throughout this long-term evolutions.
Within memory, our shipment of NAND flash effectively doubled in fiscal 2017 over fiscal 2016.
We continue to anticipate flash memory capacity to be added at roughly the same pace as it was in 2017 when it amounted to approximately 10% of total revenue.
Next, global semiconductor capital equipment spending is projected to increase again in calendar year 2018 after a fairly significant increase in 2017.
This high-level expectation is anticipated due to an additional demand for our core ball bonding, wedge bonding and the APS offering.
In addition, we continue to seek out new advanced packaging opportunities that will further broaden and diversify our business.
Overall, we are very excited with our operation and the development opportunities as we look ahead.
We thank you for your continued support.
We all remain extremely committed to execute our strategy and to deliver value to our shareholders.
This concludes our prepared remarks.
Operator, we will now be happy to take your questions.
Sure.
Compared to 2017, I think we will gain about 10% more for LED bonder compared to total bonder.
So 2018, I think we'll ship roughly 20% of all bonder will be LED bonder and this is a significant increase.
And as I discussed in the previous earnings call, our gross margin will be slightly impacted, slightly below 45%, but we are working hard to recover above our 45% gross margin.
Okay.
So when ---+ our revenue policy is after we're accepted by customers, it becomes a recurring revenue.
But for the new customer or existing customer in a new facility, our revenue recognition policy is by acceptance, once accepted in a new location and the revenue is by shipment.
So for this case, actually, a low customer already pay, when we ship the system, we wait until the customer recognize the performance or system then we start to recognize the revenue.
So all these expectation is this amount of revenue, roughly $20 million, we expect to recognize in Q2.
But customer actually accepted a few weeks compared to our expectation.
Therefore, we have much higher revenue in Q1 compared to our Q2.
Well, I think if you look at memory, when you roughly calculate, will be about, maybe, 10% of our total revenue, and we are exposed to our market ---+- to our industry.
So one way I look at it, we're still very bullish on the memory.
And the up and down is really part of our life.
If you look at it, the industry actually transition from a 48 to a 72 layers.
This will make actually solid-state drive more competitive compared to a hard drive.
Therefore, there will be share gain for solid-state drive.
That probably will spur more capacity in the future.
So short term, I think up and down is the nature of our life.
We just try to diversify our products and focus on priority.
And we assume, we try to mitigate the seasonal and cyclical effect, and I believe we should do well.
I will hand to <UNK> to talk about it.
So <UNK>, I think our capital allocation strategy is a split, it's somewhere between roughly evenly between acquisition, new organic development, and also shareholder returns is a longer term by the opportunistically the open market repurchase program.
I think while obviously the U.S. tax reform has allowed the repatriation of cash a little bit easier, I think, for now, we are continuing with that strategy.
However, the board, as well as management, is continuing to look at what's the best way of capital allocation to drive the company's growth as well as return ---+ increase shareholder value over the short and longer term.
Well, actually, we are very bullish in our wedge bonder business.
As you know, other than the ball bonder, we are #1 market share in the industry.
Wedge bonder we are also #1.
And as you know, we gain the shares in automotive particularly and also a lot of high-credit application like in the battery.
And that's the area, I think, that we are quite confident.
Well, we try to grow both in advanced packaging and our core business while advanced packaging markets are getting bigger, we also expect our core business including ball bonding, wedge bonding, EA, so is APS will also grow as well.
So actually, let me clarify.
20% of our total ball bonder shipped.
This is <UNK>.
No, we're still looking at about $53 million per quarter on a GAAP basis of 5% to 7% variable, what we've always guided.
Yes, there are other non-GAAP items in there.
There's the tax impact.
There's amortization as well as there's a small restructuring charge.
It's <UNK>.
Yes, so the ---+ the total charge, which was reported today, was $105 million.
However, the total cash charge will be below that as there's other deductions and things that we can take.
As far as the time of payment, according to the tax act we have 8 years to pay and the initial 5 years we pay about 8%, and then it goes up in the later part of the year.
So it's interest-free over the next 8 years and the first 5 years is only 8% of the required tax amount.
Yes.
I think it will be significant because of our ---+ 81%.
Actually, because of we have earlier-than-anticipated revenue recognition, so actually it's very high.
It's close to 80%.
But we will say, actually, this will not be normal compared to our previous case, but growth rate of wedge bonder for this quarter is significantly high.
So <UNK>, this is <UNK>.
I think for the quarter, for us, the gross margin is largely dictated by product mix.
And for the quarter, we had a very strong automotive as well as memory, as we have indicated.
And we discussed early on the call, we are aggressively moving to execute our strategic direction in terms of LED, which has slightly lower margin.
So I think, again, as we have guided going forward for the year, we believe that the gross margin will be slightly below 45%.
| 2018_KLIC |
2017 | CTRE | CTRE
#Thanks, Dylan.
Good morning, and welcome, everyone.
Billy here ---+ with me are Bill <UNK>, our Chief Financial Officer; Dave <UNK>, our Vice President of Operations; <UNK> <UNK>, our Director of Investments; and <UNK> <UNK>, our Director of Asset Management.
We've been very busy since the quarter began.
Nearly a year's worth of hard work has produced over $200 million in new investments in Q3 and since, bringing our total year-to-date to a record $300 million-plus and pushing our enterprise value north of $2 billion for the first time.
Most importantly, the groundwork we've been laying all year for future growth has produced some tremendous fruit with projected normalized FFO per share for the fourth quarter, jumping from $0.28 to $0.31 to $0.32 on a sequential basis, which equates to $1.24 to $1.28 going into 2018.
On the asset management front, lease coverages with several of our newer operators had been rising nicely, partly as a result of our asset management team's efforts.
And we've resolved the only significant problem in our portfolio.
Specifically, we are pleased to report that we've implemented a meaningful long-term solution to the challenges we've been talking about over the past 9 months with respect to our 16-property Ohio portfolio.
Since the initial property tax payments earlier this year, Pristine Senior Living has been the subject particularly intensive asset management work.
As a result, Pristine has been showing steady and, we believe, sustainable operational improvements since late spring.
Nevertheless, in pursuit of a more definitive solution for the portfolio, we've agreed to give Pristine some short-term rent relief, which will immediately improve our lease opportunity with them.
In exchange, they have agreed to relinquish 7 of the 16 properties and start stepping the rent back up in the coming months and years.
The 7 properties will be transferred to our existing tenant, Trillium Healthcare, the successful operator of our assets in Georgia and parts of Iowa.
These changes position our Ohio assets for better success as the 2 operators focus more closely on a smaller subset of the assets and the improvement opportunities that they still contain.
Moreover, the deal lowers our exposure to Pristine from 15.1% to just 7.7% over our September 30 run rate revenues, offsetting Trillium of about 9.5%, and those percentages have declined further with our Q4 acquisitions.
Both tenants are excited about the future prospects with these assets, as are we.
It's important to note that while the near-term cash rent reductions will total around $2.2 million over the coming year, due to the effects of GAAP straight lining, these transactions do not significantly impact the rental income we will record this quarter and over the next few years.
Plus, our yield on the overall Ohio investment is still a GAAP normalized 9.6%, and the going-in pro forma lease coverage from Pristine will be about 1.25x on their first year cash rent versus their T3 annualized EBITDAR, assuming no additional operational improvements.
For Trillium, the going-in cash ---+ the going-in coverage will be about 1.22x of their initial cash rent for 7 facilities and 1.3x on their overall portfolio with us.
While we hate to give up the short-term cash rents, we couldn't be more pleased with the long-term solution here.
We recognize that all real estate investors, ourselves included, will experience problems once in a while, but it's not whether you'll have them but how you'll handle them that counts.
The Pristine resolution is an example of the kind of creative solution that we, with our deep understanding of our tenant operations, can craft when true challenges arise.
And as I mentioned, while all of this was underway, we were still able to close a number of great new properties and set yet another annual record for investments, plus we started loading the pipeline for 2018 as well.
I'd like the team to tell you more about that and more, and so I'll turn it over to them now, starting with Dave.
Dave.
Thanks, Greg.
So as Greg mentioned, in Q3 and, thus far, in Q4, we've closed on $214 million of investments at an average net yield of 9.04%.
All of these acquisitions were true to our strategy of placing facilities in stronger hands, operators who can give the time and attention needed to provide sustainable, clinical and financial excellence.
The majority of the deals were with current CareTrust's operators as tuck-ons to their existing master leases.
Our operators are excited about these opportunities because each facility we acquired has a clear operational upside with a potential to immediately, or in the near term, strengthen their master lease coverage, expand their local market share or open new markets.
And in every case, materially enhance their bottom line.
We were also fortunate to bring a new operator into the portfolio with the sale-leaseback deal in California we've closed just a couple of weeks ago.
Providence Group, a thriving and effective skill nursing company led by industry veterans, Jason Murray and <UNK> Hancock, has a special mix of clinical and financial sophistication and the cultural commitment to its employees, residents and patients that are prerequisites for us and the new operator.
With over 40 facilities in California, Indiana and Kentucky and tremendous individual track record as successful operators, the Providence team is doing an outstanding job of delivering quality clinical outcomes while running a profitable and promising organization.
We look forward to helping them grow for years to come.
On the regulatory front, the skill nursing sector is gearing up for a new Department of Health annual survey process that is supposed to be implemented next year.
We don't expect that our operators' financial performance will be materially impacted, but as part of potential implementation, all existing star ratings nationwide are supposed to be frozen for a year, which will temporarily benefit some and frustrate others if implemented.
And along with our operators, we continue to monitor the proposed change from a rehab utilization-based model of Medicare reimbursement, or RUGS, to the proposed patient characteristic-based model called RCS 1.
That proposal has yet to be finalized.
So with that, I'll turn it over to <UNK> to talk about the acquisition landscape in general and our pipeline, in particular.
Thanks, <UNK>.
For the quarter, we are pleased to report that normalized FFO grew by 29% over the prior year quarter to $21 million, and normalized FAD grew by 30% to $22 million.
Normalized FFO per share was flat at $0.28, and normalized FAD per share was down $0.01 to $0.29.
Given our most recent dividend of $0.185 per share, this equates to a payout ratio of 66% on Q3 normalized FFO and 64% on normalized FAD, which again represents one of the best covered dividends in the health care REIT sector.
Before I go on, let me walk you through the amended rent schedules with both Pristine and Trillium that Greg talked about.
Bottom line, our rental revenue for Ohio changes from $18.6 million pre-deal to $18.4 million post.
Let me explain the details.
Pristine's new rent schedule contains multiple fixed bumps over the first 21 months.
And then beginning on July 1, 2019, their annual CPI bumps of at least 2% each year over the remaining term.
Trillium's amended rent schedule contains multiple fixed bumps over the first 2 years and then grows annually by CPI beginning on December 1, 2019.
If you look at our supplemental and compare just the line items for Pristine and Trillium, you see that the aggregate initial cash rent drops about $2.6 million from $18.6 million to $16 million.
But this is based on the first month's contractual cash rent, which only lasts a few months before starting to bump up.
On a cash basis, year 1 cash rent for all of Ohio is now $16.3 million, year 2 is $17.4 million, year 3 is $17.6 million, and each subsequent year increases by about $200,000, plus whatever the CPI bumps are on the Trillium portion.
Straight lining these fixed bumps results in GAAP rents in all future years of $18.4 million compared to prior contractual rent of $18.6 million before the deal.
We also referenced in our 10-Q approximately $6 million in impound accounts and $750,000 in other deferred rent amounts that Pristine will begin paying back to us starting in October 2018 with interest.
The impound receivable relates to property and bad taxes that we pre-funded into the impound account starting in Q1 of this year.
The $750,000 of deferred rent is just under half of September's rent and represents the only contractual cash base rent that Pristine has not paid to date.
Pristine has paid all of October base rent under their amendment and is current on November's base rent.
Now on the guidance, which takes into account these changes.
We have revised upward our 2017 guidance and now expect net income per share of $0.51 to $0.52, normalized FFO per share of $1.16 to $1.17 and normalized FAD per share of $1.21 to $1.22.
This guidance includes all investments and all shares issued under the ATM to date, is based on a weighted average share count of 72.9 million shares and includes the anticipated effects of the Pristine and Trillium lease amendments as if the planned transfers had occurred on December 1, as scheduled, and relies on the following assumptions: one, no additional investments nor any further debt or equity issuances this year; two, no rent escalations for any of our leases beyond those made to date.
Our total rental revenues for the year, again including only in acquisitions made to date are projected at approximately $117 million to $118 million and includes approximately $630,000 of straight line rent; three, our 3 independent living facilities are projected to do about $500,000 in NOI this year; four, interest income of approximately $1.9 million; five, interest expense of approximately $24.5 million.
In our calculations, we have assumed a LIBOR rate of 1.25%.
That, plus the current grid-based LIBOR margin rates of 185 bps on the revolver and 205 bps on the 7-year term loan make up the floating rates on our revolver and term loan.
Interest expense also includes roughly $2.1 million of amortization of deferred financing fees.
And six, we are projecting G&A of approximately $11.2 million to $11.4 million.
Our G&A projection also includes roughly $2.4 million of amortization of stock comp.
This all results in Q4 guidance of $0.31 to $0.32 per FFO and $0.32 to $0.33 per FAD on an annualized basis going into 2018, $1.24 to $1.28 per FFO and $1.28 to $1.32 for FAD.
As for our credit stats calculated on a run-rate basis as of today, our debt-to-EBITDA is approximately 4.49x, but our net debt-to-EBITDA is approximately 4.34x.
Leverage is about 28% of enterprise value, and our fixed charge coverage ratio is approximately 5x.
We also have almost $20 million of cash on hand.
And with that, I will turn it back to Greg.
Thanks, Bill.
We hope this discussion has been helpful.
We thank you again for your continued support.
And with that, we'll be happy to answer questions.
Dylan.
Sure, <UNK>.
Thanks.
This is Greg.
So you might remember the story.
We've been telling it for a good solid year now.
Pristine, when they came out of the gate, were in the process of building up their back office to accommodate the 16 facilities that we gave them.
Their CFO was at the center of that.
In the middle of that process, you might recall that his wife contracted cancer and he was missing in action, understandably, for quite some time.
She ultimately passed away, and he ultimately resigned from the company.
In the midst of that, Pristine was in ---+ was attempting to shift what was largely ---+ when we acquired them a set of pure Medicaid shops to more of a short-stay rehab model, and doing so without the benefit of good, solid real-time management data and financial data, which was a very, very difficult thing to do.
Then we came back and just said to the market, look, we think that ---+ we always predicted there was going to be some decline in their operations as they went through that transition before it started going up, and then that decline started to become prolonged in the midst of that.
They sort of dug themselves a bit of a whole when we started the tax impound account last spring.
And with that, our asset management team stepped in and started helping them to identify the opportunities in their portfolio to improve their operations.
And those improvements have borne through.
They ---+ starting last May, they've steadily improved each month.
In the midst of that, their Medicaid rate in about 1/3 of the portfolio, a little over 1/3 of the portfolio, went down in 2016 rebasing, that was in the Cincinnati area, to the tune of about $12 to $15 a day in some cases, which was difficult and additional setback.
And ---+ but the operational improvements that they started making this year really started to help quite a bit to the point where by the end of this past summer, things were looking pretty good for them across the portfolio.
Nevertheless, they're still trying to dig out some of that hole and came and asked us if we would consider some short-term rent relief.
We were willing to do that but not while they were still 15% of our total overall rental revenue.
And so we struck a deal with them where they got the rent relief but we got half the buildings, or almost half the buildings back.
And we were able to hand them to another operator that was anxious and ready and willing and able to come in.
That's Trillium.
In the midst of all that, we also reset their ---+ when we reset their rent, we reset it with some minimal fixed rent bumps in future years, which now has that rent stream being straight line such that our income, short-term, isn't impacted very materially, at least on a GAAP basis.
And so we think it's a win-when all the way around.
With respect to Trillium, these guys are great operators.
They've done a terrific job in the portfolio that we have with them in Georgia and Iowa.
They ---+ those are not the only assets that they have.
They're industry veterans.
They are actually ---+ I spoke with Pristine just this morning.
They are out of the road with Trillium guys right now in the 7 buildings that are going to be transitioned, introducing the Trillium team to the staff in the community and making sure that, that transition goes smoothly.
So everybody's working together well.
We end up with no tenant in our portfolio besides Ensign, with more than 10% of our revenue, and we think it's, as I said, win-win all the way around.
Does that answer your question.
We've always ---+ we love Ensign.
We talked to you, the new high today.
They're a great example of why the sky is not falling with respect to skilled nursing.
Yes, there are pockets of weakness across the industry, but Ensign has always been able to ---+ even in its most difficult times, and everybody has challenges, they've always been able to rebound and do ---+ stick to the fundamentals that make a nursing company successful.
We would be thrilled to do more work with them.
And I think while we have been actively working to push that tenant concentration down, we've always said from the very beginning, when we were 100% Ensign-concentrated, that if the right opportunity arose and they were the right partner for it, we would absolutely do that deal with them, assuming they wanted to.
I'm going to let <UNK>, our Director of Asset Management, talk about that.
He's been in those buildings a lot lately.
I'll add one thing to that, <UNK>.
One of the benefits of having a better back office and CFO in place now is that they have been able to get a little bit more visibility into their operations on a day-to-day basis.
And one of the critical things that we've been concerned about that they've finally figured out is their bad debt expense.
They've been running bad debt expense of 2% versus an industry average of, say, 1%.
Ohio averaged probably about 1% as well.
And it's always been a bit of a head-scratcher for us.
And they've now come around and figured out where the problems where and are actively making moves to address that.
So if they can get that leg, that is huge going forward.
And the coverage numbers we've given you still reflect the 2% bad debt calculation.
So we think there's still some really good upside in this portfolio as they continue to short things up, and it could run more efficiently.
Well, they actually didn't need to bring more people to ---+ and ramp up their cost structure.
But during that prolonged period when they were down, they did dig themselves a bit of a hole and were behind some of their vendors and other things, and they just felt like they needed to take a step back in order to move forward again.
Say that again.
I'm sorry I didn't catch it.
We're not.
We still like CPI rent bumps.
And our rent bumps have always been bracketed with ---+ by a 0 floor and a 3% to 3.5% cap depending on the deal.
In Trillium's case, they have a rent bump on this piece of the portfolio, one coming in the year, and then it basically goes to CPI after that.
We had to sort of mill their existing rent stream and the anticipated escalators, and that went with the new rent stream on the 7 facilities, and so we ended up structuring a 2-year sort of rent schedule.
But after that, it goes back to the CPI with 0 floor and 3% cap.
With respect to the Pristine piece, the 9 facilities they're retaining, it was important to us to put in the 2% floor on that piece of the portfolio because the initial cash discount that we were giving them was meaningful.
It's meaningful enough to help them with the hole that they were in as well as ---+ but we wanted to be able to recognize the income that we were going to be getting back over time, and so we've put in that 2% floor.
And it has a 3% cap as well.
Yes.
There was no activity in the past quarter, and that was mainly due ---+ even though we knew the pipe and some investments were coming to close, we didn't feel real comfortable issuing shares under the ATM given the negotiations that were going on between us and Pristine.
We would like to keep ---+ yes, we would like to keep at the lower end of our stated range of 4 to 5x.
And now that all the disclosure is out, and this ---+ we have the amendment signed, and with Pristine, you can expect the ATM to be turned back on.
Thanks, Dylan.
Thanks, everybody, for being on.
We appreciate your time and interest and welcome you to call us if you have any further questions that we can answer.
Take care.
| 2017_CTRE |
2016 | SYF | SYF
#We are not seeing that.
Our partners are not asking us to go deeper.
I think we have been very consistent since the crisis in our underwriting.
We have not changed underwriting.
Our portfolio has remained fairly consistent since 2011.
So I think this is where the goal should be not going necessarily deeper but ensuring that you are bringing the value and sales in another way, through marketing, through being innovative, through driving channel integration and really working it that way.
We control underwriting, it is something we feel we have to do when we do our contracts.
So that is something that I think is really important from a safety and soundness perspective from our bank and we work with the retailers.
There are many other ways to grow programs without having to necessarily always dig deeper.
I don't know, <UNK>, if you would mention really how the portfolio (multiple speakers).
The underwriting profile is very consistent with where it has been and the average FICO by account is 711, exactly flat to last year.
78% of the new accounts since 2010 are prime credits above 660 FICO.
And then if you look at the total portfolio, 72% of the accounts are prime credits above 660 FICO when that is flat to last year as well.
The overall credit profile continues to be very stable.
Yes, obviously when we launched that new value proposition we did a lot of modeling initially because we knew the through the door population of people applying for accounts was going to change and so that is part of the reason why if you remember when we launched it we launched it with a soft launch because we wanted to monitor the mix of consumers and we wanted to make sure that we were sizing lines appropriately, that it was a good experience for the prime customer, that we were generating incremental sales for Amazon.
So we had a lot of things that we were measuring but one of the big ones for the credit program was the revolver versus transactors.
And we have monitored it is coming in pretty close to what we forecast.
So far very much in line with our expectations.
And obviously the point you made is a good one which is part of why you see loyalty expense growing a little bit faster than interchange because that is a program where we do have a very attractive value proposition but we don't charge interchange to Amazon.
So there is an offset in the RSA.
It is all part of that restructuring of that agreement and part of the extension that we did with Amazon when we launched the new value proposition.
I think that varies retailer by retailer but I think if you take the whole formula of what we do, the retail is always looking to fund greater loyalty to their brand and their card.
And we have retailers who take some of the earnings off of the RSA and plow it right back into additional offers.
So it varies across.
I think the reality is right now everyone is ---+ <UNK> mentioned it early ---+ retailer sales have not been necessarily sellers.
So our retailers and our partners are really looking to us to work with them to really make sure we are continuing to get the right offers out there but the more engaged the retailer is usually the better the program performances.
And it is not really a new phenomenon.
You have to remember we did Lowe's 5% off a few years back.
I think you are seeing more of this now.
But it is a mix as well as maybe doing a little bit less one-off promotions, doing more on an everyday value prop.
Again, this is where we are using our data analytics to really determine what is the best value proposition to get the consumer to come in to spend more and so we are always looking at optimizing that mix between the one-off promotion and the everyday value prop.
We are in a full rollout now.
That really happened over holiday.
The marketing around it, it is targeted marketing and Amazon controls a lot of that but the program is performing very well, in line with our expectations and we are pleased with the marketing and the advertising around it.
We continue to see good volumes on the Amazon program.
I obviously can't get real specific around it but we were really excited when we launched it and it is performing in line with our expectations.
I would say that is why we are pretty excited.
We have been working with Walmart since 1999 and most of the value prop on the card has been kind of more pulsing promotional types of things like $0.05 or $0.10 off gas or something like that or some other types of offering.
So to get a consistent value prop that is every day use is really a big deal because that is when the consistency and the usage of the card goes up and obviously Walmart is a big retailer so we are pretty excited about it.
It is hard for us to get specific around an individual program.
You can take a look and what Walmart sales are in the US and you can calculate your own percentage but Walmart continues to be a significant growth opportunity for us.
Yes, sure.
Obviously we had a very strong quarter.
We are really pleased with the overall growth.
The only thing I would point out is the back half the comps get tougher.
If the trends continue, we could be a little bit better.
We are really pleased when we look across the portfolio, all three platforms growing really well, all the underlying dynamics in line or better than what we expected.
So we are really pleased with how we started the year.
We are not going to update guidance.
I would just remind you that the comps get a little bit tougher but as you pointed out, the start of the year has been really strong.
So I think you've got to put this in the context of kind of the overall portfolio and how we manage it and we are always looking to extend relationships.
We never let the relationship go to the end of the term before we start having dialogue.
In most cases, if something comes up like a new value prop launch that is very significant or they want to roll out a dual card or something like that.
So I would just say that this is a constant part of how we manage the overall portfolio and we are always engaging with partners to ensure that we renew them before the end of the term.
I think we will have to see how the competitive environment plays out.
I think this is where we have to do a really good job delivering for our customers and really ensuring that we actually give them no reason to RFP and try to engage with them as early as possible and we have had great success with that over the long-term relationships that we have had.
I just want to clarify one point.
I mentioned the 29%.
I just want to make sure people know it is online sales were up 29% year-over-year and if you compare that to what is happening overall in the industry, that is about 14% to 15%.
So it is online sales.
I didn't want to confuse anyone there because it might have got misinterpreted.
So just want to clarify.
| 2016_SYF |
2015 | ALEX | ALEX
#This is <UNK>.
So, yes, share repurchases obviously is a capital allocation and capital structure decision that are influenced essentially by the other alternative investments that are out there.
So we would certainly consider share repurchases in the context of our other investment opportunities.
And to the extent that represents a superior investment opportunity we would undertake that.
Currently, we have a 2 million share repurchase authorization and all of that remains available, but again it comes down to an evaluation of what we have in terms of investment alternatives.
<UNK>, this is <UNK>.
I'm going to let <UNK> <UNK> answer that question.
Thanks, <UNK>.
<UNK>, you're right.
By taking both the Kailua retail pieces in the supplement and the ground lease for Kailua, that would be representative of the Kailua acquisition and the NOI growth we receive from that.
And you should take into account a portion of that ground lease increase was reset on the Aikahi Park Shopping Center acquisition that we had earlier this year.
It's actually for the quarter is a slight increase (inaudible) because there was some retroactive ground rent in that.
Thanks, <UNK>.
Thank you.
Thank you, <UNK>.
I'm sorry, <UNK>.
The three markets compared to which.
Well, I'd say that certainly the slowest to recover this time around, even though it is back to a degree and is recovering, is the resort market.
And we've felt that of course with the improvement but not sort of dramatic improvement in resort sales over the last couple of years.
So it's going in the right direction, but at a slower pace.
The condo market of course has been off the charts of late and then the primary residential market has been very strong, but there just isn't that much supply on the primary residential market.
One of the reasons that we targeted the price points that we did at both Waihonua and The Collection, which is very much a local buyer sort of mid level ---+ middle class pricing level is because we see so much depth in that market and we believe that while the higher-end stuff is certainly doing well right now it is a somewhat more finite market and we see tremendous depth going forward for the primary residential market.
And the price points in the say $400,000 to $600,000, $700,000 price range there is just a lot more demand at that level.
So that's why we're very interested in the primary residential market on Oahu because we think there is significant depth to it.
<UNK> do you want to.
No, that's fine.
Yes, Steve, we are probably going to be cautious and hedge a little bit.
Certainly completion of construction, we're targeting late 2016.
As you know, you've got to complete construction and certificate of occupancy and then get through 450 closings.
And so when those exactly will fall whether it would be late 2016 or early 2017, we're not taking a strong position on right now, but completion of construction should certainly ---+ is on track for late 2016.
| 2015_ALEX |
2017 | CHUY | CHUY
#Thank you, operator, and good afternoon.
By now, everyone should have access to the third quarter 2017 earnings release.
It can also be found on our website at chuys.com in the Investors section.
Before we begin our review of formal remarks, I need to remind everyone that part of our discussions today will include forward-looking statements.
These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them.
These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions.
With that out of the way, I'd like to turn the call over to Steve.
Thank you, John, and thank you to everyone for joining us on the call today.
I'll start the call with an overview of our third quarter and then share our thoughts on development for the remainder of the year.
John will then review our third quarter financial results in more detail, before we open the call for questions.
As you're well aware, during the quarter, we faced operating disruptions from Hurricane Harvey in the Houston area and to a lesser degree from Hurricane Irma in the state of Florida that affected 36% of our store base.
In total, we lost 44 operating days during the third quarter from these 2 storms as well as a reduced sales days leading up to these storms and then subsequently after reopening the stores, as certain restaurants were not able to remain open for normal operating hours, which resulted in approximately a $1.2 million loss in sales.
Included in our $0.19 of reported earnings per diluted share is approximately $0.03 of negative impact from these hurricanes.
I can't tell you how proud I'm of the efforts of our entire team to get our restaurants up and running in the wake of the storms.
While I'm sure you saw pictures in the news, they really didn't do justice to the challenges that these areas faced and in many cases, still face in the aftermath.
The response time of our people was nothing short of phenomenal.
While some of our employees suffered hardships with lost property and other personal inconveniences, I'm very pleased to say that no one was hurt, which is a blessing.
Additionally, I'm proud to note that our Red Fish relief fund has so far paid out over $70,000 in aid to our employees in both Texas and Florida related to hurricane disasters.
Switching back to our third quarter results.
Revenues grew 7.7% from last year's to $92.2 million and a comparable restaurant sales decrease of 2.1%.
To provide a bit more context, comparable sales in the quarter were negatively impacted by approximately 90 basis points as a result of the hurricanes and 50 basis points due to the strategic cannibalization.
We also faced a 60 basis point headwind as a result of new units entering the comp base on the back end of the honeymoon curve.
Additionally, despite the hurricane disruption, we saw underlining sales improvements in our business during September.
I'm also pleased to note that, while it's still early, comparable restaurant sales through October are running slightly positive.
So while we're not quite where we want to be, our underlying trends appear to be improving.
Our focus remains squarely on our core fundamentals of taking care of our guests.
We believe our service standards, our made-from-scratch offerings, our value and the unique atmosphere of our restaurants are our almost valuable assets, and we'll continue to manage our business for long-term health.
Additionally, as I spoke about last quarter, we have ramped up our local store marketing activities, including reviewing and updating plans for each store on a quarterly basis.
We're also continuing with social media campaigns to promote various store events, both on a local and systemwide basis.
We have also recently initiated catering tests in 3 of our markets.
While we have had a limited menu catering trailer and van in Nashville, since 2006, we have recently added new vans in Dallas and Houston, which in addition to the catering opportunity are also beneficial in terms of brand awareness.
If successful, we will expand it to additional markets in 2018.
Finally, we are in the beginning stages of starting our online ordering project that should be rolled out to the stores late in the second quarter of 2018.
Turning to development.
We opened 2 Chuy's restaurants during the third quarter of 2017.
One in Warrenville, Illinois, our first restaurant in Chicago land area, and one in Jacksonville, Florida.
Additionally, during the fourth quarter, we opened a restaurant in Pasadena, Texas, just outside of Houston, which was originally scheduled for a third quarter opening, but was delayed as a result of Hurricane Harvey.
We also recently opened our second Chuy's in the Chicago area in Schaumburg, Illinois.
For the balance of the year, we expect to open 2 additional restaurants in the fourth quarter, giving us 11 new restaurants in 2017.
We will also reopen one additional restaurant in Houston area that was severely damaged by Hurricane Harvey, and has been closed since August 26.
Our new unit in Miami, originally slated for the fourth quarter, will now open in early 2018 as a result of delays and damages associated with Hurricane Irma.
As stated on last quarter's call, we expect to open between 8 and 12 units in 2018.
Finally, in addition to having a long runway of growth opportunity ahead, we also have a strong balance sheet that gives us the flexiblility to use our excess capital to create additional value for our shareholders.
To that end, subsequent to the end of the third quarter, our Board of Directors approved the initiation of a $30 million share repurchase program through December 31, 2019.
We believe this authorization is indicative of the confidence we have in our core business, our ability to continue growing the Chuy's brand and our commitment to enhancing long-term returns for our shareholders.
With that, I'd like to turn the call over to our CFO, Jon <UNK>, for a more detailed review of our third quarter results.
Thanks, Steve.
Revenues increased 7.7% year-over-year to $92.2 million for the third quarter ended September 24, 2017.
The increase included $11.3 million in incremental revenues from an additional 136 operating weeks, produced by 12 new restaurants opened during and subsequent to the third quarter of last year, partially offset by the loss of 6 operating weeks due to the closing of our Charlotte and North Carolina locations during last year's third quarter.
We had a total of approximately 1,116 operating weeks during the third quarter of 2017.
As Steve noted earlier, with 36% or 32 of our stores impacted during the quarter from hurricanes, we lost 44 operating days as well as other limited sales days.
We estimate that the closed days and other limited sales days resulted in $1.2 million in lost sales.
Additionally, we estimate the lost revenue negatively impacted our restaurant operating profit margins by approximately 40 to 50 basis points and our operating income by about $0.03 per diluted share for the quarter.
Comparable restaurant sales decreased 2.1% during the third quarter, driven by a 3.7% decrease in traffic offset by 1.6% increase in average check.
Effective pricing for the third quarter was approximately 1.5%.
To reiterate Steve's earlier comments, comparable restaurant sales were negatively impacted by approximately 90 basis points due to the hurricane activity, 50 basis points as a result of the strategic cannibalization of 2 high-volume restaurants in Austin and 60 basis points from newer units entering our comparable restaurant base, whose honeymoon periods have lasted longer than the 18 months we allow before a restaurant enters the comparable sales calculation.
There were 67 restaurants in our comparable base at the end of the third quarter of 2017.
Turning to a discussion of selected expense items.
Cost of sales as a percentage of revenue increased approximately 40 basis points year-over-year to 26.7%, driven largely by inflation of 2.1% in commodity pricing related to produce and chicken and to a lesser degree, groceries, partially offset by favorable beef prices.
Looking at the balance of the year, we continue to experience elevated prices in produce and expect this continued volatility in pricing through the remainder of the year.
As a result, we expect cost of sales as a percentage of revenue in the fourth quarter of 2017 to increase approximately 40 to 50 basis points compared to the prior year quarter.
Labor cost as a percentage of restaurant revenue increased approximately 190 basis points to 35.2%.
The increase was attributable to disruptions from the hurricanes, new unit inefficiencies, ongoing hourly wage rate pressures and management labor, particularly managers in training as a result of our scheduled opening delays, specifically in Chicago, the Miami-Jacksonville area and Denver markets during 2017.
We are currently in the process of implementing a new point-of-sale system, which we expect to complete by mid-November.
In conjunction with this new point-of-sale system, we will implement additional modules on our labor scheduling program, which we believe will enhance our sales projections and the management of our scheduled hourly labor.
Additionally, we continue to review and approve ---+ improve operations and training processes related to our new restaurant-wide path to productivity to shorten the time it takes our new stores to reach a normal labor productivity rate.
Restaurant operating cost, as a percentage of revenue, increased 30 basis points to 14.3%, primarily due to increases in overall insurance costs, higher credit card and delivery fees and reduced operating leverage from the lost sales related to the hurricane activity.
Occupancy cost as a percentage of revenue increased approximately 30 basis points year-over-year to 7%, driven by higher rental expense as a percentage of sales in our newer locations, and again, reduced operating leverage on our existing stores due to lost sales related to the hurricanes.
General and administrative expenses decreased approximately $700,000 to $4.8 million in the third quarter, driven primarily by an increase in management salaries and equity compensation due to additional headcount to support our growth as well as an increase in rent, maintenance and utility cost related to the expansion of our office, which will benefit our business over the long term.
We are also beginning to see increases in professional fees associated with being in our final year of our emerging growth exemption status, which requires us to be SaaS compliant by the end of this fiscal year.
As a percentage of revenue, G&A increased approximately 40 basis points year-over-year to 5.2%.
On a year-to-date basis, G&A decreased by approximately 10 basis points to 5.3%, mainly related to decreases in performance bonuses.
In summary, net income for the third quarter of 2017 was $3.2 million or $0.19 per diluted share, compared to $4.6 million or $0.27 per diluted share in the year ago period.
Third quarter 2016 results included a $4 million pretax expenses related to the closure of 1 restaurant.
Excluding expenses related to the closure, adjusted net income in last year's third quarter was $4.9 million or $0.29 per diluted share.
We ended the quarter with $17.4 million of cash on the balance sheet, and we currently have no debt.
Turning to our 2017 outlook.
Given the current challenging retail and consumer environment as well as the lingering effects of the hurricanes, we are lowering our annual diluted net income per share guidance to a range of $0.96 to $1.
This compares to our previous range of $1.04 to $1.08.
As a reminder, 2017 is a 53-week year and our guidance includes an extra week, which will occur in the fourth quarter.
Our adjusted annual diluted net income per share guidance for 2017 is based on the following revised assumptions.
We now expect comparable restaurant sales growth of negative 1.5% to flat on a comparable 52-week basis.
Our full year comparable store sales growth still incorporates a negative 50 basis point impact resulting from the strategic cannibalization of 2 high-volume restaurants in Austin.
While this will help our system both from an operational and a return standpoint over the long term, we continue to expect it to have a near-term impact on comparable sales.
We now expect restaurant preopening expenses of $5.5 million to $5.9 million versus a previous range of $6 million to $6.5 million.
We now expect G&A expenses between $18.8 million and $19.1 million versus the previous range of $19.5 million to $20 million.
Our effective tax rate is now estimated to be between 26% and 28% versus a previous range of 28% to 30%.
We continue to expect annual weighted average diluted shares outstanding of 17 million to 17.1 million shares.
And due to the hurricane damage in Florida, we now expect to open 11 new Chuy's restaurants this year.
Lastly, our capital expenditures net of tenant improvement allowances are projected to be between $36 million and $41 million.
With that, I'll turn the call back over to Steve to wrap up.
Thanks, Jon.
We continue to take a long-term focus to our business.
We believe through a steadfast focus on our core fundamentals, maintaining a disciplined development strategy and returning excess capital, we can achieve consistent growth and solid shareholder returns over time.
Before I turn the call back over to the operator for questions, I'd like to thank all of our Chuy's employees for their hard work and dedication to earning the dollar every single day.
With that, we are happy to answer any questions.
Thank you.
Well, the seventh and eight period was following the same trend from the second quarter, Will.
And then, obviously, in the first and second period ---+ first and second week we dealt with both the hurricanes.
And obviously, that was dreadful, but from that is really we saw a slight uptick in specifically same-store sales really with our back-to-school time and a little bit with our Green Chile items.
And that's when we saw a little bit of an uptick that continued through, take away the hurricane noise through the September period and right into October, where we're slightly up through October.
And how I attribute that is all along as ---+ we don't knee-jerk.
We kind of ---+ when things get tough for us, we kind of knuckle under kind of like a tortoise, and we get in our shell and really evaluate everything that we do.
Everything we're doing from greeting of a person, to how we're cooking the food, to making sure we're taking care of large parties, very ---+ and with focus ---+ and we really focus on our people and loving on them and specifically, all our food.
So that we attribute to why we probably go into tough times a little bit later, and how I think we come out a little bit early.
And so that's what our real main focus has been, really nothing really outside our four walls.
Not a whole bunch.
Because the first one was Warrenville, which was our first one into the market where we built in a new emerging area.
We're pleased with how it started.
We just opened Schaumburg, not even 2 weeks ago and again, we're real excited about being in that market.
We've been in the Denver market roughly for about 5 or 6 months now or was it 2 ---+ 3 or 4 months, and again, we're excited about our entrance into those markets.
The awareness in Denver of the Chuy's brand is very, very solid.
The awareness in Chicago, we need to continue to work on.
Yes.
So the cannibalization ---+ I'll address that first.
The cannibalization of Boston will continue on through the first period.
In 2018, we should start lapping it in the second period of 2018, because we opened that store January 31, I believe, of 2017.
As far as the cost of going forward, there is a little cost associated with the labor going into that, because we have 1 closed store in Houston that was actually under about 7-foot of water.
So it's taken us a little time to get that store, remodel it and get it back opened.
We're hoping to open that by the end of November here.
And in the meantime, we've tried to keep some of those employees busy at other stores even if it cost us extra labor.
So that will be in that, it's not really directly identified labor that we can put in the hurricane line, but we're actually looking at possibly recording a gain in the fourth quarter, just kind of the crazy way GAAP requires you to record insurance proceeds.
And we expect those insurance proceeds either to be in the fourth quarter or the first quarter of 2018.
But all in all, that will broken out on one line item and it will eventually result in probably about $1 million gain.
Just wanted to circle back on the comps.
And last quarter, you mentioned some shifts in trends versus lunch and dinner and I think flipping between one or the other.
Curious how lunch versus dinner trends played out during the third quarter, and so far sort of in the quarter-to-date period.
Anything worth noting in those trends.
Well, obviously, in the whole last period there was a ton of noise, because of the hurricanes.
But as far as the numbers, it was fairly equal on lunch and dinner on the decrease.
Yes.
Well, it's also all the deleveraging in some of the other fixed cost and some of the other lines.
But a big piece of it was in the labor line.
We'll be comparing the sales through this year, through December 24, as compared to December 25 last year.
Okay.
All right.
When you're looking at that, that actually gives us an extra day in our 52-week comp.
Sure.
I'll ---+ Jon will give the percent.
As far as delivery, we roughly have delivery in about 60% of our stores, a little bit north of that.
I expect that to stay stable probably right around there, because we have a very healthy to-go percent on about $4.6 million, $4.7 million AUV.
So they will probably stay there.
We don't really want to get into cannibalizing our existing delivery services, our own pickup service.
And Jon, the percent.
Yes, we're at about 10.3% of overall to-go sales compared to our ---+ on our comp stores, and about 10.7% for the year.
That's up about 7% over last year.
I think it's a little early for that now.
I will tell you that we ran about a 2% inflation in labor this quarter, and we're about 2.5% year-to-date.
With ---+ we're not in a lot of the states that have the minimum wage increases.
Although, we are starting to enter some of those, like <UNK>land and Colorado and Florida.
So that may hit us from a weighted average standpoint next year a little bit.
But from a inflation standpoint, we've been pretty low from an industry, if you compare us to the industry.
Yes.
So I think, right now, we think it's the most flexible use.
If you were to use a dividend, I think you have to continue with that.
We want to have the flexibility to increase the number of stores maybe in the future.
And we don't ---+ one thing we don't want to do is to use leverage to buy it back.
So we currently have about $17.4 million on the balance sheet that we'll currently use right away.
We're not going to use all that obviously, but then we'll use future cash flow for the rest of it through the end of 2019.
Yes.
We had initially for the first couple of weeks a little bit extra out of Houston with the people going in there seeing everything.
But not really from our existing guests over there, because they're dealing with this horrible disaster over there.
And then that got really cloudy, believe it or not, because of the playoff games with the Houston Astros, and that definitely hurt us at the end of the last few weeks of the things.
Not so much ---+ and we didn't get that a big of a bounce after the hurricanes in Florida, because it really ---+ it was kind of swept through there and was definitely with the electricity issues.
But overall, everywhere else it's been pretty consistent pickup all throughout the country.
No.
Yes, I mean what makes the Austin market special, I guess, from a cannibalization standpoint is those ---+ the 2 stores that are being cannibalized are our 2 highest volume stores in the company.
So they ---+ it definitely has an detrimental effect on those stores.
However, the new store is doing very, very well, so that more than offsets the cannibalization over the long term.
Well, we're slightly positive to date, obviously, and really the puts and takes are roll overs of some really not so good sales last year, especially during the December period.
And so to the extent we get to that, we're projecting those periods to roll over and be quite positive there in December.
And we're cautious with that.
Obviously, I'm not hearing ---+ I don't know if you are, I'm not hearing a real positive retail spend for the rest of the year, specifically at all the malls and stuff, because of a variety of things, whether it be Amazon or what.
So we're very anxious about the holiday season.
Right.
And those both fall right there in December.
So that's really the puts and takes of December.
Yes, just one more quickly, if I could.
Jon I wanted to circle back on the margin assumptions embedded in the fourth quarter guidance.
And appreciate the color on food cost, but with all the moving pieces of the extra week that will have a pretty meaningful impact on some of the other lines, would you be able to give some guardrails maybe on the labor line or maybe just overall store level margins what your expectation is for the fourth quarter.
Right now, we're expecting labor to be up over last year, probably about 50 to 60 basis points.
And the reason for that is really not existing as I've spoken with all of you I think in the past, we expect to get a little leverage with that extra week in the fourth quarter.
However, given the push back of some of our store openings, we're now opening 4 new stores in the fourth quarter as well as reopening the 1 store that got damaged in the hurricane.
So we're going to have a lot of inefficiencies going through the fourth quarter.
So now I'm really expecting that to be the up over last year by 50, 60 basis points.
And another piece that's in there, as with the push backs of the Miami and the push backs throughout the year from Chicago and Denver, we've been carrying the full management teams a good extra month to 2 months, that's in our labor figures also.
Thank you so much.
Jon and I appreciate your continued interest in Chuy's, and we will always be available to answer any and all questions.
Again, thank you, and have a good evening.
Thank you.
| 2017_CHUY |
2016 | SAM | SAM
#Thank you, <UNK>.
Good afternoon, everyone.
As we state in our earnings release, some of the information we discuss in the release and that may come up on this call reflect the Company's or management's expectations or predictions of the future.
Such predictions and the like are forward-looking statements.
It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements.
Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the Company's most recent 10-K.
You should also be advised that the Company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.
In the fourth quarter, our depletions declined due to decreases in our Samuel Adams and Angry Orchard brands that were only partially offset by increases in our Coney Island Twisted Tea and Traveler brands.
This decline is largely due to increased competition in the craft beer category and general weakness in the cider category.
We are working hard to improve the Samuel Adams brand trends and feel good about our new media advertising message, Know More, Love More, although it is too early to know if this message will stabilize our trends.
During the fourth quarter, we saw the cider category start to decline, even as new cideries continued to enter.
We're happy that Angry Orchard maintains its share and we're directing our efforts to grow the category and our share of it.
We remain positive about the long-term cider category potential, but short-term growth is less certain.
We remain committed to investment in innovation commensurate with the opportunities and the increased competitive activity that we see.
Our primary focus in 2016 will be on innovating within the Samuel Adams family, integrating persuasive drinker programming across point of sale, promotions, and media for all our brands and prioritizing the core styles of Angry Orchard, Twisted Tea, Traveler, and Coney Island Hard Root Beer for increased distribution and promotion.
We are increasing investments in our new beer and cider development capabilities so we can maintain the pace of innovation and also be positioned to react quickly to any opportunities that emerge.
We expect to maintain a high level of brand investment in this competitive environment as we pursue sustainable growth.
At the same time, we are taking steps to ensure that our investment dollars are well spent.
To that end, we plan to evaluate the effectiveness of all of our investments and endeavor to improve our internal processes and cost structures.
We continue to evaluate all our spending so as to allocate it to the activities which are most likely to support growth.
Our success over the last 10 years has been a team effort by all employees, but I am particularly grateful for the support provided by my leadership team.
We have previously announced the planned retirement of several members of that team, our Chief Financial Officer, <UNK> <UNK>; our Vice President, Operations, Tom Lance; our Vice President, Brand Development, Bob Pagano.
As part of our succession process, we announced the promotion of Matt Murphy to Chief Accounting Officer when <UNK> announced his retirement plans last August.
And we have recently announced the promotion of John Geist to Chief Sales Officer; the hiring of Frank Smalla, who will succeed <UNK> as Chief Financial Officer on February 20, 2016; and the hiring of Quincy Troupe as Senior Vice President, Supply Chain, to provide operations leadership, taking on many of Tom's responsibilities.
We have also created a brand leadership team, consisting of the senior members of Bob's brand development team.
These key leaders, who will report to me, have been challenged to drive our brand initiatives and integrate those initiatives with our sales team.
I'm excited by this opportunity to build our leadership team for the current challenges and to help lead the Company on its next chapter.
Based on information in hand, year-to-date depletions reported to the Company through the six weeks ending February 6, 2016, are estimated to have decreased approximately 3% from the comparable period in 2015.
Now <UNK> will provide the financial details.
Thank you, <UNK> and <UNK>.
Good afternoon, everyone.
We reported net income of $16.1 million or $1.21 per diluted share for the fourth quarter, representing a decrease of $3 million or $0.19 per diluted share from the same period last year.
This decrease was primarily due to the decrease in net revenue and increases in advertising, promotion, and selling expenses that were only partially offset by increased gross margin.
Depletions declined 3% from the comparable 13-week period in the prior year, reflecting decreases in our Samuel Adams and Angry Orchard brands, partially offset by increases in our Coney Island, Twisted Tea, and Traveler brands.
The core shipment volume was approximately 958,000 barrels, a 3% decrease compared to the fourth quarter of 2014.
We believe distributor inventory at December 26, 2015, was at an appropriate level.
Inventory at distributors participating in the Freshest Beer Program at December 26, 2015, decreased slightly in terms of days of inventory on hand when compared to the December 27, 2014.
We have approximately 71% of our volume on the Freshest Beer Program.
Our fourth-quarter 2015 gross margin at 50.6% was higher than the 49.8% realized in the fourth quarter of the prior year, primarily due to price increases and lower ingredient costs that were partially offset by product mix effects.
Fourth-quarter advertising, promotion, and selling expenses increased $5.3 million compared to the fourth quarter of 2014.
Increases in point-of-sale and media advertising were partially offset by decreases in freight to distributors, due to lower volumes.
General and administrative expenses increased by $900,000 from the fourth quarter of 2014, primarily due to increases in consulting costs and facilities costs that were partially offset by lower salary costs.
Our full-year net income increased $7.7 million or $0.56 per diluted share to $98.4 million or $7.25 per diluted share compared to the prior year.
This was primarily due to growth in shipments, which were partially offset by increased advertising, promotion, and selling expenses.
Full-year 2015 core shipment volume was approximately 4.2 million barrels, a 4% increase from the prior year.
Full-year 2015 gross margin increased to 52.3% from 51.5% in the prior year.
The gross margin increase was primarily due to price increases and lower ingredients costs that were partially offset by product mix effects and higher brewery operating costs.
Full-year advertising, promotion, and selling expenses were $22.9 million higher than costs incurred in the comparable 52-week period in 2014.
The increase was primarily a result of increased investment in media advertising, increased costs for sales personnel and commissions, and point-of-sale and local marketing.
Full-year general and administrative expenses increased by $5.6 million from the comparable 52-week period in 2014, primarily due to increases in salary and benefit expenses, consulting, and facility costs.
Our income tax rate decreased to 36.5% from a rate of 37.7% in 2014.
The 2015 rate decrease was primarily a result of an increased federal manufacturing deduction and lower state tax rates.
Looking forward to 2016, based on the information which we are currently aware, we are targeting 2016 earnings per diluted share of between $7.60 and $8, but actual results could vary significantly from this target.
The 2016 fiscal year includes 53 weeks, compared to the 2015 fiscal year, which included only 52 weeks.
We are currently planning 2016 shipments and depletion percentage growth of mid-single digits.
We are targeting national price increases per barrel of between 1% and 2%.
Full-year 2016 gross margins are currently expected to be between 52% and 54%.
We intend to increase investments in advertising, promotion, and selling expenses by between $10 million and $20 million for the full-year 2016, not including any increases in freight cost for the shipment of products to our distributors.
We believe that our 2016 effective tax rate will be approximately 37%.
We are continuing to evaluate 2016 capital expenditures and currently estimate investments of between $60 million and $80 million, which could be significantly higher, depending on capital required to meet future growth.
These investments relate to continuing investments in our brewery in support of growth and increased complexity.
Based on current information available, we believe that our capacity requirements for 2016 can be covered by our breweries and existing contracted capacity at third-party brewers.
We expect that our cash balance of $94.2 million as of December 26, 2015, along with future operating cash flow and our unused line of credit of $150 million, will be sufficient to fund future cash requirements.
During the fourth quarter and the period from December 27, 2015, through February 12, 2016, the Company repurchased approximately 438,000 shares of its Class A common stock for an aggregate purchase price of approximately $87.9 million.
On February 10, 2016, the Board of Directors approved an increase of $50 million to the previously approved $525 million share buyback expenditure limit for a new limit of $575 million.
We have approximately $95.9 million remaining on the $575 million share buyback expenditure limit set by the Board of Directors.
As previously announced, I am stepping down after 12 years as CFO at The Boston Beer Company effective end of business tomorrow.
I have been transitioning my responsibilities to Frank Smalla, who started at the Company in early January.
I have enjoyed my time as CFO and the significant growth Boston Beer has experienced during that time.
I have the highest confidence in <UNK>, <UNK>, Frank, and the other members of the leadership team and look forward to seeing the future success of the Company.
We will now open up the call for questions.
Sure, <UNK>, it is <UNK>.
I think as we look at 2016, we knew the first part of 2016 was going to be tough because a lot of the innovation we have, like Nitro and Grapefruit on the Sam side, is just taking effect in Q1 and just launching.
I think we're hopeful we can stabilize the Sam Adams trends and reduce the rate of acceleration.
We have, I think, a lot of excitement in our sales and wholesaler organizations around the new product launches we have going on right now.
I think the effect on Q1 will be relatively small just because of that start-up, but it could, obviously, help us more later in the year.
And frankly, the comparables get later in the year ---+ get better or easier as the year goes on.
On Angry Orchard, I think we're still looking at the total cider category that is showing decreases.
That, again, comparables get easier in the second half of the year.
We are intending to modify our message a little bit to support the category, and we hope ---+ and we believe that will help and that will hopefully be on air later this quarter or early next.
So what it looks for the full year, we are hoping to stabilize those trends and certainly have easier comparables in the latter half.
On our other brands, Twisted Tea remains healthy and we are projecting that health to continue as we increase distribution of the number of SKUs per store and just generally benefit from the health of the brand, and we think the other brands also have upside.
So, for full year, I think we're expecting Sam Adams to be a slight negative on the growth trends; Angry Orchard, hopefully, just a very slight negative on the growth trends; and the main source of growth will come from the other brands, but I think we are hoping that by the end of the year we will have stabilized the current trends on our two big brands.
Yes, before getting to specifics, I think as a Company we have been through periods of slowing growth or flat growth, and in those periods, we have tried to not only put all of our resources obviously against improving the growth trends, but taken those periods of time to try and improve the Company internally, and those have involved process improvement, employee training, rotations, and then looking for opportunities for cost leverage and totally reassessing where we are.
The last period of time that was like that was the 1997 to 2003 time period, and we obviously uncovered a lot of opportunities from the growth that had happened previous to 1996.
We have just been through an eight-year period of very high growth rates, at least we feel they were very high, because we lived through them, and we know we have opportunities because we have chased the case, the next case, and we have added people to do that and we spent capital to do that, and we know we have opportunities to operate that capital more efficiently to train those employees to take advantage of the tools that they have to operate, again, more efficiently.
And that is certainly something we are trying to step up now that the pressure that the growth was causing to our own internal operating systems has diminished because there is no growth.
Now let me be clear.
I would rather have growth.
And so, our efforts remain unabated to understand the drinker causes for our brand's strength or weakness and to develop programs, whether they be new product introductions or new media, advertising, or indeed new mediums to make sure that we are fairly competing for the share of the beverage consumption of the drinkers.
So, I think we're going to have the two-pronged focus in 2016, which is fix the core and get ---+ drive efficiencies to increase investment in the core and make us a stronger company.
When we look at the areas for potential investment, we are very reluctant to make any sort of changes or cuts to our brand support spend, but we certainly recognize that there are opportunities to redirect it to maybe more effective spends than previously have been recognized.
We certainly think we have opportunities in digital and we also have opportunities with the message to make sure the message is resonating.
And so, all of those things are up for debate and analysis and we will be looking at them hard.
I think it is fair to say that we might expect to move the money around to better uses and hopefully get more leverage from it than potentially just to pull it out away from brand support to the bottom line, but you just never know where you would have anything worth using it on.
On the brewery side, we have some great teams at our breweries who have done incredible work to support the doubling and tripling of the volume over the last 10 years, and we now have the opportunities to run that more efficiently.
And we see that upside.
We have done a lot of work on Freshest Beer to reduce inventories throughout our system, and that has produced some complexities at the breweries on changeovers, where the breweries are now cutting edge for changeover efficiencies, but we still have opportunities there.
So we're going to be focusing on all of those opportunities to try and reduce our supply-chain costs and we think there is a significant opportunity in that area over the next two years.
Yes, I think our biggest sort of change in information from when we first prepared the initial range is just the weakness in the cider category, and that probably ---+ we obviously saw the category slowing in growth, but to go negative in fourth quarter was probably something that we had not planned for as a category.
And I think we're in the early stages of fully understanding that.
I think the cider category obviously exploded over four years from very small to 1% of beer, so still miniscule.
And I certainly think that we are probably losing some casual cider drinkers who tried it and maybe are moving on or are exploring other craft opportunities or hard soda opportunities.
I think our basic belief is we have a strong brand with a very strong position in the category, and the category has some fundamental appealing elements to it, both in being made from apples and all natural and also gluten free, quite apart from tasting terrific.
And the taste profile certainly seems to be in the American drinkers' sweet spot relative to the range of ciders that you might possibly offer that American drinker.
We seem to be in the right place.
So, we're still pretty positive.
We think we may be seeing the trial balloon bursting a little bit, but to be honest, we're still looking at it and there is so much going on, including retailers and wholesalers changing level of execution as they have looked at cider and said, okay, something else is growing faster and there is all that going on.
So we're still looking at it and trying to understand it, but our primary direction on the cider front is to help the category grow by promoting category growth.
No, I don't think we have seen that specifically, but I do think in the fourth quarter we saw some potential loss of share of floors and ads, and so whether that was a significant driver or not, there was obviously a lot of excitement in the second half of the year behind hard sodas and I think that took some executional elements away.
I don't think we have lost distribution, nor should we, given the cider category is larger than the hard soda category.
Sure, it obviously depends on where your expectations were.
If you take our expectations at launch, I would say we are very excited.
If you were to say our expectations when we hit some peak volume numbers in the August/September time period, then obviously we are disappointed.
I think there was a big wave of trial that might have been seasonal related, it might have been competitor out of stock related, and we had some pretty big numbers in the August/September time period.
But things seem to have settled down.
It seems like we have a healthy brand and it is a little unclear.
Right now, you are seeing AB's intro with what, Best Damn, and I apologize for swearing on this call, and MillerCoors with Henry's.
And so, right now it is pretty muddy, but I would say that the publicly available numbers are holding up pretty well in that environment.
And there is certainly a lot of retailer support for the category.
A number of big retailers have opted to give very significant space to the category.
We have a lot of new points of distribution coming online in March/April in time for the summer.
So I think your question about expectations is so hard because our expectations move with the weekly volume and it is certainly fair to say that the category is doing significantly less volume that it was during peak August/September last year.
But compared to where we were before we launched, we're pretty happy, and we think we have a brand that can survive in that space at good margins, and obviously we're going to see whether that is true or not, given the competitive activity we faced this quarter.
Sure.
Well, I think their trends are somewhat linked to overall Sam Adams trends, so I would put that as a starting point.
And certainly, overall brand messaging and brand relevancy for us is key, and so our focus is developing the stories and the communication that will appeal to the current 23-, 35-year-old craft beer drinker, and making sure that messaging is relevant.
And our belief is is if the brand messaging is relevant, then the interest in the core styles of the brand, i.
e.
, Boston Lager and the seasonals, will remain.
We have certainly seen an increase in seasonal competition, and one element of the seasonal program is that newness every quarter or every season, and it's not quite on the quarters, but every season.
And so, now there is more new items, more new flavors than ever before, and so I think that is eating away at it a little bit.
I also think wholesalers are a little overloaded with some seasonal programs from all the other suppliers and their focus is on trying to get all the seasonals through their warehouses, and so if they have overordered or been overshipped, that can crimp the seasonal execution.
And I remain a firm believer that is going to be a key to the success of these programs.
If you go back to September/October and to walk into a beer store, you would have seen more pumpkin beers than you probably had time to try.
I think ---+ I don't know, I heard stores of 22 pumpkin beers on display in a store, and certainly wholesalers were dealing with that and retailers were dealing with that.
And it is probably too much pumpkin.
And I think yet unknown is how that plays out next year.
Do the retailers order as much.
Do the wholesalers order as much.
And do you come back to core styles within the category.
I think we are the leading seasonal craft beer program.
We have probably the best executing one from a transition perspective and an ease-of-use perspective, and our goal, I think, from a communications perspective is to highlight each beer a little bit more in terms of what the beer brings to the season, as opposed to the season bit of it.
And so, our messaging going forward will be a little more beer focused.
Yes, I think ---+ to your first question on incremental, it is really hard to know because in any regular set process, there is some discontinuations, and we within our own Brewmaster's Collection, for instance, get some discontinuations, so not all of it is incremental.
What I would say is we have been surprised and pleased with how many retailers have been excited by the program and opted for two or three of the styles.
And so, we feel very good about the retail acceptance of the program.
Many of those sets have been cut in in March and April, so we haven't yet fully seen the benefit of that.
We also ---+ we are quite conservative in our supply chain planning because we really didn't know, and because of the technology involved, we hadn't had the opportunity to fully test market it, and so I think right now there is some excitement, but we are probably supply constrained, which we are addressing.
But I would caution that the impact on Q1 is likely to be pretty ---+ I don't want to say immaterial, but it is ---+ in the context of the size of our business, it is not going to be a material change in our trends, but it is certainly ---+ it is changing the excitement behind the brand, and if those trends were to build, it might be material.
And then, sorry, you asked about styles, and (multiple speakers)
I would encourage you to try them, so you can form your own opinion.
We have the White Ale on draft that I think has been very well received.
It is a very approachable white ale, Belgian ale, and the Nitro really changes the ---+ how the beer presents to the mouth in a very pleasing way.
On the canned side, there seems to be a little ---+ a lot of interest in the IPA.
Obviously, the White Ale is perhaps the easiest and most approachable, so that seems to be doing well, but the coffee stout seems to have a little buzz online.
And so, at this point in time I think we are successfully depleting what we are shipping and it's hard to know, because we are shipping equal quantities of everything, and we really have to wait for the actual pool to tell us which one is selling better.
Okay.
If we can use you as an endorsement, we will put that up on our website.
It doesn't sound like we have any questions.
Yes, before everyone disconnects, if you are still on, one, I would like to thank <UNK> publicly for his contribution to the Company over 12 years, and just a little back of the napkin, I think this might be his 50th call and I know you guys follow a lot of companies.
I am guessing there aren't many companies where you have dealt with a CFO for 50 calls, so we would like to thank you for following our Company, too, because <UNK> can be difficult to deal with unless you have a beer in front of you.
So, grab a beer tonight and wish <UNK> good on his retirement.
We're delighted to have Frank here.
He is in the room learning how <UNK> does this, and we are looking forward to many more successful quarters with <UNK> cheering us on from the side.
So <UNK>, thank you, and thank you, everyone, for joining us.
Thank you.
Cheers.
| 2016_SAM |
2016 | QSII | QSII
#Thank you.
All right.
Well, then, I'm going to close it out.
Hey, look, everybody, I really appreciate the questions today, and I definitely appreciate the continued interest in Quality Systems/NextGen.
I wake up every day figuring out how we're going to make this company better, faster, gooder and stronger as we move forward.
And so it's a privilege to be at the helm of this great organization and this great team, and I look forward to our future conversations.
So thanks, everybody.
| 2016_QSII |
2016 | FFBC | FFBC
#Hey <UNK>, thank you.
We think about M&A really not in the context of so much stock price as we do our focused on first, strategic fit and does it make sense for us in our long-term franchise value.
Second, is it operationally feasible and does it make sense for us to be able to execute on a deal.
And then third we look at the financial elements and that's really where our current stock price comes into play as well as what the target may be expecting, what our earn back period is, et cetera.
So, it's one piece of one factor that we take a look at.
As I mentioned I think in last quarter's call, maybe the one before, right now we are predominantly focused on organic growth because we feel good about the operating leverage that we're getting from our organic growth.
We continue to look at opportunities and certainly if the right strategic one comes along we won't be afraid to, as we've done in the past, to pull the trigger, so that's how we think about it.
Our focus on the capital side is really first on supporting organic growth as a company.
Hey Dan.
Morning, Dan.
On the competitive nature, Dan, we are not really seeing any competitive pricing pressures in the markets right now.
I would say if anything for us the focus is just on making sure that our deposit growth keeps pace with our asset generation.
Right now we're roughly at 92% loan to deposit ratio, we've talked about in the past ideally we would love to see that right at 95%.
So we will continue to manage along those lines.
Thanks Dan.
Thanks Kate.
And again, just thank everyone for their interest in First Financial and we will look forward to the fourth-quarter call.
Thank you.
| 2016_FFBC |
2015 | NTRI | NTRI
#Thanks, <UNK>, and good afternoon.
I am pleased that we were able to deliver double digit revenue growth for the second diet season in a row.
Additionally, we delivered our seventh consecutive quarter of year-over-year revenue growth, underscoring the soundness of our plan and our ability to execute.
We're off to a strong start in 2015, and saw momentum build in the second half of the quarter as we optimized our multichannel marketing campaigns.
Our first quarter exceeds both our top- and bottom-line expectations.
It's clear that our marketing, product development, and engagement initiatives are resonating with consumers.
First-quarter revenues grew 12% year-over-year, and that, coupled with improved gross margins, resulted in adjusted EBITDA more than doubling year-over-year.
As a result of our better-than-anticipated performance and continued momentum into Q2, we are raising our full-year guidance; and, based on our midpoint, expect to deliver another year of double-digit revenue growth.
I will now highlight some of the areas which contributed to our success in the first quarter and which we believe will continue to drive growth throughout 2015.
First, we had an effective acquisition marketing campaign, with increased pricing and reduced promotional incentives as compared to last year's diet season.
This drove increases in customer activation, average selling price, paid length of stay, and gross margin.
We believe in the value of our product, and we are carefully evaluating the opportunity for future price increases.
We also put changes in place to shift product mix towards our premium offerings, which fuels increased customer satisfaction and paid length of stay.
And finally, our reactivation revenues showed year-over-year growth based on our projected higher volumes from last year's success, and a mid-quarter revamping of our digital marketing efforts to past customers.
In our retail channel, we continue to have strong traction at Walmart.
We are beginning to expand into other channels, as was part of our forecasted plan.
Our expansion into Sam's Club for diet season was successful, and we expect to be back there again in diet season 2016.
We also tested our diet products in Meyer and Harris Teeter earlier this year, and will receive placement of our kits in approximately 200 stores starting in September.
Additionally, we believe that there is potential at both Walmart.com and Amazon, two channels we began to focus on in Q4 of last year.
As a result of these wins and the increase in year-over-year velocity at Walmart, we are well on our way to achieving our projected 20% full-year retail growth.
Retail is an important channel, as it enables us to increase brand awareness and capture new customers who are outside of our traditional consideration set.
We continue to believe that both the direct and retail channels hold significant opportunities for future growth.
Product innovation remains one of our top areas of focus.
We're always striving to better understand how we can develop products and programs that consumers want, and balance this with their willingness to pay.
We continue to enhance our food portfolio; have over 100 products with no artificial preservatives or flavors.
We follow food trends very closely and plan to introduce new packaging in diet season 2016 to reflect a fresher feeling and more contemporary portfolio.
We are pleased that we have the most comprehensive array of offerings available, with more grab-and-go choices and more frozen options than our leading competitor.
And, of course, we have our new fresh product line.
Based on our testing of Simply Fresh in California, it is clear that this product, while at a much more expensive price point for consumers, is on-trend and attracts an audience that would not necessarily otherwise consider us.
We believe that this may have the potential to be a small niche offering to upscale customers and can provide a positive brand halo around healthy eating.
But it could not yet scale to the point where it can effectively be offered at an affordable enough price point to attract a more mass consumer while maintaining the degree of margin that we're looking for.
With that being said, we do plan to expand into several additional markets as we continue to assess the profit potential of such a program.
In the near term, we do not see it being a significant driver, but it's a great product with a strong partner.
We're looking for ways in which we can incorporate more fresh elements into our weight loss programs, as we do see value there.
And we will continue to test new products and offerings, in addition to fresh, to new customer segments across all phases of the weight loss spectrum focusing on scale, willingness to pay, and overall profitability.
Customer care and engagement are also important drivers to our growth, and we believe our investments in these areas are paying off.
For a consumer, the weight loss journey is a complex and multifaceted process that requires not only effective weight loss products but also support and guidance.
This comes in the form of content, community, technology; and, of course, food counseling.
Our counselors are available to our customers from 7 AM to midnight, seven days a week.
The ability that our customers have to talk to someone directly who is trained and knowledgeable at the touch of a button should not be underestimated.
We have laid the groundwork and have the building blocks in place to drive long-term, sustainable growth.
We are focused on delivering growth through both our strategic initiatives, as well as through rapid response to consumer and customer insights as they arise.
Additionally, we are extraordinarily disciplined when it comes to operational rigor and data analytics.
We will continue to innovate around the right balance of structure and flexibility along with providing differentiated products at varied price points to reach a broader mix of diet [intenders].
While there is still a lot we plan to do to continue to drive growth in 2015, we are already focused on, and have plans in the works, for some exciting new things for diet season 2016.
We continue to make measurable progress on the four strategic pillars we announced just over two years ago.
And, as the results show, I am confident that we are on the right path.
As a reminder, our four pillars center on, one, innovation ---+ we will launch new products and programs at an accelerated pace to better serve our existing customer segments and attract new customer segments to the brand.
Two, data-driven marketing fundamentals: we will grow our direct-to-consumer and e-commerce business by focusing on key levers that will accelerate growth.
Three, channel expansion: we will capture greater market share through both channel and product diversification to reach new audiences.
And four, operational excellence: we will continue to execute with rigor and continued cost discipline.
I will now turn the call over to <UNK>, who will walk through the first-quarter results and discuss our second-quarter and increased full-year 2015 guidance.
Following <UNK>, <UNK> will provide insights around our key marketing initiatives as well as some of the industry trends we've been watching.
<UNK>.
Thanks, <UNK>.
Good afternoon, everyone.
We completed the first quarter of 2015 with strong top- and bottom-line results, exceeding our revenue, adjusted EBITDA, and EPS ranges, and achieving our seventh consecutive quarter of year-over-year revenue growth.
Year-over-year revenue for the first quarter increased 12% to $137 million compared to $122 million in Q1 2014.
Year-over-year adjusted EBITDA for the first quarter increased 146% to $8 million, resulting in earnings per share of $0.10.
For the full year, we are increasing our guidance for revenue, adjusted EBITDA, and EPS.
Revenue is now projected to be in the range of $440 million to $455 million; adjusted EBITDA of $51.6 million to $55.6 million; and earnings per share of $0.81 to $0.91.
Capital expenditures are projected to be approximately $7 million to $9 million for the full year.
For the second quarter, we are projecting revenue to be in a range of $123 million to $128 million; adjusted EBITDA of $20.1 million to $22.1 million; and earnings per share of $0.35 to $0.40.
We continue to see a number of favorable trends that are driving our financial results and projections.
These trends supported not only the top-line growth in our business but also adjusted EBITDA and margin improvement.
Specifically, they are broken down into six key categories.
One, improved customer economics: we are benefiting from the price increases that we implemented in Q1 and Q3 of 2014.
On average, each new customer in 2015 is contributing more to both our top-line revenue and gross profit as a result.
Additionally, we are seeing continued improvements in customer paid length of stay.
We plan for length of stay to be up two days from the first half of 2014 based on specific actions we took to improve, but are pleased that we are actually seeing closer to a three-day improvement.
Two, increased customer volumes: revenues from customers in their initial diet cycle were up 14% year-over-year within the quarter, primarily driven by increased customer starts coupled with the price increases we implemented in 2014.
Our reactivation rate of former customers has increased due to improved database mining and marketing.
Reactivation revenue in the first quarter was up 8% year-over-year, driven by improved conversion, longer length of stay, and a growing database of former customers.
We believe reactivating former customers will be a driver of growth in future years.
Three, improved gross margins: in Q1, gross margins improved year-over-year by 310 basis points to 52%, due to channel mix, price increases, and reduced promotional food.
For the full-year 2015, we expect continued year-over-year margin improvement in the first half of the year and comparable year-over-year margins in the second half of the year, as we annualize our 2014 price increases and promotion improvements.
Four, increased marketing spend driving increased profits: marketing expense for the first quarter of 2015 was $47.7 million, increasing nearly $6 million from the first quarter of 2014 and enabling us to attract more customers.
We front-load marketing expense, so this media buy will also support revenue streams into Q2 and Q3 this year.
We are pleased that we were able to increase our marketing spend while maintaining our profitability targets.
On a percentage basis, marketing expense was 34.7% of total revenue versus 34.2% in the first quarter of 2014.
This increase is largely due to marketing expenditures to support the retail channel and Simply Fresh.
For the full-year 2015, we expect marketing as a percentage of revenue to modestly increase as we continue to test new media outlets, to expand our customer reach in both the direct and retail channels.
Five, continued growth in retail: the retail channel is continuing to grow, and is in line with our previous expectations.
Q1 retail revenue grew 8% year-over-year primarily due to improved sell-through rates at Walmart and new product introductions.
We continue to partner with Walmart to introduce new SKUs and promote our 5-day kits.
As previously disclosed, we expect to achieve 20% year-over-year revenue growth in the retail channel in 2015.
Roughly two-thirds of this growth is driven from the Walmart channel, and one-third is from channel expansion.
Six, cost control efforts for G&A: on a percentage of revenue basis, general and administrative expenses improved 70 basis points year-over-year versus the first quarter last year.
On a dollar basis, general and administrative expenses were $16.9 million for the quarter as compared to $15.9 million in the prior year.
The increase in dollars is largely driven by increased commission and labor-related expenses, and research and development costs to support current and future top-line growth.
For fiscal year 2015, we expect G&A as a percentage of revenue to improve slightly year-over-year, as we realize scale efficiencies while investing in future growth.
As of March 31, 2015, we had cash and short-term investments of $36.6 million, up over $7 million from December 31, 2014.
For the 12 months ended March 31, we returned roughly $20 million to stockholders in the form of a quarterly dividend.
For Q1, the Board of Directors has declared a dividend of $0.175 per share, payable May 21, 2015, to stockholders of record as of May 11, 2015.
I will now turn the call over to <UNK>.
Thanks, <UNK>.
Our first-quarter results are strong evidence of the success our strategic initiatives are having on our overall business.
While we certainly operate in a competitive space, we are confident in our ability to differentiate Nutrisystem with our innovative products and marketing.
Operational excellence, rigor, and discipline around data are all part of our DNA.
We are committed to assessing the many levers we have to optimize pricing, promotions, and marketing strategies.
We will continue to be diligent in evaluating these interdependencies in order to maximize our performance.
We will continue to build our omni-channel presence.
And we will remain focused on the following innovation principles which we believe will result in continued and sustainable growth.
One, new product and program development will be based on what consumers tell us they need, and not our own biases.
Two, increased customization, such as differing combinations of structure and flexibility, will be essential in allowing us to expand into a larger part of the weight management category.
And three, given the breadth of opportunities available to us, we will look for scale and prioritize where there is both demand and a willingness to pay.
It's an exciting time at Nutrisystem.
Our continued strong performance in the first quarter is an early indicator of what we believe will be another successful year.
And we remain confident in our ability to deliver long-term, sustainable growth to our shareholders.
I would now like to open up the line for questions.
Right now, for Sam's, we're assuming diet season plans, and that's all we have assumed at this point.
We have a different program at Costco, which is a card program, which is more year-round.
But at Sam's, they prefer in-and-out sort of promotions around periods of high dieting seasonality.
No, that's separate from Sam's Club.
So, Sam's Club, the year-over-year will be about the same revenue as we booked last year in Q4, is what we have in our plan.
So most of the growth in retail is actually coming from the pure Walmart and new channels that we're entering.
For the year, in terms of total revenue, it's more in the mid-20s.
And that's a function of the growth we're seeing in bringing on new customers into the brand.
So the reactivation revenue growth tends to lag our ability to bring new customers in.
So a lot of the growth that you are seeing in reactivation revenue this year is a function of two things: one, the success we've had in bringing customers to the brand in 2014; and then, secondly, the ability for us to mine the database and really target those customers, and give them great offers to bring them back to the brand.
So our overall yield is improving, as well as the base of customers that we are marketing to.
Thanks, <UNK>.
We're doing a lot of different testing and research right now.
So, as we move from a test stage to a roll-out stage of different initiatives, we will be sure to communicate them.
Yes, so, ASP is driving a couple of points of growth over the course of the year.
The contribution from the average selling price is a bit heavier in the first half of the year than it is in the second.
The back half of the year, we start to annualize the price increases we implemented in 2014.
So it's contributed in Q1; in Q2, it's contributing a few points to our growth.
Thank you all for your time this afternoon.
I would like to thank our investors for their continued support of our plan and their confidence in this management team to lead and deliver results.
I am pleased by our Q1 performance, our continued momentum into Q2, and we believe we are well positioned for another successful year.
I look forward to seeing many of you at upcoming investor conferences and events over the next few months.
Thank you.
| 2015_NTRI |
2016 | QSII | QSII
#Thank you.
| 2016_QSII |
2017 | FELE | FELE
#Good day, ladies and gentlemen, and welcome to the Franklin Electric Second Quarter 2017 Earnings Conference Call.
(Operator Instructions) As a reminder, today's conference is being recorded.
I would now like to turn the call over to Mr.
<UNK> <UNK>, Chief Financial Officer.
Sir, you may begin.
Thank you, Chelsea, and welcome, everyone, to Franklin Electric's Second Quarter 2017 Earnings Conference Call.
With me today are <UNK> <UNK>, our Chairman and Chief Executive Officer; and <UNK> <UNK>, Senior Vice President and President of our International Water Systems unit.
On today's call, <UNK> will review our second quarter business results, and then I will review our second quarter financial results.
When I'm through, we'll have some time for questions and answers.
Before we begin, let me remind you that as we conduct this call, we'll be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements.
A discussion of these factors may be found in the company's annual report on Form 10-K and in today's earnings release.
All forward-looking statements made during this call are based on information currently available and, except as required by law, the company assumes no obligation to update any forward-looking statements.
With that, I will now turn the call over to our Chairman and Chief Executive Officer, <UNK> <UNK>.
Thank you, <UNK>.
We're pleased with the overall performance of our company in the second quarter in which we achieved solid organic growth in both our Water and Fueling Systems segments.
In the U.S. and Canada Water Systems business, we had organic growth in all 3 product lines: groundwater, surface and dewatering.
While a little delayed due to record rains in the West, groundwater pumping equipment sales strengthened throughout the quarter as weather generally turned hotter and drier across many regions.
Surface pumping equipment sales continued to show steady single-digit sales growth, and dewatering equipment sales and backlog continued to accelerate, with strengthening demand in domestic gas field service as well as international markets.
Outside the U.S. and Canada, the story was mixed.
Sales in Asia Pacific were down 10% as the drought in Southeast Asia has ended.
In Brazil, the political turmoil, economic malaise finally caught up to our business and we saw a similar sales decline.
The rest of Latin America was basically flat.
While business in Europe, the Middle East and Africa was generally up, our revenues remain below plan due to lack of orders coming from the Gulf states.
Our Fueling Systems business had another strong quarter on the top line.
However, margins were down due to mix, both product and geography.
The U.S. and Canada markets continued to do well.
As I mentioned last quarter, we continue to gain share with major marketers and see increased customer traffic on our Site Builder and FFS PRO University platforms.
Outside the U.S. and Canada, fueling sales have improved across Europe, Africa and Asia.
Our business in China is strong, as a national initiative to replace existing underground piping systems with more environmentally safe double wall piping systems is accelerating.
Our new U.S. distributions segment had a good initial quarter.
While we estimate pro forma sales were down a couple of points due to weak weather-related demand in the West, margins were better than planned as cost synergies were realized ahead of schedule.
The multi-quarter back-office integration of the acquired entities is on schedule.
Looking forward, we are raising our annual guidance by $0.10 based on the following: first, the $0.06 gain on our previously held equity investments was not entirely in our original guidance; second, about 10% of our sales is in euros, and overall, half of our manufacturing business revenue is outside the U.S. Therefore, the dollar's decline generally should lift our reported results.
Most importantly, however, we see strengthening demand across many markets, while at the same time, remaining cautious about the timing of recoveries in the Southeast Asia, the Gulf and the Brazilian end markets.
I will now turn it back ---+ the call back over to <UNK>.
Thanks, <UNK>.
Our fully diluted earnings per share were $0.64 for the second quarter of 2017 versus $0.50 for the second quarter of 2016, an increase of 28%.
Second quarter 2017 sales were $305.3 million, an increase of 21% compared to 2016 second quarter sales of $252.1 million.
Water Systems sales were $203.4 million in the second quarter 2017, an increase of $8.8 million or about 5% versus the second quarter 2016 sales of $194.6 million.
Water Systems sales decreased by about $1.8 million or about 1% in the quarter due to foreign currency translation.
Water Systems organic sales were up about 6% compared to the second quarter 2016.
Water Systems sales in the United States and Canada were up about 10% compared to the prior year second quarter.
Sales of dewatering equipment increased by 25% in the second quarter when compared to the prior year, resulting from the continued diversification of customers, new channel development and international sales of the Pioneer branded equipment.
Sales of other surface pumping equipment increased by 8% in part due to wet weather conditions in the upper Midwest and Canada.
Sales of groundwater pumping equipment increased about 5%.
Water Systems sales in markets outside the United States and Canada overall declined by about 1%, due primarily to the impact of foreign currency translation.
International Water Systems sales were led by improved sales in Europe, the Middle East and Africa, but were offset by lower sales volumes in the Latin American and Asia Pacific markets in the quarter compared to last year.
Water Systems operating income was $32.8 million in the second quarter 2017, up $1.3 million or 4% versus the second quarter 2016, and operating income margin was 16.1% compared to the 16.2% in the second quarter of 2016.
Fueling Systems sales were $61.4 million in the second quarter of 2017, an increase of $3.9 million or about 7% versus the second quarter of 2016 sales of $57.5 million.
Fueling Systems sales decreased by $0.7 million or about 1% in the quarter due to foreign currency translation.
Fueling Systems organic sales increased about 8% compared to the second quarter of 2016.
Fueling Systems operating income was $14.9 million in the second quarter of 2017, down $0.6 million or about 4% compared to $15.5 million in the second quarter of 2016, and the second quarter operating income margin was 24.3%, a decrease of 270 basis points from the 27% of net sales in the second quarter of 2016.
The decline in operating income was primarily due to adverse product and geography sales mix shifts.
As <UNK> pointed out, we were happy with the first reported quarter from the new distribution entity and segment.
Sales were $59.1 million in the second quarter 2017.
On a pro forma basis, we estimate this is about a 2% decline from the second quarter of 2016, primarily driven by adverse weather conditions in the western portion of the United States.
Distribution operating income was $3.7 million in the second quarter of 2017, and the second quarter operating income margin was 6.3%.
As we had described in our first quarter 2017 earnings conference call, we are now reporting interest segment sales and the related elimination of sales and operating income for the transfer of products between our reporting segments.
These eliminations primarily relate to sales from the Water Systems segment to the Distribution segment.
For the second quarter 2017, the total sales elimination for intersegment transfers is $18.6 million, and the total operating income elimination is $3.3 million.
The intersegment elimination of operating income effectively defers the operating income on sales from Water Systems to Distribution in our consolidated financial results until such time as the transferred product is sold from the Distribution segment to its end third-party customer.
This deferral of operating income or the elimination will be greatest during the first 6 to 12 months following the acquisition, as pre-acquisition inventory held in distribution entities is sold and post-acquisition inventory increases to an optimal level to support our customers.
The company's consolidated gross profit was $102.8 million for the second quarter of 2017, an increase of $12.1 million or about 13% from the second quarter of 2016 gross profit of $90.7 million.
The gross profit as a percent of net sales was 33.7% in the second quarter of 2017, and decreased about 230 basis points versus 36% during the second quarter of 2016.
The gross profit increase was primarily due to higher sales.
The decline in gross profit margin percentage is primarily due to lower gross profit margin of the new Distribution segment, which will have lower overall profit margins in our legacy Water and Fueling Systems segments.
Excluding the new Distribution segment, gross profit margin was 34.5%, and declined primarily due to higher raw material and other direct variable expenses, including freight.
Selling, general and administrative expenses were $68.3 million in the second quarter of 2017 compared to $58 million in the second quarter of the prior year, an increase of $10.3 million or about 18%.
The increase in SG&A expenses from acquired businesses were $13 million.
Excluding the acquired entities, the company's SG&A expenses in the second quarter of 2017 decreased by $2.7 million or about 5%.
Overall, the lower SG&A spending outside the acquired entities is due to lower advertising and promotion, engineering and engineering project costs and certain variable employee benefit costs.
The company's second quarter 2017 earnings included gains on the previously held equity investments in the 3 Distribution entities as indicated in the announcement made on April 10 regarding the acquisition of the controlling interest of these entities.
This gain, included in Other income in the company's income statement, was about $4.8 million or about $0.06 of earnings per share.
The company ended the second quarter of 2017 with a cash balance of about $55 million versus about $104 million at the end of 2016, down primarily due to acquisitions and increased working capital needs.
Inventory levels at the end of the second quarter of 2017 were $297 million versus year end 2016 of $203 million.
About $60 million of the inventory increase is due to the Distribution segment acquisitions.
The company realized discrete income tax benefits related to the onetime gain on the acquisition of the controlling interest in Distribution entities and the expiration of uncertain tax positions in foreign jurisdictions in the second quarter of 2017, which lowered the consolidated effective tax rate to about 19%.
The effective tax rate in the second quarter of 2016 was about 25%.
The company believes 25% is a reasonable estimate of the effective income tax rate for the remainder of 2017.
The company had $113 million in borrowings on its revolving debt facilities at the end of Q2 2017, and no borrowings at year end 2016.
These borrowings were primarily to fund the distribution acquisitions made in the quarter and for seasonal working capital needs.
The company did not purchase any shares of its common stock in the open market during the second quarter of 2017.
As of the end of the second quarter 2017, the total remaining authorized shares that may be repurchased is about 2.2 million.
Yesterday, the Franklin Electric Board of Directors declared a quarterly cash dividend of $0.1075 per share payable August 17 to shareholders of record on August 3, 2017.
This concludes our prepared remarks and we would now like to turn the call over for questions.
(Operator Instructions) And our first question comes from the line of Nish Damodara with <UNK> Baird.
This is actually Mike.
We must have had our lines crossed up.
So a couple of questions.
First, maybe just some initial thoughts on the Distribution side.
How that integration is going so far.
The comments were that it's ahead of expectation.
Maybe just a little bit more on what you've done so far and kind of what the next steps are.
Sure, Mike.
Initially, obviously, we've got costs out that were not going to be ---+ private ownership costs out of business.
We're on 4 separate ---+ actually, 3 separate platforms right now from an ERP point of view.
So we wanted to get some level of reporting across the platforms into the corporate office in Denver.
We're working on standardizing the operations platform, standardizing logistics, getting all the employee benefit plans in line.
Just the typical things you'll do when you're integrating an acquisition.
In this case, though, we're integrating them into each other as opposed to into Franklin.
So those processes are all underway.
So we look at being on a standard platform in ERP system, say, within 12 months.
We're looking to having all the benefit plans lined up by the end of the year.
And we look to getting greater visibility to the inventory levels because this is all about managing inventory and working capital and so our operation team is doing that as we speak.
So those are the kinds of activities.
And the cost out was really on the side of kind of the owner costs that you'd see typically in a private business, rationalizing those on a relatively quick basis so that we could get it to a running operating expense on a go-forward basis.
That makes sense.
The margins were certainly an encouraging start there.
Any thoughts on the channel now that you've had in the fold for a few months.
What do your channel partners, the customer base saying at this point.
Any worries on the competitive side yet.
Well, I think you see the range of responses that we talked about in our earlier call.
I mean, you see a range of response from, okay, we see there's a new owner and the same face is calling on me, so nothing has changed from that point of view, to more of a wait-and-see attitude.
We'd say that, generally, if you look at the first half of the year, buying patterns of all Franklin Electric's manufacturing customers are pretty much similar to prior years.
We've had a couple situations where we've had suppliers to Headwater choose not to continue to supply.
That's opened up other opportunities for us.
Some with other suppliers, which we're pursuing and have pursued.
So kind of, I think, the normal start of activity and not much different than what we described at our last call.
Okay.
That makes sense.
And then strong water trends in North America in the quarter, any sense for inventory through the channel.
Probably in a pretty fair spot at this point.
Last one from me then on the dewatering side.
Good to see that turning the corner.
What are the thoughts on sustainability on that side.
Yes, we're really pleased with the level of backlog and, touch wood, it's been doing really nice.
We're seeing it, again, across both the gas field service.
And I think after a couple of years of not buying much capital equipment, there's a need for new pumps, there's a need for repair parts, which is good for us.
So that's going well.
We're seeing ---+ we've increased our reach within the North American market and other channels, and then internationally, the business has picked up.
So we're encouraged.
But one quarter does not a trend make for the backlog has been lengthening out and we're very optimistic with that business.
And our next question comes from the line of <UNK> <UNK> with Sidoti & Company.
Just wanted to follow up with that distribution margin for a second.
First, I wanted to see if that's a clean number.
Was there any step up in inventory adjustments from the consolidation.
But secondly, as you've discussed outperforming expectations, I'm curious, is this sustainable or did you over earn in the quarter.
Okay.
So are you saying ---+ just to kind of read between the lines here, are you're saying it's a low signal-digit margin in a normalized kind of unseasonally strong quarter.
Got it.
<UNK>, I apologize, I missed what you said on the tax rate in your prepared remarks.
Could you ---+ could I ask you to repeat that.
Got it.
And the cash flow quarter ---+ generally 2Q is a really good free cash flow quarter.
This is kind of not stacking up to the prior few.
I'm curious, is this recognition of cash with the inventory adjustments for Water to Distribution.
Is that the right way to think about maybe what happened on the cash for the quarter.
No, I don't think those adjustments that you're referring to had really had a big impact on the cash flow at all.
When you look at our cash flow statement, what you see is kind of the change in receivables and inventories.
The pieces are a little bit different, but they're basically about the same as they were last year.
Our accounts payable accrued expenses are much lower this year than they were last year.
Some of that's just timing of inventory receipts, timing of other compensation payments that we make throughout the year.
The other part of this is some of our tax liabilities.
To get some of these discrete tax benefits that we take, we have tax liabilities that then those liabilities go away once we take that benefit.
So that's part of what we see below ---+ or not below the line, but in the other section of that cash flow section.
As <UNK> pointed out, I think our biggest opportunity is inventory management, not only in Distribution, but in our Water Systems and Fueling Systems segments as well.
And we continue to push on better working capital and inventory management.
And our next question comes from the line of <UNK> <UNK> with Boenning and Scattergood.
I had a question on the Distribution side, and I recognize this is a issue you can't talk too much about.
But in terms of the pipeline and your strategy there on the forward integration, just still trying to get an idea of whether Headwaters was more of a one-off and a situation that opportunistically made sense.
Or whether this is something that you're really going to push to ---+ we should expect that business to grow through further acquisition going forward.
Can you just give us an update on your thinking there, <UNK>.
Yes, sure, <UNK>.
Thanks for the question.
You look at it, again ---+ when we talk about Headwater, these first 3 significant distributors all had transition challenges from 1 generation to the next.
And 5 of the 6 leaders, I'd point out, were all over the age of 65 and looking for an exit strategy.
So it was important for us to have stability there.
And so you look at that as being a starting point.
That said, we have had several people contact us.
We are evaluating this model as we go.
The first job for the team, I made it very clear with [D] and his team, is we need to get these businesses integrated and hit the ROIC numbers that we modeled.
Based on that performance, we'd be encouraged to do more.
And so we're going to see how this unfolds.
We think it's a very interesting additive strategy to our manufacturing plan in a market we know very, very well where there are a number of privately held companies, where there's not necessarily a logical successor or whether there's a capital in the family to create a transaction.
So we see this as being a new platform.
We see it as being a platform that needs to prove itself out.
We're confident it will do that.
And as it does that, we will look at other opportunities.
Okay.
That's helpful.
And then my other one was, I may have missed it, but I didn't hear you say too much about ag in general in terms of the quarter and the outlook and the order board there.
Can you just give us an update on that particular market.
Yes, <UNK>.
We ---+ the big story in the United States, as we talked about U.S. and Canada, was on the dewatering side and then surface.
Groundwater was up 5% within that.
We didn't really see a lot of increase in ag.
Ag was pretty flat to slightly down.
Most of the benefit we saw in groundwater in the U.S. and Canada was related to residential systems.
So we ---+ now, some of this may be the way inventory is built in the channel and then runs down, but the second quarter was not a particularly strong ag quarter for Franklin.
And our next question comes from the line of <UNK> <UNK> with Seaport Global.
Just ---+ sorry if I missed this, but in the Water Systems side, I think we were targeting 5% to 7% growth for the full year, even with the slower start in Q1.
Just looking at first half results now and the tougher comps in the second half, is that still what we're targeting.
Or was there a change within the guidance on some of those underlying assumptions.
<UNK>, the ---+ we still think we're going to be able to hit the lower end of that (inaudible) lower end of that.
We did have a slow start.
It's principally offshore.
<UNK> <UNK> is here, he can give you a little travelogue around the world of how the first half unfolded and kind of ---+ and how we're looking at the second half in our international markets because that will be the driver of the achievement of that original guidance.
<UNK>.
Sure.
A very mixed bag around the globe.
Southeast Asia for us was off.
<UNK>, I think, mentioned in his comments about the weather change.
There going forward, that looks to be a continued headwind for us.
Europe is mixed, gets some help at times from currency.
Brazil is ---+ and South America generally are struggling economically.
So we think we're going to have some continued challenge there as well.
Some bright spots, though, we were actually up in a couple of areas, including Africa and parts of the Middle East, Near East, we're a little bit better than last year.
Southeast Asia, if I go back to that, was also a very tough comp against prior year.
So probably our forecast would say that the back half of the year, we're going to be about ---+ we're going to be not as bad off in Southeast Asia in the back half of the year as we were in the first half.
Okay.
Thanks for the color there.
And then on Headwaters, the profitability was great to see in Q2.
I had thought we were targeting sort of 4% to 6% margins, 2018 and beyond.
And 2017 was going to be about breakeven.
Have you changed the thinking there, where we could be or should be above that for the remainder of the year.
Or are you thinking there could be some offset that still keeps us flat.
Any thought there.
Yes, <UNK>, I'll take the second portion of your question first, and you're exactly right, top-line synergies are tough.
And you think about acquisitions, often you think about integrating them into your existing base business.
Here we're creating a new platform.
And so these synergies we're looking for in the top line are really kind of across these different distribution businesses.
Some of which have specialties in areas like turf or commercial or water treatment, and others didn't have those types of expertise.
That's where we see some nice cross-synergies.
I don't want to put a number on it, to your point, because there's a few that can be elusive.
We're optimistic that there's quite a bit of opportunity on the top line.
With respect to OpEx synergies, I'll turn the call over to <UNK> who will do that ---+ take you through that math to the degree that we have visibility to it.
<UNK>.
Yes, <UNK>, one of the challenges of trying to give some targets on any kind of synergies, so you have top line, as <UNK> is describing.
You also have sourcing, potential for sourcing synergies, OpEx synergies.
We're dealing with a historical basis here that where companies were run in a very different way than the way we're going to run these companies.
So it's a little bit hard for us to capture a range of numbers and say, okay, here's what we think they are.
That's why we're going to stick with the 4% to 6%.
The 4% to 6% operating income margin, we think, is the way to think about the profitability of this.
There are some synergy assumptions in that, as <UNK> said, so far, so good on those synergy assumptions.
But I don't want to get out in front of ourselves here until we get through a few quarters of operating this entity and kind of get some history of our own behind us, where we can really understand the cost base, really understand the sourcing processes, as an example, and establish a better baseline that is a Franklin baseline.
And not one that we're relying on kind of what the past was, which was ---+ could have been anything, really.
So the 4% to 6% is, I think, an appropriate guidance measure right now in profitability for that segment, and that's what we'll stick to for the moment.
On price realization.
Yes.
I would expect Fueling price realization to be ahead of Water, yes.
Thank you for joining us on this second quarter conference call.
We look forward to speaking with you at the end of our third quarter.
Have a good day.
| 2017_FELE |
2015 | HSC | HSC
#Sure, <UNK>.
This is <UNK>.
Looking at year over year for Metals, the headwinds we're talking about, the stronger US dollar, the nickel and scrap pricing, and demand issues and some LST declines particularly in North America, we look at totaling about $7 million of the year-on-year change.
You couple that with some slight exit impact with about $3 million, some of those additional cost matters I mentioned to you earlier and you see that that pretty much offsets entirely the Orion benefit that we said was just under $5 million during the quarter.
And by the way, the Orion benefit kind of flows through more or less half SG&A half in cost of sales.
The FX is all translation, or substantially all translation.
There's a little bit of transaction but not worth commenting on.
But the FX in the other columns, $3 million of that $3.9 million is FX, or $3.5 million of that $3.9 million is FX.
The rest of it is just a lot of puts and takes.
So <UNK>, on a full-year basis, the way to look at it with respect to M&M is $30 million year-over-year impact of FX, nickel scrap prices, and volume offset by $20 million of incremental Orion benefits, which is consistent with what we've been saying.
So we set this forecast a few weeks ago, and as you know currency and nickel prices have begun to improve a bit as has oil.
Scrap prices have not moved much; in fact I think they've moved a little downward.
So I think there might be a little bit of benefit here over the past couple of weeks.
But it's I would say at this point not material.
For the quarter the revenue impact is roughly $21 million.
And the ---+ this is year on year.
And the operating income impact was just under $4 million.
Right.
In the original guidance we anticipated the revenues would come down year on year as we continue to exit contracts and other things, yes.
We certainly have seen new sites ramp up year-over-year.
So that's a bit of a favorable offset to the exits.
The only thing that I would add there is essentially if you look at our revenue guidance in the Metals business, we're pointing to revenue declines this year in the mid-teens.
Two-thirds of that is FX.
The rest of that is site exits, and you see that impact on our LSTs in the quarter.
In the second half of the year we're certainly anticipating to get the additional benefits of the full year of the Orion benefits that we're starting to see in the first quarter.
Certainly we're going to see the ramp up and the full effect of our startups this year as well.
So we expect the second half of the year to be better because there certainly this operating income for metals.
And on an earnings basis we expect the last nine months of the year to be roughly consistent with the last nine months of 2014.
Certainly one aspect of it would be the positive indicators like <UNK> mentioned earlier, changes in some of those macroeconomic factors.
So that's certainly a large part of it that has an impact.
Certainly to the extent we are continuing to deliver maybe even exceed some of the benefits that we're expecting from the initiatives under Project Orion, the estimates with respect to new sites and ramp ups or increases at existing sites and renewals, they all impact it.
So there are enough moving parts that can get us to that high end if things click in the right direction.
We had a sizable bad debt write off last year that we don't expect to be repeating.
Over what period, <UNK>.
We've taken some initiatives to fit the working capital.
So we have seen some working capital improvements.
That's in Metals.
Now you also recognize that we had some advances in Rail that were not replicated this quarter.
And you couple that with getting out of the working capital side of it, the cash was also impacted by the reduction in underspending and capital expenditure, predominately at Metals.
Not sure if that gets you ---+
No.
It's ---+ I don't know the per share amount.
It's $11 million after taxes.
$0.07, sorry.
So on a full year ---+ in revised guidance the full-year expectation is that margins will increase year on year for Metals.
That's really part of our expectation.
Mid-teens.
No.
As we've indicated, <UNK>, we expect cash flow to improve notably this year relative to last year.
And certainly going forward that is our expectation.
We remain as committed to the dividend as we have been in the past at the current level.
There's some timing issues there, but the full year expected tax rate ---+ effective tax rate is expected to be between 35% to 37% again, depending on the ins and outs it could vary in any particular quarter.
But overall for the full year the expectation is still consistent.
Yes.
So a year ago we identified some 68 or 70 contracts that were identified for what we refer to as contract triage.
We had planned to and we still believe we will be substantially complete with that by the end of the year.
There may be a couple that carry over into next year.
But by and large we're going to be complete at the end of this.
And in fact what we've seen and what I mentioned during my comments since the last call is exactly on progress, on track.
That's important to keep in mind though, Rich, that even though we finalize the outcome of many of these oftentimes the have a tail to them.
So when you agree to exit or you agree to renegotiate the effective date of that, oftentimes it is six, nine months in the future.
So you see the financial benefits of that a bit later than you finalize the outcome
That's certainly the case.
As you know we have reduced the amount of growth capital that we have allocated to M&M.
So we're being much more selective which opportunities we're pursuing.
But we absolutely have.
We're in discussions now on a number of opportunities that would be new.
That's right.
So that $0.5 billion or so that I referenced would be across five or six different contracts over the next five or so years.
Most of them likely would not begin until late 2016 or 2017 and carry through 2020.
Well that business continues to grow quite nicely.
Just a few years ago it was $25 million or $30 million, now it will be over $100 million this year in aftermarket.
And clearly that is one of the areas of focus in M&A.
We've made a few small acquisitions that help us in the aftermarket space through more product capability as opposed to geography.
So we have a dedicated team focused on aftermarket and we've been very happy with the progress they've made.
Well the integration of the Harsco business and the Brand business is complete.
They achieved their plan last year both in terms of EBITDA growth, which was 8% to 10%, as well as the debt reduction, the free cash flow.
This year they'll be down a bit in EBITDA, but they've taken out an awful lot of cost to mitigate the impact of their rather sizable exposure to the energy space.
And the cash flow this year, the expectation is for it to be even a bit better than the original acquisition plan.
We continue to look at small to midsize tuck-in acquisitions that expand the service capability of the business.
And we feel now with a $3 billion-plus global business that's really unmatched by any of their competitors that they continue to do somewhat better in the marketplace than the competition.
I'm on the Board and attend the meetings and speak often with the team there and continue to be very impressed with the leadership there and what they are focused on.
Well we certainly looked at many different businesses doing this.
And most of us on the senior team here have worked at companies that had their business systems.
So we certainly have experience with them ourselves.
I would not say we benchmarked against any given business system.
We certainly brought all of our different experiences to bear on it and we really put this together since <UNK> and Tracey McKenzie, our new head of HR, have joined within the past six months.
So we were kind of waiting to complete the executive leadership team to put the final touches on it and roll it out.
I would say it's really focused on talent development, health and safety, and execution around cost.
So continuous improvement for example is not nearly as well embedded in our culture and our processes as it needs to be.
So that's a clear area of focus.
And then also on strategic planning.
I think that we don't do that consistently well across the Company and that's something that <UNK> and I are going to lead.
So it's not benchmarked per se.
We were very thoughtful in choosing what the five components should be in our business system.
And we've assigned accountability to each of those ---+ to various executive team members and we're driving them.
I'll walk through the bridge again.
So if you look, and I'm not sure, <UNK>, I completely follow your question.
But if we look at the composition of the change, if you factor in the stronger dollar, the depressed nickel scrap, some LST mix issues and some reduction issues, that total is about $7 million year on year.
And that's in a couple of different captions on that side, which I can tell you where that is.
But there is an element in the FX and other piece, there's an element in net contract, or in existing contracts and the NI and applied products piece.
In addition as I said there's some other cost aspects that I mentioned in my remarks that also impact the year-on-year comparison including some unscheduled maintenance and some costs related to systems implementation in a couple of our sites in Latin America.
We are anticipated that those ---+ we'll be able to deal with them in the second half.
They're not timing issues per se, but we expect improvement scenarios that are going to offset that in the rest of the year, second half of the year.
Yes.
We're still ---+ our guidance for Brand is that we're going to see $4 million to $6 million of equity income for the year.
Of course we've got $4 million this quarter.
So we expect that to be reversing the following quarter.
So at the end of the year we're going to still hold tight to the guidance of $4 million to $6 million equity earnings.
In Rail I would go back to our comments even a couple of months ago about the mix shift in the Rail business.
Last year was one that benefited from a large number of part kit sales into Asia.
This year that earnings, if you would, is being offset by more equipment sales where margins are lower.
So that is driving a sizable increase in revenues and that will have an impact on margins.
So the revenue comparison you were referring to is the equipment and parts mix.
Just to be clear, that's not to say that the volume in aftermarket parts is declining, it's actually growing year over year but the mix.
There were a few very sizable aftermarket part kit shipments last year at extraordinary margins.
So the volume is still growing.
| 2015_HSC |
2016 | TDG | TDG
#Morning.
Yes, on the commercial transport aftermarket, if I look at previous cycles around flight hours, this seems to me to be down a lot.
It seems to me, typically these have started to come back and have caught up.
I don't know of any change in the underlying use or consumption of the parts, so at some point it's got to pick up.
Now, do I call the turn exactly right.
I don't know.
That's our best judgment as we sit here today.
As I said, if we're off a little, we think we may have some margin room if you look at it down in EBITDA or EPS.
I don't have any crystal ball to call the turn exactly.
And what was your other question about the BizJet.
Yes, they were down pretty significantly.
You know, our assumptions are roughly they don't stay like that, they pick up a little bit through the year.
It seems to us to be an overreaction.
Now, the commercial Helicopter business is pretty bumpy, as I'm sure you know, and aftermarket OEM, but that's not a lot of our business.
So I don't see that driving it much, but I would expect the aftermarket from the Business Jets to be a little better, though I have to say, the aftermarket Business Jet bookings weren't great in the quarter.
That's in the aftermarket.
The OEM bookings were quite good.
You have to see a pickup in demand, <UNK>.
As you know, if you take the numbers this quarter and take the numbers for the year and divide by three, you've got to see a pickup in demand.
Historically, that's happened after a period like this.
You've ended up with some pretty high quarters.
If pickup doesn't happen, we won't meet the number.
Now that doesn't mean we won't meet our revenue or EPS numbers some other way, but that segment, we would not meet it.
Well, our assumption going into the year wasn't much growth there.
Now it wasn't a drop like we saw in the first quarter, so we're kind of the same place as we were going into the year ---+ that's sort of a flattish market.
And you know, it's not running at a real high level.
Every year, everybody thinks it's going to pick up, but it hasn't.
Now, the underlying take-off and landings aren't great, but they're not drastically down.
Almost entirely Breeze.
Almost entirely.
Anything else was puts and takes.
If some unit went up, something else went down to offset it.
It's almost dollar per dollar Breeze.
I can cover that.
So the last thing we did was last April or May of 2015.
I think the coupon on that was about 6.5%.
Kind of stepping back from the standpoint of the market, the high-yield market has a lot of volatility in there and is primarily in the oil and gas area.
There is a lot of demand for quality paper that we have.
We talk to our banks on several occasions and we stay close to them and there would be a lot of interest in us issuing more paper if we had to.
We don't see the need at this point in time.
But ultimately, if we were to go to market today in today's conditions, we're probably looking at something in the 7.25%, 7.5% range as a coupon rate.
That's for step up and leverage.
Not to replace.
Right.
Just a step up and leverage for new issuance bond ---+ unsecured bond.
I think it's just the shipments are so low, <UNK>.
I don't think it's because, it's not that the bookings are so off, it's the shipments are disproportionately down.
That's the point I was trying to make.
No, we're not.
We're not avoiding it.
It's just, we have the same sort all the time, proprietary aerospace significant aftermarket content.
What we pay is dependent on what we think of the outlook of it.
We're neither avoiding nor are we seeking military, disproportionately.
We're just going to go through it, look at the platforms, look at our forecast, look at our view of it, and price it accordingly.
Did you say since the end of the quarter.
Yes.
I don't want to comment on short-term times like that.
I think we'll wait until the quarter and talk about it when we have the data.
I don't want to start anecdotally commenting.
It surely could be.
But I don't want to hang on anything specific unless I have the data pretty clearly.
But it's not unusual that we see inventory adjustments at the end of the year.
People wanting to polish things up.
It's all over the map.
It's all over the map for the businesses.
Some have a catalog they put out once a year, but it's not necessarily on a calendar cycle.
Some don't ---+ some don't have a catalog, they price a lot of it on demand.
So, there's not a one point in time when you can say that they step up.
I don't think so.
The real answer is I think it's pretty ratable through the year.
Maybe a little weighted toward the prices going in in the first half of the year, but then you have to work through the backlog a little bit, so.
No.
| 2016_TDG |
2016 | EGOV | EGOV
#Thanks for the questions.
No, Pete.
I don't think there is really anything else to consider.
My concluding remarks just a moment ago certainly I think our results for the quarter exceeded our expectations on just about everymetrics so we came out of the gate strong.
It is still really, really early in the year and I don't think we'll be making any changes to the guidance that we have provided on the last call.
Pete, this <UNK>.
I will take a stab at part of that question.
The answer is yes, right off the bat.
As far as do we see any portability here.
As you know we took a different stance on this one because (Inaudible) technology is advance and where Wisconsin is being the second largest hunting and fishing state out there, we want to make sure we put our best foot forward and we built a rock solid system that we could then leverage elsewhere.
We have been very diligent.
We have been very careful.
There have been some opportunities present themselves, and instead of getting ahead of ourselves we decided to keep our gun powder dry until we were ready to step out there.
We have heard from states that they are anxious to see what comes from Wisconsin.
So I think it is now just a matter of time for them to see that, to get an understanding of what has been deployed and the value it brings back to Wisconsin and opportunities should come from there.
I look at <UNK>, to see if he wanted to add anything.
Thanks, Pete.
Thank you, <UNK>.
Yes, I think in terms of this quarter, <UNK>, we had mentioned some motor vehicle inspections and registrations, limited criminal histories, tax fillings, professional licensing.
So some of them are new services.
When I say new services, services that we launched in states that weren't up and running this quarter last year.
And so there is no new services of that listing that I just put forth none of those are new.
We had obviously built those services and launched those services in others state.
So most of those are kind of our good solid historical performers.
Well, I don't ---+ certainly on a year-over-year basis I think revenues werereally the primary driver.
We had a really good strong quarter of revenue growth and I wouldn't necessarily say it was anything investment related.
We did keep in mind last year this quarter we did have I think three-quarters of a million dollars roughly in one time costs related to this vehicle inspection service in the state of Texas when they switched to the single sticker legislation, so that was weighing down our results somewhat in the prior year quarter.
But other than that, I think it is just a really good strong quarter of revenue growth combined with some good efforts on our part in terms of controlling the cost side of the equation.
I guess I would say this, is that certainlyQ1 was a good quarter but in our guidance we provided for 2016 we essentially implied similar margins for operating income margins and total gross profits fairly similar to what we have seen recently.
So until we stack a couple more quarters of results like we say this quarter, I'm probably not too comfortable going out on a limb saying that we should automatically see margin expansion the rest of the year.
Thank you.
Hi <UNK>.
We don't have an exact measure for that.
<UNK>, I guess what I would say is typically most of the growth we see from an IGS standpoint comes from the launch of new services that's probably the majority of our growth.
Certainly we see a component of our growth that relates to more usage of the same servicesyear-over-year.
But by and large I think most of our growth roughly using the 80/20 rule probably the bulk of that growth is coming from new services that we have launched over the course of the last year.
I don't know if I would say (Inaudible).
Keep in mind the way it works, and <UNK> nailed it 100% we are constantly looking for new innovations, new services that we can launch.
At the same time we have teams that are driving existing applications out there to either new users or educating the existing user base how they can use it more properly maybe in more depth.
So we are growing our business both ways as aggressively as possible.
We never take anything for granted.
And I will just tell you it was a great quarter.
Our teams did really good work, out partners were aggressive with not only new services but helping us get the work out.
And we're very pleased with the quarter.
It is a great question, because it gives me an opportunity in that you're right.
(Inaudible) as far as new states.
But one thing we have always said is we have great organic growth in our business, and we have a very robust solid business, book of business right now that we continue to growquarter after quarter year after year.
And this was a great one and we expect to continue to grow our business and have very aggressive management teams out there driving it.
Absolutely.
I mean that is part of what got us so excited.
Go in ---+ it is a pilot.
Remember they wanted to do a pilot to see how it would work from there.
To go aggressively show them what we have done in the states and how thatcould be leveraged to federal space and then once we got them up, which we got three of them up very quickly, then convince them ours is the right solution and can we roll that our to more and more and actually do other services for them.
We think this is a great lead in now time will tell.
No.
At this point it is just a pilot they haveimplemented
And we share a portion.
Yes, we just share a portion of that fee.
And it will really be up to the agency as they look and get a feeling for how it is working and what's going on there.
And part of our responsibility as <UNK> said to try and push that and show the success it can have.
I think we might have talked about this last quarter, <UNK>, on the call.
Our team in D.
C.
has done a remarkable job of quarter after quarter signing up new carriers and new subscribers to the service.
And that is really part of what is driving growth is adding new trucking companies and new users of the service each quarter.
I have saida number of times I expect to maybe slow down a bit.
It has been a great, great performer growing in double-digit percentage growth for usthis quarter.
Well, <UNK>, I think what we have historically said we have been able to grow the business in the high single-digit on a total same state basis with the majority of that high single-digit growth coming from IGS services.
From low to mid double-digit growth is what we have historically seen.
We saw 16% this quarter which was one of our strongest quarters we have seen in a long time.
I think the long-term growth dynamics of the business we don't necessarily view any differently than that.
Our hope is that we can continue to sustain growth in that upper single digits some quarters in the low double-digit.
But it is also important in order for us to maintain that type of organic growth we need to win new states from time to time.
I was waiting for <UNK> to finish that because my reaction is real simple.
There are new states coming.
We are going to win new states and there is federal opportunities we are working.
I realise it has been a little bit of a lull but those things happen in all business.
It is a great question because it does give us an opportunity to really discuss how strong our core business is.
But we do see opportunities for growth outside the existing book of business.
Time will tell on that one, <UNK>, I think we have been doing a little bit better in population growth from just a pure volume standpoint.
If that trend continues, that would be a little bit better than just the population growth but again time will tell.
You bet.
That's a great question and I'll let <UNK> jump in just a second.
But here is what I would say, number one, when you look at anything dealing with businesses, (Inaudible), we have looked at those and said there is opportunities to grow them and we do that.
We grow that right now in our existing business often times we don't speak it and point them out.
One is for competitive reasons.
When we launch some of these services we don't want somebody to necessarily know what we are doing to go knock on that agency's door.
If we are going to be making a major investment then definitely we are going to put a spotlight on it because we want to be as open and honest with you as we can saying this is where we are spending above and beyond.
Or if it is one that we think will really be a needle mover.
I will tell you we make the majority of our money off business to government.
So just about anything we do business to government there are often times we might take at that next level.
And it is just something we are exploring.
There is none that I would throw out there and say, hey, here is the very next big one just because I don't want anybody to get in front of me.
I don't think it was a true up.
As I shared in my scripted remarks, we actually saw a decline of about $500,000 in vehicleinspection service because of a change in the way we're recognizing revenue.
However in the prior year quarter we actually saw a decline of about 700,000 from that service.
So comparing the two quarters it was a slight benefit this quarter.
But nevertheless we did see revenues decline from the service compared to what we (Inaudible) expect from the service.
No, I wouldn't say Texas is one off.
This one service we highlighted happens to be our largest IGS service across all our states.
And ultimately these were a reflection of legislative changes that were made by the state legislature.
That's right.
So there is nothing necessarily special about Texas or different about Texas compared to our other states from a revenue recognition standpoint or how we negotiate the terms the conditions of the deal.
Okay.
That's all I have.
Thank you very much.
All right.
Thanks.
Thank you, Kelly.
And thank you to everyone who joined us this afternoon.
I look forward to speaking with you during tomorrow during our 2016 annual stockholder meeting at 10 AM Central time when I will share more about our plans to continue to lead the digital government services industry in the future.
Including demoing a very cool innovative solution.
We hope that all of our stockholder investors will join the webcast by visiting the Investor Relation page of our website at egove.com, or better just join me in person at the new Olathe Conference Center at the Embassy Suites Hotel in Olathe, Kansas.
I look forward to seeing everybody tomorrow.
Thanks.
| 2016_EGOV |
2016 | QSII | QSII
#Yes, and on RCM, we are expecting it to look ---+ in 2017, we expect it to look a lot like what you are see in Q4 as opposed to the previous number of double-digit growth.
And just to put a little color on that, what I'd say is, this is where you should start to see over time our work on client satisfaction and client experience really start to take hold.
And one of the first things that I said, when I came into the organization is, I am absolute laser-focused on building a great client experience and great client value not just because that's our accountability and responsibility to our clients, but also because that creates opportunity for us to bring a greater breadth of solution to them.
We continue to make progress on our voice of client.
We had a great meeting with our large client user group just two weeks ago.
Certainly, there is ups and downs, but the general trend is actually very positive and we feel like, as we continue to make that progress, it will create a better landing zone, both for our solution selling of RCM, but also for anything else that we bring to the table.
Capitalized software was $3.1 million in the quarter.
Yes, so what I would say, <UNK> is, first of all, it's driving margin into the business, which means really making the business more scalable rather than necessarily looking at as the cost reduction target.
But, yes, we have started to really do the process mapping to make sure that that process continues to be standardized and more efficient.
We are starting to bring technology development to the table to continue to automate more, but this is not an instant thing where we are going to wave our magic wand and take cost out.
This is making the operation more efficient, while still preserving the great high touch relationship we have with the clients, which has once again put us in a best-in-class position in the RCM market.
And so what I would say is these aren't things that will show up immediately, these are things that will show up over time, because we are very cognizant of the fact that our clients depend heavily on our best-in-class service and we want to make sure that as we continue to automate it we don't lose what it made it great.
They should start to get higher than they are.
I think that's what we are really willing to talk about at this point.
I think, let and then this comes back to credibility, right, when I have a plan in front of me that I know I can execute, not just an idea, but a plan that I know I can execute, I know we are going to deliver on at that point in time, then we will start to let our optimism bleed through into the investor community and tell them, we are going to keep our optimism to ourselves.
Thank you.
It does.
No.
It wouldn't be the way to think about bookings.
I think, let's back up, I think they were doing about $35 million for last year, is the number.
So it's not the $43 million that I think is what is required for the earn out and the bookings would only be new contracts, not the renewals of existing contracts.
But the number .
bookings number is much less than $10 million a quarter.
Yes.
Thank you, <UNK>.
Give a second.
I'm going through numbers in my fingers, but that's one of them.
It's just under $4 million for the quarter.
Well, thanks everybody.
Appreciate your participation today.
It was a short set of announcements, but that's primarily driven by the fact that we had a long conversation with you less than four weeks ago.
We as an organization continue to make a tremendous of progress quickly.
We are excited as we move forward to continue to share that progress with you, most notably, at the Analyst Day in June in New York City.
And until then, have a great couple of weeks and we will look forward to seeing you all.
Thank you.
| 2016_QSII |
2017 | INT | INT
#Thank you, Colin.
Good evening, everyone, and welcome to the World Fuel Services Second Quarter 2017 Earnings Conference Call.
I'm <UNK> <UNK>, World Fuel Service's Assistant Treasurer, and I will be doing the introductions on this evening's call alongside our live slide presentation.
This call is also available via webcast.
To access this webcast or future webcasts, please visit our website, www.wfscorp.com, and click on the webcast icon.
With us on the call today are <UNK> <UNK>, Chairman and Chief Executive Officer; and <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
By now you should have all received a copy of our earnings release.
If not, you can access the release on our website.
Before we get started, I would like to review World Fuel's safe harbor Statement.
Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information.
A description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's most recent Form 10-K and other reports filed with the Securities and Exchange Commission.
World Fuel assumes no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events.
This presentation also include certain non-GAAP financial measures as defined in Regulation G.
A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, is included in World Fuel's press release and can be found on its website.
We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.
At this time, I would like to introduce our Chairman and Chief Executive Officer, <UNK> <UNK>.
Thank you, <UNK>, and thank you to everyone on the line for taking the time to join us.
Today we announced first quarter adjusted earnings of $34 million or $0.50 adjusted diluted earnings per share.
Our aviation business performed well, as the aviation industry continues to experience healthy passenger growth globally, as more people gain access to air travel throughout the world.
It's an impressive statistic that 82% of the world population has never flown.
Furthermore, air cargo activity has also started recovering after a lengthy period of depressed demand.
World Fuel has been a beneficiary of these macroeconomic trends as a consequence of our geographically diversified platform and our emphasis on strengthening our global footprint through strategic distribution acquisitions, as well as organically expanding our strong global supply and logistics network.
These factors combined to drive aviation volume to its highest level ever exceeding an $8 billion gallon annual run rate in Q2.
Relatively stable supply dynamics throughout Q2, particularly in North America, made for improved supply efficiency minimizing some of the incremental costs associated with supply disruptions that have been periodically experienced in certain prior quarters and can potentially arise at any point in time.
Furthermore, Q2 experienced stable demand in our government business.
Despite the volume increases, costs remained flat to the prior year demonstrating the scalability of our aviation platform.
While intensive competition in the current low price environment, resulting from an abundance of supply, is expected to continue for the foreseeable future.
Nevertheless, we believe our aviation segment is well positioned to maintain competitiveness.
Organic growth in existing locations, ancillary service revenue and increasing earnings contribution from our recently completed acquisition and subsequent network expansion facilitated by this acquisition, should enable us to leverage our industry-leading platform.
In our Marine business, the global shipping industry continues to experience weak demand and abundance of supply and continuing consolidation of the customer base.
Factors that have dramatically impacted many bunker fuel suppliers.
Despite this phenomenon, we were able to demonstrate consistency posting gross profit and operating income results largely consistent with the prior quarter.
The drivers of the year-over-year decline were primarily related to a drop off in Asian business, as well as a lack of demand for risk management.
This was offset by a reduction in operating expenses directly attributable to the restructuring and cost control initiatives that were announced in 2016.
We do not anticipate a material improvement in the macroeconomic or low oil price environment that will continue to put pressure on demand and profit margins.
Nonetheless, we anticipate that financial results in Q3 and Q4 will be in line with Q1 and Q2 income levels to our continued emphasis on rigorous operating efficiency and expansion of our diversified value proposition.
Our land segment once again suffered under an oversupplied market on the East Coast, and we were also impacted by an adverse pricing environment in Brazil.
While our Land segment represents an extremely large growth runway, as mentioned previously, we still have to work ---+ we still have work to do to get tightly integrated global platforms.
We have undertaken a comprehensive review of the North American platform and we are executing on that over the balance of the second half, which will position us well for 2018.
Finally, we continue to focus on integrating and streamlining overall operations across all of our segments and functions by utilizing standardized processes and technology that create efficiency internally and greater value for our supply and demand partners as we build out our global energy management, fulfillment and payments business.
We appreciate the continued support from our long-term shareholders, customers and suppliers, tremendous engagement of our global teams.
And now I'll hand over the call to <UNK> to go through our financial results.
Thank you, Mike, and happy birthday, by the way.
Thank you, <UNK>.
Consolidated revenue for the second quarter was $8.1 billion, up 22% compared to the second quarter of 2016.
The increase was due to a 6% increase in oil prices, as well as increased volume principally from an 18% volume increase in the aviation, land segments.
Our aviation segment volume was 2 billion gallons this second quarter, up 300 million gallons or 18% year-over-year.
Volume growth in our aviation segment was derived principally from gains in our core resale operations in North America, as well as from the sales coming from recently acquired international fueling operations.
Our aviation segment continues to deliver strong organic growth and has now reached 2 billion gallons of quarterly volume for the first time ever.
Volume in our marine segment for the second quarter was 6.8 million metric tons, down approximately 1.5 million metric tons or 18% year-over-year.
The largest driver of the volume reduction relates to our core operations, principally in Asia.
Our land segment volume was 1.5 billion gallons during the second quarter, up approximately 230 million gallons or 18% from the second quarter of 2016.
And total consolidated volume for the second quarter was 5.3 billion gallons, an increase of approximately 150 million gallons or 3% year-over-year.
Consolidated gross profit for the first quarter was $231 million, an increase of $12 million or 6%, compared to the second quarter of 2016.
Our aviation segment contributed $111 million of gross profit in the second quarter, that's an increase of $12 million or 13% compared to the second quarter of last year.
The principal drivers of the gross profit increase in aviation came from increases in our core resale business in North America and profit from our recently acquired international fueling operations.
As we look to the third quarter, which has traditionally been the seasonally strongest quarter for the aviation segment, we expect both volume and profits to again increase on both the sequential and year-over-year basis as we continue to leverage our industry-leading platform.
The marine segment generated gross profit of $33 million, that's down $7 million or 17% year-over-year.
The gross profit decline was again principally driven by reduced volume in our core business, primarily in Asia and a further decline in profits from the sale of price risk management products.
We do not anticipate a meaningful improvement in the macroeconomic or low fuel price environment anytime soon.
Therefore, we are not expecting any material improvement in marine results over the balance of the year.
Our land segment delivered gross profit of $87 million in the second quarter, that's an increase of $7 million or 9% year-over-year.
The increase in land segment gross profit is principally attributed to recent acquisitions, offset by lower profitability related to supply and trading activities in the United States, associated with the continued conditions on the East Coast where the market remains oversupplied.
We were also impacted by a decline in profits in our Brazilian operations due to unfavorable supply dynamics in the country.
Gross profit associated with our Multi Service payment solutions business was $14.1 million in the second quarter, that's an increase of 10% compared to the second quarter of last year, demonstrating the continued expansion of our global payment platform.
Our Multi Service team continues to identify additional growth opportunities that should benefit us in 2018 and beyond.
As I continue with the remainder of the financial review, please note that the following figures exclude the impact of $5.7 million of pretax nonrecurring expenses in the second quarter, as well as nonrecurring items in periods previously reported as highlighted in our earnings release.
This amount is principally comprised of acquisition-related expenses and severance costs.
To assist all of you in reconciling results published on our earnings release and 10-Q, the breakdown of the $5.7 million is as follows: $3.2 million relates to aviation; $1.1 million to land; $800,000 to marine; and $600,000 relates to unallocated corporate expenses.
The reconciliation of these amounts can be found on our website, on the last slide of our webcast presentation.
Operating expenses in the second quarter excluding our provision for bad debt and onetime items were $173 million, that's up $8 million year-over-year.
However, when excluding the impact of recent acquisitions, operating expenses actually declined by $8 million year-over-year, reflecting the impact of our ongoing cost saving initiatives.
In terms of the status of our $20 million cost savings initiative announced in February, we still expect to realize $15 million of our such saving during this year, with the incremental savings to be realized in 2018.
We have continued to identify additional savings opportunities across the business, which should help further improve our operating efficiencies.
Actually, as we look towards 2018, the remaining savings from our February cost savings announcement, combined with the impact of additional savings already identified, should result in an incremental cost reduction of at least $15 million in 2018.
Total operating expenses excluding bad debt expense and any onetime items should be in a range of $173 million to $177 million in the third quarter.
Our bad debt provision for the second quarter was $1.5 million, that's down $1 million compared to the second quarter of last year.
Consolidated income from operations for the second quarter was $57 million, that's up $5 million or 11% year-over-year.
Nonoperating expenses, which again principally consist of interest expense in the second quarter, was $16 million.
This represents an increase of $8 million compared to the second quarter of last year, principally related to increased borrowings associated with our increased volume, the funding of acquisitions and higher average interest rates as compared to last year.
However, total debt declined by $118 million since the end of last year, demonstrating our continued commitment to maintaining a strong balance sheet.
Looking forward, I would assume nonoperating expenses to be in a range of $14 million to $16 million in the third quarter.
Our effective tax rate in the second quarter was 15.1%, that's compared to 19.5% in the second quarter of last year.
And at this time, we still estimate that our effective tax rate for the full year of 2017 should be between 15% and 18%.
Adjusted net income was $34 million this quarter, which was flat when compared to the second quarter of last year.
Non-GAAP net income, which again excludes onetime expenses and also excludes intangible amortization and stock-based compensation, was $45 million in the second quarter, that's up $1 million from the second quarter of last year.
Adjusted diluted earnings per share was $0.50 in the second quarter, which is flat with the second quarter of last year and non-GAAP diluted earnings per share was $0.66 in the second quarter, up 5% from $0.63 in the first ---+ second quarter of last year.
Our total accounts receivable balance, was $2.2 billion at quarter-end, effectively flat year-to-date.
Net working capital was approximately $890 million, down approximately $50 million sequentially, contributing to the generation of $19 million of cash flow from operations in the second quarter, which takes are year-to-date operating cash flow total to $156 million, and more than $1.4 billion over the past 5 years.
During such time, we have generated positive operating cash flow in all but one quarter.
We also repurchased an additional $21 million of our common stock in the second quarter, taking our year-to-date repurchases to $32 million or 850,000 shares.
Delivering on our commitment to continue providing incremental value to our shareholders through share repurchases.
As a result of our outlook through certain parts of our business, now being lowered than previously forecasted, we are lowering our full year guidance range.
The principle drivers, which have lowered our expectations for the year, relate to increased weakness in our marine segment where volume declines in our core business, principally in Asia, are unlikely to recover through the balance of the year, and a continuing low-price environment has further reduced the sale of the derivative products to our customers.
Also, protracted headwinds in our domestic land business, principally relating to the impact of oversupplied market conditions in the Northeast also seem likely to continue for the balance of the year.
And finally, unfavorable pricing policies implemented by our state-controlled supplier in our Brazilian land operation has led to increased margin pressure in this market, which will also likely persist for the balance of 2017.
Due to these and other factors, we believe that adjusted full year diluted earnings per share will now be in the range of $2.10 to $2.40 for 2017, which is down from the $2.55 to $2.90 previously forecasted.
Again, our guidance assumes anticipated contributions from recently acquired businesses, our ability to continue to deliver on cost saving initiatives, continued strong government related activity and normal winter weather patterns.
So in closing, while we are still facing challenges in our marine segment and parts of our land segment.
We delivered good results in what was our seasonally weakest quarter of the year.
We, again, generated operating cash flow and repaid debt, further strengthening our balance sheet.
While our guidance for the balance of the year has been tempered due to the factors previously described, our leadership position in global energy management, procurement, supply fulfillment and payment solutions should continue to service well as we expand our growth opportunities to benefit a global suite of customers.
While market conditions will step in our path from time to time, our long-term opportunities remain strong across our legacy activities as well as our newer growth engines, such as Kinect, representing natural gas and power and Multi Service, which continues to grow with innovative solutions aimed at a broadening group of customers.
Lastly, we continue to be focused on improving efficiencies and driving growth backed by the strength of our balance sheet and the dedication of our best-in-class global team of professionals around the world.
I would now like to turn the call over to Colin to begin our question-and-answer session.
Sure.
I would certainly expect traditional patterns where we, as I said in my prepared remarks, Greg, should see some increases in the third quarter both sequentially and year-over-year in volume and gross profit.
So we expect to make a few million dollars more on an operating income basis in Q3 versus Q2, which again is traditional ---+ we had a really strong Q2, so the delta between Q2 and Q3 may not be as large as it's been in previous years but we should still see an increase.
And then when you get to Q4, that number drops back down to a number similar to Q2 and maybe even a little below.
So I would say, Q3 and Q4 combined, if you take the average of those 2 quarters, you could have a result very similar to the second quarter.
Okay.
So that's a good question.
The marine business, obviously, has been pretty challenged.
More so than, I think, we had expected.
So volatility is pretty low, I mean the (inaudible) is ---+ not that that's a complete indication of what goes on in our specific world, but I guess it's the lowest in 23 years.
I mean, I don't think anybody sees a lot of risk.
Disruptions don't disrupt anymore.
So I think we feel like we have sort of hit bedrock on marine, and we had a little bit of breakage there in terms of the rightsizing of the organization.
So some improvement in the marine business, I'm not sure that we're going ---+ we don't expect anything there.
It's really going to be our performance there.
The East Coast is pretty challenged with that market.
All the refineries in the Gulf Coast who are essentially supplying South America, so that hard ---+ where we were making a good amount of money on the East Coast, it is very much challenged, so some relief there, I think.
A big part of, I think, our business is really pivoting from taking margin from some of the commodity side that we had and really getting the operation to be a lot tighter.
So I think that we've got our work cut out for us.
Markets like this, really, a stress test for management and your business model.
The government activity is always a wildcard.
We never really know what's going to happen there.
It\u2019s all requirements there.
So that potentially could be a surprise on the upside or down.
So other than that, I think those are really sort of the guardrails there.
I don't know if you have any other commentary on that, <UNK>.
I think, again, when I provided the guidance, Mike already alluded to a lot of this, so I may be slightly repetitive.
But I qualify it to say that even revised guidance assumes expected contributions from recently acquired businesses.
We've talked about PAPCO and APP and the ExxonMobil transaction.
So we've made expectations for those businesses for the second half of the year.
ExxonMobil is kicking in and starting to step up.
So we need that to happen to hit the reasonable, let's say, midpoint of the guidance.
If that accelerates further, we've got some upside there.
Also, I said that it assumes that we continue to deliver on our cost saving initiatives if we could outperform there, we have the ability to outperform on a guidance and move towards the higher end of the range.
Mike mentioned government, that could go either way, but we've seen that that's been very resilient.
So there are opportunities for us to do better than expected and its certainly possible that could contribute to a better result.
And then, finally, the winter weather, right.
So we're assuming ---+ we're not assuming a warm winter or a frigid winter, we're assuming something in the middle of the road to the extent winter conditions in the U.K. in particular, even in the U.S., where we've got a growing natural gas platform that's somewhat seasonal.
That weather impact could help us or hurt us a bit, and that's why the range is relatively wide.
That's why we provided a $0.30 range similar to what we did last go around.
So our goal is to try to do as well as possible and focus on maximizing our opportunities in all those areas throughout the rest of our business globally.
So just to be perfectly clear and to slightly correct what you just said, we had announced in February a $15 million to $20 million worth of cost savings.
And at the time, we said we expect to realize approximately $15 million of that amount in '17, which implies that the balance wouldn't be achieved until '18.
So it's basically reconfirming that, saying that we expect that this year we'll benefit by the $15 million and we already have plans in place that would give us the additional $5 million but we won't see it until '18.
And then we found, effectively, an additional $10 million, which will generally benefit us in '18.
So why not sooner.
I mean, a lot of it are ---+ there are a lot of pieces to the puzzle that have timing elements that can't necessarily be excluded on a moments notice.
There needs to be ---+ there's some planning involved in some of the things that we're doing.
To the extent we could ---+ it's a Greg <UNK>' question, to the extent we can move some of those things up, we will, and that would only improve upon our expectation.
But for now, I think it was fair to say that we'll pick up that $15 million ---+ if we get a little bit of it this year, great.
If not, we've got a $15 million improvement as we turn the clocks on New Year's Day.
So I mean listen, we're always open for business.
And we have, I think, both the organization and the focus and the balance sheet to drive growth organically and to selectively be able to vet opportunities as they come through.
So the name of the game is to be this diversified energy management fulfillment and payments business.
And while these businesses seem like they are dramatically different, and there are certainly some nuances to them, there is a lot of similarity, there's a lot of synergies.
So the name of the game today in today's reality is you've got to be an exceptionally sharp operating company.
And if you get some value out of the market place, that becomes optimization.
So as it relates to M&A, there's a lot of stuff on the market and it's really understanding what's worth buying versus growing organically.
So our capability is, I think, pretty strong.
I think we've demonstrated that we've got the ability to handle a lot of capacity.
So it's something that we just take under review, but were not shut for business.
It's really just what is the wisdom based on whether we've got an organic opportunity to grow in the space or whether it becomes a property that brings us things that we can't do ourselves.
It's capability, extensions, all of the common logic that you would apply to those investment decisions.
So we're mindful of pacing.
I think I mentioned last quarter that we've got a good amount that we're digesting now, but we've got the best team we've ever had in the organization.
I think I said in the last quarter that despite the results not being what we'd ideally like, the company is healthier than it ever has been.
So from that perspective, acquisitions are always going to be part of the purview.
So I wouldn't say that it's something that we're aggressively looking at, it's just something that we're always open for business.
To $177 million.
So you've got a little bit of a pickup as we were closing parts of the Odyssey ---+ or the ExxonMobil business into the second quarter.
So we have a little more incremental expense there, that's really what represents the step up from the second quarter.
So aviation, I think, speaks for itself, certainly.
Exceedingly good track record.
And I think the thing that\
I think we were considering Chicago for the venue, unfortunately.
We're covering every single line item on the P&L that ends with the word expense.
Whether it be compensation, whether it be real estate, whether it be professional fees.
I got our General Counsel sitting here looking at me.
So we're leaving no stones unturned.
Obviously, both G&A and compensation are really large numbers, hundreds and hundreds of millions of dollars.
And we're very focused on OpEx as a percentage of GP.
And our current level of gross profit, every 1% improvement there is almost $10 million.
So with our first 2 rounds of cost savings, we've effectively taken out about 3% in that number on a pro forma basis, so to say.
And we're focused on trying to continue the drive that number in the right direction and that's, again, that's every line item.
They're IT-related costs as we create more efficiency through integration we should be able to reduce those types of expenses.
So we've got a lot of different initiatives going on internally, all aimed at the same single end goal of making us more efficient and improving our cost leverage going forward.
Thanks, everyone.
We appreciate you sticking around, and we look forward to talking to you next quarter.
Thanks again, best to everybody.
| 2017_INT |
2015 | PLT | PLT
#Good afternoon, ladies and gentlemen.
My name is Sheika and I will be your conference operator today.
At this time, I would like to welcome everyone to the Q2 fiscal year 2016 quarter earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session.
(Operator Instructions) Thank you.
Mr.
<UNK> <UNK>, you may begin.
Thanks very much, Sheika.
Welcome to Plantronics' second-quarter fiscal year 2016 financial results conference call.
Joining me today are <UNK> <UNK>, Plantronics' President and CEO, and <UNK> <UNK>, Plantronics' Senior Vice President and CFO.
The information presented and discussed today includes forward-looking statements, which are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
The risks and uncertainties related to such statements are detailed in our most recent 10-Q and 10-K and today's press release.
For the remainder of today's call, we will be providing only non-GAAP metrics related to gross margin, operating expenses, operating income, net income, and earnings per share.
We have reconciled these measures in our earnings press release and in our quarterly analyst metric sheet, both of which are available on the investor relations page of our website.
We've also reconciled constant currency in the investor presentation.
Note that we have changed the format of our call this quarter to Q&A, and that the quarterly prepared remarks on our second quarter from <UNK> and <UNK> are available on the IR section of our website.
A replay of this call will also be available with dial-in information on our press release.
Unless stated otherwise, all comparisons of the second-quarter fiscal year 2016 financial results are to the same quarter in the prior fiscal year.
Plantronics' second-quarter fiscal year 2016 net revenues were $215 million, which includes a charge of $3.6 million for an increase in revenue reserves.
Plantronics' GAAP diluted earnings per share for the second quarter was $0.52 compared with $0.65 in the prior year.
Non-GAAP diluted earnings per share for the second quarter was $0.70 compared with $0.77 in the prior year.
On a constant-currency basis our non-GAAP EPS was $0.81 and, excluding the revenue reserve made in the quarter, our adjusted non-GAAP EPS was $0.89.
The difference between GAAP and non-GAAP EPS for the second quarter consists of charges for stock-based compensation and purchase accounting amortization, both net of the associated tax impact and tax benefits from the release of tax reserves.
Please refer to the full reconciliation of GAAP to non-GAAP in our earnings release.
With that, we'll open the call to questions.
<UNK> <UNK>.
Just had a question about the strong performance in the enterprise segment.
Can you just maybe give a little color on what was driving that.
And do you think there was any kind of catch-up or pent-up demand from the introduction of Skype for Business.
And do you expect that to lead to maybe a fall-off in the coming quarters as that gets worked through.
Thanks.
Okay.
And looks like the guidance is implying sequential increase in OpEx and a little decline in the margins.
Could you just run through what's driving that.
I'd make one other comment on the Q3 and Q4 pattern for this year, which is unusual.
Q3 ---+ and this happens to us because we're on a 52-week fiscal year and then this happens to be a 53-week year.
That means that the Q3 in this case is actually shifted a little bit forward, so it's got a lot of favorable dates.
Q4 will actually have 14 weeks in it, although it's slightly unfavorable dates.
This happens to be a fiscal year with two Easters in it.
And we'll get an Easter at the end.
And of course the first week of the quarter is the last week of the calendar year, which is not a very strong week for us typically.
Okay.
But in terms ---+ I think the guidance is implying like a sequential increase in OpEx.
Could you just address that, and why it's up ---+
---+ sequentially.
<UNK> <UNK>.
Thanks.
Can you talk just a little bit about ---+ I mean, obviously the consumer business probably trends up in the December quarter.
But do you see enterprise growing a little bit sequentially potentially.
Yes, your right.
The consumer business does typically trend up a little bit in the December quarter.
We are expecting to have a pretty good December quarter as well, both on UC and on the core business.
I'd make one other comment.
That's kind of a currency-neutral statement.
Well, I think that we've seen more and more of the cloud models get implemented and many companies are very interested in moving to that type of model for a variety of reasons.
So, to the extent that we have a good solution in the market, or another good solution in the market, that is attractive to people it can be a positive in terms of market growth and adoption.
I would say that in general those sorts of solutions are also prized by people who are very interested in mobility.
And that tends to be a positive it terms of the selection of use of headsets.
I think it fits very well some of the models that we've put into place to work with the system integrators in the other channels from a customer standpoint.
So I think we'd see this as fairly advantageous.
That said, to your other point, can anything create a delay in the market also that's new.
Yes, it can.
I mean, people can always evaluate something for a period of time before they decide what they're going to do.
And then I guess just on the ---+ I'm just curious.
I know you don't give us sort of a definitive number, but the ASP for your enterprise business, can you sort of generally talk about the pattern that's followed over the last year or so.
[<UNK> <UNK>].
Great quarter.
I understand you've made a move recently to authorized Plantronics dealers only.
Could you tell me what the business objective was for that.
Okay.
And with respect to Amazon, for example, how does that affect Amazon.
Are they signed up as an authorized dealer, then.
So, I don't want to go into particular customers and answer particular questions, except to say that it is a very broad program that we have in place.
And, again, it is intended to preserve the return that those people have in making marketing and other development efforts on our behalf.
Dave King.
This is <UNK> <UNK> on for Dave King.
I had a jump on late so forgive me if I ask any questions that have already been asked.
I just wanted to ask about your 10% reduction you guys are targeting in the supply chain over the next three years.
I guess I just want to know how we should be thinking about it in terms of how it's going to flow through to EPS maybe versus being reinvested in growth and new products such as UC.
So, let me make sure I understand the question exactly.
How we're going to take returns from our supply chain into ---+ whether it's going to be invested into R&D or whether it's going to shareholders.
Was that the question.
Correct.
Okay.
So we don't allocate specifically where profit dollars are coming from that they are dedicated to a particular source.
We have set a overall model based upon the revenue levels that we have as to what we intend to invest in sales and marketing and R&D.
And then we make it a little bit more tangible within that broad framework as to the right levels of investment that we think are appropriate based upon what we see in a particular fiscal year.
It's always subject to error, in [my case] of what the actual revenues turn out to be, to volatility as in the case of foreign exchange, which has hit us quite a bit.
And then ultimately the profits, as we've said before, particularly as it relates to cash flow generation, we intend to pay out 60%, two-thirds in terms of share repurchases, one-third in terms of dividends.
Thank you.
That helps.
And just one more thing, and sorry again if I missed it.
Your December quarter guidance, can you talk about what it assumes for enterprise and, more specifically UC, as well as the consumer business.
Perfect.
That's all.
Great quarter, guys.
(Operator Instructions) <UNK> <UNK>.
I have a few questions.
The first question relates to the comment you made that your income is shifting from lower tax jurisdictions.
Can you talk about what is driving that and how we should think about that going forward and the impact on your forward tax rates.
And then the second question is, the dynamics that you talked about for the mono Bluetooth across the markets, it seems that that's just happening in the US at the moment.
And it would be good to get some color on your expectations for the ex US market, whether that's something that's going to come later that we should think about.
And then, the third question also (multiple speakers) ---+
<UNK>, let's just go one question at a time.
I'll let you keep going (multiple speakers) ---+
Okay, sure.
We can do that.
So if you could start with those two, that would be great.
So, <UNK>, why don't you take the first one.
I'll take the second one.
And then we'll hear what the third one is.
Okay, and then, <UNK>, I think your (multiple speakers) ---+ sorry.
Well, we always ---+
So this is really heavily driven by currency when you get down to it.
That's what's, at the end of the day, decreased the amount of revenue and profit that we are generating internationally where are tax rates is lower.
And that's what's shifted it into the US.
We still have, systemically on the long term, higher growth rates expected outside the US than in the US.
So that's kind of the driver to it.
Can I proceed with your other question or not.
Okay.
And I just want to make sure I got it, because I think what you said was a question related to the growth rate of the voice Bluetooth market outside the US.
Is that correct or not.
So, let me make sure I understand this.
You're talking about the US catching up with what.
Sorry.
The significant portion of it internationally is simply attributable to foreign exchange rates.
Wel ---+
So, let me just say that, first, we don't know because it is kind of a future item.
And we were actually surprised by the size and scope of the decline of the market in the US.
I think that there is certainly a risk of additional reductions in international markets.
Certainly in the case of France there was a change to their regulations that no longer permitted you to use a headset in a car while you're driving in order to make a call.
They switched it to other hands-free devices.
That's not something that helps out.
I think that the mono voice market is likely to continue to decline for a period of time and that there is certainly some risk that the international markets will decline further.
We've certainly seen that the much broader adoption that we had for the category in the US was heavily affected by people using smartphones where they frequently wanted to both only pay for and only carry one audio device to go with it.
And as those became content delivery for music and other streaming content, increasingly that meant a stereo device rather than a voice devoice.
That adoption was not as high overseas.
And therefore I think the correction to that market should be lower overseas.
But, again, we're dealing with a speculative area on this a little bit.
So is there some downside risk to the category going out next year.
We think that there is.
And I don't know for sure how big it would be.
You know, <UNK>, I would just assume that it's similar to the full revenue split between domestic and international.
We don't provide that level of detail in our revenue categories.
So I would assume, you know, roughly 60/40 split, like total revenues are.
Sure.
Let me first say ---+ is it a risk.
Of course it's a risk because everything is a risk and possible.
And there will undoubtedly be some people who'd elect to buy a less expensive product.
However, what we're actually seeing in the market has been very encouraging.
We've just, as you know, launched the Voyager Focus UC.
And I did cover it in the prepared comments that we sent out, but this is a remarkable product.
This allows people who are, whether they're consumerized and buy it on their own or whether their company pays for it, getting a product that is one that provides, for sure, fantastic audio experience, great integration into the UC solutions that they're using at the workspace.
But this is also one that releases them from all the noise, allows them to focus, allows them to listen to music if they want to, allows them to be a lot happier.
Now, the truth is that in consumerization, this means that the individual is more likely to have an influence on what they choose, what they pick.
You've already seen in many cases that if it's important to people, they'll pick products they really want.
Consumerization doesn't necessarily always mean that the consumer will actually have to pay.
It simply means that they are going to be able to choose.
Sometimes they may have allowances.
Sometimes they may be able to directly bill the company.
Sometimes they may indeed decide that they want to pay for the product.
But in this case audio, comfort, the sound quality that you get when you communicate, we know these are important to people.
And we've repeatedly seen that people are willing to pay for Plantronics quality.
And that, at the end of the day, is why we have a leading position in the consumer market today, as well as a leading position in the business market.
It's in line with the enterprise pricing.
It's actually ---+ I mean, it's a new product with some advanced capabilities, so it's a slight premium.
I do want to say this is brand new, and we've just started shipping it.
But, again, it's being extremely well received.
Well, by our calculations that wasn't really the case.
But I would say that your point about noise is valid.
I think that most of the things that influence them are the same ones that influence us.
Mono to stereo, just to be clear, <UNK>.
Well, no, I mean for us it is primarily being distributed in the same channels ---+
---+ although it can be a different location or buyer in that same channel.
Well, I would say there's definitely been a change, although I would call it more over the past year than certainly over the past quarter.
We've been seeing a steady increase in the portion of the business that is coming from small and mid-size businesses as UC adoption begins to hit those organizations.
More of the channels have begun focusing on it.
There's more of the born-in-the-cloud services available to those and that's definitely increased adoption in that part of the market.
Thanks very much, Sheika.
And thanks, everyone, for joining us today.
If anyone does have any other questions we'll be around this afternoon.
Thanks again.
| 2015_PLT |
2017 | ES | ES
#Thank you, Vanessa.
Good morning, and thank you for joining us.
I'm Jeff <UNK>, Eversource Energy's Vice President for Investor Relations.
As you can see on Slide 1, some of the statements made during this investor call may be forward-looking as defined within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on management's current expectations, and are subject to risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections.
Some of these factors are set forth in the news release issued yesterday.
Additional information about the various factors that may cause actual results to differ can be found in our annual report on Form 10-K for the year ended December 31, 2016.
Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and the slides we posted last night on our website under Presentations and Webcasts and in our most recent 10-K.
Turning to Slide 2.
Speaking today will be Phil <UNK>, our Executive Vice President and CFO; and Lee <UNK>, our Executive Vice President for Enterprise Energy Strategy and Business Development.
Also joining us today are Werner Schweiger, our Executive Vice President and Chief Operating Officer; Jay Buth, our Vice President and Controller; and John Moreira, our Vice President of Financial Planning and Analysis.
Now I will turn to Slide 3 and turn over the call to Phil.
Thank you, Jeff.
Today, I'll cover four items: first quarter financial results; an update on several transmission projects; the status of key regulatory dockets; and the status of our 2017 financing plan.
Let's start with the quarter and Slide 3.
Earnings were up $0.05 in the quarter.
We earned $259.5 million or $0.82 per share in the first quarter 2017 compared with earnings of $244.2 million or $0.77 in the first quarter of 2016.
Our transmission segment earned $0.30 per share in the first quarter of 2017 compared to $0.27 in 2016.
The primary driver for this earnings growth was our higher transmission rate base as well ---+ as we continue to invest in transmission projects that enhance the reliability of the New England power grid.
I'll provide an update on our key transmission projects in a minute.
On the electric distribution and generation side, we earned $0.36 per share in the first quarter of 2017, and that compares with $0.34 per share in the first quarter of 2016.
This increase was primarily due to higher distribution revenues.
A portion of the increase was a result of the infrastructure investment programs we have in Connecticut and New Hampshire.
In addition, as a result of our highly effective, number one in the nation, energy efficiency programs, we recorded higher lost base revenues in the quarter.
These positive impacts were partially offset by higher storm restoration costs and higher depreciation.
On the natural gas distribution side, we earned $0.16 per share in the first quarter of '17, matching earnings in the first quarter of last year.
Temperatures in the first quarter of '17 were colder than during the same period of '16.
And these colder temperatures in 2017, and those were primarily in March, resulted in a 4.6% increase in firm natural gas sales in the first quarter of '17 as compared to the previous year.
However, the higher sales were offset by higher depreciation and property taxes.
So I should also say that the first quarter temperatures in both '17 and in '16 were warmer than normal.
At the Eversource Parent and Other segment, results were relatively flat year-over-year.
For the full year, we continue to expect to earn between $3.05 and $3.20 per share.
And for the long term, we continue to project 5% to 7% EPS growth.
Turning from our financial results to our operations.
Transmission investments totaled approximately $170 million in the first quarter of '17 compared to approximately $140 million in the first quarter of 2016.
We continue to target nearly $1 billion in transmission investments for the year.
As you can see on Slide 4, we continue to make progress on a number of the major transmission reliability projects.
Through March, we've invested just over $146 million in 28 projects that comprise the Greater Boston Reliability Solution and we expect to complete the Greater Boston work in 2019.
We have invested just over $141 million in the Greater Hartford projects, which are comprised of 27 smaller projects that we expect to complete next year.
From operations, I'll turn to the regulatory activity, and I'll start in Massachusetts on Slide 5.
Hearings will begin in June on the electric rate reviews we filed in January with the Massachusetts Department of Public Utilities for NSTAR Electric and Western Mass Electric.
Across the company, I believe we've done an excellent job in responding to the many data requests that come out during any rate case and in this rate case in particular.
Intervenor testimony was filed last Friday, and we expect to get a decision on the case around the end of November, with new rates effective in January of '18.
In terms of the intervenor testimony, overall, I'd say there were no surprises from what we've seen in that testimony.
One of the items included in our case is to legally combine NSTAR Electric and Western Mass Electric.
FERC approved that combination earlier this year.
And we hope to receive DPU approval later this year in our rate case.
Overall, yes, we're pleased with how the case has progressed thus far.
In Connecticut, on April 18, we joined the Office of Consumer Counsel and the Attorney General in filing a motion to modify the merger agreement that was approved by PURA in 2012.
And that agreement required us to file rate reviews for new distribution rates to be effective December 1, 2014, and December 1, 2017.
So the motion jointly requested that PURA extend the deadline for implementing new rates to July 1, 2018.
And PURA approved that motion on April 20.
So as background, there's really no particular significance.
There was none to the December 1, 2017 date in the 2012 merger agreement.
At the time, the OCC and the AG wanted to be sure that the savings from the merger that we identified really benefited customers.
And in our 2014 case, about $30 million in annual O&M savings were flowed back to CL&P distribution company customers at that time.
Also, improved reliability at CL&P was a focus in 2012, and it has improved greatly since that time.
Recently, CL&P has been having its best years ever in terms of reliability and is now in the top tier versus its peers.
So additionally, the 2014 rate review had a backdrop of CL&P significantly under-earning on its ROE and needing to recover about $300 million of deferred storm costs.
So none of these issues are pressing at this time.
So from our rate state reviews, I'll turn now to FERC and the various New England transmission ROE dockets.
As you can see on Slide 6, on April 14 of this year, the D.
C.
Circuit Court of Appeals vacated FERC's 2014 order that lowered the base New England transmission ROE from 11.14% to 10.57%.
The 2014 decision also capped ROEs on incentives on individual projects at 11.74%, even if higher incentives have been previously approved on those projects.
So the appeals court agreed with the New England Transmission Owners that FERC is required to go through 2 steps in a complaint proceeding.
First, FERC needs to demonstrate why the existing ROE is unreasonable.
Only then can FERC set a new reasonable ROE.
The fact that FERC found that 10.57% to be the new reasonable ROE wasn't enough to prove that our 11.14% was unreasonable.
The court added that FERC bears the burden of making an explicit finding that the existing ROE is unlawful before setting a new lawful ROE.
The court sent this issue back to FERC for further explanation on why the original ROE at the time of the complaint was not reasonable.
The court also found that FERC did not establish a reasoned basis for its conclusion that the ROE should be set at the midpoint of the upper half of the zone of reasonableness.
The court sent this back to FERC for further justification.
The court did not address the issue of incentive caps because this issue may depend on the outcome of FERC's decision resolving the first 2 issues that I mentioned.
We continue to review the implementation of this decision with the other New England transmission owners.
Also, FERC must still address the ALJ recommendations received in 2016 in the second and third ROE complaints.
On the fourth complaint, FERC's chief administrative law judge had scheduled arguments for May 18 on why FERC should not just dismiss the complaints in light of the Circuit Court of Appeals decision.
Ultimately, all those complaints may be affected by the recent Circuit Court decision and likely that FERC won't be able to address any of them until after the commission has a quorum.
The transmission earnings we provided today were based on the commission's original decision in the first complaint.
We'll continue to evaluate whether this is the appropriate assumption as we move through the second quarter.
To put it in perspective, our shareholders have invested equity of about $3 billion in our transmission segment, so each 10 basis point change in the earned ROE moves earnings by about $3 million or about $0.01 per share per year.
Turning to our financing programs.
Both Eversource parent and CL&P issued $300 million of debt in March.
The parent's 5-year issue carries a coupon of 2.75% and CL&P's 10-year issue had a coupon of 3.2%.
We thank our fixed income investors for supporting our financings.
A portion of the CL&P issuance was used to fund a $150 million, 5.375% bond maturity.
We anticipate additional debt financings later in the year to support our capital program and to refinance a $400 million, 5.625% maturity at NSTAR Electric.
Lastly, I just want to note the election yesterday of Christine Vaughan as Treasurer.
Christine has been with the company for many years, recently as Vice President of Rates and Regulatory for all three states that we serve, and also has been with the company in similar capacity since 2004.
She'll continue to oversee the regulatory filings while assuming new treasury responsibilities, working closely with Emilie O'Neil and Bob DeAngelo, our newly elected Assistant Treasurers.
I look forward to introducing Christine to our investors later this year.
And that concludes my comments.
And I'll turn it over to Lee.
Okay.
Thanks, Phil.
I'll provide you with a brief update on our major investment initiatives and then turn the call back to Jeff for Q&A.
So let's start with Northern Pass in Slide 7.
The New Hampshire Site Evaluation Committee commenced final evidentiary hearings for the project on April 13 after rejecting several motions from the project opponents for a delay.
Hearings are now scheduled to run through early August.
And we have been quite pleased with how they have proceeded thus far.
We consider the New Hampshire SEC's schedule to be supportive of the committee's stated objective of issuing a final written order no later than September 30, 2017.
Hearings in April focused on 2 of the key criteria that must be considered.
These criteria include whether Northern Pass and Eversource have the technical, financial and managerial capability to construct, operate and maintain the project and whether approval of the project serves the public interest.
These are foundational issues in the SEC review process.
Our witnesses were very well prepared and credible in responding to intervenor questions.
And those panels were completed on schedule.
Earlier this week, hearings continued on the more technical aspects of the project and have continued to proceed quite well.
Prior to the start of the hearings, the two key permitting agencies, the Department of Environmental Services and Transportation recommended approval of the project by the SEC.
Both departments approved their respective permits for the project.
We received the Department of Environmental Services recommendations and permits in early March and the report from the Department of Transportation in early April.
The recommended conditions from these agencies were reasonable and consistent with our design.
In addition, the State Division of Historical Resources, which is not one of the permitting agencies, also continues to review the project and in its recent status report concurred that their review of the process is on track.
Nothing more is needed from the DHR before the SEC decision is reached.
Once the New Hampshire SEC process is complete and assuming the project is approved with reasonable conditions, we expect a U.S. Department of Energy presidential permit to be issued by the end of this year.
Before that point, probably late in the third quarter, we expect the DOE to release its final Environmental Impact Statement on Northern Pass.
The preliminary EIS supporting the issuance of the Presidential Permit was issued nearly two years ago, and the DOE held a number of public meetings on the draft EIS in late 2015 and early 2016.
While we have been advancing the project on the U.S. side of the border, Hydro-Quebec has been pursuing siting on the Canadian side.
The three-year Canadian process should be completed this summer.
So by the end of this year, we expect Northern Pass to be fully permitted in both the United States and Canada.
This supports our plan to move into the construction phase in the first quarter of 2018.
In addition to the New Hampshire SEC, the New Hampshire Public Utilities Commission has been reviewing several items related to Northern Pass.
You may recall that last year, Northern Pass was granted utility status by the PUC, conditional upon receiving approval of the project from the SEC.
In early April, following a preliminary review, the PUC ruled that it could move ahead with their review of the terms of the NPT-proposed lease of Public Service of New Hampshire transmission rights of way.
That decision was also over the objection of project opponents.
We expect a PUC decision on the proposed lease terms later this year.
In March, the PUC also ruled on a 100-megawatt power purchase agreement signed last year by PSNH and Hydro-Quebec.
The PUC said that under the current state restructuring law, it did not have authority to approve such a PPA with PSNH.
Such a contract is not required for siting or to move ahead with the project.
In late March, the New Hampshire Senate overwhelmingly approved and sent to the House of Representatives Senate Bill 128, which would expand the PUC's authority to consider long-term contracts that would lower customer costs and improve grid reliability and fuel diversity.
The current legislative session is due to end in late June, so we'll be watching the progress of this bill closely.
We and Hydro-Quebec will bid the Northern Pass project into the Clean Energy RFP that Massachusetts commenced March 31 for up to 9.45 terawatt hours annually for a period of up to 20 years.
Bids are due on July 27 and the schedule indicates that the projects will be selected for negotiations by January 25.
Separately, a draft RFP, exclusively for offshore wind, was filed by Massachusetts utilities with the DPU last week.
The schedule calls for the RFP to be final and issued to the market by June 30, 2017.
The RFP calls for interested bidders to submit at least one proposal for at least 400 megawatts.
The draft also stated that alternative bids for up to 800 megawatts would be considered if bidders can show that a larger project would provide significant net economic benefits to customers.
Bidders can also submit an alternative bid for as little as 200 megawatts.
The time line of the draft RFP calls for the selection of the winning bids by the spring of 2018 and the submission of contracts to the DPU by late 2018.
Bay State Wind, a 50-50 partnership between Eversource and DONG Energy, will bid into the RFP.
Finally, turning to Slide 8.
Access Northeast will continue to discuss the gravity of New England's wintertime energy supply situation with policy makers in Massachusetts and New Hampshire, the two states that do not have recent legislation clarifying electric utilities' ability to sign natural gas supply contracts.
Brayton Point, the region's largest coal and oil-fired station, will shut down permanently at the end of this month.
And the Pilgrim nuclear plant will shut down two years later.
ISO New England continues to express deep concern over the region's ability to meet both gas heating and electrical requirements when temperatures drop.
Later this year, ISO is due to issue a report on the challenges New England will face in future winters if no significant natural gas transmission capacity is built into the region.
So now I'd like to turn the call back over to Jeff for Q&A.
Thank you, Lee.
And I'm going to turn the call back to Vanessa, just to remind you how to enter the Q&A queue.
All right.
Thank you, Vanessa.
Our first question this morning is from Julien Dumoulin-Smith from UBS.
Yes, <UNK>, this is Lee.
We don't really look at that as a viable project for the April RFP.
And obviously, they would have to go through the entire presidential permitting processwhich can take many years, as you know.
They would have to go through siting in Vermont and New Hampshire, and they don't have a supplier of energy.
They don't have an interconnection into Canada, or the Canadian process of 3 years.
So when you look at the April RFP and you look at the preference in the Massachusetts RFP for projects that are in service by the end of December 2020, we do not believe that is a viable alternative, which is not to say it couldn't be a project for a future RFP.
I just think the general commentary there is we just continue to have those conversations with legislators.
We continue to educate them on the alternatives to not building a pipeline from the standpoint of threats to reliability and extreme volatility during the wintertime.
And of course, as I mentioned, ISO is working on their no gas pipeline solution, which, we believe, will cause them to require certain actions to be taken that will not be in the best interest of the region's goals to reduce carbon and will not be in the best interest of maintaining price stability for our customers.
Thanks, <UNK>.
Next question is from Mike <UNK> from Credit Suisse.
Yes, Mike, this is Lee.
I would just say that the New Hampshire SEC has been very precise, very comprehensive at how they have run the proceedings to date.
They are right on schedule.
I think the more testimony that is given and provided by the project, the clearer the project becomes.
And we don't see, at this point, any probability or possibility that this date will be extended.
And the meetings have been very crisp.
The witnesses are very well prepared and with the ability to answer all of the questions to date.
Well, clearly, it is important from the standpoint that you have Hydro-Quebec that wants to sell their energy into the New England marketplace.
And if there is the ability to participate inside of an RFP and get a long-term contract at a fixed price, that's an advantage to HQ.
So clearly, there's an advantage there.
But in any case, the RFP, in and of itself, does not determine the longevity of the project and the success of the project because, in fact, there will be many RFPs, there will be many retirements.
As we've said before, we see about 10,000 megawatts of retirements in New England, and Northern Pass will be viable in any of those as a source of clean energy for the region.
Yes, Mike.
So in the requests, we're looking for a 10.5% ROE in the case and the total rate increase is about $60 million at NSTAR Electric and about $36 million at Western Mass Electric, so not ---+ certainly, they're increases, but not double-digit types of increases.
So we are earning close to those numbers.
NSTAR Electric at the end of 2016 was probably a little shy of that number of 10.5%.
When you do all the calculations for Massachusetts, Western Mass was closer to 9%.
So not at the levels that we were looking for in this case.
Thanks, Mike.
Next question is from <UNK> <UNK> from Citi.
Yes, so this is Phil, <UNK>.
What we said in our long-term forecast, the 5% to 7%, that Access Northeast is really a small part of the far end of that forecast.
So it's not as if it would be a significant amount of capital that we're expecting in our plan over the next 2 to 3 near-term years.
So there really wouldn't be a significant amount of capital to think about redeploying.
In terms of share repurchases, we're primarily interested, as we've said, in infrastructure that meet the needs of our customers and the region's energy needs.
And really, we're looking for projects that are clean, that improve reliability and that manage to keep customer cost in line.
So we don't have a share repurchase program authorized.
And our focus would be on the infrastructure development.
Sure.
I guess, in the basic part of your elements of your question, really, I think, get to the point, which is the situation is very fluid.
The court decision is still recent.
And really, the New England Transmission Owners as a group need to decide what the next steps will be.
So that probably is a near-term determination, because in June, the transmission owners need to file a proposed regional network service rate.
So it's certainly an active topic for discussion right now with the New England Transmission Owners.
So one could say that the last approved ROE by FERC is the 11.14%, so that's the last actual number that's out there.
So any other number is as good as any other number that's not 11.14%.
So we're on top of this right now.
We're working with the other transmission owners, but I think you should see more from all of us in the near term.
Thanks, <UNK>.
Next question is from <UNK> <UNK> from Morningstar.
Well, as I said, versus normal, it's below.
We've had 2, the comparison of this year to last year was better, because it was a bit colder this year.
But as I said, both 2017 and 2016 were quite a bit below normal, in the neighborhood of 6% to 7% heating degree days being below normal there.
So we generally plan to normal.
So I would expect that, that number would have been higher had we had hit normal weather.
Correct, yes.
It was below-normal weather in the first quarter.
Well, <UNK>, I think I've always said, when you're in a business where 100% of your revenues are determined in a regulatory arena, certainly, positive regulatory outcomes are important across the board.
And if there's one company that you can point to as the poster child for getting to positive regulatory outcomes and having constructive relationships, whether they be at the state level or other, it's Eversource.
So we feel very good about our abilities there and our ability to work with constructive regulation in the state.
So I think they're all important, because we are highly regulated, obviously, but we do an effective job there.
Thanks, <UNK>.
Next question is from <UNK> <UNK> from Deutsche Bank.
Yes, <UNK>.
This is Lee.
The schedule that we have right now with the SEC in New Hampshire is really ---+ May is really all about a couple things.
It's all about construction and it's all about the environmental impact, and that ends probably in the beginning of June.
And then at that point in time, we'll have a better sense of the construction practices.
We'll have a better sense of any other environmental impact that may cause us to change the equipment orders from our current design.
So I think we'll be in a better position then to look at making those orders around that period of time.
We continue to have conversations with the vendor, such as ABB, to understand more about what will be required to do the design and construction or manufacturing.
But it really, we need to get to the beginning of June to have a better sense of that.
I would conclude that, that's really a separate issue.
We really, it's all about ---+ it's really all about understanding what the final design is because we don't want to go forward, order equipment, kick off engineering in and around it, only to find out the design is different and that becomes a redo and is an expense that we don't want to incur.
No, not necessarily.
The Presidential Permit will come after the SEC decision.
So you'll have the final EIS, you'll have the SEC outcome and then you get the Presidential Permit.
So no, they don't need to see that.
Thanks, <UNK>.
Next question is from <UNK> <UNK> from Citadel.
I'm sorry.
Is the question.
.
Are you talking about the Mass RFP identifying winners by January 25, 2018.
And will the schedule ---+ construction schedule in the first quarter of '18 depend on what happens on January 25.
Is that your question, <UNK>.
No, I think, currently, where we are is, assuming we have a successful outcome of the SEC process, we will start construction in the first quarter of 2018.
Thank you, <UNK>.
That's the last question that we have for this morning.
So we want to thank you very much for joining us.
And we look forward to seeing you at the upcoming conferences over the course of May.
Take care.
| 2017_ES |
2017 | GME | GME
#Yes.
<UNK> <UNK> is here.
<UNK>, so why don't you take the first part, and then <UNK> can follow up.
Hi <UNK>, thanks for the question.
And I'll lead off with the margin comps.
We anticipate that we are going to do a lot of ---+ we are going to have a lot of growth in our TV business this year.
DIRECTTV is a new product that we have only sold in stores for a little over a year now, and we are anticipating we're going to be able to double that business.
We also have some programs in place that are going to be outside of the four walls.
We think small- to medium-size businesses are a segment that are underpenetrated today, and we have a unique position with the scale we've created with 1,500 stores to be able to get out and attack those small- to medium-sized businesses.
So we have some unconventional ideas, I would say, on how we are going to drive more profit into those retail stores.
And we're excited about those.
In terms of the margin, we also have a great opportunity for us to bring some additional accessory products and services and move upstream into the retail stores.
And I would say specifically things that are in the connected home category that might connect to Apple's Home technology on the smartphones that we are selling or Samsung's SmartThings.
Those are both really good opportunities that we haven't brought into the stores yet today.
In terms of the operating margins, <UNK>, with the growth in the store count that we had last year through the acquisitions, we have the opportunity to really leverage the infrastructure that's in place around the business.
And that will help as well.
I think we have to get back to you on that one.
I don't really have that information off the top of my head.
Approximately $0.03 that would be related to the interest expense that I talked about being $5 million higher year-over-year.
The remainder would come from the operating earnings which I mentioned would ---+ we expect to decline between 3% and 10%.
No.
Well, we talked about the dividend payments, and we raised the dividend 2.7%.
It's now $1.52.
And we would expect that that would have about $155 million payout, given the share count.
In terms of further use of free cash flow, we talked about the priorities being to drive growth initially and then, to the extent available, free cash ---+ excuse me, buyback.
Let me provide some color on that, <UNK>.
It's no secret that we've been a strong buyer of our stock.
We've bought over $2 billion, and I think we've done the right thing on that, and we've demonstrated a willingness to return cash to shareholders.
Our dividend speaks for itself; it's a very healthy dividend.
It's a good holding.
As we face into the future, there's a lot of uncertainties, as you just saw, in holiday for us.
The physical gaming category is in a ---+ what we think is a cyclical decline before a new set of technologies.
We need to see Switch, we need to see PlayStation VR, and we need to see E3 before I think we can make any guidance or forecast.
It is logical to assume we would return all cash flow over and above investments, but we're not ready to make the statements until we see what has been an uncertain category play out.
I'll let <UNK> answer that question.
But just one comment for all of you guys ---+ I hope you've played it.
If you've played it, that's the best way to know that it has tremendous broadening potential.
<UNK>, what would you say about our sales and ---+.
I would also add that Nintendo has got several more great games they're launching this year for the console, which we didn't see with the Wii U.
Mario Kart 8 will be in April and there's a couple more that I don't think have been announced yet, as well as there's some good third-party publishing support on the Switch, which we really didn't see with the Wii U either, and that will drive demand.
So the way we see it is all the data says it selling.
There's tremendous demand.
Everything we do, it seems, sells out quickly.
But if you play the device, it's far more focused on motion and on the controllers than it is ---+ the Wii U was very focused on the tablet, and a lot of the gameplay revolved around touching the tablet and all that sort of thing.
This one feels a lot more broad ---+ a lot more movement associated, and we think that's going to be a broader appeal.
We'll see.
We'll see what they announced on numbers.
In terms of the stores that came with the acquisitions, we acquired larger businesses last year.
And they had a portfolio of stores, some of which were performing extremely well and some of which were not performing.
And unfortunately, we couldn't cherry pick what we bought.
We knew that we would have to deal with some number of these stores.
And so you see part of that ---+ you see that in part of these numbers.
In terms of the RadioShack locations, we took a pretty aggressive approach, working with AT&T to find locations to help them try to replace the traffic that they were getting out of the RadioShack store base overall.
We took about 120 locations, some of which were in markets where AT&T didn't have strong share, as <UNK> talked about.
And unfortunately there was a number of these stores we just couldn't make work.
Now, those are the bulk.
Yes, I mean ---+ I think, <UNK>, you may want to share.
If you go back in history, the way we see it is AT&T, our partner, needed to recover lost sales at RadioShack.
And we have achieved our 20% IRR hurdle, so we feel like it was good culling of what we had.
Now, there's another side of this, which is, of course, the Simply Mac side.
I don't know if you want to talk about that or not, <UNK>, but that's a ---+ (multiple speakers) That would be <UNK>.
That's a very different animal.
Yes, that's a good question.
And I'm going to let <UNK> maybe take that.
But just remember, we have a $1 billion relationship with Apple, so Simply Mac doesn't define our Apple relationship.
We are heavily into the Apple business.
But <UNK>, do you want to talk about Simply Mac.
Yes, I do.
When we talk about Simply Mac, I'll reiterate what <UNK> said.
We have a multifaceted relationship with Apple.
So, in our retail business or on our mobility business, we sell over 1 million iPhones for them.
We sell a lot of product.
And so we are a great channel partner for them.
On the Simply Mac side, that channel distribution strategy has been a little more difficult, largely due to product allocation.
I think Apple would admit that when they got into the second half of last year, a lot of the products that they launched were heavier allocated then they've seen in years prior.
But we saw that the stores that we've had for a long time that have an embedded base still performed very well.
Our service business continues to grow.
So it was really, again, a culling of some of the real estate that we just didn't think had long-term potential.
And so, <UNK>, we feel pretty good about the technology brands strategy.
I don't think there's a strategy shift.
We did think we would grow Simply Mac faster and Spring Mobile slower.
That was the original thinking.
I think today we would say we are growing Spring much faster, and so we don't mind reducing the size of our Simply Mac.
But Simply Mac is a good business, it goes forward.
We just had a great meeting with Apple yesterday, by the way, so we got lots of exciting things we are planning on doing with them.
Well, I would say ---+ and maybe I will that <UNK> or <UNK> talk about the unit growth ---+ but we are very strong with AT&T in lots of different ways.
We were at the Pebble Beach sales meeting they had.
I'm calling it a sales meeting because I don't want to call it a golf extravaganza.
But we are very tied at the hip with them.
They have a lot of things going on.
And so we think there's an opportunity to grow stores but also other forms of revenue driving.
You want to talk about the unit growth guidance, <UNK>.
Yes.
We talked about 65 what we call white-space stores on the technology brands side.
And so you can frame it that way.
We will continue to look for AT&T reseller acquisition opportunities.
We've been very successful with that.
We don't expect anything of the size that we did last year, obviously.
There aren't that many dealers of that size available, but we do think there are still a large number of opportunities to consolidate smaller resellers.
Yes, thank you for that, <UNK>.
Let me start it off and I'll ask <UNK> to follow up.
The way we see this is we see Switch as being very strong.
That indicates there's a demand out there for gaming.
We were just at a studio this week, a group of us, and we heard a lot of excitement about Sony VR.
And so you can't discount VR from this discussion because what Sony VR will do is it will put pressure on Microsoft.
So we have a pretty interesting expectation now about Sony VR that maybe we didn't have.
When you talk to studios it helps you get a little more insight into what's going on.
But <UNK>, you want to talk about what we know about Scorpio and what we can't talk about.
I was just going to say that you have to believe that if VR becomes a meaningful part of this business, which we don't know if it will, but the likelihood is and the indications are that everything we get that's Sony VR sells out ---+ you have to believe that others will want to get in that game.
So that's one of the reasons we are bullish.
Well, as I mentioned in my remarks, the timing of the year end ---+ this year, January 28; next year, February 3 I think it is ---+ means that any of those bills that were due February 1 ---+ whether they are rent, international payroll, certain vendor obligations ---+ would fall into the fiscal 2017 timing, and they didn't fall into the fiscal 2016 timing.
So we got a benefit in 2016 that flips around on us a bit in 2017.
Obviously, as we approach the end of the year, as we work our way through the year, we are going to manage our payables and our inventory levels and working capital in the most efficient manner possible, but there just will be an (technical difficulty).
Okay.
With that, I guess we will wrap up the call.
Thank you very much for your support.
Please stay tuned.
We've got a lot of exciting things going on at GameStop and look forward to speaking with you in the next quarter.
| 2017_GME |
2015 | ASNA | ASNA
#<UNK>, the inventory ---+ there are two components of inventory.
One is the actual merchandise that's in the store that is included in our adjusted EPS number.
The second is an inventory liability that was taken ---+ it wasn't finished product ---+ that was taken that we wrote off.
The first item, I think, is around $2 million is related to an inventory liability and a bit of severance related to Justice.
The second was related to write offs in the stores in terms of deflagging, taking the Brothers signage off and hard asset retirements related to the exit of the brand.
No.
I'm sorry for the confusion there.
The mark downs related to that are in our adjusted EPS number.
What I was suggesting in my prepared comments is that gross margin rate for Justice, as reported, was down.
If you exclude the impact of the Brothers hard marks that were taken in the third quarter, the rate would have been up 100 basis points.
So again, just reinforcing the strategy that we are backing off the level of promotions.
We are seeing gross margin rate improvement.
It's being masked by the exit of Brothers and the significant hard marks that we took this quarter.
Yes.
It was $8 million in total, $6 million incremental to last year, <UNK>.
<UNK>.
Operator, we'll take the next one and get <UNK> back in when she's back.
Thanks, <UNK>.
It's <UNK>.
As we think about the weather impact, the Northeast and the Mid-Atlantic regions were down about 5%, and that represents about 40% of our volume.
So I'd estimate high level about two percentage points in comps related to weather.
On the port side, probably about another one point of comps.
So I think in estimate around three points of the four would have been weather/port-related.
Talking about May, interestingly enough, we started to see some challenges in the West versus the Northeast and the Mid-Atlantic.
And we saw it in the West across several of our brands.
Again, the Northeast and the Mid-Atlantic popped back very nicely in May, with a drag a bit from the West.
So we're seeing encouraging performance in terms of that the most important regions coming out of those challenging weather periods.
We haven't yet hit the level that we're expecting to be at as we're coming through May, because of the aforementioned challenges out of the West.
But we're optimistic that we're going to see some things as we move forward.
Let me see if I can answer that in two pieces.
AUC is coming down.
Think of mix as an important driver of that.
And I personally don't like to use the word basics.
Everything that we will be presenting is fashion.
But we are moving out of the overly embellished, over-the-top fashion that, frankly, we got lots of feedback on, and we're adjusting that.
Clearly, that's an important element of our overall mix, but it didn't need to be penetrating at such a high degree as it was historically.
And we're moving that into more versatile, every day fashion that our girl can wear any time in her lifestyle.
We think we're putting it in the right place and, frankly, we'll be a lot more productive with the inventory.
Thank you.
So Kate, just in terms of the gross margin rate, if you look at the, over a two-year period ---+ and we've referenced this before ---+ the gross margin rate is going to be down, call it, 400 to 450 basis points.
So you obviously have the operating margin rate deleverage from the top line.
And <UNK>'s got plans and strategies to go drive that back.
But the nearer term opportunity is with that gross margin rate, which we've really gotten hit hard on because of the inventory overhang and all the mark downs we've had.
So I think that as you think about recovery plans, the gross margin rate is going to come first.
And again, you're looking at a 2LY number that was about 58%.
And that's the real opportunity for us.
And keep in mind, two years ago we still had a significant amount of this 40-off activity.
So there's an opportunity to really increment that.
We will get more into that as we have specific guidance for FY16.
But that's the near term opportunity, the additional leverage top line on the better merchandising aesthetic and all the strategies <UNK> is putting in to talk to the new client, grow the top line, that will help, as well.
But that will take a little bit more time.
So the way to think of it is we're essentially going to remain flat with marketing expense, but we have done quite a lot of work to make sure that we are talking to our customer the right way.
And I believe you'll see, after we launch on July 19, a great deal of pretty aggressive efficiency in terms of how we talk to her and how we get our message out.
But the overall expense will remain flat.
<UNK>, it's <UNK>.
I'll address the last question first, which is I feel really comfortable that we've made significant change on the cost of fashion pyramid and how we've shifted into every day fashion.
Feel really strongly that we made a lot of really good, quality improvements there.
And I would make a subtle correction on promotional activity.
We will always have some kind of promotional activity.
What we are eliminating is the erosive, across-the-board, all company sales.
So there will be category promotions, there will be style buys, there will be lots going on in the Justice store.
It's just that we're going to do it differently.
I think that change up there, I believe, actually will be more exciting for our clients overall, and really helps our messaging.
<UNK>, it's <UNK>.
I'm going to take a shot.
You asked a couple of questions.
I'm going to try and hit those, just to make sure I got them.
You said the trend for the brands in the fourth quarter look in good shape for most of the brands we talked about; every one except for Justice will be up low to mid-single digits.
Justice down double.
So you're right on the trend issue.
Justice, in particular, there's a lot of things going on in the fourth quarter.
We've got the base trend.
We've got a higher penetration of private selling days, which will act to pressure the trend a bit.
We've got better product coming in in June, which will help a bit.
We've got the new marketing strategy and we've also got a softer comp versus Q3, which we're not banking on anything, but there's a lot of pieces that are going on.
So again, it makes it difficult to have conviction on it, but we have it modeled down double digits.
Your question on the back half of the year, I think the best thing way for me to frame this ---+ and <UNK> can chime in if he has additional context ---+
Yes.
The first half of FY16, this promotional cadence no longer exists.
There is no more public-private cadence.
So this is really transitional.
And since <UNK> and I had a caretaker plan in place, <UNK>'s got the forward strategy.
There is no more public-private days.
So this is a short-lived transition that's moving to the strategies he talked about on July 19.
No.
Nowhere close, <UNK>.
So Fall 2015 was one of the most challenging quarters we've had, from a mark down standpoint.
So we are going to be going in with a very, very reduced level of promotional activity against a very, very high level of promotional activity last year.
So it's not going to look anything comp in terms of the sales or a gross margin rate, at this point.
Sales will be down.
Gross margin rate will likely be up significantly.
So that's the stuff that we will talk more about.
I think the way to think about this, <UNK>, is that <UNK> and his team are completely rearchitecting the business model.
So all the comparisons really go out the window, because all the tools that we used to use, the 40-offs, the 40-plus-20, the 50-off really are not going to be used.
And if they are, very, very sparingly, as <UNK> alluded to in his comment.
So I really want to make sure you're thinking about it the right way.
It's not like you can say, okay, you're going to be 10% less.
No, the whole model changes.
And I think the result is that, as <UNK> said in his comments, we're offering every day value, both in terms of very attractive opening price points, as well as in terms of the fashion mix, which is now much more heavily weighted towards every day styles and not over-the- top fashion.
Does that help.
Say that again, <UNK>.
Talk about the ---+
Thanks, <UNK>.
Okay.
Absolutely.
We believe AUC is going to come down.
Part of it, as <UNK> said earlier, <UNK>, is that it's a mix issue.
So your over-the-top fashions, your more expensive fashion, more expensive product, so by taking that down from over 40% to 20%, just by math, you're going to be bringing your AUC down significantly.
I think they're certainly headed in the right direction.
But I don't think it's easy sailing from here on out.
We're already strategizing a fall campaign to leverage off of the spring I'm No Angel campaign.
And I think we see ourselves as the leader and we want to continue the conversation about plus size and fashion, and then use that publicity and use that as a way to engage our customer, not just in the conversation, but in our store and our offerings.
And it worked well in the spring.
And if we continue to do a good job, both on the message, as well as on the product, I think we'll see continued good results.
And <UNK>, one thing I would add to that, we are, as <UNK> mentioned, there's still a lot of work and the brand's doing great work in growing.
The one thing I'd point out is they made a really nice improvement in margin rate driven by the way they are being planful about delayering promotional activity.
One example I can give you, the Mother's Day weekend, they ran a BOGO 50 off this year against a 50-off all store last year, and we saw sales down 1%, gross margin dollars up 16%.
That's the sort of stuff that the brand is working on continuously that really we're excited about when we talk to you about how do we get to that high single digit,10% operating margin.
Those are the initiatives that the brand is going to continue to drive and work on.
That's a very high priority for them, and we're very happy with some of the progress we're seeing there.
Thanks, <UNK>.
I'll start off with the port delays and let <UNK> take pick up on some of the other numbers.
We're seeing port congestion way, way down.
So that's the good news.
The other part of that story, <UNK>, as you may recall, is that we shifted the vast majority of our receipts to the East Coast.
I mean, the West Coast is much, much better and the product that we've got going in there, delays are down almost to zero.
But I think that we're derisking the situation by moving the receipts to the East Coast.
And we factor all those dates and the lead times are already into our calendar.
So we don't foresee going forward any significant challenges like we had earlier in the year.
Okay.
<UNK>, I'm going to take a shot at your questions here.
In terms of the public event/private event, yes, it generally performed as we expected.
So total comps were down 13%.
If you think about Q1, it was down 7%.
Q2 was down 6%, but significantly supported by high level of promos.
We estimate that the base trend for Q2 without the hard marks related to the inventory backup was probably closer to high single digits, or 10% down.
So, yes, we are down probably three points beyond that.
That's primarily the impact of the private sale, which we said would be probably around 5% drop in the top line.
So relatively consistent with what we were expecting.
And again, a very short-lived strategy, at this point.
It's only going to be with us until July 19, at this point.
Your last question on operating income.
So I had mentioned earlier in prepared remarks, the incremental impact of the Brothers hard marks were about $6 million.
So if you take that $6 million on the volume for the year, you're talking probably, call it, 50 basis points.
There might be a little bit more related to the lower MMU rate as we're selling through in general, as it's exiting and breaking, but that's a reasonable estimate for you to use.
<UNK>, did we lose you.
All right.
Operator, any more questions.
Excellent.
I appreciate everybody's attention and interest in the Ascena story and we look forward to speaking to you in September on our year-end call.
Thanks and have a good day.
| 2015_ASNA |
2016 | DIS | DIS
#Okay, <UNK>, thanks.
Operator, next question, please.
Okay, we're not going to get specific about BAMTech.
We said it's going to be dilutive but very ---+ in a very modest way.
And it's obviously not been a public company.
But we're not going to ---+ we're just not going to get specific about that.
I can tell you a fair amount about Shanghai, although not going to give you too many numbers.
We expected an opening that a large part of the visitation would come from Shanghai.
And actually we have been surprised that the visitation from the rest of China has been as strong as it has been.
Because our concentration from a marketing perspective was largely in the local region, but it's come from all over China.
One factor could be that Shanghai is a tourist destination for the rest of China, particularly in the summer, and that people from Shanghai are waiting for the tourist season to end before they visit.
Now, a visitation from Shanghai has also been strong.
We did some research and there was 98% awareness of the park among the people in Shanghai and well over 70% intent to visit from the people in Shanghai.
So that's really ---+ those are incredible statistics.
I mentioned earlier on the call that people who are coming are staying almost two hours longer than we expected.
That's a very good thing because it suggests that they are really enjoying the product.
And that, in fact, is the case because we've done a fair amount of research on guest reaction, guest satisfaction, and it's very high.
We won't get very specific with you about per caps except the per caps have been quite strong, particularly in the food and beverage side.
And we're also doing very well with our hotels ---+ 95%, 96% occupancy.
And Lion King, which is a separate ticket, is also doing extremely well and very well-booked.
So we had essentially a flawless opening that the people not just of Shanghai, but the people of China have embraced.
Clearly, the marketing has worked, and the product is performing really well.
And with that in mind, we are already expanding.
We broke ground a while ago on expansion of the park.
We have not announced exactly what it is that we are building, but we are already building to expand.
And we have plenty of property, I should remind everyone.
So we have an opportunity to build out new lands, new gate, new hotels, new restaurants, et cetera.
All very positive.
All right.
Thanks for the question.
Operator, we have time for one more question, please.
That new Sling product is pretty skinny.
I was going to say it is so skinny you can't you can see it.
But I mentioned earlier on the call that a few new products have entered the marketplace without us, namely without ESPN.
Sony was one and had real troubles getting off the ground.
And in Sony's case, when ESPN was added, they had a significant uptick in their subs.
So I don't want to suggest that Sling has to have ESPN.
They will determine that.
But as we look at the product that they are offering, we really don't believe that it is going to have ---+ it has a great future because it's lacking some of the most attractive channels that are out there.
You can slice and dice some of these channels, but ---+ to create packages, but if you don't have some of the best ones, it's pretty hard to see significant adoption of the services being offered.
Okay.
On parks CapEx, you are right in that the number was down for the quarter, but I wouldn't read too much into that.
A lot of that is timing related.
As we have mentioned before and <UNK> mentioned, the offerings that will be ---+ that are underway and soon to come to the theme park near you such as the Star Wars lands in both Anaheim and Orlando, those are underway.
So this CapEx is more of a timing issue, and we will update next quarter for the prospective year on what to look forward to for fiscal 2017.
This is <UNK>.
I just want to thank everybody for the call, and hope you all have a good rest of your summer.
We feel really good about this quarter.
Clearly, the bottom-line 12% increase in EPS was quite strong.
The studio's performance, as <UNK> mentioned, through three quarters is record performance for us already, maybe record performance for any studio in the industry.
And the slate going forward is extremely strong.
What we did in Shanghai was certainly something that we feel great about and very excited about, and the future there is very bright.
And the two announcements that we made today are really important.
BAMTech provides us with a great opportunity in a space that is very exciting both to us and to consumers.
And the OTT relationship that we have now created with AT&T Direct is also very important.
We think they're going to launch an incredibly robust platform with a great user interface, and it's great to be part of that launch.
Thank you all very much.
Okay, <UNK>.
Thanks.
I guess I now get to read the Safe Harbor.
Thanks again, everyone, for joining us today.
Note that a reconciliation of non-GAAP measures that were discussed on this call to equivalent GAAP measures can be found on our investor relations website.
Let me 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.
Everyone, things for joining us, and have a good rest of the day.
| 2016_DIS |
2016 | RTEC | RTEC
#Well, <UNK>, I hope my marketing team is listening because I just asked them for that information just last week so no.
It's very hard for us to get that data.
Obviously, customers protect their yield, their quality data, et cetera.
So we can ---+ we have various estimates, we know, you know, we have executives from the accounts tell us oh, you just saved us X millions of dollars in this one incident.
Another time we'll get a story about being able to optimize recipes for a new product ramp that used to take a month now going down to hours.
So we have anecdotal stories like that, but putting the actually quantifying it all and putting a dollar value on that that's been a little bit difficult.
Something we're still working on.
Well, RF filters is growing dramatically.
I mean you can see, as Steve, mentioned double-digit CAGRs and that's continuing even as Smartphone, you know, growth is starting to slow and that's being driven on by growth in multiple ---+ in the use of these RF filters basically communication, wireless communication, in a number of devices whether it's on the mobile devices but also within the wireless home, the automotive, et cetera.
MEMS is a similar trends.
You look at the amount of sensors that diverse have today and how much more are being talked about we're seeing a lot of growth and new players coming into the MEMs market that's creating an opportunity and that's also estimated double-digit CAGRs.
So I don't have an exact number for you.
I think for us we're excited about those two markets because they pull in a large number of our tools that can be very relevant and when we put those tools together, we provide a differentiated value proposition for those customers versus just trying to sell them inspection and just being an inspection supplier.
By having our unique MetaPULSE technology, our inspection and tying that in with software and then including the software including data from the process tools we're able to provide a really powerful value position for these customers.
Does that mean it's $100 million a year.
You know, we don't know yet, but it's definitely a growth for us and that's what we're expanding with.
(Inaudible) specialty device.
Yes.
So I mean the category that ---+ we don't break it into subsets, <UNK>, you know, they have been running on a quarterly basis anywhere from 5% to 18%, you know, so depending ---+ 5% being the low period last quarter, but I mean typically 10 ---+ 10% on up to 15% to 18%.
I think it's going to continue to be a strong portion of the business so yes ---+ I wouldn't commit to what it's going to be next year, but I would think we're going to continue to see some nice growth in those numbers, yes.
Thank you, everyone for joining us today and for your continued interest and support of Rudolph.
We look forward to seeing you at our analyst event in May and with that we will conclude today's call.
| 2016_RTEC |
2016 | MTH | MTH
#<UNK>, thanks.
As I said earlier, it's kind of an anomaly.
This was land that we either held for quite a while from the downturn that we wanted to clean up the books at the end of the year and get rid of, that we didn't plan to build on, and we saw an interest from other builders, or land that we had always intended to sell as part of a bigger picture and a bigger strategy.
We went in and bought land for maybe multiple positions, and maybe there were some positions on either smaller or larger lots that we didn't have a product for that was always part of the plan to sell.
I wouldn't expect that, going forward, to happen on a regular basis.
It was a one-time situation and I wouldn't read too much into it.
No, it's never been our strategy to provide quarterly EPS guidance.
I think we had to do that last year, because the analyst community got quite a ways ahead of us, and we wanted to get in more alignment.
So going forward, it will be our strategy to update our unit guidance for the year as we go through the year every quarter and our community-count guidance and that's what we plan to give going forward.
We think that's in line with our peers and that's what we feel most comfortable with.
I don't think we're underperforming relative to our peers on the absorption side.
I think we're right in there with most of our move-up homebuilder peers, but I think we are underperforming as an industry.
There just isn't the volume in the industry in many markets.
Look at Phoenix, for example.
It's 40% to 50% below its historical 30-year average.
The volume is just not there.
And we're not going to force the market by discounting our prices and taking a lower margin.
I actually wish our margins were stronger.
I think we're going to get those absorptions back over a longer period of time by shifting our product to the more entry-level-plus, as I've already articulated.
We are also going to be doing more attached product on the <UNK> Coast and Florida and in the South region ---+ or in the southeast region and in the <UNK>.
I think that's going to help our absorptions, because those communities tend to have a little higher volume and be at a little lower price point.
I'm not losing sleep, staying up at night thinking about our absorptions, but certainly, I would hope that as a Company in this industry, we can improve them.
I would say that comment got a little jumbled there.
We're not saying we are a big entry-level-plus builder in Houston.
I think <UNK> was just trying to say we had some strength in Houston in the fourth quarter, particularly in that Sugarland location.
I would tell you we had a very good December.
December was our best month of the quarter in Houston, but it was because we had more communities.
We had 31 communities at the end of the year in Houston, versus 23 communities the year before.
The communities count was higher.
Our sales for the fourth quarter in Houston were slightly above what they were a year ago, but, again, that was because we had more communities, not because of the sales per store increased.
The sales per store actually decreased in the fourth quarter.
And our ASP in Houston is about $336,000, so it's below the Company average, but it's not because we have a big entry-level-plus percentage.
We're more of a first and second move-up builder there.
Entry-level-plus is more around four.
Our move-up businesses we target closer to three.
In some situations, we will take two to two and a half.
As a Company average, we are really striving to get to three, but for entry-level, entry-level-plus, it's going to be higher than that.
<UNK>, do you want to take that one.
Sure.
What we're seeing there is the impact of us just cutting back on some of the compensation in the quarter, particularly the bonuses.
The year ended up pretty good, but it still wasn't up to our internal expectations, so some of people's bonuses were cut back because of that.
I think you're seeing that reflected there.
And I think you've got to be careful reading in the fourth quarter of this year and extrapolating it out into the future, because I do think that's a little lower than what the run rate will be going forward.
And if you look back at what the run rate was a couple quarters ---+ it was going to bounce back up closer to that rather than remaining at that low level.
I'm not sure I quite understand the question.
Yes, throw the question again.
We were fumbling with some things here.
You were asking about the land market.
No, not really seeing the price of land come down at all.
The best of the markets, we are seeing sort of it stabilize and not see the rapid inflation we were seeing in 2013, 2014, and most of 2015.
Like Phoenix, for example, is a good market where we have seen them sort of flatten, I would say.
But absolutely not down.
The strongest markets we see as it relates to our competitors buying land, we talked about the South region.
There seems to be a lot of investment going on there.
California continues to be the place that people invest, especially Northern California.
In that particular example, I will tell you the price of land continues to go up.
Denver, as well.
The price of land continues to go up in Denver.
Definitely not down.
More flat at best and up in some of the stronger markets.
Thanks.
I don't think we're going to take up leverage significantly.
I think we're going to stay in that 40% to 43% debt-to-cap range, and I think the retained earnings that we have, in combination with the modest amount of land banking we're doing will get us there.
I would reiterate that I don't think it means leveraging up the balance sheet at all.
The 2016 is going to be a little bit more easy to understand because they extended the law to include 2016.
So we are able to book the green tax credits every quarter and not wait until they re-up the law each year.
You should be looking at about a 32%, maybe a little bit more tax rate every quarter.
There is a possibility we may pick up some true-ups from prior years that would even lower it beyond that, because we start out with a little bit of a conservative assumption on how many houses will qualify for the tax credit.
And then as we do the specific work, it usually comes up to be a little bit larger number, but I think 32% is a pretty good number to use throughout the year.
I would reiterate what I ---+ would repeat what I said before about it, so ---+
Thank you.
Operator, I think we will take two more questions and then we will adjourn.
I think <UNK> and <UNK> are probably the next two up, right.
It's too low.
I wish it was a little higher.
Not a lot higher, but a little higher.
7% to 8% is just too low.
We need to try to put more people through the system.
I wouldn't think too much about that.
It's not really a factor, per se.
It is more of an indication of the market being stronger than maybe some of the perceptions that are out there then.
I agree with <UNK> on that.
I expect it to be equal to or better than the industry.
Throughout our 30-year career in homebuilding, we have grown at a faster rate than most of our competitors, so I don't expect that to change.
We are a growth story and we're going to continue to make that happen.
Okay.
Well, thank you very much for your participation in today's call.
That concludes our remarks.
I'll look forward to talking to you again next quarter.
Thank you very much.
| 2016_MTH |
2016 | PNR | PNR
#Yes, we are starting to see the downstream investment again.
The OpEx has been turned off for some period of time.
We are starting to see a fair amount of aftermarket consolidation, so our customer is spending with the scale providers, which gives us great excitement as being the largest valve supplier in our space that we're going to see a lot more aftermarket consolidation and that's a big growth opportunity for us.
And then, we also are back in the game in the Middle East and we are starting to see order contributions in the Middle East, where we have been out of that game for some time.
Yes, we were finishing a job in Q2 that was a fixed bid job in Thermal and we had some overruns on the labor side on that project, so that job is ending early Q3, and so with that behind us, we are back to more of our normal project margins and our normal product margins.
So, it was one large job that we worked through last year and we have the final labor runs going through Q2 and early Q3, and then it is behind us.
It was a project order and it was a fixed hourly or fixed fee, and we overran the labor to install and complete the job, and so it ended in Q2 and Q3, so it is finishing up here in July, and then we're going to see those orders ---+ or see that margin rate get better from here.
Just the Process Filtration piece.
I think we have a lot of capability and we have not fully achieved ignition in the marketplace on them.
Infrastructure, we have pretty good reach globally to basically the components that go into large projects and we do pretty well there.
Our hit rate when we compete for Industrial is pretty good.
We need to get more at-bats on that.
And similarly, I think that there is a vast opportunity for us to sell membrane bundles and not just modules and systems.
So I think we're early days in terms of all the growth opportunities that Process Filtration has.
You are talking about Flow & Filtration in total.
Oh, Agriculture.
Given the lack of good predictability that we had going into the second quarter, I will be less confident in answering.
We expect to see some improvement in crop spray coming, but irrigation, I think, is going to be ---+ this is irrigation season, so the fact that it wasn't up now means it won't be up in the third quarter.
It tracks pretty closely with farm income, unless you have an issue like we had with the drought.
Not worsening; not bettering, though, to be honest, I would say.
Pentair wide.
There is a small little tailwind from the variances associated with the last year productivity working its way through Q1 and Q2, but most of it is the momentum on the incremental cost saves on the operational side and also some momentum around material savings working its way through the shipments.
<UNK>, just to be clear, and thank you for asking the question, our price that shows up in the Valves & Controls chart is a like product to a like product (multiple speakers), so it is standard product and it is an aftermarket, usually, and it is a like to like.
We are seeing, as we have talked about over the last several quarters, the project margin headwind that works its way into the growth in the FX bar on the right as far as segment income, so we are seeing that project mix to that project pricing work its way through that and that is stabilized, but it is still on a year-over-year basis pretty large, as you can see there.
It is pretty much just the Agriculture issues, the majority (multiple speakers)
We don't think so, no.
Yes, before I get into the specific investments, what we meant was that we had such a nice increase in margins.
I just don't think people should expect it to be that good, and we gave you some insights into what we expect the margins to be.
The investments are basically in two.
One is product innovation and the other one is in channel and geography investments and sales coverage.
So, maybe it is 50 bps a quarter in investment increase, and one is it is a business that as the conversation about China and the conversation we talked earlier about in the Pool Business, it really is a business that is yielding to innovation, so product innovation pays.
And then, as I mentioned, we are applying some of the Pool playbook to water purification to get more intimate and closer to the customer, and those are the geography and channel investments we are making.
Right.
You're talking about Valves.
Yes, okay, go ahead.
Listen, we have had a fairly sizable front lawn for a period of time and I think, as <UNK> mentioned, we scrubbed it.
We have discounted the larger projects from the expectation that those would close this year.
But what we did when we reorganized the sales force is put a lot more energy and effort around the Aftermarket side.
And one of the things we bring to the table to a lot of the larger customers is the ability to service a vast majority of valves.
And the way that we are servicing those right now is on an aggregated buy basis from those customers and then also working inside their factories or their plants to be able to benefit from that.
So, that's a big piece of it.
The second one is that there has been some pent-up demand on the downstream side and especially the MRO downstream.
And as we always said, we don't think that could be deferred forever, and we are starting to see that start to come in.
So, listen, we are not declaring victory yet.
I think what we are saying is that we believe that Q2 represents the bottom of the orders and we are starting to see the increase from here.
A double-digit increase off of Q2 is still a modest level of orders versus what we are used to, but it is at least a sign that we're going to see that downstream investment start to come back.
Right now, we are committed to the 100% of net income.
We are tracking, as we said, $150 million better than last year, but we are focused on this and obviously getting our debt paid down (multiple speakers)
Yes, we are not only $150 million ahead of last year; we are ahead of where we thought we would be at this point in time.
But Jeff, I think we've got to see another quarter or two before we ---+ obviously if we see two, we will have it, but I think we need to see another quarter before we're going to declare that there is upside to that number.
Yes, there are a couple factors.
One is the Europe comp in Water Purification in the second quarter was tough, so we didn't show any growth there.
We think that gets better.
And then, we talked about the pool timing.
And the pool market, and you can look at ---+ there is a few comps you can look at ---+ the pool market is really quite strong and we think that more of that will read out, too.
You'll see that more because the timing comp won't ---+ the timing won't mess up the comp.
Yes, the weather can have an impact on the timing of the pool season, <UNK>, and last year there was a very, very strong Q2, and we are now back to more of a normal trend on a year-over-year basis in Q3.
And as we shared, our Aquatic & Environmental Systems Business has been growing nearly double digits now for four or five years in a row.
So, we feel fairly good about the visibility to this number and feel very good about the growth rate for Q3.
No, we have a few more factories in the works to reduce, so we are just under 100 total factories for Pentair and we expect to have reduced it by around five or six by the beginning of the year to the end of year.
So, we're modestly addressing it where we feel we have excess capacity due to the end markets that we are serving, but we are not aggressively reducing the factory footprint at this time.
That was close.
That was a new one.
Josh <UNK>, go ahead.
We have done really well on the price/cost at both ERICO and Enclosures, so we did single out the Thermal business, Josh, primarily because ---+ and that is not really steel related; it is more of the heat tracing cable versus the labor and the integration cost to bring that project to bear.
So, when we take on the projects and we're doing the design, the engineering, and the install, and then we are bringing the cable along, we're going to have a compression of margins when the product side is down.
And as we mentioned, the aftermarket MRO sometimes goes to distribution or it will go direct to the end site and get installed, and that's the part that has been down double digits.
So we're up significantly in the project side, we are down in the product side, and we are experiencing an overall mix issue, even though we're up in revenue.
No change, and we have ---+ probably experiencing a little bit modest headwind Q3 and Q4 and I would say of a couple million dollars in the rising cost of the steel, but not anything significant.
It is Water Purification in Europe.
Pool isn't that big in Europe, but the Water Purification side is, but margins are not bad.
Is there a little mix shift there (multiple speakers)
I think there is ---+ <UNK> mentioned there is the desire to do significant growth investments, and this is a business that absolutely deserves to do these growth investments.
And we've factored them in as the business views spending them.
The likelihood that they would actually spend them would ---+
Spend them all.
---+ would be low.
No, not at all.
Not at all.
Too early to call that, but I think your intuition is about right.
Yes, I would certainly start with that.
We haven't started that yet, though.
But I think your intuition, if we were doing it now, is correct, Chris.
I think you should look at around $43 million-ish divided equally between Q3 and Q4.
Yes, we have got a little bit more short-cycle product shipments and also getting out the past-due backlog, so we see that we are expecting to get slightly higher standard margins as we move that through the shipments, and we also, as we mentioned, we took in a fair amount of deferred variances from last year, which means we spent more than we should have on the labor side, and we had to bleed that off the first couple quarters this year, so we had a little tailwind associated with that.
That was from refinery.
We are seeing more of the petrochem spending come through, which has been actively being bid.
One thing that seems pretty clear is that now that the rapid decline in capital spending has happened, our customers have really sorted out not only who is working on ---+ who is still working for them, but which projects they're going to go forward with.
We skew to little projects.
We talk a lot about big projects because they are the things that move the needle a lot, but our average project size is well under $1 million.
So, those are small outage turnarounds, just maintenance-related activities.
And so, I think we are going to get into a more normalized, albeit lower, level of how they are deployed.
I think the structure itself is the right structure.
I think when you make this level of change where you have Project-oriented sales people trying to call on the Aftermarket, you're going to find areas where that is the wrong skill set, and I think that's where we're going to have to continue to migrate the sales force to the right skill set over time.
And to say we are optimized at the moment I would say is not accurate, and I think we think the structure is right.
And what we now need to do is get the processes and the support for the structure operating fully, and then we think we can benefit going forward.
Has it hurt us.
Probably here and there, but not dramatically.
| 2016_PNR |
2015 | CROX | CROX
#Look what I would say is, we feel great about our leadership team and how we are structured.
We've made a lot of change over the last six months to nine months, both structurally and adding talent.
We have been fortunate to add some great talent, great talent that has functional experienced great talent that has industry experience in the last week.
We've actually had a number of new senior leaders joining the company including David Thomson, who is leading our Asia organization, and Phil Blake is our new SVP of Global Sourcing.
As we look at structure, as we look at the organization, we look at both structural changes and how we are organized to support the business.
And so we really designed our organizational structure to better position us for the future to support our border strategic objectives.
We also look at making sure we've got the right specific functional capabilities and some of the changes we made adding Phil into his role give us more experience in terms of Global Sourcing expertise in footwear specifically.
Likewise, David Thomson add similar capabilities in Asia.
So we feel very good about our structure and the folks that we have in the key roles and we feel we are very well positioned for the future.
I think that the 100 basis point improvement that we saw associated with the merchandising and mix of our product line was in line with our expectations.
I think the only difference that we would have from where we were in February is the currency impact in Q2 will be a little bit more because the currency rates have trended down.
We are pleased to see it kind of moving back the other way, but it is still below where we were in February.
Thanks <UNK>.
We've got great partners around the world in terms of the manufacturing side.
We've got some of the best manufacturing partners that there are in the business.
So, we feel very good about how we are positioned from a relationship standpoint and the longstanding relationships we have with our manufacturing partners.
I think we are going to look at evolving some of our supply chain and adding with the addition of Phil, we feel that we just add some great experience in the future.
The other benefit that we've kind of focused on is we've evolved the org structure so that we now have an SVP of global sourcing and SVP of distribution and logistics, which is Dennis Sheldon, who is an eight-year company veteran, but who has deep experience in the global operations kind of arena and they direct reports to me now.
And I think that also is the right structure for our brand and our business at this point and really enable us to be far more customer centric and evolve some of our ---+ get closer to our customer needs than we may have in the past.
We feel great about the team we have and we are extremely appreciative of every one of their contributions.
Thank you.
So, just to close we are very excited about the transfer.
The ongoing transformation that's going on across and I just want to take a moment and thank the Crocs team worldwide for all their fantastic contributions as we continue to evolve our business unlock the full potential of the Crocs brand and build one of the leading casual footwear companies in the industry.
Thank you everyone.
| 2015_CROX |
2016 | FELE | FELE
#Good morning,
Good morning.
Yes Ed, I would say that any region where we have a concentration of groundwater pumping equipment, so that may be is more cross mix than it is geography mix, but our Asia-Pacific business is a highly profitable business because it has that concentration.
Generally our European business is highly profitable business because it has that concentration as well.
So any of our geographic region that have a greater concentration of groundwater versus surface equipment where the Company has discussed in the past is more vertically integrated from a supply chain perspective, are generally going to be more profitable and have higher margin than those that are more concentrated in surface pumping equipment.
As we discussed, it has been ongoing for several quarters.
Europe is flattish.
We say that in the Middle East it's hard to get a record of current local currency that's been impacted by the strengthening dollar and the weakening Turkish lira.
Where we see in weakness been in the Gulf region, particularly in Saudi, we thought we would start seeing sales actually kind of back half of the first half of this year, it just did not materialize and it's clear that Saudi is reducing infrastructures spend, splitting over to couple of the other smaller countries in the Gulf region as well.
We're just not seeing infrastructure spent.
We are beginning to see some inquiries as we're coming into the back half of the year particularly (inaudible).
That's tough to call.
<UNK> do you have a point of view on that.
They are very much intertwined.
Certainly war has impacted us in the near and Middle East.
The oil situation in Saudi has been, in our opinion, relatively stable, but the oil prices are killing their economy and they do have cash, quite honestly, to spend on infrastructure and other development.
Broadly, as we have discussed several times, and we have very large replacement component, that exists throughout the globe in our water business.
It's a very large replacement markets generally, that is why availability is so important when we have products out in regions (inaudible) to have products closer to the customer.
As we look at that from a broad point of view, we would say that it's more related to economic factors, weather conditions, and overall GDP growth.
We would expect in that region, if you see some stability in the environment, that we would expect to see improving sales.
I think the oil price has worked its way through the region, say the Gulf, as we go into 2017, our comp obviously in Saudi would be easier and around the globe for those areas of the globe that have trickle-down effect of the lower oil price, we should see easier comps going to 2017 has pretty much worked its way through our sectors.
We haven't historically.
I think that as we look at the fourth quarter, on a total fixed cost basis which would be both SG&A and the fixed cost that is in our cost of goods sold, I think, we're thinking something pretty much in line with the third quarter.
In total number was $79 million and in the third quarter we think it will be $79 million to $80 million in the fourth quarter.
The big point that happens in the fourth quarter as you know is we can really lockdown some of the compensation of reserve balances of the fourth quarter as we get much clearer picture of where we are going to be to some of the targets.
Last year in the back half of the year, we were actually lowering those types of reserves but this year the back half of the year we are actually increasing those type of reserves so that becomes a meaningful maneuver for our back half and more specifically for the fourth quarter.
That is correct.
We are expecting growth in the fourth quarter in fueling and our international markets.
Yes.
To respond to the first part of your question, we saw a push out of orders in India which we expect to see going into Q4, we saw some push out in orders in Australia and the Asian market more broadly.
We expect improvement in Q4.
We will have a little easier comp on the underground floor, it's not a major part of the business, but the margin was part of the sales falloff with North Sea oil production coming down before last year so it will be a little bit easier.
We generally just see a little breather here to see if international we expect to see that start picking up in Q4.
With respect to your question about competitive dynamics, again, the consolidation effectively is in a dispensing stage, which we do not plan and it has yet to actually occur.
I think the acquisition of (inaudible), I believe their pending acquisition is still subject to review by authorities, so certainly there is no consolidation yet that occurred and it's in dispensing state which we do not currently operate.
Sure.
We continue to get steady organic growth for the US market.
We continue to gain traction with our products and you can look at the change on payment systems as being somewhat of a double-edged sword, on the one hand it diverts capital to do that change out.
On the other hand, if you look at, there was a major upgrade of other ground tanks in the US market back in the late 1990s.
And that is when many of the stations were refresh at the same time when we put in double wall tanks in the 1990s.
Those tanks are all, those stores are all now15 to 18 years old.
I think you're just seeing as you point out a general refresh and people looking at payment systems, putting in expenses, doing kind of ground-up restoration of stations, moving stations because stations that were built 20 years ago may not be in the right areas for where the population is today.
And so you just barely see a ---+ it's been a good stable market for us.
We are continuing to gain share.
Our approach to the whole system package, we can deliver an underground package to a customer that is complete for the tanks, the dispensers.
So it has been generally favorable conditions for us and we looked into a trade show and it was an upbeat show.
Sure, <UNK>.
On the residential, our business was very strong East of the Mississippi which is where you have the majority of residential pumping systems.
We have a strong distribution base.
We are recovering some share we lost and we are building share based on new product introductions.
We have had a refresh in our drives and our new center of connect and generally Franklin is more visible in the marketplace and it's paying off.
When you look at agriculture, you point out, agriculture West of the Mississippi, we've got rains which precluded probably second growing season or that second irrigation season where we often see in the central region of the country.
Certainly the wet weather has improved the climate in California with reduced drilling activity in California so we see generally West of the Mississippi is a softer environment.
But as we talked before, we have a large replacement for business so even again with comp rates where they are, with what are conditions, we had a positive year-over-year comparison.
Well, we saw in the quarter about 80 basis points of improved rights over last year's third-quarter on a consolidated basis.
All of that was in water and almost all of that was in our international units, including in Brazil.
The price, environment in North America on the water side remains very difficult and competitive and our price in fueling in the quarter was down from last year as well.
So as we look to 2017, to answer your question, I do not think our expectation is going to be too different from what we historically put into our annual operating plan.
I think it will be something in the 200 to 225 basis point assumption.
We are optimistic that we will recover more in North America as we kind of get through this agriculture situation which is weighed heavily on price and we are confident in many of our international market stability to get price.
So I would say if anything versus what we normally would be looking at, this time of year, maybe it's backed up 25 to 50 basis points, something like that as we look at 2017.
I mean, North America water is still very competitive.
We're happy with the growth we've had there but it's a very competitive end market.
A lot of that will depend on mix and realized price, <UNK>.
What I can say to you is as we look at the fourth quarter on a input raw material costs, we are still expected to see in a deflationary position versus last year's average price.
But it is going to be a tighter one than what we have experienced so far year-to-date or experienced in the third quarter.
In terms of 2017, and we have not fully vetted 2017 from a full margin perspective, and it's better to leave that to another day when we can talk more candidly about our guidance there, but I think the key moving parts are we still expect that we will get some raw material benefit.
For example, we look out at our full purchases of copper and other steels, we feel pretty good about where we are at on some of that.
But mixed as I said, we will plan for the role in that as we will achieve price.
Hello, <UNK>.
Really, we have distribution in place across the country that we need so really that is 2015 type news in our mind.
Clearly with the achievement on the residential side and broadly east of the Mississippi, I think we're getting good traction and I think it is also a reflection of the product development we have had as well.
Yes.
We do not hear a lot about real expensive inventory levels, <UNK>.
I think the channel inventory level as a core groundwater distributor market in North America are not bad.
They are about right.
So yes, I think there is the possibility.
We're certainly expecting growth in the fourth quarter in our core water business in the US.
How much growth is the key question.
I think there's a possibility those distributors could be reaching for some of their year-end incentives, so that gets all in play as we move though this quarter.
It is not baked into the guidance.
Our distribution in the Southeast could be better than it is.
There is still again ---+ for the pump growth companies, the fuel aquatics, while many of those pumps that we sold were fracking they redistributed those pumps to other locations.
So I wouldn't think we would see much of the margin, we haven't heard a lot from our guys on that.
There was a little bit of construction for groundwater business in the Southeast, obviously.
We lose power and the ability to get in to do the normal work.
That now appears to be behind us because people have moved back to kind of a normal business here and certainly in Florida and I expect the Carolina's to follow.
What I would say is not a ton of change.
It's still, it's not a very good outlook.
Let's put it that way.
I think if anything, it's marginally worse for us now than it has been.
What we're seeing is our large rental customers still dealing with a fleet that is in excess of what they need and trying to manage through that.
We are busy, our intention is to find new outlets and find new distribution capability that we can tap into.
Our business in that area I would not say looks much better.
What we've been doing, we've been refocusing activity to other channels, more industrial so we are expecting Pioneer to have a higher top line next year than this year.
You're speaking, I believe, of Centera as divestiture, their business, where we were directly aligned with them is a relatively small part of their business.
The competitive nature of the North American market to really be similar to where we are now, I do not expect it to change much with the decision on divested valves.
Outside the United States, we really don't run against Centera in very many markets.
Because of our more groundwater focus in their focus in other areas.
Let's be a little clear though that the pricing environment internationally is also highly competitive.
We have been able to see price in areas that are seeing a fair amount of inflation.
Exactly.
Right.
Thank you for joining us today and I look for to speaking to have our fourth quarter and the new year.
Have a good week.
| 2016_FELE |
2017 | CLDT | CLDT
#Thanks, <UNK>.
Good morning, everyone.
Our results for the first quarter outperformed our expectations across-the-board.
RevPAR growth of 1.2% was 70 basis points higher than our mid-point of our guidance range of flat to plus 1%.
Additionally, our operating margins were up 40 basis points over last year, and our hotel EBITDA margins were up 70 basis points over 2016, exceeding our guidance by 50 basis points.
Given the modest growth in RevPAR, we're very pleased to improve our operating margins, which helped us produce a good quarter.
Working alongside Island Hospitality, we've been hyper focused on our revenue management strategies.
And in the first quarter, we outperformed our market's average RevPAR growth by 90 basis points, which is admirable considering the tough comparison, given RevPAR growth for us in the first quarter 2016 was almost 3%.
We were very pleased with the mix in ADR growth as we were able to grow ADR 2.5% to $163.
That strong ADR is a testament to the quality of our portfolio.
I think when most people think of select service hotels, they don't think of an average daily rate of $163.
Our long-term goal is to be the best pure-play select service and limited service hotel REIT.
With (inaudible) targeting a different asset class for most of its acquisitions and once [ROJ] closes on the acquisition of [BelCor] Chatham will possess the highest RevPAR, ADR and margins among all select or limited service hotel REITs.
Today's traveler is very much in tune with the quality and value of hotels such as ours provide, which enables us to grow our top line, similar if not better than other hotel classes, while our margins significantly outperform and so does our cash flow.
Our guidance for the quarter was a RevPAR increase of flat to 1%, up 1%, as I said.
And we finished with RevPAR growth of up 1.2%.
Within the first quarter, January RevPAR was up 0.3%; February, up 1.9%; and March was up 1.7%.
Excluding Houston and the 2 hotels in Western Pennsylvania, RevPAR was up 2.3% for the company, all attributable to ADR increases, a much better mix as we would much rather gain ADRs since our hotels already run at a very high occupancy levels, and of course, that's the most profitable mix of RevPAR.
Looking at some of our key markets, we did have a couple of markets that benefited from special events.
Of course, Washington, D.
C.
Hotels benefited from the inauguration, and those are the 2 hotels that experienced a RevPAR increase of 8% up in the quarter.
Houston was the host of the Super Bowl in February.
And since we own 4 hotels from a short distance to the stadium, including 2 hotels within walking distance.
So those hotels saw RevPAR decline of only 3.6%.
And of course, we have to keep in mind what the declines have been and will be probably in the second quarter again as they resume a double-digit RevPAR decline until we start comping over some easier numbers in the second half of the year.
Earlier, I mentioned the hyper focus on revenue management, and the Super Bowl is a perfect example of that.
Starting approximately 2 months out from the event, our management teams held regular sessions to discuss the strategy surrounding pricing in groups.
These meetings increased in frequency and detail leading up to the Super Bowl.
The results were fantastic in that the despite our tough comps, we were able to gain market share by approximately 7% across the 4 hotels in the 2 weeks leading up to the game, which is outstanding.
Within Silicon Valley, RevPAR was essentially flat with ADR growth of 1%, offset by a slight decline in occupancy.
That trend continues in April.
Tech companies continue to drive our economy and our 4 hotels in Silicon Valley are the perfect brand, that being Residence Inn, with great locations for the market.
But our RevPAR growth has been limited by new supply that came in 2016 and continues to open in 2017.
Being flat, I think, compared to some of our competitors is a good number.
Despite our renovation at our Gaslamp Residence Inn, our 3 San Diego hotels were able to advance RevPAR 3.4% in the quarter, with ADR growing approximately 8%.
Again, spot-on revenue management throughout our renovation has paid off as we were able to grow ADR at our Gaslamp Hotel by 13% in the quarter.
Other markets which experienced more than double-digit RevPAR growth in the quarter were our Homewood Suites in San Antonio and our Hilton Garden Inn in Burlington, Mass.
, which benefited from revenue displacement in 2016 as well as our Homewood Suites in Maitland, Florida where demand was driven by winning back corporate business.
Again on the weak side, our 2 small hotels in Western PA continue to take it on the chin, with RevPAR down 22% in the quarter.
Island Hospitality took over the management of those 2 hotels on January 1 as the management contracts with Concord had expired.
And we're getting a strong handle on the hotels and revenue management forum, but market conditions there are still really tough.
And of course, that will continue to be negatively impacted, and our EBITDA will be as our 6 hotels, as I mentioned, with Houston and Western PA, equates to about 9% of our EBITDA.
When you look at the upscale chain scale, year-to-date room supply increased 6.1%, which was almost entirely offset by increased demand within that segment of 5.8%.
So to my earlier point, travelers are on board with the influx of hotels in our brands, and they're filling them up and are choosing to stay in them, which will pay off long term as the supply growth subsides.
We're certainly feeling the impact of new supply, as we mentioned, starting around this time last year, particularly in Anaheim where our new Residence Inn was built closer to Disneyland main gate.
And just about every other brand that was not represented has opened.
In Anaheim, we'll get some good news though when a third Residence Inn that is in the market, one of the older Residence Inn, actually loses its flag the beginning of next year.
As I mentioned before, we believe Chatham recovers earlier than most because our hotel ---+ where our hotels are located, and the fact that we've been hit a little bit earlier being mostly urban, particularly as we look back to 2016.
So we think that as we move forward through 2017 and into 2018, that supply will get absorbed.
Our revenue management strategies will hold on to ADR and will be able to move forward, as I suspect supply will, of course, subside.
Before I turn it over to <UNK>, I want to spend a few minutes on market activity and where we see ourselves going from here with respect to our capital allocations.
On the hotel sales front, there are markets that are very attractive to investors who have been looking at our hotels.
Some investors backed primarily by foreign funds are looking at certain markets and we think might pay a strong cap rate, a strong number for some of those hotels.
And if we were able to do some capital recycling in 2017 and successfully sell 1 or 2 hotels, we would use that money for either current acquisitions of hotels that are in the kind of markets that we want to be in.
Our pipeline is not deep, and others have commented availability of hotels are expensive, particularly as you look at them compared to replacement cost.
But we're out there working hard on a recycling strategy.
Of course, we look at hotels ---+ and we've talked about this before where we've got room to either build a new hotel or expand on land that we already own.
And in some of those markets, those returns can be double-digit returns unlevered.
So given where we think we might be able to sell a hotel or 2, we think that's a strong possibility for a pretty accretive opportunity in recycling our capital.
So we're going to look at those opportunities and a new development opportunity or 2, again, if that works in the context of trying to build some accretion here as RevPAR is in the flat zone, so to speak, for 2017.
With that, I'd like to turn it over to <UNK>.
Thanks, Jeff, good morning.
In addition to revenue management, we, as well as Island Hospitality, have dedicated more time and resources to analyzing profitability and determining ways to reduce costs or minimize increases in such ---+ certain categories.
This is a niche that we started talking about a bit over 6 months ago.
We saw wage pressures developed early on and saw some other incentives, such as guest acquisition costs and TA commissions inching up.
We felt that we needed to get out in front of this and see what we could do to clamp down on the expense creep.
We obviously take pride in the fact that our operating margins are the highest of all lodging REITs.
Our same-store hotel operating margins advanced 40 basis points to 47% in the quarter.
And our hotel EBITDA margins expanded 70 basis points to 39.9%.
The incremental improvement in our hotel EBITDA margins of 30 basis points can be attributed to about $0.5 million property tax refund related to one of our hotels.
In the quarter, we were able to hold expenses basically flat, with an increase of less than $100,000, which is noteworthy given the significant wage pressures occurring in most markets.
We have a tremendous amount of information in our fingertips.
Island Hospitality is able to analyze revenue daily versus forecast and determine whether 8 weeks expense levels are necessary within the month, for the month.
This could be related to labor thresholds or even things such as supplies for housekeeping.
One of the benefits of our working relationship with Island is the ability to move quickly.
We can drive profits to the bottom line, which translates into enhanced value of our real estate.
For the second consecutive quarter, first quarter guest acquisition costs were flat year-over-year at $2.7 million or 4% of revenue.
During the quarter, we did see a reversal in booking patterns with local negotiated production up 7%, [but those] were driven primarily by a sizable group in Silicon Valley.
This was offset by a 4% decrease in production from our retail segment, which includes our e-channels.
And we're still projecting, in our guidance, a little over 10% or almost 30 basis point increase in those costs in 2017 as we expect booking patterns will revert back to the retail e-channel segments gaining share on a pro-rata basis.
The industry is facing wage pressures across several fronts, whether it's trying to find qualified labor, whether it's the state raising the minimum wage or even new supply that's causing hotel operators to offer what we believe is above-market wages in order to entice employees to switch from our hotels to others.
With aggressive asset management and very diligent measures by our operator, we were able to minimize these effects in the quarter.
With respect to the remaining 2 Silicon Valley expansions, we continue to work with the city and our architects, designers and engineers as planned, but certainly, it's been a long and tedious process, and we still have further cost-cutting analysis to do before we begin construction.
Until we can come up with a final budget that provides double-digit returns that we're expecting, we'll continue to value engineer in both of the projects.
Our guidance at this moment does not assume a certain construction date for either of those 2 projects, nor any disruption related to taking those rooms out of service for the buildings that we will be tearing down in the meantime.
Our renovations are ongoing and on budget.
Our 2017 capital expenditure budget of $27 million is still applicable as we are planning on renovating 6 of our hotels during the year.
At this point, I'll turn it over to <UNK>.
Thanks, <UNK>.
Good morning, everyone.
For the quarter, we reported net income of $4.6 million or $0.12 per diluted share compared to net income of $3.3 million or $0.08 per diluted share in Q1 2016.
The primary differences between net income and FFO relates to noncash costs such as depreciation, which was $12 million in the quarter; onetime gains or losses; and our share of similar items within the joint ventures, which were approximately $1.5 million in the quarter.
Adjusted FFO for the quarter was $18.1 million compared to $17.7 million in Q1 2016, an increase of 1.9%.
Adjusted FFO per share was $0.47 per share, which represents an increase of 2.2% from the 46% ---+ $0.46 per share generated in Q1 2016.
Adjusted EBITDA for the company rose 1.8% to $28.1 million compared to $27.6 million in Q1 2016.
In the quarter, our 2 joint ventures contributed approximately $3.2 million of adjusted EBITDA and $1.4 million of adjusted FFO.
First quarter RevPAR was up 5.7% in the Inland portfolio and down 2.7% in the Innkeepers portfolio.
The strong performance in the Inland portfolio is largely attributable to the significant amount of renovation that was completed on those hotels in 2016, and the weaker performance in the Innkeepers portfolio is primarily due to the disruption being caused by renovation occurring in that portfolio in 2017.
Our balance sheet remains in excellent condition.
Our net debt was $575 million at the end of the quarter, and our leverage ratio was 40%.
We are currently working with Colony NorthStar, our partner in the 2 joint ventures, to refinance the debt on both joint ventures.
We expect that the refinancing will lower the cost of debt for our JVs and extend the maturity of both loans to 2022, including our extension options.
We anticipate that both refinancings will close in Q2.
Transitioning to our guidance for Q2 and full year 2017, I'd like to note that it takes into account the completion of renovation at the Residence Inn Gaslamp and Courtyard Houston Medical Center in May, the renovation of the Homewood Suites Maitland in Q2 and planned renovations of the Residence Inn Mission Valley, Homewood Suites Bloomington and Homewood Suites Brentwood during the second half the year.
We expect Q2 RevPAR growth to be minus 1.5% to flat and full year 2016 ---+ 2017 RevPAR growth to be minus 1% to plus 1%.
Our first quarter benefited from the inauguration in Washington, D.
C.
, the Super Bowl in Houston and the timing of Easter relative to 2016.
We do not expect Q2 RevPAR growth to be as strong as Q1, given the positive impact these items had in Q1.
In the second half of the year, we faced easier comparisons for our Houston asset, which has benefited our RevPAR growth in Q3 and Q4.
For the full year, our RevPAR guidance assumes the current trend of modest GDP growth combined with above-average new supply, and the upscale segment will continue throughout 2017.
Our full year forecast for corporate cash G&A is $8.9 million.
On a full year basis, the 2 joint ventures are expected to contribute $16.4 million to $16.9 million of EBITDA and $8.4 million to $8.9 million of FFO.
I think at this point, operator, that concludes our remarks.
And we'll open it up for questions.
I want to follow up on your comments on potential asset recycling in 2017, and hoping if you could provide more color on what you're seeing in the market as far as pricing.
And if you're going to buy some assets, where would you be buying and looking to sell.
I think that, as you know, we commented that things are expensive out there.
And therefore, I think our focus is clearly going to be on expanding or building on sites that we already own where the infrastructure is there and the ground is flat and the costs are fairly reasonable to do stuff that are produced at double-digit unlevered return.
But for existing assets, really, I think our strategy there is to look at a value-add opportunity, whether it be for something that just really needs capital or rebranding or otherwise; or for Island Hospitality to bring its abilities to look at a market and look at a hotel and increase market share, so enhance the top line and in some cases, enhance margins.
On most cases, we've been successful in enhancing margins in hotels but Island takes over.
Therefore, asking cap rates by sellers of 7 to 8 cap, we're not too thrilled about, honestly.
And we know that going in yield ought to be 8 plus, given where our stocks trades, so we think the way to get there is probably with a value-add opportunity.
Okay.
That's helpful.
And again, as a follow-up, you talked about supply impact on your Silicon Valley assets.
But I was hoping you could also talk about demand if you're seeing any pickup in demand in 1Q.
We know that there were some pickup in venture capital activity in 1Q versus 4Q '16.
So have you seen any impact of that on your hotels.
Or are you expecting to see any pickup in demand there.
You know when you look at our Residence Inns there and you look at who's staying in them, it's primarily engineers, it's training groups, it's kind of new store openings for Apple where they bring Apple or where they bring in folks and other kinds of training.
So no, the answer is venture ---+ demand is strong.
Demand, I would say, is steady.
And that demand is getting somewhat diluted by some new select service hotels that have been opening sort of south, let's say, a little bit south of the San Francisco airport down through the heart of Silicon Valley to the San Jose airport.
And when you look at that market and just drive up the 101, you'll see things that have opened.
We think we're well positioned, given the strength of our sales team and our kind of long-standing relationships in the market with the demand generators with Apple, with Google, with Applied Materials, with Cisco.
So I think that this supply, looks like most of it abates by the end of this year, maybe there's a little trickle into the first quarter of 2018.
So hopefully, it's because we did such a fantastic job that there's no questions or maybe it's because everyone's on the Marriott call.
But nonetheless, we appreciate the opportunity to talk to you.
We're pleased with the quarter, and we're going to continue to buckle down on all the operating fronts we talked about and on the capital recycling side trying to create some accretion here.
Thanks for listening.
Talk to you soon.
| 2017_CLDT |
2016 | LABL | LABL
#Sorry, free cash flow we've been pretty consistent and we think it's going to be around the $60 million mark given that we do have a couple of years of slightly CapEx towards the higher end of our 5% range.
And the outlier was 2015 and we sort of tried to highlight that there were some timing benefits associated with the bond interest.
So 2015 is the outlier and $60 million is infinitely doable for us.
It will jump around quarter to quarter also based on the bond payments and interest payments which are twice per year.
But $60 million is what we have in our model.
Sure.
We are highlighting them.
People can model them as they wish but we highlight them.
The businesses we have could continue to infinity without those costs.
They are one-off related to those specific acquisitions.
In addition to that, they are a little bit higher this year because of the nature of two of the acquisitions that we did.
So the Southeast Asian acquisition was an on-market.
We bought a public company listed on the Malaysian exchange.
And there is a significantly ---+ which has five locations, so it's a very good transaction for us, gave us a very good footprint but certainly very complex vis-a-vis other acquisitions.
And so there was a lot higher cost in due diligence and also the acquisition process that we went through.
The second one was a larger acquisition or a medium-size acquisition, sorry, in Bordeaux France and again that was a very complicated process.
So typically the acquisition costs are not that high and I think that it helps investors by giving them that information, calling that out specifically.
And you can model that however you like but I think it is valuable and we've been asked to provide that information in the past.
So that's why we call it out and why it was so high this year.
Yes, we do.
The price was modestly positive net.
So as <UNK> said most of it is volume in the main but it really wasn't a big delta either way.
Sure.
It wasn't in the press release but <UNK> did comment on it.
So I'm sure he's happy to comment again.
It should be but it is a higher CapEx year.
So net-net I think that $60 million-plus is a good number.
That's a good question.
Our auditor is probably on the line sort of cringing right now.
But our account was officially signed on Tuesday but we fully expect to have remediated the material weakness in FY16.
On Tuesday.
There was a little bit of translation risk in terms of the Mexican peso and also the Aussie dollar.
But the translation risk in the quarter was still pretty modest at as you said 3% combined versus say 5% for the year.
So it's $0.01 in the quarter, the translation risk which is a combination of Aussie dollar and Mexican pesos.
Yes, it's all timing.
I mean the work is happening in relation to our end-of-year accounts right now.
So there are costs in April and May in relation to the finalizing the audit and all of those things that essentially will be booked in Q1 of FY17.
So there will be, it will be a little bit higher basically the run rate in Q1.
Not really.
No.
Sorry, I think the quantification is that we still feel pretty comfortable with the 9% SG&A for the year.
It will be a little bit lumpy in specific quarters.
If you think about the numbers for the quarter and the number for the year being roughly the same, so talk about the year specifically, we had a number of presses in jurisdictions that are difficult to hedge.
And so the majority of that primarily relates to CapEx payments.
So to the extent that we from time to time do have CapEx payments, equipment and purchases, in jurisdictions that are difficult to hedge there may be some exposure.
It's unusual then to have that occur when there is a movement in the currencies.
So Mexico and Argentina are examples of that and so we can't predict whether we will have those in the future.
We do our best to mitigate those, but from time to time they occur but it is pretty unusual for us.
Yes.
No, not in that.
In the low 3s.
| 2016_LABL |
2015 | NDAQ | NDAQ
#And I just want to add, again, some directional color.
One thing that we're tracking in corporate solutions is, on a quarterly basis, the average number of products per client, average revenue per client, and we have seen steady progress in both of those metrics, which I think is a sign of continued success in working off of that existing customer base and selling additional products and generating more revenue from it.
So that's something that we're watching carefully and are pleased with the specific progress that we've made over the past four quarters.
How we doing.
<UNK>, do you have that number.
Yes.
So <UNK>, first of all, both of those initiatives are within the gift expenses, which in aggregate is in the $30 million to $40 million, as we've provided from a guidance standpoint.
But as we've said previously, NLX is approximately $0.02 per quarter and NFX is below that level.
So that gives you some sense of the aggregate scale of those initiatives on a quarterly basis.
Yes.
So I can't speak for what you're reading in the press, but we haven't announced any FX initiatives that are launching next year.
I am sitting here in London with <UNK>.
<UNK>, have you announced anything without telling me.
(Laughter) So I don't know where you're getting that information, but it's not correct.
Right.
Definitely.
So one, I would say is obviously that announcement was not unexpected and I think it was expected many months before.
So it was no surprise there.
But clearly, we're in close touch with our customers.
And I would state that since that announcement, we have reconfirmed with our customers that there's no change in plans they have with respect to NLX.
I've previously stated that we needed to proceed with NLX2 with some core support in a very meaningful way from some of the major banks, and we're continuing along that path.
And right now we remain optimistic that we're going to get there.
And I also would want to make it clear that the world that we envision in the listed futures world is not that dissimilar from what we see in the equity world, where we expect them to have more than one trading venue clearing through a common clearinghouse.
So if we have LCH playing the essential role that DTCC would play in the US equity world, we certainly see that our customer could trade on one venue and have that then, as long it's clearing in the same venue, then it's basically fungible.
And it puts the customer in a position where the different trading venues can compete quite aggressively against each other.
And you have a situation in the listed futures world where the customers have smart order routers ---+ and if they don't, they're planning to have them ---+ which allow them to create essentially a virtual book between the different venues.
So that's the world we see developing.
It's one we're very comfortable with.
It's one we compete in in our transaction businesses today.
And when you see the results of our transaction businesses in this quarter, in particular, you see that we can run in that competitive world and how efficiently we run our businesses, you can still run it with a very healthy margin.
So that's where we see the world developing.
Yes.
So I'll start and say, one, obviously smarts has been a very strong acquisition for us and it's the model we'd like to use where as a smaller, successful company, we were able to lever our distribution capability and also significantly ramp up the R&D spending where we came out with the products for the brokerage community, where at the time of acquisition, it was primarily geared around exchanges and/or regulatory bodies.
And so you saw evidence of additional product set, as you mentioned, with the dark pool, and we have more products coming.
I say across the planet, you have increased intention, and we think that will continue, for surveillance.
It's necessary in the markets that we live in.
And clearly, whether in China, whether in Europe or the US, that is a common global phenomenon.
And our job is to make sure we're delivering the right product and services to meet that growing and real need.
And I think the team has done an exceptional job doing that.
So the need for surveillance is no different in China than it is in other parts of the world.
<UNK>, do you want to add to that.
I would just add that we've been in Hong Kong for well over a decade.
We've had a good team there.
And we've been working with exchanges, as well as broker-dealers in Asia, for many, many years.
So it is a testament to the relationships that we've been able to develop over the years to be able to find opportunities to work with exchanges, as well as broker-dealers in China, as well as all over Asia.
And I think that the team's done a great job there.
All right.
So let me start with Nasdaq Private Markets.
And it's important to recognize that we seized on this opportunity based upon the passage of the Jobs Act.
And the Jobs Act said that you could stay private with up to 2,000 shareholders and employees did not count.
The prior rules were 500 and employees did count.
So we saw a company could go a long way in its evolution and stay private, and we had to make sure that we provided solutions for them.
So certainly, the relationships we build with these companies in the pre-IPO phase, we have a fundamental belief that that will help us with our IPO win rate.
So that's an element to it.
But that's a secondary benefit, because we think the market by itself is quite exciting, and we certainly believe that a company similarly situated with respect to size and/or complexity will earn for us an equal amount of revenue, if not greater, than it would if it was in a public company context.
But our job is to meet the customer need where companies want to stay private for a longer period of time.
We actually support that notion, in general, in that you should only come public when you have a mature business model that can withstand the rigors of these quarterly calls.
So we think there will be increasing number of private companies, and we're there to meet the totality of their needs.
So within Nasdaq Private Market now obviously being combined with SecondMarket, they have a lot of needs that we have developed for a public company and we have to make sure we target that for the private company.
We think the liquidity needs of these private companies will evolve over time.
We run what is known as SLPs today.
We do it on an episodic basis, and we are starting to see some trend line were companies want to run these liquidity programs on a more consistent and regular basis.
We also see the broadening of participation in these liquidity programs, where they are today primarily employee-based, and we certainly think it will evolve to where early stage investors can use this mechanism for liquidating their position or second stage investors can use it for coming into the marketplace.
So it's something that we think has tremendous potential for us.
And as I said, we think the revenue potential per company in the fullness of time is equal to or greater than the revenue potential of a company in the public market context.
Okay.
And <UNK>, on your question on audit, audit was up just slightly.
It was up $1 million from the prior quarter and up $2 million from the year-ago quarter.
So I'd say consistent with the lower level of audit fees that we've had.
But it was a slight increase from prior periods.
How are you doing, <UNK>.
Thank you.
Yes.
So <UNK>, I do want to start by answering that question in a different way.
I believe right now that the corporate solutions business has to be primarily judged by how good our products are, how good they are relative to the competition, and what momentum do we have with our customers.
The financial results will follow if we do these things right in 2016.
So great credit to the team.
I think we've cleaned up what I'll call the operational aspects of the business over the last year or so.
Our touch points with our customers have improved quite dramatically.
We're seeing signs of that in the financial performance, but more importantly, as we deal with our customers they recognize that we are on the move, we're making progress, and you have the whole world anxiously awaiting now our next gen product.
And as I've said previously, we are in the unique position to take our development might and our development muscle and turn it to this sector of the marketplace.
So we don't have any competitors of our kind of technology capability.
And we're investing in it.
We're investing heavily in it.
And we're excited with the progress.
The team is delivering on time, on schedule, hopefully, we will finish on budget, and good things will happen from there.
The other general point, are you in a market segment once you are more competitive.
That can grow over time.
And we certainly believe that corporate solutions is really strategically placed.
To be running a public company today is an intense endeavor and you have an increasing need for information to help manage that and then also communicate to your shareholders and your stakeholders, and we're there positioned to meet those needs.
No.
As I said, I will be focused on that soon enough, but right now, we're making sure the team is doing all the right things.
This is a function, you do the right things, the margins will come.
Now if you're expecting this business to have margins like we have in index and data, then we won't get there.
So I don't want to create any false expectations.
But we certainly know what a world-class software company should have as margins and that's clearly where we're going to get to.
Right.
So I would say certainly that you will be witnessing a fundamental change in the fixed income market over time.
But it's also wrong to think that it's going to look like the equity market over time.
It has different dimensions to it, different complexities to it which will lead it down a different path.
Clearly, we identified US government Treasuries as a place for us to start, because that's the one area of fixed income that does look and feel like the equity market does on a fully deployed basis.
So we are keenly aware of what's going to change in fixed income in general.
We have views of where it's going to end up.
And then obviously, we have to pay attention to where it's a proper place for us to enter that market.
With respect to eSpeed, I think I referred on prior calls to the fact there is change in the market and you see a number of our customers have traded in the dark in an increasing basis.
And I think under <UNK>'s leadership, the team has come up with an innovative approach that's shifting market structure.
We had the first launch of it just this past Monday.
And it's called eSpeed Elect, and it allows segmentation in the customer base, so customers can choose who they want to trade with and give the pricing that's appropriate to that customer base, and it also allows them to do some of those transactions, assuming they're respecting the lit market, in the dark.
In many ways, it's a market structure we had envisioned for the US equity market structure.
We were able to put it into the fixed income market, to the Treasury market, and we're excited about the prospects.
It's obviously way too early to declare anything today.
This week was a semi-beta launch, where we came out with it in a limited basis.
But we'll see full release of it as the quarter waxes on.
<UNK>, you want to add anything to that.
Just one thing.
As <UNK> already have expressed, we are extremely customer focused and centric, and it also means that we have a dialogue also on the European and the US side with the market participants in the fixed income side about how to address the challenge in the fixed income market going forward.
And broadly speaking, part of that is increased product cost of capital coming out of regulation and the past requirements.
The other element is new regulation, like for example, the new exchange regulation in Europe in (Indiscernible), which definitely influenced the fixed income market.
But also, the last two days conference organized by Fed in New York, showing us that there is a high likelihood that we will see more regulation also coming into the US Treasury market.
So we stay in very close contact with our customers to make sure that we develop solutions together with them.
Great.
Well, first off, thank you, everybody, for attending this call today.
As I said in my prepared comments, this was truly a remarkable quarter for us, and we congratulate the team on great execution.
We are seeing the power of the business model, but it's also important to highlight that this is a balanced quarter.
Our results were in no way shape optimized for the quarter.
If anything, you could say that our investments in the future increased during the quarter, which we were proud to do, but we also balanced that with a very strong return of capital to our shareholders.
So in many ways, we're pleased with the quarter.
But most importantly, it gives us the platform to continue to grow and continue to provide returns to our shareholders.
So thank you for your time, look forward to talking to you in the near future.
| 2015_NDAQ |
2016 | MDSO | MDSO
#Yes, I can give you a range.
It's all over the board.
We've seen some large customer renewals that are up 50% because they bought more solution, and they are driving more adoption.
Maybe the average is double-digit across all more significant size renewals we have, but it really is all over the board.
I think that the pricing environment has been pretty stable, and obviously, the big factor for us, is the fact that we are selling more solutions into our customer base, and some of those solutions are quite unique.
And so, there isn't a competitive factor involved.
It's more around our ability to sell the value of those, and we are starting to do that better
I think going back to one of the previous questions, that is a piece of what I think is changing from a go-to-market perspective.
It has to do with how <UNK> Pinto and <UNK> <UNK> have organized their groups, and are connecting them in that go-to-market strategy.
But it's not just the renewal that's the opportunity, it's finding these places that we can bring new efficiency, and whether it's at a renewal, or over the life of the contract, getting another piece of the platform to a customer, that's part of what we have been evolving.
Thanks.
Yes.
Okay, so first of all data sharing is a really good idea.
I will go on the record saying that.
Data sharing is also non-trivial.
You have to do it in ways that first of all are responsible, but you have to do it in ways that are actually scientifically relevant.
So I actually see ---+ again, the more moonshots people are talking about in the world, the better.
It brings to light things to debate.
It gives people the opportunity who have the right ---+ I would say have the right opinions, to talk about them, and convince everybody that this should be done.
TransCelerate again has been great driver of our industry, talking about sharing data in pre-competitive ways, and new and interesting ways.
But then, making the rubber meet the road, is where Medidata comes in.
Right.
So we are ---+ and <UNK> talked about it at the financial and Analyst Day.
We are looking across the board at all the stuff that our clients are doing, and figuring out how we can make data sharing happen in that responsible, scientifically productive way.
It's part of what's fueling that analytics pipeline that you hear us so excited about.
Does that make sense.
Actually, it's pretty interesting.
If you look at our client base, this is another example of where, over the years you've heard us talking about elevating our conversations to higher and higher level of executives.
People who are responsible for an individual clinical trial, someone even might come into Medidata as a study by study customer as <UNK> was talking about, is probably interested in getting that clinical trial done.
But when you start to spend time with the chief medical officer, and with the head of R&D, with the chief information officer who has been tasked with figuring out how to share data, that's when our capabilities become a really interesting part of the conversation.
And that's the kind of thing that's been driving some of these enterprise commits at the higher executive level.
And I just want to add one thing to what <UNK> had to say, which is we were asked a question earlier, about our ---+ what the future of Medidata looks like.
And I think if you look at the core of our business, we provide that infrastructure that allows people to come, to run their business, and do it more efficiently.
But on top of that, we are becoming an information business to those customers as well.
And I think that has broad implications, whether you're sharing information, or you're using information to make better decisions, I think that's a big part of our business.
And I would argue that Medidata is very uniquely positioned to do that, and be successful.
In fact, there's nobody else in the industry who can do it at our scale, or who has the lead that we have, and the momentum that we have, and the data that we have.
So there are some major fundamental shifts that are happening in the industry, as our customer base looks at information in a very different way than they have historically.
No, so a booking is the total value.
Right.
And then, you have concepts like annual contract value, which would encompass what the first year is.
And then you have average annual contract value which tells you what the contribution would be on average over a number of years.
I think you saw that, because it's in our adjusted backlog number.
The adjusted backlog grew 19% year-over-year, which is lower than the bookings growth, or annual contract value growth.
So it's having a much smaller impact in year one, but we are building a lot ---+ the way you can think about it is, we just refill the gas tank with a lot more gas.
And as we add gas each quarter this year, we are filling the tank up for the future for 2017 and 2018.
Good morning, <UNK>.
We don't actually break that out.
It's in the adjusted backlog, to the extent that they have an impact on 2016.
It's already in those numbers, but we don't actually break out the individual contracts.
<UNK>, we don't typically track that.
I would say that the average duration has probably moved up a little bit, but it isn't a material change.
Because we periodically ---+ we do sign large deals, and they do have large duration.
I would ---+ so just as a historical ---+ as a piece of history basically, there was a period of time where our average duration was extremely long.
And that was in the period before cloud and SaaS were as popular as they are today.
But as you know, most SaaS contracts tend to be short in duration, with renewals.
So maybe it's a year or two years.
Larger commitments tend to extend longer, and it's really because customers need a lot of time to ramp up onto the solutions, and they want to make sure that they have a commitment in place that allows them to do that.
But I just wouldn't ---+ I would say that it hasn't materially changed.
It's gone up a little bit.
Yes.
And maybe just one thought to add to this is, we have also [worked] as a company from---+ if you look at the segmentation of customers we have, and that obviously drives also a change.
As <UNK> was saying, as you get more and more enterprise type customers, you convert more to enterprise type agreements, that is where you have tend to have more longer termed contracts.
And so, there is a segment and composition of various customers that you would have to look at.
Yes.
And then I just want to make sure ---+ and it opens it up to another point, I would like to make, which is, one thing that I was really good about 2015, is that sort of the distribution, the risk distribution among our new contracts and clients was pretty evenly distributed.
So we weren't overly leveraged to large contracts, and we are not overly leveraged to the mid market.
We are actually seeing healthy growth across the board.
And as someone who is running the Company, that makes me a lot more comfortable, because we don't have risk in one area or another.
Thank you.
I want to thank you all for joining us on today's call.
Obviously, you can tell we're really excited about the coming year.
We are looking forward to talking to you throughout the year, and on our first quarter call.
And this is just a quick, special shout out to Cory Douglas who I know is listening to this call.
Thank you.
| 2016_MDSO |
2017 | DDD | DDD
#Sure.
You know, I think for us channel is a very important partner because if you think about global coverage, there is no way we will be able to cover, globally, the opportunities that we have.
So that's the first thing that I want to make sure that I've mentioned.
The second thing that I want to mention is what we need to do is to invest into our channel.
And that's what I've been doing for last six months.
I want to train the channel.
I want to get them excited about the opportunities that we have in front of us.
For example, I've mentioned our MultiJet Printing line with 2500.
We're going to have some very good new products that we will be introducing soon in that particular category, and then channel will be very important for us.
So my view is we need to make sure that we focus on the channel for the opportunities, especially on the prototyping side is very, very important to us.
As far as the direct, yes, I think as we shift to prototyping to the production, there are only going to be few channel partners who are going to have capability to sell the production kind of the solution because it's a solution sale rather than just a printer sale, one.
But two, I think we also need to hire more direct salespeople because to cover that market and really talk about the solutions approach.
And we have understanding of that with our healthcare business.
My view is the way we build up our healthcare business was to really have our direct sales force calling on medical device manufacturers.
So we understand the model and how to sell solution.
What I want to do is replicate that model into the other segments that I've been talking about.
Well, I think ---+ again, we don't disclose specific revenue information of any of our technology platforms.
But I just think that metals is a very big opportunity.
And as I have mentioned about the healthcare vertical, and the approach that we are also taking as a complete solution will really enable us to grow our metals business in 2017.
The other aspect that I talked about, the 320 is a very solid platform, especially with the titanium metal.
And then with having the 3DXpert and a combination of that, I am very, very optimistic that we will be able to grow that business.
I'm not going to worry about whether ---+ what the market growth is because we need to really make sure that we focus on our solution and start growing that business in 2017.
No.
I think that I'm just saying that we are actually ramping that business, especially with 320.
I'm talking more specifically about the 320 product platform.
You bet.
Take care.
Thank you.
I think both of them, because to really upgrade the equipment would be the first priority from the CapEx point of view.
But we also want to invest so that we could be closer to our customers.
Because that business in my view that I need to turn it around with the amount of growth expectation I have for 2017.
Well, as I mentioned, that what we need to do is to really invest into that particular business.
And I really believe the approach that we are taking, there is a quick turnaround part of that business and there is a project-based part of that business.
And I think what we need is invest on both.
We need to invest in our website, we need to make sure that we invest in our go-to-market so that we can capture every opportunity that we can get.
Plus, some of our sites in Europe, they have certain very good capability that I would like to take that capability and put across all our sites for that business.
So my view is, that's the work that we are doing and we will be able to turn that around in 2017.
Well, I think, I always said that this is something that we will do it in 2017 but we are not talking about specific timing.
My view of Figure 4 is we have now already shipped our first customer beta units to a very large industrial customer.
And I think that's a very big checkpoint in my mind.
So that customer is already using the product.
They are very happy with the kind of the contribution it can make to drive really what I was talking about moving from prototyping to production.
So my view is this capability that we have, we already have it now in our customer's hands and we are getting tremendous feedback in terms of how we want to use it to commercialize this particular technology.
The second thing that I can tell you that we are going to continue to show our developments in our upcoming show like AML, RAPID with respect to what we are doing with respect to Figure 4.
The last part is this Figure 4 technology is very important because we can go by each segment and by each use-case and show with the right kind of materials and the right kind of a configuration we will be able to meet these production needs.
And I think having that kind of an approach, which is scalable and configurable, is going to be the key to really winning in the marketplace that I'm talking about.
And I really don't believe that any competitive technology will be able to match what we are doing with Figure 4.
And I think that's going to be the key.
Well, we're not going to specifically talk about it.
But as I said, that I believe our driver for the 2017 is continue to solid growth on software and healthcare.
And then we need to drive our printer revenue growth, especially focus on the production, ramping our metals business, and introduction of Figure 4.
Plus, the on-demand parts business we also need to turn around.
So there are multiple elements and the drivers for the growth that I'm talking about in 2017.
Yes.
Well, I think ---+ my opinion is cost of sales reduction is not a one-time thing.
We got to have that kind of a discipline that every single platform that we develop and introduce there is an opportunity to take the cost out.
So the way I think about this thing is ---+ and this is not a one-time thing ---+ we need [help].
Initially it's a bigger opportunity because there was no focus on cost reduction in this company.
But there needs to be a discipline that every year that we will be able to achieve that.
The other important part that you ought to understand which I really want to focus on is the annuity business model that I talked about.
More and more if our revenue comes from software.
From our materials and from our professional services which are high margin businesses, we are going to have the right kind of a composition in terms of the margin growth.
So I think those are the two key things.
Systematic cost of sales reduction and second thing is the profile for our business model where we are really driving the annuity-based business model.
It is going to be very important for us.
Thank you for joining us today and for your continued support of 3D Systems.
A replay of this webcast will be made available after this call on the Investor Relations section of the website www.3dsystems.com/investor.
Thank you.
| 2017_DDD |
2017 | SHW | SHW
#Thanks for joining us
I know the purpose of this call is to review the past three months
However, I think it's only fitting to open my comments this morning with some perspective on our future
Sherwin-Williams and Valspar are now one company
As we said before, the combination of these two businesses will clearly differentiate us in the global paints and coatings market
It significantly expands our brand portfolio and customer relationships in North America; creates a stronger, more global industrial coatings platform than either companies stand-alone; and extends our capabilities into new applications and geographies, including a scale platform to grow in Asia-Pacific
Customers will benefit from our increased product range, enhanced technology and innovation capabilities, streamlined cost structure, and improved productivity
We have tremendous respect for the skill and dedication of the Valspar team and we're excited about the opportunities that this combination will provide to all employees of the new company
The integration work is off to a very good start and although there are some obvious challenges to work through, we're genuinely excited about our future
Some of the challenges I'm referring to are apparent in our results for the second quarter and they affected both sales and profitability
If you look at our results without Valspar, consolidated sales increased 4.2% over second quarter 2016, with a significant portion of the increase coming from the change in revenue classification
Core gross margin declined 140 basis points year-over-year and SG&A as a percent of sales declined 110 basis points
If you adjust for the revenue classification, gross margin declined about 50 basis points and SG&A was down about 60. Adjusted operating margin increased 10 basis points and adjusted profit before tax as a percent of sales improved to a record 17.8% from a comparable 17.5% last year
Revenue and volume momentum in our North American paint stores slowed somewhat from the pace said in the first quarter
We often say that a strong week in June can make up for a weak first quarter
The opposite also tends to hold true
While sales across all segments showed positive growth in the quarter, the sequential slowdown was almost entirely due to softer DIY sales both in the quarter and flat year-over-year exterior paint volumes in the month of June, primarily due to the volume declines in the last two weeks of the month
As a result, exterior paint volumes in the quarter grew at roughly half the rate of interior paint, which is highly abnormal
The combination of weak DIY sales and weak exterior paint volumes negatively affected both revenue growth and mix
DIY is the highest gross margin segment in our stores business and the average selling price of exterior paint is significantly higher than interior
On a positive note, sales to residential repaint contractors once again grew at a double-digit pace in the second quarter
Despite the softness in exterior paint, sales to all residential contractors combined, both new and repaint, grew nearly double-digits
Exterior paint sales momentum appears to be rebounding in July, and we anticipate normal exterior painting activity over the balance of the season, which should support stronger comp stores volume growth in the months ahead
The outlook for continued growth in both residential and commercial markets over the balance of the year remains positive, supported by very healthy order book trends reported by most of our contractor customers and healthy spray equipment sales in the quarter
Protective & Marine coatings sales also improved compared to second quarter last year, but grew less than our overall comp store growth rate
Our business in Latin America was a significant drag on the results of the Americas Group segment
While sales and profitability in the Indian region and Southern Cone countries are showing steady improvement, our largest market in the region, Brazil, continues to struggle
Sales through our company-operated stores in Brazil increased mid-single digits in the quarter, while sales through external retailers and distributors averaged double-digit declines
Our efforts to mitigate rapidly rising raw material costs, particularly TiO2, with price increases has gained some traction, which should stem some of the erosion in operating margin
During the first six months, we opened 27 net new stores and added 50 new sales territories in the U.S
and Canada and added six net new stores in Latin America
Today, our total store count in the U.S
, Canada and the Caribbean stands at 4,207 compared to 4,117 a year ago
In Latin America, we currently operate 345 stores compared to 302 a year ago
Our plan for the full year still calls for the store openings in the range of 90 to 100 net new locations in the U.S
, Canada and the Caribbean compared to the 94 last year
Consumer Brands Group, ex-Valspar, also posted another very disappointing quarter with declining sales across most product categories and market segments in most geographic regions
This weakness was particularly acute in Europe and in smaller retailer comps in the U.S
and Canada, but sales to all customer segments declined compared to second quarter last year
and Canada, many retail customers report slow sales of architectural paint so far this season and many have scaled back inventories as a result
From a margin perspective, most of the operating margin decline was from lower gross margin, which was partly the result of raw material inflation and partly due to absorption loss from lower volumes
Performance Coatings Group, excluding the Valspar results, was relatively flat year-over-year on both sales and margins
If you break down sales by geography, the strongest region by a wide margin was Latin America with strong volume growth in automotive finishes, wood coatings, general industrial and Protective & Marine
Sales in the U.S
and Canada were relatively flat, and Europe and Asia were down year-over-year
This group has done a commendable job of managing SG&A spending and implementing price increases where necessary to offset raw material inflation
As a result, the group is geared to earn high incremental margins when we get volume growth on a stronger track
So, the common theme running through all of our core businesses in the second quarter: not enough volume
Each of these businesses is well managed
Our expenses are in line
We have great pricing discipline and the most productive supply chain operation in the industry
Most of our shortfall in the quarter was related to weak volumes
Valspar sales in the month of June were approximately $380 million, an increase of about 12% over June last year
A large portion of the increase resulted from a favorable calendar comparison, which added two shipping days to the month
Operating margins for the Valspar paints business, which consists of architectural paint and related products sold in the U.S
, Canada, Australia, China and the U.K
, held up pretty well early in the year, but faltered in June
The coatings business, which includes packaging coatings, coil coatings, industrial wood coatings, general industrial, automotive and protective and marine, saw significant operating margin compression year-over-year
Margin declines in both of these businesses were due primarily to the lag in implementing price increases to offset raw material inflation
Given the spike in petrochemical raw materials early in the year, the large customer concentration of this business and the uniqueness of the situation over the past year, this lag is not entirely surprising
This issue is receiving a lot of attention and will take some time to address
But historically, these businesses have been successful at recovering raw material inflation due to the strong customer value propositions
In the first six months of 2017, we generated $539 million in net operating cash, an increase of $29 million compared to the first half of 2016, driven by higher six-month net income and lower working capital requirements
Year-to-date, capital expenditures totaled $84 million and we anticipate approximately $240 million in capital expenditures for the full year
Depreciation was $95 million and amortization was $35.1 million
Total company borrowings on June 30 were $11.5 billion and our 12-month interest expense is projected to be approximately $400 million
Incremental depreciation and amortization step-up related to the Valspar acquisition is projected to be $275 million on an annual basis
Purchase accounting inventory adjustments of approximately $110 million are being amortized over three months of June through August 2017. During the quarter, we made no open market purchases of our common stock for treasury
At the close of the second quarter, our cash balance was $210 million compared to $403 million on June 30th, 2016. This cash will be used to reduce debt
Yesterday, our Board of Directors approved a quarterly dividend of $0.85 per share, up from $0.84 last year
On the first quarter 2017 earnings call, I said our expectations for average year-over-year raw material inflation was in the mid-single-digit and that outlook hasn't changed
As expected, the price volatility in resins, latex, solvents and packaging, caused by an uptick in propylene and tight supply of key monomers early in the year has moderated
Low TiO2 inventories will continue to drive modest inflation in pigments, but not likely to be on the range anticipated in our overall raw material outlook
The price increases announced in our core Sherwin-Williams businesses continued to gain traction and we have not made any additional announcements
We will, however, continue to monitor changes in the raw material environment and will respond appropriately to changes as we go through the year
There's also little change in our outlook for paint and coatings demand
Domestic architectural paint demand should remain strong throughout the year and worldwide demand for many of our industrial products, including protective and marine coatings, should continue to strengthen
These market factors create a positive backdrop, but our success will rely on accelerating volume growth through market share growth
For the third quarter, we anticipate Sherwin-Williams' core net sales to increase in the low to mid-single-digit percentage compared to last year's third quarter
In addition, we expect incremental sales from the Valspar acquisition to be approximately $1 billion in the quarter
At that anticipated sales level, we estimate diluted net income per common share in the third quarter to be in the range of $3.70 to $4.10 per share
This includes a charge of $1.10 per share for costs associated with the Valspar acquisition
It also includes $0.40 to $0.60 per share accretion from Valspar operations, net of acquisition financing expense of $0.40 per share in the third quarter
As a reminder, third quarter 2016 earnings were $4.08 per share and included $0.24 per share charge for acquisition related costs
For the full year 2017, we expect Sherwin-Williams' core net sales to increase by mid-single-digit percentage compared to full year 2016. In addition, we expect incremental sales from the Valspar acquisition to be approximately $2.4 billion in 2017. With annual sales at that level, we are updating our guidance for full year 2017 diluted net income per common share to be in the range of $12.30 to $12.70 per share
Full year 2017 diluted net income per common share guidance includes a $2.50 per share charge from costs associated with the acquisition of Valspar and an increase of $0.75 to $0.95 per share from Valspar operations
The increase from Valspar operations is net of acquisition finance expense of $0.95 per share for the full year
Full year 2016 earnings per share was $11.99 and included $0.86 per share related to the Valspar acquisition
Again, I'd like to thank you for joining us this morning and now we'll be happy to take your questions
Question-and-Answer Session
Well, let me take a stab at this Jeff and say that the weakness that we saw first in the quarter ---+ first quarter to second quarter was pretty broad based
And when you ask about how the performance is performing, there's obviously two components to it; our sales out our door and then to the retail customer themselves
So I would say that ---+ to your question about how they're performing, I'd say out the door, our expectations are they're running in a similar pace from the PoS data that we can see from our customers, although, admittedly, that's limited
But in the door, I would say that our gallons are running shorter or smaller than Valspar's
Yes, I'd say many of our customers in this segment are struggling to grow, and some are going backwards
And as a result they're managing their inventory
Are you talking about our prices, Jeff?
I would say that we're very pleased
In fact, I'm probably more bullish about Valspar right now than I ever have been
I'll start with the quality of people
We've had the opportunity to spend more time from leadership all the way down to those customers that are closest to our customers
And I have to say that I have a lot of respect going into it
I'm really impressed and very pleased with the quality of people that we see
We've not seen anything ---+ and you mentioned about synergies
We've not seen any in the first 45 days here that had me anything but excited and confident in our ability to deliver on the synergies that we've talked about
And I would say that as we've dialed in more and more into product quality and technology, it just feels like we're finding more upside as we go through that
Now the one side I ---+ one point I will say that, to be completely transparent on the downside, is that I wish they would have been a bit more proactive in their pricing
If you look at the historical performance of Valspar and their ability to demonstrate the value to their customers and move with inflation, they had been very successful
And this is the same team that will be executing these price increases now
I wish they would have been a bit more proactive
I can also understand after a year and a half of going through an FTC process that a lot of things get maybe pushed aside
But I'd say that we've got great confidence in the team, the value proposition
These are not commodities, these are terrific value to our customers and I wish they would have been a bit more proactive in that activity
Sure, I'd say let's start with residential repaint
As we mentioned, we had a nice quarter
Again, that will be 13 to 15 quarters that we've had double-digit gains in our residential repaint
And as I mentioned, that's with ---+ what was going to be a terrific quarter
Last couple of weeks in June just crushed our exterior sales
And as I mentioned, those come along with a higher average sale price
So, we're really pleased with the momentum of our stores organization and the momentum that they have in that residential repaint team
We've got phenomenal leaders, great products, great service and, most importantly, the right people close to the customers
So, we've got a lot of momentum and a lot of confidence there
On the new residential side, we're really pleased with our momentum there as well
We have ---+ I don't know if I've ever ---+ we've ever shared this with anyone publicly here, but we've got exclusive agreements with 15 of the top 20 national builders here in the U.S
And yes, and I know the follow-up question, we are working on the additional five
We have that discussion on about a monthly basis
But we've got really good progress there and the value proposition and introducing new products and services to the new residential customers is going well
And our commercial base is one where we've just got really good work course systems and our sales organization works very closely with that customer base
So, we're feeling very bullish about the momentum in the architectural business and really thrilled about our position, but not complacent
We're always challenging our team on how we're going to be better and more aligned with our customers in a differentiating way
And I'd say the fact that they've got labor issues in some of these markets, they lean more on our people and our stores
So, it really fits well to our model
You bet
Good morning <UNK>
I'd like Al to answer that, but I'd like to just begin with a question, your point about the consumer side
I think it's important to understand, we're working on these solutions that we think can help our customer and we're going to do that customer-by-customer
And as unsatisfying as this answer is to both you and us, and there's really no quick fix here
The short-term solution of throwing promotional money at this problem is not a solution that we're pursuing
So, the long-term solution is to help our customers drive traffic and convert these footsteps into their ---+ in their stores into sales and help them to drive footsteps into their stores
Yes, we do and our practice of working with our customers through that process is continuing
And we often speak about the fact that we're not out there trying to jam a price increase in immediately
We work with our customers, and those phase in over in the Sherwin-Williams side in the six to seven-month period
It might be a little bit longer on the OE side for Valspar
It might be a six to nine-month with some of the agreements that they have
But it is clearly our intention that these products, services and the total value proposition are going to allow us to continue to push those two
But we'll do it at the right place to retain our customers
Yes
We're actually feeling pretty good about our Protective & Marine, and we had a nice turn here in the quarter for our ---+ and particularly, our North America petrochem had some nice swing
As I mentioned in my prepared remarks, slightly below our core business, but clearly moving in the right direction
And we're ---+ we've been talking in the last couple of quarters about the shift or pivot, as we call it, into some of these additional segments
We're getting very good traction there
There were a couple of segments that we see projects
We see them on the Board, but they've not been released primarily in the infrastructure
If you look at bridge and highway and water/wastewater, there has been some projects that are in discussion, I'd call it, but have not been released
The pressure ---+ and I also mentioned in Latin America, we saw a nice turn in our P&M business in Latin America
The two areas that we continue to see pressure in Protective & Marine, and albeit they're smaller businesses in relationship to our stores business, would be in Asia and in Europe
We continue to see pressure on our P&M business there
Yes, the largest division that was impacted was our Southeastern division
These divisions take a lot of pride in competing with each other
And Southeast is ---+ has been one that has been leading the pack here for quite some time
And I would say, going into the final lap here, if you will, of the third quarter, they were in a pretty good position, but they clearly felt the impact in the last couple of weeks
And our Southwestern division did a wonderful job in capitalizing on that opportunity and leading the pack for our stores organization
Well, we're going to offset that by working with our customers on the need for our pricing and the timing
Al just spoke to the fact that we're bringing a little more clarity to our stores' pricing given that they are, in fact, our own stores
We prefer not to talk about pricing as it relates to our consumer business
But suffice it to say that the basket of raw materials are moving and we're talking with our customers about the needed price increases to offset that raw material basket shift
Well, the exterior and DIY, we had a soft DIY performance in our stores and, we believe, in the entire market
I'd also say that the exterior business is oftentimes a contractor-applied product
There are certainly many DIY customers that apply their own exterior coatings
Let's say that many customers, when it comes to tackling a DIY project, would prefer that to be an interior versus exterior
So, we may feel a little bit ---+ and again, this is on the shorter term, we may feel a bit more of a pinch on the exterior gallons, given our mix heavily towards the contractor
But we've got ---+ as Bob mentioned, we have a lot of confidence in the trend here and we don't feel this is a demand issue
Good morning Bob
Yes, I'd say, Bob, here in the first 45 days ---+ and to your point, while we had more time than we would have preferred, there were certainly limitations to what we were able to dial into out of respect to the proper process to the FTC
And so truly, we've had about 45 days to dial in
And we're very confident in the numbers that we've posted on ---+ prior to the close about our ability, from a synergy standpoint, to drive those synergies through the organization and, importantly, as we believe, position the company for growth
And so we feel as though we're trending well
We feel as though there's good engagement by both Valspar leadership and Sherwin leadership and making good decisions that allow us to extract out the ---+ what we call value capture and, at the same time and more importantly, position ourselves for growth
Yes, so we want to look at that, Bob
That's a great point
We want to start with a customer and work back, though, not just what we could bring to that
We do believe that there are terrific opportunities, if it's technology and from a supply chain standpoint, combined with what we think will be a far more efficient
But the most important element here is the customer and so we're going through the process right now of working with our new team members from Valspar on the needs from the consumer and working back to what it is that we bring
And so we're excited about this
We think there are some opportunities
We're anxious to explore them
We've often referenced, you mentioned ---+ what might be the smallest market, but just because you mentioned it the Australian businesses we've ---+ they operate, I believe, 64 stores in Australia and we like ---+ we're anxious to bring some of the expertise that we have in running stores to that business
But we're the first to admit that we're not experts in Australia
So, we're connecting dots here to make sure that what's needed in the market and the opportunity in the markets that the resources, the assets and skill sets that we have in our company
I'd say that the thought of their losing shelf space, I mean, first of all, you mentioned the paints business, we were competing obviously with Valspar and one very large customer
And so there was ---+ there may have been some shift in there
I think as we've got ---+ been able to pull back the curtain, if you will, I'd say that the opportunities for growth are clearly there
I don't know that the ---+ as I mentioned earlier, from a pricing activity standpoint, that they were as active as we would like to have seen
But from a volume standpoint, I wouldn't point to market share losses
I might say that they were experiencing, like we were, some softness in the market
Well, it's a terrific asset
I mean, we wanted to build on that
We think there are customers of the Valspar brand that are eager to grow, and we want to help them, and we think that the Valspar brand is a terrific asset to help them do exactly that
I mean, our goal would be to bring the technology and the combined services to each and every one of our customers to help them execute their strategy
And every customer is a little different
They've got different expectations and targets
And we think that combined the Sherwin-Valspar portfolio of resources, people, skills and technologies will allow us to separate from the competition
And so I would expect that we're going to build on those
But I'd also say that we don't make decisions for our customers
We're going to work with them and help them to make the right decision to help them reach their goals
So, two
I mean, the first and largest would be the raw material costs
We're unable to look at raw material costs formulations
We're not able to look at formulations
And so when you talk about, are there possibilities for consolidation? You can't just look at a map and say, there's two facilities nearby
One is a candidate to be closed
We try to understand the specific needs of every customer, which we were not ---+ unable to talk about, the specific technology that's manufactured in a plant, which we're not able to talk about, the raw material costs, the suppliers that they're using in those raw materials
There's quite a bit that we were able to do and we're moving aggressively because they were within bounds and there were many areas that were out ---+ clearly out of bounds that we didn't get near
We're telling them that if they see opportunities we want to know them
We want to have those discussions
We've been very clear about ---+ in the short-term our focus is on paying down our debt
But often times ---+ it's not like we're going to the grocery store and buying something off the shelf
I mean, these are discussions that we have for ---+ often times, we've had deals that I've worked on for five years
So, we want to know from each business leader, on a regular basis, those opportunities that they feel will help them by enhancing their value proposition to their customers and we want to engage in those discussions now
Yes, it's ---+ it really does vary, <UNK>, by region, by segment
We're excited about that
I don't want to give the false impression that it's going to happen overnight
I mean, we've got opportunities to ---+ in many parts of the world, we have a broader assortment of products and technologies
But we're going to have to have a supply chain to be able to transfer some of those products
We're going to have to get our sales organization up to speed and aware of the technology
And so there's a whole lot of work going on right now and trying to accelerate that as quickly as possible
And then those were some of the things that we talked about before the close of how we were going to go about that
So we're executing on those plans right now, but it really does vary very much by segment and by customer
Hi PJ
No, I would say that there's certainly a shift from do-it-yourself to do-it-for-me that's likely accelerated
It's ---+ often times, when you talk about a consumer, little difficult to put your fingers right on what it is that's driving the slowdown in do-it-yourself
What we're focused on here, PJ, is ensuring that our customers are at the best position to be able to capitalize on the business that does exist out there
There's terrific market share, as we said in review with each of our customers, their goals and providing the lineup of products, brands and services to help them is what we're focused on to be able to do that
Well, we wouldn't want to comment on that specifically
I don't think that's happening
But the point here is that we do see opportunities on the synergy side for us to capitalize
And while we're excited about them, PJ, those are not issues that we're going to lay out right now
But I will tell you that by business unit, as we're bringing these teams together, we went in with some idea and some mindset of where those opportunities are
And I would say, right now, we are very excited about as these teams have come together, the opportunities that they've identified that we haven't even thought of yet
So, we're feeling very good about those opportunities and the momentum
It's going to take us a little time to capture those, but we feel good about what we're finding
Well, we reported our consumer numbers
The HGTV paints specifically, we don't speak to, out of respect to our customer
We allow our customers to report their results
But we did report our consumer results and have clearly indicated that while we feel as though the market is a tough market, we want to see better performance from our team
And they're working very hard, and we have high expectations for them to outperform the market
Yes, I'm excited about every business that these Valspar and Sherwin-Williams teams have come together and touch
I mean, if you look at the complementary nature of these businesses, they offer technology and resources
In many cases, they may be strong where we're not and vice versa
There's areas of strength that we have that they lack, either scale or facility
The combination of the product lines, the relationship with customers
We're excited to be a more meaningful part of the relationship with many customers, where they may have had an OE direct relationship and our focus has been on the tier suppliers into, ultimately, the OE customer
And so we think the combination of people, technologies, the resources, the assets, the facilities that we have, I mean, every single business, when we sit and talk in these meetings and <UNK> and I are working with them on a regular basis
And we walk away really, really excited about where we're headed here
And we're pushing hard to get it as fast, but we have a common theme that we're constantly repeating, which is we want to push hard to get it right, not just fast
And so we don't want to making commitments to our customers or to the financial community, but more importantly, to the customers that we can't keep
And I'll add 1 thing to you that is if you look historically at the performance of Sherwin-Williams and our ability to integrate in these facilities and technologies, I don't want to give the impression that it's just out there somewhere
I mean, we move quickly
We're moving aggressively
We just want to make sure we get it right
So, I don't give you the wrong impression there
Yes, I'd say we were going in the last two weeks of June and came out in July very strong
We had two very difficult weeks and primarily our Southeastern division that really ---+ and as we mentioned this sell price and volume and everything, the contractor purchases of exterior, it really had a significant impact on our business
Yes, I would say it's safe to say that you should sense a level of confidence
And you talked about our stores organization, again, not to be too repetitive, but we're finishing 13 of 15 quarters in this residential space with a double-digit gain and we feel as though we're really growing share there
And we're really trying to put our foot on the pedal and go even faster
And our teams are really executing there and I think the alignment that we have in developing products and services and working with our customers is really allowing us to grow share
And I'm not ---+ we're not talking about is that going to slow down? We're talking internally that how we accelerate
We want to go harder and faster and further separate ourselves from our competition
I mentioned the penetration that we have in new residential
And so if you're like us and have confidence in the need for housing and starts and you reflect back on the fact that we've got these exclusive agreements with 15 of the top 20 builders
Yes, we're feeling good, and we're trying to grow that number, the number of builders on both the national and regional level
That we've got the right products that work for the national builders and we're trying to further leverage that for the regional builders
So, I mean, I can go segment-by-segment, but yes, we're feeling really good
But as I said, great people in the field, taking care of customers and we want people feeling as though our people and our stores and our reps are an extension of their business, and our people are doing a terrific job at that
We're very grateful for their efforts
I'd say that the morale is very good
We're very transparent and open with our employees and our teams about the process that we're going through
We're not going to ---+ and I hope you respect, <UNK>, we're not going to speculate about percentages of where we are or where we are not in the process, respect to our teams and our people
Those are discussions that we have directly with them
We're anxious to get this behind us
We have good momentum, but those aren't discussions that we're going to have
Our strategy for Lowe's?
No, ---+ yes, we're not going to talk about that, <UNK>
I mean, again, that's a very important customer of ours and I hope you'll, again, respect that those discussions between us and Lowe's and their strategy, I mean, that's ---+ it's important to that each and every one of our customers respect that those are confidential discussions and our job is to help them execute on their strategy
Well, I'd say that you're exactly right, <UNK> and very observant
You know our company well
And historically, we've always taken that approach, which is we're going to work with our customers through that process
And the acquisitions that you described were, in fact OEM suppliers mainly
And so we worked with those customers
Our goal is to always come through the tunnel with our customer and the price
And so we work appropriately with our customers to ensure that the value proposition is there for them and their ability to enhance the value of their products through that process
So, you're right, it's going to take a little bit of time
As I mentioned earlier, we've typically looked at a Sherwin cycle of maybe taking six to seven months to implement a price increase
And on the Valspar side, it might take six to nine months
But the value proposition is strong
The same teams are the ones executing, the same products and technologies
And so we've got confidence in our ability to do that, but we're not going to lose our heads and go out there and try to do it overnight
We want to keep our customers
Yes, <UNK>, it's a good question
I might answer a little differently and that is referencing back to the previous question
We have confidence and we've not seen anything that keeps us from being anything but confident in our ability to reach the synergy targets that we have
They're going to lay in ---+ Al mentioned that run rate that we're at
I don't think it's in our best interest to parse out where we are on each of those individual synergy buckets as we're pursuing them, but you should expect raw materials was a big one
You should expect that we're being very aggressive in pursuing those and our goal is to try to capture those as quickly as possible
Well, we're always interested in improving our performance
I do have to ---+ I think it's important to make a statement here that I believe that, again, with limited PoS data, we don't see all the data from our customers
I would tell you that our sell-through at retail is in line with what we believe to be the rate of the DIY market
I do think that the inventory connection ---+ correction may have been a little stronger on some of the products as we've walked into some of these programs
And at the same time, while we're learning about the program, our customers are experiencing a little softer market than what we would like to see
And so I think there's been some adjustment accordingly
But as far as the market goes, I think our out-the-doors are performing similar to what we expect the market is performing
Let me answer that last one
I'd say the area that we started to see some positive that would still may be characterized as reversing, I would say, would be the Protective & Marine
That has been under pressure for a couple of years now
And this ---+ we clearly saw a shift in the petrochem, and there's still more opportunity there
And I'd say that there's ---+ I'd characterize that in that manner
Regarding the ---+ I'm sorry, the division question you had was
So, you talked about the gap between them?
I don't ---+
It's ---+ that's ---+ there's always a little bit of a gap, I'd say
A little wider maybe
No, not right now
Yes, I'd say Latin America, outside of Brazil, we see a good trend
We're growing our share and financials are pointing in the right direction
And to Al's point, Brazil is such a big percentage of ---+ the weight of Brazil on our overall South American operations is pretty heavy
Yes, you're exactly right
And let me add one more
Our store performance, our own store performance in Brazil is actually positive performance as well
Such a big part of that business, <UNK>, is third-party through home centers and distributors, and they're calling on consumers
And the consumers' confidence in that market is clearly shaken
If you look at our automotive, our wood business, our general industrial and Protective & Marine businesses in Latin America, they were all positive
It's the architectural consumer business that's under pressure
Yes, I'd say we're going to continue to feel pressure through the end of the year
I'd like to say they we're going to be able to turn this around quickly here, <UNK>
But I think, this is a process when you're involved in these acquisitions
First of all, it was a very long FTC process, and sometimes people get a little distracted, and I respect that
And quite frankly, you have competitors that are in there trying to create opportunities
And so we always see this as well
The competition kicks up for a short ---+ for a little bit and they're aggressive and so we feel some pressure
And they've done the right thing
They've hung on to the business
The volume is actually hanging in there
It's the gross margin that's under pressure
And so as I mentioned earlier, and again, I don't want to be repetitive, but we've got great confidence in these leadership teams that are now part of our team
And these are the same leaders and same product services, as I mentioned earlier
And it's up to us to continue to demonstrate the value proposition to our customers and to earn that incremental margin to offset the raw material costs and we've got confidence in our ability to do that
Historically, they've been able to do that
Everything's consistent and we're going to continue to work towards that
We're going to do it at the right pace
Well, your first question about how did that we arrive with the regulators, I mean, that's a normal process review, which we're very respectful for the process that the government goes through, and we responded to all their requests
The did their due diligence, including not only our information, but Valspar's, but also customer information and they made a decision
And while we may have had a different opinion in many areas, and that is part of the process, you're able to express your thoughts, ultimately, they made a decision and we had to respect that
And so we find ourselves now exactly where the FTC would want us, which is in a competitive situation with the new entrant
And yes, you're exactly right, we're going to compete for that business and I don't think the FTC or any other government agency would have it any other way
The competition is good for the consumer and we're going to be out there looking for that ---+ those customer relationships
We have a good industrial wood business or they would not have required us to divest the one that they required
So, our teams are going to be working hard to try to grow their business
And some of those customers will certainly be legacy Valspar customers
But I'll say this tongue-in-cheek, we don't discriminate
We'll take customers anywhere we can get
So, we'll be working hard with all customers' opportunities
Or gain ---+ or gain share
We're having those discussions every day
And again, it goes back to the same value proposition
It's upon us to help our customers be successful
That's how we measure our success
Our success is making our customers successful
So, we're making those discussions every day
And we've talked openly about the need for volume
And so while we talk about value capture, raw material costs, all those things, the day starts and ends with discussions about growing volume and growing sales and we do that by aligning ourselves with our customers
Yes, thank you
| 2017_SHW |
2018 | EIG | EIG
#Thank you, Michelle.
Good morning, and welcome everyone to the Fourth Quarter 2017 Earnings Call for Employers.
Today's call is being recorded in webcast from the Investor Relations section of our website where a replay will be available following the call.
With me today on the call are Doug <UNK>, our Chief Executive Officer; Mike <UNK>, our Chief Financial Officer; and Steve <UNK>, our Chief Operating Officer.
Statements made during this call that are not based on historical fact are considered forward-looking statements.
These statements are made in reliance on the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.
Although, we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission.
All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent developments.
In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial metrics, including those that exclude among other adjustments, the impact of the 1999 Loss Portfolio Transfer, or LPT, and the impact of the Tax Cuts and Jobs Act.
Reconciliations of these non-GAAP metrics are included in our financial supplement as an attachment to our earnings press release, our investor presentation and any other materials available in the Investor section on our website.
Now, I will turn the call over to Doug.
Thank you, <UNK>, and thank you all for joining us on our call today.
The fourth quarter marked a particularly strong end to a very successful year for Employers.
During the quarter, we grew ---+ written premiums by 8% and lowered our current and prior year loss reserve provision.
Our fourth quarter adjusted net income increased 12% or $0.11 per share, and our underwriting income increased 23%, as our combined ratio before the impact of the LPT of 83% improved by 2.6 percentage points.
Our full year adjusted net income increased 15% or $0.37 per share, and our underwriting increase ---+ income increased 19%, as our combined ratio before the impact of the LPT of 92.1% improved by 2 percentage points.
During the fourth quarter, we delivered impressive new business growth by actively pursuing opportunities that met our underwriting requirements.
Despite the strong growth in new business, our top line growth continues to be pressured by declining rates in our renewal book of business linked to improving loss cost trends.
Our policy retention rates remain high, but our average premium renewal rate for the year decreased by 3.3%.
Our book value per share including the deferred gain ended the year at $34.09, an increase of 9.7% from 1 year ago including dividends.
We are waiting regulatory approval to acquire a multistage insurance shell company from PartnerRe.
This acquisition will provide us with even greater underwriting flexibility.
As a mono-line worker's compensation writer, we believe that we possess deep knowledge of our markets and can quickly react to changing conditions.
We have demonstrated this ability over the years across many economic and market cycles.
We consider this to be a significant competitive advantage for our company.
With that, I'll turn the call over to Mike <UNK> for further discussion of our financial results.
Thank you, Doug.
Net premiums written for the fourth quarter increased by 8% year-over-year, which Steve will address in his remarks.
Our fourth quarter and full year loss in LAE ratios before the impact of the LPT of 48.6% and 59.8%, respectively, each represented significant improvements from those ratios reported 1 year ago.
These improvements reflect the continued impacts of our key business initiatives, involving claims settlements, geographic diversification and data analytics.
Our fourth quarter and full year commission expense ratios of 13.6% and 12.8%, respectively, were each higher than those ratios reported 1 year ago.
Increases in agency incentives and in the amount of business produced by our partnerships and alliances resulted in the higher commission ratios for 2017.
Our fourth quarter and full year underwriting and other operating expense ratios of 20.8% and 19.5%, respectively, were each largely consistent with those ratios reported 1 year ago.
Net investment income for the fourth quarter was unchanged from 1 year ago, despite being higher for the full year due to an increase in year-end trading activity in light of tax reform.
This increase in trading activity also resulted in lower net realized gains on investments, as gains resulting from municipal bond sales were offset by losses from sales of equities securities.
Our effective tax rates for the fourth quarter and full year were 41% and 30%, respectively.
During the fourth quarter, we incurred an incremental income tax expense of $7 million as a result of enactment of the Tax Cut and Jobs Act, representing the impact of remeasurement on our deferred tax assets and liabilities using the new 21% statutory tax rate.
Absent this incremental income tax expense, our effective income tax rate for the fourth quarter and full year would have been 28% and 25%, respectively.
As of year-end, the market value of our investment portfolio was $2.7 billion, an increase of 5% from 1 year ago.
During the year, we reduced our exposure to municipal securities by approximately 25% and reinvested those proceeds into fully taxable securities.
At year-end, our fixed maturities had a duration of 4.2, an average credit quality of AA-, and our equities securities represented 8% of the total investment portfolio.
Our stockholder's equity including the deferred gain now stands at more than $1.1 billion.
In light of our financial strength, the board recently increased our quarterly dividend by 33% to $0.20 per share and authorized a new 2-year $50 million share repurchase plan.
Lastly, it was announced this morning that A.
M.
Best has affirmed our A- financial strength and long-term issuer credit ratings and have revised their outlook from stable to positive.
And now, I will turn the call over to Steve.
Thank you, Mike, and good morning.
Net written premiums for the year of $724 million were up $29 million from those written in 2016.
This growth occurred despite a market environment that is extremely competitive as well as the declining rate environment in virtually all of the states in which we do business.
Net written premium growth for the quarter was $13 million or 8% versus those written 1 year ago.
New business growth for the quarter was 20% over the prior fourth quarter and up 8% for the year.
On previous calls, we have discussed our opportunities within the alternative distribution channel and the fact that we have dedicated resources to grow our business with both existing partnerships and with new partners.
In 2017, our new business revenue within this channel grew 17% year-over-year and 47% over the prior year fourth quarter.
This distribution channel currently makes up 27% of our in-force premiums, up from 25% in 2016.
We also continue to grow new business in our core distribution channel.
Our new business growth has occurred not only in the new states that we have recently entered, but has occurred in states in which we have had a long-term presence.
With respect to renewals in 2017, we continue to see high policy unit retention rates throughout the year.
We have been focused on retaining the business that has positively impacted our bottom line results, and this emphasis is particularly important in a softening market cycle like we are currently experiencing.
As the year progressed, we did observe more aggressive competition from a pricing standpoint, in particular with middle market renewals.
We expect this to continue into 2018.
Claim trends continue to be positive with frequency declines for the year and continuing strong execution on claim closure initiatives.
We continue to invest in predictive analytics in the claim management area with our most recent initiative having been deployed in the fourth quarter.
We believe these investments will continue to enhance our already strong claim results.
The loss ratio before the impact of the LPT of 48.6% for the quarter decreased 5.4 percentage points, which is reflective of not only these initiatives but also our efforts to diversify our risk exposure across broader geographic markets, as well as leveraging data-driven strategies to target underwrite and price profitable classes of business across all of our markets.
Consistent with our geographic diversification strategy, during the fourth quarter, we entered the State of Louisiana.
We now write business in 37 states as well as the District of Columbia.
We plan on continuing this diversification strategy by entering additional states in 2018.
And now, I will turn the call back to Doug.
Thanks, Steve.
We have recently initiated a plan of aggressive development and implementation of new technologies and capabilities that we believe will fundamentally transform and enhance the digital experience of our customers.
We have chosen to reinvest the first 2 to 3 years of our expected financial benefits from tax reform back into our business by greatly accelerating the development and deployment of these new digital capabilities.
We believe that these new technological and intellectual assets will support our future growth initiatives, provide us with greater pricing precision and flexibility and promote long-term value creation.
We expect that the development and implementation of these new technologies and capabilities will increase our underwriting and other operating expense ratio in 2018 and 2019 as compared to that experienced in prior periods.
However, we expect that these increased expenses will be more than offset by operational efficiency gains in future periods.
Lastly, 2018 is shaping up to be a great year for small businesses, the core of our strategic focus.
The most recent small business optimism report from the National Federation of Independent Business reflects a record number of small business owners who believe now is a good time to expand, the highest level reported in the history of the NFIB survey, which began in 1973.
A recent JPMorgan survey cited an expectation that higher wages are likely ahead for workers as the competitive market for labor heats up.
We believe we are ideally situated to benefit from these markedly improved small-business economic conditions.
And with that, operator, we'll now turn the call over to questions.
Year-over-year was down 3.3%.
Yes, don't have a quarterly number in front of us.
We do have the year number at 3.3%.
Yes, we don't have that number in front of us, <UNK>.
So that's partly the answer, <UNK>.
Obviously, as we articulated earlier on the call, the growth in business in the alternative distribution channel was at an accelerated pace compared to our core business.
But the other contributing factor to this is that in our agency incentive payments, which were linked and are linked to our agents hitting their profitability and growth goals, we had some very strong performance for many of our agents in both growth and profitability, which led to an increase in that payment.
I think we're starting to gain some momentum in that area.
We've developed some new partnerships that ---+ we started to see some of that momentum in the fourth quarter.
I expect ---+ not necessarily to the same degree, but I expect to see that momentum continuing into 2018 as well.
The broadest way to answer that question, <UNK>, is it's all of the above.
There is a transformation occurring in the insurance industry right now that we believe we need to get in front of, because we think we're perfectly situated to take advantage of some of what's coming.
So it's really only limited by our imagination.
It really is creating an ability to rely more heavily on data, predictive analytics, and ultimately, AI.
And so we're getting out in front of this very aggressively building it out, because we think it will create a true differentiator in the market and a very strong competitive advantage.
We are very mindful that there is a rapid change occurring in our industry and that development of that channel is occurring.
We've got several competitors who have already gone that route.
Evaluating that opportunity is a part of what our ultimate long-term strategy would be, but I'm not prepared to make any announcement on that today.
<UNK>, this is Mike <UNK>.
And I think you should probably focus on where we came out for the year.
And that is the starting point.
And we hope it to be slightly better than that, but I would start with the year for 2017 into 2018.
Sure.
So what Doug mentioned is that we would be spending the next 2 to 3 years of our tax savings on these new initiatives.
In terms of an effective rate going forward, the fourth quarter of this year was a little high as adjusted because we had significantly more underwriting income, which attracted a 35% rate.
And that's spiked the fourth quarter a little bit.
Going forward and looking at 2017 and the aggregate, we were running at about a 25% effective rate, and with tax enactment, we'd expect that, that number will probably be in the 15% to 16% rates going forward.
For 2018, we expect to spend more than the tax savings, but then we'll catch up in the subsequent 1 year to 1.5 years.
The 4% and 2% mentioned, absolutely, in the other underwriting and operating expense line.
I think it's the latter.
I think it will average out.
Certainly, it's going to take us some time to ramp up and we're ramping up as quickly as possible.
But I think that, that will be an average for the year.
So it's, again, probably all of the above there, <UNK>.
We are adding people internally.
We are beefing up some of the capabilities in the company both in terms of technology, development and deployment, as well as analytical analysis, data management, all the things that we believe are foundational to creating competitive advantage.
We are custom developing those things that we believe would give us a unique competitive advantage.
There are other instances where we are partnering with third parties and acquiring off-the-shelf capabilities.
So it's really a mix of all of that.
We don't intend to build it all internally, but we will build it internally where we want to retain the advantage for ourselves.
Otherwise, we'll partner and identify third-party solutions.
<UNK>, this is Steve.
I'll answer that question.
We have a very aggressive plan for 2018 in terms of entry into the states that we're currently not in.
I'm not going to articulate some of the specifics other than we want to be as aggressive as we can.
We see the benefit of being a truly national workers compensation carrier.
As we've said on prior calls, until we hit that point, there are opportunities that we can't capitalize on.
So there are implications to our top line for us to go into those states.
However, the states that we're in today represent more than 90% of the workers compensation market.
So we shouldn't expect substantial or significant impact, but there will be impact.
Yes, <UNK>, that's correct.
So we prefer to put the money into the business to generate superior ROEs going forward.
But we also understand that there are opportunities to repurchase shares to manage our capital and we just would like to have that tool in the shed.
Our existing program, I believe, expires today.
So we were happy to renew that.
But how much we'll use it will depend on a variety of things.
One of the more key importance to that would be our holding company liquidity.
Yes, <UNK>.
This is Steve.
I'll take that question.
You're correct.
We did launch a new initiative that we believe has real promise for us in terms of predictive analytics in the claim area.
I'm not going to get into the specifics of what it is for some obvious reasons, but we really haven't recognized that benefit in 2017 but we expect to start seeing that in 2018 and beyond.
So that's cause for optimism in terms of the impact that, that particular initiative will have in '18 and beyond.
Okay.
Thank you very much.
Thank you everyone for joining us today.
We appreciate your participation and your questions.
A very strong close to the year.
I believe we're off to a very good start in 2018.
We certainly look forward to discussing first quarter results with you the end of April.
Thank you all very much, and have a great day.
| 2018_EIG |